Budget and Finance

UNIVERSITY OF CINCINNATI JUNE 30, 2008

reset mode bonds that matures after June 30, 2009 as a long-term liability. As of June 30, 2008, there has

not been a failed remarketing for the weekly reset mode variable rate bonds.

The University issued general receipt insured variable rate bonds, Series 2007B, in 2007. The initial interest
rate for the Series 2007B – weekly reset mode bonds was 3.60%. The interest rate for the weekly mode
bonds resets every week, with interest due the first business day of each calendar month. Interest paid to
date has been based on weekly rates that have fluctuated from a low of 3.54% to a high of 10%. The
maximum interest rate on the weekly reset mode bonds is 12%. The University has entered into a standby
bond purchase agreement (SBPA) with a liquidity provider for Series 2007B weekly reset mode bonds.
Series 2007B weekly rate bondholders may tender any of these bonds for repurchase every seven days.
Any bonds so tendered will be purchased either by the proceeds of the remarketing of such bonds or, if not
successfully remarketed, by the liquidity provider. Accordingly, the University has classified the outstanding
principal balance on its weekly reset mode bonds that matures after June 30, 2009 as a long-term liability.
As of June 30, 2008, there has not been a failed remarketing for the weekly reset mode variable rate bonds.
The Series 2007B Bonds were retired with the issuance of Series 2008E Bond Anticipation Notes in July,
2008, as presented in Section F of this footnote.

The University issued general receipt insured variable rate bonds, Series 2004B, in 2004. These bonds

were initially issued in two modes: a portion was in the weekly reset mode and a portion was in the auction

rate reset mode.

The initial interest rate for the Series 2004B – weekly reset mode bonds was .92%. The interest rate for the
weekly mode bonds resets every week, with interest due the first business day of each calendar month.
Interest paid to date has been based on weekly rates that have fluctuated from a low of .87% to a high of
9.0%. The maximum interest rate on the weekly reset mode bonds is 12%. The University has entered into
a standby bond purchase agreement (SBPA) with a liquidity provider for Series 2004B weekly reset mode
bonds. Series 2004B weekly rate bondholders may tender any of these bonds for repurchase every seven
days. Any bonds so tendered will be purchased either by the proceeds of the remarketing of such bonds or,
if not successfully remarketed, by the liquidity provider. Accordingly, the University has classified the
outstanding principal balance on its weekly reset mode bonds that matures after June 30, 2009 as a long-
term liability. As of June 30, 2008, there has not been a failed remarketing for the weekly reset mode
variable rate bonds. The SBPA was amended in July 2008 as presented in Section F of this footnote.

The initial interest rate for the Series 2004B – auction rate reset mode was .85%. The interest rate for
auction rate bonds is reset at each auction. Series 2008C fixed rate bonds were issued on February 6, 2008
to current refund the Series 2004B auction rate reset mode bonds, due to deteriorating conditions within the
auction rate securities market. Interest paid through March 20, 2008 was based on rates that have
fluctuated from a low of .85% to a high of 4.65%. $32,250,000 of bonds was called on February 14, 2008
and the remaining $7,750,000 of bonds was called on March 20, 2008.

The University has the option to convert the variable rate bonds from one rate mode to another, as well as
the option to redeem these bonds in whole or in part. The University’s variable rate bonds mature at various
dates through 2031. It is the University’s intent to repay its variable rate bonds in accordance with the
maturities set forth in the bond indentures.

Derivative Transactions – During the year ended June 30, 2008, the University entered into an interest rate
swap agreement relating to the Series 2008B variable rate bonds, and a qualified hedge with respect to
bonds which are expected to be issued on or about May 1, 2009. The intention of these derivative
transactions is to protect against the potential of rising interest rates. The amounts under the swaps
decrease as principal payments are made on the bonds, so that the amount equals the principal amortization
for the bonds.

The following table summarizes the University’s interest rate swap agreements:

Associated

Bond

Issue

Outstanding

Notional

Amount

Effective

Date

Fixed

Rate

Paid

Variable Rate

Index Received

Fair

Value @

6/30/2008

Swap

Termination

Date

Counterparty/

Counterparty

Credit Rating

2008B

$30,930,000

4/8/2008

3.508%

USD-SIFMA

Municipal

Swap Index

$366,000

6/1/2024

Royal Bank

Of Canada/

Aaa, AA-

2009–

Series TBD

$24,075,000

5/1/2009

3.163%

USD- 67%

LIBOR-BBA-1M

$327,000

6/1/2030

Royal Bank

Of Canada/

Aaa, AA-