ISU Financial Cover 03 - Iowa State University• Assets and liabilities of the Iowa State University Memorial Union with a net book value of $6.2 million were acquired by the University

Financial ReportFor the year ended June 30, 2003

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BOARD OF REGENTS, STATE OF IOWAOwen J. Newlin, Des Moines, President

Amir I. Arbisser, M.D., Davenport

Neala R. Arnold, Hawarden

Mary Ellen Becker, Oskaloosa

Robert N. Downer, Iowa City

John D. Forsyth, Des Moines

David G. Neil, La Porte City

Sue Erickson Nieland, Sioux City

Deborah A. Turner, M.D., Des Moines

Gregory S. Nichols, Executive Director

UNIVERSITY OFFICIALSGregory L. Geoffroy, President

Benjamin J. Allen, Vice President for Academic Affairs and Provost

Warren R. Madden, Vice President for Business & Finance

Thomas L. Hill, Vice President for Student Affairs

Margaret S. Pickett, Associate Vice President for Business & Finance and Controller

Joan K. Thompson, Treasurer

SCIENCE

PRACTICE

with

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IOWA STATE UNIVERSITYMANAGEMENT’S DISCUSSION AND ANALYSIS

For the year ended June 30, 2003

Iowa State University provides this Management’s Discussion and Analysis as a narrative overview of the fi nancial activities of the University for the year ended June 30, 2003, along with comparative data for the year ended June 30, 2002. Readers are encouraged to consider this information in conjunction with the University’s fi nancial statements that follow.

USING THIS ANNUAL REPORTThis discussion and analysis is intended to serve as an introduction to Iowa State University’s basic fi nancial statements. These basic fi nancial statements consist of the Statement of Net Assets, the Statement of Revenues, Expenses and Changes in Net Assets and the Statement of Cash Flows. These provide information on the University as a whole and present both a short term as well as a longer term view of the institution’s fi nancial position. These basic fi nancial statements also include the Notes to the Financial Statements which explain and provide further detail of the basic statements.

THE UNIVERSITY AS A WHOLEStatement of Net AssetsThe Statement of Net Assets presents the fi nancial position of the University as of the end of the fi scal year and includes all assets and liabilities of the institution. Net Assets—the difference between assets and liabilities—is one indicator of the current fi nancial condition of the University, while the change in net assets (shown on the next statement) is an indicator of whether the overall fi nancial condition has improved during the year. The Statement of Net Assets is also a good source for readers to determine how much the University owes to outside vendors, investors and lending institutions. Similarly, the Statement presents the available assets that can be used to satisfy those liabilities.

Total assets at June 30, 2003 were $1.1 billion, an increase of 11%. Net capital assets comprised $623.5 million of the $1.1 billion in assets. Total liabilities were $460 million at June 30, 2003, an increase of $24.6 million. The comparison of current and noncurrent assets, liabilities and net assets as of June 30, 2003 and 2002 is shown above.

Total net assets at June 30, 2003 were $680.8 million, an increase of $89 million over the prior year. Explanation for the change in net assets is covered in the next section of this MD&A. The largest portion of the University’s net assets (59%) is categorized as Invested in Capital Assets, Net of Related Debt. This category contains the land, buildings, infrastructure, land improvements and equipment owned by the University. The restricted portion of the net assets (10%) is divided into two categories, nonexpendable and expendable. The corpus of the nonexpendable restricted assets is only available for investment purposes. Expendable restricted net assets are available for expenditure by the University but must be spent for purposes as determined by the external entities that have placed time or purpose

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Total NetAssets

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restrictions on the use of the assets. The remaining net assets are unrestricted net assets including those used to meet specifi c purposes such as funding for the bonded enterprises. The composition of the net asset balances is shown below.

June 30, 2003 June 30, 2002Invested in Capital Assets, Net of Related Debt $401,182,871 $331,116,200Restricted Nonexpendable 27,626,992 29,197,919Restricted Expendable 37,735,867 36,958,364

Unrestricted 214,282,458 194,531,000

Total Net Assets $680,828,188 $591,803,483

Statement of Revenues, Expenses and Changes in Net AssetsChanges in total net assets as presented on the Statement of Net Assets are based on the activity presented in the Statement of Revenues, Expenses and Changes in Net Assets. The purpose of the statement is to present the operating and nonoperating revenues earned by the University, the operating and nonoperating expenses incurred by the University, and any other revenues, expenses, gains and losses earned or incurred by the University.

In general, a public university such as Iowa State University will report an operating loss, since the fi nancial reporting model classifi es state appropriations as nonoperating revenues. Operating revenues are received for providing goods and services to the various students, customers and constituencies of the University. Operating expenses are those expenses paid to carry out the missions of the University. Nonoperating revenues are revenues received where goods and services are not provided.

Had state appropriations been included in operating revenues, the operating loss for 2003 would have been $1.8 million compared to a net operating excess of $3.0 million for 2002. The decrease in state appropriations is the primary cause for the negative trend.

For the Years EndedJune 30, 2003June 30, 2003 June 30, 2002June 30, 2002

Operating Revenues $455,373,268 $420,696,310Operating Expenses 707,858,884 677,380,534Operating Loss (252,485,616) (256,684,224)

Nonoperating Revenues and Expenses 290,357,446 297,721,634 Income Before Other Revenues and Expenses 37,871,830 41,037,410

Other Revenues, Expenses, Gains and Losses 51,152,875 9,331,618Increase in Net Assets 89,024,705 50,369,028

Net Assets, Beginning of Year 591,803,483 550,874,106

Prior Period Adjustment (9,439,651)

Net Assets, End of Year $680,828,188 $591,803,483

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RevenuesOperating revenues for the year ended June 30, 2003 increased $34.7 million. Major elements of this increase were:• Tuition and fees, net of scholarship allowances, increased $16.8 million, or 15%. This was due primarily to an

18.5% average tuition increase.• Contracts and grants increased $16.4 million. Awards for sponsored funding reached a record amount for the fi fth

year in a row.• Sales and services increased $19.9 million, but other operating revenue decreased by $18.5 million. Most of these

changes are attributable to reclassifi cation of activities to better refl ect the nature of the receipt.

Nonoperating revenues decreased $7.6 million or 2.4% from the year ended June 30, 2002. Without the effect of a one-time receipt in fi scal 2002 described below, nonoperating revenues would have increased $16.3 million. Major components of this change were:• In fi scal 2002, the quasi-endowment increased by $23.9 million due to receipt of funds from the demutualization of

Principal Mutual Insurance Company. No revenue was received during fi scal 2003 from this source and accordingly nonoperating revenues declined by this amount.

• State appropriations, excluding capital appropriations, decreased $9 million.• Gifts, grants and contracts increased by $13 million.• Realized and unrealized investment gains increased by $12.4 million.• Assets and liabilities of the Iowa State University Memorial Union with a net book value of $6.2 million were

acquired by the University in 2003.

Other revenues increased $41.8 million comprised of a $19.2 million increase in capital appropriations and a $22.5 million increase in capital gifts, grants and contracts. Additions to permanent endowments accounted for the remainder of the increase.

In summary, total revenues of the University increased $68.9 million, from $741.3 million to $810.2 million. The components of these revenues are shown on the following graph:

Total Revenues

StateAppropriations

34%

Independent Operations3%3%

Sales and Services16%

GifGifts, Grants and Contractsts, Grants and Contracts27%Federal Appropriations

1%

Tuition and FTuition and FT ees16%

Investment Income1%

Other Revenue2%

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ExpensesOperating expenses were $707.9 million for the 2003 fi scal year. This was an increase of 4.5%, or $30.5 million over the previous fi scal year. Changes in the major natural expense categories were:• Compensation and benefi ts increased $14 million or 3.1%• Scholarships increased $2.7 million or 13.7%• Supplies and services increased $11.7 million or 7.2% • Depreciation increased $2 million or 4.3% which is due to new buildings being placed into service during fi scal

2003. See the “Capital Assets” section of this MD&A for additional information on capital assets.

Operating expenses may be classifi ed according to natural categories as in the previous paragraph or functionally as shown in the fi nancial statements. From a functional perspective, academic support increased by $12.7 million and institutional support increased by $9.4 million mostly due to changes in classifi cation that more accurately refl ect the nature of the operating expenses. These expenses had previously been classifi ed as instruction or research, categories that appear to have increased very little in 2003. However, without reclassifi cation, the majority of the increase in operating expenses would have appeared in the instruction and research categories.

Nonoperating expenses decreased 2% from the prior year, due primarily to a smaller loss on disposal of assets. Interest on indebtedness, the major expense in this category, was consistent with that of 2002.

In summary, total expenses for 2003 were $721.2 million, an increase of $30.2 million or 4.4%. The components of these expenses are shown in the following graph:

Total Expenses

Changes in Net AssetsNet assets increased $89 million during the year. Generally, an increase in net assets indicates that fi nancial condition has improved over the year, at least on a short-term basis. Major sources of this increase in net assets were:• Capital appropriations and capital gifts, grants and contracts of $50.8 million increased revenues while the related

expenditure of funds for capital assets was capitalized rather than expensed, resulting in an increase in net assets. • Realized and unrealized investment gains increased net assets by $11.8 million.• Acquisition of the Memorial Union increased net assets by $6.2 million.

Supplies and Services24%

Compensation and BCompensation and Benefits64%

Interest on Indebtedness2%

Scholarships andFellowships

3%

Depreciation7%

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Statement of Cash FlowsThe primary purpose of the Statement of Cash Flows is to provide information about the cash receipts and disbursements of the University for the fi scal year. This Statement also aids in the assessment of the University’s ability to generate future net cash fl ows, ability to meet obligations as they come due and needs for external fi nancing. The Statement of Cash Flows presents information related to cash infl ows and outfl ows, categorized as operating, non-capital fi nancing, capital and related fi nancing, and investing activities.

Cash provided by operating activities includes tuition and fees and grant and contract revenues. Cash used for operating activities includes payments to employees and to suppliers. Cash provided or used by non-capital fi nancing activities includes state appropriations, the receipt and disbursement of the federal direct loan program as well as non-capital gifts. Cash provided or used for capital and related fi nancing activities represents proceeds from debt, the principal and interest payments towards debt, capital appropriations, capital gifts and grants, and the purchase and construction of capital assets. Cash provided or used by investing activities includes purchases and sales of investments as well as investment income earnings and losses realized.

The University’s overall liquidity improved during 2003, with a net increase to cash and cash equivalents of $31.8 million. This compares to a decrease in cash and cash equivalents of $3.1 million for 2002.

The primary factor affecting the change was investing activities in fi scal 2003 provided cash of $20.8 million while in 2002, $7.0 million in cash was used for investing. When sales of investments exceed purchases, cash is provided. When sales of investments are less than purchases, cash is utilized. In 2003, proceeds from a portion of the investments sold were used to purchase money market accounts which are considered cash equivalents, not investments.

For the Years EndedJune 30, 2003 June 30, 2002

Cash Provided/(Used) by: Operating Activities $(213,754,215) $(207,650,746)Non-capital Financing Activities 286,269,991 285,915,298Capital and Related Financing Activities (61,596,260) (74,352,249)Investing Activities 20,843,841 (6,991,440)Net Increase/(Decrease) in Cash and Cash Equivalents 31,763,357 (3,079,137)

Cash and Cash Equivalents, Beginning of Year 114,334,999 117,414,136

Cash and Cash Equivalents, End of Year $ 146,098,356 $ 114,334,999

As noted previously, the fi nancial reporting model mandates that state appropriations be classifi ed as non-capital fi nancing sources of cash. If state appropriations had been classifi ed as operating sources of cash, the cash provided by operations would have been $36.9 million for 2003 compared to $52 million for 2002. This decrease is due primarily to the $9 million decrease in state appropriations coupled with the increases in expenses outlined in the previous section.

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CAPITAL ASSETSAt June 30, 2003, the University had $1.3 billion invested in capital assets with accumulated depreciation of $662.5 million. Depreciation charges for fi scal year 2003 totaled $49.3 million. Capital assets, net of accumulated depreciation, were as follows:

June 30, 2003 June 30, 2002

Land and Land Improvements, Nondepreciable $ 10,152,159 $ 10,107,653

Construction in Progress 83,454,614 49,555,377

Infrastructure and Land Improvements, Depreciable 66,402,914 61,579,563

Buildings 338,785,515 309,287,672

Equipment and Library Collections 124,712,746 103,272,313

Total Capital Assets, Net of Accumulated Depreciation $623,507,948 $533,802,578

During fi scal year 2003, the Reiman Gardens Conservatory funded primarily with gift dollars and Union Drive Suite Building 1 constructed with Dormitory Revenue Bonds were completed and placed in service. In addition, the Memorial Union building, with a net book value of $9.5 million, was acquired in 2003.

Several major construction projects were in process at June 30, 2003. These are included in capital assets as construction in progress and will not be depreciated until the year they are placed in service. These projects include:• Hoover Hall, part of the Engineering Teaching and Research Complex• Gerdin Business Building• Roy J. Carver Co-Laboratory• College of Veterinary Medicine Biosecurity Unit• Extension 4-H Youth Building • Stephen and Debora Bergstrom Indoor Multipurpose Use and Training Facility • Union Drive Community Center• Union Drive Suite Building 2• Buchanan Hall renovation

Hoover Hall has been funded by a variety of sources including capital appropriations from the State of Iowa, a Revenue Note and private gifts; the Gerdin Business Building has been constructed with capital appropriations from the State of Iowa and private gifts; the Roy J. Carver Co-Laboratory and the College of Veterinary Medicine Biosecurity Unit projects have been funded with capital appropriations from the State of Iowa and a variety of University sources; the Extension 4-H Youth Building has been constructed with private gifts and University sources; the Stephen and Debora Bergstrom Indoor Multipurpose Use and Training Facility has been funded with proceeds from Revenue Bonds; and the Union Drive Community Center, Union Drive Suite Building 2 and Buchanan Hall renovation projects have been funded with proceeds from Dormitory Revenue Bonds.

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Capital Appropriations, Grants and ContractsCapital appropriations from the State of Iowa are a major source of funding for construction of new buildings as well as major renovations. The following details Iowa State University’s capital appropriation activity during fi scal year 2003.

Gerdin Business Building $ 6,700,000

Roy J. Carver Co-Laboratory 4,148,000

College of Veterinary Medicine Biosecurity Unit 2,797,000

Various Classrooms 2,112,100

Lakeside Laboratory 390,000

Total Capital Appropriation Revenue $16,147,100

In addition, $34.6 million in capital gifts and grants were received from the Federal government and other sponsors. More detailed information about the University’s capital assets is presented in Note 5 to the fi nancial statements.

DEBT ADMINISTRATIONAt June 30, 2003, the University had $278.5 million in debt outstanding compared to $243.4 million for the prior year. The table below shows these amounts by type.

June 30, 2003 June 30, 2002

Bonds Payable-Academic $ 65,105,000 $ 72,405,000

Bonds Payable-Enterprise Funds 198,322,000 167,230,000

Capital Leases 1,757,719 2,263,879

Notes Payable 13,277,769 1,520,547

Total Debt $278,462,488 $243,419,426

The increase in bonds payable was due to the issuance of Dormitory Revenue Bonds of $21,575,000 and $9,360,000 and Indoor Multipurpose Use & Training Facility Bonds of $6,200,000. More detailed information about the University’s outstanding debt is presented in Note 6 to the fi nancial statements.

Notes Payable increased in 2003 due primarily to the addition of the Academic Building Project note for $7 million and the Memorial Union note for $4.5 million.

ECONOMIC OUTLOOKThe University’s economic outlook is dependent upon ongoing fi nancial support from state government, student tuition and fees and increasing revenue from private giving. State budget reductions of $18.2 million in 2003 were partially offset by higher tuition and fees. The national economy has impacted a number of states, including Iowa, causing declining revenues over the past three years. The forecast for future revenues refl ects level to slight improvement. State sales and income tax revenues are improving. Iowa is cooperating with a number of states to implement sales tax collections on internet sales which will support the Iowa Values Fund, an economic development program which will benefi t the University through specifi c support for a new biologics facility that has great potential to benefi t the University’s research initiatives and economic development within the state. The University intends to maintain its enrollment at approximately 27,500 students and is expanding student aid and recruitment programs to meet that objective. Early indications are that these efforts will be successful. The University has completed a targeted capital campaign, “Investing in People”, started two years ago, to raise $50 million. This will increase scholarship support, endow chairs and aid in attracting outstanding faculty. It has hired a new Iowa State University Foundation president who is beginning to plan a major capital campaign that will be launched building on the experiences of the University president who after being at Iowa State two years is well established both nationally and in Iowa to provide leadership to this effort. The political structure in Iowa remains stable with the Governor re-elected and continuing legislative

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leadership in both houses. Supporting education continues to be a state priority. The three public universities governed by the Board of Regents, State of Iowa are cooperating in a state- wide effort to increase public support. Contacts with alumni, community leaders and elected offi cials indicate some success in this effort. The University continues to receive strong support from elected federal offi cials who are in key positions in Congress. Private giving and endowment returns are improving. With only three public four-year higher education institutions, governed by a single board, the public universities are strategically seen as critical in improving the state’s economic climate. The Board of Regents, State of Iowa is updating strategic plans and looking at ways to deliver services to the people of Iowa more effi ciently. Benchmarking data indicate Iowa State University is one of the most effective land grant universities in delivering services, managing administrative costs and using resources.

In order to continue to provide a high quality educational experience, tuition rates were increased 17.6% in fi scal year 2004 to partially offset the reduction in state funding. In spite of relatively large tuition increases, the University’s enrollment has continued to be stable and overall tuition rates remain competitive with surrounding public and other peer institutions. Headcount for fall semester 2003 was 27,380. The University continued the great success of its learning communities, the Center for Teaching Excellence and other initiatives to improve faculty teaching skills and student learning. Students continue to report very high employment rates in their respective fi eld and/or continuing professional or graduate education. Employers and others clearly value an Iowa State University degree.

A third major source of revenue, sponsored funding, continues to experience steady growth. Awards received in fi scal year 2003 were $230 million, setting a new record for sponsored funding awards. The receipt of an award generally precedes the receipt of the actual cash by at least a year, which bodes well for contract and grant and indirect cost revenues in the years to come. Although the University has a broad base of sponsored funding, it continues to focus on core strategic initiatives. During the past fi ve years, sponsored funding has increased 50%. The University continues to be rated very high in R&D 100 awards, number of patents and invention disclosures received and in licenses executed. The Plant Sciences Institute, a strategic initiative, is becoming a major worldwide center and occupied new state of the art facilities in the fall. Initiatives in information assurance, food safety and bio-renewable resources show promise.

The University has completed several new building and renovation projects including a new College of Business building, Engineering Teaching and Research Complex, Community Center for Students, Extension 4-H Youth building, childcare facility, Plant Sciences Laboratory, parking deck, renovation of additional student residence halls, and the journalism and main administration buildings. The student Memorial Union facility was transferred to the University and a major renovation project is being planned for the coming year.

Despite a challenging year in terms of state funding, Iowa State University continues to make important progress toward fulfi lling the goals of its 2000-2005 Strategic Plan, “Pursuing Excellence as Iowa’s Engaged Land-Grant University”. We continue our historic mission of engagement, the land grant ideal. More than 20% of Iowa’s population interacted with Iowa State University to receive education, to improve their quality of life, and to improve economic prospects for them, their companies and their communities.

Although economic challenges will continue, the national economy is improving and world events are more stabilized. The University is strengthening its academic excellence that makes it one of the nation’s best universities in fulfi lling its land-grant mission.

CONTACTING IOWA STATE UNIVERSITY’S FINANCIAL MANAGEMENTThis fi nancial report is designed to provide users with a general overview of Iowa State University’s fi nances and to demonstrate the University’s accountability for the funds received. Questions regarding this report or requests for additional fi nancial information should be directed to Controller’s Department, Iowa State University, 3607 Administrative Services Building, Ames, IA 50011-3607.

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IOWA STATE UNIVERSITYSTATEMENT OF NET ASSETS

As of June 30, 2003 and 2002

See the accompanying notes which are an integral part of these fi nancial statements.

ASSETS 2003 2002Current Assets:

Cash and cash equivalents (Note 2A) $ 51,936,012 $ 36,692,227Investments (Note 2B) 68,289,281 57,777,601Deposits with trustees (Note 2C) 518,091 17,884,966Accounts receivable, net (Note 3A) 19,844,548 14,333,563Due from government agencies (Note 3B) 21,898,361 20,475,007Interest receivable 1,480,509 2,563,413Student loans receivable, net (Note 3C) 197,833 82,432Inventories (Note 4) 13,301,972 12,610,902Prepaid expenses 3,105,630 2,780,927Total Current Assets 180,572,237 165,201,038

Noncurrent Assets:Cash and cash equivalents (Note 2A) 94,162,344 77,642,772Investments (Note 2B) 198,615,285 216,250,366Deposits with trustees (Note 2C) 325,000 1,000,000Accounts receivable, net (Note 3A) 15,135,464 6,809,478Due from government agencies (Note 3B) 4,063,916 2,268,289Interest receivable 1,068,467 1,395,315Prepaid expenses 19,668Student loans receivable, net (Note 3C) 23,027,042 22,448,571Equity in wholly owned subsidiary (Note 1B) 64,336 64,336Capital assets, net of accumulated depreciation (Note 5) 623,507,948 533,802,578Total Noncurrent Assets 959,989,470 861,681,705

TOTAL ASSETS 1,140,561,707 1,026,882,743

LIABILITIESCurrent Liabilities

Accounts payable 28,468,540 32,579,047Salaries and wages payable 2,804,337 2,460,638Accrued compensated absences 17,524,473 18,710,139Unpaid claims liability (Note 10B) 3,537,000 3,126,000Early retirement benefi ts liability (Note 9C) 3,193,190 3,665,923Deferred revenue 29,373,281 33,245,608Interest payable 6,702,271 6,265,059Long-term liabilities, current portion (Note 6) 21,810,910 14,289,076Deposits held in custody for others 28,236,990 40,360,362Total Current Liabilities 141,650,992 154,701,852

Noncurrent LiabilitiesAccounts payable 10,259,001 5,492,555Accrued compensated absences 18,183,253 16,109,513Interest payable 5,592,258 6,288,790Early retirement benefi ts liability (Note 9C) 5,199,556 5,773,728Deferred revenue 4,415,602Refundable advances on student loans 17,781,279 17,582,472Long-term liabilities, noncurrent portion (Note 6) 256,651,578 229,130,350Total Noncurrent Liabilities 318,082,527 280,377,408

TOTAL LIABILITIES 459,733,519 435,079,260

NET ASSETSInvested in capital assets, net of related debt 401,182,871 331,116,200Restricted (Note 8): Nonexpendable 27,626,992 29,197,919 Expendable 37,735,867 36,958,364Unrestricted 214,282,458 194,531,000

TOTAL NET ASSETS $680,828,188 $680,828,188 $591,803,483 $591,803,483

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IOWA STATE UNIVERSITYSTATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS

For the years ended June 30, 2003 and 2002

See the accompanying notes which are an integral part of these fi nancial statements.

2003 2002OPERATING REVENUES

Tuition and fees, net of scholarship allowances of $35,231,700 (Note 1N) $128,523,687 $111,754,827Federal appropriations 10,081,252 12,302,308Federal grants and contracts 109,290,099 91,146,150State and local government grants and contracts 14,231,670 16,968,424Nongovernmental grants and contracts 22,341,003 21,326,325Sales and services of educational activities 30,687,059 16,155,497Auxiliary enterprises, net of scholarship allowances of $2,581,543 (Note 1N) 102,541,102 97,157,708Independent operations 26,741,536 24,432,494Interest on student loans 627,463 661,011Other operating revenues 10,308,397 28,791,566TOTAL OPERATING REVENUES 455,373,268 420,696,310

OPERATING EXPENSESInstruction 163,172,192 162,667,388Research 139,742,656 138,726,619Public service 64,557,779 62,842,195Academic support 61,188,349 48,510,742Student services 23,960,130 24,436,899Institutional support 34,832,473 25,474,716Operation and maintenance of plant 34,717,605 35,625,720Scholarships and fellowships 22,346,233 19,655,156Auxiliary enterprises 85,998,334 86,003,194Independent operations 27,339,230 25,579,412Depreciation 49,321,915 47,276,326Other operating expenses 681,988 582,167TOTAL OPERATING EXPENSES 707,858,884 677,380,534

OPERATING LOSS (252,485,616) (256,684,224)

NONOPERATING REVENUES/(EXPENSES)State appropriations 250,652,889 259,648,209Federal grants and contracts 13,002,276 11,822,796Nonfederal gifts, grants and contracts 22,050,959 10,263,393Investment income/(loss) 11,771,275 (619,021)Interest on indebtedness (11,813,142) (11,897,911)Loss on disposal of capital assets (1,285,320) (1,697,938)Acquisition of Memorial Union 6,196,095Net proceeds from demutualization of insurance provider 23,903,924Other nonoperating income (loss) (217,586) 6,298,182NET NONOPERATING REVENUES/(EXPENSES) 290,357,446 297,721,634

INCOME BEFORE OTHER REVENUES, EXPENSES, GAINS AND LOSSES 37,871,830 41,037,410

Capital appropriations, net of amounts withdrawn 16,147,100 (3,097,000)Capital gifts, grants and contracts 34,632,375 12,165,386Additions to permanent endowments 373,400 263,232TOTAL OTHER REVENUES, EXPENSES, GAINS & LOSSES 51,152,875 9,331,618

INCREASE IN NET ASSETS 89,024,705 50,369,028

Net Assets, Beginning of Year 591,803,483 550,874,106Prior Period Adjustment (Note 13) (9,439,651)

NET ASSETS, END OF YEAR $680,828,188 $591,803,483

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IOWA STATE UNIVERSITYSTATEMENT OF CASH FLOWS

For the years ended June 30, 2003 and 20022003 2002

CASH FLOWS FROM OPERATING ACTIVITIESTuition and fees $127,508,653 $109,217,974Federal appropriations 10,038,754 12,220,145Grants and contracts 140,036,547 128,100,259Sales of educational activities 30,244,068 16,473,716Sales and services of auxiliary enterprises 101,504,248 97,260,045Receipts of independent operations 26,579,242 24,400,293Interest on loans to students 691,942 733,955Collections of loans from students 5,931,462 5,257,691Payments for salaries and benefi ts (460,558,201) (446,520,448)Payments for goods and services (171,733,429) (156,945,023)Scholarship payments (21,720,519) (19,655,156)Loans issued to students (6,816,360) (5,426,587)Other operating receipts (payments) 4,539,378 27,232,390NET CASH USED BY OPERATING ACTIVITIES (213,754,215) (207,650,746)

CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIESState appropriations 250,652,889 259,648,209Non-capital gifts, grants and contracts 34,335,885 22,650,674Acquisition of Memorial Union 1,096,557Proceeds from demutualization of insurance provider 23,903,924Direct lending receipts 115,408,721 105,104,719Direct lending payments (115,387,093) (105,116,503)Funds held for others receipts 241,222,471 271,510,511Funds held for others payments (241,059,439) (291,786,236)NET CASH PROVIDED BY NON-CAPITAL FINANCING ACTIVITIES 286,269,991 285,915,298

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIESCapital appropriations received 14,281,000 13,667,741Capital gifts and grants received 14,508,488 7,583,043Proceeds from capital debt 45,420,000 21,038,065Proceeds from sale of capital assets 753,035 133,313Acquisition and construction of capital assets (109,072,211) (90,589,228)Principal paid on capital debt (14,752,537) (13,975,173)Interest paid on capital debt (12,508,882) (12,098,167)Other capital and related fi nancing receipts (payments) (225,153) (111,843)NET CASH USED BY CAPITAL AND RELATED FINANCING ACTIVITIES (61,596,260) (74,352,249)

CASH FLOWS FROM INVESTING ACTIVITIESInterest and dividends received on investments 5,141,196 7,155,494Proceeds from sales of investments 546,642,795 482,111,579Purchases of investments (530,940,150) (496,258,513)NET CASH PROVIDED/(USED) BY INVESTING ACTIVITIES 20,843,841 (6,991,440)

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 31,763,357 (3,079,137)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 114,334,999 117,414,136

CASH AND CASH EQUIVALENTS, END OF YEAR $146,098,356 $114,334,999

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RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES

OPERATING LOSS $(252,485,616) $(256,684,224)

Adjustments to reconcile operating loss to net cash used by operating activities:Depreciation Expense 49,321,915 47,276,326Changes in assets and liabilities: Accounts receivable, net (5,485,291) (4,529,432) Inventories (691,331) 1,051,429 Prepaid expenses (335,378) (392,015) Student loans receivable (722,447) (34,131) Accounts payable 333,287 5,131,177 Deferred revenue (4,235,876) (136,678) Compensated absences 1,394,620 467,995 Early retirement benefi ts liability (1,046,905) Refundable advances on student loans 198,807 198,807

NET CASH USED BY OPERATING ACTIVITIES $(213,754,215) $(207,650,746)

NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIESAcquisition of Memorial Union capital assets $ 9,638,377Acquisition of Memorial Union debt $ (4,623,354)Capital gifts-in-kind $ 17,534,653 $ 1,286,915

RECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE STATEMENT OF NET ASSETSCash and cash equivalents classifi ed as current assets $ 51,936,012 $ 36,692,227Cash and cash equivalents classifi ed as noncurrent assets 94,162,344 77,642,772TOTAL CASH AND CASH EQUIVALENTS $ 146,098,356 $ 114,334,999

See the accompanying notes which are an integral part of these fi nancial statements.

16 17

IOWA STATE UNIVERSITY FINANCIAL REPORT NOTES to the FINANCIAL STATEMENTS

For the Year Ended June 30, 2003

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. OrganizationThe Iowa State University of Science and Technology (Iowa State University), located in Ames, Iowa, is a land grant institution owned and operated by the State of Iowa, under the governance of the Board of Regents, State of Iowa (Board of Regents). The Board of Regents is appointed by the state governor and confi rmed by the state senate. Because the Board of Regents holds the corporate powers of Iowa State University, the University is not deemed to be legally separate. Accordingly, for fi nancial reporting purposes, the University is included in the fi nancial report of the State of Iowa, the primary government, as required by U.S. generally accepted accounting principles. The University is classifi ed as a state instrumentality under Internal Revenue Code Section 115 and is exempt from federal income taxes. Certain activities of the University may be subject to taxation as unrelated business income under Internal Revenue Code Sections 511 to 514.

The University offers courses of study leading to degrees at the undergraduate, graduate, and post-graduate levels. Degrees are available from eight colleges: Agriculture, Business, Design, Education, Engineering, Family and Consumer Sciences, Liberal Arts and Sciences, and Veterinary Medicine. Other major operating units of the University are: Agricultural Experiment Station; statewide Cooperative Extension Service; and the Ames Laboratory, a U.S. Department of Energy sponsored Independent Operation. The campus consists of approximately 1,788 acres. In addition, farms and other properties, which are stocked and equipped for teaching and research purposes, total approximately 9,633 acres.

On April 1, 2003, the University acquired the assets, liabilities and net assets of the Iowa State Memorial Union, a nonprofi t organization that provided the University’s students, faculty, alumni, friends and guests with goods and services to enhance their social, moral, religious, literary, scientifi c and educational development and welfare. The University now manages and operates the Iowa State University Memorial Union as an auxiliary enterprise. The condensed fi nancial statements for the three month period ended June 30, 2003, are found in Note 12 of these fi nancial statements.

B. Reporting EntityAs required by accounting principles generally accepted in the United States of America, as prescribed by the Governmental Accounting Standards Board (GASB), these fi nancial statements present the fi nancial position and fi nancial activities of the University (the primary government) and certain other entities for which the nature and signifi cance of their relationship with the University are such that exclusion would cause the University’s fi nancial statements to be misleading or incomplete.

1. Wholly Owned Subsidiary - Effective July 1, 1987, the University formed the ISU Equities Corp., (ISUEC), as a wholly owned subsidiary. The University has recorded the investment in this wholly owned subsidiary following the equity method of accounting. The University’s carrying value as of June 30, 2003, was $64,336, the carrying value of ISUEC.

2. Blended Component Units are entities which are legally separate from the University, but are so intertwined with the University that they are, in substance, part of the University. Accordingly, they are blended into the University’s fi nancial statements. The fi nancial statements of these entities have been audited by other independent auditors and their reports may be obtained from the Offi ce of the Vice President for Business and Finance at Iowa State University.

Iowa State University Research Foundation, Inc. was organized as a corporation to assist in securing protection for intellectual property such as patents and copyrights resulting from research, writing, and other projects of members of the Iowa State University community. The revenues of this organization are included in the “Other operating revenues” classifi cation and expenses included in the “Institutional support” classifi cation

16 17

in the Statement of Revenues, Expenses and Changes in Net Assets. For the year ended June 30, 2003, the revenues and expenses were $3,250,965 and $1,998,243, respectively.

Miller Endowment Incorporated was established December 18, 1995 pursuant to the will and codicil of F. Wendell Miller. The will and codicil appointed the presidents of Iowa State University and the State University of Iowa as co-executors of the Miller Estate and co-trustees of the Miller Endowment Trust, a charitable trust, and further directed that the two universities be equal benefi ciaries of the income from said trust. The will and codicil also directed the trustees to have the right and discretion to create a charitable corporation, to be the “Miller Endowment Incorporated”, to own, administer and control the affairs and property of the trust. This corporation has been organized under Chapter 504A of the code of Iowa and Section 501(C)(3) of the Internal Revenue Code. During fi scal year 1998, the assets of the trust were offi cially transferred to Miller Endowment Incorporated. Since the net revenues and assets of the corporation are solely for the equal benefi t of the two universities, one half of the value of the corporation’s transactions has been blended into the University’s operations.

3. Related Organizations - Several organizations exist that are not directly fi nancially accountable to the University and, accordingly, their fi nancial statements are not incorporated into the University’s fi nancial statements. These organizations contribute funds to the University for student grants and scholarships, support of intercollegiate athletics, educational and general institutional support, or provide other forms of signifi cant support to the University’s missions. The organizations primarily receive funds through donations and dues, rents, or by-product sales. The organizations’ complete fi nancial statements are available at the Offi ce of the Vice President for Business and Finance of Iowa State University. Summary fi nancial data for the year ended June 30, 2003, follows:

ISU Alumni Association

ISU Foundation

ISU Research Park Total

Assets $4,051,913 $392,654,154 $17,378,742 $414,084,809Liabilities $1,695,817 $ 39,643,449 $14,063,282 $ 55,402,548Net Assets $2,356,096 $353,010,705 $ 3,315,460 $358,682,261Due from the University $ 15,363 $ 15,363Due to the University $ 587 $ 8,195,723 $ 8,196,310Revenues $3,025,026 $ 66,170,760 $ 2,234,397 $ 71,430,183Expenses $2,512,992 $ 63,366,557 $ 1,889,264 $ 67,768,813Revenues from the University $ 252,935 $ 750,000 $ 1,013,987 $ 2,016,922Revenues to the University $1,408,760 $ 52,342,837 $ 50,181 $ 53,801,778

C. Financial Statement PresentationThe University’s fi nancial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

The University adopted GASB Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis

– for State and Local Governments, and GASB Statement No. 35, Basic Financial Statements – and Management’s Discussion

and Analysis – for Public Colleges and Universities as of and for the year ended June 30, 2002. The fi nancial statement presentation required by GASB Statements No. 34 and No. 35 provides a comprehensive entity-wide perspective of the University by requiring a Management’s Discussion and Analysis; a Statement of Net Assets; a Statement of Revenues, Expenses and Changes in Net Assets; and a Statement of Cash Flows. This presentation replaces the fund group perspective that was previously required.

18 19

D. Basis of Accounting For fi nancial reporting purposes, the University is considered a special-purpose government engaged only in business-type activities as defi ned in GASB Statement No. 34. Accordingly, the fi nancial statements of the University have been prepared using the economic resources measurement focus and the accrual basis of accounting. As a result, revenues are recognized when earned, expenses recorded when an obligation has been incurred, and all signifi cant intra-agency transactions have been eliminated.

The University has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless those pronouncements confl ict or contradict GASB. The University has elected not to apply FASB pronouncements issued after the applicable date.

E. Cash and Cash EquivalentsFor purposes of the Statement of Net Assets and the Statement of Cash Flows, the University considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents are readily convertible to known amounts of cash.

F. InvestmentsInvestments are reported at fair value in accordance with GASB Statement No. 31 Accounting and Financial Reporting

for Certain Investments and for External Investment Pools. Changes in unrealized gain (loss) on the carrying value of the investments are reported as a component of investment income in the Statement of Revenues, Expenses and Changes in Net Assets.

G. InventoriesInventories consist of supplies and merchandise for resale and livestock. Inventories of supplies and merchandise are valued at the lower of cost (primarily weighted average) or market. Inventories of livestock are reported at year-end market value.

H. Capital AssetsCapital assets are recorded at cost at the date of acquisition or at estimated fair market value at the date of donation. Capitalization of interest on assets under construction has not been included in the cost of those assets. For equipment, the University’s capitalization policy includes all items with a unit cost of $2,000 or more and an estimated useful life of greater than one year. Renovations to buildings, infrastructure and land improvements that signifi cantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred.

Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, generally 20 to 50 years for buildings, 10 to 30 years for infrastructure and land improvements, 2 to 20 years for equipment and 10 years for library collections.

I. Deferred RevenueDeferred revenue includes items such as advance ticket sales, summer school tuition not earned during the current year, and amounts received from grants and contracts that have not yet been earned.

J. Compensated Absences Employees’ compensated absences are accrued when earned under the provisions of Chapters 79 and 262 of the Code of Iowa. Accrued vacation is paid at 100% of the employee’s hourly rate upon retirement, death, or termination and, with certain exceptions, accrued sick leave is paid at 100% of the employee’s hourly rate to a maximum of $2,000 upon retirement. Accrued compensated absences as stated on the Statement of Net Assets is based on the current rates of pay.

18 19

K. Noncurrent LiabilitiesNoncurrent liabilities include principal amounts of revenue bonds payable, notes payable, capital lease obligations with contractual maturities greater than one year, as well as estimated amounts for accrued compensated absences and other liabilities that will not be paid within the next fi scal year.

L. Net AssetsThe University’s net assets are classifi ed as follows:1. Invested in capital assets, net of related debt – Capital assets, net of accumulated depreciation and

outstanding debt attributable to the acquisition, construction, or improvement of those assets.2. Restricted, nonexpendable – Net assets subject to externally imposed restrictions in which the donors or other

outside sources have stipulated that the principal is to be maintained inviolate and retained in perpetuity and invested for the purpose of producing income which will either be expended or added to principal.

3. Restricted, expendable – Net assets subject to externally imposed restrictions on use of resources either legally or contractually.

4. Unrestricted – Net assets not subject to externally imposed restrictions and which may be used to meet current obligations for any purpose or designated for specifi c purposes by action of management or Board of Regents.

M. Operating Revenues and ExpensesOperating revenues and expenses as reported on the Statement of Revenues, Expenses and Changes in Net Assets are those that generally result from exchange transactions such as payments received for providing services and payments made for services or goods received. Nearly all of the University’s expenses are from exchange transactions. Certain signifi cant revenue streams relied upon for operations are recorded as nonoperating revenues, as defi ned by GASB Statement No. 35, including state appropriations, gifts and investment income.

N. Revenue Pledged for Debt ServiceTuition and Fees are pledged as security for Academic Building Revenue Bonds and Project Notes, Fieldhouse-Auditorium Revenue Bonds, Ice Arena Facility Revenue Notes, Recreational Facility Revenue Bonds and Student Health Facility Revenue Bonds. Auxiliary Enterprise Revenues are pledged as security for Dormitory Revenue Bonds, Indoor Multipurpose Use & Practice Facility Revenue Bonds, Memorial Union Mortgage Notes, Parking System Revenue Bonds and Recreational Facility Revenue Bonds, Telecommunications Facilities Revenue Bonds, and Utility System Revenue Bonds.

O. Auxiliary Enterprise RevenuesAuxiliary Enterprise revenues primarily represent revenues generated by the Athletic Department, University Book Store, Iowa State Center, Memorial Union, Parking System, Reiman Gardens, Residence Department, Student Health Center, Telecommunications System and Utility System.

P. Debt Issuance CostsDebt issuance costs are expensed in the year the revenue debt is sold.

Q. EncumbrancesThe University utilizes encumbrance accounting for budgetary control purposes. Each June 30th, the University is required to expend or encumber any cash balances remaining from the appropriations it receives for operating purposes, reverting any unencumbered funds. According to Section 8.33 of the Code of Iowa, the University is permitted to carry encumbrances for specialized equipment and building repairs forward to the next fi scal year. The June 30, 2003, encumbered balance carried forward to fi scal year 2004 was $7,270,137, including items recognized as Accounts Payable for specialized equipment totaling $23,313.

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R. Use of EstimatesThe preparation of fi nancial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates.

NOTE 2 - CASH, CASH EQUIVALENTS, INVESTMENTS AND DEPOSITS WITH TRUSTEES

A. Cash and Cash EquivalentsAs of June 30, 2003 and 2002, the book balances of cash and cash equivalents were $146,098,356 and $114,334,999, respectively. As of June 30, 2003 and 2002, the bank balances were $154,661,728 and $121,891,292, respectively, of which $45,917,099 and $51,894,483, respectively, were covered by Federal Depository Insurance (FDIC) or by the State’s Sinking Fund in accordance with Chapter 12C of the Code of Iowa. This chapter provides for additional assessments against the depositories to insure that there will be no loss of public funds. Of the bank balances as of June 30, 2003 and 2002, $108,744,629 and $69,996,809, respectively, were uninsured and uncollateralized.

B. InvestmentsIn accordance with the Code of Iowa and the Board of Regents’ policy, the University’s operating portfolio may be invested in obligations of the U.S. government or its agencies, certain high rated commercial paper, highly rated corporate bonds, certain limited maturity zero coupon securities, fully insured or collateralized certifi cates of deposits and savings, eligible bankers acceptances of 180 days or less, certain repurchase agreements, high quality money market funds and highly rated guaranteed investment contracts. The University’s endowment portfolio may invest in all of the above as well as certain listed investment grade securities, certain shares of investment companies, and new issues of investment grade common stock.

The University’s investments at June 30, 2003, are reported at fair value and categorized below by credit risk and type of investment. Investments in real estate are not subject to credit risk categorization. As defi ned by GASB Statement No. 3, the three types of credit risk are:

Category 1 Insured or registered securities or securities held by the University or its agent in the University’s name.

Category 2 Uninsured and unregistered, with securities held by the counterparty’s trust department or agent in the University’s name.

Category 3 Uninsured and unregistered, with securities held by the counterparty’s trust department or agent, but not in the University’s name.

Investment Category 2 Category 2 Category 3 Category 3 June 30, 2003 June 30, 2002U.S. Government Securities $160,716,631 $ 384,446 $161,101,077 $186,999,309Common & Preferred Stocks 69,759,035 768,892 70,527,927 64,671,515Corporate Notes/Bonds 34,476,330 34,476,330 6,307,678Corporate Bonds 185,007 185,007 15,520,542Other 128,148 128,148 42,846Subtotal $265,137,003 $1,281,486 266,418,489 273,541,890Real Estate 486,077 486,077TOTAL $266,904,566 $274,027,967

C. Deposits with TrusteesFunds on deposit with trustees for the purpose of paying current obligations of bond principal and interest at June 30, 2003 and 2002, totaled $518,091 and $17,884,966 respectively. In addition, funds on deposit with a trustee for the purpose of fi nancing capital lease purchases at June 30, 2003 and 2002, totaled $325,000 and $1,000,000 respectively.

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NOTE 3 - ACCOUNTS RECEIVABLE, DUE FROM GOVERNMENT AGENCIES AND STUDENT LOANS RECEIVABLE

A. Accounts ReceivableAccounts Receivable is shown net of allowances for doubtful accounts in the accompanying Statement of Net Assets. At June 30, 2003 and 2002, Accounts Receivable consisted of the following:

June 30, 2003 June 30, 2002Accounts Receivable $35,907,536 $22,760,139

Allowance for Doubtful Accounts (927,524) (1,617,098)

Accounts Receivable, Net $34,980,012 $21,143,041

B. Due from Government AgenciesDue from Government Agencies is composed of $6,729,165 due from state and local governmental agencies and $19,233,112 due from United States government agencies at June 30, 2003 and $5,380,735 due from state and local governmental agencies and $17,362,561 due from United States government agencies at June 30, 2002.

C. Student Loans ReceivableStudent Loans Receivable is shown net of allowances for doubtful accounts in the accompanying Statement of Net Assets. Student Loans Receivable consisted of the following:

June 30, 2003 June 30, 2002Student Loans Receivable $23,451,151 $22,764,345

Allowance for Doubtful Accounts (226,276) (233,342)

Student Loans Receivable, Net $23,224,875 $22,531,003

NOTE 4 - INVENTORIES

The inventory balances on the Statement of Net Assets are comprised of two distinct categories as described in Note 1G above and scheduled below:

June 30, 2003 June 30, 2002

Supplies and merchandise for resale $10,492,841 $10,185,450

Livestock 2,809,131 2,425,452

Total Inventories $13,301,972 $12,610,902

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NOTE 5 - CAPITAL ASSETS

Capital assets activity for the year ended June 30, 2003, is summarized as follows:

July 1, 2002 Additions Transfers Deductions June 30, 2003

Capital Assets, Nondepreciable:

Land $ 4,692,530 $ $ $ $ 4,692,530

Land Improvements 5,415,123 23,975 20,531 5,459,629

Construction in Progress 49,555,377 76,893,935 (42,994,698) 83,454,614

Capital Assets, Nondepreciable 59,663,030 76,917,910 (42,974,167) - 93,606,773

Capital Assets, Depreciable:

Buildings 623,097,688 9,618,086 39,127,955 671,843,729

Land Improvements 8,914,094 1,315,927 1,685,066 11,915,087

Infrastructure 126,140,015 5,664,291 2,161,146 133,965,452

Equipment 223,279,459 37,858,490 (17,363,178) 243,774,771

Library 121,996,930 9,690,936 (739,858) 130,948,008

Capital Assets, Depreciable 1,103,428,186 64,147,730 42,974,167 (18,103,036) 1,192,447,047

Accumulated Depreciation:

Buildings 313,810,016 19,248,198 333,058,214

Land Improvements 4,008,626 543,018 4,551,644

Infrastructure 69,465,920 5,460,061 74,925,981

Equipment 147,410,988 17,830,416 (15,324,823) 149,916,581

Library 94,593,088 6,240,222 (739,858) 100,093,452

Total Accumulated Depreciation 629,288,638 49,321,915 - (16,064,681) 662,545,872

Depreciable Assets, net 474,139,548 14,825,815 42,974,167 (2,038,355) 529,901,175

Total Capital Assets, net $533,802,578 $91,743,725 $ - $(2,038,355) $623,507,948

Capital assets, net of accumulated depreciation, purchased with resources provided by outstanding capital lease agreements at June 30, 2003, consisted of $1,247,705 buildings, $273,038 infrastructure, $1,133,527 equipment, and $72,385 construction in progress.

NOTE 6 - LONG-TERM LIABILITIES

Long-term liability activity for the year ended June 30, 2003, is summarized as follows:

Principal Current

July 1, 2002 New Debt Paid June 30, 2003 Portion

Bonds Payable $239,635,000 $37,042,000 $13,250,000 $263,427,000 $13,940,000

Notes Payable 1,520,547 12,001,354 244,132 13,277,769 7,394,987

Capital Leases Payable 2,263,879 325,000 831,160 1,757,719 475,923

Total Long-term Liabilities $243,419,426 $49,368,354 $14,325,292 $278,462,488 $21,810,910

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A. Bonds PayableOutstanding long-term revenue bond indebtedness at June 30, 2003, consisted of the following:

Maturity

Interest Rates Dates Amount

Academic Building 4.10 – 6.85% 2004-2021 $ 65,105,000

Dormitory 3.00 – 6.25% 2004-2030 145,240,000

Fieldhouse-Auditorium 4.50 – 5.10% 2004-2009 2,075,000

Indoor Multi-Purpose 2.0 – 4.50% 2005-2021 6,200,000

Less: Unamortized Discount (93,000)

Parking System 1.75 – 5.00% 2004-2023 6,110,000

Recreational Facility 4.20 – 4.60% 2004-2011 8,640,000

Student Health Facility 4.80 – 5.50% 2004-2014 3,765,000

Telecommunications Facility 4.20 – 4.40% 2004-2008 4,200,000

Utility System 3.60 – 4.85% 2004-2014 22,185,000

Total Bonds Payable $263,427,000

Debt service requirements to maturity, as of June 30, 2003, are as follows:

Year Ending June 30,Year Ending June 30, Principal Interest Total

2004 $ 13,940,000 $ 13,138,341 $ 27,078,341

2005 15,900,000 12,800,816 28,700,816

2006 14,565,000 12,232,400 26,797,400

2007 14,545,000 11,546,332 26,091,332

2008 14,680,000 10,832,494 25,512,494

2009-2013 69,200,000 38,448,346 107,648,346

2014-2018 43,900,000 23,694,861 67,594,861

2019-2023 37,685,000 14,314,204 51,999,204

2024-2028 33,775,000 5,391,800 39,166,800

Thereafter 5,330,000 194,369 5,524,369

Less: Unamortized discount ( 93,000) (93,000)

Total $263,427,000 $142,593,963 $406,020,963

B. Notes PayableThe University had the following notes payable outstanding at June 30, 2003:

Interest Maturity Rate Dates Amount

Academic Building 2.00% 2004 $ 7,000,000

Design College Computer 5.20% 2004-2006 317,749

Ice Arena Facility 5.95% 2004-2013 1,412,631

Memorial Union 5.61% 2004-2006 4,547,389

Total $13,277,769

Debt service requirements to maturity, as of June 30, 2003, are as follows:

Year Ending June 30,Year Ending June 30, Principal Principal Interest Total

2004 $ 7,394,987 $ 490,441 $ 7,885,428

2005 417,403 328,024 745,427

2006 4,417,190 188,303 4,605,493

2007 136,439 60,367 196,806

2008 144,678 52,128 196,806

2009-2013 767,072 118,557 885,629

Total $13,277,769 $1,237,820 $14,515,589

24 25

C. Capital Leases PayableThe University has an equipment master lease agreement to fi nance the acquisition of certain equipment. The lease payments are due semi-annually through fi scal year 2012 and bear interest rates ranging from 3.27% to 5.78%. The principal balance was $1,611,741 and $2,003,293, respectively, for the years ended June 30, 2003 and 2002.

In addition to the master lease agreement the University has other capital lease agreements with various manufacturers. These lease payments are due through fi scal year 2008 at interest rates ranging from 3.50% to 9.75%. The principal balance of these capital leases was $145,978 and $260,586 respectively, for the years ended June 30, 2003 and 2002.

The following is a schedule by year of future minimum lease payments required:

Year Ending June 30,Year Ending June 30, Principal Principal Interest Total2004 $ 475,923 $ 76,514 $ 552,437

2005 201,928 59,493 261,421

2006 193,612 50,008 243,620

2007 202,696 40,925 243,621

2008 186,828 31,717 218,545

2009-2011 496,732 56,980 553,712

Total $1,757,719 $315,637 $2,073,356

NOTE 7 - OPERATING LEASES

The University has leased various buildings and equipment. These leases have been classifi ed as operating leases and accordingly, all rents are charged to expenses as incurred. These leases expire before June 30, 2011, and require various minimum annual rentals. Certain leases are renewable for additional periods. Some of the leases also require the payment of normal maintenance and insurance on the leased properties. In most cases, management expects that the leases will be renewed or replaced by other leases.

The following is a schedule, by year, of future minimum rental payments required under operating leases, which have initial or remaining noncancellable lease terms in excess of one year as of June 30, 2003.

Year Ending June 30,Year Ending June 30,2004 $1,058,691

2005 703,748

2006 241,531

2007 161,031

2008 143,771

2009-2011 328,333

Total $2,637,105

All leases contain nonappropriation clauses indicating that continuation of the lease is subject to funding by the legislature.

Rental expense for all operating leases was $3,086,324 and $2,748,768 respectively, for the years ended June 30, 2003 and 2002.

24 25

NOTE 8 - RESTRICTED NET ASSETS

Restricted Net Assets are classifi ed according to externally imposed restrictions. The following table provides detail of the Restricted Net Asset balances.

June 30, 2003 June 30, 2002

Restricted-Nonexpendable:

Permanently endowed funds $27,626,992 $29,197,919

Restricted-Expendable:

Student loans 9,031,159 8,913,141

Scholarships, research, and educational purposes 10,189,739 12,670,748

Capital projects 18,514,969 15,374,475

Total Restricted-Expendable 37,735,867 36,958,364

Total Restricted Net Assets $65,362,859 $66,156,283

NOTE 9 - RETIREMENT PROGRAMS

A. Teachers Insurance and Annuity Association (TIAA-CREF) The University contributes to the Teachers Insurance and Annuity Association – College Retirement Equities Fund (TIAA-CREF) retirement program that is a defi ned contribution plan. TIAA-CREF administers the retirement plan for the University. The defi ned contribution retirement plan provides individual annuities for each plan participant. The Board of Regents establishes and amends the plan’s provision and contribution requirements. As required by the Board of Regents policy, all eligible University employees must participate in a retirement plan from the date they are employed. Contributions made by both employer and employee vest immediately. As specifi ed by the contract with TIAA-CREF, each employee through the fi fth year of employment contributes 3 1/3% of the fi rst $4,800 of earnings and 5% on the balance of earnings. The University, through the fi fth year of employment, is required to contribute 6 2/3% of the fi rst $4,800 of earnings and 10% on earnings above the $4,800. Upon completion of fi ve years of service, the participant contributes 5% and the University 10% on all earnings. The University’s required and actual contribution amounted to $28,073,397 and $27,965,424 respectively, for the years ended June 30, 2003 and 2002. The employees’ required and actual contribution amounted to $14,036,699 and $13,982,712 respectively, for the years ended June 30, 2003 and 2002.

B. Iowa Public Employees Retirement SystemThe University contributes to the Iowa Public Employees Retirement System (IPERS), a cost-sharing multiple-employer defi ned benefi t pension plan administered by the State of Iowa. IPERS provides retirement and death benefi ts, which are established by State statute to plan members and benefi ciaries. IPERS issues a publicly available fi nancial report that includes fi nancial statements and required supplementary information. That report may be obtained by writing to IPERS, Des Moines, Iowa.

Plan members are required to contribute 3.7% of their annual covered salary; the University is required to contribute 5.75% of annual covered payroll. These contribution requirements are established by State statute. The University’s contributions to IPERS for the years ended June 30, 2003, 2002, and 2001 were $554,560, $527,076, and $569,880, respectively, equal to the required contributions for each year.

C. Early RetirementIn addition to the retirement systems described above, faculty, professional and scientifi c employees, merit system employees, institutional offi cials, and staff of the Board Offi ce not under the Regent Merit System who are employed by the Board of Regents for a period of at least fi fteen continuous years and who have attained the age of 57 are eligible for participation in the early retirement incentives program. During the years of participation in the program, the University will provide the following fringe benefi ts based upon the employee’s salary at the time

26 27

of retirement and adjusted for changes in benefi ts that occur at specifi c ages; (1) the employer’s contributions for health and dental insurance until the employee is eligible for Medicare coverage; (2) a $4,000 paid-up life insurance policy; and (3) for employees covered by the TIAA/CREF retirement program, employee’s and employer’s contributions for up to three years and employer’s contributions for up to an additional two years, with contributions payable for a maximum of fi ve years or until eligible for full Social Security benefi ts, whichever occurs fi rst (contributions for employees covered by IPERS are available as a cash payment equal to the present value of the benefi ts). As an alternative, if the employer agrees, all or part of the incentives except the $4,000 life insurance policy may be provided as a cash payment equal to the present value of the benefi t(s) for which it is substituted. The discount rate used in calculation of the present value is determined by the Board of Regents annually and was approved at 1.9% for fi scal year 2003.

At its July 2001 meeting, the Board of Regents approved discontinuation of the early retirement incentive program upon its expiration on June 30, 2002. The Board also authorized each institutional head to exercise discretion as to whether faculty and staff who are qualifi ed for participation in the program on June 30, 2002, may have two years after expiration of the program to request participation. As a result of this change, faculty and staff of the University who were qualifi ed for participation as of June 30, 2002, will have through June 30, 2004, to elect participation.

As of June 30, 2003, 425 employees were eligible to receive these benefi ts and 328 employees had elected to do so, for which the University is committed to future benefi t payments totaling $8,392,746 as shown on the Statement of Net Assets. During the fi scal years ended June 30, 2003 and 2002, the University paid $3,358,676 and $3,297,564 respectively, for continuing benefi ts. During the fi scal years ended June 30, 2003 and 2002, the University paid $232,830 and $124,715 respectively, in lump sum payments for this program. All incentive payments are fi nanced on a pay-as-you-go basis. The potential liability, if all eligible employees accept early retirement, is $30,897,999.

NOTE 10 - COMMITMENTS AND RISK MANAGEMENT

A. CommitmentsAt June 30, 2003 and 2002, the University had outstanding construction contract commitments of $41,534,910 and $42,049,378, respectively.

B. Risk ManagementIowa State University has elected to self-insure, or internally assume, certain potential losses where management believes it is more economical to manage these risks internally. The University’s exposure and management of various risks are delineated below.

1. Employee Health and Dental Benefi ts - The State of Iowa purchases commercial health and dental insurance

for general service staff of the University. The University and employees share the cost of the premium and reimburse the State for the coverage. The University self-funds its medical and dental insurance for non-general service staff employees. The University insures its medical claims with stop-loss insurance at 120% in aggregate for the HMO plan, 125% in aggregate for all other plans, and a $300,000 individual maximum.

The following schedule presents the changes in claims liabilities for the self-funded medical and dental insurance. The claims liabilities were calculated according to generally accepted actuarial principles in accordance with Actuarial Standard of Practice No. 5, and based on data provided by the University and the health plan vendors.

2003 2002Unpaid claims and contingent liabilities accrued at July 1, 2002 and 2001 $ 3,126,000 $ 2,639,000Claims incurred and contingent liabilities accrued during the fi scal year 30,794,826 27,791,372Payments on claims during the fi scal year (30,383,826) (27,304,372)Unpaid claims and contingent liabilities at June 30, 2003 and 2002 $ 3,537,000 $ 3,126,000

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2. Employee Workers’ Compensation/Unemployment Insurance - The State of Iowa self-insures, on behalf of the University, for losses related to workers’ compensation and unemployment claims on state supported employees. The Iowa Department of Personnel (IDOP) administers both programs. At the beginning of the fi scal year, IDOP calculates an annual workers’ compensation premium to be paid in quarterly increments for non-state supported employees of the University. The University’s share of unemployment claims for non-state supported employees is also billed quarterly. The University establishes an internal rate for each program and separately charges each department for the benefi ts. Receipts from these charges are deposited into two separate reserve funds, considered self-insured pools, from which the quarterly payments are made. Since these reserves are maintained at a level adequate to pay the required premiums by adjusting the internal rates, no additional risk is assumed.

3. Employee Flex II Program For Health and Dental Costs - University employees have an option to participate in a Flex II program where they can elect to have a pre-tax, non-refundable payroll-deduction of up to $5,000 set aside to pay for certain uninsured medical and dental claims and/or qualifi ed dependent care. This program carries an element of self-insurance risk, as required by federal law. Since the University deducts only 1/12 of the elected amount from the employees’ pay each month, but is liable for the total elected amount upon presentation of appropriate claims, it would be at risk for the difference between an employee’s total claims and the amount collected from payroll deductions should the employee terminate before contributing an adequate amount. The University, by law, cannot seek restitution for this difference. However, these employee contributions are maintained in a separate account, which has carried a surplus balance since inception of the program, due to contributions exceeding claims each year.

4. General Liability - The State maintains an employee fi delity bond whereby the fi rst $100,000 of losses is the responsibility of the University. Losses between $100,000 and $2,000,000 are insured. The University also maintains an employee blanket bond to cover losses up to $100,000.

The State of Iowa self-insures, on behalf of the University, losses related to tort claims. The Board of Regents entered into an agreement with the Department of Management, the State Appeals Board, and the Attorney General for resolution of tort claims of $2,000 or less. Regents institutions are authorized to approve individual claims up to $2,000, but not to exceed $50,000 in aggregate per year. When a claim is fi led against the State, the State Appeals Board has the authority to approve or reject ordinary claims within ten years of occurrence and tort claims up to $5,000. Tort claims settled or allowed in excess of $5,000 must be unanimously approved by all members of the Appeals Board, the Attorney General, and the District Court of the State of Iowa for Polk County. Tort claims may be paid from the State’s General Fund without limit.

5. Motor Vehicle Insurance - The Board of Regents institutions cooperatively self-insure for liability losses related to motor vehicles up to $250,000. Each regents institution is required to pay a pre-determined monthly premium for each vehicle into the cooperative insurance pool. Losses in excess of $250,000 are self-insured by the State as provided in Chapter 669 of the Code of Iowa. The University self-insures its vehicles for physical damage.

6. Property Insurance - The State of Iowa self-insures, on behalf of the University, property deemed general University property which is exclusive of property belonging to self-supporting enterprises. A contingency fund exists under Section 29C.20 of the Code of Iowa to provide compensation for loss or damage to state property (includes general University property). By an agreement with the State, claims in excess of $5,000 or an annual aggregate of $10,000 may be submitted to the Executive Council for consideration. When a loss exceeds $500,000, it is necessary to seek an appropriation from the General Assembly. The University has purchased commercial property insurance, including earthquake and fl ood coverage, for its facilities. There is a $2,000,000 deductible on general University buildings. Additional coverage is provided for enterprise facilities such as the residence system, Iowa State Center, power plant, etc., with deductibles ranging from $5,000 to $1,000,000 per occurrence.

28 29

7. Business Interruption Insurance - The University self-insures for business interruption losses of its general mission revenues such as tuition and fees, etc. Commercial insurance is purchased to cover business interruption losses for self-supporting enterprises such as the golf course, residence system, Iowa State Center, etc.

8. Insurance Settlements - The University had no settlements that exceeded insurance coverage in any of the past three fi scal years.

NOTE 11 - OPERATING EXPENSE BY FUNCTION

The following is a summary of operating expenses by functional classifi cation for the year ended June 30, 2003.

Services, Repairs

Compensation & Professional

And Benefi ts Supplies Services Other Total

Instruction $148,113,387 $ 5,685,482 $ 9,373,323 $ $163,172,192

Research 92,912,617 13,372,324 33,457,715 139,742,656

Public Service 42,749,387 3,873,033 17,935,359 64,557,779

Academic Support 48,207,568 5,559,865 7,420,916 61,188,349

Student Services 14,865,725 4,528,953 4,565,452 23,960,130

Institutional Support 30,951,989 1,663,901 2,216,583 34,832,473

Operation & Maintenance 22,805,726 11,000,491 911,388 34,717,605

Scholarships & Fellowships 22,346,233 22,346,233

Auxiliary Enterprises 41,580,153 32,925,725 11,492,456 85,998,334

Independent Operations 18,546,957 7,197,469 1,594,804 27,339,230

Depreciation 49,321,915 49,321,915

Other Operating Expenses 681,988 681,988

Total Operating Expenses $460,733,509 $85,807,243 $88,967,996 $72,350,136 $707,858,884

NOTE 12 - SEGMENT INFORMATION

A segment represents identifi able activities for which one or more revenue bonds or other revenue-backed debt is outstanding. Investors in those bonds rely solely on the revenue generated from the individual activities for repayment. The University’s segments are described as follows:

A. Dormitory Revenue BondsThe Dormitory Revenue Bonds were issued to build various residence halls, suites and apartments. Revenues pledged for these issues are the net rents, profi ts, and income from the Department of Residence facilities of the University.

B. Field House - Auditorium Revenue BondsThe Field House - Auditorium Revenue Bonds were issued in 1968 to build Hilton Coliseum, originally named the Fieldhouse Auditorium. Revenues pledged for this issue are the Student Fieldhouse Auditorium Fee, revenues derived from Hilton Coliseum operations and interest on invested funds.

C. Ice Arena Facility Revenue Notes The Ice Arena Facility Revenue Notes were issued in 2000 to construct, improve and equip an Ice Arena Facility. Revenues pledged for this issue are the student ice arena facility fees.

28 29

D. Memorial Union Mortgage NotesThe Memorial Union was acquired by the University in 2003. The terms of the acquisition included the assumption of fi rst mortgage notes under which the fi rst mortgage lien and security interests in the facility are pledged as collateral. In addition, all leases, rents and revenues relating to the facility are assigned as security.

E. Multipurpose Use and Training Facility Revenue BondsThe Indoor Multipurpose Use and Training Facility Revenue Bonds were issued in 2003 to construct the Stephen and Debora Bergstrom Indoor Multipurpose Use and Training Facility. Revenues pledged for this issue are gift income and the rents, profi ts and income derived from the operation of the facility, including the Multipurpose Use and Training Facility Student Fee.

F. Parking System Revenue BondsThe Parking System Revenue Bonds were issued in 2002 to recondition and expand vehicle parking spaces with the construction of a connecting roadway at Jack Trice Stadium. In addition, the bonds are to be used to construct a single level parking deck on the University campus and may also be used for other construction of improvement projects of the parking system. Revenues pledged for this issue are the net revenues of the University’s parking system.

G. Recreational Facility Revenue BondsThe Recreational Facility Revenue Bonds issued in 1994 refunded the Recreational Facility Revenue Bonds of 1987. These bonds were issued to construct, improve and equip a combined recreation/athletic facility now known as the Lied Recreation Athletic Center. Revenues pledged for this issue are the student recreational facility fees and the student athletic fees.

H. Student Health Facility Revenue BondsThe Student Health Facility Revenue Bonds were issued in 1995 to construct, improve and equip a student health center, now known as the Thomas H. Thielen Student Health Center. Revenues pledged for this issue are the Student Health Facility Fees, net income from the Student Health Center operations and gift income.

I. Telecommunications Facility Revenue BondsThe Telecommunications Facility Revenue Bonds were issued in 1997 to construct, improve and equip the telecommunications facilities for the University. Revenues pledged for this issue are the net rents, profi ts and income from the telecommunications facilities of the University.

J. Utility System Revenue BondsThe Utility System Revenue Bonds were issued to construct, improve and equip various components of the University’s utility system. Revenues pledged for this issue are the net revenues of the utility system, utility system student fees and interest on investments.

30 31

Dormitory Revenue Bonds

Fieldhouse- Auditorium Revenue Bonds

Ice Arena Facility Revenue Notes

Memorial Union Mortgage Notes

Multipurpose Facility Revenue Bonds

CONDENSED STATEMENT OF NET ASSETS

Assets:

Current Assets $ 8,696,476 $ 411,426 $ 98,403 $1,444,966

Noncurrent Assets 60,025,507 2,964,081 561,609 27,774

Capital Assets 108,720,573 3,679,364 3,599,802 9,518,282

Total Assets 177,442,556 7,054,871 4,259,814 10,991,022

Liabilities:

Current Liabilities 8,735,813 378,192 98,403 272,819

Noncurrent Liabilities 145,950,093 1,755,000 1,356,255 4,567,907

Total Liabilities 154,685,906 2,133,192 1,454,658 4,840,726

Net Assets:

Invested in Capital Assets,

Net of Related Debt 3,375,399 1,924,364 2,278,547 4,970,893

Restricted 1,504,452 1,175,490 (20,519)

Unrestricted 17,876,799 1,821,825 526,609 1,199,922

Total Net Assets $ 22,756,650 $4,921,679 $2,805,156 $6,150,296

CONDENSED STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS

Operating Revenues $ 53,283,470 $2,710,837 $ $ 729,787

Operating Expenses (38,654,134) (2,892,959) (656,163)

Depreciation Expense (2,810,454) (122,144) (99,634) (120,095)

Net Operating Income/(Loss) 11,818,882 (304,266) (99,634) (46,471)

Nonoperating Revenues/(Expenses) (6,256,736) 274,151 (62,032) 6,196,767

Transfers From/(To) University Funds 181,210 297,854 273,287

Change in Net Assets 5,743,356 267,739 111,621 6,150,296

Beginning Net Assets 17,013,294 4,653,940 2,693,535 0

Prior Period Adjustment

Ending Net Assets $ 22,756,650 $4,921,679 $2,805,156 $6,150,296

CONDENSED STATEMENT OF CASH FLOWS

Net Cash and Cash Equivalents Provided (Used) By:

Operating Activities $ 10,743,313 $ (158,221) $ $ 303,960 $

Non-Capital Financing Activities 1,096,557

Capital and Related Financing Activities 7,792,096 (140,723) 44,631

Investing Activities 5,839,230 1,507,696 23,668

Net Increase (Decrease) 24,374,639 1,208,752 68,299 1,400,517

Beginning Cash and Cash Equivalents 18,766,589 (161,563) 493,291 0

Prior Period Adjustment (3,491,994)

Ending Cash and Cash Equivalents $ 39,649,234 $1,047,189 $ 561,590 $1,400,517

IOWA STATE UNIVERSITYSEGMENT INFORMATION

As of and for the year ended June 30, 2003

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Multipurpose Facility Revenue Bonds

Parking System Revenue Bonds

Recreational Facility Revenue Bonds

Student Health Facility Revenue Bonds

Telecommunications Facility Revenue Bonds

Utility System Revenue Bonds

$ 381,661 $ 632,965 $1,093,320 $2,233,278 $ 1,260,596 $19,358,777

7,741,242 5,032,759 2,159,953 1,220,021 12,034,158 4,197,317

3,561,290 3,637,769 6,438,762 4,793,370 13,835,213 31,855,412

11,684,193 9,303,493 9,692,035 8,246,669 27,129,967 55,411,506

374,799 364,900 1,092,850 529,223 1,454,559 3,337,712

11,317,072 6,348,546 7,772,415 3,702,018 3,512,709 20,700,312

11,691,871 6,713,446 8,865,265 4,231,241 4,967,268 24,038,024

(44,845) 501,085 (1,301,238) 1,263,370 11,404,625 9,670,412

15,075 14,620 1,388,042 1,220,083 61,596 4,038,278

22,092 2,074,342 739,966 1,531,975 10,696,478 17,664,792

$ (7,678) $2,590,047 $ 826,770 $4,015,428 $22,162,699 $31,373,482

$ $2,950,018 $ $6,531,604 $ 7,867,227 $26,033,184

(1,875,694) (5,918,103) (5,138,643) (19,670,810)

(140,915) (257,004) (194,582) (2,581,144) (1,618,470)

933,409 (257,004) 418,919 147,440 4,743,904

(7,678) (128,649) (305,197) (151,371) 69,043 (68,625)

1,849,547 1,274,264 244,703 224,437

(7,678) 2,654,307 712,063 512,251 440,920 4,675,279

0 (64,260) (590,150) 3,503,177 21,912,691 26,698,203

704,857 (190,912)

$ (7,678) $2,590,047 $ 826,770 $4,015,428 $22,162,699 $31,373,482

$ $ 725,585 $ $ 285,964 $ 2,874,886 $ 5,719,789

3,302,194 (1,198,306) (41,393) 36,950 (4,755,340) (7,725,395)

(449,088) (336,051) 107,302 471,684 (69,977) 911,777

2,853,106 (808,772) 65,909 794,598 (1,950,431) (1,093,829)

0 5,376,891 713,841 1,697,372 6,758,711 22,923,632

$ 2,853,106 $4,568,119 $ 779,750 $2,491,970 $ 4,808,280 $21,829,803

32

NOTE 13 - PRIOR PERIOD ADJUSTMENT

The recognition of a liability for early retirement benefi ts has resulted in a decrease in Unrestricted Net Assets of $9,439,651 in order to properly restate the June 30, 2002, liability and net asset balances.

NOTE 14 - SUBSEQUENT EVENTS

Subsequent to June 30, 2003, the Board of Regents, State of Iowa, authorized the sale of Academic Building Revenue Refunding Bonds, Series I.S.U. 2003 for $7,790,000 to be issued on November 1, 2003. These bonds will bear interest at varying rates between 3.0% and 4.45% and will mature in varying amounts from July 1, 2004 through July 1, 2018. The proceeds of these bonds will be used to refund in advance of maturity the 2004 maturity of the Board’s $7,000,000 Academic Building Revenue Notes, Series I.S.U. 2002, to fund a debt service reserve, and to pay for costs of issuance. These bonds will be payable only from the gross student fees and charges levied against students attending the University.

Also subsequent to June 30, 2003, the Board of Regents, State of Iowa, authorized the sale of Regulated Material Facility Revenue Bonds, Series I.S.U. 2003 for $ 6,750,000 to be issued on November 1, 2003. These bonds will bear interest at varying rates between 3.0% and 4.55% and will mature in varying amounts from July 1, 2005 through July 1, 2019. The proceeds of these bonds will be used to construct, furnish and equip a Regulated Materials Handling Facility on the campus of Iowa State University, to fund a debt service reserve, and to pay the costs of issuance. These bonds will be payable only from the net revenues of the Regulated Materials Facility System or other system income.

Also subsequent to June 30, 2003, the Board of Regents, State of Iowa, authorized the sale of Utility System Revenue Bonds, Series I.S.U. 2003 for $13,280,000 to be issued on December 1, 2003. These bonds will bear interest at varying rates between 2.0% and 4.75% and will mature in varying amounts from November 1, 2005 through November 1, 2024. The proceeds of these bonds will be used to equip and improve the Utility System of Iowa State University, to fund a debt service reserve, and to pay the costs of issuance. These bonds will be payable only from the net revenues of the Utility System and any proceeds of Utility System student fees.

IOWA STATE UNIVERSITY CONTROLLER’S DEPARTMENTFINANCIAL ACCOUNTING AND REPORTING STAFF

Margaret S. Pickett, Assistant Vice President for Business & Finance and Controller

Stephanie Fox, Associate Controller

Carol Yanda, Manager of Financial Accounting & Reporting

Kevin Houlette, Senior Accountant

Michele Maldonado, Senior Accountant

Lisa Shoemaker, Senior Accountant

Layout and design by ISU Engineering Communications and Marketing - 04374

Printing by ISU Printing Services

Iowa State University does not discriminate on the basis of race, color, age, religion, national origin, sexual orientation, sex, marital status, disability, or status as a U.S. Vietnam Era Veteran. Any persons having inquiries concerning this

may contact the Director of Equal Opportunity and Diversity, 3680 Beardshear Hall, 515-294-7612.

SCIENCE

PRACTICE

with