Indiana State University Board of Trustees Terre Haute, Indiana

This Preliminary Official Statement and the information contained herein are subject to completion, amendment or other change without any notice. 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 or qualification under the securities laws of any such jurisdiction. * Preliminary, subjecttochange. Official Statement dated:July__,2018 DTC onoraboutAugust__, 2018. of facilities the through delivery for available be will form definitive in Bonds S Series the that expected is It University. the to Underwriters by Barnes & Thornburg LLP, Indianapolis, Indiana. Blue Rose Capital Advisors, LLC, is serving as financial advisor Indiana, Indianapolis, LLP, Miller Bond Counsel.Certainlegalmatters willbepasseduponfortheUniversitybyBridgetK. Butwin, itsgeneralcounsel,andforthe Ice by legality of approval the to and notice without offer the of modification or withdrawal read theentireOfficialStatementtoobtaininformationessential tothemakingofaninformedinvestmentdecision. except totheextentofpledgePledgedFundsasdescribed above.See“SECURITYFORBONDS.” S BondsagainsttheUniversityorStateofIndiana, thepropertyorfundsofUniversityStateIndiana, of theUniversityorStateIndiana,andnorecourseshall behadforthepaymentofprincipalorinterestonSeries Indenture (all terms as defined and more fully described herein). The Series S Bonds are not a general obligation debt or liability Swap Agreement,theproceedsthereof,University’sright toreceivethesameandallFundsheldbyTrusteepursuant the on lien first and of pledge a from solely Pledged payable Funds, comprised and of Student Fees by and payments secured to the University University from a Qualifiedthe Swap Providerof pursuant to aobligations Qualified limited are Bonds, R Series See “PURPOSESOFSERIESSBONDS.” (the Original Indenture, as supplemented and amended, and the Sixteenth Supplemental Indenture, collectively, the “Indenture”). of acquiring,constructing,expanding,renovatingandequippingcertainfacilitiestheUniversity,allasfurtherdescribed herein cost the financing of purposes the for Trustee, the and University the by into entered each Indenture”), Supplemental “Sixteenth (the 2018 15, July of as dated Indenture Supplemental Sixteenth a by supplemented further as and amended, and supplemented Board of Trustees (the “University”) and a Trust Indenture dated as of November 1, 1985 (the “Original Indenture”), as heretofore See “DESCRIPTIONOFSERIESSBONDS—RedemptionofSeriesBonds.” Participants. See“DESCRIPTIONOFSERIESSBONDS—General”and“—Book-Entry-OnlySystem.” of such payments to the Beneficial Owners of the Series S Bonds will be the responsibility of the DTC Participants and the Indirect the under “Trustee”) (the Indenture (herein defined), so long as DTC or agent its nominee is the registered owner of the Series S paying Bonds. The final disbursements and registrar trustee, the as Indiana, Haute, Terre in office trust corporate principal its with the principal of and premium, if any, on the Series S Bonds, will be paid directly to DTC by First Financial Bank, N.A., with System.” “—Book-Entry-Only and BONDS—General” S SERIES OF “DESCRIPTION See Bonds. S Series the in interest their representing Purchasers of a beneficial interest in the Series S Bonds (the “Beneficial Owners”) will not receive physical delivery of certificates only. form book-entry in made be will Bonds S Series the in interests beneficial of Purchases Bonds. S Series the for depository registered ownerandnomineeforTheDepositoryTrustCompany,NewYork,York(“DTC”).DTCwillactassecurities in denominationsof$5,000oranyintegralmultiplethereofand,whenissued,willberegisteredthenameCede&Co.,as Dated asofDelivery B N and rulings, interest on the Series S Bonds is exempt from income taxation in the State of Indiana. See “TAX MATTERS,” “ORIGINAL ISSUEDISCOUNT,”“BONDPREMIUM”andAppendixBhereto. “TAX See Indiana. of State the in taxation income from exempt is Bonds S Series the on interest rulings, and In theopinionofIceMillerLLP,Indianapolis,Indiana,BondCounsel,underexistinglaws,regulations,judicialdecisions defined).hereinafter (as Covenants Tax the with compliance continuing on conditioned is exclusion Such 2018. 1, January adjusted current earnings in calculating corporate alternative minimum taxable income for taxable years that began prior in to included is it that observes Counsel Bond although tax, minimum alternative federal the of purposes for item preference specific a not is and “Code”), (the amended as 1986, of purposes Code Revenue tax Internal the income of federal Section 103 under for income gross excluded from is defined) hereinafter (as Bonds S Series the on interest rulings, and decisions

ook ew I The SeriesSBondsareofferedwhen,asandifissuedby theUniversityandreceivedbyUnderwriters,subjectto This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must The SeriesSBonds,whichareissuedonaparitywiththeNPBond,QBondsand the The SeriesSBondsarebeingissuedpursuanttoresolutionsadoptedbyandactionsauthorizedtheIndianaStateUniversity Certain of the Series S Bonds are subject to redemption prior to maturity, as described in this Official Statement. Interest on the Series S Bonds is payable on April 1 and October 1 of each year, beginning October 1, 2018. Interest, together The IndianaStateUniversityStudentFeeBonds,SeriesS(the“SeriesBonds”),shallbeissuedasfullyregisteredbonds In the opinion of Ice Miller LLP, Indianapolis, Indiana, Bond Counsel,underexisting laws, regulations,judicial -E ssue ntry

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Citigroup IN Preliminary Official Statement Date D I IANA ndiana State A detailedmaturityscheduleissetforthontheinsidecover.

S TATE U

niversity Student UNI $39,235,000* V ER S ITY BO Siebert Cisneros Shank&Co.,L.L.C. F AR ee Bonds,SeriesS D O Due: October1,asshownoninsidecover d F July 2, 2018

TRU S TEE S M oody’s F (See “ itch R R B ating: ating: ond R atings

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Maturity Dates, Principal Amounts, Interest Rates, Prices, Yields and CUSIP1 Numbers

$39,235,000* Serial Bonds

Maturity Principal Interest Date* Amount* Rate Price Yield CUSIP1 10/01/2018 $2,235,000 10/01/2019 1,195,000 10/01/2020 1,260,000 10/01/2021 1,325,000 10/01/2022 1,390,000 10/01/2023 1,460,000 10/01/2024 1,535,000 10/01/2025 1,615,000 10/01/2026 1,695,000 10/01/2027 1,785,000 10/01/2028 1,875,000 10/01/2029 1,970,000 10/01/2030 2,075,000 10/01/2031 2,180,000 10/01/2032 2,290,000 10/01/2033 2,410,000 10/01/2034 2,535,000 10/01/2035 2,660,000 10/01/2036 2,800,000 10/01/2037 2,945,000

1 CUSIP data herein provided by Standard & Poor’s CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. * Preliminary, subject to change.

No dealer, broker, salesman or 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.

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,” “project,” “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 OR FAIL TO OCCUR.

This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy the Series S 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 S 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 S 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 S 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 responsibilities to investors under the federal securities law 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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Table of Contents

Page

SUMMARY STATEMENT ...... I INTRODUCTION ...... 1

PURPOSE OF SERIES S BONDS ...... 2

ESTIMATED SOURCES AND USES OF FUNDS ...... 2

DESCRIPTION OF SERIES S BONDS ...... 2 General ...... 2 Registration, Transfer and Exchange ...... 3 Book-Entry-Only System ...... 3 Disclaimer ...... 5 Revision of Book-Entry-Only System ...... 6 Payment of Principal and Interest on Series S Bonds ...... 6 Redemption of Series S Bonds ...... 6 Notice of Redemption ...... 6 Open Market Purchases ...... 7 Security for Bonds ...... 7 Student Fees ...... 7 No Reserve Fund ...... 8 Fee Covenant ...... 8 Issuance of Additional Bonds ...... 8 Authorized Additional Bonds ...... 9

ANNUAL DEBT SERVICE REQUIREMENTS AND COVERAGE ...... 10

INDIANA STATE UNIVERSITY ...... 11 General ...... 11 Accreditation ...... 12 Board of Trustees and Officers of the University ...... 12 Principal Administrative Officers of the University ...... 12 Facilities ...... 12 Faculty and Employees ...... 14 Retirement Plans ...... 15 Retiree Health Benefits ...... 15 Enrollment ...... 16 Student Admissions ...... 16 Degrees Conferred ...... 17 Instructional Fees ...... 17 State Appropriations ...... 18 Financial Aid to Students ...... 20 Related Foundation ...... 20 Financial Operations of the University ...... 20 Budgeting Procedures ...... 22 Capital Programs and Additional Financing ...... 22 Outstanding Indebtedness ...... 23 Physical Property ...... 23 Insurance ...... 24

SUMMARY OF CERTAIN PROVISIONS OF INDENTURE ...... 24 Definitions ...... 24 Flow of Funds ...... 28 Additional Security ...... 29

Partial Release of Lien on Student Fees ...... 30 Covenants of the University ...... 30 Other Indebtedness ...... 31 Investments ...... 31 Defaults and Remedies ...... 31 Defeasance ...... 32 Supplemental Indentures; Amendments ...... 33

TAX MATTERS ...... 34

ORIGINAL ISSUE DISCOUNT ...... 35

BOND PREMIUM ...... 36 LITIGATION ...... 36

BOND RATINGS ...... 36

CERTAIN LEGAL MATTERS ...... 36

ENFORCEABILITY OF RIGHTS AND REMEDIES AND LEGAL OPINIONS ...... 37

FINANCIAL INFORMATION ...... 37 UNDERWRITING ...... 37

FINANCIAL ADVISOR ...... 38

SPECIAL RELATIONSHIPS ...... 38

CONTINUING DISCLOSURE ...... 38 MISCELLANEOUS ...... 39

Appendix A – Indiana State University Financial Report 2016-2017 Appendix B – Form of Bond Counsel Opinion Appendix C – Summary of Continuing Disclosure Undertaking Agreement

Indiana State University Board of Trustees Terre Haute, Indiana

Board of Trustees Edward A. Pease, Board Chair Jeffrey W. Taylor, Vice Chair Kathleen G. Cabello, Secretary Kimberly J. Oliphant, Assistant Secretary Cynthia R. Powers, Trustee Tanya R. Bell, Trustee Andrew M. Case, Trustee Randall K. Minas, Trustee David C. Campbell, Trustee

Officers of the Board of Trustees Edward A. Pease, Board Chair Jeffrey W. Taylor, Vice Chair Kathleen G. Cabello, Secretary Kimberly J. Oliphant, Assistant Secretary Diann E. McKee, Treasurer

Principal Administrative Officers Deborah J. Curtis, President Michael J. Licari, Provost and Vice President for Academic Affairs Diann E. McKee, Senior Vice President for Finance and Administration/University Treasurer Willie L. Banks, Jr., Vice President for Student Affairs J. Douglas Smith, Interim Vice President for Development Nancy Brattain Rogers, Vice President for University Engagement

Trustee, Registrar and Paying Agent First Financial Bank, N.A. Terre Haute, Indiana

University Counsel Bridget K. Butwin, General Counsel

Bond Counsel Ice Miller LLP Indianapolis, Indiana

Underwriters’ Counsel Barnes & Thornburg LLP Indianapolis, Indiana

Financial Advisor Blue Rose Capital Advisors, LLC Minneapolis, Minnesota

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SUMMARY STATEMENT

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

INDIANA STATE UNIVERSITY: The formal opening of the institution in 1870 was the result of enabling legislation enacted by the General Assembly (Special Session) on December 20, 1865, which provided that the original purpose of the University, then designated Indiana State Normal School, was the preparation of teachers for the “common schools” of Indiana. Today, through its instructional staff, Indiana State University offers undergraduate study and master’s level graduate study in all basic academic disciplines. Doctoral instruction is also provided in education, biology, earth sciences, technology, health sciences and psychology. The physical plant of the University consists of approximately 70 buildings which, together with equipment and furnishings, represent a total investment in plant of approximately $776 million and an estimated replacement cost approximately $1.1 billion. The main campus of the University, located 70 miles southwest of Indianapolis, covers approximately 300 acres in Terre Haute and an additional 135 acres in the surrounding area. The fall semester 2016 and 2017 headcount enrollment of the University totaled 13,565 and 13,771 respectively.

PURPOSES OF THE ISSUE: The Indiana State University Student Fee Bonds, Series S (the “Series S Bonds”), are being issued for the purposes of (i) financing the cost of the Series S Project (as defined herein); (ii) reimbursing previously expended costs of the Series S Project; and (iii) paying the issuance costs of the Series S Bonds.

SECURITY: The Series S Bonds, which are issued on a parity with the Taxable Indiana State University Student Fee Bonds, Series N (Build America Bonds – Direct Pay Option) (the “Series N Bonds”), currently outstanding in the aggregate principal amount of $6,530,000, the Indiana State University Student Fee Bond, Series P (the “Series P Bond”), currently outstanding in the aggregate principal amount of $3,240,000, the Indiana State University Student Fee Bonds, Series Q (the “Series Q Bonds”), currently outstanding in the aggregate principal amount of $12,945,000, the Indiana State University Student Fee Bonds, Series R (the “Series R Bonds”), currently outstanding in the aggregate principal amount of $76,270,000 and any Parity Bonds (as defined herein) which may be subsequently issued under the Indenture (referred to collectively as the “Bonds”), are limited obligations of the University secured by and payable solely from a pledge of and first lien on the Pledged Funds, comprised of Student Fees and payments to the University from a Qualified Swap Provider pursuant to a Qualified Swap Agreement, the proceeds thereof, the University’s right to receive the same and all Funds held by the Trustee pursuant to the Indenture (all terms as defined and more fully described herein). At the time of issuance of the Series S Bonds, the University has not entered into and has no current intention to enter into a Qualified Swap Agreement. The Series S 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 S Bonds against the University or the State of Indiana, or against the property or funds of the University or the State of Indiana, except to the extent of the pledge of the Pledged Funds as described above. The University has no taxing power.

STUDENT FEES: “Student Fees” means all academic fees (including tuition), however denominated, assessed by the University against students attending Indiana State University, except certain fees previously dedicated to other uses and other fees which may be subsequently released from the lien of the Indenture, as provided by the Indenture.

DEBT SERVICE COVERAGE: The following Maximum Annual Debt Service (as defined herein) coverage summary is based on Student Fees for the Fiscal Years (as defined herein) ended June 30, 2015, 2016 and 2017, and the Maximum Annual Debt Service for the Series S Bonds and all Parity Bonds (as defined herein) which will be outstanding upon issuance of the Series S Bonds. The following actual debt service coverage summary is based on Student Fees for the Fiscal Years ended June 30, 2015, 2016 and 2017, and the actual debt service on the University’s student fee bonds then outstanding.

Year Ended June 30

2015 2016 2017

Student Fees $111,506,345 $114,886,233 $113,573,047

Coverage of Maximum Annual Debt Service in Fiscal Year 2019* of $13,884,892*: 8.03x* 8.27x* 8.18x*

Coverage of actual debt service for the Fiscal Years shown of $10,190,069, $9,178,396 and $11,297,096, respectively, in 2015, 2016 and 2017: 10.94x 12.52x 10.05x

Note: Maximum Annual Debt Service and actual debt service are calculated prior to payments anticipated to be received from, or actually received from, the Secretary of the U.S. Treasury under Section 6431 of the Internal Revenue Code of 1986, as amended, for Build America Bonds.

FEE COVENANT: The University covenants that it will establish and collect Student Fees so as to generate in each Fiscal Year an amount equal to no less than the sum of (i) 2.0 times the Annual Debt Service Requirement (as defined herein) for such Fiscal Year plus (ii) any additional amounts to be paid from Student Fees with respect to such Fiscal Year, in accordance with the Indenture.

NO RESERVE FUND: No Reserve Fund Requirement (as defined herein) exists for the Series S Bonds, and holders of the Series S Bonds shall have no claim on any Reserve Fund (as defined herein) established for any subsequent series of Parity Bonds. No Reserve Fund Requirement for any series of Parity Bonds will be in existence upon issuance of the Series S Bonds.

PARITY OBLIGATIONS: The University may issue Additional Bonds (as defined herein) and enter into Qualified Swap Agreements, the payments of which are secured by a pledge of and first lien on the Pledged Funds (the Series N Bonds, Series P Bond, Series Q Bonds, Series R Bonds, Series S Bonds and all such Additional Bonds, collectively, the “Parity Bonds”) (the Parity Bonds and the payments by the University pursuant to Qualified Swap Agreements, collectively, the “Parity Obligations”); provided, among other things, that the actual Student Fees received by the University during the preceding Fiscal Year are at least equal to 2.0 times the Maximum Annual Debt Service to become due in succeeding Fiscal Years on all Parity Obligations then outstanding under the Indenture, plus the Parity Bonds to be issued or Parity Obligations to be incurred. At the time of issuance of the Series S Bonds, the University has not entered into, and has no current intention to enter into, any Qualified Swap Agreement.

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 March 15, 2011, as heretofore supplemented, to be further supplemented by a Eighth Supplement to Amended and Restated Continuing Disclosure Undertaking Agreement to be dated as of June1, 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

* Preliminary, subject to change.

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 SEC Rule 15c2-12, 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 instances: The University did not file reportable event notices in response to (i) rating changes for certain insured bond issues caused by rating changes of the bond insurers, and (ii) changes to its underlying rating associated with certain bond issues. The University filed notices with the MSRB’s Electronic Municipal Market Access (“EMMA”) service regarding such prior instances on June 8, 2016. However, the University makes no representations as to any potential materiality of such prior instances, as materiality is dependent upon individual facts and circumstances. Further, the University has adopted procedures to ensure compliance with its continuing disclosure undertakings. 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 SEC Rule 15c2-12. See Appendix C herein.

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OFFICIAL STATEMENT

$39,235,000* INDIANA STATE UNIVERSITY BOARD OF TRUSTEES INDIANA STATE UNIVERSITY STUDENT FEE BONDS, SERIES S

INTRODUCTION

This Official Statement, including the cover page and the Appendices, sets forth certain information concerning the Indiana State University Board of Trustees (the “University”), Indiana State University (“Indiana State University”), and the offering by the University of $39,235,000* principal amount of its Indiana State University Student Fee Bonds, Series S (the “Series S Bonds”).

The Series S Bonds are authorized pursuant to Indiana Code 21-34-1 et. seq. (the “Act”) which empowers the University to sell bonds to acquire, erect, construct, reconstruct, improve, rehabilitate, remodel, repair, complete, extend, enlarge, equip, furnish and operate certain buildings, structures, improvements or facilities necessary for carrying on the purpose of the University, and to refund such bonds. The Series S Bonds will be issued pursuant to resolutions adopted by and actions authorized by the University and in accordance with the provisions of a Trust Indenture, dated as of November 1, 1985 (the “Original Indenture”), between the University and First Financial Bank, N.A. (formerly known as Terre Haute First National Bank), Terre Haute, Indiana (the “Trustee”, the “Registrar” or the “Paying Agent”), as heretofore supplemented and amended, and as further supplemented by a Sixteenth Supplemental Indenture dated as of July 15, 2018 (the “Sixteenth Supplemental Indenture,” and, collectively with the Original Indenture, as heretofore supplemented and amended, the “Indenture”).

The Series S Bonds, together with the Taxable Indiana State University Student Fee Bonds, Series N (Build America Bonds – Direct Pay Option), which are currently outstanding in the aggregate principal amount of $6,530,000 (the “Series N Bonds”), the Indiana State University Student Fee Bond, Series P, which is currently outstanding in the aggregate principal amount of $3,240,000 (the “Series P Bond”), the Indiana State University Student Fee Bonds, Series Q, which are currently outstanding in the aggregate principal amount of $12,945,000 (the “Series Q Bonds”), the Indiana State University Student Fee Bonds, Series R, which are currently outstanding in the aggregate principal amount of $76,270,000 (the “Series R Bonds”) and any Additional Bonds (as defined herein) which are issued on a parity with the Series N Bonds, the Series P Bond, the Series Q Bonds, the Series R Bonds and the Series S Bonds, are limited obligations of the University secured by and payable solely from a pledge of and lien on the Pledged Funds, comprised of Student Fees and payments to the University from a Qualified Swap Provider pursuant to a Qualified Swap Agreement, the proceeds thereof, the University’s right to receive the same and all Funds held by the Trustee pursuant to the Indenture (all terms as defined and more fully described below). The Series N Bonds, the Series P Bond, the Series Q Bonds, the Series R Bonds, the Series S Bonds and all Additional Bonds issued on a parity therewith are referred to collectively in this Official Statement as “Parity Bonds.” Parity Bonds and Subordinated Bonds (as defined herein) are referred to collectively in this Official Statement as “Bonds.” See “SECURITY FOR THE BONDS” for further information. The Bonds do not constitute a general obligation debt or liability, or a charge against any property or fund 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 Bonds against the University or the State of Indiana, or against the property or funds of the University or the State of Indiana, except to the extent of the pledge of the Pledged Funds as described above. The University has no taxing power.

The summaries of and references to all documents, statutes and other instruments referred to in this Official Statement do not purport to be complete and are qualified in their entirety by reference to the full text of each such document, statute or instrument. Certain terms used in this Official Statement are defined under “SUMMARY OF CERTAIN PROVISIONS OF INDENTURE—Definitions.” Terms not defined in this Official Statement shall have the meaning as set forth in the respective documents.

* Preliminary, subject to change.

PURPOSE OF SERIES S BONDS

The Series S Bonds are being issued for the purposes of financing the costs of (i) acquiring, constructing, expanding, renovating and equipping certain facilities of the University on the Terre Haute campus, including, in particular, the renovation of the Hulman Center (the “Series S Project”); (ii) reimbursing the University for previously expended costs of the Series S Project; and (iii) issuing the Series S Bonds.

The Series S Project has a total estimated cost of $50,000,000, a portion of which will be funded by the Series S Bonds and a portion of which will be funded by other moneys of the University. Work began in April 2018 and is scheduled for completion in fall 2020.

ESTIMATED SOURCES AND USES OF FUNDS

The estimated sources and uses of funds with respect to the Series S Bonds are summarized below:

Sources of Funds: Principal Amount of Series S Bonds $ University Funds Less Original Issue Discount (or Plus Bond Premium) Total Sources $ Uses of Funds: Series S Project Costs $ Costs of Issuance (1) Total Uses $

(1) Including Underwriters’ discount, legal fees and expenses, rating fees, advisory fees, Trustee fees and expenses, and other expenses.

DESCRIPTION OF SERIES S BONDS

General

The Series S Bonds will be dated and bear interest from the date of their delivery, will be issued in the aggregate principal amount of $39,235,000*, and will bear interest, payable April 1 and October 1 of each year, with the first interest payment commencing October 1, 2018 (each an “Interest Payment Date”) at the rates and will mature on the dates and in the principal amounts set forth on the cover of this Official Statement. The Series S Bonds will be issued in fully registered form in the denomination of $5,000 or any whole multiple of that sum. Interest on the Series S Bonds shall be computed on the basis of a 360-day year, consisting of twelve 30-day months.

When issued, all Series S Bonds will be registered in the name of and held by Cede & Co., as nominee for The Depository Trust Company, New York, New York (“DTC”). Purchases of beneficial interests from DTC in the Series S Bonds will be made in book-entry-only form (without certificates) in the denomination of $5,000 or any integral multiple thereof. Purchasers of beneficial interests in the Series S Bonds (the “Beneficial Owners’) will not receive physical delivery of certificates representing their interests in the Series S Bonds. So long as DTC or its nominee is the registered owner of the Series S Bonds, payments of the principal of and interest on the Series S Bonds will be made directly by the Trustee by wire transfer of funds to Cede & Co., as nominee for DTC. Disbursement of such payments to the participants of DTC will be the sole responsibility of DTC, and the ultimate disbursement of such payments to the Beneficial Owners of the Series S Bonds will be the responsibility of the Direct Participants and the Indirect Participants, as defined herein. See “Book-Entry-Only System” in this section.

* Preliminary, subject to change.

Registration, Transfer and Exchange

The University will cause books for the registration and the transfer and exchange of the Series S Bonds to be kept by the Trustee. The University and the Trustee may deem and treat the person in whose name any Series S Bond is registered as the absolute owner of such Series S Bond (such person being DTC or its nominee, for so long as the Series S Bonds are held in book-entry-only form), for the purpose of receiving payment thereof and for all other purposes, whatsoever, and neither the University nor the Trustee will be affected by any notice to the contrary.

The owner of any Series S Bonds (such owner of the Series S Bonds being DTC or its nominee, for so long Series S Bonds are held in book-entry-only form) may transfer or exchange such Series S Bonds by surrendering such Series S 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 Series S Bond or Series S Bonds of the same maturity for a like aggregate principal amount or for a like aggregate amount of fully registered Series S Bonds of other authorized denominations of the same maturity. The Trustee will not be required to transfer or exchange any Series S Bond either during the period between the Record Date (as defined herein) and the next Interest Payment Date or after the mailing of notice calling such Series S Bond for redemption or during a period of fifteen days next preceding mailing of a notice of redemption of any Series S Bond. No service charge or payment will be required to be made by the owner of any Series S Bond requesting a transfer or exchange of such Series S 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 Series S 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 Series S Bond.

For so long as the Series S Bonds are held in book-entry-only form, the Series S 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 S Bonds for all purposes whatsoever. The Trustee will transfer and exchange Series S Bonds only on behalf of DTC or its nominee, in accordance with the preceding paragraph. Neither the University nor the Trustee will have any responsibility for registering, transferring or exchanging any Beneficial owners interests in the Series S 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 S 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 S Bonds. The Series S 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 S Bond certificate will be issued for each maturity of the Series S 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 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s

participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book- entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both 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 a Standard & Poor’s 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.

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

To facilitate subsequent transfers, all Series S 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 S 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 S Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series S 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 S Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series S Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Series S Bond documents. For example, Beneficial Owners of the Series S Bonds may wish to ascertain that the nominee holding the Series S 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 S 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 S 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 S Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions, and other payments on the Series S 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 S 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 S 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 S 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 S Bonds;

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

(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 S 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 S Bonds for all purposes whatsoever, including, without limitation:

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

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

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

(iv) the selection of Series S 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 S Bonds, or (ii) the University elects to discontinue its use of DTC as a clearing agency for the Series S 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 S Bonds, as are necessary or appropriate to discontinue use of DTC as a clearing agency for the Series S Bonds, and to transfer the ownership of each of the Series S Bonds, to such person or persons, including another clearing agency as the holders of the Series S Bonds may direct in accordance with the Indenture. See “Registration, Transfer and Exchange” in this section.

Payment of Principal and Interest on Series S Bonds

For so long as the Series S Bonds are registered to DTC or its nominee or its successor, payments of principal and interest shall be made as described under “Book-Entry-Only System” above. In the event the Series S Bonds are no longer registered to DTC, the payments of principal and interest shall be made by a bond registrar, to be appointed as described in the Indenture, as follows:

The Series S Bonds will be registered as to both principal and interest on the books of the University kept for that purpose (the “Bond Register”) at the principal office of the Trustee as bond registrar (the “Bond Registrar” or the “Registrar”). The principal and redemption price of the Series S Bonds are payable at the principal corporate trust office of the Bond Registrar. Interest on the Series S Bonds is payable when due by check mailed by the Bond Registrar to the registered owners as their names and addresses appear in the Bond Register on the fifteenth (15th) day of the month preceding an interest payment date (a “Record Date”); provided, however, that upon written request of a registered owner of at least $1,000,000 in aggregate principal amount of Series S Bonds, all payments shall be paid by wire transfer in immediately available funds to an account designated by such registered owner.

Redemption of Series S Bonds

Optional Redemption. The Series S Bonds maturing on and after October 1, 20__, are subject to redemption, at the option of the University, at any time on or after _____, 20__, in whole or in part, in the order of maturity designated by the University, at the redemption price of 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption, without premium.

If fewer than all of the eligible Series S Bonds are to be optionally redeemed, the University will select the maturities to be redeemed and the Trustee will select by lot the particular Series S Bonds or portion of Series S Bonds to be redeemed within maturities from the Series S Bonds Outstanding not previously called for redemption, by lot or in such other manner as in the Trustee’s sole discretion it deems appropriate and fair.

Notice of Redemption

Notice of redemption of the Series S Bonds shall be given by the Trustee by first class mail to the registered owner of each Series S Bond to be redeemed, not more than 45 days nor less than 30 days prior to the date fixed for redemption. If, for any reason, it is impossible or impractical to mail such notice in such manner, then any mailing in lieu thereof as is made with the approval of the Trustee will constitute sufficient notice. Notices of redemption may be conditioned upon the timely availability of funds for redemption.

On and after the redemption date specified in the notice of redemption, the Series S Bonds, or portions thereof, thus called (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 holders thereof will have the right only to receive the redemption price thereof plus accrued interest thereon to the date fixed for redemption.

A second notice of redemption will be given within 60 days after the redemption date to the registered owners of redeemed Series S Bonds which have not been presented for payment within 30 days after the redemption date. Failure to give such notice or errors therein will not invalidate the call for redemption or the redemption itself.

For so long as the Series S Bonds are registered to DTC or its nominee, such notice will be given only to DTC or its nominee, as described above under the heading “Book-Entry-Only System” in this section. Any failure by DTC to notify the Beneficial Owners does not affect the validity of the redemption proceedings for the Series S Bonds. See “DESCRIPTION OF SERIES S BONDS—Book-Entry-Only System.”

Open Market Purchases

At its option, to be exercised not less than 60 days prior to any redemption date, the University may (a) deliver to the Trustee Series S Bonds purchased with available moneys of the University and (b) instruct the Trustee to apply the principal amount of such Series S Bonds so delivered for credit at 100% of the principal amount thereof against the principal amount of Series S Bonds of the same maturity to be redeemed on the next succeeding redemption date. Each such Series S Bond so delivered will be so credited by the Trustee.

Security for Bonds

The Series S Bonds, together with all Additional Bonds issued on a parity with the Series S Bonds, and previously issued Bonds including, but not limited to, the Series N Bonds, the Series P Bond, the Series Q Bonds and the Series R Bonds (collectively, the “Parity Bonds”), are limited obligations of the University secured by and payable solely from a pledge of and first lien on the Pledged Funds, comprised of Student Fees and payments to the University from a Qualified Swap Provider pursuant to a Qualified Swap Agreement, the proceeds thereof, the University’s right to receive the same and all Funds held by the Trustee pursuant to the Indenture (all terms as described and defined below).

The Parity Bonds and all Subordinated 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, and no recourse shall be had for the payment of the principal of and interest on the Bonds against the University or the State of Indiana, or against the property or funds of the University or the State of Indiana, except to the extent of the pledge of the Pledged Funds. For more information see “SUMMARY OF CERTAIN PROVISIONS OF INDENTURE.”

Student Fees

The term “Student Fees” means all academic fees (including tuition), however denominated, assessed by the University against students attending Indiana State University, except certain fees previously dedicated to other uses and other fees which may be subsequently released from the lien of the Indenture, as provided for in the Indenture.

The University has covenanted and agreed in the Indenture to pay to the Trustee on the fifteenth (15th) day preceding each interest or principal payment date Student Fees or other available funds in an amount which, when added to any amount then in the Sinking Fund, is sufficient to pay the principal of and interest due on all Parity Bonds coming due on such interest or principal payment date. Such amounts will be deposited in the Sinking Fund. Student Fees, prior to their deposit with the Trustee as required by the Indenture, may be used as general operating funds of the University.

The University has irrevocably pledged Student Fees to the payment of the principal of and interest on the Bonds. The pledge of Student Fees for the Parity Bonds shall constitute a first lien on and security interest in Student Fees.

The pledge of Student Fees and other Pledged Funds as security for the payment of the Series S Bonds shall be of equal standing and priority of lien with the pledge of Student Fees and other Pledged Funds on all Parity Obligations (as defined herein), including the following currently outstanding obligations of the University:

Principal Amount Principal Amount Obligation Dated Date Due Date Originally Issued Outstanding

Series N Bonds 02/24/2010 10/1/2029 $ 9,560,000 $ 6,530,000 Series P Bond 10/24/2013 10/1/2032 4,570,000 3,240,000 Series Q Bonds 01/07/2015 10/1/2032 19,690,000 12,945,000 Series R Bonds 09/15/2016 10/1/2035 83,845,000 76,270,000 $117,665,000 $98,985,000

No Reserve Fund

No Reserve Fund Requirement (as defined herein) exists for the Series S Bonds, and the Series S Bonds shall have no claim on the Reserve Fund (as defined herein) described in the section herein entitled “SUMMARY OF CERTAIN PROVISIONS OF INDENTURE—Flow of Funds.” The Series S Bonds have no claim on the Reserve Fund established for any subsequent series of Parity Bonds. No Reserve Fund Requirement for any series of Parity Bonds will be in existence upon issuance of the Series S Bonds.

Fee Covenant

The University will establish and collect Student Fees so as to generate in each Fiscal Year (as defined herein) amounts equal to no less than the sum of:

(a) an amount equal to two times the Annual Debt Service Requirement (as defined herein) for the Series S Bonds and all Parity Obligations for such Fiscal Year, provided that if the rate of interest borne by any Variable Rate Bonds (as defined herein) is fixed for such Fiscal Year at a single rate of interest, such Variable Rate Bonds shall be treated as Fixed Rate Bonds (as defined herein) for purposes of the Annual Debt Service Requirement calculation;

(b) the amount, if any, to be paid into the Reserve Fund or to be paid to any Reserve Fund Insurer (as defined herein) or the provider of a Reserve Fund Credit Instrument (as defined herein) with respect to such Fiscal Year; and

The University also covenants to adopt an annual budget for each Fiscal Year which will set forth the estimated Annual Debt Service Requirement, any required deposits to the funds established by the Indenture and any other moneys to be paid from Student Fees in accordance with the Indenture.

Issuance of Additional Bonds

Additional Bonds may be authorized by the University and issued under the Indenture from time to time in order to provide funds for any lawful purpose under the Act. Additional Bonds may be Parity Bonds or Subordinated Bonds. “Parity Bonds” means the Series N Bonds, the Series P Bond, the Series Q Bonds, the Series R Bonds, the Series S Bonds and Additional Bonds which are secured by a pledge, assignment and grant of a security interest in and first lien against the Pledged Funds. In addition, Qualified Swap Agreements may be executed by the University, the Qualified Swap Payments of which will have a parity security interest and first lien on the Pledged Funds with the Parity Bonds. At the time of issuance of the Series S Bonds, however, the University has not entered into, and has no current intention to enter into, any Qualified Swap Agreement.

Additional Bonds may be issued under the Indenture specifically to evidence liability of the University in favor of any entity providing a Credit Support Instrument (as defined herein). Whether such Additional Bonds are Parity Bonds or Subordinated Bonds shall depend on the ability of the University in regard to those Additional Bonds to meet the coverage test described below at the time when funds are advanced pursuant to such Credit Support Instrument and not immediately reimbursed by the University. If such test cannot be met, the Additional

Bonds will be Subordinated Bonds and the rights of the holders to receive the principal thereof and interest thereon shall be subordinated to the holders of all Parity Bonds. (See “SUMMARY OF CERTAIN PROVISIONS OF INDENTURE—Flow of Funds”).

Additional Bonds may be issued from time to time by the University if actual Student Fees received by the University during the preceding Fiscal Year shall be equal to or greater than two times the Maximum Annual Debt Service (as defined herein) to become due in the succeeding Fiscal Years for the payment of principal and interest charges on the Parity Bonds Outstanding (as defined herein) under the Indenture and on the Parity Bonds then to be authenticated and delivered, with interest requirements on Variable Rate Bonds being calculated for this purpose at the rate equal to the rate quoted in the most recent issue of The Bond Buyer (or any successor publication), on the sale date of any such Additional Bonds, as the 25 Revenue Bond Index (or any successor index).

In addition, Additional Bonds may be authorized and executed by the University and authenticated and delivered by the Trustee without the necessity for compliance with the aforementioned test when necessary or appropriate in the opinion of the Trustee to avoid a default under the Indenture.

Parity Bonds may be issued from time to time by the University which have no claim on the Reserve Fund.

All computations regarding debt service and Student Fees shall be made by the Treasurer of the University.

The University may, in addition to issuing Additional Bonds, issue bonds or other evidences of indebtedness with a lien which is junior to the Bonds in all respects.

Authorized Additional Bonds

In the 2015-2017 State Budget for capital projects, the University received bonding authority from the Indiana General Assembly of up to $75 million for renovation of the Hulman Center ($37.5 million of which is eligible for fee replacement), subject to further approval by the State Budget Committee. In October 2017, the State Budget Committee approved a $50 million project for the Hulman Center renovation, to be funded by $44.25 million of debt ($37.5 million of which is eligible for fee replacement and $6.75 million of which is not eligible for fee replacement), with the balance to be funded by University reserves and gifts. The Series S Bonds are being issued to finance the Hulman Center renovation, together with University reserves and gifts. The University believes that this financing will complete the Hulman Center renovation; accordingly, the University does not intend to pursue additional Student Fee Bonds with regard to the remainder of the General Assembly's original authorization.

The University completed a long term campus master plan with an emphasis on improving student housing. As part of this master plan, all existing student housing that has not been previously renovated will be renovated or replaced, resulting in a limited net gain in the number of student housing units. On June 28, 2017, the University issued its Indiana State University Housing and Dining System Revenue Bonds, Series 2017, to fund the remaining improvements to complete the Sycamore Towers renovation. Housing and Dining System Revenue Bonds are secured by and payable solely from a pledge of and first lien on the net income of the University’s Housing and Dining System and other money’s pledged under the indenture of trust for Housing and Dining System Revenue Bonds. Such Housing and Dining System Revenue Bonds have no claim on Student Fees or other Pledged Funds, or on appropriations from the State of Indiana.

ANNUAL DEBT SERVICE REQUIREMENTS AND COVERAGE

The following table sets forth for each respective Fiscal Year ending June 30 the annual debt service requirements payable by the University from Student Fees on all Parity Bonds which will be outstanding upon the issuance of the Series S Bonds. Principal and interest payments on October 1 and on the following April 1 are combined in Fiscal Years ending June 30.

Fiscal Year Series S Bonds Total Ending Debt June 30 Principal* Interest Total Series R Series Q Series P 1 Series N 2 Service 3 2019 $2,235,000 $7,348,450 $2,010,690 $342,635 $815,438 2020 1,195,000 7,340,075 2,021,090 341,585 807,806 2021 1,260,000 7,336,575 2,012,915 2,714,267 798,430 2022 1,325,000 7,337,200 717,490 792,528 2023 1,390,000 7,336,325 720,040 785,040 2024 1,460,000 7,338,325 723,715 775,796 2025 1,535,000 7,347,325 721,690 764,614 2026 1,615,000 4,828,225 2,792,590 756,426 2027 1,695,000 7,461,300 127,590 744,566 2028 1,785,000 5,655,475 127,590 734,062 2029 1,875,000 5,656,850 127,590 716,732 2030 1,970,000 5,657,225 127,590 702,576 2031 2,075,000 4,603,100 1,352,359 2032 2,180,000 4,005,600 1,350,925 2033 2,290,000 4,002,300 1,357,361 2034 2,410,000 4,004,800 2035 2,535,000 4,006,400 2036 2,660,000 4,002,850 2037 2,800,000 2038 2,945,000

1 Includes principal and interest due on the Series P Bond through October 1, 2020, at the initial interest rate of 2.18%, plus $2,485,000 of principal of the Series P Bond subject to a mandatory tender on October 1, 2020. Prior to such date, the University and the existing holder may agree to a new interest rate for the remaining Series P Bond through either October 1, 2027, or October 1, 2032 (final maturity), in which event no mandatory tender of $2,485,000 will occur on October 1, 2020. 2 Debt service on the Series N Bonds, which are taxable Build America Bonds, is shown prior to interest subsidy payments anticipated to be received from the Secretary of the U.S. Treasury under Section 6431 of the Internal Revenue Code of 1986, as amended. 3 Totals may not sum due to rounding.

______*Preliminary, subject to change.

The following Maximum Annual Debt Service coverage summary is based on Student Fees for the Fiscal Years ended June 30, 2015, 2016 and 2017, and the Maximum Annual Debt Service on the Series N Bonds, Series P Bond, Series Q Bonds, Series R Bonds and Series S Bonds. The following actual debt service coverage summary is based on Student Fees for the Fiscal Years ended June 30, 2015, 2016 and 2017, and the actual debt service on the University’s student fee bonds then outstanding.

Year Ended June 30 2015 2016 2017 Student Fees $111,506,345 $114,886,233 $113,573,047

Coverage of Maximum Annual Debt Service in Fiscal Year 2019* of $13,884,892*: 8.03x* 8.27x* 8.18x* Coverage of actual debt service for the Fiscal Years shown of $10,190,069, $9,178,396 and $11,297,096, respectively, in 2015, 2016 and 2017: 10.94x 12.52x 10.05x

INDIANA STATE UNIVERSITY

General

The formal opening of Indiana State University in 1870 was the result of enabling legislation enacted by the General Assembly (Special Session) on December 20, 1865, which provided that the original purpose of the University, then designated Indiana State Normal School, was the preparation of teachers for the “common schools” of Indiana. In the one hundred years between 1865 and 1965, the University developed in successive stages from Normal School to Teachers College (1929), to College (1961) and to University (1965). The granting of University status by the General Assembly was official recognition of the institution’s development and of the growing public demand for broad based undergraduate and graduate programs, services, and opportunities to be provided by the University.

Between 1945 and 1965, the University’s academic programs underwent major development, adding to traditional opportunities in the field of teacher education, new concentrations in the arts and sciences and in the fields of business, nursing, technology, allied health professions, physical education and recreation, and graduate study. Graduate programs at the master’s degree level were expanded, and in 1965 the North Central Association granted approval to offer the degree of doctor of philosophy in several fields. In 2010, the North Central Association renewed accreditation of all baccalaureate and graduate programs of the University through the year 2020.

The University offers undergraduate study in all of the basic academic fields. These curricula, comprising the College of Arts and Sciences, include arts and humanities, social and behavioral sciences, natural sciences and mathematics. The University provides both a general education experience for all students as well as a comprehensive selection of majors for student specialization. Students desiring professional preparation have the opportunity to choose from curricula offered in the University’s professional Colleges of Business; Education; Health and Human Services; and Technology. Through these five Colleges, the institution currently offers 82 undergraduate majors and pre-professional programs leading to baccalaureate degrees and 14 certificate and associate degree programs.

Graduate instruction is coordinated through the College of Graduate and Professional Studies. The Master of Arts and Master of Science Degrees (M.A. & M.S.) are currently offered in 45 disciplines. The Educational Specialist (Ed.S.) and the Doctor of Philosophy (Ph.D.) are offered in five areas of Education. Additional Ph.D.

* Preliminary, subject to change.

programs are offered in Biology, Psychology, Spatial and Earth Sciences and in Technology Management; as well as programs leading to a Doctor of Nursing Practice, Doctor of Health Sciences, Doctor of Physical Therapy and Doctor of Athletic Training. Post-graduate Licensure and Certificate programs are offered in 15 specialties with an emphasis on Education, Health Sciences and Administration. The majority of graduate students have historically been teachers, school administrators, and educational specialists, although the fields of graduate study have grown in number and diversified in recent years. Advanced graduate programs in other academic disciplines in the University are in the process of development and are being planned to meet critical needs in specific professional and vocational fields.

Accreditation The University is accredited by the North Central Association of Colleges and Schools to offer bachelor’s and master’s degrees, the Education Specialist degree, and the Doctor of Philosophy degree.

University programs are accredited by their respective state, regional and national accreditation organizations and societies.

Board of Trustees and Officers of University The University is governed by a nine-member Board of Trustees. The Governor of Indiana appoints all members of the Board of Trustees. Two of the nine trustees are nominated by the Indiana State University Alumni Association. Six are at large positions and a student representative is appointed from nominations submitted by a Student Government Association search and screen committee. The Governor of Indiana fills Board vacancies by appointment for unexpired terms. All 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:

Board of Trustees Officers of Board of Trustees

Edward A. Pease, Board Chair Edward A. Pease, Board Chair Jeffrey E. Taylor, Vice Chair Jeffrey E. Taylor, Vice Chair Kathleen G. Cabello, Secretary Kathleen G. Cabello, Secretary Kimberly J. Oliphant Smith, Assistant Secretary Kimberly J. Oliphant Smith, Assistant Secretary Tanya R. Bell Diann E. McKee, Treasurer Cynthia R. Powers Andrew M. Case Randall K. Minas David C. Campbell

Principal Administrative Officers of University The current principal administrative officers who manage the business and academic affairs of the University are:

Deborah J. Curtis President Michael J. Licari Provost and Vice President for Academic Affairs Diann E. McKee Senior Vice President for Finance and Administration/ University Treasurer Willie L. Banks, Jr. Vice President for Student Affairs J. Douglas Smith Interim Vice President for Development Nancy Brattain Rogers Vice President for University Engagement Bridget K. Butwin General Counsel

Facilities

Academic and Administrative Facilities. The University has 36 buildings used principally for academic instruction and administrative services, in addition to 7 auxiliary buildings, 13 residence halls, 4 student apartment

buildings, 10 service related buildings and 3 remote buildings off the main campus. The main campus is located on approximately 300 acres. Some of the more recent additions and improvements to University facilities are described below.

The Power Plant was completed and dedicated in 2001. The 45,120 gross square foot structure, containing new natural gas/oil fired boilers, provides heating to the majority of campus buildings. The building also includes space to house future units which could provide cogeneration of electricity. A new satellite chiller to enhance the University’s cooling capacity and provide backup redundancy was added in 2011.

University Hall, a former laboratory school, was renovated in 2009 to become the home of the Bayh College of Education.

The School of Business Building, the former Terre Haute Post Office and Federal Building, was recently renovated to accommodate the Donald W. Scott College of Business. The renovation was completed in 2012.

Normal Hall, originally constructed as the library for the Indiana State Normal School in 1910, was recently renovated and expanded with $16 million of State funds to serve as the new home of the University’s Center for Student Success and University College. The neo-classical design, constructed of Indiana limestone, was the fourth building on the original campus. The renovation, completed in 2015, restored the stained glass rotunda and marble and bronze staircases, retaining the building’s turn-of-the-century ambiance while modernizing its facilities, systems and access.

The University has received gifts of 190 acres of wildlife, research and recreation areas used by various academic departments to support their programs.

Library. The Cunningham Memorial Library, which opened in 1973, is a five-level building with a capacity of one million volumes and some 1,800 study seats.

The total library collection numbers about 2,000,000 items including books, periodicals, many types of non-book materials, microforms, recordings, slides, computer software and filmstrips.

The majority of the collections are available to patrons through the Library’s on-line computer catalog. More than 90 full-time service computers are available throughout the library. Librarian conducted group instruction and one-on-one instruction are offered, as well as self-guided on-line tutorials.

Reference assistance is available in person at the reference desk or by e-mail. A number of electronic indexes, abstracts and full-text databases are also available via the library’s home Web page. For items unavailable at the Library, students, staff and faculty may request items be borrowed through interlibrary loan. Reference, instructional and document delivery services are also available for distance education students.

The Department of Rare Books and Special Collections houses the special collections, including the internationally recognized Cordell Collection of rare and early dictionaries established as a gift of the late Warren N. Cordell, distinguished ISU alumnus, and his wife. The Cordell Collection is a one-of-a-kind research collection that attracts scholars from all over the world. The library also houses the Eugene V. Debs Collection of papers and documents dealing with the American labor movement.

Research Facilities. The following research centers and laboratories have been developed by the University to provide proper support to both faculty and students as they strive for academic excellence. The research laboratories are: Animal Behavior, Animal Sleep Research, Archeology, Biogeochemistry, Biology Simulation-Modeling, Biomechanics, Clinical Laboratory Science, Cognitive Computing Technology Research, Computational Astrophysics, Computer Integrated Manufacturing, Dendro Archive, Endocrinology, Endocrinology and Behavior, Environ Anthropology Research, Fitness Exercise Science, Food Science, Forensics, General Biology, Genetics, Geochemistry, Geology Advanced Instruction, Geology Intro, GIS, Health and Safety, Immunology, Life Science Anatomy and Physiology, Life Science Microbiology, Microbiology, Microscope, Molecular Ecology and Evolution, Motor Learning Development, Nano and Femtoscience Interdisciplinary

Research, Optics Research, Packaging, Paleoceanography, Physiology, Plant-Insect, Rapid Prototyping, Robotics, Simulation Research, Sports Injury, Thermobiology, Zebra Fish Facility, and Web Processing. The research centers are: Center for Automation and System Integration, Center for Business Support and Economic Innovation, Center for Governmental Services, Center for Math Education, Center for Research and Conservation of North American Bats, Center for System Modeling and Simulation, Center for the Study of Health, Religion, and Spirituality, Center for the Study of Local History and Culture, Counseling Clinic, Folklore Archives, Indiana Packaging Research and Technology Center, Office of Educational Outreach, Office of Educational Research and Evaluation, Porter School Psychology Center, Professional Development Schools Program, READ Clinic, Rowe Center for Communication Disorders, Sociology Research Center, and Sycamore Nursing Center. Renovations to existing life science and chemistry teaching laboratories are currently underway to upgrade technology and meet safety and access standards.

Housing and Dining Facilities. The University owns and operates a variety of residence halls for both single students and students with families. Since 1989, the Sodexo Corporation assumed operating control over all residence hall dining facilities. Family housing facilities have 549 spaces available in four units, and the residence halls have 3,798 spaces available in twelve facilities in the Fall of 2017. The University has expended approximately $110 million in residence hall renovations between 1999 and 2016, including a $7,000,000 renovation of Hines Residence Hall in the Fall of 1999, a $7,000,000 renovation of Jones Residence Hall in the Fall of 2001, a $7,000,000 renovation of Burford Residence Hall in the Fall of 2006, a $7,800,000 renovation of Sandison Residence Hall in the Fall of 2009, a $10,000,000 renovation and reconfiguration of Pickerl Residence Hall in the Fall of 2011, a $10,000,000 renovation of Erickson Residence Hall in the Fall of 2013, a $20,700,000 renovation of Mills Hall in the Fall of 2015, a $20,750,000 renovation of Blumberg Hall in the Fall of 2016 and a $20,100,000 renovation of Cromwell Hall in the Fall of 2017. A $20,500,000 renovation to Rhodes Hall will be completed for Fall of 2018 and will bring a thirteenth facility on line with 344 additional beds. In addition to these renovations, a new $25.8 million residence hall, Reeve Hall, was completed in the Summer of 2014. All of these renovations and new construction projects were funded with a combination of interim notes, Housing and Dining System Revenue Bonds and Housing and Dining System reserves.

The newly constructed “500 Wabash” housing project was added to the Housing and Dining System in the Fall of 2015, with 256 available spaces. 500 Wabash is a mixed use facility with approximately 20,000 square feet of retail space at street level and approximately 84,000 square feet of housing space on the upper floors. 500 Wabash was financed and constructed by a private developer in downtown Terre Haute, just one block south of the University’s campus. Housing and Dining System Revenue Bonds were not issued to finance this project. Instead, the Indiana Budget Committee authorized the University to enter into a 30-year lease of the facility. The University is renting the housing portion of the facility from the developer pursuant to such 30-year lease, with an option to purchase any time after July 2017.

The cost of a standard room and board plan at the University was $9,061 during the academic year 2016-17 and $9,883 for the 2017-18 academic year. A variety of food service plans are available to residence hall students with food service offered in the residence hall dining facilities and the Hulman Memorial Student Union.

Recreational and Athletic Facilities. The University completed construction of a 190,420 gross square feet Student Recreation Center in 2009. This facility includes a three court gymnasium, recreational aquatics, fitness center with machines and free weights, elevated running/jogging track, and multipurpose activity rooms. Other recreational and athletic facilities on campus include the Michael Simmons Student Activity Center, constructed in 2005, which hosts annual Trike events, various intramural fields for softball, soccer and other student activities, Hulman Center (men’s and women’s basketball), and Memorial Stadium (football and soccer). The Gibson Track and Field Facility is located on University property in the Wabash Riverfront area. This new facility, valued at $4.5 million, was funded by investment income, commissions and private donor support.

Faculty and Employees

As of the 2017-18 academic year, the University’s faculty and staff totaled 1,607 on a full time equivalent basis. For Fall 2017, the University’s instructional staff totaled 549 and consisted of 127 professors, 127 associate professors, 111 assistant professors and 184 other instructors. Of the total tenure-track faculty, 254 (or 69.6%) are tenured.

Retirement Plans

The University participates in a defined contribution retirement plan administered by the Teachers Insurance and Annuity Association (“TIAA”) and the College Retirement Equities Fund (“CREF”) for its faculty and administrative-professional staff. The retirement plan funded by the University is fully vested. TIAA-CREF retirement programs are restricted to colleges, universities, independent schools and certain other educational and research institutions. The University has no future unfunded liability relating to the retirement program.

The clerical and service staff participate in the Public Employees Retirement Fund (“PERF”) of the State of Indiana, which is a retirement plan for all State employees. PERF is funded from employer and employee contributions, the employee contributions being subject to a voluntary pick-up by the employer after one year of service. The University’s liability under this retirement plan is limited to the required annual contribution with respect to each participating employee.

In addition, all staff of the University participate in the Federal Social Security retirement program.

Retiree Health Benefits

Historically, the University provided post-retirement healthcare benefits to certain regular full-time faculty and staff who became eligible for those benefits if they retired from the University after accruing the required years of service. As of June 30, 2017, 961 retirees and dependents met those eligibility requirements. Expenditures for post-retirement benefits are recognized as retiree claims are incurred. During the Fiscal Year ended June 30, 2017, expenditures of $3.4 million were recognized for post-retirement healthcare. Effective January 1, 2005, post- retirement health coverage/life insurance is no longer extended to new employees hired on or after that date, or to previously hired employees/dependents who enrolled in the University’s health plan during an open or late enrollment period effective after January 1, 2005. This change did not affect any current employees/dependents already covered by the University plan.

The University has established a Voluntary Employees’ Benefit Association (VEBA) trust, with an independent trustee, for the purpose of providing the retiree medical benefits for eligible retired employees and their dependents. Approval from the IRS for the tax-exempt status of the trust was received on March 2, 1999. The trust is funded from reserves set aside in previous years for this purpose, University contributions, employee payroll deductions for post-retirement benefits, and reinvested net earnings. These funds cannot under any circumstances revert to the University; therefore, the financial statements of the University do not include the value of these assets.

The Governmental Accounting Standards Board has issued a Statement regarding accounting and financial reporting for postemployment benefits other than pensions, which became effective for the financial statement presentation at June 30, 2008. The Statement requires the University’s financial statements to recognize the VEBA trust as an asset and the projected amount of future retiree healthcare benefits as a liability in the notes to the financial statements. As of June 30, 2017, the actuarial value of the trust was $88.9 million and the actuarial accrued liability for future retiree health care benefits was $56.6 million. (See Appendix A – Indiana State University Financial Report 2016-2017, Notes 17 and 18.)

Starting January 1, 2010, the University selected NEBCO (a division of AmWins Group Benefits) to administer a medical plan for University retirees, aged 65 and older, with NEBCO processing all claims and payments for covered medical and prescription drug expenses. Under this plan, retirees send their monthly premiums directly to NEBCO and the University continues to subsidize the cost of the plan.

Enrollment

The table below presents the University’s actual headcount student enrollment and full-time equivalent student enrollment for the fall semester of the past five academic years.

Academic Undergraduate Graduate Full- Full- Part- Aggregate Total Year Time Part-Time Total Time Time Total Total FTE 2013-14 9,131 1,137 10,268 937 1,243 2,180 12,448 10,772 2014-15 9,459 1,422 10,881 990 1,312 2,302 13,183 11,275 2015-16 9,659 1,598 11,257 991 1,336 2,327 13,584 11,576 2016-17 9,364 1,838 11,202 1,055 1,308 2,363 13,565 11,453 2017-18 9,369 2,222 11,591 962 1,218 2,180 13,771 11,493

As indicated in the preceding table, the Fall 2017 total headcount enrollment of the University was 13,771. Of these students, 76% of undergraduate students and 61% of graduate students were from Indiana.

Student Admissions

The table below sets forth the total number of first year undergraduate applications received and accepted, and the number of students enrolled in credit hour instruction at the University, for the fall semester of the academic years indicated.

Academic Applications Applications Percent Students Percent Year Received Accepted Accepted Enrolled Enrolled

2013-14 13,420 9,532 71.0 2,661 27.9 2014-15 13,681 9,723 71.1 2,739 28.2 2015-16 14,312 10,104 70.6 2,784 27.6 2016-17 14,048 9,534 67.9 2,448 25.7 2017-18 14,878 9,905 66.6 2,688 27.1

For the fall semester of the 2017-18 academic year, a total of 10% of entering freshmen ranked in the top 10% of their high school graduating class with 63% ranking in the upper half. The University has made a concerted effort to increase admission standards and the quality of applications.

The following table sets forth the average combined score for SAT verbal and mathematical tests of the University’s entering freshman class in each of the past five academic years. For comparative purposes, the national average of such scores for all entering freshmen is also indicated.

Average Combined SAT Verbal and Mathematical Test Scores for Entering Freshman Class

Fall Semester Indiana State University Nationwide

2013 914 1,010 2014 918 1,010 2015 908 1,006 2016 909 1,002 2017 1,013 1,060

In the event a student lacks the necessary preparation for successful academic advancement in college level courses, developmental studies, tutoring and study skills laboratories are available.

Degrees Conferred

The table below lists the number of undergraduate degrees, by school or college, and the total number of graduate degrees awarded students enrolled during the five preceding academic years.

Year of Graduation 2012-13 2013-14 2014-15 2015-16 2016-17 School or College Undergraduate Degrees Arts and Sciences 523 560 573 699 598 Business 197 179 225 254 231 Education 100 114 117 91 107 Technology 284 337 366 383 445 Health & Human Services and Other 395 440 525 469 525 Total 1,499 1,630 1,806 1,896 1,906 Graduate Degrees 673 596 673 733 781

Instructional Fees

The University, as a state-assisted institution, does not assess tuition for undergraduate students who are residents of the State of Indiana. Undergraduate students who are residents of Indiana do, however, pay a combined contingent, building facilities and student service fee. These fees are used to meet the general operating expenses of the University, to provide for a portion of the cost of constructing academic/administrative buildings and to support various student services and activities.

The table below sets forth the total student fees applicable to both full-time (12-18 credit hours) and part- time (11.5 credit hours and below) students enrolled at the University for the past five academic years and the current academic year. For the fall semester 2017, approximately 24% of undergraduate students and 39% of graduate students at the University were non-residents of the State of Indiana.

Undergraduate Graduate Full-Time Part-Time (Per Semester) (Per Semester) (Per Credit Hour) Academic Indiana Indiana Non- Indiana Year Resident Non-Resident Resident Resident Resident Non-Resident 2013-14 4,028.00 8,896.00 292.00 630.00 373.00 733.00 2014-15 4,108.00 9,073.00 298.00 643.00 380.00 747.00 2015-16 4,190.00 9,254.00 304.00 656.00 388.00 762.00 2016-17 4,273.00 9,438.00 310.00 669.00 396.00 777.00 2017-18 4,358.00 9,626.00 316.00 682.00 404.00 793.00 2018-19 4,445.00 9,818.00 322.00 695.00 412.00 809.00

In addition, on-campus students enrolled in 6 or more credit hours are assessed a student recreation center fee per semester based on a student’s class standing and earned credit hours. The student recreation center fee was set at $100 per semester for all students commencing with the Fall 2007 semester, and remains at $100 per semester. This fee is in addition to the totals set forth in the preceding table.

Effective beginning with the Summer 2017 term, fees for the summer session are identical to the per semester and per credit hour fee charged during the immediately preceding academic year.

The total amount of student fee revenues, including academic and other related fees, collected during the past five Fiscal Years have been as follows:

Fiscal Year Ended June 30 (in 000’s)

2013 2014 2015 2016 2017 Student Fee Revenues $95,670 $104,428 $111,506 $114,886 $113,573

State Appropriations

The University receives a major portion of the revenues needed to sustain its educational and research activities from the State of Indiana, student fees and 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, as well as appropriations for certain types of capital construction.

The State of Indiana has adopted various performance funding metrics for funding a portion of public higher education operating appropriations. In order to fund these metrics, the operating appropriations of all the public universities were decreased with across the board reductions; however, new dollars were added back for performance funding. As a result, the annual operating appropriation of the University declined in recent bienniums. In addition, the Governor’s Office announced that all public higher education institutions would be subject to a 2% reserve in Fiscal Year 2014 and 2015, essentially holding back 2% of each institution’s operating appropriation in each year. This reserve was returned to the University for Fiscal Year 2015 due to sufficient revenue at the State level. No hold back was imposed for Fiscal Year 2016 or 2017 and none was announced for Fiscal Year 2018. For the 2017-19 biennium, the General Assembly approved annual operating appropriations of $65.2 million for Fiscal Year 2018 and $65.6 million for Fiscal Year 2019, representing a decrease of 1.2% in Fiscal Year 2018 and a 0.5% increase for Fiscal Year 2019, versus the Fiscal Year 2017 general operating appropriations (see the table below).

The General Assembly has previously appropriated to the University annual amounts equal to the total principal of and interest due on certain outstanding bonds of the University which are backed by a pledge of student fees (the “Student Fee Bonds” and the “Fee Replacement Appropriations”). As of June 30, 2018, $10,135,000 in outstanding principal amount of the University’s Series R Bonds and $4,850,000 in outstanding principal amount of the University’s Series Q Bonds are not subject to Fee Replacement Appropriations. Only $37,500,000 of the Series S Bonds is subject to Fee Replacement Appropriations. The annual amounts of Fee Replacement Appropriations are not pledged as security for the payment of the University’s Student Fee Bonds. Under the Constitution of the State of Indiana, the General Assembly cannot bind subsequent General Assemblies to the continuation of Fee Replacement Appropriations. The University anticipates that the policy of Fee Replacement Appropriations will be continued in future years with respect to its Student Fee Bonds.

The State appropriations for general operating and for fee replacement purposes appropriated to the University for the past five Fiscal Years and the current appropriations for the 2017-2019 biennium are set forth below:

Fiscal Year General Fee Ended June 30 Operating Replacement Total

Historical: 2013 $67,650,483 $ 8,906,871 $76,557,364 2014 (1) 67,308,231 8,531,280 75,839,511 2015 (1) 67,308,231 8,533,541 75,841,772 2016 66,194,030 7,707,860 73,901,890 2017 65,929,201 12,958,157 78,887,358

Current: 2018 $65,154,447 $11,984,228 $77,138,675 2019 65,573,788 11,998,773 77,572,561

(1) On December 9, 2013, the Governor’s Office announced that all public institutions of higher education will be subject to a 2% reserve in Fiscal Year 2014 to assist the State with meeting a budget shortfall. ISU’s share of this reserve was $1,346,000 in Fiscal Year 2014. In Fiscal Year 2015, a similar hold back was imposed but was returned to the University due to sufficient revenue at the State level. These hold backs have not been deducted from the approved General Operating appropriations shown in the table.

State appropriations to the University for general repair and rehabilitation and for other capital purposes for the current and last four biennia have been as follows:

Other General Repair and Capital Cash Biennium Rehabilitation Appropriations Total

Historical: 2009-11 $5,005,058 -0- $ 5,005,058 2011-13 1,161,445 -0- 1,161,445 2013-15 2,725,770 $ 16,000,000 (1) 18,725,770 2015-18 2,766,164 -0 2,766,164

Current: 2017-19 $2,782,568 $ 15,000,000 (2) $17,782,568

(1) Cash appropriation received by the University for the renovation of Normal Hall, completed in August of 2015. (2) Cash appropriation approved for renovations to the Fine Arts and Commerce Building.

Financial Aid to Students

Total financial support for students was approximately $134.9 million for the Fiscal Year ended June 30, 2017. The actual distribution of financial aid to students during the past five Fiscal Years is shown below:

Fiscal Year Ended June 30 2013 2014 2015 2016 2017 (dollars in thousands) Scholarships and Awards University Funds $15,304 $16,775 $18,061 $20,031 $20,395 State Funds 13,218 16,035 17,705 19,575 19,207 Pell Grants 18,257 19,592 20,663 21,172 20,310 Other Federal Grants 368 313 343 376 389 Other Funds 3,146 2,941 3,118 3,160 3,291 Total Scholarships and Awards $50,293 $55,656 $59,890 $64,314 $63,592

Loans University Loans $ 229 $ 190 $ 213 $ 333 $ 174 Federal (NDSL) 947 1,536 970 966 1,497 Federal (Stafford) 53,237 56,650 58,132 57,831 59,059 Total Loans $54,413 $58,376 $59,315 $59,130 $60,730

Student Employment Federal College Work Study $ 437 $ 451 $ 403 $ 432 $ 454 University Student Payroll 7,676 8,698 9,489 10,268 10,156 Total Student Employment $8,113 $9,149 $9,892 $10,700 $10,610

Total Student Assistance $112,819 $123,181 $129,097 $134,144 $134,932

There can be no assurance that the amounts of 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 they presently apply. Any changes in the availability of Federal and State financial aid may affect the University’s enrollment and the occupancy of the housing facilities; the impact of any such changes cannot be assessed at this time.

Related Foundation

The Indiana State University Foundation, Inc. (the “Foundation”), was incorporated in 1921 for the purpose of consolidating the solicitation, receipt and acceptance of gifts, donations, and bequests from the general public, including individuals, corporations, and other sources, for the benefit of the University. The assets of the Foundation totaled $79,347,656 as of June 30, 2017, and $70,747,279 as of June 30, 2016. The Foundation distributed $4,428,000 and $5,710,000 to the University for both restricted and unrestricted purposes for its Fiscal Years ended June 30, 2017 and 2016, respectively. On December 31, 2011, the Foundation completed its first comprehensive campaign, titled “March On – The Campaign for Indiana State University.” The campaign exceeded its goal of $85 million by raising a total of $86.7 million, including $58 million in cash and gifts-in-kind. Fundraising goals were divided into the following areas: Facility Support, Faculty, Program Support, Student Support, and the Fund for the Future. As the University approaches the 150th anniversary of its formal opening, various fund raising activities in conjunction with this milestone are under consideration. Financial Operations of University

The University accounts for its financial resources in accordance with the Governmental Accounting Standards Board (GASB). The University’s financial statements comply with GASB 34 entitled “Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments.” The financial operations of the University for the five most recently audited Fiscal Years are presented on the following page.

INDIANA STATE UNIVERSITY Statement of Revenues, Expenses and Changes in Net Position For the Years Ended June 30, 2013 through June 30, 2017 (Dollars in Thousands)

OPERATING REVENUES 2013 2014 2015 2016 2017 Tuition and fees $ 95,670 $ 104,428 $ 111,506 $ 114,886 $ 113,573 Scholarship allowances for tuition and fees (34,088) (37,701) (40,150) (42,701) (42,132) Other allowances (482) (883) (847) (791) (951) Net tuition and fees 61,100 65,844 70,509 71,394 70,490 Federal grants and contracts 5,005 6,211 6,086 6,124 4,792 State and local grants and contracts 72 68 133 113 240 Non-governmental grants and contracts 2,758 2,139 2,835 3,350 3,092 Auxiliary enterprises fees and services 47,586 50,757 53,939 58,380 58,546 Scholarship allowances for room and board (8,792) (9,669) (10,248) (11,323) (11,289) Other allowances (576) (440) (419) (403) (528) Net auxiliary enterprises fees and services 38,218 40,648 43,272 46,654 46,729 Other operating revenues 6,161 5,833 5,842 6,424 7,695 Total operating revenues $ 113,314 $ 120,743 $ 128,677 $ 134,059 $ 133,038 EXPENSES Compensation and employee benefits $ 124,912 $ 133,040 $ 133,838 $ 146,536 $ 145,740 Supplies and expenses 53,985 57,855 62,343 70,640 61,600 Utilities 11,094 12,303 10,267 9,332 10,410 Scholarships and fellowships 8,702 9,948 10,976 11,795 11,751 Depreciation 14,192 14,455 15,115 16,979 18,157 Total operating expenses $ 212,885 $ 227,601 $ 232,539 $ 255,282 $ 247,658 Operating loss $ (99,571) $ (106,858) $ (103,862) $ (121,223) $ (114,620) NON-OPERATING REVENUES (EXPENSES) State appropriations $ 76,468 $ 75,788 $ 77,157 $ 75,133 $ 77,126 Gifts 259 358 259 400 322 Investment income (1) 1,475 6,954 990 5,756 1,013 Interest on capital asset related debt (4,976) (4,794) (4,965) (6,283) (5,557) Non-operating grants & contracts 34,397 38,831 41,365 43,967 43,000 Other non-operating revenues 4,709 4,047 4,289 4,156 2,389 Other non-operating expenses (520) (349) (248) (189) (671) Net non-operating revenues $ 111,812 $ 120,835 $ 118,847 $ 122,940 $ 117,622 Income before other revs., expenses, gains or losses $ 12,241 $ 13,977 $ 14,985 $ 1,717 $ 3,002 Capital appropriations $ - $ 2,481 $ 11,947 $ 5,680 $ 1,383 Capital grants and gifts 407 1,796 90 410 256 Total other revenues $ 407 $ 4,277 $ 12,037 $ 6,090 $ 1,639 Increase in net position $ 12,648 $ 18,254 $ 27,022 $ 7,807 $ 4,641 ADJUSTMENTS AND RESTATEMENTS Prior period adjustment for change in accounting principle - - $ (10,411) - - NET POSITION Net position - beginning of year $ 377,782 $ 390,430 $ 408,684 $ 425,295 $ 433,102 Net position - end of year $ 390,430 $ 408,684 $ 425,295 $ 433,102 $ 437,743 (1) Net of investment expenses of $486 for 2017, $482 for 2016, $470 for 2015, $458 for 2014, and $458 for 2013. 21

Budgeting Procedures

The University submits a biennial appropriation request to the State Budget Agency and the Indiana Commission for Higher Education. The Indiana Commission for Higher Education makes appropriation recommendations to the Budget Agency and the Indiana General Assembly. The Commission for Higher Education recommends a non-binding fee increase at the conclusion of the budget writing legislative session. The Indiana General Assembly, through action of its various committees and upon recommendations of the Budget Agency, will recommend the level of funding for each Fiscal Year of the biennium with the approval of the Governor.

The annual operating budget is recommended to the Board of Trustees for their approval by the President of the University and is informed by the level of legislative appropriation including the assumed level of fee increase and the priority needs of the institution.

For the 2017-2018 fiscal year, the Board of Trustees approved a balanced operating budget totaling $189,300,000. This approved budget represented an increase of 8.0% over the previous Fiscal Year’s budget. The increase was attributable to a change in budgetary treatment of academic (fee-replaced) debt service and an approved two percent (2.0%) increase in student tuition. For the 2018-2019 fiscal year, the Board of Trustees approved a balanced operating budget totaling $195,300,000. This approved budget represented an increase of 3.2% over the previous Fiscal Year’s budget.

Each biennium, the University prepares a capital appropriation request to the State Budget Agency, the Indiana Commission for Higher Education, and the Indiana General Assembly for the current biennium. The request identifies the projects, purpose, priority and the amount and source of funds. The General Assembly may appropriate cash for certain projects or authorize bonding authority for Student Fee Bonds. The University may only issue Student Fee Bonds backed by student fees up to the amount authorized by the General Assembly. Housing and Dining System Revenue Bonds and Parking System Revenue Bonds may be issued without authorization by the General Assembly, but do require approval from the State Budget Agency, the State Budget Committee, the Governor of the State of Indiana and the State Budget Director

Capital Programs and Additional Financing

The University continually monitors its outstanding Student Fee Bonds and Housing and Dining System Bonds for potential savings through refinancing opportunities and may issue refunding bonds periodically for such purpose. Any future refunding bond issues would be subject to required State approvals as well as Board of Trustees approval.

Outstanding Indebtedness

The University is authorized by various acts of the Indiana General Assembly to issue bonds and notes for the purposes of financing construction of housing, dining and other auxiliary system facilities, the student union building, athletic facilities, academic and administrative facilities, and building facilities, among others. The University has always promptly, and in full, paid all amounts due for principal of and interest on all indebtedness. Total principal amount of outstanding indebtedness of the University as of June 30, 2017, is summarized below.

Original Amount Amount Final Amount Outstanding Currently Type of Indebtedness Maturity (1) Issued June 30, 2017 Outstanding(2)

Housing & Dining System Bonds, Series 2017 2038 $14,190,000 $14,190,000 $14,190,000 Housing & Dining System Bonds, Series 2016 2036 14,135,000 13,550,000 13,095,000 Housing & Dining System Bonds, Series 2015 2035 16,270,000 14,940,000 14,350,000 Housing & Dining System Bonds, Series 2014 2034 16,405,000 14,530,000 13,915,000 Housing & Dining System Bonds, Series 2012 2038 28,740,000 26,180,000 25,350,000 Housing & Dining System Bonds, Series 2010 2027 9,140,000 6,145,000 5,610,000 Housing & Dining System Bonds, Series 2009A&B 2027 13,730,000 8,930,000 8,180,000 Student Fee Bonds, Series R 2036 83,845,000 80,050,000 76,270,000 Student Fee Bonds, Series Q 2033 19,690,000 14,400,000 12,945,000 Student Fee Bonds Series P 2033 4,570,000 3,505,000 3,240,000 Student Fee Bonds, Series N 2030 9,560,000 6,950,000 6,530,000

Total Indebtedness $230,275,000 $203,370,000 $193,675,000 (1) Fiscal Year of final maturity. (2) As of July 1, 2018.

Physical Property

Physical property owned by the University or otherwise available to and utilized by the University consists primarily of 435 acres of land and 70 permanent buildings. The buildings and land, together with equipment and furnishing, are currently valued at an estimated replacement cost of $1,140,448,682. The following table sets forth the total investment in plant of the University for the five Fiscal Years ended June 30, 2013 through 2017. Additions are valued at cost or, in the case of gifts, at fair market value as of the date of donation.

Fiscal Year Investment Accumulated Net Book Value Ended June 30 In Plant (at cost) Depreciation In Plant

2013 $617,557,535 $252,279,091 $365,278,444 2014 646,551,705 262,492,157 384,059,548 2015 720,155,175 275,894,649 444,260,526 2016 742,156,000 275,877,000 466,279,000 2017 786,535,000 289,896,000 496,639,000

Insurance

Fire and extended coverage. All facilities of the University, including new buildings and additions under construction at an insured location, are insured under a blanket form. A loss to an insured location will be adjusted on a replacement cost basis if the property is rebuilt or replaced; on an actual cash value basis if the property is not rebuilt or replaced.

The policy also has “Time Element” coverage added to the fire and extended coverage insurance which provides recoverable gross earnings of the actual loss sustained during the period of liability less all charges and expenses that do not continue during the interruption or suspension of business operations or services.

The limit of liability in an occurrence for fire and extended coverages, including insured Time Element, is $700,000,000. There is a $100,000 deductible per occurrence for all coverages.

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/$2,000,000 aggregate for personal injury and property damage. The University’s umbrella liability policy in the amount of $30,000,000 annual aggregate applies as excess to this and certain other general liability insurance coverages.

The University has worker’s compensation insurance with a retention for each accident of $400,000. The insurer’s limit of indemnity for each accident is statutory and the plan is administered by JWF Specialty.

The University’s medical insurance plan is administered by CIGNA and includes a management program requiring precertification to determine prospectively the medical necessity of hospitalizations and the appropriateness of lengths of stay. The coverage is administered through an Administrative Service Contract (with a monthly membership administrative charge and an aggregate stop-loss provision). The University is on a self- accounting basis for the monthly retention payments with annual audits.

SUMMARY OF CERTAIN PROVISIONS OF INDENTURE

Definitions

For purposes of this Official Statement, the following terms shall have the meaning specified below unless the context clearly indicates otherwise.

“Additional Bonds” means the additional Parity or Subordinated Bonds authorized to be issued by the University pursuant to the Indenture and any Bonds issued in substitution or replacement therefor and excludes junior lien obligations as described in the Indenture.

“Annual Debt Service Requirement” for any Fiscal Year means, in connection with all Parity Bonds, 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 principal of any Optional Maturity for which a Credit Support Instrument 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 and also excluding principal of any Optional Maturity for which a Credit Support Instrument has been provided), and (iii) an amount equal to the principal amount of a balloon maturity occurring after the Fiscal Year in question divided by the number of years to maturity from its date of original issuance or from such later date in or prior to the Fiscal Year in question 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 110% of the greater of (a) the average daily interest rate during the then preceding 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 shall be excluded in determining the Annual Debt Service Requirement. For purposes of this definition, “balloon maturity” shall mean Bonds of any series or multiple series of Bonds issued at substantially the

same time with principal amounts maturing or otherwise due and payable within any twelve (12) month period equal to or greater than fifteen percent (15%) of the original principal amount of such Bonds; 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 University 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 amount of any 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. For any Bonds with respect to which the University has entered into a Qualified Swap Agreement or Agreements, the amount of Qualified Swap Payments shall be considered in the calculation of Annual Debt Service Requirements in lieu of the payments described in clauses (i) through (iii) above; provided that such Qualified Swap Agreement shall be in effect for the entire Fiscal Year (or Bond Year, as the case may be) to which such calculation applies, and that Qualified Swap Agreements applicable to less than the full Fiscal Year (or Bond Year, as the case may be) shall not alter the calculation of the Annual Debt Service Requirement for such period. Qualified Swap Payments payable at a variable rate per annum shall be calculated on the same basis as Variable Rate Bonds for purposes of the application of various provisions under the Indenture, subject to any applicable interest rate floor or cap with respect to such variable rate.

“Bond” or “Bonds” means any obligation including bonds, notes, temporary, interim or permanent certificates of indebtedness, debentures, capital leases, or any and all other obligations consistent with the Indenture and allowable under State law, which are payable out of Student Fees, and other Pledged Funds and which obligation or obligations are authenticated and delivered under and pursuant to the Indenture.

“Code” means the Internal Revenue Code of 1986, as amended or any successors thereto.

“Credit Support Instrument” means 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 or purchase price of and interest on Bonds when due. Any such insurance policy, guaranty or surety bond or similar instrument shall be noncancellable during the term of the Bonds for which it is provided and must be issued by an insurer with a credit rating within the two highest full rating categories available generally to issuers of such insurance, guaranties or surety bonds from a nationally recognized rating service. Any obligation on the part of the University to purchase Bonds from their holders upon the completion of the term of such Credit Support Instrument shall be treated for these purposes as the conclusion of the term of that Bond. Any such letter of credit or line of credit must be issued by a banking institution which has, or the parent 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 two highest full rating categories generally available to banking institutions from a nationally recognized rating service.

“Escrowed Municipals” means any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local government unit of any such state which are not callable at the option of the obligor to maturity or as to which irrevocable instructions have been given by the obligor for call on the date specified in the notice; and

(1) which are rated, based on an irrevocable escrow account or fund (the “escrow”), in the highest rating category of S&P and Moody’s or any successors thereto; or

(2) (i) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of Federal Securities above, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (ii) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate.

“Federal Securities” means securities of the type described in item 2 of the definition of “Permitted Investments.”

“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 other period as established by the University from time to time.

“Fixed Rate Bond” means a Bond issued at or bearing a fixed rate or rates of interest.

“Indenture” means the Original Indenture, as heretofore supplemented and amended, and as further supplemented by the Sixteenth Supplemental Indenture, and as otherwise supplemented and amended from time to time.

“Maximum Annual Debt Service” means the highest Annual Debt Service Requirement for the current or any succeeding Fiscal Year.

“Optional Tender” or “Optional Tenders” shall mean Parity Bonds which may, at the option of the owners thereof, be subject to payment, redemption or purchase by or on behalf of the University.

“Original Indenture” means the Trust Indenture relating to the Indiana State University Student Fee Bonds, by and between the University and the Trustee, dated as of November 1, 1985.

“Outstanding” or “Bonds Outstanding” means all Bonds which have been duly authenticated, and delivered by the Trustee under the Indenture, except:

(a) Bonds canceled after purchase in the open market or because of payment at or redemption prior to maturity;

(b) Bonds for the payment or redemption of which cash or investments (but only to the extent that the full faith and credit of the United States of America are pledged to or secure the timely payment thereof) shall have been theretofore deposited with the Trustee (whether upon or prior to the maturity or redemption date of any such Bonds) in the manner and with the type of investments provided in the Indenture; provided that if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given or arrangements satisfactory to the Trustee shall have been made therefor, or waiver of such notice satisfactory in form to the Trustee, shall have been filed with the Trustee; and

“Parity Bonds” means the Series N Bonds, the Series P Bond, the Series Q Bonds, the Series R Bonds, the Series S Bonds and all Additional Bonds which are secured by a pledge, assignment and grant of and first lien and security interest against the Pledged Funds.

“Parity Obligations” means Parity Bonds and Qualified Swap Payments (if any).

“Permitted Investments” means, with respect to moneys held by the Trustee, any of the following which at the time are legal investments under the laws of Indiana for the moneys proposed to be invested therein:

(1) cash (insured at all times by the Federal Deposit Insurance Corporation or otherwise collateralized with obligations described in paragraph (2) below); (2) direct obligations of (including obligations issued or held in book-entry form on the books of) the Department of the Treasury of the United States of America; (3) obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America: (a) Export-Import Bank

(b) Farm Credit System Financial Assistance Corporation (c) Farmers Home Administration (d) General Services Administration (e) U.S. Maritime Administration (f) Small Business Administration (g) Government National Mortgage Association (GNMA) (h) U.S. Department of Housing and Urban Development (PHA’s) (i) Federal Housing Administration; (4) senior debt obligations rated “AAA” by S&P and “Aaa” by Moody’s issued by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation and senior debt obligations of other Government Sponsored Agencies approved by the Bond Insurer; (5) U.S. dollar denominated deposit accounts, federal funds and banker’s acceptances with domestic commercial banks which have a rating on their short term certificates of deposit on the date or purchase of “A-1” or “A-1+” by S&P and “P1” by Moody’s and maturing no more than 360 days after the date of purchase. (Ratings on holding companies are not considered as the rating of the bank); (6) commercial paper which is rated at the time of purchase in the single highest classification, “A- 1+” by S&P and “P-1” by Moody’s and which matures not more than 270 days after the date of purchase; (7) investments in a money market fund rated “AAAm” or “AAAm-G” or better by S&P; (8) Escrowed Municipals; (9) investment agreements approved in writing by any bond insurer with notice to S&P; and (10) other forms of investments (including repurchase agreements) approved in writing by any bond insurer with notice to S&P.

“Pledged Funds” means Student Fees (and the University’s right to receive Student Fees), proceeds thereof, payments to the University from a Qualified Swap Provider pursuant to a Qualified Swap Agreement, and all Funds created under the Indenture which are held by the Trustee.

“Qualified Counterparty” means a financial services institution whose senior long term debt obligations, other senior unsecured long term debt obligations or claims paying ability, or whose payment obligations, under a Qualified Swap are guaranteed by an entity whose senior long term debt obligations, other senior unsecured long term obligations or who was provided collateral such that its claims paying ability is rated (at the time the subject Qualified Swap is entered into) at least as high as “A” by Moody’s and “A” by S&P, or the equivalent thereof by an successor thereto.

“Qualified Swap” or “Qualified Swap Agreement” means any financial arrangement (i) that is authorized under applicable state law and which the Bond Insurer consents to in writing; (ii) that is entered into by the University with an entity that is a Qualified Counterparty at the time the arrangement is entered into; (iii) which constitutes an agreement (including any combination of agreements or a master agreement, each of which may include terms and conditions incorporated by reference therein) which is rate swap agreement, basis swap, forward rate agreement, interest rate option, rate cap agreement, rate floor agreement, rate collar agreement, or any other similar agreement (including any option to enter into the foregoing); and (iv) which has been designated in writing to the Trustee by an authorized representative of the University as a Qualified Swap.

“Qualified Swap Payments” means payments to be made by the University to a Qualified Swap Provider under a Qualified Swap.

“Qualified Swap Provider” means any Qualified Counterparty with whom the University has entered into a Qualified Swap.

“Qualified Swap Receipts” means payments to the University by a Qualified Swap Provider under a Qualified Swap.

“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 provided by an insurance company which may be deposited in the Reserve Fund in lieu of or in partial substitution for cash or Permitted Investments to be on deposit therein. The company providing such insurance policy, guaranty, surety bond, or letter of credit shall be an insurer which, at the time of issuance of such instrument, has been assigned the highest rating accorded insurers by A. M. Best & Company, Moody’s Investors Service or Standard & Poor’s Ratings Group or any successor rating service, and the instrument shall be subject to the irrevocable right of the Trustee to draw thereon in a timely fashion as needed and provided in the Indenture upon satisfaction of any conditions set forth in the Indenture.

“Reserve Fund Requirement” means Maximum Annual Debt Service; provided, however, that for purposes of Maximum Annual Debt Service on any Variable Rate Bonds for which there is a Reserve Fund Requirement, notwithstanding the formula for calculation of interest on Variable Rate Bonds found in the definition of Annual Debt Service Requirement, interest on such Variable Rate Bonds shall be calculated as a rate equal to the rate quoted in the most recent issue of The Bond Buyer (or any successor publications thereto) on the sale date of any such Additional Bonds as the 25 Revenue Bond Index (or any successor index).

“Series S Bond” or “Series S Bonds” means one or more of the Indiana State University Student Fee Bonds, Series S, authorized to be issued by the University pursuant to the Sixteenth Supplemental Indenture.

“Sixteenth Supplemental Indenture” means the Sixteenth Supplemental Indenture dated as of July 15, 2018 to the Original Indenture, as heretofore supplemented and amended.

“Student Fees” means all academic fees (including tuition), however denominated, assessed by the University against students attending Indiana State University, except certain dedicated fees and other fees subsequently released from the lien of the Indenture.

“University” means the Indiana State University Board of Trustees, a body corporate of the State of Indiana, or any successor entity.

“Variable Rate Bond” means any Bond the interest rate on which, at the time of issuance, is not established at a fixed numerical rate or rates to stated maturity; provided that a maximum rate of interest shall be established for each series of Variable Rate Bonds.

Flow of Funds

Sinking Fund. At least fifteen (15) days prior to each interest or principal payment date, the University shall transfer and remit Student Fees or other available Pledged Funds to the Trustee in an amount which, when added to any amount then in the Sinking Fund, equals the amount of the principal of and interest on all Parity Bonds becoming due on such date (other than Optional Maturities for which a Credit Support Instrument is provided) and any deficiencies then in existence in regard to said fund. On or before any interest or principal payment date on Subordinated Bonds or at any time for paying Optional Tenders for which a Credit Support Instrument was provided but which have not been paid through a Credit Support Instrument, after making the transfers required above and described in the paragraph below concerning the Reserve Fund, the University shall transfer and remit Student Fees or other available funds to the Trustee for deposit in the special account therefor in the Sinking Fund an amount which, when added to any excess amount in said special account and other funds legally available for that purpose, equals the principal amount of Subordinated Bonds due on that payment date and interest accrued to that date and the amount of the Optional Tenders in the order of priority established by the applicable Supplemental Indenture. Payments of such Optional Tenders from the Sinking Fund shall be subordinated to the payment of the principal of and interest on any Parity Bonds.

Reserve Fund. The University will maintain with the Trustee a separate fund known as the Building Facilities Reserve Fund (the “Reserve Fund”) pursuant to the Indenture. No Reserve Fund Requirement exists for the Series S Bonds and the Series S Bonds shall have no claim on the Reserve Fund. In connection with the issuance of Additional Bonds, except as described hereafter, there shall be deposited in the Reserve Fund an amount sufficient to maintain the Reserve Fund in an amount equal to the Reserve Fund Requirement. Such deposit shall be in the form of cash, Permitted Investments or Reserve Fund Credit Instruments. No deposit need be made in the Reserve Fund on account of any series of Additional Parity Bonds if the amount on deposit in the Reserve Fund equals the Reserve Fund Requirement.

The University may elect to provide a Reserve Fund Credit Instrument or Instruments for purposes of maintaining the Reserve Fund Requirement. In those circumstances the Trustee shall 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 Reserve Fund Credit Instrument.

From time to time Parity Bonds may be issued under the Indenture which shall have no claim on the Reserve fund. No Reserve Fund Requirement shall exist for such Parity Bonds.

The Reserve Fund shall be used and applied to make up deficiencies in the Sinking Fund with respect to any Parity Bonds with a claim on the Reserve Fund (other than Optional Tenders for which a Credit Support Instrument has been provided), and the Trustee shall draw first on any cash or Permitted Investments on deposit in the Reserve Fund and then pro rata or as otherwise provided in the applicable Supplemental Indenture, 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 any such Parity Bonds when due, when there are insufficient moneys in the Sinking Fund for such purpose.

Any withdrawal from the Reserve Fund, if the amount thereafter in the Reserve Fund is less than the Reserve Fund Requirement, shall be subsequently replaced and restored from the first available Pledged Funds after all required transfers to the Sinking Fund for Parity Bonds have been made in full. Such replacement and restoration shall first be provided in regard to the Reserve Fund Credit Instrument or Instruments on a pro rata basis or as otherwise provided in the applicable Supplemental Indenture, and thereafter in favor of any portion of the Reserve Fund to be maintained in cash or Permitted Investments.

If a drawing is made from any Reserve Fund Credit Instrument, the University shall reinstate the maximum limits of such Instrument within 12 months following such drawing solely from Pledged Funds available after all required payments have been made into the Sinking Fund for the Parity Bonds, so that, together with moneys on deposit therein, if any, there shall 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. Following the reinstatement of the Reserve Fund Credit Instrument and the replacement of any portion of the Reserve Fund required to be maintained in cash or Permitted Investments, the University shall pay solely from the Pledged Funds available after all such required payments any additional amounts owing to a provider of a Reserve Fund Credit Instrument pursuant to an agreement entered into in connection therewith, including, without limitation, interest on any draw under such Reserve Fund Credit Instrument.

Additional Security

At any time by a Supplemental Indenture the University may pledge, assign or grant a security interest in or lien on any additional funds or source of regular income of the University to the Trustee for the security of any Parity Bonds which shall be free and clear of any equal or prior security interest or lien. Any such Supplemental Indenture shall be accompanied by an opinion of nationally recognized bond counsel that the pledge of additional security is valid, binding and effective. Upon such a Supplemental Indenture being delivered, the amount of the additional income as to which the Supplemental Indenture applies shall be added to the amount of Student Fees for purposes of computing the amount of Additional Bonds which may be issued.

Partial Release of Lien on Student Fees

The University, from time to time, shall have the right to incur other indebtedness pursuant to other provisions of Indiana law other than the Act, which indebtedness may be payable from a particular fee or fees or other charges made to students attending Indiana State University which fees or charges may be Student Fees. The University and the Trustee may, from time to time, enter into an Amendatory or Supplemental Indenture for the purpose of releasing said fees or charges from the lien of the Indenture and excluding said fees or charges constituting Student Fees from the definition of Student Fees in the Indenture, if actual Student Fees received by the University during the preceding Fiscal Year less those fees and charges to be removed from the definition of Student Fees and from the lien of the Indenture shall be equal to or greater than five times Maximum Annual Debt Service to become due in that or any succeeding Fiscal Year for the payment of principal and interest charges on the Parity Bonds.

Covenants of University

In the Indenture, the University covenants, among other things:

(a) to pay the interest on and principal of the Bonds according to the terms thereof and of the Indenture;

(b) to pay all the costs, charges and expenses incurred by the Trustee or any Bondholder, including reasonable attorneys fees reasonably incurred or paid because of the failure on the part of the University to perform, comply with and abide by each and every one of the stipulations, agreements, conditions and covenants of the Bonds and the Indenture, or either of them;

(c) to operate Indiana State University and its instructional programs to the extent that it will continue to be able to assess, charge and collect Student Fees adequate to meet its needs under the Indenture;

(d) to establish and collect Student Fees so as to generate in each Fiscal Year amounts equal to no less than the sum of: (i) an amount equal to 2.00 times the Annual Debt Service Requirement for such Fiscal Year, provided that if the rate of interest borne by any Variable Rate Bond is fixed for such Fiscal Year at a single rate of interest, such Variable Rate Bonds shall be treated as Fixed Rate Bonds for the purposes of the Annual Debt Service Requirement calculation, (ii) any amounts, if any, to be paid into the Reserve Fund or to be paid to the Reserve Fund Insurer or the provider of any other Reserve Fund Credit Instrument with respect to such Fiscal Year, and (iii) any other amounts to be paid from Student Fees with respect to such Fiscal Year in accordance with the Indenture; and to adopt an annual budget for each Fiscal Year setting forth the estimated Annual Debt Service Requirement, any required deposits to the Funds established by the Indenture and any other money to be paid from Student Fees in accordance with the Indenture;

(e) to keep and maintain accurate books and records relating to the collection of Student Fees and the allocation thereof, the enrollment of students at Indiana State University and the payments into the Sinking Fund and Reserve Fund, which books and records shall be opened for inspection by any holder of the Bonds at any reasonable time;

(f) to furnish to the Trustee and any holder of 25% or more in aggregate principal amount of Bonds requesting the same in writing, not later than 180 days after the close of each Fiscal Year, copies of financial reports, certified by the Treasurer of the University, reflecting in reasonable detail the status of the books and records described in clause (e) above;

(g) that it will not permit the Series S Project to be used in any such manner as would result in the loss of the exclusion from gross income for federal income tax purposes of interest on the Series S Bonds under the Code, nor will the University act in any manner which would adversely affect the exclusion from gross income for federal income tax purposes of the interest on the Series S Bonds

– this covenant is based solely on current law in effect and in existence on the date of delivery of the Series S Bonds;

(h) that the University and the Trustee will not make any investment or do anything which would cause the Series S Bonds to become or be classified as arbitrage bonds within the meaning of Section 148 of the Code (or any successor section of such Code or subsequent federal income tax statute or code), including but not limited to the obligation to rebate certain investment earning to the United States of America – this covenant is based solely on current law in effect and in existence on the date of delivery of the Series S Bonds;

(i) that it shall not be an event of default under the Indenture if the interest on the Series S Bonds becomes includable in gross income for federal income tax purposes or otherwise subject to federal income taxes pursuant to any provision of the Code which is not currently in effect and in existence on the date of issuance of the Series S Bonds, except as stated in the immediately preceding subparagraphs (g) and (h); and

(j) to do any and all things necessary in order to maintain the pledge, assignment and grant of a lien on and security interest in the Pledged Funds as valid, binding, effective and perfected, all as provided in the Indenture.

Other Indebtedness

Except to the extent permitted in the Indenture for the issuance of Additional Bonds (both Parity Bonds and Subordinated Bonds), from and after the issuance of any of the Bonds and for so long as any of the Bonds are Outstanding, the University will not issue bonds or other evidences of indebtedness or enter into leases that are prior to or on a parity with the Bonds, but may issue bonds or other evidences of indebtedness for any of the purposes set forth in the Indenture with a lien that is junior to the Bonds in all respects.

Investments

All monies on deposit in the funds established under the Indenture held by the University may be commingled for investment purposes with 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 by the University in Permitted Investments. Interest earned or gains or losses realized on funds held by the Trustee shall be credited or debited to that fund (except that amounts in the Reserve Fund in excess of the Reserve Fund Requirement shall be transferred to the Sinking Fund). Interest earned or gains and losses realized on funds held by the University shall be credited or debited to the fund in which it was earned; except interest earnings in the Reserve Fund shall be retained in the Reserve Fund as needed to maintain the Reserve Fund Requirement and thereafter shall be deposited in the Sinking Fund.

Defaults and Remedies

Any of the following events shall be an Event of Default under the Indenture:

(a) default shall be made in the payment by the University of the principal of any one or more of the Bonds when the same shall become due and payable by lapse of time, by call for redemption or otherwise; or

(b) default shall be made in the payment by the University of any interest on any one or more Bonds when the same shall become due and payable as therein expressed; or

(c) default shall be made by the University or any of its officers in the performance or observance of any of the other covenants, conditions or obligations in the Bonds or in the Indenture and such default is not remedied within 30 days after written notice so to do from the Trustee, which may serve such notice in its discretion and shall serve the same at the written request of the holders of

not less than 25% in the principal amount of Bonds then Outstanding under the Indenture or of the provider of any Credit Support Instrument; or

(d) the University shall (i) admit in writing its inability to pay its debts generally as they become due, (ii) have an order for relief entered in any case commenced by or against it under federal bankruptcy laws, as now or hereafter in effect, (iii) commence a proceeding under any federal or state bankruptcy, insolvency, reorganization or similar laws, or have such a proceeding commenced against it and have either an order of insolvency or reorganization entered against it or have the proceeding remain undismissed and unstaged for 90 days, (iv) make an assignment for the benefit of creditors, or (v) have a receiver or trustee appointed for it or for the whole or substantial part of its property.

Upon the occurrence of any Event of Default, the Trustee is empowered to act on behalf of Bondholders and the provider of a Credit Support Instrument to enforce the Indenture. The holders of a majority in aggregate principal amount of the Bonds then Outstanding (with the consent of the Series M Bond Insurer for so long as the Series M Bond Insurance Policy is in full force and effect) are entitled to direct and control the conduct of any proceeding for exercising any remedies available to the Trustee. Unless an Event of Default shall have occurred and shall not have been cured, the University shall remain in full possession and control of the Student Fees, subject always to the observance of the covenants of the Indenture with respect thereto. Upon the occurrence of an Event of Default, the Trustee shall have the right, upon a demand to the University, to have all Student Fees deposited, as they are collected, in a Student Fee Fund to be maintained by the Trustee, to invest that fund in Permitted Investments, to apply amounts in that fund to the payment of principal of or interest on the Bonds, or the maintenance of the Reserve Fund; and to remit all other amounts in such Fund not needed to be held aside for those purposes to the University.

Defeasance

If (1) the University shall pay, or cause to be paid, or there shall otherwise be paid to the holders of all Bonds, the principal of and the applicable redemption premium, if any, and interest due or to become due thereon, at the times and in the manner stipulated therein and in the Indenture, (2) the University shall pay all expenses and fees of the Trustee and any Paying Agent, (3) the University shall keep, perform and observe all and singular the covenants and promises in the Bonds and in the Indenture expressed as to be kept, performed and observed by it or on its part, and (4) the University shall pay or cause to be paid all amounts owed under any Credit Support Instrument, Reserve Fund Credit Instrument, or any obligations relating thereto, then the pledge of the Pledged Funds and other moneys and securities pledged under the Indenture and all covenants, agreements and other obligations of the University to the Bondholders, shall thereupon cease, terminate and become void and be discharged and satisfied. In such event, the Trustee shall cause an accounting for such period or periods as shall be requested by the University to be prepared and filed with the University, and upon request of the University shall execute and deliver all such instruments as may be desirable to evidence such discharge and satisfaction, and the Trustee and the Paying Agents shall pay over to or deliver to the University all moneys or securities held by them pursuant to the Indenture which are not required for the payment of principal of, applicable redemption premiums, if any, and interest payments on the Bonds. If the University shall pay or cause to be paid, or make provisions for payment in accordance with the Indenture, to the holders of all Outstanding Bonds of a particular series, or of a particular maturity within a series, the principal of and the applicable redemption premium, if any, and the interest due or to become due thereon, at the times and in the manners stipulated therein and in the Indenture, such Bonds shall cease to be entitled to any lien, benefit or security under the Indenture (except with respect to the moneys or Federal Securities and Escrowed Municipals deposited as required by the Indenture) and all covenants, agreements and obligations of the University to the holders of such Bonds shall thereupon cease, terminate and become void and be discharged and satisfied.

The escrow or defeasance agreement accomplishing the defeasance described in this Section may provide that such escrow may be restructured to provide for an earlier or a later redemption of Bonds being defeased thereby than contemplated in the original defeasance or escrow agreement or to provide that the escrow may be restructured to allow a defeasance to maturity of Bonds previously intended to be called for redemption at a prior date pursuant to the original escrow or defeasance agreement. Any restructuring of an escrow described in this paragraph may only be accomplished when, to the reasonable satisfaction of the Trustee, the continued sufficiency of the escrow to

accomplish its intended tasks has been verified by a firm of independent certified public accountants and when the Trustee has received an opinion of Bond Counsel that such restructuring will not adversely affect the tax status of interest on the Bonds nor result in a violation of any other applicable federal tax or securities law.

Supplemental Indentures; Amendments

The Trustee and the University may, from time to time, enter into supplemental Indentures for any of the following purposes without the consent of or any action by the Bondholders:

(a) to restrict the issue and the purposes of issue of Additional Bonds under the Indenture by imposing additional conditions and restrictions so long as the same shall not impair the security afforded by the Indenture;

(b) to add to the covenants and agreements of the University in the Indenture;

(d) to make such provisions in regard to matters or questions arising under the Indenture as may be necessary or desirable but not inconsistent with the Indenture;

(e) otherwise to modify any of the provisions of the Indenture or to relieve the University from any of the obligations, conditions or restrictions contained in the Indenture, provided that no such modifications shall be or become operative or effective or in any manner impair any rights of the Bondholders or the Trustee (except as otherwise provided or permitted pursuant to the Indenture), while any Bonds of any series issued prior to the execution of such Supplemental Indenture shall remain Outstanding; and provided further that such Supplemental Indenture shall be specifically referred to in the text of all Bonds of any series issued after the execution of such Supplemental Indenture; and provided, also, that the Trustee may in its uncontrolled discretion decline to enter into any such Supplemental Indenture which in its opinion may not afford adequate protection to the Trustee when the same shall become operative;

(f) to add to the powers, duties or obligations of the Trustee or to impose requirements with respect to the qualification or disqualification of any bank or trust company to act as Trustee under the Indenture;

(g) further to restrict investments to be made by the Trustee or University;

(h) to grant additional rights to the provider of any Credit Support Instrument or Reserve Fund Credit Instrument, including, if desired, the creation of a special reserve therefor;

(i) to provide for partial release of the lien on and security interest in Student Fees as provided in the Indenture;

(j) for any other purpose not prohibited by the terms of the Indenture which shall not impair the security afforded thereby or for the purpose of curing any ambiguity, or curing, correcting or supplementing any defective or inconsistent provision contained in the Indenture or in any Supplemental Indenture; and

(k) to provide for the terms under which Qualified Swap Agreements may be entered into by the University in connection with and Bonds hereunder, including the relation of Qualified Swap Receipts and Qualified Swap Payments by the University to the flow of funds set forth in the Indenture applicable to such Bonds, and all other necessary or appropriate terms and conditions of such Qualified Swap consistent with the Indenture: provided, however, that such Qualified Swap Agreement shall not have an adverse effect on any rating of the Bonds by any nationally

recognized rating agency currently rating such Bonds, without regard to any other factors which may affect such rating.

In all cases the holders of not less than 51% in principal amount of the Bonds Outstanding, or 51% in principal amount of any series of Bonds Outstanding affected by a modification or alteration, will be required to authorize any modification or alteration of the Indenture or any Supplemental Indenture; provided always that no modification or alteration shall (i) affect the University’s obligation to pay the debt service on the Bonds in respect to date of payment, place of payment and amount, (ii) give to any Bond or Bonds secured by the Indenture any preference over any other Bond or Bonds so secured in a manner inconsistent with the terms of the original issuance thereof, (iii) authorize the creation of any lien upon any of the property the income of which is or shall, in the future, be payable to the Trustee under the Indenture, (iv) deprive any bondholder of the security afforded by the Indenture, (v) reduce the percentage of principal amount of Bonds required by the provisions of the Indenture for any action or (vi) extend the maturity or interest payments, reduce the interest rate, change the formula for determining the variable interest rate or reduce the maturity amount of any Bond without consent of each Bondholder so affected.

TAX MATTERS

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

The Code imposes certain requirements which must be met subsequent to the issuance of the Series S Bonds as a condition to the exclusion from gross income of interest on the Series S 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 S Bonds that would result in the loss of the exclusion from gross income for federal income tax purposes of interest on the Series S 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 S Bonds. The Indenture and certain certificates and agreements to be delivered on the date of delivery of the Series S 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 S 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 S Bonds.

Indiana Code (IC) 6-5.5 imposes a franchise tax on certain taxpayers (as defined in IC 6-5.5) which, in general, includes 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 S Bonds.

Although Bond Counsel will render its opinion that interest on the Series S Bonds is excludable from federal gross income and that interest on the Series S Bonds is exempt from State of Indiana income tax, the accrual or receipt of interest on the Series S 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 S Bonds. Bond Counsel express no opinions regarding any other such tax consequences. Prospective owners of the Series S Bonds should consult their own tax advisors with respect to the foregoing and other tax consequences of owning the Series S 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 S Bonds will not have an adverse effect on the tax-exempt status of the Series S Bonds or the market price of the Series S Bonds.

ORIGINAL ISSUE DISCOUNT

The initial public offering prices of the Series S Bonds maturing on ______, 20__ (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 prices 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.

The original issue discount on the Discount Bonds is treated as accruing daily over the term of such Discount Bonds on the basis of the yield to maturity determined on the basis of compounding at the end of each six- month period (or shorter, or longer, period from the date of original issue, as the case may be) ending on April 1 and October 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 such 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 under the caption “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 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 that, 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 though there will not be a corresponding cash payment until a later year.

BOND PREMIUM

The initial public offering prices of the Series S Bonds maturing on ______, 20__ (collectively, the “Premium Bonds”), are greater than the principal amounts payable at maturity or 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 public 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). The amount of 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. No income tax deduction for the amount of amortizable Bond Premium will be allowed pursuant to Section 171(a)(2) of the Code, but 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 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.

LITIGATION

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

BOND RATINGS

Moody’s Investors Service, Inc. and Fitch Ratings have assigned the ratings of “A1” and “AA-” to the Series S Bonds, respectively. No application was made to any other rating agency for the purpose of obtaining an additional rating on the Series S Bonds. Any explanation as to the significance of the above ratings may only be obtained from the rating agency furnishing the same.

The University furnished to the above rating agencies certain information and materials, some of which have not been included in this Official Statement. Generally, rating agencies base their ratings on such information and materials and investigations, studies and assumptions furnished to and obtained and made by the rating agencies. These ratings reflect only the view of such rating agencies. A securities rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time. Any such downward revision or withdrawal of any such rating may have an adverse effect on the market price or marketability of the Series S Bonds.

CERTAIN LEGAL MATTERS

Certain legal matters incidental to the authorization and issuance of the Series S 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 S Bonds is attached hereto as APPENDIX B. Certain legal matters will be passed upon for the University by Bridget K. Butwin, as general counsel to the University, and by Barnes & Thornburg LLP, as special counsel to the Underwriters.

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 S Bonds have reviewed

the information under the headings “SUMMARY STATEMENT,” “INTRODUCTION,” “DESCRIPTION OF SERIES S BONDS” (other than matters under the subheading “Book-Entry-Only System”), “PURPOSE OF SERIES S BONDS,” “SECURITY FOR BONDS,” “SUMMARY OF CERTAIN PROVISIONS OF INDENTURE,” “TAX MATTERS,” “ORIGINAL ISSUE DISCOUNT,” “BOND PREMIUM” and Appendices B and C and determined that such information conforms in all material respects to the provisions of the documents and the 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 express no opinion thereon nor assume any responsibility therewith.

ENFORCEABILITY OF RIGHTS AND REMEDIES AND LEGAL OPINIONS

The enforceability of the rights and remedies of the Trustee or the holders of the 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 S 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 S 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.

FINANCIAL INFORMATION

A financial report of the University is prepared annually by the Office of Senior Vice President for Finance and Administration, and University 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 A.

UNDERWRITING

The Series S Bonds are being purchased, subject to certain conditions, by Citigroup Global Markets Inc., as the representative for the underwriters (the “Underwriters”). The Underwriters have agreed, subject to certain customary conditions precedent to closing, to purchase the Series S Bonds from the University at a purchase price of $______, which is equal to the original principal amount of the Series S Bonds, less an Underwriters’ discount of $______and less a net original issue discount (or plus net bond premium) of $______. The Underwriters will be obligated to purchase all of the Series S Bonds if any Series S Bonds are purchased.

Citigroup Global Markets Inc., an underwriter of the Series S Bonds, has entered into a retail distribution agreement with Fidelity Capital Markets, a division of National Financial Services LLC (together with its affiliates, “Fidelity”). Under this distribution agreement, Citigroup Global Markets Inc. may distribute municipal securities to retail investors at the original issue price through Fidelity. As part of this arrangement, Citigroup Global Markets Inc. will compensate Fidelity for its selling efforts.

FINANCIAL ADVISOR

Blue Rose Capital Advisors, LLC, Minneapolis, Minnesota (the “Financial Advisor”), has been retained by the University to provide certain financial advisory services in connection with the issuance of the Series S Bonds, including limited assistance with the preparation of the Official Statement. The fee to be paid to the Financial Advisor for services provided in connection with the issuance of the Series S Bonds is contingent upon the closure of the Series S Bonds. The Financial Advisor has not been engaged, nor has it undertaken, to independently verify the accuracy of the information set forth in this Official Statement. The Financial Advisor is not a public accounting firm and has not been engaged by the University to compile, review, examine or audit any information in this Official Statement in accordance with accounting standards. The Financial Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities and therefore will not participate in the underwriting of the Series S Bonds.

The Financial Advisor is under common ownership with HedgeStar, LLC (“HedgeStar”) and MuniPriceTracker, LLC (“MPT”). HedgeStar provides hedge accounting, fair value accounting, and valuation services for financial instruments including, but not limited to, fixed-income securities and derivatives, which services may have been used in the preparation of the University’s financial statements. MPT provides secondary market bond trading reporting services, which may be relied upon for tax compliance and trading performance evaluation by the University, or by other parties involved in the issuance, in connection with the Series S Bonds. HedgeStar and MPT currently do not, and in connection with the Series S Bonds are not expected to, provide services to the University.

SPECIAL RELATIONSHIPS

The Underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. Certain of the Underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various investment banking services for the University for which they received or will receive customary fees and expenses.

In the ordinary course of their various business activities, the Underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the University.

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 will enter into a supplement to its Amended and Restated Continuing Disclosure Undertaking Agreement, to be dated as of July 15, 2018 (the “Undertaking”). A summary of the Undertaking and the proposed supplement are attached hereto as Appendix C.

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 instances: The University did not file reportable event notices in response to (i) rating changes for certain insured bond issues caused by rating changes of the bond insurers, and (ii) changes to its underlying rating associated with certain bond issues. The University filed notices with the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access

(“EMMA”) service regarding such prior instances on June 8, 2016. However, the University makes no representations as to any potential materiality of such prior instances, as materiality is dependent upon individual facts and circumstances. Further, the University has adopted procedures to ensure compliance with its continuing disclosure undertakings. 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.

MISCELLANEOUS

During the initial offering period for the Series S Bonds, copies of the Indenture will be available for inspection at the Office of the Senior Vice President for Finance and Administration, and University Treasurer, Indiana State University, Rankin Hall 200, 210 North 7th Street, Terre Haute, Indiana 47809; or at the office of the Blue Rose Capital Advisors, LLC, the Financial Advisor, 208 South LaSalle Street, Suite 1406, Chicago, IL 60604.

The Indiana State University Board of Trustees has authorized the execution and distribution of this Official Statement.

INDIANA STATE UNIVERSITY BOARD OF TRUSTEES

By: Diann E. McKee, Treasurer

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Appendix A

Indiana State University Financial Report 2016-2017

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Table of Contents

Indiana State University Financial Report 2016-2017 Message from the President ...... 3 Letter of Transmittal ...... 6 Independent Auditor’s Report ...... 7

Management’s Discussion and Analysis ...... 9 Indiana State University: Statement of Net Position ...... 22 Statement of Revenues, Expenses, and Changes in Net Position ...... 23 Statement of Cash Flows ...... 24 Indiana State University Foundation, Inc. and Afﬂiate: Consolidated Statement of Financial Position ...... 25 Consolidated Statement of Activities ...... 26 Consolidated Statement of Cash Flows ...... 27 Notes to Financial Statements ...... 29 Required Supplementary Information ...... 58 Home Counties of Indiana State University Students ...... 59 Board of Trustees and University Administration ...... 60 2 Message from the President

Greetings on behalf of the Trustees, Faculty, Administration and Students of Indiana State University:

The 2016-17 ﬁscal year began with the kickoff of Indiana State’s new strategic plan, “There’s More to Blue.” The goals of our plan are very similar to those of our previous plan, “The Pathway to Success.” However, the tremendous success we have achieved under that plan since it launched in 2009 has contributed to the setting of more aggressive goals moving forward.

Our top priority is improving student success. Our students’ lives are transformed when their goal of earning a degree is realized. This is why we are here, and this is what we do. We want to improve our graduation rates and degree production while also narrowing the gap in graduation rates between Pell and non-Pell students. We have seen some marked improvement on this front with our four-year graduation rates growing from 20.5% in 2009 to 28.7% this year and our retention improving from 63.9% in 2009 to 67.8% in 2017. Retention and graduation rates for our 21st Century Scholars and African-American students are also improving.

Growing enrollment remains important, and it is anticipated that the goal of 16,000 students by fall 2022 can be reached through continued strong recruitment efforts coupled with growth in online programs. Indiana State once again hit a historic enrollment record this fall with 13,771 students.

Goal Two addresses experiential learning and career readiness. The main difference in the new plan is the emphasis on embedding the career-ready certiﬁcate into all degree programs and connecting career pathways explicitly to both the academic majors and foundational studies. Other benchmarks include improving our placement rate for graduates, dramatically increasing our internships, clinicals and work-based experiences, and increasing the students involved in intensive undergraduate research, creative activities and study abroad programs. We also want to bring our diversity goals to the program level by ensuring gender and ethnic diversity in business and STEM programs.

Goal Three deals with our community engagement efforts. Through a new partnership with the Vigo County School Corporation, our faculty, staff and students will be working with Deming Elementary to improve reading among third graders. We also hope to improve the college completion rate of Vigo County students. Other benchmarks include maintaining our national proﬁle as a leader in this area, increasing the number of students completing intensive co-curricular service experiences, increasing voter participation among our students, and building the number of hours of community service our students provide. We also want to increase the number of businesses served by the Business Engagement Center and the Sycamore Innovation Lab and boost the number of patients visiting ISU health-related clinics. In the new plan, this goal is more focused on measuring the impact of our engagement efforts rather than just the quantity.

In Goal Four, we are looking to align our Foundational Studies curriculum, as well as our promotion and tenure expectations, with our vision. The goal also includes developing greater institution-wide commitment to providing a distinctive “ISU Experience” with the hope that each college will have at least one program or group of programs that are distinctive.

Maintaining affordability in the overall cost of attendance and improving the utilization of University resources is the focus of Goal Five. Improving the productivity of our faculty and staff is important as our enrollment continues to grow. One way to help do that is to better utilize our student workforce by having them perform more meaningful work. Private fundraising also needs to increase signiﬁcantly, and investments in our campus facilities must continue. Maintaining the uptime of our critical IT functions is also essential in today’s world. The successful trial run by the Department of Communication in developing open educational resources to replace expensive textbooks will be expanded to other Foundational Studies courses, saving our students signiﬁcant cost.

3 The ﬁnal bookend of “There’s More to Blue” deals with attracting and retaining great employees. We want to make concerted efforts to continue to diversify the makeup of our faculty and staff, including the executive group, so that it emulates that of our student body. The percentage of female full professors also needs to improve to eventually match the gender makeup of our faculty. The University also wants to improve employee retention, and more attention needs to be paid to the quality of educational experience our faculty and staff are providing. Some of these benchmarks will be challenging to improve, and some will take more time than we would hope. However, measurable, incremental progress needs to continue.

It is an ambitious plan but one that will serve our students and our University well.

The University also continued to develop new programs in high-demand fields. Earlier this year, the Indiana Commission for Higher Education approved our request to offer a Bachelor of Science in Engineering. The program will provide three concentrations—mechanical, civil and industrial and will help fill a tremendous need for generalist engineers. Other innovative programs have been developed in cyber security and intelligence analysis with minors now offered in traffic engineering technology, forensic investigations, corrections, law and administration and law enforcement.

The 2016-2017 ﬁscal year also yielded some of the University’s largest donations in its history, including:

• A gift of $1.03 million to the ISU School of Music from Margaret “Peg” Boyce to support scholarships, visiting artists series, visiting lectureships, student scholars, faculty development, musical equipment and instruments. This is the largest gift ever made to the School of Music. • A $3.8 million planned gift from the late Michael Simmons, co-founder of ISU’s annual Tricycle Derby which takes place each Homecoming. The gift supports the Michael Simmons Student Activity Endowment which supports ISU’s experiential learning goal by funding competitive team activities which help students get involved and develop lifelong skills. • A $7.5 million planned gift from Todd Osburn and his wife, Caroline Howe, to create a $5 million endowed scholarship fund and a $2.5 million professional readiness fund. The scholarships will assist middle-income students, who frequently have the most ﬁnancial issues in paying for college due to not qualifying for signiﬁcant federal or state aid and the inability of their families to fully pay the cost of attendance, in the Scott College of Business. The professional readiness fund will support activities in the ISU Career Center to ensure that ISU students are prepared for their careers after graduation.

On the capital front, our 10-year plan to upgrade our residence halls is nearing completion with the reopening of the renovated Cromwell Hall this fall and work now underway on the last of Sycamore Towers, Rhoads Hall. All of Indiana State’s residence halls are now sprinkled for ﬁre protection and are air conditioned with many also providing suite-style living with private bathrooms.

Renovations to the Science Building also continue with signiﬁcant upgrades to the corridors to provide more inviting spaces for students to gather and study.

A new sports performance center and nutrition station opened this fall for our intercollegiate student athletes. The center features state-of-the-art weight training equipment. Improvements were also made to the track and ﬁeld annex including the installation of an indoor training track.

The $64 million addition and renovation of the Health and Human Services Building is well underway with work on the new portion to be completed in January. The state-funded project is the largest in the University’s history and will provide laboratory and classroom space for our growing health-care programs.

The next major capital project will be the $15 million renovation of the Fine Arts and Commerce Building. Design work on the project is underway with construction to begin next spring.

The University also partnered with local redevelopment authorities to transfer the former American Can Company property, saving the University an estimated $2 million in demolition costs. Work on the $23 million project by Core Redevelopment has started to convert the structure into market- value apartments which should be ready for occupancy in the summer of 2018. The project is part of Riverscape, a community effort to redevelop the riverfront.

4 Other highlights of the year include:

• Another rare volume was added to the Warren and Suzanne Cordell Collection of Dictionaries in honor of the University’s ongoing Sesquicentennial Celebration. An unpublished manuscript written circa 1730 in English and Telugu, “Gentou and English Grammar,” is attributed to Benjamin Schultze, an early German Lutheran missionary to India. The acquisition is now part of nearly 30,000 rare dictionaries, grammars and word books dating back to 1482 in the collection, which is considered one of the top two largest and best dictionary collections in the world. The other is at Oxford University. • Washington Monthly once again ranked Indiana State among its national leaders for civic engagement placing in the top three for community service for the past five years. Indiana State also continued to be recognized as one of the “Best of the Midwest” and “Green Colleges” by the Princeton Review and among the nation’s top 20 percent of the nation’s accredited colleges and universities by Forbes magazine. • Indiana State Professor Michael Shelden’s book, “Melville in Love,” was named to Time magazine’s “240 Reasons to Celebrate American Right Now” in July 2016. • Two-time ISU graduate, Chris Himsel, was named Indiana Superintendent of the Year by the Indiana Association of Public School Superintendents. Four additional Indiana State alumni, Scott Hanback, John Hunter, Tracy Lorey and Rob Moorhead, were named District Superintendents of the Year. Chris earned his bachelor’s and educational specialists degrees from ISU and is currently completing his Ph.D. with Indiana State. His nomination noted his efforts to turn around the school corporation’s financial situation and implement a one-to-one computing project to give all students in grades 6 through 12 access to a laptop computer. • Indiana State University’s Panhellenic Association was once again awarded the College Excellence Award from the National Panhellenic Conference recognizing the achievements of the University’s sororities. ISU is one of only two institutions to earn the award for four consecutive years. The 27 institutions recognized in 2016 are considered among the top four percent nationally. • Three ISU students earned a national first place award at the 2016 College Media Association Pinnacle Awards for radio production work at WZIS-FM, Indiana State’s student radio station. The students won first place in the Best Radio Public Service Announcement category for a PSA created to increase awareness about the importance of freedom of speech and self-expression. The Pinnacle Awards honor the best college media organizations and individual student work in the country. More than 2,800 entries in 12 categories were received this year.

These are just a few examples of the great things happening at Indiana State University. The educational experience our students are receiving is ﬁlled with opportunities for experiential learning, community engagement, undergraduate research, leadership roles, intercultural activities, and more. It is great to see these students’ lives being transformed by the dedicated work of our faculty and staff.

As I approach my retirement as president in January, I am grateful for the many faculty, staff, alumni, students and friends who have worked to advance our University on so many fronts. Indiana State is a wonderful University that serves an important niche in the state’s public higher education system, and it has been an honor to serve as its 11th president. Cheri and I have greatly enjoyed our time in Terre Haute and look forward to returning following my sabbatical. It has been a privilege to work with so many talented individuals on campus and in the community, and we look forward to continuing our relationships with the friends and colleagues who welcomed us so warmly more than nine years ago.

Sincerely,

Daniel J. Bradley President

5 Letter of Transmittal

Dear President Bradley and Trustees of Indiana State University:

With this letter I transmit to you Indiana State University’s audited financial report for the year ended June 30, 2017. Although a financial statement is but one measure of an institution’s well-being, this report will confirm that Indiana State University is in sound financial condition and that its leadership continues its diligent and careful stewardship of its assets and resources. We know that everyone in the Indiana State University community is committed to excellence in teaching and learning. We hope this report reflects an equal commitment to excellence in stewarding the resources used in those pursuits.

University management is responsible for the accuracy and completeness of the information as presented, including all disclosures. The ﬁnancial statements are prepared in accordance with guidelines established by the Governmental Accounting Standards Board (GASB) and audited by the Indiana State Board of Accounts. The unmodiﬁed audit opinion, the most favorable outcome of the audit process, is on pages 7 and 8 of this report.

The Management’s Discussion and Analysis (MD&A) provides a narrative introduction and overview of the basic financial statements, as well as information regarding the financial position and results of operations of the University for the 2016-17 fiscal year. The MD&A is on pages 9 through 21 followed by financial statements and accompanying notes.

As a state-supported university, we are particularly conscious of taxpayer support and remain grateful that Hoosiers value higher education and Indiana’s government leaders remain steadfast in providing our faculty and students support to achieve our mission.

Sincerely,

Diann E. McKee Senior Vice President for Finance and Administration and University Treasurer

6 Independent Auditor’s Report

7 8 Management’s Discussion and Analysis

Introduction

The following discussion and analysis provides an overview of the financial position and activities of Indiana State University (the University) for the fiscal years ended June 30, 2017 and 2016, along with comparative financial information for the fiscal year ended June 30, 2015. This overview complies with Governmental Accounting Standards Board (GASB) principles, GASB Statement No. 35, Basic Financial Statements—and Management’s Discussion and Analysis—for Public Colleges and Universities, as amended by GASB Statements No. 37 and No. 38. This discussion has been prepared by management and should be read in conjunction with the accompanying financial statements and the notes that follow this section.

Indiana State University is a research intensive, residential institution offering instruction at the associate, bachelor, master, and doctoral levels. The University offers a diverse range of degree programs through a framework of 43 departmental units in ﬁve academic colleges and various divisions. Located in Terre Haute, Indiana, with 13,565 students, Indiana State University is a signiﬁcant economic engine for the Wabash Valley and the State of Indiana.

Using the Financial Statements

The University’s ﬁnancial report includes three ﬁnancial statements: (1) the Statement of Net Position; (2) the Statement of Revenues, Expenses, and Changes in Net Position; and (3) the Statement of Cash Flows.

The Statement of Net Position provides a summary view of the assets, liabilities, deferred inflows and outflows, and net position of the University and classifies assets and liabilities as either current or non-current. Current assets include those that may be used to support regular ongoing operations, such as cash and cash equivalents, accounts receivable, and inventories. Deferred outflows of resources are items that represent a decrease in net position applicable to a future reporting

9 period. Current liabilities are those items which are estimated to become due and payable within the next ﬁscal year. Non-current assets include capital assets, certain receivables, and long-term investments. Non-current liabilities include long-term bonds and notes payable. Deferred inﬂows of resources represent an increase of net position applicable to a future reporting period.

The Statement of Revenues, Expenses, and Changes in Net Position summarizes ﬁnancial performance for the year and explains the changes in the year-end net position.

The Statement of Cash Flows reconciles the beginning and ending balances of cash and cash equivalents and identiﬁes all sources and uses of cash during the ﬁscal year.

The Governmental Accounting Standards Board (GASB) requires the inclusion of financial statements for all significant University component units. As of June 30, 2017 the Indiana State University Foundation is the only component unit to be included. The Foundation is a nonprofit organization that is subject to reporting guidelines governed by the Financial Accounting Standards Board (FASB); accordingly, certain revenue recognition criteria and presentation features are different from established GASB standards. No modifications have been made to the Indiana State University Foundation’s financial information in the University’s financial reporting presentation for these differences.

Statement of Net Position

The Statement of Net Position presents the financial position of the University at the end of the fiscal year and includes all assets, liabilities and deferred inflows and outflows. The difference between total assets, total liabilities, and total deferred inflows and outflows is the net position, which is one measure of the financial condition of the University. Changes in net position are an indicator of whether the overall financial condition has improved or declined during the year. Assets, liabilities, and deferred inflows and outflows are generally measured at historical values in accordance with generally accepted accounting principles. One notable exception is investments, which are recorded at fair market value as of the date of the financial statements. A summarized comparison of the University’s assets, liabilities, deferred inflows and outflows, and net position at June 30, 2017, 2016 and 2015 is as follows:

Statement of Net Position (in millions) 2017 2016 2015 Current assets $ 92.3 56.9$ $ 61.3 Non-current assets: Deposits with bond trustee 0.1 0.1 0.1 Notes receivable, net 3.8 3.6 4.1 Other long-term investments 127.4 122.3 111.1 Net OPEB asset 19.0 19.3 18.1 Capital assets, net 496.6 466.3 444.2 Other assets 0.7 0.6 0.7 Total assets 739.9$ 669.1$ 639.6$ Deferred outflows of resources $ 8.8 7.7$ 2.6$ Current liabilities $ 40.5 40.8$ $ 38.7 Non-current liabilities 268.3 200.2 174.9 Total liabilities $ 308.8 241.0$ 213.6$ Deferred inflows of resources $ 2.2 2.7$ 3.3$ Net position 437.7$ 433.1$ 425.3$

10 Assets and Deferred Outflows of Resources

Current assets consist primarily of cash, operating investments, and accounts receivable. Non- current assets consist primarily of capital assets net of depreciation, long-term investments, notes receivable net of allowance, and the net other post-employment benefit (OPEB) asset. Deferred outflows of resources reflect deferred outflows related to early debt retirement and pensions. Total assets increased by $70.8 million in 2017 as compared to a $29.5 million increase in 2016. This represents a 10.6 percent increase in 2017 and a 4.6 percent increase in 2016. The current year activity is summarized below:

• Cash and cash equivalents and short-term investments grew by $7.3 million and $26 million, respectively, which reflects a reduction of cash used in operating activities from 2016 (see Statement of Cash Flows) and the investment of unspent proceeds from Housing and Dining System Revenue Bonds and Student Fee Bonds Series R (see Note 6). The receipt of these unspent proceeds is also reflected in the $5.1 million increase in other long-term investments. • Accounts receivable grew by $2.7 million reflecting growth in tuition and housing and dining receivables over the last four years and increased write-offs in 2017. • Grants receivable decreased by $0.4 million due to reduced grant revenue and increased grant prepayments. • Capital assets increased by $30.4 million. This growth reflects construction projects including the College of Health and Human Services building, Cromwell Hall, Rhoads Hall, and the Hulman Center renovations.

Deferred outflows of resources increased to $8.8 million in 2017 from $7.7 million in 2016 and $2.6 million in 2015. The University’s contribution of $2.1 million to the Public Employees’ Retirement Fund (PERF) during 2017 was recognized as a deferred outflow of resources as required by GASB Statements No. 68 and 71. An additional $1.2 million of deferred outflow of resources related to PERF was recognized in 2017, and details can be reviewed in Note 16 of the accompanying Notes to Financial Statements.

A Voluntary Employee Benefit Association (VEBA) Trust was established by the University in 1998 to set aside funds for post-retirement health and life insurance benefits and provide for investment of these assets. The fund assets cannot revert to the University and therefore the financial statements

11 do not reﬂect the value of these assets. As of June 30, 2017, the value of the Trust assets was $88.9 million. The outstanding actuarial accrued liability for post-retirement beneﬁts as of June 30, 2017 is $56.6 million resulting in a positive funded ratio of 156.9 percent.

Liabilities and Deferred Inflows of Resources

Current liabilities include accounts payable, accrued compensation, unearned revenue, and the current portion of long-term debt. Non-current liabilities consist primarily of the non-current portion of long-term debt, net pension liability and advances from the federal government. Deferred inﬂows of resources consist of the service concession arrangement with Sodexo and inﬂows related to pensions. Total liabilities increased $67.8 million in 2017 as compared to a $27.4 million increase in 2016. This represents a 28.1 percent increase in 2017 and a 12.8 percent increase in 2016. Key changes in current year liabilities are as follows:

• Accounts payable decreased by $2 million due to a reduction of $2.3 million in construction payables from ﬁscal year 2016 and an increase of $0.3 million in operational payables. • Bonds payable increased by $66.2 million to reﬂect the issuance of Housing and Dining System Revenue Bonds, Series 2017, and Student Fee Bonds, Series R. • Net pension liability increased by $2.3 million due to reported changes provided by the State of Indiana for the Public Employees’ Retirement Fund (PERF).

The University contributes to retirement plans for faculty and staff. Faculty and exempt staff participate in a defined contribution plan administered by TIAA-CREF resulting in no outstanding pension liability for the University. Non-exempt staff participates in a defined benefit plan administered by the State of Indiana. As mentioned above, the net pension liability as of June 30, 2017 is $17.9 million for this group of employees.

12 Capital and Debt Activities

An important element in the continuing quality of academic programs, research activities, and student residential life is the sustained commitment to the development and renewal of the University’s capital assets. The University continues to implement its Campus Master Plan with new construction, renovation, and modernization of existing facilities. Please refer to Note 3 in the Notes to the Financial Statement for activities in capital assets, including additions and deletions of capital assets in the current ﬁscal year.

Blumberg Hall—Completed for fall 2016 occupancy, this project was the second phase of a comprehensive renovation of Sycamore Towers. The Blumberg Hall renovation upgraded living and learning spaces and provided a total of 366 beds. The project was capitalized in 2017 with an overall cost of at $18.8 million.

Cromwell Hall—The renovation of Cromwell Hall is the third phase of a comprehensive renovation of Sycamore Towers. The renovated facility, comprising of approximately 100,468 square feet of residence hall space, will provide approximately 366 beds. The overall cost of the Cromwell Hall renovation project is estimated at $20.1 million, of which $4 million will be funded from Housing and Dining System reserves and $16.1 million from the proceeds of Indiana State University Housing and Dining System Revenue Bonds, Series 2016. Expenditures incurred through 2017 totaled $17.8 million. The project was completed for fall 2017 occupancy.

Health and Human Services Building—Work began in the summer of 2016 on the construction, expansion, and renovation and equipping of the University’s facility for the College of Health and Human Services. Work will include major upgrades to building systems, reconﬁguring of interior spaces to enable academic programs to function more efﬁciently, and the construction of an approximately 87,000 square foot addition to the facility. This will allow the college to house new academic programs and accommodate existing programs now housed elsewhere on the Indiana State campus. The project has a total estimated cost of $64 million, of which $23 million has been expended through 2017, and is scheduled for completion in March 2019. The project is funded through the issuance of Student Fee Bonds, Series R, which are fee-replaced bonds reimbursed by the State of Indiana issued September 2016 (see Note 6 of the accompanying Notes to Financial Statements).

Rhoads Hall—The renovation of Rhoads Hall is the fourth phase of a comprehensive renovation of Sycamore Towers. The project includes the renovation of approximately 99,953 square feet of residence hall space. The facility will provide approximately 344 revenue generating spaces. The overall cost of the Rhoads Hall project is estimated at $20.5 million, of which $4.1 million is funded from Housing and Dining System reserves and $16.4 million from the proceeds of the Indiana State University Housing and Dining Revenue Bonds, Series 2017 issued June 2017 (see Note 6 of the accompanying Notes to Financial Statements). Expenditures incurred through 2017 totaled $1.6 million. The project is expected to be completed for fall 2018 occupancy.

The University continues to work assertively to manage its financial resources efficiently, including the issuance of debt to finance capital projects. Indiana State University Student Fee Bonds, Series R and Indiana State University Housing and Dining System Revenue Bonds, Series 2017, issued during fiscal year 2017, had underlying credit ratings of (A-1) from Moody’s and (AA-) from Fitch Ratings. Both Moody’s and Fitch Ratings assigned a stable outlook to the Series R and Series 2017 bonds, listing consistent positive University operating performance, enrollment related revenue growth, prudent financial management, and solid balance sheet resources.

13 Net Position

Net position represents the residual value of the University’s assets and deferred outﬂows after liabilities and deferred inﬂows are deducted. The University’s net position at June 30, 2017, 2016 and 2015 are summarized in the table that follows:

Net Position (in millions) 2017 2016 2015 Net investment in capital assets 299.0$ 290.9$ 278.2$ Restricted Non-expendable 0.7 0.6 0.7 Expendable 6.0 5.3 6.1 Unrestricted 132.0 136.3 140.3 Total net position 437.7$ 433.1$ 425.3$

Net investment in capital assets reﬂects the University’s capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of these assets. Net investment in capital assets increased $12.7 million in 2016 and $8.1 million in 2017 for a total increase of $20.8 million since 2015. This reﬂects renovation of University housing (Mills Hall and Blumberg Hall), academic buildings (Normal Hall), and athletic facilities (Gibson Track and Field Complex).

Restricted net position is subject to externally imposed restrictions governing its use. Restricted non- expendable net position is funds held for scholarships and fellowships. Restricted expendable net position includes funds for research, loans, and funds limited to construction and renovation.

Although unrestricted net position is not subject to externally imposed stipulations, all of the University’s unrestricted net position has been internally designated for various ongoing needs of the University, including debt service, capital projects, University initiatives, beneﬁt claims, technology improvements, and academic and administrative activities.

14 Unrestricted net assets declined $4.3 million in 2017 and $4 million in 2016 for a total decline of $8.3 million since 2015. This is a result of using Housing and Dining reserves to fund 20 percent of the Sycamore Towers renovation projects. University reserves were also used to make the ﬁnal payment on the $3.5 million outstanding Parking System Revenue Bond in 2017.

Statement of Revenues, Expenses, and Changes in Net Position

The Statement of Revenues, Expenses, and Changes in Net Position presents the University’s results of operations for the identiﬁed ﬁscal year periods. A summarized comparison of the University’s revenues, expenses, and changes in net position for the years ended June 30, 2017, 2016 and 2015 is as follows:

Revenue, Expenses, and Changes in Net Position (in millions) 2017 2016 2015 Operating revenues Tuition and fees, net $ 70.5 71.4$ $ 70.5 Grants and contracts 8.1 9.6 9.0 Auxiliary enterprises fees and services, net 46.7 46.7 43.3 Other revenues 7.7 6.4 5.8 Total operating revenue 133.0$ 134.1$ 128.6$ Operating expenses (247.6) (255.3) (232.5) Operating loss (114.6)$ (121.2)$ (103.9)$ Non-operating revenues (expenses) State appropriations $ 77.1 75.1$ $ 77.2 Investment income, net 1.0 5.8 1.0 Non-operating grants and contracts 43.0 44.0 41.4 Capital appropriations 1.4 5.7 11.9 Capital grants and gifts 0.3 0.4 0.1 Other non-operating revenues 2.7 4.5 4.5 Other non-operating expenses (0.7) (0.2) (0.2) Interest on capital asset related debt (5.6) (6.3) (5.0) Net non-operating and other revenues 119.2$ 129.0$ 130.9$ Increase in net position $ 4.6 7.8$ 27.0$ Net position, beginning of year 433.1$ 425.3$ 408.7$ Prior period adjustment for change in accounting principle $ - -$ (10.4)$ Net position, end of year 437.7$ 433.1$ 425.3$

One of the University’s greatest strengths is its diverse stream of revenues that supplement student fees, including voluntary private support from individuals, foundations, and corporations, along with government and other sponsored programs, state appropriations, and investment income. To supplement student tuition the University will continue to aggressively seek funding from all possible sources consistent with its mission and will direct the ﬁnancial resources realized from these efforts to fund University operating priorities.

The following is a comparative graphic illustration of revenues by source (both operating and non-operating) for the years ending June 30, 2017, 2016 and 2015, which are used to fund the University’s ongoing activities. As the following charts indicate, tuition and state appropriations remain the primary sources of funding for the University’s academic programs. It should be noted that signiﬁcant recurring sources of the University’s revenues, including state appropriations, are considered non-operating revenues.

15 Revenue by Source (in millions)

2014-2015 2015-2016 2016-2017 $1.0 $5.8 $1.0 $5.8 $6.4 $7.7 $9.0 $9.6 $8.1

$77.2 $43.3 $75.1 $46.7 $77.1 $46.7

$57.9 $54.6 $47.4

$70.5 $71.4 $70.5

Other operating revenues Other non-operating revenue*

Investment income Tuition and fees

Federal, state, and local grants/contracts State appropriations

Auxiliary enterprises fees and services

* Includes non-operating grants and contracts (federal and state student assistance), other non-operating revenues, gifts and capital revenues

Operating revenues have increased by $4.4 million since 2015. This is a result of growth in auxiliary enterprises income due to increased capacity of housing resulting from renovation and new construction of housing facilities. The 2017 decrease of $1.1 million is comprised of the following:

• Net tuition and fee income decreased by $0.9 million as the result of reduced full-time freshmen and the reduction in revenue associated with the end-of-contract closure of the Correctional Training Institute program contract period. • Housing occupancy remained steady, which resulted in level auxiliary enterprises fees and services revenue from 2016 to 2017. • Grants and contracts decreased by $1.5 million caused by National Science Foundation grants ending in 2016. • Other operating revenues grew by $1.3 million. This reﬂects insurance recovery related to water damage in Blumberg Hall and growth in beverage commissions.

Net non-operating and other revenues decreased by $9.8 million in 2017 and decreased by $1.9 million in 2016 for a total reduction of $11.7 million since 2015. This is largely attributed to the capital funding of Normal Hall (funded by the State of Indiana) that began in 2015 and was completed in 2016. Signiﬁcant changes in non-operating revenues in 2017 were as follows:

• State appropriations increased by $2 million. This is related to the increase of $2.3 million in fee replaced (debt service) appropriation for the College of Health and Human Services addition and renovation and a $0.3 million reduction in the operational appropriation. • Investment income decreased by $4.8 million as interest income was offset by unrealized gains and losses in ﬁxed income investments. • Non-operating grants and contracts revenue decreased by $1 million due to reductions of federal and state aid as a result of lower full-time freshmen enrollment.

16 • Other non-operating revenues, net of non-operating expenses, decreased by $2.3 million due to reduced ISU Foundation reimbursements related to a new agreement between the University and Foundation. • Capital appropriations decreased by $4.3 million as the Normal Hall renovation, funded by the State of Indiana, was completed in 2016.

A comparative summary of the University’s expenses for the years ended June 30, 2017, 2016 and 2015 is as follows:

Operating and Non-Operating Expenses (in millions) 2017 2016 2015 Operating Compensation and employee benefits 145.7$ 146.5$ 133.8$ Supplies and expenses 61.6 70.6 62.3 Utilities 10.4 9.3 10.3 Scholarships and fellowships 11.7 11.8 11.0 Depreciation 18.2 17.0 15.1 Total operating expenses 247.6$ 255.2$ 232.5$ Non-operating Interest on capital asset related debt $ 5.5 $ 6.3 5.0$ Other non-operating expenses 0.7 0.2 0.2 Total non-operating expenses $ 6.2 6.5$ $ 5.2 Total expenses 253.8$ 261.7$ 237.7$

Total operating expenses increased by $15.1 million from $232.5 million in 2015 to $247.6 million in 2017. The decrease of $7.6 million of operating expense from 2016 to 2017 is attributed to the following:

• Compensation and employee benefits decreased by $0.8 million from 2016. 100 percent of retiree medical costs and life insurance premiums were reimbursed to the University from the VEBA Trust. This savings was partially offset by increased medical costs of active employees and a two percent wage increase. • Supplies and expenses reduced $9 million in fiscal year 2017. This includes reduction in costs associated with the end-of-contract closure of the Correctional Training Institute program, reduced payments to the ISU Foundation, reduced student meal costs, a reduction in case goods purchases for residential life, and the completion of the University network upgrade in 2016. • Utilities expense increased by $1.1 million from 2016 due to increased rates on sewage and increased electrical usage and rates. • Depreciation expense grew by $1.2 million to reflect the capital additions of Blumberg Hall, Science Lab renovation, Dede Plaza and Lincoln Quad networking.

Non-operating expenses decreased by $0.3 million from 2016 to 2017. Interest on capital asset related debt decreased $0.8 million as a result of the refunding of Series M and Series O bonds, which saved $1.6 million in interest expense. This was partially offset by an increase in interest paid due to the issue of Housing and Dining System Revenue Bonds, Series 2016 that were issued June 2016. Other non-operating expenses increased by $0.5 million to reﬂect bond issuance costs for the Series R and Series 2017 issuances.

Indiana State University continues to make market-competitive compensation and employee beneﬁts a top priority. These expenses represent 59 percent of total University operating expense.

In addition to their natural (object) classiﬁcation (expenditure type), it is also beneﬁcial to the reader to review operating expenses by the nature of the University division incurring the expense.

17 A summary of the University’s expenses by functional classiﬁcation for the years ended June 30, 2017, 2016 and 2015 is as follows:

Expenses by Function (in millions) 2017 2016 2015 Operating Instruction 76.2$ 76.9$ $ 74.5 Research 8.3 10.0 9.3 Public service 4.4 3.9 3.7 Institutional and academic support 42.2 47.0 38.0 Student services 17.1 15.9 13.6 Operation of plant 30.3 30.9 31.4 Scholarships 13.3 13.3 12.4 Auxiliary enterprises 37.6 40.3 34.5 Depreciation 18.2 17.0 15.1 Total functional operating expenses 247.6$ 255.2$ 232.5$

Statement of Cash Flows

The Statement of Cash Flows provides information about the University’s ﬁnancial health and performance by identifying the major sources and uses of cash. The statement assists the reader in evaluating the entity’s ability to generate future net cash ﬂows to meet obligations as they come due. Below is a comparative summary of the Statement of Cash Flows for the years ended June 30, 2017, 2016 and 2015:

Statement of Cash Flows (in millions) 2017 2016 2015 Net cash (used) provided by: Operating activities (92.7)$ $ (100.0) $ (91.6) Non-capital financial activities 122.7 124.0 121.5 Capital financing activities 7.4 (22.9) (43.8) Investing activities (30.1) 1.0 9.1 Net increase (decrease) in cash and cash equivalents$ 7.3 2.1$ (4.8)$

For the year ended June 30, 2017, the University used less cash for operating activities, less cash was provided by non-capital ﬁnancing activities, more cash was received for capital ﬁnancing activities and more cash was used for investing activities. The University experienced a $7.3 million increase in cash and cash equivalents in 2017 and a $2.1 million increase in 2016 for an overall increase of $9.4 million since 2015. Highlights of major changes in 2017 are discussed below:

Operating activities • Cash used by operating activities decreased from $100 million in 2016 to $92.7 million in 2017. • Cash provided by tuition and fees and auxiliary enterprises comprise 87 percent of inflows from operating activities. Cash provided by tuition and fees decreased by $2.1 million while cash provided by auxiliary enterprises remained steady. • Payments to employees and for employee benefits make up 62 percent of outflows of cash for operating activities. These payments decreased by $2.6 million in 2017 due to an increase in reimbursements from the VEBA trust to cover medical claims. • Payments to suppliers decreased by $8.4 million. Costs incurred in 2016 for case goods for resident hall projects and an update to the University network system was not incurred in 2017.

18 • Cash received for other receipts grew by $1.1 million. This is largely due to insurance proceeds received for water damage incurred during the construction of Blumberg Hall.

Non-capital financing activities • Cash provided by non-capital financing activities decreased by $1.3 million. • Cash received from non-operating grants and contracts decreased by $1.2 million. This is due to a decrease of $0.3 million in funds received for non-operating state grants and a decrease of $1 million in funds received for non-operating federal grants. • State appropriations make up 63 percent of net cash provided by non-capital financing activities. • Gifts and other non-operating receipts decreased by $0.7 million due to receiving fewer reimbursements from the ISU Foundation.

Capital ﬁnancing activities • Cash provided by capital ﬁnancing activities increased by $30.3 million. • Capital appropriations decreased by $4.3 million. The Normal Hall renovation, cash funded by the State of Indiana, was completed in 2016. The funds received for the renovation were recognized in 2015 and 2016. • Proceeds from bond issues increased by $47.1 million. New bond issues in 2017 resulted in cash receipts of $16.4 million for Housing & Dining, Series 2017 and $64 million for Student Fee Bonds, Series R. Cash receipts from new bonds in 2016 were $32.7 million. • Cash paid for capital assets increased from $44.1 million to $50 million in 2017. • Principal and interest paid on capital debt and leases increased by $6.4 million. This was due to increased debt service payments related to the Housing and Dining System Revenue Bonds, Series 2016, issued at the end of 2016 and Student Fee Bonds, Series R, issued in 2017.

Investing activities • Cash used by investing activities increased by $31.1 million. • The University utilized certiﬁcates of deposit to invest bond proceeds causing an increase of $31.6 million in purchases of investments from $4.8 million in 2016 to $36.4 million in 2017.

19 Economic Factors that Will Affect the Future

The University is providing an environment that both challenges and educates students. With an emphasis on experiential learning and community engagement activities, Indiana State University graduates are prepared for future leadership roles in their communities.

Indiana State University fall 2017 enrollment grew to a record number of 13,771 students. This is a 1.52 percent increase from the previous year total of 13,565. The freshman class of 2021 is 2,688, a 9.8 percent increase over last year’s freshmen cohort. The change was largely due to a 66 percent increase in Illinois students with 402 students enrolled in fall 2017 compared to 242 in 2016.

The University has set a goal that distance degrees awarded will double by the end of the next six years and overall enrollment will reach 16,000 by fall 2022. Additionally, the University has set a goal of narrowing the gap of graduation rates between Pell and non-Pell eligible students.

Improvement has been made on four-year graduation rates growing from 20.5 percent in 2009 to 28.7 percent in 2017 and ﬁrst-year retention rates improving from 63.9 percent in 2009 to 67.8 percent in 2017. The University will continue to seek to increase its four-year graduation rate and its six-year graduation rate through the implementation of a new series of success initiatives including a focus on juniors and seniors through a program targeting those at risk due to ﬁnancial reasons and reducing the load of some freshman advisors and creating less burdensome paths for students without a need for a high level of advisement.

The State of Indiana utilizes various performance funding metrics to determine a portion of state support for higher education. The majority of these metrics focus on degree completion. It is therefore critical to continue implementation of student success and degree completion initiatives. The University has formed an integrated team from Academic Affairs, Enrollment Management and Communications and Marketing to dramatically increase enrollment in degree completion and distance-delivered programs.

The University received a $37.5 million fee replacement authorization from the 2015 Indiana General Assembly for the renovation Hulman Center. The University anticipates issuing additional student fee bonds during calendar year 2018 to ﬁnance a $50 million renovation.

The 2017 Indiana General Assembly appropriated $15 million effective July 1, 2018 for an academic facility renovation of the Fine Arts and Commerce building. The project will replace mechanical and electrical systems, provide access to technology, and enhance instructional capabilities.

20 The ﬁnal project of the Sycamore Towers renovation is a remodel of the Sycamore Towers Dining facility planned to begin during the fall of 2018. The overall project involves the renovation of approximately 35,000 square feet to improve existing dining and food service operations to meet current service standards. Due to a projected increase in student diners, the design will investigate a new 5,000 square foot dining addition. Project cost is estimated at $16.8 million.

In September 2016, Indiana State University announced its new strategic plan—There’s More to Blue—that will guide the University through 2021. The plan has six main goals and a number of initiatives for each goal. The goals are as follows: Goal 1: Student success Goal 2: Experiential learning and career readiness Goal 3: Community engagement and civic responsibility Goal 4: Distinctive programs and experiences Goal 5: Resources and institutional effectiveness Goal 6: Employee success

In December of 2016, the Indiana State University Board of Trustees approved an updated Campus Master Plan that includes improvements to several key areas including academic facilities, student housing, athletic venues and student recreational areas. Additionally, the plan details the need for enhanced entryways to campus, upgraded way-ﬁnding including increased parking and continued development of pedestrian and bicycle friendly routes. The University will also continue its efforts to implement sustainable landscaping, including installing additional green roofs, reducing chemical treatments and utilizing more plant materials native to Indiana along with plantings that require less water and weekly maintenance.

Indiana State University’s management is conﬁdent that the University’s ﬁnancial condition is strong and will meet all foreseeable economic requirements.

21 Indiana State University Statement of Net Position As of June 30, 2017 and June 30, 2016 (Dollars in Thousands)

ASSETS 2017 2016 Current assets Cash and cash equivalents $ 32,423 $ 25,075 Short-term investments 35,172 9,137 Accrued interest 718 896 Accounts receivable (net of allowance of $6,039 for 2017 and $6,846 for 2016) 15,011 12,274 Other accounts receivable 1,641 1,843 Grants receivable 775 1,220 Notes receivable, current portion 4,510 4,354 Prepaid expenses 2,009 2,069 Inventories 30 71 Total current assets $ 92,289 $ 56,939 Non-current assets Endowment investments—held in trust $ 674 $ 620 Deposits with bond trustee 149 154 Notes receivable, non-current portion (net of allowance of $926 for 2017 and $881 for 2016) 3,837 3,579 Other long-term investments 127,375 122,257 Net OPEB Asset 19,024 19,268 Capital assets (net of accumulated depreciation of $289,896 for 2017 and $275,877 for 2016) 496,639 466,279 Total non-current assets $ 647,698 $ 612,157

TOTAL ASSETS $ 739,987 $ 669,096

DEFERRED OUTFLOWS OF RESOURCES Deferred loss on early retirement of debt $ 956 $ 400 Deferred outﬂows related to pensions 7,825 7,312 Total deferred outﬂows of resources $ 8,781 $ 7,712

LIABILITIES Current liabilities Accounts payable $ 3,662 $ 5,675 Accrued payroll and deductions 4,040 3,744 Unearned revenue 6,525 5,415 Funds held in custody for others 1,290 1,135 Other current liabilities 5,796 6,004 Bonds payable 10,957 11,970 Compensated absences and termination beneﬁts 4,217 3,811 Lease payable 1,926 1,574 Debt interest payable 2,044 1,445 Total current liabilities $ 40,457 $ 40,773 Non-current liabilities Bonds payable $ 214,805 $ 147,610 Compensated absences and termination beneﬁts 17 293 Lease payable 28,314 29,324 Net pension liability 17,855 15,538 Advances from Federal Government 7,357 7,454 Total non-current liabilities $ 268,348 $ 200,219

TOTAL LIABILITIES $ 308,805 $ 240,992

DEFERRED INFLOWS OF RESOURCES Deferred service concession arrangement $ 970 $ 1,213 Deferred inﬂows related to pensions 1,250 1,501 Total deferred inﬂows of resources $ 2,220 $ 2,714

NET POSITION Net investment in capital assets $ 299,066 $ 290,926 Restricted for: Non-expendable: Scholarships and fellowships 674 620 Expendable: Research and other grants 849 594 Loans 2,121 2,133 Capital projects 2,990 2,494 Unrestricted 132,043 136,335

TOTAL NET POSITION $ 437,743 $ 433,102

The accompanying notes to ﬁnancial statements are an integral part of this statement.

22 Indiana State University Statement of Revenues, Expenses, and Changes in Net Position For the Years Ended June 30, 2017 and June 30, 2016 (Dollars in Thousands)

2017 2016 OPERATING REVENUES Tuition and fees $ 113,573 $ 114,886 Scholarship allowances for tuition and fees (42,132) (42,701) Other allowances (951) (791) Net tuition and fees 70,490 71,394 Federal grants and contracts 4,792 6,124 State and local grants and contracts 240 113 Non-governmental grants and contracts 3,092 3,350 Auxiliary enterprises fees and services 58,546 58,380 Scholarship allowances for room and board (11,289) (11,323) Other allowances (528) (403) Net auxiliary enterprises fees and services 46,729 46,654 Other operating revenues 7,695 6,424 Total operating revenues $ 133,038 $ 134,059

EXPENSES Compensation and employee beneﬁts $ 145,740 $ 146,536 Supplies and expenses 61,600 70,640 Utilities 10,410 9,332 Scholarships and fellowships 11,751 11,795 Depreciation 18,157 16,979 Total operating expenses $ 247,658 $ 255,282

Operating loss $ (114,620) $ (121,223)

NON-OPERATING REVENUES (EXPENSES) State appropriations $ 77,126 $ 75,133 Gifts 322 400 Investment income (net of investment expenses of $486 for 2017 and $482 for 2016) 1,013 5,756 Interest on capital asset related debt (5,557) (6,283) Non-operating grants and contracts 43,000 43,967 Other non-operating revenues 2,389 4,156 Other non-operating expenses (671) (189) Net non-operating revenues $ 117,622 $ 122,940

Income before other revenues, expenses, gains, or losses $ 3,002 $ 1,717

Capital appropriations $ 1,383 $ 5,680 Capital grants and gifts $ 256 $ 410

Total other revenues $ 1,639 $ 6,090

Increase in net position $ 4,641 $ 7,807

NET POSITION Net position—beginning of year $ 433,102 $ 425,295 Net position—end of year $ 437,743 $ 433,102

23 Indiana State University Statement of Cash Flows For the Years Ended June 30, 2017 and June 30, 2016 (Dollars in Thousands)

2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES Tuition and fees $ 69,366 $ 71,493 Grants and contracts 8,157 9,257 Auxiliary enterprises 46,751 46,711 Payments to suppliers (73,216) (81,584) Payments to employees (74,027) (74,539) Payments for beneﬁts (66,531) (68,659) Payments to students (11,038) (10,027) Loans issued to students (1,496) (966) Student loans collected 1,329 1,372 Other receipts 8,052 6,924 Net cash used by operating activities $ (92,653) $ (100,018)

CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES State appropriations $ 77,126 $ 76,497 Direct loan program receipts 23,466 22,079 Direct loan program disbursements (23,466) (22,079) Non-operating grants and contracts 42,940 44,103 Gifts and other non-operating income 2,658 3,423 Net cash provided by non-capital ﬁnancing activities $ 122,724 $ 124,023

CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES Capital appropriations received $ 1,383 $ 5,680 Capital gifts and grants received 142 — Proceeds from bond issue 79,778 32,720 Costs of issuance (638) (291) Cash paid for capital assets (49,984) (44,136) Principal and interest paid on capital debt and leases (23,316) (16,851) Net cash provided (used) by capital ﬁnancing activities $ 7,365 $ (22,878)

CASH FLOW FROM INVESTING ACTIVITIES Proceeds from sale of investments $ 3,311 $ 2,892 Income from investing activities 3,020 2,880 Purchase of investments (36,419) (4,783) Net cash (used) provided by investing activities $ (30,088) $ 989

Net increase in cash and cash equivalents $ 7,348 $ 2,116

Cash and cash equivalents—beginning of year $ 25,075 $ 22,959 Cash and cash equivalents—end of year $ 32,423 $ 25,075

Reconciliation of Operating Loss to Net Cash Used by Operating Activities

Operating Loss $ (114,620) $ (121,223)

Adjustments to reconcile operating loss to net cash used by operating activities Depreciation expense $ 18,157 $ 16,979 Other non-cash adjustments $ 4,002 $ 3,556

Changes in assets and liabilities Accounts receivable $ (2,737) $ (331) Grants receivable 445 99 Notes receivable, current (156) (377) Inventories 41 (52) Prepaid expenses 61 (159) Accounts payable 397 (217) Accrued payroll and deductions 295 636 Unearned revenue 1,109 (10) Funds held in custody for others 155 299 Other current liabilities (208) 536 Compensated absences and termination beneﬁts 406 246

Net cash used by operating activities $ (92,653) $ (100,018)

Non-cash transactions Equipment $ 56 $ 55 Capital lease $ (56) $ (55)

24 Indiana State University Foundation, Inc. and Affiliate Consolidated Statement of Financial Position June 30, 2017 and 2016

2017 2016 ASSETS Cash and equivalents $ 5,126,245 $ 2,981,798 Contributions receivable, net 3,384,045 3,394,501 Due from Indiana State University 200,230 82,050 Other assets 589,528 784,181 Property held for future use 9,452 109,452 Investment in joint ventures 857,152 1,002,467 Investments 66,373,634 59,250,270 Investments held in split-interest agreements 495,545 738,042 Beneﬁcial interest in remainder trusts 666,641 666,462 Property and equipment, net 591,278 732,932 Beneﬁcial interest in perpetual trusts 1,053,906 1,005,124

TOTAL ASSETS $ 79,374,656 $ 70,747,279

LIABILITIES Accounts payable $ 42,159 $ 202,516 Due to Indiana State University 2,292,636 2,391,302 Line of credit 2,202,699 2,298,296 Notes payable 6,453,714 6,842,380 Split-interest agreement obligations 785,172 1,016,424 Refundable advances 57,936 58,378 Total liabilities 11,834,316 12,809,296

NET ASSETS Unrestricted (1,998,007) (4,219,429) Temporarily restricted 22,135,221 19,948,554 Permanently restricted 47,376,126 42,208,858 Total net assets 67,513,340 57,937,983

TOTAL LIABILITIES AND NET ASSETS $ 79,347,656 $ 70,747,279

25 Indiana State University Foundation, Inc. and Affiliate Consolidated Statement of Activities Years Ended June 30, 2017 and 2016 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUES, GAINS AND OTHER SUPPORT Contributions $ 788,094 $ 2,478,764 $ 5,051,300 $ 8,318,158 Investment return Interest and dividends 425,433 931,376 29,288 1,386,097 Net realized and unrealized gains (losses) 2,590,941 3,464,791 198,631 6,254,363 Total investment return 3,016,374 4,396,167 227,919 7,640,460 Non-gift income 635,912 527,878 — 1,163,790 Change in value of split-interest agreements (55,829) 17,844 (18,459) (56,444) Service fee income—Indiana State University — — — — Endowment administration and gift assessments fee 799,889 (789,705) (10,184) — 5,184,440 6,630,948 5,250,576 17,065,964 Net assets released from restrictions 4,527,589 (4,444,281) (83,308) — Reclassiﬁcation of donor restriction — — — — Reclassiﬁcation of donor intent — — — — Total revenues, gains and other support 9,712,029 2,186,667 5,167,268 17,065,964

EXPENSES 2017 Scholarships and awards 1,439,890 — — 1,439,890 Restricted and designated expenditures 3,556,661 — — 3,556,661 Total program services 4,996,551 — — 4,996,551 Foundation operations 1,473,073 — — 1,473,073 Sycamore operations 148,297 — — 148,297 Development and president 386,956 — — 386,956 Sports marketing program 459,688 459,688 Alumni affairs 26,042 — — 26,042 Bad debt expense — — — — Loss on disposal of art collection — — — — Total expenses 7,490,607 — — 7,490,607

CHANGE IN NET ASSETS 2,221,422 2,186,667 5,167,268 9,575,357 NET ASSETS, Beginning of Year (4,219,429) 19,948,554 42,208,858 57,937,983 NET ASSETS, End of Year $ (1,998,007) $ 22,135,221 $ 47,376,126 $ 67,513,340

Temporarily Permanently Unrestricted Restricted Restricted Total REVENUES, GAINS AND OTHER SUPPORT Contributions $ 820,662 $2,296,994 $837,645 $3,955,301 Investment return Interest and dividends 416,203 840,965 41,452 1,298,620 Net realized and unrealized gains (losses) (1,554,906) (1,600,433) (288,952) (3,444,291) Total investment return (1,138,703) (759,468) (247,500) (2,145,671) Non-gift income 173,099 768,783 — 941,882 Change in value of split-interest agreements 27,799 69,931 (31,237) 66,493 Service fee income—Indiana State University 1,971,012 — — 1,971,012 Endowment administration and gift assessments fee 560,589 (560,753) (1,086) (1,250) 2,414,458 1,815,487 557,822 4,787,767 Net assets released from restrictions 4,457,921 (4,457,921) — — Reclassiﬁcation of donor restriction 102,107 109,667 (211,774) — Reclassiﬁcation of donor intent — 211,535 (211,535) — Total revenues, gains and other support 6,974,486 (2,321,232) 134,513 4,787,767 2016 EXPENSES Scholarships and awards 1,498,183 — — 1,498,183 Restricted and designated expenditures 3,019,353 — — 3,019,353 Total program services 4,517,536 — — 4,517,536 Foundation operations 1,750,282 — — 1,750,282 Sycamore operations 149,673 — — 149,673 Development and president 2,263,673 — — 2,263,673 Sports marketing program — — — — Alumni affairs 294,073 — — 294,073 Bad debt expense 493,000 — — 493,000 Loss on disposal of art collection 307,827 — — 307,827 Total expenses 9,776,064 — — 9,776,064

CHANGE IN NET ASSETS (2,801,578) (2,321,232) 134,513 (4,988,297) NET ASSETS, Beginning of Year (1,417,851) 22,269,786 42,074,345 62,926,280 NET ASSETS, End of Year $ (4,219,429) $ 19,948,554 $ 42,208,858 $ 57,937,983

26 Indiana State University Foundation, Inc. and Affiliate Consolidated Statement of Cash Flows Years Ended June 30, 2017 and 2016

2017 2016

OPERATING ACTIVITIES Change in net assets $ 9,575,357 $ (4,988,297) Items not requiring (providing) cash Depreciation and amortization 140,510 140,340 Provision (credit) for uncollectible contributions receivable (16,829) 493,000 Net realized and unrealized (gains) losses on investments (6,254,363) 3,444,291 Loss on sale of property and equipment 48,518 307,827 Contributions restricted for long-term investment (5,051,300) (837,645) Net change in value of split-interest agreements (231,873) (87,033) Changes in Contributions receivable 27,285 263,018 Due from Indiana State University (118,180) 125,849 Other assets 194,653 203,249 Accounts payable (160,357) (154,059) Due to Indiana State University (98,666) 772,308 Net cash used in operating activities (1,945,245) (317,152)

INVESTING ACTIVITIES Purchase of investments (43,484,953) (13,125,274) Sales and maturities of investments 42,954,982 13,343,409 Proceeds from property and equipment held for future use 100,000 21,904 Purchase of property and equipment (47,374) (19,203) Net cash provided by (used in) investing activities (477,345) 220,836

FINANCING ACTIVITIES Borrowings on line of credit — 2,740,750 Repayments of line of credit (95,597) (2,844,292) Repayments of note payable (388,666) (308,265) Proceeds from contributions restricted for investments in permanent endowment 5,051,300 837,645 Net cash provided by ﬁnancing activities 4,567,037 425,838

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,144,447 329,522

Cash and Cash Equivalents, Beginning of Year 2,981,798 2,652,276

Cash and Cash Equivalents, End of Year $ 5,126,245 $ 2,981,798

Supplemental Cash Flows Information Interest paid $ 120,482 $ 122,834

27 28 Notes To Financial Statements As of June 30, 2017

Note 1. Summary of Significant Accounting Policies

Indiana State University (the University), a publicly supported, comprehensive, doctoral granting University, serves the State of Indiana, the nation, and the international community by generating and disseminating knowledge in the humanities, arts, social sciences, scientiﬁc, and professional disciplines through instruction and research. The University is governed by a nine-member Board of Trustees, appointed by the Governor.

The accompanying ﬁnancial statements of the University are prepared in accordance with generally accepted accounting standards as prescribed by the Governmental Accounting Standards Board (GASB) in Statement 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. Since the University is a component unit of the State of Indiana, it is included in the Comprehensive Annual Financial Report of the State.

A. Reporting Entity

The University implemented Governmental Accounting Standards Board (GASB) Statement No. 39, Determining Whether Certain Organizations are Component Units, and GASB Statement No. 61, The Financial Reporting Entity: Omnibus—an amendment of GASB Statements No. 14 and No. 34. These Statements amend GASB Statement No. 14, The Financial Reporting Entity to provide additional guidance to determine whether certain organizations for which the University is not ﬁnancially accountable should be reported as component units based on the nature and signiﬁcance of their relationship with the University.

As deﬁned by generally accepted accounting principles established by the GASB, the ﬁnancial reporting entity consists of the University as the primary government, and the Indiana State University Foundation as a discretely presented component unit. This component unit is further described in Section P.

B. Basis of Accounting

For financial reporting purposes, the University is considered a special-purpose government engaged only in business-type activities. The financial statements of the University have been prepared on the accrual basis, including depreciation expense relating to capital assets. Under the accrual basis of accounting, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-University transactions have been eliminated to avoid double counting of these transactions. Examples of these would include sales between University departments or internal loans between funds.

C. Cash Equivalents

The University considers all highly liquid investments with a maturity date of three months or less to be cash equivalents. The University invests operating cash in investments with varying maturities. For purpose of liquidity classiﬁcation, investments maturities are evaluated as of the ﬁnancial statement date.

29 D. Investments

Investments in securities are reported on the ﬁnancial statements at fair value as of the date of the ﬁnancial statements. Investments with maturity of less than one year are reported as current assets, with the remaining investments reported as non-current assets.

E. Inventories

Inventories are carried at the lower of cost or market value and on the ﬁrst-in, ﬁrst-out (FIFO) basis.

F. Capital Assets

Capital assets are stated at cost or, if donated, at fair market value on the date of acquisition. Moveable equipment costing $5,000 with a useful life of more than one year and building improvements that exceed $100,000 and extend the life of the building are capitalized. Infrastructure assets are included in the ﬁnancial statements and are depreciated. Depreciation is reported using the straight-line method of depreciation over the estimated useful life of the asset. Capital assets and related accumulated depreciation are removed from the records at the time of disposal. Works of art are recorded either at cost or fair market value at the time of acquisition, but are not depreciated because these assets tend to appreciate in value over time.

Minimum Capitalization Value and Useful Life by Asset Types Asset Types Capitalization Threshold Useful Life Moveable equipment $5,000 5 to 10 years Vehicles and machinery 5,000 4 to 10 years Software and computer equipment 5,000 5 years Buildings and related components 100,000 15 to 100 years Land improvements and infrastructure 100,000 10 to 20 years Library books and audio visual aids 1 20 years Works of art 1 Not depreciated

G. Deferred Outﬂows of Resources

Deferred outflows of resources represent the consumption of net assets by the University that are applicable to a future reporting period, but do not require a further exchange of goods or services. Examples of items the University considers deferred outflows of resources include loss on early retirement of debt and outflows related to pensions.

H. Compensated Absences

Liabilities for compensated absences are recorded for vacation leave based on actual amounts earned as of the statement of net position date. Employees may accrue vacation benefits up to a maximum of 300 hours, which is payable upon termination. The accompanying Statement of Net Position reflects an accrual for the amounts earned and ultimately payable for such benefits at the end of the fiscal year.

I. Net Pension Liability and Related Items

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 of the Indiana Public Employees’ Retirement Fund (PERF) and additions to/deductions from PERF’s fiduciary net position have been determined on the same basis as they are reported by PERF. Indiana Public Retirement System financial reports have been prepared using the accrual

30 basis of accounting in conformity with generally accepted accounting principles (GAAP) as applied to government units. Beneﬁt payments (including refunds of employee contributions) are recognized when due and payable in accordance with the beneﬁt terms. Investments are reported at fair value.

J. Deferred Inﬂows of Resources

Deferred inflows of resources represent the acquisition of net assets by the University applicable to a future reporting period, but do not require a further exchange of goods or services. Examples of items the University considers deferred inflows of resources include inflows from service concession arrangements and inflows related to pensions.

K. Net Position

University resources are classiﬁed for ﬁnancial reporting purposes into four net position categories:

Net investment in capital assets: This represents the University’s total investment in capital assets, net of depreciation and outstanding debt obligations related to those capital assets.

Restricted net position, non-expendable: Non-expendable restricted net position consist of endowment and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity and invested for the purpose of producing present and future income, which may either be expended or added to principal.

Restricted net position, expendable: Restricted expendable net position include resources that the University is legally or contractually obligated to spend in accordance with restrictions imposed by external third parties.

Unrestricted net position: Unrestricted net position represents resources derived from student tuition and fees, state appropriations, and sales and services of educational departments and

31 auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the University and may be used at the discretion of the governing board to meet current expenses for any purpose. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff. Substantially all unrestricted net position is designated for academic programs and initiatives, capital purposes, and general operations of the University.

L. Restricted and Unrestricted Resources

When both restricted and unrestricted resources are available for a particular expenditure, University management may select the most appropriate funding source based on individual facts and circumstances. The University does not require funds be expended in a particular order, and the decision on what fund order is used is made on a case-by-case basis.

M. Operating Revenues and Expenses

Operating revenues include all revenues from exchange transactions resulting from providing goods and services for higher education, research, public service, and other related activities. Examples include student tuition and fees, net of scholarship discounts and allowances, most federal, state and local grants and contracts, interest on institutional student loans, and auxiliary operations (such as Intercollegiate Athletics and Housing and Dining Services).

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

N. Scholarship Discounts and Other Allowances

Student tuition and fee revenues and certain other revenues from students are reported net of scholarship discounts and allowances in the Statement of Revenues, Expenses, and Changes in Net Position. Scholarship discounts are the difference between the stated charge for goods and

32 services provided by the University and the amount that is paid by students and/or third parties making payments on the students’ behalf. Certain governmental grants, such as Pell grants, and other federal, state or non-governmental programs, are recorded as non-operating revenues in the University’s ﬁnancial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the University has recorded a scholarship discount. Other allowances include the allowance for bad debt, which will be recorded as a reduction to the appropriate revenue.

O. Non-Operating Revenues and Expenses

Non-operating revenues include activities that have the characteristics of non-exchange transactions, such as gifts and contributions, and other revenue sources that are deﬁned as non- operating revenues by GASB No. 9, Reporting Cash Flows of Proprietary and Non-expendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB No. 34, including state appropriations and investment income. Non-operating revenues include any grant that meets the deﬁnition of a non-exchange transaction, for which the University has administrative duties. This would include Pell Grant, SEOG, and any State Grant that the University has to determine eligibility, even if the eligibility requirements are set forth by Federal or State agencies.

Non-operating expenses contain all expenses that are incurred in the performance of activities not directly related to the core operations of the University. Examples include interest on capital asset related debt, bond issuance costs, and the loss on the sale of investments.

P. Component Units

The Indiana State University Foundation is a legally separate, tax-exempt component unit of Indiana State University. Indiana State University Foundation, Inc. was incorporated on March 10, 1921. The Foundation was organized to promote educational purposes and receive contributions primarily for the beneﬁt of Indiana State University and its students.

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 Indiana State University Foundation Board of Directors represents a diverse group of volunteer professional and business leaders who devote their time and resources in service of the Foundation for the benefit of Indiana State University. The majority of resources that the Foundation holds and invests, and the income generated by these assets, are restricted to the activities of the University by its donors. Because these resources can only be used for the activities of the University, the ISU Foundation is considered a component unit of the University, and its audited financial statements are discretely presented in the University’s financial statements.

The Foundation is a private nonprofit organization that reports under Financial Accounting Standards Board (FASB) standards, including FASB Statement No. 117, Financial Statements of 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 Foundation’s financial information in the University’s financial reporting presentation for these differences.

In September 2016, the Indiana State University Board of Trustees and the Indiana State University Foundation, in conjunction with a new strategic plan for 2016 through 2021, restructured the Foundation. Under the new structure, the CEO of the Foundation became the Vice President for Development of the University. All employees of the Foundation became University employees while the Foundation remained a separate 501(c) 3 organization.

During the years ended June 30, 2017 and June 30, 2016 the Foundation distributed $4,428,000 and $5,710,000, respectively, to the University for both restricted and unrestricted purposes. Complete ﬁnancial statements for the Foundation can be obtained from the Foundation Ofﬁce at 30 North 5th Street, Terre Haute, IN 47809.

33 Q. New Accounting Pronouncements

Effective with the fiscal year 2016, the University implemented GASB Statement No. 72, Fair Value Measurement and Application. This statement addresses accounting and financial reporting issues related to fair value measurements and provides guidance for determining a fair value measurement for financial reporting purposes. Additional fair value investment disclosures were required by this statement and can be found in Note 2.

Note 2. Cash and Investments

The University maintains a cash and investment pool that is available for use by all funds. Each fund’s portion of this pool is displayed in the Statement of Net Position under cash and cash equivalents, short-term investments, long-term investments, deposits with bond trustee, or endowment investments-held in trust, depending on the nature of the investment.

Cash and Investments

Cash & Investments (Dollars in Thousands) 2017 2016 Cash on hand $ 94 95$ Deposits with financial institutions 8,263 13,208 Investments 187,287 143,785 $ 195,644 $ 157,088

Authorization for investment activity is stated in Indiana Code Title 21, Article 21, Chapter 3, Section .3. Additionally, IC 30-4-3.5 (Indiana Prudent Investor Act) requires that the Board of Trustees of the University to act “as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust.” It also requires that management decisions be made “in the context of the trust portfolio as a whole and as a part of the overall investment strategy having risk and return objectives reasonably suited to the trust.” The Board holds responsibility to

34 assure the assets are prudently invested in a manner consistent with this investment policy. The Board has delegated the day-to-day responsibilities for overseeing the investment program to the Senior Vice President for Finance and Administration and University Treasurer.

The University’s current investment policy was approved by the Board of Trustees on May 7, 2010 and implemented in September 2010. The objective of the Investment Policy is to adequately provide for the liquidity needs of the University while maximizing the opportunity to increase yield on investments. The investment structure is divided into three liquidity tiers to provide for income maximization while meeting the daily liquidity requirements of the University. In order to supply sufﬁcient day-to-day operating liquidity, Tier I is invested in money market securities and liquidity reserves. Tier II is invested in limited duration securities to provide for a sufﬁcient level of reserves in case of unanticipated liquidity needs; yet provide for a level of incremental return over Tier I. Tier III is invested for income maximization while taking on appropriate levels of risk.

Authorized investments include US Treasury, US Government Agency or Instrumentality, Mortgage- Backed Securities, Asset-Backed Securities, Taxable Municipal Bonds, Non-Beneﬁt Responsive GIC’s, Money Market Instruments and Funds, Corporate Investment Grade Bonds, Corporate High Yield Bonds, and Non-US Dollar Debt. Credit Quality and Market Value percentages are established for each investment manager portfolio.

Disclosures Relating to Interest Rate Risk

Interest rate risk is the risk that increases in market interest rates will adversely decrease the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the University and its investment managers limit its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash ﬂows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash ﬂow and liquidity needed for operations.

Information about the sensitivity of the fair values of the University’s investments (including investments held by bond trustee) to market interest rate ﬂuctuations is provided by the following table showing the distribution of Indiana State University’s investments by maturity:

University Investments and Maturities at June 30, 2017 (Dollars in Thousands) Less Than 1 More Than Investment Type Fair Value Year 1-5 Years 6-10 Years 10 Years Cash on hand (petty cash) $ 94 94$ -$ -$ $ - Demand deposits 8,263 8,263 - - - Money market funds 7,515 7,515 - - - Certificates of deposit 52,854 39,890 12,721 243 - Asset-backed securities 10,127 278 8,020 1,129 700 Collateralized mortgage obligations 6,170 435 1,415 737 3,583 Corporate bonds 42,870 4,133 24,384 8,646 5,707 Common stock 395 - - - 395 Government agencies 8,412 841 5,142 1,717 712 Mortgage-backed securities 12,248 - 2,334 1,799 8,115 Municipal notes and bonds 1,328 396 483 115 334 Treasury notes and bonds 42,588 5,750 17,383 12,278 7,177 Foreign equities 6 - - - 6 Foreign notes and bonds 2,100 - 1,251 762 87 Endowment investments held in trust 674 - - - 674 $ 195,644 67,595$ 73,133$ $ 27,426 $ 27,490

35 Investments with Fair Values Highly Sensitive to Interest Rate Fluctuations

The University’s investments include the following investments that are highly sensitive to interest rate ﬂuctuations (to a greater degree than already indicated in the information provided).

Highly Sensitive Investments (Dollars in Thousands) Fair Value at Year End Mortgage-backed & asset-backed securities. These securities are subject to early payment in a period of declining interest rates. The resultant reduction in expected total cash flows affects the $22,375 fair value of the securities and makes the fair values of these securities highly sensitive to changes in interest rates. Callable bonds. These securities are subject to be called or early redeemed by the issuing agency in periods of declining interest rates. The possible reduction in expected cash flows affects the $12,121 fair value of these securities and makes the fair value of these securities more sensitive to changes in interest rates.

Disclosure Relating to Credit Risk

Generally, credit risk is the risk that an issuer of an investment will not fulﬁll its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Credit risk is addressed in the University Investment Policy, approved May 7, 2010. Credit risk guidelines are established for each investment manager. The policy stipulates the percentage of each manager’s ﬁxed income portfolio that must be rated Aa or better at the time of purchase. These percentages range from 65 percent to 100 percent. Presented below is the actual Moody’s rating at year end for each investment type.

Moody's Rating Scale (Dollars in Thousands) Investment Type Fair Value AAA Aa A B or Lower Not Rated Cash on hand (petty cash) $ 94 -$ -$ -$ -$ 94$ Demand deposits 8,263 - - - - 8,263 Money market funds 7,515 - - - - 7,515 Certificates of deposit 52,854 - - - - 52,854 Asset-backed securities 10,127 3,323 325 642 209 5,628 Collateralized mortgage obligations 6,170 979 127 376 99 4,589 Corporate bonds 42,870 504 4,481 12,241 23,294 2,350 Common stock 395 - - 148 24 223 Government agencies 8,412 - 7,878 - 145 389 Mortgage-backed securities 12,248 - - - - 12,248 Municipal notes and bonds 1,328 329 544 169 21 265 Treasury notes and bonds 42,588 42,588 - - - - Foreign equities 6 - - - - 6 Foreign notes and bonds 2,100 - - - 497 1,603 Endowment investments held in trust 674 - - - - 674 $ 195,644 47,723$ 13,355$ 13,576$ 24,289$ $ 96,701

Concentration of Credit Risk

The investment policy of the University contains no limitations on the amount that can be invested in any one issuer. At June 30, 2017 investments in any one issuer (other than U.S. Treasury securities and mutual funds) that represent ﬁve percent or more of total University investments included Old National Bank certiﬁcates of deposit totaling $14,600,000.

36 Custodial Credit Risk

Custodial credit risk for deposits is the risk that, in the event of the failure of a depository ﬁnancial institution, the University will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, the University will not be able to recover the value of its investment or collateral securities that are in the possession of another party. Indiana State University’s investment policy does not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than preference will be given to Indiana institutions because of additional insurance coverage provided by the State. Of the University’s investments, $42,588,000 in U.S. Treasury Notes and Bonds, $8,412,000 in U.S. Government Agencies and $7,515,000 of the Money Market funds invested in U.S. Government-backed funds are held by a trust department not in the University’s name.

As of June 30, 2017 Indiana State University’s deposits with financial institutions held in uncollateralized accounts are insured up to $250,000 by FDIC and in excess of $250,000 by the Indiana Public Deposits Fund. Certificates of Deposits of $50,210,000 are also covered under the Indiana Public Deposits Fund, as they were invested in Indiana financial institutions. The University has less than four percent of investments that are made up of foreign currency; therefore, the University’s exposure to foreign currency risk is insignificant.

Fair Value Measurements

The University categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy input levels are deﬁned as follows:

• A Level 1 input is a quoted price for identical assets or liabilities in an active market. • Level 2 inputs consist of observable prices for similar assets or liabilities in active or inactive markets and inputs other than quoted prices that are observable for the asset or liability. • Level 3 inputs are unobservable inputs for an asset or liability.

The University’s investments are composed of assets valued using Level 1 or Level 2 inputs. Fair market value is established for our level two assets in various manners. Fair value is determined on level two assets based on their quoted prices in inactive markets when possible. In other situations,

37 the fair value determination is based on models. The inputs for these models are observable either directly or indirectly for substantially the full term of the asset. Level two model inputs include the following:

• Quoted prices for similar assets or liabilities in active markets (for example, restricted stock); • Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which trade infrequently); • Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including interest rate and currency swaps); and • Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability (examples include certain residential and commercial mortgage related assets, including loans, securities and derivatives.)

Endowment investments held in trust are included in a pool of investments that use a mix of Level 1 and Level 2 inputs, and are thus reported at Level 2, the lowest level. The University’s fair value measurements of reoccurring investments as of June 30, 2017 are presented below.

University Investments by Fair Value Level (Dollars in Thousands) Investment Type Fair Value Level 1 Level 2 Level 3 Cash Cash on hand (petty cash) $ 94 $ - $ - $ - $ 94 Demand deposits 8,263 - - - 8,263 Money market funds 7,515 - 6,929 - 586 Certificates of deposit 52,854 49,500 3,354 - - Asset-backed securities 10,127 - 10,127 - - Collateralized mortgage obligations 6,170 - 6,170 - - Corporate bonds 42,870 - 42,870 - - Common stock 395 - 395 - - Government agencies 8,412 - 8,412 - - Mortgage-backed securities 12,248 - 12,248 - - Municipal notes and bonds 1,328 - 1,328 - - Treasury notes and bonds 42,588 - 42,588 - - Foreign equities 6 - 6 - - Foreign notes and bonds 2,100 - 2,100 - - Endowment investments held in trust 674 - 674 - - $ 195,644 $ 49,500 $ 137,201 $ - $ 8,943

38 Note 3. Capital Assets

Balance Balance (Dollars in Thousands) June 30, 2016 Additions Transfers Deductions June 30, 2017 Capital assets not being depreciated Land $ 34,062 115$ 1,154$ $ - $ 35,331 Works of art 1,887 188 - (1) 2,074 Construction in progress 29,125 49,078 (30,248) (994) 46,961 Total assets not being depreciated $ 65,074 $ 49,381 $ (29,094) $ (995) $ 84,366 Capital assets being depreciated Infrastructure $ 35,090 -$ $ 609 $ - 35,699$ Land improvements 32,825 - 1,660 - 34,485 Buildings 493,883 - 26,825 (3,255) 517,453 Equipment 82,757 1,659 - (2,466) 81,950 Capital lease assets 31,958 56 - - 32,014 Leasehold improvements 568 - - - 568 Total capital assets depreciated $ 677,081 $ 1,715 29,094$ (5,721)$ $ 702,169 Less accumulated depreciation Infrastructure $ (33,412) $ (173) -$ $ - $ (33,585) Land improvements (17,119) (1,520) - - (18,639) Buildings (160,243) (11,476) - 1,668 (170,051) Equipment (63,319) (3,505) - 2,468 (64,356) Lease amortization (1,688) (1,369) - - (3,057) Leasehold improvements amortization (95) (113) - - (208) Total accumulated depreciation $ (275,876) (18,156)$ $ - $ 4,136 $ (289,896) Total capital assets being depreciated, net$ 401,205 (16,441)$ 29,094$ (1,585)$ $ 412,273 Total capital assets, net $ 466,279 $ 32,940 -$ (2,580)$ $ 496,639

During ﬁscal years 2017 and 2016, the University incurred $5,557,000 and $6,283,000 in interest costs related to the ownership of capital assets, respectively. Of this total, $2,497,000 and $396,000 was capitalized for years ending June 30, 2017 and 2016, respectively.

A breakdown of signiﬁcant projects included in construction in progress as of June 30, 2017 is shown below:

Construction Work in Progress (Dollars in Thousands) Project June 30, 2017 College of Nursing, Health and Human Services Renovation 23,024 Cromwell Hall Renovation 18,456 Hulman Center Renovation (A&E) 1,843 Rhoads Hall Renovation 1,562 Other Miscellaneous Projects 2,076 Total $ 46,961

39 Note 4. Long-Term Liabilities

Long-term liabilities of the University consist of bonds and notes payable, capital leases payable, compensated absences, and other liabilities.

The changes in long-term liabilities are as shown below:

Balance Balance Current (Dollars in Thousands) July 1, 2016 Additions Reductions July 1, 2017 Portion Bonds payable $ 152,585 $ 98,035 47,250$ $ 203,370 9,695$ Bond premiums 6,995 16,825 1,428 22,392 1,262 Lease payable 30,898 56 714 30,240 1,926 Compensated absences and termination benefits 4,104 246 116 4,234 4,217 Advances from Federal Government 7,453 - 96 7,357 - Total long-term liabilities $ 202,035 115,162$ 49,604$ $ 267,593 17,100$ Bond redemption reserve (matured unpaid bonds and coupons) 28 Total long-term liabilities- current portion $ 17,128

Note 5. Bonds Payable

Indiana State University is authorized by acts of the Indiana General Assembly to issue bonds and notes for the purposes of ﬁnancing the construction of student housing, athletic facilities, parking, and academic facilities. The outstanding bond principal indebtedness consists of the following issues.

Principal Principal Original Face Final Maturity (Dollars in Thousands) Issue Date Interest Rate Outstanding Outstanding Value Dates June 30, 2017 June 30, 2016 Student Fee Bonds Series M, University Hall & Student Recreation Center Projects $ 30,510 2007 4.0-5.0% 2033 $ - $ 27,035 Series N, Satellite Chiller & Science Laboratory Projects 9,560 2010 1.0-6.64% 2030 6,950 7,355 Series O, Scott College of Business Renovation Project 8,695 2011 2.0-5.0% 2031 - 7,040 Series P, Science Laboratory Renovation Project 4,570 2014 2.18% 2021 3,505 3,765 Series Q, Refund Series K, L, and Partial M 19,690 2015 2.58% 2033 14,400 15,805 Series R, College of Health and Human Services, Refund Series M & O 83,845 2017 3.0-5.0% 2036 80,050 - Housing and Dining Revenue Bonds Series 2009, Sandison, Jones, & Burford Hall Renovation Projects 13,730 2009 3.0-6.38% 2027 8,930 9,655 Series 2010, Pickerl Hall Renovation Project 9,140 2010 1.43-5.41% 2027 6,145 6,665 Series 2012, Erickson Hall & Reeve Hall Projects 28,740 2013 2.7-5.0% 2038 26,180 26,985 Series 2014, Sycamore Towers Phase 1 - Mills Hall Project 16,405 2014 2.0-5.0% 2034 14,530 15,130 Series 2015, Sycamore Towers Phase 2 - Blumberg Hall Project 16,270 2015 3.0-5.0% 2035 14,940 15,510 Series 2016, Sycamore Towers Phase 3 - Cromwell Hall Project 14,135 2016 3.0-5.0% 2036 13,550 14,135 Series 2017, Sycamore Towers Phase 4 - Rhoads Hall Project 14,190 2017 3.0-5.0% 2038 14,190 - Parking Revenue Bond Series 2012, Cherry Street Parking Garage $ 4,000 2012 1.72% 2017 $ - $ 3,505 Bonds 203,370 152,585 Premium 22,392 6,995 Total $ 225,762 $ 159,580

Student Fee Bonds are secured by a pledge of student fees. The Indiana General Assembly authorizes a speciﬁc state appropriation known as “fee replacement” to the University for the purpose of reimbursing a portion of the debt service payments for certain academic facilities, including classrooms, laboratories, and other academic support facilities. Total bond principal payments eligible for fee replacement appropriations in 2017 and 2016 were $9,799,000 and $7,541,000, respectively.

40 41 Housing and Dining Revenue Bonds are secured by a pledge of housing and dining net income. As of June 30, 2017 and 2016, total net pledged income was approximately $12,558,000 and $8,491,000, respectively. The Parking Revenue Bond was secured by a pledge of parking system net income. At June 30, 2016, total net pledged income of the parking system was approximately $1,292,000. The ﬁnal bond payment was made March 29, 2017.

In prior years, Indiana State University defeased certain serial bonds by placing the proceeds of new debt in an irrevocable trust to provide for all future debt service payments on the defeased bonds. Accordingly, the trust accounts and liability for the defeased bonds are not included in the ﬁnancial statements of Indiana State University.

The University issued $83,845,000 of Student Fee Bonds, Series R on September 15, 2016 and $14,190,000 of Housing and Dining System Revenue Bonds, Series 2017 on June 28, 2017. See Note 6 for details.

Debt Service Requirements (Dollars in Thousands) Fiscal Year Bond Principal Bond Interest Total 2018 $ 9,695 $ 8,618 $ 18,313 2019 10,530 8,387 18,917 2020 10,980 7,910 18,890 2021 13,850 7,367 21,217 2022 10,350 6,819 17,169 2023-2027 58,465 26,143 84,608 2028-2032 48,765 13,543 62,308 2033-2037 37,950 3,959 41,909 2038 2,785 110 2,895 Total 203,370 82,856 286,226 Net unamortized premium 22,392 - 22,392 Total $ 225,762 $ 82,856 $ 308,618

Note 6. Bond Issues

Indiana State University Student Fee Bonds, Series R

On September 15, 2016, the University issued $83,845,000 of Student Fee Bonds, Series R. This issue was tax-exempt with a True Interest Cost (TIC) of 2.339 percent. The bond proceeds of $98,244,000, that included $14,399,000 of net bond premium less issuance cost of $273,000 and underwriter’s discount of $273,000, netted $97,699,000 for the College of Health and Human Services facilities project and the refunding of Series M and Series O bonds.

College of Health and Human Services Project The project consists of the acquisition, construction, expansion, renovation, and equipping of the academic and building facilities for the College of Health and Human Services. This project includes major upgrades to building systems, reconﬁguring of interior spaces to enable the academic program to function more efﬁciently, and construction of an approximately 87,000 square foot addition to the existing facility. The project has a total estimate cost of $64 million which is funded through the Series R Bond issue. Work commenced in July 2016 and is scheduled for completion in March 2019.

Refunding Series M and Series O Bonds Of the total Series R Bond, $28,745,000 was issued by the University with a True Interest Cost of 1.786 percent to refund $31,860,000 of outstanding Series M and Series O Bonds with an average coupon of 4.766 percent. The net proceeds of $33,699,000 (after payment of $176,000 in issuance

42 costs) were used to purchase U.S. Government securities. Those securities were deposited in an irrevocable trust with escrow agent to provide for all future debt service payments on the Series O and Series M Bonds as follows:

• The proceeds refunded $25,175,000 of outstanding Series M Bonds that mature from October 1, 2017 through October 1, 2029. The Series M Bonds were redeemed in whole on April 1, 2017. • The proceeds refunded $6,685,000 of outstanding Series O Bonds that mature from October 1, 2017 through October 1, 2030.

As a result of this refunding, these bonds (Series M and O) are considered defeased and the liability for those bonds has been removed from the Statement of Net Position. The refunding resulted in an accounting loss of $712,000. This amount will be amortized using the straight line method and charged to interest expense over the next 15 years. This loss has been recognized on the Statement of Net Position as a deferred loss on early retirement of debt.

Indiana State University in effect reduced its aggregate debt service payment by $5,203,000 over the next 15 years and realized an economic gain (difference between the present values of the old and new debt service payments) of $4,621,000.

Housing and Dining Revenue Bonds, Series 2017

On June 28, 2017, the University issued $14,190,000 of Housing and Dining Revenue Bonds, Series 2017. This issue was tax-exempt with a True Interest Cost (TIC) of 3.361 percent. The bond proceeds of $16,617,000, which included $2,427,000 of net bond premium less issuance costs of $115,000 and $96,000 of underwriter’s discount, netted $16,405,000 to be used for the renovation of Rhoads Hall.

Rhoads Hall The project consists of the renovation of Rhoads Hall as the fourth phase of the comprehensive renovation of Sycamore Towers. The renovated facility will provide 344 revenue generating spaces and is part of a systematic upgrading of residence hall facilities to provide living and learning spaces that are attractive to prospective and returning students. The overall cost of the Rhoads Hall renovation is estimated at $20.5 million, of which $16.4 million was funded by the Series 2017 Bonds and the remaining $4.1 million was funded by Housing and Dining System reserves. The project is expected to be completed for Fall 2018 occupancy.

43 Note 7. Service Concession Arrangements

In July 2010, Indiana State University entered into a contract with Sodexo Services of Indiana Limited Partnership to provide food services for ISU’s students, faculty, staff and invited guests for a term of 11 years. Included in the agreement was a commitment by Sodexo to provide equipment and facility enhancements of up to $2,900,000 to construct the Sycamore Banquet Center inside the Hulman Memorial Student Union, with contributions by the University of approximately $800,000. Construction was completed and the Banquet Center was put into use in April 2012.

Food services for the Banquet Center will be provided by Sodexo, and the Banquet Center will remain an asset of the University. Due to the nature of this agreement, whereas Sodexo is the operator and ISU is the transferor, it has been classified as a service concession arrangement. The Sycamore Banquet Center has been classified as a capital asset with an offsetting deferred inflow of resources. Over the life of the contract, ISU will amortize the deferred inflow of resources, while recognizing auxiliary revenue each year. If the agreement expires, terminates, or is amended in a way that has an adverse impact on Sodexo, ISU will be liable for the unamortized portion of Sodexo’s investment.

Deferred Service Concession Arrangement (Dollars in Thousands) Deferred Service Concession Arrangement - June 30, 2016 $ 1,213 Revenue recognition for the fiscal year 2017 (243) Deferred Service Concession Arrangement- June 30, 2017 $ 970

Note 8. Lease Payable

Indiana State University has entered into capital lease agreements for equipment and facilities. The University has a ﬁve-year lease agreement with Ricoh USA, Inc. to lease copiers and printers for the campus effective July 1, 2015. The cost of equipment held under capital leases totaled $1,778,000

44 and $1,722,000 as of June 30, 2017 and 2016, respectively. Accumulated amortization of leased equipment totaled $1,041,000 and $680,000 at June 30, 2017 and 2016, respectively.

As of January 8, 2014, the University entered into a lease agreement with 500 Wabash Housing, LLC to lease ﬂoors 2-5 of the 500 Wabash Avenue building to be used for student housing. The lease commencement date was July 15, 2015. The lease term is 30 years with an option to purchase. The cost of the leased asset totaled $30,237,000 for years ending June 30, 2017 and 2016 with accumulated amortization of $2,016,000 and $1,008,000 as of June 30, 2017 and 2016, respectively.

These capital lease obligations are included in the Statement of Net Position and future scheduled payments under these agreements are illustrated in the schedule below. The University records lease amortization as depreciation expense on the Statement of Revenues, Expenses and Changes in Net Position.

(Dollars in Thousands) Lease Payments Fiscal Year Equipment Facilities Total 2018 391 1,535 1,926 2019 391 1,535 1,926 2020 - 1,535 1,535 2021 - 1,535 1,535 2022 - 1,535 1,535 2023-2027 - 7,675 7,675 2028-2032 - 7,675 7,675 2033-2037 - 7,675 7,675 2038-2042 - 7,675 7,675 2043-2045 - 4,605 4,605 Total minimum lease payments $ 782 $ 42,980 43,762$ Less: Amount representing interest (22) (13,500) (13,522) Present value of minimum lease payments$ 760 $ 29,480 30,240$

Note 9. Termination Benefits Liability

The Governmental Accounting Standards Board (GASB), Statement No. 47, Accounting for Termination Benefits, requires the University to recognize an expense and liability for voluntary termination benefits, such as early-retirement incentives. This expense is recognized when an offer is accepted and the amount of the benefit can be estimated.

The ISU Board of Trustees approved a Retirement Severance Plan for eligible faculty and staff on February 18, 2010. Under the Retirement Severance Plan, employees must be age 62 or older and have 20 years of service to retire from Indiana State University. The severance payments available under the plan are 60 percent for those employees with 15 years or more of service at December 31, 2010, and 40 percent for employees with less than 15 years of service at December 31, 2010. New employees hired on or after March 1, 2010 would be eligible for a 25 percent severance pay at retirement.

A total of 18 employees enrolled in the program during the 2017 fiscal year at a cost of $848,000 and 15 employees enrolled during the 2016 fiscal year at a cost of $529,000. Total termination benefits liability reported at June 30, 2017 was $247,000 and zero at June 30, 2016.

45 Note 10. Risk Management

The University is exposed to various risks of loss related to torts; theft of, damage to, or destruction of assets; errors or omissions; job-related illnesses or injuries to employees; and health and other medical beneﬁts provided to employees and their dependents. The University handles these risks of loss through combinations of risk retention and commercial insurance. For buildings and contents, the University has risk retention of $100,000 per occurrence. The University also holds an additional builder’s risk component with a deductible of $25,000. The maximum liability to the University for job-related illnesses or injuries is $400,000 per occurrence. Settled claims have not exceeded the University’s coverage in any of the past three ﬁscal years.

The University retains the risk for medical beneﬁts up to a stop-loss provision of $250,000 per member. Accrued liabilities for unpaid medical claims, as of June 30, 2017 are included in current other liabilities. The liability is based on 25 percent of actual claims paid during the year, which represents a three-month average turnover period for claims processing. Changes in the balance of claims liabilities during the 2017 ﬁscal year are as follows:

(Dollars in Thousands) 2017 2016 Unpaid medical claims- July 1 $ 5,295 4,496$ Claims incurred 21,125 18,783 Claims paid (21,136) (17,984) Unpaid medical claims- June 30 $ 5,284 $ 5,295

Note 11. Litigation

The University has been named as a defendant in a number of lawsuits. For most of these lawsuits, the ﬁnal outcome cannot be determined and management is of the opinion that any ultimate outcome will not have a material effect upon the University’s ﬁnancial position.

46 Note 12. Funds Held in Custody for Others

Funds held in custody for others consist of $1,290,000 and $1,135,000 at June 30, 2017 and 2016, respectively. These funds are held for other agencies (student and faculty organizations) and unapplied student payments.

Note 13. Pollution Remediation Obligation

To comply with GASB Statement No. 49, Accounting and Reporting for Pollution Remediation Obligations, the University must report a liability for an obligating event. An obligating event occurs when the University commences or legally obligates itself to commence pollution remediation. During ﬁscal year 2017 and in prior years, Indiana State University voluntarily obligated itself to remediate pollution in Rhoads Hall and other buildings. As of June 30, 2017 these projects had not been completed, leaving an outstanding obligation of $124,000 which is classiﬁed as a current other liability. The outstanding obligation as of June 30, 2016 was $115,000.

Note 14. Natural Classifications with Functional Classifications

The University’s operating expenses by functional classiﬁcation were as follows:

Natural Classifications Years Ended June 30, 2017 and June 30, 2016 (Dollars in Thousands) Functional Compensation and Supplies and Scholarships 2017 2016 Classification Benefits Expenses Utilities and Fellowships Depreciation Total Total Instruction $ 68,858 7,327$ $ - $ - -$ $ 76,185 $ 76,891 Research 5,114 3,216 - - - 8,330 10,007 Public service 2,602 1,848 - - - 4,450 3,905 Academic support 15,446 5,731 - - - 21,177 19,458 Student services 11,699 5,462 - - - 17,161 15,875 Institutional support 14,485 6,506 - - - 20,991 27,643 Operation of plant 10,143 10,051 10,071 - - 30,265 30,888 Scholarships 1,580 - - 11,751 - 13,331 13,312 Auxiliary enterprises 15,813 21,459 339 - - 37,611 40,324 Depreciation - - - - 18,157 18,157 16,979 Total $ 145,740 61,600$ $ 10,410 $ 11,751 $ 18,157 $ 247,658 $ 255,282

Note 15. Hedge Contracts

Indiana State University has entered into forward contracts with EDF, Energy Services to purchase natural gas at a speciﬁed time in the future at a guaranteed price. This allows the University to plan its natural gas costs for the year and to protect itself against an increase in the market price of the commodity. It is possible the market price before or at the speciﬁed time to purchase natural gas may be lower or higher than the price at which the University is committed to buy.

Note 16. Retirement Plans

Authorization

Authorization to establish retirement plans is stated in Indiana Code Title 21, Article 21, Chapter 3, and Section 3.

47 Faculty and Exempt Staff

Faculty and executive/administrative/professional employees of the University participate in a non- contributory, defined contribution plan administered through the Teachers Insurance and Annuity Association (TIAA) and College Retirement Equity Fund (CREF). Benefit provisions are established and/or amended by the Board of Trustees. The plan purchases individual annuity contracts for members and provides for immediate vesting. Contributions and plan participant data for fiscal years 2017 and 2016 are displayed below.

TIAA-CREF Contributions (Dollars in Thousands) 2017 2016 University Contributions to Plan $7,349 $7,144 Total Participating Employee Annual Salaries $72,550 $71,444 Employee and Retiree Plan Participants 995 1,003

Non-exempt Staff

Plan Description Regular clerical and service staff are provided with pensions through the Public Employees’ Retirement Fund (PERF). PERF is a cost sharing, multiple-employer defined benefit plan administered by the Indiana Public Retirement System (INPRS). PERF was established by the Indiana Legislature in 1945 and is governed by the INPRS Board of Trustees in accordance with Indiana Code IC 5-10.2, IC 5-10.3, and IC 5-10.5. There are two parts to the plan: an annuity savings plan and a monthly defined benefit pension. Employees are eligible to participate in this plan immediately upon employment and are fully vested in the defined benefit plan after ten years of service. The INPRS issues a publicly available financial report that can be obtained at www.in.gov/ inprs/annualreports.htm.

48 Benefits Provided PERF provides retirement, disability and survivor benefits. To be eligible for 100 percent of the pension component a member must reach age 65 with 10 years of service, or age 60 with 15 years of service, or age 55 and whose age plus number of years of service is at least 85. Pension benefits for 100 percent normal retirement are calculated at 1.1 percent times the average annual compensation times the number of years of creditable service. The average annual compensation in this calculation uses the highest 20 calendar quarters of salary in a covered position. Cost of living adjustments (COLA) are granted by the Indiana General Assembly on an ad hoc basis. Five years of service is required for disability benefits in which the benefits are calculated the same as normal retirement. Upon the death in service of a member with 15 or more years of service, a survivor benefit may be paid to the surviving spouse or surviving dependent children.

Contribution Required Contributions to PERF are determined by INPRS Board of Trustees in accordance with IC 5-10.2- 2-11. The funding policy provides for employer contributions that are sufficient to fund pension benefits, which are actuarially determined. The University was required to contribute 11.2 percent of employees’ gross earnings to the defined benefit plan in fiscal years 2017 and 2016. Employees are required to contribute three percent of covered payroll to their annuity savings account. The University has the option to contribute this on their behalf and elected to do so in both years presented. Contributions and plan participant data for fiscal years 2017 and 2016 are displayed below.

PERF Contributions (Dollars in Thousands) 2017 2016 University Contributions to PERF Plan $2,148 $2,112 University Contributions to Annuity Savings Accounts $575 $589 Total Participating Employee Annual Salaries $19,086 $18,855 Employee Plan Participants 551 568

Pension Liabilities For the ﬁscal years ending June 30, 2017 and June 30, 2016, the University reported liabilities of $17,855,000 and $15,538,000, respectively, for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2016 and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2015. The University’s proportion of the net pension liability was based on a projection of the University’s long- term share of contributions to the pension plan relative to the contribution of all participating state entities, actuarially determined. At June 30, 2016 the University’s portion was .39 percent.

Pension Expense, Deferred Outflows of Resources, and Deferred Inflows of Resources Indiana State University recognized pension expense of $3,610,000 during fiscal year 2017 and $2,664,000 for fiscal year 2016. The University reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

2017 2016 (Dollars in Thousands) Deferred Outflows Deferred Inflows Deferred Outflows Deferred Inflows of Resources of Resources of Resources of Resources Differences between expected and actual experience $ 400 $ 33 $ 667 $ 32 Net difference between projected and actual 3,927 1,005 2,620 1,461 investment earnings on pension plan investments Change of assumptions 788 - 1,313 - Changes in proportion and difference between employer contributions and proportionate share of 562 212 510 8 contributions Contributions subsequent to the measurement date 2,148 - 2,202 - TOTAL $ 7,825 $ 1,250 $ 7,312 $ 1,501

49 The University reported $2,148,000 as deferred outflows of resources related to pensions resulting from contributions subsequent to the measurement date. These contributions will be recognized as a reduction of the net pension liability in the year ended June 30, 2018. All other amounts reported as deferred inflows or outflows of resources related to pensions will be recognized in pension expense as follows:

Amortization of Deferred Outflows/(Inflows) of Resources- Debit/(Credit) (Dollars in Thousands) 2017 1,719 2018 1,079 2019 1,154 2020 475 2021 - Thereafter - Total $ 4,427

Actuarial Assumptions The total pension liability in the June 30, 2015 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement.

Inflation Rate: 2.25% Salary Increases: 2.50%-4.25% including inflation Experience Study Date: Period of 4 years ended June 30, 2014 Investment Rate of Return: 6.75%, net of investments expense, including inflation Actuarial Cost Method: Entry Age Normal (Level Percent of Payroll) Cost of Living Increases: 1.0% Mortality: RP-2014 Total Data Set Mortality Table, with Social Security Administration generational improvement scale from 2016

The long-term return expectation for PERF has been determined by using a building-block approach. 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 projected inflation rate, and adding the expected return from rebalancing uncorrelated assets classes.

Geometric Basis Target Asset Long-Term Expected Allocation Real Rate of Return Public Equity 22.5% 5.3% Private Equity 10.0% 5.6% Fixed Income- Ex Inflation-Linked 22.0% 2.1% Fixed Income- Inflation-Linked 10.0% 0.7% Commodities 8.0% 2.0% Real Estate 7.5% 3.0% Absolute Return 10.0% 3.9% Risk Parity 10.0% 5.0%

50 Discount Rate The discount rate used to measure the total pension liability was 6.75 percent. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the actuarially determined required rates computed in accordance with the current funding policy adopted by the INPRS Board and contributions required by the State of Indiana would be made as stipulated by state statue. Based on those assumptions, the pension plans fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

Sensitivity of the University’s proportionate share of the net pension liability to changes in the discount rate Net pension liability is sensitive to changes in the discount rate. The following presents the University’s proportionate share of net pension liability calculated using the discount rate of 6.75 percent, as well as what the University’s share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (5.75 percent) or 1-percentage- point higher (7.75 percent) than the current rate.

Discount Rate Sensitivity-Liability/(Asset) (Dollars in Thousands) 1% Decrease (5.75%) Current (6.75%) 1% Increase (7.75%) $ 25,644 $ 17,855 $ 11,381

Pension plan fiduciary net position Detailed information about the pension plan’s fiduciary net position is available in the separately issued INPRS financial report which is available at www.in.gov/inprs/annualreports.htm. Refer to Note 1, Section I for information regarding the INPRS basis of accounting.

Note 17. VEBA Trust

The University established a Voluntary Employees’ Beneﬁt Association (VEBA) trust, with an independent trustee, for the purpose of providing retiree medical beneﬁts for retired employees of Indiana State University and their dependents that become eligible upon accruing the required years

51 of service. Approval from the IRS for the tax-exempt status of the trust was received on March 2, 1999.

The trust is funded from reserves set aside in previous years paid by the University, contributions, employee payroll deductions for post-retirement beneﬁts, and reinvested net earnings. Beginning January 1, 2014, the University activated the VEBA Trust. The University was reimbursed 100 percent of both pre-65 and post-65 retirement medical insurance premiums paid in ﬁscal year 2017. A summary of the activity in the trust for the year ending June 30, 2017 is as follows:

Dollars in Thousands Market value at July 1, 2016 $ 85,122 Reimbursement of University retirement expenses (3,424) Reinvested net earnings 3,562 Less: management fees (126) Realized gain on sale of investments 1,275 Unrealized gain on increase in market value 2,447 Market value at June 30, 2017 $ 88,856

These funds cannot under any circumstances revert to the University; therefore, the ﬁnancial statements of the University do not include the value of these assets. The following charts show the actual diversiﬁcation of the VEBA investments.

VEBA Investment Policy Guideline Diversification Asset Class Target Minimum Maximum Equity 60.0% 55.0% 65.0% Fixed Income 40.0% 35.0% 45.0% Actual VEBA Investment Diversification (Dollars in Thousands) Actual $ Actual % Domestic-Equity-Passive $ 24,459 27.5% Domestic-Equity-Active 6,586 7.4% International Equity 15,279 17.2% Fixed Income 34,000 38.3% Hedge Strategies 4,316 4.9% Inflation Hedging 4,216 4.7% Total $ 88,856 100.0%

Note 18. Other Post-Employment Benefits

Plan Description

Beginning January 1, 2010, Indiana State University selected AmWins Group Beneﬁts to administer the post-65 retiree medical plan. This plan replaced the self-insured program for retirees with an insurance policy for which the University’s cost is based on premiums instead of claims. All retirees, after reaching the age of 65, are required to participate in the fully insured plan in order to retain the retirement medical beneﬁt. The University’s cost is $222 per month for each plan participant including dental insurance coverage. Retirees pay $111 or $211 per month directly to AmWins, depending on the prescription drug plan option taken. This group of post-65 retirees retains dental coverage through Delta Dental of Indiana and life insurance through the Symetra Life Insurance Company.

52 Retirees under the age of 65 will continue participation in the Indiana State University Healthcare Plan for active employees until age 65 is attained. This plan is a single-employer deﬁned beneﬁt healthcare plan administrated by Anthem for medical coverage, Delta Dental of Indiana for dental coverage, Express-Scripts for prescription coverage, and Symetra life insurance. The plan provides medical, dental and life insurance for eligible retirees and their spouses. Active employees are eligible for the plan provided they retire after attaining age 62 with at least 20 years of service. Surviving spouses may continue in the plan until remarriage or death. Employees hired after January 1, 2005 or employees or their spouses who had not enrolled in the ISU health plan before January 1, 2005 are not eligible for the plan. The Indiana State University Board of Trustees has the authority to establish and amend provisions to the University plan.

Funding Policy

For the fiscal year ended June 30, 2017 the total pay-as-you-go costs of the plan totaled $3.6 million. The University activated the VEBA Trust as of January 1, 2014, and has been reimbursed for $3.4 million of the medical premiums paid for post-65 retirees during fiscal year 2017. Pre-65 plan members receiving benefits contributed $0.2 million, based on the required contribution rates as follows:

Participants' Monthly Contributions Wellness Incentive and No Wellness and Incentive and Tobacco Tobacco Tobacco Free Surcharge Surcharge Under Age 65 Employee Rates - Monthly $204.00 $254.00 $284.00 Employees/Spouses $516.00 $566.00 $616.00 Employees Below 200% of Federal Poverty Level Employees $140.00 $190.00 $220.00 Employees/Spouses $331.00 $431.00 $481.00 Age 65 and over (AmWins fully insured) Employee Employee/Spouse Option 1 $111.00 $222.00 Option 2 $211.00 $422.00

53 54 Annual OPEB Cost and Net OPEB Obligation

The University’s annual other postemployment beneﬁt (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 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 ﬁscal years 2015, 2016, and 2017, the amount actually contributed to the plan, and changes in the University’s net OPEB obligation to the plan.

GASB 45 ARC and Annual Expense (Dollars in Thousands) 2015 2016 2017 Annual required contribution $ - $ - $ - Interest on net OPEB obligation (980) (1,084) (1,156) Adjustment to annual required contribution 1,187 1,312 1,400 Annual OPEB cost $ 207 $ 228 $ 244 Contributions made $ (1,945) $ (1,431) $ - Increase (Decrease) in net OPEB obligation $ (1,738) $ (1,203) $ 244 Net OPEB obligation (asset) beginning of year $ (16,327) $ (18,065) $ (19,268) Net OPEB obligation (asset) end of year $ (18,065) $ (19,268) $ (19,024)

The University’s annual OPEB cost, the percentage of the annual OPEB cost contributed to the plan, and the net OPEB asset for the ﬁscal years ending as follows:

(Dollars in Thousands) Percentage of Annual OPEB Annual OPEB Year Ending Cost Cost Contributed Net OPEB Asset 6/30/2017 $244 0.0% $19,024 6/30/2016 $228 626.2% $19,268 6/30/2015 $207 941.9% $18,065

Funded Status and Funding Progress

As of June 30, 2017, the most recent actuarial valuation date, the plan was 156.9 percent funded. The actuarial accrued liability for beneﬁts was $56.6 million, and the actuarial value of assets was $88.9 million, resulting in an overfunded actuarial accrued liability (UAAL) of $32.3 million. The covered payroll (annual payroll of active employees covered by the plan) was $35.9 million. The ratio of the UAAL to covered payroll was -89.7 percent which indicates the OPEB plan is over 100 percent funded at ﬁscal year end June 30, 2017.

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 below, shows 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.

55 Three-Year Trend Information (Dollars in Thousands)

Actuarial Accrued Actuarial Value Liability Underfunded AAL Funded Annual UAAL as a of Assets (AAL) (UAAL) Ratio Covered Payroll Percentage of Covered Payroll (a) (b) (b-a) (a/b) (c) ((b-a)/c) 6/30/17 $ 88,856 $ 56,628 $ (32,228) 156.9% $ 35,932 (89.7%) 6/30/16 $ 85,123 $ 63,298 $ (21,824) 134.5% $ 39,400 (55.4%) 6/30/15 $ 83,921 $ 64,311 $ (19,610) 130.5% $ 38,252 (51.3%)

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 designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.

Actuarial Assumptions

Valuation and measurement date June 30, 2017 Participant data July 2017 Discount rate 6% Mortality SOA RPH-2016 Total Dataset Mortality Table fully generational using Scale MP-2016 (RPH-2016 table is based on RPH-2014 table with 8 years of mortality improvement using scale MP-2014 backed out and projected to 2016 using scale MP-2016) Payroll Growth 3% per year increase was used to model future employees salary increases Healthcare Trend Rates 2% per year increase to model future increases in the Federal Poverty Limit

Healthcare Trend Rates

______Medical/Rx______FYE Pre-65 Post-65 Dental 2018 9.00% 7.00% 4.50% 2019 8.50% 6.75% 4.50% 2020 8.00% 6.50% 4.50% 2021 7.50% 6.25% 4.50% 2022 7.00% 6.00% 4.50% 2023 6.50% 5.75% 4.50% 2024 6.00% 5.50% 4.50% 2025 5.50% 5.25% 4.50% 2026+ 5.00% 5.00% 4.50%

Methods

Actuarial cost method Projected Unit Credit with linear proration to decrement age Assets method Market value Amortization method Level dollar amount over thirty years based on an open group Accounting method Unit credit Actuarial gains/losses Reﬂected immediately in cost method

56 Note 19. Subsequent Events

Indiana State University received a $5,000,000 payment from Sodexo Services of Indiana Limited Partnership, on August 10, 2017, that is to be used for the renovation of the Sycamore Towers Dining Facility. This is the ﬁnal project of the Sycamore Towers renovation, and the total project cost is estimated at $16.8 million. Work will begin during fall 2018. The payment is the result of an amendment to the University dining services management agreement to extend the term of the agreement for an additional ten years through June 30, 2031. This amendment was approved by the Indiana State University Board of Trustees at the May 12, 2017 meeting with an anticipated payment in ﬁscal year 2018. This will be considered a service concession arrangement and revenue will be recognized over the term of the agreement.

57 Required Supplementary Information

Schedule of Indiana State University’s Proportionate Share of the Net Pension Liability Public Employees’ Retirement Fund (PERF) Last 10 Fiscal Years* (Dollars in Thousands)

Measurement Date as of June 30 2016 2015 2014 2013

Proportion of the net pension liability (asset) 0.39% 0.38% 0.36% 0.36%

Proportionate share of the net pension liability (asset) $ 17,855 $ 15,538 $ 9,494 $ 12,387

Covered-employee payroll $ 18,855 $ 18,273 $ 17,638 $ 17,364

Proportionate share of the net pension liability (asset) as a percentage of its covered-employee payroll 94.7% 85.0% 53.8% 71.3%

Plan ﬁduciary net position as a percentage of the total pension liability 75.3% 77.3% 84.3% 78.8%

*Schedule is intended to show information for the last 10 years. Additional years will be displayed as they become available.

Schedule of Indiana State University’s Contributions Public Employees’ Retirement Fund (PERF) Last 10 Fiscal Years* (Dollars in Thousands)

Fiscal Year 2016 2015 2014 2013

Contractually required contribution $ 2,112 $ 2,047 $ 1,976 $ 1,672

Contributions in relation to the contractually required contribution $ (2,112) $ (2,047) $ (1,976 ) $ (1,672 )

Contribution deﬁciency (excess) $ — $ — $ — $ —

Covered-employee payroll $ 18,855 $ 18,273 $ 17,638 $ 17,364

Contributions as a percentage of covered- employee payroll 11.2% 11.2% 11.2% 9.6%

*Schedule is intended to show information for the last 10 years Additional years will be displayed as they become available.

58 Home Counties of Indiana State Students (Fall 2016) Unaudited

Steuben St. Joseph La Grange Elkhart 12 9 Laporte 149 94 93 Porter Lake 146 Noble Dekalb 628 13 Marshall 13

Indiana Starke 30 Kosciusko (92 counties) 9 24 10,076 Whitley 18 Allen Jasper Pulaski Fulton 195 Out-of-State Newton 57 11 18 (49 states) 20 Wabash 19 Huntington 2,483 Cass Miami 14 Adams White 34 28 Wells 20 16 11 International Benton Carroll 18 (75 countries) 31 Grant 1,006 Howard 34 Blackford Tippecanoe 70 7 Jay Warren 119 7 Total Enrollment 39 Clinton Tipton 18 13,565 43 Delaware Madison 74 Randolph Fountain 137 19 95 Boone Hamilton Montgomery 353 115 77 Henry Vermillion 52 Wayne 187 Hancock 50 Parke Hendricks Marion 123 408 1,516 173 Putnam 174 Rush Fayette Union 20 5 5 Shelby Morgan Johnson 66 281 Vigo Clay 155 Franklin 1,709 344 12 Owen Decatur 94 47 Brown Bartholomew Monroe 24 58 Dearborn Sullivan 122 Ripley 49 154 Greene 37 171 Jennings 25 Ohio Jackson 6 Lawrence 56 Switzerland 86 Jefferson 39 6 Knox Daviess Martin Scott 78 10 19 49 Washington Orange 17 79 Clark 70 Pike 13 Dubois Gibson 143 Crawford Floyd 52 10 53 Harrison Warrick 34 56 Perry Vanderburgh 27 Posey 133 Spencer 12 30

59 Board of Trustees and University Administration

Board of Trustees University Officials as of June 30, 2017 as of June 30, 2017

David Campbell Daniel Bradley Chair President of the University Indianapolis, Indiana Term Expires 2019 Michael Licari Provost and Vice President for Edward Pease Academic Affairs Vice Chair Terre Haute, Indiana Diann McKee Term Expires 2021 Senior Vice President for Finance and Administration/University Treasurer Jeff Taylor Finance Committee Chair Willie Banks, Jr. and Secretary Vice President for Student Affairs Carmel, Indiana Term Expires 2021 John Beacon Senior Vice President for Enrollment Kathleen Cabello Management, Marketing, and Assistant Secretary Communications Indianapolis, Indiana Term Expires 2019 Ron Carpenter For Additional Vice President for Development and Robert Baesler CEO of ISU Foundation Information: Terre Haute, Indiana Term Expires 2017 Nancy Rogers Admissions Vice President for University Ofﬁce of Admissions Tanya Bell Engagement John W. Moore Welcome Center Brownsburg, Indiana 318 North Sixth Street Term Expires 2020 Indiana State University Terre Haute, Indiana 47809 Haley Gravely 812-237-2121 Greenwood, Indiana 1-800-GO-TO-ISU Term Expires 2017 [email protected]

Randall Minas Alumni Culver, Indiana Alumni Association Additional copies of the 2017 Term Expires 2020 30 North Fifth Street Financial Report may be obtained from: Terre Haute, Indiana 47809 Kimberly Oliphant Smith 1-800-258-6478 Ofﬁce of the Controller Indianapolis, Indiana [email protected] Parsons Hall, room P115 Term Expires 2019 Indiana State University Foundation Terre Haute, Indiana 47809 ISU Foundation 30 North Fifth Street 812-237-3513 Terre Haute, Indiana 47809 or at www.indstate.edu/controller/ 812-514-8400 1-800-242-1409 indstatefoundation.org

Ofﬁce of the Controller Parsons Hall, Room P115 Indiana State University Terre Haute, Indiana 47809

812-237-3513 indstate.edu/controller/

Appendix B

Form of Bond Counsel Opinion

______, 2018

Indiana State University Board of Trustees Citigroup Global Markets Inc. Terre Haute, Indiana New York, New York

First Financial Bank, N.A. (formerly known as Siebert Cisneros Shank & Co., L.L.C. Terre Haute First National Bank), as Trustee New York, New York Terre Haute, Indiana

Re: Indiana State University Student Fee Bonds, Series S (the “Series S Bonds”) issued by the Indiana State University Board of Trustees (the “University”) pursuant to a Trust Indenture dated as of November 1, 1985 as heretofore supplemented and amended, and as further supplemented by a Sixteenth Supplemental Indenture dated as of July 15, 2018 (collectively, the “Indenture”) to First Financial Bank, N.A. (formerly known as Terre Haute First National Bank), Terre Haute, Indiana, as trustee (the “Trustee”); Principal amount $______

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 S Bonds to provide funds for financing costs of the Project (as defined in the Indenture), as certified by the Secretary or Assistant Secretary of the University; and (ii) the Indenture as executed and delivered for the purpose of securing the payment of the Series S 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:

(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 S 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 S Bonds is exempt from income taxation in the State of Indiana. This opinion relates only to the exemption of interest on the Series S Bonds from state income taxes.

(4) Under federal statutes, decisions, regulations and rulings existing on this date, the interest on the Series S Bonds is excludable from gross income for purposes of federal income taxation pursuant to Section 103 of the Internal Revenue Code of 1986, as in effect on the date hereof (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

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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 S Bonds to lose the exclusion from gross income for purposes of federal income taxation retroactive to the date of issuance of the Series S Bonds.

It is to be understood that the rights of the owners of the Series S Bonds, the University and the Trustee and the enforceability of the Series S 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 S Bonds, the University and the Trustee and the enforceability of the Series S 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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Appendix C

Summary of Continuing Disclosure Undertaking Agreement

Pursuant to continuing disclosure requirements promulgated by the Securities and Exchange Commission in SEC Rule 15c2-12, as amended (the “Rule”), the University entered into an Amended and Restated Continuing Disclosure Undertaking Agreement, dated as of March 15, 2011, to be supplemented by an Eighth Supplement to Amended and Restated Continuing Disclosure Undertaking Agreement, dated as of July 15, 2018 (collectively, the “Undertaking”). Pursuant to the terms of the Undertaking, the University will agree to provide the following information while any of the Series S 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 Housing and Dining System Revenue Bonds, as designated below) (collectively, the “Annual Information”): THE FACILITIES AND THE SYSTEM -- Housing and Dining System Bonds ANNUAL DEBT SERVICE REQUIREMENTS AND COVERAGE -- Student Fee Bonds ANNUAL DEBT SERVICE REQUIREMENTS AND COVERAGE -- Housing and Dining System Bonds INDIANA STATE UNIVERSITY Enrollment Student Admissions Instructional Fees 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 S Bonds; • Series S 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 S 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;

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• adverse tax opinions or other material events affecting the tax exempt status of the Series S 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 Series S Bonds; • 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.

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 obtain 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 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 S Bonds, the Indenture or any other agreements 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 S 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 S 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 S 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 S 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 S 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 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 S 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 S Bonds as required under the Indenture at the time of such amendment

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or modification; or (b) such amendment or modification (including an amendment or modification which rescinds the Undertaking) 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 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 instances: The University did not file reportable event notices in response to (i) rating changes for certain insured bond issues caused by rating changes of the bond insurers, and (ii) changes to its underlying rating associated with certain bond issues. The University filed notices with the MSRB’s Electronic Municipal Market Access (“EMMA”) service regarding such prior instances on June 8, 2016. However, the University makes no representations as to any potential materiality of such prior instances, as materiality is dependent upon individual facts and circumstances. Further, the University has adopted procedures to ensure compliance with its continuing disclosure undertakings. 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 Rule.

EMMA. The Securities and Exchange Commission approved the submission of continuing disclosure filings with the 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 (including filings of Annual Information, audited financial statements, and reportable event notices) shall be filed solely by transmitting such filings to EMMA at www.emma.msrb.org.

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INTENTIONALLY LEFT BLANK

INDIANA STATE UNIVERSITY BOARD OF TRUSTEES • Indiana State University Student Fee Bonds, Series S