UNIVERSITY OF CINCINNATI JUNE 30, 2008
The University’s financial statements include alternative investments, such as limited partnerships, that are
not publicly traded. Certain of these alternative investments are carried at estimated fair value as of March
31, 2008 and 2007, as adjusted by cash receipts, cash disbursements and securities distributions through
June 30, 2008 and 2007, at a total estimated fair value of $98 million and $83 million, respectively. In
addition, the University also has alternative investments in investment funds that are not themselves publicly
traded and thus do not have publicly reported market values, but whose underlying assets consist of publicly
traded investments for which fair values are established by the major securities markets. Such alternative
investments are carried at fair value of $318 million and $354 million at June 30, 2008 and 2007. The
University believes that the total carrying amount of its alternative investments valued at $416 million and
$437 million at June 30, 2008 and 2007 is a reasonable estimate of fair value. The University’s outstanding
commitment to alternative investments is $42 million and $25 million as of June 30, 2008 and 2007,
respectively.The University’s investment securities, in general, are exposed to various risks, such as interest rate, credit,
and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is
reasonably possible that changes in the values of investments could occur in the near term and that such
changes could materially affect the investment amounts reported in the accompanying Statement of Net
Assets. Subsequent to June 30, 2008, conditions in the worldwide debt and equity markets have
deteriorated significantly. These conditions have had a negative effect on the fair value of the University’s
investments since June 30, 2008. However, we are unable to quantify the exact effect on the University.Inventories are held primarily by the central store and are stated at the lower of cost or net realizable market
value. The moving-average basis for all inventories is used to determine inventory cost.Capital Assets—Land, land improvements, infrastructure, buildings and equipment are recorded at cost at
date of acquisition, or market value at date of donation. The University’s capitalization threshold is $100,000
for major capital projects and $5,000 for all other capitalized items. Interest on related borrowing, net of
interest earnings on invested proceeds, is capitalized during the period of construction. University and
Foundation property and equipment are depreciated using the straight-line method over the estimated useful
lives (from five to fifty years) of the respective assets. When plant assets are sold or disposed of, the
carrying value of such assets and the associated depreciation are removed from the University’s records.The University does not capitalize works of art or historical treasures that are held for public exhibition,
education or research in furtherance of public service. These collections are neither disposed of for financial
gain nor encumbered in any way. In addition, the University requires the proceeds from the sale of collection
items be used to acquire other collection items. Accordingly, such collections are not recognized or
capitalized for financial statement purposes. All other works of art or historical treasures are capitalized at
historical or fair value at date of donation.Gift Pledges—The University receives pledges and bequests of financial support from corporations,
foundations and individuals. Revenue is recognized when a pledge representing an unconditional promise
to pay is received and all eligibility requirements, including time requirements, have been met. In the
absence of such promise, revenue is recognized when the gift is received.Unconditional promises to give that are expected to be collected in future years are recorded at the present
value of the estimated future cash flows. The discounts on these amounts are computed using a discount
rate commensurate with the risks involved. At June 30, 2008, these discount rates ranged from 4% to 6%.
An allowance for uncollectible pledges receivable is provided based on management’s judgment of potential
uncollectible amounts. The determination includes such factors as prior collection history, type of gift and
nature of fund-raising.Deferred Revenue includes amounts received in advance of an event.Endowment Spending Policy—For donor restricted endowments, the Uniform Management of Institutional
Funds Act permits the University to distribute an amount of realized and unrealized endowment appreciation
as the Board of Trustees determines to be prudent. The University’s policy is to accumulate the
undistributed realized and unrealized appreciation within the endowment, which is discussed in Note 2.Student Tuition and Residence Fees are presented net of scholarship and fellowship allowances of
$84,322,000 in 2008 and $81,510,000 in 2007 and bad debt provisions of $1,287,000 in 2008 and
$2,726,000 in 2007. Payments made directly to students are presented as scholarship and fellowship
expenses.