Finance and Administration - Board of Trustees - The University of ...

Finance and Administration Committee - AgendaTHE UNIVERSITY OF TENNESSEEBOARD OF TRUSTEESFINANCE AND ADMINISTRATION COMMITTEE10:00 a.m. CST O.D. Larry Dining HallTuesdayUTHSC Student Alumni CenterFebruary 28, 2012Memphis, TennesseeAGENDAI. Call to OrderII.Roll CallIII. Minutes of Last Meeting .................................................................................... Tab 1IV.Treasurer’s Report on Endowment Investment Performance—Information ......................................................................................................... Tab 2V. Annual Report of the Treasurer, 2011—Information .................................... Tab 3VI. FY 2012 Revised Operating Budget—Action.................................................. Tab 4VII.Increasing the University’s Contribution to the UTRF Budget forFY 2013 to Support of Research and Economic DevelopmentOpportunities Arising out of the UT Biofuels Initiative—Action ............... Tab 5VIII. Use of Proceeds from the Lease and Transfer of UT Medical Center—Action/Consent ................................................................................................... Tab 6IX.Agreements for Development of Cherokee Farm Research Park—Action ................................................................................................................... Tab 7A. Agreement for Development Management Services betweenThe University of Tennessee and University of Tennessee ResearchFoundation ................................................................................................. Tab 7.1B. Master Ground Lease between The University of Tennessee andUniversity of Tennessee Research Foundation ...................................... Tab 7.2X. Designation of UT Methodist Physicians, LLC, as a FacultyPractice Plan for the College of Medicine in Memphis—Action ................. Tab 81

Finance and Administration Committee - AgendaXI. Capital Projects Outside the Budget Process—Action/Consent .................. Tab 9XII.Report on the Status of Sprinkler Installation in Residential Facilities—Information ....................................................................................................... Tab 10XIII. Real Property Transactions—Action/Consent ............................................. Tab 11A. Property Exchange (UT Institute of Agriculture) ................................ Tab 11.1B. Alley Transfer from City of Knoxville (UT Knoxville) ....................... Tab 11.2C. Permanent Easement to City of Estill Springs (UT Space Institute) Tab 11.3XIV. Revision of UT Martin Traffic and Parking Regulations—Action ........... Tab 12XV.Other BusinessXVI. Adjournment2

Finance and Administration Committee - III. Minutes of Last Meeting1MINUTES OF THE FINANCE AND ADMINISTRATION COMMITTEETHE UNIVERSITY OF TENNESSEEBOARD OF TRUSTEESOCTOBER 27, 2011The meeting of the Finance and Administration Committee of the Board of Trustees washeld at 3:15 P.M. EDT, Thursday, October 27, 2011 in the Hollingsworth Auditorium onthe UT Institute of Agriculture Campus In Knoxville.I. Call to Order - Mr. Robert Talbott, Chair, called the meeting to order, andmade the following introductory remarks:1. While the public is invited and welcome at all Board meetings, ourmeetings are “in the public” but not “public meetings.”2. The Chair will recognize to speak only members of the committee, otherTrustees, and members of the senior staff.3. The Committee has a set agenda and prepared materials for that agenda.No “new business” has been brought to the Chair’s attention prior to themeeting.4. Lastly, the name of the Trustee making the motion and the second will beannounced to help in the preparation of minutes.II.Roll Call – Chair Talbott asked Mr. Charles Peccolo, Treasurer and ChiefInvestment Officer/Acting Chief Financial Officer to call the roll. He did soand advised the Chair that a quorum was present.PresentRobert Talbott, ChairCharles Anderson, MemberJoseph DiPietro, Non-Voting MemberBrian Ferguson, MemberJohn Foy, MemberDon Stansberry, Vice Chair of the BoardBetty Ann Tanner, MemberAlso present were other Trustees, Mr. Charles Peccolo, members of staff, andmedia representatives.3

Finance and Administration Committee - III. Minutes of Last Meeting1Chair Talbott welcomed Brian Ferguson and Betty Ann Tanner to the Financeand Administration Committee as new members.III.IV.Approval of Minutes of Last Meeting (Exhibit 1)—Action Item—ChairTalbott called for consideration of the last meeting’s minutes. Vice ChairStansberry moved approval of the minutes of last meeting as amended;seconded by Trustee Foy and approved unanimously.Treasurer’s Report on Endowment Investment Performance—InformationItem (Exhibit 2)—Chair Talbott asked Mr. Peccolo to present the Treasurer’sReport on Endowment Investment Performance. Mr. Peccolo began bydrawing the Committee’s attention to the slide presentation. He commentedthat approximately one year ago it was decided to hire a director ofinvestments and it would be someone that spends every waking momentdealing with that topic. We were fortunate in the search process, and theInvestment Advisory Committee interviewed and spent time with threedifferent candidates. Mr. Mecherle was the one selected. Rip is a nicknamethat he goes by but his proper name is Raymond. He is a graduate from theUniversity of Virginia with a Bachelor’s Degree and received his graduatedegree at Cornell University. He has thirteen years of investment experienceincluding portfolio construction and management. He has been at theUniversity for approximately nine weeks, and I have asked him to present theinvestment report for the fiscal year ended June 30, 2011.Mr. Mecherle, Executive Director of Investments thanked the Committee forallowing him to be there and hoped that they found the presentation andmarket discussion as interesting as he does day in and day out, particularlygiven how the markets have been a great deal of “fun” lately with all thevolatility. He then gave a quick snapshot of the management and oversightand the groups that are involved with the management of the invested fundsat the University of Tennessee. There is roughly $670 million plus as of June30, 2011. There are three groups that have some input with regard to themanagement and oversight of these funds. First, the investment group is aneight-member team (including him) that is involved with managing theConsolidated Investment Pool, Life Income Trusts and SeparateEndowments. Predominately its focus is on the research and portfoliomanagement of the CIP assets and back office functions such as cash flow andwire transfers. It also handles internal and external reporting requirementssuch as State Audit, meetings such as this, etc.The external group is Fund Evaluation Group (FEG) which helps a great dealwith the investment evaluation process and portfolio construction. FEG is aconsultant based out of Cincinnati, which has $33 billion in client assets24

Finance and Administration Committee - III. Minutes of Last Meeting1under advisement. They work with a number of university endowments, andtheir key duties are, sourcing, vetting, and monitoring managers, asset classresearch and portfolio analysis and benchmarking. They have a researchteam of approximately twenty-two and are a huge part of the investmentprocess in regards to the Pool and Life Income Trusts.Lastly, the Investment Advisory Committee(ten member committee),although it is certainly not the least in importance, is invaluable in providinginsight and wisdom on issues such as asset allocation, investment trends,market analysis, monitoring investment performance and evaluating theconsultant on an on-going basis.These three groups work across the various platforms to manage these assets,especially with the Pool and also to a lesser degree, the Income Life Trustsand other endowments.Executive Director Mecherle asked the Committee to focus on the right handside of the slide that showed the total funds invested for the University ofTennessee. At the far right it showed roughly $888 million in total assets thatservices the academic mission of the University, as well as other focus pointsof focus. The Pool constitutes approximately $620 million of the total $888million. Separate endowments are approximately $11 million and the LifeIncome Trusts are $42 million. These three categories were mentioned earlierand are managed internally. The Chairs of Excellence is $113 million, and theUniversity of Chattanooga Foundation is $103 million. As of fiscal year 2011,$888 million is the total sum of funds invested for the University of Tennesseeof which the bottom three categories we have a great deal to do with on aday-to-day basis internally.He then showed a slide that had the primary means of support that theendowments back. He made the point that 90% of the income and earningsgenerated by the endowments go directly toward the academic mission of theUniversity. Thirty-seven percent goes to scholarships, 40% toinstruction/academic support, and then add 12% for research, and that isroughly 90% of the Fund. Three percent is reinvested, and the remaining 8%goes to institutional support and public service.He then presented a slide that showed the cumulative support over elevenyears that the Pool generated. The annual contributions alone might seemsmall and not nearly as significant as they truly are if you look at thecumulative total over those years, which was approximately $350 million.Compared to the $1.3 billion annual operating budget for the University, theannual contributions are not a massive amount but certainly significant in35

Finance and Administration Committee - III. Minutes of Last Meeting1covering costs and helping the University functions day in and day out. Thatis driven by just the Investment Pool and not the other endowments. Later,we will look at the individual distributions on an annual basis from theearnings and capital gains and then some expenses that are covered throughthe various distributions in the growth of the Pool on an annual basis.Executive Director Mecherle then showed the current asset allocation for thePool as of June 30, 2011. It is comprised of two broad categories, traditionalassets and alternate assets. Today, Common Stock/Domestic Equity is 15.1%and International Equity (also Common Stock) is 19.3%. Then there is debt orGlobal Fixed Income at 9.1%. In 1983 the Pool was reconstructed to broadenthe Asset Allocation into what would be considered a more institutionalprofile, which includes the following alternative categories. PrivateEquity/Venture Capital constitutes approximately 18%, and Alternatives(hedge funds and funds of funds) are 20.5%. Next, Real Assets, which makeup a mix of assets like royalty in natural gas partnerships or timberproperties, comprised 18.5%. The Pool itself looks like what you wouldexpect an endowment or any other large institutional investment pool to looklike. It is a mix of traditional asset classes and then those other threecategories that are almost solely the purview of institutional players.He then presented the Pool’s year-by-year performance. Over the last twofiscal years there was a positive number of 13.3% and a positive 20.6%. Thelast two down years reflect the recession and credit crisis. In fiscal year 2009– the performance was a negative 24%. Virtually every endowment acrossthe country is still dealing with the effects of that, but the performance hasrecovered considerably over the last two fiscal periods. (This is a goodsnapshot of what you would expect a diversified portfolio to be overtime.)The far left shows the remaining effects of a credit cycle that was much morenormal than the one we just recently had, as well as the recession that cameout of the 2001/2002 period. The ten-year compounded annual return is4.94%. Since 1983 the compounded annual return is 10.4%. The fourflat/negative years affected the ten-year period shown.The performance goals of the Pool include three broad categories ofmeasurement and objective that you would see with any endowment. 1)Absolute Return or Portfolio Return versus Inflation, often calledintergenerational equity, which is preserving the purchasing powers of theassets in place for future generations. Typically this is measured by inflationbut takes in account expenses. 2) Asset Class Returns versus Market Indicesis a broad barometer, where the Fund is compared to broad indices that arepublic and easily measurable. 3) Finally, a peer comparison.46

Finance and Administration Committee - III. Minutes of Last Meeting1He then showed the Fund’s performance versus inflation and spending. Thelong-term objective is a 9% total return. The average distributions over a tenyearperiod have been 6%. Inflation as measured by the CIP. is 2.4%, and thePool generated 4.9% over that period. Since 1983, the Pool has averagedcloser to 10.4% and inflation over that same time period, combined with a 6%expense ratio, is about 8.9%. Over the long haul, the Pool is stilloutperforming but over the recent ten-year period, not surprisingly, it isbehind. We would expect over time for that to catch up and hopefully passthe inflation and expense ratios combined together.The year-by-year cash distributions from the Pool to support the Universityshow the lagging effects of the recession and credit cycle that we have beenthrough recently. In 2001-02, there was not only a recession but there wasalso a bursting of the tech bubble. There was also a credit cycle that is typicalin a recessionary environment. Then in 2008-09 there was a credit crisis (eventhough he would argue that the credit crisis began in ’07), with a laggingaffect in 2010-11 on distributions. It is important to note that thesedistributions are determined using a three-year rolling average of the endingcalendar year market value of the Pool. Fiscal year 2011 was determined off2009, 2008 and 2007 calendar year-ends. There were two very negativeperiods which helped determine the most recent distributions. This stands incontrast to the performance metrics that were shown earlier, where the lasttwo fiscal-year performance numbers were positive 13.3% and 20.6%. This isnot surprising given the fact that there is a six-month lag between fiscal andcalendar year-end, and a rolling average is used. The next few periodsshould see a pick-up again (in the level of annual distributions).The $32 million in support that the Pool gives to the University may not seemlike a massive amount compared to a $1.3 billion operating budget but itroughly covers 10% of tuition and fees. It is by no means immaterial.Next, he showed relative measurements for the Asset Class and MarketIndices. These are very broad indices, and one should not get too hung up ona direct comparison to the Pool. The performance of the composite of thePool over a five-year period is 3.1%. The benchmark of inflation plus theexpense ratio of 5.5% we are trailing, and it is 3.1% versus 7.7%. Globalequity for the University includes public and private and returned at 6.1% vs.an index that covers global public equities, at 6.6%. That performance isactually closer than expected given the illiquidity in the marketplace with thecredit crisis. It is considered roughly in-line, and again these are not apples toapples but a very good comparison against the rough and broad asset classesthat are available to the marketplace. For the University the Global FixedIncome category performed roughly in-line with the Barclays Aggregate,57

Finance and Administration Committee - III. Minutes of Last Meeting1formerly Lehman Brothers, -6.5% vs. 7.1% for the index. Theunderperformance he attributed to a much broader credit profile for the Poolversus the Barclays Aggregate which is almost entirely investment grade.Over the last several years, investment grade assets that are moreduration/interest rate sensitive have outperformed, and credit assets haveexperience a great deal more volatility. The Pool’s assets have been moreexposed to credit-sensitive assets than the Barclays Aggregate. If the Indexincluded sub-investment grade assets, it would likely have been even with orperhaps even underperforming the Pool. The Real Assets category for theUniversity constitutes more than just real estate, but there is no ideal index (tocompare to). Real Assets for us include energy, natural resources, as well asproperty and real estate. It is trailing slightly at a roughly flat performance ofnegative 10 basis points versus +150 (basis points) for the property index.That index is global, whereas a lot of the real asset exposure that the Pool hasis domestic.Diversifying Strategies is largely Hedge Funds and produced 4.6% vs. US TBills at 3%. You might wonder why we are comparing Hedge Funds and TBills, and the reason is a lot of the diversifying strategies are held up againstthe T-Bills or a rate of inflation, because they are basically pursuing anabsolute return strategy where they are trying to remain positive, vs. simplyoutperforming a benchmark. These are broad metrics but they give an idea ofhow the Pool’s broad categories are performing.He then gave an update as of September 30, 2011. The markets have beenhighly volatile lately, and the slide shown demonstrates that quite clearly.On the left is an estimated performance of -8.9% down for the three monthsbut that compares to a -13.9% and -18.9% for domestic and global equityindices. Bonds have been positive, and that is not surprising given the factthat quite often in volatile environments like the one we’re in now, you seeinvestment grade and interest rate sensitive high quality assetsoutperforming. Interim CFO Peccolo added that at quarter-end, the S&P wasdown -13.9% for the quarter but for October it was up almost 12%, a nicerecovery. Executive Director Mecherle added that a lot of this is driven bythe headlines coming out of Europe and the Middle East. It has been aremarkable period. When you track it on a daily basis, it is quite stressfulbeing sharply up one day and down the next. The volatility has beentremendous. A great deal of that has been the market looking over itsshoulder at what various regulatory or government entities are looking to doto eliminate fears and solve problems as best they can. It is something thatwe are waiting to see play out.68

Finance and Administration Committee - III. Minutes of Last Meeting1Lastly, he presented the Peer comparison based on June 30, 2010 data, whichis the most recent NACUBO study. It is a very good metric in a broaduniverse against which to compare the endowment. He then presentedannual rates of return for one-year, five-year and ten-year numbers for theUniversity of Tennessee. At the one-year mark, the University was wellahead of both the broad average and those that are comparable in size, the$500 million to $1 billion, as well as the greater than $1 billion. Theendowment did very well in relation to the Pool. The five and ten-yearnumbers are trailing. On a positive note, Fund Evaluation Group took overin 2004, so the ten-year performance reflects prior consultant counselinvestment advice, and the five-year number still reflects some of that priorconsultant’s advice as well. Not to lay it all at their (prior consultant’s) feetbut simply to say the changeover takes time, especially with privateinvestments, to see a full changing of the guard and a full implementation ofnew approach and research process. That is something that we are seeingfilter through the numbers here. Another point is that the larger theendowments, the better the performance, typically. A great deal of that isdue to the fact that the larger endowments have had a greater exposure to thealternative asset classes that have outperformed, especially in the last decadeand a half. There have been periods of outstanding performance, such as thelast couple of years, where that divergence is accentuated even more. Fourout of six fiscal years ending 6/30/2010, the University’s endowment hasoutperformed the NACUBO average decisively by approximately 120 basispoints on average, and that is not really picked up in the five and ten-yearnumber. That is quite a positive for the University’s long-term performanceaverages. For the last five out of seven fiscal year averages ending6/30/2010, the endowment was in the top third of the NACUBO universe.What is depicted in the one, five and ten-year periods are certainly notrepresentative of the finer data points of the last several years. Rollingforward, once we get past the last two of the three that had decisivelynegative performance, we should it (the pool) coming closer in-line with theother numbers shown with the blend of $500 million to $1 billion and greater.It is a good comparison for the University and is a typical mix of traditionaland alternative assets. The University should slide into a hybrid of the twocategories over time.V. Treasurer’s 2011 Financial Report—Information Item (Exhibit 3)—ChairTalbott asked Interim CFO Peccolo to present the Treasurer’s 2011 FinancialReport. Mr. Peccolo explained to the Committee that there are two reports inthe Board materials. One is a graphical representation of the University’sfinancial report for the fiscal year ended June 30, 2011 compared to similargraphical representation for June 30, 2010. Also, there is an early draft of theFinancial Statements for June 30, 2011. The preliminary Financial Statements79

Finance and Administration Committee - III. Minutes of Last Meeting1include only the University of Tennessee. When the final Statements arecompleted with the auditors opinion letter they are sent to the Board aroundDecember or the first of the year. At that time the Statements will include theUniversity of Tennessee as well as three Foundations (UT ResearchFoundation, UT Foundation, Inc. and UC Foundation) and will be presenteddiscreetly similar to the format presented last year. He noted that Footnote 22in the Financial Statements gives a description of what has happened sinceJune 30, 2011. It explains the creation of the agreements between theUniversity and the Foundation as far as the leased employees and thecontract payment when the Development and Alumni Affairs functionsmoved over to the Foundation.He then updated the Committee about the financial audit with the State’sComptroller’s Office. It is currently in the fourth month and those folks arestarting to wrap up. To date we know of three or four audit findingsdepending on how you count them for this year. They are all related tocompliance issues. Three of them specifically deal with the direct studentloan program which was new this year. The finding had to do with ourefforts to not only reconcile the payments but also ending cash balance at UTKnoxville and UT Health Science Center. There are also a couple ofcompliance issues with equipment purchases on federal grants. None ofthese are material but when you get over into those particular complianceissues the auditor is required to make note of them and make a finding. Wedon’t anticipate any major findings dealing with the financial position of theUniversity but did want to keep the Board apprised on the financial audit.He then presented a pie chart representing the total net assets of theUniversity for fiscal years 2010 and 2011. The total assets grew by $335million during the year. The breakdown is detailed on the composition of theassets. Cash increased by $120 million. The most significant part of that hasto do with the one-time non-recurring state appropriations that were receivedas manage the end of the stimulus money. The Board is familiar with thereference to us managing through the decline and to avoid the cliff effect.That has resulted in some excess cash balances. In addition there is one grantthat was received from the state having to do with the Solar Farm andInstitute. The other items impacting the growth in assets has to do withabout $95 million in investment increases reflecting the improved capitalmarkets that Mr. Mecherle referred to earlier. Finally, capital assets increasedby $118 million due primarily to new construction during the year as well asthe acquisition of property, library holdings. If you combine all those itrepresents where the $330 million arrived.810

Finance and Administration Committee - III. Minutes of Last Meeting1He then showed the composition of the liabilities. One of the biggest items isthe deferred revenue increase and most of that is due to the solar grantmentioned earlier that the University received. We received the money onthe frontend and are now deploying. That was accounted for as deferredrevenue until the services are performed.The next comparison had to do with revenues that grew over the year. Thebiggest part of that is the increase in gifts, grants and contracts in the amountof $93 million. UT Knoxville had $20 million and the UT Health ScienceCenter had approximately $18 million. Again, a big piece of that was thesolar grant from the state. There was also an increase in the local and stateappropriations of $63 million. Approximately $59 million of that was theone-time non-recurring state appropriation and the difference between thatand the $63 million had to do with the group health insurance benefits thatwent up and is funded by the state. The $36 million fee increase is one thatthe Board approved. Last year the University presented an 8.5%recommendation and upon discussions and vetting the Board agreed to 9%.The $36 million represents the 9% fee increase. Again, improved returns onthe investment results rounded out the increase in revenues.Finally, the expenditure categories; salaries and benefits year over yearrepresents almost 70% of what the University spends. It is the mostsignificant piece because we are a people business. The salaries and benefitsincreased by $48 million with $11 million in the instruction function as wedeployed some of the one-time monies to folks to address high demandclasses. There was $6 million in research and another $3 million was fromauxiliary operations. Utilities, supplies and other services increased by 10%or $40 million which doesn’t represent that utility costs increased that much.This is a catchall from salaries and benefits and is much broader than justutilities and supplies. This was a quick snapshot of how the University’sfinancial statements will reflect this year for June 30, 2011 versus last year,June 30, 2010. Again, we expect to have the final statements by the end of theyear and are waiting on the final auditors' opinion letter and once it isreceived will be published and distributed to the Board.VI.Approval of FY 2012-13 Operating Budget Appropriations Request—ActionItem (Exhibit 4)—Chair Talbott asked Interim CFO Peccolo to continue withthe next item. Mr. Peccolo explained that three of the budgetary units arefunded by a formula driven by different outcome measurements. The rest ofthe University is what is termed as non-formula. Each year we are allowed torecommend an improvement in the funding for the non-formula units to theTennessee Higher Education Commission (THEC) who incorporates it intotheir overall budget request to the Governor and then becomes part of the911

Finance and Administration Committee - III. Minutes of Last Meeting1state’s budget. This year, the list included in the Board materials shows thebreakdown of the improvement request. It is $34.6 million and about half ofthat represents one-time expenditures in equipment or program initiation.The balance is a recurring type of expenditure. It may not surprise anyone,but we aren’t very hopeful that any of the requests will be part of theGovernor’s budget because of the state’s finances. We do have theopportunity to make a case for those funding improvements to the extent thatwe can.The schedule behind the cover memo gives you the amounts and is set up bybroad strategic categories; research, economic development, and studentaccess and student success. Behind that information is a narrative that gives acomplete description and discussion of what each one of those requests are.As previously mentioned, upon approval by the Board, this request isforwarded to the Tennessee Higher Education Commission (THEC) forinclusion of the Governor’s budget.Chair Talbott stated that it is an action item and called for a motion topresent. Vice Chair Stansberry moved approval of the University’s stateappropriations budget request for non-formula support of operations for thenew budget year as presented in the meeting materials; seconded by TrusteeAnderson and approved unanimously.Trustee Wharton asked how realistic it was that the University can get fundsto help our extension agents where there is a serious problem. Mr. Peccoloreplied that it was a great question. Clearly some of the improvementrequests are dealing with the salary deficiencies and related compensationissues. He was not sure how successful the request would be. He thenexplained that they are speaking with the Tennessee Higher EducationCommission about looking at some kind of formula or structure so that thenon-formula units can have some kind of deliverables or measurables whichwould make a strong case for improved funding. The problem is that we donot anticipate any additional funding to higher education and then noted thatthe President might want to speak to the issue. President DiPietro addressedTrustee Wharton and told him that he knows very well that the issue withExtension is not a good one and we are not proud of it from the standpoint ofthe salary structure around some of those positions. We interacted withTHEC a few times within the last year looking at an approach for nonformulaunits that at least provides when budgets go down that it wouldprovide some accommodation for the fact that they cannot generate tuition.One of the things we have come up with is to evaluate the UT Health ScienceCenter, the Institute of Agriculture, Space Institute and Institute of PublicService based on performance. When you make these accommodations and1012

Finance and Administration Committee - III. Minutes of Last Meeting1when the budget is not as strong then they would not get cut as much –similarly is there a way to accommodate it on the upswing as state budgetsgrow? We are in those conversations and it is on the agenda. If you look atthe budget this year in terms of a stop light – it is yellow this year right now.What happens in Washington in November may have some influence. It ison our radar screen.VII.Approval of FY 2012-13 Capital Outlay and Capital Maintenance Projects—Action Item (Exhibit 5 and 6)—Chair Talbott introduced the next item,approval of FY 2012-13 Capital Outlay and Capital Maintenance and askedInterim Chief Financial Officer to present. Mr. Peccolo told the Committeethat there were two schedules in the materials. He then went over the CapitalOutlay and stated that they have received input from the campuses as to theirneeds and priorities. We have merged them into one list with theconcurrence of all the campuses as to what our listing and priorities are.Typically the way this works is we have a deadline in September to sendpreliminary figures to the Tennessee Higher Education Commission (THEC).We then present to the Board a detailed schedule to consider and approveand then we formalize the list that had already been submitted to THEC. Thedifference this year is that THEC has asked the University and the Board ofRegents to make a fresh assessment of capital outlay and capital maintenancerequests. They want us to assess these requests in light of the outcomesfeature of the Complete College Tennessee Act. Hopefully, the higher rankedoutlay and maintenance projects that would directly affect the outcomesbased variables of the Complete College Tennessee Act. The deadline isDecember 9, 2011 to accomplish this. We have assessed these projects andhave identified how they impact the Complete College Tennessee Act. Theattached schedules are our priorities and you will notice it is heavily frontendloaded. There is ongoing discussion among THEC and the two educationsystems’ administration about the dire need for capital funding for highereducation. We don’t know how it will turn out but we presume becauseTHEC has delayed our submission to December 9 that there is an activediscussion going out about some improvement dollars for higher education.We ask that this listing be approved by this Board realizing that as wecontinue the discussions with THEC and the administration that some of thismaybe reordered or changed a bit depending on how the program finallygets established and evaluated. If the Board considers approving this, we willcome back to the Executive and Compensation Committee once the finalsubmission is ready to be sent to THEC the first of December for theirapproval of any modifications to these lists.Chair Talbott called for any questions or comments and there were none.Trustee Anderson moved approval of the Capital Outlay and Capital1113

Finance and Administration Committee - III. Minutes of Last Meeting1Maintenance Funding Requests for FY 2012-13 and subsequent years aspresented in the meeting materials with authorization for the Executive andCompensation Committee to approve any modifications prior to finalsubmission to the Tennessee Higher Education Committee; seconded byTrustee Foy and was approved unanimously.VIII.Approval of FY 2012-13 Revenue/Institutionally Funded Projects—ActionItem (Exhibit 7)—Chair Talbott announced the next item as the approval ofFY 2012-13 Revenue/Institutionally Funded Projects and explained that theywere basically self-funded projects and asked Interim CFO Peccolo to present.Mr. Peccolo began by saying the projects listed are the ones that theUniversity will self fund either through existing reserves, available funds orthrough bonding with the Tennessee State Bonding Authority. The process isthat we have projects that we have to disclose during the budget cycle andthen are able to carry them out at our own discretion subsequent to thepassage of the appropriations bill. The second item on the list, Housing FireAlarm and Sprinklers for UT Chattanooga, will require immediate action togo ahead and submit an emergency request to the Tennessee HigherEducation Commission to allow us to proceed prior to waiting through abudget cycle. We are still working with the campus in making the case.Other than that item, this is the list for approximately $95 million that we willfinance internally and will not seek state support. Vice Chair Stansberryasked what became of the recreation fields at the old driving range and arethey funded somewhere else. Mr. Peccolo asked Chancellor Cheek to addressthe question. Chancellor Cheek explained that the recreation fields are paidby student fees and demolition is almost finished. Part of the facility isalready underway but it won’t be finished until August 2012. The projectwas approved in a previous year. Chair Talbott then asked Chancellor Cheekif by next fall people will be playing on those fields, hopefully. ChancellorCheek said we hope so.Trustee Hall commented that he was concerned to find that we have housingfacilities on the UT Chattanooga campus without fire alarms and sprinklersand wondered if that is the case at any other campus. Mr. Peccolo said thathe might have to yield to the Chancellors at the other campuses but I feelcertain that there probably are some. Many of our housing units are from thelate 1960’s and early 1970’s but cannot speak to that directly. Trustee Hallasked if some kind of assessment on this issue because that is a situation thatneeds attention, if that is the case. Those locations need to have some priorityin terms of these improvements. Mr. Peccolo agreed and asked George Criss,Director of Facilities Planning if he was aware of any other campuses that donot have fire alarms and sprinklers in their housing units. Mr. Criss advised1214

Finance and Administration Committee - III. Minutes of Last Meeting1Trustee Hall that all the residence halls have fire alarm systems but not allhave sprinkler systems.Trustee Tanner asked if the dorms were inspected annually by the FireDepartment and is that not something that is necessary for insurancepurposes. Director Criss said the residence halls are inspected internally. Mr.Peccolo stated that a comprehensive list will be compiled to address some ofthese questions and be shared with the Trustees.Chair Talbott asked if there were any other questions and there was not andnoted that it was an action item. Trustee Foy moved approval of theRevenue/Institutionally Funded Projects for FY 2012-13 as presented in themeeting materials with authorization to enter into contracts for design andconstruction, within available funds, for these projects and, with the approvalof the President, for other revenue/institutionally funded projects identifiedduring the fiscal year; seconded by Trustee Tanner.IX.Real Property Transactions—Action/Consent Item (Exhibits 8-12)—ChairTalbott advised the Committee that there were five separate transactions thathad to be approved separately. Mr. Peccolo began by saying there were fiveitems for consideration.A. Tee Martin Drive Right-of Way Closure–UT Knoxville–Mr. Peccolo statedthat this item requests to close the right-of-way at Tee Martin Drive whichis right off Phillip Fulmer Way around by the south end of the stadium. Itis necessary for campus events, future development and controllingpedestrian traffic and safety. Vice Chair Stansberry asked if the road wasbeing closed and Mr. Peccolo answered the right-of-way. Vice ChairStansberry and Trustee Wharton asked what the difference was. Mr.Peccolo answered that it will still be available to use for special situationtraffic and asked Director of Real Estate Management, Robbi Stivers toaddress the question. Director Stivers said that technically the right-ofwaywill be closed by the City of Knoxville and the University will ownthe right-of-way going forward. It is planned for it to be opened as italways has been going forward unless the Campus chooses to close it.Trustee Talbott asked if it would be like a private driveway. DirectorStivers replied that is correct. Trustee Wharton asked if there are plans topermanently close it because traffic would be a real problem if it werepermanently closed. Director Stivers said at this time there are no plans.Vice Chair Stansberry commented that the answer was a little vague andasked again if it would be closed. Vice Chancellor for UTK, Chris Ciminointerjected that there are no plans to close it. Vice Chair Stansberrysuggested that was an awkward presentation and should have been1315

Finance and Administration Committee - III. Minutes of Last Meeting1presented that the campus is receiving a gift from the City of Knoxville forthis right-of-way and manage it as an asset and asked Vice ChancellorCimino if that is what they are doing and he said that is exactly what thecampus is doing. Mr. Peccolo gave his apologies. Trustee Murphy statedthat technically it is not a gift. The right-of-way is the right of the City touse the road. The University already owns the reversionary interest andwhen they close the right-of-way what they are doing is they are givingup the rights to the public to use it as a public street and when you do thatit reverts automatically back to the owner which is the University.Basically what they are doing is they are abandoning the public right-ofway.Vice Chair Stansberry then asked if we had to allow the City ofKnoxville to do that. Trustee Murphy said that technically an adjacentowner can have a claim if they don’t agree to the abandonment. The Cityof Knoxville would probably not abandon it if the University did notagree to it.Vice Chair Stansberry moved approval of the right-of-way closure of TeeMartin Drive on the campus of the University of Tennessee, Knoxville inKnox County; seconded by Trustee Anderson and approvedunanimously.B. Greenway Trail Easement on Sutherland Avenue–UT Knoxville–InterimCFO Peccolo explained that this item was a conveyance for the GreenwayTrail Easement on Sutherland Avenue on the east boundary of theplayfields and is a benefit to the University for the Recreational Area. TheGreenway will connect the residential, commercial, retail, and park areasalong a very scenic corridor to the Foothills of the Great SmokyMountains. No further consideration is requested due to the mutualbenefit to the University and the City of Knoxville. Chair Talbott asked ifthis Greenway was part of the Bike Pass and Mr. Peccolo replied yes.Trustee Foy moved approval of the conveyance of a Greenway TrailEasement on Sutherland Avenue to the City of Knoxville; seconded byTrustee Tanner and approved unanimously.C. Metron Building Easement–UT Knoxville–Interim CFO Peccolo explainedUT Knoxville and the Knoxville Utilities Board (KUB) propose expandingthe existing permanent easement to install and maintain a high pressuredgas line and regulator. KUB seeks authorization to enter upon, replace,install and maintain the gas line. The easement is irregular in shape andlength, 25 feet+/- in width and contains approximately 47,745+/- squarefeet, or 1.09+/- acres. Because the utility improvements benefit theUniversity of Tennessee, Knoxville, there is not further considerationrequested. Vice Chair Stansberry moved approval of the conveyance of1416

Finance and Administration Committee - III. Minutes of Last Meeting1the permanent utility easement to Knoxville Utilities Board; seconded byTrustee Anderson and approved unanimously.D. Third Creek Easement–UT Knoxville–Mr. Peccolo presented the next itemthat is with the Knoxville Utilities Board (KUB) and is to install, replace,and maintain a sanitary sewer line and install/expand an 8” high pressuregas line along Third Creek. Again, the utility improvements benefit theKnoxville campus and no further consideration is requested. Trustee Foyasked if the University has the right to have KUB move the easementsbeing granted at a later date if the campus has a need for expansion.Director Stivers replied that currently there is provision for relocation andwould have to go back to KUB and negotiate if there is a need. It wouldbe at the University’s request and cost. Chair Talbott noted that TrusteeFoy’s point was a good one. Perhaps in the future with these easements aprovision could be added to give the University some leeway. TrusteeFoy commented that he knew the Chattanooga Utilities do that. Grantedit is at our cost but it does take some of the negotiations out of it. TrusteeFoy moved approval of the permanent and temporary constructioneasement to Knoxville Utilities Board but recommends in the future that itbe negotiated so it maximizes the University’s flexibility. Chair Talbottagreed and asked that it be included in the future. The motion wasseconded by Trustee Tanner and approved unanimously.E. West Tennessee Solar Farm Easement–UWA–Mr. Peccolo presented theproposed permanent easement by the Millington Telephone Company forlines from Albright Road through the West Tennessee Solar Farmproperty. The lines will provide connection to the Signal Energy site andeventually to the Visitor and Information Center. He commented thatthere was a schematic presented earlier by Dr. Millhorn in the ResearchCommittee. The proposed easement is approximately 10 feet in width andirregular in length. The total easement area contains approximately 22,216square feet, or 0.51+/- acres. Again, the easement is for the benefit of theUniversity and its education center so no further consideration isrequested. Trustee Foy moved approval of the conveyance of thepermanent telecommunication easement to Millington TelephoneCompany in Haywood County with the same recommendation as statedbefore; seconded by Vice Chair Stansberry and approved unanimously.X. Approval of FY 2011 Annual Flight Operations Report—Action/ConsentItem (Exhibit 13)—Chair Talbott asked Interim CFO Peccolo to report on theFY 2011 Flight Operations Report. Mr. Peccolo began by noting that inaccordance the University’s fiscal policy a Flight Operations Report for theUniversity’s aircraft is presented to the Board on an annual basis. The Report1517

Finance and Administration Committee - III. Minutes of Last Meeting1is included n the materials. It gives a five-year summary of the costs of flightoperations. Briefly, in 2011 the UT plane was flown approximately 300 hoursand 70% of the flight legs were between UT campuses and/or Nashville.During the year, the airplane carried more passengers on about 8 hours lessflight time. It was much more efficient and attempted to have more capacityfor the utilization of the plane. In addition to the University’s FlightOperations, chartered flights were also used during fiscal year 2011. The costof the chartered flights totaled $832,505 and the primary user was Athleticsduring recruiting season. He then presented the Report for approval.Trustee Anderson moved approval of the FY 2011 Annual Flight OperationsReport as presented in the meeting materials; seconded by Trustee Tannerand approved unanimously.XI.Academic and Clinical Affiliations for Cancer-Related Patient Care,Research, and Education—UTHSC—Action Item (Exhibit 14) —Chair Talbottthen asked Dr. Steve Schwab, Chancellor of the UT Health Science Center topresent agenda item XI. Chancellor Schwab stated that it was a pleasure topresent again to the Finance and Administration Committee a clinical ventureproposed by the University’s Health Science Center. Last year, we reportedthat the UT Health Science Center was pursuing an aggressive policy ofpractice alignment with our core partner teaching hospitals. This change inalignment is driven by National Health Care Policy. The Policy rewardsturnkey graded clinical care and penalizes piece mill traditionally deliveredclinical care. We outlined to this Committee that we spent four years in thesubstantial growth of our faculty practices to the point that we now havemajor market share in all six core hospitals. We have made ourselvesessential to our hospital partners. As a result, we have been able to craft jointventure agreements that we believe are not only good for clinical practice,patient care and research, but also very profitable for the Health ScienceCenter. The formation of the Le Bonheur Pediatric Specialists Group hasgrown dramatically and is now over 120 children’s physicians. Le Bonheurhas entered the national rankings in children’s hospitals and is ranked in thetop 50 in four areas. Most noted, in the area of children’s cardiovascular care,children’s neuroscience and children’s nephrology. We believe to date, thatwe will make Le Bonheur a top 25 hospital next year and that these sameareas of excellence will move into the top 25.The Board also approved at that time, a creation of a UT/Erlanger MedicalPractice Group that is based at the Chattanooga campus at the ErlangerMedical Center. Later in this meeting, Dr. Ken Brown, Executive ViceChancellor, UTHSC, will give you the update that was requested on theformation and finances of that practice group.1618

Finance and Administration Committee - III. Minutes of Last Meeting1He then presented a proposed new venture to the Methodist Hospital Systemto form an integrated clinical care practice. The UT-Methodist IntegratedCancer Services exists by combining all physician and technical assets todeliver an integrated Cancer Service Line in the entire Methodist HospitalSystem. Not just Methodist University and Methodist Le Bonheur but in theentire Methodist System. This will consolidate research and education acrossboth the UT Health Science Center and the Methodist System with regards tocancer. This consolidation will allow substantial improvement in cancer careand in the cost of cancer care. This consolidation streamlines both patientbased cancer research and patient based education. Cancer Services willbecome a single system for cancer clinical care, cancer research and cancereducation across the Health Science Center and the Methodist System. Themedical oncology of this venture will be provided by the West Clinic and thathe would speak more about their relationship with the Health Science Centerlater on in his presentation. All surgical services will be provided by the UTHealth Science Center through its adult practice arm, the UT Medial Group.That includes abdominal, surgical oncology, and neuro oncology. Allsurgical specialties will come from our practice group. Technical services willbe from the Methodist Healthcare Corporation and that includes all technicalservices that the physicians previously owned or operated. All imaging, allchemotherapy and radiation therapy will be provided by Methodist.The West Clinic brings to this equation a group of twenty medical oncologistsbased in Memphis, Tennessee. They form what is called a Physician ServicesAgreement (PSA) with the Methodist Hospital System to provide medicaloncology services throughout the Methodist Hospital System. West Clinicthen sells all imaging and chemotherapy facilities that they currently own oroperate to Methodist so that Methodist becomes the sole operator of alltechnical facilities. The West Clinic will then enter into an affiliationagreement with the UT Health Science Center to provide education forstudents, residents and fellows and then go forward as a UT Health ScienceCenter affiliated faculty practice plan rebranded and renamed like theiraffiliation with the University of Tennessee. The Health Science Center for itspart forms an affiliation agreement with West Clinic to become our officialoncology practice arm. Then we give the majority of them facultyappointments. However, since many of them already have part-time facultyappointments and this would move many of them into full-time facultypositions. We will amend our affiliation agreement with MethodistHealthcare in regard to Cancer Services to reflect the terms of the canceragreement. Then, through the UT Medical Group provide all of the surgicaloncology services for this arm. He then noted that it is substantial surgeryservices. The University then provides all the education and research forCancer Services throughout the entire Methodist Hospital System.1719

Finance and Administration Committee - III. Minutes of Last Meeting1Methodist Healthcare’s part in this agreement purchases all chemotherapy,imaging and other facilities from the West Clinic. Methodist then seekscontracts with insurance companies for integrated full term services. Thismeans anything related to cancer care would be integrated through a singleone-time contract that involves all physician, ancillary, technical and allsurgical services in a bundle package. Methodist then provides all of thetechnical services. The University of Tennessee gets physicians’ fees that willbe in our judgment, substantial. We receive a fixed mission support paymentof $5 million dollars per year. Should we meet all of our objectives this couldbe substantially greater. For the terms of the agreement it is fixed with theminimum that the UT Health Science Center will receive at $5 millionpayment from Methodist, in an academic support payment per year, everyyear for the terms of the agreement. We believe this could be much larger ifwe run this organization wisely and believe this number has the potential todouble.We seek approval to form this new entity. In the forming of this new entity,we seek approval to amend the Methodist affiliation agreement in regard tocancer so among other things we can accept the $5 million minimumpayment per year. We would then form a new affiliation agreement withWest Clinic to provide education and research to medical oncology as anaffiliated and UT branded faculty practice group. The detailed information isin the Board materials.We anticipate out of the $5 million, approximately $500,000 will be spent onfaculty payments to the West Clinic given the Dean of the College ofMedicine a net of $4.5 million per year. In addition to a significant growth inour surgical subspecialty services which is our most profitable business inservices. He stated that he, Dr. Brown and Mr. Ferrara would be happy toanswer any questions. Chair Talbott asked if the University was assumingany liability. Chancellor Schwab answered it is not. Chair Talbott then askedif the $4.5 million should be net to the University. Chancellor Schwab repliedthat a net of $4.5 million is anticipated but have proven a remarkable abilityto spend money as we make it. The Dean of the College of Medicine is at theMethodist Hospital Board Meeting today completing these details. UTHealth Science Center is a growth organization for research and education, soyes the Dean will net $4.5 million per year but I suspect he has already spentit.Trustee Ferguson followed up on Chair Talbott’s question and asked does theletterhead on the paychecks or do any assets or debts change ownership.Chancellor Schwab replied that no assets accrue to the University or the UT1820

Finance and Administration Committee - III. Minutes of Last Meeting1Medical Group. Yes, all of the West Clinic’s assets and debt are transferred tothe Methodist Hospital System. The University of Tennessee has no debts orcharges that are accrued to us. Trustee Ferguson then asked if the letterheadon people’s paychecks – are they working for the same people or differentpeople. Chancellor Schwab replied that the physicians in the West Clinic thatmove from part-time to full-time faculty status will get a paycheck from theUniversity of Tennessee for their services. Total payments to the group isabout $500,000 because they are forming a PSA opposed to being absorbed byMethodist – the checks will still say West Clinic was his understandingbecause they are performing physician services organization and they are notbecoming integrated as Methodist employees.President DiPietro commented that he recalled at the Board Workshopthat Trustee Foy voiced his concern about branding and the ability to useyour brand. That is exactly what Chancellor Schwab is doing here by sayingwe are affiliating our name, with our doctors and your place and taking careof people. There is value in that and is asking for a return on the value of thatUT physician taking care of patients and curing their oncologic problems.That is the model in place because we don’t have a hospital that we operateourselves. Chancellor Schwab said that is correct. President DiPietro addedthat other places have done that such as Washington University. Dr. Schwabnoted that as the President pointed out that we are not reinventing the wheel.The fact that we have large market share in terms of taking care of a largenumber of patients in these systems and the fact that national healthcarepolicy has changed and now facilitates integrated bundle care if you are abusiness person and penalizing piece mill care; by forming these groups thatcan deliver the complete cancer care bundle and you can contract with thisentity for complete services – one contract – one service. If you are aninsurance provider, it would clearly be an advantage. Not only by theinsurance industry but also by the federal government to form these types ofaccountable care organizations. Suddenly there is an entity that can be heldaccountable for the care of these patients in the terms of their cost andoutcomes. The net result for us is that we will deliver better care while thelarger patient population for research will get more physicians fees becauseour surgeons will do more cases. We will need a lot more surgeons and theWest Clinic becomes our practice arm as a result of our willingness to sponsorthis and we receive a minimum of $5 million per year. Chair Talbottcommented that he thought it was remarkable what has been done but hisworry is that there is a “gotcha” somewhere on these documents that arebeing signed. He cautioned everyone that the University does not take onliability that is in the agreements that we haven’t read. Chancellor Schwabreplied that he thought that was an appropriate cautionary admonishmentbut General Counsel, Catherine Mizell, has been through these documents1921

Finance and Administration Committee - III. Minutes of Last Meeting1many times. The University is very careful with liability and we do notbelieve that we are accepting any new liability with this agreement. GeneralCounsel Mizell interjected that the documents have not been drafted yet.Chancellor Schwab explained that he only meant to say the General Counselhas reviewed the letters of intent and that UTHSC is seeking permission to goforward to work with the General Counsel, the President, and the ChiefFinancial Officer to execute these documents in the near future. Chair Talbottconfirmed that General Counsel Mizell will have oversight on any documentssigned that we do not have liabilities that could get us. Trustee Horne asked ifthe University did get in a hospital arrangement at some point could wecancel these agreements with a year’s notice. Chancellor Schwab explainedthat it was a five-year deal and the infrastructure to get into the cancer carebusiness is hundreds of millions of dollars. Should we want to transfer ourcancer book of business some place other than the Methodist System; therewould have to be a way to make more money, a huge investment to get theinfrastructure here. It would require three radiation therapy vaults, hugenumber of operating rooms, gamma cameras, hundreds of millions of dollarsin resources that the Methodist System now has. If we were to switch it,someone would have to have the infrastructure. Trustee Horne confirmedthat it was a five-year commitment and Chancellor Schwab said that iscorrect. Trustee Hall complimented Chancellor Schwab for his initiative andfor our new Trustees noted that this proposal came out of a situation thatdeveloped with the UT Medical Group that was a great concern to theLegislature and General Assembly. A significant amount of money that wasnot being paid to the State of Tennessee so the Audit Committee undertook areview of the relationship and brought in an outstanding group, ECGManagement Consultant. The information is in the materials. These practiceplans that are being initiated were the strong recommendation of this outsideconsultant group as a result of the fact that we do not have hospitals that arebranded with the University. This is the direction that other majoruniversities have taken that are in similar circumstances. Chancellor Schwabnoted that Trustee Hall’s comments were well said. Most major academicmedical centers of our stature own their own hospital. There are notable onesthat are in the same boat as we are but Washington University in the mostprominent. It is a top-5 university and located in St. Louis and is affiliatedwith Barnes-Jewish System. Their agreements look a lot like theseagreements I believe, obviously I am not privy to their agreements. WakeForest University and the Baptist Hospital have similar agreements inWinston-Salem, North Carolina. We believe this is the absolute best that wecan do without owning our own healthcare system.Chair Talbott informed the Committee that it was an action item and calledfor any questions, there were none. Trustee Anderson moved approval that2022

Finance and Administration Committee - III. Minutes of Last Meeting1the administration be authorized to execute an Addendum to the MasterAffiliation Agreement between the University and Methodist Healthcare-Memphis Hospitals and an Affiliation Agreement between the University andThe West Clinic, PC, under which The West Clinic, PC will serve as a facultypractice plan for oncology, after review and approval by the Chief FinancialOfficer and the General Counsel and after all required or appropriate stategovernment reviews and approvals; seconded by Trustee Tanner and themotion was approved unanimously.XII.Update on UT-Erlanger Faculty Practice Plan—Information Item (Exhibit15)—Chair Talbott asked Chancellor Schwab to present the UT-ErlangerFaculty Practice Plan. Chancellor Schwab asked Dr. Ken Brown, ExecutiveVice Chancellor to update the Committee. Vice Chancellor Brown addressedthe Committee and the Board reviewed and approved some time ago. Thedocuments have been filed in the UT/Erlanger Practice Plan. As Dr. Schwabsaid part of the strategy in forming these practice plans is to give theUniversity control over the academic clinical missions in the hospital thattechnically we do not own. The purpose of establishing practice group inChattanooga is to strengthen the educational mission. We haveapproximately 165 residents in Chattanooga that play a significant role in theErlanger Hospital. In order to strengthen the clinical and educational missionand to grow our research mission there that we don’t have, the formation ofthis joint practice plan was the way to go.The Affiliation Agreement was formed between the UTHSC College ofMedicine in Chattanooga and the Erlanger Hospital System. It will stand upas a (501(c) 3) which will be a part of Erlanger. He then spoke to the questionthat Chair Talbott had earlier about whether or not the University has anyliability. Vice Chancellor Brown explained that there is no liability on thispractice plan. It is fully funded by Erlanger Hospital and will not be asubsidiary. It will be open to public meetings and open records. It will bephysician led and professionally managed. One of the major concerns andTrustee Hall can speak to this is that in Chattanooga the hospital physicianswanted to be in the fabric of the leadership of the practice plan. They made atremendous amount of noise about it in Chattanooga as this plan was puttogether. We have actually been working on this for two years. The Board ofDirectors includes:Erlanger CEO and CFOUT Dean of College of Medicine in Chattanooga and Assistant Dean ofClinical Affairs5 Physician Directors – Elected by the physicians employed by orcontracted to the corporation2123

Finance and Administration Committee - III. Minutes of Last Meeting1Executive Director – search is underwayCurrently, a search for the Executive Director is underway with a search firm.As we get closer to identifying candidates we will ultimately vet that Directorwith membership of the Trustee Committee, Erlanger Board of Trustees,leadership of the College of Medicine and the Erlanger Hospital System.UEMG will stand up in a similar fashion to the pediatric practice and UTMedical Group. It will be the organization through which all full-timeuniversity faculty practice. Their paycheck will be from the University ofTennessee.He walked through the funds flow between Erlanger and UEMG (the PracticePlan) very carefully so that Committee members could understand whatexactly it is the Erlanger Hospital will be paying the practice plan for. Heexplained that there will be a Practice Plan incentive. The University willhave an opportunity based on the financial performance of the Practice Planto actually be incentivized by the Hospital. The Practice Plan is primarilycomprised of primary care physicians (internal medicine, obstetrics andpediatrics). Based on the financial performance of the Practice Plan they canactually be incentivized by the Hospital. The University and the Practice Planwill also have an opportunity to earn an incentive if they meet predeterminedteaching and clinical goals. These will be determined in conjunction with theHospital, Executive Director and the leadership of the Hospital. If in factthose metrics are met, the Hospital will incentivize the Practice Plan.Erlanger Hospital as it does now agrees to pay for all of UEMG supervision.This is simply a pass through mechanism – GME comes through the FederalGovernment and passes through. Erlanger Hospital will continue tosubsidize that cost. The base mission support is the critical piece to this. Atthis time, the College of Medicine receives no base mission support. It ismuch like the $5 million that Chancellor Schwab discussed that we receivefrom The West Clinic. It is much like the payment that UT Medical Groupcurrently makes to the College of Medicine we found ourselves challengedwith a number of years ago. The Dean of the College of Medicine literallydoes not have control over any discretionary resource to recruit, manage theresearch enterprise or invest in the clinical teaching. This is an integral partand one of the reasons we wanted to start the Practice Plan was to find howthe Dean could control resources.Erlanger Hospital will continue to reimburse the University for all reasonableand customary resident costs. Erlanger pays into the Tennessee Claims2224

Finance and Administration Committee - III. Minutes of Last Meeting1Commission a cost for resident malpractice coverage. Residents are notcovered via some third party malpractice.He then presented the crux of his presentation. He showed the fundingformula for 2011 at Erlanger. They spent about $24.8 million and the moneywas broken down as follows:Resident Compensation and Malpractice - $12.3 MillionGME Program Administration - $2.1 MillionFaculty/Program Support - $5.3 MillionLeased Faculty (PSA) - $5.1 MillionThey are paying the leased faculty Physician Services Agreement thatChancellor Schwab spoke of earlier. They are paying that in two differentstrategies but the Erlanger Hospital was in control of it. Literally, the Dean inChattanooga has to go back to the Erlanger Hospital for everything that needsto be spent. He has to ask their permission or ask for incremental resources.Without putting the Erlanger Hospital in the situation of asking them to comeup with $7.3 million in new money – we restructure the financing scheme andhave now gone away from the Physician Services Agreement. The fact thatthe Practice Plan will be this entity that exists as part of Erlanger Hospital –we have now created a support payment that the Hospital pays directly to theDean of the College of Medicine. The $7.3 million, while it is not newexpenditures by the Hospital it is being spent in a different way. The Dean ofthe Practice Plan will have the latitude to spend that money as he sees fit torecruit additions for the Practice Plan and the College of Medicine. Again, insupport of the clinical mission of Erlanger Hospital System. We see this as amajor step for us. The Practice Plan will be comprised of all Universityfaculty initially. The plan is to start to bring in practice groups and get themconverted over to University faculty. It is our hope and expectation that thePractice Plan at Erlanger/Chattanooga will grow over the next three to fiveyears. Trustee Hall commented that the same outside consultant did a studyfor the medical unit at Chattanooga and made the same recommendation.Again, that is what is being followed and he thanked Trustee Foy who spent agreat deal of time also working through this with the Board of Trustees atErlanger Hospital. He said that he believed it would raise the profile of ourmedical unit at Chattanooga that we have quite an investment in and shouldbe a win/win for both the Erlanger System as well as the presence of the UTMedical Center in Chattanooga. Most importantly, there won’t be anyquestion that the UT colors in regard to this will be orange and Vice PresidentDye will be able to make sure all of the letterhead is UT orange without anycontroversy. Vice Chancellor stated that to that point, we are in the processof developing a real marketing strategy where the Hospital will be co-2325

Finance and Administration Committee - III. Minutes of Last Meeting1branded with the University of Tennessee logo. He then spoke to thediscussion that he and Trustee Foy had some time ago – we are talking to theErlanger Board of Trustees about consideration of inviting a member of theUniversity of Tennessee Board of Trustees to sit on their Board. That requesthad been raised with them and they are receptive the idea.Vice Chair Stansberry asked if there was any problem in using the UT brandin a medical facility in Chattanooga with our relationship with the medicalcenter here in Knoxville. Has anyone check the legalities of that. GeneralCounsel Mizell commented not specifically but we will. Vice ChairStansberry cautioned that it should be treated carefully.XIII.Report of the Committee on Effectiveness and Efficiency for the Future—Information Item (Exhibit 16)—Chair Talbott asked Trustee Horne to presentthe Report of the Committee on Effectiveness and Efficiency for the Future.He began by saying Ron Loewen, the staff representative for the Committeeon Effectiveness and Efficiency for the Future handed out summary cardsthat the Trustees asked for. The next meeting will be in Nashville and willhopefully have legislators attend as well as the principle folks there to notethe savings and efficiencies that have been realized. He then thanked thePresident, Chancellors and Institute Directors for the good work with theCommittee. We work together and stay in touch with all of them on thiswork and will continue to do so.There have been savings of over $52 million through August 2011. We willcontinue to pursue any ideas that come in from faculty, staff, students and thepublic. He then expressed that the Committee’s work should be continued asa joint effort between the Board of Trustees and the administration. ChairTalbott then thanked him for his service on this committee.Trustee Wharton asked about the table that listed project activities and theestimated efficiencies and suggested another metric to be added to the rightof estimated efficiencies. He wasn’t sure if his proposed metric would workfor the administration or the Institute of Public Service. Perhaps there couldbe a percentage of revenue added per each estimate of efficiency per campus.He explained that the way he looked at it Chattanooga and Martin arebasically about the same size but Martin has approximately $500,000 more ayear and the reasons behind that would be helpful and where there may beother significant differences. He would like to see how much has been savedand what the potential might be. He followed up by saying that was hissuggestion so that there is a scorecard and can show per campus. Heexplained that he did not know what the metric would be for administration,Institute of Public Service and the Institute of Agriculture. President DiPietro2426

Finance and Administration Committee - III. Minutes of Last Meeting1stated that if a percentage is used it should be a percentage of expenditures asopposed to revenue because revenues can fluctuate depending on what ishappening, depending on which piece of revenue that is selected – if you tooktotal revenue you could have a major grant come in that could give you a lotof flux. He then expressed that it would be a good thing for the Effectivenessand Efficiency Committee to study and figure out what metric would be bestto use as a comparison from one campus or institute to the other. ChairTalbott asked what are the incentives for each campus regarding theseefficiencies and are they given money back. President DiPietro explained thatthis Committee came out of the economic downturn in state support andappropriations. For a near term approach it was a goal of can you savemoney in order to save programs and people. It was out of necessity that weinitiated this for the entire enterprise. In the future we need to make sure thatwe are studying if we are as effective and efficient as we can be even whentimes get better, it needs to continue. Initially, it was in reaction to adownturn in budget of $112 million over the last three fiscal years thatprompted this to be started three years ago. That was the major impetus andit is not unusual for universities to figure out how we keep doing what wehave been doing with fewer resources so you have to become more effectiveand efficient.XIV.Other Business—Chair Talbott asked for any new business and there wasnone.XV. Adjournment—Chair Talbott adjourned the meeting was adjourned at 4:50p.m. Eastern._______________________________________Charles M. PeccoloTreasurer, Chief Investment Officer andInterim Chief Financial Officer2527

Finance and Administration Committee - IV. Treasurer's Report on Endowment Investment Performance - Information2Investment Performance For Periods Ended December 31, 20113 Mos. 1 year 5 year 10 yearUT - Consolidated Investment Pool 3.9% -0.3% -0.1% 4.8%Broad Policy Benchmark 6.0% -4.6% 0.0% 4.7%(20% Barclays Capital Aggregate Bond Index, 80% MSCI AC World Index)CPI + 5.5% 1.3% 8.4% 7.7% 8.0%Pool Component Asset ClassesPublic Equity Composite 8.1% -8.7% -2.2% --MSCI ACWI Index 6.6% -9.8% -2.0% --Private Equity Composite 0.0% 7.2% 3.7% -0.5%S & P 500 11.8% 2.1% -0.2% 2.9%Hedged Equity Composite 2.1% -1.0% 2.0% 4.8%S & P 500 11.8% 2.1% -0.2% 2.9%Fixed Income - High Quality/Rate Sensitive 1.5% 7.0% 6.8% 5.5%Barclays Capitla Intermediate GV/CR Index 0.8% 5.8% 5.9% 5.2%Fixed Income - Real Return 2.7% 11.6% 8.4% --Barclays Capital TIPS Index 2.7% 13.6% 8.0%Fixed Income - Credit/Distressed 4.6% 4.9% -- --HFRI Fixed Income - Corporate Index 2.0% 0.9% -- --Private Credit/Distressed 0.2% -0.3% -1.7% 7.9%HFRI ED - Distressed/Restructuring Index 1.9% -2.4% 2.0% 8.4%Public Real Estate 8.7% 0.1% -4.1% 10.0%S & P Developed BMI Property Index 6.6% -5.6% -5.2% 8.6%Private Real Estate 5.5% 29.5% -36.3% -15.5%NCREIF Property Index 0.0% 14.1% -6.4% 4.2%Natural Resources Composite 12.8% 11.1% -- --S & P 500 +3% 12.3% 5.1% -- --Private Natural Resources (ex-Timber) -0.1% 12.8% 2.8% 13.9%S & P 500+ 3% 12.3% 5.1% 2.8% 5.9%Timber Composite 0.0% -2.1% 2.3% --NCREIF Timberland Index 0.0% 1.1% 4.5% --Diversifying Strategies 1.4% -1.6% 2.3% 4.8%HFRI FOF Conservative Index 0.1% -3.5% -0.8% 2.8%28

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Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - Information3Report ofThe Treasurer201132

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationReport of the Treasurer 2011Brief History of the University of Tennessee3The University of Tennessee is one of the nation’s oldestinstitutions of higher education, in operation since 1794.Two years before Tennessee achieved statehood in 1796, thelegislature of the Southwest Territory—which later becameTennessee—granted a charter to Blount College, named inhonor of the territorial governor, William Blount. Locatedin Knoxville near today’s downtown area, Blount Collegewas nonsectarian, which was unusual for an institution ofhigher education at that time. The university has remainednondenominational and is believed to be the oldest suchinstitution west of the Appalachian Divide. Blount Collegewas all male, typical for colleges of the late 18th century, arestriction that remained in force for almost a century untilthe first women students were admitted in 1892.In 1807 the state legislature changed the name of BlountCollege to East Tennessee College, and in 1826 the 40-acretract known as “the Hill” became part of its campus. Thename of the school changed again in 1840 to East TennesseeUniversity. But 21 years later, the Civil War forced theuniversity to close, and its buildings were used as a hospitalfor Confederate troops, then later occupied by Union soldiers.with the public university to become its fourth primary campus.The University of Tennessee Space Institute, a graduateeducation and research center near Tullahoma, was establishedin 1964.Three statewide units of the university—the Institute ofAgriculture, the Institute for Public Service, and the Division ofContinuing Education—extend the university beyond its variouscampuses to serve the entire state.The administration of the university is headquartered inKnoxville, where the offices of the president and the central staffare located. A chancellor directs each primary campus.Traditionally, Tennessee’s governors and members of the statelegislature have shown active interest in the development of theUniversity of Tennessee by providing the support it needs tomeet the increasing educational, research, and service needs ofthe people of Tennessee. As a result, many university programshave earned both national and global recognition.When the war ended, East Tennessee University reopened, andin 1869 the state legislature selected the university as the state’sfederal land-grant institution under the Morrill Act of 1862. Tocomply with the terms of the act, ETU broadened its offeringsto include agricultural, engineering, and military science courses.Ten years later, East Tennessee University was chosen by thelegislature to be the state university of Tennessee, and its namewas changed to the University of Tennessee. The universitypledged itself to the service and interest of the entire state,and the state pledged its name and reputation to the university,promising the institution a vital role in the progress of the state.Today, the university serves the people of Tennessee fromlocations across the state. The medical campus, founded inNashville and acquired by the university in 1879, was moved toMemphis in 1911. The Martin campus, established in 1900 as aprivate institution, became part of the University of Tennesseein 1927. In 1969 the private University of Chattanooga mergedContentsLetter from the Treasurer 2Auditor’s Opinion Letter 3Management’s Discussion and Analysis 4Statement of Net Assets 9Statement of Revenues, Expenses, andChanges in Net Assets 10Statement of Cash Flows 11Notes to the Financial Statements 12Required Supplementary InformationSchedule of Funding Progress 375-Year Summary 3833

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationLetter from the Treasurer3The financial statements on the following pages have been prepared in accordancewith generally accepted accounting principles as prescribed by the GovernmentalAccounting Standards Board. The management of the University of Tennessee isresponsible for the integrity and objectivity of these financial statements.Management believes that the university’s highly developed system of internalaccounting controls provides reasonable assurance that assets are protected andthat transactions and events are properly recorded. Establishing sound fiscalpolicies and procedures and communicating them clearly, carefully selectingqualified financial staff, and implementing an extensive program of internal auditsand management reviews ensure that the system of internal controls is maintained.The financial statements herein have been audited by the State of Tennessee,Comptroller of the Treasury, Division of State Audit. The auditor’s opinion isbased on audit procedures described in their letter on page 3, which includeunderstanding university systems, procedures, and internal controls andperforming tests and other auditing procedures sufficient to provide reasonableassurance that the financial statements are not materially misleading nor do theycontain material errors.The statements contained in this report describe the university’s overall financialcondition and the financial performance for the year ended June 30, 2011. Aseparate publication, “Report of the Treasurer 2011 Supplemental Schedulesand Appendices,” contains detailed supporting schedules and appendicesand is available for those who wish to make a more extensive analysis ofuniversity operations. The supporting schedules and appendices are designedto enable analysis of important items summarized or consolidated in thefinancial statements of this report.Respectfully submitted,Charles M. PeccoloTreasurer, Chief Investment Officer andInterim Chief Financial Officer34

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - Information3S TATE OF TENNESSEECOMPTROLLER OF THE TREASURYDEPARTMENT OF AUDITDIVISION OF STATE AUDITSUITE 1500JAMES K. POLK STATE OFFICE BUILDINGNASHVILLE, TENNESSEE 37243-1402PHONE (615) 401-7897FAX (615) 532-2765Independent Auditor’s ReportDecember 9, 2011The Honorable Bill Haslam, GovernorandMembers of the General AssemblyState Capitol, Nashville, Tennessee 37243andMr. James E. Hall, ChairmanAudit CommitteeBoard of TrusteesThe University of Tennessee, Knoxville, Tennessee 37996-0180andDr. Joseph A. DiPietro, PresidentThe University of Tennessee, 800 Andy Holt Tower, Knoxville, Tennessee 37996-0180Ladies and Gentlemen:We have audited the accompanying basic financial statements of the University of Tennessee, which is a component unit of the State of Tennessee, as of and for the year ended June30, 2011, as listed in the table of contents. These financial statements are the responsibility of the university’s management. Our responsibility is to express opinions on these financialstatements, based on our audit. We did not audit the financial statements of the University of Chattanooga Foundation, Inc.; the University of Tennessee Foundation, Inc.; and theUniversity of Tennessee Research Foundation, Inc., discretely presented component units of the university. Those financial statements were audited by other auditors whose reportsthereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for the University of Chattanooga Foundation, Inc.; the University of TennesseeFoundation, Inc.; and the University of Tennessee Research Foundation, Inc., is based on the reports of the other auditors.We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained ingenerally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statementsare 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 includesassessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditand the reports of the other auditors provide a reasonable basis for our opinions.In our opinion, based on our audit and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial positionof the University of Tennessee and its discretely presented component units as of June 30, 2011, and the respective changes in financial position and cash flows for the year then endedin conformity with accounting principles generally accepted in the United States of America.As explained in Note 2, the financial statements include investments valued at $361,231,003.85 (14.1 percent of net assets), whose fair values have been estimated by managementin the absence of readily determinable fair values. Management’s estimates are based on information provided by the fund managers or the general partners.The management’s discussion and analysis and the schedule of funding progress are not a required part of the basic financial statements but are supplementary information requiredby accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of managementregarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.Our audit was conducted for the purpose of forming opinions on the basic financial statements. The schedules and charts presented outside of the basic financial statements arepresented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures appliedin the audit of the basic financial statements, and, accordingly, we express no opinion on it.In accordance with generally accepted government auditing standards, we have also issued our report dated December 9, 2011, on our consideration of the university’s internal controlover financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report isto describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal controlover financial reporting or on compliance. That report is an integral part of an audit performed in accordance with generally accepted government auditing standards and should beconsidered in assessing the results of our audit.Sincerely,Arthur A. Hayes, Jr., CPADirectorAAH/sds335

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationManagement’s Discussionand Analysis3This section of the University of Tennessee’s annual financial report presentsa discussion and analysis of the financial performance of the university duringthe fiscal year ended June 30, 2011, with comparative information presentedfor the fiscal year ended June 30, 2010. This discussion has been prepared bymanagement along with the financial statements and related note disclosures andshould be read in conjunction with the Independent Auditor’s Report, the auditedfinancial statements, and the accompanying notes. The financial statements,notes, and this discussion are the responsibility of management.The university is component unit of the State of Tennessee and an integral partof the state’s Comprehensive Annual Financial Report (CAFR). The financialreporting entity for the financial statements is comprised of the university andthree component units. The component units are discretely presented based onthe nature and significance of their relationship to the university. The reader mayrefer to Note 1 for detailed information on the financial reporting entity.Using This Annual ReportThis report consists of three basic financial statements. The statement of netassets; the statement of revenues, expenses, and changes in net assets; and thestatement of cash flows provide information on the University of Tennessee as awhole and present a long-term view of the university’s finances.THE STATEMENT OF NET ASSETSThe statement of net assets presents the financial position of the university at theend of the fiscal year and includes all assets and liabilities of the university. Thedifference between total assets and total liabilities—net assets—is an indicatorof the current financial condition of the university. Assets and liabilities aregenerally measured using current values. Capital assets, however, are stated athistorical cost less an allowance for depreciation.Net assets are divided into three major categories. The first category, investedin capital assets, net of related debt, provides the university’s equity in property,plant, and equipment owned by the university. The next asset category isrestricted net assets, which is divided into two categories, nonexpendable andexpendable. The corpus of nonexpendable restricted resources is only availablefor investment purposes. Expendable restricted net assets are available forexpenditure by the university but must be spent for purposes as determined bydonors and/or external entities that have placed time or purpose restrictions onthe use of the assets. The final category is unrestricted net assets. Unrestrictednet assets are available to the university for any lawful purpose of the institution.See Table 1 (opposite page).The university had the following significant changes between fiscal years on thestatement of net assets:Current assets increased between fiscal years due to increases in investments andthe current portion of accounts, notes, and grants receivable. The most significantincrease is attributable to the portion of grants receivable deemed current.Noncurrent assets of cash and cash equivalents, investments, and capital assetsincreased between the fiscal years. Cash and cash equivalents increased due to achanging investment mix to adjust to activity in the capital markets. Investments36

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationTable 1. Condensed Statements of Net Assets($thousands)ASSETS:Current assetsCapital assets, netOther assetsTOTAL ASSETSLIABILITIES:Current liabilitiesNoncurrent liabilitiesTOTAL LIABILITIESNET ASSETS:Invested in capital assets, net of related debtRestricted – nonexpendableRestricted – expendableUnrestrictedTOTAL NET ASSETS2011$ 538,6021,728,4081,330,5503,597,560331,767703,8561,035,6231,198,045426,959479,175457,758$2,561,9372010$ 497,9161,609,6561,154,6053,262,177301,910694,863996,7731,075,557408,475419,862361,510$2,265,404Figure A. Allocations of Unrestricted Net Assets - University($millions)350300250200150100500Renewals & ReplacementsQuasi-EndowmentsWorking CapitalPlant ConstructionFY 2011FY 2010Renewals and replacements increased from 2010 to 2011 due tounspent educational and general dollars with the expectationthat fiscal years 2012 and 2013 would be leaner.EncumbrancesDebt RetirementAuxiliariesUndesignated3increased due to increases in the book value of investments aswell as increases in the market value and increased depositsfor investing from a component unit, the University ofTennessee Foundation.The increase in net capital assets between fiscal years is a resultof additions to the university’s capital assets. More detailedinformation about the university’s capital assets is presented inthe Capital Asset and Debt Administration section of this report.Current liabilities increased due to an increase in deferredrevenue associated with the Tennessee Solar Institute eventhough accounts payable decreased. Noncurrent liabilitiesincreased slightly between fiscal years due to increased depositsheld in custody for component units even though long-termliabilities decreased due to the retirement of Tennessee StateSchool Bond Authority debt by the university.More detailed information about the university’s debt is presentedin the Capital Asset and Debt Administration of this report.The restricted-expendable net assets increased between fiscalyears as a result of accumulated private dollars for scholarshipsand fellowships, instructional department uses and otherrestricted purposes and market increases. These funds will bespent in future years.Many of the university’s unrestricted net assets have beendesignated for specific purposes such as repairs and replacementof capital assets, future debt service, quasi-endowments, andcapital projects. Figure A (above, right) shows the allocations.THE STATEMENT OF REVENUES,EXPENSES, AND CHANGES IN NET ASSETSThe statement of revenues, expenses, and changes in net assets(page 6, Table 2) presents the operating results of the university,as well as the nonoperating revenues and expenses. Annual stateappropriations, while budgeted for operations, are considerednonoperating revenues according to accounting principlesgenerally accepted in the United States of America.The university had the following significant changes in revenuesbetween fiscal years:Net tuition and fees increased from 2010 to 2011 as a resultof a 9% fee increase. However, this increase in tuition andfee revenue was partially offset by current and new studentsreceiving funds from the Tennessee Education LotteryScholarship Program which reduces tuition and fees and isshown as grants and contracts revenue.Operating grants and contracts increased $54 million from 2010to 2011 with the addition of ARRA competitive awards andother large awards.Auxiliary revenues increased $5.3 million, primarily inresidence halls and athletics.In fiscal year 2011, state appropriations increased $63 millionwhich represented a 14 % increase in state appropriationsmostly due to the state giving the university one-timeappropriations in lieu of ARRA-State Fiscal Stabilization Funds.Nonoperating gifts decreased $9.3 million from 2010 to 2011while capital grants and gifts increased $9 million for the sametime period.The increase in investment income was due to an increase inendowment income and an overall increase in the capital markets.The decrease in capital appropriations for 2011 consisted ofanother year of no state appropriations for new buildings andlimited dollars for capital maintenance.Additions to permanent endowments remained almost the samefrom 2010 to the 2011 fiscal year.537

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationTable 2. Condensed Statements of Revenues, Expensesand Changes in Net Assets ($thousands)OPERATING REVENUES:Net tuition and feesGrants and contractsAuxiliaryOtherTOTAL OPERATING REVENUESOperating expensesOPERATING LOSSNONOPERATING REVENUESAND EXPENSES:State and local appropriationsGiftsInvestment incomeOtherTOTAL NONOPERATING REVENUES2011$ 316,045448,903184,11385,201$ 1,034,2621,782,288$(748,026)$ 540,01332,487129,975220,790923,2652010$ 279,638395,316178,84585,009$ 938,8081,683,195$(744,387)$ 477,12041,844117,281182,409818,654Figure B. Revenues by Source ($millions)7006005004003002001000State AppropriationsGrants and ContractsNet Tuition and FeesFor the year ended June 30, 2011, approximately 75% of UT’srevenue was attributed to state and local appropriations, grantsand contracts, and tuition and fees.Other Operating RevenueGiftsFY 2011AuxiliariesFY 2010Other Nonoperating Revenue3INCOME (LOSS) BEFORE OTHERREVENUES, EXPENSES, GAINS, ORLOSSESOTHER REVENUES, EXPENSES,GAINS, OR LOSSES:Capital appropriationsCapital grants and giftsAdditions to permanent endowmentsOtherTOTAL OTHER REVENUES, EXPENSES,GAINS, OR LOSSES175,23966,22332,22015,1357,716121,29474,26791,55023,26616,758883132,457Other operating expenses increased between fiscal years dueto availability of one time funds to fund maintenance costs andequipment purchases and the Solar Institute.Scholarship expenses increased due to departments awardingmore aid to students compared to the previous fiscal year.CAPITAL ASSET AND DEBTADMINISTRATIONINCREASE (DECREASE) IN NET ASSETSNET ASSETS AT BEGINNING OF YEARNET ASSETS AT END OF YEAR$ 296,5332,265,404$2,561,937$ 206,7242,058,680$2,265,404CAPITAL ASSETSAt June 30, 2011, the University of Tennessee had $1,728,407,603.85invested in capital assets, net of accumulated depreciation.Depreciation charges totaled $98,549,195.45 for the currentfiscal year. Details of these assets are shown below (Table 4).REVENUESThe following is a graphic illustration (Figure B) of revenuesby source (both operating and nonoperating), which were usedto fund the university’s activities for the years ended June 30,2011, and June 30, 2010.EXPENSESOperating expenses can be displayed in two formats, naturalclassification and functional classification. Both formats aredisplayed in Table 3 on the opposite page (in thousands ofdollars).The university had the following significant changes inexpenses between fiscal years:The increase in salary and benefit expenses from 2011 to 2010is due to the increases in staff in the instruction, research, andauxiliary functions.Employee benefit expenses increased slightly between fiscalyears mainly as a result of increasing the number of employeesand increases in health insurance premiums.Major capital additions for UT during 2010-2011 include the $23million Ayres Hall Renovation, the $10.7 million Joint Institutefor Neutron Sciences building, the $4.8 million purchase ofShelbourne Towers, and a $21 million phase of Neyland StadiumTable 4. Schedule of Capital Assets, Net of Depreciation($thousands)LandLand improvements & infrastructureBuildingsWorks of art/historical treasuresEquipmentSoftwareLibrary holdingsProjects in progressTotal2011$ 64,32026,8331,147,6983,493149,5769,17075,378251,940$1,728,4082010$ 60,12125,2551,093,497528145,8768,16870,692205,519$1,609,656638

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationImprovements in Knoxville; the $1.1 million Boling HVACImprovements and a $1.2 million phase of the Dunn DentalBuilding 4th Floor in Memphis; the $1.0 million Boling CenterBallroom Renovation at Martin; and the $8.2 million Grote HallImprovements at Chattanooga.For the next fiscal year, the state has approved $23.92 millionin capital maintenance and $4.5 million in capital outlayappropriations for UT. These approved new projects are theAlexander Building Improvements and Completion of PharmacyBuilding 6th Floor in Memphis; the Electrical DistributionSystem Improvements Phase IV, Utilities Infrastructure Study,and College of Veterinary Medicine Building Improvements inKnoxville; Campus Elevator Upgrades in Martin; and Holt HallImprovements in Chattanooga. In addition, there are variousconstruction and improvement projects at all campuses. Moredetailed information about the university’s capital assets ispresented in Note 5 to the financial statements.DEBTAt June 30, 2011, the university had $540,222,243.51 in debtoutstanding. Table 5 on page 8 summarizes these amounts bytype of debt instrument.The university retired more than $162.9 million in bonds andcommercial paper in fiscal year 2010-2011. The Tennessee StateSchool Bond Authority (TSSBA), in addition to its authorityto issue bonds and notes to finance capital projects, has theresponsibility for approving all long-term debt of the university.TSSBA currently is rated AA by Standard & Poor. To funduniversity projects, the TSSBA issued the 2010 Series A bondsin the amount of $131.2 million and the 2010 Series B bonds inthe amount of $15.9 million. More detailed information aboutthe university’s long-term liabilities is presented in Note 8 to thefinancial statements.3Table 3. Expenses by Natural and Functional Classifications ($thousands)2011 FUNCTIONAL CLASSIFICATIONInstructionResearchPublic serviceAcademic supportStudent servicesInstitutional supportOperation and maintenance of plantScholarshipsAuxiliaryIndependent operationsDepreciationTotal expensesSALARIES$ 373,984131,43568,49667,11840,08671,85133,3333,43543,17348,069—$880,980BENEFITS$ 112,17735,72625,37624,52414,58427,85816,48526,06012,92019,230—$314,9402011 NATURAL CLASSIFICATIONUTILITIES,SUPPLIES, ANDOTHER SERVICES$ 64,83581,92562,19026,90721,8204,65579,73320,24373,969——$436,277SCHOLARSHIPS———————$ 51,542———$ 51,542DEPRECIATION——————————$98,549$98,549TOTAL$ 550,996249,086156,062118,54976,490104,364129,551101,280130,06267,29998,549$1,782,2882010 NATURAL CLASSIFICATION2010 FUNCTIONAL CLASSIFICATIONInstructionResearchPublic serviceAcademic supportStudent servicesInstitutional supportOperation and maintenance of plantScholarshipsAuxiliaryIndependent operationsDepreciationTotal expensesSALARIES$362,847125,75967,50665,81239,12971,51432,7893,85740,07550,418—$859,706BENEFITS$103,47632,92623,84923,08213,39325,22614,97619,90312,19718,945—$287,973UTILITIES,SUPPLIES, ANDOTHER SERVICES$ 59,65976,36433,51918,43523,265—93,70218,84672,179——$395,969SCHOLARSHIPS———————$45,389———$45,389DEPRECIATION——————————$ 94,158$ 94,158TOTAL$ 525,982235,049124,874107,32975,78796,740141,46787,995124,45169,36394,158$1,683,195739

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationTable 5. Outstanding Debt Schedule($thousands)Bonds-current portionBonds-noncurrentUnamortized bond premiumCommercial paper-noncurrentTotal TSSBA authorized debtNotes-current portionNotes-noncurrent portionTotal DebtFigure C. Operating Expenses by Natural Classification($thousands)1,0002011$ 27,703468,0447,78736,688$540,222$540,222FY 20112010$ 22,299359,731163,126$545,15612$545,168FY 2010ECONOMIC FACTORS THAT WILL AFFECTTHE FUTUREFor fiscal year 2012, the University of Tennessee Board ofTrustees has authorized individual campus fee increases of9.9% to 12% that are expected to generate approximately $53million in new funding, net of related scholarships, with acontinued projected enrollment increase. State appropriationswill continue to be reduced. The university continues to besuccessful competing for grants and contracts. The capitalmarkets remain unstable which may adversely affect theuniversity’s investment income.REQUESTS FOR INFORMATIONThis financial report is designed to provide a general overviewof the university’s finances for all those with an interest inthe university’s finances. Questions concerning any of theinformation provided in the report or requests for additionalinformation should be directed to Mr. Ron Maples, Controller,201 Andy Holt Tower, Knoxville, Tennessee, 37996-0100.38006004002000SalariesBenefitsUtilities, Supplies and Other ServicesScholarshipsDepreciationFigure D. Operating Expenses by Function ($thousands)600FY 2011 FY 20105004003002001000InstructionResearchPublic ServiceAcademic SupportStudent ServicesInstitutional SupportOperation & Maintenance of PlantScholarshipsAuxiliaryFunctional increases in instruction and research were due to the addition of stimulus and one-time state funds.Independent OperationsDepreciation840

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationStatement of Net Assets JUNE 30, 20113ASSETSTHE UNIVERSITYOF TENNESSEEUNIVERSITY OFCHATTANOOGAFOUNDATION INC.UNIVERSITY OFTENNESSEEFOUNDATION INC.THE UNIVERSITY OFTENNESSEE RESEARCHFOUNDATION INC.Current assets:Cash and cash equivalents (Note 2)Investments (Notes 2, 22, 23, and 24)Accounts, notes, and grants receivable (net) (Note 4)Due from primary governmentInventoriesPrepaid Expenses and Deferred ChargesTotal Current Assets$$295,147,284.7596,924,156.88125,699,132.1110,330,283.157,264,575.313,236,758.36538,602,190.56$$8,646,928.00525,334.0044,722.009,216,984.00$$2,875,094.281,439,150.003,297,756.2767,850.0013,428.167,693,278.71$$4,925,360.003,351,769.732,123,562.27136,509.0010,537,201.00Noncurrent assets:Cash and cash equivalents (Note 2)Investments (Notes 2, 22, 23, and 24)Investment in UT - Battelle, LLC (Note 14)Accounts, notes, and grants receivable (net) (Note 4)Lease payments receivable (Note 18)Capital assets (net) (Notes 5, 22, and 24)Prepaid expenses and deferred chargesAssets held by the universityTotal noncurrent assetsTotal assets$ 617,470,041.75571,715,626.894,632,313.1888,621,344.8347,907,768.021,728,407,603.85202,461.223,058,957,159.74$ 3,597,559,350.30$ 100,200,293.00$421,836.0061,579,319.00415,261.00485,519.00163,102,228.00172,319,212.00$3,193,081.0426,102,830.6749,053,379.9534,998,088.42113,347,380.08$ 121,040,658.79$$376,901.00328,835.0060,606,479.0061,312,215.0071,849,416.00Current liabilities:Accounts payable (Note 7)Accrued liabilitiesDeferred revenueDue to component unitDeposits payableAnnuities payableLong-term liabilities, current portion (Notes 8, 22, 23, and 24)Deposits held in custody for othersDue to the universityTotal current liabilities$$88,686,791.5944,299,173.78114,399,613.392,123,562.274,973,544.901,213,584.4971,797,463.734,273,071.68331,766,805.83$$731,775.25143,440.001,715,000.002,153,743.00963,229.755,707,188.00$$2,565.4563,979.2015,733.892,182.6284,461.16$$7,070,404.00901,084.007,971,488.00Noncurrent liabilities:Deferred revenue (Notes 8 and 24)Long-term liabilities, noncurrent portion (Notes 8, 22, 23, and 24)Due to grantors (Note 8)Annuities payable (Note 8)Deposits held in custody for component unitsTotal noncurrent liabilitiesTotal liabilities$$15,500,438.71611,649,165.0136,201,013.405,507,214.6534,998,088.42703,855,920.191,035,622,726.02$ 80,373,946.00$80,373,946.0086,081,134.00$$168,042.86689,451.68857,494.54941,955.70$20,349,480.00654,922.0021,004,402.00$ 28,975,890.00Invested in capital assets, net of related debtRestricted:Nonexpendable:Scholarships and fellowshipsLibrariesResearchInstructional department usesAcademic supportOtherExpendable:Scholarships and fellowshipsLibrariesResearchInstructional department usesAcademic supportLoansCapital projectsDebt serviceOtherUnrestricted (Note 9)Total net assets$ 1,198,044,555.13192,851,899.1613,807,689.6518,800,105.71135,559,160.0428,228,315.1137,711,942.17113,152,363.5110,636,094.0765,878,872.7683,638,904.3936,168,310.8910,276,236.9365,722,475.83536,521.1793,164,836.83457,758,340.93$ 2,561,936,624.28$$14,358,894.0029,034,524.00106,525.00134,258.00510,663.002,794,392.0011,141.005,000,000.001,973,015.0032,314,666.0086,238,078.00$15,990,406.01257,237.831,314,915.8528,236,241.784,281,260.857,061,103.561,225,003.261,404,591.066,880.3131,246,018.3613,448,139.2014,756,785.49870,119.53$ 120,098,703.09$$39,355,915.003,517,611.0042,873,526.00The notes to the financial statements are an integral part of this statement.941

REVENUESFinance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationStatement of Revenues, Expenses, andChanges in Net Assets FOR THE YEAR ENDED JUNE 30, 2011THE UNIVERSITYOF TENNESSEEUNIVERSITY OFCHATTANOOGAFOUNDATION INC.UNIVERSITY OFTENNESSEEFOUNDATION INC.THE UNIVERSITY OFTENNESSEE RESEARCHFOUNDATION INC.3Operating revenues:Student tuition and fees (net of $143,740,592.27 ofscholarship allowances)ContributionsInvestment return designated for operationsFederal appropriationsGovernmental grants and contractsNon-governmental grants and contractsSales and services of educational departmentsAuxiliary enterprises:Residential life (net of scholarship allowances of $1,685,828.40;all revenues are used as security for varying revenue bonds;see Note 8)Food servicesBookstoreParkingAthleticsOther auxiliariesInterest earned on loans to studentsOther operating revenuesTotal operating revenues$ 316,045,145.6113,817,123.16258,601,583.71190,301,441.7151,904,262.1751,554,789.484,880,433.3718,364,890.5510,236,047.4293,455,719.615,621,303.4644,057.2819,435,489.89$1,034,262,287.42$ 147,837.005,767,282.0010,227,569.00$ 16,142,688.00$ 2,240,720.22153,987.04$ 2,394,707.26$ 1,724,081.003,428,673.00$ 5,152,754.00EXPENSESOperating expenses (Note 19):Salaries and wagesFringe benefitsUtilities, supplies, and other servicesScholarships and fellowshipsDepreciation expensePayments to or on behalf of the university (Notes 22 and 23)Total operating expensesOperating income (loss)$ 880,979,955.85314,939,808.31436,277,650.4451,541,662.4498,549,195.451,782,288,272.49$(748,025,985.07)$ 3,598,474.003,206,007.005,767,282.0012,571,763.00$ 3,570,925.00$ 1,029,350.2213,768,772.0914,798,122.31$(12,403,415.05)$ 2,948,881.10324,016.9032,283,649.003,000,448.0038,556,995.00$(33,404,241.00)NONOPERATING REVENUES (EXPENSES)State and local appropriationsGifts (including gifts totaling $19,536,054.09 from component units)Grants and contractsInvestment income (loss)Interest on capital asset - related debtBond issuance costsOther nonoperating revenues (expenses)Net nonoperating revenues (expenses)Income (loss) before other revenues, expenses, gains, orlossesCapital appropriationsCapital grants and giftsAdditions to permanent endowmentsAdditions to annuity and life income trustsOtherTotal other revenuesIncrease (decrease) in net assets$ 540,013,070.8732,487,318.78248,366,586.60129,974,829.36(23, 234,431.20)(1,528,116.13)(2,813,938.63)923,265,319.65175,239,334.5866,222,831.2932,220,023.0015,134,618.421,553,887.636,162,010.51121,293,370.85$ 296,532,705.43$ 10,570,783.00(4,430,265.00)(32,476.00)6,108,042.009,678,967.00221,366.00221,366.00$ 9,900,333.00$ 5,867,099.715,867,099.71(6,536,315.34)13,575,321.0113,575,321.01$ 7,039,005.67$ 33,257,203.0025,992.001,471.0033,284,666.00(119,575.00)2,010,226.00910,039.002,920,265.00$ 2,800,690.00NET ASSETSNet assets at beginning of yearNet assets at end of year2,265,403,918.85$2,561,936,624.2876,337,745.00$86,238,078.00113,059,697.42$120,098,703.0940,072,836.00$ 42,873,526.00The notes to the financial statements are an integral part of this statement. 1042

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationStatement of Cash Flows FOR THE YEAR ENDED JUNE 30, 20113CASH FLOWS FROM OPERATING ACTIVITIESTuition and feesFederal appropriationsGrants and contractsSales and services of educational activitiesPayments to suppliers and vendorsPayments to employeesPayments for benefitsPayments for scholarships and fellowshipsLoans issued to studentsCollection of loans from studentsInterest earned on loans to studentsAuxiliary enterprise charges:Residence hallsBookstoreFood serviceParkingAthleticsOther auxiliariesHospitalOther receipts (payments)Net cash provided (used) byoperating activitiesCASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIESState appropriationsLocal appropriationsGifts and grants for other than capital orendowment purposesPrivate gifts for endowment purposesSplit-interest transactions receiptsSplit-interest transactions disbursementsFederal student loan receiptsFederal student loan disbursementsChanges in deposits held for othersNet cash balance implicitly financed (repaid)Other noncapital receipts (payments)Net cash provided (used) bynoncapital financing activities$ 317,491,579.4113,817,123.16470,478,961.7352,656,090.08(432,829,691.33)(879,917,688.10)(302,936,968.02)(51,541,662.44)(2,595,269.58)4,106,207.40605,616.8851,554,789.4818,364,890.554,880,433.3710,236,047.4295,184,898.117,226,454.54458,525.3519,158,997.01$(603,600,664.98)$ 533,814,990.555,326,880.32278,831,358.7815,134,618.421,553,887.63(3,278,441.73)257,476,480.50(266,142,054.00)(288,273.37)(6,242,342.80)7,715,898.14$ 823,903,002.44CASH FLOWS FROM INVESTING ACTIVITIESProceeds from sales and maturities of investmentsIncome on investmentsPurchase of investmentsNet cash provided (used) bynoncapital financing activitiesNet increase (decrease) in cash andcash equivalentsCash and cash equivalents at beginning of yearCash and cash equivalents at end of year$ 268,036,369.3427,564,544.71(246,781,677.84)48,819,236.21120,554,706.99792,062,619.51$ 912,617,326.50RECONCILIATION OF NET OPERATING LOSS TO NET CASH PROVIDED(USED) BY OPERATING ACTIVITIESOperating lossAdjustments to reconcile operating loss to netcash provided (used) by operating activities:Depreciation expenseChanges in assets and liabilities:Receivables, netInventoriesPrepaid expenses and deferred chargesAccrued interest receivableAccounts payableAccrued liabilitiesDeferred revenueDepositsOther Post-Employment BenefitsCompensated absencesOther additions (deductions):Loans to studentsNet cash provided (used) by operations$ (748,025,985.07)98,549,195.45(4,978,220.53)140,129.85(574,003.43)561,559.603,876,505.811,249,726.7631,994,892.05279,215.4311,302,669.74512,711.541,510,937.82$ (603,600,664.98)NONCASH INVESTING, CAPITAL, OR FINANCING TRANSACTIONSGifts of capital assetsUnrealized gain (loss) on investmentsLoss on disposal of capital assets$ 9,544,582.03102,840,928.01(1,648,135.97)CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIESProceeds from capital debtCapital appropriationsCapital grants and gifts receivedProceeds from sale of capital assetsPurchase of capital assets and constructionPrincipal paid on capital debt and leasesInterest paid on capital debt and leasesOther capital and related financingreceipts (payments)Net cash provided (used) bynoncapital financing activities$32,707,647.8962,102,954.3932,220,023.00386,561.11(223,041,746.26)(28,349,273.83)(22,558,515.95)(2,034,517.03)$ (148,566,866.68)The notes to the financial statements are an integral part of this statement.1143

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationNotes to the Financial StatementsJUNE 30, 20113Note 1: Summary of SignificantAccounting PoliciesA. REPORTING ENTITYThe university is a component unit of the State of Tennesseebecause the state appoints the majority of the university’sgoverning body and provides significant financial support.The university is discretely presented in the TennesseeComprehensive Annual Financial Report.The University of Tennessee System is comprised of theUniversity of Tennessee, the University of Tennessee atChattanooga, and the University of Tennessee at Martin. TheUniversity of Tennessee is comprised of the University ofTennessee Knoxville campus; the University of TennesseeHealth Science Center, including the Memphis campus, theMemorial Research Center at Knoxville, Clinical EducationCenters at Chattanooga and Knoxville, and Family PracticeCenters at Jackson, Knoxville, and Memphis; the Universityof Tennessee Space Institute at Tullahoma; the Universityof Tennessee Institute of Agriculture, including the Collegeof Agriculture at Knoxville, the Agricultural ExperimentStations, the Agricultural Extension Service, and the Collegeof Veterinary Medicine at Knoxville; the Institute for PublicService, which includes the County Technical AssistanceService and the Municipal Technical Advisory Service; and theUniversity-Wide Administration. The university is governed bya board of 26 members, including one student and one facultymember, all either ex officio or appointed by the Governor, whoalso serves as chairman. The president is the chief executiveofficer of the university system.The University of Chattanooga Foundation, Inc., and theUniversity of Tennessee Foundation, Inc., are consideredcomponent units of the university. Although the universitydoes not control the timing or amount of receipts from thefoundations, the majority of resources, or income thereon, thatthe foundations hold and invest are restricted to the activities ofthe university by the donors. Because these restricted resourcesheld by the foundations can only be used by, or for the benefitof, the university, the foundations are considered componentunits of the university and are discretely presented in theuniversity’s financial statements. The University of TennesseeResearch Foundation, Inc., is also considered a componentunit of the university because the university’s board of trusteesapproves the foundation’s administrative budget. It is alsodiscretely presented in the university’s financial statements. Seenotes 22, 23 and 24 for more detailed information about thecomponent units and how to obtain their reports.B. BASIS OF PRESENTATIONThe financial statements have been prepared in conformity withaccounting principles generally accepted in the United Statesof America (GAAP) applicable to governmental colleges anduniversities engaged in business-type activities as prescribed bythe Governmental Accounting Standards Board (GASB).C. BASIS OF ACCOUNTINGFor financial statement purposes, the university is considereda special-purpose government engaged only in business-typeactivities. Accordingly, the financial statements have beenprepared using the economic resources measurement focus andthe accrual basis of accounting. Revenues are recorded whenearned and expenses are recorded when a liability is incurred,regardless of the timing of related cash flows. Grants andsimilar items are recognized as revenue as soon as all eligibilityrequirements imposed by the provider have been met. Allsignificant interfund transactions have been eliminated.Private-sector standards of accounting and financial reportingissued prior to December 1, 1989, generally are followed to theextent that those standards do not conflict with or contradictguidance of the Governmental Accounting Standards Board(GASB). The university has the option of following privatesectorguidance issued subsequent to November 30, 1989,subject to the above limitation. The university has elected not tofollow private-sector guidance issued subsequent to November30, 1989.Amounts reported as operating revenues include 1) tuition andfees, net of waivers and discounts; 2) federal appropriations;3) certain federal, state, local, and private grants and contracts;4) sales and services of educational departments; 5) sales andservices of auxiliary enterprises; and 6) other sources of revenue.Operating expenses for the institution include 1) salaries andwages; 2) employee benefits; 3) scholarships and fellowships; 4)depreciation; and 5) utilities, supplies, and other services.All other activity is nonoperating in nature. This activityincludes: 1) state and local appropriations for operations; 2)investment income; 3) interest on capital asset-related debt; 4)non-operating grants and contracts; and 5) gifts.When both restricted and unrestricted resources are available foruse, generally it is the institution’s policy to use the restrictedresources first.D. CASH EQUIVALENTSThis classification includes instruments which are readilyconvertible to known amounts of cash.E. INVENTORIESInventories are valued at the lower of cost or market, based onthe retail, specific identification, average cost, or first-in, firstoutbasis.F. INVESTMENTSThe university reports investments in commercial paperat amortized cost. The university had no investments in1244

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - Informationcommercial paper at June 30, 2011. All other investments arereported at fair value or estimated fair value.The university holds investments in limited partnerships, limitedcompanies, corporations, and limited liability corporationswhich are carried at estimated fair value provided by themanagement of these funds. The purpose of this alternativeinvestment class is to increase portfolio diversification andreduce risk due to the low correlation with other asset classes.Methods for determining estimated fair values includediscounted cash flows and estimates provided by generalpartners and fund managers. Because these investments arenot readily marketable, the estimated fair value is subject touncertainty and, therefore, may differ from the value that wouldhave been used had a ready market for the investments existed,and such differences could be material. The estimated fairvalues are reviewed and evaluated by the university.G. CAPITAL ASSETSCapital assets, which include property, plant, equipment,software, and library holdings, are reported in the statement ofnet assets at historical cost or at fair value at date of donation,less accumulated depreciation. The costs of normal maintenanceand repairs that do not add to the value of the assets ormaterially extend the assets’ useful lives are not capitalized.A capitalization threshold of $100,000 is used for buildings,land improvements, and infrastructure. Equipment and softwareare capitalized when the unit acquisition cost is $5,000 orgreater and the estimated useful life is one year or more.The capitalization threshold for additions and improvementsto buildings, infrastructure, and land improvements is also$100,000. The capitalization threshold for additions andimprovements to buildings is $100,000 provided that amountexceeds 20% of the book value of the building.These assets, with the exception of land, are depreciated/amortized using the straight-line method over the estimateduseful lives of the assets, which range from 5 to 40 years.H. ACCOUNTS PAYABLEIncluded in accounts payable are checks payable in the amountof $683,487.86 as of June 30, 2011. These amounts representthe sum of checks written in excess of the university’s checkingaccount balance because of the use of a controlled disbursementaccount. In this way, the university maximizes interest incomeby transferring from an investment account only fundsnecessary to cover the checks that clear the bank daily.I. COMPENSATED ABSENCESThe university’s employees accrue annual leave at varying rates,depending on length of service or classification. Some employeesalso earn compensatory time. Generally, all permanent full-timeemployees and certain part-time employees are entitled to accrueand carry forward calendar year maximums of 42 days annualvacation leave, except nine-month faculty members who do notaccrue annual leave. The amount of these liabilities and theirrelated benefits are reported in the statement of net assets.J. NET ASSETSThe institution’s net assets are classified as follows:Invested in Capital Assets, Net of Related Debt: Thisrepresents the institution’s total investment in capital assets, netof outstanding debt obligations related to those capital assets.To the extent debt has been incurred but not yet expended forcapital assets, such amounts are not included as a component ofinvested in capital assets, net of related debt.Nonexpendable Restricted Net Assets: Nonexpendablerestricted net assets consist of endowment and similar typefunds in which donors or other outside sources have stipulated,as a condition of the gift instrument, that the principal is to bemaintained inviolate and in perpetuity, and invested for thepurpose of producing present and future income, which may beexpendable or added to principal.Expendable Restricted Net Assets: Expendable restricted netassets include resources in which the university is legally orcontractually obligated to spend resources in accordance withrestrictions imposed by external third parties.Unrestricted Net Assets: Unrestricted net assets representresources derived from student tuition and fees, stateappropriations, and the sales and services of educationaldepartments, and auxiliary enterprises. These resources areused for transactions relating to the educational and generaloperations of the institution, and may be used at the discretionof the institution to meet current expenses for any purpose.K. SCHOLARSHIP DISCOUNTS ANDALLOWANCESStudent tuition and fee revenues, and certain other revenuesfrom students, are reported net of scholarship discounts andallowances in the statement of revenues, expenses, and changesin net assets. Scholarship discounts and allowances are thedifference between the stated charge for goods and servicesprovided by the university and the amount that is paid by thestudent and/or third parties making payments on the student’sbehalf.Certain governmental grants, such as Pell grants, and otherfederal, state, or nongovernmental programs, are recorded aseither operating or nonoperating revenues in the institution’sfinancial statements. To the extent that revenues from suchprograms are used to satisfy tuition and fees and other studentcharges, the institution has recorded a scholarship discount andallowance.L. INCOME TAXESThe university, as a public corporation and an instrumentalityof the State of Tennessee, is exempt from federal income taxesunder Section 115 of the Internal Revenue Code. Contributionsto the university are deductible by donors as provided underSection 170 of the Internal Revenue Code.31345

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationNote 2: Deposits and InvestmentsINVESTMENT POLICYCash Management Investment Pool: The University ofTennessee maintains a cash management investment poolthat is available for use by all fund groups. State statutes anduniversity investment policies authorize the university’s cashmanagement pool to invest in collateralized Tennessee bankor savings and loan association certificates of deposit, U.S.Treasury obligations, U.S. government agency obligations,repurchase agreements of those securities, highest qualitycommercial paper, prime bankers’ acceptances, and moneymarket mutual funds meeting certain criteria.University policy also requires that commercial paper notexceed 35% of the portfolio in total and that no more than 10%of the portfolio’s value be in the commercial paper of a singleissuer. In addition, banker’s acceptances cannot exceed 20% ofthe portfolio’s value and no one bank’s acceptances may exceed10%. Money market funds cannot exceed 10% of the portfolio’stotal value. At June 30, 2011, the university’s cash managementinvestment pool consisted of $718,250,000.00 of certificatesof deposit and $159,400,000.00 of demand deposits yieldingmoney market rates.Investments: The university’s assets subject to long-terminvestment (endowments and annuity and life income assets)use various external managers and funds consistent withinvestment objectives for those invested assets. A significantpart of these assets is the university’s Consolidated InvestmentPool which is a carefully crafted portfolio of broadly diversifiedasset classes.Deposits: University policy and state statute require thatuniversity funds be deposited into authorized commercial banksand savings and loan associations. State statutes also requirethat these financial institutions pledge securities as collateralto secure university time and demand deposits. To facilitatethe pledge requirement, financial institutions can elect toeither participate in the State of Tennessee Collateral Pool forPublic Deposits administered by the State Treasurer or pledgesecurities with a third party.CASH AND CASH EQUIVALENTSIn addition to petty cash and demand deposits, this classificationincludes instruments which are readily convertible to knownamounts of cash.At June 30, 2011, cash and cash equivalents consisted of$191,101,822.84 in bank accounts, $1,504,429.36 of petty cashon hand, and $718,250,000.00 of certificates of deposit.The carrying amount of the university’s deposits was$909,351,822.84 and the bank balance was $936,870,504.26.Additionally, the university maintains custodial accounts atFirst Tennessee Bank and Hilliard Lyons for funds contractuallymanaged by independent investment counsel. In accordancewith the custody agreements, First Tennessee Bank and HilliardLyons placed cash equivalents totaling $1,761,074.30 at June30, 2011, in money market mutual funds.CUSTODIAL CREDIT RISK—DEPOSITSThe custodial credit risk for deposits is the risk that in theevent of a bank failure, the university’s deposits may notbe recovered. As stated earlier, state statutes require that alluniversity deposits be in a qualified depository and securedthrough direct collateralization or participation in the StateCollateral Pool. As of June 30, 2011, all university depositswere adequately secured as required by state statute.INVESTMENTSInvestments in commercial paper are reported at amortizedcost. All other investments are reported at fair value, includingthose securities with a maturity date of one year or less. As ofJune 30, 2011, the university had investments and maturities asshown on Table 2.1.INTEREST RATE RISKInterest rate risk is the risk that changes in interest rates willadversely affect the fair value of a debt investment. Theuniversity does not have a formal investment policy that limitsinvestment maturities as a means of managing its exposure tofair value losses arising from increasing interest rates.CREDIT RISKCredit risk is the risk that an issuer or other counterparty to aninvestment will not fulfill its obligations. The university’s debtinvestments as of June 30, 2011, were rated by Moody’s.The university is authorized by statute to invest funds inaccordance with University of Tennessee investment policies.Funds, other than endowment and annuity and life income fundsmay be invested in collateralized Tennessee bank or savingsand loan association certificates of deposit, U. S. Treasuryobligations, U.S. government agency obligations, repurchaseagreements of those securities, highest quality commercialpaper, prime bankers’ acceptances, and money market mutualfunds meeting certain criteria. Endowment and life incomefunds can be invested in equity securities and various othersecurities given prudent diversification. The university hasno investment policy limiting its investment choice basedon ratings issued by nationally recognized statistical ratingagencies. As of June 30, 2011, the institution’s investments wererated as shown in Table 2.2CUSTODIAL CREDIT RISK – INVESTMENTSCustodial credit risk is the risk that, in the event of a failureof the counterparty, the university will not be able to recoverthe value of the investment or collateral securities that are inpossession of an outside party. At June 30, 2011, the universityhad $6,454,456.05 of uninsured and unregistered investmentsheld by a counterparty but not in the school’s name.CONCENTRATION OF CREDIT RISKConcentration of credit risk is the risk of loss attributed to themagnitude of the university’s investment in a single issuer.Other than the restrictions placed on the cash management31446

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationTable 2.1. Investment Maturities (in years)Investment Type Fair Value Less than 1 1 to 5 6 to 10 10+ Unknown CostDebt SecuritiesU.S. Treasury $ 3,663,740.28 $ 49,982.50 $ 2,157,132.68 $ 757,595.49 $ 699,029.61 $ 3,221,606.18U. S. Agencies 10,901,688.66 173,977.34 6,584,372.12 2,248,096.20 1,895,243.00 10,206,068.46Corporate Bonds 16,071,076.91 4,888,915.22 5,070,408.09 6,087,400.10 24,353.50 15,485,779.89Municipal Bonds 3,394,524.70 974,064.60 699,275.00 2,000.00 1,719,185.10 3,397,986.95Mortgages and Notes 236,273.83 14,108.70 222,165.13 225,374.55Bond Mutual Funds 27,388,676.35 6,309,908.28 17,233,540.12 3,171,944.33 $ 673,283.62 26,712,519.29$ 61,655,980.73 $ 6,101,048.36 $ 21,043,261.30 $ 26,328,631.91 $ 7,509,755.54 $ 673,283.62 $ 59,249,335.323Other InvestmentsCorporate Stocks:Domestic $ 35,856,049.39 $ 32,215,907.42International 1,267,196.84 1,160,969.52Mutual Funds—Equity 197,769,146.04 193,548,179.83Alternative Investments:Real Estate Investments 30,749,317.15 38,572,396.98Private Equity 107,880,830.45 115,535,959.35Hedge Funds 145,385,978.22 120,481,257.96Natural Resources 77,214,878.03 70,103,526.33Real Estate Gifts 4,405,950.87 5,944,720.67Assets with Trustees 6,454,456.05 7,149,344.02Total Investments $ 668,639,783.77 $ 643,961,597.40Table 2.2. Rated DebtInstruments Fair Value Aaa Aa1 Aa2 Aa3 A1 A2InvestmentsU.S. Agencies $10,901,688.66 $ 9,756,760.16Corporate Bonds 16,071,076.91 2,039,390.00 $ 954,957.25 $ 305,520.00 $ 1,394,182.25 $ 3,022,194.25Municipal Bonds 3,394,524.70 $ 223,369.95 1,285,511.25 762,126.40 183,692.00Mutual Funds—Bonds 27,388,676.35 1,152,873.11 1,498,571.17 1,628,637.56Mortgages and Notes 236,273.83Money Market Funds inCustodial Accounts 1,761,074.30 1,761,074.30Table 2.2. Rated DebtInstruments (continued) A3 Baa1 Baa2 Ba2 B1 B2 UnratedInvestmentsU.S. Agencies $ 1,144,928.50Corporate Bonds $ 1,607,138.25 $ 3,415,110.83 $ 2,823,170.36 509,413.72Municipal Bonds 425,987.60 513,837.50Mutual Funds–Bonds 1,476,129.30 $ 1,281,213.53 $ 87,275.61 $ 39,613.78 20,224,362.29Mortgages and Notes 236,273.831547

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - Informationinvestment pool described in the investment policies above,the university places no limit on the amount the universitymay invest in any one issuer. At June 30, 2011, there was nosingle issuer with whom the university had more than fivepercent of its invested funds.FOREIGN CURRENCY RISKForeign currency risk is the risk that changes in exchangerates will adversely affect the fair value of a deposit orinvestment. The university has $1,267,196.84 invested inforeign corporate equities and $305,520.00 invested inforeign corporate bonds at June 30, 2011.ALTERNATIVE INVESTMENTSIn its Consolidated Investment Pool, as part of itsendowment assets, the university has investments in eightysixlimited partnerships, limited companies, corporations,and limited liability corporations (LLCs).These investments include 42 private equity funds, four realestate funds, eighteen natural resource funds, and twentytwohedge funds. The estimated fair value of these assets is$361,231,003.85 at June 30, 2011.Total capital contributions less returns of capital equal$344,693,140.62 at June 30, 2011.The university believes that the carrying amount of itsalternative investments is a reasonable estimate of fairvalue as of June 30, 2011. Because these investmentsare not readily marketable, the estimated value is subjectto uncertainty and, therefore, may differ from the valuethat would have been used had a ready market for theinvestments existed, and such differences could be material.These investments are made in accordance with theuniversity’s investment policy that approves the allocationof funds to various asset classes in order to ensure theproper level of diversification within the endowmentpool. These investments (private equity, real estate assets,natural resources, and hedge funds) are designed to enhancediversification and provide reductions in overall portfoliovolatility. These fair values are estimated by the generalpartner of each limited partnership or manager of eachcorporate entity using various valuation techniques.The methods and assumptions used in estimating fair valuevaries based upon the asset class, but uniformly all startwith the latest audited financial statements for the funds.Most funds issue audited financial statements on a calendaryear basis. Using those audited fair values as a beginningpoint, valuations are adjusted for net capital activity andmarketplace considerations to ascertain the reasonablenessof estimated fair values provided by the fund managers.Marketplace activity includes subsequent independentappraisals for real estate assets, subsequent rounds of capitalfinancings that include new investors for private/ventureequity, and asset confirmations from brokers and fundadministrators for hedge funds.Note 3: Endowment, Annuity,and Life Income AgreementsThere are two categories of university assets which are subjectto long-term investment: endowments and amounts held in trustunder annuity and life income agreements. The investment ofthese funds is governed by the gift instrument and the investmentpolicies established by the Board of Trustees.Effective July 1, 1954, the university adopted the policy ofinvesting endowment assets over which it had full investmentdiscretion (and on which the donor or governing gift instrumentdoes not require separate investment) in a ConsolidatedInvestment Pool. This pooling of investments affords closersupervision of the investment portfolio and provides, regardlessof size, the advantages of participation in a well-diversifiedportfolio of domestic and international equities, private equity,bonds, real estate, and hedge funds. All contributing endowmentsparticipate in the income and capital appreciation of the Poolon a per-share basis commensurate with its contribution to thePool. New endowments purchase shares in the Pool at the end ofeach month at the then current fair value per share, determinedby valuing the Pool at month end fair value and dividing by thenumber of pool units outstanding.If a donor has not provided specific instructions, state law permitsthe university to authorize for spending the net appreciation(realized and unrealized) of the investments of endowment funds.When administering its power to spend net appreciation, theuniversity is required to consider the university’s long-term andshort-term needs, present and anticipated financial requirements,expected total return on its investments, price-level trends, andgeneral economic conditions. Any net appreciation that is spentis required to be spent for the purposes for which the endowmentwas established.The university chooses to spend only a portion of the investmentincome (including changes in the value of investments) eachyear. Under the spending plan established by the university,five percent of a three-year moving average of the fair value ofendowment investments has been authorized for expenditure.The remaining amount, if any, is retained to be used infuture years when the amount computed using the spendingplan exceeds the investment income. At June 30, 2011, netappreciation of $122,264,592.80 is available to be spent, of which$119,700,974.54 is restricted for scholarships and fellowships,libraries, instructional department uses, academic support,and other purposes. The per unit fair value for participatingendowments was $3.276602 at June 30, 2011. Income distributedwas $.17112 per share in 2011, or $32,006,067.50.The university’s consolidated investment pool is invested tomaximize total return rather than current income consistent withprovisions of the Uniform Prudent Management of InstitutionalFunds Act adopted by the State of Tennessee in 2007. The totalreturn for fiscal year 2011 and the three and five years then endedwas 20.6%, 1.2%, and 3.1%, respectively.31648

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationAll endowments not invested as part of the ConsolidatedInvestment Pool are separately invested to observe requirementsor limitations imposed by donors. Income earned anddistributed on separately invested endowments amounted to$634,459.23 for 2011.Annuity and life income amounts held in trust are separatelyinvested entities requiring detailed accounting to reflect specificcompliance with terms of each trust and applicable federalregulations. The investment objectives as reflected in eachagreement vary widely since they are affected by the age,income level, and needs of the beneficiaries as well as motivesand objectives of the donors. Interest, dividend, rent, androyalty income realized on these funds for 2011 amounted to$1,615,696.83.Table 4.1 Accounts, Notes andGrants ReceivableStudent accounts receivable $ 11,543,681.64Grants receivable 75,270,585.90Notes receivable 2,955,447.64Pledges receivable 54,887,263.40State capital outlay and maintenance receivable 16,782,508.78TSSBA debt proceeds receivable 949,587.92Due from component units 1,620,334.37Other receivables 41,382,692.20Subtotal $ 205,392,101.85Less allowance for doubtful accounts (20,869,964.68)Total $ 184,522,137.173Note 4: Accounts, Notes, andGrants ReceivableAs of June 30, 2011, accounts, notes, and grants receivableincluded those listed in Table 4.1.Pledges receivable are promises of private donations thatare reported as accounts receivable, and revenue, net of anestimated uncollectible allowance of $10,977,452.68.Federal Perkins Loan Program funds at June 30, 2010, includedthose listed in Table 4.2.Table 4.2 Perkins LoansPerkins loans receivable $ 29,798,339.77Less allowance for doubtful accounts —Total $ 29,798,339.77Note 5: Capital AssetsCapital asset activity for the year ended June 30, 2011, was as follows:Table 5.1Beginning Balance Additions Transfers Reductions Ending BalanceLand $ 60,120,811.67 $ 4,199,095.96 $ — $ — $ 64,319,907.63Land improvements & infrastructure 71,533,558.06 608,298.60 3,770,535.59 — 75,912,392.25Buildings 1,787,039,023.03 40,757,462.52 60,259,670.96 — 1,888,056,156.51Works of Art/Historical Treasures 527,510.24 2,965,940.53 — — 3,493,450.77Equipment 349,149,719.13 39,787,801.64 — (14,780,804.78) 374,156,715.99Software 28,522,578.31 2,943,786.86 — (2,371,450.40) 29,094,914.77Library holdings 121,628,350.68 17,018,978.78 — (8,888,920.87) 129,758,408.59Projects in progress 205,518,804.90 110,570,807.16 (64,030,206.55) (119,374.70) 251,940,030.81Total $ 2,624,040,356.02 $ 218,852,172.05 $ — $(26,160,550.75) $ 2,816,731,977.32Less accumulated depreciation:Land improvements & infrastructure (46,278,418.02) (2,801,837.36) — — (49,080,255.38)Buildings (693,541,379.66) (46,816,422.87) — — (740,357,802.53)Equipment (203,273,422.43) (34,656,310.78) — 13,348,528.81 (224,581,204.40)Software (20,354,486.29) (1,941,866.40) — 2,371,450.40 (19,924,902.29)Library holdings (50,936,371.70) (12,332,758.04) — 8,888,920.87 (54,380,208.87)Total accumulated depreciation $(1,014,384,078.10) $(98,549,195.45) — $ 24,608,900.08 $(1,088,324,373.47)Capital assets, net $ 1,609,656,277.92 $ 120,302,976.60 $ — $ (1,551,650.67) $ 1,728,407,603.851749

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationNote 6: Operating LeasesThe university has entered into various operating leases forbuildings and equipment. It is expected that in the normalcourse of business, such leases will continue to be required.Net expenses for rentals under leases were $8,325,216.92 forthe year ended June 30, 2011.The following is a schedule of future minimum rental paymentsrequired under noncancelable operating leases that have initialor remaining lease terms of more than one year at June 30, 2011.Only one such lease is currently in effect. Annual payments onthis particular lease fluctuate in direct proportion to changes in theConsumer Price Index as required by contractual agreement. Theschedule below is calculated based on the April 2011 ConsumerPrice Index (224.91).Table 6.1 Year Ending June 30, 20112012 $ 13,924.00Total minimum payments required $ 13,924.00Note 7: Accounts PayableAccounts payable included the following:Table 7.1 June 30, 2011Vendors payable $ 67,735,337.03Payroll deductions payable 20,951,454.56Total $ 88,686,791.593Note 8: Long-Term LiabilitiesLong-term liability activity for the year ended June 30, 2011,was as follows:Table 8.1Beginning Balance Additions Reductions Ending Balance Current PortionLong-term liabilitiesBonds $ 382,029,749.85 $ 136,087,007.66 $ 22,369,911.56 $ 495,746,845.95 $ 27,703,501.00Unamortized Bond Premium — 8,196,732.11 409,836.60 7,786,895.51 —Commercial paper 163,126,243.72 14,070,575.94 140,508,317.61 36,688,502.05 —Total TSSBA indebtedness $ 545,155,993.57 $ 158,354,315.71 $ 163,288,065.77 $ 540,222,243.51 $ 27,703,501.00Notes 12,027.59 — 12,027.59 — —Capital lease obligations 1,273,005.35 — 622,544.60 650,460.75 650,460.75Net OPEB obligation 55,258,636.30 24,105,000.00 12,802,330.26 66,561,306.04 —Compensated absences 75,499,906.90 43,956,213.52 43,443,501.98 76,012,618.44 43,443,501.98Total long-term liabilities $ 677,199,569.71 $ 226,415,529.23 $ 220,168,470.20 $ 683,446,628.74 $ 71,797,463.73Other noncurrent liabilitiesDeferred revenue 15,500,438.71 — — 15,500,438.71Due to grantors 36,066,487.07 835,494.00 700,967.67 36,201,013.40Annuities payable 5,784,480.00 936,319.14 1,213,584.49 5,507,214.65Totals $ 734,550,975.49 $ 228,187,342.37 $ 222,083,022.36 $ 740,655,295.50TSSBA DEBT – BONDSBonds, with interest rates ranging from 1.3% to 7.15%,were issued by the Tennessee State School Bond Authority(TSSBA). The bonds are due serially to 2040 and are securedby pledges of the facilities’ revenues to which they relate andcertain other revenues and fees of the university, including stateappropriations. (See Note 10 for further details.) The bondedindebtedness with the Tennessee State School Bond Authorityincluded in long-term liabilities on the statement of net assetsis shown net of assets held by the authority in the debt servicereserve and unexpended debt proceeds. The total bondedindebtedness at June 30, 2011, was $523,670,798.23. The debtservice reserve amount at June 30, 2011, was $21,373,942.45,and unspent debt proceeds were $6,550,009.83.The university’s debt service requirements to maturity for allbonds payable at June 30, 2011, include those listed in Table 8.21850

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationTable 8.2Year ending June 30: Principal Interest2012 $ 27,703,501.00 $ 23,244,534.602013 27,537,355.73 22,296,418.922014 28,251,840.23 21,163,773.072015 24,317,636.89 20,014,141.862016 24,942,964.77 18,980,565.862017-2021 126,548,790.43 78,114,096.252022-2026 113,173,671.94 50,878,128.922027-2031 85,290,591.39 27,545,848.582032-2036 48,050,361.33 10,394,822.752037-2040 17,854,084.52 1,725,237.26$ 523,670,798.23 $ 274,357,568.07TSSBA DEBT - COMMERCIAL PAPERThe Tennessee State School Bond Authority issues commercialpaper to finance the costs of various capital projects during theirconstruction phase. When projects are placed in service, longterm,fixed-rate debt is issued by TSSBA to finance the projectover its useful payback period and the commercial paper isredeemed. The amount issued for projects at the university was$36,688,502.05 at June 30, 2011.For the commercial paper program, the Tennessee State SchoolBond Authority maintains an interest rate reserve fund. Theuniversity contributes amounts to the reserve fund based on theamounts drawn. The principal of the reserve will be contributedto pay off notes or credited back to the university when thenotes are converted to bonds. The interest earned on the reserveis used to pay interest due during the month.More detailed information regarding the bonds and commercialpaper can be found in the notes to the financial statements in thefinancial report for the Tennessee State School Bond Authority.That report is available on the state’s website athttp://www.comptroller1.state.tn.us/tssba/cafr.asp.CAPITAL LEASE OBLIGATIONSThe university leases certain items of equipment accounted foras capital leases. The capitalized cost of the assets under lease atJune 30, 2011, was $3,126,282.87. Accumulated amortization ofthe leased assets at June 30, 2011, was $2,344,712.15.Future minimum lease payments under capital leases at June 30,2011, are as follows:Table 8.3. Year ending June 30:2012 $ 679,628.71Total $ 679,628.71Less: amount representing interest (29,167.96)Present value of minimum lease payments $ 650,460.75Note 9: Unrestricted Net AssetsUnrestricted net assets include funds that have been designatedfor specific purposes. These purposes include the following:Table 9.1. As of June 30, 2011Working capital $ 28,005,121.33Encumbrances 7,872,103.02Auxiliaries 9,414,441.78Quasi-endowments 13,529,273.54Plant construction 28,718,730.20Renewal and replacement of capital assets 338,897,897.43Debt retirement 30,786,597.20Undesignated 534,176.43Total $ 457,758,340.93Note 10: Pledged RevenuesThe University of Tennessee has pledged certain revenues andfees, including state appropriations, to repay $495,746,845.95 inrevenue bonds issued from September 1998 to September 2010.Proceeds from the bonds provided financing for constructionand renovation projects. The bonds are payable through 2040.(See Note 8 for further details.) Annual principal and interestpayments on the bonds are expected to require 3.83% ofavailable revenues. The total principal and interest remaining tobe paid on the bonds is $798,028,366.30. Principal and interestpaid for the current year and total available revenues were$48,125,873.82 and $1,257,890,028.77, respectively.Note 11: Pension PlansA. DEFINED BENEFIT PLANS1. TENNESSEE CONSOLIDATED RETIREMENTSYSTEMPlan DescriptionThe University of Tennessee contributes to the State Employees,Teachers, and Higher Education Employees Pension Plan(SETHEEPP), a cost-sharing multiple-employer defined benefitpension plan administered by the Tennessee ConsolidatedRetirement System (TCRS). TCRS provides retirement,death, and disability benefits as well as annual cost-of-livingadjustments to plan members and their beneficiaries. Title 8,Chapters 34-37, Tennessee Code Annotated, establishes benefitprovisions. State statutes are amended by the Tennessee GeneralAssembly. The TCRS issues a publicly available financial reportthat includes financial statements and required supplementaryinformation for SETHEEPP. That report is available on thestate’s website at http://www.state.tn.us/treasury/tcrs/index.html.Funding PolicyPlan members are noncontributory. The university is required tocontribute at an actuarially determined rate. The current rate is19351

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - Information14.91% of annual covered payroll. Contribution requirementsfor the university are established and may be amended bythe TCRS’ Board of Trustees. The university’s contributionsto TCRS for the years ended June 30, 2011, 2010, and 2009,were $43,343,861.11, $37,266,850.27, and $37,963,757.88,respectively. Contributions met the requirements for each year.2. FEDERAL RETIREMENT PROGRAMPlan DescriptionThe University of Tennessee contributes to the FederalRetirement Program, a cost-sharing multiple-employerdefined benefit pension plan administered by the Civil ServiceRetirement System (CSRS) for participants employed prior toJanuary 1, 1984, and the Federal Employees Retirement System(FERS) for participants employed after December 31, 1983.Both systems provide retirement, death, and disability benefits,as well as annual cost-of-living adjustments, to plan membersand their beneficiaries. All regular full-time employees ofthe University of Tennessee Agricultural Extension Servicewho hold federal appointments for 51% or more of their timeare required to participate in either one of the two FederalRetirement Programs. For both systems, benefit provisions areestablished in federal statutes. Federal statutes are amended bythe U.S. Congress.CSRS and FERS issue publicly available financial reportsthat include financial statements and required supplementaryinformation. These reports may be obtained by writing to theOffice of Personnel Management, Retirement InformationOffice, P.O. Box 45, Boyers, PA 16017-0045, or by calling(202) 606-0500.Funding PolicyParticipating employees, with some exceptions, are requiredby federal statute to contribute 7.0% of covered salaries to theCSRS plan. The university is currently required to contribute7.0%. Contributions to CSRS for the year ended June 30, 2011,were $655,375.40, which consisted of $339,588.48 from theuniversity and $315,786.92 from the employees; contributionsfor the year ended June 30, 2010, were $795,846.34, whichconsisted of $411,178.79 from the university and $384,667.55from the employees; and contributions for the year ended June30, 2009, were $1,050,294.31, which consisted of $540,493.79from the university and $509,800.52 from the employees.Federal statute requires employees participating in FERS tocontribute 0.8% of their salaries to the Basic Benefit Plan. Theuniversity is required to contribute 11.7%. In addition, theuniversity is required to contribute 1% of each participant’ssalary to the Thrift Savings Plan plus up to an additional 4%depending upon employees’ contributions, which can rangefrom 0 to 10% of their salaries. Contributions for the BasicBenefit Plan were $1,050,369.80 for the year ended June30, 2011, which consisted of $67,950.44 from employeesand $982,419.36 from the university; $1,027,500.74 for theyear ended June 30, 2010, which consisted of $68,500.09from employees and $959,000.65 from the university; and$1,050,561.11 for the year ended June 30, 2009, whichconsisted of $70,037.34 from employees and $980,523.77 fromthe university. Contributions for the Thrift Savings Plan were$984,569.00 for the year ended June 30, 2011, which consistedof $586,628.00 from employees and $397,941.00 from theuniversity; $994,264.00 for the year ended June 30, 2010, whichconsisted of $592,984.00 from employees and $401,280.00from the university; and $1,065,023.00 for the year ended June30, 2009, which consisted of $653,541.00 from employeesand $411,482.00 from the university. Contributions met therequirements for each year.B. DEFINED CONTRIBUTION PLANS1. OPTIONAL RETIREMENT PLANS (ORP)Plan DescriptionThe university contributes to three defined contribution plans:Teachers Insurance and Annuity Association-College RetirementEquities Fund (TIAA-CREF), ING Life Insurance and AnnuityCompany, and Variable Annuity Life Insurance Company(VALIC). These plans are administered by the TennesseeDepartment of the Treasury. Each plan provides retirementbenefits to faculty and staff who are exempt from the overtimeprovisions of the Fair Labor Standards Act and who waivemembership in the TCRS. Benefits depend solely on amountscontributed to the plan plus investment earnings.The Plan provisions are established by state statute in Title 8,Chapter 35, Part 4, Tennessee Code Annotated. State statutes areamended by the Tennessee General Assembly.Funding PolicyPlan members are noncontributory. The university contributesan amount equal to 10% of the employee’s base salary below thesocial security wage base and 11% above the social security wagebase. Contribution requirements are established and amendedby state statute. The contributions made by the university to theplans for the year ended June 30, 2011, were $41,479,557.03and for the year ended June 30, 2010, were $40,627,517.44.Contributions met the requirements for each year.2. JOINT CONTRIBUTORY RETIREMENT SYSTEMPLAN A (JCRS-A)Plan DescriptionThe Joint Contributory Retirement System Plan A (JCRS-A)is a defined contribution plan with minimum benefits and isadministered by the Tennessee Consolidated Retirement Systemand TIAA-CREF. Employees who were enrolled in the TeachersInsurance and Annuity Association-College Retirement EquitiesFund (TIAA-CREF) before July 1977 are members of JCRS-A.Enrollment in this plan for new employees has been closedsince July 1977.Although JCRS-A members participate in ING, TIAA-CREF, orVALIC, they may also, under certain circumstances, receive asupplementary benefit from the State of Tennessee. Plan provisionsare established by Tennessee Code Annotated, Chapter 35, Part 4.State statutes are amended by the Tennessee General Assembly.32052

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationFunding PolicyPlan members are noncontributory. The university’scontributions for JCRS-A members were calculated using thebase salary amounts of $26,209,414.76 for fiscal year 2011, and$28,923,540.87 for fiscal year 2010. Contribution requirementsare established and amended by state statute. The contributionsare included in the ORP amounts. University contributionsto fund the state supplemental benefit totaled $3,907,605.09in fiscal year 2011, and $3,765,844.24 in fiscal year 2010.Contributions met the requirements for each year.C. DEFERRED COMPENSATION PLANSThe University of Tennessee offers its employees threedeferred compensation plans. The university, through the Stateof Tennessee, provides two plans, one established pursuantto Internal Revenue Code (IRC), Section 457, and the otherpursuant to IRC, Section 401(k). The third plan is administeredby the university and was established in accordance with IRC,Section 403(b).These plans, available to all university employees, permit themto defer a portion of their salaries to future years. The deferredcompensation is not available to employees until termination,retirement, death, or unforeseeable emergency. All costs ofadministering and funding these plans, with the exclusion of the$50 monthly university match for the Section 401(k) plan, arethe responsibility of plan participants.Since Section 457 and 401(k) plan assets remain the propertyof the contributing employees and a third party administratoris used to administer the plan assets, they are not presented inthe State of Tennessee financial statements. In fiscal year 2011,the university provided a $50 monthly match from unrestrictedfunds for employees making a minimum monthly contributionof $50 to the Section 401(k) plan. During the year ended June30, 2011, contributions totaling $18,503,853.21 were made byemployees participating in the plan, with a related match of$5,508,820.48 made by the university. During the year endedJune 30, 2010, contributions totaling $17,928,489.64 were madeby employees participating in the plan, with a related match of$5,499,232.59 made by the university. In accordance with theIRC, employee contributions through the 403(b) plan remain theassets of the employee. In addition, the amounts withheld fromemployees are remitted directly to third-party administrators.Therefore, these employee contributions are not reflected in theuniversity’s financial statements.Note 12: Other Post-EmploymentBenefitsHealthcare is the only “other postemployment benefit”(OPEB) provided to employees. The State of Tennesseeadministers a group health insurance program which providespostemployment health insurance benefits to eligible universityretirees. This program includes two plans available to highereducation employees – the State Employee Group Plan andthe Medicare Supplement Plan. For accounting purposes,the plans are agent multiple-employer defined benefit OPEBplans. Benefits are established and amended by an insurancecommittee created by Section 8-27-101, Tennessee CodeAnnotated. Prior to reaching age 65, retirees may participate inthe State Employee Group Plan. In previous fiscal years, prior toreaching the age of 65, all members had the option of choosinga preferred provider organization (PPO), point of service (POS),or health maintenance organization (HMO) plan for healthcarebenefits. However, as of January 1, 2011, the insurance planstructure was changed and as a result, all members now havethe option of choosing between the standard or partnershippreferred provider organization plan for healthcare benefits.Subsequent to age 65, retirees who are also in the state’sretirement system may participate in a state administeredMedicare supplement that does not include pharmacy. The statemakes on-behalf payments to the Medicare Supplement Planfor the university’s eligible retirees; see Note 20. The plans arereported in the State of Tennessee’s Comprehensive AnnualFinancial Report (CAFR). The CAFR is available on the state’swebsite at http://tennessee.gov/finance/act/cafr.html.SPECIAL FUNDING SITUATIONThe State of Tennessee is legally responsible for contributionsto the Medicare Supplement Plan that covers the retireesof other governmental entities, including the University ofTennessee. The state is the sole contributor for the universityretirees that participate in the Medicare Supplement Plan and,therefore, is acting as the employer.FUNDING POLICYThe premium requirements of members of the State EmployeeGroup Plan are established and may be amended by theinsurance committee. The plan is self-insured and financed ona pay-as-you-go basis with the risk shared equally among theparticipants. Claims liabilities of the State Employee GroupPlan are periodically computed using actuarial and statisticaltechniques to establish premium rates. Administrative costs ofthe plan are allocated to plan participants. In accordance withSection 8-27-205(b), Tennessee Code Annotated, retirees inthe State Employee Group Plan pay the same base premiumas active employees in the plan adjusted for years of service.Retirees with 30 years of service are subsidized 80%; 25 years,70%; and 20 years, 60%. Retirees in the Medicare SupplementPlan have flat-rate premium subsidies based on years of service.For 30 years of service the subsidy is $50 per month; 25 years,$37.50; and 20 years, $25.32153

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationTable 12.1. Annual OPEB Cost and Net OPEB ObligationState EmployeeGroup PlanAnnual Required Contribution (ARC) $ 23,973,000.00Interest on Net OPEB Obligation 2,487,000.00Adjustment to the ARC (2,355,000.00)Annual OPEB Cost $ 24,105,000.00Amount of Contribution (12,802,330.26)Increase/Decrease in Net OPEB Obligation $ 11,302,669.74Net OPEB Obligation—beginning of year 55,258,636.30Net OPEB Obligation—end of year $ 66,561,306.04Table 12.2. Annual OPEB Cost and Net OPEB ObligationYEAR ENDJune 30,2009June 30,2010June 30,2011PLANStateEmployeeGroup PlanStateEmployeeGroup PlanStateEmployeeGroup PlanANNUALOPEB COSTPERCENTAGEOF ANNUAL NET OPEBOPEB COST OBLIGATIONCONTRIBUTED AT YEAR-END$31,004,000.00 39.09% $38,808,987.38$26,523,000.0037.98% $ 55,258,636.30$24,105,000.00 53.11% $66,561,306.04FUNDED STATUS AND FUNDING PROGRESSThe funded status of the university’s portion of the StateEmployee Group Plan as of July 1, 2010, was as follows:Table 12.3. State Employee Group PlanActuarial valuation date July 1, 2010Actuarial accrued liability (AAL) $ 240,150,000.00Actuarial value of plan assets 0.00Unfunded actuarial accrued liability (UAAL) $ 240,150,000.00Actuarial value of assets as a percent of the AAL 0%Covered payroll (active plan members) $ 628,383,463.00UAAL as percentage of covered payroll 38.2%Actuarial valuations involve estimates of the value of reportedamounts and assumptions about the probability of events farinto the future, and actuarially determined amounts are subjectto continual revision as actual results are compared to pastexpectations and new estimates are made about the future.The schedule of funding progress, presented as RequiredSupplementary Information following the notes to the financialstatements, presents multiyear trend information about whetherthe actuarial value of plan assets is increasing or decreasingover time relative to the actuarial accrued liability for benefits.ACTUARIAL METHODS AND ASSUMPTIONSCalculations are based on the types of benefits provided underthe terms of the substantive plan at the time of each valuationand on the pattern of sharing of costs between the employerand plan members to that point. Actuarial calculations reflecta long-term perspective. Consistent with that perspective,actuarial methods and assumptions used include techniques thatare designed to reduce short-term volatility in actuarial accruedliabilities and the actuarial value of assets.In the July 1, 2010, actuarial valuation, the ProjectedUnit Credit actuarial cost method was used. The actuarialassumptions included a 4.5% investment rate of return (net ofadministrative expenses) and an annual healthcare cost trendrate of 10 percent in fiscal year 2011. The rate decreases to 9.5percent in fiscal year 2012, and is then reduced by decrementsof 0.5 percent per year to an ultimate rate of 5 percent in fiscalyear 2021. All rates include a 3 percent inflation assumption.The unfunded actuarial accrued liability is being amortized asa level percentage of payroll on a closed basis over a 30-yearperiod beginning with July 1, 2007.Note 13: Chairs of ExcellenceSince fiscal year 1985, the Tennessee General Assembly hasappropriated $22 million to a Chairs of Excellence Endowmentfor the University of Tennessee. The appropriations providedthat the Chairs of Excellence Endowment be established asan irrevocable trust with the State Treasurer and required theuniversity to match the appropriation on a dollar-for-dollarbasis. The university has fully matched 50 chairs as of June30, 2011. The financial statements of the university includeas expenditures the amounts expended in the current year tomatch the state appropriations. The university’s statement of netassets does not include the amounts held in trust by the StateTreasurer. At June 30, 2011, the amounts held in trust totaled$113,738,940.22 at fair value.Note 14: Joint VenturesUT BATTELLEThe university is a participant in a joint venture with BattelleMemorial Institute for the sole purpose of management andoperation of the Oak Ridge National Laboratory (ORNL) forthe U. S. Department of Energy. Each entity has a 50% interestin the venture, each having provided an initial investment of$125,000.00. The university’s equity interest was $4,632,313.18at June 30, 2011. The university and Battelle each receive a50% distribution of the ORNL management fee after sharedexpenses are deducted. The fee distribution for the year endedSeptember 30, 2010, to the university was $3,507,313.18.During the year ended June 30, 2011, the university hadexpenses of $23,322,148.20 under contracts with UT-Battelle.Amounts receivable from UT-Battelle under these contractstotaled $2,180,412.18 at June 30, 2011. To review the audit22354

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - Informationreport of UT-Battelle, please contact the Controller’s Office,The University of Tennessee, 201 Andy Holt Tower, Knoxville,Tennessee 37996-0100.UT LE BONHEUR PEDIATRIC SPECIALISTSThe university is a participant in a joint venture with MethodistHealthcare – Memphis Hospitals, Le Bonheur Children’sHospital, for the sole purpose of governance, management,and support of the UT Le Bonheur Pediatric Specialists, Inc.(ULPS), a nonprofit faculty group practice comprised ofpediatric physicians holding hospital privileges at Le Bonheurwho are employed as UT Health Science Center facultymembers. The practice group was incorporated on September 9,2010, and began operations in January 2011.Both the university and Methodist Healthcare provided anadvance to the joint venture of $900,000 in the 2011 fiscal yearso that the faculty practice group could begin its operations. Inaddition, the university and Methodist Healthcare have agreedto guarantee the losses of ULPS equally and provide cash on amonthly basis to meet the operating needs of ULPS. During the2011 fiscal year, the university remitted another $2,200,000.00for these purposes.To review the audit report of UT Le Bonheur PediatricSpecialists, Inc., please contact the Controller’s Office, TheUniversity of Tennessee, 201 Andy Holt Tower, Knoxville,Tennessee 37996-0100.Note 15: Insurance-relatedActivitiesIt is the policy of the state not to purchase commercial insurancefor the risks of losses for general liability, automobile liability,professional malpractice, and workers’ compensation. Thestate’s management believes it is more economical to managethese risks internally and set aside assets for claim settlementin its internal service fund, the Risk Management Fund.The state purchases commercial insurance for real property,flood, earthquake, and builder’s risk losses and surety bondcoverage on the state’s officials and employees. The amounts ofsettlements have not exceeded insurance coverage for each ofthe past three fiscal years. The Risk Management Fund is alsoresponsible for claims for damages to state owned property upto the amount of the property insurance aggregate deductibleamount. The insurance policy deductibles vary from $25,000per occurrence, depending on the type of coverage, to anaggregate of $5 million.The university participates in the Risk Management Fund.The fund allocates the cost of providing claims servicing andclaims payment by charging a premium to the university basedon a percentage of the university’s expected loss costs, whichinclude both experience and exposures. This charge considersrecent trends in actual claims experience of the state as awhole. An actuarial valuation is performed as of fiscal yearendto determine the fund liability and premium allocation.Information regarding the determination of the claims liabilitiesand the changes in the balances of the claims liabilities for theyears ended June 30, 2011, and June 30, 2010, are presented inthe Tennessee Comprehensive Annual Financial Report. TheCAFR is available on the state’s website at http://tennessee.gov/finance/act/cafr.html. Since the university participates in theRisk Management Fund, it is subject to the liability limitationsunder the provisions of the Tennessee Claims Commission Act,Tennessee Code Annotated, Section 9-8-101 et seq. Liabilityfor negligence of the university for bodily injury and propertydamage is limited to $300,000 per person and $1,000,000 peroccurrence. The limits of liability under workers’ compensationare set forth in Tennessee Code Annotated, Section 50-6-101 etseq. Claims are paid through the state’s Risk Management Fund.Information regarding the cash and cash equivalents designatedfor payments of claims at June 30, 2011, is presented in theTennessee Comprehensive Annual Financial Report, which isavailable at http://tennessee.gov/finance/act/cafr.html.At June 30, 2011, the scheduled coverage for the university was$4,371,025,600 for buildings and $1,139,921,000 for contents.The university also carries commercial insurance for lossesrelated to hired and non-owned automobiles, losses relatedto railroad protection, and losses related to seven universityownedaircraft. Settled claims resulting from these risks havenot exceeded commercial insurance coverage in any of the pastthree fiscal years.The state has also set aside assets in the Employee GroupInsurance Fund, an internal service fund, to provide a programof health insurance coverage for the employees of the state withthe risk retained by the state. The university participates in theEmployee Group Insurance Fund. The fund allocates the costof providing claims servicing and claims payment by charginga premium to the university based on estimates of the ultimatecost of claims, including the cost of claims that have beenreported but not settled and of claims that have been incurredbut not reported. Employees and providers have 13 months tofile medical claims.Note 16: Contingencies andCommitmentsA. CONSTRUCTION COMMITMENTThe university has contractual obligations for the constructionof new buildings and additions to and renovations of existingbuildings. The outstanding commitments under such contractsat June 30, 2011, were $144,331,680.65.B. SICK LEAVEThe university records the cost of sick leave when paid.Generally, since sick leave (earned one day per month withunlimited accumulation) is paid only when an employee diesor is absent due to illness or injury, there is no liability for sickleave at June 30, 2011. The amount of unused sick leave was$262,494,416.18 at June 30, 2011.23355

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationC. GRANTS AND CONTRACTSThe university receives grants and contracts from variousfederal and state agencies to fund research and other activities.The costs, both direct and indirect, charged to these grantsand contracts are subject to audit and disallowance by thegranting agency. The university administration believes that anydisallowance or adjustments would not have a material effect onthe university’s financial position.D. NONVESTED EQUIPMENTEquipment in the possession of the university valued at$2,909,713.19 as of June 30, 2011, is not reflected in thefinancial statements. This equipment was purchased withrestricted grant and contract funds and other funds, and title hasnot yet transferred to the university.E. LITIGATIONThe university is involved in several lawsuits, none of whichare expected to have a material effect on the financial positionof the university.Note 17: Lease and Transfer ofUT Memorial Research Centerand HospitalOn July 29, 1999, the university transferred ownership andcontrol of its hospital located in Knoxville to University HealthSystems, Inc.,(UHS), an independent, private, not-for-profitorganization operating under its own Internal Revenue Code,Section 501(c)(3) designation. The lease and transfer of thehospital from the university to UHS was accomplished throughthree main agreements: the Lease and Transfer Agreement, theEmployee Services Agreement, and the Affiliation Agreement.Each of these agreements is summarized below.Lease and Transfer Agreement: pursuant to the enablinglegislation, Tennessee Code Annotated, Section 49-9-112 andSection 49-9-1301 et. seq., UHS leased from the university thereal property of the existing hospital and the Graduate School ofMedicine. (See also Note 18.) The term of the lease is 50 years.The university also transferred to UHS all operating assets ofthe hospital. The consideration for the lease of the real propertyand transfer of the operating assets was payment by UHS of a)a sum sufficient to economically defease all of the debt issuedby the Tennessee State School Bond Authority in the amountof $149,080,353.69, b) $25,000,000.00 paid to the universityat closing, and c) a variable lease obligation of $50,000,000.00to be paid to the university over twenty years. UHS assumedall prior hospital liabilities, known or unknown. In 2019, theuniversity and UHS have agreed to negotiate an annual leasepayment for the remaining 30 years of the lease.Employee Services Agreement: UHS has leased from theuniversity all hospital employees as of the date of closing.UHS has paid to the university the amounts incurred by theuniversity to pay the direct expenses relating to the hospitalemployees, including wages, salaries, and fringe benefits. Thesepayroll expenses on behalf of UHS, totaling $66,750,026.92in 2011, are reported as operating expenses in the statement ofrevenues, expenses, and changes in net assets. An equal amountof operating revenue is reported in the non-governmental grantsand contracts category. The term of the Employee ServicesAgreement is 50 years. All persons who began service at thehospital after the date the employee service agreement wassigned are employees of UHS and not university employees.Affiliation Agreement: the university and UHS agreed thatUHS will continue to support the Graduate School of Medicineby providing appropriate facilities and resources of the hospitalto the faculty and students at the Graduate School of Medicine.UHS agreed to pay the university $1,500,000 at closing forthe benefit of the Graduate School of Medicine. In addition,UHS must pay monthly to the university, for the benefit ofthe Graduate School of Medicine, the government funding,direct and indirect medical education funds, TennCare medicaleducation funds, and other medical education funds received byUHS for the benefit of the Graduate School of Medicine. Theamount payable by UHS shall be reduced by a) the fair marketrental value of the space provided to the Graduate School ofMedicine; b) the fair market value of the information system,telecommunication, network infrastructure, and human resourceservices provided by UHS to the Graduate School of Medicine;and c) retroactive adjustments made by payers to the graduatemedical education payments.Note 18: Capital Leases of RealPropertyCAPITAL LEASE OF REAL PROPERTY TOUNIVERSITY HEALTH SYSTEMS, INC.The university has leased the real property of the UT MemorialResearch Center and Hospital to UHS for a term of 50 years.This lease is pursuant to the Lease and Transfer Agreementdescribed in Note 17. This lease is classified as a directfinancing lease. The guaranteed lease payment of $50 millionwill be paid by UHS in annual payments through 2019. Theamount of the annual payments will equal the lesser of 1) 20%of the hospital’s net operating profit for the applicable calendaryear; or 2) $3 million or the greater amount resulting fromthe application of an index, as specified in the agreement. Thepayment of $50 million is guaranteed by December 31, 2019.In 2019, the university and UHS have agreed to negotiate anannual lease payment for the remaining 30 years of the lease.An annual lease payment to the university during the year ended6/30/2011, totaled $1,791,627.00.The university recorded a lease payment receivable in theamount of $33,075,076.99 at June 30, 2011, which representsthe net present value of the guaranteed $50 million discountedat 5.75%. The minimum lease payments to be received amounthas been adjusted upward to reflect a contractually requiredadjustment to the final required lease payment (Table 18.1 onopposite page).24356

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationTable 18.1. As of June 30, 2011Total minimum lease payments to be received $52,369,624.54Less: unearned income (19,294,547.55)Net investment in direct financing lease $33,075,076.99Table 18.2. As of June 30, 2011Total minimum lease payments to be received $20,799,624.26Less: unearned income (5,966,933.23)Net investment in direct financing lease $ 14,832,691.033CAPITAL LEASE OF REAL PROPERTY TOMEMPHIS MENTAL HEALTH INSTITUTEOn November 5, 2005, the university entered into a facilitylease agreement with the Tennessee Department of MentalHealth and Developmental Disabilities (TDMHDD) to providea new building to house the Memphis Mental Health Institute.The building is a joint project of the university, MethodistHealthcare, Shelby County Health Care Authority (TheMED), the State of Tennessee, and Shelby County. This leaseis classified as a direct financing lease. The guaranteed leasepayments will be paid by TDMHDD in semiannual paymentsthrough 2027. The amount of the semiannual payments willequal the amount to retire the debt from the constructionproject and any other project costs incurred by the universityin excess of the funds contributed by Methodist Healthcareand the MED. During the term of the lease, TDMHDD willbe responsible for all operational and maintenance costsassociated with the facility.The university recorded a lease payment receivable in theamount of $14,832,691.03 at June 30, 2011 (Table 18.2 andTable 18.3).Table 18.3Year EndedJune 30Minimum leasepayments to bereceived Interest Principal2012 $ 1,354,253.50 $ 663,956.08 $ 690,297.422013 1,355,690.26 633,056.29 722,633.972014 1,357,185.02 600,709.01 756,476.012015 1,358,740.88 566,846.85 791,894.032016 1,360,362.08 531,399.28 828,962.802017-2021 6,828,629.12 2,064,423.96 4,764,205.162022-2026 6,881,081.70 893,600.98 5,987,480.722027 303,681.70 12,940.78 290,740.92$20,799,624.26 $5,966,933.23 $ 14,832,691.03Note 19: Natural Classifications with Functional ClassificationsThe university’s operating expenses by functional classificationfor the year ended June 30, 2011, are as follows:Table 19.1SalariesBenefitsNatural ClassificationUtilities, Supplies,and OtherServices Scholarships Depreciation TotalFunctional ClassificationInstruction $ 373,984,386.82 $ 112,177,018.79 $ 64,834,441.61 $ — $ — $ 550,995,847.22Research 131,434,539.87 35,725,973.52 81,925,140.22 — — 249,085,653.61Public Service 68,496,351.79 25,376,421.44 62,189,480.83 — — 156,062,254.06Academic Support 67,118,340.47 24,523,317.97 26,907,464.86 — — 118,549,123.30Student Services 40,085,810.32 14,584,438.32 21,820,178.55 — — 76,490,427.19Institutional Support 71,850,982.74 27,858,165.12 4,655,395.76 — — 104,364,543.62Operation and Maintenanceof Plant 33,332,483.50 16,484,990.54 79,733,303.36 — — 129,550,777.40Scholarships and Fellowships 3,435,395.24 26,059,683.11 20,243,146.82 51,541,662.44 — 101,279,887.61Auxiliary 43,173,201.49 12,919,455.29 73,969,098.43 — — 130,061,755.21Independent Operations 48,068,463.61 19,230,344.21 — — — 67,298,807.82Depreciation — — — — 98,549,195.45 98,549,195.45Total Expenses $ 880,979,955.85 $ 314,939,808.31 $ 436,277,650.44 $ 51,541,662.44 $ 98,549,195.45 $1,782,288,272.492557

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationNote 20: On-Behalf PaymentsDuring the year ended June 30, 2011, the State of Tennesseemade payments of $882,780.00 on behalf of the universityfor retirees participating in the Medicare Supplement Plan.The Medicare Supplement Plan is a post employment benefithealthcare plan and is discussed further in Note 12. The planis reported in the Tennessee Comprehensive Annual FinancialReport. That report is available on the state’s website athttp://tennessee.gov/finance/act/cafr.html.Note 21: Voluntary RetirementIncentive ProgramThe University of Tennessee’s Institute of Agriculture offeredthe UTIA Voluntary Retirement Incentive Program for staffin fiscal year 2011 as a strategy to assist the university inaddressing budgetary constraints due to state appropriationreversions and potential budget reductions in the forthcomingfiscal year. Twenty-five approved staff participated in theprogram. Severance pay was paid the month followingseparation date.The incentive pay offered was four months’ base salary, paidin a lump sum after the effective retirement date. Participantshad the option to request a temporary part-time, post-retirementappointment pursuant to Tennessee Code Annotated Section8-36-805.For the fiscal year ended June 30, 2011, expenses for theprogram and other retirement incentive lump sum paymentswere $1,417,501.14.Note 22: Component Unit –University of ChattanoogaFoundationThe University of Chattanooga Foundation, Inc., is a privatenonprofit organization that reports under Financial AccountingStandards Board (FASB) standards. As such, certain revenuerecognition criteria and presentation features are differentfrom revenue recognition criteria and presentation features asprescribed by the Governmental Accounting Standards Board(GASB). The financial statements of this foundation have beenreformatted into a GASB format and are reported in a separatecolumn to the right of the university’s statements.The University of Chattanooga Foundation, Inc., is a legallyseparate, tax-exempt organization supporting the Universityof Tennessee at Chattanooga. The foundation acts primarily asa fund-raising organization to supplement the resources thatare available to the university in support of the University ofTennessee at Chattanooga. The 48 member board of trustees ofthe foundation is self-perpetuating and consists of friends of theUniversity of Tennessee at Chattanooga. Although the universitydoes not control the timing or amount of receipts from thefoundation, the majority of resources, or income thereon, thatthe foundation holds and invests are restricted to the activities ofthe university by the donors. Because these restricted resourcesheld by the foundation can only be used by, or for the benefit of,the University of Tennessee at Chattanooga, the foundation isconsidered a component unit of the university and is discretelypresented in the university’s financial statements.During the year ended June 30, 2011, the foundation expended$5,767,282.00 to or on behalf of the university for bothrestricted and unrestricted purposes. Complete financialstatements for the foundation can be obtained from theUniversity of Chattanooga Foundation, Development Office,Department 6806, 615 McCallie Avenue, Chattanooga, TN37403-2598.ORGANIZATION AND NATURE OFACTIVITIESThe foundation is a tax exempt organization under theprovisions of Section 509(a)(1) of the Internal Revenue Code,dedicated to supporting excellence in higher education throughspecial projects for the University of Tennessee at Chattanooga.Proposals for special projects are submitted by the chancellorof the university and approved by the foundation’s Board ofTrustees and the University of Tennessee Board of Trustees.PRINCIPLES OF CONSOLIDATIONThe consolidated financial statements of the foundation includethe accounts of the foundation and its subsidiaries, CampusDevelopment Foundation, Inc. (CDFI) and CDFI Phase I, LLC(the LLC). All material intercompany accounts and transactionshave been eliminated in consolidation. The foundation andCDFI have fiscal years that end on June 30. The LLC’s fiscalyear ends on July 31 in order to reflect the operating cycleof collegiate student housing. The impact of any interveningtransactions during the one month period between fiscal yearends is not significant. At June 30, 2011, the foundation’sstatement of net assets reflects $485,519 of LLC deposits heldat the university which were not actually transferred to theuniversity until July 2011.CDFI was formed by the foundation to engage in charitable,scientific, and educational projects within the meaning ofSection 501 (c)(3) of the Internal Revenue Code. The projectsinclude, but are not limited to, the acquisition of real propertyand the construction, management, and operation of dormitoriesfor students of the university. The Directors of CDFI areappointed by the Executive Committee of the foundation.CDFI is the sole member of its subsidiary, the LLC. The LLCwas formed to own and develop an elementary school indowntown Chattanooga and student housing at the university.The student housing consists of 1,649 bedrooms in 451 unitsand 666 parking spaces.32658

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationINVESTMENTSA summary of foundation investments at June 30, 2011, isrepresented in the table below:Table 22.1Equity Securities (cost of $14,532,742) $ 16,882,172Mutual Funds (cost of $41,130,271) 45,152,591Real estate 1,800,700Limited partnerships 29,761,154Other 9,998Total $ 93,606,615The foundation also has investments restricted by the terms ofthe revenue bonds described below totaling $6,593,678.PROPERTY AND EQUIPMENTA summary of foundation property and equipment at June 30,2011, is as follows:Table 22.2Land $ 8,241,032Buildings 74,915,812Furniture, fixtures, and equipment 4,924,27388,081,117Accumulated depreciation (26,501,798)Total $ 61,579,319REVENUE BONDS PAYABLEDuring May 2005, the Health, Educational, and HousingFacility Board of the City of Chattanooga issued two seriesof tax-exempt revenue refunding bonds totaling $91,510,000.The LLC is the borrower on the bonds. The proceeds of therefunding bonds were primarily used to retire early the threeseries of tax-exempt revenue bonds issued in 2000 and 2001.The 2000 and 2001 bonds were used to acquire land, fundconstruction of the student housing, and develop an elementaryschool near the student housing.Revenue bonds payable at June 30, 2011, consist of thefollowing:Table 22.3Series 2005A revenue refunding bonds, interest rates fixed at5.0 percent to 5.125 percent payable semi-annually, annualredemption payments due through October 1, 2035 $ 63,610,000Series 2005B revenue refunding bonds, interest rates fixedat 5.5 percent to 6.0 percent payable semi-annually, annualredemption payments due through October 1, 2035 20,270,00083,880,000Less: unamortized discount (1,791,054)$ 82,088,946Sinking fund requirements for scheduled redemptions of therevenue bonds for the next 5 years and thereafter is displayed inTable 22.4 below:Table 22.4Year EndedJune 30, 2012 $ 1,715,000June 30, 2013 1,800,000June 30, 2014 1,895,000June 30, 2015 1,990,000June 30, 2016 2,090,000Thereafter 74,390,000$ 83,880,000RESTRICTED CASH AND CASHEQUIVALENTSThe revenue bonds described above restrict the use of certaincash and cash equivalents at June 30, 2011, as follows:Table 22.5Renewal and replacement reserves $ 315,326Restricted for debt service payments 3,130,765Surplus 936,259Total $ 4,382,350FAIR VALUE MEASUREMENTSThe foundation reports under FASB Accounting StandardsCodification (ASC) Topic 820 which defines fair value,establishes a framework for measuring fair value underaccounting principles generally accepted in the United States,and prescribes disclosures about fair value measurements.FASB ASC Topic 820 applies under other accountingpronouncements that require or permit fair value measurementsand does not require any new fair value measurements.FASB ASC Topic 820 requires the categorization of assets andliabilities into three levels based upon the assumptions (inputs)used to value the assets or liabilities. Level 1 provides themost reliable measure of fair value, whereas Level 3 generallyrequires significant management judgment. The three levels aredefined as follows:Level 1: Quoted prices (unadjusted) in active markets foridentical assets or liabilities that the foundation has the ability toaccess.Level 2: Significant other observable inputs other than Level1 prices, such as quoted prices for similar assets or liabilitiesin active markets, quoted prices in markets that are not activeand other inputs that are observable or can be corroborated byobservable market data.Level 3: Significant unobservable inputs that reflectmanagement’s own assumptions about the assumptions thatmarket participants would use in pricing an asset or liability.32759

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationThe table below (Table 22.6) presents the recorded amount ofassets and liabilities measured at fair value on a recurring basis.3Table 22.6ASSETSBalance as ofJune 30, 2011Quoted Prices in ActiveMarkets For Identical Assets(Level 1)Significant OtherObservable Inputs(Level 2)Significant OtherUnobservable Inputs(Level 3)Equity securities $ 16,882,172 $ 16,882,172 $ — $ —Mutual funds 45,152,591 35,016,020 10,136,571 —Guaranteed investment contracts 5,011,430 — 5,011,430 —Money market accounts 1,582,248 1,582,248 — —Real estate 1,800,700 — 1,800,700 —Limited partnerships 29,761,154 — — 29,761,154Other 9,998 9,998 — —Total assets $ 100,200,293 $ 53,490,438 $ 16,948,701 $ 29,761,154LIABILITIESDeposits received for the benefit of University ofTennessee at Chattanooga $ 2,153,743 $ — $ 2,153,743 $ —Total liabilities $ 2,153,743 $ — $ 2,153,743 $ —Table 22.7 below presents additional information about assetsand liabilities measured at fair value on a recurring basis byreliance on Level 3 inputs to determine fair value.Table 22.7. Limited PartnershipsBeginning balance $ 29,659,592Total realized and unrealized gains and losses includedin earnings 3,047,713Purchases, issuances, and settlements (2,946,151)Ending balance $ 29,761,154endowment made in accordance with the direction of theapplicable donor gift instrument at the time the accumulationis added to the fund. The remaining portion of the donorrestrictedendowment fund that is not classified in permanentlyrestricted net assets is classified as temporarily restricted netassets until those amounts are appropriated for expenditure bythe organization in a manner consistent with the standard ofprudence prescribed by UPMIFA. In accordance with UPMIFA,the organization considers the following factors in making adetermination to appropriate or accumulate donor-restrictedendowment funds:(1) The duration and preservation of the fund.ENDOWMENTSThe foundation’s endowment consists of approximately 280individual funds established for a variety of purposes. Itsendowment includes both donor-restricted endowment fundsand funds designated by the Board of Trustees to function asendowments. As required by accounting principles generallyaccepted in the United States of America (GAAP), net assetsassociated with endowment funds, including funds designatedby the Board of Trustees to function as endowments, areclassified and reported based on the existence or absence ofdonor-imposed restrictions.Interpretation of Relevant Law: The Board of Trustees of thefoundation has interpreted the Uniform Prudent Management ofInstitutional Funds Act (UPMIFA) as requiring the preservationof the fair value of the original gift as of the gift date of thedonor-restricted endowment funds absent explicit donorstipulations to the contrary. As a result of this interpretation,the foundation classifies as permanently restricted net assets(a) the original value of gifts donated to the permanentendowment, (b) the original value of subsequent gifts to thepermanent endowment, and (c) accumulations to the permanent(2) The purposes of the foundation and the donor-restrictedendowment fund.(3) General economic conditions.(4) The possible effect of inflation and deflation.(5) The expected total return from income and the appreciationof investments.(6) Other resources of the foundation.(7) The investment policies of the foundation.Tthe tables on the opposite page represent endowment netassets at June 30, 2011 by type of fund. Due to GASBreformatting, temporarily restricted net assets are reportedas expendable restricted net assets and permanentlyrestricted net assets are reported as nonexpendable restrictednet assets on the statement of net assets.2860

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationTable 22.8UnrestrictedTemporarilyRestrictedPermanentlyRestrictedTotalDonorrestrictedfunds $ (141,276) $1,391,878 $43,634,201 $44,884,803Boarddesignatedfunds 54,285,300 — — 54,285,300$54,144,024 $1,391,878 $43,634,201 $ 99,170,103Changes in endowment net assets for the fiscal year ended June30, 2011:Table 22.9UnrestrictedTemporarilyRestrictedPermanentlyRestrictedTotalEndowment netassets, beginningof year $45,530,294 $ 1,285,017 $37,403,233 $84,218,544Investmentincome (loss) 4,383,414 524,529 3,812,357 8,720,300Netappreciation 3,432,106 — 3,831,988 7,264,094Contributions 3,035,217 — 221,366 3,256,583Appropriations (2,695,239) (1,764,109) — (4,459,348)Transfers 458,232 1,346,441 (1,634,743) 169,930Endowment netassets, end ofyear $ 54,144,024 $1,391,878 $43,634,201 $ 99,170,103Descriptions of endowment amounts classified as permanentlyrestricted net assets and temporarily restricted net assets:Table 22.10. 2011 Permanently Restricted Net AssetsThe portion of perpetual endowment funds that isrequired to be retained permanently either by explicitdonor stipulation or by UPMIFA $ 43,634,201Total endowment funds classified as permanentlyrestricted net assets $ 43,634,201Table 22.11. 2011 Temporarily Restricted Net AssetsThe portion of perpetual endowment funds subject to atime restriction under UPMIFA $ 1,391,878Total endowment funds classified as temporarilyrestricted net assets $ 1,391,878Funds with Deficiencies: From time to time, the fair value ofassets associated with individual donor restricted endowmentfunds may fall below the level that the donor or UPMIFArequires the foundation to retain as a fund of perpetual duration.In accordance with GAAP, deficiencies of this nature thatare reported in unrestricted net assets were $141,276 as ofJune 30, 2011. These deficiencies resulted from unfavorablemarket fluctuations that occurred shortly after the investmentof new permanently restricted contributions and continuedappropriation for certain programs that was deemed prudent bythe Board of Trustees.Return Objectives and Risk Parameters: The foundationhas adopted investment and spending policies for endowmentassets that attempt to provide a predictable stream of fundingto programs supported by its endowment while seeking tomaintain the purchasing power of the endowment assets.Endowment assets include those assets of donor-restrictedfunds that the foundation must hold in perpetuity or for a donorspecifiedperiod(s) as well as board-designated funds.Under this policy, as approved by the Board of Trustees, theendowment assets are invested in a manner that is intendedto produce results that exceed the price and yield results ofthe consumer price index while assuming a moderate levelof investment risk. The foundation expects its endowmentfunds, over time, to provide an average annual rate of returnof approximately 6 percent above the rate of inflation. Actualreturns in any given year may vary from this amount.Strategies Employed for Achieving Objectives: To satisfy itslong-term rate-of-return objectives, the foundation relies on atotal return strategy in which investment returns are achievedthrough both capital appreciation (realized and unrealized) andcurrent yield (interest and dividends). The foundation targetsa diversified asset allocation that places a greater emphasison equity-based investments to achieve its long-term returnobjectives within prudent risk constraints.The foundation has a policy of appropriating for distributioneach year 4.5 percent of each endowment fund’s averagebalance for the last twelve quarters. In establishing this policy,the foundation considered the long-term expected return on itsendowment. Accordingly, over the long term, the foundationexpects the current spending policy to allow its endowmentto grow. This is consistent with the foundation’s objectiveto maintain the purchasing power of the endowment assetsheld in perpetuity or for a specified term as well as to provideadditional real growth through new gifts and investment return.RELATED PARTY TRANSACTIONSCDFI, the LLC, and the university executed a managementagreement which became effective January 1, 2009. Thisagreement allowed the university to assume managementresponsibilities related to the student housing. As a matterof convenience, cash balances needed for student housingoperations are held at the university, and operating expenses arepaid from these funds.CONTINGENCIESCDFI is involved in certain claims arising from normal businessactivities. Management believes that the financial position ofCDFI will not be materially affected by the outcome of theseproceedings.During the year ended June 30, 2010, CDFI settled a 2005lawsuit related to the construction of student housing at the32961

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - Informationuniversity. This litigation was settled with total payments to theplaintiff of $2,976,630, which included approximately $107,000paid from the LLC’s cash balances. The remainder of thesettlement was contributed to CDFI by the foundation. Duringthe 2011 fiscal year, CDFI’s Board committed to reimburse thefoundation for contributions of $2,975,000 and related legalfees of $497,037.3NATURAL CLASSIFICATIONS WITHFUNCTIONAL CLASSIFICATIONSThe foundation’s operating expenses by functional classificationfor the year ended June 30, 2011, are as follows:Table 22.12 University of ChattanoogaFoundationFunctional ClassificationUTILITIES, SUPPLIES,AND OTHER SERVICESNATURAL CLASSIFICATIONPAYMENTS TO ORON BEHALF OF UT DEPRECIATION TOTALAcademic programs $ — $1,006,937 $ — $1,006,937Professorships — 548,891 — 548,891Faculty development — 125,515 — 125,515Scholarships — 1,987,232 — 1,987,232Chancellor’s discretionary — 255,424 — 255,424Other — 1,843,283 — 1,843,283Rental expenses 3,215,928 — — 3,215,928Administrative and investment fees 270,175 — — 270,175Legal 85,323 — — 85,323Tax, bad debt and audit 27,048 — — 27,048Depreciation — — 3,206,007 3,206,007Total Expenses $3,598,474 $5,767,282 $3,206,007 $12,571,763Note 23: Component Unit– University of TennesseeFoundationThe University of Tennessee Foundation, Inc., is a privatenonprofit organization that reports under Financial AccountingStandards Board (FASB) standards. As such, certain revenuerecognition criteria and presentation features are differentfrom revenue recognition criteria and presentation features asprescribed by the Governmental Accounting Standards Board(GASB). The financial statements of this foundation have beenreformatted into a GASB format and are reported in a separatecolumn to the right of the university’s statements.The University of Tennessee Foundation is a legally separate,tax-exempt organization supporting the University ofTennessee. The foundation acts as a fund-raising organizationto supplement the resources that are available to the universityin support of its programs. The foundation has 22 directors,including 7 ex-officio directors. The board of the foundationis self-perpetuating and consists of graduates and friends ofthe university. Although the university does not control thetiming or amount of receipts from the foundation, the majorityof resources, or income thereon, that the foundation holdsand invests are restricted to the activities of the universityby the donors. Because these restricted resources held bythe foundation can only be used by, or for the benefit of, theuniversity, the foundation is considered a component unit ofthe university and is discretely presented in the university’sfinancial statements.During the year ended June 30, 2011, the foundation expended$13,768,772.09 to or on behalf of the university for bothrestricted and unrestricted purposes. Complete financialstatements for the foundation can be obtained from theUniversity of Tennessee Foundation, Suite 100, UT ConferenceCenter Building, 600 Henley Street, Knoxville, TN 37996.ORGANIZATION AND NATURE OFACTIVITIESThe University of Tennessee Foundation, Inc., is a not-for-profitorganization exempt from federal income tax under Section501(c)(3) of the Internal Revenue Code. The foundation wasformed to support the University of Tennessee. The foundation3062

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - Informationwas established to provide fund raising support for the universityin carrying out its mission of teaching, research, and publicservice. The foundation receives contributions from individuals,corporations, alumni, and other donors.PLEDGES RECEIVABLEPledges receivable (reported as accounts, notes, and grantsreceivable on the statement of net assets) are summarized inTable 23.1 net of the allowance for doubtful accounts:Table 23.1TemporarilyRestrictedPermanentlyRestrictedCurrent pledges $ 2,466,759.29 $ 829,806.98Pledges due in 1 to 5 years 19,412,815.55 18,829,431.13Pledges due after 5 years 7,000,457.96 6,831,609.0928,880,032.80 26,490,847.20Less discounts to net present value (1,529,808.85) (1,491,124.93)Total pledges receivable, net $27,350,223.95 $24,999,722.27The allowance for doubtful accounts at June 30, 2011, was$258,263.05.INVESTMENTS AND ASSETS HELD BY THEUNIVERSITY OF TENNESSEEInvestments held at June 30, 2011, were as follows:Table 23.2Assets Held by the University ofTennesseeMarket ValueCost BasisCash $ 268,894.29 $ 268,894.29U.S. equity 4,622,715.53 4,189,083.92International equity 5,990,676.96 6,622,472.03Fixed income 2,128,143.46 2,165,463.24Certificates of deposit 3,750,000.00 3,750,000.00Alternative investments:Private equity 5,446,922.24 6,124,446.99Natural resources 3,896,908.80 3,716,275.35Real estate 1,553,138.47 2,045,685.07Other alternative investments 7,340,688.67 6,386,067.73Total assets held by university 34,998,088.42 35,268,388.62Gift AnnuityCash 63,024.61 63,024.61Equities 1,252,018.35 1,137,937.46Fixed income 586,020.18 535,124.19Total gift annuity 1,901,063.14 1,736,086.26Fidelity investments 440,732.38 437,672.37Total $37,339,883.94 $37,442,147.25Also reported as investments on the statement of net assets areother gift assets totaling $7,126,640.62 and remainder interestsof $18,073,544.53 as described herein.At June 30, 2011, the fair values of alternative investments arebased on valuations for which a readily determinable fair valuedoes not exist. These investments are not listed on nationalexchanges or over-the-counter markets, and quoted marketprices are not available. The fair value of these investmentsis estimated based on a review of all available informationprovided by fund managers and general partners. Theseestimates are evaluated on a regular basis and are susceptible torevisions as more information becomes available.ENDOWMENTSMost foundation endowments are invested in the University ofTennessee Consolidated Investment Pool. The endowments areinvested according to the policies of the university. Investmentpool earnings for the foundation endowments are providedto the university to be used as stipulated in the endowmentagreements. The book value and market value for theendowments invested were $31,520,571.24 and $31,250,271.04,which resulted in a cumulative unrealized loss of $270,300.20.One endowment with a market value of $440,732.38 isseparately invested. All endowments at the foundation aredonor restricted. Endowment pool earnings transferred to theuniversity were $1,323,528.46 for fiscal year 2011.The foundation has interpreted the Uniform PrudentManagement of Institutional Funds Act (UPMIFA) as requiringthe preservation of the fair value of the original gift as ofthe gift date of the donor-restricted endowment funds absentexplicit donor stipulations to the contrary. As a result, thefoundation classifies permanently restricted net assets as (1) theoriginal value of gifts to the endowment, (2) the original valueof subsequent gifts to the endowment, (3) accumulations to theendowment made in accordance with the gift instrument, and(4) the endowment is vested in the university’s ConsolidatedInvestment Pool. Other endowments that are not classified aspermanently restricted are classified as temporarily restrictednet assets.A schedule of endowments by fund type (Table 23.3) isprovided on the following page. Due to the GASB reformatting,temporarily restricted net assets are reported as expendablerestricted net assets, and permanently restricted net assets arereported as nonexpendable restricted net assets on the statementof net assets.From time to time, the fair value of assets associated withindividual donor restricted endowment funds may fall below thelevel that the donor or UPMIFA requires the foundation to retainas a fund of perpetual duration. In accordance with GAAP,deficiencies of this nature that are reported in unrestricted netassets were $267,240.19 at June 30, 2011. These deficienciesresulted from unfavorable market fluctuations that occurredshortly after the investment of new permanently restrictedcontributions and continued appropriation for certain programsthat were deemed prudent.33163

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationTable 23.3UnrestrictedTemporarilyRestrictedPermanentlyRestrictedTotal3Beginning balance $(3,276,921.52) $1,510,466.08 $22,995,350.86 $21,228,895.42Contributions pooled — — 6,936,038.13 6,936,038.13Investment earnings — — 1,407,744.63 1,407,744.63Market value adjustment 3,009,681.33 — — 3,009,681.33Endowment held at Fidelity — — 437,672.37 437,672.37Contributions not pooled — — (5,500.00) (5,500.00)Disbursements — — (1,323,528.46) (1,323,528.46)Transfer — (1,510,466.08) 1,510,466.08 —Ending balance $ (267,240.19) $ — $ 31,958,243.61 $31,691,003.42The foundation uses the university’s spending policy. Theuniversity calculates its spending policy by taking 4.5% of athree year market average each December 31.The university’s overall, long-term investment objective of theConsolidated Investment Pool (CIP) is to achieve an annualizedtotal return (net of fees and expenses), through appreciation andincome, greater than the rate of inflation (as measured by thebroad, domestic Consumer Price Index) plus any spending, thusprotecting the assets against inflation.The assets are to be managed in a manner that will meetthe long-term investment objective, while at the same timeattempting to limit the volatility in year-to-year spending.The university’s Investment Advisory Committee believes thatinvesting in securities with higher return expectations outweighstheir short-term volatility risk. As a result, the majority of assetswill be invested in equity or equity-like securities. Fixed incomesecurities and other low volatility strategies (e.g. absolute returnhedge funds) will be used to lower the short-term volatility ofthe portfolio and to provide stability, especially during periodsof negative equity markets. Cash is not a strategic asset of theportfolio, but is a residual to the investment process and used tomeet short-term liquidity needs.Disciplined management of the asset allocation is necessaryand desirable. Diversification of investments among assetsthat are not similarly affected by economic, political, or socialdevelopments is highly desirable. The general policy shall beto diversify investments so as to provide a balance that willenhance total return, while avoiding undue risk concentrationsin any single asset or investment category. Actual allocationsat June 30, 2011 (excluding separately invested assets) were asfollows in Table 23.4:Table 23.4U.S. equity 14.8%International equity 19.2%Fixed income 6.8%Private equity 17.4%Natural resources 12.5%Real estate 5.0%Cash 0.8%Other alternative investments 23.5%FAIR VALUE MEASURESThe foundation reports under FASB Accounting StandardsCodification (ASC) Topic 820 which defines fair value,establishes a framework for measuring fair value underaccounting principles generally accepted in the United States,and prescribes disclosures about fair value measurements.FASB ASC Topic 820 establishes a framework for measuringfair value and a three-level hierarchy for fair valuemeasurements based upon the inputs to value the assets andliabilities. The classification of assets and liabilities withinthe hierarchy is based on whether the inputs to the valuationmethodology used for measurement are observable orunobservable. Observable inputs reflect market-derived ormarket-based information obtained from independent sourceswhile unobservable inputs reflect estimates about market databased on the best available information in the circumstances.The three levels are defined as follows:Level 1: Quoted prices (unadjusted) in active markets foridentical assets or liabilities that the foundation has the ability toaccess.Level 2: Significant other observable inputs other than Level1 prices, such as quoted prices for similar assets or liabilitiesin active markets, quoted prices in markets that are not activeand other inputs that are observable or can be corroborated byobservable market data.3264

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationLevel 3: Significant unobservable inputs that reflectmanagement’s assumptions that market participants would usein pricing an asset or liability.Table 23.5 below presents the recorded amount of assets andliabilities measured at fair value:Table 23.5Level 1 Level 2 Level 3 TotalInvestments $16,388,062.12 $2,714,163.64 $18,237,658.18 $37,339,883.94Table 23.6 below presents additional information about assetsand liabilities measured at fair value on a recurring basis by relianceon Level 3 inputs to determine fair value.Table 23.6Beginning balance $ 11,745,148.64Total realized and unrealized gains and losses included inearnings 2,890,083.90Purchases, issuances, and settlements 3,602,425.63Ending balance $ 18,237,658.17MORTGAGE NOTE PAYABLEThe foundation was gifted property in Weakley and Obioncounties in Tennessee. The property and its contents wereappraised at $376,000.00 with an attached mortgage note of$259,330.41. The property will be used and overseen by theUniversity of Tennessee at Martin. Payment on the note, whichbegan in January 2006, is $2,000.00 per month. The note hasa 4.68% interest rate. The balance of the note payable at June30, 2011, was $183,776.75. Future maturities of this note areas follows:Table 23.7 Year ended June 30 2011:2012 $ 15,733.892013 16,486.242014 17,274.562015 18,100.582016 18,966.102017–2021 97,215.40Total $ 183,776.75CONCENTRATION OF CREDIT RISKThe foundation had concentrated its credit risk for cash bymaintaining deposits at a bank, which may at times exceedamounts covered by insurance provided by the U. S. FederalDeposit Insurance Corporation (FDIC). The foundation hasnot experienced any losses in this account and believes it is notexposed to any significant credit risk to cash.REMAINDER INTERESTThe amounts described below are reported as investments onthe statement of net assets.In December 2002, a donor conveyed to the foundation aremainder interest in a limited liability company. The assetof the limited liability company is a fee simple interest in awarehouse in South Carolina. The remainder interest wasappraised at $7,740,000.00 with the interest vesting on January1, 2021. The value on the foundation’s statement of financialposition will be the present value calculation until the vestingdate. The IRS discount rate for December 2002 used indetermining the present value was 4%. The present value of theremainder interest at June 30, 2011, was $5,332,418.63.In September 2003, a donor conveyed to the foundationanother remainder interest in a limited liability company. Theasset of this limited liability company is an office buildingin Connecticut. The remainder interest was appraised at$22,440,000.00 with the interest vesting on January 1, 2025.The value on the foundation’s statement of financial positionwill be the present value calculation until the vesting date.The IRS discount rate for September 2003 was 4.20%. Thepresent value at June 30, 2011, was $12,741,125.90.NATURAL CLASSIFICATIONS WITHFUNCTIONAL CLASSIFICATIONSThe foundation’s operating expenses by functional classificationfor the year ended June 30, 2011, are as follows:Table 23.8Functional ClassificationUtilities,Supplies, andOther ServicesPayments toor on Behalfof UTTotalProgram expenses $ 799,047.16 $13,634,607.59 $14,433,654.75General and administrative 230,303.06 134,164.50 364,467.56Total expenses $1,029,350.22 $ 13,768,772.09 $ 14,798,122.31Note 24: Component Unit –University of Tennessee ResearchFoundationThe University of Tennessee Research Foundation, Inc., isa private nonprofit organization that reports under FinancialAccounting Standards Board (FASB) standards. As such, certainrevenue recognition criteria and presentation features are differentfrom revenue recognition criteria and presentation features asprescribed by the Governmental Accounting Standards Board(GASB). The financial statements of this foundation have beenreformatted into a GASB format and are reported in a separatecolumn to the right of the university’s statements.The University of Tennessee Research Foundation is a legallyseparate, tax-exempt organization supporting the University ofTennessee. The foundation was created as The UT ResearchCorporation (UTRC) in 1934 and incorporated in January,1935. The foundation’s stated purpose is, in conjunctionwith the university, to grow the University of Tennesseeresearch enterprise; harvest, manage, and market University33365

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - Informationof Tennessee intellectual property; encourage and supportentrepreneurial education and ventures by faculty, staff,students, and commercial partners/affiliates of the Universityof Tennessee; and to contribute to the well being of the Stateof Tennessee through economic development. In April 2003,UTRC was renamed and reorganized to the University ofTennessee Research Foundation (UTRF). Roles were redefinedand the scope was expanded to include a new emphasis onentrepreneurship and economic development for technologytransfer activities. A new set of bylaws and board of directorswere established. The foundation has 7 voting directors and 3nonvoting directors. Because the university’s board of trusteesapproves the foundation’s administrative budget, the foundationis considered fiscally dependent on the university. Therefore,the research foundation is considered a component unit ofthe university and is discretely presented in the university’sfinancial statements.Complete financial statements for the research foundationcan be obtained from the University of Tennessee ResearchFoundation, Suite 211, UT Conference Center Building, 600Henley Street, Knoxville, TN 37996-4122.ORGANIZATION AND NATURE OFACTIVITIESThe University of Tennessee Research Foundation, Inc., is anot-for-profit organization exempt from federal income taxunder Section 501(c)(3) of the Internal Revenue Code. Thefoundation was formed to promote research and hold andmanage the university’s intellectual property. The foundationwas established to protect, manage, and commercializeuniversity inventions and intellectual property; grow theuniversity research enterprise; develop and support anentrepreneurial culture; and contribute to state and regionaleconomic development.Genera Energy LLC, (the subsidiary), a wholly-ownedsubsidiary of the University of Tennessee ResearchFoundation, was formed on February 28, 2008. The subsidiaryincludes, in turn, four wholly-owned subsidiaries and onesubsidiary in which Genera owns 51%. The subsidiary is inthe business of developing a pilot-scale biorefinery and stateof the art research and development facility, in collaborationwith DuPont Danisco Cellulosic Ethanol, LLC (DDCE),for cellulosic ethanol using non-food biomass feedstocks toprove the technology and commercial viability of producingcellulosic ethanol, primarily in the State of Tennessee. Theproject utilizes the University of Tennessee’s expertise incellulosic feedstock production and research, as well as itswork with Tennessee farmers, to develop the first dedicatedcellulosic energy crop supply chain utilizing switchgrass.The subsidiary also promotes, supports, and carries out thecommercialization of research outcomes and the transferof research-generated products, ideas, processes, and othertechnology related to renewable energies to agricultural,commercial, and industrial enterprises. The State of Tennesseehas provided $40.7 million towards the construction of thepilot-scale biorefinery and related switchgrass utilization anddemonstration facilities.During the fiscal year ended June 30, 2010, the subsidiary(Genera Energy, LLC) changed its name to Genera Biofuels,LLC and elected to be treated as a member-managed LLC. Themember (UTRF) established a new director-managed LLC,Genera Energy, LLC, and contributed its equity of GeneraBiofuels, LLC to Genera Energy, LLC. As a result, GeneraBiofuels, LLC became a wholly owned subsidiary of GeneraEnergy, LLC. Genera Energy, LLC formed three additionalwholly-owned subsidiaries, which are member-managed LLC’s,Genera Solar Solutions, LLC, Genera Biomass, LLC andGenera Capital, LLC.PRINCIPLES OF CONSOLIDATIONThe foundation has entered into related agreements with theuniversity and Genera whereby the foundation has undertakento provide the subsidiary with working capital advances for itsoperational needs. The extent of the foundation’s commitmentis contingent upon its own ability to obtain additional fundingfrom existing sources from which to make these advances.According to terms of the agreements, repayment of theoperational funding by the subsidiary to the foundation isrequired only upon the occurrence of, and in preference to,other capital distributions. No interest accrues on the advances.Because the parties contemplate capital distributions only asthe consequence of a general liquidation of the subsidiary, theseadvances have been treated as investments in the subsidiary onthe books of the foundation and as equity capital on the booksof the subsidiary. These amounts eliminate upon consolidation.The consolidated financial statements include the accounts ofthe foundation, Genera, and its consolidated subsidiaries namedabove. All significant intercompany balances and transactionshave been eliminated in consolidation.PROPERTY AND EQUIPMENTProperty and equipment at June 30, 2011 consist of the followingmajor classifications in Table 25.1 on the opposite page.Depreciation expense for the foundation and its subsidiarytotaled $3,000,448 for the year ended June 30, 2011. Intangibleassets totaling $6,596 are also reported as capital assets on thestatement of net assets.NOTES PAYABLEThe foundation had an outstanding note payable to theuniversity of $ 654,922 at June 30, 2011.DEFERRED REVENUEDuring the years ended June 30, 2011, and June 30, 2010, thefoundation capitalized $584,629 and $19,309,711 of costsrelated to the construction of a pilot-scale biorefinery whichwere incurred by DDCE. Based on an agreement with DDCE,these and future unreimbursed costs incurred by DDCE on thisproject were capitalized in exchange for DDCE’s future use of aportion of the biorefinery facility. An amount equal to DDCE’stotal construction cost was recorded as deferred revenue throughcompletion of the biorefinery. The total amount of deferredrevenue is expected to be recognized over the life of a proposedlease between the subsidiary and DDCE. As of June 30, 2011,the proposed lease was to be for ten years with three possiblefive-year extensions. Accordingly, deferred revenue is amortized34366

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationTable 25.1 Property and EquipmentResearch FoundationOffice furniture and equipment $ 164,467Less accumulated depreciation (74,971)Ending balance $ 89,496GeneraLand $ 182,549Buildings 37,900,469Leasehold improvements 61,314Machinery and equipment 20,754,566Furniture and fixtures 146,227Vehicles 141,427Construction in progress 4,776,06663,962,618Less accumulated depreciation (3,452,231)60,510,387Ending balance $60,599,883Marketable Equity Securities: The fair value of marketableequity securities is based on quoted prices times the number ofthe shares held by the foundation at June 30, 2011.The preceding methods described may produce a fair valuecalculation that may not be indicative of net realizable valueor reflective of future fair values. Furthermore, although thefoundation believes its valuation methods are appropriate andconsistent with other market participants, the use of differentmethodologies or assumptions to determine the fair value ofcertain financial instruments could result in different fair valuemeasurement at the reporting date.At June 30, 2011, the foundation had no liabilities carriedat fair value subject to remeasurement on a recurring basis.The following table provides the assets carried at fair valuemeasured on a recurring basis as of June 30, 2011:Table 24.2. Assets at Fair ValueJune 30, 2010 Level 1 Level 2 Level 3 TotalRegistered investmentcompanies $ 7,516 — — $ 7,516Marketable equity securities 106,142 — — 106,142Total $113,658 — — $113,6583to revenue over the twenty-five years beginning January 28,2010, the date when DDCE first occupied their portion of thefacility. Revenue of $901,084 was recognized in fiscal year 2011.FAIR VALUE MEASUREMENTSThe foundation reports under FASB Accounting StandardsCodification (ASC) Topic 820 which defines fair value as theexchange price that would be received for an asset or paid totransfer a liability in the principal or most advantageous marketfor the asset or liability in an orderly transaction betweenmarket participants on the measurement date. A valuationhierarchy has been established for disclosure of the inputs usedto measure fair value. This hierarchy prioritizes the inputs intothree broad levels. Level 1 inputs are quoted prices (unadjusted)in active markets for identical assets or liabilities. Level 2 inputsare quoted prices for similar assets and liabilities in activemarkets or inputs that are observable for the asset or liability,either directly or indirectly through market corroboration, forsubstantially the full term of the financial instrument. Level3 inputs are unobservable inputs based on management’sassumptions used to measure assets and liabilities at fair value.A financial asset or liability’s classification within the hierarchyis determined based on the lowest level input that is significantto the fair value measurement.Following is a description of the valuation methodologies usedfor assets measured at fair value.Registered Investment Companies: The fair value ofregistered investment companies (mutual funds) is based onquoted net asset values of the shares held by the foundation atJune 30, 2011.The foundation also has $215,177 of investments (equitysecurities) for which there is no readily determinable marketvalue. These investments are valued at cost, as managementbelieves that any variance in valuation from historical costwould not be material to the operations of the foundation.NATURAL CLASSIFICATIONS WITHFUNCTIONAL CLASSIFICATIONSThe foundation’s operating expenses by functional classificationfor the year ended June 30, 2011, are as follows:Table 25.3. Natural ClassificationFunctionalClassificationSalaryandBenefitsUtilities,Supplies,and OtherServices Depreciation TotalResearch Support $ 1,274,256 $ 3,924,435 $ — $ 5,198,691Research 1,105,467 2,357,738 — 3,463,205Public service 893,175 26,001,476 — 26,894,651Depreciation — — 3,000,448 3,000,448Total Expenses $3,272,898 $32,283,649 $3,000,448 $38,556,995Note 25: Subsequent EventsThe University of Tennessee Foundation, Inc., is a not-for-profitcomponent unit created in 2001 to support the University ofTennessee’s educational, research, and public activities by securingand administering private funds to support programs beyond thescope of the university’s general budget. (See also Note 23).3567

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationOver the past decade, the foundation has been very passivein fundraising efforts. In 2009, the University of TennesseeBoard of Trustees appointed a Foundation Study Committeeto research the structure and impact of foundations at peerinstitutions. During that process, the committee learned thatmost of the university’s peer and aspirational institutionsoperate their development function as part of a foundation andhave nearly double the number of development staff as doesThe University of Tennessee. This structure has allowed peerinstitutions to secure considerably more in private donations,thereby providing additional resources especially needed tooffset State funding reductions. This fundraising structurehas enabled these institutions to grow and excel academicallydespite tough economic conditions.3In October 2010, the Foundation Study Committee presentedits findings to the University of Tennessee Board of Trustees,which approved the UT Foundation plan, its new affiliationagreement, and a projected foundation budget pendinglegislative approval.In April 2011, the Tennessee General Assembly passedlegislation that would allow for the expansion of the UTFoundation.On July 1, 2011, the university and the foundation signed anAffiliation and Services Agreement and an Employee ServicesAgreement. The agreements move the Development andAlumni Affairs function from the university to the foundation.All gifts unless directed by the donor will be deposited intothe Foundation bank account. The Foundation will create newrestricted gift accounts for funds received after July 1. Forfiscal year 2012, the university will pay the foundation directsupport and a 100 basis point endowment assessment fee ascompensation for performing the fundraising function. Thedirect support amount will be reviewed every two years, and thefoundation President and Chief Executive Officer, who is alsothe university’s Vice President for Development and AlumniAffairs, shall coordinate with the university on the fundraisinggoals and objectives of the foundation. All current developmentand alumni affairs employees will be leased from the universityto the foundation beginning July 1, 2011.For FY 2012, direct support is expected to be $17,749,068.00.3668

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationThe University of TennesseeRequired Supplementary Information Schedule of Funding ProgressFor the Year Ended June 30, 20113ActuarialValuation DateJuly 1, 2007July 1, 2009July 1, 2010PlanActuarial Value ofAssets (A)Actuarial AccruedLiability (AAL) (B)Unfunded AAL(UAAL) (B-A)Funded Ratio(A/B)Covered Payroll(C)UAAL as aPercentage ofCovered Payroll((B-A)/(C)State EmployeeGroup Plan $ — $294,669,000.00 $294,669,000.00 0% $ 616,687,517.00 47.8%State EmployeeGroup Plan $ — $269,772,000.00 $ 269,772,000.00 0% $ 620,716,467.00 43.46%State EmployeeGroup Plan $ — $240,150,000.00 $ 240,150,000.00 0% $628,383,463.00 38.22%One additional year will be reported as data becomes available. The amount reported here for covered payroll relates to the fiscal yearin which the valuations were performed.3769

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationThe University of Tennessee5-Year Summary3OPERATING REVENUES (,000)FY 2011 FY 2010 FY 2009 FY 2008 FY 2007Net tuition and fees $ 316,045 $ 279,638 $ 255,578 $ 239,567 $ 231,621Net auxiliary 184,113 178,845 165,519 157,543 160,502Grants and contracts 448,903 395,316 397,348 377,475 383,659Other (federal appropriations, sales and services, etc.) 85,201 85,008 83,868 88,881 75,266Total operating revenues $ 1,034,262 $ 938,807 $ 902,313 $ 863,466 $ 851,048OPERATING EXPENSES (,000)Salaries and wages $ 880,980 $ 859,706 $ 861,781 $ 844,192 $ 807,688Fringe benefits 314,940 287,973 299,475 302,783 268,094Utilities, supplies, and other services 436,277 395,969 341,053 339,439 334,174Scholarships and fellowships 51,542 45,389 32,504 28,304 30,400Depreciation expense 98,549 94,157 83,767 72,561 68,469Total operating expenses $ 1,782,288 $ 1,683,194 $ 1,618,580 $ 1,587,279 $ 1,508,825Operating income (loss) $ (748,026) $ (744,387) $ (716,267) $ (723,813) $ (657,777)NONOPERATING REVENUES AND EXPENSES (,000)State and local appropriations $ 540,013 $ 477,120 $ 503,758 $ 539,634 $ 492,810Gifts 32,487 41,844 27,439 21,108 65,725Investment income, gains, (losses) 129,975 97,297 (106,018) 17,528 175,091Other 220,790 202,392 120,770 104,933 98,546Total nonoperating revenues $ 923,265 $ 818,653 $ 545,949 $ 683,203 $ 832,172OTHER REVENUES, EXPENSES, GAINS OR LOSSESCapital appropriations $ 66,223 $ 91,551 $ 105,300 $ 69,592 $ 32,834Capital grants and gifts 32,220 23,266 28,156 41,044 22,875Additions to permanent endowments 16,688 16,758 9,813 17,812 17,827Other 6,162 883 712 8,772 905Total other revenues, expenses, gains or losses $ 121,293 $ 132,458 $ 143,981 $ 137,220 $ 74,441Increase (decrease) in net assets $ 296,532 $ 206,724 $ (26,338) $ 96,610 $ 248,836Cash $ 912,617 $ 792,063 $ 727,599 $ 627,451 $ 564,094NET ASSETSInvested in capital assets, net of related debt $ 1,198,044 $ 1,075,557 $ 970,344 $ 868,014 $ 773,979Restricted expendable 479,175 419,862 402,260 541,286 588,963Restricted nonexpendable 426,959 408,475 392,063 391,668 379,343Unrestricted 457,758 361,510 294,013 284,050 246,123Total net assets $ 2,561,936 $ 2,265,404 $ 2,058,680 $ 2,085,018 $ 1,988,408STUDENT LOANSNotes receivable $ 32,754 $ 34,209 $ 35,127 $ 35,933 $ 34,133Loans issued (by year) 2,038 1,822 1,748 1,729 2,560ENDOWMENTS (,000)Market value $ 598,995 $ 519,756 $ 470,068 $ 646,927 $ 697,947LIFE INCOME FUNDSMarket value $ 35,377 $ 30,903 $ 32,293 $ 42,451 $ 57,722CAPITAL ASSET AND DEBT ADMINISTRATION(,000)Capital assets, net of depreciation $ 1,728,408 $ 1,609,656 $ 1,494,048 $ 1,335,610 $ 1,128,100Total debt $ 540,222 $ 545,156 $ 518,244 $ 461,965 $ 351,6263870

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - Information35-Year Summary (continued)FY 2011 FY 2010 FY 2009 FY 2008 FY 2007General DataTotal enrollment 49,565 48,591 47,795 46,669 44,796Knoxville 27,523 27,107 27,739 27,283 26,560Chattanooga 10,781 10,526 9,807 9,558 8,923Martin 8,469 8,101 7,578 7,173 6,888Memphis 2,792 2,837 2,671 2,655 2,425Degrees granted 10,330 10,132 10,032 9,330 9,098Full-time employees 11,862 11,034 11,112 11,991 11,942Full-time faculty 2,961 2,948 3,294 3,166 2,864% Tenured (based on those eligible for tenure) 54.1% 53.1% 51.5% 48.0% 53.9%Total private gifts (,000) $ 110,560 $ 109,097 $ 101,452 $ 106,800 $ 98,267Academic-year student fees (Knoxville)In state $ 7,382 $ 6,850 $ 6,250 $ 5,932 $ 5,622Out of state (additional) $ 15,038 $ 13,796 $ 12,658 $ 11,945 $ 11,266State appropriation/FTE $ 8,499 $ 6,874 $ 7,884 $ 8,551 $ 7,873Instruction $ 550,996 $ 525,982 $ 527,273 $ 524,165 $ 489,890Research 249,086 235,049 206,315 204,116 198,105Public service 156,062 124,874 130,937 133,698 128,002Academic support 118,549 107,330 113,095 111,313 101,815Student services 76,490 75,786 75,241 72,571 66,282Institutional support 104,364 96,740 99,163 100,548 86,091Operations/maintenance physical plant 129,551 141,468 115,034 99,573 103,055Scholarships/fellowships 101,280 87,995 71,784 66,036 64,761Auxiliary enterprises 130,062 124,451 121,290 121,374 119,236Hospitals - - - -Independent operations 67,299 69,363 74,680 81,324 83,019Depreciation 98,549 94,157 83,768 72,561 68,469Total $ 1,782,288 $ 1,683,195 $ 1,618,580 $ 1,587,279 $ 1,508,725All qualified applicants will receive equal consideration for employment without regard to race, color, national origin, religion, sex, pregnancy, marital status, sexual orientation, genderidentity, age, physical or mental disability, or covered veteran status. Eligibility and other terms and conditions of employment benefits at the University of Tennessee are governed by lawsand regulations of the State of Tennessee, and this non-discrimination statement is intended to be consistent with those laws and regulations. In accordance with the requirements of Title VI ofthe Civil Rights Act of 1964, Title IX of the Education Amendments of 1972, Section 504 of the Rehabilitation Act of 1973, and the Americans with Disabilities Act of 1990, The Universityof Tennessee affirmatively states that it does not discriminate on the basis of race, sex, or disability in its education programs and activities, and this policy extends to employment by theuniversity. Inquiries and charges of violation of Title VI (race, color, national origin), Title IX (sex), Section 504 (disability), ADA (disability), Age Discrimination in Employment Act (age),sexual orientation, or veteran status should be directed to the Office of Equity and Diversity (OED), 1840 Melrose Avenue, Knoxville, TN 37996-3560, telephone 865- 974-2498 (V/TTYavailable) or 865-974-2440. Requests for accommodation of a disability should be directed to the ADA Coordinator at the Office of Equity and Diversity. PAN E17-0145-010-001-10 • Aproject of the University of Tennessee Office of the Treasurer, with design and editorial assistance from UT Knoxville Creative Communications, 865-974-0765 Rev.: 96253971

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationAdministration of theUniversity of Tennessee FROM JULY 1, 2010 THROUGH JUNE 30, 20113Board of TrusteesThe Board of Trustees, governs the University of Tennessee. The governor, who also serves as chair of the board, appoints board members.The board meets at least three times a year, and its sessions are open to the public.GOVERNOR WILLIAM E. HASLAM, CHAIR,Ex officio as Governor of the State ofTennessee.DON C. STANSBERRY, JR., VICE-CHAIR,Fourth DistrictCHARLES C. ANDERSON JR., Knox CountyANNE HOLT BLACKBURN, Seventh DistrictJ. A. M. “TOBY” BOULET (UTK), NonvotingFaculty TrusteeWILLIAM Y. CARROLL, First DistrictGEORGE E. CATES, Ninth DistrictJOSEPH A. DIPIETRO, Ex officio as President ofthe University of TennesseeSPRUELL DRIVER JR., Davidson CountyJOHN N. FOY, Hamilton CountyD. CRAWFORD GALLIMORE, Weakley CountyMONICE MOORE HAGLER, Shelby CountyJAMES E. HALL, Third DistrictDOUGLAS A. HORNE, Second DistrictKEVIN S. HUFFMAN, Ex officio asCommissioner of Education of theState of TennesseeJULIUS T. JOHNSON, Ex officio asCommissioner of Agriculture of theState of TennesseeKAREN C. JOHNSON (UTHSC),Voting Faculty TrusteeANDREA J. LOUGHRY, Sixth DistrictJAMES L. MURPHY, Fifth DistrictRICHARD G. RHODA, Ex officio NonvotingMember as Executive Director of theTennessee Higher Education CommissionKARL A. SCHLEDWITZ, Shelby CountyCAREY SMITH (UTK), Nonvoting StudentTrusteeROBERT S. TALBOTT, Second DistrictBETTY ANN TANNER, Eighth DistrictSUMEET VAIKUNTH (UTHSC), Voting StudentTrusteeCHARLES E. WHARTON, Anderson, Bedford,Coffee, Franklin, Lincoln, Moore, and WarrenCountiesSENIOR ADMINISTRATIVEOFFICERSJOSEPH A. DIPIETRO, PresidentJUDITH A. BURNS, Interim Executive Directorof Audit and Consulting ServicesKEITH S. CARVER, JR., Executive Assistant tothe PresidentHANK DYE, Vice President for Public andGovernment RelationsLINDA HENDRICKS, Chief HumanResources OfficerKATHERINE HIGH, Interim Vice President forAcademic Affairs and Student SuccessMARY JINKS, Vice President of Public ServiceDAVID MILLHORN, Executive Vice Presidentand Vice President for Research and EconomicDevelopment/ORNL RelationshipsCATHERINE S. MIZELL, General Counseland SecretaryCHARLES M. PECCOLO, Treasurer, ChiefInvestment Officer and Interim ChiefFinancial OfficerSCOTT RABENOLD, Interim Vice President ofDevelopment & Alumni AffairsTHEOTIS ROBINSON, Vice President for Equityand DiversityLOFTON K. STUART, Executive Director of UTAlumni AssociationCHANCELLORSROGER G. BROWN, University of Tennesseeat ChattanoogaJIMMY G. CHEEK, University of TennesseeKnoxvilleBUDDY MITCHELL, Interim Chancellor,University of Tennessee Institute of AgricultureTOM RAKES, University of Tennessee at MartinSTEVE SCHWAB, University of TennesseeHealth Science CenterFINANCIAL STAFF, UNIVERSITYADMINISTRATIONCHARLES M. PECCOLO, Treasurer, ChiefInvestment Officer and Interim ChiefFinancial OfficerJUDITH A. BURNS, Interim Executive Directorof Audit and Consulting ServicesROBERT C. CHANCE, Director of PayrollsTIMOTHY F. MAPES, Associate TreasurerRON MAPLES, ControllerLES MATHEWS, Director of IRISJUDY MCGHEE, Director of Risk ManagementMARK PAGANELLI, Executive Director ofAdministration and FinanceALDENA PHILLIPS, Director of AccountingBLAKE REAGAN, Director of ContractsCINDY STOCKDALE, Director of AccountsPayableJERRY WADE, Director of PurchasingFINANCIAL STAFF, CAMPUSESAND UNITSRICHARD L. BROWN JR., Vice Chancellor ofFinance and Operations, ChattanoogaCHRIS CIMINO, Vice Chancellor of Finance andAdministration, KnoxvilleTIM FAWVER, Budget Director, AgricultureANTHONY FERRARA, Vice Chancellor ofFinance and Operations, Health Science CenterRON LOEWEN, Budget Director, UniversityWide AdministrationGAIL WHITE, Budget Director, Institute forPublic ServiceNANCY YARBROUGH, Interim Vice Chancellorof Finance and Operations, Martin72

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionTHE UNIVERSITY OF TENNESSEEBOARD OF TRUSTEES4ACTION ITEMDATE: February 28, 2012COMMITTEE:ITEM:RECOMMENDATION:PRESENTED BY:Finance and AdministrationFY 2012 Revised Operating BudgetApprovalCharles M. Peccolo, Treasurer, Chief Investment Officer, andInterim Chief Financial OfficerThe University of Tennessee budget requires revision each year to update revenue andexpenditure projections. The FY 2012 revised budget takes into consideration final fallenrollments (estimated at the time the original budget is prepared), the effect of any prioryear’s activities carried forward into the current year, and adjustments in stateappropriations occurring since the FY 2012 budget was prepared and approved in June2011.The complete revised budget is presented in a separate document following thismemorandum. An overview with summary information regarding the principal revisionsappears at the beginning of the document. It includes adjustments to allocate significantcarry-overs from FY 2011 and minor revisions to budgeted revenues.The FY 2012 Educational and General (E&G) and Auxiliary Enterprises revised budgets arebalanced and within available resources. The Revised Budget complies with all applicablepolicies and guidelines. Therefore, the University administration recommends Boardapproval of the revised budget for FY 2012 as follows:1. The FY 2012 Revised Budget is approved with the understanding that if the GeneralAssembly or the Department of Finance and Administration further alters the FY2011 appropriations or if changes in estimated resources require, the budgets shallbe modified accordingly so expenditures will not exceed available resources.2. The Board of Trustees authorizes the campus, institute and unit administrations, inresponse to current and anticipated future budget reductions, to implement73

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - Actionmandatory furloughs without pay, reduction of time worked, across-the-boardsalary reductions, and similar salary-related measures during the remainder of FY2012, subject to approval by the Executive and Compensation Committee, thePresident, and the Treasurer, Chief Investment Officer and Interim Chief FinancialOfficer in consultation with the General Counsel and Human Resources.43. Any remaining balance of Unrestricted Net Assets may be considered as a reservefor contingencies to be used for:a) Employing additional staff where enrollments and reorganization requirementswarrant;b) Modifying departmental operating budgets where changing conditions duringthe year require funding adjustments;c) Funding to make salary adjustments for personnel as may be necessary duringthe year in keeping with state and university salary guidelines;d) Improving physical facilities for academic and research departments asopportunities arise;e) Mandated cost increases; andf) State impoundment of funds or appropriations rescission during the budgetyear.A formal Resolution incorporating this recommendation follows the revised budgetdocument.MOTION:That the Resolution on the FY 2012 Revised Operating Budget be adopted.74

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - Action4FY2011-2012 Revised BudgetFebruary 201275

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionFY2011-2012 Revised Budget4Significant Adjustments:1. No significant changes in tuition or state appropriations2. Actual carryovers from FY2011 $51.0 million aboveoriginal budget76

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - Action4All Current Funds(millions)FY2012OriginalBudgetFY2012RevisedBudgetChangeUnrestricted $1,045.7 $1,052.9 $7.2 0.7%Auxiliary $199.3 $200.1 0.8 0.0%Restricted $615.8 $625.6 9.8 1.6%Total Revenues $1,860.8 $1,878.6 $17.8 1.0%77

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - Action4Unrestricted E&GFunds (millions)FY2012OriginalBudgetFY2012RevisedBudgetChangeTuition & Fees 488.4 490.9 2.5 0.5%StateAppropriations 411.3 413.3 2.0 0.5%Other Revenues 146.0 148.7 2.7 1.8%Total Revenues 1,045.7 1,052.9 7.2 0.7%Beginning Balance 108.2 159.2 51.0 47.2%Available Funds 1,153.9 1,212.1 58.2 5.1%78

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionState Appropriations (1)460050040067.9 135.82.6300200509.4 475.5 425.7 412.1 410.610002008 2009 2010 2011 Revised 2012Regular Appropriations Stimulus Related Appropriations (2)(1) Unrestricted E&G only. Does not include appropriations restricted for Chairs of Excellence & Governor’s Chairs.(2) Stimulus related appropriations include federal ARRA funding, MOE appropriations, and regular non-recurring state funds used toreplace FY 2011 ARRA funds.79

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionBudgeted Expenses$1.9 billion4AuxiliariesScholarships &FellowshipsInstructionOperation &Maintenance of PlantInstitutional SupportResearchStudent ServicesAcademicSupportPublicService80

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionUnrestricted & Restricted Current Funds4Functional AreaChangeFY2012 Revised5-YearfromBudgetOrignal ChangeInstruction $608,452,647 1.4% 16.0%Research 271,139,282 12.5% 25.9%Public Service 189,844,939 8.6% 39.5%Academic Support 134,195,764 7.5% 6.5%Student Services 80,508,325 7.8% 6.0%Institutional Support 127,953,394 8.2% 19.0%O&M of Plant 120,085,549 8.5% 22.6%Scholarships & Fellowships 241,343,316 -0.2% 43.8%Auxiliaries 139,603,767 1.1% 6.8%81

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionUnrestricted Expenses$1.1 billion4Scholarships &FellowshipsOperation &Maintenance of PlantInstitutional SupportInstructionStudent ServicesAcademicSupportResearchPublicService82

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionUnrestricted E&G Funds4Functional AreaFY2012 RevisedBudgetChangefromOriginal5-YearChangeInstruction $470,066,999 1.6% 8.3%Research 92,064,457 40.0% 23.0%Public Service 77,066,360 15.4% 12.1%Academic Support 117,556,200 7.5% 1.0%Student Services 76,987,083 5.4% 6.4%Institutional Support 125,724,376 8.8% 19.4%O&M of Plant 119,981,681 8.5% 22.7%Scholarships & Fellowships 68,297,956 3.8% 41.4%TOTAL $1,147,745,112 7.3% 12.8% 983

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - Action4• The FY2012 Revised Budget is balanced & withinavailable resources.• FY2013 challenges and priorities:• Possible appropriation reductions: 2%• Potential new funding:• $2.56 million for CCTA• $10.57 million for outcomes and productivity• $15.86 million for a 2.5% raise and benefits• Complete College Tennessee Act• Faculty & Staff Compensation84

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - Action4RevisedBudgetDocumentFY 2011-201285

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - Action4THE UNIVERSITY of TENNESSEEUniversity of Tennessee at ChattanoogaUniversity of Tennessee, KnoxvilleUniversity of Tennessee at MartinUniversity of Tennessee Space InstituteUniversity of Tennessee Health Science CenterMemphis Other Specialized UnitsCollege of Medicine UnitsFamily Medicine UnitsUniversity of Tennessee Institute of AgricultureAgricultural Experiment StationUT ExtensionCollege of Veterinary MedicineUniversity of Tennessee Institute for Public ServiceInstitute for Public ServiceMunicipal Technical Advisory ServiceCounty Technical Assistance ServiceUniversity of Tennessee System Administration86

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionFY2012 REVISED BUDGETTHE UNIVERSITY OF TENNESSEE4ContentsMESSAGE FROM THE CFO 2OVERVIEW 3UNRESTRICTED E&G REVENUES 3-7UNRESTRICTED E&G EXPENDITURES 8-9AUXILIARY ENTERPRISES 10UNRESTRICTED NET ASSETS 11-12RECOMMENDATION 13SUPPORTING BUDGET SCHEDULES 14 - 48187

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionMessage from the CFO4Message from the CFOThe FY2012 revised operating budgetreflects operating plans and financialprojections as of October 31, 2011. TheUniversity develops a revised budget eachfiscal year to adjust to the following changesthat occur during the year after the originalbudget is adopted in June:1. The university’s original budget isdeveloped before the end of the previousfiscal year and uses budgeted net assets asits starting point. The revised budget usesactual net assets as its starting point.2. State appropriations are adjustedin September, requiring minor adjustmentsin most years.3. Other adjustments may be neededif there are material changes to operatingplans, organizational structure, revenueprojections, or fixed costs.Revised total revenues are $1.88 billion, a1.0% increase over the original budget.Revised expenses total $1.93 billion, a 3.7%increase. These revisions include all currentfunds: unrestricted educational and general(E&G) funds, restricted E&G funds, andauxiliary funds.Unrestricted E&G funds finance theUniversity’s core recurring operations andaccount for the major changes between theFY2012 original and revised budgets. Therevised unrestricted E&G revenue budgetincreased only $7.2 million or 0.7%. It iscommon to see revenue adjustments in thisrange between original and revised budgets.Budgets for recurring unrestricted E&Gexpenditures and transfers showed a similarmodest increase of $3.5 million, but totalrecurring and non-recurring expendituresand transfers are up $59.0 million (5.6%),reflecting large carry-overs of unspent nonrecurringfunds from FY2011.are continuing to follow the same strategies that wereused with the non-recurring ARRA stimulus fundingin FY 2010 and FY 2011 to upgrade technology inclassrooms, fund energy efficiency projects, andaddress critical maintenance needs; prudent one-timeinvestments that increase capacity and improve longtermeffectiveness and efficiency.Revenue and expenditure data for each operating unitis provided in this budget document. Also included isinformation on athletics and auxiliary budgets. Aseparate publication containing detailed supportingschedules is available in printed or electronic format.As this document comes before the Board, theUniversity is cautiously optimistic for the future. TheGovernor’s proposed budget for FY 2013 containspartial funding for a 2.5% salary increase and a $10.6million operating increase “to reflect greaterinstitutional productivity, such as increases in studentprogression, degree production, research and service,efficiency metrics, and other outcome measures”documented through the Tennessee Higher EducationCommission’s outcomes-based funding formula. Partof these gains are offset by a $7.1 million reductionin base recurring appropriations, but it is still awelcome step in the right direction for the faculty,staff and students of the University of Tennessee.Respectfully,Charles M. PeccoloTreasurer & Chief Investment Officer/Interim Chief Financial OfficerThe revised budget unrestricted E&Gbeginning balance is $50.9 million higherthan original budget. These are one‐timefunds that were budgeted to be spent inFY2011 that have been carried over to bespent in FY2012. Campuses and institutes288

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionFY2012 REVISED BUDGETOverview4“THE FY 2012EDUCATIONALAND GENERAL(E&G) ANDAUXILIARYENTERPRISESREVISEDBUDGETS AREBALANCED ANDWITHINAVAILABLERESOURCES.FY 2012 Quick FactsEnrollment (Fall 2011) 49,545Total Revenues $ 1.88BPositions 14,551Capital Maintenance $ 23.9MUnrestricted E&GE&G Revenues$1.053BState Appropriations $413.3MSt. Appr. as % of Revenues 39.3%Tuition & Fees$490.9MTuition & Fees ‐ % ofRevenues 46.6%Salaries & Benefits$751.6MSal. & Ben. % of Expenditures 65.5%The University of Tennessee FY 2012 Revised Budgetrevenues total $1.879 billion: $1.053 billion inunrestricted Educational and General (E&G), $625.6million in restricted funds and $200.1 million in auxiliaryfunds. That represents a $17.8 million, or 1.0 percent,increase from the FY 2012 Original Budget.Unrestricted E&G revenues total $1.053 billion, a $7.2million, or 0.7 percent, increase over the FY 2012Original Budget.TOTAL REVENUESFY2012 FY2012 Change ChangeRevenues (Millions) Original Revised Amt. %Unrestricted E&G $ 1,045.7 $ 1,052.9 $ 7.2 0.7%Restricted E&G 615.8 625.6 9.8 1.6%Auxiliaries 199.3 200.1 .8 0.0%Total $ 1,860.8 $ 1,878.6 $ 17.8 1.0%Amounts are in millions and may not add due to roundingRestricted funds must be used in accordance with purposesestablished by an external party; primarily grants, contracts, giftfunds and endowments. Auxiliaries are self-supportingenterprises which furnish services to students, faculty, and staffsuch as housing, bookstores, food service and UTK Men’sAthletics.Unrestricted E&G RevenuesUnrestricted Education and General Funds (Unrestricted E&G)support the core operations of the university: instruction,research, public service, academic support, student services,institutional support, facilities operations and maintenance, andscholarships and fellowships. They are funded primarily thoughtuition and student fees, state appropriations, and other sourcesincluding grants and contracts, federal and local appropriations,sales and services, investment income, and endowmentdistributions.389

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionFY2012 REVISED BUDGETUnrestricted E&G Revenues (Continued)4The following table shows the change in unrestricted E&G revenues.Unrestricted E&G Revenues SummaryRevenues FY2012 Original FY 2012 RevisedChangeAmount Change %Tuition & Fees $ 488.4 $ 490.9 $ 2.5 0.5%State Appropriations 411.3 413.3 2.0 0.5%Other Revenues 146.0 148.7 2.7 1.8%Total E&G Revenues $ 1,045.7 $ 1,052.9 $ 7.2 0.7%Revenues are rounded to millions and may not add due to the roundingFY 2012 unrestricted E&G revenues are $7.2 million (0.7%) higher than the proposed budget,due to modest increases in Tuition & Fees, State Appropriations and Other Revenues.Unrestricted E&G revenues are categorized into five distinct areas, with state appropriations andtuition and fees making up 86 percent, or $904.2 million. The graph below shows thecomparative revenue sources and the trends of those sources over the past five years.600500400Unrestricted E&G Revenues (in millions of dollars)548509 476 494491449404413372346300200100‐74 69 72 5953 52 54 51 57 48 53 55 44 51 542008 2009 2010 2011 2012 RevisedTuition & Fees State Appropriations Grants & Contracts Sales & Services Other490

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionFY2012 REVISED BUDGETUnrestricted E&G Revenues (Continued)State Appropriations4Change In Unrestricted E&G State AppropriationsState Appropriation Detail Base (Recurring) Non-Recurring TotalFY 2012 Proposed Budget $ 405,749,891 $ 5,598,191 $ 411,348,082ARRA carryforward 1,512,249 1,512,249UT Martin legislative amendment 140,000 140,000Increase claims adjustments 278,200 278,200FY 2012 Revised Budget $ 406,168,091 $ 7,110,440 $ 413,278,531Some minor adjustments were made to state appropriations since the FY 2012 original budgetwas approved. The $1.5 million increase in ARRA funds represents unspent funds carried overfrom FY 2011 which were spent by December 15, 2011.Legislative amendments added $80,000 and $60,000 respectively to UT Martin’s appropriationsfor off campus operations at the Parsons Center and Ripley Educational Site.591

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionFY2012 REVISED BUDGETUnrestricted E&G Revenues (Continued)4State Appropriations (Continued)FY 2012 revised state appropriations are $96.1 million (18.9%) less than FY 2008. Baserecurring reductions over this period exceed $120 million, but funding is added by the state eachyear to partially fund increases in employee group insurance and state retirement system costs.The state also added funds in FY 2012 to partially fund salary increases. The chart below showsthe trend of regular state appropriations over the last 5 year period. FY 2012 revised regularappropriations decreased $98.8 million or 19.4 percent since FY2008.State Appropriations (1)(in millions)60050040067.9 135.82.6300200509.4 475.5 425.7 412.1 410.610002008 2009 2010 2011 Revised 2012Regular Appropriations Stimulus Related Appropriations (2)(1) Unrestricted E&G only. Does not include appropriations restricted for Centers of Excellence & Governor’s Chairs.(2) Stimulus related appropriations include federal ARRA funding, MOE appropriations, and regular non-recurring state funds used toreplace FY 2011 ARRA funds.692

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionFY2012 REVISED BUDGETUnrestricted E&G Revenues (Continued)Tuition and Fees4There is little change in budgeted tuition and fees. As shown in the table below, tuition and feesrevenue totals $490.9 million, a $2.5 million, or .5% increase from the FY 2012 Original Budgetof $488.4 million. Most of the increase is the result of higher than expected enrollments.Tuition and Fee RevenuesTUITION AND FEEREVENUE FY12 Original FY12 Revised Change Amount Change %Tuition $ 414,675,356 $ 415,875,129 $ 1,199,773 0.3%Program and Service Fees 45,427,251 45,723,632 296,381 0.7%Extension Enrollment Fees 7,494,070 7,507,528 13,458 0.2%Other Student Fees 20,795,287 21,808,175 1,012,888 4.9%Total Tuition and Fees $ 488,391,964 $ 490,914,464 $ 2,522,500 0.5%The largest increase is at Chattanooga ($1,624,718; 2.3%) where enrollment increases generatedadditional tuition ($954,408), MBA program income ($122,997), and student fee revenues($196,381). UTC made budget adjustments of $350,932 to allocate lab fees and adjust late feeprojections. Adjustments for nursing fees, scholarship carryovers, and course fees added$515,925 (0.2%) to Knoxville tuition and fee budgets. Martin increased its projections forathletic fee and international student fee revenues, adding $123,034 (0.2%) to budgeted revenue.Increased out-of-state enrollments helped the CVM add $246,595 (2.4%) to revenues. UTHSCtuition and fee budgets are essentially unchanged, up $12,228 (0.0%) from original budget.Other RevenuesThe $2.7 million increase in other revenues (1.8%) includes a $130,124 increase in Grants &Contracts, primarily due to the UTC increase of $128,182 from F&A recoveries. Sales &Services is up $686,091, including $191,769 increase in anticipated sales by UTC’s athleticdepartment and the Fine Arts Center; $224,794 for UTM athletics revenue; $144,498 for revenuegenerated from the new UTHSC (COMU) clinical research center, OB/GYN Center and theInternal Medical Center in Knoxville; and a $92,185 rise in UTHSC’s (MOSU) Dental Operatoryrevenues. Most of the $1,885,941 change in budgeted revenues from Other Sources is torecognize UTK‘s $1,300,000 share of the UT Battelle Management Fee. It also includesincreases in the Ag Experiment Station $552,004 HATCH Act and $38,515 McIntire-Stennisfederal appropriations programs.793

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionFY2012 REVISED BUDGETUnrestricted E&G Expenditures4The Revised FY 2012 budget for unrestricted E&G expenditures and transfers is $1,108.6million, a $59.0 million, or 5.6 percent increase from the Original FY 2012 budget. The increaseis funded by revenue adjustments ($7.2 million) and non-recurring funds carried forward fromFY2010 and FY2011 ($51.7 million). While this is a significant increase over original budget, itis $34.0 million (3.0%) less than actual FY 2011 expenditures and transfers. Base budgets forrecurring transfers and expenditures increased by only $3.5 million (0.3%).Most of the carry-overs are budgeted for one-time uses such as faculty start-ups andimprovements to campus infrastructure. Examples include equipment replacement, repairs andmaintenance, wireless internet upgrades, bridge funding for research operations, adjunct faculty,electronic medical records systems, energy conservation projects, lab upgrades, and graduatestudent fee waivers. UTHSC earmarked over $2.0 million for its Strategic Investment Fund.UTM allocated $1.0 million to renovations in its Fine Arts Building and $700,000 to implementa Constituent Relationship Management System. UTC allocated over $1.3 million for badlyneeded campus repairs and maintenance. UTK carry-overs helped fund increases for researchincentive funds (RIF and SARIF) ($5.3 million), faculty start-ups ($5.6 million), match funding($2.3 million), research centers and joint institutes ($2.0 million), and strategic planninginitiatives ($1.0 million). UTIA non-recurring increases include funding for faculty start ups,research bridge funding, research incentives, faculty innovation grants and research equipmentawards.The functional distribution of these funds is shown in the table and chart below.Unrestricted E&G Expenditures By Functional Category(in millions)FY 2012OriginalFY 2012RevisedChangeAmountChange%Functional CategoryInstruction $ 462.7 $ 470.0 $ 7.3 1.6%Research 65.8 92.1 26.3 40.0%Public Service 66.8 77.1 10.3 15.4%Academic Support 109.3 117.5 8.2 7.5%Student Services 73.0 77.0 4.0 5.4%Institutional Support 115.6 125.7 10.1 8.8%Operations and Maintenance of Plant 110.6 120.0 9.4 8.5%Scholarships and Fellowships 65.8 68.3 2.5 3.8%Sub‐Total E&G Expenditures $ 1,069.6 $ 1,147.7 $ 78.1 7.3%Transfers (20.0) (39.1) (19.1) 95.5%Total Transfers and E&G Expenditures $ 1,049.6 $ 1,108.6 $ 59.0 5.6%Amounts are in millions and may not add due to rounding894

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionFY2012 REVISED BUDGET4$600$500Unrestricted E&G Expenditures by Function (in millions)$470$400$300$200$100$92 $77 $118 $77 $126 $120$68$0Instruction Research Public Svc. Acad Support Student Svcs. Inst Support Op. & Maint. Schol. & Fell.The chart below shows expenditures by natural classification for five years. Naturalclassification categories include salaries, benefits, operating expense, and equipment. Operatingexpense and equipment are combined.Unrestricted Expenditures by Natural Classification (in millions)$700$600$500$400$300$200$100$0$577 $551 $554 $552 $562$396$259 $265 $301$330$188 $171$187 $188 $1902009 2010 2011 2012‐Proposed 2012‐RevisedSalaries Benefits Operating & Equip.Operating and equipment expenditures increased $66.1 million, a 20.0% increase from FY 2012Original Budget. Most of this increase is non-recurring carryovers from FY 2011.995

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionFY2012 REVISED BUDGET4Auxiliary EnterprisesAuxiliary Enterprises furnish services to the students, faculty, and staff. Each is a business thatis self funded through sales, fees, and private gifts. These stand alone operations includeHousing, Food Services, Bookstores, Parking, and Other miscellaneous operations. It alsoincludes UTK Men’s Athletics since it is a self-supporting operation. Total Auxiliary FY 2012revenues are $198.2 million. The charts below reveal the relative size of each auxiliaryenterprise and the change in revenue and expense from FY 2012 Original to 2012 RevisedBudgets.$120$100$80$60$97.6Auxiliary Revenues – FY 2012 Proposed Budget(in millions)$53.3$40$20$0Knoxville Men'sAthletics$23.7 $12.0Auxiliaries Summary(in millions)$4.9$6.7Housing Bookstores Parking Food Services OtherREVENUES AND EXPENSESFY 2012ORIGINALFY 2012REVISED$CHANGE%CHANGERevenues $ 197.4 $ 198.2 $ 0.8 0.4%Expense and TransfersExpense 136.1 137.7 1.6 1.2%Transfers 61.3 60.5 (0.8) -1.3%Total Expenditures and Transfers $ 197.4 $ 198.2 $ 0.80 0.4%Fund Balance Change 0.0 0.0 0.0 0.0%Beginning Net Assets $ 19.5 $ 21.4 $ 1.90 9.7%Ending Net Assets $ 19.5 $ 21.4 $ 1.90 9.7%1096

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionFY2012 REVISED BUDGETUnrestricted Net AssetsThe University of Tennessee’s practice is to maintain 2-5 percent ofunrestricted Educational and General (E&G) expenditures and 3-5percent of unrestricted auxiliary enterprise funds in its unallocated fundbalance to function as a “rainy day” fund. The fund is needed in case ofa downturn in enrollment, a sharp decline in state appropriations, orother situations that cause expenditures to exceed available revenues.This provides short-term funding support while necessary expenditureadjustments are made to bring the budget back into balance.4With the FY 2012 Revised Budget, unrestricted E&G unallocated fundbalance projected at June 30, 2012, is $42.3 million, or 3.8 percent of expenditures, which iswithin the target range. The unrestricted auxiliary enterprises unallocated balance is $7.2million, or 3.6 percent of expenditures, which is also within the target range. The totalunallocated balance projected at June 30, 2012, is $49.5 million, which is 3.8 percent ofexpenditures.FY 2012 Revised Budget Unrestricted Net Assets (in millions)$49.7$50.0$45.0$42.5$40.0$35.0$30.0$18.7$25.7$27.8$30.5UnallocatedWorking CapitalRevolving Funds$25.0Reappropriations$20.0Encumbrances$15.0$10.0$5.0$9.7$6.7$7.2$9.1$4.8$0.3$0$9.7$7.0$0.0E&G Auxiliaries Total$42.5 million$7.2 million$49.7 millionUnallocated Balance3.83%3.62%3.80%Percent Unallocated1197

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionFY2012 REVISED BUDGETUnrestricted Net Assets (Continued)4Encumbrances are funds carried over from the previous fiscal year for purchases andcommitments that were not received before the close of the fiscal year. These funds arebudgeted in the appropriate expenditure accounts as the items or services are received.Reappropriations are funds reserved for allocation to programs and initiatives in FY 2012 or insubsequent fiscal years. E&G and Auxiliary schedules for Unrestricted Net Assets by campusand unit may be found on pages 20 and 21.1298

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionFY2012 REVISED BUDGETRecommendation4The FY 2012 Educational and General (E&G) and Auxiliary Enterprises revised budgets arebalanced and within available resources. The Revised Budget complies with all applicablepolicies and guidelines. The following action by the Board of Trustees is recommended:1. The FY 2012 revised budget be approved with the understanding that if the GeneralAssembly or the Department of Finance and Administration further alters the FY 2012appropriations or if changes in estimated resources require, the budget shall be modifiedaccordingly so expenditures will not exceed available resources.2. The Board of Trustees expressly authorizes the campus, institute, and unitadministrations, in response to current and anticipated future budget reductions, toimplement mandatory furloughs without pay, reduction of time worked, across-the-boardsalary reductions, and similar salary-related measures during FY 2012, subject toapproval by the Executive and Compensation Committee, the President, and theTreasurer, Chief Investment Officer and Interim Chief Financial Officer in consultationwith the General Counsel and Human Resources.3. Any remaining balance of New Assets may be considered as reserve for contingencies tobe used for:a) Employing additional staff where enrollments and reorganization requirementswarrant;b) Modifying departmental operating budgets where changing conditions during theyear require funding adjustments;c) Funding to make salary adjustments for personnel as may be necessary during theyear in keeping with state and university salary guidelines;d) Improving physical facilities for academic and research departments asopportunities arise;e) Mandated cost increases; andf) State impoundment of funds or appropriations rescission during the budget year.1399

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionFY2012 REVISED BUDGET4ScheduleNumberFY 2012 Revised Budget Schedule DescriptionChart 1 Unrestricted and Restricted Current Funds – Graphical Presentation 15Chart 2 Unrestricted E&G Current Funds – Graphical Presentation 161 State Appropriations Summary 172 State Appropriations Five-Year History 183 State Appropriations – Access & Diversity 194 E&G Unrestricted Net Assets 205 Auxiliary Unrestricted Net Assets 216 Revised Budget – Unrestricted Current Funds 227 Revised Budget – Unrestricted and Restricted Current Funds 238 Five-Year Summary Comparison – Unrestricted Current Funds 249 Five-Year Summary Comparison – Unrestricted and Restricted Current Funds 2510 Revised Budget Summary – Unrestricted & Restricted Current Funds 2611 Natural Classifications – Revised Budget – Unrestricted Current Funds 2712 Natural Classifications – Unrestr. Current Funds – Revised Budget Summary 2813 Auxiliaries – Revised Budget Summary 2914 Athletics – Five-Year Summary Comparison 3015 Revised Budget Summaries – Total University System, Campuses, and InstitutesTotal University of Tennessee System 31Chattanooga 32Knoxville 33Martin 34Space Institute 35Page#Health Science Center (UTHSC TOTAL, MOSU, COMU, FMU) 36-39Agricultural Units (AG TOTAL, AG EXP STAT, AG EXT, VET MED) 40-43Public Service Units (IPS TOTAL, CTAS, MTAS) 44-47System Administration 4814100

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionUniversity of Tennessee System4FY 2011-12 RevenuesUnrestricted and Restricted(In Millions)Tuition & Fees $ 490.9State Appropriations4Grants & Contracts 578.9FY 2011-12 REVISED BUDGETTotal Unrestricted and Restricted Current FundsTuition andFeesRevenues26.1% 2%StateAppropriationsSales & Services 51.3Other1Auxiliaries 200.1Total Revenue $ 1,878.6Auxiliaries10.7%6.%30.8%Fall 2011 Headcount EnrollmentOther SourcesKnoxville 26,828Chattanooga 11,438Sales &Services 2.7%Grants &ContractsMartin 7,913Space Institute 185Health Science Center 2815 2,815Veterinary Medicine 366ExpendituresInstructionTOTAL 49,545FTE Positions(Unrestricted & Restricted)October 31, 2011Faculty 3,951Administrative 753Professional 3,834Cler/Tech/Maint 6,013AuxiliariesScholarships& FellowshipsOperation &Maintenance ofPlant7.3%12.6%6.3%6.7%4 .2%31.8%7.0%9.9%14.2%ResearchTOTAL 14,551InstitutionalSupportStudentServicesAcademicSupportPublic Service15101

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionUniversity of Tennessee System4FY 2011-12 RevenuesUnrestricted E&G(In Millions)Tuition & Fees $ 490.9State Appropriations 413.3FY 2011-12 REVISED BUDGETEducational & General OnlyTotal Unrestricted Current FundsRevenuesTuition &FeesGrants & Contracts 43.7Sales & Services 51.346.6%Other 53.7Total Revenue $1,052.9OtherSources5.1%Sales &Services4.9%4.1%39.3%Fall 2011 Headcount EnrollmentKnoxville 26,828Grants &ContractsStateAppropriationsChattanooga 11,438Martin 7,913Space Institute 185Health Science Center 2,815Veterinary Medicine i 366ExpendituresTOTAL 49,545FTE Positions(Unrestricted E&G)October 31, 2011Faculty 2,999Administrative 594Professional 1,828InstructionScholarships &Fellowships6.0%41.0%10.4%11.0%8.0%6.7%10.2%6.7%ResearchPublicServiceAcademicSupportCler/Tech/Maint 3,770TOTAL 9,191Operation &Maintenance ofPlantInstitutionalSupportStudenttServices16102

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionSTATE APPROPRIATIONSCHANGEFY 2011 FY 2012 FY 2012Original to RevisedACTUAL ORIGINAL REVISED Amount %Chattanooga $ 48,591,279 $ 34,563,819 $ 35,050,139 $ 486,320 1.4%Knoxville 226,416,954 147,872,004 148,018,704 146,700 0.1%Martin 35,319,979 25,024,474 25,217,911 193,437 0.8%Space Institute 9,013,601 7,373,669 7,391,269 17,600 0.2%Health Science CenterMemphis Other Specialized Units $ 77,546,026 $ 64,525,035 $ 64,830,417 $ 305,382 0.5%College of Medicine Units 51,848,114 43,326,030 44,093,803 767,773 1.8%Family Medicine Units 11,096,225 9,483,400 9,386,338 (97,062) -1.0%Sub-total Health Science Center $ 140,490,365 $ 117,334,465 $ 118,310,558 $ 976,093 0.8%Agricultural UnitsAgricultural Experiment Station $ 25,635,108 $ 23,299,860 $ 23,333,760 $ 33,900 0.1%Extension 31,082,557 28,070,981 28,160,380 89,399 0.3%Veterinary Medicine 17,416,903 14,822,403 14,823,603 1,200 0.0%Sub-total Agricultural Units $ 74,134,568 $ 66,193,244 $ 66,317,743 $ 124,499 0.2%Institute for Public ServiceUniversity of Tennessee SystemFY 2012 State Appropriations Summary (E&G)Institute for Public Service $ 4,920,285 $ 4,368,782 $ 4,368,582 $ (200) 0.0%Municipal Technical Advisory Service 2,925,338 2,571,485 2,571,285 (200) 0.0%County Technical Assistance Service 1,708,028 1,535,985 1,534,985 (1,000) -0.1%Sub-total Institute for Public Service $ 9,553,651 $ 8,476,252 $ 8,474,852 $ (1,400) 0.0%System Administration 4,384,283 4,510,155 4,497,355 (12,800) -0.3%Total State Appropriations $ 547,904,680 $ 411,348,082 $ 413,278,531 $ 1,930,449 0.5%4Schedule 117103

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionUniversity of Tennessee SystemState Appropriations Five-Year History (E&G)STATE APPROPRIATIONSCHANGEFY 2008 FY 2009 FY 2010 FY 2011 FY 2012FY 2008 to FY 2012ACTUAL ACTUAL ACTUAL ACTUAL REVISED Amount %Chattanooga $ 47,004,100 $ 43,330,000 $ 45,848,095 $ 48,591,279 $ 35,050,139 $ (11,953,961) -25.4%Knoxville 198,919,700 183,109,300 190,749,695 226,416,954 148,018,704 (50,900,996) -25.6%Martin 35,632,200 31,480,300 33,629,883 35,319,979 25,217,911 (10,414,289) -29.2%Space Institute 8,389,300 7,955,900 8,304,400 9,013,601 7,391,269 (998,031) -11.9%Health Science CenterMemphis Other Specialized Units $ 72,988,500 $ 70,001,900 $ 70,224,887 $ 77,546,026 $ 64,830,417 $ (8,158,083) -11.2%College of Medicine Units 49,379,400 46,745,500 46,280,784 51,848,114 44,093,803 (5,285,597) -10.7%Family Medicine Units 10,176,400 9,713,100 9,929,437 11,096,225 9,386,338 (790,062) -7.8%Sub-total Health Science Center $ 132,544,300 $ 126,460,500 $ 126,435,108 $ 140,490,365 $ 118,310,558 $ (14,233,742) -10.7%Agricultural UnitsAgricultural Experiment Station $ 25,530,000 $ 24,093,200 $ 26,753,807 $ 25,635,108 $ 23,333,760 $ (2,196,240) -8.6%Extension 30,258,300 29,009,600 31,614,019 31,082,557 28,160,380 (2,097,920) -6.9%Veterinary Medicine 17,028,100 16,277,800 16,219,185 17,416,903 14,823,603 (2,204,497) -12.9%Sub-total Agricultural Units $ 72,816,400 $ 69,380,600 $ 74,587,011 $ 74,134,568 $ 66,317,743 $ (6,498,657) -8.9%Institute for Public ServiceInstitute for Public Service $ 4,995,500 $ 4,835,100 $ 5,150,772 $ 4,920,285 $ 4,368,582 $ (626,918) -12.5%Municipal Technical Advisory Service 2,752,900 2,628,000 2,796,101 2,925,338 2,571,285 (181,615) -6.6%County Technical Assistance Service 1,613,100 1,540,000 1,669,011 1,708,028 1,534,985 (78,115) -4.8%Sub-total Institute for Public Service $ 9,361,500 $ 9,003,100 $ 9,615,884 $ 9,553,651 $ 8,474,852 $ (886,648) -9.5%System Administration 4,736,600 4,773,400 4,485,900 4,384,283 4,497,355 (239,245) -5.1%Total State Appropriations $ 509,404,100 $ 475,493,100 $ 493,655,976 $ 547,904,680 $ 413,278,531 $ (96,125,569) -18.9%418Schedule 2104

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionSTATE APPROPRIATIONSCHANGEFY 2011 FY 2012 FY 2012Original to RevisedACTUAL ORIGINAL REVISED Amount %Chattanooga $ 728,094 $ 638,219 $ 638,219 $ - 0.0%Knoxville 2,556,349 2,235,104 2,235,104 - 0.0%Martin 614,598 538,674 538,674 - 0.0%Space Institute 97,201 85,169 85,169 - 0.0%Health Science CenterMemphis Other Specialized Units $ 1,689,361 $ 1,480,683 $ 1,480,683 $ - 0.0%College of Medicine Units - - - - 0.0%Family Medicine Units - - - - 0.0%Sub-total Health Science Center $ 1,689,361 $ 1,480,683 $ 1,480,683 $ - 0.0%Agricultural UnitsAgricultural Experiment Station $ 124,915 $ 109,460 $ 109,460 $ - 0.0%Extension 121,976 106,981 106,981 - 0.0%Veterinary Medicine 358,288 314,003 314,003 - 0.0%Sub-total Agricultural Units $ 605,179 $ 530,444 $ 530,444 $ - 0.0%Institute for Public ServiceUniversity of Tennessee SystemFY 2012 State Appropriations Summary (E&G)Access & DiversityInstitute for Public Service $ 15,457 $ 13,682 $ 13,682 $ - 0.0%Municipal Technical Advisory Service 2,139 1,785 1,785 - 0.0%County Technical Assistance Service 2,139 1,785 1,785 - 0.0%Sub-total Institute for Public Service $ 19,735 $ 17,252 $ 17,252 $ - 0.0%System Administration 79,183 75,055 75,055 - 0.0%Total State Appropriations $ 6,389,700 $ 5,600,600 $ 5,600,600 $ - 0.0%4Schedule 319105

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionUniversity of Tennessee SystemEducational and General Unrestricted Net AssetsHealthSpaceScience Institute for Institute for University-WideTotal System Chattanooga Knoxville MartinInstituteCenter Agriculture Public Service AdminitrationFY 2009-10 ACTUALEstimated Net Assets at Beginning of Year $ 112,109,457 $ 7,260,496 $ 23,626,436 $ 6,519,459 $ 516,310 $ 29,480,101 $ 10,132,808 $ 1,013,288 $ 33,560,559Operating FundsRevenue $ 1,059,959,632 $ 114,494,712 $ 467,422,731 $ 82,688,270 $ 10,598,220 $ 226,291,133 $ 118,292,530 $ 16,150,849 $ 24,021,187Less: Expenditures and Transfers (1,023,071,660) (112,281,719) (448,487,630) (79,356,726) (10,437,150) (219,582,498) (110,682,161) (16,062,665) (26,181,111)Carryover Funds To/(From) Net Assets $ 36,887,972 $ 2,212,993 $ 18,935,101 $ 3,331,544 $ 161,070 $ 6,708,635 $ 7,610,369 $ 88,184 $ (2,159,924)ALLOCATEDWorking Capital $ 23,006,803 $ 2,503,524 $ 5,130,702 $ 635,394 $ 116,860 $ 9,810,588 $ 1,032,383$ 3,777,352Revolving Funds 26,867,972 548,875 1,559,714 2,440,690 22,318,693Encumbrances 7,549,276 30,520 2,203,679 304,919 24,471 1,235,251 1,750,436 2,000,000Unexpended Gifts 20,437 20,437 -Reserve for Reappropriations 47,639,384 980,766 11,272,600 6,449,900 123,233 15,369,004 10,974,884 $ 315,0002,153,997Total Allocated Net Assets $ 105,083,872 $ 4,084,122 $ 20,166,695 $ 7,390,213 $ 264,564 $ 28,855,533 $ 13,757,703 $ 315,000 $ 30,250,042UNALLOCATED 43,913,557 5,389,367 22,394,842 2,460,790 412,816 7,333,203 3,985,474 786,472 1,150,593Total Net Assets - June 30, 2010 $ 148,997,429 $ 9,473,489 $ 42,561,537 $ 9,851,003 $ 677,380 $ 36,188,736 $ 17,743,177 $ 1,101,472 $ 31,400,635Percent Unallocated of Expend. & Transfers * 4.29% 4.80% 4.99% 3.10% 3.96% 3.34% 3.60% 4.90% 2.41%4FY 2010-11 ACTUALEstimated Net Assets at Beginning of Year $ 148,997,429 $ 9,473,489 $ 42,561,537 $ 9,851,003 $ 677,380 $ 36,188,736 $ 17,743,177 $ 1,101,472 $ 31,400,635Operating FundsRevenue $ 1,152,920,441 $ 123,079,906 $ 531,169,514 $ 91,035,861 $ 11,273,097 $ 236,023,970 $ 119,943,092 $ 16,510,759 $ 23,884,242Less: Expenditures and Transfers (1,142,737,404) (122,769,407) (546,972,187) (87,085,617) (11,394,916) (218,499,101) (115,542,652) (16,389,661) (24,083,863)Carryover Funds To/(From) Net Assets $ 10,183,037 $ 310,499 $ (15,802,673) $ 3,950,244 $ (121,819) $ 17,524,869 $ 4,400,440 $ 121,098 $ (199,621)ALLOCATEDWorking Capital $ 18,734,053 $ 2,504,906 $ 5,360,302 $ 1,057,202 $ 80,265 $ 5,363,231 $ 1,140,799 $ 144,111 $ 3,083,237Revolving Funds 25,756,137 (81,188) 2,768,684 23,068,641Encumbrances 7,620,592 3,213,085 215,263 2,298,036 1,766,317 127,891Unexpended Gifts 20,437 20,437Reserve for Reappropriations 62,390,292 1,708,901 9,000,000 33,425,947 13,999,884 $ 470,0003,785,560Total Allocated Net Assets $ 114,521,511 $ 4,234,244 $ 8,492,199 $ 10,272,465 $ 80,265 $ 43,855,898 $ 16,907,000 $ 614,111 $ 30,065,329UNALLOCATED $ 44,658,955 $ 5,549,744 $ 18,266,666 $ 3,528,782 $ 475,296 $ 9,857,707 $ 5,236,617 $ 608,459 $ 1,135,685Total Net Assets - June 30, 2011 $ 159,180,466 $ 9,783,988 $ 26,758,864 $ 13,801,247 $ 555,561 $ 53,713,605 $ 22,143,617 $ 1,222,570 $ 31,201,014Percent Unallocated of Expend. & Transfers * 3.91% 4.52% 3.34% 4.05% 4.17% 4.51% 4.53% 3.71% 4.72%FY 2011-12 REVISED BUDGETEstimated Net Assets at Beginning of Year $ 159,180,466 $ 9,783,988 $ 26,758,864 $ 13,801,247 $ 555,561 $ 53,713,605 $ 22,143,617 $ 1,222,570 $ 31,201,014Operating FundsRevenue $ 1,052,862,480 $ 113,260,254 $ 473,704,819 $ 81,910,268 $ 9,795,050 $ 222,645,720 $ 114,505,020 $ 15,510,347 $ 21,531,002Less: Expenditures and Transfers (1,108,698,860) (114,902,575) (476,917,904) (88,635,624) (9,795,050) (249,725,528) (130,560,207) (15,835,009) (22,326,963)Carryover Funds To/(From) Net Assets $ (55,836,380) $ (1,642,321) $ (3,213,085) $ (6,725,356) $ - $ (27,079,808) $ (16,055,187) $ (324,662) $ (795,961)Net Assets Detail:ALLOCATEDWorking Capital $ 18,734,052 $ 2,504,906 $ 5,360,302 $ 1,057,202 $ 80,265 $ 5,363,231 $ 1,140,798 $ 144,111 $ 3,083,237Revolving Funds 25,756,137 (81,188) 2,768,684 23,068,641Encumbrances 6,722,060 3,213,085 215,263 2,298,036 867,785 127,891Unexpended Gifts 20,437 20,437Reserve for Reappropriations 9,632,029 1,500,000 4,900,000 $ 75,0003,157,029Total Allocated Net Assets $ 60,864,715 $ 2,525,343 $ 8,492,199 $ 2,772,465 $ 80,265 $ 15,329,951 $ 2,008,583 $ 219,111 $ 29,436,798UNALLOCATED $ 42,479,371 $ 5,616,324 $ 15,053,580 $ 4,303,426 $ 475,296 $ 11,303,846 $ 4,079,847 $ 678,797 $ 968,255Total Net Assets - October 31, 2011 $ 103,344,086 $ 8,141,667 $ 23,545,779 $ 7,075,891 $ 555,561 $ 26,633,797 $ 6,088,430 $ 897,908 $ 30,405,053Percent Unallocated of Expend. & Transfers * 3.83% 4.89% 3.16% 4.86% 4.85% 4.53% 3.12% 4.29% 4.34%* Recommended percent unallocated of expenditures and transfers is 2% to 5%.20Schedule 4106

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionUniversity of Tennessee SystemAuxiliary Unrestricted Net AssetsHealth ScienceTotal System Chattanooga Knoxville MartinSpace InstituteCenterFY 2009-10 ACTUALEstimated Net Assets at Beginning of Year $ 19,030,093 $ 1,113,726 $ 16,991,997 $ 881,410 $ 22,824 $ 20,136Operating FundsRevenue $ 192,521,124 $ 10,911,997 $ 165,595,603 $ 12,654,659 $ 127,216 $ 3,231,649Less: Expenditures and Transfers (191,600,726) (10,739,076) (164,914,004) (12,625,086) (130,657) (3,191,903)Carryover Funds To/(From) Net Assets $ 920,398 $ 172,921 $ 681,599 $ 29,573 $ (3,441) $ 39,7464ALLOCATEDWorking Capital $ 9,159,212 $ 884,311 $ 7,984,453 $ 269,264 $ 12,383 $ 8,801Revolving Funds 3,803,866 3,803,866Encumbrances 177,680 107,714 55,455 14,511Total Allocated Net Assets $ 13,140,758 $ 884,311 $ 11,896,033 $ 324,719 $ 12,383 $ 23,312UNALLOCATED $ 6,809,733 $ 402,336 $ 5,777,563 $ 586,264 $ 7,000 $ 36,570Total Net Assets - June 30, 2010 $ 19,950,491 $ 1,286,647 $ 17,673,596 $ 910,983 $ 19,383 $ 59,882Percent Unallocated of Expend. & Transfers 3.55% 3.75% 3.50% 4.64% 5.36% 1.15%FY 2010-11 ACTUALEstimated Net Assets at Beginning of Year $ 19,950,491 $ 1,286,647 $ 17,673,596 $ 910,983 $ 19,383 $ 59,882Operating FundsRevenue $ 197,856,791 $ 10,564,234 $ 170,956,396 $ 13,297,594 $ 108,640 $ 2,929,927Less: Expenditures and Transfers (196,434,598) (10,404,912) (169,955,550) (13,078,688) (107,259) (2,888,189)Carryover Funds To/(From) Net Assets $ 1,422,193 $ 159,322 $ 1,000,846 $ 218,906 $ 1,381 $ 41,738ALLOCATEDWorking Capital $ 9,065,216 $ 1,047,764 $ 7,517,944 $ 478,276 $ 9,536 $ 11,696Revolving Funds 4,879,358 4,879,358Encumbrances 251,511 87,372 99,394 64,745Total Allocated Net Assets $ 14,196,085 $ 1,047,764 $ 12,484,674 $ 577,670 $ 9,536 $ 76,441UNALLOCATED $ 7,176,599 $ 398,205 $ 6,189,768 $ 552,219 $ 11,228 $ 25,178Total Net Assets - June 30, 2011 $ 21,372,684 $ 1,445,969 $ 18,674,442 $ 1,129,889 $ 20,764 $ 101,620Percent Unallocated of Expend. & Transfers 3.65% 3.83% 3.64% 4.22% 10.47% 0.87%FY 2011-12 REVISED BUDGETEstimated Net Assets at Beginning of Year $ 21,372,684 $ 1,445,969 $ 18,674,442 $ 1,129,889 $ 20,764 $ 101,620Operating FundsRevenue $ 198,219,661 $ 7,791,217 $ 174,669,433 $ 12,929,062 $ 95,400 $ 2,734,549Less: Expenditures and Transfers (198,219,661) (7,791,217) (174,669,433) (12,929,062) (95,400) (2,734,549)Carryover Funds To/(From) Net Assets $ - $ - $ - $ - $ - $-ALLOCATEDWorking Capital $ 9,065,216 $ 1,047,764 $ 7,517,944 $ 478,276 $ 9,536 $ 11,696Revolving Funds 4,879,358 4,879,358Encumbrances 261,511 10,000 87,372 99,394 64,745Total Allocated Net Assets $ 14,206,085 $ 1,057,764 $ 12,484,674 $ 577,670 $ 9,536 $ 76,441UNALLOCATED $ 7,166,599 $ 388,205 $ 6,189,768 $ 552,219 $ 11,228 $ 25,178Total Net Assets - October 31, 2011 $ 21,372,684 $ 1,445,969 $ 18,674,442 $ 1,129,889 $ 20,764 $ 101,620Percent Unallocated of Expend. & Transfers 3.62% 4.98% 3.54% 4.27% 11.77% 0.92%21Schedule 5107

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionUniversity of Tennessee SystemFY 2012 Revised Budget SummaryCurrent Funds Revenues, Expenditures and Transfers - UNRESTRICTED4Total System Chattanooga Knoxville Martin Space InstituteEDUCATIONAL AND GENERALRevenues (E&G)Tuition & Fees $ 490,914,464 $ 72,474,896 $ 288,388,884 $ 52,853,644 1,848,499Health ScienceCenterInstitue ofAgricultureInstitute forPublic ServiceUniversity-WideAdministration$ $ 64,860,366 $ 10,488,175State Appropriations 413,278,531 35,050,139 148,018,704 25,217,911 7,391,269 118,310,558 66,317,743 $ 8,474,852 $ 4,497,355Grants & Contracts 43,656,197 582,038 20,750,000 345,500 528,282 16,566,979 4,141,177 742,221Sales & Service 51,252,652 4,268,072 7,838,570 2,836,413 25,000 18,617,655 17,616,295 50,647Other Sources 53,760,636 885,109 8,708,661 656,800 2,000 4,290,162 15,941,630 6,293,274 16,983,000Total Revenues $ 1,052,862,480 $ 113,260,254 $ 473,704,819 $ 81,910,268 $ 9,795,050 $ 222,645,720 $ 114,505,020 $ 15,510,347 $ 21,531,002Expenditures (E&G)Instruction $ 470,066,999 $ 51,893,508 $ 220,521,089 $ 40,304,518 $ 4,939,893 $ 122,768,080 $ 29,639,911Research 92,064,457 1,939,584 36,274,968 606,604 1,255,084 11,184,269 40,803,948Public Service 77,066,360 2,336,038 9,905,513 583,952 67,275 360,491 49,762,202 $ 14,050,889Academic Support 117,556,200 8,550,451 54,970,213 10,193,608 536,138 36,183,801 6,875,260 246,729Student Services 76,987,083 18,340,910 43,300,218 10,525,114 69,139 4,751,702Institutional Support 125,724,376 10,565,477 37,717,235 6,336,111 1,371,469 24,778,226 2,042,431 1,079,648 $ 41,833,779Op/Maint Physical Plant 119,981,681 17,420,134 57,242,172 12,550,792 1,852,612 27,454,854 3,461,117Scholarships/Fellowships 68,297,956 9,270,158 43,308,332 7,075,610 128,410 8,475,446 40,000Sub-total Expenditures $ 1,147,745,112 $ 120,316,260 $ 503,239,740 $ 88,176,309 $ 10,220,020 $ 235,956,869 $ 132,624,869 $ 15,377,266 $ 41,833,779Mandatory Transfers 7,223,477 615,007 1,859,385 746,700 4,002,385 - -Non Mandatory Transfers (46,269,729) (6,028,692) (28,181,221) (287,385) (424,970) 9,766,274 (2,064,662) 457,743 (19,506,816)Total Expenditures & Transfers $ 1,108,698,860 $ 114,902,575 $ 476,917,904 $ 88,635,624 $ 9,795,050 $ 249,725,528 $ 130,560,207 $ 15,835,009 $ 22,326,963Fund Balance Addition/(Reduction) $ (55,836,380) $ (1,642,321) $ (3,213,085) $ (6,725,356) $ - $ (27,079,808) $ (16,055,187) $ (324,662) $ (795,961)AUXILIARIESRevenues $ 198,219,661 $ 7,791,217 $ 174,669,433 $ 12,929,062 $ 95,400 $ 2,734,549Expenditures & TransfersExpenditures 137,703,767 4,158,033 121,453,982 9,506,891 200,672 2,384,189Mandatory Transfers 29,549,091 2,282,677 23,735,902 3,180,152 350,360Non Mandatory Transfers 30,966,803 1,350,507 29,479,549 242,019 (105,272) -Total Expenditures & Transfers $ 198,219,661 $ 7,791,217 $ 174,669,433 $ 12,929,062 $ 95,400 $ 2,734,549Fund Balance Addition/(Reduction)TOTALSRevenues $ 1,251,082,141 $ 121,051,471 $ 648,374,252 $ 94,839,330 $ 9,890,450 $ 225,380,269 $ 114,505,020 $ 15,510,347 $ 21,531,002Expenditures & TransfersExpenditures $ 1,285,448,879 $ 124,474,293 $ 624,693,722 $ 97,683,200 $ 10,420,692 $ 238,341,058 $ 132,624,869 $ 15,377,266 $ 41,833,779Mandatory Transfers 36,772,568 2,897,684 25,595,287 3,926,852 - 4,352,745Non Mandatory Transfers (15,302,926) (4,678,185) 1,298,328 (45,366) (530,242) 9,766,274 (2,064,662) 457,743 (19,506,816)Total Expenditures & Transfers $ 1,306,918,521 $ 122,693,792 $ 651,587,337 $ 101,564,686 $ 9,890,450 $ 252,460,077 $ 130,560,207 $ 15,835,009 $ 22,326,963Fund Balance Addition/(Reduction) $ (55,836,380) $ (1,642,321) $ (3,213,085) $ (6,725,356) $ - $ (27,079,808) $ (16,055,187) $ (324,662) $ (795,961)22Schedule 6108

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionUniversity of Tennessee SystemFY 2012 Revised Budget SummaryCurrent Funds Revenues, Expenditures and Transfers - UNRESTRICTED AND RESTRICTED4Total System Chattanooga Knoxville Martin Space InstituteEDUCATIONAL AND GENERALRevenues (E&G)Tuition & Fees $ 490,914,464 $ 72,474,896 $ 288,388,884 $ 52,853,644 1,848,499Health ScienceCenterInstitue ofAgricultureInstitute forPublic ServiceUniversity-WideAdministration$ $ 64,860,366 $ 10,488,175State Appropriations 429,400,539 35,806,981 157,685,673 25,508,538 8,206,464 121,304,755 67,915,921 $ 8,474,852 $ 4,497,355Grants & Contracts 578,947,058 45,305,567 225,050,000 40,335,500 2,278,282 183,690,979 39,597,509 7,689,221 35,000,000Sales & Service 51,252,652 4,268,072 7,838,570 2,836,413 25,000 18,617,655 17,616,295 50,647Other Sources 127,928,599 8,319,113 36,358,661 4,246,800 23,000 22,497,921 21,371,630 6,703,274 28,408,200Total Revenues $ 1,678,443,312 $ 166,174,629 $ 715,321,788 $ 125,780,895 $ 12,381,245 $ 410,971,676 $ 156,989,530 $ 22,867,347 $ 67,956,202Expenditures (E&G)Instruction $ 608,452,647 $ 58,678,483 $ 229,521,089 $ 45,293,065 $ 4,989,893 $ 238,668,080 $ 31,302,037Research 271,139,282 6,140,819 136,274,968 678,104 3,755,279 62,184,269 62,105,843Public Service 189,844,939 4,236,867 37,905,513 2,563,952 67,275 9,166,491 68,621,752 $ 21,407,889 $ 45,875,200Academic Support 134,195,764 10,250,625 63,270,213 10,369,608 537,138 42,489,801 7,031,650 246,729Student Services 80,508,325 18,837,152 45,500,218 11,350,114 69,139 4,751,702Institutional Support 127,953,394 10,807,068 37,997,235 6,347,111 1,378,469 25,792,226 2,167,858 1,079,648 42,383,779Op/Maint Physical Plant 120,085,549 17,420,202 57,307,172 12,554,092 1,872,612 27,454,854 3,476,617Scholarships/Fellowships 241,343,316 47,831,647 137,405,301 42,890,890 136,410 12,775,446 303,622Sub-total Expenditures $ 1,773,523,216 $ 174,202,863 $ 745,181,709 $ 132,046,936 $ 12,806,215 $ 423,282,869 $ 175,009,379 $ 22,734,266 $ 88,258,979Mandatory Transfers 7,223,477 615,007 1,859,385 746,700 4,002,385Non Mandatory Transfers (46,269,729) (6,028,692) (28,181,221) (287,385) (424,970) 9,766,274 (2,064,662) 457,743 (19,506,816)Total Expenditures & Transfers $ 1,734,476,964 $ 168,789,178 $ 718,859,873 $ 132,506,251 $ 12,381,245 $ 437,051,528 172,944,717 $ 23,192,009 $ 68,752,163Fund Balance Addition/(Reduction) $ (56,033,652) $ (2,614,549) $ (3,538,085) $ (6,725,356)$ (26,079,852) $ (15,955,187) $ (324,662) $ (795,961)AUXILIARIESRevenues $ 200,119,661 $ 7,791,217 $ 176,569,433 $ 12,929,062 $ 95,400 $ 2,734,549Expenditures & TransfersExpenditures 139,603,767 4,158,033 123,353,982 9,506,891 200,672 2,384,189Mandatory Transfers 29,549,091 2,282,677 23,735,902 3,180,152 350,360Non Mandatory Transfers 30,966,803 1,350,507 29,479,549 242,019 (105,272)Total Expenditures & Transfers $ 200,119,661 $ 7,791,217 $ 176,569,433 $ 12,929,062 $ 95,400 $ 2,734,549Fund Balance Addition/(Reduction)TOTALSRevenues $ 1,878,562,973 $ 173,965,846 $ 891,891,221 $ 138,709,957 $ 12,476,645 $ 413,706,225 $ 156,989,530 $ 22,867,347 $ 67,956,202Expenditures & TransfersExpenditures $ 1,913,126,983 $ 178,360,896 $ 868,535,691 $ 141,553,827 $ 13,006,887 $ 425,667,058 $ 175,009,379 $ 22,734,266 $ 88,258,979Mandatory Transfers 36,772,568 2,897,684 25,595,287 3,926,852 - 4,352,745 0Non Mandatory Transfers (15,302,926) (4,678,185) 1,298,328 (45,366) (530,242) 9,766,274 -2,064,662 457,743 (19,506,816)Total Expenditures & Transfers $ 1,934,596,625 $ 176,580,395 $ 895,429,306 $ 145,435,313 $ 12,476,645 $ 439,786,077 $ 172,944,717 $ 23,192,009 $ 68,752,163Fund Balance Addition/(Reduction) $ (56,033,652) $ (2,614,549) $ (3,538,085) $ (6,725,356) $ - $ (26,079,852) $ (15,955,187) $ (324,662) $ (795,961)23Schedule 7109

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - Action2008ActualUniversity of Tennessee SystemFive-Year Budget Summary ComparisonCurrent Funds Revenues, Expenditures and Transfers - UNRESTRICTED2009Actual2010Actual2011ActualFive-Year Change2012Revised Amount %4EDUCATIONAL AND GENERALRevenuesTuition & Fees $ 346,035,412 $ 371,825,051 $ 404,492,792 $ 448,985,457 $ 490,914,464 $ 144,879,052 41.9%State Appropriations 509,404,100 475,493,100 493,655,976 547,904,680 413,278,531 (96,125,569) -18.9%Grants & Contracts 74,399,100 72,448,783 53,956,890 48,030,769 43,656,197 (30,742,903) -41.3%Sales & Service 52,690,993 51,910,392 51,284,074 53,401,516 51,252,652 (1,438,341) -2.7%Other Sources 68,388,420 59,287,503 56,569,899 54,598,020 53,760,636 (14,627,784) -21.4%Total Revenues $ 1,050,918,025 $ 1,030,964,829 $ 1,059,959,631 $ 1,152,920,442 $ 1,052,862,480 $ 1,944,455 0.2%Expenditures and TransfersInstruction $ 433,964,197 $ 430,865,699 $ 406,155,354 $ 416,108,739 $ 470,066,999 $ 36,102,802 8.3%Research 74,843,064 76,991,687 71,473,143 71,584,377 92,064,457 17,221,393 23.0%Public Service 68,744,835 66,079,285 64,376,210 67,160,006 77,066,360 8,321,525 12.1%Academic Support 116,336,361 115,638,277 109,822,900 123,213,095 117,556,200 1,219,839 1.0%Student Services 72,341,186 74,668,023 76,029,939 76,356,505 76,987,083 4,645,897 6.4%Institutional Support 105,311,063 104,478,649 101,730,693 107,386,428 125,724,376 20,413,313 19.4%Op/Maint Physical Plant 97,819,062 104,838,903 103,430,455 118,655,716 119,981,681 22,162,619 22.7%Scholarships/Fellowships 48,299,375 51,077,044 53,293,356 61,243,822 68,297,956 19,998,581 41.4%Sub-total Expenditures $ 1,017,659,143 $ 1,024,637,566 $ 986,312,050 $ 1,041,708,688 $ 1,147,745,112 $ 130,085,969 12.8%Mandatory Transfers (In)/Out 6,339,175 6,497,004 6,920,547 7,226,437 7,223,477 884,302 13.9%Non Mandatory Transfers (In)/Out 14,115,383 715,045 29,839,063 93,802,280 (46,269,729) (60,385,112) -427.8%Total Expenditures & Transfers $ 1,038,113,700 $ 1,031,849,615 $ 1,023,071,660 $ 1,142,737,405 $ 1,108,698,860 $ 70,585,160 6.8%Fund Balance Addition/(Reduction) 12,804,325 (884,786) 36,887,971 10,183,038 (55,836,380)AUXILIARIESRevenues 166,939,489 176,238,268 192,521,122 197,856,791 198,219,661 31,280,172 18.7%Expenditures and Transfers -Expenditures 130,303,245 134,271,106 131,394,376 141,182,612 137,703,767 7,400,522 5.7%Mandatory Transfers (In)/Out 16,321,163 23,926,574 22,428,284 23,923,900 29,549,091 13,227,928 81.0%Non Mandatory Transfers (In)/Out 19,111,727 15,287,710 37,778,066 31,328,086 30,966,803 11,855,076 62.0%Total Expenditures & Transfers $ 165,736,135 $ 173,485,389 $ 191,600,726 $ 196,434,598 $ 198,219,661 $ 32,483,526 19.6%Fund Balance Addition/(Reduction) 1,203,354 2,752,879 920,396 1,422,193 -TOTALSRevenues 1,217,857,514 1,207,203,097 1,252,480,753 1,350,777,233 1,251,082,141 33,224,627 2.7%Expenditures 1,147,962,388 1,158,908,672 1,117,706,426 1,182,891,300 1,285,448,879 137,486,491 12.0%Mandatory Transfers 22,660,338 30,423,578 29,348,831 31,150,337 36,772,568 14,112,230 62.3%Non-Mandatory Transfers 33,227,110 16,002,755 67,617,129 125,130,366 (15,302,926) (48,530,036) -146.1%Total Expenditures & Transfers $ 1,203,849,836 $ 1,205,335,004 $ 1,214,672,386 $ 1,339,172,003 $ 1,306,918,521 $ 103,068,685 8.6%Fund Balance Addition/(Reduction) $ 14,007,678 $ 1,868,093 $ 37,808,367 $ 11,605,230 $ (55,836,380)24Schedule 8110

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionUniversity of Tennessee SystemFive-Year Budget Summary ComparisonCurrent Funds Revenues, Expenditures and Transfers - UNRESTRICTED AND RESTRICTEDFY 2008 FY 2009 FY 2010 FY 2011 FY 2012FIVE-YEAR CHANGEACTUAL ACTUAL ACTUAL ACTUAL REVISED Amount %EDUCATIONAL AND GENERALRevenuesTuition & Fees $ 346,035,411 $ 371,825,051 $ 404,492,792 $ 448,985,458 $ 490,914,464 $ 144,879,053 41.9%State Appropriations 533,758,089 497,947,300 516,305,505 569,824,232 440,345,739 (93,412,350) -17.5%Grants & Contracts 440,755,579 491,697,255 515,951,220 588,820,146 578,947,058 138,191,479 31.4%Sales & Services 52,690,993 51,910,392 51,284,074 53,401,514 51,252,652 (1,438,341) -2.7%Other Sources 132,999,334 129,357,528 128,907,344 116,974,365 116,983,399 (16,015,935) -12.0%Total Revenues $ 1,506,239,406 $ 1,542,737,526 $ 1,616,940,935 $ 1,778,005,715 $ 1,678,443,312 $ 172,203,906 11.4%Expenditures and TransfersInstruction $ 524,476,964 $ 529,975,158 $ 530,487,275 $ 561,323,285 $ 608,452,647 $ 83,975,683 16.0%Research 215,280,209 253,700,070 248,046,616 263,910,986 271,139,282 55,859,073 25.9%Public Service 136,060,800 132,234,699 128,580,176 158,439,055 189,844,939 53,784,139 39.5%Academic Support 125,954,894 128,260,016 122,912,760 141,363,492 134,195,764 8,240,870 6.5%Student Services 75,975,234 78,046,581 79,291,733 79,778,059 80,508,325 4,533,091 6.0%Institutional Support 107,541,338 106,654,464 103,937,697 109,799,114 127,953,394 20,412,056 19.0%Operation & Maintenance of Plant 97,964,531 104,883,266 103,490,677 118,763,903 120,085,549 22,121,018 22.6%Scholarships & Fellowships 167,794,251 185,189,507 210,221,367 234,191,229 241,343,316 73,549,065 43.8%Sub-total Expenditures $ 1,451,048,220 $ 1,518,943,762 $ 1,526,968,301 $ 1,667,569,123 $ 1,773,523,216 $ 322,474,996 22.2%Mandatory Transfers (In)/Out 6,339,175 6,497,004 6,920,547 7,226,437 7,223,477 884,302 13.9%Non-Mandatory Transfers (In)/Out 14,115,383 715,045 29,839,063 93,802,280 (46,269,729) (60,385,112) -427.8%Total Expenditures and Transfers $ 1,471,502,778 $ 1,526,155,811 $ 1,563,727,910 $ 1,768,597,840 $ 1,734,476,964 $ 262,974,186 17.9%Fund Balance Addition/(Reduction) $ 34,736,628 $ 16,581,715 $ 53,213,024 $ 9,407,875 $ (56,033,652)4AUXILIARIESRevenues $ 167,930,226 $ 177,130,325 $ 193,135,354 $ 198,601,840 $ 200,119,661 $ 32,189,435 19.2%Expenditures and TransfersExpenditures $ 130,769,438 $ 134,673,629 $ 131,722,007 $ 141,571,262 $ 139,603,767 $ 8,834,329 6.8%Mandatory Transfers 16,321,163 23,926,574 22,428,284 23,923,900 29,549,091 13,227,928 81.0%Non-Mandatory Transfers 19,111,727 15,287,710 37,778,066 31,328,086 30,966,803 11,855,076 62.0%Total Expenditures and Transfers $ 166,202,328 $ 173,887,913 $ 191,928,357 $ 196,823,248 $ 200,119,661 $ 33,917,333 20.4%Fund Balance Addition/(Reduction) $ 1,727,898 $ 3,242,412 $ 1,206,997 $ 1,778,592 $-TOTALSRevenues $ 1,674,169,632 $ 1,719,867,851 $ 1,810,076,289 $ 1,976,607,555 $ 1,878,562,973 $ 204,393,341 12.2%Expenditures and TransfersExpenditures $ 1,581,817,659 $ 1,653,617,391 $ 1,658,690,308 $ 1,809,140,385 $ 1,913,126,983 $ 331,309,324 20.9%Mandatory Transfers 22,660,339 30,423,578 29,348,831 31,150,337 36,772,568 14,112,229 62.3%Non-Mandatory Transfers 33,227,109 16,002,755 67,617,129 125,130,366 (15,302,926) (48,530,035) -146.1%Total Expenditures and Transfers $ 1,637,705,106 $ 1,700,043,724 $ 1,755,656,267 $ 1,965,421,088 $ 1,934,596,625 $ 296,891,519 18.1%Fund Balance Addition/(Reduction) $ 36,464,526 $ 19,824,127 $ 54,420,021 $ 11,186,467 $ (56,033,652)25Schedule 9111

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionUniversity of Tennessee SystemFY 2012 Revised Budget SummaryUnrestricted and Restricted Current Funds Revenue, Expenditures, and TransfersCHANGEFY 2011 ACTUAL FY 2012 ORIGINAL FY 2012 REVISEDOriginal To RevisedUnrestricted Restricted Total Unrestricted Restricted (1) Total Unrestricted Restricted Total Amount %EDUCATION AND GENERALRevenuesTuition & Fees $ 448,985,458$ 448,985,458 $ 488,391,964$ 488,391,964 $ 490,914,464$ 490,914,464 $ 2,522,500 0.5%State Appropriations 547,904,679 $ 21,919,553 569,824,232 411,348,082 $ 29,002,307 440,350,389 413,278,531 $ 27,067,208 440,345,739 (4,650) 0.0%Grants & Contracts 48,030,770 540,789,376 588,820,146 43,526,073 519,007,986 562,534,059 43,656,197 535,290,861 578,947,058 16,412,999 2.9%Sales & Service 53,401,514 53,401,514 50,566,561 50,566,561 51,252,652 51,252,652 686,091 1.4%Other Sources 54,598,020 62,376,346 116,974,366 51,874,695 67,793,607 119,668,302 53,760,636 63,222,763 116,983,399 (2,684,903) -2.2%Total Revenues $ 1,152,920,441 $ 625,085,275 $ 1,778,005,716 $ 1,045,707,375 $ 615,803,900 $ 1,661,511,275 $ 1,052,862,480 $ 625,580,832 $ 1,678,443,312 $ 16,932,037 1.0%4Expenditures and TransfersInstruction $ 416,108,737 $ 145,214,548 $ 561,323,285 $ 462,733,067 $ 137,571,541 $ 600,304,608 $ 470,066,999 $ 138,385,648 $ 608,452,647 $ 8,148,039 1.4%Research 71,584,378 192,326,608 263,910,986 65,755,913 175,235,404 240,991,317 92,064,457 179,074,825 271,139,282 30,147,965 12.5%Public Service 67,160,007 91,279,048 158,439,055 66,808,136 107,992,179 174,800,315 77,066,360 112,778,579 189,844,939 15,044,624 8.6%Academic Support 123,213,093 18,150,399 141,363,492 109,315,624 15,547,064 124,862,688 117,556,200 16,639,564 134,195,764 9,333,076 7.5%Student Services 76,356,504 3,421,555 79,778,059 73,023,477 1,651,242 74,674,719 76,987,083 3,521,242 80,508,325 5,833,606 7.8%Institutional Support 107,386,429 2,412,685 109,799,114 115,607,836 2,665,118 118,272,954 125,724,376 2,229,018 127,953,394 9,680,440 8.2%Operation & Maintenance of Plant 118,655,716 108,186 118,763,902 110,618,523 102,068 110,720,591 119,981,681 103,868 120,085,549 9,364,958 8.5%Scholarships & Fellowships 61,243,822 172,947,407 234,191,229 65,773,109 175,948,691 241,721,800 68,297,956 173,045,360 241,343,316 (378,484) -0.2%Sub-total Expenditures $ 1,041,708,686 $ 625,860,436 $ 1,667,569,122 $ 1,069,635,685 $ 616,713,307 $ 1,686,348,992 $ 1,147,745,112 $ 625,778,104 $ 1,773,523,216 $ 87,174,224 5.2%Mandatory Transfers (In)/Out 7,226,437 7,226,437 7,208,477 7,208,477 7,223,477 7,223,477 15,000 0.2%Non-Mandatory Transfers (In)/Out 93,802,280 93,802,280 (27,237,991) (27,237,991) (46,269,729) (46,269,729) (19,031,738) 69.9%Total Expenditures & Transfers $ 1,142,737,403 $ 625,860,436 $ 1,768,597,839 $ 1,049,606,171 $ 616,713,307 $ 1,666,319,478 $ 1,108,698,860 $ 625,778,104 $ 1,734,476,964 $ 68,157,486 4.1%Fund Balance Addition / (Reduction) 10,183,038 (775,161) 9,407,877 (3,898,796) (909,407) (4,808,203) (55,836,380) (197,272) (56,033,652) (51,225,449) 1065.4%AUXILIARIESRevenues $ 197,856,791 $ 745,049 $ 198,601,840 $ 197,374,326 $ 1,900,000 $ 199,274,326 $ 198,219,661 $ 1,900,000 $ 200,119,661 $ 845,335 0.4%Expenditures and TransfersExpenditures $ 141,182,612 $ 388,650 141,571,262 $ 136,121,195 $ 1,900,000 $ 138,021,195 $ 137,703,767 $ 1,900,000 $ 139,603,767 $ 1,582,572 1.1%Mandatory Transfers 23,923,900 23,923,900 29,695,519 29,695,519 29,549,091 29,549,091 (146,428) -0.5%Non Mandatory Transfers 31,328,086 31,328,086 31,557,612 31,557,612 30,966,803 30,966,803 (590,809) -1.9%Total Expenditures & Transfers $ 196,434,598 $ 388,650 $ 196,823,248 $ 197,374,326 $ 1,900,000 $ 199,274,326 $ 198,219,661 $ 1,900,000 $ 200,119,661 $ 845,335 0.4%Fund Balance Addition / (Reduction) 1,422,193 356,399 1,778,592 - - - - - -TOTALSRevenues $ 1,350,777,232 $ 625,830,324 $ 1,976,607,556 $ 1,243,081,701 $ 617,703,900 $ 1,860,785,601 $ 1,251,082,141 $ 627,480,832 $ 1,878,562,973 $ 17,777,372 1.0%Expenditures and TransfersExpenditures $ 1,182,891,298 $ 626,249,086 $ 1,809,140,384 $ 1,205,756,880 $ 618,613,307 $ 1,824,370,187 $ 1,285,448,879 $ 627,678,104 $ 1,913,126,983 $ 88,756,796 4.9%Mandatory Transfers 31,150,337 31,150,337 36,903,996 36,903,996 36,772,568 36,772,568 (131,428) -0.4%Non Mandatory Transfers 125,130,366 125,130,366 4,319,621 4,319,621 (15,302,926) (15,302,926) (19,622,547) -454.3%Total Expenditures & Transfers $ 1,339,172,001 $ 626,249,086 $ 1,965,421,087 $ 1,246,980,497 $ 618,613,307 $ 1,865,593,804 $ 1,306,918,521 $ 627,678,104 $ 1,934,596,625 $ 69,002,821 3.7%Fund Balance Addition / Reduction $ 11,605,231 $ (418,762) $ 11,186,469 $ (3,898,796) $ (909,407) $ (4,808,203) $ (55,836,380) $ (197,272) $ (56,033,652)Footnotes:1. FY12 original budget for restricted instruction and public service were reported incorrectly in the FY12 original budget document. These have been corrected in this schedule.26Schedule 10112

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionUniversity of Tennessee SystemFY 2012 Revised Budget - Natural ClassificationsUnrestricted Current Funds Expenditures4Health ScienceInstitute ofInstitute forTotal System Chattanooga Knoxville Martin Space Institute Center Agriculture Public ServiceUniversity-WideAdministrationEDUCATIONAL AND GENERALSalaries and BenefitsSalariesAcademic $ 292,047,270 $ 33,972,704 $ 130,577,048 $ 22,805,422 $ 2,383,513 $ 75,621,127 $ 26,232,786 $ 289,797 $ 164,873Non-Academic 262,637,834 25,807,185 101,153,987 17,166,541 2,430,073 51,265,132 37,403,811 8,099,201 19,311,904Students 7,428,854 , 679,295 3,658,397 , 1,635,387 , 755,637 470,512 70,400 159,226Total Salaries $ 562,113,958 $ 60,459,184 $ 235,389,432 $ 41,607,350 $ 4,813,586 $ 127,641,896 $ 64,107,109 $ 8,459,398 $ 19,636,003Staff Benefits 189,514,121 21,002,423 77,067,059 15,103,135 1,664,879 41,383,378 23,812,073 2,799,728 6,681,446Total Salaries and Benefits $ 751,628,079 $ 81,461,607 $ 312,456,491 $ 56,710,485 $ 6,478,465 $ 169,025,274 $ 87,919,182 $ 11,259,126 $ 26,317,449Operating 366,376,397 36,857,975 176,631,294 28,730,081 3,698,516 58,598,901 42,445,581 3,998,719 15,415,330Equipment and Capital Outlay 29,740,636 1,996,678 14,151,955 2,735,743 43,039 8,332,694 2,260,106 119,421 101,000Total Expenditures $ 1,147,745,112 $ 120,316,260 $ 503,239,740 $ 88,176,309 $ 10,220,020 $ 235,956,869 $ 132,624,869 $ 15,377,266 $ 41,833,779AUXILIAIRESSalaries and BenefitsSalariesAcademic $ 523,981 $ 7,000 $ 513,918 $ 3,063Non-Academic 36,175,665 1,301,417 32,439,781 1,545,942 $ 49,971 $ 838,554Students 3,907,510 182,223 3,138,666 586,621Total Salaries $ 40,607,156$ 1,490,640$ 36,092,365$ 2,135,626$ 49,971$ 838,554Staff Benefits 11,090,049 305,438 9,715,649 697,568 43,001 328,393Total Salaries and Benefits $ 51,697,205 $ 1,796,078 $ 45,808,014 $ 2,833,194 $ 92,972 $ 1,166,947Operating 85,081,754 2,356,955 74,732,860 6,666,997 107,700 1,217,242Equipment and Capital Outlay 924,808 5,000 913,108 6,700Total Expenditures $ 137,703,767 $ 4,158,033 $ 121,453,982 $ 9,506,891 $ 200,672 $ 2,384,189TOTALSSalaries and BenefitsSalariesAcademic $ 292,571,251 $ 33,979,704 $ 131,090,966 $ 22,808,485 $ 2,383,513 $ 75,621,127 $ 26,232,786 $ 289,797 $ 164,873Non-Academic 298,813,499 27,108,602 133,593,768 18,712,483 2,480,044 52,103,686 37,403,811 8,099,201 19,311,904Students 11,336,364 861,518 6,797,063 2,222,008 - 755,637 470,512 70,400 159,226Total Salaries $ 602,721,114 $ 61,949,824 $ 271,481,797 $ 43,742,976 $ 4,863,557 $ 128,480,450 $ 64,107,109 $ 8,459,398 $ 19,636,003Sa Staff Benefits e 200,604,170 , 0 21,307,861 ,86 86,782,7088 , 15,800,703 03 1,707,880 ,880 41,711,771 , 23,812,073 ,0 3 2,799,728 6,681,446, 6Total Salaries and Benefits $ 803,325,284 $ 83,257,685 $ 358,264,505 $ 59,543,679 $ 6,571,437 $ 170,192,221 $ 87,919,182 $ 11,259,126 $ 26,317,449Operating 451,458,151 39,214,930 251,364,154 35,397,078 3,806,216 59,816,143 42,445,581 3,998,719 15,415,330Equipment and Capital Outlay 30,665,444 2,001,678 15,065,063 2,742,443 43,039 8,332,694 2,260,106 119,421 101,000Total Expenditures $ 1,285,448,879 $ 124,474,293 $ 624,693,722 $ 97,683,200 $ 10,420,692 $ 238,341,058 $ 132,624,869 $ 15,377,266 $ 41,833,77927Schedule 11113

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionUniversity of Tennessee SystemNatural Classification SummaryFY 2012 Revised BudgetUnrestricted Current Funds Expenditures4CHANGEFY 2011 FY 2012 FY 2012Original to RevisedACTUAL ORIGINAL REVISED Amount %EDUCATIONAL AND GENERALSalaries and BenefitsSalariesAcademic $ 276,463,912 $ 288,534,851 $ 292,047,270 $ 3,512,419 1.2%Non-Academic 268,145,417 256,164,963 262,637,834 6,472,871 2.5%Students 8,969,843 6,984,732 7,428,854 444,122 6.4%Total Salaries $ 553,579,172 $ 551,684,546 $ 562,113,958 $ 10,429,412 1.9%Staff Benefits 186,956,534 , 187,912,381 , 189,514,121 , 1,601,740 , 0.9%Total Salaries and Benefits $ 740,535,706 $ 739,596,927 $ 751,628,079 $ 12,031,152 1.6%Operating 261,821,991 308,057,718 366,376,397 58,318,679 18.9%Equipment and Capital Outlay 39,351,055 21,981,040 29,740,636 7,759,596 35.3%Total Expenditures $ 1,041,708,752 $ 1,069,635,685 $ 1,147,745,112 $ 78,109,427 7.3%AUXILIARIESSalaries and BenefitsSalariesAcademic $ 528,088 $ 509,617 $ 523,981 $ 14,364 2.8%Non-Academic 38,677,721 35,267,519 36,175,665 908,146 2.6%Students 3,967,392 3,882,090 3,907,510 25,420 0.7%Total Salaries $ 43,173,201 $ 39,659,226 $ 40,607,156 $ 947,930 2.4%Staff Benefits 12,541,600 11,020,715 11,090,049 69,334 0.6%Total Salaries and Benefits $ 55,714,801 $ 50,679,941 $ 51,697,205 $ 1,017,264 2.0%Operating 84,916,642 84,516,446 85,081,754 565,308 0.7%Equipment and Capital Outlay 551,168 924,808 924,808 - 0.0%Total Expenditures $ 141,182,611 $ 136,121,195 $ 137,703,767 $ 1,582,572 1.2%TOTALSSalaries and BenefitsSalariesAcademic $ 276,992,000 $ 289,044,468 $ 292,571,251 $ 3,526,783 1.2%Non-Academic 306,823,138 291,432,482 298,813,499 7,381,017 2.5%Students 12,937,235 10,866,822 11,336,364 469,542 4.3%Total Salaries $ 596,752,373 $ 591,343,772 $ 602,721,114 $ 11,377,342 1.9%Staff Benefits 199,498,134 198,933,096 200,604,170 1,671,074 0.8%Total Salaries and Benefits $ 796,250,507 $ 790,276,868 $ 803,325,284 $ 13,048,416 1.7%Operating 346,738,633 392,574,164 451,458,151 58,883,987 15.0%Equipment and Capital Outlay 39,902,223 22,905,848 30,665,444 7,759,596 33.9%Total Expenditures $ 1,182,891,363 $ 1,205,756,880 $ 1,285,448,879 $ 79,691,999 6.6%28Schedule 12114

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionHOUSINGChangeFY 2011 FY 2012 FY 2012Original to RevisedACTUAL ORIGINAL REVISED Amount %Revenues $ 52,281,842 $ 53,200,489 $ 53,254,101 $ 53,612 0.1%Expenditures and TransfersExpenditures $ 32,273,315 $ 34,645,361 $ 35,285,015 $ 639,654 1.8%Mandatory Transfers 10,493,614 11,882,449 11,882,449Non-Mandatory Transfers 10,005,888 6,759,089 6,173,047 (586,042) -8.7%Total Expenditures and Transfers $ 52,772,817 $ 53,286,899 $ 53,340,511 $ 53,612 0.1%Fund Balance Addition/(Reduction) $ (490,975) $ (86,410) $ (86,410)FOOD SERVICERevenues $ 4,880,434 $ 4,906,039 $ 4,907,263 $ 1,224 0.0%Expenditures and TransfersExpenditures $ 1,948,376 $ 1,857,886 $ 1,864,243 $ 6,357 0.3%Mandatory Transfers 67,851Non-Mandatory Transfers 2,687,765 2,745,780 2,741,013 (4,767) -0.2%Total Expenditures and Transfers $ 4,703,991 $ 4,603,666 $ 4,605,256 $ 1,590 0.0%Fund Balance Addition/(Reduction) $ 176,443 $ 302,373 $ 302,007BOOKSTORESRevenues $ 24,901,216 $ 23,707,403 $ 23,707,629 $ 226 0.0%Expenditures and TransfersExpenditures $ 23,135,972 $ 21,263,353 $ 21,263,945 $ 592 0.0%Mandatory Transfers 55,243 109,418 109,418Non-Mandatory Transfers 1,849,788 2,059,238 2,059,238Total Expenditures and Transfers $ 25,041,003 $ 23,432,009 $ 23,432,601 $ 592 0.0%Fund Balance Addition/(Reduction) $ (139,787) $ 275,394 $ 275,028PARKINGRevenues $ 12,108,439 $ 11,964,153 $ 11,999,001 $ 34,848 0.3%Expenditures and TransfersExpenditures $ 6,646,538 $ 7,663,415 $ 7,698,263 $ 34,848 0.5%Mandatory Transfers 3,165,126 3,398,587 3,398,587Non-Mandatory Transfers 3,307,707 888,591 888,591Total Expenditures and Transfers $ 13,119,370 $ 11,950,593 $ 11,985,441 $ 34,848 0.3%Fund Balance Addition/(Reduction) $ (1,010,932) $ 13,560 $ 13,560ATHLETICSRevenues $ 94,525,358 $ 96,521,589 $ 97,560,963 $ 1,039,374 1.1%Expenditures and TransfersExpenditures $ 68,171,657 $ 63,966,589 $ 65,005,963 $ 1,039,374 1.6%Mandatory Transfers 10,142,066 14,000,000 14,000,000Non-Mandatory Transfers 16,195,006 18,555,000 18,555,000Total Expenditures and Transfers $ 94,508,729 $ 96,521,589 $ 97,560,963 $ 1,039,374 1.1%Fund Balance Addition/(Reduction) $ 16,629 $ - $-OTHERRevenues $ 9,159,503 $ 7,074,653 $ 6,790,704 $ (283,949) -4.0%Expenditures and TransfersExpenditures $ 9,006,755 $ 6,724,591 $ 6,586,338 $ (138,253) -2.1%Mandatory Transfers 305,065 158,637 (146,428) -48.0%Non-Mandatory Transfers (2,718,068) 549,914 549,914Total Expenditures and Transfers $ 6,288,687 $ 7,579,570 $ 7,294,889 $ (284,681) -3.8%Fund Balance Addition/(Reduction) $ 2,870,815 $ (504,917) $ (504,185)TOTALUniversity of Tennessee SystemFY 2012 Revised Budget SummaryAuxiliary Enterprises Funds Revenues, Expenditures and TransfersRevenues $ 197,856,792 $ 197,374,326 $ 198,219,661 $ 845,335 0.4%Expenditures and TransfersExpenditures $ 141,182,613 $ 136,121,195 $ 137,703,767 $ 1,582,572 1.2%Mandatory Transfers 23,923,900 29,695,519 29,549,091 (146,428) -0.5%Non-Mandatory Transfers 31,328,085 31,557,612 30,966,803 (590,809) -1.9%Total Expenditures and Transfers $ 196,434,598 $ 197,374,326 $ 198,219,661 $ 845,335 0.4%Fund Balance Addition/(Reduction) $ 1,422,194 $ - $-429Schedule 13115

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionUniversity of Tennessee SystemAthletics Revenues, Expenditures and TransfersE&G and Auxiliary Funds for Men's and Women's AthleticsKNOXVILLEFY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FIVE-YEAR CHANGEACTUAL ACTUAL ACTUAL ACTUAL REVISED Amount %RevenuesGeneral FundsStudent Fees for Athletics $ 1,000,000 $ 1,000,000 $ 1,000,000 $ 1,000,000 $ 1,000,000 $ - -Ticket Sales 30,776,552 33,250,221 37,689,669 34,799,207 38,125,000 7,348,448 23.9%Gifts 26,378,705 21,354,097 25,508,512 26,554,657 28,950,000 2,571,295 9.7%Other 29,646,650 32,660,979 36,532,258 40,141,340 36,175,000 6,528,350 22.0%Total Revenues $ 87,801,907 $ 88,265,297 $ 100,730,439 $ 102,495,204 $ 104,250,000 $ 16,448,093 18.7%Expenditures and TransfersSalaries and Benefits $ 29,727,645 $ 38,124,245 $ 35,844,160 $ 38,361,583 $ 34,509,022 $ 4,781,377 16.1%Travel 8,144,583 6,931,055 6,505,978 6,835,168 7,770,200 (374,383) -4.6%Student Aid 7,574,184 6,008,908 8,105,044 8,873,639 9,588,000 2,013,816 26.6%Other Operating 25,919,545 23,734,734 28,495,090 28,958,686 26,767,778 848,233 3.3%Sub-total Expenditures $ 71,365,957 $ 74,798,942 $ 78,950,272 $ 83,029,076 $ 78,635,000 $ 7,269,043 10.2%Debt Service Transfers 8,183,667 10,904,429 429 7,657,353 10,142,066142 066 14,000,000 5,816,333 71.1% 1%Other Transfers 6,953,233 5,249,426 12,513,832 9,309,616 10,615,000 3,661,767 52.7%Total Expenditures and Transfers $ 86,502,857 $ 90,952,797 $ 99,121,457 $ 102,480,758 $ 103,250,000 $ 16,747,143 19.4%4Fund Balance Addition / (Reduction) $ 1,299,050 $ (2,687,500) $ 1,608,982 $ 14,446 $ 1,000,000 $ (299,050)CHATTANOOGARevenuesGeneral Funds $ 4,407,580 $ 4,797,811 $ 4,668,862 $ 5,034,581 $ 4,974,901 $ 567,321 12.9%Student Fees for Athletics 2,778,700 2,850,650 3,033,232 3,070,180 3,976,695 1,197,995 43.1%Ticket Sales 633,123 537,454 620,608 637,888 702,000 68,877 10.9%Gifts 1,022,419 1,224,191 1,515,486 1,285,002 1,208,801 186,382 18.2%Other 1,787,890 2,415,317 1,748,433 1,747,848 1,893,369 105,479 5.9%Total Revenues $ 10,629,712,$ 11,825,423,$ 11,586,621,$ 11,775,499,$ 12,755,766,$ 2,126,054, 20.0%Expenditures and TransfersSalaries and Benefits $ 4,077,409 $ 4,303,741 $ 4,529,881 $ 4,726,977 $ 4,508,991 $ 431,582 10.6%Travel 780,852 866,993 784,372 833,639 1,470,538 689,686 88.3%Student Aid 3,180,783 3,283,516 3,199,843 3,287,149 4,236,821 1,056,038 33.2%Other Operating 2,411,031 3,322,979 2,799,975 2,460,702 2,407,937 (3,094) -0.1%Sub-total Expenditures $ 10,450,075 $ 11,777,229 $ 11,314,071 $ 11,308,467 $ 12,624,287 $ 2,174,212 20.8%Debt Service Transfers 143,561 100,367 168,879 168,680 170,000 26,439 18.4%Other TransfersTotal Expenditures and Transfers $ 10,593,636 $ 11,877,596 $ 11,482,950 $ 11,477,147 $ 12,794,287 $ 2,200,651 20.8%Fund Balance Addition / (Reduction) $ 36,076 $ (52,173) $ 103,671 $ 298,352 $ (38,521) $ (74,597)MARTINRevenuesGeneral Funds $ 3,853,587 $ 3,790,947 $ 4,009,783 $ 4,431,339 $ 5,023,019 $ 1,169,432 30.3%Student Fees for Athletics 1,849,776 1,920,766 2,000,630 2,081,875 2,075,000 225,224 12.2%Ticket Sales 115,129 133,002 109,873 107,596 100,000 (15,129) -13.1%Gifts 605,868 566,234 418,092 669,728 537,200 (68,668) -11.3%Other 825,430 1,540,661 1,201,109 1,384,606 1,208,513 383,083 46.4%Total Revenues $ 7,249,790 $ 7,951,610 $ 7,739,487 $ 8,675,144 $ 8,943,732 $ 1,693,942 23.4%Expenditures and TransfersSalaries and Benefits $ 2,453,549 $ 2,619,888 $ 2,808,290 $ 2,812,169 $ 2,901,642 $ 448,093 18.3%Travel 626,697697 621,669669 562,215215 757,178 702,014014 75,317 12.0%Student Aid 2,756,147 2,879,012 2,816,472 3,431,486 3,475,488 719,341 26.1%Other Operating 1,241,227 1,655,222 1,484,727 1,567,162 1,657,944 416,717 33.6%Sub-total Expenditures $ 7,077,620 $ 7,775,791 $ 7,671,704 $ 8,567,995 $ 8,737,088 $ 1,659,468 23.4%Debt Service Transfers 129,326 24,203 0Other Transfers 206,644Total Expenditures and Transfers $ 7,077,620 $ 7,775,791 $ 7,801,030 $ 8,592,198 $ 8,943,732 $ 1,866,112 26.4%Fund Balance Addition / (Reduction) $ 172,170 $ 175,819 $ (61,543) $ 82,946 $ - $ (172,170)TOTAL ATHLETICSRevenuesGeneral Funds $ 8,261,167167$ 8,588,758$ 8,678,645645$ 9,465,920920$ 9,997,920997 920$ 1,736,75375321.0%Student Fees for Athletics 5,628,476 5,771,416 6,033,862 6,152,055 7,051,695 1,423,219 25.3%Ticket Sales 31,524,804 33,920,677 38,420,150 35,544,691 38,927,000 7,402,196 23.5%Gifts 28,006,992 23,144,522 27,442,090 28,509,387 30,696,001 2,689,009 9.6%Other 32,259,970 36,616,957 39,481,800 43,273,794 39,276,882 7,016,912 21.8%Total Revenues $ 105,681,409 $ 108,042,330 $ 120,056,547 $ 122,945,847 $ 125,949,498 $ 20,268,089 19.2%Expenditures and TransfersSalaries and Benefits $ 36,258,603 $ 45,047,874 $ 43,182,331 $ 45,900,729 $ 41,919,655 $ 5,661,052 15.6%Travel 9,552,132 8,419,717 7,852,565 8,425,985 9,942,752 390,620 4.1%Student Aid 13,511,114 12,171,436 14,121,359 15,592,274 17,300,309 3,789,195 28.0%Other Operating 29,571,803 28,712,935 32,779,792 32,986,550 30,833,659 1,261,856 4.3%Sub-total Expenditures $ 88,893,652 $ 94,351,962 $ 97,936,047 $ 102,905,538 $ 99,996,375 $ 11,102,723 12.5%Debt Service Transfers 8,327,228 228 11,004,796 7,955,558 558 10,334,949 14,170,000170 000 5,842,772 70.2%Other Transfers 6,953,233 5,249,426 12,513,832 9,309,616 10,821,644 3,868,411 55.6%Total Expenditures and Transfers $ 104,174,113 $ 110,606,184 $ 118,405,437 $ 122,550,103 $ 124,988,019 $ 20,813,906 20.0%Fund Balance Addition / (Reduction) $ 1,507,296 $ (2,563,854) $ 1,651,110 $ 395,744 $ 961,479 $ (545,817)NOTES:1. Data includes unrestricted and restricted funds. Other revenue sources include NCAA conference income, tournament income, program sales, concessions, parking, broadcasting,television, radio, internet, endowments, investments, royalties, advertisements, sponsorships, game guarantees, licensing fees, and sports camps.2. UTM FY10 is restated to include ARRA and MOE.30Schedule 14116

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionUniversity of Tennessee SystemFY 2012 Revised Budget SummaryUnrestricted Current Funds Revenue, Expenditures, and TransfersFY 2011ACTUALFY 2012ORIGINALCHANGEOriginal To RevisedFY 2012REVISED Amount %4EDUCATION AND GENERALRevenuesTuition & Fees $ 448,985,458 $ 488,391,964 $ 490,914,464 $ 2,522,500 0.5%State Appropriations 547,904,679 411,348,082 413,278,531 1,930,449 0.5%Grants & Contracts 48,030,769 43,526,073 43,656,197 130,124 0.3%Sales & Service 53,401,516 50,566,561 51,252,652 686,091 1.4%Other Sources 54,598,019 51,874,695 53,760,636 1,885,941 3.6%Total Revenues $ 1,152,920,441 $ 1,045,707,375 $ 1,052,862,480 $ 7,155,105 0.7%Expenditures and TransfersInstruction $ 416,108,737 $ 462,733,067 $ 470,066,999 $ 7,333,932 1.6%Research 71,584,378 65,755,913 92,064,457 26,308,544 40.0%Public Service 67,160,007 66,808,136 77,066,360 10,258,224 15.4%Academic Support 123,213,093 109,315,624 117,556,200 8,240,576 7.5%Student Services 76,356,504 73,023,477 76,987,083 3,963,606 5.4%Institutional Support 107,386,429 115,607,836 125,724,376 10,116,540 8.8%Operation & Maintenance of Plant 118,655,716 110,618,523 119,981,681 9,363,158 8.5%Scholarships & Fellowships 61,243,822 65,773,109 68,297,956 2,524,847 3.8%Sub-total Expenditures $ 1,041,708,686 $ 1,069,635,685 $ 1,147,745,112 $ 78,109,427 7.3%Mandatory Transfers (In)/Out 7,226,437 7,208,477 7,223,477 15,000 0.2%Non-Mandatory Transfers (In)/Out 93,802,280 (27,237,991) (46,269,729) (19,031,738) 69.9%Total Expenditures & Transfers $ 1,142,737,403 $ 1,049,606,171 $ 1,108,698,860 $ 59,092,689 5.6%Fund Balance Addition / (Reduction) 10,183,038 (3,898,796) (55,836,380) (51,937,584) 1332.1%AUXILIARIESRevenues $ 197,856,791 $ 197,374,326 $ 198,219,661 $ 845,335 0.4%Expenditures and TransfersExpenditures $ 141,182,612 $ 136,121,195 $ 137,703,767 $ 1,582,572 1.2%Mandatory Transfers 23,923,900 29,695,519 29,549,091 (146,428) -0.5%Non Mandatory Transfers 31,328,086 31,557,612 30,966,803 (590,809) -1.9%Total Expenditures & Transfers $ 196,434,598 $ 197,374,326 $ 198,219,661 $ 845,335 0.4%Fund Balance Addition / (Reduction) 1,422,193 - - -TOTALSRevenues $ 1,350,777,232 $ 1,243,081,701 $ 1,251,082,141 $ 8,000,440 0.6%Expenditures and TransfersExpenditures $ 1,182,891,298 $ 1,205,756,880 $ 1,285,448,879 $ 79,691,999 6.6%Mandatory Transfers 31,150,337 36,903,996 36,772,568 (131,428) -0.4%Non Mandatory Transfers 125,130,366 4,319,621 (15,302,926) (19,622,547) -454.3%Total Expenditures & Transfers $ 1,339,172,001 $ 1,246,980,497 $ 1,306,918,521 $ 59,938,024 4.8%Fund Balance Addition / Reduction $ 11,605,231 $ (3,898,796) $ (55,836,380) $ (51,937,584) 1332.1%31Schedule 15 - UT Total117

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionChattanoogaFY 2012 Revised Budget SummaryUnrestricted Current Funds Revenue, Expenditures, and TransfersFY 2011ACTUALFY 2012ORIGINALCHANGEOriginal To RevisedFY 2012REVISED Amount %4EDUCATION AND GENERALRevenuesTuition & Fees $ 68,130,826 $ 70,850,178 $ 72,474,896 $ 1,624,718 2.3%State Appropriations 48,591,279 34,563,819 35,050,139 486,320 1.4%Grants & Contracts 984,184 453,856 582,038 128,182 28.2%Sales & Service 4,686,039 4,076,303 4,268,072 191,769 4.7%Other Sources 687,578 871,361 885,109 13,748 1.6%Total Revenues $ 123,079,906 $ 110,815,517 $ 113,260,254 $ 2,444,737 2.2%Expenditures and TransfersInstruction $ 49,618,696 $ 48,394,032 $ 51,893,508 $ 3,499,476 7.2%Research 3,587,440 1,806,982 1,939,584 132,602 7.3%Public Service 2,142,039 2,155,602 2,336,038 180,436 8.4%Academic Support 8,893,860 7,926,775 8,550,451 623,676 7.9%Student Services 19,023,776 17,286,663 18,340,910 1,054,247 6.1%Institutional Support 8,877,499 9,204,499 10,565,477 1,360,978 14.8%Operation & Maintenance of Plant 13,376,796 13,944,079 17,420,134 3,476,055 24.9%Scholarships & Fellowships 7,361,302 9,695,393 9,270,158 (425,235) -4.4%Sub-total Expenditures $ 112,881,407 $ 110,414,025 $ 120,316,260 $ 9,902,235 9.0%Mandatory Transfers (In)/Out 1,050,828 600,007 615,007 15,000 2.5%Non-Mandatory Transfers (In)/Out 8,837,172 (265,095) (6,028,692) (5,763,597) 2174.2%Total Expenditures & Transfers $ 122,769,407 $ 110,748,937 $ 114,902,575 $ 4,153,638 3.8%Fund Balance Addition / (Reduction) 310,499 66,580 (1,642,321) (1,708,901) -2566.7%AUXILIARIESRevenues $ 10,564,234 $ 8,080,553 $ 7,791,217 $ (289,336) -3.6%Expenditures and TransfersExpenditures $ 8,182,773 $ 4,300,941 $ 4,158,033 $ (142,908) -3.3%Mandatory Transfers 1,757,492 2,429,105 2,282,677 (146,428) -6.0%Non Mandatory Transfers 464,647 1,350,507 1,350,507 - 0.0%Total Expenditures & Transfers $ 10,404,912 $ 8,080,553 $ 7,791,217 $ (289,336) -3.6%Fund Balance Addition / (Reduction) 159,322 - - - NATOTALSRevenues $ 133,644,140 $ 118,896,070 $ 121,051,471 $ 2,155,401 1.8%Expenditures and TransfersExpenditures $ 121,064,180 $ 114,714,966 $ 124,474,293 $ 9,759,327 8.5%Mandatory Transfers 2,808,320 3,029,112 2,897,684 (131,428) -4.3%Non Mandatory Transfers 9,301,819 1,085,412 (4,678,185) (5,763,597) -531.0%Total Expenditures & Transfers $ 133,174,319 $ 118,829,490 $ 122,693,792 $ 3,864,302 3.3%Fund Balance Addition / Reduction $ 469,821 $ 66,580 $ (1,642,321) $ (1,708,901) -2566.7%32Schedule 15 - UTC118

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionFY 2011ACTUALKnoxvilleFY 2012 Revised Budget SummaryUnrestricted Current Funds Revenue, Expenditures, and TransfersFY 2012ORIGINALCHANGEOriginal To RevisedFY 2012REVISED Amount %4EDUCATION AND GENERALRevenuesTuition & Fees $ 259,350,505 $ 287,872,959 $ 288,388,884 $ 515,925 0.2%State Appropriations 226,416,954 147,872,004 148,018,704 146,700 0.1%Grants & Contracts 25,044,943 20,750,000 20,750,000 - 0.0%Sales & Service 10,164,413 7,823,570 7,838,570 15,000 0.2%Other Sources 10,192,699 7,408,661 8,708,661 1,300,000 17.5%Total Revenues $ 531,169,514 $ 471,727,194 $ 473,704,819 $ 1,977,625 0.4%Expenditures and TransfersInstruction $ 196,427,687 $ 225,741,861 $ 220,521,089 $ (5,220,772) -2.3%Research 22,291,101 19,713,072 36,274,968 16,561,896 84.0%Public Service 10,707,456 9,307,649 9,905,513 597,864 6.4%Academic Support 62,693,075 52,073,229 54,970,213 2,896,984 5.6%Student Services 43,234,940 42,537,812 43,300,218 762,406 1.8%Institutional Support 34,477,048 34,709,402 37,717,235 3,007,833 8.7%Operation & Maintenance of Plant 63,251,809 56,646,519 57,242,172 595,653 1.1%Scholarships & Fellowships 38,061,351 40,810,239 43,308,332 2,498,093 6.1%Sub-total Expenditures $ 471,144,468 $ 481,539,783 $ 503,239,740 $ 21,699,957 4.5%Mandatory Transfers (In)/Out 1,757,103 1,859,385 1,859,385 - 0.0%Non-Mandatory Transfers (In)/Out 74,070,616 (11,671,974) (28,181,221) (16,509,247) 141.4%Total Expenditures & Transfers $ 546,972,187 $ 471,727,194 $ 476,917,904 $ 5,190,710 1.1%Fund Balance Addition / (Reduction) (15,802,673) - (3,213,085) (3,213,085) NAAUXILIARIESRevenues $ 170,956,396 $ 173,630,059 $ 174,669,433 $ 1,039,374 0.6%Expenditures and TransfersExpenditures $ 120,806,761 $ 120,439,866 $ 121,453,982 $ 1,014,116 0.8%Mandatory Transfers 18,746,052 23,735,902 23,735,902 - 0.0%Non Mandatory Transfers 30,402,737 29,454,291 29,479,549 25,258 0.1%Total Expenditures & Transfers $ 169,955,550 $ 173,630,059 $ 174,669,433 $ 1,039,374 0.6%Fund Balance Addition / (Reduction) 1,000,846 - - - NATOTALSRevenues $ 702,125,910 $ 645,357,253 $ 648,374,252 $ 3,016,999 0.5%Expenditures and TransfersExpenditures $ 591,951,229 $ 601,979,649 $ 624,693,722 $ 22,714,073 3.8%Mandatory Transfers 20,503,155 25,595,287 25,595,287 - 0.0%Non Mandatory Transfers 104,473,353 17,782,317 1,298,328 (16,483,989) -92.7%Total Expenditures & Transfers $ 716,927,737 $ 645,357,253 $ 651,587,337 $ 6,230,084 1.0%Fund Balance Addition / Reduction $ (14,801,827) $ - $ (3,213,085) $ (3,213,085) NA33Schedule 15 - UTK119

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionFY 2011ACTUALMartinFY 2012 Revised Budget SummaryUnrestricted Current Funds Revenue, Expenditures, and TransfersFY 2012ORIGINALCHANGEOriginal To RevisedFY 2012REVISED Amount %4EDUCATION AND GENERALRevenuesTuition & Fees $ 51,531,567 $ 52,730,610 $ 52,853,644 $ 123,034 0.2%State Appropriations 35,319,979 25,024,474 25,217,911 193,437 0.8%Grants & Contracts 253,484 345,500 345,500 - 0.0%Sales & Service 3,209,855 2,611,619 2,836,413 224,794 8.6%Other Sources 720,977 656,800 656,800 - 0.0%Total Revenues $ 91,035,861 $ 81,369,003 $ 81,910,268 $ 541,265 0.7%Expenditures and TransfersInstruction $ 35,942,289 $ 38,318,202 $ 40,304,518 $ 1,986,316 5.2%Research 1,186,432 439,024 606,604 167,580 38.2%Public Service 652,228 540,299 583,952 43,653 8.1%Academic Support 10,306,733 9,935,984 10,193,608 257,624 2.6%Student Services 10,130,141 8,807,010 10,525,114 1,718,104 19.5%Institutional Support 4,861,677 4,962,092 6,336,111 1,374,019 27.7%Operation & Maintenance of Plant 10,322,073 10,859,850 12,550,792 1,690,942 15.6%Scholarships & Fellowships 7,852,486 7,047,227 7,075,610 28,383 0.4%Sub-total Expenditures $ 81,254,059 $ 80,909,688 $ 88,176,309 $ 7,266,621 9.0%Mandatory Transfers (In)/Out 527,916 746,700 746,700 - 0.0%Non-Mandatory Transfers (In)/Out 5,303,642 (287,385) (287,385) - 0.0%Total Expenditures & Transfers $ 87,085,617 $ 81,369,003 $ 88,635,624 $ 7,266,621 8.9%Fund Balance Addition / (Reduction) 3,950,244 - (6,725,356) (6,725,356) NAAUXILIARIESRevenues $ 13,297,594 $ 12,875,624 $ 12,929,062 $ 53,438 0.4%Expenditures and TransfersExpenditures $ 9,321,085 $ 8,842,153 $ 9,506,891 $ 664,738 7.5%Mandatory Transfers 3,074,468 3,180,152 3,180,152 - 0.0%Non Mandatory Transfers 683,135 853,319 242,019 (611,300) -71.6%Total Expenditures & Transfers $ 13,078,688 $ 12,875,624 $ 12,929,062 $ 53,438 0.4%Fund Balance Addition / (Reduction) 218,906 - - - NATOTALSRevenues $ 104,333,455 $ 94,244,627 $ 94,839,330 $ 594,703 0.6%Expenditures and TransfersExpenditures $ 90,575,144 $ 89,751,841 $ 97,683,200 $ 7,931,359 8.8%Mandatory Transfers 3,602,384 3,926,852 3,926,852 - 0.0%Non Mandatory Transfers 5,986,777 565,934 (45,366) (611,300) -108.0%Total Expenditures & Transfers $ 100,164,305 $ 94,244,627 $ 101,564,686 $ 7,320,059 7.8%Fund Balance Addition / Reduction $ 4,169,150 $ - $ (6,725,356) $ (6,725,356) NA34Schedule 15 - UTM120

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionSpace InstituteFY 2012 Revised Budget SummaryUnrestricted Current Funds Revenue, Expenditures, and TransfersFY 2011ACTUALFY 2012ORIGINALCHANGEOriginal To RevisedFY 2012REVISED Amount %4EDUCATION AND GENERALRevenuesTuition & Fees $ 1,568,004 $ 1,848,499 $ 1,848,499 $ - 0.0%State Appropriations 9,013,601 7,373,669 7,391,269 17,600 0.2%Grants & Contracts 672,794 528,282 528,282 - 0.0%Sales & Service 17,386 25,000 25,000 - 0.0%Other Sources 1,311 2,000 2,000 - 0.0%Total Revenues $ 11,273,097 $ 9,777,450 $ 9,795,050 $ 17,600 0.2%Expenditures and TransfersInstruction $ 3,531,790 $ 5,051,811 $ 4,939,893 $ (111,918) -2.2%Research 1,970,479 779,935 1,255,084 475,149 60.9%Public Service 67,275 67,275 - 0.0%Academic Support 343,267 268,348 536,138 267,790 99.8%Student Services 93,483 64,052 69,139 5,087 7.9%Institutional Support 1,365,223 1,250,001 1,371,469 121,468 9.7%Operation & Maintenance of Plant 1,821,474 1,804,345 1,852,612 48,267 2.7%Scholarships & Fellowships 81,068 128,410 128,410 - 0.0%Sub-total Expenditures $ 9,206,783 $ 9,414,177 $ 10,220,020 $ 805,843 8.6%Mandatory Transfers (In)/OutNon-Mandatory Transfers (In)/Out 2,188,133 363,273 (424,970) (788,243) -217.0%Total Expenditures & Transfers $ 11,394,916 $ 9,777,450 $ 9,795,050 $ 17,600 0.2%Fund Balance Addition / (Reduction) (121,819) - - -AUXILIARIESRevenues $ 108,640 $ 95,400 $ 95,400 $ - 0.0%Expenditures and TransfersExpenditures $ 200,361 $ 195,905 $ 200,672 $ 4,767 2.4%Mandatory TransfersNon Mandatory Transfers (93,102) (100,505) (105,272) (4,767) 4.7%Total Expenditures & Transfers $ 107,259 $ 95,400 $ 95,400 $ - 0.0%Fund Balance Addition / (Reduction) 1,381 - - -TOTALSRevenues $ 11,381,737 $ 9,872,850 $ 9,890,450 $ 17,600 0.2%Expenditures and TransfersExpenditures $ 9,407,144 $ 9,610,082 $ 10,420,692 $ 810,610 8.4%Mandatory Transfers - - - -Non Mandatory Transfers 2,095,031 262,768 (530,242) (793,010) -301.8%Total Expenditures & Transfers $ 11,502,175 $ 9,872,850 $ 9,890,450 $ 17,600 0.2%Fund Balance Addition / Reduction $ (120,438) $ - $ - $-35Schedule 15 - UTSI121

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionHealth Science Center TotalFY 2012 Revised Budget SummaryUnrestricted Current Funds Revenue, Expenditures, and TransfersFY 2011ACTUALFY 2012ORIGINALCHANGEOriginal To RevisedFY 2012REVISED Amount %4EDUCATION AND GENERALRevenuesTuition & Fees $ 58,597,519 $ 64,848,138 $ 64,860,366 $ 12,228 0.0%State Appropriations 140,490,364 117,334,465 118,310,558 976,093 0.8%Grants & Contracts 15,937,300 16,565,037 16,566,979 1,942 0.0%Sales & Service 17,925,588 18,366,227 18,617,655 251,428 1.4%Other Sources 3,073,201 4,276,488 4,290,162 13,674 0.3%Total Revenues $ 236,023,972 $ 221,390,355 $ 222,645,720 $ 1,255,365 0.6%Expenditures and TransfersInstruction $ 104,695,814 $ 117,004,015 $ 122,768,080 $ 5,764,065 4.9%Research 7,945,528 7,771,774 11,184,269 3,412,495 43.9%Public Service 19,801 359,837 360,491 654 0.2%Academic Support 34,402,323 32,416,864 36,183,801 3,766,937 11.6%Student Services 3,874,165 4,327,940 4,751,702 423,762 9.8%Institutional Support 17,166,379 20,631,803 24,778,226 4,146,423 20.1%Operation & Maintenance of Plant 26,869,395 24,026,017 27,454,854 3,428,837 14.3%Scholarships & Fellowships 7,887,615 8,033,446 8,475,446 442,000 5.5%Sub-total Expenditures $ 202,861,020 $ 214,571,696 $ 235,956,869 $ 21,385,173 10.0%Mandatory Transfers (In)/Out 3,755,683 4,002,385 4,002,385 - 0.0%Non-Mandatory Transfers (In)/Out 11,882,398 2,816,274 9,766,274 6,950,000 246.8%Total Expenditures & Transfers $ 218,499,101 $ 221,390,355 $ 249,725,528 $ 28,335,173 12.8%Fund Balance Addition / (Reduction) 17,524,871 - (27,079,808) (27,079,808) NAAUXILIARIESRevenues $ 2,929,927 $ 2,692,690 $ 2,734,549 $ 41,859 1.6%Expenditures and TransfersExpenditures $ 2,671,632 $ 2,342,330 $ 2,384,189 $ 41,859 1.8%Mandatory Transfers 345,888 350,360 350,360 - 0.0%Non Mandatory Transfers (129,331) - NATotal Expenditures & Transfers $ 2,888,189 $ 2,692,690 $ 2,734,549 $ 41,859 1.6%Fund Balance Addition / (Reduction) 41,738 - - -TOTALSRevenues $ 238,953,899 $ 224,083,045 $ 225,380,269 $ 1,297,224 0.6%Expenditures and TransfersExpenditures $ 205,532,652 $ 216,914,026 $ 238,341,058 $ 21,427,032 9.9%Mandatory Transfers 4,101,571 4,352,745 4,352,745 - 0.0%Non Mandatory Transfers 11,753,067 2,816,274 9,766,274 6,950,000 246.8%Total Expenditures & Transfers $ 221,387,290 $ 224,083,045 $ 252,460,077 $ 28,377,032 12.7%Fund Balance Addition / Reduction $ 17,566,609 $ - $ (27,079,808) $ (27,079,808) NA36Schedule 15 - UTHSC Total122

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionHealth Science Center - Memphis Other Spec.UnitsFY 2012 Revised Budget SummaryUnrestricted Current Funds Revenue, Expenditures, and TransfersFY 2011ACTUALFY 2012ORIGINALCHANGEOriginal To RevisedFY 2012REVISED Amount %4EDUCATION AND GENERALRevenuesTuition & Fees $ 40,946,925 $ 43,332,538 $ 43,344,766 $ 12,228 0.0%State Appropriations 77,546,026 64,525,035 64,830,417 305,382 0.5%Grants & Contracts 16,167,704 12,944,113 12,944,113 - 0.0%Sales & Service 7,385,051 7,448,450 7,540,635 92,185 1.2%Other Sources 2,615,112 3,726,488 3,740,162 13,674 0.4%Total Revenues $ 144,660,819 $ 131,976,624 $ 132,400,093 $ 423,469 0.3%Expenditures and TransfersInstruction $ 38,761,223 $ 45,804,373 $ 46,508,053 $ 703,680 1.5%Research 5,276,307 7,312,063 7,425,967 113,904 1.6%Public Service 344,400 344,400 - 0.0%Academic Support 29,351,698 27,956,650 30,154,888 2,198,238 7.9%Student Services 3,444,538 3,201,806 3,605,890 404,084 12.6%Institutional Support 16,176,801 19,965,403 23,024,954 3,059,551 15.3%Operation & Maintenance of Plant 26,267,623 23,769,469 26,720,139 2,950,670 12.4%Scholarships & Fellowships 6,388,523 6,334,446 6,631,536 297,090 4.7%Sub-total Expenditures $ 125,666,713 $ 134,688,610 $ 144,415,827 $ 9,727,217 7.2%Mandatory Transfers (In)/Out 3,655,351 3,922,943 3,922,943 - 0.0%Non-Mandatory Transfers (In)/Out (825,934) (6,634,929) 9,846,041 16,480,970 -248.4%Total Expenditures & Transfers $ 128,496,130 $ 131,976,624 $ 158,184,811 $ 26,208,187 19.9%Fund Balance Addition / (Reduction) 16,164,689 - (25,784,718) (25,784,718)AUXILIARIESRevenues $ 2,929,927 $ 2,692,690 $ 2,734,549 $ 41,859 1.6%Expenditures and TransfersExpenditures $ 2,671,632 $ 2,342,330 $ 2,384,189 $ 41,859 1.8%Mandatory Transfers 345,888 350,360 350,360 - 0.0%Non Mandatory Transfers (129,331) NATotal Expenditures & Transfers $ 2,888,189 $ 2,692,690 $ 2,734,549 $ 41,859 1.6%Fund Balance Addition / (Reduction) 41,738 - - -TOTALSRevenues $ 147,590,746 $ 134,669,314 $ 135,134,642 $ 465,328 0.3%Expenditures and TransfersExpenditures $ 128,338,345 $ 137,030,940 $ 146,800,016 $ 9,769,076 7.1%Mandatory Transfers 4,001,239 4,273,303 4,273,303 - 0.0%Non Mandatory Transfers (955,265) (6,634,929) 9,846,041 16,480,970 -248.4%Total Expenditures & Transfers $ 131,384,319 $ 134,669,314 $ 160,919,360 $ 26,250,046 19.5%Fund Balance Addition / Reduction $ 16,206,427 $ - $ (25,784,718) $ (25,784,718)Note: E&G transfers include the difference between COMU revenues and expenditures, since COMU does not have a fund balance.37Schedule 15 - MOSU123

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionHealth Science Center - College of MedicineFY 2012 Revised Budget SummaryUnrestricted Current Funds Revenue, Expenditures, and TransfersFY 2011ACTUALFY 2012ORIGINALCHANGEOriginal To RevisedFY 2012REVISED Amount %4EDUCATION AND GENERALRevenuesTuition & Fees $ 17,650,592 $ 21,515,600 $ 21,515,600 $ - 0.0%State Appropriations 51,848,114 43,326,030 44,093,803 767,773 1.8%Grants & Contracts (230,404) 3,620,924 3,622,866 1,942 0.1%Sales & Service 1,444,390 1,551,944 1,696,442 144,498 9.3%Other SourcesTotal Revenues $ 70,712,691 $ 70,014,498 $ 70,928,711 $ 914,213 1.3%Expenditures and TransfersInstruction $ 47,974,552 $ 52,596,505 $ 57,179,017 $ 4,582,512 8.7%Research 2,669,221 459,711 3,758,302 3,298,591 717.5%Public Service 19,801 15,437 16,091 654 4.2%Academic Support 5,050,624 4,460,214 6,028,913 1,568,699 35.2%Student Services 429,627 1,126,134 1,145,812 19,678 1.7%Institutional Support 282,183 308,130 663,484 355,354 115.3%Operation & Maintenance of Plant 396,321 100,000 574,785 474,785 474.8%Scholarships & Fellowships 1,499,092 1,699,000 1,843,910 144,910 8.5%Sub-total Expenditures $ 58,321,422 $ 60,765,131 $ 71,210,314 $ 10,445,183 17.2%Mandatory Transfers (In)/OutNon-Mandatory Transfers (In)/Out 12,391,269 9,249,367 (281,603) (9,530,970) -103.0%Total Expenditures & Transfers $ 70,712,691 $ 70,014,498 $ 70,928,711 $ 914,213 1.3%Fund Balance Addition / (Reduction) - - - -Note: COMU does not carry a fund balance. Any difference between revenues and expenditures are transferred to the MOSU fund balance.38Schedule 15 - COMU124

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionHealth Science Center - Family Medicine UnitsFY 2012 Revised Budget SummaryUnrestricted Current Funds Revenue, Expenditures, and TransfersFY 2011ACTUALFY 2012ORIGINALCHANGEOriginal To RevisedFY 2012REVISED Amount %4EDUCATION AND GENERALRevenuesTuition & FeesState Appropriations $ 11,096,225 $ 9,483,400 $ 9,386,338 $ (97,062) -1.0%Grants & ContractsSales & Service 9,096,147 9,365,833 9,380,578 14,745 0.2%Other Sources 458,089 550,000 550,000 - 0.0%Total Revenues $ 20,650,460 $ 19,399,233 $ 19,316,916 $ (82,317) -0.4%Expenditures and TransfersInstruction $ 17,960,040 $ 18,603,137 $ 19,081,010 $ 477,873 2.6%ResearchPublic ServiceAcademic SupportStudent ServicesInstitutional Support 707,395 358,270 1,089,788 731,518 204.2%Operation & Maintenance of Plant 205,451 156,548 159,930 3,382 2.2%Scholarships & FellowshipsSub-total Expenditures $ 18,872,885 $ 19,117,955 $ 20,330,728 $ 1,212,773 6.3%Mandatory Transfers (In)/Out 100,332 79,442 79,442 - 0.0%Non-Mandatory Transfers (In)/Out 317,063 201,836 201,836 - 0.0%Total Expenditures & Transfers $ 19,290,280 $ 19,399,233 $ 20,612,006 $ 1,212,773 6.3%Fund Balance Addition / (Reduction) 1,360,180 - (1,295,090) (1,295,090) NA39Schedule 15 - FMU125

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionAgricultural Units TotalFY 2012 Revised Budget SummaryUnrestricted Current Funds Revenue, Expenditures, and TransfersFY 2011ACTUALFY 2012ORIGINALCHANGEOriginal To RevisedFY 2012REVISED Amount %4EDUCATION AND GENERALRevenuesTuition & Fees $ 9,807,038 $ 10,241,580 $ 10,488,175 $ 246,595 2.4%State Appropriations 74,134,568 66,193,244 66,317,743 124,499 0.2%Grants & Contracts 4,352,881 4,141,177 4,141,177 - 0.0%Sales & Service 17,398,235 17,613,195 17,616,295 3,100 0.0%Other Sources 14,250,371 15,351,111 15,941,630 590,519 3.8%Total Revenues $ 119,943,092 $ 113,540,307 $ 114,505,020 $ 964,713 0.8%Expenditures and TransfersInstruction $ 25,892,462 $ 28,223,146 $ 29,639,911 $ 1,416,765 5.0%Research 34,455,973 35,245,126 40,803,948 5,558,822 15.8%Public Service 39,325,612 40,437,950 49,762,202 9,324,252 23.1%Academic Support 6,335,974 6,462,942 6,875,260 412,318 6.4%Student ServicesNAInstitutional Support 1,814,931 1,978,573 2,042,431 63,858 3.2%Operation & Maintenance of Plant 3,014,169 3,337,713 3,461,117 123,404 3.7%Scholarships & Fellowships - 58,394 40,000 (18,394) -31.5%Sub-total Expenditures $ 110,839,121 $ 115,743,844 $ 132,624,869 $ 16,881,025 14.6%Mandatory Transfers (In)/OutNon-Mandatory Transfers (In)/Out 4,703,531 855,989 (2,064,662) (2,920,651) -341.2%Total Expenditures & Transfers $ 115,542,652 $ 116,599,833 $ 130,560,207 $ 13,960,374 12.0%Fund Balance Addition / (Reduction) 4,400,440 (3,059,526) (16,055,187) (12,995,661)40Schedule 15 - AG Units Total126

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionAgricultural Experiment StationFY 2012 Revised Budget SummaryUnrestricted Current Funds Revenue, Expenditures, and TransfersFY 2011ACTUALFY 2012ORIGINALCHANGEOriginal To RevisedFY 2012REVISED Amount %4EDUCATION AND GENERALRevenuesState Appropriations 25,635,108 23,299,860 23,333,760 33,900 0.1%Grants & Contracts 2,191,097 2,100,000 2,100,000 - 0.0%Sales & Service 3,157,792 3,410,443 3,410,443 - 0.0%Other Sources 4,189,815 6,021,041 6,611,560 590,519 9.8%Total Revenues $ 35,173,812 $ 34,831,344 $ 35,455,763 $ 624,419 1.8%Expenditures and TransfersInstructionResearch 31,445,905 31,666,442 36,160,201 4,493,759 14.2%Public ServiceAcademic Support 1,349,403 1,302,895 1,362,556 59,661 4.6%Student ServicesInstitutional Support 939,615 948,245 959,671 11,426 1.2%Operation & Maintenance of Plant 569,669 526,676 557,968 31,292 5.9%Scholarships & FellowshipsSub-total Expenditures $ 34,304,591 $ 34,444,258 $ 39,040,396 $ 4,596,138 13.3%Mandatory Transfers (In)/OutNon-Mandatory Transfers (In)/Out 1,095,788 387,086 (3,338,548) (3,725,634) -962.5%Total Expenditures & Transfers $ 35,400,379 $ 34,831,344 $ 35,701,848 $ 870,504 2.5%Fund Balance Addition / (Reduction) (226,567) - (246,085) (246,085)41Schedule 15 - Ag Experiment127

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionAgricultural Extension ServiceFY 2012 Revised Budget SummaryUnrestricted Current Funds Revenue, Expenditures, and TransfersFY 2011ACTUALFY 2012ORIGINALCHANGEOriginal To RevisedFY 2012REVISED Amount %4EDUCATION AND GENERALRevenuesState Appropriations $ 31,082,557 $ 28,070,981 $ 28,160,380 $ 89,399 0.3%Grants & Contracts 794,408 755,000 755,000 - 0.0%Sales & Service 3,903,098 3,960,892 3,960,892 - 0.0%Other Sources 9,883,300 9,125,125 9,125,125 - 0.0%Total Revenues $ 45,663,362 $ 41,911,998 $ 42,001,397 $ 89,399 0.2%Expenditures and TransfersInstructionResearchPublic Service 39,325,612 40,437,950 49,688,235 9,250,285 22.9%Academic Support 819,438 763,363 759,600 (3,763) -0.5%Student ServicesInstitutional Support 407,554 517,862 559,559 41,697 8.1%Operation & Maintenance of PlantScholarships & FellowshipsSub-total Expenditures $ 40,552,604 $ 41,719,175 $ 51,007,394 $ 9,288,219 22.3%Mandatory Transfers (In)/OutNon-Mandatory Transfers (In)/Out 1,823,491 541,226 978,009 436,783 80.7%Total Expenditures & Transfers $ 42,376,095 $ 42,260,401 $ 51,985,403 $ 9,725,002 23.0%Fund Balance Addition / (Reduction) 3,287,267 (348,403) (9,984,006) (9,635,603) 2765.6%42Schedule 15 - Ag Extension128

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionCollege of Veterinary MedicineFY 2012 Revised Budget SummaryUnrestricted Current Funds Revenue, Expenditures, and TransfersFY 2011ACTUALFY 2012ORIGINALCHANGEOriginal To RevisedFY 2012REVISED Amount %4EDUCATION AND GENERALRevenuesTuition & Fees $ 9,807,038 $ 10,241,580 $ 10,488,175 $ 246,595 2.4%State Appropriations 17,416,903 14,822,403 14,823,603 1,200 0.0%Grants & Contracts 1,367,376 1,286,177 1,286,177 - 0.0%Sales & Service 10,337,345 10,241,860 10,244,960 3,100 0.0%Other Sources 177,256 204,945 204,945 - 0.0%Total Revenues $ 39,105,918 $ 36,796,965 $ 37,047,860 $ 250,895 0.7%Expenditures and TransfersInstruction $ 25,892,462 $ 28,223,146 $ 29,639,911 $ 1,416,765 5.0%Research 3,010,068 3,578,684 4,643,747 1,065,063 29.8%Public Service 73,967 73,967 NAAcademic Support 4,167,133 4,396,684 4,753,104 356,420 8.1%Student ServicesInstitutional Support 467,762 512,466 523,201 10,735 2.1%Operation & Maintenance of Plant 2,444,500 2,811,037 2,903,149 92,112 3.3%Scholarships & Fellowships 58,394 40,000 (18,394) -31.5%Sub-total Expenditures $ 35,981,926 $ 39,580,411 $ 42,577,079 $ 2,996,668 7.6%Mandatory Transfers (In)/OutNon-Mandatory Transfers (In)/Out 1,784,252 (72,323) 295,877 368,200 -509.1%Total Expenditures & Transfers $ 37,766,178 $ 39,508,088 $ 42,872,956 $ 3,364,868 8.5%Fund Balance Addition / (Reduction) 1,339,740 (2,711,123) (5,825,096) (3,113,973) 114.9%43Schedule 15 - Vet Med129

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionInstitute for Public Service TotalFY 2012 Revised Budget SummaryUnrestricted Current Funds Revenue, Expenditures, and TransfersFY 2011ACTUALFY 2012ORIGINALCHANGEOriginal To RevisedFY 2012REVISED Amount %4EDUCATION AND GENERALRevenuesTuition & FeesState Appropriations $ 9,553,651 $ 8,476,252 $ 8,474,852 $ (1,400) 0.0%Grants & Contracts 785,184 742,221 742,221 0.0%Sales & ServiceOther Sources 6,171,925 6,325,274 6,293,274 (32,000) -0.5%Total Revenues $ 16,510,759 $ 15,543,747 $ 15,510,347 $ (33,400) -0.2%Expenditures and TransfersInstructionResearchPublic Service $ 14,312,870 $ 13,939,524 $ 14,050,889 $ 111,365 0.8%Academic Support 237,864 231,482 246,729 15,247Student ServicesInstitutional Support 822,061 1,063,753 1,079,648 15,895 1.5%Operation & Maintenance of PlantScholarships & FellowshipsSub-total Expenditures $ 15,372,795 $ 15,234,759 $ 15,377,266 $ 142,507 0.9%Mandatory Transfers (In)/OutNon-Mandatory Transfers (In)/Out 1,016,866 457,743 457,743 - 0.0%Total Expenditures & Transfers $ 16,389,661 $ 15,692,502 $ 15,835,009 $ 142,507 0.9%Fund Balance Addition / (Reduction) 121,098 (148,755) (324,662) (175,907) 118.3%44Schedule 15 - IPS Total130

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionInstitute for Public ServiceFY 2012 Revised Budget SummaryUnrestricted Current Funds Revenue, Expenditures, and TransfersFY 2011ACTUALFY 2012ORIGINALCHANGEOriginal To RevisedFY 2012REVISED Amount %4EDUCATION AND GENERALRevenuesState Appropriations $ 4,920,285 $ 4,368,782 $ 4,368,582 $ (200) 0.0%Grants & Contracts 717,770 707,221 707,221 - 0.0%Sales & ServiceOther Sources 444,683 400,000 418,000 18,000 4.5%Total Revenues $ 6,082,737 $ 5,476,003 $ 5,493,803 $ 17,800 0.3%Expenditures and TransfersInstructionResearchPublic Service $ 4,366,578 $ 3,892,469 $ 3,876,887 $ (15,582) -0.4%Academic SupportStudent ServicesInstitutional Support 810,150 1,046,453 1,062,348 15,895 1.5%Operation & Maintenance of PlantScholarships & FellowshipsSub-total Expenditures $ 5,176,728 $ 4,938,922 $ 4,939,235 $ 313 0.0%Mandatory Transfers (In)/OutNon-Mandatory Transfers (In)/Out 946,851 523,381 526,102 2,721 0.5%Total Expenditures & Transfers $ 6,123,579 $ 5,462,303 $ 5,465,337 $ 3,034 0.1%Fund Balance Addition / (Reduction) (40,842) 13,700 28,466 14,766 107.8%45Schedule 15 - IPS131

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionCounty Technical Assistance ServiceFY 2012 Revised Budget SummaryUnrestricted Current Funds Revenue, Expenditures, and TransfersFY 2011ACTUALFY 2012ORIGINALCHANGEOriginal To RevisedFY 2012REVISED Amount %4EDUCATION AND GENERALRevenuesTuition & FeesState Appropriations $ 1,708,028 $ 1,535,985 $ 1,534,985 $ (1,000) -0.1%Grants & Contracts 49,802 25,000 25,000 - 0.0%Sales & ServiceOther Sources 2,955,225 3,006,900 2,956,900 (50,000) -1.7%Total Revenues $ 4,713,055 $ 4,567,885 $ 4,516,885 $ (51,000) -1.1%Expenditures and TransfersInstructionResearchPublic Service $ 4,846,786 $ 4,754,308 $ 4,752,720 $ (1,588) 0.0%Academic SupportStudent ServicesInstitutional Support 5,000 8,800 8,800 - 0.0%Operation & Maintenance of PlantScholarships & FellowshipsSub-total Expenditures $ 4,851,786 $ 4,763,108 $ 4,761,520 $ (1,588) 0.0%Mandatory Transfers (In)/OutNon-Mandatory Transfers (In)/Out (34,169) (105,653) (105,065) 588 -0.6%Total Expenditures & Transfers $ 4,817,617 $ 4,657,455 $ 4,656,455 $ (1,000) 0.0%Fund Balance Addition / (Reduction) (104,562) (89,570) (139,570) (50,000) 55.8%46Schedule 15 - CTAS132

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionMunicipal Technical Assistance ServiceFY 2012 Revised Budget SummaryUnrestricted Current Funds Revenue, Expenditures, and TransfersFY 2011ACTUALFY 2012ORIGINALCHANGEOriginal To RevisedFY 2012REVISED Amount %4EDUCATION AND GENERALRevenuesTuition & FeesState Appropriations $ 2,925,338 $ 2,571,485 $ 2,571,285 $ (200) 0.0%Grants & Contracts 17,612 10,000 10,000 - 0.0%Sales & ServiceOther Sources 2,772,017 2,918,374 2,918,374 - 0.0%Total Revenues $ 5,714,967 $ 5,499,859 $ 5,499,659 $ (200) 0.0%Expenditures and TransfersInstructionResearchPublic Service $ 5,099,506 $ 5,292,747 $ 5,421,282 $ 128,535 2.4%Academic Support 237,864 231,482 246,729 15,247 6.6%Student ServicesInstitutional Support 6,911 8,500 8,500 - 0.0%Operation & Maintenance of PlantScholarships & FellowshipsSub-total Expenditures $ 5,344,281 $ 5,532,729 $ 5,676,511 $ 143,782 2.6%Mandatory Transfers (In)/OutNon-Mandatory Transfers (In)/Out 104,184 40,015 36,706 (3,309) -8.3%Total Expenditures & Transfers $ 5,448,465 $ 5,572,744 $ 5,713,217 $ 140,473 2.5%Fund Balance Addition / (Reduction) 266,502 (72,885) (213,558) (140,673) 193.0%47Schedule 15 - MTAS133

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionUniversity-Wide AdministrationFY 2012 Revised Budget SummaryUnrestricted Current Funds Revenue, Expenditures, and TransfersFY 2011ACTUALFY 2012ORIGINALCHANGEOriginal To RevisedFY 2012REVISED Amount %4EDUCATION AND GENERALRevenuesTuition & FeesState Appropriations $ 4,384,283 $ 4,510,155 $ 4,497,355 $ (12,800) -0.3%Grants & Contracts -Sales & Service 50,647 50,647 - 0.0%Other Sources 19,499,959 16,983,000 16,983,000 - 0.0%Total Revenues $ 23,884,242 $ 21,543,802 $ 21,531,002 $ (12,800) -0.1%Expenditures and TransfersInstructionResearch $ 147,424Public ServiceAcademic SupportStudent ServicesInstitutional Support 38,001,610 $ 41,807,713 $ 41,833,779 $ 26,066 0.1%Operation & Maintenance of PlantScholarships & FellowshipsSub-total Expenditures $ 38,149,034 $ 41,807,713 $ 41,833,779 $ 26,066 0.1%Mandatory Transfers (In)/Out 134,907Non-Mandatory Transfers (In)/Out (14,200,078) (19,506,816) (19,506,816) - 0.0%Total Expenditures & Transfers $ 24,083,863 $ 22,300,897 $ 22,326,963 $ 26,066 0.1%Fund Balance Addition / (Reduction) (199,621) (757,095) (795,961) (38,866) 5.1%48Schedule 15 - UWA134

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionThe University of TennesseeFY 2011-12 Revised Budget DocumentCharles M. Peccolo, Treasurer, Chief Investment Officer,& Interim Chief Financial Officer4System Budget and Finance OfficeRon Maples, ControllerRon Loewen, Budget DirectorJohn Bodin-HendersonWe gratefully acknowledge the effort and cooperation of thecampus and unit budget staff and the IRIS staff whocontribute to the preparation of the University budget.KnoxvilleChris Cimino, Chief Business OfficerJonee Daniels LindstromGena WilsonSuzan ThompsonJames PriceGary GrayChattanoogaRichard Brown, Chief Business OfficerVanasia ParksDanny GrantTyler ForrestMartinNancy Yarbrough, Interim Chief Business OfficerAnnette MoorePetra McPhearsonSpace InstituteJoan SnoderlyHealth Science CenterAnthony Ferrara, Chief Business OfficerPam VaughnCharles CossarKimberly MooreChasity DavisInstitute for AgricultureTim Fawver, Chief Business OfficerMelinda JonesAngela BradenMissy KittsTonya KenleyKathy YatesInstitute for Public ServiceGail White, Chief Business OfficerIRISLes MathewsJanet SmithMark HallLaurie ReesDenise HaleyDavid GoforthThe University of Tennessee does not discriminate on the basisof race, sex, color, religion, national origin, age, disability orveteran status in provision of educational programs and servicesor employment opportunities and benefits. This policy extendsto both employment by and admission to the University.The University does not discriminate on the basis of race, sex,or disability in its education programs and activities pursuant tothe requirements of Title VI of the Civil Rights Act of 1964,Title IX of the Education Amendments of 1972, Section 504 ofthe Rehabilitation Act of 1973, and the Americans withDisabilities Act (ADA) of 1990.Inquiries and charges of violation concerning Title VI, Title IX,Section 504, ADA or the Age Discrimination in EmploymentAct (ADEA) or any of the other above referenced policiesshould be directed to the Office of Equity and Diversity (OED),1840 Melrose Avenue, Knoxville, TN 37996-3560, telephone(865) 974-2498 (V/TTY available) or 974-2440. Requests foraccommodation of a disability should be directed to the ADACoordinator at the UT Knoxville Office of Human Resources,600 Henley Street, Knoxville, TN 37996-4125.Publication Authorization Number: E17-0140-001-1249135

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionRESOLUTIONOFTHE UNIVERSITY OF TENNESSEEBOARD OF TRUSTEESFebruary 29, 20124REVISED FY 2012 Operating BudgetWHEREAS, the Bylaws require the Board of Trustees to approve an annual operating budgetfor the University; andWHEREAS, the Board approved the FY 2012 operating budget in June 2011; andWHEREAS, the operating budget must be revised during the year to update revenue andexpenditure projections for the remainder of the fiscal year, taking into consideration final fallenrollments (which are estimated when the original budget is prepared), the impact of the prioryear’s activities carried forward into the current year, and adjustments in state appropriationsoccurring since the budget was approved in June 2011; andWHEREAS, the FY 2012 Revised Operating Budget includes adjustments allocating minorrevisions to budgeted revenues and a significant carry forward of unexpended non-recurringfunds from FY 2011; andWHEREAS, the administration needs to be able to respond quickly and effectively to asignificant budget shortfall due to any state impoundment of funds or appropriation rescission;andWHEREAS, mandatory furloughs without pay, reduction of time worked, across-the-boardsalary reductions, and similar salary-related measures may be required to address thebudgetary shortfall; andWHEREAS, the FY 2012 Revised Budgets for Education and General (E&G) and AuxiliaryEnterprises are balanced and within available resources and comply with all applicable policiesand guidelines;NOW THEREFORE BE IT RESOLVED that:1. The FY 2012 Revised Budget is approved with the understanding that if the GeneralAssembly or the Department of Finance and Administration further alters the FY2012 appropriations, or if changes in estimated resources require, the budget shallbe modified accordingly so expenditures will not exceed available resources.2. The Board of Trustees expressly authorizes the campus, institute, and unitadministrations, in response to current and anticipated future budget reductions, toimplement mandatory furloughs without pay, reduction of time worked, acrossthe-boardsalary reductions, and similar salary-related measures during theremainder of FY 2012, subject to approval by the Executive and CompensationCommittee, the President, and the Treasurer, Chief Investment Officer, and Interim136

Finance and Administration Committee - VI. FY 2012 Revised Operating Budget - ActionChief Financial Officer, in consultation with the General Counsel and HumanResources.43. Any remaining balance of Unrestricted Net Assets may be considered as a reservefor contingencies to be used for:a. Employing additional staff where enrollments and reorganizationrequirements warrant;b. Modifying departmental operating budgets where changing conditionsduring the year require funding adjustments;c. Funding to make salary adjustments for personnel as may be necessaryduring the year in keeping with state and university salary guidelines;d. Improving physical facilities for academic and research departments asopportunities arise;e. Mandated cost increases; andf. State impoundment of funds or appropriations rescission during thebudget year137

ommittee - VII. Increasing the University's Contribution to the UTRF Budget for FY 2013 to Support Research and Economic Development Activities Arising out of theTHE UNIVERSITY OF TENNESSEEBOARD OF TRUSTEESACTION ITEM5DATE: February 28, 2012COMMITTEE:ITEM:RECOMMENDATION:PRESENTED BY:Finance and AdministrationIncreasing the University’s Contribution to the UTRFBudget for FY 2013 to Support Research and EconomicDevelopment Opportunities Arising out of the UTBiofuels InitiativeApprovalDavid E. Millhorn, Executive Vice President andVice President for Research and Economic DevelopmentThe University has contracted with the University of Tennessee Research Foundation(UTRF) for services under the UT Biofuels Initiative (UTBI) since March 2008. UTRF,through its subsidiary, Genera Energy, has been successful in performing thoseservices and achieving the objectives of the UTBI: proving technology and scale forproduction of ethanol from switchgrass; demonstrating the farm side production ofswitchgrass for feedstock; and managing and establishing a premier researchcapacity. State funding for the UTBI is scheduled to end on June 30, 2013. Indiscussions beginning last summer, UTRF, UT and the UT Institute of Agriculture,and Genera’s collaborators in industry and government have become convinced thatthere will continue to be biomass research, development and demonstrationopportunities, as well as prospects for commercial biomass business beyond theconclusion of the state funding for the UTBI.To continue to work to that end and to further the economic development of the Stateof Tennessee and support and facilitate research at UT, UTRF and Genera haveagreed to a Memorandum of Understanding on Genera’s Future Opportunities andOperation (MOU). Genera and its subsidiaries are being merged into one entity, tobe renamed BioTenn and continue to be wholly owned by UTRF, to complete theUTBI, hold state-funded assets, and ensure long-term opportunities for continuousand productive RD&D use of those assets in a manner that benefits UT and the Stateof Tennessee. At the same time, UTRF is supporting the spin-out of a new company,138

ommittee - VII. Increasing the University's Contribution to the UTRF Budget for FY 2013 to Support Research and Economic Development Activities Arising out of theGenera Biomass, to pursue biomass conversion facility project development andbiomass supply contracts, on a for-profit basis.UTRF and Genera deliberatively compared the alternatives and decided and agreethat UT’s and UTRF’s multiple goals are more likely to be achieved, and the State ofTennessee is more likely to receive the greatest benefit from its funding of the UTBI,if Genera Biomass works at the biomass business as a Tennessee-based for-profitentity in which BioTenn retains an equity interest. BioTenn will hold an initialmajority stake in Genera Biomass (at least 85%), and the Genera Biomassmanagement team will own an initial minority stake (no more than 15%), with thepotential to increase their equity stake to no more than 49% upon the achievement ofmilestones approved by BioTenn. Any additional funding to Genera Biomass byUTRF, through BioTenn, beyond the initial formation of Biomass will be treated asany third party equity investment, resulting in dilution of the management team’sequity interest and increasing BioTenn’s equity share. The parties also anticipate thepotential for third party investments in Biomass.5The University administration believes the success of Genera Biomass is critical tothe UTBI goal of facilitating the development of a commercial biomass energyindustry in Tennessee. Further, a Tennessee-based commercial biomass businesssparked from UTBI is expected to benefit Tennessee farmers from the developmentof the industry; expected to result in the location of one or more commercialbiorefineries within the state; and expected to position UT, UTIA, and UT-ORNL tohave better, more frequent biomass RD&D opportunities.Under its operating agreement with the University, UTRF’s role includes supportingthe University’s research enterprise and contributing to the well-being of the State ofTennessee through economic development. Therefore, the administration proposesto increase the University’s contribution to the UTRF budget for FY 2013 by$1,300,000 so that UTRF will be in a position to help leverage the successful UTBI intocontinuing research opportunities for the University and economic developmentopportunities for the State of Tennessee.The administration will fund the additional contribution to UTRF’s FY 2013 budgetwith unrestricted funds earned by the University under the agreement formanagement and operation of the Oak Ridge National Laboratory.MOTION:That the University’s contribution to the UTRF budget for FY 2013 be increased by$1,300,000, to support research and economic development opportunities arisingout of the UT Biofuels Initiative.139

Finance and Administration Committee - VIII. Use of Proceeds from the Lease and Transfer of UT Medical Center - Action/ConsentTHE UNIVERSITY OF TENNESSEEBOARD OF TRUSTEESACTION ITEM6DATE: February 28, 2012COMMITTEE:CAMPUS/UNIT:ITEM:RECOMMENDATION:PRESENTED BY:Finance and AdministrationUT Health Science CenterUse of Proceeds from the Lease and Transfer ofUT Medical CenterApprovalCharles M. Peccolo, Treasurer, Chief Investment Officer, andInterim Chief Financial OfficerThe University has committed that annual payments under the Lease and TransferAgreement with University Health System, Inc. (UHS) will be designated for use by the UTHealth Science Center through June 30, 2015, subject to specific proposals being submittedto and approved by the Board of Trustees. The Health Science Center has submitted twoproposals requesting Board approval. The proposals are:$1,000,000 as start-up funding for the Director of the Regional BiocontainmentLaboratory.$500,000 start-up funding for the development of a new Physician AssistantProgram in the College of Allied Health Sciences.MOTION:That the allocation of $1,500,000 from the UHS Proceeds Fund to the UT Health ScienceCenter be approved for the program initiatives related to the Regional BiocontainmentLaboratory and development of a Physician Assistant Program.140

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionDATE: February 28, 2012THE UNIVERSITY OF TENNESSEEBOARD OF TRUSTEESACTION ITEMCOMMITTEE:ITEM:RECOMMENDATION:PRESENTED BY:Finance and AdministrationAgreements for Development of Cherokee Farm Research ParkApprovalDavid E. Millhorn, Executive Vice President andVice President for Research and Economic Development7The University administration has negotiated two agreements with the University ofTennessee Research Foundation for development of the Cherokee Farm Research Park:1. Agreement for Development Management Services: UTRF undertakes services todevelop a research park at Cherokee Farm as previously approved by the Board ofTrustees; and2. Master Ground Lease: sets forth the terms under which UTRF can lease and subleaseparcels at Cherokee Farm to tenants to construct, operate and own offices, researchlaboratories, and other facilities for research or other professional services, alongwith such other uses as may be related or incidental thereto, subject to the terms,conditions and restrictions set forth in the Agreement for Development ManagementServices.The agreements, and executive summaries of each, follow this memorandum. Afterapproval by the Board of Trustees, the agreements will be submitted to the State BuildingCommission. To move this important project along as expeditiously as possible, theadministration requests authorization for the President, with the concurrence of the ViceChair and the Chair of the Finance and Administration Committee, to approve anyrevisions to the agreements required or recommended by the State Building Commission orthe State Attorney General.MOTION:1. That the following agreements for development of the Cherokee Farm Research Parkbe approved: (1) Agreement for Development Management Services between TheUniversity of Tennessee and University of Tennessee Research Foundation forCherokee Farm Research Park; and (2) Master Ground Lease between The Universityof Tennessee and University of Tennessee Research Foundation;141

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Action2. That the President be authorized, with the concurrence of the Vice Chair and theChair of the Finance and Administration Committee, to approve any revisions to theagreements required or recommended by the State Building Commission or the StateAttorney General; and3. That the President report all approved subleases to the Finance and AdministrationCommittee on a quarterly basis and report annually to the Board of Trustees on thestatus of the development of Cherokee Farm. 7142

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionThe Innovation Center @7Implementation Strategy143

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionPromoting Deal FlowMaster Ground Lease (Option)University retains title to the real propertyTerm 60 years with an option for a 40 year extension (may terminate with90 days if Development Agreement terminates)University may withdraw any parcel from optionOnly leased for research, offices or other incidental services relatedthereto – must be approved by University PresidentGranted lease hold easementsUTRF will pay net cash flow as rentIf underlying lease terminates, the University will enter into direct leasewith subtenantThe University is responsible for sites until they are leased by UTRFUTRF will maintain or cause to be maintained the leased sitesSubtenants will be required to indemnify the UniversityLand and buildings revert to the University when leases expire7144

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionLeasable Property7View from Northwest145

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionPromoting Deal FlowAgreement for Development & Management ServicesScope of Services (subject to Master Plan, DevelopmentGuidelines, and Master Lease)Recruiting private and public development partners and tenants forresearch labs and office space at Cherokee FarmNegotiating development agreements and subleases (requireUniversity President approval)Manage and oversee development, maintenance, and operationsSupervise constructionProvide quarterly progress reports to UniversityTerm – five years terminable for convenience with 90 day noticePayment - $600,000/year reimbursable for staff, marketing, legal,and all operations expensesUTRF may assign agreement to CFDCUTRF will indemnify University1467

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionThe Innovation Center @7147

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionAGREEMENT FOR DEVELOPMENT MANAGEMENT SERVICESEXECUTIVE SUMMARYThe University is retaining UTRF to facilitate the development of CherokeeFarm. The Scope of Services to be performed by UTRF is set forth in Exhibit A ofthe agreement and includes, where appropriate:- Recruiting public and private development partners and tenants for researchlaboratories and office space.- Negotiating development agreements and subleases with tenants, consistentwith the Master Plan, Development Guidelines, and the Master Lease, all ofwhich are subject to final approval by the University President.- Managing and overseeing development, maintenance, operation, and tenantoccupancy.- Supervising construction.- Providing quarterly progress reports to the University, describing inreasonable detail the status of any development agreements, leases, or othercontracts that have been executed or are under negotiation, and managingcosts.7The term of the agreement is five years, terminable for convenience with 90 days’notice.The payment to UTRF is $600,000 per year, which covers costs for a developmentstaff, marketing services, legal fees, and other expenses.UTRF may assign the agreement or enter into a subcontract for the services to beperformed with prior written approval of the University President. By executionof the agreement, the President approves UTRF’s subcontracting with CherokeeFarm Development Corporation to perform the Scope of Services set forth inExhibit A.UTRF agrees to indemnify, hold harmless, and at the University’s request,defend the University for injury or loss to third parties arising out of UTRF’s actsor omissions, or the acts or omissions of any subcontractor or grantee, in theperformance of the agreement.148

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionAGREEMENT FOR DEVELOPMENT MANAGEMENT SERVICESbetweenTHE UNIVERSITY OF TENNESSEE7andUNIVERSITY OF TENNESSEE RESEARCH FOUNDATIONFOR CHEROKEE FARM RESEARCH CAMPUS8116659.9149

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionAGREEMENT FOR DEVELOPMENT MANAGEMENT SERVICESTHIS AGREEMENT FOR DEVELOPMENT MANAGEMENT SERVICES, hereafterreferred to as “Agreement,” by and between The University of Tennessee, hereafter referred toas the “University,” and the University of Tennessee Research Foundation, hereafter referred toas “UTRF,” is for the purpose of facilitating and governing the development and operation of the“Cherokee Farm” property in Knoxville, Tennessee as a research campus that will bring togetherpublic and private partners in areas such as neutron research, materials science, supercomputing,energy independence, sustainability, and biomedical research.7WHEREAS, UTRF is a not-for-profit 501(c)(3) organization that promotes thecommercialization of the University’s intellectual property developed through research,encourages an entrepreneurial culture, contributes to state and regional economic development,and promotes research and education to benefit the people of Tennessee.WHEREAS, the Cherokee Farm property is a 200 acre site, which is owned by theUniversity and located directly across the Tennessee River from the UT Knoxville campus (the“Cherokee Farm Property”), and it is envisioned that the Cherokee Farm Property will bedeveloped to consist of research labs and offices where private and public research anddemonstration partners will collaborate with the University’s faculty and benefit the state ofTennessee and the University (the “Project”); andWHEREAS, the Tennessee General Assembly appropriated $32 million in 2007-08 forcertain infrastructure improvements at Cherokee Farm (the “Infrastructure Improvements”),and these Infrastructure Improvements are expected to be largely completed in February, 2012;andWHEREAS, the University of Tennessee Cherokee Farm Master Plan (the “MasterPlan”), the University of Tennessee Cherokee Farm Development Guidelines (the“Development Guidelines”), and a conceptual Master Lease have been approved by the UTBoard of Trustees and the Tennessee State Building Commission.WHEREAS, of even date herewith, University and UTRF are entering into a MasterGround Lease (the “Ground Lease”), pursuant to which UTRF will have the right to leasecertain portions of Cherokee Farm from University to fulfill the objectives set forth herein and inthe Ground Lease.NOW THEREFORE in consideration of the mutual promises contained herein, theparties have agreed and hereby enter into this Agreement according to the provisions set forthherein.8116659.9 1150

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Action1.1 SCOPE OF SERVICES.ARTICLE 1SERVICES(a) General Duties and Parameters. UTRF shall diligently and in good faith consultwith University and carry out the duties set forth in this Agreement. UTRF shall facilitate thedevelopment of the Project (i) in accordance with this Agreement, the Master Plan, theDevelopment Guidelines, and the Ground Lease, and (ii) in accordance with all applicableUniversity requirements and governmental requirements.7(b) Specific Duties. UTRF agrees to perform the specific duties described in theScope of Services set forth on Exhibit A, and other services as may be mutually agreed upon inwriting by the parties. In performing these tasks, UTRF may contract with third parties to fulfillthese responsibilities and/or enter into partnerships, joint ventures, or other contractualrelationships with other public or private entities. UTRF may contract with third parties,including but not limited to brokers or marketing professionals for these services. Universitymay assign existing agreements with third parties for development of marketing and brandingplans for the Project to UTRF. UTRF may perform any or all of these services through anaffiliate entity formed by UTRF, such as Cherokee Farm Development Corporation, inaccordance with Section 1.3(c) below.1.2 PERFORMANCE OF SERVICES.(a) Execution of Agreements. Subject to the terms of this Agreement, UTRF maynegotiate and execute agreements with public and private entities for the lease, sublease,development, construction, and operation of research facilities at the Cherokee Farm Property(collectively, “Contracts”). All Contracts shall be subject to the restrictions contained in thisAgreement, the Master Plan, the Development Guidelines, and the Ground Lease, and shalldetail terms for compensation, if any, to the University. Additionally, all Contracts shall besubject to the final written approval of the University President. University agrees to cooperatewith UTRF to provide such information as may be necessary to support the negotiation of suchContracts and to obtain necessary approvals for any Contracts entered into by UTRF andapproved by the University President. Notwithstanding anything herein to the contrary,University retains the right to develop and construct University research facilities on theCherokee Farm Property pursuant to the terms of the Ground Lease.(b) Prevailing Wage Requirements; Payment and Performance Bonds. All contractsfor construction, erection, or demolition or to install goods or materials that involve theexpenditure of funds derived from the State of Tennessee concerning the Project requirecompliance with the prevailing wage laws as provided in TCA §12-4-401 et seq., and theseprojects shall include a payment and performance bond in the amount of 100% of the contractamount, which bonds shall be executed by an insurance company licensed to do business inTennessee.8116659.9 2151

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Action(c) Subcontracting. UTRF may assign this Agreement or enter into a subcontract forthe services performed under this Agreement with prior written approval from University. Ifsuch subcontracts or assignments are approved by the University, they shall be subject andsubordinate to all of the terms and conditions of this Agreement. University hereby approvesUTRF subcontracting with Cherokee Farm Development Corporation (“CFDC”), an affiliate ofUTRF, specifically for the purposes of execution of the Scope of Services presented in ExhibitA. UTRF shall not be relieved of any obligation arising under this Agreement solely because aportion of the Scope of Services is performed by, or delegated to CFDC or any other entity.UTRF shall be responsible to University for any act or omission of CFDC, any othersubcontractor, and any third-party collaborator of such subcontractor.7(d) Licensure. UTRF and its employees and all subcontractors and grantees shall belicensed, where required, pursuant to all applicable federal, state, and local laws, ordinances,rules, and regulations and shall upon request provide proof of all such licenses.(e) State and Federal Compliance. UTRF shall comply with all applicable state andfederal laws and regulations in the performance of this Agreement.(f) Insurance and Taxes. UTRF, being an independent contractor, agrees to carryadequate public liability insurance (with limits to be no less than the exposure and limits of theUniversity’s liability under the Tennessee Claims Commission Act, T.C.A. Sections 9-8-301, etseq.) and other appropriate forms of insurance, and to pay all taxes incident to this Agreement, ifany.(g) Use of Illegal Immigrants. In compliance with the requirements of Tenn. CodeAnn. § 12-4-124, UTRF hereby attests that UTRF shall not knowingly utilize the services of anillegal immigrant in the performance of this Agreement and shall not knowingly utilize theservices of any subcontractor who will utilize the services of an illegal immigrant in the UnitedStates in the performance of any services under this Agreement.(h) Nondiscrimination. UTRF hereby agrees, warrants, and assures that no personshall be excluded from participation in, be denied benefits of, or be otherwise subjected todiscrimination in the performance of this Agreement or in the employment practices of UTRF onthe grounds of handicap and/or disability, age, race, color, religion, sex, national origin, or anyother classification protected by Federal, Tennessee State constitutional, or statutory law. UTRFshall, upon request, show proof of such nondiscrimination and shall post in conspicuous placesavailable to all employees and applicants, notices of nondiscrimination.1.3 AUTHORITY.(a) Authority of UTRF. Except as set forth herein, or as specifically approved inwriting by University, UTRF shall not have authority to bind University in any matters regardingthe Cherokee Farm Property or the Project.(b) Limitation on Authority. UTRF’s actual authority hereunder is limited by thisAgreement, the Master Plan, the Development Guidelines and the Ground Lease. UTRF shall8116659.9 3152

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Actionnot knowingly undertake or permit any construction on the Cherokee Farm Property, engage theservices of any contractor or other third party, expend any funds or incur any debt in connectionwith the development of the Project or the performance of any other obligation under thisAgreement, unless either (i)(A) the action shall have been contemplated in this Agreement, theMaster Plan and the Development Guidelines and (B) such action can be completed within themonetary limits described in Section 3.2 below, or (ii) the action is expressly approved byUniversity in writing.ARTICLE 2TERM OF AGREEMENT72.1 AGREEMENT TERM. This Agreement shall be effective for a term commencing onMarch 1, 2012 and ending on February 28, 2017, subject to Section 2.2 below. The Universityshall have no obligation for services rendered by UTRF which are not performed within thespecified term. This Agreement may be extended by written agreement of the parties afterreview of budgets.2.2 EARLY TERMINATION.(a) Termination for Convenience. Either of the parties may terminate this Agreementby giving ninety (90) days’ written notice before the effective termination date. In that event,UTRF shall be entitled to receive equitable compensation for satisfactory services completed asof the termination date.(b) Termination for Cause. Either party may terminate this Agreement upon the otherparty’s failure to perform any of its material obligations hereunder, which failure is not cured bythe non-performing party within thirty (30) days after receipt of written notice thereof.Notwithstanding the above, UTRF shall not be relieved of liability to the University for damagessustained by virtue of any breach of this Agreement by UTRF.ARTICLE 3COMPENSATION3.1 PAYMENT METHODOLOGY. University will advance to UTRF the sum of onehundred fifty thousand dollars ($150,000) within thirty (30) days after the full execution of thisAgreement. Thereafter, University will make payments to UTRF for Reimbursable Costs (ashereinafter defined) within thirty (30) days after UTRF’s submission to University of quarterlyinvoices, not to exceed the maximum liabilities established in Section 3.2. “ReimbursableCosts” shall include only those expenses and fees incurred in accordance with the Scope ofServices described in Exhibit A, including without limitation, costs, fees and expenses related todevelopment staff, architectural, appraisal and survey services, accounting services, legalservices, travel, office and supplies, as well as an annual administrative fee.3.2. MAXIMUM LIABILITY. The parties anticipate that the liability of the University underthis Agreement shall equal approximately six hundred thousand dollars ($600,000) annually;provided, however, in no event shall the maximum liability of the University under this8116659.9 4153

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionAgreement exceed (a) three million dollars ($3,000,000) in the aggregate over the initial fiveyear term of this Agreement, or (b) eight hundred thousand dollars ($800,000) in any calendaryear. This maximum liability is not subject to escalation for any reason unless this Agreement isamended in writing by the University President and an authorized representative of UTRF. Thismaximum liability includes all applicable taxes, fees, overhead, and all other direct and indirectcosts incurred or to be incurred by UTRF.3.3 PROCUREMENT. To the extent UTRF submits costs for reimbursement pursuant to thisArticle 3, the procurement of such goods, materials, supplies, equipment, and/or services shall bemade on a competitive basis, including the use of competitive bidding procedures, wherepractical.73.4 RECORDS. UTRF shall retain documentation for all Reimbursable Costs charged toUniversity under this Agreement. The books, records, and documents of UTRF, insofar as theyrelate to work performed or money received under this Agreement, shall be maintained for aperiod of three (3) full years from the date of the final payment and shall be subject to audit atany reasonable time and upon reasonable notice by University, the Tennessee Comptroller of theTreasury, or their duly appointed representatives. The financial statements of UTRF shall beprepared in accordance with generally accepted accounting principles.3.5 MONITORING AND PROGRESS REPORTING. UTRF’s activities conducted andrecords maintained pursuant to this Agreement shall be subject to monitoring and evaluation bythe University, the Tennessee Comptroller of the Treasury, or their duly appointedrepresentatives. In connection with request for payment of Reimbursable Costs, UTRF shallsubmit brief, quarterly progress reports to the University.ARTICLE 4LIABILITY AND INDEMNIFICATION4.1 UNIVERSITY LIABILITY. University shall have no liability to UTRF, except asprovided in this Agreement or under applicable law.4.2 HOLD HARMLESS. UTRF shall indemnify, hold harmless, and at University’s request,defend University for injury or loss to third parties arising out of UTRF’s acts or omissions, orthe acts or omissions of any subcontractor or grantee, in the performance of this Agreement.ARTICLE 5MISCELLANEOUS5.1 REQUIRED APPROVALS. University is not bound by this Agreement until it isapproved by the appropriate University and governmental officials in accordance with applicableState laws and regulations and applicable University policies.5.2 MODIFICATION AND AMENDMENT. This Agreement may be modified only by awritten amendment executed by all parties hereto and approved by the appropriate University8116659.9 5154

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Actionand governmental officials in accordance with applicable State laws and regulations andapplicable University policies.5.3 CONFLICTS OF INTEREST. UTRF warrants that no part of the total Agreementcompensation shall be paid directly or indirectly to an employee or official of the State ofTennessee as compensation or wages, or gifts in exchange for acting as an officer, agent,employee, subcontractor, or consultant to UTRF in connection with any work contemplated orperformed relative to this Agreement, and that no employee or official of the University or theState of Tennessee holds, or at any time during the term of this Agreement will hold, a financialinterest in UTRF or CFDC. The parties recognize that UTRF is staffed by University employeeswho have no ownership or other financial interest in UTRF. The parties further recognize thatCFDC’s board may include University or UTRF employees and its officers may includeUniversity or UTRF employees, but that none of those individuals will have ownership or otherfinancial interest in CFDC.75.4 LOBBYING. UTRF certifies, to the best of its knowledge and belief that:(a) No federally appropriated funds have been paid or will be paid, by or on behalf ofUTRF, to any person for influencing or attempting to influence an officer or employee of anyagency or a Member of Congress in connection with this Agreement.(b) If any funds other than federally appropriated funds have been paid or will be paidto any person for influencing or attempting to influence an officer or employee of any agency, aMember of Congress, an officer or employee of Congress, or an employee of a Member ofCongress in connection with this Agreement, UTRF shall complete and submit Standard Form-LLL, “Disclosure Form to Report Lobbying,” in accordance with its instructions.(c) UTRF shall require that the language of this certification be included indocuments at all tiers (including grants, subcontracts, and contracts) and that all sub-recipients offederally appropriated funds shall certify and disclose accordingly.5.5 PUBLIC ACCOUNTABILITY. If this Agreement involves the provision of services tocitizens by UTRF on behalf of the State, UTRF agrees to establish a system through whichrecipients of services may present grievances about the operation of the service program, andUTRF agrees to display a sign at least twelve inches (12”) high and eighteen inches (18”) widestating:NOTICE:THIS AGENCY IS A RECIPIENT OF TAXPAYER FUNDING.IF YOU OBSERVE AN AGENCY DIRECTOR OF EMPLOYEEENGAGING IN ANY ACTIVITY WHICH YOU CONSIDER TOBE ILLEGAL, IMPROPER, OR WASTEFUL, PLEASE CALLTHE STATE COMPTROLLER’S TOLL FREE HOTLINE: 1-800-232-5454.8116659.9 6155

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Action5.6 GOVERNING LAW. This Agreement shall be governed by and construed in accordancewith the laws of the State of Tennessee. UTRF acknowledges and agrees that any rights orclaims against University or its employees hereunder, and any remedies arising therefrom, shallbe subject to and limited to those rights and remedies, if any, available under Tenn. Code Ann.§§ 9-8-101 through 9-8-407. UTRF agrees that it will be subject to the exclusive jurisdiction ofthe courts of the State of Tennessee and the courts of the United States which are located withinthe State of Tennessee in actions that may arise under this Agreement.5.7 COMPLETENESS. This Agreement is complete and contains the entire understandingbetween the parties relating to the subject matter contained herein, including all terms andconditions of the parties’ agreement. This Agreement supersedes any and all priorunderstandings, between the parties relating hereto, whether written or oral.75.8 SEVERABILITY. If any terms and conditions of this Agreement are held to be invalidor unenforceable as a matter of law, the other terms and conditions hereof shall not be affectedthereby and shall remain in full force and effect. To this end, the terms and conditions of thisAgreement are declared severable.5.9 HEADINGS. Paragraph headings are for reference purposes only and shall not beconstrued as part of this Agreement.5.10 NOTICES. All notices, demands, and other communications required or contemplatedby this Agreement shall be in writing and shall be delivered (i) by hand delivery; (ii) by FederalExpress or other nationally recognized overnight delivery service, or (iii) by First-Class Mail.Notices shall be deemed received (1) if by hand delivery, upon delivery or refusal of same; or (2)if by Federal Express or other nationally recognized overnight delivery service, the business dayfollowing deposit; or (3) if by First-Class Mail, the third business day following deposit. Anynotice received on a non-business day or after 5:00 p.m. Eastern Time on a business day shall bedeemed received on the next business day. All notices, demands and other communications shallbe made to the respective party at the appropriate address as set forth below:UNIVERSITY:David E. Millhorn, Executive Vice PresidentThe University of Tennessee813 Andy Holt TowerKnoxville, TN 37996With copies to:Stacey Patterson, Asst. Vice President & Director of Research PartnershipsThe University of Tennessee815 Andy Holt TowerKnoxville, TN 37996Catherine S. Mizell, General Counsel and SecretaryThe University of Tennessee8116659.9 7156

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Action719 Andy Holt TowerKnoxville, TN 37996Charles M. Peccolo, Treasurer & Interim Chief Financial OfficerThe University of Tennessee709A Andy Holt TowerKnoxville, TN 37996UTRF:University of Tennessee Research FoundationDick Gourley, Interim PresidentUT Conference Center, Suite 211600 Henley StreetKnoxville, TN 379967Any address or name specified above may be changed by notice given to the addressee by theother party in accordance with this Section. The inability to deliver notice because of a changedaddress of which no notice was given as provided above, or because of rejection or other refusalto accept any notice, shall be deemed to be the receipt of the notice as of the date of suchinability to deliver or rejection or refusal to accept. Any notice to be given by any party heretomay be given by the counsel for such party.5.11 CONSENT OF UNIVERSITY. Whenever it is stated in this Agreement that University’sconsent or approval is required, the President of the University has the authority to give suchconsent or approval.5.12 NATURE OF AGREEMENT. The parties, in performance of this Agreement, shall beacting in their individual capacities and not as agents, employees, partners, joint ventures, orassociates of one another. It is expressly acknowledged by the parties that such parties areindependent contracting entities and nothing in this Agreement shall be construed to create aprincipal/agent relationship to allow either to exercise control or direction over the manner bywhich the other transacts its business affairs or provides its services. The employees or agents ofone party shall not be deemed or construed to be the employees or agents of the other party forany purpose whatsoever.5.13 COUNTERPARTS. This Agreement may be executed in any number of counterpartsand it shall be sufficient that the signature of each party appear on one or more such counterparts.All counterparts shall collectively constitute a single agreement. Originals transmitted byfacsimile or electronic mail shall be considered original in all respects.[SIGNATURES ON FOLLOWING PAGE]8116659.9 8157

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionIN WITNESS WHEREOF, the parties hereto have caused this Agreement to be dulyexecuted by their duly authorized officers as of the dates set forth below their respectivesignatures.UNIVERSITY OF TENNESSEE7______________________________________________Joseph A. DiPietro, PresidentDATE: ____________, 2012UNIVERSITY OF TENNESSEE RESEARCH FOUNDATION__________________________________________Dick Gourley, Interim PresidentDATE:____________, 20128116659.9 9158

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionEXHIBIT ASCOPE OF SERVICES TO BE PROVIDED BYUNIVERSITY OF TENNESSEE RESEARCH FOUNDATIONUTRF will perform the following services under the terms of this Agreement: Recruit public and private development partners and tenants for new research labsand office space. Negotiate and execute development agreements with public and private developmentpartners (“Development Agreements”), subject to final approval by UniversityPresident and limited by the Master Plan, the Development Guidelines and theGround Lease. Negotiate and execute lease and/or sublease agreements with tenants, whenappropriate, for space in developed buildings or for lease of land with obligation toconstruct buildings thereon (“Leases”), subject to final approval by UniversityPresident and limited by the Master Plan, the Development Guidelines and theGround Lease; provided, that at the termination of all Leases, unless otherwiserenewed or agreed, title to all improvements shall pass to the University, unless theUniversity requires that the improvements be removed, at the tenant’s sole expense. Manage and oversee development, maintenance, operation and tenant occupancy inthe Project. This oversight does not include design and installation of InfrastructureImprovements. This facility management does not include services, if any, to beperformed by University under the Ground Lease. Further, if UTRF so elects, UTRFmay contract with the University to perform certain services upon the premises leasedby UTRF under the Ground Lease, including maintenance of grounds, landscaping,parking lots, cleaning of trash and debris, pest control, site lighting, and snow and iceremoval, pursuant to a separate agreement to be negotiated. Procure surveys and appraisals of Cherokee Farm building sites to assist with demiseof premises and determination of competitive lease rates for development and leasepurposes. Supervise construction of the Project, including: (a) negotiate contracts with, andsupervise the performance of, all architects, landscapers, engineers, planners,designers, general contractors, technology suppliers and consultants, and othersuppliers and servicers utilized in the development of the Project, as appropriate, and(b) coordinate with management personnel, architects and contractors of the Project’stenants with respect to the design and construction of improvements to ensurecompliance with the Development Guidelines. Update and revise the limits on Reimbursable Costs, as set forth in Section 3.2,during the course of development of the Project; provided, however, that anymodification of the limits set forth in Section 3.2 must be approved by University andUTRF. Provide quarterly progress reports to University, describing in reasonable detail thestatus of any Development Agreements, Leases or other Contracts that have beenexecuted, or that are being negotiated, with regard to the Project, along with the statusof construction of any improvements.78116659.9 A-1159

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionRequire all contractors, subcontractors and other parties performing work at theProject (“Contractors”) to maintain insurance and otherwise comply with thefollowing:a. Contractors shall furnish a payment bond and a performance bond in theamount of the cost to complete the work issued by a bonding company acceptableboth to UTRF and University, licensed in the state of Tennessee, wherein UTRFand University are named as co-obligees.b. Contractors shall purchase and maintain insurance as follows:1) Worker’s Compensation:Applicable Federal and State Statutory StatutoryEmployer’s Liability $500,000.002) Comprehensive General Liability, including Products andCompleted Operations Broad form Property Damage Liability,Contractual, Personal Injury and XCU Coverage (if applicable)(i) Bodily Injury Limits of: $1,000,000.00Annual Aggregate of: $2,000,000.00(ii) Property Damage Limits of: $1,000,000.00Annual Aggregate of: $2,000,000.00OR Combined Single Limits equal to: $2,000,000.003) Automobile Liability to include Owned, Non-owned, and Hired;Bodily Injury and Property DamageCombined Single Limit $500,000.00c. Such insurance shall be underwritten by a company or companiesauthorized to do business in the State of Tennessee. A Certificate ofInsurance evidencing the coverage required above shall name both UTRFand University as additional insureds on the face of the Certificate andshall include the provision that UTRF and University shall be notified ofany changes, deletions, or cancellation of coverage(s) at least thirty (30)days prior to such action.d. Contractors shall also procure and maintain Builder’s Risk Insurance tothe full completed value on a non-reporting basis at the work site. Thisinsurance shall include UTRF and University as named insureds, as wellas the Contractors. The Contractors shall be responsible for any deductibleapplicable to this insurance coverage. Evidence of such coverage shall bein the form of copies of the original policy signed by the insurer or theirauthorized representative.e. The bonds and certificate(s) described above shall be furnished to UTRFprior to commencement of the work.f. Contractors shall be responsible from the time of their execution of theconstruction contract or from the time of the beginning of the first work,whichever shall be earlier, for any and all injuries to persons or damagesto property resulting from the work. In addition, the Contractors shallassume the obligation to defend, indemnify, and hold both the UTRF andUniversity harmless from and against all losses, damages, suits and claimsfor damages to property and injuries to persons at any place in which work78116659.9 A-2160

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Actionis located arising out of or suffered through any act or omission of theconstruction or any subcontractor, or (a) anyone either directly orindirectly employed by or (b) under the supervision of any of them in theprosecution of the work.g. Contractors shall agree that, in the event the Lease is terminated prior tothe construction of any Projects, the construction contract shall, atUniversity’s election, be assigned to University and Contractor shallperform the balance of Contractor’s obligations thereunder as if Universitywere an original party to the contract.Notwithstanding the foregoing, University reserves the right, upon prior writtennotice, to increase the amounts of insurance described above or require additionaltypes of coverage on a periodic basis, or to otherwise modify the foregoing insurancerequirements as it deems appropriate.78116659.9 A-3161

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionMASTER GROUND LEASEEXECUTIVE SUMMARYUniversity retains title to the real property; UTRF or a wholly owned subsidiary of UTRF has anoption to lease parcels and sublease them to third party tenants to construct buildings for permitteduses consistent with the Master Plan and Development Guidelines.Lease term is 60 years with an option for a 40-year extension. The University may terminate theLease if the University terminates the Agreement for Development Management Services, whichmay be terminated for convenience upon 90 days’ written notice.7University has the right to withdraw parcels from the leasable property before UTRF exercises itsoption to lease the parcel(s).Parcels may only be leased for the construction, operation and ownership of projects consisting ofoffices, research laboratories and other facilities for research or other professional services, alongwith such other uses as may be related or incidental thereto. All subleases are subject to approval bythe University President.UTRF and subtenants are granted easements over the whole parcel for the installation, maintenance,repair and replacement of utilities and as otherwise may be necessary for the installation,construction and maintenance of the projects for the term of the lease and subleases.UTRF will pay rent from net cash flows collected from subtenants. Net cash flow is defined as theconsideration received in excess of UTRF’s actual, out-of-pocket expenses (excluding depreciation,depletion and amortization) incurred in connection with UTRF’s duties under the lease andsubleases. University has the right to inspect UTRF’s books of account and records regarding thedetermination of expenses and net cash flow.If the underlying Lease is terminated, the University will enter a direct lease with the subtenants forthe term of the subleases.UTRF is required to maintain and to cause subtenants to maintain property and liability insuranceand to include the University as an additional insured. Subtenants will be required to indemnifyand save the University harmless from personal injury and property damage, as well as frombreaches of any leasehold financing or of the subleases by such subtenant.The University is responsible for maintaining the portions of the site that have not been leased toUTRF. As the project develops, funds from the subtenants will be used to maintain common areas.When the lease and subleases expire, the land and buildings revert to the University.162

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionMASTER GROUND LEASEbetween7THE UNIVERSITY OF TENNESSEEAndUNIVERSITY OF TENNESSEE RESEARCH FOUNDATION8088569.13163

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionMASTER GROUND LEASETHIS MASTER GROUND LEASE (this “Lease”) is made and entered into by THEUNIVERSITY OF TENNESSEE (“University”) and UNIVERSITY OF TENNESSEERESEARCH FOUNDATION, a Tennessee not-for-profit corporation (“Tenant”), on this __day of ___________, 2012 (the “Effective Date”).RECITALSA. University is the owner of that certain real property located in the City ofKnoxville, County of Knox, State of Tennessee, commonly known as “Cherokee Farm.”7B. Tenant is a not-for-profit 501(c)(3) organization formed to promote thecommercialization of the University's intellectual property developed through research, and itencourages an entrepreneurial culture, contributes to state and regional economic development,and promotes research and education to benefit the people of Tennessee.C. Cherokee Farm is a 200 acre site, which is legally described on Exhibit “A” (the“Land”), and has been identified and designated by University as the location for a project todevelop, expand and enhance private and public research through the development of researchlaboratories, offices and related facilities, all of which are anticipated to operate in collaborationwith the University's faculty and to benefit the State of Tennessee and the University.D. University desires to lease portions of the Land, as described on Exhibit “A-1”,subject to and together with all easements, appurtenances and other rights belonging thereto,including but not limited to rights of ingress and egress, parking, roads, utility sources andconnections, and the other infrastructure and common areas, if any (collectively, the “LeasableProperty”), to Tenant from time to time for the purpose of undertaking and implementing thedevelopment of the Leasable Property for such purposes, and in connection therewith, the partieshave or will enter into an Agreement for Development Management Services (the "DevelopmentAgreement") pursuant to which the University and Tenant have made certain agreements andestablished certain guidelines, directions and restrictions relating to Tenant's use anddevelopment of the Leasable Property.E. Tenant initially desires to lease a portion of the Leasable Property, as described onExhibit “A-2”, subject to and together with all easements, appurtenances and other rightsbelonging thereto (the “Premises”), pursuant to the terms and conditions of this Lease. Theportion of the Leasable Property that is not part of the Premises is hereinafter referred to as the“Expansion Premises,” and the portion of the Land that is not part of the Leasable Property ishereinafter referred to as the “Retained Property.”NOW, THEREFORE, in consideration of the mutual covenants and promises of theparties, the parties hereto agree as follows:8088569.13 1164

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Action1. DEMISE OF PREMISES.1.1 Premises. University, for and in consideration of the rents, covenants andconditions herein set forth, does hereby lease to Tenant, and Tenant does hereby lease fromUniversity, the Premises, subject to the terms, conditions and provisions hereof.1.2 Title. University is the fee owner of the Leasable Property, including thePremises, subject only to the encumbrances set forth in Exhibit “B” hereto (collectively, the“Permitted Encumbrances”). Any improvements, alterations and additions to the Premisesconstructed by or on behalf of Tenant, or its subtenants or assigns (collectively, the “Projects”)shall be owned by Tenant, or its subtenants or assigns, subject to the reversion in Section 5.2below and the provisions of Section 15.3.71.3 Option to Lease. At any time after the Effective Date, Tenant (or a PermittedTransferee, as hereinafter defined) shall have an ongoing, exclusive option (“ExpansionOption”) to lease all or a portion of the Leasable Property on the same terms and conditions asTenant leases the Premises. Tenant shall provide University with written notice ("ExpansionNotice") of its election to exercise its right to lease the Expansion Premises (or portion thereof),and in such event, the leased portion of the Expansion Premises shall automatically become apart of the Premises for purposes of this Lease. University and Tenant shall promptly execute amutually agreeable amendment to the Lease evidencing Tenant's exercise of its ExpansionOption and the inclusion of the applicable Leasable Property as a part of the Premises.1.4 University Right to Withdraw Property from Expansion Premises. At any timeafter the Effective Date, University shall have the right to withdraw all or any portion of theLeasable Property for which Tenant has not previously exercised the Expansion Option from thescope of the Expansion Premises. University shall provide Tenant with written notice at leastthirty (30) days in advance (“Withdrawal Notice”) of its election to withdraw portions of theLeasable Property from the Expansion Premises (the “Withdrawn Property”). University andTenant shall execute a mutually agreeable amendment to the Lease evidencing removal of theWithdrawn Property from the scope of the Expansion Premises. If University withdraws all ofthe remaining Leasable Property from the Expansion Premises, the Expansion Option shallterminate.1.5 University Right to Access Premises. University and its agents, employees andcontractors may enter upon the Premises, without charge therefor and without diminution of therent payable by Tenant, to inspect the Premises and to perform maintenance as University maydeem necessary. In connection with any such entry, University shall use reasonable efforts notto unreasonably disrupt or interfere with the operations of the Subtenants (as defined in Section9.1).1.6 Existing Infrastructure; Easements and University Cooperation withDevelopment. University and Tenant acknowledge that University has constructed and installedcertain infrastructure on the Land, including roads and utilities, as University anticipates will benecessary for the development of Projects on the Leasable Property. Notwithstanding theforegoing, University reserves the right to alter, reconfigure and otherwise modify such8088569.13 2165

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Actionroadways and infrastructure, so long as such modifications do not materially, adversely affect therights of Tenant (or any Subtenant, as hereinafter defined).(a) University hereby grants and conveys to Tenant, and its Subtenants,licensees and invitees, a non-exclusive easement (the “Access Easement”) over allroadways, alleys, access drives and curb cuts located on the Land for the purpose ofingress and egress, including both pedestrian and vehicular travel, to and from thePremises and the nearest public right-of-ways. The Access Easement shall beappurtenant to the Premises; provided, however, it shall terminate upon the expiration orearlier termination of this Lease and all Subleases.7(b) Additionally, to ensure Tenant’s ability to utilize the Premises for thepurposes herein contemplated, University also hereby grants and conveys to Tenant, andits Subtenants, licensees and invitees, a non-exclusive easement (the “Utilities,Construction and Maintenance Easement”) over the Leasable Property for theinstallation, maintenance, repair and replacement of utilities and as otherwise may benecessary for construction and maintenance of the Projects. The Utilities, Constructionand Maintenance Easement shall be appurtenant to the Premises; provided, however, itshall terminate upon the expiration or earlier termination of this Lease and all Subleases.(c) Upon request, University agrees to execute any further documents, in formand substance satisfactory to University, as may be requested by Tenant (or anySubtenant) to memorialize the aforementioned easements. Further, University shallcooperate with and execute any applications, permits, plats, easements and otherdocuments as are satisfactory to University in form and substance and as are necessary orproper for Tenant (or Subtenants) (i) to be afforded necessary zoning classifications forthe Premises for the construction and operation of the Projects, (ii) to obtain any requiredgovernmental approvals of site or building plans for the demolition, construction,improvement, maintenance, use and enjoyment of any improvements now existing or tobe erected on the Premises, or (iii) to otherwise obtain utility services at the Premises.University agrees that Tenant may further grant to Subtenants or any public utilityprovider the use and benefit of the aforementioned easements and any other easements,licenses or similar rights granted to Tenant by University pursuant to, and subject to theconditions of, this Lease.2. LEASE TERM.2.1 Commencement Date; Term. The term of this Lease shall commence on_____________ (the “Commencement Date”) and shall continue for sixty (60) years (the“Term”), expiring on ______________ (the “Expiration Date”), subject to terms set forthbelow.2.2 Extension Option. Tenant shall be entitled to extend the Term of this Lease forone (1) additional period of forty (40) years (the “Extension Option”) by giving Universitywritten notice, as provided herein, not less than one hundred twenty (120) days prior to theExpiration Date. Notwithstanding the foregoing, if Tenant fails to give such notice within theaforesaid time limit, Tenant’s right to exercise its Extension Option shall nevertheless continue8088569.13 3166

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Actionuntil thirty (30) days after University shall have given Tenant written notice of Tenant’s failureto exercise its Extension Option. If Tenant does not exercise the Extension Option within therequisite time period after University’s foregoing notice, this Lease shall terminate at the later of(i) thirty (30) days after University’s notice, or (ii) the end of the stated Term. Tenant shall havethe right to exercise an Extension Option in part and from time to time in connection with parcelssubject to a sublease and delivery of a copy of such sublease to the University shall constitute anexercise of an Extension Option as to the parcel(s) described in the sublease and for the termprovided for in such sublease(s).2.3 Termination of Development Agreement. Notwithstanding the foregoing, in theevent that the Development Agreement expires or is terminated under any circumstances,University may terminate this Lease upon prior written notice to Tenant, subject to the terms ofSection 15.3 below.73. RENT, TAXES AND UTILITIES.3.1 Base Rent; Net Cash Flow Payments. Tenant shall pay to University, as base rent(“Base Rent”), a one-time payment of One Hundred Dollars ($100.00). Additionally,throughout the Term, Tenant shall remit to University, on an annual basis within one hundredtwenty (120) days after the end of Tenant’s fiscal year, payments of all Net Cash Flow (ashereinafter defined) received by Tenant pursuant to Section 9.1 below.3.2 Taxes. Tenant shall require the Subtenants (as hereinafter defined) to pay allgenerally imposed real and personal property taxes and all other generally imposed charges,assessments and taxes of every description, if any, levied on or assessed against the Premises,any personal property owned by Subtenants and located on or in the Premises, the leaseholdestate, or any subleasehold estate, to the full extent of installments assessed during the Term.University shall cooperate and use commercially reasonable efforts to assist with obtaining anyincentives, exemptions or credits as may be available with regard to any of the aforementionedtaxes.3.3 Utilities. Tenant shall pay or cause to be paid all charges for water, heat, gaselectricity, cable, data, telecommunications, trash disposal, sewers and any and all other utilitiesused on the Premises throughout the Term, including without limitation, any connection andservicing fees, permit fees, inspection fees, and fees to reserve utilities capacity.4. USE OF PREMISES.4.1 Permitted Use. The Premises shall be used solely for the construction, operationand ownership of Projects, consisting of offices, research laboratories, and other facilities forresearch or other professional services, along with such other uses as may be related or incidentalthereto, subject to the terms, conditions and restrictions set forth in the Development Agreement,so long as it remains in full force and effect, and the Development Standards (as defined inSection 5.1 below). During the Term, no other use shall be made of the Premises without theprior written approval of University.4.2 Compliance with Laws. Tenant, and its assignees and subtenants, shall at alltimes comply with all local, state, and federal rules, laws, ordinances and regulations including,8088569.13 4167

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Actionwithout limitation, the Americans with Disability Act, 42 U.S.C. 2101, et seq., and allEnvironmental Laws (as hereinafter defined), applicable to the Premises and the use andoccupation thereof.4.3 Prohibited Uses. Notwithstanding anything herein to the contrary, the Premisesshall not be used for any of the following purposes at any time during the Term: (a) anymanufacturing (except for such manufacturing that is otherwise incidental to a permissible use,including prototype development or assembly of high technology products related to on-siteresearch and development activities), industrial or warehouse (except for storage incidental to theoperation of any otherwise permissible use) facilities or operations; or (b) any retail use, exceptas incidental to any otherwise permissible use (e.g., operation of cafés or coffee shops, day carecenters or training institutes for the use of Project tenants).75. CONSTRUCTION OF PROJECTS.5.1 Plans, Specifications and Other Requirements. The Projects shall be constructedon the Premises consistent with such plans, specifications, schedule and other requirements setforth in the Development Agreement, so long as it remains in full force and effect. Further, anyProjects constructed on the Premises shall comply with The University of Tennessee’s CherokeeFarm Development Standards, as the same may be modified from time to time (the“Development Standards”).5.2 Reversion of Projects. On the Expiration Date, as may be extended pursuant toSection 2.2, any Projects shall be surrendered to and become University’s property, owned byUniversity in fee simple, free and clear of all claims by Tenant or any third person, subject to theterms of Section 15.3, and all liens, security interests and encumbrances, other than the PermittedEncumbrances and any other encumbrances or liens created in accordance with this Agreementor otherwise expressly agreed to by University in writing.5.3 Contractor Bonds and Insurance. Tenant shall require any contractor orsubcontractor engaged for the construction of Projects on the Premises (each, a “Contractor”) tocomply with the bonding and insurance requirements described in the Development Agreement,or as may be prescribed by University.6. ENCUMBRANCES.6.1 No Encumbrances by Tenant on Fee. Tenant shall not, at any time, encumber thefee simple title to the Premises.6.2 Rights of University. University may sell, lease or transfer its fee interest in thePremises without Tenant’s consent; provided, however, that the sale, lease or transfer shall bemade expressly subject to the terms of this Lease. University may prepare, execute and record adeclaration of easements, covenants and restrictions or other instrument, encumbering theLeasable Property (or a portion thereof) and governing the use and development thereof;provided, however, that any such instrument shall be subject to the terms of this Lease and anySubleases.6.3 Leasehold/Construction Financing.8088569.13 5168

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Actiona. Right to Mortgage Leasehold Interest. Tenant and any Subtenants maypledge, convey or encumber by mortgage its leasehold interest in and to the Premises orany part thereof, together with its rights and interests in and to all Projects whether nowexisting or hereafter constructed or placed thereon, and assign this Lease or any interesttherein as collateral for any such mortgage or mortgages; provided, however, any and allsuch conveyances, mortgages, or assignments shall be subject to this Lease and shall notcreate a lien upon or be superior to University’s reversionary or fee interest in thePremises.b. Rights of Leasehold Mortgagee. If, from time to time, Tenant (or anySubtenants) shall encumber its leasehold interest with a Leasehold Mortgage (ashereinafter defined), and if the Leasehold Mortgagee (as hereinafter defined), registerswith University by delivering to University a copy of such recorded Leasehold Mortgage,together with written notice specifying the name, address and facsimile number of theLeasehold Mortgagee, University agrees that from and after the date of receipt byUniversity of such notice and for so long as such Leasehold Mortgage shall remainunsatisfied of record, the following provisions shall apply:7(i) Definitions. The term “Leasehold Mortgage” as used in thisLease shall include any encumbrance of Tenant’s (or a Subtenant’s) interest inthis Lease (or a Sublease) as security for an indebtedness Tenant may incur,whether by mortgage, deed of trust, or other security instrument. The term“Leasehold Mortgagee” shall mean and refer to the holder or holders of theindebtedness secured by any Leasehold Mortgage.(ii) Notices; Cure Rights. Within ten (10) days of any breach byTenant, University shall deliver to all Leasehold Mortgagees any notice requiredto be given to Tenant by University under this Lease. Any Leasehold Mortgageeshall have the right to enter upon the Premises for the purpose of remedying anysuch default. Such Leasehold Mortgagee may at its option at any time before therights of Tenant shall have been forfeited to University, or within the timepermitted for curing or commencing to cure defaults as herein provided, pay anyof the rents due, pay any other governmental charges, or insurance premiums,make any deposits, or do any other act or thing required of Tenant by the terms ofthis Lease, to prevent the forfeiture hereof.(iii) Limitation of Liability. A Leasehold Mortgagee shall not becomepersonally liable for any of Tenant’s obligations under this Lease or any Subleaseunless and until such mortgagee becomes the owner of the leasehold estate byforeclosure, assignment in lieu of foreclosure or otherwise, and thereafter suchmortgagee shall remain liable for such obligations only so long as it remains theowner of the leasehold estate.(iv) Assignment. If any such Leasehold Mortgage shall be foreclosedor the leasehold estate sold under any power contained therein, (A) the LeaseholdMortgagee or other purchaser at such foreclosure sale shall immediately succeedto all rights and obligations of Tenant or a Subtenant, as applicable, and (B) all8088569.13 6169

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Actionright, title and interest of a Subtenant, may, without the further consent ofUniversity or Tenant, be assigned to and vested in the Leasehold Mortgagee, itsassignee or any purchaser at foreclosure, and that upon further assignment or saleby Leasehold Mortgagee, such Leasehold Mortgagee is released from all liabilityfor obligations as Tenant under this Lease.(v) Further Assurances. Further, subject to the foregoing, Universityagrees to execute any documents (in form and substance reasonably satisfactoryto University), including without limitation, Consents to Assignment of Leases,Landlord’s Agreements with Lender, Non-Disturbance Agreements and EstoppelCertificates, which may be reasonably required by any Leasehold Mortgagee toloan money to Tenant or to a Subtenant to construct the Projects and perfect asecurity interest by lender in Tenant’s or Subtenant’s (as the case may be)leasehold interest in the Premises.7c. Leasehold Mortgage Provisions in Subleases. Tenant shall have theauthority to enter into subleases that contain covenants consistent with this Section 6.3for the benefit of Subtenants and their lenders.7. MAINTENANCE.(a) Tenant agrees that it will, throughout the Term, maintain or cause to bemaintained the Premises, the Projects and appurtenances thereto and every part thereof, in goodorder, condition and repair, ordinary wear and tear excepted, free of health and safety hazards,and in accordance with all applicable laws, rules, ordinances, order and regulations of allgovernmental authorities.(b) University agrees that it will, throughout the Term, maintain the RetainedProperty and the Expansion Premises, including (i) maintaining the roadways, access drives,curb cuts and all other paved surfaces located thereon in a smooth and evenly covered condition,including, without limitation, making any necessary replacement of base, skin patch, resurfacing,restriping and resealing, and (ii) maintaining the grounds, lawns and landscaping located thereonin good and sightly condition. Notwithstanding the foregoing, it is contemplated that the cost ofmaintaining any such areas that are deemed “common areas” will be borne by Subtenants inproportion to the area subleased, as more particularly set forth in each respective Sublease.University will be responsible for all such costs of maintenance in excess of the amountscontributed by Subtenants.(c) If University fails to perform any of the foregoing obligations, and such failurecontinues for more than thirty (30) days after written notice by Tenant to University, Tenantmay, but shall not be obligated to, perform the obligation of University under this Lease thatUniversity has failed to perform. In the case of an emergency, Tenant shall have the right tomake such temporary, emergency repairs as may be reasonably necessary to prevent imminentdamage to the equipment, inventory or property of Tenant (or its Subtenants), or injury topersons, even if University otherwise bears the obligation to make such repairs under this Lease.The reasonable, documented cost of Tenant’s performance in order to cure a University default,or to carry out emergency repairs, shall be paid by University to Tenant within thirty (30) days8088569.13 7170

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Actionafter demand. The rights conferred herein are cumulative and not in lieu of other rights whichTenant may have at law or in equity for defaults by University.8. MECHANIC’S LIENS.Tenant shall specify in any sublease or license of the Premises that (a) the sublessee,licensee or occupant shall not suffer, create or permit any mechanic’s liens or other liens to befiled against the fee of the Premises, nor against Tenant’s leasehold interest in the Premises, norany Projects on the Premises, by reason of any work, labor, services or materials supplied orclaimed to have been supplied to Tenant or anyone holding the Premises or any part thereofthrough or under Tenant, and (b) if any mechanic’s or laborer’s liens or materialman’s lien shallbe recorded against the Premises or the Projects, such sublessee, licensee or occupant shall causesuch lien to be removed or transferred to a bond pursuant to applicable law within sixty (60) daysof the filing of same.79. ASSIGNMENT AND SUBLEASE.9.1 Sublease; Net Cash Flow. Tenant will sublease portions of the Premises to thirdparties, and is authorized and directed to do so, and each sublease, license or other agreement ofoccupancy (each, a “Sublease”) is subject to the approval of University and to the applicableterms, conditions and restrictions set forth herein, in the Development Agreement and in theDevelopment Standards. Each Sublease shall prohibit any subsequent sublease, license,assignment or transfer of any kind without the approval of the University. Any considerationreceived by Tenant from its subtenants or licensees under any Sublease (collectively,“Subtenants”), in excess of actual, out-of-pocket expenses (excluding depreciation, depletion andamortization) incurred by Tenant in connection with the discharge of its duties hereunder andunder all Subleases (other than expenses reimbursed to Tenant as Reimbursable Expenses underthe Development Agreement) (“Expenses”), shall be referred to herein as “Net Cash Flow” andshall be paid to University as additional rent hereunder. Expenses shall include such reasonablecosts, expenses and charges (excluding depreciation, depletion and amortization) as Tenant mayincur in the ordinary course of business and shall be set forth with reasonable specificity anddelivered to University annually on the date that any payment of Net Cash Flow is due pursuant toSection 3.1 hereof. University shall have the right to inspect, at reasonable times and in areasonable manner, such of Tenant's books of account and records as pertain to and containinformation concerning the Expenses and Net Cash Flow to verify the amounts thereof. Suchinspection shall take place at Tenant's office upon at least ten (10) days prior written notice fromUniversity to Tenant.9.2 Non-Disturbance Agreement for Subtenants. Upon Tenant’s request, Universityshall execute, acknowledge and deliver to a Subtenant a Non-Disturbance Agreement (“NDA”)substantially in the form attached hereto as Exhibit “C”, within thirty (30) days following receiptof such written request. The form of NDA attached as Exhibit “C” can be modified uponapproval of the President of the University.9.3 Assignment. Except for (i) Leasehold Mortgages and/or (ii) an assignment toCherokee Farm Development Corporation, or any other wholly-owned subsidiary of Tenant8088569.13 8171

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Action(each a “Permitted Transferee”), Tenant shall not assign, convey or transfer its interest in thisLease or the leasehold estate created hereby.10. INSURANCE.10.1 Property Insurance. During the Term, Tenant shall cause, or shall require itsSubtenants to cause, the Premises, including all Projects located thereon and all contents andpersonalty located therein, to be insured (to the extent insurable) against loss or damage by theelements for the full insurable value thereof. With regard to the obligations of Tenant, Tenantagrees to self-insure and/or to provide assurance of insurance coverage in types and amountsrequired by state law, regulation and/or policy. All Subtenants shall:7(a) Obtain a policy or policies of insurance insuring the Premises in anamount equal to the replacement cost of the Projects, as well as claims for injuries topersons or damages to property which may arise from or in connection with the use andoccupancy of the Premises, designating University as an additional insured (subjecthowever to the rights of Leasehold Mortgagees as loss payees with respect to propertydamage); and(b) Maintain coverage at least as broad as including all major divisions ofcoverage, and be on a comprehensive basis including, but not limited to, premisesoperations, bodily injury and property damage.10.2 Liability Insurance. Tenant and its Subtenants shall maintain general liabilityinsurance with limits of said insurance to be no less than the exposure and limits of University’sliability under the Tennessee Claims Commission Act, T.C.A. Sections 9-8-301, et seq.,currently being three hundred thousand dollars ($300,000.00) per claimant and one milliondollars ($1,000,000.00) per occurrence, or as it may be from time to time amended and/orconstrued by the Claims Commission and the courts.10.3 Deductibles. Any deductibles or self-insured retentions must be declared to andapproved by University, such approval not be unreasonably withheld, conditioned or delayed.10.4 Other Requirements. The policies of insurance required hereunder (the “RequiredPolicies”) are to contain, or be endorsed to contain, the following provisions:General Liability:(1) University is to be covered as an insured as respects: liabilityarising out of the Premises occupied or used. Coverage shallcontain no special limitations on the scope of protection affordedto University.(2) The insurance coverage of the Required Policies shall be theprimary insurance as respects University. Any insurance or selfinsurancemaintained by University shall be excess and notcontributory to the insurance provided by the Required Policies.8088569.13 9172

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Action(3) Any failure to comply with reporting provisions of the RequiredPolicies shall not affect coverage provided to University.(4) Coverage shall state that the Required Policies shall applyseparately to each insured against whom claim is made or suit isbrought, except with respect to the limits of the insurer’s liability.All Coverages:(5) Each of the Required Policies shall be endorsed to state thatcoverage shall not be suspended, voided, canceled, reduced incoverage or in limits except after thirty (30) days prior writtennotice by certified mail, return reception requested, being given toUniversity.7(6) The Required Policies shall be placed with insurers reasonablyacceptable to University.10.5 Evidence of Insurance Coverage. Tenant will, and shall require all Subtenants to,furnish University with certificates of insurance, policies and with original endorsementseffecting coverage required by this Lease. The certificates and endorsements for each insurancepolicy are to be signed by a person authorized by that insurer to bind coverage on its behalf. Thecertificates and endorsements are to be received and approved by University in the exercise of itsreasonable discretion before the Commencement Date. University reserves the right to requirecomplete, certified copies of all required policies, at any time.10.6 Waiver of Subrogation. Tenant and all Subtenants, on behalf of themselves andall others claiming under them, including any insurer, waive all claims against each other,including all rights of subrogation, for loss or damage to their respective property (including, butnot limited to, the Premises and the Projects) which is caused by or results from perils, events orhappenings which are the subject of property insurance carried by the respective parties and inforce at the time of any such loss, regardless of the negligence of either party.8088569.13 10173

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Action11. DAMAGE AND DESTRUCTION.Any subleases that Tenant executes pertaining to the Premises shall provide that, if theProjects shall be damaged or rendered wholly or partially untenantable by fire or other casualtyduring the Term, then, Subtenants shall promptly either (a) rebuild or repair the Projects tosubstantially their former condition, or (b) do any work (e.g. demolition) necessary to remove alldebris and the remaining portion of the Projects and to place the Premises in safe and propercondition. In the event of a casualty occurring during the last two (2) years of the Term (or anySublease term, as applicable), if Tenant or a Subtenant (as applicable) elects not to rebuild orrepair the applicable Project to its former condition in accordance with this Lease, then theinsurance proceeds payable as a result of such casualty shall be the property of University, andTenant or the Subtenant (as applicable) shall take any action as may be reasonably necessary tocause such proceeds to be paid to University.712. LIABILITY AND INDEMNIFICATION.12.1 Limitation of University Liability. It is mutually understood and agreed thatUniversity shall not be liable for any damage or injury either to the persons or property of Tenantor any assignees, subtenants, guests, licensees or invitees of Tenant due to act of neglect ofTenant or its assignees, subtenants, guests, licensees or invitees, or damage or injury resultingfrom any cause whatsoever, unless attributable to the negligence of University, its officers,agents or employees for which University is liable pursuant to Tennessee law. As an agency ofthe State of Tennessee, University’s liability for any claims, losses or damages attributable toactivities related to its lease of the Premises pursuant to this lease shall be governed by theTennessee Claims Commission Act, T.C.A. 9-8-301, et seq.12.2 Indemnification. Any subleases that Tenant executes pertaining to the Premisesshall require Subtenants to indemnify and save University harmless (including its officers, agentsand employees) from any and all claims, demands, damages, and costs (including reasonableattorneys fees):a. for personal injury or property damage arising out of or occurring as aresult of this Lease and the use and occupancy of the Premises by theSubtenant, its officers, agents, employees, invitees and guests (and anyother person or entity using the Premises with the authorization andconsent of the Subtenant);b. arising from or as a result of or in any way related to any mortgage,financing, or encumbrance of Subtenant’s leasehold interest pursuant toSection 6; orc. attributable to a breach of the Sublease by Subtenant.This obligation shall survive the expiration or earlier termination of this lease. ALeasehold Mortgagee shall have no obligation in connection with any event, occurrenceor breach arising before the Leasehold Mortgagee actually became owner of Subtenant’srights pursuant to a sublease.8088569.13 11174

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Action13. ENVIRONMENTAL.Tenant shall require that all Subtenants use the Premises in compliance with allapplicable local, state or federal environmental law, rule, regulation, statute, or ordinance,including, without limitation, the Comprehensive Environmental Response, Compensation, andLiability Act, 42, U.S.C. 9601, et seq. and the Resource Conservation and Recovery Act, 42U.S.C. 6901, et seq. (collectively, “Environmental Laws”).14. DEFAULTS AND REMEDIES.714.1 Event of Default.a. Default in Payment or Performance. Failure of Tenant to pay Base Rentor Net Cash Flow required to be paid by Tenant under this Lease when it shall become due andpayable, or failure of Tenant to observe and perform any of its other covenants, conditions oragreements under this Lease, and, in both cases, failure to cure within the applicable notice andcure period afforded to Tenant under subsection (b) below shall constitute an “Event ofDefault.”b. Notice and Right to Cure. If the default is monetary in nature, Tenantshall have twenty (20) days after receipt of written notice from University specifying the natureof the default to cure the default. As to any non-monetary default, Tenant shall have forty-five(45) days after receipt of written notice from University specifying the nature of a default to cureany alleged default; provided, however, that if, after exercise of due diligence and reasonableefforts to cure such default, Tenant is unable to do so within forty-five (45) days, the cure periodshall be extended for a reasonable time, so long as Tenant continues to diligently prosecute tocompletion the cure of the default. If University is provided with written notice of the identitiesand correct notice addresses of Subtenants and any Leasehold Mortgagees, Subtenants and theirLeasehold Mortgagees shall be copied on notices of default provided to Tenant and shall havethe right (but not the obligation) to cure any such default.14.2 Remedies. Upon an Event of Default, University may exercise any rights andremedies provided by law or equity, from time to time, to which University may resortcumulatively or in the alternative.14.3 University Self-Help. If Tenant shall default in the performance of any of itsobligations under this Lease, University, without thereby waiving such default, may (but shallnot be obligated to) perform the same for the account and at the expense of Tenant, withoutnotice, in a case of emergency, and in any other case only if such default continues after theexpiration of the applicable cure period, if any. Any reasonable expenses incurred by Universityin connection with any such performance, and all costs, expenses, and disbursements of everykind and nature whatsoever, including reasonable attorneys’ fees, related to same shall be dueand payable upon University’s submission of an invoice therefor.14.4 University Default. In the event of any default by University, Tenant shall bepermitted to exercise any remedy available at law or in equity, but prior to any such actionTenant will give University written notice specifying such default with particularity, andUniversity shall have a period of ninety (90) days following the date of such notice in which to8088569.13 12175

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Actioncure the default (provided, however, that if such default reasonably requires more than ninety(90) days to cure, University shall have a reasonable time to cure such default, providedUniversity commences to cure within such ninety (90) day period and thereafter diligentlyprosecutes such cure to completion).15. TERMINATION AND SURRENDER.15.1 Surrender of Possession. On the Expiration Date, Tenant shall surrender toUniversity possession of the Premises and all Projects constructed and installed thereon, subjectto Section 16.3.715.2 Tenant’s Quitclaim. Subject to Section 15.3, on the Expiration Date, the Projectslocated on the Premises shall become the absolute property of University, and, upon University’srequest, Tenant agrees to execute, acknowledge and deliver to University a proper instrument inwriting, releasing and quitclaiming to University all right, title and interest of Tenant in and tothe Premises and all Projects thereon.15.3 Treatment of Subleases Following Expiration or Termination. In the event thatthe Term of this Lease expires, or this Lease is otherwise terminated under any circumstances,then University hereby agrees that (a) the Subleases shall survive any such termination of thisLease, and the Subleases and the Subtenants’ rights of occupancy and possession of portions ofthe Premises, and/or any other rights and privileges under the Subleases, shall not be disturbedand shall continue in full force and effect in accordance with and subject to all of the terms,provisions, agreements and covenants of the Subleases which shall thereafter operate as directleases with University, as landlord, in which event, all Subtenants shall attorn to University andrecognize University as the landlord under Subleases, and (b) the Subleases shall remain subjectto all of the terms, provisions, agreements and covenants of this Lease applicable to thesubleased portion of the Premises. Subject to terms of this paragraph, University shall recognizeSubtenants as Tenants of the portions of the Premises leased under the Subleases for the balanceof the term of the Subleases, and University shall, in such event, exercise and undertake all of therights, obligations and duties of Tenant in and under the Subleases, and thereafter shall beentitled to collect all rents and payments due and payable under said Subleases. Notwithstandinganything contained herein to the contrary, University shall not: (a) be liable in any way or to anyextent to Subtenants under Subleases (i) for any past act or default on the part of Tenant, (ii) forany prepayment of rent, security deposits, or any other sums deposited with Tenant under theSubleases and not delivered to University, (iii) for any financial obligations of Tenant under theSubleases, or (iv) for any indemnification obligations of Tenant under the Subleases, or (b) bebound by any amendments or modifications of the Subleases made without University’s priorwritten consent. Likewise, notwithstanding anything contained herein to the contrary, Subtenantshall not: (a) be liable in any way or to any extent for (i) any past act or default on the part ofTenant, or (ii) for any indemnification obligations of Tenant, or (b) have any greater oradditional duties beyond those set forth in its sublease.16. GENERAL PROVISIONS.16.1 Covenants Run With the Land. All of the provisions of this Lease shall bedeemed as running with the land.8088569.13 13176

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Action16.2. Survival of Provisions. All representations, warranties, and indemnities of Tenantunder this Lease shall survive the expiration or sooner termination of this Lease.16.3 No Waiver of Breach. No failure by either University or Tenant to insist upon thestrict performance by the other of any covenant, agreement, term or condition of this Lease, or toexercise any right or remedy consequent upon a breach thereof, shall constitute a waiver of anysuch breach or of such covenant, agreement, term or condition. No waiver of any breach shallaffect or alter this Lease, but each and every covenant, condition, agreement and term of thisLease shall continue in full force and effect with respect to any other then existing or subsequentbreach.716.4 Notices. All notices, demands, consents, approvals, requests and othercommunications under this Lease shall be in writing and shall be either (a) delivered in person,(b) sent by certified mail, return receipt requested, or (c) delivered by a recognized overnightdelivery service and addressed as follows:To University:Copy to:The University of TennesseeOffice of Real Estate Administration711 Andy Holt TowerKnoxville, TN 37996 – 0174Attention: ____________________________________________________________________________________________________________Attention: _____________________To Tenant:Copy to:University of Tennessee Research Foundation600 Henley Street, Suite 211Knoxville, TN 37996Attention: ___________________________________________________________________________________________________________Attention: ____________________A notice, demand, consent, approval, request and other communication shall be deemed to beduly received (a) if delivered in person or by a recognized delivery service, when left at theaddress of the recipient; and (b) if sent by certified mail, return receipt requested, three (3)business days after the date on which such notice was deposited in the U.S. Mail. Either partymay change its address for the purpose of this paragraph by giving written notice of such changeto the other party in the manner provided in its paragraph.8088569.13 14177

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Action16.5 Gender. The use herein of any gender includes all others, and the singularnumber includes the plural and vice-versa, whenever the context so requires.16.6 Captions. Captions in this Lease are inserted for convenience of reference onlyand do not define, describe or limit the scope or the intent of this Lease or any of the termshereof.16.7 Entire Agreement. This Lease contains the entire agreement between the partiesregarding the subject matter hereof. Any oral or written representations, agreements,understandings and/or statements not expressly included in this Lease shall be of no force andeffect.716.8 Waiver; Amendment. No modification, waiver, amendment, discharge or changeof this Lease shall be valid unless the same is in writing and signed by the party against whichthe enforcement of such modification, waiver, amendment, discharge or change is or may besought. An amendment to this Lease shall not diminish the rights or increase the obligations of asubtenant unless an amendment to the applicable sublease is executed and delivered by suchsubtenant.16.9 Time. Time is of the essence of each obligation of each party hereunder.16.10 Governing Law. This Lease shall be construed and enforced in accordance withthe laws of the State of Tennessee.16.11 Binding Effect. Subject to any provision of this Lease that may prohibit or curtailassignment of any rights hereunder, this Lease shall bind and inure to the benefit of therespective heirs, assigns, personal representatives, and successors of the parties hereto.16.12 Execution of Other Instruments. Each party agrees that it shall, upon the other’srequest, take any and all steps, and execute, acknowledge and deliver to the other party and allfurther instruments necessary or expedient to effectuate the purpose of this Lease.16.13 Severability. If any term, provision, covenant or condition of this Lease is heldby a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of theprovisions shall remain in full force and effect and shall in no way be affected, impaired orinvalidated.16.14 Counterparts. This Lease may be executed in one or more counterparts, each ofwhich shall be deemed an original and when taken together will constitute one instrument.16.15 Estoppel Certificate. Either party shall execute, acknowledge and deliver to theother party, within fifteen (15) days after requested by the other party, a statement in writingcertifying, if such is the case, that this Lease in unmodified and in full force and effect (or ifthere have been modifications, that the same is in full force and effect as modified); theCommencement Date of this Lease; the dates for which the rent and other charges have beenpaid; any alleged defaults by and claims against the other party; and providing such otherinformation as shall be reasonably requested.8088569.13 15178

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Action16.16 Memorandum of Master Ground Lease. University and Tenant shall execute andacknowledge a Memorandum of Master Ground Lease for purpose of recordation. ThisMemorandum of Master Ground Lease shall be in the form attached hereto as Exhibit “D” andincorporated herein by reference.16.17 No Merger. There shall be no merger of this Lease or the leasehold estate createdhereby with the fee simple estate in the Premises or any part thereof, by reason of the fact thatthe same person or entity may acquire, own or hold, directly or indirectly, this Lease or theleasehold estate created hereby or any interest in this Lease or such leasehold estate, and the feesimple estate in the Premises or any interest in such fee simple estate; and this Lease shall not beterminated except as expressly provided herein.716.18 Authorization and Approvals. University and Tenant represent each to the other,that each has obtained all necessary approvals and authorizations from their respectiveBoards/governing entity for the execution of this Lease; provided further, University shall not bebound by this Lease until all appropriate State officials have approved, as shown by thesignatures below.16.19 Limitation of Liability. Neither University, nor Tenant, nor any officer, director,shareholder, partner, employee or principal of University or Tenant, shall be under any personalliability with respect to any of the provisions of this Lease. In the event University is in breachor default with respect to University’s obligations or otherwise under this Lease, Tenant shalllook solely to the interest of University in the Land and the Projects for the satisfaction ofTenant’s remedies. In the event Tenant is in breach or default with respect to Tenant’sobligations or otherwise under this Lease, University shall look solely to the interest of Tenant inthe Leasable Property and the Projects for the satisfaction of University’s remedies.16.20 Consent of University. Whenever it is stated in this Lease that University’sconsent or approval is required, the President of the University has the authority to give suchconsent or approval.16.21 Exhibits. Exhibits “A” through “D” attached hereto are by this referenceincorporated herein and made a part hereof.[signatures on following page]8088569.13 16179

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionIN WITNESS WHEREOF, this Lease has been executed as of the Effective Date.UNIVERSITY:THE UNIVERSITY OF TENNESSEEBy: ______________________________Joseph A. DiPietroPresident7STATE OF ______________)COUNTY OF __________ )Before me, the undersigned, a Notary Public of the State and County aforesaid,personally appeared, Joseph A. DiPietro, with whom I am personally acquainted (or proved tome on the basis of satisfactory evidence), and who, upon oath, acknowledged himself to be thePresident of The University of Tennessee, and that he executed the foregoing instrument for thepurposes therein contained.WITNESS my hand, at office, this ___ day of ___________, 2012.Notary PublicMy Commission Expires:[additional signatures on following pages]8088569.13 17180

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionSTATE OF TENNESSEEBy:________________________________Steven CatesCommissioner of General Services7STATE OF ______________)COUNTY OF __________ )Before me, the undersigned, a Notary Public of the State and County aforesaid,personally appeared, Steven Cates, with whom I am personally acquainted (or proved to me onthe basis of satisfactory evidence), and who, upon oath, acknowledged himself to be theCommissioner of General Services of The State of Tennessee, and that he executed the foregoinginstrument for the purposes therein contained.WITNESS my hand, at office, this ___ day of ___________, 2012.Notary PublicMy Commission Expires:APPROVED:By:Robert E. Cooper, Jr.Attorney GeneralBy: ________________________________Bill HaslamGovernor8088569.13 18181

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionSTATE OF ______________)COUNTY OF __________ )Before me, the undersigned, a Notary Public of the State and County aforesaid,personally appeared, Robert E. Cooper, Jr., with whom I am personally acquainted (or provedto me on the basis of satisfactory evidence), and who, upon oath, acknowledged himself to be theAttorney General of The State of Tennessee, and that he executed the foregoing instrument forthe purposes therein contained.7WITNESS my hand, at office, this ___ day of ___________, 2012.Notary PublicMy Commission Expires:STATE OF ______________)COUNTY OF __________ )Before me, the undersigned, a Notary Public of the State and County aforesaid,personally appeared, Bill Haslam, with whom I am personally acquainted (or proved to me onthe basis of satisfactory evidence), and who, upon oath, acknowledged himself to be theGovernor of The State of Tennessee, and that he executed the foregoing instrument for thepurposes therein contained.WITNESS my hand, at office, this ___ day of ___________, 2012.Notary PublicMy Commission Expires:8088569.13 19182

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionTENANT:UNIVERSITY OF TENNESSEE RESEARCH FOUNDATIONBy: ______________________________Print Name: _______________________Print Title: ________________________7STATE OF ______________)COUNTY OF __________ )Before me, the undersigned, a Notary Public of the State and County aforesaid,personally appeared, _______________, with whom I am personally acquainted (or proved tome on the basis of satisfactory evidence), and who, upon oath, acknowledged himself to be the________________ of University of Tennessee Research Foundation, and that he executed theforegoing instrument for the purposes therein contained.WITNESS my hand, at office, this ___ day of ___________, 2012.Notary PublicMy Commission Expires:8088569.13 20183

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionEXHIBIT “A”TO MASTER GROUND LEASEDESCRIPTION OF THE LAND7[Attach legal description or map.]8088569.13 A-1184

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionEXHIBIT “A-1”TO MASTER GROUND LEASEDESCRIPTION OF THE LEASABLE PROPERTY7[Attach legal description or map.]8088569.13 A-1-1185

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionEXHIBIT “A-2”TO MASTER GROUND LEASEDESCRIPTION OF PREMISES7[Attach legal description or map.]8088569.13 A-2-1186

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionEXHIBIT “B”TO MASTER GROUND LEASEPERMITTED ENCUMBRANCES7[Need title commitment to identify encumbrances.]8088569.13 B-1187

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionEXHIBIT “C”TO MASTER GROUND LEASEFORM OF NDAInstrument prepared by andafter recording return to:Robert R. Campbell, Jr., Esq.Waller Lansden Dortch & Davis, LLP511 Union Street, Suite 2700Nashville, TN 372197NON-DISTURBANCE AND RECOGNITION AGREEMENTTHIS NON-DISTURBANCE AND RECOGNITION AGREEMENT (this “Agreement”)is made as of the ___ day of _________, 20__, by and among THE UNIVERSITY OFTENNESSEE (“Ground Lessor”), UNIVERSITY OF TENNESSEE RESEARCHFOUNDATION (“Landlord”), and ___________________________ (“Tenant”).Preliminary StatementsThe following statements are a material part of this Agreement.A. Ground Lessor is the fee simple owner certain real property located in the City ofKnoxville, County of Knox, State of Tennessee, commonly known as “Cherokee Farm,” as moreparticularly described by metes and bounds in Exhibit “A” (the “Land”) attached hereto andincorporated herein by reference.B. Ground Lessor and Landlord entered into that certain Master Ground Lease dated______________, 2012 (the “Ground Lease”), wherein Ground Lessor leased a portion of theLand to Landlord, a memorandum of which is of record with the Knox County, TennesseeRegister of Deeds’ Office as Instrument No. _________.C. Landlord and Tenant entered into that certain Lease (the “Lease”), dated_____________, whereby Landlord leased to Tenant and Tenant leased from Landlord certainpremises, consisting of approximately _______ acres, as more particularly described by metesand bounds in Exhibit “A-1” (the “Premises”).D. The parties hereto now desire to enter into this Agreement so as to clarify theirrights, duties and obligations under the Ground Lease and the Lease and to further provide forvarious contingencies as hereinafter set forth.Agreement:8088569.13 C-1188

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionNOW, THEREFORE, in consideration of the foregoing, the mutual agreement of GroundLessor, Landlord and Tenant to the terms and conditions of this Agreement and other good andvaluable consideration, Ground Lessor, Landlord and Tenant agree as follows:1. Ground Lessor hereby consents to and approves of the Lease and all of the rightsand privileges granted to Tenant thereunder and agrees that, for and during the term of the Leaseand any extensions thereof as provided in the Lease, Ground Lessor shall not take any action,directly or indirectly, to disturb or otherwise affect Tenant’s occupancy or possession of thePremises, and/or any other rights and privileges of Tenant with respect to the Premises and theLand as set forth in the Lease, so long as Tenant is not in default under the Lease beyond anyapplicable notice and cure period provided therein of such a nature as would permit Landlord toterminate the Lease, nor shall Tenant’s exercise of any rights or privileges under the Leaseconstitute a default under the Ground Lease.72. In the event Landlord shall default in the payment of any sum or performance ofany covenant or condition of the Ground Lease which results in the termination of the GroundLease or of Landlord’s right of possession to the Premises or any portion of the Land, or in theevent of any termination of the Ground Lease for any reason whatsoever prior to the expirationof the term of the Lease and any extensions thereof as provided in the Lease or if Ground Lessorshall come into possession of all or any part of the Premises described in the Lease prior to theexpiration of the term of the Lease and any extensions thereof as provided in the Lease, thenGround Lessor, Landlord and Tenant do hereby agree that (a) Tenant shall not be made a party toany proceeding relating to any default under the Ground Lease or the termination of the GroundLease or Landlord’s right of possession to any portion of the Land, and (b) the Lease and, exceptas provided in Paragraph 3 below, all terms, provisions, covenants and agreements of the Lease,shall survive any such default in or termination of the Ground Lease, and the Lease and Tenant’srights of occupancy and possession of the Premises, and/or any other rights and privileges ofTenant with respect to the Premises and the Land, shall not be disturbed and shall continue in fullforce and effect in accordance with and subject to all of the terms, provisions, agreements andcovenants of the Lease which shall thereafter operate as a direct lease with Ground Lessor, aslandlord, and Tenant, as tenant. Tenant agrees, in such event, to attorn to Ground Lessor and torecognize Ground Lessor as the Landlord under the Lease. Subject to Paragraph 3 below, GroundLessor shall recognize Tenant as tenant of the Premises for the balance of the term of the Lease,as extended, and Ground Lessor shall, in such event, exercise and undertake all of the rights,obligations and duties of Landlord in and under said Lease and thereafter shall be entitled tocollect all rents and payments due and payable under said Lease.3. Notwithstanding anything contained in Paragraph 2 above to the contrary, GroundLessor shall not:(a) be liable in any way or to any extent to Tenant under the Lease (i) for any past actor default on the part of Landlord, (ii) for any prepayment of rent, security deposits, or any othersums deposited with Landlord under the Lease and not delivered to Ground Lessor, (iii) for anyfinancial obligations of Landlord under the Lease, or (iv) for any indemnification obligations ofLandlord under the Lease, or8088569.13 C-2189

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Action(b) be bound by any amendments or modifications of the Lease made without GroundLessor’s prior written consent.4. For and during the term of the Lease, Ground Lessor agrees that, prior toterminating the Ground Lease or taking any proceedings to enforce any such termination thereoffor any reason other than the expiration of the term of the Ground Lease as provided therein,Ground Lessor shall deliver written notice to Tenant at least thirty (30) days prior to the effectivedate of such termination or the taking of any proceedings, specifying the reason for suchtermination or proceedings. Any notices given to another party under this Agreement shall be inwriting, and shall be deemed to be given if sent by registered or certified mail, postage prepaid,return receipt requested, or by overnight courier service providing for delivery upon receipt, andaddressed to the address of such party as referenced in the first paragraph of this Agreement,until such time that such party provides each of the other parties with written notice of someother address for the delivery of notice.75. Subject to the terms and conditions of Paragraph 3 above, no provision containedin this Agreement shall be deemed an amendment or modification of any provisions contained inthe Lease, including, without limiting the generality of the foregoing, any rights given thereunderto Tenant to terminate the Lease.6. No amendment or modification of this Agreement shall be valid or binding unlessin writing, executed by the party or parties to be bound thereby.7. This Agreement shall be binding upon and shall inure to the benefit of the partieshereto, and their successors and assigns.8. This Agreement may be executed in one or more counterparts, each of whichwhen exchanged shall be considered an original document.9. Ground Lessor does hereby warrant and represent to Tenant that Ground Lessor isthe sole owner and holder of fee simple interest in the Land, that the Ground Lease is in fullforce and effect as of the date hereof, that the term of the Ground Lease as heretoforecommenced and that there are no defaults by either party thereunder.[Exhibit Only – Not for Execution]8088569.13 C-3190

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - ActionEXHIBIT “D”TO MASTER GROUND LEASEMEMORANDUM OF MASTER GROUND LEASERECORDING REQUESTED BYAND WHEN RECORDED MAILTO:________________________7MEMORANDUM OF MASTER GROUND LEASE(Space Above For Recorder's Use)This Memorandum of Master Ground Lease (this "Memorandum") is dated this ___ day of__________, 20__, by and between THE UNIVERSITY OF TENNESSEE ("University"),whose address is _________________________________________ and UNIVERSITY OFTENNESSEE RESEARCH FOUNDATION, a ____________________________________("Tenant "), whose address is _________________________________________________.RECITALS:A. University is the owner of certain real property located in the City of Knoxville,County of Knox, State of Tennessee, as more particularly described on Exhibit A (the“Property”).B. Pursuant to that certain Master Ground Lease dated __________ (the “MasterGround Lease”), University leases a portion of the Property (the “Premises”) to Tenant.C University and Tenant have entered into this Memorandum to give record noticeof the Master Ground Lease.NOW THEREFORE, for and in consideration of the premises and the mutual promiseshereinafter set forth and set forth in the Master Ground Lease, University and Tenant do herebycovenant, promise and agree as follows:1. Definitions. All of the foregoing Recitals are, by this reference, incorporated intothe body of this Memorandum as if fully set forth herein. Initially capitalized terms used but nototherwise defined herein shall have the respective meanings ascribed to them in the MasterGround Lease.8088569.13 C-4191

Finance and Administration Committee - IX. Agreements for Development of the Cherokee Farm Research Park - Action2. Notice of Lease. University hereby leases to Tenant, and Tenant hereby leasesfrom University, the Premises, subject to and in accordance with the terms, conditions andagreements contained in the Master Ground Lease, all of which are, by this reference,incorporated into this Memorandum in their entirety as if fully set forth herein.3. Term. The term of the Master Ground Lease commenced as of ____________,and shall end as of ____________, subject to the terms set forth therein. Upon the expiration ofthe term of the Master Ground Lease, University shall have the right to execute and record aconfirmation of the termination of the Master Ground Lease and this Memorandum, with orwithout the Tenant being a signatory party thereto (provided that Tenant shall join as a signatoryparty upon request). In any case where University is the sole signatory, such confirmationnonetheless shall conclusively establish such termination and extinguish any effect of thisMemorandum as record or constructive notice, except with respect to any third party to theextent such party has actual knowledge that the confirmation is untrue or disputed in good faithby Tenant.74. Severability. If any provision of this Memorandum or the application thereof toany person or circumstance is or shall be deemed illegal, invalid or unenforceable, the remainingprovisions of this Memorandum shall remain in full force and effect and this Memorandum shallbe interpreted as if such illegal, invalid or unenforceable provision did not exist.5. Modification; Conflict. Nothing contained in this Memorandum is intended toor shall amend or modify any of the terms or provisions of the Master Ground Lease. In theevent of a conflict between the terms and provisions of this Memorandum and the terms andprovisions of the Master Ground Lease, the terms and provisions of the Master Ground Leaseshall, in all incidents, control, govern and prevail. All rights, covenants, conditions, agreements,restrictions and reservations contained in this Memorandum and the Master Ground Lease shallrun with the land and shall inure to the benefit of and shall be binding upon University andTenant and their respective heirs, legal representatives, successors and assigns.6. Entire Agreement. This Memorandum and the Master Ground Lease contain theentire agreement of University and Tenant with respect to Tenant’s lease of the Premises.7. Counterparts. This Memorandum may be executed in separate counterparts,each of which shall constitute an original copy hereof, but all of which shall constitute but oneand the same agreement.IN WITNESS WHEREOF, University and Tenant have executed this Memorandum as of theday and year first written above.[Exhibit Only – Not For Execution]8088569.13 C-5192

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - ActionTHE UNIVERSITY OF TENNESSEEBOARD OF TRUSTEESACTION ITEMDATE: February 28, 2012COMMITTEE:CAMPUS/UNIT:ITEM:RECOMMENDATION:PRESENTED BY:Finance and AdministrationUT Health Science CenterDesignation of UT Methodist Physicians, LLC as a FacultyPractice Plan for the College of Medicine in MemphisApprovalDavid M. Stern, Executive Dean, College of Medicine8The following proposal concerns academic and clinical affiliations of the College ofMedicine in Memphis for adult multi-specialty patient care, research, and education. Theproposal involves a faculty practice plan, jointly governed by the University and MethodistHealthcare-Memphis Hospitals, which will employ new adult multi-specialty carephysicians in the short-term, pending development of a larger plan.MOTION:That the administration be authorized, after review and approval by the University’sChief Financial Officer and the University’s General Counsel and after all required orappropriate state government reviews and approvals, to execute an Addendum to theMaster Affiliation Agreement between the University and Methodist Healthcare-Memphis Hospitals and an Affiliation Agreement between the University and UTMethodist Physicians, LLC, under which UT Methodist Physicians, LLC will serve as afaculty practice plan for new adult multi-specialty care physicians in the short-term,pending development of a larger plan.193

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - ActionUT-Methodist Physicians, LLC (UTMP)BOT Finance &AdministrationCommitteeFebruary 28, 2012DESIGNATION OF UT METHODIST PHYSICIANS, LLCas a FACULTY PRACTICE PLAN for theCOLLEGE OF MEDICINE IN MEMPHISINTRODUCTION8In September of 2008, the Board of Trustees, through the Audit Committee, initiated a review of therelationship between The University of Tennessee Health Science Center (UTHSC) and the UT MedicalGroup, Inc. The review was conducted by ECG Management Consultants. One of the ECG’srecommendations was to “Engage in joint program planning with affiliated hospitals, including coinvestmentstrategies.”The Health Science Center has a long established relationship with the Methodist Le Bonheur Healthcare(Methodist). In an effort to further develop the clinical education, clinical research and patient careprograms in a financially sound manner supportive to faculty and staff and to maintain and improve thequality of clinical services for the benefit of the citizens of the State of Tennessee, Memphis, and thenation, UTHSC proposes to enter into an arrangement with Methodist for a jointly managed faculty practiceplan to be known as UT Methodist Physicians, Inc. (UTMP), a not-for-profit limited liability company.PROCESS TO DATEPlanning and discussions for the creation of an adult multi-specialty faculty group practice between UTHSCand Methodist have been underway for several months. During this time, various plans and models for aneffective practice plan have been reviewed and discussed. Currently, a two-phased approach is beingdeveloped and moving forward.Like many hospitals locally and nationally, Methodist has begun directly employing private physiciangroups. Doing so eliminates much of the risk associated with running and managing private practices.However, as an academic medical center without the ownership of a hospital, this presents a majorchallenge for the College of Medicine in having sufficient physician involvement in the operations of thehospital.Therefore, while a larger plan is developed and negotiated with Methodist for a relationship with theCollege’s adult multi-specialty physician services, the first phase is to develop a plan where new physicianspotentially considering employment directly with Methodist would instead join a new practice plan, UTMethodist Physicians, LLC. This arrangement is intended to be a short-term one with significantinvolvement by Executive Dean Stern and would set the stage for the second phase, which would be agreater integration of current College of Medicine faculty.1194

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - ActionUT-Methodist Physicians, LLC (UTMP)BOT Finance &AdministrationCommitteeFebruary 28, 2012OVERVIEW OF UTMP STRUCTURETaking into account the two-phased approach to a stronger hospital partnership for adult specialty care inMemphis, the following points describe the major elements of the proposed UTMP:‣ UTMP will be a not-for-profit limited liability company whose sole member will be MethodistHealthcare-Memphis Hospitals with certain powers listed in the proposed Operating Agreement,which follows this summary.‣ UT will have no financial risk for the practice plan.‣ All physician members of the group will hold faculty appointments in the College of Medicine,Memphis, initially as 0% clinical faculty, meaning they are essentially volunteers with limitededucational responsibilities and no compensation from the University.‣ The Board of Directors of UTMP will be comprised of a minimum of nine (9) members as describedbelow.Three Methodist Directors appointed by the Methodist CEO:• At least two must be Senior Vice Presidents or higherThree UT Directors appointed by the UTHSC Chancellor:• COM Executive Dean and two othersThree Physician Directors appointed by the UTMP Board:• Must be practicing physicians employed by UTMP.‣ The College of Medicine Executive Dean will serve as the Chairman of the Board.‣ All major actions by the Board of Directors will require an affirmative vote of a majority of both theMethodist Directors and the UT Directors.‣ If Methodist were to determine to transfer all or a portion of its membership interest in thecompany, UT has the right of first refusal to purchase that interest at fair market value as defined inthe Operating Agreement.8NEXT STEPSAfter consultation with the General Counsel and Chief Financial Officer, the President approved use of theUniversity’s name in connection with the new entity, and Methodist then moved forward to file the Articlesof Organization (equivalent of a charter for a corporation) to create UT Methodist Physicians, LLC. AnOperating Agreement (equivalent of bylaws for a corporation) has been executed by the University, afterreview by the General Counsel and Chief Financial Officer. With authorization by the Board of Trustees,and following all required or appropriate University and state approvals, the Health Science Center wouldmove to execute the following documents required to make UTMP active and to serve as a faculty practiceplan for the Health Science Center campus in Memphis:21. Amendment to the Master Affiliation Agreement with Methodist Healthcare-Memphis Hospitals; and2. Affiliation Agreement between UT and UTMP.195

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - ActionARTICLES OF ORGANIZATION(LIMITED LIABILITY COMPANY)For Office Use Only(For use on or after 711 12006)Corpowlc Filings3 12 Gighlh Avenuc North6" 1;loor. William R. Snodgrass To\r.crNashville. 'll37243The Articles of Organization presented herein are adopted in accordance with the provisions ofthe Tennessee Revised Limited Liability Company Act.1. The name of the Limited Liability Company is: UT PHYSICIANS~ LLC8(NOTE: Pursuant to the provisions of TCA §48-249-706, each limited Liability Company namemust contain the words "Limited Liability Company" or the abbrevia,tion "LLC" or "L.L.C.")2. The name and complete address of the Limited Liability Company's initial registered agentand office located in the state of Tennessee is:Lynn Field(Name)1211 Union Avenue. Suite 700, Memphis, Tennessee 38104(Street address) (City) (Statelzip Code)Shelby(County)3. The Limited Liability Company will be: (NOTE: PLEASE MARK APPLICABLE BOX)Member Managed Manager Managed Director Managed4. Number of Members at the date of filing, if more than six (6):5. If the document is not to be effective upon filing by the Secretary of State, the delayedeffective date and time is: (Not to exceed 90 days)Date:Time:6. The complete address of the Limited Liability Company's principal executive office is:1211 Union Avenue, Suite 700, Memphis, Tennessee 38104(Street Address) (City) (Stotel CountylZip Code)7. Period of Duration if not perpetual:8. Other See Addendum attached hereto and incorporated herein9. THIS COMPANY IS A NONPROFIT LIMITED LIABILITY COMPANY (Check if applicable)/I >Signature ~zhe Signatgea.d~r~4OrganizerSigner's Capacity (if other than individual capacity)Name (printed or typed)f& \lSS-4270 (Rev. 05/06) Fiting Fee: $50 per member (minimum fee = $300, maximum fee = $3,000 RDA 2458196

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - ActionADDENDUMTOARTICLES OF ORGANIZATION OFUT METHODIST PHYSICIANS, LLC8. OTHER PROVISIONS:A. UT Methodist Physicians, LLC (the "Company") is a nonprofit limited liability company.B. The Company shall be permitted to indemnify and hold harmless the directors and officers ofthe Company to the fullest extent permitted by Tennessee law. If existing applicableTennessee law is amended or other Tennessee law is enacted to permit further elimination orlimitation of the personal liability of directors, then the liability of directors of the Companyshall be eliminated or limited to the fullest extent permitted by Tennessee law as so amendedor by such other Tennessee law as so enacted.8C. The Company's sole member is a corporation organized exclusively for charitable,educational, religious or scientific purposes within the meaning of Section 501(c)(3) of theInternal Revenue Code of 1986, as amended (the "Code").D. To the extent required by Section 501(c)(3) of the Code: (i) no part ofthe net earnings oftheCompany may inure to the benefit of any individual except as reasonable compensation forservices actually rendered by such individual or as payments and distributions in hrtheranceof the purposes set forth herein; (ii) no substantial part of the activities of the Company shallbe canying on propaganda, or otherwise attempting to influence legislation (except aspernlitted by Section 501(h) of the Code); and (iii) the Company shall not participate in, orintervene in (including the publishing or distributing of statements), any political campaignon behalf of (or in opposition to) any candidate for public office. Notwithstanding any otherprovision of the Articles of Organization of the Company, the Company shall not cany onany endeavors or activities not permitted to be carried on by an entity exempt from federalincome tax under Section 501 (c)(3) of the Code, or by an entity, contributions to which aredeductible under Section 170(c)(2) of the Code.E. Upon dissolution of the Company, assets of the Company shall be distributed for one or moreexempt purposes within the meaning of Section 50l(c)(3) of the Internal Revenue Code, i.e.charitable, educational, religious or scientific, or corresponding section of any future federaltax code, or shall be distributed to the federal government, or to a state or local governmentfor a public purpose.F. The Articles of Organization and the Operating Agreement of the Company may not bemodified, amended, supplemented, restated, or terminated, except as set forth in theOperating Agreement of the Company.[End of Addendum]197

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - ActionOPERATING AGREEMENTOFUT METHODIST PHYSICIANS, LLCTHIS OPERATING AGREEMENT ("Agreement") is made and adopted on the 7 th day ofFebruary, 2012 as the Operating Agreement of UT METHODIST PHYSICIANS, LLC, aTennessee non-profit limited liability company (the “Company”), by and among the Company,Methodist Healthcare - Memphis Hospitals, a Tennessee not-for-profit corporation (sometimesreferred to herein as "Methodist" or the "Member") and the University of Tennessee, through itsHealth Science Center (“UT”) in accordance with the Fifth Amendment to Addendum A to theAmended and Restated Master Affiliation Agreement between Methodist and UT.8ARTICLE IDEFINITIONSAs used in this Agreement, unless the context otherwise requires, the following termsshall have the meanings set forth below:"Act" means the Tennessee Nonprofit Revised Limited Liability Company Act, codifiedat Tennessee Code Annotated Sections 48-101-801 et seq., which incorporates 48-249-101 etseq., as amended from time to time, and any corresponding provisions of any successorlegislation."Affiliate" shall mean, as to a specific person or entity, a person or entity directly orindirectly controlling, controlled by or under common control with such person or entity."Articles" shall mean the Articles of Organization of the Company, as filed with theSecretary of State of Tennessee, as amended or restated from time to time."Board" or "Board of Directors" shall mean the Directors elected as provided in thisAgreement."Business Day" means any day other than a Saturday, a Sunday or a day on whichnational banks located in Memphis, Tennessee, are authorized or obligated to close their regularbanking business."Capital Account" shall mean the Capital Account maintained for the Member to whichthere shall be credited the Member's Capital Contributions and the amount of any Companyliabilities assumed by the Member or which are secured by any Property distributed to theMember, and to which there shall be debited the amount of cash and the value of any Propertydistributed to the Member pursuant to any provision of this Agreement, and the amount of anyliabilities of the Member assumed by the Company or which are secured by any Propertycontributed by the Member to the Company."Capital Contribution" shall mean, with respect to the Member, the amount of money andthe value of any property (other than money) contributed to the Company with respect to thePage 1198

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - ActionMembership Interest held by the Member."Code" shall mean the Internal Revenue Code of 1986, as amended from time to time."Company" shall mean UT METHODIST PHYSICIANS, LLC, the nonprofit limitedliability company described in this Agreement and formed pursuant to the Act."Directors" shall mean, collectively, all natural persons elected or appointed to serve onthe Board of Directors. "Director" shall refer, individually, to each of such persons.“Fair Market Value” shall mean the price at which the Member’s Membership Interestwould transfer between a hypothetical willing and able buyer and a hypothetical willing and ableseller, acting at arms-length in an open and unrestricted market, when neither is under anyobligation to buy or sell and when both have reasonable knowledge of all relevant facts, exceptthat Fair Market Value shall not include “goodwill” nor any intangible assets belonging to theCompany, Methodist, or UT, nor shall it be based, in whole or in part, directly or indirectly, on(a) the volume or value of any referrals between the parties to this Agreement or any health careprovider(s) employed or contracted by the Company, or (b) any other business generated by oneor more parties or any health care provider(s) employed or contracted by the Company for anyother party to this Agreement—all as determined in good faith by an independent, competentmedical practice valuation firm mutually agreed upon in writing by Methodist and UT.8"Financial Rights" shall mean the Member's right to profits, losses, and distributions, andto receive interim distributions and liquidation distributions as provided in this Agreement andthe Act."Governance Rights" shall mean the right of the Directors and the Member to vote and allother rights the Member has as the sole member of the Company other than its Financial Rights."Liability", for purposes of Article XII, means the obligation to pay a judgment,settlement, penalty, fine (including an excise tax assessed with respect to an employee benefitplan), or expenses (including attorney's fees) actually and reasonably incurred with respect to aproceeding."Membership Interest" shall mean, with respect to the Member, the Member's 100%interest in the Company consisting of all of the Financial Rights and the Member’s GovernanceRights of the Company."Notice" means any notice, payment, demand or communication required or permitted tobe given by any provision of this Agreement, which shall be in writing (the term 'writing" shallinclude communications by facsimile, electronic mail or other electronic transmission) and shallbe delivered as set forth in Section 14.7 hereof."Officers" shall mean, collectively, the Chairman, the President and Chief ExecutiveOfficer, the Vice President, the Treasurer, the Secretary, and each other officer elected by theBoard. "Officer" shall mean, individually, any such person."Property" shall mean all property, real or personal, tangible or intangible, includingPage 2199

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - Actionmoney and any legal or equitable interest in property owned by the Company.“Transfer” shall mean any sale, assignment, transfer, exchange, mortgage, pledge, grant,hypothecation, or other transfer, whether absolute or as security or encumbrance (includingdispositions by operation of law).ARTICLE IIFORMATIONSection 2.1 Articles of Organization. The date of formation and existence of theCompany is February 7, 2012, the date of filing of the Articles with the Secretary of State ofTennessee.8Section 2.2 Name. The name of the Company is UT METHODIST PHYSICIANS, LLC(sometimes referred to as “UTMP”). All business of the Company shall be conducted under thatname or under any other name adopted by the affirmative vote of all of the Methodist Directorsand the UT Directors in accordance with the Fifth Amendment to Addendum A to the Amendedand Restated Master Affiliation Agreement (“Affiliation Agreement”) between UT andMethodist, this Agreement, and the Act.Section 2.3 Principal Place of Business. The principal place of business of the Companywithin the State of Tennessee shall be 1211 Union Avenue, Suite 700, Memphis, Tennessee38104. The Company may locate to, and have such other, places of business and registered officeas the Board of Directors shall, from time to time, deem advisable.ARTICLE IIIBUSINESS OF THE COMPANYSection 3.1 Permitted Business. The Company is intended to be organized as a nonprofit“faculty practice plan”, as defined under T. C. A. §63-6-204 (g)(4)(B)(ii) or another entity asdescribed in T. C. A. §63-6-204, comprised of clinical faculty of the University of TennesseeCollege of Medicine - Memphis (“UTCOM”). The purpose of the Company is to provide highquality, patient-oriented professional medical services to every segment of its patient population.The clinical mission of the Company is intrinsically important and is vital to the academic andpublic service missions of UTCOM. All activities of the Company shall be taken in furtheranceof the academic and public service missions of UTCOM and Methodist.Section 3.2 Limitations. Except as specifically limited in the Articles, the Company mayengage in the specific activities set forth in Section 3.1 and any and all other lawful businessactivities whatsoever, or which shall be conducive to or expedient for the protection or benefit ofthe Company or its Property, and the Company may exercise all powers necessary to, connectedwith, or incident to the accomplishment of any business that may lawfully be conducted by nonprofitlimited liability companies under the Act. To the extent required by Section 501(c)(3) ofthe Code: (i) no part of the net earnings of the Company may inure to the benefit of anyindividual except as reasonable compensation for services actually rendered by such individualor as payments and distributions in furtherance of the purposes set forth herein; (ii) no substantialpart of the activities of the Company shall be carrying on propaganda, or otherwise attempting toPage 3200

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - Actioninfluence legislation (except as permitted by Section 501(h) of the Code); and (iii) the Companyshall not participate in, or intervene in (including the publishing or distributing of statements),any political campaign on behalf of (or in opposition to) any candidate for public office.Notwithstanding any other provision of the Articles or this Agreement, the Company shall notcarry on any endeavors or activities not permitted to be carried on by an entity exempt fromfederal income tax under Section 501(c)(3) of the Code, or by an entity, contributions to whichare deductible under Section 170(c)(2) of the Code.ARTICLE IVBOOKS, RECORDS AND FISCAL YEARSection 4.1 Books and Records. Proper and complete books and records of account shallbe kept by the Company. The Company will also maintain minutes of Member, Board andcommittee meetings and other appropriate Company records, which records shall be maintainedat the principal or registered office of the Company and as required by the Act.8Section 4.2 Fiscal Year. The fiscal year of the Company shall be the fiscal year ofMethodist.ARTICLE VMEMBERSHIP INTERESTSThe amount of cash and a description and statement of the agreed value of any otherProperty or services contributed for the Member's Membership Interest are as reflected onExhibit A attached hereto and by this reference made a part hereof as if set forth fully herein,which shall be promptly amended as necessary, under the Act, to reflect any changes in suchinformation.ARTICLE VIDISTRIBUTIONSSection 6.1 Distributions. Except as otherwise provided in Section 13.3 hereof,distributions of distributable cash shall be made to the Member annually.Section 6.2 Amounts Withheld. All amounts withheld pursuant to the Code or anyprovision of any state or local tax law with respect to any payment, distribution, or allocation tothe Company or the Member shall be treated as amounts distributed to the Member pursuant tothis Article VI for all purposes under this Agreement. The Company is authorized to withholdfrom distributions, or with respect to allocations, to the Member and to pay over to any federal,state, or local government any amounts required to be so withheld pursuant to the Code or anyprovisions of any other federal, state, or local law, and shall allocate any such amounts to theMember with respect to which such amounts were withheld.ARTICLE VIIMEMBERSSection 7.1 Member Actions. The Member may, but is not required to, hold a meeting ofthe Member at any time the Member determines. Any action required or permitted to be taken atPage 4201

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - Actiona meeting of the Member may also be taken without a meeting, and such action shall have theeffect of a meeting and vote and may be described as such in any document. The action may beevidenced by one (1) or more instruments evidencing the consent, which shall be delivered to theSecretary or the President for inclusion in the records of the Company, or such action may betransmitted by electronic transmission as provided in § 48-249-405(e)(2) of the Act.Notwithstanding anything to the contrary in the foregoing, the Member shall by meeting orconsent action: (i) elect the Methodist Directors on an annual basis in accordance with theprovisions of Article IX; and (ii) elect a Methodist Director to fill any vacant Methodist Directorseat in accordance with the provisions of Article IX within a reasonable time after such seatbecomes vacant.Section 7.2 Methodist as Sole Member. Methodist shall be the sole Member of theCompany. The Membership Interest of the Member shall not be Transferred, in whole or in part,except in accordance with the conditions and limitations set forth in Article VIII.8ARTICLE VIIITRANSFER OF INTERESTS OF MEMBERSSection 8.1 Restrictions on Transfers by Members. All or part of a Membership Interestmay be Transferred by a Member only with the unanimous vote of the Methodist Directors andthe UT Directors. If the Member desires to Transfer its Membership Interest and cannot secure aunanimous vote by the Methodist Directors and the UT Directors in favor of the proposedTransfer, resolution shall be sought through the process described in Article XI. The Board ofthe Company shall not approve any Transfer of a Membership Interest unless the proposedtransferee shall have furnished the Members with a sworn statement that:(i) The proposed transferee proposes to acquire the Membership Interest as aprincipal, for investment purposes only and not with a view to resale or distribution;(ii) The proposed transferee meets such requirements regarding sophistication,income and net worth as required by applicable state and federal securities laws;(iii) The proposed transferee recognizes that an investment in the Companyinvolves certain risks and it has taken full cognizance of and understands all of the riskfactors related to the purchase of a Membership Interest;(iv) The proposed transferee has met all other requirements of the Companyfor the proposed Transfer; and(v) The proposed transferee is and shall remain a non-profit entity in goodstanding in the State of Tennessee, and that such transferee shall not convert to for-profitstatus so long as it holds the Membership Interest in the Company.A proposed transferee shall also provide, upon the request of the Company, an opinion ofcounsel, satisfactory in form and substance to the Members, that neither the offering nor theproposed Transfer will require registration under federal or applicable state securities laws orregulations.Page 5202

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - ActionNotwithstanding any other provision set forth in this Section 8.1, the procedures set forth inSection 8.2 shall be complied with prior to the consummation of any Transfer of all or part of aMembership Interest.Section 8.2 Right of First Refusal Prior to Any Transfer. Any Member desiring toTransfer all or any part of its Membership Interest shall first offer in writing to sell all of theMembership Interest to UT or, at UT’s discretion, an affiliated entity of the University ofTennessee (collectively referred to as “UT” hereafter). The purchase price to be paid by UTshall be equal to the Fair Market Value of the Membership Interest or, in the event the Memberhas received a written offer from a bona fide purchaser, the purchase price shall be the lesser ofthe Fair Market Value for the Membership Interest or the price to be paid by the bona fidepurchaser. UT shall have sixty (60) days to accept or reject the offer, provided that the offerwill be deemed rejected if not accepted in writing within the sixty (60) day period. If theMember's Membership Interest is not purchased by UT, then the selling Member may Transferits Membership Interest in accordance with the terms and conditions in this Agreement. If theTransfer is to a bona fide purchaser, the Transfer must occur on the same terms stated in thewritten offer received by Methodist from the bona fide purchaser. In any event, if the Transferof the Member's Membership Interest is not consummated within one hundred twenty (120)days after the date of the initial offer to UT, it must again be offered to UT prior to a Transfer,in accordance with the provisions of this Section 8.2.8Section 9.1 Board of Directors; Term.ARTICLE IXBOARD OF DIRECTORS(a) Except as otherwise expressly provided in this Agreement, the business and affairs ofthe Company shall be managed by or under the direction of the Board of Directors and alldeterminations, decisions, approvals and actions affecting the Company shall be determined,made, approved or authorized by the Board. The Board shall: (a) direct, manage and control thebusiness and affairs of the Company; (b) exercise the authority and powers granted to theCompany; and (c) otherwise act in all other matters on behalf of the Company. The Board shallbe comprised of Methodist Directors, UT Directors, and Physician Directors, and may includeOutside Directors, all as is more fully described in this Article IX.(b) Outside Directors shall be appointed only at such time as the Methodist Directors andthe UT Directors shall determine, and Outside Directors and Physician Directors shall serve forthree (3) year terms. The term of an Outside Director and Physician Director shall expire at theearlier of such Outside Director's or such Physician Director’s death, resignation, removal orthird annual meeting of the Directors following his or her election. Despite the expiration of anOutside Director's or a Physician Director’s term, such Outside Director or such PhysicianDirector shall continue to serve until his or her successor is elected and qualified as providedherein. The same Outside Director or Physician Director may be elected for multiple successiveterms.(c) Methodist Directors shall serve at the pleasure of the Methodist CEO, who shall havethe sole discretion to appoint, remove and/or replace any Methodist Director for any reason uponPage 6203

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - Actionwritten notice to the Company. UT Directors shall serve at the pleasure of the UTHSCChancellor, who shall have the sole discretion to appoint, remove and/or replace any UT Directorfor any reason upon written notice to the Company, provided that one of the UT Directors shallat all times be the UTCOM Executive Dean by virtue of his or her position. This Subsection 9.1(c) is subject to the requirement to maintain parity in the number of Methodist and UT Directorsas set forth in Subsection 9.3 (b).Section 9.2 Director Qualifications. A Director need not be a resident of Tennessee or aMember of the Company. A Director must be a natural person.Section 9.3 Composition of the Board.8(a) Initial Board. The Board of Directors shall initially consist of three membersincluding the Methodist CEO and UTCOM Executive Dean. The third initial Director shall beappointed by the affirmative vote of both the UTCOM Executive Dean and the Methodist CEO.The initial Board shall govern until the initial Board appoints the full Board in accordance withSubsection 9.3(b).(b) Types of Directors. The full Board of Directors shall consist of no less than nine (9)and no more than twenty one (21) voting members. The number of Directors shall be fixedfrom time to time by the affirmative vote of a majority of all Methodist Directors and theaffirmative vote of a majority of all UT Directors. Types of Directors are as follows:(i) Methodist Directors. The Methodist CEO shall appoint no fewer than threeDirectors and no more and no less than would cause Methodist Directors to constituteone third of the total number of voting Directors. At least two of the MethodistDirectors shall hold the position of senior vice president (or equivalent title in rank) or ahigher level in the system leadership organizational structure of Methodist. AllMethodist Directors shall be employees of Methodist.(ii) UT Directors. The University of Tennessee Health Science Center(“UTHSC”) Chancellor shall appoint no fewer than three Directors and no more and noless than would cause UT Directors to constitute one third of the total number of votingDirectors. At least one of the UT Directors shall be the UTCOM Executive Dean. AllUT Directors shall be employees of UT.(iii) Physician Directors. The full Board shall consist of no fewer than threephysicians who shall serve as Directors (“Physician Directors”), but the full Board shallconsist of no more Physician Directors than would constitute more than one third of thetotal number of voting Directors, taking into account the number of any OutsideDirectors. All Physician Directors shall be practicing physician employees of UTMP inaccordance with the Affiliation Agreement. The UTCOM Executive Dean andMethodist CEO shall mutually agree upon and appoint the first Physician Directors.Physician Directors shall thereafter be appointed by the affirmative vote of a majority ofall Methodist Directors and the affirmative vote of a majority of all UT Directors.Page 7204

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - Action(iv) Outside Directors. At their discretion and by the unanimous affirmative voteof all Methodist Directors and the unanimous affirmative vote of all UT Directors,Outside Directors from the community at large may be appointed as voting members ofthe Board, provided that the number of Physician Directors together with any OutsideDirectors shall not be more than would constitute one third of the total number of votingDirectors. Outside Directors shall not be employed by either UT or Methodist.Section 9.4 Resignation. A Director may resign at any time by giving a writtenresignation to the President or the Secretary of the Company (the "Resignation Notice"). Theresignation shall be effective at such time specified in the Resignation Notice, but no later thanthirty (30) days after receipt of the Resignation Notice by the Company.8Section 9.5 Removal of Directors. The Member or the Methodist CEO shall have theright to remove a Methodist Director with or without cause at any time. The UTCOMExecutive Dean shall have the right to remove a UT Director with or without cause at any time.However, the Member may only remove a UT Director without cause upon the written consentof the UTCOM Executive Dean. Notwithstanding the foregoing, any UT Director that is anemployee of the Company shall be automatically removed as a Director upon his/hertermination of employment with UT and with the Company. Notwithstanding the foregoing,either (1) the Board of Directors with the affirmative vote of at least two-thirds (2/3) of allDirectors in office (i.e., the full UTMP Board) or (2) the Member may remove any Director forCause. For purposes of this Section 9.5, "Cause" shall mean. (i) such Director is indicted for,pleads guilty or nolo contendere to or is convicted of a felony or other crime involving moralturpitude; (ii) the theft, embezzlement, misappropriation, confiscation of or intentional inflictionof damage to Company Property or the Company's business opportunities by such Director; (iii)any other willful or intentional misconduct by such Director that is, or may be reasonablyexpected to be, injurious to the Company, its business, reputation or prospects or (iv) the UTMPBoard and/or the Member determines in its reasonable discretion that such Director has violatedone or more fiduciary duties owed to the Company. Any determination under this Section 9.5shall be made by the UTMP Board and/or by the Member in its reasonable discretion. In suchcase, the vacant seat shall be filled in accordance with Section 9.6 below.Section 9.6 Vacancies. The Member shall fill any vacant seat left by a MethodistDirector at its discretion. The UTHSC Chancellor shall fill any vacant seat left by a UT Directorat his or her discretion. Any vacancies in Physician Director or Outside Director seats shall befilled by the unanimous affirmative vote of all the Methodist Directors and the unanimousaffirmative vote of all the UT Directors.Section 9.7 Regular Meetings of the Board. Regular meetings may be held at suchintervals as the Board may determine for transacting such business as may properly come beforethe meeting. No Notice need be given to the Directors of any regular meetings for which theBoard has previously designated a time and place for the meeting.Section 9.8 Special Meetings of the Board. Special meetings of the Board may be held atany time upon the request of any Director or the sole Member. Notice of the date, time, placePage 8205

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - Actionand purpose of any special meeting shall be sent to each Director not less than five (5) days normore than sixty (60) days prior to the date of such meeting. Any Director may waive any Noticerequired by the Act, this Agreement or the Articles and, if the waiver of Notice by the Directorentitled thereto is in writing, such waiver is effective, whether given before or after the meetingor other balloting, and such waiver shall be the equivalent of giving Notice. A Director or anyother officer designated by the Board shall place any written waiver of Notice in the records ofthe Company. Attendance at a meeting by a Director shall constitute a waiver of Notice of suchmeeting, unless at the beginning of the meeting (or promptly upon his arrival) such Directorobjects to the transaction of business because the meeting is not lawfully called or convened.Section 9.9 Notice of Meetings. Special meetings of the Board of Directors shall bepreceded by at least two (2) days' notice of the date, time and place of the meeting. Notice shallbe in writing. Notice of an adjourned meeting need not be given if the time and place to whichthe meeting is adjourned are fixed at the meeting at which the adjournment is taken, and if theperiod of adjournment does not exceed one (1) month for any one (1) adjournment.8Section 9.10 Place of Meetings. Meetings of the Board may be held at whatever place isspecified in the Notice of the meeting. In the absence of a designation, the meetings shall beheld at the Company's principal executive office or, if there is no principal executive office, atthe Company's registered office.Section 9.11 Participation by Electronic Communication. Provided all otherrequirements for a meeting are satisfied, any meeting of the Board may take place by telephoneconference call or any other form of electronic communication through which the participantsmay simultaneously hear each other, and the participation of a Director by any such electroniccommunication constitutes attendance at the meeting. Any such meeting shall be deemed to beheld at the Company's principal executive office or at the place properly designated in theNotice of the meeting.Section 9.12 Action Without Meeting. Any action required or permitted to be taken at aBoard of Directors' meeting may be taken without a meeting. If all Directors consent to takingsuch action without a meeting, the affirmative vote of the number of Directors that would benecessary to authorize or to take such action at a meeting shall be the act of the Board. Theaction must be evidenced by one (1) or more written consents describing the action taken,signed by each Director in one (1) or more counterparts, indicating the signing Director's vote orabstention on the action, and shall be included in the minutes or filed with the Company recordsreflecting the action taken. Action taken under this Section shall be effective when the lastrequired Director signs the consent, unless a different effective time is provided in the writtenaction. A consent signed under this Section shall have the effect of a meeting vote and may bedescribed as such in any document. Any action requiring a meeting by the Board of Directorsmay be satisfied by a consent under this Section.Section 9.13 Waiver of Notice. A Director may waive any notice required by thisAgreement, the Articles, or the Act, before or after the date and time stated in the notice. Thewaiver must be in writing, signed by the Director entitled to the notice, and filed with theminutes or other records of the Company. A Director's attendance at or participation in ameeting waives any required notice to the Director of the meeting unless the Director at thePage 9206

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - Actionbeginning of the meeting (or promptly upon arrival) objects to holding the meeting ortransacting business at the meeting and does not thereafter vote for or assent to any action takenat the meeting.Section 9.14 Quorum and Voting. A quorum of the Board of Directors shall consist of amajority of all the UT Directors (which must include the UTCOM Executive Dean), and amajority of all the Methodist Directors. Except as otherwise set forth in Section 9.19 below orelsewhere in this Agreement with respect to Board voting and action on specific matters, if aquorum is present when a vote is taken, the affirmative vote of a majority of all Directorspresent and voting at the meeting shall be the act of the Board of Directors. A Director who ispresent at a meeting of the Board of Directors when action is taken shall be deemed to haveassented to the action taken unless: (i) the Director objects at the beginning of the meeting (orpromptly upon arrival) to holding it or transacting business at the meeting; (ii) the Director'sdissent or abstention from the action taken is entered in the minutes of the meeting; or (iii) theDirector delivers written notice of dissent or abstention to the presiding officer of the meetingbefore its adjournment or to the Company immediately after adjournment of the meeting. Theright of dissent or abstention shall not be available to a Director who votes in favor of the actiontaken.8Section 9.15 Committees. The Board of Directors may create one (1) or morecommittees. A committee may consist of two (2) or more members, who need not be membersof the Board of Directors, and shall serve at the pleasure of the Board of Directors. The creationof a committee and appointment of a member or members to it must be approved by themajority of all the Directors in office (i.e., the full UTMP Board) when the action is taken. Nocommittee may exercise the authority of the Board of Directors.Section 9.16 Discharge of Duties. A Director shall discharge the duties of the position asa Director, including duties as a member of a committee, in good faith, in a manner the Directorreasonably believes to be in the best interests of the Company, and with the care an ordinarilyprudent person in a like position would exercise under similar circumstances. A Director shallhe entitled to rely on information, opinions, reports, or statements, including financialstatements and other financial data, if prepared or presented by one (1) or more officers oremployees of the Company whom the Director reasonably believes to be reliable and competentin the matters presented; legal counsel, public accountants, or other persons as to matters theDirector reasonably believes to be reliable and competent in the matters presented; legalcounsel, public accountants, or other persons as to matters the Director reasonably believes arewithin the person's professional or expert competence; or a committee of the Board of Directorsof the which the Director is not a member, if the Director reasonably believes the committeemerits confidence. A Director is not acting in good faith if the Director has knowledgeconcerning the matter in question that makes reliance otherwise permitted by this provisionunwarranted. A Director shall not be liable for any action taken as a Director, or any failure totake action, if the Director has performed the duties of the office in compliance with thisprovision.Section 9.17 Authority of the Board. Except as may otherwise be expressly provided inthis Agreement, the Board: (i) has the right, power and authority to manage the business andaffairs of the Company; (ii) has complete and exclusive discretion to manage and control thePage 10207

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - Actionbusiness and affairs of the Company, including the right to make and control all decisionsconcerning the business and affairs of the Company; and (iii) possesses all power, on behalf ofthe Company, to do or authorize the Company or to direct any officers of the Company, onbehalf of the Company, to do all things necessary or convenient to carry out the business andaffairs of the Company.Section 9.18 General Duties and Obligations of the Board.(a) Consistent with the terms of this Agreement, the Board shall (i) direct, operate,manage and control the business and affairs of the Company; (ii) cause the Company to conductits business and operations separate and apart from that of any Director, the Member or any oftheir Affiliates, including, without limitation, (A) segregating the assets of the Company and notallowing funds or other assets of the Company to be commingled with the funds or other assetsof, held by, or registered in the name of, the Member, any Director or any of their respectiveAffiliates; (B) maintaining (or cause to he maintained) books and financial records of theCompany separate from the books and financial records of the Member, any Director or theirrespective Affiliates; (C) causing the Company to pay its liabilities from assets of the Company;and (D) causing the Company to conduct its dealings with third parties in its own name and as aseparate and independent entity.8(b) The Board shall take all actions that may be necessary or appropriate (i) for thecontinuation of the valid existence of the Company under the applicable laws of the State of itsdomicile (and of each other jurisdiction in which such existence is necessary to protect thelimited liability of the Members or to enable the Company to conduct the business in which it isengaged); and (ii) in furtherance of the business affairs and purposes of the Company inaccordance with the provisions of this Agreement and applicable law.(c) Each Director shall devote to the Company such time as may be necessary for theproper performance of all duties hereunder, but no Director shall be required to devote his fulltime to the performance of such duties.(d) The Board shall keep the Member well informed of the actions taken by theBoard in conducting the business of the Company.Section 9.19 Special Approval Powers of UT Directors and Methodist Directors.Notwithstanding Section 9.14 above, the affirmative vote of a majority of all the UT Directors(which must include the affirmative vote of the UTCOM Executive Dean) and the affirmativevote of a majority of all the Methodist Directors shall be all that is required for Board approval,disapproval, or other action with respect to the following items:(a) Sale, exchange or disposition of Company assets;(b) Merger or consolidation of the Company with another entity;(c) Admission of additional Members of the Company;Page 11208

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - Action(d) Entering into and terminating managed care contracts;(e) Adoption of UTMP internal compensation distribution plans, in order to remedypossible violations of any laws, rules or regulations;(f) Acquiring and disposing of real property;(g) Adoption of physician recruitment and compensation plans, and physicianemployment contract terms;(h) Establishment of operating budgets;(i) Acquisition of substantially all of the assets of additional physician practices andemployment of physicians which would operate as part of UTMP.8(j) Acquisition of substantially all of the assets of a physician specialty practice and/oremployment of one or more specialty physicians which specialty is already representedin the Company;(k) Employment by the Company of a physician that does not hold a faculty appointmentwith a clinical department of UTCOM; (l) Other matters that would require the approvalof the Board of Directors of Methodist or Methodist Le Bonheur Healthcare; and(m) Any amendment to the Company’s Articles of Organization and any amendment ortermination of the Company’s Operating Agreement.ARTICLE XOFFICERSSection 10.1 Powers. The day to day management and control of the Company, and itsbusiness and affairs, shall be conducted by, or under the direction of, the Officers. The Officersshall have the rights, powers and duties which may be possessed by officers under the Act, andsuch other rights, powers and duties specified in this Agreement or designated by the Board, orwhich are necessary, advisable or convenient to the discharge of their duties under thisAgreement.Section 10.2 Election and Term. At the regular meeting of the Board, or as soonthereafter as is conveniently possible, the Board shall elect a President, a Treasurer and aSecretary and such other Officers as the Board may determine. The Board may elect Officers atsuch additional times as it deems advisable. Each Officer shall serve until his successor iselected and qualified or until his earlier resignation or removal. Any number of offices may beheld by the same person, except the offices of President and Secretary. All Officers, with theexception of the Chairman, shall be elected and/or removed, and any vacancies in Officerpositions shall be filled, only by the affirmative vote of a majority of all Directors in office (i.e.,the full UTMP Board), which such majority must include the affirmative votes of both theMethodist CEO and the UTCOM Executive Dean.Page 12209

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - ActionSection 10.3 Duties. The duties and powers of the Officers shall be as follows:(a) Chairman of the Board. The Chairman of the Board shall be the Executive Dean ofthe UTCOM by virtue of his or her position and who shall preside at all meetings of the Board,and shall perform such other duties as from time to time may be assigned by the Board.(b) President. The President shall be the chief executive officer of the Company, and, assuch, shall be primarily responsible for the general management of the business of the Companyand for implementing the policies and directives of the Board. The President shall haveauthority to make contracts on behalf of the Company, within the limits set by the Board, in theordinary course of the Company's business, shall preside at all meetings of the Members and theBoard during the absence or disability of the Chairman of the Board, and shall perform suchother duties as from time to time may be assigned by the Board.8(c) Vice President. The Board may, but is not required to, elect a Vice President. TheVice President (or, if more than one, in the order designated by the Board) shall exercise thefunctions of the President during the absence or disability of the President and shall performsuch other duties as may be assigned by the Chairman of the Board, the President or the Board.(d) Treasurer. The Treasurer shall be the chief financial officer of the Company, and, assuch, shall have general supervision over the funds of the Company and the investment ordeposit thereof, shall advise the Officers and, if requested, the Board regarding the financialcondition of the Company, and perform such other duties as may be assigned by the Chairmanof the Board, the President, or the Board.(e) Secretary. The Secretary shall attend all meetings of the Board, and any committeesof the Board, and shall prepare minutes or records of proceedings of all such meetings in a bookto be kept for that purpose. The Secretary shall give, or cause to be given, such notice as may berequired of all meetings of the Board, and any committees of the Board, shall authenticaterecords of the Company, and shall perform such other duties as may be assigned by theChairman of the Board, the President, or the Board.Section 10.4 Standard of Conduct. An Officer shall discharge the duties of an office ingood faith, in a manner the Officer reasonably believes to be in the best interest of the Companyand with the care an ordinarily prudent person in a like position would exercise under similarcircumstances. In discharging his duties, an Officer is entitled to rely on information, opinions,reports or statements, including financial statements and other financial data, if prepared orpresented by one (1) or more Officers or employees of the Company whom the Officerreasonably believes to be reliable and competent in the matters presented; or legal counsel,public accountants, or other persons as to matters the Officer reasonably believes are within theperson's professional or expert competence. An Officer is not acting in good faith if he or shehas knowledge concerning the matter in question that makes reliance otherwise permitted bythis provision unwarranted. An Officer shall not be liable for any action taken as an Officer, orany failure to take any action, if the Officer has performed the duties of the office in compliancewith this provision.Page 13210

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - ActionSection 10.5 Compensation. The salaries and other compensation of the Officers shall bedetermined from time to time by the affirmative vote of a majority of all Directors in office (i.e.,the full UTMP Board), which such majority must include the affirmative vote of the MethodistCEO and the UTCOM Executive Dean.Section 10.6 Removal. The Board by the affirmative vote of a majority of all Directorsin office (i.e., the full UTMP Board), which such majority must include the affirmative vote ofthe Methodist CEO and the UTCOM Executive Dean may remove any Officer, with theexception of the Chairman, at any time, with or without cause, but no such removal shall affectthe contract rights, if any, of the person so removed.8Section 10.7 Resignation. An Officer may resign at any time by delivering notice to thePresident. A resignation is effective when the notice is delivered, unless the notice specifies alater effective date. If a resignation is made effective at a later date and the Company accepts thefuture effective date, the Board may fill the pending vacancy before the effective date if itprovides that the successor does not take office until the effective date. An Officer's resignationdoes not affect the Company's contract rights, if any, with the Officer.ARTICLE XIBOARD DEADLOCK; DISPUTE RESOLUTIONSection 11.1 Board Deadlock; Deadlock Notice; and Dispute Resolution. The partiesacknowledge that there may arise disagreements among the Methodist Directors and the UTDirectors regarding matters which require the vote of these Directors and which, for whateverreason, cannot be resolved by a Board vote. Therefore, for the purposes of this document, theterm “Board Deadlock” shall mean either: (i) the Board’s inability to approve or affirmativelydisapprove matters listed under Section 9.19 which have been brought to a vote of the Board; or(ii) a disagreement among the UT Directors and the Methodist Directors that creates a substantialcontinuing financial or other hardship upon either UT or Methodist. In the event of a BoardDeadlock, the dispute shall be addressed as follows:(a) Within five (5) business days of the date the members of the Board ofDirectors cannot resolve an issue, the Chairman of the Board shall notify the UTHSCChancellor and the Methodist CEO in writing of the issue, describing in reasonable detailthe matter resulting in the Board Deadlock (the “Deadlock Notice”).(b) Within ten (10) business days after the receipt of the Deadlock Notice, theUTHSC Chancellor and the Methodist CEO shall meet and negotiate in good faith toresolve the matter in a mutually agreeable manner. Any mutual decision resolving thematter shall be communicated in writing to the Chairman of the Board and shall bebinding on UTMP.(c) Until such time as the disputed matter is addressed and resolved asprovided herein, the then-existing status quo shall be maintained; provided, however, thatat any time during the dispute resolution process, the Methodist Directors and the UTDirectors may resolve the Board Deadlock themselves and provide written notice of thePage 14211

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - Actionresolution to the Chairman of the Board, who, in turn, shall provide notice to the fullUTMP Board, and terminate the dispute resolution process.(d) In the event the UTHSC Chancellor and the Methodist CEO are unable toresolve the Board Deadlock in a timely manner following good faith negotiations, theUTHSC Chancellor and the Methodist CEO shall notify the Chairman of the Board inwriting, and the parties shall proceed as set forth below in this Article XI.Section 11.2 Mediation. Within five (5) business days of receipt of a mediation request,the Chairman of the Board shall request that the UTHSC Chancellor and the Methodist CEOidentify a mutually acceptable independent, third-party mediator. If a mediator cannot be agreedupon, each party shall designate a mediator and those mediators shall select a third mediator whoshall act as the independent third-party mediator, assisting the parties in attempting to reach aresolution. UTMP shall pay the cost of the mediation. If the Board Deadlock is resolvedsuccessfully through the mediation, the resolution will be documented by a written agreementexecuted by the members of the Board of Directors. If the mediation does not successfullyresolve the Board Deadlock, the mediator shall provide written notice to the Chairman of theBoard reflecting the same.8Section 11.3 UT Purchase of Membership Interest. In the event that the mediationprocedure of Section 11.2 cannot or does not break the Board Deadlock, then Methodist shalloffer to sell its Membership Interest to UT or, at UT’s discretion, to an affiliated entity of UT asset forth in Section 8.2. If UT does not purchase the Membership Interest, Methodist mayexercise its reserve powers as set forth below in Section 11.4.Section 11.4 Methodist Reserved Powers. If UT does not purchase all the MembershipInterest of Methodist through its rights as set forth in Section 11.3 and Section 8.2, then theMethodist Directors shall have reserved powers to unilaterally implement the following:(a) Sale, exchange or disposition of Company assets;(b) Merger or consolidation of the Company with another entity;(c) Admission of additional Members of the Company so long as Methodist, MethodistLe Bonheur Healthcare, and/or an Affiliate or subsidiary of either, together orindividually, maintains a majority of the Membership Interest in the Company;(d) Entering into and terminating managed care contracts;(e) Adoption of UTMP internal compensation distribution plans, in order to remedypossible violations of any laws, rules or regulations;(f) Acquiring and disposing of real property;(g) Adoption of physician recruitment plans;(h) Establishment of operating budgets;Page 15212

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - Action(i) Acquisition of substantially all of the assets of additional physician practices andemployment of physicians which would operate as part of UTMP.(j) Employment by the Company of a physician that does not hold a faculty appointmentwith a clinical department of UTCOM; andIn addition to the foregoing, the Methodist Directors shall have the reserved powers tounilaterally implement the following actions that have not been approved by the Board:(i) Acquisition of substantially all of the assets of a physician specialty practiceand/or employment of one or more specialty physicians which specialty is alreadyrepresented in the Company, provided that such physician specialty practice and/or suchspecialty physicians are not already employed by or affiliated with the Company;8(ii) Other matters that would require the approval of the Board of Directors ofMethodist or Methodist Le Bonheur Healthcare; and(iii) Additional reserved powers mandated by the Board of Directors of Methodist orMethodist Le Bonheur Healthcare from time to time.Notwithstanding anything in this Section 11.4 or any other provision of this Agreement, whichmay appear to be to the contrary, under no circumstances shall either Methodist or the Companypossess any reserve powers to unilaterally alter, (nor shall any provision of this Agreement beinterpreted to alter) or in any way diminish UT’s right to control any UT faculty member’sclinical practice location, employment, or billing relationships, in accordance with the terms andconditions of such faculty member’s faculty appointment with UT.ARTICLE XIIINDEMNIFICATIONThe Company shall indemnify, and upon request shall advance expenses prior to finaldisposition of a legal proceeding to, any person or entity (or the estate or personal representativeof any person) who is or was a party to, or is threatened to be made a party to, any legalproceeding, whether or not by or in the right of the Company, by reason of the fact that suchperson or entity is or was a member, director, officer, employee or agent of the Company, or isor was serving at the request of the Company as a director, officer, partner, trustee, employee oragent of another entity, against any Liability to the fullest extent permitted under the Act. TheCompany may, to the fullest extent permitted by law, purchase and maintain insurance on behalfof any such person or entity against any Liability which may be asserted against them. Ifexisting applicable Tennessee law is amended or other Tennessee law is enacted to permitfurther elimination or limitation of the personal liability of the foregoing persons, then theliability of such persons shall be eliminated or limited to the fullest extent permitted byTennessee law as so amended or by such other Tennessee law as so enacted.Page 16213

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - ActionARTICLE XIIIDISSOLUTION AND WINDING UPSection 13.1 Events of Dissolution and Continuance of the Company. Except asprovided below, the Company shall be dissolved and its affairs wound up, upon the first tooccur of the following events (which shall constitute "Dissolution Events", or, individually, a"Dissolution Event"):(a) The affirmative vote of a majority of all the UT Directors and the affirmative vote ofa majority of all the Methodist Directors, which such majority must include the affirmativevotes of both the Methodist CEO and the UTCOM Executive Dean, to dissolve the Company;8(b) Participation by the Company in a merger in which the Company is not the survivingorganization; or(c) The occurrence of any other event that causes the dissolution of a limited liabilitycompany under the Act.Section 13.2 Effect and Notice of Dissolution. Upon the occurrence of a DissolutionEvent, the Company shall deliver notice of dissolution to the Secretary of State for filing, inaccordance with the Act. Upon dissolution, the Company shall cease carrying on the Companybusiness, except insofar as may be necessary for the winding up of its business, but theCompany is not terminated, and continues until the winding up of the affairs of the Company iscompleted and articles of termination have been accepted by the Secretary of State for filing.Section 13.3 Distribution of Assets on Dissolution. Upon the occurrence of aDissolution Event, the Company shall continue solely for the purposes of winding up its affairsin an orderly manner, liquidating its assets, and satisfying the claims of its creditors andMembers. Subject to the further provisions of this Article, the assets of the Company shall beliquidated to the extent determined to be appropriate by the Member, and the proceeds thereof,together with such assets as the Member determines to distribute in kind shall be applied anddistributed in the following order: (a) first, to creditors, including the Member to the extent theMember is a creditor, in satisfaction of liabilities of the Company (whether by payment or bymaking of reasonable provision for payment) other than liabilities for distributions to theMember; and (b) the balance, if any, to the Member. Notwithstanding the foregoing, upondissolution of the Company, assets shall be distributed for one or more exempt purposes withinthe meaning of Section 501(c)(3) of the Internal Revenue Code, i.e. charitable, educational,religious or scientific, or corresponding section of any future federal tax code, or shall bedistributed to the federal government, or to a state or local government for a public purpose.Section 13.4 Winding Up and Articles of Termination. The winding up of the Companyshall be completed when all debts, liabilities, and obligations of the Company have been paidand discharged or reasonably adequate provision therefor has been made, and all of theremaining Property and assets of the Company have been distributed to the Member. Upon thecompletion of winding up of the Company, articles of termination shall be delivered to thePage 17214

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - ActionSecretary of State for filing. The articles of termination shall set forth the information requiredby the Act.ARTICLE XIVMISCELLANEOUS PROVISIONSSection 14.1 Entire Agreement. This Agreement and the Affiliation Agreement representthe entire agreement of the matters contained herein. In the event that any provision of thisOperating Agreement or Affiliation Agreement shall conflict with any provision of the Act orother applicable law, the terms of this Operating Agreement and the Affiliation Agreement shallcontrol, unless specifically prohibited by applicable law.8Section 14.2 Rights of Creditors and Third Parties. This Agreement is entered into by theMember for the exclusive benefit of the Company, the Member, and their successors andassigns. This Agreement is expressly not intended for the benefit of any creditor of theCompany or any other person or entity. Except and only to the extent provided by applicablestatute, no such creditor or third party shall have any rights under this Agreement or anyagreement between the Company or the Member with respect to any Capital Contribution orotherwise.Section 14.3 Governing Law. This Agreement shall be governed, construed and enforcedin accordance with the laws of the State of Tennessee, without regard to conflicts of lawprinciples.Section 14.4 Severability. Whenever possible, each provision of this Agreement shall beinterpreted in such a manner as to be effective and valid under applicable law, but if anyprovision of this Agreement shall be deemed prohibited or invalid under such applicable law,such provision shall be ineffective only to the extent of such prohibition or invalidity, and suchprohibition or invalidity shall not invalidate the remainder of such provision or the otherprovisions of this Agreement.Section 14.5 Policies and Procedures. All policies and procedures that apply toemployees of Methodist Le Bonheur Healthcare (including its Affiliates and subsidiaries, asapplicable) shall also apply in all respects to the employees of the Company.Section 14.6 Writing Required; Amendment. This Agreement, any and all amendmentshereto, and any restated operating agreement of the Company, shall be in writing, and allprovisions of any such amendment or agreement shall be set forth in a single integrateddocument. For purposes of this provision, a document and all duly adopted amendments theretoshall be deemed to constitute a "single integrated document." This Agreement shall not beamended except as set forth in Section 9.19 of this Agreement.Section 14.7 Notices. Any Notice shall be sent by (a) first class, regular, registered orcertified mail; (b) commercial delivery service; (c) air or other overnight delivery service; (d)facsimile, electronic mail or other form of electronic transmission; or (e) hand delivery, to theparty to be notified addressed as follows: if to the Company, to the Company at the address setforth in Section 2.3 hereof, or to such other address as the Company may from time to timePage 18215

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - Actionspecify. Any such Notice shall be deemed to have been given and received for all purposesunder this Agreement: (i) three (3) Business Days after the same is deposited in any officialdepository or receptacle of the United States Postal Service first class certified mail, returnreceipt requested, postage prepaid; (ii) on the date of confirmed transmission when delivered byfacsimile, electronic mail or other form of electronic transmission, provided that a copy is alsopromptly delivered by either of the means set forth in clause (a), (b), (c) or (e) above; (iii) on thenext Business Day after the same is deposited with a nationally recognized overnight deliveryservice that guarantees overnight delivery; and (iv) on the date of actual delivery to such partyby any other means; provided, however, if the day such Notice shall be deemed to have beengiven and received as aforesaid is not a Business Day (or if delivery is made after 5:00 p.m.(recipient's local time) on any Business Day), such Notice shall be deemed to have been givenand received on the next Business Day.8Section 14.8 Counterparts; Facsimile/Electronic Signatures. This Agreement may beexecuted in one or more counterparts, each of which shall be deemed an original, but all ofwhich taken together shall constitute one and the same instrument, and it shall not be necessarythat any single counterpart bear the signatures of all parties. Execution and delivery of thisAgreement by delivery of facsimile or electronic copies bearing the facsimile or electronicsignature of a party shall constitute a valid and binding execution and delivery of this Agreementby such party.[Signature page follows.]Page 19216

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - ActionIN WITNESS WHEREOF, this Agreement has been executed by the parties as of thedate first set forth above.METHODIST HEALTHCARE­MEMPillS HOSPITALS:THE UNVERSITY OF TENNESSEE:By:Gary ShorbPresident and CEOBy:Steve J chwab, MDChancellor, UTHSC8Date:Date:By:By:Charles M. PeccoloTreasurer and Interim ChiefFinancial OfficerThe University of TennesseeDate:Date:UT METHODIST PHYSICIANS, LLC:By:Gary ShorbPresident and CEO, MethodistHealthcare - Memphis Hospitals, as SoleMember of the CompanyDate:-------------- Page 20 ---------------217

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - ActionIN WITNESS WHEREOF, this Agreement has been executed by the parties as of thedate first set forth above.METHODIST HEAL THCARE­MEMPHIS HOSPITALS:THE UNVERSITY OF TENNESSEE:By:Gary ShorbPresident and CEOBy:Steve J. Schwab, MDChancellor, UTHSC8Date:Date:By:By:Charles M. PeccoloTreasurer and Interim ChiefFinancial OfficerThe University of TennesseeDate:Date:UT METHODIST PHYSICIANS, LLC:By:Gary ShorbPresident and CEO, MethodistHealthcare -Memphis Hospitals, as SoleMember of the Company•Date:--------------- Page 20218

Finance and Administration Committee - X. Designation of UT Methodist Physicians, LLC, as a Faculty Practice Plan for the College of Medicine in Memphis - ActionEXHIBIT ATotal Capital Contributions …………………………………………………………………. $100.00MEMBERMethodist Healthcare - MemphisHospitalsMEMBERSHIPINTERESTS100%AMOUNT OF CASHCONTRIBUTEDVOTINGPOWER$100.00 100 votes8Page 1219

Finance and Administration Committee - XI. Capital Projects Outside the Budget Process - Action/ConsentTHE UNIVERSITY OF TENNESSEEBOARD OF TRUSTEESACTION ITEMDATE: February 28, 2012COMMITTEE:ITEM:RECOMMENDATION:PRESENTED BY:Finance and AdministrationCapital Projects Outside the Budget ProcessApprovalCharles M. Peccolo, Treasurer, Chief Investment Officer, andInterim Chief Financial Officer9The University administration has identified additional revenue/institutionally fundedprojects for FY 2011-2012. The projects are listed below:1. UTK – Baker Center Renovation: This project will renovate approximately 5,500gross square feet for the Honors Program. The total estimated cost of the projectis $300,000, which will be funded by gifts and institutional reserves.2. UTK – Solar Powered Recharging Stations: This project will install ten (10) solarpowered recharging stations on the Knoxville campus. This project will becompleted by UT-Battelle. The total estimated cost of the project is $600,000,which will be funded by the Federal Department of Energy and NissanCorporation.3. UTK – Storm Damage: This project will repair damage to multiple buildings onthe Knoxville campus associated with the storms in April 2011. The totalestimated cost of the repairs is $10,000,000, which will be funded from insuranceproceeds.4. UTC – Fire Alarm and Sprinkler System Improvements: This project will makefire alarm and sprinkler system improvements to the Lockmiller Apartments andJohnson Obear Apartments. The total estimated cost of the project is $1,200,000,which will be funded with Housing resources.MOTION:That additional revenue/institutionally funded projects outlined in the meetingmaterials be approved.220

Finance and Administration Committee - XII. Report on the Status of Sprinkler Installation in Residential Facilities - InformationUniversity of TennesseeStatus of Residence Halls Fire Alarm and Sprinkler SystemsRESIDENCE HALL FIRE ALARM SPRINKLER STORIESKNOXVILLEApartment Residence Hall Yes Yes 14Clement Hall Yes Yes 8Hess Hall Yes Yes 8Humes Hall Yes Yes 7Gibbs Hall Yes Yes 4Laurel Hall Yes Yes 15Massey Hall Yes Yes 6Morrill Hall Yes Yes 11North Carrick Hall Yes Yes 12South Carrick Hall Yes Yes 12Reese Hall Yes Yes 7Volunteer Hall Yes Yes 8CHATTANOOGABoling Apartments Yes Yes 3Lockmiller Apartments Yes (only 50%) No - current project 2Johnson-O'Bear Apartments Yes No - current project 3Stagmaier Hall (under renovation) Yes (will be after renovation) Yes (will be after renovation) 4Guerry Apartments Yes Yes 3Decosimo Apartments Yes Yes 3Stophel Apartments Yes Yes 4Walker Apartments Yes Yes 5UC Foundation Apartments Yes Yes 510MARTINBrowning Hall Yes No 3Ellington Hall Yes No 3University Village (phase I) Yes Yes 3University Village (phase II) Yes Yes 4Cooper Hall Yes No 4University Courts Apartments Yes (room smoke detectors) No 2Grove Apartments Yes (room smoke detectors) No 2HEALTH SCIENCE CENTERGoodman Dormitory closed closed closedPhi Chi House No No 2INSTITUTE OF AGRICULTUREW.P. Ridley 4-H Center, Columbia staff housing - Yes No 1camper dorms - Yes No 1Clyde York 4-H Center, Crossville staff housing - Yes No 1camper dorms - Yes No 1Clyde Austin 4-H Center, Greenville staff housing - Yes Yes 2camper dorms - Yes (room smoke detectors) No 2College of Vet Medicine (8 rooms) Yes No 3Johnson Animal Research (2 rooms) Yes Yes 1NOTE: Housing facilities less than 75 feet tall and meet egress requirements are not required to have sprinkler systemsper Tennessee Code Annotated. The buildings with no sprinklers are under 75 feet and do meet egress requirements.Fire alarms and sprinklers are tested at least once a year.221

Finance and Administration Committee - XIII. Real Property Transactions - Action/ConsentTHE UNIVERSITY OF TENNESSEEBOARD OF TRUSTEESACTION ITEMDATE: February 28, 2012COMMITTEE:CAMPUS/UNIT:ITEM:RECOMMENDATION:PRESENTED BY:Finance and AdministrationUT Institute of AgricultureProperty ExchangeApprovalCharles M. Peccolo, Treasurer, Chief Investment Officer, andInterim Chief Financial Officer11The University of Tennessee Institute of Agriculture–Forest Resources Research andEducation Center (UTIA-FRREC) proposes to exchange approximately 58+/- acres ofvacant land located in Oak Ridge, Tennessee (“Oak Ridge Property”) for approximately83+/- acres of vacant land located on Highway 11 in Sweetwater, Tennessee owned byRogers Group, Inc. (“Sweetwater Property”).The UTIF-FRREC will receive at least equal value consideration for the real propertyexchange, as determined by fair market appraisals of the Oak Ridge Property and theSweetwater Property, plus $400,000. Rogers Group and the University will determine andagree upon the value of the limestone to be quarried on the Oak Ridge Property. RogersGroup agrees to pay the difference if the net present value of the quarried limestoneexceeds the value of the property exchanged, plus $400,000.As additional consideration: (1) the UTIA-FRREC will harvest, sell, and receive theproceeds from the timber from the Oak Ridge Property; (2) Rogers Group will relocate,repair, and replace any severed roads as a result of the exchange; and (3) subject to priorapproval by the University, the Oak Ridge Property will revert to the University if it ceasesto be used as a rock quarry.North American Minerals, LLC, an affiliate of Rogers Group, owns approximately 217+/-acres contiguous to UTIA-FRREC’s property in Oak Ridge. The Oak Ridge Property beingexchanged is situated on the backside of UTIA-FRREC’s property. The acreage is not222

Finance and Administration Committee - XIII. Real Property Transactions - Action/Consentdeemed to contain key research plots, and its sale will not affect other area researchactivities or the future use of the remaining property.The University will use the proceeds from the transaction to fund the UTIA-FRREC.After approval by the Board of Trustees, the University administration will seek allrequired local and state approvals.MOTION:That the disposal of 58+/- acres in Oak Ridge, Tennessee, in exchange for 83+/- acres inSweetwater, Tennessee, be approved subject to the terms described in the meetingmaterials; andThat the disposal of the 83+/- acres in Sweetwater, Tennessee, be approved at a sale priceequal to or greater than the appraised value.11223

Finance and Administration Committee - XIII. Real Property Transactions - Action/ConsentTHE UNIVERSITY OF TENNESSEEBOARD OF TRUSTEESACTION ITEMDATE: February 28, 2012COMMITTEE:CAMPUS/UNIT:ITEM:RECOMMENDATION:PRESENTED BY:Finance and AdministrationUT KnoxvilleAlley Transfer from City of KnoxvilleApprovalCharles M. Peccolo, Treasurer, Chief Investment Officer, andInterim Chief Financial Officer11The University of Tennessee, Knoxville proposes to request the City of Knoxville to transferto the University an unnamed alley lying north of Andy Holt Avenue, east of FrancesStreet, south of Melrose Avenue, and west of Melrose Place (see the campus map followingthis memorandum).The proposed alley transfer will allow the University to control access to and use of thealley, which is necessary for construction of a new dormitory, controlling pedestrian traffic,and safety.After approval by the Board of Trustees, the University will seek all required local andstate approvals.MOTION:That the administration be authorized to request the City of Knoxville to transfer to theUniversity an unnamed alley lying north of Andy Holt Avenue, east of Frances Street,south of Melrose Avenue, and west of Melrose Place.224

Finance and Administration Committee - XIII. Real Property Transactions - Action/Consent11225

Finance and Administration Committee - XIII. Real Property Transactions - Action/ConsentTHE UNIVERSITY OF TENNESSEEBOARD OF TRUSTEESACTION ITEMDATE: February 28, 2012COMMITTEE:CAMPUS/UNIT:ITEM:RECOMMENDATION:PRESENTED BY:Finance and AdministrationUT Space InstitutePermanent Easement to City of Estill SpringsApprovalCharles M. Peccolo, Treasurer, Chief Investment Officer, andInterim Chief Financial Officer11The University of Tennessee Space Institute (UTSI) at Tullahoma and the City of EstillSprings propose a Permanent Easement for ingress/egress and conveyance of a 200,000gallon water tank that, if necessary, supports emergency fire flow for UTSI. The easementwill authorize the City of Estill Springs to enter upon, operate, repair and maintain both theeasement and the water tank improvements. Ownership of the water tank improvementswill be included in the easement to the City of Estill Springs. The easement will be subjectto the University’s right to relocate the area of the easement at its sole expense.The proposed Permanent Easement is irregular in shape and contains approximately 50,317square feet or 1.16 acres. As consideration for the easement and conveyance of the watertank improvements, the City of Estill Springs will be responsible for all upkeep andmaintenance of the premises, including associated utility costs and the water tankimprovements located on the premises.After approval by the Board of Trustees, the University will seek all required local andstate approvals.MOTION:That the Permanent Easement and the water tank improvements, as described in themeeting materials, be granted to the City of Estill Springs, subject to the University’sright to relocate the area of the easement at its sole expense.226

Finance and Administration Committee - XIV. Revision of UT Martin Traffic and Parking Regulations - ActionTHE UNIVERSITY OF TENNESSEEBOARD OF TRUSTEESACTION ITEMDATE: February 28, 2012COMMITTEE:CAMPUS/UNIT:ITEM:RECOMMENDATION:PRESENTED BY:Finance and AdministrationUT MartinRevision of UT Martin Traffic and Parking RegulationsApprovalTom Rakes, Chancellor, UT Martin12UT Martin proposes revisions to its Traffic and Parking Regulations to allow for a$200 fine for possessing, using, reproducing, or altering a University registrationdecal in a manner that would violate state or local law and to allow restitution, ifappropriate, to the victim. The proposed revisions also provide that Universitystudents and employees may be subject to discipline for the same misconduct underother University policies and procedures. The current Regulations follow thismemorandum, and the proposed revisions appear on page 4 of the Regulations.The proposed revisions are the result of a request by local officials that offenders behandled through the University rather than the Weakley County court system.The Tennessee Uniform Administrative Procedures Act requires that regulations likethis be promulgated under the formal rulemaking provisions of the Act. Afterapproval by the Board of Trustees, the proposed revisions will be submitted to theState Attorney General for approval as to legality and subsequently published in theSecretary of State’s monthly administrative register prior to becoming effective.MOTION:That the proposed revisions to the UT Martin Traffic and Parking Regulations beapproved.227

Finance and Administration Committee - XIV. Revision of UT Martin Traffic and Parking Regulations - ActionRULESOFTHE UNIVERSITY OF TENNESSEE AT MARTINCHAPTER 1720-05-06TRAFFIC AND PARKING REGULATIONSTABLE OF CONTENTS1720-05-06-.01 Registration of Vehicles1720-05-06-.06 Appeals1720-05-06-.02 Parking 1720-05-06-.07 Restrictions1720-05-06-.03 Vehicle Operation 1720-05-06-.08 Pedestrian Regulations1720-05-06-.04 Violations 1720-05-06-.09 Special Occasions and Emergencies1720-05-06-.05 Penalties1720-05-06-.01 REGISTRATION OF VEHICLES.(1) All motor vehicles operated by faculty, staff and students in connection with their employmentor attendance at UTM must be registered at the UTM Department of Public Safety.(2) All persons employed by other agencies who regularly use University facilities must annuallyregister their vehicles with the University. “Vendor” decals will be used for this purpose.“Honorary” decals will be issued to all retired University personnel and “Special Guests”decals may be issued to all others who do not fit the vendor classification.(3) Vehicle registration decals are issued at the time of student registration and must be properlydisplayed.12(4) Faculty and staff vehicle registration and collection of associated fees will be conducted priorto the beginning of each Fall Semester and will be valid for the entire academic year. Vehicleregistration will not be completed until the previous year’s citations have been cleared. Newemployees will be required to pay the registration fee at the time of their employment.(5) Student vehicle registration and collection of associated fees must be renewed at, or prior to,the beginning of each fall semester and will be valid for the entire academic year.(6) Student vehicle registrations must be completed prior to the first day of classes, or within 24hours for those who enroll at a subsequent date or acquire a vehicle.(7) Generally, a student vehicle can only be registered in one classification: commuter or noncommuter.However, students who meet certain requirements may register vehicles as staff.To register as a staff member the student must teach eight (8) semester hours or have a forty(40) hour work week specified on appointment papers. The registration of student vehicles asstaff members will be by agreement between the appropriate department chairman or deanand the Department of Public Safety.(8) The annual vehicle registration decal will be provided at no cost to anyone qualifying for apermanent disability sticker.(9) The person to whom a vehicle is registered is responsible for that vehicle and all violationcitations issued thereto. If the person operating the vehicle is other than the registrant whena violation is committed, both he and the registrant may be cited.(10) Expired campus registration decals must be removed so that only the current registrationdecals are displayed.October, 2009 (Revised) 1228

Finance and Administration Committee - XIV. Revision of UT Martin Traffic and Parking Regulations - ActionTRAFFIC AND PARKING REGULATIONS CHAPTER 1720-05-06(Rule 1720-05-06-.01, continued)(11) Only one parking decal may be purchased by each staff/faculty member or student, unless itis a replacement decal. The decal may be transferred to another vehicle either permanentlyor temporarily.Authority: T.C.A. §49-9-209(e), Public Acts of Tennessee, 1839-1840, Chapter 98, Section 5, andPublic Acts of Tennessee, 1807, Chapter 64.1720-05-06-.02 PARKING.(1) Staff parking areas are designated for all academic buildings. Students are not to park inthese areas.(2) Student parking areas are designated by letter, e.g., C-Commuting students, N-Noncommutingstudents. Student’s vehicles may be parked only in lots designated on thestudent’s registration decal.(3) Parking lot designations are not applicable from 3:00 p.m. to 8:00 a.m. nor on weekendsexcept where posted. The designations are for the hours between 8:00 a.m. and 3:00 p.m.Monday through Friday.Authority: §49-9-208(e), Public Acts of Tennessee, 1839-1840, Chapter 98, Section 5, and Public Actsof Tennessee, 1807, Chapter 64.1720-05-06-.03 VEHICLE OPERATION.12(1) All persons operating vehicles on University property or in the campus area, which includescity streets adjacent to University property, must be properly licensed operators(2) Pedestrians have the right-of-way at established pedestrian crossings, except whereregulated by traffic control lights or police officers.(3) Under normal conditions the maximum speed limit on campus streets is 15 mph and 30 mphon the city streets. However, vehicles may not be operated at any speed which is excessivefor the conditions which may exist as a result of weather, traffic congestion, pedestrians, etc.(4) Traffic control signs and directions of police officers must be obeyed.(5) All persons operating vehicles are responsible for maintaining control of the vehicle, safeoperation, and observance of traffic control signs, barriers and devices.(6) Operating or parking a motor vehicle in any area other than a street, roadway, or parking lotintended for motor vehicles is prohibited.1720-05-06-.04 VIOLATIONS.(1) Registration.October, 2009 (Revised) 2229

Finance and Administration Committee - XIV. Revision of UT Martin Traffic and Parking Regulations - ActionTRAFFIC AND PARKING REGULATIONS CHAPTER 1720-05-06(Rule 1720-05-06-.04, continued)(a)(b)(c)(d)(e)Vehicles not registered.Registration decals not properly affixed to vehicle.Unauthorized possession of registration decals.Falsification of registration information.Illegal use, reproduction, or alteration of registration decals.(2) Parking.(a)(b)(c)(d)(e)(f)In no parking areas, loading zones, or on grass.In unauthorized areas.In such a manner as to block or obstruct traffic, street, sidewalk, driveway, fire hydrant,building entrance or exit, or another vehicle.In areas where curb is painted yellow or where not marked as a parking area withpainted white lines.Vehicles parked in such a manner as to prohibit the emptying of trash dumpsters willbe towed away at the owner’s expense.Disability parking violation, as defined by state law (e.g., an unauthorized use of adisabled parking space, ramp, plate, or placard; parking a vehicle so that a portion ofthe vehicle encroaches into a disabled parking space in a manner which restricts, orreasonably could restrict, a person confined to a wheelchair from exiting or entering avehicle properly parked within the disabled parking space).12(3) Moving.(a)(b)(c)(d)(e)(f)(g)(h)(i)(j)(k)Exceeding posted speed limit.Excessive speed for existing conditions.Failure to obey traffic control sign or signal.Failure to obey police officer.Operating vehicle without valid operator’s license.Driving off of roadway or street.Reckless driving and/or racing.Failure to yield right-of-way at pedestrian crossing.Leaving scene of accident.Failure to signal turn or stop.Following too closely.October, 2009 (Revised) 3230

Finance and Administration Committee - XIV. Revision of UT Martin Traffic and Parking Regulations - ActionTRAFFIC AND PARKING REGULATIONS CHAPTER 1720-05-06(Rule 1720-05-06-.04, continued)(l) Operating mechanically unsafe vehicle.(m)(n)Driving while under the influence of alcohol or narcotics.Operating vehicle causing loud or unnecessary noise, such as loud mufflers, horns,P.A. systems, etc.1720-05-06-.05 PENALTIES.(1) Fines and Other Penalties.(a)The fine for registration or parking violations is twenty-five ($25) dollars, except for thefollowing violations:1. Registration decal not properly affixed to a vehicle – twenty ($20) dollars;2. Parking in a no parking area or a loading zone – thirty ($30) dollars;3. Parking in such a manner as to block or obstruct traffic, a street, a driveway, afire hydrant, a building entrance or exit, or another vehicle – thirty ($30) dollars(the fine is twenty-five ($25) dollars for blocking a sidewalk or building entranceor exit);4. Parking in an area where curb is painted red – forty ($40) dollars;5. Parking in an area that is not marked as a parking area with painted white lines –twenty ($20) dollars;126. Parking in such a manner as to prohibit the emptying of trash dumpsters – thirty($30) dollars and the vehicle will be towed; and7. The fine for a disability parking violation is set by State law, T.C.A. § 55-21-108.As of July 1, 2008, the fine was set at two-hundred ($200) dollars. The fineimposed under these regulations will increase or decrease automatically whenincreased or decreased by State law. The fine shall not be suspended orwaived. In addition to the fine, not more than five (5) hours of community servicework may be imposed. Any community service work requirements imposedshall be to assist the disabled community by monitoring disabled parking spaces,providing assistance to disability centers or to disabled veterans, or other suchpurposes.8. A person who possesses, uses, reproduces, or alters a vehicle registrationdecal in a manner that would violate state or local law shall, at the University’sdiscretion, be: (i) required to pay the University a fine of two-hundred ($200)dollars and make restitution to the victim; or (ii) referred to City or GeneralSessions Court. University students and employees also may be subject todiscipline under other University policies and procedures.(b)A person who commits a moving violation or illegally uses, reproduces, or alters avehicle registration decal will be referred to City or General Sessions Court.(2) Disciplinary Action.(a)Students who persist in violating these regulations or commit a single violationsurrounded by aggravated circumstances will be referred to the Office of StudentAffairs for disciplinary action.October, 2009 (Revised) 4231

Finance and Administration Committee - XIV. Revision of UT Martin Traffic and Parking Regulations - ActionTRAFFIC AND PARKING REGULATIONS CHAPTER 1720-05-06(Rule 1720-05-06-.05, continued)(b) If more than five citations are issued to a student in one semester, the student will benotified that the vehicle is subject to being towed. If, after this notification, the studentreceives another citation during the same semester, the student’s vehicle will besubject to towing for that citation and each subsequent citation for the remainder of thatsemester, even if the previous citations have been satisfied by paying fines or otherpenalties.(c)Any student having outstanding citations (citations which have not been paid) will notbe allowed to register for further work until all such charges have been paid.(3) Enforcement.No transcripts or other information will be made available for such students who areseeking entrance into other institutions.(a)(b)(c)A citation for any type of parking violation must be paid or appealed within fourteen(14) calendar days after the issuance of the citation. If a fine is not paid or appealedwithin fourteen (14) calendar days after the issuance of the citation, a $15.00 latecharge will be added.Windshield notices and/or other methods of notification will be used to provide theowner of the vehicle with: (1) advance notice of the University’s intent to tow theowner’s vehicle as a result of the owner receiving more than five citations in onesemester and (2) the owner’s right to a hearing. In the event the owner does notrequest a hearing or prevail at the hearing, his or her vehicle will be towed whenever itis next found upon the University property parked illegally.Vehicles parked in a fire lane, designated disability parking space, reserved parkingspace, or in such manner as to impede the flow of traffic or disrupt the orderly affairs ofthe University may be towed/booted/impounded. Owners of vehiclestowed/booted/impounded for the above reasons have a right to a hearing by aUniversity official that will be provided on request prior to the payment of any towcharges, fines, and penalties. If tow charges, fines, or penalties are assessed aftersuch hearing, impounded/towed/booted vehicles will be released upon properidentification and receipt of payment of all tow charges, fines, and penalties.12Authority: T.C.A. §49-9-209(e), Public Acts of Tennessee, 1839-1840, Chapter 98, Section 5, andPublic Acts of Tennessee, 1807, Chapter 64.1720-05-06-.06 APPEALS.(1) Appeals must be made within fourteen days of the date of citation issuance.(2) Citations may be appealed to the Traffic Office and then to the Traffic Appeals Board. TheTraffic Appeals Board, which is composed of faculty, staff and students, meets eachsemester.Authority: Public Acts of Tennessee, 1839-1840, Chapter 98, Section 5, and Public Acts of Tennessee,1807, Chapter 64.1720-05-06-.07 RESTRICTIONS.(1) University streets or grounds may not be used by any firm, corporation, or unauthorizedperson for advertising or commercial purposes.Authority: Public Acts of Tennessee, 1839-1840, Chapter 98, Section 5, and Public Acts of Tennessee,1807, Chapter 64.October, 2009 (Revised) 5232

Finance and Administration Committee - XIV. Revision of UT Martin Traffic and Parking Regulations - ActionTRAFFIC AND PARKING REGULATIONS CHAPTER 1720-05-061720-05-06-.08 PEDESTRIAN REGULATIONS.(1) Students and staff members must not endanger their safety or constitute an unreasonableimpediment to lawful vehicular traffic by crossing streets at other than authorized lanes or bywillfully walking or congregating in the streets.Authority: §49-9-209(e), Public Acts of Tennessee, 1839-1840, Chapter 98, Section 5, and Public Actsof Tennessee, 1807, Chapter 64.1720-05-06-.09 SPECIAL OCCASIONS AND EMERGENCIES.(1) On special occasions, such as athletic events, concerts, and graduation exercises, and inemergencies, parking and traffic limitations may be imposed by the Department of PublicSafety as required by the conditions which prevail.Authority: Public Acts of Tennessee, 1839-1840, Chapter 98, Section 5, and Public Acts of Tennessee,1807, Chapter 64.12October, 2009 (Revised) 6233