Annual Financial Report

For the Year Ended

June 30, 1996

The University of Arizona


Arizona Board
of Regents

EX-OFFICIO
The Honorable J. Fife Symington
Governor of Arizona
The Honorable Lisa Graham Keegan
Superintendent of Public Instruction
APPOINTED
George H. Amos III
Tucson
Judy Gignac
Sierra Vista
Eddie Basha
Chandler
John F. Munger
Tucson
Rudy Campbell
Tempe
Don Ulrich
Paradise Valley
Arthur Chapa
Tucson
John Schmitt
Student Regent
Kurt Davis
Cave Creek

The University
of Arizona
Administration

Manuel T. Pacheco
President
Celestino Fernandez
Executive Vice President and
Provost of Arizona International Campus
Paul Sypherd
Senior Vice President for
Academic Affairs & Provost
Saundra Taylor
Vice President for Student Affairs
Joel D.Valdez
Senior Vice President for
Business Affairs
Ronald E. Smith
Controller
Michael A. Cusanovich
Vice President for Research and
Graduate Studies

Table of Contents

Introductory Letter Statement of Current Operating
Funds Revenues, Expenditures
and Other Changes
Enrollment Highlights
Financial Highlights Notes to Financial Statements
Current Operating Funds
Revenues
Independent Auditor's Report
Current Operating Funds
Expenditures
Supplemental Schedule of
Bonds and Capitalized Leases
and Other Long-term Liabilities
Market Value for Endowments
Current Operating Funds:
Gifts, Grants & Contracts
Supplemental Schedule of
Federal Financial Assistance
Balance Sheet Notes to Schedule of
Federal Financial Assistance
Statement of Changes
in Fund Balances

Equal Employment Opportunity Affirmative Action Employer


The University of Arizona

Joel Valdez
Senior Vice President
for Business Affairs
Ronald E. Smith
Controller

Enrollment Highlights


Academic Enrollment (Headcount)Undergraduate GraduateTotal Fall 1995Total Fall 1994
Agriculture1,991 510 2,501 2,364
Architecture444 38 482 498
Arts & Sciences - General4,841 4,841 5,057
Business & Public Administration4,637 475 5,112 5,088
Education723 998 1,721 1,684
Engineering & Mines2,536 808 3,344 3,544
Fine Arts1,878 314 2,192 2,230
Health-Related Professions122 122 202
Humanities1,035 415 1,450 1,487
Interdisciplinary Programs461 461 486
Law491 491 484
Medicine556 556 491
Nursing257 163 420 427
Optical Sciences138 138 140
Pharmacy298 298 285
Science2,811 843 3,654 3,698
Social & Behavioral Sciences4,412 988 5,400 5,469
Correspondence/Non-Degree466 1,128 1,594 1,672
    Total Enrollment
26,153 8,624 34,777 35,306
Other Enrollment StatisticsFiscal Year: 1995-96 1994-951 990-91
Enrollment - undergraduate (fall)26,153 26,468 27,522
Enrollment - graduate (fall)8,624 8,838 8,213
Degrees awarded-bachelor4,612 4,807 4,118
Degrees awarded-advanced2,086 2,045 1,818
Tuition per full-time student:
    Resident
1,884 1,828 1,478
    Nonresident
7,912 7,434 6,484
Faculty and Staff
    Instructional Faculty
1,592 1,588 1,652
    Staff, Administrators, Professional
10,935 10,445 11,159
Admissions - Fall 1995In-StateOut-of-StateTotalFreshmenTransfers
Undergraduate
    Applications
9,273 12,802 22,075 16,307 5,768
    Admissions
8,041 9,510 17,551 13,635 3,916
    Matriculations
4,462 2,316 6,778 4,557 2,221
Graduate (not including Law, Medicine, and Pharmacy)
    Applications
1,855 7,159 9,014
    Admissions
1,549 2,332 3,881
    Matriculations
1,303 1,144 2,447


Financial Highlights


Funding Sources 1996 1995 1991
State Appropriations$ 282,488 $ 267,411 $ 243,420
Tuition & Fees134,053 129,481 105,344
Federal Grants & Contracts218,344 233,086 156,248
State and Local Grants & Contracts12,270 12,261 5,670
Private Gifts, Grants & Contracts66,742 66,425 71,052
Auxiliary Enterprise Operations80,146 75,049 62,440
Investment Income & Net Realized Gains15,586 15,740 15,702
Additions to Plant Facilities87,630 73,507 99,169
Retirement of Indebtedness12,022 10,619 6,718
Other Sources43,299 26,540 15,324
    Total Funding Sources
$ 952,580 $ 910,119 $ 781,087
Funding Uses
Instruction$ 204,419 $ 197,640 $ 177,661
Research193,650 207,921 149,293
Public Service30,407 27,736 22,478
Academic Support57,332 53,878 53,590
Student Services12,884 12,701 15,656
Institutional Support49,125 45,856 38,383
Operation & Maintenance of Plant37,037 35,877 30,954
Scholarships & Fellowships54,994 52,448 40,573
Auxiliary Enterprise Operations82,173 76,035 61,366
Indirect Costs Recovered41,096 40,157 33,764
Facility Additions & Disposals90,620 56,161 98,131
Debt Servicing31,734 30,505 6,718
Other Uses1,472 1,114 18,403
    Total Funding Uses
$ 886,943 $ 838,029 $ 746,970
    Funding Sources Over Funding Uses
$ 65,637 $ 72,090 $ 34,117
Endowment (investments at market value; land at book value)$ 92,057 $ 81,405 $ 63,666




Balance Sheet

(in thousands of dollars)


June 30, 1996, with comparative totals at June 30, 1995
Current Operating FundsNonoperating FundsTotal All Funds
Unrestricted
General Operating FundsDesignated FundsAuxiliary Enterprises FundsRestricted FundsTotal Current Operating FundsStudent Loan FundsEndowment and Similar FundsAgency FundsPlant FundsMemorandum Only
Assets 1996 1995
Cash and investments (See VI)$14,424 $47,681 $21,167 $13,837 $97,109 $1,443 $68,657 $10,375 $32,413 $209,997 $217,991
Donated land 209 209 2,299 242 2,750 2,778
Notes, accounts receivable and unbilled charges, less allowance: 1996--$1,880; 1995--$2,252242 6,910 4,583 25,560 37,295 14,168 986 454 8,374 61,277 57,957
Inventories and supplies39 267 7,490 7,796 155 7,951 8,468
Due from other funds58 58 64 122 721
Physical properties
(See VII)
1,248,451 1,248,451 1,196,483
Total Assets$14,705 $54,916 $33,240 $39,606 $142,467 $15,611 $71,942 $10,984 $1,289,544 $1,530,548 $1,484,398
Liabilities and Fund Balances
Liabilities:
Accounts payable$1,643 $1,781 $2,570 $3,694 $9,688 $6 $140 $7,727 $17,561 $17,908
Accrued payroll8,174 2,083 1,694 5,819 17,770 6 17,776 16,881
Deferred revenue and deposits2,866 2,444 4,637 18 9,965 4 88,670 98,639 104,312
Funds held for others 10,844 10,844 13,596
Due to other funds122 122 122 721
Capitalized lease obligations and other long-term liabilities
(See IX)
66,555 66,555 68,075
Bonds payable
(See VIII)
249,910 249,910 259,401
Total Liabilities12,683 6,308 9,023 9,531 37,545 16 10,984 412,862 461,407 480,894
Fund Balances
(See V)
2,022 48,608 24,217 30,075 104,922 15,595 71,942 876,682 1,069,141 1,003,504
Total Liabilities and Fund Balances$14,705 $54,916 $33,240 $39,606 $142,467 $15,611 $71,942 $10,984 $1,289,544 $1,530,548 $1,484,398
Fund Balances consist of:
Restricted:
Amount obligated for outstanding purchase orders$14,871 $14,871 $12 $14,883 $18,173
U.S. Government grants refundable12,205 12,205 11,907
Endowment$38,116 38,116 35,742
Quasi-endowment20,522 20,522 20,845
General15,204 15,204 3,378 $14,056 32,638 27,362
Designated:
Amount obligated for outstanding purchase orders$2,949 $3,036 5,985 11,405 17,390 14,161
Summer sessions4,703 4,703 4,703 4,482
Quasi-endowment13,304 13,304 11,896
General$2,022 40,956 21,181 64,159 64,159 54,746
Net Investment in Plant851,221 851,221 804,190
Total Fund Balances$2,022 $48,608 $24,217 $30,075 $104,922 $15,595 $71,942 $876,682 $1,069,141 $1,003,504

See notes (I-XI) to Financial Statements


Statement of Changes in Fund Balances

(in thousands of dollars)


Current Operating FundsNonoperating Funds Total All Funds
Unrestricted TotalPlant Funds
General Auxiliary Current Student Endowment Unexpended Debt Investment Memorandum Only
Operating Designated Enterprises Restricted Operating Loan and Similar Plant Service In
Funds Funds Funds Funds Funds Funds Funds Funds Funds Plant 1996 1995
Revenues and Other Additions
Unrestricted current revenues$363,001 $106,073 $94,549 $563,623 $ 563,623 $ 537,891
Tuition and fees $79 79 $ 490 569 574
Federal grants and contracts181,232 181,232 $ 236 $ 788 182,256 197,886
State grants and contracts9,703 9,703 9,703 9,870
Local grants and contracts1,774 1,774 1,774 1,593
Private gifts, grants and contracts46,923 46,923 38 1,055 6,020 $2,024 56,060 54,603
Federal appropriations2,017 2,017 6,189 8,206 2,368
State appropriations536 536 50 80 10,232 10,898 8,044
Investment income including net realized gains2,828 2,828 78 896 37 $1,841 5,680 7,072
Interest on loans receivable331 331 342
Additions to plant facilities including amounts expended
from current funds: 1996 - $38,433; 1995 - $34,576 87,630 87,630 73,507
Retirement of indebtedness12,022 12,022 10,619
Other additions8,922 5 4,901 13,828 5,750
Total revenues and other additions363,001 106,073 94,549 245,092 808,715 733 2,521 32,188 1,846 106,577 952,580 910,119
Expenditures and Other Deductions
Educational and general expenditures363,464 67,807 208,577 639,848 639,848 634,057
Auxiliary enterprises expenditures82,173 82,173 82,173 76,035
Indirect costs recovered41,096 41,096 41,096 40,157
Cancellation of loans and provision for bad debt28 28 341
Administrative and collection costs186 186 220
Expended for plant facilities (including noncapitalized
expenditures of $3,663 in 1996 and $3,712 in 1995)51,921 51,921 41,422
Interest on indebtedness including $939 capitalized as
construction in progress in 1996 and $1,221 in 199519,712 19,712 19,886
Disposal of plant facilities38,699 38,699 14,739
Refunded to grantors or donors1,144 1,144 4 1,148 449
Retirement of indebtedness12,022 12,022 10,619
Other deductions110 110 104
Total expenditures and other deductions363,464 67,807 82,173 250,817 764,261 214 4 51,921 31,844 38,699 886,943 838,029
Transfers Among Funds
Mandatory loan fund matching grants(12)(26)(38)38
Mandatory principal and interest(375)(25,667)(7,482)(33,524)45 33,479
Voluntary, net505 (2,221)(4,023)3,795 (1,944)(70)942 21,467 452 (20,847)
Total transfers130 (27,900)(11,505)3,769 (35,506)(32)942 21,512 33,931 (20,847)
Net increases (decreases) for the year(333)10,366 871 (1,956)8,948 487 3,459 1,779 3,933 47,031 65,637 72,090
Fund balances, beginning of year2,355 38,242 23,346 32,031 95,974 15,108 68,483 10,343 9,406 804,190 1,003,504 931,414
Fund balances, end of year$2,022 $48,608 $24,217 $30,075 $104,922 $15,595 $71,942 $12,122 $ 13,339 $851,221 $1,069,141 $1,003,504

See Notes (I-XI) to Financial Statements.


Statement of Current Operating
Funds Revenues, Expenditures and Other Changes

(in thousands of dollars)

Year Ended June 30, 1996, with comparative totals for 1995
Unrestricted Funds Total Current Operating Funds
Memorandum Only
General Operating Funds Designated Funds Auxiliary Enterprises Funds Total Unrestricted Funds Restricted Funds 19961995
Revenues
State appropriations $ 271,590 $ 271,590 $ 730 $ 272,320 $ 261,051
Tuition and fees 86,444 $ 36,411 $ 10,629 133,484 368 133,852 129,197
Federal grants and contracts 36,070 18 36,088 145,567 181,655 197,582
State grants and contracts 608 1 609 8,012 8,621 8,399
Local grants and contracts 80 104 184 1,728 1,912 1,546
Private gifts, grants and contracts 7,786 2,896 10,682 43,308 53,990 52,438
Federal appropriations 3,336 5 3,341 2,208 5,549 5,636
Investment and endowment income 1,593 7,942 40 9,575 2,737 12,312 11,481
Sales and services of educational departments 1 14,177 14,178 14,178 11,970
Sales and services of auxiliary enterprises 80,146 80,146 80,146 75,049
Other 37 2,994 715 3,746 3,945 7,691 6,708
Total current revenues 363,001 106,073 94,549 563,623 208,603 772,226 761,057
Expenditures and Mandatory Transfers
Educational and general:
    Instruction
156,309 32,336 188,645 15,774 204,419 197,640
    Research
42,910 9,288 52,198 141,452 193,650 207,921
    Public service
11,332 917 12,249 18,158 30,407 27,736
    Academic support
52,862 3,026 55,888 1,444 57,332 53,878
    Student services
10,779 1,385 12,164 720 12,884 12,701
    Institutional support
32,541 15,828 48,369 756 49,125 45,856
    Operation and maintenance of plant
34,843 2,194 37,037 37,0 37 35,877
    Scholarships and fellowships
21,888 2,833 24,721 30,273 54,994 52,448
Educational and general expenditures 363,464 67,807 431,271 208,577 639,848 634,057
Mandatory transfers:
    Loan fund matching grants
12 12 26 38 10
    Principal and interest
375 25,667 26,042 26,042 18,257
Total educational and general 363,839 93,486 457,325 208,603 665,928 652,324
Auxiliary enterprises:
    Expenditures
82,173 82,173 82,173 76,035
    Mandatory transfers for principal and interest
7,482 7,482 7,482 7,213
Total auxiliary enterprises 89,655 89,655 89,655 83,248
Total expenditures and mandatory transfers 363,839 93,486 89,655 546,980 208,603 755,583 735,572
Other transfers and additions (deductions):
    Restricted receipts over transfers to revenue
(4,607) (4,607) 1,741
    Voluntary transfers, net
505 (2,221) (4,023) (5,739) 3,795 (1,944) (12,841)
    Refunded to grantors
(1,144) (1,144) (449)
Net increases (decreases) in fund balances $ (333) $ 10,366 $ 871 $ 10,904 $ (1,956) $ 8,948 $ 13,936

See notes (I-XI) to Financial Statements


Notes to Financial Statements

June 30, 1996

I. FUND ACCOUNTING

To recognize any limitations and restrictions placed on the use of the resources available to the University, the accounts are maintained according to the principles of fund accounting. Therefore, the resources are classified for accounting and reporting purposes into funds according to the activities or objectives specified. Separate accounts are maintained in each fund. However, in the accompanying financial statements, individual funds that have similar characteristics have been combined into fund groups. Accordingly, all financial transactions have been reported by fund group.

For each fund group, fund balances restricted by outside sources are identified and separated from fund balances allocated to specific purposes by action of the Arizona Board of Regents or the Administration. Externally restricted funds may be used only for the purposes established by the source of such funds. In contrast, designated funds are controlled by the Administration of the University in achieving its institutional purposes.

Changes in the use of resources require an accounting transfer of the resources to the fund with the activity or objective to be accomplished. Mandatory transfers are those required to meet legally binding agreements such as bond indentures. Other transfers result from decisions by the Arizona Board of Regents or the Administration as to permitted use of funds.

II. FUND DESCRIPTIONS

The current operating funds and their functions are as follows:

The non-operating funds and their functions are as follows:

III. BASIS FOR REPORTING

The accompanying financial statements present all funds under the authority of the University. The basic criterion for inclusion is the exercise of financial accountability. Financial accountability for the University remains with the State of Arizona; therefore the University is considered part of the reporting entity for the state's financial reporting purposes. The financial statements do not include financially interrelated organizations described in Note IV.

The financial statements are prepared on the accrual basis of accounting. The Statement of Current Operating Funds Revenues, Expenditures and Other Changes is a statement of financial activities for current operating funds during the current reporting period. It is not intended to present the results of operations or the net income or loss for the period as would a statement of income.

The accounting policies followed by the University conform to generally accepted accounting principles as applied to governmental colleges and universities in the AICPA College Guide Model as defined in Governmental Accounting Standards Board Statement No. 15. The methods of applying those policies which materially affect the determination of financial position, current operating funds revenues, expenditures and other changes and the current changes in fund balances are summarized below:

Investments and donated land are stated at cost or fair market value at the date of acquisition, as appropriate.

Inventories and supplies are stated at the lower of cost (determined by the first-in, first-out method) or market.

Physical properties are stated at cost or fair market value at date of acquisition, as appropriate. Special collections are carried at a nominal value of $1 per collection. Capital expenditures reported as current operating expenditures also appear as additions to the Plant Funds. As permitted by generally accepted accounting principles, the University does not provide for depreciation of physical properties.

Tuition and fees revenue (net of refunds) includes $22,203,000 of waivers charged to Scholarships and Fellowships and $2,939,000 of waivers for faculty and staff benefits charged to the appropriate expenditure programs to which the applicable personnel relate.

Summer session revenue and expenditures are reported within the fiscal year in which the summer session's program is predominantly conducted.

Revenue and accounts receivable include amounts received and expended by the University under Federal and State funded research, student aid and other programs. Both the direct and indirect costs of these programs are subject to audit by cognizant governmental agencies or their appointees. The University expects that adjustments or repayments, if any, resulting from such audits would not have a significant effect on the financial statements.

Transfer of construction debt from Unexpended Plant Funds to Investment In Plant is accomplished as the construction proceeds are expended. The Statement of Changes in Fund Balances includes $20,847,000 of voluntary transfers all of which are associated with construction and debt. There is no net effect to the Plant Fund group as a whole.

The financial information shown for fiscal year 1994-1995 in the accompanying financial statements is included as a basis for comparison with fiscal year 1995-1996 and represents summarized totals only. Certain prior year items in the accompanying financial statements have been reclassified, without effect on total fund balances, revenues or expenditures, to conform with the current year's classifications.

IV. RELATED ORGANIZATIONS

The financial statements of The University of Arizona do not include the operations of the University of Arizona Foundation, Inc., the University Physicians, Inc., the Arizona Research Park Authority and the Campus Research Corporation (renamed from the Rita Road Campus Corporation in January 1996).

The University Foundation, Inc. is a nonprofit corporation controlled by a separate Board of Directors. The principal goals of the Foundation are to support The University of Arizona through various fund-raising activities, and to contribute funds to the University for support of various programs. According to the audited financial statements of the Foundation for the year ended June 30, 1995, assets, liabilities, revenues and expenditures totaled $122 million, $76 million, $25 million, and $24 million, respectively.

The University Physicians, Inc. (UPI) is a nonprofit corporation established to provide medical services and to support The University of Arizona in its teaching and research missions. UPI is controlled by a Board of Directors, comprised of the Dean, all clinical department heads, twelve other faculty physicians, and four community members. The primary purpose of UPI is to assist the University's College of Medicine in achieving the fulfillment of its teaching and research. According to the audited financial statements of UPI for the year ended June 30, 1995, assets, liabilities, revenues and expenditures totaled $74 million, $25 million, $97 million, and $85 million, respectively.

The Arizona Research Park Authority (ARPA) is a nonprofit corporation created with the permission of the Arizona Board of Regents (ABOR) and designated by Arizona law as a political subdivision of the State, governed by a separate board of directors which by law may not include officers or employees of ABOR. ARPA was established under the State's industrial development authority statute to assist in the acquisition, improvement, and operation of university research parks and related properties. In August 1994, ARPA, with the approval of ABOR, sold $98 million nontransferable special revenue bonds to International Business Machines Corporation (IBM) to enable the University to acquire from IBM a 345-acre developed industrial site (the "Research Park") near Tucson, Arizona, together with 1,000 acres of adjacent unimproved land (collectively, the University of Arizona Science and Technology Park or the "Park"). The transaction was accomplished through the following steps: (1) the University agreed to pay $98 million to IBM for title to the entire Park; (2) ARPA and Campus Research Corporation jointly agreed to lease the developed portion of the Park from the University for a period of 30 years with a prepaid rental of $98 million; (3) ARPA subleased 79% of the building space in the developed portion of the Park to IBM for periods of up to 30 years for a rental sufficient to pay debt service on ARPA's bonds; and (4) ARPA used the $98 million received from its bond sale to make the rental prepayment to the University which, in turn, applied the money to purchase the entire Park from IBM. The bonds are payable solely from lease rentals paid by IBM. If IBM defaults or cancels its lease, the bonds must be surrendered and discharged. Title to the entire Park resides in the University and neither the Park nor any payments by the University secures ARPA's bonds. Audited financial statements for the year ended June 30, 1995, reflecting assets, liabilities, revenues and expenditures are not available.

The Campus Research Corporation (CRC) is a nonprofit corporation governed by a separate Board of Directors and was established to assist the University in the acquisition, improvement and operation of the Research Park and related properties. CRC leases from the University the remaining 21% of the building space of the Research Park that is not leased to ARPA (see preceding paragraph). CRC is responsible for developing presently undeveloped portions of the research park and for subleasing to the University or to third parties existing unoccupied space, newly developed space, and space now occupied by IBM or its subtenants once the current subleases expire. The University is responsible only for payment of its proportional share of operation expenses. All income received by CRC from its activities, after payment of expenses and financial reserves, will be turned over to the University. Audited financial statements for the year ended June 30, 1995, reflecting assets, liabilities, revenues and expenditures are not available.

V. COMPENSATED ABSENCES

The University has not made accruals for vacation pay and other compensated absences. If the accruals were made, General Operating Fund, Designated Fund, Auxiliary Enterprises Fund and Restricted Fund liabilities would be increased by approximately $14,003,000, $1,918,000, $2,419,000, and $4,630,000, respectively. The University management believes that this omission does not have a significant effect on the accompanying financial statements as a whole based on materiality and considering that the General Operating Fund Liability would be funded by the subsequent year's appropriations from the State Legislature.

VI. CASH AND INVESTMENTS

The University follows Arizona Board of Regents policies which require that deposits be made only to accounts authorized by the Board and at depository banks that have been approved. Pooled operating investments are restricted to the purchase of collateralized time certificates of deposit and repurchase agreements with commercial banks, and United States obligations such as Treasury bills, notes, bonds and obligations of agencies sponsored by the United States Government.

Gifts and grants received as endowments or for restricted purposes are invested according to conditions stipulated by the donor or grantor; however, if no conditions are imposed, such funds are usually invested in one of two Consolidated Endowment Pools. The Consolidated Endowment Pools function as highly-diversified investment funds under the control of the University Investment Committee whose responsibility is to define, develop, and implement investment objectives, policies and restrictions relating to the Endowment funds held by the University. The primary investment objective of one pool is maximum long-term total return from income and capital appreciation under a policy of maximum investment productivity at an acceptable level of risk and volatility. The primary investment objective of the other pool is to maximize the current income earned. The Separately Held Endowment funds are separately invested according to the terms of the donor's gift or the administrator.

Cash and securities on deposit with trustees are held in trust for the University by various commercial banks. Trust funds are invested by the trustee in accordance with the Board's authorizing resolutions.

At year-end, the University's bank balance is $2,194,000. Of this balance, $153,000 is covered by federal depository insurance. The remaining balance is collateralized by U.S. Government obligations held by the bank's trust department in the University's name. Securities are collateralized as follows:

  1. Certificates of deposit are covered by FDIC or SIPC insurance.

  2. Repurchase agreements are col-lateralized with securities held by the University's custodial banks in the University's name.

  3. Common stocks, preferred stocks and corporate bonds are registered in the name of and held by the University or are held by the University's custodial bank in the name of the University in a book entry system. These securities were either purchased from a broker/dealer or a financial institution by the University.

  4. U.S. Treasury and Agency Government obligations:

  5. Endowment funds held by trustees include deposits, mutual funds, common stocks, corporate bonds, U.S. Government obligations, obligations of agencies sponsored by the Federal Government and mortgage backed notes receivable. These deposits and securities are held by the trustees as irrevocable trusts in the names of the individual donors for the benefit of the University according to the donors' stipulations.

  6. At June 30, 1996, the University held investment contracts with both a major insurance company and a bank amounting to $1,503,000 of proceeds from the 1994A Certificates of Participation and $1,187,000 of proceeds from the 1994B Certificates of Participation, respectively.


    Deposits and Investments, at June 30, 1996, consist of the following:

    Deposits:Total CostTotal Market
    Cash on Deposit with State Treasurer $ 3,058,000 $ 3,058,000
    Cash-5,557,000-5,557,000
    Securities:
    Certificates of deposit160,000160,000
    Repurchase Agreements47,470,00047,470,000
    Common Stocks20,656,00037,787,000
    Preferred Stocks634,000651,000
    Corporate Bonds28,385,00027,820,000
    U.S. Treasury and Agency Govt. obligations103,913,000103,563,000
    Endowments held by trustees8,588,00013,035,000
    Investment contracts (GIC & BIC)2,690,0002,690,000
    Totals $ 209,997,000 $ 230,677,000

    The cash overdraft results from an aggressive short-term investment policy in which the University invests its funds until outstanding check are cashed.


    Deposits and Investments, at June 30, 1996, by management areas are as follows:

    Total CostTotal Market
    Current Operating Funds:
      Cash on Deposit with State Treasurer
    $ 3,058,000 $ 3,058,000
      Cash and short-term investments
    45,289,00045,175,000
      Long-term investments
    48,762,00048,182,000
    Endowment Funds:
      Consolidated Pools:
        Cash and short-term investments
    1,884,0001,880,000
        Long-term investments
    47,157,00061,653,000
      Separately held:
        Cash and short-term investments
    2,351,0002,351,000
        Long-term investments
    8,677,0009,853,000
        Funds held by trustees
    8,588,00013,035,000
    Plant Funds:
      Cash and short-term investments
    11,533,00011,533,000
      Funds held by trustees
    20,880,00020,908,000
    Other Nonoperating Funds:
      Cash and short-term investments
    5,789,0005,803,000
      Long-term investments
    6,029,0007,246,000
      Totals
    $ 209,997,000 $ 230,677,000


    VII. PHYSICAL PROPERTIES

    Physical Properties at June 30, 1996, consist of the following:

    Buildings and Improvements $ 683,535,000
    Land70,177,000
    Equipment327,392,000
    Library Materials111,822,000
    Construction in Progress55,525,000
    Total Physical Properties $ 1,248,451,000

    In addition to expenditures through June 30, 1996 it is estimated that $57,008,000 will be required to complete projects under or planned for construction. Of this amount $21,943,000 is contractually encumbered. On April 1, 1996, the University changed its equipment capitalization criteria from $500 or more in valuation and two years or more life expectancy to $1,000 and one year, resulting in a one-time write off of $23,927,000 in assets.

    VIII. BONDS PAYABLE

    Bonds Payable at June 30, 1996, consist of the following:

    Principal and interest on bonds outstanding at June 30, 1996, are collateralized by registration fees, tuition, rentals and other charges and such obligations are generally callable by the University. The principal amounts due over the next five years are as follows:

    Cash and securities on deposit with trustees, restricted for retirement of bonded indebtedness and renewals and replacements, are $507,000 and $645,000 respectively, at June 30, 1996, as required by the bond indentures. In addition, $10,645,000 was held by trustees for payment of future construction costs.

    In fiscal years 1977, 1990, 1992 and 1993 the University refunded in advance of maturity certain outstanding revenue bonds. At June 30, 1996, the outstanding principal balance of the refunded bonds is $112,185,000 which will be paid by investments held in trust with a carrying value of $84,944,000. These amounts are not included in the accompanying financial statements.

    IX. LEASES AND OTHER LONG-TERM LIABILITIES

    The University has entered into certain operating leases (generally, the leases include options for annual renewal) and other rental agreements for real property, equipment and films generally for periods not in excess of one year. During the 1995-1996 fiscal year, rent expenditures amounted to $9,303,000.

    The University also acquired a building, certain computer, telecom-munications and farm equipment, and agricultural land under various capital leases and certificates of participation (COPs). At June 30, 1996, the balance sheet includes $39,979,000 representing the cost of assets included in land, buildings, and equipment.

    Cash and securities on deposit with the trustee, restricted for retirement of certificates of participation, are $8,016,000 at June 30, 1996. In addition, $1,067,000 is held by trustee for payment of future construction costs.

    In 1991 the University refunded in advance of maturity certain outstanding certificates of participation. At June 30, 1996, the outstanding principal balance of the refunded certificates was $16,355,000 which will be paid by investments held in trust with a carrying value of $17,237,000. These amounts are not included in the accompanying financial statements.

    Summary of Future Lease Payments at June 30:

    X. PENSION PLANS

    Full-time, permanent employees of the University are, in general, required to be members of an authorized retirement program. The program, consisting of several plans described below, is funded through payroll deductions from covered employees' gross earnings and amounts contributed by the University. In general, employees' rights vest after five years of service under all plans. University contributions for, and interest forfeited by, employees who leave employment before five years of service are used to reduce the University's future-period contribution requirements. Retirement payments are obligations of the respective retirement funds and not of the University.

    Eligible Faculty, Academic Professionals and Administrators at the University may select from the following retirement plans: Arizona State Retirement System, TIAA/CREF Retirement Plan, VALIC Retirement Plan, Fidelity Investments Retirement Plan and Aetna Variable Annuity Retirement Plan. The former is a defined benefit plan and the latter four are defined contribution plans. Eligible classified staff belong to the Arizona State Retirement System.

    XI. SELF-INSURANCE PROGRAM

    The University of Arizona is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The University of Arizona participates in a self-insurance program administered by the State of Arizona, Department of Risk Management. Arizona statutes provide that any judgment assessed against the University not covered by insurance would be paid by the State from the self-insurance program or by a future appropriation from the State Legislature.


    State of Arizona
    Office of the
    AUDITOR GENERAL
    Independent Auditors' Report

    Members of the Arizona State Legislature

    The Arizona Board of Regents

    We have audited the accompanying balance sheet of The University of Arizona as of June 30, 1996, and the related statements of changes in fund balances and current operating funds revenues, expenditures and other changes for the year then ended. 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 audit.

    We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

    In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The University of Arizona as of June 30, 1996, and the changes in its fund balances and its current operating funds revenues, expenditures and other changes for the year then ended in conformity with generally accepted accounting principles.

    Our audit was made for the purpose of forming an opinion on the financial statements of The University of Arizona taken as a whole. The accompanying supplemental schedule of bonds and capitalized leases and other long-term liabilities as of June 30, 1996, and the supplemental schedule of federal financial assistance for the year then ended are presented for purposes of additional analysis and are not a required part of the financial statements. The information in the schedules has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly presented in all material respects in relation to the financial statements taken as a whole.

    In accordance with Government Auditing Standards, we will also issue reports on our consideration of the University's internal control structure and on its compliance with laws and regulations at a future date.

    Douglas R. Norton
    Auditor General

    September 13, 1996


    Supplemental Schedule of Bonds & Capitalized Leases & Other Long-term Liabilities

    (in thousands of dollars)


    June 30, 1996Bonds Payable and LeasesDebt Service Commitments by Fiscal Year
    IssueInterest RatesYear of MaturityOriginal IssueCurrently
    Outstanding at
    June 30, 1996
    19971998199920002001Thereafter
    Student Housing:
    1962 - Sonora3.375%2002 $ 1,500 $ 366$ 72 $ 70 $ 68 $ 66 $ 69 $ 63
    1963 - Arizona3.0 - 3.5%2003 1,500 36868 71 69 67 70 70
    1965 - Coronado3.0%2005 3,000 1,016134 131 132 134 136 486
    1967 - Married Student Housing3.75%2008 2,500 1,185123 125 122 123 125 852
    System Revenue Bonds:
    1988 - System Revenue Bonds6.3 - 7.0%1999 31,950 2,3901,199 1,199 268
    1990A - System Revenue Bonds6.5 - 9.0%2003 46,300 9,5801,805 1,780 1,758 1,761 1,766 3,541
    1990B - System Revenue Bonds6.9 - 9.4%2003 39,630 7,4851,431 1,410 1,382 1,384 1,381 2,767
    1991 - System Revenue Bonds6.0 - 8.5%2010 9,665 4,575504 502 504 504 508 4,580
    1992 - System Revenue Bonds3.1 - 6.625%2011 113,150 110,8357,561 7,559 8,495 13,124 13,121 131,220
    1992A - System Revenue Bonds2.9 - 6.2%2016 55,490 53,1853,406 3,408 3,409 3,409 3,408 86,266
    1993 - System Revenue Bonds2.7 - 5.0%2017 42,085 31,3105,474 5,479 5,473 1,111 1,111 23,740
    1994 - System Revenue Bonds4.8 - 6.35%2014 28,500 27,6152,562 2,562 2,564 2,561 2,565 33,317
    Total bonds payable$ 375,270 $ 249,910$ 24,339 $ 24,296 $ 24,244 $ 24,244 $ 24,260 $ 286,902
    Capitalized Leases and Other Long-term Liabilities:
    Telecommunication Certificates4.6 - 6.5%2012 25,995 21,2002,649 2,646 2,645 1,847 1,848 21,966
    Educational Certificates3.2 - 6.4%2007 4,670 4,020477 475 472 472 472 3,274
    Residence Life Certificates4.1 - 5.8%2014 16,725 16,7251,468 1,468 1,470 1,469 1,471 19,090
    Maingate Admin Certificates4.25 - 6.0%2024 16,170 16,1701,177 1,175 1,178 1,180 1,180 27,156
    Agriculture Demonstration Farm9.0%2003 2,282 1,258250 250 250 250 250 500
    University Foundation Building4.75 - 7.75%2007 4,950 3,780484 485 484 482 483 3,330
    Other Capitalized Leases4.6 - 9.22%Various4,107 3,402871 641 1,112 245 198 988
    Total capitalized leases and other long-term liabilities$ 74,899 $ 66,555$ 7,376 $ 7,140 $ 7,611 $ 5,945 $ 5,902 $ 76,304
    Refunded Issues:
    Bonds:
    1968 - Student Union5.25 - 5.5%1998 3,000 350
    1977 - Revenue Refunding6.0%2002 22,315 22,315
    1988 - System Revenue Bonds7.0 - 7.625%2011 24,135 24,135
    1990A - System Revenue Bonds6.5 - 9.0%2015 33,210 32,435
    1990B - System Revenue Bonds6.9 - 9.4%2016 29,205 28,525
    1991 - System Revenue Bonds6.5 - 8.5%2017 4,425 4,425
    Total refunded bonds$ 116,290 $ 112,185
    Certificates of Participation:
    1988 Telecommunications Certificates6.1 - 7.6%2003 27,595 16,355
    Total refunded issues$ 143,885 $ 128,540


    95/96 Supplemental Schedule of Federal Financial Assistance

    (in thousands of dollars)


    Year Ended June 30, 1996
    Federal Grantor/Pass-Through Grantor
    Funding AgencyExpenditures
    Federal Student Financial Aid Programs:
    Department of Health & Human Services
    Other Financial Aid Programs $ 106
    Subtotal Department of Health & Human Services106
    Department of Education
    Federal Pell Grant Program10,372
    Federal Work Study Program839
    Federal Perkins Loan Program231
    Federal SEOG Program1,096
    Other Financial Aid Programs40
    Subtotal Department of Education12,578
    Miscellaneous Federal Agencies
    Other Financial Aid Programs759
    Total Federal Student Financial Aid Programs $ 13,443
    Federal Research & Training Programs:
    Agency for International Development $ 655
    Department of Energy3,889
    Department of the Interior8,580
    Department of Agriculture
    Agriculture Extension Service3,672
    Agriculture Experiment Station1,954
    U.S. Department of Agriculture4,027
    U.S. Forestry Service674
    Other Programs0
    Subtotal Department of Agriculture10,327
    Department of Defense
    Air Force 7,348
    Army3,071
    Navy3,881
    Subtotal Department of Defense14,300
    Department of Commerce1,215
    Department of Health & Human Services
    Agency for Health Care Policy and Research1,248
    Division of Medicine397
    U.S. Dept. of Health & Human Services8,625
    Health Resources and Services Administration1,472
    National Cancer Institute12,279
    National Center for Nursing Research236
    National Heart, Lung & Blood Institute5,835
    National Institute on Aging1,030
    National Institute of Allergy & Infectious Diseases1,421
    National Institute of Child Health/Human Development1,018
    National Institute on Drug Abuse3,681
    National Institute of Diabetes, Digestive & Kidney Diseases1,462
    National Institute of Environmental Health Sciences4,968
    National Institute of General Medical Sciences3,008
    National Institutes of Health8,098
    National Institutes of Mental Health1,426
    National Institute of Neurological Disorders1,860
    Other Programs4,045
    Subtotal Dept. of Health & Human Services62,109
    Department of Justice242
    Department of Transportation165
    National Aeronautics & Space Administration
    NASA AMES Research Center313
    Goddard Space Flight Center19,880
    NASA Headquarters6,072
    Other Programs682
    Subtotal NASA26,947
    National Science Foundation19,186
    Department of Education
    Research1,588
    Training3,334
    Subtotal Department of Education4,922
    Environmental Protection Agency1,024
    Nuclear Regulatory Commission817
    National Endowment for the Humanities255
    National Endowment for the Arts97
    Miscellaneous Federal Agencies
    Defense Advanced Research Projects Agency290
    Defense Logistics Agency17
    Smithsonian1,130
    Veterans Administration3,984
    Other Programs603
    Subtotal Miscellaneous Federal Agencies6,024
    Through State Government2,249
    Through Local Government445
    Through For-profits2,243
    Through Non-profits
    Amity74
    Jet Propulsion Laboratory8,063
    Other Programs7,689
    Subtotal Through Non-profits15,826
    Through Miscellaneous Private122
    Total Federal Research & Training Programs $ 181,639
    Total Federal Financial Assistance $ 195,082
    See Notes to Schedule of Federal Financial Assistance


    Notes to Schedule of Federal Financial Assistance

    June 30, 1996

    A. BASIS OF PRESENTATION

    The purpose of the Schedule of Federal Financial Assistance is to summarize those expenditures of The University of Arizona for the year ended June 30, 1996, that have been financed by the U.S. government (federal awards). This schedule includes expenditures financed by all federal assistance and procurement relationships entered into directly between The University of Arizona and the federal government, and expenditures of subawards from nonfederal organizations made under federally sponsored agreements. For reporting purposes, federal awards have been classified into two types:

    The accounting principles followed by The University of Arizona in each of these areas and used in preparing the accompanying schedule are as follows:

    Federal Student Financial Aid Programs - Expenditures are recognized on the accrual basis for awards made to students and allowable administrative expenses incurred in connection with the student loan programs. The student financial aid programs are funded by the federal government under various programs. For loan programs only the federal portion of administrative costs are included in the Schedule. Other disbursements are discussed in Notes C and D.

    Federal Research & Training Programs - Expenditures for direct costs are recognized as incurred using the accrual method of accounting and the cost principles set forth in OMB Circular A-21, Cost Principles for Educational Institutions. Under those cost principles and requirements of the individual grant agreements, certain types of expenditures are not allowable or are limited as to reimbursement. Moreover, expenditures include a portion of costs associated with general university activities (indirect costs) that are allocated to federal awards under negotiated formulas commonly referred to as indirect cost rates. Indirect costs and related revenues applicable to these cost recoveries are classified as unrestricted expenditures and revenues on the financial statements.

    B. The University did not identify Catalog of Federal Domestic Assistance Numbers due to the large number of individual assistance programs. In addition, many of the assistance programs do not have Catalog of Federal Domestic Assistance Numbers as they are specific to the University.

    C. The University administers the following Department of Education loan program:

    For Department of Education program the following information is provided:

    The University administers the following Department of Health and Human Services (HHS) loan programs:

    For Health and Human Services loan programs the following information is provided:

    D. Federal Family Education Loans are not considered grants to the University since the University is responsible only for determining student eligibility and distributing the loans directly to students. Consequently, such loans distributed by the University during the year ended June 30, 1996, are not included in the Schedule of Federal Financial Assistance. However, because the Federal Family Education Loans Program is a Title IV, Higher Education Act student financial assistance program (CFDA number 84.032) sponsored by the U.S. Department of Education, it is considered a federal financial assistance program for single audit purposes. During fiscal year 1995/96 the University distributed approximately $79 million of Federal Family Education Loans to students.

    E. Revenues equal to the expenditures reported on the Schedule of Federal Financial Assistance are included in the accompanying basic financial statements as follows (in thousands of dollars):