Enterprise Funds Reserved Retained Earnings:

Retained earnings of the loan programs of the Economic Development enterprise fund is reserved for
payment of debt service in the amount of $3,001,000.

Retained earnings of the Maryland Transportation Authority in the amount of $91,540,000 is reserved for
the payment of debt service related to the revenue bonds, major project maintenance requirements and
improvements, betterments, enlargements, or capital additions.

Retained earnings of the Maryland State Lottery in the amount of $1,927,000 is reserved for the payment
of unclaimed prizes.

Retained earnings of the Maryland Higher Education Loan Corporation in the amount of $270,000 is
reserved for the purchase of defaulted loans.

Nonexpendable and Pension Trust Fund Balances:

Fund balances of nonexpendable and pension trust funds are restricted to the purpose of the fund and are
reported as fund balance reserves.

D. Higher Education and University Hospital Fund:
Basis of Accounting:

The accounts of the higher education institutions and the University of Maryland Hospital are maintained
and reported on the accrual basis of accounting.

Fund Accounting:

The financial activities of the higher education institutions and the University of Maryland Hospital are
recorded in funds which classify the various transactions by specified activities or objectives. Fund balances of
such funds are reported as reserved for higher education programs and higher education general endowment
and similar funds.

Unrestricted revenue is accounted for in the current unrestricted fund. Restricted gifts, grants,
endowment income and other restricted resources are accounted for in the current restricted fund, loan funds,
endowment and similar funds and plant funds. Revenue and expenses are reported in the current restricted
fund when financial resources are used for the current operating purposes for which they have been provided.
Transactions related to the various student loan programs operated by the educational institutions are
accounted for in loan funds. Resources dedicated to the acquisition and investment in property, plant and
equipment are accounted for in the plant funds. To the extent current funds are used to finance plant assets,
the amounts so provided are accounted for as (1) expenses, in the case of normal replacement of movable
equipment and library books; (2) mandatory transfers, in the case of required provisions for debt repayment
and interest and equipment renewals and replacements; and (3) transfers of a nonmandatory nature in all
other cases.

General endowment funds are subject to the restrictions of gift instruments requiring the principal be
invested in perpetuity and the income only be utilized. Term endowment funds are similar to general
endowment funds except, upon the passage of a stated period of time or the occurrence of a particular event, all
or part of the principal may be expended. Quasi-endowment funds have been established for the same purposes
as general endowment funds, except any portion of quasi-endowment funds may be expended. The balances of
the fund groups which comprise the endowment and similar funds are general endowment ($16,427,000), term
endowments ($40,000), and quasi-endowments ($3,862,000).

Investments:

Investments of the higher education institutions are stated at cost, adjusted for amortization of premiums
and accretion of discounts, plus accrued income.

Student tuition and fees are fully recognized as revenues in the fiscal year in which the related courses or
activities are principally conducted. Student tuition and fees applicable to future courses and activities and
collected as of the end of the fiscal year are recorded as deferred revenue.

Patient revenues are recognized at the time of service, net of allowances applicable to third party payers,
charity and bad debts.

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