The University of North Texas is an agency of the State of Texas and its financial records reflect compliance with applicable State statutes and regulations.

The significant accounting policies followed by the University of North Texas in maintaining accounts and in the preparation of the preceding statements are in accordance with Texas Comptroller of Public Accounts’ Annual Financial Reporting Requirements. These requirements follow, as near as practicable, the AICPA Industry Audit Guide, Audits of Colleges and Universities, 1996 Edition, as amended by AICPA Statement of Position (SOP) 74-8, Financial Accounting and Reporting by Colleges and Universities, and as modified by applicable Financial Accounting Standards Board (FASB) pronouncements issued through November 30, 1989, and as modified by all applicable GASB pronouncements cited in Codification Section Co5, "Colleges and Universities." The requirements are also in substantial conformity with the Financial Accounting and Reporting Manual for Higher Education published by the National Association of College and University Business Officers (NACUBO).

Basis of Accounting

The financial statements of the University of North Texas have been prepared on the accrual basis of accounting except depreciation expense related to plant fund assets is not recorded. The statement of current funds revenues and expenditures is a statement of financial activities of current funds related to the reporting period. It does not purport to present the results of operations or the net income or loss for the period as would a statement of income or a statement of revenues and expenses.

To the extent that current funds are used to finance plant assets, the amounts so provided are accounted for as (1) expenditures, in the case of normal replacement of equipment, and library holdings; (2) mandatory transfers, in the case of required provisions for retirement of indebtedness and renewal and replacement of institutional properties; and (3) transfers of a nonmandatory nature for all other cases.

Fund Accounting

In order to ensure observance of limitations and restrictions placed on the use of the resources available to the University, accounts are maintained in accordance with the principals of "fund accounting". This is the procedure by which resources for various purposes are classified for accounting and reporting purposes into funds that are in accordance with specified activities or objectives. Separate accounts are maintained for each fund; however, in the accompanying financial statement, funds that have similar characteristics have been combined into fund groups. Accordingly, all financial transactions have been recorded and reported by fund groups.

Within each fund group, fund balanced restricted by outside sources are so indicated and are distinguished from unrestricted funds allocated to specific purposes by action of the governing board. Externally restricted funds may only be utilized in accordance with the purposes established by the source of such funds and are in contrast with unrestricted funds over which the governing board retains full control to use in achieving any of its institutional purposes.

Endowment and Similar Funds are subject to the restrictions of gift instruments requiring in perpetuity that the principal be invested and only the income by utilized. Term endowment funds are like endowment funds, except that all or part of the principal may be utilized after a stated period of time or upon the occurrence of a certain event. Quasi-Endowment funds are funds that the governing board has approved to be used as endowments.

All gains and losses arising from the sale, collection, or other disposition of investments and other noncash assets are accounted for in the fund that owned such assets. Ordinary income derived from investments, receivables, and the like is accounted for in the fund owning such assets, except for income derived from investment of Endowment and Similar Funds, which income is accounted for in the fund to which it is restricted or, if unrestricted, as revenues in unrestricted current funds.

All other unrestricted revenue is accounted for in the appropriate unrestricted fund. Restricted gifts, grants, appropriation, endowment income, and other restricted resources are accounted for in the appropriate restricted funds. Restricted Current Funds are reported as revenues and expenditures when expended for current operating purposes. Contract and grant awards funds received, but unexpended, during the current reporting period are shown as additions to fund balances in Restricted Current Funds.

The different fund groups used at the University of North Texas are as follows:

Funds available for current operating and maintenance purposes as well as those restricted by donors and other outside agencies for specific operating purposes. Current funds are segregated into separate balanced fund groups as follows:

Funds for administration, institutional expense, instruction and departmental research, physical plant operation, libraries, and other items relating to instruction. Service department funds are also included in this fund group.

Funds arising from sources that have been internally designated by the university’s governing board or management. This fund distinguishes such internally designated funds from externally restricted funds as well as other current funds.

Funds for activities which furnish services to students, faculty, or staff for which charges are made that are directly related to, although not necessarily equal to the cost of the service, such as residence halls, food services and bookstores.

Funds available for current purposes, the use of which has been restricted by outside agencies or persons. Revenues are reported only to the extent of expenditures for the current year.

Loan Funds

Funds are available for loans to students, faculty, and staff.

Endowment and Similar Funds

Funds subject to restrictions of endowment and trust instruments requiring that principal be maintained and that only the income be utilized. Quasi-endowments are funds established by the governing board to function as endowment funds but which may be expended at the discretion of the governing board, subject to any donor-imposed restriction.

The University has no annuity and life income funds.

Plant funds are segregated into the following separate balanced fund groups:

Funds to be used for the construction, rehabilitation, and acquisition of physical properties for institutional purposes.

Funds accumulated for the renewal and replacement of physical plant properties.

Funds accumulated to meet debt service charges and the retirement of indebtedness.

Funds already expended for plant properties. Physical properties are stated at cost at date of acquisition or fair market value at date of donation for gifts. Depreciation on physical plant and equipment is not recorded.

Agency Funds

Funds held by the University as custodial or fiscal agent for students, faculty members, and/or others.

Non Applicable

The University reports investments at fair value in the balance sheet with the following exceptions (fair value is the amount at which an investment could be exchanged in a current transaction between parties, other than in a forced or liquidation sale.) The exceptions are as follows: (1) Nonparticipating contracts, such as nonnegotiable certificates of deposit with redemption terms that do not consider market rates, are reported using a cost-based measure, provided that the fair value of those contracts is not significantly affected by the financial institution’s credit standing or other relevant factors. (2) Money market investments and participating interest-earning investment contracts that mature within one year or less of the date of their acquisition may be reported at amortized cost, assuming that the investment is not affected by the financial institution’s credit standing or other relevant factors.

The State Comptroller of Public Accounts exercises oversight responsibility over TexPool, the Texas Local Government Investment Pool. Oversight includes the ability to significantly influence operations, designation of management and accountability for fiscal matters. Additionally, the State Comptroller has established an advisory board composed of both Participants in TexPool and other persons who do not have a business relationship with TexPool. The Advisory Board members review the investment policy and management fee structure. Finally, TexPool is rated AAAm by Standard and Poors. As a requirement to maintain the rating weekly portfolio, information must be submitted to Standard and Poors, as well as the office of the Comptroller of Public Accounts for review.

TexPool operates in a manner consistent with the SEC’s Rule 2a7 of the Investment Company Act of 1940. TexPool uses amortized cost rather than market value to report net assets to compute share prices. Accordingly, the fair value of the position in TexPool is the same as the value of TexPool shares.

Memorandum Totals

The Balance Sheet in columnar form, the Statement of Changes in Fund Balances, and the Statement of Current Funds Revenues and Expenditures are shown with memorandum totals for the current and prior years. Interfund borrowing has not been eliminated, but has been offset in the assets and liability sections. The memorandum totals are presented only to facilitate financial analysis and do not purport to present financial position, in conformity with generally accepted accounting principles. Neither is such data comparable to a consolidation.

Other Significant Accounting Policies

Authorized Investments

The University of North Texas is authorized to invest in obligations and instruments as defined in the Public Funds Investment Act (Sec. 2256.001 Texas Governmental Code) and for the Endowment Fund, the Uniform Management of Institutional Act. Such investments include (1) obligations of the United States or its agencies, (2) direct obligations of the State of Texas or its agencies, (3) obligations of political subdivision rated no less than A by a national investments rating firm, (4) certificates of deposit and (5) other instruments and obligations authorized by statute.

At August 31, 1999, the carrying amount of $1,235,653.07 or Cash in Bank (including restricted assets) is presented below.

The bank balance of the University of North Texas has been classified according to the following risk categories:

Category 1: Insured or collateralized with securities held by the governmental entity or by its agent in the name of the governmental entity

Category 2: Collateralized with securities held by the pledging financial institution’s trust department or agent in the governmental entity’s name

Category 3: Uncollateralized (which would include any deposits collateralized with securities held by the pledging financial institutions, or by its trust department or agent but not in the governmental entity’s name)

Exhibit A

Carrying Amount Bank Balance Category 1 Category 2 Category 3

$1,235,653.07 $ 1,994,369.61 $ 1,994,369.61 -0- -0-

Investments

To comply with the reporting requirements of GASB Statement No. 3, Investments, (including Repurchase Agreements), and Reverse Repurchase Agreements, the University of North Texas’ investments are categorized in the tabulation titled "Investment Categories" to give an indication of credit risk assumed by the University at year end.

Credit risk is the risk that another party to a deposit or investment transaction will not fulfill its obligations. This is not to be confused with market risk which is the risk that the market value of an investment, collateral protecting a deposit or securities underlying a repurchase agreement will decline. Market risk is not depicted in this note.

The following category of credit risk is included:

* In accordance with GASB Statement 31, the Reported Value of investments represents fair value with the exceptions noted by asterisk. The Reported Value of these investments represents cost or amortized costs.

Reconciliation of deposits and investments to balance sheet amounts for Cash, Temporary Investments, and Investments is as follows:

Securities Lending

The University does not participate in any securities lending program.

Derivative Investing

Derivatives are financial instruments (securities or contracts) whose value is linked to, or "derived" from, changes in interest rates, currency rates, and stock and commodity prices. Derivatives cover a broad range of financial instruments, such as forwards, futures, options, swaps, and mortgage derivatives. These mortgage derivatives are influenced by changes in interest rates, the current economic climate, and the geographic make-up of underlying mortgage loans. There are varying degrees of risk associated with mortgage derivatives. For example, Planned Amortization Class (PACs) and Collateralized Mortgage Obligations (CMO’s) are considered a more conservative lower risk investment. In contrast, principal only and interest only strips are considered higher risk investments.

University of North Texas (UNT) invests in Collateralized Mortgage-Backed Securities in part to maximize yields and diversify the portfolio. There are no interest-only, principal-only, or inverse-floating instruments contained in the portfolio. The University of North Texas’ investments in derivatives comprises approximately .28% of total investments as of August 31, 1999, with a carrying value and market value of $380,533.36 and $378,187.20 respectively.

The majority of these investments were purchased prior to fiscal year 1995. In 1995, the Texas Legislature took steps to limit state entities’ and local governments’ ability to invest in high risk derivatives by amending the Public Funds Investment Act. The University of North Texas is in compliance with the Public Funds Investment Act.

General information related to bonds payable is summarized as follows:

CONSOLIDATED UNIVERSITY REVENUE REFUNDING AND IMPROVEMENT BONDS, SERIES 1985 CAPITAL APPRECIATION BONDS

To provide funds sufficient to finance the expansion, renovation and equipping of certain athletic, student housing, dining services, student union and bookstore facilities and to be used, together with available funds of the University, to refund all of the Board’s outstanding bonds.

Issued October 30, 1985

$1,709,903.40; all authorized bonds have been issued. These bonds accrete in value over the life of the bonds to a total of $7,965,000.

Source or revenue for Debt Service – first lien on and pledge of the pledged revenues (See schedules listed above for a description of the pledged revenues.)

CONSOLIDATED UNIVERSITY REVENUE BONDS, SERIES 1994

To provide funds sufficient to acquire, purchase, construct, improve, renovate, enlarge, or equip property, buildings, structures, facilities, roads or related infrastructure for the University of North Texas, and for paying costs of issuance for the bonds.

Issued February 1, 1994

$10,000,000; all authorized bonds have been issued.

Source of revenue for debt service – legislative appropriation

CONSOLIDATED UNIVERSITY REVENUE BONDS, SERIES 1996

To provide funds sufficient to acquire, purchase, construct, improve, renovate, enlarge, or equip property, buildings, structures, facilities, roads or related infrastructure for the University of North Texas, and for paying costs of issuance for the bonds.

Issued February 1, 1996

$15,000,000; all authorized bonds have been issued.

Source of revenue for debt service – legislative appropriation

REVENUE FINANCING SYSTEM BONDS, SERIES 1997

To provide funds sufficient to finance renovations and repairs to dormitories and the University’s football stadium, and for paying costs of issuance for the bonds.

Issued August 15, 1997

$4,380,000; all authorized bonds have been issued.

Source of revenue – all pledgeable University revenue

REVENUE FINANCING SYSTEM BONDS, SERIES 1999

To provide funds sufficient to finance construction of a conference facility and two major wiring projects for dormitories and other University buildings.

Issued June 15, 1999

$23,040,000 (total issue $32,540,000 --$9,500,000 Health Science Center portion); all authorized bonds have been issued

Source of revenue – all pledgeable University and Health Science Center revenue, subject to liens securing Prior Encumbered Obligations.

CONSOLIDATED UNIVERSITY REVENUE REFUNDING BONDS, SERIES 1997

To provide funds sufficient to refund certain of the University’s outstanding Consolidated University Revenue Refunding Bonds, Series 1987.

Issued March 15, 1997

$8,230,000; All authorized bonds have been issued.

Source of revenue for debt service – same as Series 1985

This schedule is prepared on an accrual basis, amortizing interest expense attributable to the Series 1985 Capital Appreciation Bonds over the life of the bonds. Schedule D-1 reports total debt service requirements on a cash basis, including the total due for the Series 1985 Capital Appreciation Bonds as principal only. The difference in the total amount due between the schedules represents the interest expense of $4,579,598.08 that has been recognized before August 31, 1999 (See Schedule B-10a for details.)

Additional detail concerning the individual bond issues are included in the support schedules B-10a, B-10b, B-10c, B-10d, B-10e, and B-10f.

As required by Series 1985 Section (29) Paragraph (r) and Series 1994, Section (29), Paragraph (o), Page 29, of the bond resolution, the following insurance coverage was in force and all premium payments paid in full at the close of the fiscal year.

Boiler and Machinery Insurance – Limit of liability, $4,000,000, exceeds bond requirements. Carrier, Kemper.

Standard Fire and Extended Coverage (Property) – Limit of liability meets or exceeds bond requirements. Carrier, Kemper. One insurance claim was made during the fiscal year ended August 31, 1999.

Vehicle Liability and Property Damage – Limit of liability, bodily injury $250,000/$500,000; property damage $100,000, exceeds bond requirements. Carrier, Reliance.

The State of Texas has joint contributory retirement plans for substantially all its employees. One of the primary plans in which the University participates is administered by the Teacher Retirement System of Texas (TRS). The contributory percentages of participant salaries currently provided by the State and by each participant are 6.0% and 6.4%, respectively, of annual compensation.

The Teacher Retirement System does not separately account for each of its component government agencies, since the Retirement System itself bears sole responsibility for retirement commitments beyond contributions fixed by the State Legislature. According to an independent actuarial evaluation as of August 31, 1998, the present value of the Retirement System’s actual and projected liabilities, including projected benefits payable to its retirees and active members and their beneficiaries, was in excess of the assets of the Retirement System. However, the actuary projected that such assets, augmented by projected future contributions and earnings, would be sufficient to amortize the unfunded difference over a period of .6 years assuming payroll growth of 4%. Further information regarding actuarial assumptions and conclusions, together with audited financial statements are included in the Retirement System’s annual financial report.

The State has also established an optional retirement program for institutions of higher education. Participation in the optional retirement program is in lieu of participation in the Teacher Retirement System. The optional retirement program provides for the purchase of annuity contracts. The contributory percentages on salaries for participants entering the program prior to September 1995 are 8.5%, and 6.65% by the state and each participant, respectively. The state’s contribution is comprised of 6.00% from the ORP’s appropriation, 1.31% from a special appropriation to the University, and 1.19% directly by the university. The 6.00% contribution is mandatory with the other two state contributions being at the discretion of the board. The board has approved the additional contributions for the employees of The University of North Texas. The contributory percentages on salaries for participants entering the program after August 31, 1995 are 6.00% and 6.65% by the state and each participant, respectively. Since these are individual annuity contracts, the State has no additional or unfunded liability for this program.

University employees may elect to defer a portion of their earnings for income tax and investment purposes pursuant to authority granted in the TEX.GOV’T. CODE ANN., sec. 609.001. Two plans are are available for employees’ deferred compensation plan. Both plans are administered by the Employees Retirement System.

The state’s 457 plan complies with the Internal Revenue Code Sec. 457. GASB Statement No. 32, effective for financial statements for periods beginning after December 31, 1998, rescinds GASB Statement No. 2 and amends GASB Statement No. 31. GASB Statement No.2 Financial Reporting of Deferred Compensation Plans Adopted under the Provisions of Internal Revenue Code Section 457, established reporting requirements for IRC Section 457 plans. Based on the laws in effect at the time of its passage, that Statement required that all amounts deferred by the plan participants be reported as assets of the employer until made available to the participants or their beneficiaries. The laws governing these plans were changed to state that, as of August 20, 1996, new plans will not be considered eligible plans "unless all assets and income of the plan described in subsection (b)(6) are held in trust for the exclusive benefit of the participants and their beneficiaries." Existing plans are also required to comply with this requirement by January 1, 1999. The state also administers another plan, "Texsaver" created in accordance with Internal Revenue Code Sec. 401(k). The assets of this plan do not belong to the state nor does the state have a liability related to this plan.

Full-time state employees earn annual leave from seven to fourteen hours per month depending on the respective employees’ years of state employment. The State’s policy is that an employee may carry his/her accrued leave forward from one fiscal year to another fiscal year with a maximum number of hours up to 376 for those employees with 20 or more years of state service. Employees with at least six months of state service who terminate their employment are entitled to payment for all accumulated leave up to the maximum allowed. The University recognizes the accrued liability for the unpaid annual leave in the Unrestricted Current Fund. The University made lump sum payments totaling $206,243 for accrued vacation (and/or compensatory time) to employees who separated from state service during fiscal year ending August 31, 1999.

Sick leave, the accumulation of which is unlimited, is earned at the rate of eight hours per month and is paid only when an employee is off due to illness or to the estate of an employee in the event of his/her death. The maximum sick leave that may be paid an employee’s estate is one-half of the employee’s accumulated entitlement or 336 hours, whichever is less. The University’s policy is to recognize the cost of sick leave when paid and the liability is not shown in the financial statements since experience indicates the expenditure for sick leave to be minimal.

Rebatable arbitrage is defined by Internal Revenue Code Section 148 as earnings on investment purchase with the gross proceeds of a bond issue in excess of the amount that would have been earned if the investments were invested at a yield equal to the yield on the bond issue. This rebatable arbitrage must be paid to the federal government. The University is entitled to invest its bond proceeds at an unrestricted yield for various temporary periods ranging from six month to three years. This unrestricted earnings period begins on the date of delivery of the bond issue. Earnings on any fund held by the University after this must be restricted to the yield of the University’s bond issue. The amount of rebates due the federal government is determined and payable during each five-year period and upon final payment of the tax-exempt bonds.

Certain leases to finance the purchase of equipment are capitalized at the present value of future minimum lease payments.

The original capitalized cost of equipment under capital lease as of August 31, 1999 is $341,720.08.

The following is a schedule of the future minimum lease payments for leased property and the present value of the net minimum lease at August 31, 1999.

Non Applicable

Contract and grant awards are accounted for in accordance with the requirements of the AICPA Industry Audit Guide, Audits of Colleges and Universities. Funds received, but not expended during the reporting period, are shown as additions to find balance on Exhibit B. Revenues are recognized on Exhibit C as funds are actually expended. For federal contract and grant awards, funds expended, but not collected, are reported as Federal Receivables on Exhibit A. Non-federal contract and grant awards for which funds are expended, but not collected, are reported as Accounts Receivable on Exhibit A. Contract and grant awards that are not yet funded and for which the institution has not yet performed services are not included in the financial statements. Contract and grant awards funds already committed, e.g. multi-year awards or funds awarded during FY 99 for which monies have not been received nor funds expended totaled $11,979,234.70. Of this amount, $8,962,670.26 is from Federal Contract and Grant Awards, $1,688,686.86 was from State Contract and Grant Awards, and $1,327,877.58 from Private Contract and Grant Awards.

All state employees are insured by the State of Texas. The University has various self-insured arrangements for coverage of local employees in the areas of workers’ compensation and liability. Self-insured plans are reported in the Designated Funds under Unrestricted Current. There are no claims pending or significant nonaccrued liability, as stated in Note 8.

The State provides coverage for workers’ compensation and unemployment benefits from appropriations made to other state agencies for University employees. The current General Appropriations Act provides that the University must reimburse General Revenue Fund – Consolidated, from University appropriations, one-half of the unemployment benefits and 25% of the workers’ compensation benefits paid for former and current employees. The Comptroller of Public Accounts determines the proportionate amount to be reimbursed from each appropriated fund type. The University must reimburse the General Revenue Fund 100% of the cost for workers’ compensation and unemployment compensation for any employees paid from funds held in local bank accounts and local funds held in the state treasury.

Workers’ compensation and unemployment plans are on a pay-as-you-go basis through the State of Texas, with the exception of locally funded enterprises which have funds expenses and set aside based on a percentage of payroll as detailed below. This information is reported in the fund balance reserve section of Exhibit A. No material outstanding claims are pending at August 31, 1999.

Present claims liability reconciliation:

Health Benefits are provided through the various state contracts through Employee Retirement System (ERS).

The University is required by certain bond covenants to carry fire and extended coverage and boiler insurance on buildings financed through the issuance of bonds using pledged Auxiliary funds (see Note 3). The insurance protects the bond holders from a disruption to the revenue stream that is being utilized to make the bond interest and principal payments. One claim was filed during the current fiscal year, but it is still pending.

The Texas Motor Vehicle Safety Responsibility Act requires that every non-governmental vehicle operated on a state highway be insured for minimum limits of liability in the amount of $20,000/$40,000 bodily injury and $15,000 property damage. However, the University has chosen to

carry liability insurance on its licensed vehicles in the amount of $250,000/500,000 bodily injury and $100,000 property damage, the extent of the waivers of state sovereign immunity specified in the tort claims act.

The UNT Health Center has malpractice insurance with a maximum per loss limit of $1,500,000 with a deductible of $1,000.

In addition to providing pension benefits, the State provided certain health care and life insurance benefits for retired employees, in accordance with State statutes. Substantially all of the employees may become eligible for those benefits if they reach normal retirement age while working for the State. The University of North Texas participates in the ERS insurance plans. The information regarding the State’s contribution, the number of eligible retirees and the cost of providing those benefits is included in the notes to the annual financial report of the ERS.

The University of North Texas Foundation, Inc., a separate 501(c) nonprofit organization, has as its central purpose the advancement and support of the University of North Texas. The governing board is comprised of elected members separate from the University Regents. The University has no liability with regard to the Foundation’s liabilities. The Foundation issued scholarships totaling $1,217,219 to the University and transferred $1,355,879 during the year ended August 31, 1999.

The Professional Development Institute Inc. is a nonprofit corporation whose purpose is to provide continuing education for the business and governmental community through seminars, workshops, conferences and the establishment of ongoing programs of study designed to further professionalize certain areas of specialization within the total business and governmental community and to assist in maintaining and enhancing through financial support the University of North Texas as a leading academic institution. PDI, Inc. remitted gifts of $209,018.87 which was recorded as revenue to the University during the year ended August 31, 1999. PDI maintains an agency account on the books of UNT from which incidental expenses such as postage, telephone, printing, and office supplies are paid. These expenditures totaled $75,140.57 for the fiscal year ended August 31, 1999.

The North Texas Research Institute, Inc. (NTRI), is a separate non-profit corporation. The purposes of the Research Institute are: to perform research, development and service activities, alone and cooperatively with other institutions, government agencies, and business organizations; to provide research facilities, expertise and services for business and government organizations; and to assist in maintaining and enhancing through financial support the University of North Texas as a leading academic institution. In FY 96, the NTRI Board adopted a resolution to deactivate, but not dissolve NTRI. In accordance with this resolution, all research projects were closed in FY 97. During FY 99 there was only one active NTRI project account that generated lease income totaling $6,000. Total transfers to UNT from NTRI in support of research during FY 99 included equipment valued at $6,031.94 and cash of $100,841.22.

University of North Texas Health Science Center has contracted with the University of North Texas for support for the planning, construction, and operation of a Medical School. Such support was limited to $779,645 when the University of North Texas was the performing agency. The University of North Texas Health Science Center has also contracted with the University of North Texas Health Science

Non Applicable

Non Applicable

Due From Other State Agencies:

Due to Other State Agencies: None

Non Applicable

Non Applicable.