University of Hartford Financial Statements June 30, 2010 and 2009

University of Hartford Index June 30, 2010 and 2009 Page(s) Report of Independent Auditors ...............................................................................................................1 Financial Statements Statements of Financial Position .............................................................................................................. 2 Statements of Activities ............................................................................................................................3–4 Statements of Cash Flows ...........................................................................................................................5 Notes to Financial Statements .......................................................................................................... 6–23

PricewaterhouseCoopers LLP 185 Asylum Street, Suite 2400 Hartford, CT 06103-3404 Telephone (860) 241 7000 Facsimile (860) 241 7590

Report of Independent Auditors

To the Board of Regents University of Hartford

In our opinion, the accompanying statements of financial position and the related statements of activities and of cash flows present fairly, in all material respects, the financial position of the University of Hartford (the “University”) at June 30, 2010 and 2009, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the University's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

November 18, 2010

1

University of Hartford Statements of Financial Position June 30, 2010 and 2009 2010

(in thousands of dollars) Assets Cash and cash equivalents Accounts receivable, net (Note 3) Student loans receivable, net (Note 3) Notes receivable from affiliate (Note 4) Grants receivable Pledges receivable, net (Note 5) Funds held in trust by others, net Prepaid expenses and other assets Deposits with trustees Deferred bond issuance costs, net Perpetual trust (HAS, Inc.) Investments, at fair value (Note 6) Property and equipment, net (Note 7) Total assets Liabilities Accounts payable and accrued expenses Student deposits Deferred revenue Accrued postretirement benefit obligations (Note 8) Asset retirement obligations (Note 9) Advances from federal government for student loans Notes payable and other debt (Note 10)

$

19,162 5,882 4,932 70 948 2,999 450 1,479 10,012 4,267 10,136 89,834 156,441

$

19,382 5,253 4,818 210 1,161 3,913 434 1,125 9,911 4,448 9,168 79,091 164,246

$

306,612

$

303,160

$

12,225 1,752 9,401 20,783 3,876 4,447 119,209

$

13,654 1,737 5,918 18,889 3,883 4,447 122,546

Total liabilities Net assets Unrestricted Temporarily restricted Permanently restricted (Note 12) Total net assets Total liabilities and net assets

$

The accompanying notes are an integral part of these financial statements.

2

2009

171,693

171,074

41,950 22,248 70,721

44,279 18,601 69,206

134,919

132,086

306,612

$

303,160

University of Hartford Statement of Activities Year Ended June 30, 2010, with Comparative Summarized Totals for 2009 (in thousands of dollars)

2010 Temporarily Restricted

Unrestricted Revenues, gains, and other support Student tuition and fees Less: student aid Student tuition and fees, net Grants and contracts Gifts Investment income Endowment spending income Distribution from perpetual trust (HAS, Inc.) Organized activities Auxiliary enterprises Other sources

$

Subtotal

156,424 (64,044) 92,380 6,953 719 811 896 4,837 43,065 4,280

$

153,941

Net assets released from restrictions Total revenues, gains and other support Operating expenses and losses Instructional expenses Auxiliary enterprises Research and educational grants Organized activities Student services Libraries General institutional General administration and other Development Total operating expenses and losses

2009 Permanently Restricted

2,727 65 2,278 402 -

$

Total -

5,472

-

$

Total

156,424 (64,044) 92,380 6,953 3,446 876 3,174 402 4,837 43,065 4,280

$

159,413

155,258 (58,778) 96,480 9,000 4,323 709 2,827 351 4,845 42,384 6,186 167,105

5,693

(5,693)

-

-

-

159,634

(221)

-

159,413

167,105

81,359 35,834 3,169 7,175 12,601 3,080 10,726 9,426 4,551

-

-

81,359 35,834 3,169 7,175 12,601 3,080 10,726 9,426 4,551 167,921

77,639 34,588 5,786 6,887 12,653 3,208 10,929 9,864 4,505

167,921

-

-

(8,287)

(221)

-

Non-operating activities Gifts and gifts in kind Net realized and unrealized gains (losses) Investment income Proceeds from sale of assets Endowment spending allocation Change in value of perpetual trust (HAS, Inc.) Distribution from perpetual trust (HAS, Inc.) Pledges and deferred gifts, net of allowance and discount Change in value in split interest agreements Change in donor intention Reallocation for underwater endowments

1,381 900 933 1,461 (896) (32) 18 2,193

458 6,884 1,686 (2,158) (797) 91 (103) (2,193)

643 177 178 (120) 1,115 (402) (144) (17) 85 -

Change in net assets from non-operating activities

5,958

3,868

1,515

11,341

(18,895)

(2,329)

3,647

1,515

2,833

(17,849)

Change in net assets from operations

Change in net assets Net assets at beginning of year Net assets at end of year

44,279 $

41,950

18,601 $

22,248

The accompanying notes are an integral part of these financial statements.

3

70,721

1,046

2,482 7,961 2,797 1,461 (3,174) 1,115 (402) (941) 42 -

69,206 $

166,059

(8,508)

2,896 (20,485) 3,865 (2,827) (1,457) (351) (239) (297) -

132,086 $

134,919

149,935 $

132,086

University of Hartford Statement of Activities Year Ended June 30, 2009 (in thousands of dollars)

2009 Temporarily Restricted

Unrestricted Revenues, gains, and other support Student tuition and fees Less: student aid Student tuition and fees, net Grants and contracts Gifts Investment income Endowment spending income Distribution from perpetual trust (HAS, Inc.) Organized activities Auxiliary enterprises Other sources

$

Subtotal

155,258 (58,778) 96,480 9,000 697 661 797 4,845 42,384 6,186

$

161,050

Net assets released from restrictions Total revenues, gains and other support Operating expenses and losses Instructional expenses Auxiliary enterprises Research and educational grants Organized activities Student services Libraries General institutional General administration and other Development Total operating expenses and losses

Permanently Restricted

3,626 48 2,030 351 -

$

Total -

6,055

-

$

155,258 (58,778) 96,480 9,000 4,323 709 2,827 351 4,845 42,384 6,186 167,105

9,068

(9,068)

-

-

170,118

(3,013)

-

167,105

77,639 34,588 5,786 6,887 12,653 3,208 10,929 9,864 4,505

-

-

77,639 34,588 5,786 6,887 12,653 3,208 10,929 9,864 4,505

-

166,059

-

1,046

166,059

-

Change in net assets from operations

4,059

(3,013)

Non-operating activities Gifts and gifts in kind Net realized and unrealized losses Investment income Proceeds from sale of assets Endowment spending allocation Change in value of perpetual trust (HAS, Inc.) Distribution from perpetual trust (HAS, Inc.) Pledges and deferred gifts, net of allowance and discount Change in value in split interest agreements Change in donor intention Reallocation for underwater endowments

857 (2,373) 1,250 (797) (3) 252 (3,299)

1,188 (17,639) 2,330 (1,877) (586) (161) (835) 3,299

851 (473) 285 (153) (1,457) (351) 347 (133) 583 -

Change in net assets from non-operating activities

(4,113)

(14,281)

(501)

(18,895)

(54)

(17,294)

(501)

(17,849)

Change in net assets Net assets at beginning of year Net assets at end of year

44,333 $

44,279

35,895 $

18,601

69,707 $

The accompanying notes are an integral part of these financial statements.

4

2,896 (20,485) 3,865 (2,827) (1,457) (351) (239) (297) -

69,206

149,935 $

132,086

University of Hartford Statements of Cash Flows Years Ended June 30, 2010 and 2009 (in thousands of dollars) Cash flows from operating activities Change in net assets Adjustments to reconcile change in net assets to net cash provided by operating activities Gifts in kind Bad debt expense Depreciation and amortization Loss on disposal of equipment Gain on sale of assets Receipt of contributed securities Gifts restricted for long-term investment Net unrealized and realized (gain) loss on investments (Increase) Decrease in assets Accounts receivable Prepaid expenses and other assets Grants receivable Pledges receivable Funds held in trust by others Perpetual trust (HAS, Inc.) Deposits with trustees Increase (Decrease) in liabilities Accounts payable and accrued expenses Student deposits Deferred revenue Accrued postretirement benefit obligations Asset retirement obligations

2010 $

Net cash provided by operating activities Cash flows from investing activities Purchase of investments Proceeds from sale of investments Purchases of property and equipment Proceeds from sale of assets Loans to affiliates collected Student loans advanced Student loans collected Net cash used in investing activities Cash flows from financing activities Gifts restricted for long-term investment Proceeds from notes payable and other debt Payment of notes payable and other debt Net cash used in financing activities Net (decrease) increase in cash and cash equivalents

2009

2,833

$

(233) 707 12,957 182 (1,461) (517) (573) (7,964)

(22) 1,428 13,034 71 (139) (823) 20,485

(1,845) (354) 213 346 (16) (968) (101)

(1,600) 483 295 (1,451) 94 1,659 (59)

(1,424) 15 3,483 1,894 (7)

1,354 (1,230) (893) 2,814 222

7,167

17,873

(46,016) 43,754 (5,091) 1,500 140 (644) 431

(39,069) 41,620 (15,926) 169 (819) 642

(5,926)

(13,383)

1,749 13 (3,223)

1,979 14 (3,296)

(1,461)

(1,303)

(220)

Cash and cash equivalents at beginning of year

3,187

19,382

Cash and cash equivalents at end of year

(17,849)

16,195

$

19,162

$

19,382

Cash paid during the year for interest

$

6,100

$

6,247

Noncash transactions: Construction related assets included in accounts payable

$

17

$

22

$

517

$

139

Supplemental disclosure of cash flow information

Gifts of securities

The accompanying notes are an integral part of these financial statements.

5

University of Hartford Notes to Financial Statements June 30, 2010 and 2009 (in thousands of dollars) 1.

Organization and Operations The University of Hartford (the “University”) was established in 1957 as an independent, privately governed, non-profit, comprehensive coeducational institution of higher education. The University's main campus is located on approximately 320 acres in Hartford, West Hartford, and Bloomfield, Connecticut and comprises the following degree granting colleges and schools:

2.



Barney School of Business



College of Arts and Sciences



College of Education, Nursing and Health Professions



College of Engineering, Technology, and Architecture



Hartford Art School



Hartt School



Hillyer College

Significant Accounting Policies Basis of Presentation The financial statements of the University have been prepared on the accrual basis of accounting and include all of the University’s assets, liabilities, net assets, revenues and expenses which are separately captioned and presented. The University’s measure of operations as presented in the statement of activities includes income from tuition and fees, grants and contracts, cash or stock gifts for operating programs, the allocation of endowment spending, and other revenues. Operating expenses are reported on the statement of activities by functional categories and include the accounts of all of the colleges and schools, after allocating costs for interest on indebtedness and depreciation expense. Resources are reported for accounting purposes in separate classes of net assets based on the existence or absence of donor-imposed restrictions. Brief definitions of the three classes of net assets follow: Unrestricted Net Assets Unrestricted net assets derived from tuition and other institutional resources are not subject to donor-imposed restrictions. Unrestricted net assets may be designated for specific purposes by action of the Board of Regents or may otherwise be limited by contractual agreements with outside parties. Temporarily Restricted Net Assets Temporarily restricted net assets are subject to donor-imposed restrictions to benefit specific schools, departments, or programs of the University that have not yet been met through the disbursement of such assets for their restricted purposes. Such assets and activity primarily include restricted, non-endowed gifts, and net total investment return generated from permanently restricted gifts to endowment as well as trusts and annuities whose ultimate purpose is not permanently restricted.

6

University of Hartford Notes to Financial Statements June 30, 2010 and 2009 (in thousands of dollars) Permanently Restricted Net Assets Permanently restricted net assets are subject to donor-imposed restrictions and must be maintained permanently by the University. Generally, such assets represent the historic dollar value of endowment gifts, as well as trusts and annuities whose ultimate purpose is to be maintained in perpetuity. The University’s endowment consists of donor restricted endowment funds and board-designated endowment funds for a variety of purposes. Pledges receivable and split interest agreements that have been designated for endowment are not considered as part of the endowment until funds are received. The net assets associated with endowment funds including funds designated by the Board of Regents to function as endowments are classified and reported based on the existence or absence of donor imposed restrictions. Revenues are reported as increases in unrestricted net assets unless use of the related assets is limited by donor-imposed restrictions. Expenses are reported as decreases in unrestricted net assets. Gains and losses on investments and other assets or liabilities are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulations or law. Expirations of temporary restrictions on net assets because the donor-imposed purpose has been accomplished, the stipulated time period has elapsed, or the University has appropriated gains for spending are reported as net assets released from restrictions. Certain items previously reported in the statements of cash flows and the notes to financial statements have been reclassified to conform to the current financial statement presentation. Cash and Cash Equivalents Cash and cash equivalents include cash on deposit with banks, as well as short-term investments with maturities of ninety days or less at the date of purchase. Investments Investments are recorded at fair value. Fair value is defined as the exchange price that would be received for an investment in the principal or most advantageous market for the investment in an orderly transaction between market participants on the measurement date. Investments in stocks and bonds which are traded on national securities exchanges are valued at year-end closing prices. Over-the-counter stocks are valued at closing bid prices. Investments in short-term securities are valued at cost, which approximates fair value. The University holds interests in certain funds, commingled funds, and other investment structures that invest in securities at the sole discretion of the investment managers. The funds hold, among other investments, debt and/or equity securities of troubled or restructured companies and enter into transactions in financial futures, foreign exchange options, forward currency contracts (which are used for hedging and non-hedging purposes), securities purchased under agreements to resell, and securities sold under agreements to repurchase. Concentration of Market and Credit Risk Market risk represents the potential loss the University faces due to the decrease in the value of marketable securities. Credit risk represents the potential loss the University faces due to the possible non-performance by obligors and counterparties of the terms of their contracts. Financial instruments that potentially subject the University to concentrations of credit risk consist principally of cash equivalents and the investment portfolio. In order to limit credit risk, the University invests its cash equivalents and investments in a number of financial institutions and mutual funds. Due to the level of risk associated with certain investment securities, it is reasonably

7

University of Hartford Notes to Financial Statements June 30, 2010 and 2009 (in thousands of dollars) possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported. Endowment Spending Allocation Policy The Board of Regents of the University has adopted a spending allocation policy for endowment return to be utilized to support the annual unrestricted operations and restricted programs of the University. Under the University’s spending policy, donations made to the Pooled Endowment Fund are added in the quarter the gift or notification is received. The University’s endowment spending allocation is calculated based on 4 percent of the lesser of the calculated twelve-quarter moving market average or the ending quarterly market value on a unitized basis. The corresponding calculated spending allocations are distributed in quarterly installments. In establishing this policy, the Board considered the expected long term rate of return on its endowment. Accordingly, over the long term, the University expects the current spending policy to allow its endowment to grow at least by the current spending rate and inflation annually, consistent with the objectives of providing resources for the underlying purpose of the endowment assets over the life of the endowment, as well as to provide additional growth through new gifts. Actual returns in any given year may vary from this amount. Charitable Gift Annuities A charitable gift annuity is an arrangement between a donor and the University in which the donor makes a contribution to the University and in return receives an annuity for a specified period of time, payable to the donor or to individuals or to organizations designated by the donor. The assets received are held as general assets of the University and the annuity liability is a general obligation of the University. Distribution rates on these charitable gift annuities ranged from 5.2 percent to 11.1 percent during fiscal years 2010 and 2009. Pledges Receivable Unconditional promises to give are recognized as revenues in the period the promise is made. Donor restricted gifts whose restrictions are satisfied in the year received are reflected in temporarily restricted net assets when received and released from restriction when the related expense is incurred. Gifts other than cash are recorded at their estimated fair value. Unconditional promises to give that are expected to be collected within one year are recorded at net realizable value. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of estimated future cash flows, less an allowance for uncollectible receivables. The discounts on those amounts are computed using a rate that discounts the asset to approximate fair value. Amortization of the discount is included in gift revenue. Conditional promises to give are not included as support until the conditions are substantially met. All gifts are considered to be available for unrestricted use unless specifically restricted by the donor. Amounts received that are designated for future periods or restricted by the donor for specific purposes are reported as temporarily restricted or permanently restricted. Gifts received that are awaiting designation by the donor are reported as temporarily restricted net assets. Funds Held in Trust by Others The University has been named as the sole or participating beneficiary in several charitable remainder trusts held by third party trustees. A charitable remainder trust is an arrangement wherein the donor has established a trust with specific distributions to be made to a designated

8

University of Hartford Notes to Financial Statements June 30, 2010 and 2009 (in thousands of dollars) beneficiary or beneficiaries over the trust's term. The University will receive its share of the assets remaining upon termination of the trust. The University has recorded the estimated present value of its interest in the trust assets as either temporarily or permanently restricted net assets, in accordance with the trusts’ terms. Perpetual Trust (HAS, Inc.) In a state court decision dated January 4, 2002, legal title of the University’s Hartford Art School endowment assets was determined to belong to Hartford Art School, Inc. (“HAS, Inc.”), an organization affiliated with the University. As a result of this decision, the University is reflecting the HAS, Inc. endowment funds as a perpetual trust and they are excluded from the University’s investment balance in the statement of financial position. The University’s Hartford Art School is the sole beneficiary of the perpetual trust held by HAS, Inc. A perpetual trust is an arrangement in which a donor establishes and funds a trust administered by an organization other than the beneficiary. Under the terms of the trust, the University has the irrevocable right to receive the income earned on the trust assets in perpetuity. Distributions received by the University are restricted to the benefit of the Hartford Art School. Distributions received from the perpetual trust for fiscal year 2010 and 2009 were $402 and $351, respectively. Changes in the fair value of the perpetual trust are recorded in the statement of activities as a change in value of perpetual trust (HAS, Inc.). Amortization Capitalized bond issuance costs of $4,267 and $4,448 at June 30, 2010 and 2009, respectively, relating to the Series E and Series G Revenue Bonds are being amortized using the straight-line basis over thirty years, which is the same period the bonds will be outstanding. This method is not materially different from the interest method. The bond premium related to the Series E and Series G Revenue Bonds of $2,446 and $2,543 at June 30, 2010 and 2009, respectively, is reported as a bond valuation premium and is being amortized to interest income over thirty years using the straight-line basis. This method is not materially different from the interest method. Property and Equipment Land, buildings, furniture and equipment, and library books are stated at cost at the date of purchase or at fair value on the date of donation in the case of gifts. The University depreciates property and equipment (excluding land) using the straight-line method beginning in the month of acquisition or capitalization for construction in progress. Useful lives assigned to assets are as follows: buildings 50-75 years, building improvements 10 years, furniture and equipment 3-10 years, and library books 5 years. Assets purchased under capital lease agreements are depreciated over the lesser of the estimated useful life of the asset or the term of the lease. Collections It is the University’s policy not to capitalize library and art collections. Purchases of such collections are recorded as decreases in unrestricted net assets in the period in which the items are acquired. Contributed collection items are not reflected in the financial statements. Proceeds from the sale of collection items or insurance recoveries are reflected as increases in the applicable net asset class.

9

University of Hartford Notes to Financial Statements June 30, 2010 and 2009 (in thousands of dollars) Summer School Revenue Recognition The University recognizes revenues and expenditures from its two summer terms within the fiscal year in which the sessions are predominantly conducted. Included in accounts receivable and deferred revenue is $1,411 and $1,294 representing amounts billed for Summer Term II as of June 30, 2010 and 2009, respectively. Postretirement Benefits Retirement benefits for full-time employees are individually funded and vested under a defined contribution program with the Teachers Insurance and Annuity Association and the College Retirement Equities Fund (“TIAA and CREF”). Under this agreement, the University and plan participants make monthly contributions to TIAA and CREF to purchase individual annuities equivalent to retirement benefits earned. The University provides postretirement benefits that include retiree life insurance and a portion of medical and dental premiums. Asset Retirement Obligations The University recognizes the fair value of a liability for legal obligations associated with asset retirements in the period in which the obligation is incurred. When the liability is initially recorded, the cost of the asset retirement obligation is capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, and the capitalized cost associated with the retirement obligation is depreciated over the useful life of the related asset. Upon settlement of the obligation, any difference between the cost to settle the asset retirement obligation and the liability recorded is recognized as a gain or loss in the statement of activities. Tax Status The University has a letter of exemption from income tax from the Internal Revenue Service under Section 501(c)(3) of the Internal Revenue Code. Use of 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 contingencies at the date of the financial statements and revenues and expenses recognized during the reporting period. Actual results could differ from those estimates. The University’s significant estimates include the collectability of accounts receivable, student loans receivable, pledges receivable, valuation of certain investments, the calculation of its accrued postretirement benefit obligations, and asset retirement obligations.

10

University of Hartford Notes to Financial Statements June 30, 2010 and 2009 (in thousands of dollars) 3.

Accounts Receivable and Student Loans Receivable 2010

Accounts receivable at June 30 consists of: Student accounts receivable Other accounts receivable

$

Less: allowance for uncollectible receivables Accounts receivable, net

4.

5,882

4,879 1,244 6,123 (870)

$

2010

Student loans receivable at June 30 consists of:

Student loans receivable, net

$

(1,060) $

Student loans receivable Less: allowance for uncollectible receivables

5,617 1,325 6,942

2009

5,253

2009

$

5,347 (415)

$

5,133 (315)

$

4,932

$

4,818

Notes Receivable From Affiliate In fiscal year 2007, the University extended a $1.5 million line of credit to HAS, Inc. for the purpose of providing liquidity for campaign pledges associated with the Campaign for Hartford Art School. The line of credit is collateralized by $1.5 million of unrestricted securities held by HAS, Inc. Interest is accrued on the unpaid principal quarterly at the three month LIBOR rate. As of June 30, 2010 and 2009, respectively, $70 and $210 was outstanding on the line of credit and is reflected as notes receivable from affiliate in the statement of financial position.

5.

Pledges Receivable Pledges receivable at June 30 are expected to be realized in the following periods: In one year or less Between two years and four years In five years or more

2010 $

Less: discount to present value allowance for uncollectible receivables Pledges receivable, net

1,509 858 1,408 3,775

2009 $

(126) (650) $

2,999

1,315 1,512 2,470 5,297 (197) (1,187)

$

3,913

Discount rates used to calculate the present value of pledges receivable ranged from 1.3 to 6.1 percent in 2010 and 1.5 to 6.1 percent in 2009.

11

University of Hartford Notes to Financial Statements June 30, 2010 and 2009 (in thousands of dollars) The University has been named as the beneficiary in various revocable trusts and wills. The amount of these conditional intentions to give cannot be estimated as of June 30, 2010 and 2009.

6.

Investments The University records investments at fair value. Fair value is defined as the exchange price that would be received for an investment in the principal or most advantageous market for the investment in an orderly transaction between market participants on the measurement date. The University established a three-tier hierarchy of valuation inputs based on the extent to which the inputs are observable in the marketplace. Input may be observable or unobservable. Observable inputs reflect market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entities own assumptions about how market participants would value the pricing of investments based on the best information available in the circumstances. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The three-tier hierarchy of inputs is summarized below: 

Level 1 – Quoted prices in active markets that the University has the ability to access at the measurement date. Market price data is generally obtained from exchange or dealer markets. This level of the fair value hierarchy provides the most reliable evidence of fair value and is used to measure fair value whenever available.



Level 2 – Inputs other than quoted prices included within Level 1 that are observable for investment. These inputs include quoted prices for similar investments in active markets, quoted prices for identical or similar investments in markets that are not active, and inputs other than quoted prices that are observable for the investment, for example interest rate and yield curves, volatilities, prepayment rates and credit risk among others. These are inputs that are derived principally from or corroborated by observable market data by correlation or other means. Certain investments defined as level 2 are in the form of commingled funds, the shares of which are not publicly traded, where the valuation of the underlying securities held in the fund is taken from quoted prices in active markets.



Level 3 – Inputs that are unobservable inputs for the investment that are used to measure fair value when observable inputs are not available. Unobservable inputs reflect the University’s or its investment manager’s own assumptions about the assumptions that market participants would use in pricing the investment. These inputs are developed based on the best information available in the circumstances.

The University’s investment strategy includes alternative investments that have acceptable risk/return characteristics, and which can further the diversification of the investment program. Such investments may include, but are not limited to, global asset allocation strategies, bank loan funds, distressed mortgage debt, infrastructure investments, niche private investments, certain types of hedge funds, and convertible bonds.

12

University of Hartford Notes to Financial Statements June 30, 2010 and 2009 (in thousands of dollars) The University’s investment portfolio is shown below at fair value by investment asset class and hierarchy, including pooled endowment funds and other investments. 2010

Level 1

Short-term investments Stocks Bonds U.S. Government Corporate Foreign Foreign securities Real estate and other Total investments Charitable remainder trusts Perpetual trust (HAS, Inc.) Total investments and perpetual trust

$

$

Level 2

3,949 9,482

$

Total Fair Value

Level 3

12,108

$

-

$

3,949 21,590

299 28,332 261 21,416 3,657 67,396

359 2,207 435 15,109

7,329 7,329

299 28,332 620 23,623 11,421 89,834

-

9,678

450 -

450 9,678

67,396

$

24,787

$

7,779

$

99,962

2009

Level 1

Short-term investments Stocks Bonds U.S. Government Corporate Foreign Foreign securities Real estate and other Total investments Charitable remainder trusts Perpetual trust (HAS, Inc.) Total investments and perpetual trust

$

$

Level 2

4,297 10,457

$

12,532

Total Fair Value

Level 3

$

-

$

4,297 22,989

346 20,767 319 13,165 4,511 53,862

2,002 220 351 3,491 378 18,974

6,255 6,255

2,348 20,987 670 16,656 11,144 79,091

-

8,850

434 -

434 8,850

53,862

$

13

27,824

$

6,689

$

88,375

University of Hartford Notes to Financial Statements June 30, 2010 and 2009 (in thousands of dollars) The following are Level 3 assets in which significant unobservable inputs were used in determining the fair value. 2010

Beginning Real estate partnerships $ 2,728 Distressed mortgage program 1,221 Private equity partnerships 2,306 Charitable remainder trusts 434 Total $ 6,689

Investment Income $ 145 134 103 $ 382

Realized Gains (Losses) $ (72) 71 20 $ 19

Unrealized Gains (Losses) $ (25) 803 16 $ 794

Net Purchases/ Sales $ (105) $ (105)

Ending 2,776 2,229 2,324 450 $ 7,779

$

2009

Beginning Real estate partnerships $ 5,082 Distressed mortgage program 1,239 Private equity partnerships 2 Charitable remainder trusts 528 Total $ 6,851

Investment Income $ 219 128 68 $ 415

Realized Gains (Losses) $ (478) 144 $ (334)

Unrealized Gains (Losses) $ (2,070) (854) (94) $ (3,018)

Net Purchases/ Sales $ (25) $ 564 2,236 $ 2,775

Ending 2,728 1,221 2,306 434 $ 6,689

$

The following is additional Level 3 investment information relating to investments whose fair value is not readily determinable, excluding charitable remainder trusts.

Investment Strategy Private and public real estate

Fair Value $

2,776

Distressed mortgage funds & credit mortgage market

2,229

Infrastructure investments in the U.S. and Canada Total

2,324

$

7,329

Unfunded Commitments $

Redemption Terms

-

N/A

Quarterly withdrawals, 90 day notification

-

2 years

All distributions initiated by fund manager

2,263

$

Remaining Life

10 to 14 years

2,263

14

None

Redemption Restrictions Open ended fund

Redemption Restrictions In Place at Year End As of 6/30/10, has an exit queue

None

None

None

None

University of Hartford Notes to Financial Statements June 30, 2010 and 2009 (in thousands of dollars) A summary of the pooled endowment investment return is presented below: 2010

7.

2009

Investment income Realized losses Unrealized gains (losses) Management fees and other costs

$

2,539 (1,140) 8,741 (272)

$

3,274 (300) (18,227) (248)

Total return on pooled endowment investments

$

9,868

$

(15,501)

Property and Equipment Property and equipment is comprised of the following:

2010

Land and land improvements Building and building improvements Furniture and equipment Library books

$

Less: accumulated depreciation

2009

12,496 231,630 32,065 13,103 289,294

$

(132,919) 156,375

Construction-in-progress

(122,653) 161,290

66 $

156,441

12,496 225,933 32,237 13,277 283,943

2,956 $

164,246

Depreciation expense was $12,903 and $12,724 in 2010 and 2009, respectively. During 2008, the University entered into an agreement with the State of Connecticut which restricts the use, sale, assignment, transfer, conveyance, or leasing of the Mort and Irma Handel Performing Arts Center without prior consent of the Commissioner of the Department of Community and Economic Development.

8.

Retirement and Other Post Employment Benefits Defined contribution retirement pension benefits are provided to full-time employees through payments to the TIAA and CREF. The University recorded an expense representing the benefit contributions made by the University during fiscal 2010 and 2009 of $4,645 and $4,406, respectively. The University provides certain retiree medical and life insurance benefits to certain salaried and hourly employees whose years of service plus age equals at least 75 and whose years of service are at least 10 as of December 31, 2005. The University is amortizing the transition obligation over twenty years.

15

University of Hartford Notes to Financial Statements June 30, 2010 and 2009 (in thousands of dollars) 2010

Postretirement health and life insurance plans: Change in benefit obligation Benefit obligation at beginning of year Service cost Interest cost Plan participants' contributions Medicare Part D subsidy received Actuarial loss Benefits paid Benefit obligation at end of year Change in plan assets Fair value of plan assets at beginning of year Employer contributions Medicare Part D subsidy received Plan participant contributions Benefits paid Fair value of plan assets at end of year

2009

$

18,889 10 1,120 437 1,689 (1,362)

$

16,075 8 1,072 393 105 2,415 (1,179)

$

20,783

$

18,889

$

925 437 (1,362)

$

681 105 393 (1,179)

$

Funded status and amount recognized Funded status at beginning of the year

-

$

(20,783)

-

(18,889)

Accrued postretirement benefit cost

$

(20,783)

$

(18,889)

Amounts recognized in unrestricted net assets Unrecognized net actuarial loss Unrecognized transition obligation

$

3,123 1,868

$

1,433 2,242

$

4,991

$

3,675

$

10 1,120 374 -

$

8 1,072 374 230

$

1,504

$

1,684

Components of net periodic postretirement benefit cost Service cost Interest cost Amortization of transition obligation Amortization of prior service cost Net periodic postretirement benefit cost Weighted-average assumptions Benefit obligation Discount rate Net periodic benefit cost Discount rate

2010

2009

5.02%

6.18%

6.18%

6.76%

For measurement purposes a 9.0 and 9.5 percent annual rate of increase in the per capita cost of covered health care benefits for medical costs was assumed for 2010 and 2009, respectively. The rate is assumed to decrease gradually to an ultimate rate of 5.0 percent attained in 2018 and remain at this level thereafter.

16

University of Hartford Notes to Financial Statements June 30, 2010 and 2009 (in thousands of dollars) Estimated future benefit payments Estimated benefit payments, which reflect expected future service for fiscal year: 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2020

$

1,287 1,387 1,424 1,468 1,488 7,540

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in the health care cost trend rates would have the following effects: 1-Percentage Point Increase

Effect on total of service and interest cost components Effect on postretirement benefit obligation

9.

$

120 2,207

1-Percentage Point Decrease

$

(104) (1,909)

Asset Retirement Obligations The change in asset retirement obligations are summarized as follows: Change in asset retirement obligations Asset retirement obligations at beginning of year Asset retirement Accretion expense Asset retirement obligations at end of year

17

2010

2009

$

3,883 (195) 188

$

3,661 34 188

$

3,876

$

3,883

University of Hartford Notes to Financial Statements June 30, 2010 and 2009 (in thousands of dollars) 10.

Notes Payable and Other Debt

2010

Notes payable and other debt at June 30 consists of the following: 3.75% Campus Center building bonds due serially in principal amounts ranging from $35 to $70, annually to 2015; collateralized by the property and a pledge of the net revenues to be derived from Campus Center operations in accordance with the trust indenture

$

3.00% Dormitory building bonds due serially in principal amounts ranging from $55 to $105, annually to 2018; collateralized by the property and first lien on the net revenues from operation of the dormitories in accordance with the trust indenture

2009

330

$

390

745

825

66,225

67,750

4.91% capital lease, due in installments including interest of $370, semi-annually through 2011; collateralized by the equipment

714

1,394

Sale of future revenues accounted for as debt, amortized to interest income through 2022

360

390

48,340

49,185

49

69

-

-

116,763

120,003

2,446

2,543

Series E revenue bonds, coupon rates ranging from 3.00% to 5.63% due in installments including interest ranging from $2,570 to $2,523, semi-annually to 2033; collateralized by various University assets in accordance with the trust indenture

Series G revenue bonds, coupon rates ranging from 4.00% to 5.25% due in installments including interest ranging from $2,628 to $3,383, semi-annually to 2036; collateralized by various University assets in accordance with the trust indenture Obligations for leases Revolving line of credit; collateralized by unrestricted assets, as defined. The interest rate is equal to the LIBOR rate plus one and a half percent. No compensating balances are required. The line expires on December 31, 2010. The total line of credit was 10,000 at June 30, 2010 and 2009. However, the University utilized a portion of the revolving line of credit for an irrevocable stand by letter of credit in the amount of $2,500, collateralized by unrestricted assets, as defined. The interest rate is equal to the prime rate minus one-quarter of one percent of the LIBOR rate plus one percent, as elected by the University. No compensating balances are required. This earmarked letter of credit was renewed through October 31, 2011.

Plus unamortized premium Total notes payable and other debt

$

18

119,209

$

122,546

University of Hartford Notes to Financial Statements June 30, 2010 and 2009 (in thousands of dollars) Principal payments required to be paid, and premium amortized, by the University over a five year period on notes payable and other debt existing as of June 30, 2010 are as follows: 2011 2012 2013 2014 2015 Thereafter

3,485 2,874 2,979 3,085 3,219 103,567 $

119,209

The estimated fair value of notes payable and other debt is $118,234 and $111,823 as of June 30, 2010 and 2009, respectively. Under the terms of its Series E and Series G revenue bond agreements, the University is required to satisfy certain financial covenants related to long term debt service coverage, short term indebtedness, disposals of property, and other non-financial covenants. In addition, the University is precluded from obtaining additional debt without the prior consent of the State of Connecticut Health and Educational Facilities Authority (“CHEFA”). The University’s non-financial covenants with respect to the Campus Center bonds, Dormitory bonds, Series E bonds and Series G bonds include requirements to file the audited financial statements within a certain timeframe after fiscal year end. For the Campus Center bonds and Dormitory bonds held by U.S. Bank, the audited financial statements are due within 90 days of fiscal year end. For the Series E bonds and Series G bonds held by CHEFA, the audited financial statements are due within 120 days of fiscal year end. U.S. Bank and CHEFA no longer provide waivers for these requirements to allow the University’s Board of Regents to meet and approve the audited financial statements. In fiscal year 2010, the University will utilize the 60-day grace period provided by U.S. Bank and the 30-day grace period provided by CHEFA and will issue final audited financial statements within those timeframes. During 1996, the University sold to a third party, future interest income associated with mandatory sinking fund prepayments required for the Series D revenue bonds. In April 2002, this agreement was amended to include the sinking fund prepayments from the Series E revenue bonds. The net proceeds received by the University have been accounted for as debt and are being amortized into income using the straight-line basis. This method is not materially different from the interest method. Certain restrictions apply to the use of the net proceeds.

11.

Guarantee of Downtown Housing The University has an agreement with 18 Temple Street LLC (the “Corporation”) for a nine year period commencing fiscal year 2008 to refer prospective tenants to the Corporation. The tenants, broadly defined as students past and present, full and part-time, and other individuals who have a direct and indirect affiliation with the University, have the opportunity to enter into individual ninemonth leases each year. The leases will be between the Corporation and the individual tenants. In the event that fewer than 136 spaces are leased, the University will be responsible for all rent payments due for those spaces not leased in a given nine-month period. The University’s outstanding liability will not exceed in the aggregate $2 million over the life of the agreement. As of

19

University of Hartford Notes to Financial Statements June 30, 2010 and 2009 (in thousands of dollars) June 30, 2010 and 2009, respectively, $741 and $1,309 was recorded as a liability for the shortfall in dorm occupancy rates related to this agreement. These amounts are included in accounts payable and accrued expenses in the statement of financial position. 12.

Endowment Net Assets The University’s endowment net assets consist of donor restricted endowment funds and boarddesignated endowment funds for a variety of purposes, plus the following where the assets have been designated for endowment: pledges receivable, split interest agreements, and other net assets. The net assets associated with endowment funds including funds designated by the Board of Regents to function as endowments, are classified and reported based on the existence or absence of donor imposed restrictions. The University understands Connecticut law to require that donor-restricted endowment gifts be maintained in perpetuity as provided by UPMIFA. The University classifies as permanently restricted net assets, (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donorrestricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the University considers the following factors in making a determination to appropriate or accumulate endowment funds:  The duration and preservation of the fund  The purposes of the University and donor-restricted endowment fund  General economic conditions  The possible effect of inflation and deflation  The expected total return from income and the appreciation of investments  Other resources of the University  The investment policies of the University

20

University of Hartford Notes to Financial Statements June 30, 2010 and 2009 (in thousands of dollars) The University had the following endowment activities during the year ended June 30, 2010 and 2009 delineated by net asset class and donor-restricted versus Board-designated funds. 2010 Board Underwater Designated Endowments Unrestricted Endowment net assets, beginning of year $

8,233

Net total investment return Gifts Pledges Perpetual Trust (HAS, Inc.)

1,816 23 -

Endowment spending allocation Donor redesignation Underwater endowments Endowment net assets, end of year

$

(3,454)

9,139

Donor-restricted Temporarily Permanently

$

$

-

(896) (37) -

$

Total Unrestricted

2,193

$

(1,261)

$

4,779

8,902

$

69,206

Total

$

82,887

1,816 23 -

8,297 43 -

338 643 (144) 713

10,451 709 (144) 713

(896) (37) 2,193

(2,158) (93) (2,193)

(120) 85 -

(3,174) (45) -

7,878

$

12,798

$

70,721

$

91,397

2009 Board Underwater Designated Endowments Unrestricted Endowment net assets, beginning of year $

10,675

Net total investment return Gifts Pledges Perpetual Trust (HAS, Inc.)

(1,642) 12 -

Endowment spending allocation Donor redesignation Underwater endowments Endowment net assets, end of year

$

8,233

Donor-restricted Temporarily Permanently

$

$

-

(797) (15) -

$

(155)

Total Unrestricted

(3,299)

$

(3,454)

21

$

10,520

22,998

$

69,707

Total

$

103,225

(1,642) 12 -

(14,850) 34 -

(321) 851 347 (1,808)

(16,813) 897 347 (1,808)

(797) (15) (3,299)

(1,877) (702) 3,299

(153) 583 -

(2,827) (134) -

4,779

$

8,902

$

69,206

$

82,887

University of Hartford Notes to Financial Statements June 30, 2010 and 2009 (in thousands of dollars) The components of permanently and temporarily restricted net assets are as follows (Endowments only): Permanently restricted net assets: The portion of perpetual endowment funds retained permanently either by explicit donor stipulation or by UPMIFA: 2010 Restricted for program services Restricted for supporting services Total endowment funds classified as permanently restricted net assets

2009

$

68,050 2,671

$

66,537 2,669

$

70,721

$

69,206

Temporarily restricted net assets: 2010 Restricted for program services Restricted for supporting services Total endowment funds classified as temporarily restricted net assets

2009

$

10,767 2,031

$

3,921 4,981

$

12,798

$

8,902

Endowment Funds with Deficits From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the value of the initial and subsequent donor gift amounts (deficit). When donor endowment deficits exist, they are classified as a reduction of unrestricted net assets. Deficits of this nature reduced unrestricted net assets by $1,261 and $3,454 as of June 30, 2010 and 2009, respectively. These deficits resulted from unfavorable market fluctuations that occurred shortly after the investment of newly established endowments. Endowment Investment Objectives and Strategies The University has adopted endowment investment and spending policies that attempt to provide a predictable stream of funding to programs supported by the endowment while seeking to maintain the permanent nature of endowment funds. Under this policy, the return objective for the endowment assets, measured over a full market cycle, shall be to maximize the return against a blended index, based on the endowment’s target allocation applied to the appropriate individual benchmarks. To achieve its long-term rate of return objectives, the University relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized gains) and current yield (interest and dividends). The University targets a diversified asset allocation to achieve its long-term objectives within prudent risk constraints.

22

University of Hartford Notes to Financial Statements June 30, 2010 and 2009 (in thousands of dollars) 13.

Operating Leases The University is party to a number of operating lease contracts. Future minimum lease payments under existing operating lease contracts for the years ending June 30 are as follows:

2011 2012 2013 2014 2015 Thereafter

74 62 57 52 42 $

287

Rental, lease and service contract expense for the fiscal years ended June 30, 2010 and 2009 was $1,097 and $1,144, respectively.

14.

Commitments and Contingencies The University is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not materially affect the financial position, changes in net assets, or cash flows of the University.

15.

Subsequent Events The University has performed an evaluation of subsequent events through November 18, 2010 which is the date the financial statements were issued.

23