University of Pennsylvania Financial Repor tfor the year ended June 30,

1983 r

The University does not discriminate o nthe basis of race, color, sex, sexual oraffectional preference, age, religion ,national or ethnic origin, or handicap.The University 's policy applies to facultyand other employees, applicants fo rfaculty positions and other employment,students, and applicants to educationa lprograms and activities .

Such a policy in recruitment,appointment, promotion, transfer, com-pensation, benefits, training, tuitionassistance, lay-offs, terminations an dsocial and recreational programs and inall educational programs and activities i sfundamental to the effective functioningof an institution of teaching, scholarshipand public service. However, simpleabsence of discrimination is not suffi-cient. The task is to act positively towardthe elimination ofall patterns of unequa ltreatment . The University's affirmativ eaction policies are dedicated to the ful lrealization of equal opportunity for all .

As required by law and its ownpolicies, the _University maintains writtenaffirmative action plans for women andminorities; for handicapped individuals;and for disabled and Vietnam EraVeterans . The affirmative action plans ofthe University ofPennsylvania areavailable from the Office ofEqua lOpportunity.

1

Table of Contents

2 The Trustees of the University ofPennsylvania

3 Letter of Transmittal

4 Financial Highlights

6 Five Years of Financial Performance

7 A Five Year Review of CurrentFunds

8 A Five Year Review of Investments

10 Associated Investments Fun dBalance Shee t

11 Associated Investments FundStatement of Income

13 Report of Independent Certifie dPublic Accountant s

14 Balance Shee t

16 Statement of Changes in FundBalances

18 Statement of Current Fund sRevenues, Expenditures and Othe rChanges

19 Notes to Financial Statement s

24 Educational Plant

2

The Trustees of the University of Pennsylvania

University of Pennsylvania

Gustave G . Amsterdam, Esq . Mr. Donald G. Goldstrom Mr. John B . NeffChairman (Retired) Bankers Securities Corporation Vice President-Director of Advertising and Senior Vice President and Director Wellingto n

Marketing Services Armstrong Cork Company Managemen tThe Hon. Leonore Annenberg

Mr. Bruce J. Graham Mr. William D . Patterso nThe Hon. Walter H. Annenberg General Partner Skidmore, Owings & Merrill President Patterson & Schwart zFormer Ambassador to Great BritainPresident and Director Triangle Publications, Inc. Mr. H. Samuel Greenawalt Mr. John H. Porter

Chairman of the Board Michigan National Bank Chairman Porter, Novelli & Associates, Inc .Mr. Walter G . Arader Mid Michiga nPresident Walter G . Arader and Associates, Inc. Mr. Ralph S . Sau l

Dr. E Otto HaasMr. Samuel H . Ballam, Jr. Director (Former Chairman) Rohm & Haas Company

Chairman and Chief Executive Office r

Former President and Chief Executive Officer INA Corporation

Fidelcor, Inc . Dr. Sheldon HackneyRobert Montgomery Scott, Esq .

Mr. Julian S . BersPresident University of Pennsylvania

President of the Philadelphia Museum of Art

President Imperial Metal & Chemical Company Dr. John P. Hellwege Partner Montgomery, McCracken, Walker & Rhoads

President of the General Alumni Societ yMr. Gordon S . Bodek Bernard G . Segal, Esq .

President Bobrick International, Inc . The Hon. A . Leon Higginbotham, Jr . Chairman and Senior Partner Schnader, Harrison ,Segal & Lewi sJudge, U .S . Court of Appeals, Third Circuit

Mr. Earl F. BrownMr. Irving S . ShapiroRetired Partner Arthur Young and Company Mr. John V. JamesChairman, Finance Committee and Director

Richard P Brown, Jr., Esq .Chairman and Chief Executive Officer Dresse rIndustries, Inc . E .I . du Pont de Nemours & Company, Inc .

Partner Morgan, Lewis & BockiusMr. Reginald H . Jones Mr. James J. Shea, Jr.

Mr. I . W. Burnham, II Former Chairman and Chief Executive Officer President, Chairman, and Chief Executive OfficerChairman Drexel Burnham Lambert, Inc . General Electric Company Milton Bradley Compan y

Mr. Howard Butcher, III Dr. Carl Kaysen Mr. David L . Simms

Honorary Chairman Butcher & Singer, Inc. David W. Skinner Professor of Political Economy JD/MBA Student Harvard Universit y

Mr. McBee ButcherMassachusetts Institute of Technology Mr. Wesley A . Stanger, Jr.

Senior Vice President Sales Butcher & Singer, Inc. Dr. Ralph Landau Director, MacKay-Shields Financial Corporation

Mrs. Susan W. CatherwoodListowell Incorporated Frank K. Tarbox, Esq .

Mr. Leonard A. Lauder Chairman and Chief Executive Office rMr. Henry M . Chance, II President and Chief Executive Officer Penn Mutual Life Insurance Compan yFormer Chairman United Engineers and Estee Lauder, Inc . Mr. Sarkes TarzianConstructors, Inc .

Mr. Robert P Levy President Sarkes Tarzian, Inc .Dr. Gloria Twine Chisum President DRT Industries, Inc . The Hon. Richard L . ThornburghResearch Psychologist U .S . Naval AirDevelopment Center Mr. J . Paul Lyet Governor Commonwealth of Pennsylvania

Former Chairman Sperry CorporationMr. Paul J. Cupp Robert L . Trescher, Esq .Former Chairman American Stores Company Mr. David J . Mahoney Chairman and Senior Partner Montgomery,

McCracken, Walker and Rhoad sMr. Charles D . Dickey, Jr.

Chairman and Chief Executive Office rNorton Simon, Inc . The Hon. John H . Ware, 3rdChairman Scott Paper CompanyMrs. Margaret R . Mainwaring Former State Senator and Member,

Mr. G. Morris Dorrance, Jr. U.S . House of Representative sChairman and Chief Executive Officer Mr. John A . Mayer Chairman, President, and Director Penn FuelPhiladelphia National Bank and Corporation Retired Chairman and Chief Executive Officer Mellon Gas, Inc .

National Corporation and Mellon Bank, N . A .Mr. Robert G. Dunlop Mrs . Jacqueline G . WexlerDirector (Former Chairman) Sun Company Mr. C . B . McCoy President National Conference of Christians and Jew s

Chairman of the Finance Committe eMr. John W. Eckman (Former Chairman) E .I . du Pont de Nemours Ms. Linda C. Whit eChairman and Chief Executive Officer & Company Operations Analyst Philip Morris, USARorer Group Inc .

Morton H. Wilner, Esq .Mr. Paul E Miller, Jr. *

Mr. Seymour Finkelstein Senior Partner Wilner and ScheinerSenior Partner Miller, Anderson, and Sherrer d

President Glemby InternationalMr. Charles S . Wol f

Mr. Michael E . Gilson Anthony S . Minisi, Esq . President and Chief Executive Office rAssociate McKinsey & Company, Inc . Partner Wolf, Block, Schorr & Solis-Cohen York Container Compan y

Mr. Joseph B . Glossberg Mr. E Stanton Moyer Mr. D. Robert Yarnall, Jr.Partner Gofen and Glossberg Vice President Kidder-Peabody & Company, Inc . Chairman Yarway Corporation

3

Letter of Transmitta l

To : The Trustees of theUniversity of Pennsylvani a

The financial statements displayed on pages 14 to 22 have been prepared to conform with generall yaccepted accounting principles governing Colleges and Universities and the management of the Universit yof Pennsylvania is responsible for the integrity of these statements .

The Financial Report of the Corporation for the year ended June 30, 1983, including the Repor tof the Independent Certified Public Accountants, is submitted herein .

Surplus funds generated from Current Operations permitted us to provide additional funding to theResearch Foundation, as well as designate funds for renovating research laboratories .

The schedule of Endowment and Other Funds is published separately and is not included in thi sreport.

Paul Gazzerro, Jr.Vice President for Financ eUniversity of Pennsylvania, Philadelphi aSeptember 22, 1983

4

Financial Highlights

University of Pennsylvani a

The Unrestricted Educational and General Operations of the University produced a surplus for th eeighth consecutive year. The schedule, Five Years of Financial Performance, on page 6 reflects thi sperformance as indicated by the positive change in the Unrestricted Fund Balance for the year . The F Y1983 surplus was, in part, the result of reduced inflationary pressures on the costs of goods and services .Utility costs, one of the largest and most difficult elements of the operating budget to predict, wer esubstantially less than projected as a result of a combination of factors : (a) favorable weather conditions ,(b) continuance of the energy management and control policy previously implemented, and (c) less tha nprojected increases in the costs of utility services . In addition, improved cash management led to bot hlower than projected interest expense as a result of no external borrowing for operating purposes an dgreater income from the investment of surplus cash .

The majority of the surplus generated from operations was designated by the Trustees to fun dessential renovations to our research laboratory facilities in the amount of $640,000 and to augment thecapital funding for the Research Foundation by $860,000 .

The accumulated deficit of the University Educational and General Fund at June 30, 1983 has bee nreduced by $375, 000 to $3 .3 million. The portion of the accumulated deficit attributable to the ne wstudent residences has been reduced to $499,000 by a $250,000 planned surplus generated by thos eresidences . We expect to complete this amortization, on schedule, by June 30, 1985 . The GraduateHospital deficit of $3 .1 million is the result of the divestiture of Graduate Hospital from the University i n1977, and is covered by an unsecured note receivable from Graduate Hospital, payable over 40 years .Payments from Graduate Hospital toward the amortization of this amount are current (See Note 4 to th eFinancial Statements for a more complete explanation of this agreement) .

Support from the Federal Government for the direct costs of research has declined slightly during F Y1983 as a result of a more conservative Federal funding policy initiated several years ago which has had a neffect on many major research universities .

Paradoxically, indirect cost recovery has increased because, while direct cost support has declined ,the decline has been focused in awards for training which have never provided for full recovery of indirec tcosts .

As a result of the diminution of Federal funding for student financial aid, student aid expenditure sfrom unrestricted operations have increased by $3 .2 million . This increase again enabled the University t ocontinue to maintain its need-blind admission policy.

Funds invested in plant facilities increased by $32 .3 million in FY 1983 . Unexpended building fun dbalance increased by $9 .4 million during the year due primarily to increased nonmandatory transfers fro munrestricted and restricted funds . This funding is evidence of the University's commitment to th erenovation and development of plant facilities .

Health ServicesThe Unrestricted Fund Balance of the Health Services component of the University, which for reportin gpurposes consists principally of the University Hospital and the Clinical Practices at the University o fPennsylvania, have increased significantly as a result of operations and investment income during th eyear. The growth in investment income parallels the overall growth of our total investments an dendowment, as discussed below. These combined increases reflect the continued growth and develop-ment of these operating units .

As more fully described in Note 5 to the Financial Statements, the Hospital is in the planning proces sfor a $128 million construction program.

5

University of Pennsylvania

Investments and EndowmentSince 1979, the market value of the University's total investments, as presented in A Five Year Review ofInvestments on pages 8 to 9, has experienced a significant growth of 125% from $182 million to $40 9million at June 30, 1983. A number of key factors, besides current favorable market conditions, havecontributed to this increase . For example, the successful growth of the Health Services component of th eUniversity has increased this area's investment base . Also, aggressive cash management policies haveincreased short term investments .

The University's true, term and quasi-endowment, representing the largest percentage of tota linvestments, has also experienced an increase . During FY 1983, additions to the University's endowmenttotaled over $39 million . This increase is attributable to realized gains of over $19 million and othe radditions to endowment of $20 million (new gifts and reinvestment of income into endowment principal) .

The Associated Investments Fund, (A.I.F), an open-end pooled fund, in which the majority of th eUniversity's endowed and quasi-endowed funds are invested, continues to perform well . The A.I .F.performance chart (on page 10) reflects this noteworthy record of performance . Studies by the Nationa lAssociation of College and University Business Officers indicate that the A .I .F. continues to maintain aposition in or near the top third of all university endowment funds over recent five year periods . Five yearperiods provide a meaningful basis for performance comparison since they smooth the volatility of year-to -year market fluctuations .

In FY 1981, the Trustees implemented a Spending Rule for the A .I .F. aimed at protecting the valu eof the endowment against the effects of inflation. This policy limits the amounts that can be spent in an yyear to a certain percentage of the Fund's current market value . Amounts earned above that designated t obe spent are reinvested into principal .

During the past three fiscal years, 1981, 1982 and 1983, amounts reinvested into A .I .F. principa lwere $3 .1 million (25% of total income earned), $5 .4 million (35%) and $6 .7 million (36%), respectively .Conversely, as shown on the chart entitled A.I .F. Income per Share, also displayed with the A .I.F.statements, current spending has remained relatively level . This has helped temper the effects of recen thistorically high inflation rates . As a measure of the impact of the Spending Rule policy, the cumulativ ereinvestment amount, at market value, represents over 7% of the A.I .F. principal market value at June 30 ,1983, after adjustment for the FY 1983 reinvestment .

The University continues to move forward and renew its efforts to maintain and enhance its financia lposition in an uncertain economic environment . The challenge continues to be there, and we are prepare dto respond .

6

Five Years of Financial Performanc e

University of Pennsylvania(thousands of dollars)

1983 1982 1981 1980 1979

Unrestricte dChange in Unrestricted Fund Balance :Educational and General :

Operations $

28 $

108 $

108 $

3,023 $

2,986New residences 250 251 508 318 40 1Graduate Hospital 97 97 97 97 9 7

Total Educational and General 375 456 713 3,438 3,484

Health Services :University Hospital (2,191) 701 (825) 1,739 1,553Clinical practices 11,252 9,775 7,705 5,567 5,51 9

Total Health Services 9,061 10,476 6,880 7,306 7,072

$

9,436 $

10,932 $

7,593 $

10,744 $

10,556

Unrestricted Fund Balance :Educational and General :

Operations 257 229 121 13 (3,010 )New residences (499) (749) (1,000) (1,508) (1,826 )Graduate Hospital (3,079) (3,176) (3,273) (3,370) (3,467 )

Total Educational and General (3,321) (3,696) (4,152) (4,865) (8,303 )

Health Services :University Hospital 5,060 7,251 6,550 7,375 5,636Clinical practices 42,859 31,607 21,832 14,127 8,560

Total Health Services 47,919 38,858 28,382 21,502 14,19 6

$

44,598 $

35,162 $

24,230 $

16,637 $

5,893

RestrictedNet Change in Restricted Fund Balance $

(875) $

2,557 $

372 $

6,520 $

1,83 1Net Current Restricted Fund Balance $

35,317 $

36,192 $

33,635 $

33,263 $

26,743

How it was provided

How it was spen t(by source)

(by function )

7

A Five Year Review of Current Fund s

University of Pennsylvania(thousands of dollars)

1983 1982 1981 1980 1979

Revenues and Other Addition s(by source )Student tuition and fees $

144,451 $

126,647 $

111,328 $

94,853 $

86,12 2Commonwealth appropriations 23,102 21,996 20,600 19,323 18,27 5U.S. Gov't contracts & grants 96,677 98,157 99,321 88,964 74,32 1Investment income 19,413 19,016 16,638 16,610 13,65 7Gifts and private grants 35,212 37,813 30,486 30,945 21,06 9University Hospital 192,254 158,982 131,385 105,380 87,80 1Clinical practices 77,329 58,368 47,164 37,459 28,24 0Other educational activities 22,372 17,276 14,375 11,983 9,588Other sources 6,597 8,210 7,309 9,996 8,696Auxiliary enterprises 34,746 31,604 28,205 24,189 22,50 2

$ 652,153 $

578,069 $

506,811 $

439,702 $

370,27 1

Expenditures & Other Deductions(by function)Instruction 126,513 117,779 103,901 88,080 76,04 1Research 71,681 72,928 70,112 63,593 53,105Libraries 9,950 8,594 8,801 7,593 6,957Other educational activities 23,642 21,558 20,563 18,917 15,323Student aid 36,590 35,434 34,808 29,360 26,786Student services 9,658 8,328 7,227 6,082 5,720University Hospital 194,445 158,281 132,210 105,838 87,790Clinical practices 66,077 48,593 39,459 31,892 22,72 1Operation & maintenance 27,589 24,987 22,472 19,703 16,819General institutional expense 24,264 22,652 18,692 15,928 14,388General administration 12,963 10,849 9,439 8,243 7,500Auxiliary enterprises 40,220 34,597 31,162 27,209 24,734

$ 643,592 $

564,580 $

498,846 $

422,438 $

357,884

Expenditures & Other Deduction s(by object )Salaries and wages :

University 178,337 165,989 151,269 133,618 119,15 1Health Services :

University Hospital 78,480 66,719 54,694 46,119 40,897Clinical practices 37,035 31,172 25,648 21,144 15,60 9

Total salaries and wages 293,852 263,880 231,611 200,881 175,657Current expense 333,051 285,719 254,406 209,711 173,671

Equipment 16,689 14,981 12,829 11,846 8,556

$ 643,592 $

564,580 $

498,846 $

422,438 $

357,884

8

9

A Five Year Review of Investments

University of Pennsylvania

Cost

1983

%ofTotal Cost

1982%o o fTota l

%ofTotal Market

%ofTotal Market

Total InvestmentsStocks $123,487 33% $158,691 39% $125,345 40% $120,806 41%Bonds 106,413 29 107,295 26 97,763 31 79,534 2 7Short- term 128,228 34 128,240 31 71,860 22 70,896 2 5Real Estate 8,802 2 8,802 2 7,716 2 7,716 3Other 7,480 2 6,398 2 12,886 5 11,742 4

Total $374,410 100% $409,426 100% $315,570 100% $290,694 100%

Endowment* $281,301 $314,654 $241,871 $218,250

Associated Investments FundTotal $215,235 $249,251 $177,430 $158,48 1Per Share Value $233.47 $270.37 $219 .03 $195 .64Per Share Income $ 20.38 $ 19 .42

*True, term and quasi-endowment only ; does not include life income, annuity and unitrust funds reported i nthe Financial Statements with Endowment and Similar Funds .

1981 1980 1979%G of % of %c of % of % of % of

Cost Total Market Total Cost Total

Market Total Cost Total

Market Total

$ 96,354 34% $113,455 41% $ 93,576 41% $ 99,915 44% $ 83,034 45% $ 85,947 47%83,750 29 65,477 23 76,162 33 64,365 29 73,500 40 67,772 3787,619 31 86,829 31 47,945 21 48,018 21 15,524 8 15,564 9

2,607 1 2,607 1 2,357 1 2,357 1 2,501 1 2,501 113,564 5 12,355 4 11,133 4 9,855 5 11,022 6 9,801 6

$283,894 100% $280,723 100% $231,173 100% $224,510 100% $185,581 100% $181,585 100%

$218,671 $218,146 $186,806 $181,708 $167,886 $165,249

$157,741 $159,237 $145,529 $142,360 $129,153 $127,342$211 .10 $213 .11 $202 .46 $198 .06 $189 .90 $187 .23$ 16.87 $ 14 .18 $ 12 .42

1 0

Associated Investments Fund Balance Sheet

University of Pennsylvani aYear ended June 30, 1983(thousands of dollars)

June 30, 1983

Cost

Market

Investments :Common StocksPreferred StocksBondsShort-Term Investments

Total Stocks, Bonds, Short-TermSales and Lease-BacksMortgage sOther (Tender Offer, Stock Options )

Total Net Asset s

Fund :Invested by Participating FundsUndistributed Accretion s

Net Undistributed Gains Realized o nSales, etc. of Investments and Withdrawal sof Participating Funds and Gains Availed of

Excess of Market Value of Investment sOver Cost

Number of Participating Unit sValue Per Unit

$110,473 $141,82 113 2

76,266 80,19524,325 24,325

211,077 246,343125 108

3,323 2,259710 54 1

$215,235 $249,25 1

165,263

49,972

34,016

$249,25 1

921,90 1$270 .37

Annual Total ReturnCompounded Quarterly

79 80 81 82 835 Yr.

Averag e

AIF 11 .6 14.1 16.7 1 .1 50 .0 17 . 6Composite 10.6 8.9 8 .1 (5 .6) 54 .7 13 . 7S & P 500 13.6 17 .2 20 .5 (11 .4) 60 .9 18 . 0Salomon Bros . 7.2 (2 .4) (12 .9) 8 .7 42 .4 7 . 1High Grade

Compounded total return is used commonly for evaluating investment performance . Thi sconvention measures both capital appreciation and income, and assumes the reinvestment o fincome on a periodic basis . 12 0

The Composite Index is constructed to show what the AIF return would have been if the AIFhad been invested in the S & P 500 Common Stock Index and the Salomon Brothers High

100

Grade Corporate Bond Index on a weighted basis equivalent to its actual stock and bondallocations during the five year period .

80

A.I .F. Performanc e

78

79

80

81

82

83

AIF Performance ComparisonCumulative Total Return(Compounded Quarterly )6/30/78 as 100

24 0

22 0

20 0

180

160

140

AIF Share Composite S & P 500

Salomon Bros .Bond Inde x

1 7

16

1 5

14

1 3

12

11

10

1 1

Associated Investments Fund Statement of Incom e

University of PennsylvaniaYear ended June 30, 1983(thousands of dollars )

1983

Interest Received on Bonds, Net of Accrue dInterest on Bonds Purchased $ 9,78 6

Dividends Received on Common Stocks 8,51 7Mortgage Interest 19 5Other Residual Income 12

18,510

Deduct :Salaries, Fees, Postage, etc . Allocable

to Fund 56 9Indirect Expenses Recovered on Yield 2,097

2,666

Total Distribution to Participating Units 15,84 4Less : Income Reinvested in Principal 6,72 1

Distribution to Participating Units $ 9,123

Total Distribution Per Participating Units $

17 .45Net Distribution Per Participating Units $

10 .05

A .I .F. Income Per Shar e

$2 1

20 '

1 9

18

78

79

80

81

82

83

Total Income Income Spent

13

Report of Independent Certified Public Accountant s

To : The Trustees of theUniversity of Pennsylvania

We have examined the balance sheet of the University of Pennsylvania as of June 30, 1983, and the relate dstatements of changes in fund balances and current funds revenues, expenditures and other changes fo rthe year then ended. Our examination was made in accordance with generally accepted auditing standard sand, accordingly, included such tests of the accounting records and such other auditing procedures as w econsidered necessary in the circumstances . We previously examined and reported upon the financia lstatements of the University for the year ended June 30, 1982, totals of which are included for com-parative purposes only.

In our opinion, the financial statements referred to above (pages 14 to 22 inclusive) present fairly th efinancial position of the University of Pennsylvania as of June 30, 1983 and the changes in fund balance sand current funds revenues, expenditures and other changes for the year then ended, in conformity withgenerally accepted accounting principles applied on a basis consistent with that of the preceding year.

Coopers & Lybran d1900 Three Girard Plaz aPhiladelphia, Pennsylvani aSeptember 22, 1983

14

1 5

Balance Shee t

University of PennsylvaniaAt June 30, 1983 with Comparative 1982 Total s(thousands of dollars )

June 30, 1983

Current Funds Plant Fund s

UnrestrictedTotal Total

Educational Health Endowment an d1982 1983and General Services Restricted Loan Funds Similar Funds Unexpended Invested

$ 19,743 $ 16,534AssetsCash $11,461 $ 5,07 3

46,385 60,502

Accounts receivable, net of allowance fo rdoubtful accounts of $15, 542 (1983) an d$14,222 (1982) 7,110 37,811 $14,307 $

1,274

54,588 55,604

Loans receivable, net of allowance fo rdoubtful loans of $3, 644 (1983) an d$2,128 (1982) 4,620 $50,984

8,191 8,892 Inventories and prepaid expenses 6,487 2,405315,570 374,410 Investments 1,081 47,636 25,759 2,592 281,671 $15,67 1

374,192 406,458 Plant, net of depreciation 564 $405,89 4

6,918 6,861 Due from Graduate Hospital 6,861Interfund balances :

Advances for plant 18,060 2,250 (20,310 )

Other (13,940) (15,831) 1,637 3,039 4,295 14,251 6,549

$825,587 $929,261 $41,740 $77,094 $41,703 $56,615 $290,054 $29,922 $392,13 3

51,726 66,694Liabilities and Fund BalancesAccounts payable and accrued expenses 36,342 29,175 1,177

7,937 7,608 Deposits, advances and agency funds 1,222 6,3869,234 7,223 Deferred income 7,223

134,824 131,906 Long-term debt 274 160 5,563 125,909

621,866 715,830 Fund balances (deficit) (3,321) 47,919 35,317 56,615 289,894 23,182 266,224

$825,587 $929,261 $41,740 $77,094 $41,703 $56,615 $290,054 $29,922 $392,133

See accompanying notes to financial statements.

16

1 7

Statement of Changes in Fund Balances

University of Pennsylvani aFor the Year Ended June 30, 1983 with Comparative 1982 total s(thousands of dollars )

Current Funds Plant Fund s

Unrestricte d

Educational Health Endowment and

Total Total and General Services Restricted Loan Funds Similar Funds Unexpended Invested1982 1983

$555,015 $621,866 Beginning Balances (Deficit) $

(3,696) $ 38,858 $ 36,192 $54,067 $250,908 $13,768 $231,76 9

464,502 545,847Revenues and Other Additions :Unrestricted current funds revenues 276,264 269,583

74,256 69,044 U.S. Government grants 68,842 20 2

52,514 51,807 Gifts and private grants 38,271 3,528 6,315 3,693

2,785 1,077 Sales and services 1,077

18,079 22,264 Investment income 19,417 2,190 65 7

43,645 47,314Additions to plant (including $38, 93 0

charged to current expenditures) 47,314

418 566 Interest on loans 56 6

6,182 19,443 Net gain on sale of investments 19, 443

501 646 Other additions, net 646

662,882 758,008 276,264 269,583 127,607 4,094 27,948 5,198 47,31 4

551, 382 626,410Expenditures and Other Deductions :Current funds expenditures 262, 503 256, 517 107, 39 0

14,401 8,384 Expended for plant 8,384

8,309 7,595 Interest on debt 7,595

17,802 20,002 Provision for depreciation 20,00 2

4,137 1,653 Other deductions, net 1,653

596,031 664,044 262,503 256,517 107,390 1,653 $ 384 27,59 7

Transfers among Funds-Addition s(Deductions) :

Mandatory:Principal on debt (2,741) (1,965) (125) 4,83 1Interest on debt (5,158) (2,040) (397) 7,595

Other transfers :Indirect costs recovered on :

Investment income 2,046 (1,925) (121 )Restricted gifts 1,713 (1,713)

Funds functioning as endowment (860) (13, 095) 13, 95 5Physical plant development (8,367) (4,795) 12,787 37 5Other, net (19) 436 107 (2,796) 335 1,937

66,851 93, 964Net Increase (Decrease) in Fund

Balances 375 9,061 (875) 2,548 38,986 9,414 34,45 5

$621,866 $715,830 Ending Balances (Deficit) $

(3,321) $ 47,919 $ 35,317 $56,615 $289,894 $23,182 $266,224

The nature of specific fund balances i sas follows :

Externally restricted $23,724 $12,752 $174,475 $15,322

Internally designated 106, 826 7, 86 0Unexpended endowment income 11,59 3

U.S. Government grants 43,863

Life income, annuity and unitrust funds 8,593

$35,317 $56,615 $289,894 $23,182

See accompanying notes to financial statements.

1 8

Statement of Current Funds Revenues, Expenditures and Other Change s

University of PennsylvaniaFor the Year Ended June 30, 1983 with Comparative 1982 Total s(thousands of dollars )

Unrestricte d

Total Total Educational Health

1982 1983 and General Services Restricted

$127,260 $145,067Revenues :Tuition and fees $145,06 7

21,996 23,102 Commonwealth appropriations 23,102

70,702 68,842U.S. Government grants :

Direct costs $ 68,84 2

29,493 30,500 Indirect costs 30,50018,024 16,253 Investment income 6,563 9,690

34,760 34,041 Gifts and private grants 6,355 27,68 6158,982 192,254 University Hospital $192,25 458,368 77,329 Clinical practices 77,329

31,604 34,746Sales and services :

Auxiliary enterprises 34,74617,276 19,337 Other educational activities 18,517 8206,853 11,766 Other sources 11,414 352

575,318 653,237 276,264 269,583 107,390

112,691 123,345Expenditures :Instruction 105,653 17,692

72,928 71,681 Research 71,68 1

144,818 175,636 University Hospital 175,63648,084 65,514 Clinical practices 65,51 424,432 23,583 Operation and maintenance of plant 23,58 335,361 36,567 Student aid 21,216 15,35 115,252 18,603 General institutional expense 18,60 310,714 12,698 General administration 12,69 8

8,522 9,822 Libraries 9,556 26 68,203 9,399 Student services 9,399

28,969 32,244 Auxiliary enterprises 32,051 19321,374 23,102 Other educational activities 20,895 2,207

531,348 602,194 253,654 241,150 107,390

(17,802) (20,002)Other Changes:Provision for depreciation (Note 1) (11,903) (8,099 )

16,129 20,217Excess of restricted receipts over

transfers to revenues 20,21 7

(12, 697) (11,904)Transfers among funds :

Mandatory (7,899) (4,005)(13, 879) (26, 579) Other, net (5,487) (21, 092 )

15,721 12,775

Net Increase (Decrease )in Fund BalancesBefore Adjustment (2,679) 16,329 (875 )

(2,232) (4,214)Adjustment to convert basis o f

presentation (Note 1) 3,054 (7,268)

$ 13,489 $

8,561Net Increase (Decrease )

in Fund Balances $

375 $

9,061 $

(875)

See accompanying notes to financial statements.

1 9

Notes to Financial Statements

University of Pennsylvani a

1 . Significant Accounting Policie s

Basis of Presentation : The accompanying financial statements are generally presented in accordance wit hprinciples of "fund accounting" for educational institutions in order to observe limitations and restriction splaced on the use of available resources . These resources and related expenditures are recorded i nseparate funds and summarized for accounting and reporting purposes into fund groups in accordance wit hspecified activities or objectives .

As discussed under "Plant" below, depreciation is recognized in the invested plant fund . The curren tprovision for depreciation has also been reported in the statement of current funds revenues ,expenditures and other changes in order to show the effect of the use of plant resources for curren toperating purposes ; additions to plant funds funded from current unrestricted funds have therefore no tbeen included in current funds expenditures . The University recognizes, however, that under its presen tbasis of fund accounting, depreciation is not an expenditure of, and the related depreciable plant assets arenot included in, current unrestricted funds . Therefore, an "adjustment to convert basis of presentation" t ogenerally accepted fund accounting principles for educational institutions is made, comprised of th efollowing:

Educationaland General

Healt hService s

Depreciation $11,903,000 $ 8,099,000Plant additions (8, 849, 000) (15, 367, 000)

Total $ 3,054,000 $(7,268,000)

Investments : Investments are stated at cost . Cost for donated securities is fair value as determined upo nreceipt.

A substantial portion of the University's investments, belonging to individual funds, has been poole din the Associated Investments Fund ("A. I . E") . Each participating fund earns investment income on thebasis of subscribed units, which are acquired or disposed of at market value determined on a quarterl ybasis . A spending limitation is in effect on this income, and unexpended A .I.F. income ($6,721,000 in 1983 )is reinvested in internally designated endowment funds .

Plant : Plant is generally stated at cost, less accumulated depreciation (computed on the straight-linebasis), except that museum and library contents are not depreciated .

Interfund Transactions : Interfund balances represent advances which will be eliminated through collectio nof gift pledges, appropriations of other receipts, or charges to current unrestricted expenditures an dunexpended plant funds . Additionally, for financial reporting purposes, the University treats all cash a sunrestricted and each fund's share of cash is recognized in the interfund balances .

The current unrestricted fund recovers certain indirect costs incurred to carry out projects funde dby investment income and current restricted gifts .

Health Services Revenues and Allowances : Revenues of the Hospital and Clinical Practices are derive dprimarily from patient services and are accounted for at established rates in the period during which th eservice is provided. Revenues under cost reimbursement agreements are subject to audit by th erespective third-party payor. Appropriate allowances to give recognition to the terms of third-party cos treimbursement contracts and programs, including any potential audit adjustments, and to charity care andaccounts doubtful of collection are accrued on an estimated basis in the period the related services ar erendered . For fiscal year 1983, contractual allowances were reduced by $2,700,000 to reflect fina lsettlements with third-party payors .

Gifts : Gifts are recorded as collected . Gift pledges (approximately $79,000,000 at June 30, 1983) are no tincluded in the accompanying financial statements because it is not practicable to determine their ne trealizable value.

20

University of PennsylvaniaNotes to Financial Statements-Continued

2. Investments

A summary of investments at June 30, 1983 is as follows (in thousands) :

Total A .I.F.

Cost Market Cost Marke t

Short-term $128,228 $128,240 $ 24,325 $ 24,32 5Stocks 123,487 158,691 110,486 141,823Bonds 106,413 107,295 76,266 80,19 5Real Estate 8,802 8, 802(a)Other 7,480 6,398 4,158 2,90 8

End of year $374,410 $409,426 $215,235 $249,25 1

Beginning of year $315,570 $290,694 $177,430 $158,48 1

(a) Stated at carrying value.

3. Plant

The components of plant at June 30, 1983 are as follows (in thousands) :

Educationaland General

HealthServices Tota l

Land $15,858 $

104 $ 15,96 2Buildings 307,136 53,051 360,187(b )Contents 145,909(a) 88,163 234,07 2

468,903 141,318 610,22 1Less accumulated

depreciation 150,645 58,648 209,29 3

318,258 82,670 400,92 8Construction in progres s

and unamortizedfinancing cost 5,530 5,530

$318,258 $88,200 $406,458

(a) Library and museum contents not subject to depreciation aggregate $28,731,000 at June 30, 1983 .(b) Includes $136,000,000 capitalized under leasehold agreements (Note 5).

4. Due from Graduate Hospita l

In consideration for the division of Graduate Hospital from the University in 1977, the University holds a nunsecured note receivable ($5,861,000 at June 30, 1983) with an effective interest rate of 5 1/2% (origina lface amount of $3,727,000 and stated interest of 10%), payable in quarterly installments of $95, 000 ove r40 years . In addition, Graduate Hospital has borrowed $1,000,000 from the University at June 30, 1983 ,under a line of credit for that amount, with an annual interest rate equal to the net interest cost of certai nGraduate Hospital revenue bonds (6 .8% at June 30, 1983) . Any borrowings outstanding under this line ofcredit at July 1, 1990 will be converted to a term loan payable over five years .

2 1

5. Long-Term Debt

Long-term debt outstanding at June 30, 1983 is as follows :

Principal of leaseholds payable :Pennsylvania Higher Education

Facilities Authority (PHEFA)(a)

$49,181,000Department of Education of the

Commonwealth of Pennsylvania(b)

16, 070, 000The Hospitals Authority of Philadelphia

net of unamortized debt discount o f$655,000 and assets of sinking fund o f$5,346,000(c)

34,199, 000Mortgages and mortgage bonds :

9¼%, payable through 1992

11, 049, 0009½%, payable through 1999

4,124, 0002 3/4%—3½% Serial Syste m

First Mortgage Bonds, payable through 2008

5,146, 000Other

2,641,000Bank term loan, 9% payable through 1986

3,400,000Unsecured revolving credit agreement(d)

5,500,00 0Other

596,00 0

$131,906,00 0

(a) Annual lease payments extending through 2013 are approximately $3,500,000 and include interes tat rates ranging from 4 .2% to 7 .0% on term and serial revenue bonds issued by PHEFA to financ ea student housing facility and its renovation.

(b) Aggregate annual payments under four building leases extending through 2004 are approximatel y$1,473,000, including interest at a 6 .5% effective rate .

(c) Rental payments by the Hospital ranging from $3,709,000 in 1984 to $307,000 in 2008 areequivalent to funding bond principal and interest (rates ranging from 5 .3% to 6%), and deposits to,net of earnings in, a trusteed sinking fund. The University has pledged and granted to the Authorit ya security interest in the Hospital 's gross revenues and certain property and equipment and ha sunconditionally guaranteed payment of principal and interest.

(d) Commitment of $5,500,000 decreases by $458,333 quarterly to zero in August 1986 . Borrowingsduring the revolving loan period bear interest, payable monthly, at 104% of the bank 's prime rat e(10½% at June 30, 1983) .

In addition, the University has aggregate unsecured and unused bank lines of credit amounting t o$22,340,000 at June 30, 1983 for which it maintains specified cash balances on deposit or pay scommitment fees . The University also has an available but unused bank line of credit of $5,000,000 which ,when in use, is collateralized by marketable securities .

Maturities of long-term debt, including sinking fund deposits for each of the next five years are a sfollows :

Fiscal Year1984 $6,714,0001985 6,570,0001986 6,830,0001987 4,282,0001988 4,003,000

The Hospital is in the planning process for a building and renovation project which will begin in 1984and last approximately three years . The project includes demolition of all aged, obsolete and nonfireresistive buildings, construction of a 15 level clinical services building and renovations of portions o fremaining buildings . The estimated project cost of $128,000,000 (including net interest costs during theconstruction period) is expected to be financed through internally-generated funds of $14,700,000 an dproceeds from a debt offering .

The Hospital has received approval for the project from the Health Systems Agency of Southeaster nPennsylvania and is awaiting approval from the Commonwealth of Pennsylvania —Department of Health .

22

University of Pennsylvani aNotes to Financial Statements—Continue d

6. Retirement Benefit Plans

Retirement benefits are provided for academic employees and certain administrative personnel throug hdirect payments to Teachers' Insurance and Annuity Association and the College Retirement Equity Fun d(TIAA-CREF) . The University 's policy with respect to its contribution is to provide up to 9% of eligibl eemployees' salaries . The University 's contributions to the TIAA-CREF plans amounted to $8,500,000 i n1983 .

The University has noncontributory pension plans consisting of group annuity contracts fo rsubstantially all other full-time employees . Contributions to the plans are accrued and funded based o ncurrent service costs and amortization of prior service costs over periods of 10 to 35 years . The provisio nfor pension expense related to the noncontributory plans aggregated $6,740,000 in 1983 . In 1983 ,changes were made to the actuarial cost method, actuarial assumptions, and the periods of amortizatio nfor prior service costs . The net effect of these changes was to increase 1983 pension expense b yapproximately $1,800,000 and decrease the present value of accumulated plan benefits at July 1, 1982 b yapproximately $1,700,000 .

The actuarially determined present value of accumulated plan benefits and plan net asset sdetermined as of the valuation date (July 1, 1982)" are as follows :

Accumulated plan benefits :Vested employees $34,916,000Nonvested employees 3,752,000

Total $38,668,000

Net assets available forplan benefits $39,931,000

The plans' assumed rates of return used in the actuarial computations ranged from 6Y2% to 8% .

7. Assets Held in Trust by Others

Assets held in trust and managed by outside fiscal agents are not included in the University's balanc esheet. Income earned on all such assets approximated $2,161,000 in 1983 . Those assets of which theUniversity is the sole or principal beneficiary of income had a reported cost of $16,513,000 at June 30 ,1983 ($21,841,000 market value) .

8. Contingencies

The University has guaranteed certain obligations, principally mortgages and leases on properties owne dby affiliates, totaling approximately $10,809,000 at June 30, 1983 . In addition, the University ha sguaranteed bank lines of credit of $3,500,000 on behalf of Graduate Hospital (none outstanding at June 30 ,1983) .

The University has medical malpractice insurance up to specified limits for its full-time physicians andthe Hospital with a $150,000 self-retention per physician per incident ($100,000 for incidents prior toDecember 31, 1982) . The University accrues for estimated uninsured and nonreimbursable losses base dupon experience and other factors .

There are various other contingent liabilities and claims that arise in the ordinary course of th eUniversity's educational and health care activities .

While the ultimate disposition of the aforementioned contingencies is not determinable at this time ,management is of the opinion that any losses that might be sustained would not materially affect th eUniversity 's financial position.

2 4

Educational Plan t

University of Pennsylvani a

Total Buildings Contents

Educational and Genera lAnnenberg School of Communications $

3,744,868 $

3,080,547 $

664,321Annenberg Center for Communications

5,165, 718 607,992Arts and Sciences 5,773,71 0Astronomical Observatory 168,158 92,890 75,26 8Bennett Hall 1,647,221 1,412,062 235,159Berkshire Hall 591,036 497,088 93,948Biology Building 4,804,660 2,084,881 2,719,77 9Bower Baseball Field 543,038 543,038Chaplain's House (including land) 35,131 32,001 3,130Chemistry Building* 18, 284, 207 11, 796, 575 6,487,6324025 Chestnut Street (including land) 1,143, 500 1,143, 500Chimpanzee Facilities 279,415 276,094 3,32 1Class of 1923 Ice Rink 3,400,237 2,781,656 618,58 1College Boat Club House 747,304 472,294 275,01 0College Hall 2,346,051 1,343,492 1,002,55 9

Colonial Penn Center Building 874,041 730,117 143,924

Commercial Facilities 1,392,958 1,261,138 131,820

Dental Medicine, School of 6,557,150 3,310,793 3,246,35 7

Dentistry Research Building and Laboratory 896,909 500,820 396,089

Dietrich Graduate Library Center* 1,782,378 462,991 1,319,38 7Steinberg-Dietrich Hall 22,615,810 17,569,102 5,046,70 8

Dormitories Quadrangle 16, 557, 892 15, 429, 445 1,128, 44 7

Dormitories-Stouffer Triangle 5,990,683 5,736,425 254,258

Eisenlohr Hall 1,416,257 1,149,973 266,284

English House Residence Hall 1,445,635 1,416,159 29,47 6Fels Center for Government 319,740 195,279 124,46 1

Fine Arts Building* 809,730 397,217 412,513Franklin Building* 2,969,054 479,355 2,489,699Franklin Field Stadium and J. William

White Training House 4,235,238 2,270,326 1,964,91 2Furness Building 1,983,392 1,336,107 647,285Gimbel, Bernard F, Gymnasium* 328,414 160,173 168,24 1

Gutman Property, Bucks Co., Pa 48,505 48,505Hayden, FV., Building 1,331,915 878,971 452,944

Hill, Robert C ., Residence Hall 4,321,093 3,968,915 352,178

Hoffman, Georgia and Phillip, Researc hCenter for Animal Reproduction 1,337,258 1,333,851 3,407

Hollenback, William M ., Center* 994,065 852,741 141,324

*Buildings owned by General State Authority. University share of cost of building shown on statement .

25

Total Buildings Contents

Houston Hall 2,928,003 2,348,361 579,642Hutchinson Gymnasium and Palestra 1,530,513 1,163, 750 366,763Intercultural Center 462,418 450,816 11,60 2Irvine Auditorium 1,143,838 975,637 168,201Johnson, Robert Wood, Pavilion* 10, 779, 023 4,230,531 6,548,49 2Kings Court Residence Hall 997,437 989,680 7,757Kirk Price House 110,000 94,000 16,00 0Laboratory for Research on the Structure of Matter 8,994,731 2,884,042 6,110, 68 9Law School 6,328,003 5,305,756 1,022,24 7Law School Dormitories and Dining Hall 945,399 896,607 48,792Leidy, Joseph, Laboratory of Biology 11, 350, 966 8,166, 658 3,184, 30 8Levy Oral Health Sciences Building* 5,984,472 2,640,532 3,343,940Levy Tennis Pavilion 1,028,599 888,903 139,696Lippincott Building 1,787,840 757,848 1,029,9923533 Locust Walk 1,004,205 834,945 169,2603537 Locust Walk 251,057 221,403 29,6543609-11 Locust Walk 271,371 224,301 47,0703615 Locust Walk 200,630 200,165 46 53619 Locust Walk 497,439 447,280 50,1593627 Locust Walk 163,788 163,7883643 Locust Walk 23,684 23,6843700 Locust Walk 285,244 272,051 13,1933732 Locust Walk 323,353 225,256 98,0973809 Locust Walk 170,162 170,1623914 Locust Walk 133,910 76,754 57,156Logan Hall 1,434,387 784,907 649,480Mayer, Harold C ., Residence Hall 1,196,191 1,191, 033 5,158NcNeil, Robert Lincoln, Building* 4,532,760 3,324,374 1,208,38 6Medical Education Building 26, 486, 485 23, 369, 869 3,116, 61 6Medicine, School of, Buildings 27, 865, 021 14, 511, 983 13, 353, 03 8Morgan Building 300,265 250,384 49,88 1Morris Arboretum 2,065,407 1,733,250 332,157Murphy, Michael C ., Field House 66,596 66,340 25 6Museum Parking Garages 1,832,042 1,831,816 22 6Music Building 510,305 314,616 195,689New Bolton Center 7,342,873 3,262,665 4,080,20 8Palestra Tennis Courts 332,516 327,052 5,464Parking Garages 1,373,895 1,167,351 206,5443907 Pine Street 33,740 15,168 18,572

* Buildings owned by General State Authority . University share of cost of building shown on statement .

26

University of Pennsylvani aEducational Plant-Continue d

Total Buildings Content s

Potter Hall, Parking Lot 67,290 67,290Power Transmission Research Laboratory 610,187 1 610,186Psychology Office Building 343,319 241,621 101,698Richards, Alfred Newton, Medica l

Research Buildings 8,677,681 2,326,850 6,350,83 1Ringe, Thomas B ., Squash Courts 574,713 523,306 51,407Rittenhouse, David, Laboratories 7,619,488 2,834,732 4,784,756Sansom Street 56,764 42,892 13,872Sergeant Hall Parking 175,050 173,761 1,289Skinner, James M ., Hall 1,826,409 1,592,587 233,822Smith, Edgar Fahs, Chemistry Laboratory 311,148 151,668 159,480Social Science Center* 2,859,906 1,539,091 1,320,815300 S . 36th Street 27,150 27,150225 S . 39th Street 106,501 106,50 1235 S . 39th Street 90,370 90,370307 S . 39th Street 49,367 49,3673905 Spruce Street (including land) 259,250 204,997 54,2533908 Spruce Street 181,417 162,599 18,8183916 Spruce Street 278,589 278,5893940 Spruce Street 173,951 168,429 5,522Student Housing 60,146,929 59,417,005 729,924Tandem Accelerator Laboratory 1,029,975 565,936 464,039Towne Building 5,899,197 3,451,778 2,447,41 9University Museum 13, 295, 645 7,064,528 6,231,11 7University Press 46,080 22,000 24,080Utilities System 8,441,943 8,383,017 58,926Utilities System, Chiller Plants 5,563,003 5,563,00 3Vance Hall 7,734,698 6,447,406 1,287,29 2Van Pelt, Charles Patterson, Library* 24, 604, 240 1,649,990 22, 954, 250Veterinary Medicine, School of, and Hospital* 17, 503, 658 11, 590,192 5,913,46 63400 Walnut Street (including land) 93,569 62,133 31,43 6Parking-36th, 37th & Walnut Streets 162,627 162,62 7Parking-37th, 38th & Walnut Streets 222,416 222,416Parking-40th & Walnut Streets 153,563 153,5633817 Walnut Street 18,276 18,27 64015 Walnut Street (including land) 466,000 425,981 40,01 94028 Walnut Street (Sigma Alpha Epsilon) 309,282 309,282War Memorial Flag Pole 100,446 100,44 6Weightman Hall 1,516,887 1,013,899 502,988Wharton Sinkler 706,990 565,177 141,813

*Buildings owned by General State Authority. University share of cost of building shown on statement .

2 7

Total

Buildings

Contents

Williams, Edwin B ., and Lenore R . ,Humanities and Language Hall 6,515,533 5,881,372 634,16 1

Non-University Buildings 15, 849, 573 3,527,619 12, 321, 95 4

Other 3,590,076 2,942,637 657,439

453, 044, 377 307,136, 041 145, 908, 33 6

Accumulated Depreciation 150, 645, 645 80, 638, 273 70, 007, 37 2

Total Educational and General $302,398,732 $226,497,768 $75,900,96 4

Health ServicesAdministration Building $

812,435Agnew-Dulles Wing 14, 897, 98 7Alumni Hall Building 233,317Centrex Building 1,020,04 4Donner, William H ., Center for Radiology 3,337,69 6Gates Building 13, 838, 33 0Gibson Wing 1,790,90 2Maloney, Martin Memorial Clinic 8,590,02 6Nearly New Shop 44,94 6Piersol, George Morris, Rehabilitation Center 1,634,48 0Ravdin Courtyard 3,804,351 $33, 810, 38 4

Ravdin Institute 12, 301, 48 8Silverstein Pavilion 35, 586, 016White, J. William, Surgical Pavilion 4,902,01 2Kitchen, Library 1,514,15 0Medical 588,025Mevatronics 20 Building 308,776Other 1,983,05 2Buildings Under Construction 5,287,76 0Non-Hospital Facilities 449,462Leaseholding Improv 3440 Market 112,93 1

146, 848, 570 113, 038,186 33, 810, 384

Accumulated Depreciation 58, 647, 596 41, 962, 806 16, 684, 79 0

Total Health Services 88, 200, 974 71, 075, 380 17,125, 594

Total Buildings and Contents $390,599,706 $297, 573,148 $93,026,55 8

Total Land 15, 858, 460

Total Educational Plant $406,458,166

Moveable equipment only.