UNIVERSITY OF CINCINNATI JUNE 30, 2008
Auxiliary Enterprise Revenues primarily represent revenues generated by bookstores, parking, the
conference center, athletics, housing, and dining.Operating Activities, as reported on the Statement of Revenues, Expenses, and Changes in Net Assets
are those that generally result from exchange transactions such as payments received for providing services
and payments made for services or goods received. Nearly all of the University’s expenses are from
exchange transactions. Certain significant revenue streams relied upon for operations are recorded
as non-operating revenues, as defined by GASB Statement 35, including state appropriations, gifts and
investment income.Management Estimates—The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported amounts of revenue and expenditures
during the reporting period. Actual results could differ from those estimates.
Reclassifications – Prior year federal and state grant programs have been reclassified from operating
revenue to non-operating revenue in the amount of $24,494,000 for fiscal year 2007 on the Statement of
Revenues, Expenses and Changes in Net Assets to conform to the current year presentation. This
reclassification was the result of the issuance by GASB of an implementation guide that clarified that certain
non-exchange grants should be reported as non-operating revenue.
- Cash and Investments
Summary—The University maintains centralized management for substantially all of its cash and
investments. With the exception of insurance reserves, charitable remainder trusts, and other trust funds the
terms of which require separate management, the University invests its reserves and relatively short-duration
assets in the Temporary Investment Pool, and invests substantially all of the assets of the University
endowment in the Endowment Investment Pool.Distributions are made from the University endowment to the University entities that benefit from those
funds. The endowment spending policy provides for an annual distribution of 5% of the twelve-quarter
moving-average market value of endowment units. However, during 2007 and continuing into fiscal year
2009, a temporary 6% endowment spending policy is in effect.Authorizations—The Temporary Investment Pool is invested principally in investment-grade money-market
and fixed-income securities. Balances in the Temporary Investment Pool are primarily for operating
expenses or for funding capital projects.The University investment policies are governed and authorized by University rules. The approved asset
allocation policy for the endowment investments sets a general target of 85% equities and 15% fixed-income
securities within broader ranges set at the discretion of the Investment Committee.The University has an established set of investment guidelines related to targeted asset allocation and
allowable ranges for alternative investments. As commonly defined in the investment industry, the target
allocations for the three groups of alternative investments in force at June 30, 2008 are Private Real Estate
3%, Private Equity 2.5%, and Hedge Funds 3%. The allowable range for all three groups is 0% to 10%.Diversification is a fundamental risk-management strategy for the endowment portfolio. Accordingly, the
portfolio includes investments in domestic and non-U.S. stocks, bonds and bond-like loans; real estate; and
limited partnerships consisting of venture capital, private equity and real estate.Off-Balance-Sheet Risk—The University’s investment strategy incorporates certain financial instruments
which involve, to varying degrees, elements of market risk and credit risk in excess of amounts recorded in
the financial statements. Market risk is the potential for changes in the value of financial instruments due to
market changes, including interest and foreign exchange rate movements and fluctuations embodied in
forward, futures, and commodity or security prices. Market risk is directly impacted by the volatility and
liquidity of the markets in which the related underlying assets are traded. Credit risk is the possibility that a
loss may occur due to the failure of a counterparty to perform according to the terms of the contract. The
University’s risk of loss in the event of counterparty default is typically limited to the amounts recognized in
the Statement of Net Assets and is not represented by the contract or notional amounts of the instruments.