Duke University

This Preliminary Offering Memorandum and the information contained herein are subject to completion or amendment without notice. Under no circumstances shall this Offering Memorandum constitute an offer to sell or a solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration, qualification or filing under the securities laws of any such jurisdiction. about October18,2016. and byMcGuireWoodsLLP,Raleigh,NorthCarolina, counseltotheUnderwriters. and RalphMcCaughan,Esquire,AssociateUniversity Counsel,Durham,NorthCarolina,counseltotheUniversity Charlotte, North Carolina, Bond Counsel to the University, by Sutherland Asbill & Brennan LLP, Atlanta, Georgia received bytheUnderwriters.Certainlegalmatters willbepasseduponbyRobinson,Bradshaw&Hinson,P.A., from registrationunderSection3(a)(4)oftheSecurities Actof1933,asamended. See “TAXTREATMENT”herein. or unsecured.See“TheSeries2016ABonds—SecurityProvisionsRelatingtotheBonds” herein. otherwise fromincurringadditionalindebtedness.Suchindebtedness,ifissued,maybeeither secured unsecured general obligations outstanding. Moreover, the University is not restricted by the Trust Agreement or See “TheSeries2016ABonds—Book-EntryOnlySystemandGlobalClearanceProcedures”herein. Series 2016ABondsshallmeanCede&Co.andnotthebeneficialownersof Bonds. is theregisteredowner of theSeries2016ABonds, references herein to theholdersorregisteredownersof herein) forsubsequentdisbursementtothebeneficialownersofSeries2016ABonds.SolongasCede &Co. will in turn remit such payments to Direct Participants (as defined herein) and Indirect Participants (as defined 2016A Bonds,paymentsofprincipalandinterestontheSeriesBondswillbemadetoCede&Co., which requested by an authorized representative of DTC. So long as Cede & Co. is the registered owner of the Series Co., asnomineeofTheDepositoryTrustCompany(“DTC”),NewYork,orsuchothername maybe When issued,theSeries2016ABondswillberegisteredunderaglobalbook-entrysysteminnameof Cede& made inbook-entryformonly,andindividualpurchaserswillnotreceivephysicaldeliveryofbondcertificates. denominations of$1,000oranywholemultiplethereof. described herein.See“TheSeries2016ABonds—Redemption”TheBondswillbeissued in and October1.TheSeries2016ABondsaresubjecttooptionalmandatoryredemptionpriormaturity as Series 2016ABonds. capital projectsoftheUniversityand(3)paycertainexpensesincurredinconnectionwithissuance certain outstandingtax-exemptbondsissuedforthebenefitofUniversity,(2)financeorrefinance trustee (the“BondTrustee”).TheUniversityintendstousetheproceedsofSeries2016ABonds(1)refund (the “Trust Agreement”) between the University and The Bank of New York Mellon Trust Company, N.A., as bond New Issue:Book-EntryOnly * Preliminary; subjectto change. October __,2016 ____%Series2016ABondsDueOctober1,2038 Dated: DateofDelivery It isexpectedthattheSeries 2016ABondswillbeavailablefordeliverythrough thefacilitiesofDTConor The Series2016ABondsareofferedsubjecttoprior sale,when,asandifissuedbytheUniversity The Series2016ABondshavenotbeenregisteredunder federalsecuritieslawsinrelianceuponanexemption Interest ontheSeries2016ABondsisnotexcludable fromgrossincomeforfederaltaxpurposes. The Series2016ABondsconstitutegeneralunsecuredobligationsoftheUniversity.Universityhasother The Series2016ABondsareissuableasfullyregisteredbonds.Purchasesofwill be Interest ontheSeries2016ABondsispayableApril1,2017,andsemiannuallythereaftereach1 The Series 2016A Bonds are being issued by Duke University (the “University”) pursuant to a Trust Agreement PRELIMINARY OFFERING MEMORANDUM DATED OCTOBER 5, 2016 B arclays ____% Series2016ABondsDueOctober1,2046

D u $530,115,000* k Taxable Bonds J.P. M Series 2016A e U ni organ v ersity M organ Price: ___% Price: ___% S Standard &Poor’s:AA+ (See “Ratings”herein) tanley Ratings: Moody’s:Aa1 CUSIP: ______CUSIP: ______

No dealer, broker, salesperson or other person has been authorized to give any information or to make any representation other than those contained in this Offering Memorandum in connection with the offering described herein, and, if given or made, such other information or representation must not be relied upon as having been authorized by the University or the Underwriters. This Offering Memorandum does not constitute an offer to sell or the solicitation of any offer to buy any securities other than the Series 2016A Bonds offered hereby, nor shall there be any offer or solicitation of such offer or sale of the Series 2016A Bonds in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale.

The Underwriters have provided the following sentence for inclusion in this Offering Memorandum: The Underwriters have reviewed the information in this Offering Memorandum in accordance with, and as part of, their responsibilities under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.

All quotations from and summaries and explanations of laws and documents herein do not purport to be complete, and reference is made to such laws and documents for full and complete statements of their provisions. Any statements made in this Offering Memorandum involving estimates or matters of opinion, whether or not expressly so stated, are intended merely as estimates or opinions and not as representations of fact. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Offering Memorandum nor any sale of the Series 2016A Bonds shall under the circumstances create any implication that there has been no change in the affairs of the University since the date hereof.

This Offering Memorandum contains statements which, to the extent they are not recitations of historical fact, constitute “forward-looking statements”. In this regard, the words “may,” “will,” “plan,” “expect,” “estimate,” “budget,” “intend,” “project,” “forecast,” and similar expressions are intended to identify forward-looking statements. Such statements are based on the current expectations of the party making such statements as well as assumptions based on the information currently available to such party. A number of important factors, including factors affecting the University’s financial condition and factors which are otherwise unrelated thereto, could cause actual results to differ materially from those stated in such forward-looking statements. THE UNIVERSITY HAS NO OBLIGATION TO, AND DOES NOT PLAN TO, ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS, CONDITIONS OR CIRCUMSTANCES THAT OCCUR THAT DIFFER FROM THE EXPECTATIONS OR ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED.

Upon issuance, the Series 2016A Bonds will not be registered under the Securities Act of 1933, as amended, in reliance upon an exemption under Section 3(a)(4) of such act and the Trust Agreement has not been qualified under the Trust Indenture Act of 1939, as amended, in reliance upon an exemption under Section 304(a)(4) of such act. The Series 2016A Bonds will not be listed on any stock or other securities exchange.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2016A BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

INFORMATION CONCERNING OFFERING RESTRICTIONS IN CERTAIN JURISDICTIONS OUTSIDE THE UNITED STATES

REFERENCES HEREIN TO THE “ISSUER” MEAN DUKE UNIVERSITY AND REFERENCES TO “BONDS” OR “SECURITIES” MEAN THE SERIES 2016A BONDS OFFERED HEREBY. MINIMUM UNIT SALES

THE BONDS WILL TRADE AND SETTLE ON A UNIT BASIS (ONE UNIT EQUALING ONE BOND OF $1,000 PRINCIPAL AMOUNT). FOR ANY SALES MADE OUTSIDE THE UNITED STATES, THE MINIMUM PURCHASE AND TRADING AMOUNT IS 150 UNITS (BEING 150 BONDS IN AN AGGREGATE PRINCIPAL AMOUNT OF $150,000).

NOTICE TO INVESTORS IN THE EUROPEAN ECONOMIC AREA

THIS OFFERING MEMORANDUM IS NOT A PROSPECTUS FOR THE PURPOSES OF EUROPEAN COMMISSION REGULATION 809/2004 OR EUROPEAN COMMISSION DIRECTIVE 2003/71/EC (AS AMENDED, INCLUDING BY EUROPEAN COMMISSION DIRECTIVE 2010/73/EU, AS APPLICABLE) (THE “PROSPECTUS DIRECTIVE”). IT HAS BEEN PREPARED ON THE BASIS THAT ALL OFFERS OF THE SERIES 2016A BONDS WILL BE MADE PURSUANT TO AN EXEMPTION UNDER ARTICLE 3 OF THE PROSPECTUS DIRECTIVE, AS IMPLEMENTED IN MEMBER STATES OF THE EUROPEAN ECONOMIC AREA, FROM THE REQUIREMENT TO PRODUCE A PROSPECTUS FOR SUCH OFFERS. THIS OFFERING MEMORANDUM IS ONLY ADDRESSED TO AND DIRECTED AT PERSONS IN MEMBER STATES OF THE EUROPEAN ECONOMIC AREA WHO ARE “QUALIFIED INVESTORS” WITHIN THE MEANING OF ARTICLE 2(1)(E) OF THE PROSPECTUS DIRECTIVE AND ANY RELEVANT IMPLEMENTING MEASURE IN EACH MEMBER STATE OF THE EUROPEAN ECONOMIC AREA (“QUALIFIED INVESTORS”). THIS OFFERING MEMORANDUM MUST NOT BE ACTED ON OR RELIED ON IN ANY SUCH MEMBER STATE OF THE EUROPEAN ECONOMIC AREA BY PERSONS WHO ARE NOT QUALIFIED INVESTORS. ANY INVESTMENT OR INVESTMENT ACTIVITY TO WHICH THIS OFFERING MEMORANDUM RELATES IS AVAILABLE ONLY TO QUALIFIED INVESTORS IN ANY MEMBER STATE OF THE EUROPEAN ECONOMIC AREA AND WILL NOT BE ENGAGED IN WITH ANY OTHER PERSONS.

NOTICE TO PROSPECTIVE INVESTORS IN THE UNITED KINGDOM

THIS OFFERING MEMORANDUM HAS NOT BEEN APPROVED FOR THE PURPOSES OF SECTION 21 OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (“FSMA”) AND DOES NOT CONSTITUTE AN OFFER TO THE PUBLIC IN ACCORDANCE WITH THE PROVISIONS OF SECTION 85 OF THE FSMA. IT IS FOR DISTRIBUTION ONLY TO, AND IS DIRECTED SOLELY AT, PERSONS WHO (I) ARE OUTSIDE THE UNITED KINGDOM, (II) ARE INVESTMENT PROFESSIONALS, AS SUCH TERM IS DEFINED IN ARTICLE 19(5) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005, AS AMENDED (THE “FINANCIAL PROMOTION ORDER”), (III) ARE PERSONS FALLING WITHIN ARTICLE 49(2)(A) TO (D) OF THE FINANCIAL PROMOTION ORDER, OR (IV) ARE PERSONS TO WHOM AN INVITATION OR INDUCEMENT TO ENGAGE IN INVESTMENT ACTIVITY (WITHIN THE MEANING OF SECTION 21 OF THE FSMA) IN CONNECTION WITH THE ISSUE OR SALE OF ANY SECURITIES MAY OTHERWISE BE LAWFULLY COMMUNICATED OR CAUSED TO BE COMMUNICATED (ALL SUCH PERSONS TOGETHER BEING REFERRED TO AS “RELEVANT PERSONS”). THIS OFFERING MEMORANDUM IS DIRECTED ONLY AT RELEVANT PERSONS AND MUST NOT BE ACTED ON OR RELIED ON BY PERSONS WHO ARE NOT RELEVANT PERSONS, INCLUDING IN CIRCUMSTANCES IN WHICH SECTION 21(1) OF THE FSMA APPLIES TO THE INSTITUTION. ANY INVESTMENT OR INVESTMENT ACTIVITY TO WHICH THIS OFFERING MEMORANDUM RELATES IS AVAILABLE ONLY TO RELEVANT PERSONS AND WILL BE ENGAGED IN ONLY WITH RELEVANT PERSONS. ANY PERSON WHO IS NOT A RELEVANT PERSON SHOULD NOT ACT OR RELY ON THIS OFFERING MEMORANDUM OR ANY OF ITS CONTENTS.

TABLE OF CONTENTS

INTRODUCTORY STATEMENT ...... 1

THE SERIES 2016A BONDS ...... 1

USE OF PROCEEDS ...... 4

ONGOING DISCLOSURE ...... 4

LITIGATION ...... 5

LEGAL MATTERS ...... 5

TAX TREATMENT ...... 5

ERISA AND CERTAIN RELATED CONSIDERATIONS ...... 11

FINANCIAL ADVISOR ...... 12

UNDERWRITING ...... 12

RATINGS ...... 13

FINANCIAL STATEMENTS ...... 13

CERTAIN RELATIONSHIPS ...... 13

OTHER MATTERS ...... 13

Appendix A—Certain Information Relating to Duke University ...... A-1 Appendix B—Duke University Financial Statements ...... B-1 Appendix C—Summary of Certain Documents ...... C-1 Appendix D—Book-Entry Only System and Global Clearance Procedures ...... D-1

i $530,115,000* Duke University Taxable Bonds Series 2016A

INTRODUCTORY STATEMENT

This Offering Memorandum, including the cover page and the appendices, is provided to furnish information regarding the $530,115,000* Duke University Taxable Bonds, Series 2016A (the “Series 2016A Bonds”) being issued by Duke University (the “University”) pursuant to a Trust Agreement dated as of October 1, 2016 (the “Trust Agreement”), between the University and The Bank of New York Mellon Trust Company, N.A., as bond trustee (the “Bond Trustee”). The Series 2016A Bonds are general unsecured obligations of the University. The University intends to use the proceeds of the Series 2016A Bonds to (1) refund certain outstanding tax-exempt bonds issued by the North Carolina Capital Facilities Finance Agency (the “Agency”) for the benefit of the University, (2) finance or refinance certain capital projects on the campus of the University and (3) pay certain expenses incurred in connection with the issuance of the Series 2016A Bonds.

The University also expects the Agency to issue approximately $319 million aggregate principal amount of its Revenue Refunding Bonds (Duke University Project) Series 2016B (the “Series 2016B Bonds”) in November 2016. The proceeds of the Series 2016B Bonds will be loaned to the University and used, together with other University resources, to refund certain outstanding tax-exempt bonds issued by the Agency for the benefit of the University. The obligation of the University under the loan agreement relating to the Series 2016B Bonds will be a general unsecured obligation of the University.

The University is a private, coeducational, not-for-profit institution of higher learning located primarily in Durham, North Carolina. For further information concerning the University, see Appendix A. Audited financial statements for the University for the fiscal years ended June 30, 2016 and 2015 are included herein as Appendix B.

Unless otherwise defined herein, capitalized terms used in this Offering Memorandum have the meanings ascribed to them in Appendix C under the heading “Definitions of Certain Terms.”

THE SERIES 2016A BONDS

Description

The Series 2016A Bonds will be dated the date of delivery. Interest on the Series 2016A Bonds will be payable on April 1, 2017, and semiannually thereafter on each April 1 and October 1 at the rates set forth on the cover page of this Offering Memorandum. The Series 2016A Bonds will mature, subject to the redemption provisions described below, on the dates set forth on the cover page of this Offering Memorandum.

The Series 2016A Bonds are issuable in fully registered form in denominations of $1,000 or any whole multiple thereof. Series 2016A Bonds in denominations of more than $1,000 may be redeemed in part from time to time in one or more units of $1,000. The Bank of New York Mellon Trust Company, N.A. will serve as Bond Trustee for the Series 2016A Bonds.

* Preliminary; subject to change.

Book-Entry Only System and Global Clearance Procedures

The Depository Trust Company (“DTC”), New York, New York, will act as securities depository for the Series 2016A Bonds. The Series 2016A Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Series 2016A Bond certificate will be issued for each maturity of the Series 2016A Bonds, each in the aggregate principal amount of the Series 2016A Bonds of such maturity, as set forth on the front cover hereof, and will be deposited with DTC. Beneficial interests in the Series 2016A Bonds may be held through DTC, Clearstream Banking, S.A. (“Clearstream Banking”) or Euroclear Bank S.A./N.V. (“Euroclear”) as operator of the Euroclear System, directly as a participant or indirectly through organizations that are participants in such system. Additional information about DTC and the Book-Entry System and Global Clearance Procedures is included herein in Appendix D.

Redemption

Optional Redemption. The Series 2016A Bonds are subject to redemption prior to their maturity at the option of the University, in whole or in part on any date, at a Redemption Price equal to the greater of:

(1) 100% of the principal amount of the Series 2016A Bonds to be redeemed; or

(2) the sum of the present value of the remaining scheduled payments of principal and interest to the maturity date of the Series 2016A Bonds to be redeemed, not including any portion of those payments of interest accrued and unpaid as of the date on which the Series 2016A Bonds are to be redeemed, discounted to the date on which the Series 2016A Bonds are to be redeemed on a semi-annual basis, assuming a 360-day year consisting of twelve 30-day months, at the Treasury Rate, plus __ basis points, plus, in each case, accrued interest on the Series 2016A Bonds to be redeemed to the redemption date.

“Treasury Rate” means, with respect to any redemption date for a particular Series 2016A Bond, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two Business Days prior to the redemption date (excluding inflation indexed securities) (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to the maturity date of the Series 2016A Bond to be redeemed; provided, however, that if the period from the redemption date to such maturity date is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.

At the request of the Bond Trustee to the University, the Redemption Price of the Series 2016A Bonds to be redeemed at the option of the University shall be determined by an independent accounting firm, investment banking firm or financial advisor retained by the University at the University’s expense to calculate such Redemption Price. The Trust Agreement provides that the Bond Trustee and the University may conclusively rely on the determination of such Redemption Price by such independent accounting firm, investment banking firm or financial advisor and shall not be liable for such reliance.

Mandatory Sinking Fund Redemption. The Series 2016A Bonds maturing on October 1, 20__ are subject to mandatory sinking fund redemption in part on October 1 of the following years and in the

following amounts at a Redemption Price equal to 100% of the principal amount of the Series 2016A Bonds being redeemed plus accrued interest to the redemption date:

Year Sinking Fund Requirement $ * *Maturity

The Series 2016A Bonds maturing on October 1, 20__ are subject to mandatory sinking fund redemption in part on October 1 of the following years and in the following amounts at a Redemption Price equal to 100% of the principal amount of the Series 2016A Bonds being redeemed plus accrued interest to the redemption date:

Year Sinking Fund Requirement $ * *Maturity

General Redemption Provisions. If less than all of the Series 2016A Bonds are to be redeemed, the particular maturities of Series 2016A Bonds to be redeemed at the option of the University will be determined by the University in its sole discretion.

If the Series 2016A Bonds are registered in book-entry only form and so long as DTC or a successor securities depository is the sole registered owner of such Series 2016A Bonds, if less than all of the Series 2016A Bonds of a maturity are called for prior redemption, the particular Series 2016A Bonds or portions thereof to be redeemed shall be allocated on a pro rata pass-through distribution of principal basis in accordance with DTC procedures, provided that, so long as the Series 2016A Bonds are held in book-entry form, the selection for redemption of such Series 2016A Bonds shall be made in accordance with the operational arrangements of DTC then in effect, and, if the DTC operational arrangements do not allow for redemption on a pro rata pass-through distribution of principal basis, the Series 2016A Bonds will be selected for redemption, in accordance with DTC procedures, by lot.

The University intends that redemption allocations made by DTC be made on a pro rata pass- through distribution of principal basis as described above. However, neither the University nor the Underwriters can provide any assurance that DTC, DTC’s direct and indirect participants or any other intermediary will allocate the redemption of Series 2016A Bonds on such basis.

In connection with any repayment of principal, including payments of scheduled mandatory sinking fund payments, the Bond Trustee will direct DTC to make a pass-through distribution of principal to the holders of the Series 2016A Bonds. For purposes of calculation of the “pro rata pass-through distribution of principal,” “pro rata” means, for any amount of principal to be paid, the application of a fraction to each denomination of the respective Series 2016A Bonds where (a) the numerator of such fraction is equal to the amount due to the respective bondholders on a payment date, and (b) the denominator of such fraction is equal to the total original par amount of the respective Series 2016A Bonds.

If the Series 2016A Bonds are no longer registered in book-entry only form, each owner will receive an amount of Series 2016A Bonds equal to the original face amount then beneficially held by that owner, registered in such investor’s name. Thereafter, any redemption of less than all of the Series 2016A Bonds of any maturity will continue to be paid to the registered owners of such Series 2016A Bonds on a pro-rata basis, based on the portion of the original face amount of any such Series 2016A Bonds to be redeemed.

Notice of redemption will be mailed (or sent by Electronic Means if so required or requested by a Holder) not less than thirty (30) or more than sixty (60) days prior to the redemption date to each registered owner of Series 2016A Bonds called for redemption at the address shown on the registration books. After notice has been given and funds for such redemption are on deposit with the Bond Trustee, interest on the Series 2016A Bonds so called for redemption will cease to accrue from and after the redemption date, such Series 2016A Bonds will cease to be entitled to any benefit or security under the Trust Agreement and the registered owners of such Series 2016A Bonds will have no rights in respect thereof except to receive payment of the Redemption Price and accrued interest to the redemption date.

In the case of an optional redemption, the redemption notice may state that (a) it is conditioned upon the deposit of moneys by the University, in an amount equal to the amount necessary to effect the redemption, with the Bond Trustee no later than the scheduled redemption date or (b) the University retains the right to rescind such notice on or prior to the scheduled redemption date (in either case, a “Conditional Redemption”), and such notice and optional redemption shall be of no effect if such moneys are not so deposited or if the notice is rescinded as described in the Trust Agreement. In the case of a Conditional Redemption subject to the deposit of moneys, the failure of the University to make funds available in part or in whole on or before the scheduled redemption date shall not constitute an Event of Default under the Trust Agreement and any Series 2016A Bonds subject to such Conditional Redemption shall remain Outstanding. Any Conditional Redemption subject to rescission may be rescinded in whole or in part at any time on or prior to the scheduled redemption date if a University Representative instructs the Bond Trustee in writing to rescind the redemption notice. Any Series 2016A Bonds subject to Conditional Redemption where redemption has been rescinded shall remain Outstanding, and the rescission shall not constitute an Event of Default under the Trust Agreement.

Security Provisions Relating to the Series 2016A Bonds

General. The Series 2016A Bonds are general unsecured obligations of the University. The University has other unsecured general obligations outstanding. Moreover, the University is not restricted by the Trust Agreement or otherwise from incurring additional indebtedness. Such additional indebtedness, if issued, may be either secured or unsecured and may be entitled to payment on parity with the Series 2016A Bonds.

Trust Agreement Funds and Accounts. The Trust Agreement establishes the Cost of Issuance Fund, the Bond Fund, in which there is established an Interest Account and a Sinking Fund Account, and the Redemption Fund. Each of these funds and accounts will be held by the Bond Trustee in trust and will be subject to a lien and charge in favor of the Holders of the Series 2016A Bonds until paid out or transferred as provided in the Trust Agreement. See “Appendix C — Summary of Certain Documents” herein.

USE OF PROCEEDS

The University intends to use the proceeds of the Series 2016A Bonds to (1) refund certain outstanding tax-exempt bonds issued by the Agency for the benefit of the University, (2) finance or refinance certain capital projects on the campus of the University and (3) pay certain expenses incurred in connection with the issuance of the Series 2016A Bonds.

ONGOING DISCLOSURE

In the Trust Agreement, the University agrees, by not later than six months after the end of each fiscal year of the University, beginning with the fiscal year ending June 30, 2017, to provide to the Bond Trustee and any Holder who requests the same in writing a copy of the audited financial statements of the University for such fiscal year. Except for providing such annual audited financial statements, the

University has not undertaken either to supplement or update the information included in this Offering Memorandum; however, the University has entered into continuing disclosure undertakings (the “Continuing Disclosure Undertakings”) in connection with tax-exempt revenue bonds issued for the benefit of the University (as shown in Note 10 to the Duke University Financial Statements attached as Appendix B). Holders and prospective purchasers may obtain copies of the information provided by the University under those Continuing Disclosure Undertakings from the Electronic Municipal Market Access system maintained by the Municipal Securities Rulemaking Board. Each Continuing Disclosure Undertaking terminates when the related tax-exempt revenue bonds are paid or deemed paid in full.

LITIGATION

There is no pending or threatened litigation seeking to restrain or enjoin the issuance, sale, execution or delivery of the Series 2016A Bonds, or in any way questioning or affecting the validity of the Series 2016A Bonds or any proceedings of the University taken with respect to the issuance or sale thereof, or in any way questioning or affecting the validity of the pledge or application of any money, revenues or security provided for the payment of the Series 2016A Bonds, the use of the Series 2016A Bond proceeds or the existence or powers of the University. There is no litigation pending or, to the knowledge of the University, threatened which could have a material adverse effect upon the business, operations or properties of the University. For a statement regarding pending litigation, see Appendix A “Certain Information Relating to Duke University — Litigation and Other Contingencies; Insurance.”

LEGAL MATTERS

Certain legal matters will be passed on for the University by Robinson, Bradshaw & Hinson, P.A., Charlotte, North Carolina, Bond Counsel to the University, and by Sutherland Asbill & Brennan LLP, Atlanta, Georgia, and Ralph McCaughan, Esquire, Associate University Counsel, Durham, North Carolina, and for the Underwriters by McGuireWoods LLP, Raleigh, North Carolina.

TAX TREATMENT

The following is a summary of certain U.S. federal income tax consequences relating to the purchase, ownership, and disposition of the Series 2016A Bonds. It does not provide a complete analysis of all potential tax considerations relating to the purchase, ownership and disposition of the Series 2016A Bonds.

This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), the applicable Treasury Regulations promulgated or proposed under the Code (the “Treasury Regulations”), judicial authority, and administrative rulings and practice, all of which are subject to change, possibly retroactively, or to different interpretation.

This summary applies only to initial purchasers who acquire the Series 2016A Bonds at their original issue price within the meaning of Section 1273 of the Code and hold the Series 2016A Bonds as capital assets. A capital asset is generally an asset held for investment rather than as inventory or as property used in a trade or business. This summary does not discuss all of the aspects of U.S. federal income taxation that may be relevant to investors in light of their particular investment or other circumstances. It also does not discuss the particular tax consequences that might be relevant to investors who are subject to special rules under the federal income tax laws. Special rules apply, for example, to trusts; estates; tax-exempt investors; foreign investors; banks, thrifts, insurance companies, regulated investment companies, or other financial institutions or financial service companies; brokers or dealers in securities, commodities or foreign currency; U.S. persons who have a functional currency other than the U.S. dollar; partnerships or other flow-through entities; real estate investment trusts, financial asset securitization investment trusts, or

subchapter S corporations; persons subject to alternative minimum tax; persons who own the Series 2016A Bonds as part of a straddle, hedging transaction, constructive sale transaction or other risk-reduction transaction; persons who have ceased to be U.S. citizens or to be taxed as resident aliens; or persons who acquire the Series 2016A Bonds in connection with their employment or other performance of services.

This summary does not address all tax consequences. In particular, except as specifically described below, it does not discuss any estate, gift, generation skipping, transfer, state, local or foreign tax consequences. No ruling from the Internal Revenue Service (the “IRS”) has been sought with respect to the statements made and the conclusions reached in the following summary, and there is no assurance that the IRS will agree with those statements and conclusions. For all these reasons, each prospective investor should consult with its tax advisor about the federal income tax and other tax consequences of the acquisition, ownership, and disposition of the Series 2016A Bonds.

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of the Series 2016A Bonds who is a “United States person” and whose status as a U.S. Holder is not overridden under the provisions of an applicable tax treaty. For these purposes, a “United States person” is a citizen or resident of the United States; a corporation or partnership that is created or organized in or under the laws of the United States or any of the fifty states or the District of Columbia, unless, in the case of a partnership, otherwise provided by the Treasury Regulations; an estate the income of which is subject to federal income taxation regardless of its source; or a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust. For purposes of this discussion, a “Non-U.S. Holder” is a beneficial owner of a Series 2016A Bond that is neither a U.S. Holder nor an entity treated as a partnership for U.S. federal income tax purposes.

Tax Considerations Applicable to U.S. Holders

This section describes certain U.S. federal income tax consequences to U.S. Holders.

Interest. A U.S. Holder generally must include the stated interest on the Series 2016A Bonds in its gross income as ordinary interest income (1) when it is received, if the U.S. Holder uses the cash method of accounting for U.S. federal income tax purposes; or (2) when it accrues, if the U.S. Holder uses the accrual method of accounting for U.S. federal income tax purposes.

Original Issue Discount. Any Series 2016A Bond issued at an issue price less than its principal amount will have “original issue discount,” a portion of which will accrue as taxable income to the owner in each taxable year in addition to taxation of regular stated interest, regardless of whether the owner uses the cash or accrual method of accounting and regardless of the owner’s receiving no actual payment of the original issue discount until the maturity of the Series 2016A Bond. Taxation of original issue discount in this manner is subject to a de minimis exception based on the amount of the original issue discount in relation to the maturity of the Series 2016A Bond. Prospective investors should consult their tax advisors regarding the accrual of original issue discount and the effect of such accruals on the tax basis of their Series 2016A Bonds.

Market Discount. A U.S. Holder who acquires a Series 2016A Bond in a secondary market transaction at a price below the principal amount may be subject to federal income tax rules providing that accrued market discount will be subject to taxation as ordinary income on the sale or other disposition of a “market discount bond.” Dispositions subject to this rule include a redemption or retirement of a Series 2016A Bond. The market discount rules may also limit a holder’s deduction for interest expense for debt that is incurred or continued to purchase or carry a Series 2016A Bond. A market discount bond is defined generally as a debt obligation purchased subsequent to issuance, at a price that is less than the principal

amount of the obligation, subject to a de minimis rule. The Code allows a taxpayer to compute the accrual of market discount by using a ratable accrual method or a constant interest rate method. Also, a taxpayer may elect to include the accrued discount in gross income each year while holding the Series 2016A Bond, as an alternative to including the total accrued discount in gross income at the time of a disposition, in which case the tax basis of the Series 2016A Bond will be increased by the amount of discount included in gross income.

Bond Premium. A purchaser of a Series 2016A Bond who acquires it at a cost greater than the sum of all amounts payable on such Series 2016A Bond after the acquisition date (other than payments made at least annually over the term of such Series 2016A Bond of stated interest) will have amortizable bond premium. If the holder elects to amortize the bond premium, such election will apply to all Series 2016A Bonds held by the holder on the first day of the taxable year to which the election applies, and to all taxable bonds then held or thereafter acquired by the holder. The premium must be amortized using constant yield principles based on the purchaser’s yield to maturity. Amortizable bond premium is generally treated as an offset to interest income, and a reduction in basis is required for amortizable bond premium even though such premium is applied to reduce interest payments. Bond premium on a Series 2016A Bond held by a holder that has not elected to amortize bond premium will decrease the gain or increase the loss otherwise recognized on the disposition of the Series 2016A Bond. Purchasers who acquire Series 2016A Bonds at issue or in a secondary market transaction at a premium should consult with their own tax advisors with respect to the determination and treatment of such premium for income tax purposes.

Sale, Exchange, or Redemption of Series 2016A Bonds. A U.S. Holder generally will recognize gain or loss upon the sale, exchange, redemption, retirement, or other disposition of a Series 2016A Bond measured by the difference between (i) the amount of cash proceeds and the fair market value of any property received (except to the extent attributable to accrued interest income not previously included in income, which will generally be taxable as ordinary income, or attributable to accrued interest previously included in income, which amount may be received without generating further income), and (ii) the U.S. Holder’s adjusted tax basis in such Series 2016A Bond. A U.S. Holder’s adjusted tax basis in a Series 2016A Bond generally will equal its cost of the Series 2016A Bond, less any principal payments received by the U.S. Holder. Gain or loss on the disposition of Series 2016A Bonds will generally be a capital gain or loss (although any gain attributable to accrued market discount of the Series 2016A Bond not yet taken into income will be ordinary) and will be a long-term gain or loss if the Series 2016A Bonds have been held for more than one year at the time of disposition. The deductibility of capital losses is subject to limitations.

Defeasance. Defeasance of any Series 2016A Bond may result in a reissuance thereof, in which event a U.S. Holder will recognize taxable gain or loss equal to the difference between the amount realized from the deemed exchange (less any accrued qualified stated interest which will be taxable as such) and the U.S. Holder’s adjusted tax basis in the Series 2016A Bond.

Tax-Exempt Organizations. Income or gain from Series 2016A Bonds held by a tax-exempt organization will be subject to the tax on unrelated business taxable income if the Series 2016A Bonds are “debt-financed property” of the organization under Section 514(b) of the Code.

Unearned Income Tax. A U.S. Holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, will be subject to a 3.8% tax on the lesser of (1) the holder’s “net investment income” for the relevant taxable year and (2) the excess of the holder’s adjusted gross income (increased by certain amounts of excluded foreign income) for the taxable year over a certain threshold (which in the case of individuals will be between $125,000 and $250,000, depending on the individual’s circumstances) (the “Unearned Income Tax”). A U.S. Holder’s net investment income will generally include its interest income and net gain from the disposition of the Series 2016A Bonds, unless such interest income and net gain is derived in the ordinary course of the conduct of a trade or business

(other than a trade or business that consists of certain passive or trading activities). Net investment income may, however, be reduced by properly allocable deductions to such income.

Information Reporting and Backup Withholding Tax. In general, information reporting requirements will apply to payments to certain noncorporate U.S. Holders of principal and interest on a Series 2016A Bond and the proceeds of the sale of a Series 2016A Bond. A U.S. Holder may be subject to backup withholding when it receives interest with respect to the Series 2016A Bonds or when it receives proceeds upon the sale, exchange, redemption, retirement, or other disposition of the Series 2016A Bonds. The backup withholding rate currently is 28%. In general, an investor can avoid this backup withholding by properly executing under penalties of perjury an IRS Form W-9 or substantially similar form that provides (1) such investor’s correct taxpayer identification number; and (2) a certification that such investor (a) is exempt from backup withholding because it is a corporation or comes within another enumerated exempt category, (b) has not been notified by the IRS that it is subject to backup withholding, or (c) has been notified by the IRS that it is no longer subject to backup withholding.

If an investor does not provide its correct taxpayer identification number on the IRS Form W-9 or substantially similar form, such investor may be subject to penalties imposed by the IRS. Backup withholding does not apply to payments made to certain holders, including corporations, tax-exempt organizations, and certain foreign persons, provided their exemptions from backup withholding are properly established. Amounts withheld are generally not an additional tax and may be refunded or credited against an investor’s federal income tax liability if such investor furnishes the required information to the IRS. The amount of any reportable payments for each calendar year and the amount of tax withheld, if any, with respect to those payments will be reported to the U.S. Holders of Series 2016A Bonds and to the IRS.

Tax Considerations Applicable to Non-U.S. Holders

This section describes certain U.S. federal income tax consequences to Non-U.S. Holders.

Payments of Interest. Subject to the discussion below on backup withholding and FATCA, interest paid on a Series 2016A Bond to a Non-U.S. Holder generally will not be subject to U.S. federal income tax, or withholding tax of 30% (or such lower rate specified by an applicable income tax treaty), provided that:

• such interest is not effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States;

• the Non-U.S. Holder is not a controlled foreign corporation related to the University through actual or constructive stock ownership;

• the Non-U.S. Holder is not actually or constructively a “10-percent” shareholder under Section 871(h) of the Code;

• the Non-U.S. Holder is not a bank receiving interest described in Section 881(c)(3)(A) of the Code; and

• either (1) the Non-U.S. Holder certifies in a statement provided to the applicable withholding agent under penalties of perjury on IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) that it is not a United States person and provides its name and address; (2) a securities clearing organization, bank or other financial institution that holds customers’ securities in the ordinary course of its trade or business and holds the Series 2016A Bond on behalf of the Non-U.S. Holder certifies to the applicable

withholding agent under penalties of perjury that it, or the financial institution between it and the Non-U.S. Holder, has received from the Non-U.S. Holder a statement under penalties of perjury that such holder is not a United States person and provides a copy of such statement to the applicable withholding agent; or (3) the Non-U.S. Holder holds its Series 2016A Bond directly through a “qualified intermediary” (within the meaning of applicable Treasury Regulations) and, in each case, certain other conditions are satisfied.

If a Non-U.S. Holder does not satisfy the requirements above, such Non-U.S. Holder may be entitled to a reduction in or an exemption from withholding on such interest as a result of an applicable tax treaty. To claim such entitlement, the Non-U.S. Holder must provide the applicable withholding agent with a properly executed IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) claiming a reduction in or exemption from withholding tax under the benefit of an income tax treaty between the United States and the country in which the Non-U.S. Holder resides or is established.

If interest paid to a Non-U.S. Holder is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non- U.S. Holder maintains a permanent establishment in the United States to which such interest is attributable), the Non-U.S. Holder will be exempt from the U.S. federal withholding tax described above. To claim the exemption, the Non-U.S. Holder must furnish to the applicable withholding agent a valid IRS Form W- 8ECI, certifying that interest paid on a Series 2016A Bond is not subject to withholding tax because it is effectively connected with the conduct by the Non-U.S. Holder of a trade or business within the United States.

Any such effectively connected interest generally will be subject to U.S. federal income tax at the regular graduated rates. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected interest, as adjusted for certain items.

The certifications described above must be provided to the applicable withholding agent prior to the payment of interest and must be updated periodically. Non-U.S. Holders who do not timely provide the applicable withholding agent with the required certification, but that qualify for a reduced rate under an applicable income tax treaty, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. Holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.

Sale or Other Taxable Disposition. Subject to the discussion below on backup withholding and FATCA, a Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain realized upon the sale, exchange, redemption, retirement or other taxable disposition of a Series 2016A Bond (such amount excludes any amount allocable to accrued and unpaid interest, which generally will be treated as interest and may be subject to the rules discussed above in “—Tax Considerations Applicable to Non-U.S. Holders—Payments of Interest”) unless:

• the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such gain is attributable); or

• the Non-U.S. Holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition and certain other requirements are met.

Gain described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular graduated rates. A Non-U.S. Holder that is a foreign corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.

Gain described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses of the Non-U.S. Holder (even though the individual is not considered a resident of the United States), provided the Non-U.S. Holder has timely filed U.S. federal income tax returns with respect to such losses.

Non-U.S. Holders should consult their tax advisors regarding any applicable income tax treaties that may provide different rules.

Information Reporting and Backup Withholding. Payments of interest to a Non-U.S. Holder generally will not be subject to backup withholding, provided the applicable withholding agent does not have actual knowledge or reason to know the holder is a United States person and the holder certifies its non-U.S. status as described above under “—Tax Considerations Applicable to Non-U.S. Holders— Payments of Interest.” However, information returns are required to be filed with the IRS in connection with any interest paid to the Non-U.S. Holder, regardless of whether any tax was actually withheld. In addition, proceeds of the sale or other taxable disposition of a Series 2016A Bond (including a retirement or redemption of the Series 2016A Bond) within the United States or conducted through certain U.S.-related brokers generally will not be subject to backup withholding or information reporting if the applicable withholding agent receives the statement described above and does not have actual knowledge or reason to know that such holder is a United States person or the holder otherwise establishes an exemption. Proceeds of a disposition of a Series 2016A Bond paid to a Non-U.S. Holder outside the United States and conducted through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.

Copies of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides or is established.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a Non-U.S. Holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.

FATCA Withholding. Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such Sections commonly referred to as the Foreign Account Tax Compliance Act, or “FATCA”) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on payments of interest on, or gross proceeds from the sale or other disposition of, a Series 2016A Bond paid to a “foreign financial institution” or a “non- financial foreign entity” (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any “substantial United States owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain “specified United States persons” or “United States-owned foreign entities” (each as defined in the Code), annually report certain information about such accounts, and

withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.

Under the applicable Treasury Regulations and Notices, withholding under FATCA generally applies to payments of interest on a Series 2016A Bond and will apply to payments of gross proceeds from the sale or other disposition of a Series 2016A Bond on or after January 1, 2019.

Prospective investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in the Series 2016A Bonds.

ERISA AND CERTAIN RELATED CONSIDERATIONS

The following is a summary of certain considerations associated with the purchase of the Series 2016A Bonds by employee benefit plans that are subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), plans, individual retirement accounts and other arrangements that are subject to Section 4975 of the Code or provisions under any other federal, state, local, non-U.S. or other laws or regulations that are similar to such provisions of the Code or ERISA (collectively, “Similar Laws”), and entities whose underlying assets are considered to include “plan assets” of any such plan, account or arrangement (each, a “Plan”).

General Fiduciary Matters

ERISA and the Code impose certain duties on persons who are fiduciaries of a Plan subject to Title I of ERISA or Section 4975 of the Code (an “ERISA Plan”) and prohibit certain transactions involving the assets of an ERISA Plan and its fiduciaries or other interested parties. Under ERISA and the Code, any person who exercises any discretionary authority or control over the administration of such an ERISA Plan or the management or disposition of the assets of such an ERISA Plan, or who renders investment advice for a fee or other compensation to such an ERISA Plan, is generally considered to be a fiduciary of the ERISA Plan.

In considering an investment in the Series 2016A Bonds of a portion of the assets of any Plan, a fiduciary should determine whether the investment is in accordance with the documents and instruments governing the Plan and the applicable provisions of ERISA, the Code or any Similar Law relating to a fiduciary’s duties to the Plan including, without limitation, the prudence, diversification, delegation of control and prohibited transaction provisions of ERISA, the Code and any other applicable Similar Laws.

Prohibited Transaction Issues

Section 406 of ERISA and Section 4975 of the Code prohibit ERISA Plans and other plans such as individual retirement accounts that are subject to Section 4975 but not Title I of ERISA, including entities whose underlying assets are considered to include “plan assets” of any such plan, account or arrangement, from engaging in specified transactions involving plan assets with persons or entities who are “parties in interest,” within the meaning of ERISA, or “disqualified persons,” within the meaning of Section 4975 of the Code, unless an exemption is available. A party in interest or disqualified person who engaged in a non-exempt prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Code. In addition, the fiduciary of the ERISA Plan that engaged in such a non-exempt prohibited transaction may be subject to penalties and liabilities under ERISA and the Code. The acquisition and/or holding of Series 2016A Bonds by an ERISA Plan with respect to which the issuer or the underwriter is considered a party in interest or a disqualified person may constitute or result in a direct or indirect prohibited transaction under Section 406 of ERISA and/or Section 4975 of the Code, unless the investment

is acquired and is held in accordance with an applicable statutory, class or individual prohibited transaction exemption. In this regard, the U.S. Department of Labor has issued prohibited transaction class exemptions, or “PTCEs,” that may apply to the acquisition and holding of the Series 2016A Bonds. These class exemptions include, without limitation, PTCE 84-14 respecting transactions determined by independent qualified professional asset managers, PTCE 90-1 respecting insurance company pooled separate accounts, PTCE 91-38 respecting bank collective investment funds, PTCE 95-60 respecting life insurance company general accounts and PTCE 96-23 respecting transactions determined by in-house asset managers. In addition, Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code provide relief from the prohibited transaction provisions of ERISA and Section 4975 of the Code for certain transactions, provided that neither the issuer of the securities nor any of its affiliates (directly or indirectly) have or exercise any discretionary authority or control or render any investment advice with respect to the assets of any ERISA Plan involved in the transaction and provided further that the ERISA Plan pays no more than adequate consideration in connection with the transaction. There can be no assurance that all of the conditions of any such exemptions will be satisfied.

Because of the foregoing, the Series 2016A Bonds should not be acquired or held by any person investing “plan assets” of any Plan, unless such acquisition and holding will not constitute a non-exempt prohibited transaction under ERISA and the Code or a similar violation of any applicable Similar Laws.

Representation

Accordingly, by acceptance of a Series 2016A Bond, each purchaser and subsequent transferee of a Series 2016A Bond will be deemed to have represented and warranted that either (A) (i) no portion of the assets used by such purchaser or transferee to acquire or hold the Series 2016A Bonds constitutes assets of any Plan or (ii) the acquisition, holding and disposition of the Series 2016A Bonds by such purchaser or transferee will not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or a similar violation under any applicable Similar Laws and (B) the purchaser will not transfer the Series 2016A Bonds to any person or entity, unless such person or entity could itself truthfully make the foregoing representations and covenants.

The foregoing discussion is general in nature and is not intended to be all inclusive. Due to the complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries, or other persons considering purchasing the Series 2016A Bonds on behalf of, or with the assets of, any Plan, consult with their counsel regarding the potential applicability of ERISA, Section 4975 of the Code and any Similar Laws to such investment and whether an exemption would be applicable to the purchase and holding of the Series 2016A Bonds.

FINANCIAL ADVISOR

Prager & Co., LLC (“Prager”) has been retained by the University to act as its financial advisor in connection with the issuance of the Series 2016A Bonds. Although Prager has assisted in the preparation of this Offering Memorandum, Prager is not obligated to undertake, and has not undertaken to make, any independent verification or to assume responsibility for the information contained in this Offering Memorandum.

UNDERWRITING

The Series 2016A Bonds are being purchased by J.P. Morgan Securities LLC (the “Representative”) on behalf of itself and Morgan Stanley & Co. LLC and Barclays Capital, Inc. (collectively, the “Underwriters”), at an aggregate purchase price of $______(representing the principal amount of the Series 2016A Bonds, less an underwriting discount of $______). The Contract

of Purchase between the Underwriters and the University provides that the Underwriters will purchase all of the Series 2016A Bonds, if any are purchased, and requires the University to indemnify the Underwriters against certain losses, claims, damages and liabilities. The initial public offering prices set forth on the cover page of this Offering Memorandum may be changed by the Underwriters and the Underwriters may offer and sell the Series 2016A Bonds to certain dealers (including dealers depositing Series 2016A Bonds into investment trusts) and others at prices lower than the offering prices set forth on the cover page hereof.

RATINGS

Moody’s Investors Service, Inc. has assigned a rating of “Aa1” to the Series 2016A Bonds and S&P Global Ratings, a business unit of Standard & Poor’s Financial Services LLC, has assigned a rating of “AA+” to the Series 2016A Bonds. Any explanation of the significance of each of such ratings may only be obtained from the rating agencies as follows: Moody’s Investors Service, Inc., 7 World Trade Center, 250 Greenwich Street, New York, New York 10007, and S&P Global Ratings, 55 Water Street, New York, New York 10041. There is no assurance that such ratings will remain in effect for any given period of time or that they may not be lowered, suspended or withdrawn entirely by either or both of the rating agencies. Any such downward change in or suspension or withdrawal of either or both of such ratings may have an adverse effect on the market price of the Series 2016A Bonds.

FINANCIAL STATEMENTS

The audited consolidated financial statements of the University as of June 30, 2016 and 2015, and for the years then ended, are included in Appendix B to this Offering Memorandum. The auditors have not been requested to consent to the inclusion of their report, which appears in Appendix B, and have not been engaged or requested to perform any procedures relating to this Offering Memorandum.

CERTAIN RELATIONSHIPS

Russell M. Robinson, II, an attorney with Robinson, Bradshaw & Hinson, P.A., bond counsel to the University, serves as a member of the Board of Trustees of The Duke Endowment, a nonprofit entity separate from the University, which provides an important source of support for the University. Robinson, Bradshaw & Hinson, P.A. has represented, is representing and may represent in the future the University in matters unrelated to the Series 2016A Bonds.

McGuireWoods LLP has represented and may represent in the future the University and Duke University Health System, Inc. in matters unrelated to the Series 2016A Bonds.

The Underwriters, the Financial Advisor and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for the University, for which they received or will receive customary fees and expenses. Robinson, Bradshaw & Hinson, P.A., Sutherland Asbill & Brennan LLP and McGuireWoods LLP have represented, continue to represent or expect to represent in the future the Underwriters and/or the Financial Advisor in unrelated matters.

OTHER MATTERS

Any statements herein involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact, and no representation is made that any of such statements will be realized. Neither this Offering Memorandum nor any statement which may have been made orally or in writing is to be construed as a contract with the owner of any Series 2016A Bonds.

The references herein to the Trust Agreement are brief outlines of certain provisions thereof. Such outlines do not purport to be complete, and for full and complete statements of such provisions reference is made to such Trust Agreement and other materials, copies of which will be on file at the office of the Bond Trustee in Jacksonville, Florida.

14 The University has duly authorized the execution and delivery of this Offering Memorandum.

DUKE UNIVERSITY

By: Executive Vice President

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Appendix A

Certain Information Relating to Duke University

APPENDIX A

CERTAIN INFORMATION RELATING TO DUKE UNIVERSITY

Table Of Contents

Page A- General ...... 1 Academic and Research Programs ...... 1 Faculty ...... 1 Students...... 2 Facilities and Properties ...... 2 Governance and Administration ...... 2 Board of Trustees ...... 2 Administration ...... 3 Duke University Affiliates ...... 4 Duke Management Company ...... 4 Duke University Health System, Inc...... 4 Selected University Financial Data...... 4 General ...... 4 Management’s Discussion and Analysis of Selected University Financial Data ...... 8 Tuition and Fees...... 8 Student Financial Aid ...... 8 Grants, Contracts and Similar Agreements ...... 8 Contributions ...... 9 Health System Support ...... 10 The Duke Endowment ...... 10 Investments ...... 10 Auxiliary Enterprises ...... 11 Facilities Investment Plan ...... 11 Indebtedness and Other Obligations ...... 11 Employees ...... 11 Benefit Plans ...... 12 Litigation and Other Contingencies; Insurance ...... 12

CERTAIN INFORMATION RELATING TO DUKE UNIVERSITY

General

Duke University (the “University” or “Duke”) is a private, coeducational, not-for-profit institution of higher education and research located primarily in Durham, North Carolina. The University traces its roots to the Union Institute, founded in 1838 and reorganized in 1851 as Normal College and in 1859 as Trinity College. James Buchanan Duke selected Trinity College to be the major recipient of his fortune when, in 1924, he provided endowment funds for the University, which now bears his family’s name (see Selected University Financial Data - The Duke Endowment below). The University is nonsectarian, but maintains a divinity school that receives a portion of its funding from the Board of Higher Education and Ordained Ministry of the United Methodist Church.

Academic and Research Programs

The University is fully accredited and internationally recognized. The University is organized around ten schools: the Trinity College of Arts and Sciences, the Pratt School of Engineering, the Fuqua School of Business Administration, the Divinity School, the Nicholas School of the Environment and Earth Sciences, the Law School, the School of Medicine, the School of Nursing, the Sanford School of Public Policy, and the Graduate School. Two schools, the Trinity College of Arts and Sciences and the Pratt School of Engineering, award undergraduate degrees. The graduate and professional schools provide advanced, specialized, academic, and professional training in a wide variety of fields.

Duke has long nurtured a tradition of interdisciplinary collaboration in teaching and research, facilitated by the scope and scale of the academic community and the physical proximity of the major schools and programs to each other on the Duke campus. Cross-disciplinary efforts at Duke include the Nicholas School of the Environment and Earth Sciences, the Institute of Genome Science and Policy, the Center for Nonlinear and Complex Systems, and the Center for Biologically Inspired Materials and Materials Science.

Faculty

For the 2016 fall semester, the faculty of the University consisted of 3,427 full time members, including 1,714 tenured and tenured track professors, and 1,713 non-tenured track. More than 97 percent of the faculty hold the highest academic degree in their field. The ratio of full-time students (excluding students completing dissertations) to full-time faculty members is 8 to 1.

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Students

Enrollment for the 2015 fall semester consisted of 6,640 undergraduate and 9,339 graduate and professional school students. During the 2014-2015 academic year, the University conferred 1,841undergraduate degrees and 3,388 graduate and professional degrees. The following tables provide a summary of applications, acceptances, and matriculations for the five most recent academic years.

Undergraduate Students Academic Year Applications Acceptances Matriculants 2015-16 30,130 3,565 1,742 2014-15 31,523 3,596 1,721 2013-14 31,201 3,819 1,730 2012-13 30,385 4,075 1,714 2011-12 28,165 3,958 1,722 Graduate and Professional Students Academic Year Applications Acceptances Matriculants 2015-16 28,124 7,909 3,435 2014-15 28,733 7,945 3,347 2013-14 27,983 7,760 3,032 2012-13 32,476 7,295 3,051 2011-12 31,976 7,235 3,017

The University offers a wide variety of activities for its students, including over 400 organizations and clubs, 24 fraternities and 18 sororities, 16 student publications, 32 intramural sports and 37 club sports, 13 men’s varsity athletic teams and 13 women’s varsity athletic teams. The University is a member of the National Collegiate Athletic Association’s Atlantic Coast Conference.

Facilities and Properties

The University’s main campus consists of approximately 800 acres in Durham, North Carolina, including the West Campus with its distinctive Gothic architecture and famed Chapel, the Georgian-styled East Campus, and, between the two, the Central Campus. The University also owns 15 acres in Beaufort, North Carolina, home of the Duke University Marine Laboratory, 7,044 acres of forest land in the Piedmont area of North Carolina known as Duke Forest, and certain other properties inside and outside of North Carolina.

The principal facilities located on the main campus include numerous academic, research, residential and administrative buildings, along with gymnasiums, an indoor and an outdoor stadium, an indoor tennis facility, an art museum, student activities buildings, student recreational buildings, several arts performance spaces, and the Chapel.

The University continues to make on-going investments in capital facilities. See Facilities Investment Plan below.

Governance and Administration

Board of Trustees

The University is governed by a Board of Trustees (the “Trustees”) consisting of 37 members, including 36 drawn from private, public and community interests and the President of the University, who serves as a voting ex-officio member. In accordance with the University’s charter, 24 members are elected by the Trustees and 12 by graduates of the University. Nominees presented for election by graduates of the University in accordance with the University’s charter as set forth above are nominated by a majority of the Trustees in accordance with the bylaws of the University.

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The Trustees’ responsibilities include the adoption of curricula for the constituent schools, approval of the University’s budget, including tuition and fee schedules, creation of new schools and departments, approval of investment and debt policies, and land use and development.

The Trustees conduct University business through nine permanent standing committees. The Executive Committee is empowered to act for the full Board of Trustees between scheduled meetings. The other eight committees, which exercise advisory powers only, are Academic Affairs; Audit, Risk and Compliance; Business and Finance; Facilities and Environment; Human Resources; Institutional Advancement; Medical Center Academic Affairs; and Undergraduate Education.

The Trustees are:

Mr. David M. Rubenstein, Chair Mr. Jack O. Bovender, Jr., Vice-Chair Ms. Robin A. Ferracone, Vice-Chair

Ms. Lisa Borders Dr. Michael Marsicano Dr. Richard H. Brodhead, ex officio Ms. Martha L. Monserrate Mr. Tim Cook Ms. Patricia R. Morton The Honorable Allyson Kay Duncan Mr. N. Shepard Moyle Mr. Ralph Eads, III Dr. Clarence G. Newsome Dr. Paul Farmer Mr. Stephen G. Pagliuca Mr. Xiqing Gao Ms. Ann Pelham Mr. Edward A. Gilhuly Mr. Robert R. Penn Dr. Thomas M. Gorrie Mr. Carmichael S. Roberts, Jr. Mr. Gerald L. Hassell Mr. Alan D. Schwartz Mr. William A. Hawkins, III Dr. Steven M. Scott Ms. Janet Hill Mr. Benjamin Shellhorn Ms. Betsy D. Holden Mr. Adam Silver Mr. Peter J. Kahn Ms. Laurene M. Sperling Dr. Elizabeth Kiss Rev. Ashley Crowder Stanley Ms. Anna E. Knight Mr. Jeffrey W. Ubben Mr. Neil Kondamuri Bishop Hope Morgan Ward

Administration

The Trustees elect the officers of the University, with the exception of the President of Duke Management Company. The President of Duke Management Company, who also serves as an officer of the University, is elected by the Board of Directors of that company and approved by the Trustees upon recommendation of the President of the University.

The principal academic, financial, and business officers of the University are:

Richard H. Brodhead President Sally Kornbluth Provost Tallman Trask III Executive Vice President Neal F. Triplett President, Duke Management Company A. Eugene Washington Chancellor for Health Affairs Richard V. Riddell Vice President and University Secretary Pamela J. Bernard Vice President and University Counsel Timothy Walsh Vice President and Treasurer Robert S. Shepard Vice President for Alumni Affairs and Development

President Richard H. Brodhead has announced he will step down on June 30, 2017, at the conclusion of his third term. The University is conducting a search for his successor.

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Duke University Affiliates

Duke Management Company

DUMAC, Inc. (“DUMAC”), established in 1990, is a separate nonprofit support corporation responsible for managing the University’s investment assets. DUMAC allocates the investments across a number of domestic and international asset groups. Contracting with an array of external investment firms to manage discrete segments of the securities portfolios in accordance with objectives set by the DUMAC board, and consistent with policies established by the University’s Trustees, DUMAC oversees and monitors the performance of these investment managers for all the University’s investment pools, including the Non-Academic Retirement Plan.

An eleven-member Board of Directors, appointed by the Trustees, governs DUMAC. Membership is comprised of Trustees, University officers and others who are experienced investment or business professionals with close ties to the University. The DUMAC Board is charged with setting investment policies and objectives. Final approval of the investment policies and objectives rests with the University’s Trustees.

Effective July 1, 2007, DUMAC began managing the investment assets of The Duke Endowment (see below), in addition to the investment assets of Duke.

Duke University Health System, Inc.

Duke University Health System, Inc. (“DUHS,” and together with its consolidated affiliates, the “Health System”), a North Carolina nonprofit corporation organized and controlled by the University, operates an integrated academic health system which includes Duke University Hospital, an academic medical center; two community hospitals, Duke Regional Hospital and Duke Raleigh Hospital; ambulatory surgical centers; primary and specialty care clinics; home health care; hospice care; wellness centers; and community-based clinical practices. The Health System provides inpatient and outpatient facilities and financial support required for the conduct of internship and residency programs, clinical research, and other aspects of the academic mission of the Schools of Medicine and Nursing.

DUHS is a party to a Master Trust Indenture dated as of April 13, 1999 (the “Master Indenture”), originally among DUHS, Durham Therapies, Incorporated and The Bank of New York, as Master Trustee. DUHS is now the only member of the obligated group under the Master Indenture. The indebtedness issued under the Master Indenture is the obligation solely of DUHS; the University has no liability with respect to such indebtedness. At June 30, 2016, the aggregate principal amount of the outstanding Health System indebtedness was approximately $1.030 billion. The Master Indenture contains provisions limiting, among other things, the ability of DUHS to transfer and encumber property. Investors should not rely on the revenues or assets of the Health System for payment of the Series 2016A and 2016B Bonds.

Selected University Financial Data

General

The following Consolidated Condensed Balance Sheets as of June 30, 2012 through 2016, and Consolidated Condensed Statements of Activities for the fiscal years ended June 30, 2012 through 2016, were derived from the consolidated financial statements of the University. The Consolidated Condensed Balance Sheets and Consolidated Condensed Statements of Activities are summary only and should be read in conjunction with the audited consolidated financial statements of the University for the fiscal years ended June 30, 2016 and 2015, and related notes to such statements and accompanying information, which financial statements and accompanying information are included as Appendix B to the Official Statement (the “Financial Statements”).

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DUKE UNIVERSITY CONSOLIDATED CONDENSED BALANCE SHEET (including the Health System)

As of June 30 (000’s Omitted) 2016 2015 2014* 2013 2012

Total assets $17,249,055 $17,357,843 $16,787,635 $15,536,933 $14,171,152

Total liabilities 5,263,538 4,361,626 4,223,375 4,101,275 4,367,787

Total net assets $11,985,517 $12,996,217 $12,564,260 $11,435,658 $9,803,365

Total net assets consists of: Unrestricted net $6,548,920 $7,300,720 $6,997,642 $6,561,317 $5,452,366 assets Temporarily 2,609,315 2,931,257 2,920,515 2,339,182 2,027,612 restricted net assets Permanently 2,827,282 2,764,240 2,646,103 2,535,159 2,323,387 restricted net assets

* 2014 shown is as restated in 2015

DUKE UNIVERSITY CONSOLIDATED CONDENSED STATEMENT OF ACTIVITIES (including the Health System)

Fiscal Year Ended June 30 (000’s Omitted) 2016 2015 2014* 2013 2012

Total operating revenues $5,663,275 $5,391,913 $4,882,600 $4,774,976 $4,611,924 and support

Total operating expenses 5,451,195 5,171,580 4,897,473 4,670,261 4,485,592

Excess (deficit) of 212,080 220,333 (14,873) 104,715 126,332 operating revenue over expenses

Change in net assets (1,222,780) 211,624 1,678,987 1,527,578 (634,315) from non-operating activities

Increase (decrease) in $(1,010,700) $431,957 $1,664,114 $1,632,293 $(507,983) net assets

* 2014 shown is as restated in 2015

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The following Condensed Balance Sheet as of June 30, 2012 through 2016 and Condensed Statement of Activities for the fiscal years ending June 30, 2012 through 2016 include financial information for the University exclusive of the financial position and results of operations of the Health System.

DUKE UNIVERSITY CONDENSED BALANCE SHEET (excluding the Health System)

Fiscal Year Ended June 30 (000’s Omitted) 2016 2015 2014* 2013 2012

Total assets $12,594,506 $12,368,118 $11,964,711 $11,376,609 $10,201,760

Total liabilities 3,003,881 2,554,783 2,413,208 2,214,638 2,276,463

Total net assets $9,590,625 $9,813,335 $9,551,503 9,161,971 $7,925,297 Total net assets consists of: Unrestricted net assets $4,211,843 $4,175,151 $4.043,968 $4,334,577 $3,624,324 Temporarily restricted net assets 2,565,199 2,885,448 2,872,682 2,303,099 1,986,865 Permanently restricted net assets 2,813,583 2,752,736 2,634,853 2,524,295 2,314,108

* 2014 shown is as restated in 2015

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DUKE UNIVERSITY CONDENSED STATEMENT OF ACTIVITIES (excluding the Health System) As of June 30 (000’s Omitted) 2016 2015 2014* 2013 2012 Unrestricted net assets activity Operating revenues: Tuition and fees (net of student $453,623 $429,043 $406,710 $390,275 $370,905 aid) Grants, contracts and similar 1,071,779 1,041,239 1,051,795 1,041,643 1,016,005 agreements Contributions 125,410 109,109 97,089 115,113 91,611 Investment return designated for 467,272 379,504 378,471 361,019 337,435 current operations Auxiliary enterprises 211,765 206,872 186,499 175,968 170,312 Academic support from DUHS 1 97,937 64,222 63,557 - - Other income 135,431 137,662 130,327 119,476 118,101 Net assets released from 57,116 51,907 46,488 41,486 37,839 restrictions Total operating revenues and 2,620,333 2,419,558 2,360,936 2,244,980 2,142,208 support Total operating expenses 2,563,236 2,461,630 2,382,538 2,303,346 2,248,353 Excess (deficit) of operating revenues over (under) operating 57,097 (42,072) (21,602) (58,366) (106,145) expenses Change in unrestricted net assets (530,405) 23,255 578,988 423,273 (295,571) from non-operating activities Transfer of net assets (to) from 510,000 150,0002 - 51,812 40,389 Health System Change in unrestricted net assets attributable to non-controlling interests 3 - - - 293,534 (35,070) Increase (decrease) in 36,692 131,183 557,386 710,253 (396,397) unrestricted net assets Increase (decrease) in temporarily restricted net (320,249) 12,766 569,583 316,234 (146,808) assets Increase (decrease) in permanently restricted net 60,847 117,883 110,558 210,187 100,318 assets

Total increase in total net $(222,710) $261,832 $1,237,527 $1,236,674 $(442,887) assets ______* 2014 shown is as restated in 2015. 1 In FY2015 and FY2014, academic support from DUHS was reclassified from non-operating to operating activities to more accurately reflect the use of funds. 2 During the fiscal year ended June 30, 2015, the Health System transferred $150 million to the University to establish a Chancellor’s Research and Development Augmentation fund. 3 Beginning in FY2015 and restated for FY2014, an accounting change resulted in the elimination in net assets attributable to non-controlling interest as detailed in footnote #5 of the FY2015 financial statements.

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Management’s Discussion and Analysis of Selected University Financial Data

This discussion and analysis of selected University financial data excludes the financial position and results of operations of the Health System. All information set forth in the following discussion and analysis relates solely to the University, exclusive of the Health System, unless otherwise indicated.

Tuition and Fees

The University generates tuition and fees from both undergraduate and graduate students attending classes at the University. Tuition and fee revenue from undergraduate and graduate students prior to reduction for student financial aid increased by 5.0 percent during the fiscal year ended June 30, 2016, as compared to a 4.9 percent increase during the fiscal year ended June 30, 2015. In the fiscal year ended June 30, 2016, tuition and fee revenue prior to reduction for student financial aid provided approximately 28.0 percent of the University’s operating revenues, as compared to 28.9 percent for the fiscal year ended June 30, 2015.

Undergraduate Tuition and Required Fees per Student

For the Academic Year 2016-17 2015-16 2014-15 2013-14 2012-13 Tuition and Required Fees $51,265 $49,241 $47,243 $45,376 $43,623

Graduate tuition and required fees are set annually by the individual schools and subsequently approved by the Trustees. The tuition and required fees for graduate and professional schools range from $21,840 to $63,025 for the 2016-17 academic year.

Student Financial Aid

Student financial aid is the portion of student tuition, living expenses, and other costs covered by scholarships and fellowship grants from the University and is reported in the University’s Statement of Activities as a reduction to tuition and fees income. Student financial aid of $279.9 million and $269.2 million, respectively, was reported for the fiscal years ended June 30, 2016 and 2015. Students may also receive other student financial assistance in the form of jobs and student loans. Currently, five out of ten Duke undergraduate students receive student financial aid or other financial assistance from the University.

Grants, Contracts and Similar Agreements

The University is one of the world’s leading centers for research and training. Research and education programs receive significant support from grants and contracts awarded by governmental agencies and non-governmental organizations. Duke consistently ranks among the top research universities in the country as measured by federal funding. Grants, contracts, and similar agreements accounted for 41 percent of the University’s operating revenues for the fiscal year ended June 30, 2016, as compared to 43 percent for the fiscal year ended June 30, 2015. Approximately 52 percent of these revenues for the fiscal year ended June 30, 2016 were earned under contracts with the federal government and its departments and agencies. Revenue from government grants and contracts was $557 million, an amount substantially unchanged relative to the prior year. The following table summarizes the sources of grants, contracts, and similar agreements revenue for the past five fiscal years.

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Sources Of Grants, Contracts, And Similar Agreements

Fiscal Year Ended June 30 (000’s Omitted) 2016 2015 2014 2013 2012

Federal Sources Dept. of Health and Human $404,323 $391,694 $408,815 $420,654 $438,857 Services Dept. of Defense 39,849 45,632 48,600 46,545 43,651 Dept. of Energy 11,085 8,164 8,085 9,440 8,974 National Science Foundation 42,457 44,832 42,738 47,801 44,096

Other Federal 25,585 31,731 33,627 26,229 20,218

Total Federal Sources 523,299 522,053 541,865 550,669 555,796

State and Other 34,038 35,435 35,340 33,694 32,511 Governmental Sources

The Private Diagnostic Clinic, 54,625 46,264 42,340 45,841 48,638 PLLC Other Non-Governmental 459,817 437,487 432,250 411,433 379,060 Sources Totals $1,071,779 $1,041,239 $1,051,795 $1,041,637 $1,016,005

The Private Diagnostic Clinic, PLLC (“PDC”) is a limited liability company consisting of physicians practicing in Duke affiliated entities. The PDC provides a structure in which members of the School of Medicine faculty engage in the private practice of medicine while serving as full-time faculty, conducting clinical teaching, and engaging in medical research.

Other Non-Governmental Sources include revenues from commercial and other non-governmental sponsors of research.

Contributions

The University derives significant financial support from The Duke Endowment (described below) and other contributors. The University received $328 million in charitable gifts during the fiscal year ended June 30, 2016, a 3.1 percent increase over the previous year. The continued growth in contributions is due to the generosity of alumni and friends participating in Duke’s ongoing comprehensive fundraising campaign, Duke Forward.

Unrestricted contributions received from private sources for both operational and capital development purposes, including discretionary grants from the Duke Endowment, totaled approximately $125.4 million for the fiscal year ended June 30, 2016, as compared with approximately $109.1 million and approximately $97.1 million for the fiscal years ended June 30, 2015 and 2014, respectively.

An important component of the University’s annual private philanthropic total is the portion given to the Duke Annual Fund. The Duke Annual Fund is an annual giving program that derives its support primarily from alumni and non-alumni parents. Donations to the Annual Fund are immediately expendable for current operating purposes. In the fiscal year ended June 30, 2016, gifts to the annual fund totaled approximately $37.5 million, compared with gifts of $36.3 million for the fiscal year ended June 30, 2015, representing an increase of approximately 3.3 percent.

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Health System Support

In July 2016, the Health System transferred $510 million to the University’s School of Medicine. Of this amount, $310 million is intended to cover annual funding support for the School of Medicine for FY2017 through FY2026, with the remainder intended to establish a quasi-endowment for the School of Medicine.

The Duke Endowment

In 1924 James Buchanan Duke created The Duke Endowment as a charitable trust to serve the people of North Carolina and South Carolina by supporting selected programs of higher education, health care, children’s welfare, and spiritual life. In the trust indenture, Mr. Duke directed that funds immediately be made available for building a university around Trinity College which would reach and maintain “a place of real leadership in the educational world.” The trustees of Trinity College gratefully accepted the terms of the indenture and changed the name of the corporation to “Duke University” as a memorial to Mr. Duke’s father and the Duke family. Upon Mr. Duke’s death in 1925, substantial additional funds were contributed to The Duke Endowment as a bequest, including additional funds for the rebuilding of the old University campus and creation of a new campus.

The Duke Endowment’s indenture mandates a distribution to the University of a certain amount of income, subject to a limited right to withhold by The Duke Endowment’s trustees, which has never been exercised. The University is currently and has been for the past ten years a beneficiary of approximately 30 percent of The Duke Endowment’s income as the mandatory distribution. During the fiscal year ended June 30, 2016, the University received $12.5 million from The Duke Endowment as the mandatory distribution and another $31.4 million in discretionary grants.

While the University continues to receive substantial support from The Duke Endowment in the forms of operating income and discretionary grants, they are two separate entities, each with its own mission, officers, and trustees. A group of independent trustees controls the trust assets of The Duke Endowment. However, because the University derives unrestricted income from a portion of The Duke Endowment, subject to the limited right to withhold noted in the preceding paragraph, a portion of The Duke Endowment’s assets at market value is included in the University’s Balance Sheet. See the discussion of The Duke Endowment contained in Note 12 to the Financial Statements. At June 30, 2016, this portion was approximately $671.5 million.

Investments

During the fiscal year ended June 30, 2016 the University derived $467.2 million of its operating revenues from return on its investments. The following table summarizes the fair value of the University’s investments as of the end of the past five fiscal years:

As of June 30 (000’s Omitted) 2016 2015 2014 2013 2012 $8,129,791 $8,661,013 $8,376,965 $7,158,050 $7,059,144 Total Investments

Less: Permanently Restricted 1,870,579 1,762,725 1,663,584 1,635,448 1,563,643 Investments

Unrestricted and Temporarily $6,259,212 $6,898,288 $6,713,381 $5,522,602 $5,495,501 Restricted Investments

As of June 30, 2016, the University held investments with a fair value of approximately $8.1 billion; approximately $8.1 billion was invested in the Long Term Investment Pool (the “Pool”), an investment account actively managed by DUMAC for total return. The Pool’s assets are diversified among ten categories of investment types, such as domestic equity, real estate and fixed income. The University currently does not anticipate any major changes to its

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investment policy. The Pool is the principal investment vehicle for the University’s permanently restricted assets, although reserve funds may also be invested in the Pool. University assets constituted 93.8 percent of the Pool at June 30, 2016; the remainder consisted of Health System assets. The Pool realized a 7.1 percent average annualized return for the ten fiscal years ended June 30, 2016, including a return of (2.6) percent for the fiscal year ended June 30, 2016.

The University adheres to a Trustee-approved spending policy for the Pool equal generally to 5.5 percent of the Pool’s average value over a rolling three-year period. Over time, this policy is designed to stabilize annual spending levels and preserve the real value of the investments. Expressed as a percentage of beginning market value, the effective spending rate for the fiscal year ended June 30, 2016 was 4.1 percent.

Auxiliary Enterprises

Income from auxiliary enterprises includes revenues from dining services, campus stores, housing and publications, among other areas.

Facilities Investment Plan

The University has a long-standing commitment to academic and financial planning and makes significant investments in its facilities for teaching, research, and related activities. The University funds this commitment through various sources including charitable contributions, the issuance of debt, and internal funds.

In May, 2016, the University had, in design or under construction, capital projects with an aggregate project cost of approximately $514 million. Of the aggregate project costs, the University expects to fund approximately $105.5 million from contributions, $99.8 million from existing University reserves, and $308.7 million from long-term debt including the 2016A Bonds, described in the following section. (See “The Plan of Financing” in the front portion of this Official Statement).

Indebtedness and Other Obligations

The University has outstanding a number of bond issues and other obligations. The University’s outstanding debt as of June 30, 2016 is described in Note 10 to the Financial Statements.

As of June 30, 2016, the total outstanding principal amount of long-term indebtedness of the University was approximately $1.698 billion. As of June 30, 2016, the University had issued and outstanding approximately $60.1 million principal amount of taxable commercial paper and approximately $33.9 million principal amount of tax- exempt commercial paper.

The University expects that on November 3, 2016, the North Carolina Capital Facilities Finance Agency will issue approximately $319 million of its Revenue Refunding Bonds (Duke University Project) Series 2016B, the proceeds of which will be loaned to the University. Approximately $247 million of Series 2009B Bonds will be refinanced with proceeds of the Series 2016A Bonds. Approximately $281.9 million of Series 2006A Bonds and $95.4 million of Series 2006B Bonds will be refinanced with the proceeds of the Series 2016B Bonds. After giving effect to the issuance of the Series 2016A Bonds and Series 2016B Bonds, the University will have approximately $1.946 billion outstanding principal amount of long-term indebtedness and approximately $94.0 million outstanding principal amount of taxable and tax-exempt commercial paper, with approximately $406 million of additional commercial paper authorized, but not issued.

Employees

Excluding the faculty, the University currently employs approximately 19,300 individuals. Three labor unions represent approximately 4 percent of these employees under collective bargaining agreements that expire in 2016 and 2017.

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Benefit Plans

Faculty and exempt staff members of the University are eligible to participate in a defined contribution retirement plan. For fiscal years 2016 and 2015, the University contributed $141,308 and $135,366, respectively, to this plan. The University expects to contribute $146,106 to this plan in fiscal 2017.

The University has a non-contributory defined benefit pension plan for substantially all full-time non-exempt employees. The University expects to contribute $21,699 to the plan in fiscal 2017. At June 30, 2016 and 2015, the accumulated benefit obligation for the pension benefits was $1,860,740 and $1,467,942, respectively. At June 30, 2016, the plan was under funded in relation to accumulated benefits by $350,604. At June 30, 2015, the plan was over funded in relation to accumulated benefits by $128,565.

The University also sponsors an unfunded, defined benefit postretirement medical plan that covers all full-time employees who elect coverage and satisfy the plan’s eligibility requirements when they retire. The University pays all benefits under the medical plan on a current basis.

For information with respect to the plans, including certain assumptions used in the measurement of the University’s benefit obligation and benefit cost, see Note 8 to the financial statements attached to the Official Statement as Appendix B.

Litigation and Other Contingencies; Insurance

The University has incurred general liability losses in each of the last five years; however, the amounts of such losses have not been material, either individually or in the aggregate, in any such year. Although there are a number of such actions currently pending against the University, in the opinion of University Counsel, coverage under self- insured retention, existing and prior insurance programs, and provision for contingent liabilities when deemed appropriate by management, is adequate to protect the University against any potential liability arising from those actions that would have a material adverse effect on the University’s financial position.

If a final judgment were entered against the University in any general liability action in an amount in excess of its insurance coverage, the University would be liable for the excess.

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Appendix B

Duke University Financial Statements

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- Financial Statements 2015/2016 HOLD FOR PHOTO

Financial Statements 2015/2016 Table of Contents

2 Letter from The Executive Vice President

3 Discussion of Financial Results for Fiscal Year 2016

10 Statistical Highlights

12 Independent Auditors’ Report

15 Consolidated Balance Sheets

16 Consolidated Statements of Activities

18 Consolidated Statements of Cash Flows

20 Notes to Consolidated Financial Statements

40 Schedule 1—University Balance Sheets (exclusive of DUHS) HOLD FOR PHOTO 41 Schedule 2—University Statements of Activities (exclusive of DUHS)

43 Schedule 3—University Statements of Cash Flows (exclusive of DUHS)

Duke University Financial Contacts Timothy W. Walsh Vice President of Finance and Treasurer Rachel L. Satterfield Associate Vice President for Finance and University Controller Elizabeth H. Carver Senior Director, Accounting and Reporting

The cover of this report features West Campus Union, which re-opened in August 2016 after a two-year renovation project.

Financial Statements 2015/2016 1 Letter from The Executive Vice President

Fiscal 2016 was a milestone year for Duke University, with a high Fiscal 2016 included positive operating results from both the level of capital investment, record philanthropic support from our University and Duke University Health System, Inc. (DUHS). DUHS alumni and other friends of the University, and strong operating delivered exceptional results, with an operating surplus of $303 results from both the University and Health System. million attributable to an increase in patient volumes. On July 1, Major capital renovations and new construction revitalized all corners 2016, DUHS transferred $510 million to the School of Medicine to of campus in fiscal 2016. A two-year project to completely recreate the provide predictable annual support to the School through 2036. These West Campus Union while maintaining the facility’s classic character funds are in addition to annual academic support DUHS provides to is nearing completion, and will return the Union to its prominence the School of Medicine for University-based medical faculty research as the center of student life at Duke. A renovation of Wallace Wade and education. Stadium is also nearly complete and will enhance the experience of Despite the fiscal 2016 performance described above, Duke’s students, faculty, and alumni through the modernization of the bowl consolidated net asset base declined $1 billion during the year, and concourse as well as the addition of a press and amenities tower reflecting the challenging investment and interest rate environment. and scoreboard. Our focus on enhancing the student experience will While Duke’s net asset base remains strong at $12 billion, the continue in the coming years, as we launch construction of new administration continues to recognize financial limitations that require undergraduate residence halls and renewal of some of our oldest tradeoffs and priority-setting in order to achieve our most important residences, and as we complete a new student health and wellness aspirations. This is particularly important given the imminent release center. of the University’s new academic strategic plan. Many of these investments were made possible by the generous Our continued success is dependent upon exceptional work by our support of our alumni and other friends of the University. In fiscal faculty, staff and students. We are thankful for their diligence and for 2016 alone, the University received over $500 million from our the continued support of our alumni and many other friends of Duke. donors, a record for Duke. The Duke Forward campaign, officially launched in fiscal 2013, crossed the $3.25 billion campaign goal a year ahead of schedule. We will continue to pursue support for our students, programs, and capital priorities through the conclusion of the campaign and beyond. Tallman Trask III Executive Vice President

2 Financial Statements 2015/2016 Discussion of Financial Results for Fiscal Year 2016

The Discussion of Financial Results (the Discussion) includes highly The following table summarizes the major components of net assets summarized data and should, therefore, be read in conjunction activity in fiscal 2016 and 2015: with the accompanying consolidated financial statements, notes, and supplementary schedules. All figures presented within the Summary of Changes in Consolidated Net Assets Discussion are consolidated and inclusive of Duke University (in millions) Health System, Inc. (DUHS) and referred to herein as Duke, unless specifically designated otherwise. 2016 2015 Operating results – University $ 57 $ (42) Net Assets Less: Operating support from DUHS (98) (64) Operating results – DUHS 253 326 Duke’s consolidated net asset base declined $1.0 billion in fiscal 2016 to $12.0 billion as of June 30, 2016, primarily due to a decline Nonoperating results: in the market value of Duke’s investments. The University’s Long- Investment return, net of spending (775) 58 Term Pool (LTP) investment portfolio experienced a total return of Restricted contributions, net of amounts negative 2.6%, while DUHS’ Health System Pool (HSP) experienced released from restrictions 151 162 a total return of negative 3.3%. The impact from investment Nonperiodic changes in defined performance was offset in part by strong operating performance benefit plans (514) (20) of both DUHS and the University, as well as philanthropic support (Losses) gains on interests in from the Duke Forward campaign. Over the past ten (10) years, perpetual trusts held by others (52) 22 despite the significant decline in fiscal 2009, consolidated net assets Other (32) (10) grew at a compound annual growth rate of 4% due primarily to investment returns, generous philanthropic support from our alumni Total (decrease) increase in and other donors, superior operating results of DUHS, and prudent consolidated net assets (1,010) 432 management of our internal resources. Total consolidated net assets $ 11,986 $ 12,996

Consolidated Net Assets ($ in billions) The operating results of the University and DUHS are detailed $14 13.0 independently later in the Discussion. Nonoperating activities of 12.6 12.0 Duke resulted in a net decline of $1.2 billion to the consolidated net $12 10.5 10.9 asset base and include: 10.0 9.9 9.4 M $10 Investment returns included in nonoperating activities reflect a total LTP investment loss of 2.6% (negative $381 million) and a return 8.0 9.6 9.8 9.6 7.5 of 4.4% ($419 million), for fiscal 2016 and 2015, respectively, less $8 8.6 8.3 8.3 amounts distributed for spending distributions of $394 million and 7.8 7.3 $361 million. Duke’s investment programs and related outcomes $6 6.4 6.1 are described in more detail within the “Investments/Endowments” $4 segment of this Discussion. 2.6 3.0 3.2 2.1 2.02.4 1.7 1.9 1.4 1.6 2.1 MRestricted contributions primarily received for endowment and $2 capital projects ($151 million). Restricted contributions are net of amounts released from restrictions of $57 million and $52 million $– for fiscal 2016 and 2015, respectively. 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 M Nonperiodic changes in defined benefit plans ($514 million Consolidated University DUHS decline) includes current year declines in the discount rates used to determine the valuations of Duke’s obligations related to the defined benefit pension and postretirement healthcare plans. M Losses from the University’s interests in perpetual trusts held by others, primarily The Duke Endowment ($52 million). University Operating Performance The operating results of the University, exclusive of DUHS, are presented in the supplemental Statements of Activities (Schedule 2 on page 40) following the notes to the consolidated financial statements.

Financial Statements 2015/2016 3 University operating activities for fiscal 2016 include all revenues MGrants and contracts revenue, which increased approximately 3% and expenses that support education and research efforts, as well as in fiscal 2016, represents the largest component of University other priorities of the University, and are discussed in more detail in revenue (41%), and is covered in detail within the “Sponsored their respective segments of this Discussion. Programs” segment of this Discussion. The fiscal 2016 operating results of the University improved $99 MNet tuition and fees reflect gross tuition and fees net of million compared to fiscal 2015, reflecting an 8.3% increase in student financial aid provided by the University. Gross tuition operating revenues partially offset by a 4.1% increase in operating and fees ($733 million) increased $35 million, or 5%, over expenses. the prior year, reflecting modest rate increases and enrollment Year-to-Year Change in University growth in certain programs. Student financial aid ($280 million) Operating Revenue and Expense (%) increased $11 million, or 4%, in fiscal 2016, reflecting the 10% 8.3% administration’s continued commitment to need-blind admission for undergraduates and strong financial support for graduate and professional students. 4.8% 4.1% 5% 3.4% 3.3% M Investment return designated for current operations, consisting of endowment spending distributions, returns on other invested 2.4% 2.3% 2.5% funds, and distributions from The Duke Endowment, increased 0% $88 million in fiscal 2016 and totaled $467 million. The changes in each component are covered in more detail within the “Investments/ -1.7% Endowments” segment of this Discussion. -5% Operating expenses for the University increased $102 million to $2.56 -8.4% billion in fiscal 2016. The major components of University operating expenses are summarized below: -10% 2012 2013 2014 2015 2016 FY 2016 University Operating Expenses – Operating Revenue Operating Expense $2.56 billion In response to the economic pressures first experienced in fiscal 2009, the administration has constrained operating expense growth Depreciation 8% in anticipation of limited growth in operating resources. Several Interest significant one-time transactions occurred in fiscal 2011, which 3% then drove correspondingly low comparative growth percentages Other operating in fiscal 2012. The fiscal 2016 operating revenue increase is due expenses to incremental support discussed in the Investments/Endowments 15% section of this discussion. The administration anticipates future growth patterns comparable to the fiscal 2015 and 2014 rates shown. Subrecipient Salaries Total operating revenues for the University increased $201 million payments and wages to $2.62 billion in fiscal 2016. The University’s major revenue 6% 47% components are summarized below: Rent and utilities 4% FY 2016 University Operating Revenues by Source – $2.62 billion Professional Services Net tuition and fees 5% Other 17% Employee beneﬁts income 12% 9%

Auxiliary MSalaries and wages totaled $1.2 billion in fiscal 2016, a $40 million Government enterprises grants or 3% increase compared to fiscal 2015. This increase primarily 8% and contracts reflects fiscal 2016 merit-based salary increases for faculty and staff. 21% MEmployee benefits increased $18 million, or 6%, and remains Investment relatively consistent with fiscal 2015 as a percentage of salaries and return designated wages. for current operations MDepreciation expense of $200 million represented 8% of total operating 18% expenses in fiscal 2016, an increase of $7 million compared to the prior Private grants year. Fiscal 2016 capital activity is covered in detail within the “Capital Contributions and contracts Spending and Debt” segment of this Discussion. 7% 20%

4 Financial Statements 2015/2016 MOther operating expenses represented 15% of University operating DUHS operating expenses increased $162 million, or 6%, in expenses in fiscal 2016 and include various nonlabor expenses, most fiscal 2016 compared to the prior year. The significant increases notably supplies and materials, travel expenses and public relations. in 2016 were primarily in labor costs and medical supplies. Labor Other operating expenses remained virtually unchanged from the costs increased $76 million in fiscal 2016 due to a 4% increase prior year. in personnel, attributed primarily to volume growth, and planned increases in annual pay rates. The medical supplies increase includes DUHS Operating Performance a $47 million increase in drug expenses due to increased utilization. DUHS continues to provide care to patients who meet certain criteria As detailed in Note 1 to the consolidated financial statements, DUHS under its financial assistance policies without charge or at amounts operates as a controlled affiliate of the University, and manages all less than its established rates. Because DUHS does not pursue of Duke’s clinical health operations and facilities. The financial collection of amounts determined to qualify as charity care, they are results and financial position of DUHS are consolidated into the not reported as revenue or included in patient accounts receivable. financial statements of Duke under financial statement presentation In fiscal 2016, DUHS provided charity care with an estimated cost requirements governing colleges and universities. This differs from of $82 million, an increase of $12 million compared to fiscal 2015. financial statement presentation requirements governing health Total community benefit as defined by and reported to the Internal care organizations and used by DUHS in their separately issued Revenue Service was $242 million in fiscal 2016 and, combined financial statements. The fiscal 2016 net operating income of $303 with an additional $202 million of community investments, DUHS million reported in DUHS’ separately-issued consolidated statement provided $444 million of benefit to the community. This is an of operations represents a decline of $52 million compared to increase from $409 million in fiscal 2015, due primarily to the fiscal 2015’s record $355 million. increases in charity care and unreimbursed Medicaid. DUHS operating margins and positive cash flows from operating DUHS Operating Income and Cash Flow ($ in millions)1 activities over the last ten (10) years, combined with returns on its $600 invested reserves, allowed DUHS to make transfers to the University in support of the School of Medicine and other University functions 494 513 $500 of $1.2 billion during this time period. These transfers include a $510 million transfer recorded as a payable to the School of Medicine in June 2016. The planned $510 million transfer of cash and $400 321 investments was made to the School of Medicine on July 1, 2016, and 282 is comprised of the following two (2) components: (1) $310 million $300 to replenish the $280 million transfer made in June 2006, intended to 226 355 303 256 provide predictable annual support to the School of Medicine from $200 fiscal 2017 through fiscal 2026 and (2) $200 million to establish a 184 quasi-endowment fund that will provide support beyond July 1, 2026. $100 DUHS continued its history of providing annual operating support 96 for University-based medical faculty research and education with $– net transfers totaling $98 million to the School of Medicine in fiscal 2012 2013 2014 2015 2016 2016, also included in the $1.2 billion above total. Income from operations Cash flow from operations

Total DUHS operating revenue for fiscal 2016 increased $110 million, or 4% over the prior year. The increase in revenue was primarily driven by volume growth. Outpatient volume growth continues to outpace inpatient growth as more procedures transition to an outpatient setting, generally a less costly mode of care. Inpatient discharges and surgical cases increased 3% and 1%, respectively. Outpatient surgical cases increased 2%, outpatient endoscopy procedures increased 9%, and total outpatient visits, excluding surgeries and endoscopies, increased 6% over the prior year.

1 Certain components of nonoperating activities in the DUHS consolidated statement of operations and statements of cash flows are reclassified as operating items in Duke’s consolidated statements of activities and statements of cash flows in order to conform to financial statement presentation generally followed by colleges and universities. Losses on the extinguishment of debt and interest payments related to derivative swaps represent the primary components with $25 million and $15 million, respectively reclassified in fiscal 2016. Duke’s consolidated statements of activities and cash flows include $253 million of income and $507 million of cash flows, respectively, from operations related to DUHS for fiscal 2016. Financial Statements 2015/2016 5 Investments/Endowments As Duke’s investment base, including the endowment, has grown over the last ten (10) years, investment related support has become a larger Responsibility for managing Duke’s investment portfolio rests with contributor to the current operations of the University. Investment DUMAC, Inc. (DUMAC), a separate nonprofit support corporation returns supporting operations, which include endowment spending, organized and controlled by Duke. DUMAC invests Duke’s withdrawals from quasi-endowments, distributions from The Duke assets across domestic and international asset groups, principally Endowment, and income from invested working capital, grew from through investment advisory firms and partnerships. Growth of the $330 million in fiscal 2007 to $467 million in fiscal 2016. investment and endowment base is a critical factor in maintaining Duke’s financial strength and flexibility to meet current needs and fund future initiatives. Investment Return Supporting Current Operations ($ in millions – University Only) Duke’s investment portfolio primarily consists of debt, equity, and $500 other investments within the LTP and the HSP. $450 Duke’s investments have grown significantly over the last ten (10) $400 years and total approximately $10.9 billion as of June 30, 2016. Endowment and similar funds (including interests in perpetual trusts $350 held by others), representing approximately $6.8 billion of this total, $300 support the current and future operations of the schools, academic $250 departments, libraries and other facilities, and student financial aid. $200 $150 Growth of Investments and Endowment $100 (June 30 values, $ in billions) $50 $12 11.0 11.2 10.9 $– 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $10 8.7 9.4 8.3 8.4 Endowment spending distributions Income from The Duke Endowment 7.9 7.8 $8 Other investment income 6.8 7.3 $6 7.0 6.8 To balance current and future needs, the University employs 5.9 6.1 5.7 5.6 6.0 investment and spending policies designed to provide an appropriate $4 4.8 4.4 flow of income to the operating budget while preserving the future purchasing power of the endowment assets in perpetuity. The LTP $2 spending rate is set by the administration and approved by the Board of Trustees. For fiscal 2016, the Board approved a 5% increase in $– spending rates for non-financial aid endowments and a 3% increase in 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 spending rates for financial aid endowments. The effective spending Investments Endowment rates for fiscal 2016 – based on June 30, 2015 investment market values – were 5.4% for financial aid endowments and 4.1% for non- DUHS accounts for $3.2 billion of Duke’s cash and investment financial aid endowments. The HSP is not subject to the University’s portfolio (prior to the $510 million transfer to the School of spending policies. Medicine), which primarily represents unrestricted working capital, In addition, the Board authorizes the use of supplemental endowment reinvested operating surpluses, and associated appreciation. distributions from quasi-endowments for special academic development initiatives and to support the operations and maintenance Fiscal Year Investment Returns of certain facilities. These supplemental distributions have grown from $31 million in fiscal 2007 to $125 million in fiscal 2016, due 2012 2013 2014 2015 2016 largely to two quasi-endowment funds established by transfers from LTP 1.0% 13.5% 20.1% 4.4% -2.6% DUHS to the School of Medicine in 2006 to provide annual academic support through 2016. In addition, the Board approved a $250 million HSP -0.1% 13.1% 19.7% 3.0% -3.3% liquidation from central unrestricted quasi-endowments that will occur over five years beginning in fiscal 2016. The University withdrew $25 For fiscal 2016, the LTP, in which 99% of the endowment (excluding million of the $250 million in fiscal 2016. perpetual trusts) is invested, returned negative 2.6%. DUMAC seeks Other investment income is another major component of investment to achieve an annualized real rate of return of at least 5.0%, net of fees, returns supporting current operations ($91 million in fiscal 2016). to fund the LTP spending rate and to allow growth of the endowment This income can vary significantly based on market returns and, as a after considering the effects of inflation. The total return on the HSP, result, has generated as much as $170 million of income in fiscal 2007 a more liquid fund managed for DUHS, was negative 3.3% in 2016. and as low as $54 million in fiscal 2013. Such support is generated

6 Financial Statements 2015/2016 through the corporate cash management strategies of Duke and is Total Grants, Contracts and Similar Agreements generally released under protocols approved by the Board of Trustees. ($ in millions) As planned, other investment income increased $30 million compared $1,200 to fiscal 2015, and primarily represents the fiscal 2016 liquidation of 1,072 1,016 1,042 1,052 1,041 invested working capital. The administration anticipates future income $1,000 levels consistent with fiscal 2016. $800 LTP Ten Year Annualized Investment Returns (%) 12.0% $600 10.6% 10.8% 9.9% 9.4% 10.0% $400

8.0% 7.1% $200 7.6% 7.5% 7.4% 7.2% 6.0% 6.8% $– 2012 2013 2014 2015 2016 4.0% Government Sources Private Sources Private Diagnostic Clinic

2.0% The slight decline in government sourced revenue shown above 0.0% is largely due to the tapering off of ARRA funding, with fiscal 2012 2013 2014 2015 2016 2016 support essentially consistent with that of fiscal 2015 at $557 10-Year Annualized Return 5.0% Real Rate of Return million. In addition to government sourced grants and contracts, Duke also As shown by the graph above, the LTP 10-year annualized returns received $460 million from private sources in fiscal 2016, an increase exceed the 5.0% target real return for each of the periods presented. of $22 million, or 5%, compared to fiscal 2015. This revenue consists Returns in excess of the real return target rate provide growth primarily of industry and private awards in support of clinical opportunities for university programs and priorities, while also research. The Duke Clinical Research Institute remains the world’s providing cushion against short-term market volatility and pressures. largest academic clinical research organization, generating almost 50% of Duke’s grant and contract revenue from private sources. Sponsored Programs Philanthropy The University conducts research in a collaborative interdisciplinary environment among its schools. The School of Medicine is one of the Contributions revenue reported within the consolidated financial largest biomedical research enterprises in the country with programs statements is calculated based on generally accepted accounting focused on the causes, prevention, and treatment of human disease. principles (GAAP). This differs from philanthropic support reported Campus-based schools under the Provost continue to increase their by Duke according to the guidelines established by the Council for research activity, primarily within Arts and Sciences, the Pratt School Advancement and Support of Education (CASE). CASE guidelines of Engineering, the Sanford School of Public Policy, and the Nicholas represent the philanthropy reporting standard for colleges and School of the Environment. universities, and is based on cash collections. The United States government is the largest source of grant and The generosity of alumni and friends in fiscal 2016 helped Duke contract funding for the University, with 38% of this support from remain at the forefront of academics, research, and patient care. Under the Department of Health and Human Services, Duke’s cognizant CASE guidelines, philanthropic cash receipts totaled $506 million in agency. The University’s government grant and contract funding has fiscal 2016, the highest annual giving year in Duke history. grown 7% since February 2009 when the United States Congress Fiscal 2013 was also Duke’s highest year for philanthropic support passed the American Recovery and Reinvestment Act (ARRA). on a GAAP-basis ($394 million), with the public announcement of Duke Forward, a comprehensive fundraising campaign, and several individually significant pledges. In fiscal 2016, Duke recorded $328 million in contributions revenue, including pledges, a $10 million or a 3% increase from fiscal 2015.

Financial Statements 2015/2016 7 As of June 30, 2016, the campaign has reached the $3.25 billion goal Capital Spending ($ in millions) – a year ahead of schedule. The University and its supporters will $500 continue to pursue support for our students, programs, and capital 457 priorities through the conclusion of Duke Forward on June 30, 2017 $450 and beyond. $400 $350 338 Contributions (GAAP-basis, $ in millions) 312 319 $300 276 $450 252 394 $250 $400 230 328 184 $350 $200 318 141 291 305 $150 $300 107 $100 $250 $200 $50 $– $150 2012 2013 2014 2015 2016 $100 DUHS3 University $50 $– Capital spending by the University in fiscal 2016 totaled $457 million, a 29% increase over fiscal 2015. 2012 2013 2014 2015 2016 Major capital activity in 2016 for the University included extensive Restricted for long term investment and capital projects renovations of the West Campus Union and Wallace Wade Stadium, as Unrestricted well as the new JB Duke Hotel, the new Student Health and Wellness For details on the goals and priorities of the campaign and more news Center, the new Scott Family Athletics Performance Center, the new on major gifts, visit http://dukeforward.duke.edu. Science Drive/Cameron Parking Garage, and a major expansion of venerable Cameron Indoor Stadium. A reconciliation of the CASE and GAAP totals is provided below (in millions): M The West Campus Union reopened in August 2016, after a comprehensive two-year renovation project that will reestablish Cash gifts per CASE (cash basis) $ 506 the prominence of the facility as the center of student life at Duke. Amounts included in grants and M The Wallace Wade Stadium renovation is nearing completion similar agreements (gifts per CASE) (139) and includes construction of a new 97,160 square-foot press and Grants and gifts from The Duke Endowment amenities tower, and modernization of the bowl and concourse. (gifts per CASE) (13) M The JB Duke Hotel will encompass the Thomas Executive 2 Net fiscal 2016 change in pledges (26) Conference Center and house Fuqua School of Business executive Total consolidated contributions students during their Durham-based programs. per GAAP statements $ 328 M The new Student Health and Wellness Center will consolidate student health services within one facility on West Campus. Additional information on GAAP reporting of contributions revenue M The Scott Family Athletics Performance Center will provide and contributions receivable is provided in Notes 2 and 4 of the administrative, training, and game-day functions serving student- consolidated financial statements, respectively. athletes participating in Duke’s Olympic sports, and well as retail space and event ticketing for Duke Athletics. Capital Spending and Debt M The Science Drive/Cameron Parking Garage will provide 2,400 Over the last decade, the University and DUHS have made significant new spaces in order to accommodate recent growth on West investments in land, buildings, and equipment. The University Campus, including the Athletic precinct. invested more than $1.2 billion over the last five years, impacting M The Cameron Indoor Stadium Expansion will provide new in excess of one million square feet of new or renovated living, hospitality and memorabilia space, as well as improve game-day teaching, and research space. DUHS, while owned and controlled functionality. by the University, operates under a different business model and has different budgetary considerations. DUHS has increased its net The University’s capital plan calls for $1.2 billion of additional investment in property and equipment by more than $1.2 billion spending over the next five (5) years, including major enhancements to since its creation in 1999. undergraduate student housing.

2 Includes changes to previously reported multi-year pledges, pledges receivable due to new multi-year commitments, and other fiscal 2016 adjustments. 3 DUHS capital spend amounts shown as reported in the separately issued DUHS consolidated financial statements.

8 Financial Statements 2015/2016 DUHS paused from an expansion level of capital spending in fiscal of the bond liability; therefore, neither the escrow nor the bonds are 2015 and 2016 following three (3) of the largest capital initiatives included in the consolidated balance sheets. The refunding resulted in ever undertaken at DUHS: the Duke Cancer Center (opened February a loss on extinguishment of debt of $25 million, which represents the 2012), the Duke Medicine Pavilion (opened July 2013), and the write-off of the unamortized bond issue costs and discount on bonds implementation of DUHS’ electronic health record system, Maestro payable and the escrow funding requirements for principal and interest Care (operational at all 3 hospitals, Duke Primary Care, and the payments in excess of the face value of the Series 2009A refunded bonds. Private Diagnostic Clinic by March 2014). For the five year period ended June 30, 2014, DUHS capital expenditures averaged $244 Looking Ahead million per year. Capital expenditures in fiscal 2016 and 2015 were $141 million and $107 million, respectively. DUHS plans to spend In fiscal 2017, the administration’s focus will remain on operating approximately $1.5 billion over the next five (5) years in order to meet effectively and efficiently in order to protect and advance Duke’s current strategic capital needs. financial health and commitment to our most important priorities. These Both the University and DUHS have issued various forms of debt as include: a primary source of capital project funding. Formal comprehensive M The imminent release of the new academic strategic plan and debt policies provide guidelines for the use of long-term financing, funding of related initiatives. commercial paper, and derivative transactions (in the form of interest M Continued focus on affordability of a Duke education, and rate and other swaps) in order to optimize the debt portfolios. supporting the University’s ongoing commitment to need-blind Effective and responsible debt portfolio management enables the admissions for undergraduates. University and DUHS to execute their strategic plans for facilities while preserving working capital. The University and DUHS hold M Completion of ongoing capital projects, including West Campus ratings of Aa1 and Aa2 with Moody’s and AA+ and AA with Standard Union, Wallace Wade Stadium, and the new Student Health and & Poor’s, respectively. Wellness Center, as well as construction of new undergraduate student residence halls and renovation of existing residences. Outstanding Debt ($ in billions) M Continued focus on the evolving approach to population health $2.4 models and the healthcare reimbursement environment including the health insurance exchange market, value-based reimbursement, and Medicare and Medicaid changes. $2.0 1.9 M Planning and execution of strategic capital projects to facilitate 1.6 1.6 $1.6 future clinical growth plans, including new inpatient bed towers 1.4 1.4 at Duke University Hospital and Duke Raleigh Hospital, a new psychiatry center on the Duke Regional Hospital campus, $1.2 and numerous planned projects in support of ambulatory and 1.1 1.1 1.1 1.1 1.1 outpatient facilities. $0.8 The administration will continue to proactively address financial and other challenges by operating with a strong sense of fiscal $0.4 responsibility and prudent decision making, while directing Duke’s resources to areas of highest priority and need. $– 2012 2013 2014 2015 2016

University Debt DUHS Debt4

In fiscal 2016, the University issued $545 million in Series 2015A and B bonds. The proceeds were used to refinance existing debt as well as to fund ongoing fiscal 2016 capital projects. In addition, DUHS issued $347 million in Series 2016A-C bonds. The proceeds ($384 million) were used to fund an escrow account that was irrevocably placed with a trustee to meet the principal and interest payments of the 2009A bonds ($180 million), as well as refund the 2005C bonds ($107 million) and a portion of the 2005B bonds ($73 million). The Series 2016A bonds were issued at a premium of $37 million. The refunding meets the legal requirements for defeasance

4 Excludes a $125 million capital lease for Duke Regional Hospital.

Financial Statements 2015/2016 9 Statistical Highlights

(dollars in thousands) 2016 2015 2014 2013 2012

Students: Undergraduate 6,379 6,401 6,390 6,393 6,383 Graduate and professional 8,135 8,100 7,927 7,860 7,977 Total fall enrollment 14,514 14,501 14,317 14,253 14,360 Degrees conferred: Baccalaureate 1,823 1,843 1,831 1,801 1,791 Masters 2,561 2,412 2,477 2,346 2,260 Doctorate 872 774 781 829 770 Total degrees conferred 5,256 5,029 5,089 4,976 4,821

Research: Grants, contracts and similar agreements: Federal government sources $ 504,715 $ 501,471 $ 522,953 $ 521,455 $ 538,232 Other government sources $ 53,030 $ 56,645 $ 54,834 $ 63,496 $ 50,781 Other $ 571,600 $ 538,693 $ 520,089 $ 505,795 $ 474,419 Total grants, contracts and similar agreements $ 1,129,345 $ 1,096,809 $ 1,097,876 $ 1,090,746 $ 1,063,432

Patient Care: Discharges 66,085 64,222 62,733 60,685 60,758 Patient days 390,561 384,584 371,650 354,631 348,456 Surgical and endoscopy cases 90,809 88,729 85,248 86,703 90,156 Outpatient visits 2,080,315 1,965,264 1,841,458 1,798,743 1,739,089 Emergency room visits 186,209 179,549 170,461 170,696 172,057

Endowment: Market value of endowment $ 6,839,780 $ 7,296,545 $ 7,036,776 $ 6,040,973 $ 5,555,196 Endowment funds per full-time equivalent student $ 471,254 $ 503,175 $ 491,498 $ 423,839 $ 386,852 Financial aid spending rate 5.4% 5.2% 5.9% 6.3% 5.9% Non-financial aid spending rate 4.1% 4.1% 4.4% 4.8% 4.6% Total LTP rate of return (2.6%) 4.4% 20.1% 13.5% 1.0%

Faculty and Staff: Tenured and tenure track 1,714 1,740 1,784 1,768 1,780 Non-tenure track 1,713 1,650 1,556 1,481 1,421 Total regular rank faculty 3,427 3,390 3,340 3,249 3,201 Staff 45,898 44,900 44,833 43,907 42,626 Total employees 49,325 48,290 48,173 47,156 45,827

10 Financial Statements 2015/2016 Gothic Reading Room located in Rubenstein Library KPMG LLP Suite 400 300 North Greene Street Greensboro, NC 27401

Independent Auditors’ Report

The Board of Trustees Duke University:

We have audited the accompanying consolidated financial statements of Duke University, which comprise the consolidated balance sheets as of June 30, 2016 and 2015, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Duke University as of June 30, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended, in accordance with U.S. generally accepted accounting principles.

KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative (“KPMG International”), a Swiss entity.

Supplementary Information Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The supplementary information included in schedules 1 through 3 is presented for the purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole.

October 4, 2016 Sanford School of Public Policy Consolidated Balance Sheets

JUNE 30, 2016 AND 2015 (DOLLARS IN THOUSANDS)

2016 2015 Assets: Cash and cash equivalents $ 567,313 $ 573,698 Accounts receivable, net 632,714 647,769 Prepaid expenses, inventories, and other assets 193,974 179,934 Contributions receivable, net 441,705 454,787 Investments 10,903,426 11,228,212 Deposits with bond trustees 47,042 23,420 Land, buildings, and equipment, net 3,688,461 3,425,762 Interests in perpetual trusts held by others 774,420 824,261 Total assets $ 17,249,055 $ 17,357,843

Liabilities: Accounts payable and accrued payroll $ 708,292 $ 713,421 Deferred revenues and deposits 202,588 182,507 Notes and bonds payable 3,085,714 2,787,130 Annuity and other split-interest obligations 53,372 51,548 Accrued postretirement/postemployment and other benefit obligations 882,385 349,367 Other liabilities 331,187 277,653 Total liabilities 5,263,538 4,361,626

Net Assets: Unrestricted 6,548,920 7,300,720 Temporarily restricted 2,609,315 2,931,257 Permanently restricted 2,827,282 2,764,240 Total net assets 11,985,517 12,996,217 Total liabilities and net assets $ 17,249,055 $ 17,357,843

See accompanying notes to consolidated financial statements.

Financial Statements 2015/2016 15 Consolidated Statements of Activities

YEARS ENDED JUNE 30, 2016 AND 2015 (DOLLARS IN THOUSANDS)

2016 2015 Unrestricted Net Assets: Operating revenues: Tuition and fees $ 735,666 $ 700,202 Less student aid (279,874) (269,216) Tuition and fees, net 455,792 430,986

Grants, contracts and similar agreements: Government sources 557,745 558,116 The Private Diagnostic Clinic, PLLC 120,395 103,525 Other 451,205 435,168 Total grants, contracts and similar agreements 1,129,345 1,096,809

Contributions 119,791 104,046

Investment return designated for current operations: The Duke Endowment 12,500 12,500 Endowment spending 364,336 306,730 Other investment income 97,408 67,302 Total investment return designated for operations 474,244 386,532

Auxiliary enterprises 211,766 206,873 Patient service revenue, net 2,977,113 2,870,019 Other 238,108 244,741 Net assets released from restrictions 57,116 51,907 Total operating revenues 5,663,275 5,391,913

Operating expenses: Salaries and wages 2,303,549 2,194,044 Employee benefits 574,805 549,481 Student aid 42,243 42,030 Other operating expenses 2,055,767 1,930,719 Interest expense 122,821 116,107 Depreciation expense 352,010 339,199 Total operating expenses 5,451,195 5,171,580

Operating surplus 212,080 220,333

16 Financial Statements 2015/2016 Consolidated Statements of Activities (CONTINUED)

2016 2015

Nonoperating activities: Net assets released from restrictions $ 46,134 $ 48,599 Investment return (less than) in excess of amounts designated for current operations (465,030) 71,608 Nonperiodic changes in defined benefit plans (513,700) (19,867) Other, net (31,284) (17,595) Change in unrestricted net assets from nonoperating activities (963,880) 82,745 Change in unrestricted net assets (751,800) 303,078

Temporarily Restricted Net Assets: Contributions 83,259 116,735 Net assets released from restrictions (103,250) (100,506) Investment return less than amounts designated for current operations (311,546) (11,161) Other, net 9,595 5,674 Change in temporarily restricted net assets (321,942) 10,742

Permanently Restricted Net Assets: Contributions 125,345 97,558 Investment return in excess of (less than) amounts designated for current operations 2,058 (2,353) (Losses) gains on interests in perpetual trusts held by others (51,708) 21,901 Other, net (12,653) 1,031 Change in permanently restricted net assets 63,042 118,137

Change in total net assets (1,010,700) 431,957 Net assets at beginning of year 12,996,217 12,564,260 Net assets at end of year $ 11,985,517 $ 12,996,217

Certain amounts disaggregated above are presented below in the aggregate: Contributions $ 328,395 $ 318,339 Investment return (300,274) 444,626

See accompanying notes to consolidated financial statements.

Financial Statements 2015/2016 17 Consolidated Statements of Cash Flows

YEARS ENDED JUNE 30, 2016 AND 2015 (DOLLARS IN THOUSANDS)

2016 2015 Cash flows from operating activities: Change in net assets $ (1,010,700) $ 431,957 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation expense 352,010 339,199 Nonperiodic changes in defined benefit plans 513,700 19,867 Provision for bad debt 73,604 77,356 Change in fair value of swap instruments 27,829 (654) Loss on extinguishment of debt 23,156 … Loss on disposals of land, buildings, and equipment 6,563 4,082 Restricted contributions received for long-term investment and capital projects (223,553) (200,369) Permanently restricted investment return 2,058 2,353 (Gains) losses on other nonoperating items (1,956) 4,434 Net realized and unrealized losses (gains) on investments 435,184 (317,935) Losses (gains) on interests in perpetual trusts held by others 51,708 (21,901)

Change in: Accounts receivable, net (58,041) (95,736) Prepaid expenses, inventories, and other assets (14,040) (17,207) Contributions receivable, net 12,319 (9,743) Accounts payable and accrued payroll (35,412) 44,803 Deferred revenues and deposits 20,081 16,466 Annuity and other split-interest obligations 1,824 4,438 Accrued postretirement/postemployment and other benefit obligations 19,318 22,113 Other liabilities 25,705 (7,169) Net cash provided by operating activities 221,357 296,354

18 Financial Statements 2015/2016 Consolidated Statements of Cash Flows (CONTINUED)

2016 2015 Cash flows from investing activities: Purchases of investments (13,459,826) (11,317,511) Proceeds from sales and maturities of investments 13,349,428 11,439,096 Purchases of land, buildings, and equipment (590,996) (411,155) Proceeds from disposals of land, buildings, and equipment 7 10 Disbursements for loans to students (6,873) (6,953) Repayments of loans by students 7,128 7,713 Change in deposits with bond trustees (23,622) (23,420) Net cash used in investing activities (724,754) (312,220)

Cash flows from financing activities: Restricted contributions received for long-term investment and capital projects 221,686 200,369 Permanently restricted investment return (2,058) (2,353) Gains (losses) on other nonoperating items 1,956 (4,434) Principal payments on notes and bonds payable (760,497) (261,920) Proceeds from borrowings 1,035,925 299,324 Net cash provided by financing activities 497,012 230,986

Net change in cash and cash equivalents (6,385) 215,120

Cash and cash equivalents at beginning of year 573,698 358,578 Cash and cash equivalents at end of year $ 567,313 $ 573,698

Supplemental disclosure of cash flow information: Cash paid for interest (net of amounts capitalized) $ 107,629 $ 97,933

See accompanying notes to consolidated financial statements.

Financial Statements 2015/2016 19 Notes to Consolidated Financial Statements

(DOLLARS IN THOUSANDS) 1. Overview of Duke University

Duke University is a private, coeducational, nonprofit institution agreements with concurrent terms of forty (40) years and providing located primarily in Durham, North Carolina, which owns and patient care. operates educational and research facilities (the University). Duke Duke Raleigh Hospital – a community hospital located in University Health System, Inc. (DUHS), a North Carolina nonprofit Raleigh, North Carolina, licensed for 186 acute care beds, leased corporation, is a controlled affiliate of the University. Collectively, the from the University, operated by DUHS, and providing patient care. University and DUHS are referred to herein as “Duke.” The University is governed by a Board of Trustees (the Board) with thirty-seven Duke University Affiliated Physicians, Inc. (DUAP) – a North members, consisting of the President of the University and thirty-six Carolina nonprofit corporation, doing business as Duke Primary members representing private, public, and community interests. Care, consisting of twenty-six (26) primary care physician practices located in Alamance, Chatham, Durham, Granville, Orange, The University’s programs include undergraduate and graduate Vance, and Wake Counties, five (5) urgent care centers located in programs in Arts and Sciences, Engineering, Nursing, and Public Durham and Wake Counties, and a pediatric practice with two (2) Policy and professional schools in Business, Divinity, Environment, locations in Durham County. Law, Medicine, and Nursing, as well as programs in Allied Health. Durham Casualty Company, Ltd. (DCC) – a wholly owned DUHS operates a health care system consisting principally of: subsidiary of DUHS, domiciled in Bermuda, insuring a portion of Duke University Hospital – a quaternary care teaching hospital the medical malpractice risks and patient general liability risks of located on the campus of Duke in Durham, North Carolina, DUHS clinical providers and the The Private Diagnostic Clinic, licensed for 957 acute care and specialty beds, leased from the PLLC (PDC) (see Note 12). University, operated by DUHS, providing patient care and serving The consolidated financial statements include the University, DUHS as a site for medical education and clinical research provided by the and all other operating entities in which Duke has control. Duke University School of Medicine (School of Medicine). All significant intercompany balances and transactions have been Duke Regional Hospital – a full-service community hospital eliminated in consolidation. located in Durham, North Carolina, licensed for 369 acute care beds, leased from Durham County, and operated by DUHS under

2. Summary of Significant Accounting Policies

Basis of Presentation include unconditional pledges, donor-restricted endowments The consolidated financial statements of Duke have been prepared on (at historical value), split-interest agreements, and interests in the accrual basis in conformity with U.S. generally accepted accounting perpetual trusts held by others. principles (GAAP). Based on the existence or absence of donor- Expirations of temporary restrictions on net assets (i.e., the donor imposed restrictions, Duke classifies resources into three categories: stipulated purpose has been fulfilled and/or the stipulated time period unrestricted, temporarily restricted and permanently restricted net has elapsed) are reported as net assets released from restrictions in assets. the consolidated statements of activities. Contributions, including Unrestricted net assets are free of donor-imposed restrictions. All unconditional promises to give, are recognized as revenue in the period revenues, gains, and losses that are not temporarily or permanently received. Contributions for acquisition or construction of plant facilities restricted by donors are included in this classification. All expenses are released from restrictions in the period in which the assets are are reported as decreases in unrestricted net assets. placed in service within the nonoperating section on the statements of activities. Contributions which impose restrictions that are met in Temporarily restricted net assets are subject to donor-imposed the same fiscal year they are received are reported as increases in restrictions that will be met either by actions of Duke or the unrestricted net assets. passage of time. These net assets include unconditional pledges, split-interest agreements and accumulated appreciation on donor- Operating results (change in unrestricted net assets from operating restricted endowments which have not yet been appropriated by the activity) in the consolidated statements of activities reflect all Board of Trustees for expenditure. transactions that change unrestricted net assets, except for contributions for plant facilities (released), investment return in excess of or less Permanently restricted net assets are subject to donor-imposed than amounts designated for current operations, nonperiodic changes restrictions that require they be maintained permanently by Duke. in defined benefit plans, changes in the fair value of derivative Generally, the donors’ imposed restrictions of these assets permit financial instruments, and certain nonrecurring items. Duke to use all or part of the income earned on related investments only for certain general or specific purposes. These net assets

20 Financial Statements 2015/2016 Fair Value Measurements upon management’s expectations regarding collection of outstanding Fair value measurements reflected in the consolidated financial promises to give and past collection experience. statements conceptually represent the price that would be received In contrast to unconditional promises as described above, conditional to sell an asset or paid to transfer a liability in an orderly transaction promises are not recorded until donor conditions are substantially met. between market participants at the measurement date. GAAP provides Investments a hierarchy that prioritizes the inputs to fair value measurements based on the extent to which inputs to valuation techniques are observable in DUMAC, Inc. (DUMAC), a separate nonprofit support corporation the marketplace. The hierarchy assigns a higher priority to observable organized and controlled by the University, is responsible for managing inputs that reflect verifiable information obtained from independent investment assets for Duke, The Duke Endowment (see Note 12) and sources, and a lower priority to unobservable inputs that would reflect the Employees’ Retirement Plan of Duke University (the ERP). Duke’s assumptions about how market participants would value an Valuation – Investments are recorded at estimated fair value. For asset or liability based on the best information available. Fair value investments made directly by Duke whose values are based on measurements must maximize the use of observable inputs and quoted market prices in active markets, the market price of the minimize the use of unobservable inputs. investment is used to report fair value. For shares in mutual funds, The three levels of the hierarchy of inputs used to measure fair value fair values are based on share prices reported by the funds as of the are described briefly as follows: last business day of the fiscal year. Duke’s interests in alternative investment funds such as fixed income, equities, hedged strategies, Level 1 – Unadjusted quoted prices in active markets for identical private capital, and real assets are generally reported at the net asset assets or liabilities that are available at the measurement date. value (NAV) reported by the fund managers. Unless it is probable Level 2 – Inputs other than quoted prices included within Level that all or a portion of the investment will be sold for an amount 1 that are observable for the asset or liability, either directly or other than NAV, Duke has concluded, as a practical expedient, that indirectly at the measurement date. the NAV approximates fair value. Level 3 – Unobservable inputs for the asset or liability, used in Risks – Duke’s investments are exposed to several risks, including situations in which little or no market activity exists for the asset or liquidity, currency, interest rate, credit, and market risks. liability at the measurement date. Duke attempts to manage these risks through diversification, The categorization of fair value measurements by level of the hierarchy ongoing due diligence of fund managers, and monitoring of is based upon the lowest level input that is significant to the overall fair economic conditions. Due to the level of risk associated with certain value measurement for a given asset or liability. investment securities, it is at least reasonably possible that changes In the event that changes in the inputs used in the fair value in the values of investment securities will occur in the near term and measurement of an asset or liability result in a transfer of the fair value that such changes could materially affect the amounts reported in measurement to a different categorization (e.g., from Level 3 to Level Duke’s consolidated financial statements. 2), such transfers between fair value categories are recognized at the Derivatives are used by Duke and external investment managers end of the reporting period. to manage market risks. The most common derivative strategies engaged in are total return swaps, futures contracts, and options. Cash and Cash Equivalents These derivative instruments are recorded at their respective fair Cash equivalents include assets invested in the Short Term Account values (see Note 11). (STA), all of which can be liquidated within thirty (30) days. Duke Duke may participate in programs to lend securities to brokers. utilizes the STA to fund daily cash needs, and such assets, reported To limit risk, collateral is posted and maintained daily at 100% to at fair value, primarily consist of short-term U.S. Treasury securities, 105% of the market value of the loaned securities depending on the other short-term, highly-liquid investments, and certain fixed income type of security. Collateral generally is limited to cash, government securities. Cash and cash equivalents that are managed as part of securities, and irrevocable letters of credit. Both Duke and security Duke’s investments are reported within investments, as these funds are borrowers have the right to terminate a specific loan of securities at not used for operating needs. any time. Duke receives lending fees and continues to earn interest Prepaid Expenses, Inventories, and Other Assets and dividends on the loaned securities. Investment Pools – Duke utilizes investment pools known as the Prepaid expenses, inventories, and other assets primarily include University’s Long Term Pool (LTP) and the Health System Pool inventories, which are valued at the lower of average cost or fair value. (HSP) to make University and DUHS investments in diversified Contributions Receivable portfolios of debt, equity, and other investments. The HSP is structured to provide more liquidity for DUHS than is available Pledges that represent unconditional promises to give are recognized within the LTP. Both the LTP and HSP are included in investments at fair value as contributions—either temporarily restricted or on the consolidated balance sheets. permanently restricted—in the period such promises are made by donors. Contributions are discounted at a risk-adjusted rate commensurate with Reporting – Income and realized gains and losses on investments the duration of the donor’s payment plan (level 3 input in the fair value of working capital are reported as investment return included in hierarchy). Amortization of the discounts is recorded as contribution operating revenues. Any excess (deficit) of income and realized and revenue. Allowance is made for uncollectible contributions based unrealized gains (losses) earned on investments above (below) the

Financial Statements 2015/2016 21 spending rate (see Note 7), including split-interest agreements, are estimated based on pricing models that utilize significant observable reported as nonoperating revenues. inputs, such as relevant interest rates, that reflect assumptions market participants would use in pricing the instruments. As such, these Deposits with Bond Trustees liabilities fall within Level 2 of the hierarchy of fair value inputs. The Deposits with bond trustees consist of the unexpended proceeds of change in fair value is included as a gain or loss in other nonoperating certain bonds payable, which will be used for construction of certain activities on the consolidated statements of activities. The net settlement facilities or payment of debt service. These funds are reported at fair amount incurred on the swaps is included in interest expense on the value and are invested in short-term, highly liquid securities considered consolidated statements of activities. Level 2 in the fair value hierarchy. Refundable Federal Student Loans Land, Buildings, and Equipment Funds provided by the United States Government (U.S. Government) Land, buildings, and equipment are stated at cost at the date of under the Federal Perkins, Nursing, and Health Professions Student acquisition or fair value at the date of donation. Property and equipment Loan programs are loaned to qualified students and may be reloaned under capital leases are initially valued and recorded based on the after collection. These funds are ultimately refundable to the U.S. present value of minimum lease payments. Useful lives range from Government. The related balances of $36,103 and $35,458 at June 30, 5 to 25 years for land improvements, 10 to 80 years for buildings 2016 and 2015, respectively, are included in other liabilities on the and utilities, 5 to 10 years for computer software, 3 to 20 years for consolidated balance sheets. equipment, motor vehicles, furniture and vessels, and 1 year for library acquisitions. Depreciation is calculated on the straight-line basis over Revenue Recognition the assets’ estimated useful lives, except for leasehold improvements Duke’s significant revenue recognition policies are: and property and equipment held under capital leases, which are amortized over the shorter of the expected useful life of the asset or Tuition and fees, net – Student tuition and fees are recorded as term of the related lease. Depreciation is not calculated on purchases of revenue during the year that the related academic services are land, art collections, rare books, and construction in progress. rendered. Student tuition and fees received in advance of services to be rendered are recorded as deferred revenue. Student aid provided Conditional asset retirement obligations related to legal requirements by Duke for tuition and fees is reflected as a reduction of gross to perform certain future activities associated with the retirement, tuition and fee revenue. Student aid does not include payments made disposal, or abandonment of assets are accrued utilizing site specific to students for services rendered to Duke. surveys to estimate the net present value for applicable future costs (e.g., asbestos abatement or removal). Duke reviews long-lived assets Grants and contracts – Revenues from sponsored grants and for impairment whenever events or changes in circumstances indicate contracts, including facilities and administrative (F&A) costs that the carrying amount of an asset may not be recoverable. An recovery, are recognized when allowable expenditures are incurred impairment charge is recognized when the fair value of the asset or under such agreements. F&A cost recovery represents reimbursement, group of assets is less than the carrying value. primarily from the federal government, of F&A costs on sponsored activities. Duke’s federal F&A costs recovery rates for research were Interests in Perpetual Trusts Held by Others 59.0% and 57.0% in fiscal 2016 and 2015, respectively. and Split-Interest Agreements Patient service revenue (net of contractual allowances and Duke is the beneficiary of certain perpetual trusts held and administered discounts) – Patient service revenue is recognized in the period by outside trustees, including The Duke Endowment (see Note 12). in which services are rendered. DUHS has agreements with third- These trust interests are reported at fair value, based on the value of party payors that provide for payments to DUHS at amounts that the underlying assets, which approximates the present value of future are generally less than its established rates. Payment arrangements income from these trusts. As such, these assets fall within Level 3 of include prospectively determined rates per discharge, reimbursed the hierarchy of fair value inputs. Distributions from these trusts are costs, discounted charges and per diem payments. Accordingly, net recorded as investment return designated for current operations. patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors, and others, including Duke’s split-interest agreements with donors consist primarily of estimated retroactive adjustments under reimbursement agreements irrevocable charitable remainder trusts for which Duke serves as trustee. with third-party payors. Retroactive adjustments are accrued on an Assets held in these trusts are included in investments. Contribution estimated basis in the period the related services are rendered and revenues are recognized at the date the trusts are established after adjusted in future periods as changes to estimates become known recording liabilities for the present value of the estimated future and tentative and final settlement adjustments are identified. payments to be made to the donors or other beneficiaries. Annuity and other split-interest liabilities are recorded at their present value. Auxiliary enterprises – Auxiliary enterprises, including residence halls, food services, retail stores, and telecommunications, furnish Debt-Related Derivative Instruments services to students, faculty, and staff. Fee charges are directly related Duke utilizes derivative instruments in a limited manner outside of to the costs of services rendered and are recognized accordingly. its investment portfolio. As described in Note 11, interest rate swap agreements are used to manage interest rate risk associated with Charity Care variable rate bond obligations. These instruments are reported in other DUHS provides services at a free or substantially discounted rate liabilities on the consolidated balance sheets at fair value. Fair value is to patients who are approved under the guidelines of its financial

22 Financial Statements 2015/2016 assistance policy. Services qualifying for charity care consideration Overall (Subtopic 825-10), Recognition and Measurement of Financial include emergent and medically necessary services as determined Assets and Financial Liabilities. This update removes the requirement by a DUHS physician. Patient household income in relation to the to disclose the fair value of financial instruments measured at federal poverty guidelines and the equity value of real property amortized cost. Duke early adopted ASU 2016-01 in fiscal 2016 and assets is included in the determination for charity care qualification. removed the fair value measurements of notes and bonds payable. While charity care is excluded from net patient service revenue and Use of Estimates receivables, DUHS maintains records to identify and monitor the level of charity care it provides. These records include the amount The preparation of the consolidated financial statements in accordance of charges foregone and estimated costs incurred for services and with GAAP requires the use of estimates and assumptions that affect supplies furnished under its charity care policy and other equivalent the reported amounts of assets, liabilities, revenues, and expenses service statistics. Costs incurred are estimated based on the ratio during the reporting period as well as the disclosure of contingent of total operating expenses to gross charges applied to charity care assets and liabilities. Actual results ultimately could differ from the charges. administration’s estimates. Reclassifications Income Taxes Certain June 30, 2015 amounts have been reclassified to conform with Duke is a tax-exempt organization as described in Section 501(c)(3) of changes in classifications adopted in fiscal 2016. the Internal Revenue Code of 1986, as amended (the Code). As such, Duke is exempt from federal income taxes to the extent provided under Subsequent Events Section 501 of the Code. Accordingly, no provision for income taxes Duke has evaluated subsequent events from the balance sheet date is made in the consolidated financial statements. As of June 30, 2016, through October 4, 2016, the date on which the financial statements there were no material uncertain tax positions. were issued. No material subsequent events were identified for recognition or disclosure not already disclosed within the notes to the New Accounting Pronouncements financial statements. In January 2016, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2016-01, Financial Instruments—

3. Accounts Receivable, net Accounts receivable consists of the following at June 30: losses. Amounts recognized in net patient service revenue related to fiscal 2016 and 2015 were $154,469 and $156,417, respectively. 2016 2015 The Medicaid assessment payments recorded in other operating Patient receivables $ 367,459 $ 401,561 expenses were $68,032 and $70,024 for fiscal 2016 and 2015, Student loan receivables 43,630 43,226 respectively. There can be no assurance that DUHS will continue to Other receivables 221,625 202,982 qualify for future participation in this program or that the program Accounts receivable, net $ 632,714 $ 647,769 will not be discontinued or materially modified. Concentration of Credit Risk Patient receivables are reported net of allowances for contractual DUHS grants credit without collateral to its patients, most of adjustments and uncollectible accounts of $871,920 and $930,175 at whom are insured under third-party payor agreements. The related June 30, 2016 and 2015, respectively. DUHS receives supplemental gross receivables at June 30, 2016 included approximately 41% Medicaid payments from the State of North Carolina through a and 47% from commercial payors and U.S. Government sources, federally approved disproportionate share program (Medicaid respectively, and at June 30, 2015 included approximately 40% and DSH). The Medicaid DSH payments are part of the Medicaid 48%, respectively. Program and are designed to offset a portion of the Medicaid

Financial Statements 2015/2016 23 4. Contributions Receivable, net

Contributions receivable are summarized as follows at June 30: The methodology for calculating the allowance is based on the administration’s review of individually significant outstanding 2016 2015 pledges, analysis of the aging of payment schedules for all outstanding Unconditional promises expected pledges, as well as other factors including current economic conditions. to be collected in: Less than one year $ 204,853 $ 197,928 At June 30, 2016 and 2015, the 10 largest outstanding donor pledge balances represented 46% and 51%, respectively, of Duke’s gross Between one year and five years 253,889 270,735 contributions receivable. More than five years 30,745 34,691 At June 30, 2016 and 2015, Duke had also received bequest intentions and Gross contributions receivable 489,487 503,354 conditional promises to give of approximately $172,414 and $146,593, Allowance for uncollectible amounts (35,444) (33,718) respectively. These intentions and conditional promises to give are not Unamortized discount with interest recognized as assets or revenues in the consolidated financial statements. rates ranging from 0.1% to 7.5% (12,338) (14,849) If the related funds are received, they will generally be restricted for specific purposes stipulated by the donors, primarily endowments for Net contributions receivable $ 441,705 $ 454,787 faculty support, scholarships, or general operating support of a particular department or division of Duke.

5. Investments

The fair value of investments consists of the following at June 30: U.S. Government securities includes U.S. Treasury and agency debt securities with maturities of more than one year and funds that invest 2016 2015 in these types of investments. Short-term investments $ 1,351,724 $ 1,615,299 Fixed income includes non-government U.S. and non-U.S. debt U.S. Government securities 36,978 37,355 securities and funds holding similar securities. Fixed income 251,511 225,113 Equities includes U.S. and non-U.S. stocks, equity-based derivatives Equities 1,848,048 2,183,034 and interests in funds that invest predominantly long but also short Hedged strategies 3,105,860 3,062,699 stocks and in certain cases are nonredeemable. Exposure by market Private capital 2,338,137 2,285,784 is approximately: 10% domestic, 25% developed international, 35% Real assets 1,675,291 1,622,440 emerging international and 30% global. Other 295,877 196,488 Hedged strategies includes primarily interests in funds that invest Total investments $ 10,903,426 $ 11,228,212 both long and short in U.S. and non-U.S. stocks, credit-oriented securities and arbitrage strategies. Approximately 80% of the hedged The composition of Duke’s investments are as follows: strategies portfolio is invested through equity oriented strategies with the balance split between credit strategies and multi-strategy funds 2016 2015 and accounts. Nearly all of Duke’s investments in these funds are LTP $ 8,462,951 $ 8,611,689 redeemable, and the underlying assets of the funds are predominately HSP 2,027,028 2,201,203 marketable securities and derivatives. Nonpooled 413,447 415,320 Private capital includes primarily interests in funds or partnerships Total investments $ 10,903,426 $ 11,228,212 that hold illiquid investments in venture capital, buyouts, and credit. These funds typically have periods of 10 or more years during which committed capital may be drawn. Distributions are received At June 30, 2016 and 2015, $63,928 and $109,119, respectively, was through liquidation of the underlying assets of the funds, which posted as collateral for derivatives and thus not readily available for are anticipated to occur over the next 4 to 10 years. Certain private use. Collateral held is included in short-term investments. placement securities may also be held. Duke’s investment classes are described in further detail below. Real assets includes interests in funds or partnerships that hold Classes include direct holdings, which are generally marketable illiquid investments in residential and commercial real estate, oil securities, and interests in funds, which are stated at NAV as a and gas production, energy, other commodities, and related services practical expedient, for which the related investment strategies are businesses. These funds typically have periods of 10 or more years described. during which committed capital may be drawn. Distributions are received through liquidations of the underlying assets of the Short-term investments includes cash collateral, money market funds, which are anticipated to occur over the next 5 to 12 years. funds, short-term U.S. Treasury, agency, corporate, and other highly Additionally, certain liquid commodity-related equities, private liquid debt securities with an aggregate duration of less than a year. placement securities and related derivatives are included. Other includes primarily other derivative instruments.

24 Financial Statements 2015/2016 Investment return Investment return as reflected in the consolidated statements of The total return for the LTP (in which 98.7% of Duke’s traditional activities is summarized as follows for the years ended June 30: endowment was invested at June 30, 2016 and 2015) for fiscal 2016 2016 2015 and 2015 was (2.6%) and 4.4%, respectively. The total return for the HSP for fiscal 2016 and 2015 was (3.3%) and 3.0%, respectively. Both Investment income $ 134,910 $ 126,691 returns are net of external management fees but before internal costs. Realized and unrealized The total return for Duke’s endowment, as such, is not calculated. (losses) gains, net (435,184) 317,935 Total investment (loss) return $ (300,274) $ 444,626 External management fees paid directly (i.e. segregated investment account fees) totaled $11,098 and $10,551, and internal management OPERATING fees totaled $16,200 and $13,971 in fiscal 2016 and 2015, respectively. The Duke Endowment $ 12,500 $ 12,500 Endowment spending 364,336 306,730 Other investment income 97,408 67,302 Total operating return $ 474,244 $ 386,532

NONOPERATING Investment return (less than) in excess of amounts designated for current operations (774,518) 58,094 Total investment (loss) return $ (300,274) $ 444,626

The following is a summary of the levels within the fair value hierarchy for Duke’s investments at June 30: Investments Fair Value as of June 30, 2016 Level 1 Level 2 Level 3 reported at NAV1 Total Short-term investments $ 70,330 $ 1,281,394 $ … $ … $ 1,351,724 U.S. Government securities 34,786 2,192 … … 36,978 Fixed income 24,430 186,241 … 40,840 251,511 Equities 684,072 149,910 61,637 952,429 1,848,048 Hedged strategies 272,992 80,285 … 2,752,583 3,105,860 Private capital 1,239 … 218,645 2,118,253 2,338,137 Real assets 71,264 7,089 28,180 1,568,758 1,675,291 Other 33,592 256,645 … 5,640 295,877 Total investments $ 1,192,705 $ 1,963,756 $ 308,462 $ 7,438,503 $ 10,903,426

Investments Fair Value as of June 30, 2015 Level 1 Level 2 Level 3 reported at NAV1 Total Short-term investments $ 10,294 $ 1,605,005 $ … $ … $ 1,615,299 U.S. Government securities 34,913 2,442 … … 37,355 Fixed income 20,179 164,517 … 40,417 225,113 Equities 825,281 65,961 64,112 1,227,680 2,183,034 Hedged strategies 70,221 39,163 … 2,953,315 3,062,699 Private capital 1,342 … 236,693 2,047,749 2,285,784 Real assets 4,520 (3,047) 24,070 1,596,897 1,622,440 Other 27,438 169,050 … … 196,488 Total investments $ 994,188 $ 2,043,091 $ 324,875 $ 7,866,058 $ 11,228,212

1 Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets. Financial Statements 2015/2016 25 As of June 30, 2016 and 2015, redemption frequency and the corresponding notice period for all investments are as follows: Redemption frequency (in days) Redemption Asset Class (if currently eligible)1 notice period (in days) Short-term investments daily 1 U.S. Government securities daily 1 Fixed income 1 to 30 1 to 30 Equities 1 to 90 1 to 90 Hedged strategies 30 to >365 2 to 100 Private capital N/A N/A Real assets N/A N/A Other N/A N/A

The following tables present additional information about Level 3 investments. Both observable and unobservable inputs may be used to determine the fair value of positions that Duke has classified within the Level 3 category. As a result, the unrealized gains and losses for assets within the Level 3 category in the table below may include changes in fair value that were attributable to both observable and unobservable inputs.

Net realized Balance as of and unrealized Net transfers Balance as of June 30, 2015 losses Purchases Sales (out) in June 30, 2016 Equities $ 64,112 $ (2,475) $ … $ … $ … $ 61,637 Private capital 236,693 (6,213) 48,937 (34,585) (26,187) 218,645 Real assets 24,070 (6,774) 11,056 (9,264) 9,092 28,180 Total Level 3 investments $ 324,875 $ (15,462) $ 59,993 $ (43,849) $ (17,095) $ 308,462

Net realized Balance as of and unrealized Net transfers Balance as of June 30, 2014 gains (losses) Purchases Sales in (out) June 30, 2015 Equities $ 66,024 $ (1,912) $ … $ … $ … $ 64,112 Private capital 190,597 31,078 191,660 (176,642) … 236,693 Real assets 37,297 (9,683) 22,686 (26,230) … 24,070 Total Level 3 investments $ 293,918 $ 19,483 $ 214,346 $ (202,872) $ … $ 324,875

During fiscal 2016, investments reported at NAV totaling $9,092 became private, restricted, or not publicly traded and were consequently transferred to Level 3. In addition, Level 3 securities totaling $26,187 were reorganized into investments reported at NAV during the year. In fiscal 2015, there were no transfers between investments. The change in net unrealized gains and losses related to Level 3 assets still held at June 30, 2016 and 2015 was $10,102 and $72,830, respectively, recorded in investment return in excess of amounts designated for current operations on the consolidated statements of activities.

6. Net Assets Temporarily restricted net assets consist of the following at June 30: 2016 2015 Appreciation on donor-restricted endowments $ 2,205,070 $ 2,508,705 Contributions for physical plant 202,575 219,756 Contributions for instruction, research and divisional support 169,170 161,506 Annuity and other split-interest agreements 19,797 30,234 Other 12,703 11,056 Temporarily restricted net assets $ 2,609,315 $ 2,931,257

1 Based on current terms, it is possible that these redemption rights may be restricted or eliminated by the funds in the future in accordance with the underlying fund agreement. 26 Financial Statements 2015/2016 Permanently restricted net assets consist of the following at June 30: 2016 2015 Instruction, research, and student aid: Donor-restricted endowments $ 1,840,083 $ 1,727,553 Contributions receivable, net 155,979 150,048 Total instruction, research, and student aid 1,996,062 1,877,601 Interests in perpetual trusts held by others 774,420 824,261 Annuity and other split-interest agreements 38,958 44,010 Student loan funds 17,842 18,368 Permanently restricted net assets $ 2,827,282 $ 2,764,240

7. Endowment

Duke’s endowment consists of over 4,800 individual funds established permanent endowment, (b) the original value of subsequent gifts to for a variety of purposes including both donor-restricted endowment the permanent endowment, and (c) accumulations to the permanent funds and funds designated by the Board to function as endowments. endowment made in accordance with the direction of the applicable The endowment also includes interests in perpetual trusts held by donor gift instrument at the time the accumulation is added to others. Net assets associated with endowment funds are classified the fund. Appreciation on donor-restricted endowment funds is and reported based on the existence or absence of donor-imposed classified as temporarily restricted net assets until those amounts are restrictions. appropriated for expenditure by Duke in a manner consistent with the standard of prudence prescribed by the Uniform Prudent Management Interpretation of Relevant Law of Institutional Funds Act (UPMIFA). The amounts appropriated for The Board has decided to continue to require the preservation of expenditure are based on the endowment spending rate per unit and the historic dollar value of endowment funds absent explicit donor the number of units for each fund. The spending rate is approved by stipulations to the contrary. Duke therefore classifies as permanently the Board as part of Duke’s operating budget. restricted net assets (a) the original value of gifts donated to the

Endowment net assets consist of the following at June 30, 2016: Temporarily Permanently 2016 Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ … $ 2,205,070 $ 1,840,083 $ 4,045,153 Board-designated endowment funds 2,020,207 … … 2,020,207 Interests in perpetual trusts held by others … … 774,420 774,420 Total endowed net assets $ 2,020,207 $ 2,205,070 $ 2,614,503 $ 6,839,780

Endowment net assets consist of the following at June 30, 2015: Temporarily Permanently 2015 Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ … $ 2,508,705 $ 1,727,553 $ 4,236,258 Board-designated endowment funds 2,236,026 … … 2,236,026 Interests in perpetual trusts held by others … … 824,261 824,261 Total endowed net assets $ 2,236,026 $ 2,508,705 $ 2,551,814 $ 7,296,545

Financial Statements 2015/2016 27 Spending Policy of certain facilities. The endowment spending amounts reported in the Duke utilizes the total return concept (income yield and appreciation) in consolidated statements of activities include supplemental endowment the management of its endowment. Duke has implemented a spending distributions totaling $125,407 and $75,331 in fiscal 2016 and 2015, policy designed to stabilize annual spending levels and preserve the respectively. real value of the endowment over time. In accordance with Duke’s Return Objectives and Risk Parameters policy, a predetermined endowment spending rate consistent with Duke’s total return objective has been established and approved by the Under the policy approved by the Board, the endowment assets are Board. Should endowment returns prove to be insufficient to support invested in a manner that is intended to produce results that exceed the this policy, the balance is provided from accumulated capital gains. price and yield results of a benchmark composed of 70% of the MSCI Should endowment returns exceed the amounts necessary to attain All Country World and 30% of the Barclays Capital Aggregate Bond this objective, the balance is reinvested. The endowment spending Index. Duke expects its endowment funds, over long time periods, to rate calculates the per unit spending at 5.5% and 5.75% of the average provide an average annual real rate of return of approximately 5.0%. of the LTP unit market value for the previous three (3) calendar year Actual returns in any given year may vary from this amount. ends for non-financial aid endowments and financial aid endowments, Funds with Deficiencies respectively; subject to a 10.0% maximum annual growth in per-unit spending. The annual distribution under the spending policy described From time to time, the fair value of assets associated with a permanently above is reported as investment return included in operating revenues. restricted fund may fall below the fund’s original value. Deficiencies of Additionally, the Board authorizes the use of specific amounts of this nature are reported in unrestricted net assets. Subsequent gains that previously reinvested income, capital gains, and principal related to restore the fair value of such funds to the required level are classified as unrestricted funds functioning as endowment for special academic an increase in unrestricted net assets within the nonoperating activities development initiatives and to support the operations and maintenance section of the consolidated statements of activities.

Changes in endowment net assets for the years ended June 30, 2016 and 2015 are as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Balance as of June 30, 2014 $ 2,094,104 $ 2,519,491 $ 2,423,181 $ 7,036,776 Investment return: Investment income 18,867 40,905 … 59,772 Net appreciation in fair value 60,322 135,396 22,556 218,274 Total investment return 79,189 176,301 22,556 278,046 Contributions … … 106,077 106,077 New Board designated endowment funds 182,376 … … 182,376 Appropriations for expenditure (119,643) (187,087) … (306,730) Balance as of June 30, 2015 $ 2,236,026 $ 2,508,705 $ 2,551,814 $ 7,296,545 Investment return: Investment income 19,678 40,552 … 60,230 Net depreciation in fair value (94,949) (154,371) (40,666) (289,986) Total investment loss (75,271) (113,819) (40,666) (229,756) Contributions … … 103,355 103,355 New Board designated endowment funds 33,972 … … 33,972 Appropriations for expenditure (174,520) (189,816) … (364,336) Balance as of June 30, 2016 $ 2,020,207 $ 2,205,070 $ 2,614,503 $ 6,839,780

28 Financial Statements 2015/2016 8. Pension and Other Postretirement Benefit Plans

Defined Contribution Retirement Savings Plan and satisfy the plan’s eligibility requirements when they retire. The plan is contributory with retiree contributions established as a percentage Faculty and staff members of Duke are eligible to participate in a of the total cost for retiree health care and for the health care of their defined contribution plan. Faculty and exempt staff members are dependents. Duke pays all benefits on a current basis. DUHS employees eligible to receive employer-provided contributions in this plan. hired after June 30, 2002 are not eligible for DUHS contributions to the For fiscal 2016 and 2015, Duke contributed $141,308 and $135,366, cost of this benefit and must bear the full cost themselves if elected respectively, to this plan. Duke expects to contribute $146,106 to this at retirement. As a healthcare provider, Duke utilizes an incremental plan in fiscal 2017. cost approach to determine its liability for the postretirement medical Defined Benefit Pension Plan and Postretirement plan. The total liability reflects estimated additional costs to provide Health Benefit Plan healthcare benefits to retirees within DUHS facilities plus the full cost to provide healthcare benefits to retirees at facilities other than DUHS. Duke has a noncontributory defined benefit pension plan for The measurement date for both the defined benefit pension plan and the substantially all non-exempt employees. The benefit for this plan is postretirement health benefit plan is June 30. Duke recognizes the full based on years of service and the employee’s compensation during the funded status of its defined benefit pension and other postretirement last 10 years of employment. Duke expects to contribute $21,699 to benefit plans in the consolidated balance sheets. Accordingly, the the plan in fiscal 2017. liability for pension benefits as recognized in the consolidated balance At June 30, 2016 and 2015, the accumulated benefit obligation for the sheets represents the deficit of the actuarially determined projected pension benefits was $1,860,740 and $1,467,942, respectively. At June benefit obligation (PBO) under the fair value of plan assets at year 30, 2016, the plan was under funded in relation to accumulated benefits end. The liability for other postretirement benefits as recognized in by $350,604. At June 30, 2015, the plan was over funded in relation to the consolidated balance sheets represents the actuarially determined accumulated benefits by $128,565. accumulated postretirement benefit obligation at year end. Duke also sponsors an unfunded, defined benefit postretirement medical plan that covers all full-time employees who elect coverage

The following tables provide a reconciliation of the plans’ PBO and fair value of assets:

Pension Benefits Postretirement Benefits 2016 2015 2016 2015 Reconciliation of benefit obligation PBO at beginning of year $ 1,615,110 $ 1,565,330 $ 184,616 $ 171,592 Service cost 65,861 67,730 3,318 3,227 Interest cost 75,406 69,294 8,094 7,541 Actuarial loss (gain) 329,289 (35,871) 20,419 10,271 Benefit payments (54,163) (48,873) (9,479) (8,015) Administrative expenses (estimated) (2,700) (2,500) … … PBO at end of year $ 2,028,803 $ 1,615,110 $ 206,968 $ 184,616

Reconciliation of fair value for plan assets Fair value of plan assets at beginning of year $ 1,596,507 $ 1,573,581 $ … $ … Actual (loss) return on plan assets (49,695) 53,990 … … Employer contributions 20,259 20,186 … … Participant contributions 173 159 … … Benefit payments (54,163) (48,873) … … Administrative expenses (2,945) (2,536) … … Fair value of plan assets at end of year $ 1,510,136 $ 1,596,507 $ … $ …

Funded status Net accrued benefit liability $ (518,667) $ (18,603) $ (206,968) $ (184,616)

Financial Statements 2015/2016 29 The following table provides the components of net periodic benefit cost (reported as employee benefits in the consolidated statements of activities) for the plans for fiscal 2016 and 2015: Pension Benefits Postretirement Benefits 2016 2015 2016 2015 Service cost $ 65,861 $ 67,730 $ 3,318 $ 3,227 Interest cost 75,406 69,294 8,094 7,541 Expected return on plan assets (112,585) (100,593) … … Amortization of prior-service cost (asset) 2,135 2,308 (1,326) (1,795) Expected participant contributions (163) (157) … … Recognized actuarial loss (gain) … 4,254 (2,286) (3,597) Net periodic benefit cost $ 30,654 $ 42,836 $ 7,800 $ 5,376

The prior-service costs are amortized on a straight-line basis over the average remaining service period of active participants. The expected amortization of prior-service cost for fiscal 2017 is $1,814 and $0 for the pension and postretirement benefits, respectively. The expected amortization of actuarial losses (gains) for fiscal 2017 is $19,758 and ($80) for the pension and postretirement benefits, respectively. Unrecognized prior-service cost were $8,520 and $0 and unrecognized actuarial losses (gains) were $479,827 and ($21,590) for the pension and postretirement benefits, respectively, as of June 30, 2016. Unrecognized prior-service cost (asset) were $10,655 and ($1,326) and unrecognized actuarial gains were $11,977 and $44,295 for the pension and postretirement benefits, respectively, as of June 30, 2015.

The assumptions used in the measurement of Duke’s benefit obligation and benefit cost are shown in the following table:

Pension Benefits Postretirement Benefits 2016 2015 2016 2015 Weighted average assumptions Obligation Cost Obligation Cost Obligation Cost Obligation Cost as of measurement date Discount rate 3.50% 4.75% 4.75% 4.50% 3.50% 4.50% 4.50% 4.50% Expected return on plan assets N/A 7.50% N/A 7.50% N/A N/A N/A N/A Rate of compensation increase 2.50% 3.00% 3.00% 3.00% N/A N/A N/A N/A

In order to determine the benefit obligation as of June 30, 2016, the per 1.0% Increase 1.0% Decrease capita costs of covered health care benefits was assumed to increase Effect on total of service and $ 1,578 $ (1,322) 7.5% for non-Medicare eligible employees and 6.9% for Medicare interest cost components of net eligible employees, declining to an ultimate annual rate of increase periodic postretirement health of 5.0% by 2023 for non-Medicare eligible employees and 2022 for care benefit cost Medicare eligible employees. The benefit expense for fiscal 2016 was driven by the rates used to determine the obligation at June 30, 2015, Effect on the health care component $ 27,059 $ (22,712) which were 8.0% for non-Medicare eligible employees and 7.3% for of the accumulated postretirement Medicare eligible employees declining to an ultimate rate of 5.0% benefit obligation by 2023 for non-Medicare eligible employees and 2022 for Medicare eligible employees. The projected payments to beneficiaries under the respective plans for each of the five fiscal years subsequent to June 30, 2016 are as follows: Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1.0% change in assumed Pension Postretirement health care cost trend rates would have the following effect: Benefits Benefits 2017 $ 56,800 $ 8,891 2018 60,162 9,701 2019 64,076 10,196 2020 68,447 10,675 2021 73,784 11,249 Projected aggregate payments for pension and postretirement benefits for the five year period ending June 30, 2026 are $458,308 and $61,210, respectively.

30 Financial Statements 2015/2016 Defined Benefit Pension Plan Assets agencies), and 9% other (U.S. Treasury Inflation Protected Securities, The pension plan’s investment strategy focuses on maximizing total non-U.S. inflation linked bonds, and absolute return oriented hedge return and places limited emphasis on liability matching and no funds). emphasis on generating income. Over the long term, the plan’s average The expected return on pension plan assets is established at an amount exposure target is 49% equity (public and private investments in that reflects the targeted asset allocation and expected returns for each companies), 13% commodity (direct commodity exposure, commodity component of the plan assets. The expected return was developed using related equities, and private investments in energy, power, infrastructure a stochastic forecast model of long-term expected returns for each asset and timber), 11% real estate (private real estate and REITs), 13% credit class. The rate is reviewed periodically and adjusted, as appropriate, to (investment-grade bonds, corporate bonds, bank debt, asset backed reflect changes in the expected market performance or in targeted asset securities, etc.), 5% rates (public obligations including treasuries and allocation ranges.

The following is a summary of the levels within the fair value heirarchy for Duke’s plan assets at June 30:

Investments 2016 Fair value as of June 30, 2016 Level 1 Level 2 Level 3 reported at NAV1 Total Short-term investments $ (557) $ 247,148 $ … $ … $ 246,591 Fixed income 5,506 31,049 … … 36,555 Equities 109,898 13,945 … 173,700 297,543 Hedged strategies 33,301 7,939 … 345,967 387,207 Private capital 195 … 27,855 264,975 293,025 Real assets 9,962 1,018 … 212,338 223,318 Other (6,813) 32,710 … … 25,897 Total investments $ 151,492 $ 333,809 $ 27,855 $ 996,980 $ 1,510,136

Investments 2015 Fair value as of June 30, 2015 Level 1 Level 2 Level 3 reported at NAV1 Total Short-term investments $ (1,365) $ 326,767 $ … $ … $ 325,402 Fixed income 4,418 24,403 … … 28,821 Equities 124,733 8,042 … 227,984 360,759 Hedged strategies 3,618 3,036 … 359,393 366,047 Private capital 188 … 31,999 253,045 285,232 Real assets 637 968 … 213,531 215,136 Other (6,783) 21,893 … … 15,110 Total investments $ 125,446 $ 385,109 $ 31,999 $ 1,053,953 $ 1,596,507

1 Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. Plan investments reported at NAV have the same strategies as those in Duke’s investment pools described in Note 5. Financial Statements 2015/2016 31 The following tables present additional information about Level 3 plan assets. Both observable and unobservable inputs may be used to determine the fair value of positions that the Plan has classified within the Level 3 category. As a result, the unrealized gains and losses for assets within the Level 3 category in the table below may include changes in fair value that were attributable to both observable and unobservable inputs.

Balance as of Net realized and Net transfers Balance as of June 30, 2015 unrealized losses Purchases Sales out June 30, 2016 Private capital $ 31,999 $ (3,266) $ 5,772 $ (2,626) $ (4,024) $ 27,855

Balance as of Net realized and Net transfers Balance as of June 30, 2014 unrealized gains Purchases Sales (out) in June 30, 2015 Private capital $ 26,602 $ 5,596 $ 18,831 $ (19,030) $ … $ 31,999

During fiscal 2016, Level 3 securities totaling $4,024 were reorganized into investments reported at NAV. There were no transfers between investments during fiscal 2015. The change in net unrealized gains (losses) related to Level 3 assets still held at June 30, 2016 and 2015 was ($2,509) and $13,185, respectively, recorded within nonperiodic changes in defined benefit plans on the consolidated statements of activities.

9. Land, Buildings, and Equipment

Land, buildings, and equipment, net, are summarized as follows at Interest on borrowings to finance facilities is capitalized during June 30: construction, net of any investment income earned through the 2016 2015 temporary investment of project borrowings. Total net interest cost of Land and land improvements $ 309,096 $ 298,495 $4,205 and $0 was capitalized in fiscal 2016 and 2015, respectively. Buildings and utilities 4,833,782 4,591,874 Duke has identified conditional asset retirement obligations primarily related to the costs of asbestos removal and disposal that will result from Computer software 397,588 385,669 future remediation activity. The liability was estimated using inflation Equipment, furniture and vessels 1,446,972 1,379,791 rates ranging from 3.4% to 5.0% and discount rates ranging from 2.7% Library and art collections 457,736 434,875 to 4.6%, and conditional asset retirement obligations recognized at June 30, 2016 and 2015 were $54,158 and $52,558, respectively, and are Construction in progress 547,161 334,975 reported in other liabilities on the consolidated balance sheets. Gross land, buildings and equipment 7,992,335 7,425,679 Accumulated depreciation (4,303,874) (3,999,917) Net land, buildings and equipment $ 3,688,461 $ 3,425,762

32 Financial Statements 2015/2016 10. Notes and Bonds Payable

Notes and bonds payable at June 30 consist of the following: Outstanding principal Fiscal year Effective of maturity interest rate 2016 2015 University Tax-Exempt Bonds: Variable-rate bonds Series 1987A 2018 0.097% $ 12,900 $ 18,900 Series 1991B 2022 0.123% 40,000 40,000 Series 1992A 2027 0.115% 35,240 35,240 Fixed-rate bonds Series 2005A 2042 4.915% … 88,550 Series 2006A 2045 4.901% 285,500 287,185 Series 2006B 2043 4.344% 95,435 95,435 Series 2009B 2039 5.000% 247,090 247,090 Series 2014A 2042 5.000% 119,115 119,115 Series 2014B 2045 5.000% 84,710 84,710 Series 2014C 2043 5.000% 33,000 33,000 Series 2015B 2056 5.000% 368,905 … University Taxable Bonds: Fixed-rate bonds Series 2007A 2037 5.850% 200,000 200,000 Series 2015A 2049 4.089% 175,865 … DUHS Tax-Exempt Bonds: Variable-rate bonds Series 2005A, B, and C 2028 1.081% 133,185 322,140 Series 2006A, B, and C (see Note 11) 2039 0.933% 121,620 121,620 Series 2012B (see Note 11) 2023 1.195% 28,650 28,650 Series 2016B 2042 1.050% 90,000 … Series 2016C 2042 1.144% 90,000 … Fixed-rate bonds Series 2009A 2042 5.058% … 180,000 Series 2010A 2042 4.927% 120,000 120,000 Series 2012A 2042 4.731% 279,570 281,515 Series 2016A 2028 2.077% 167,075 … Tax-exempt commercial paper <1 year 0.099% 33,860 218,961 Taxable commercial paper <1 year 0.264% 60,162 80,162 Other notes payable Various Various 12,791 14,212 Capital lease obligations (see Note 15) Various Various 125,497 125,446 Unamortized premium 134,997 55,728 Debt issuance costs (9,453) (10,529) Notes and bonds payable $ 3,085,714 $ 2,787,130

As of June 30, 2016 and 2015, Duke had line of credit agreements totaling $275,000. As of June 30, 2016 and 2015, there were no outstanding borrowings under the line of credit agreements.

Financial Statements 2015/2016 33 Aggregate maturities of notes and bonds payable, excluding capital payments of the Series 2009A refunded bonds until the first call date lease obligations (see Note 15), are as follows: and to refund the Series 2005C ($107,380) and a portion of the Series 2005B ($72,620) bonds. The Series 2016A bonds were issued Year Principal Payments at a premium of $36,915. 2017 $ 124,062 The DUHS refundings referenced above meet the legal requirements 2018 40,065 for defeasance of the bond liability. Therefore, neither the escrow nor the refunded bonds are included on the consolidated balance sheets 2019 31,760 at June 30, 2016. The refunding transactions related to the University’s 2020 32,920 November 2015 issuance resulted in a gain on extinguishment of debt 2021 33,970 of $1,922 related to the unamortized premium, which is included in Thereafter 2,571,896 other operating expenses on the consolidated statements of activities for the year ended June 30, 2016. The refunding transactions related Total principal payments $ 2,834,673 to DUHS’ May 2016 issuance resulted in a loss on extinguishment of debt of $25,078 related to the write off of unamortized bond issue Duke capitalizes and amortizes the original issue premium and costs and discount and the escrow funding requirements for principal issue costs related to applicable bond issues in a manner that and interest payments in excess of the face value of the 2009A approximates the interest method. Total amortization expense for refunded bonds, which is included in other operating expenses on the issue costs and discounts was $2,920 and $1,507 for fiscal 2016 and consolidated statements of activities for the year ended June 30, 2016. 2015, respectively, and is included in interest expense in the consolidated statements of activities. Trust indentures underlying the DUHS Revenue Bonds contain certain covenants and restrictions. DUHS was in compliance during In October 2015, the University issued Series 2015A taxable bonds fiscal 2016 and 2015. in the amount of $175,865, the proceeds of which were used to pay off taxable commercial paper ($85,000) and fund various projects. In August 2016, DUHS issued Series 2016D bonds in the amount of $125,100 to fund an escrow account that was irrevocably placed with In November 2015, the University issued Series 2015B tax-exempt a trustee to meet the principal and interest payments of the Series bonds in the amount of $368,905, the proceeds of which were used 2010A bonds. The refunding transaction resulted in a loss on to pay off tax exempt commercial paper ($185,101), refund Series extinguishment of debt of $18,328 representing the write-off of the 2005A bonds ($88,550) and fund various projects. The bonds were unamortized bond issue costs and the escrow funding requirements issued at a premium of $47,175. for principal and interest payments in excess of the face value of the In May 2016, DUHS issued the Series 2016 A, B, and C bonds in the 2010A refunded bonds. The refunding meets the requirements of aggregate amount of $347,075 to fund an escrow account that was derecognition of the bond liability in fiscal year 2017. irrevocably placed with a trustee to meet the principal and interest 11. Derivative and Other Financial Instruments

Investment strategies employed by DUMAC and investment managers During fiscal 2016 and 2015, Duke, or external investment managers retained by DUMAC incorporate the use of various derivative on Duke’s behalf, entered into swap agreements, futures contracts, financial instruments. DUMAC uses these instruments for a number of or forward contracts, and acquired warrants or rights to increase, investment purposes, including hedging or altering exposure to certain reduce or otherwise modify investment exposures. These instruments asset classes and cost-effectively adding exposures to portions of the expose Duke to risk of an unexpected movement in the fair value of portfolio. Positions are expected to create gains or losses that, when the underlying security, a counterparty failing to meet its obligations, combined with the applicable portion of the total investment portfolio, and, in certain circumstances, not being able to unwind a position at provide an expected result. current fair market value due to market illiquidity. Duke has established procedures to monitor and manage these risks. Duke’s investment related derivative exposures, categorized by primary underlying risk, are as follows:

Primary underlying risk as of June 30, 2016 Long Notional Short Notional Derivative assets Derivative liabilities Gain (loss) Equity Price1 $ 2,325,553 $ 932,984 $ 49,665 $ (38,048) $ 15,024 Interest Rate2 423,368 730,247 3,337 (1,385) (4,456) Commodity Price3 566,581 261,218 15,082 (12,218) (118,965) Credit4 4,617,247 1,571,665 174,955 (20,262) 5,265 Foreign currency exchange rate5 274,939 1,142,598 20,650 (15,406) 18,661 Total $ 8,207,688 $ 4,638,712 $ 263,689 $ (87,319) $ (84,471)

34 Financial Statements 2015/2016 Primary underlying risk as of June 30, 2015 Long Notional Short Notional Derivative assets Derivative liabilities Gain (loss) Equity Price1 $ 1,613,069 $ 586,201 $ 22,307 $ (61,773) $ 50,395 Interest Rate2 695,583 567,310 950 (602) 15 Commodity Price3 735,453 134,872 22,903 (26,151) (182,167) Credit4 2,557,487 769,304 114,883 (7,954) 6,346 Foreign currency exchange rate5 218,118 940,040 7,582 (5,279) 34,752 Total $ 5,819,710 $ 2,997,727 $ 168,625 $ (101,759) $ (90,659)

As part of relative value strategies Duke and investment managers on Duke’s behalf entered into credit default swap derivative transactions on investment grade and high yield securities which typically have terms of five years or less to buy and sell credit protection. At June 30, 2016 and 2015, the notional of protection sold was $4,098,947 and $2,398,719 and the notional of protection bought with identical underlying assets was $498,051 and $420,687, respectively. These instruments are included in the credit line of the preceding table.

Duke’s investment related derivative assets and liabilities at June 30, by counterparty, are as follows:

2016 2015 Cash Collateral Cash Collateral Assets Liabilities (Held) Pledged Assets Liabilities (Held) Pledge Counterparty A $ 61,977 $ (5,131) $ (51,190) $ 49,126 $ (11,905) $ (24,358) Counterparty B 43,137 (7,148) (38,361) 32,333 (4,122) (23,813) Counterparty C 57,205 (15,111) 98,358 33,038 (56,181) 85,942 Counterparty D 34,108 (14,702) 34,197 40,248 (14,658) 44,854 Counterparty E 9,834 (6,471) 12,868 3,198 (3,480) 11,881 Counterparty F 3,418 (12,103) … 228 … … Counterparty G 34,133 (1,489) (26,090) 5,381 (4,232) 150 Counterparty H 7,776 (13,328) 12,310 … (4,104) … All Others 12,111 (11,853) … 5,073 (3,076) … Total $ 263,699 $ (87,336) $ 42,092 $ 168,625 $ (101,758) $ 94,656

In addition, Duke has executed derivative financial instruments in the normal course of managing its debt portfolio using long term strategies. Duke has interest rate swap agreements that are designed to synthetically decrease the variable rate exposure associated with its portfolio of debt. In addition, Duke has a swap agreement designed to reduce the interest rate risk on variable rate indebtedness by utilizing the spread between the yield curves for taxable debt securities and tax-exempt municipal debt securities.

The following table summarizes the general terms for each of Duke’s swap agreements:

Associated Maturity Current notional Effective date debt series date amount Rate Duke pays Rate Duke receives Interest rate: August 12, 1993 2012B June 2023 $ 28,650 5.09% SIFMA May 19, 2005 N/A June 2028 $ 301,835 3.60% 61.5% of one-month LIBOR plus 0.28% April 1, 2009 Portfolio6 June 2039 $ 127,505 3.75% 67.0% of one-month LIBOR Basis: July 6, 2001 N/A July 2021 $ 400,000 SIFMA 72.13% of one-month LIBOR

1 Includes options, swaps, and futures contracts. 2 Includes options, swaps, swaptions, and futures contracts. 3 Includes options and futures contracts. 4 Includes credit default swaps, swaptions, and credit total return swaps. 5 Includes options and forward contracts. 6 Notional amount of the April 2009 Interest Rate Swap declines coincident with the principal schedules for the Series 2006A/B/C bonds. The residual portion is $5,885. Financial Statements 2015/2016 35 The fair value of each swap is the estimated amount Duke would DUHS derivative instruments contain provisions requiring long-term, receive or pay to terminate the swap agreement at the reporting unsecured debt to be maintained at specified credit ratings from date, taking into account current interest rates and the current Moody’s Investor Service and Standard & Poor’s Rating Service. If creditworthiness of the swap counterparties. The fair value is included the ratings of DUHS’s debt were to fall below certain benchmarks, the in other liabilities on the consolidated balance sheets. The change in counterparty could request immediate payment on derivatives in net fair value is included as a gain or loss in other nonoperating activities liability positions. At June 30, 2016, DUHS’s long-term debt ratings on the consolidated statements of activities. The net settlement exceeded these requirements. The aggregate fair value of all derivative amount incurred on the swaps is included in interest expense on the instruments with credit-risk related contingent features that were in a consolidated statements of activities. The collateral to support the liability position on June 30, 2016 and 2015 was $117,187 and $89,396, swaps is included in short-term investments within investments on the respectively, for which DUHS has posted collateral of $21,869 and consolidated balance sheets. The debt derivative instruments contain $14,463, respectively, in the normal course of business. If the credit-risk cross-collateralization provisions that require each counterparty to related features underlying these agreements were triggered on June 30, post collateral if the fair value meets certain thresholds. 2016 and 2015, DUHS would have been required to post an additional $95,318 and $74,933, respectively, of collateral to its counterparties.

Financial Information Related 2016 2015 to Swap Agreements Fair Value Gain (Loss) Fair Value Gain (Loss) August 1993 Interest Rate Swap $ (6,134) $ 28 $ (6,162) $ 291 May 2005 Interest Rate Swap (52,869) (8,320) (44,549) 1,224 April 2009 Interest Rate Swap (56,442) (17,757) (38,685) (5,338) July 2001 Basis Swap (1,742) (1,780) 38 4,477 Total $ (117,187) $ (27,829) $ (89,358) $ 654

The April 2009 Interest Rate Swap is subject to a mandatory early counterparty credit risk by considering the credit rating, business risk, termination right on April 2, 2018. When this right is exercised, DUHS and reputation of any counterparty before entering into a transaction, may revoke it, at which time DUHS’ collateral threshold reduces to $0 monitoring for any change in the credit standing of its counterparty for the remainder of the swap agreement. during the life of the transaction, and requiring collateral be posted Duke is exposed to financial loss in the event of nonperformance by when predetermined thresholds are crossed. Duke is also exposed to a counterparty to any of the financial instruments described above. interest rate risk driven by factors influencing the spread between the General market conditions could impact the credit standing of the taxable and tax-exempt market interest rates on its basis swap. counterparties and, therefore, potentially impact the value of the instruments on Duke’s consolidated balance sheets. Duke controls this

12. Affiliated Organizations The Private Diagnostic Clinic, PLLC (the PDC) The Duke Endowment The PDC is a professional limited liability company consisting of Duke is a named beneficiary of The Duke Endowment and receives physicians practicing primarily within DUHS facilities and PDC substantial support from The Duke Endowment in the forms of clinics. The purpose of the PDC is to provide a structure separate unrestricted operating support and discretionary grants. Established from Duke in which the members of the physician faculty of the in 1924 by James Buchanan Duke, The Duke Endowment is a School of Medicine may engage in the private practice of medicine charitable trust created to promote philanthropic purposes by and still serve as members of the faculty of Duke conducting clinical making grants for educational, health care, child care, and religious teaching and medical research. Under a contract between the PDC purposes within North Carolina and South Carolina. and Duke, the PDC: (1) makes payments for nonprofessional services While Duke and The Duke Endowment have a common heritage, and employees supplied by Duke to the PDC; (2) pays rent for each having been founded through the generosity of James the PDC’s use of space; and (3) makes payments for the goodwill Buchanan Duke, they are two separate entities, each with its own and other benefits derived from the PDC’s association with Duke. purposes, office, officers, and trustees. The Duke Endowment has A substantial portion of the payments is used by Duke to support been required by its indenture to distribute certain amounts of academic programs in the clinical departments of the School of income to Duke from the Original Corpus, Corpus Item VIII, and Medicine. These payments totaled $69,328 and $61,136 for fiscal Corpus Item XI, subject to a limited right to withhold by The Duke 2016 and 2015, respectively, and are recognized as revenue in grants, Endowment trustees. Through June 30, 2016, this right to withhold contracts and similar agreements in the consolidated statements of has never been exercised. activities.

36 Financial Statements 2015/2016 The Duke Endowment trustees now invest for total return in Duke received discretionary grant payments from The Duke accordance with current investment practices, with the result Endowment of $31,418 and $36,557 for fiscal 2016 and 2015, that (a) the distinction between “principal” and “income” in the respectively. traditional sense can no longer be readily identified, if at all, and (b) At June 30, 2016 and 2015, the portion of The Duke Endowment’s the traditional “income” that can be identified is often inadequate net assets included in permanently restricted net assets on to meet beneficiary needs. Accordingly, by an Order dated Duke’s consolidated balance sheets, and from which Duke derives December 15, 2009, the Superior Court of Mecklenburg County, unrestricted operating support, had a fair value of $671,542 North Carolina further broadened the authority of The Duke and $717,505 respectively. Duke has no equity interest in the Endowment trustees to distribute principal to its beneficiaries. principal of The Duke Endowment trust, which had a fair value of Unrestricted operating support from The Duke Endowment was approximately $3.3 billion at June 30, 2016. $12,500 for fiscal 2016 and 2015. Such amounts are reflected in investment return designated for current operations in the consolidated statements of activities.

13. Functional Expenses

Expenses are reported in the consolidated statements of activities in Functional expenses are shown in categories recommended by the natural categories. Functional expenses for fiscal 2016 and 2015 were National Association of College and University Business Officers. categorized as follows: Duke’s primary program services are health care services, sponsored 2016 2015 and separately budgeted research, and instruction and departmental research. Expenses reported as general administration, auxiliary Health care services $ 2,131,790 $ 2,007,780 enterprises, libraries, student services, and student aid are incurred in Instruction and departmental support of these primary program services. research 1,023,632 987,206 Plant operation and maintenance expense is allocated to program General administration 984,964 920,044 and supporting activities based upon periodic assessment of facilities Sponsored and separately usage. Total amounts allocated in fiscal 2016 and 2015 were $159,928 budgeted research 891,625 864,081 and $133,749, respectively. Auxiliary enterprises 262,177 247,201 Student services 58,777 54,343 Student aid 48,454 47,788 Libraries 49,776 43,137 Total operating expenses $ 5,451,195 $ 5,171,580

14. Managing Conflicts of Interest

Members of Duke’s governing boards and senior administration may, consideration, based on terms that are fair and reasonable to and in the from time to time, be associated, either directly or indirectly, with best interests of Duke, and in accordance with applicable conflict of companies doing business with Duke. interest laws and policies in effect. No such associations that have been Written conflict of interest policies are maintained for members of disclosed are considered to be material to the consolidated financial the governing boards of the University, DUHS, and DUMAC that statements. require, among other things, that no member of a governing board For members of the senior administration, Duke requires annual may participate in any decision in which he or she (or an immediate disclosure of significant financial interests in, or employment or family member) has a material financial interest. Each governing consulting relationships with, entities doing business with Duke. board member is required to certify compliance with the conflict of These annual disclosures cover members of the senior administration interest policy on an annual basis and indicate whether Duke does and their immediate family members. When such relationships exist, business with an entity in which that member (or an immediate family measures are taken to appropriately manage the actual or perceived member) has a material financial interest. When such relationships conflict in the best interests of Duke. No such associations that have exist, measures, including written management plans, are taken to been disclosed are considered to be material to the consolidated mitigate any actual or perceived conflict, including requiring that financial statements. such transactions be conducted at arm’s length, for good and sufficient

Financial Statements 2015/2016 37 15. Commitments and Contingencies

Construction and Purchase Commitments claims incurred but not reported related to DUHS in the amounts of At June 30, 2016 and 2015, open contracts for the construction of $7,272 and $7,720 as of June 30, 2016 and 2015, respectively. physical properties amounted to $312,745 and $411,545, respectively, The estimated liability for professional and general liability claims and outstanding purchase orders for normal operating supplies and may be significantly affected if current and future claims differ equipment amounted to $14,608 and $32,902, respectively. from historical trends. While the administration monitors reported claims closely and considers potential outcomes as estimated by Leases its actuaries when determining its professional and patient general Duke leases various machinery, equipment and buildings under liability accruals, the complexity of the claims, the extended period operating leases expiring at various dates through 2031. Total rental of time to settle the claims, and the wide range of potential outcomes expense in fiscal 2016 and 2015 for all operating leases was $75,018 complicate the estimation. In the opinion of the administration, and $87,438, respectively. adequate provision has been made for this related risk. Future minimum lease payments under noncancelable capital and Self-Insurance operating leases as of June 30, 2016 are as follows: Duke provides employee healthcare benefits, long-term disability Capital Operating benefits, unemployment benefits, and workers’ compensation benefits Year Leases Leases Total primarily though employer contributions, participant contributions, 2017 $ 9,589 $ 95,410 $ 104,999 and excess loss insurance, and manages those programs through third- party administrators. In the opinion of the administration, adequate 2018 9,744 90,406 100,150 provision has been made for the related risks within accounts payable 2019 8,454 83,812 92,266 and accrued payroll or accrued postretirement/postemployment and 2020 7,267 72,151 79,418 other benefit obligations on Duke’s consolidated balance sheets. 2021 7,436 67,725 75,161 Partnership Investment Commitments Thereafter 279,559 386,645 666,204 There were $1.7 billion of commitments to private capital and real Total minimum asset investments as of June 30, 2016. These funds may be drawn lease payments 322,049 796,149 1,118,198 down over the next several years upon request by the general partners. Duke expects to finance these commitments with available cash and Less sublease rentals expected proceeds from the sales of securities. by the PDC … (29,607) (29,607) Contingencies Total minimum payments Duke is involved in various legal actions occurring in the normal less subleases 322,049 $ 766,542 $ 1,088,591 course of activities. While the final outcomes cannot be determined Less: Interest portion (196,552) at this time, the administration is of the opinion that the resolution of these matters will not have a material adverse effect on Duke’s Capital lease obligations $ 125,497 financial position. The University and DUHS have been named as defendants in a false claims lawsuit in the Western District of Virginia by Joseph M. Medical Malpractice Coverage Thomas, a former employee of the University, claiming scientific DCC (see Note 1) insures a portion of the medical malpractice risks misconduct and fraud. The administration believes that the resolution and patient general liability risks of DUHS clinical providers and of this case will not result in a material impact on the consolidated the PDC. The assets, liabilities, and results of operations for DCC financial statements. have been reflected in the unrestricted net assets of Duke. Policy Laws and regulations governing Medicare, Medicaid, and other federal limits for the years ended June 30, 2016 and 2015 were $110,000 per programs are complex and subject to interpretation. Duke, in part incident and $155,000 in the aggregate. DCC limits its exposure to through its compliance program, seeks to ensure compliance with such loss through reinsurance and excess loss agreements. laws and regulations, and to rectify instances of noncompliance with Estimated professional liability costs include the estimated cost governmental program rules. Duke believes that it is in compliance of professional liability in fiscal 2016 and 2015 for reported with all applicable laws and regulations and is not aware of any claims incurred in the DCC program. DCC evaluates its estimated pending or threatened investigations involving allegations of potential professional liability on a discounted actuarial basis. The discount wrongdoing that would have a material effect on Duke’s consolidated rate at June 30, 2016 and 2015 is 3.5%. Accrued professional financial statements. Compliance with such laws and regulations is liability costs as of June 30, 2016 and 2015 amounted to $34,785 and subject to future government review and interpretation as well as $38,136, respectively. Cash, investments, and other receivables in significant regulatory action, including fines, penalties and exclusion this amount have been designated by DUHS to settle these claims. from the Medicare, Medicaid, and other Federal programs. Also included in estimated professional liability costs are estimated

38 Financial Statements 2015/2016 Balance Sheets SCHEDULE 1

THE UNIVERSITY (SUPPLEMENTARY INFORMATION) JUNE 30, 2016 AND 2015 (DOLLARS IN THOUSANDS)

2016 2015 Assets: Cash and cash equivalents $ 174,348 $ 122,580 Accounts receivable, net 232,616 212,910 Prepaid expenses, inventories, and other assets 60,007 107,108 Contributions receivable, net 439,869 451,252 Investments 8,129,791 8,661,013 Deposits with bond trustees 45,323 23,049 Land, buildings, and equipment, net 2,229,999 1,965,945 Interests in perpetual trusts held by others 772,553 824,261 Due from Duke University Health System 510,000 … Total assets $ 12,594,506 $ 12,368,118

Liabilities: Accounts payable and accrued payroll $ 327,042 $ 334,075 Deferred revenues and deposits 193,688 176,515 Notes and bonds payable 1,884,237 1,597,712 Annuity and other split-interest obligations 53,372 51,548 Accrued postretirement/postemployment and other benefit obligations 370,986 217,894 Other liabilities 174,556 177,039 Total liabilities 3,003,881 2,554,783

Net Assets: Unrestricted 4,211,843 4,175,151 Temporarily restricted 2,565,199 2,885,448 Permanently restricted 2,813,583 2,752,736 Total net assets 9,590,625 9,813,335 Total liabilities and net assets $ 12,594,506 $ 12,368,118

The supplementary information in this schedule presents the balance sheets of the University, exclusive of DUHS. See accompanying Independent Auditors’ Report. Financial Statements 2015/2016 39 Statements of Activities SCHEDULE 2

THE UNIVERSITY (SUPPLEMENTARY INFORMATION) YEARS ENDED JUNE 30, 2016 AND 2015 (DOLLARS IN THOUSANDS)

2016 2015 Unrestricted Net Assets: Operating revenues: Tuition and fees $ 733,497 $ 698,259 Less student aid (279,874) (269,216) Tuition and fees, net 453,623 429,043

Grants, contracts and similar agreements: Government sources 557,337 557,488 The Private Diagnostic Clinic, PLLC 54,625 46,264 Other 459,817 437,487 Total grants, contracts and similar agreements 1,071,779 1,041,239 Contributions 125,410 109,109

Investment return designated for current operations: The Duke Endowment 12,500 12,500 Endowment spending 363,423 305,712 Other investment income 91,349 61,292 Total investment return designated for operations 467,272 379,504

Auxiliary enterprises 211,765 206,872 Operating support from DUHS 97,937 64,222 Other 135,431 137,662 Net assets released from restrictions 57,116 51,907 Total operating revenues 2,620,333 2,419,558

Operating expenses: Salaries and wages 1,212,257 1,171,770 Employee benefits 301,721 283,482 Student aid 42,243 42,030 Other operating expenses 741,330 714,276 Interest expense 66,136 57,849 Depreciation expense 199,549 192,223 Total operating expenses 2,563,236 2,461,630 Operating surplus (deficit) 57,097 (42,072)

40 Financial Statements 2015/2016 Statements of Activities SCHEDULE 2 (CONTINUED)

2016 2015

Nonoperating activities: Net assets released from restrictions $ 43,499 $ 47,367 Investment return (less than) in excess of amounts designated for current operations (370,175) 877 Nonperiodic changes in defined benefit plans (197,652) (12,806) Other, net (6,077) (12,183) Change in unrestricted net assets from nonoperating activities (530,405) 23,255 Transfers of net assets from DUHS 510,000 150,000 Change in unrestricted net assets 36,692 131,183

Temporarily Restricted Net Assets: Contributions 81,017 114,107 Net assets released from restrictions (100,615) (99,274) Investment return less than amounts designated for current operations (310,757) (11,938) Transfer of net assets from DUHS for capital … 11,000 Other, net 10,106 (1,129) Change in temporarily restricted net assets (320,249) 12,766

Permanently Restricted Net Assets: Contributions 123,252 97,492 Investment return in excess of (less than) amounts designated for current operations 1,951 (2,294) (Losses) gains on interests in perpetual trusts held by others (51,708) 21,901 Other, net (12,648) 784 Change in permanently restricted net assets 60,847 117,883

Change in total net assets (222,710) 261,832 Net assets at beginning of year 9,813,335 9,551,503 Net assets at end of year $ 9,590,625 $ 9,813,335

Certain amounts disaggregated above are presented below in the aggregate: Contributions $ 329,679 $ 320,708 Investment return (211,709) 366,149

The supplementary information in this schedule presents the statements of activities of the University, exclusive of DUHS. See accompanying Independent Auditors’ Report.

Financial Statements 2015/2016 41 Statements of Cash Flows SCHEDULE 3

THE UNIVERSITY (SUPPLEMENTARY INFORMATION) YEARS ENDED JUNE 30, 2016 AND 2015 (DOLLARS IN THOUSANDS)

2016 2015 Cash flows from operating activities:

Change in net assets $ (222,710) $ 261,832 Adjustments to reconcile change in net assets to net cash used in operating activities: Depreciation expense 199,549 192,223 Nonperiodic changes in defined benefit plans 197,652 12,806 Provision for bad debt 763 (4,157) Transfers from DUHS (510,000) (161,000) Gain on extinguishment of debt (1,922) … Loss on disposals of land, buildings and equipment 5,610 4,761 Restricted contributions received for long-term investment and capital projects (215,652) (195,603) Permanently restricted investment return (1,951) 2,294 (Gains) losses on other nonoperating items (1,956) 4,434 Net realized and unrealized losses (gains) on investments 319,668 (259,775) Losses (gains) on interests in perpetual trusts held by others 51,708 (21,901) Change in: Accounts receivable, net (19,961) 6,704 Prepaid expenses, inventories, and other assets (3,050) 1,573 Contributions receivable, net 10,620 (11,815) Accounts payable and accrued payroll (18,790) 48,830 Deferred revenues and deposits 17,173 16,438 Annuity and other split-interest obligations 1,824 4,438 Accrued postretirement/postemployment and other benefit obligations 5,591 5,456 Other liabilities (2,483) (2,009) Net cash used in operating activities (188,317) (94,471)

42 Financial Statements 2015/2016 Statements of Cash Flows SCHEDULE 3 (CONTINUED)

2016 2015 Cash flows from investing activities: Purchases of investments (11,696,204) (9,828,898) Proceeds from sales and maturities of investments 11,907,758 9,954,625 Purchases of land, buildings, and equipment (457,464) (317,937) Proceeds from disposals of land, buildings, and equipment 8 10 Disbursements for loans to students (6,873) (6,953) Repayments of loans by students 7,128 7,713 Change in deposits with bond trustees (22,274) (23,049) Net cash used in investing activities (267,921) (214,489)

Cash flows from financing activities: Restricted contributions received for long-term investment and capital projects 215,652 195,603 Transfers from DUHS … 11,000 Permanently restricted investment return 1,951 (2,294) Losses on other nonoperating items 1,956 (4,434) Principal payments on notes and bonds payable (368,416) (245,728) Proceeds from borrowings 656,863 299,732 Net cash provided by financing activities 508,006 253,879

Net change in cash and cash equivalents 51,768 (55,081)

Cash and cash equivalents at beginning of year 122,580 177,661 Cash and cash equivalents at end of year $ 174,348 $ 122,580

Supplemental disclosure of cash flow information: Noncash transfer from DUHS $ … $ 150,000

The supplementary information in this schedule presents the statements of cash flows of the University, exclusive of DUHS. See accompanying Independent Auditors’ Report.

Financial Statements 2015/2016 43 Interior of Duke Chapel prior to the May 2016 reopening from a year-long renovation.

Printed on recycled paper.

Appendix C

Summary of Certain Documents

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DEFINITIONS OF CERTAIN TERMS

The following is a summary of the definitions of certain terms used in this Offering Memorandum which correspond to terms contained in the Trust Agreement.

“Act” means the Nonprofit Corporation Act, Chapter 55A of the General Statutes of North Carolina, as amended, or any successor statute.

“Beneficial Owner” means, for any Series 2016A Bond which is held by a nominee, the beneficial owner of such Series 2016A Bond.

“Bond Fund” means the Duke University Taxable Bonds Series 2016A Bond Fund created and so designated by the Trust Agreement.

“Bond Year” means the period commencing on the first day of October of any year and ending on the last day of September of the following year.

“Book Entry Bonds” means Series 2016A Bonds for which a Securities Depository or its nominee is the Holder.

“Cost of Issuance Fund” means the Duke University Taxable Bonds Series 2016A Cost of Issuance Fund created and so designated by the Trust Agreement.

“Defeasance Obligations” means (i) Government Obligations, (ii) evidences of ownership of a proportionate interest in specified Government Obligations, which Government Obligations are held by a bank or trust company organized and existing under the laws of the United States of America or any state thereof in the capacity of custodian, (iii) Defeased Municipal Obligations, (iv) evidences of ownership of a proportionate interest in specified Defeased Municipal Obligations, which Defeased Municipal Obligations are held by a bank or trust company organized and existing under the laws of the United States of America or any state thereof in the capacity as custodian, and (v) full faith and credit obligations of state or local government municipal bond issuers which are rated in the highest rating category by S&P and Moody’s.

“Defeased Municipal Obligations” means obligations of state or local government municipal bond issuers which are rated in the highest rating category by S&P and by Moody’s, provision for the payment of the principal of and interest on which shall have been made by deposit with a trustee or escrow agent of (i) Government Obligations or (ii) evidences of ownership of a proportionate interest in specified Government Obligations, which Government Obligations are held by a bank or trust company organized and existing under the laws of the United States of America or any state thereof in the capacity of custodian, and the maturing principal of and interest on such Government Obligations or evidences of ownership, when due and payable, shall provide sufficient money to pay the principal of, premium, if any, and interest on such obligations of state or local government municipal bond issuers.

“Eminent Domain” means the eminent domain or condemnation power by which all or any part of the Property may be taken for public use or any agreement that is reached in lieu of proceedings to exercise such power.

“Event of Default” means, with respect to the Trust Agreement, each of the events of default set forth under the caption “SUMMARY OF THE TRUST AGREEMENT—Events of Default” herein.

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“Government Obligations” means direct obligations of, or obligations the timely payment of the principal of and interest on which are fully and unconditionally guaranteed by, the United States of America.

“Holder” means a person in whose name a Series 2016A Bond is registered in the registration books established by the Trust Agreement.

“Interest Account” means the account in the Bond Fund created and so designated by the Trust Agreement.

“Interest Payment Date” means each April 1 or October 1, commencing April 1, 2017.

“Investment Obligations” means any of the following:

(i) Government Obligations;

(ii) Repurchase agreements for Government Obligations with a qualified depository bank or securities dealers fully collateralized by Government Obligations, maturing on or before the date when such funds will be required for disbursement;

(iii) Prime commercial paper rated either “P-1” by Moody’s or “A-1” by S&P and, if rated by both, not less than “P-1” by Moody’s and “A-1” by S&P; or

(iv) Interests in any money market fund or trust, the investments of which are restricted to obligations described in clauses (i) through (iii) of this definition or obligations determined to be of comparable quality by the board of directors of such fund or trust.

“Issuance Costs” means issuance costs incurred in connection with the Series 2016A Bonds.

“Letter of Representations” means, when all the Series 2016A Bonds are Book Entry Bonds, the Blanket Letter of Representations dated February 28, 1996, executed by the University and delivered to The Depository Trust Company and any amendments thereto or successor blanket agreements between the University and any successor Securities Depository, relating to a system of Book Entry Bonds to be maintained by such Securities Depository with respect to any bonds, notes or other obligations issued by the University.

“Moody’s” means Moody’s Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and, if such corporation is dissolved or liquidated or no longer performs the functions of a securities rating agency, “Moody’s” will be deemed to refer to any other nationally recognized securities rating agency designated by the University, by notice to the Bond Trustee.

“Officer’s Certificate” means a certificate signed by a University Representative.

“Opinion of Counsel” means an opinion in writing signed by an attorney or firm of attorneys acceptable to the Bond Trustee who may be counsel for the University or other counsel and which term includes counsel who may be employed by the University.

“Outstanding” when used with reference to Series 2016A Bonds means, as of a particular date, all Series 2016A Bonds theretofore issued under the Trust Agreement, except:

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(1) Series 2016A Bonds theretofore cancelled by the Bond Trustee or delivered to the Bond Trustee for cancellation;

(2) Series 2016A Bonds for the payment of which money, Defeasance Obligations, or a combination of both, sufficient to pay, on the date when such Series 2016A Bonds are to be paid or redeemed, the principal or the Redemption Price, as the case may be, of, and the interest accruing to such date on, the Series 2016A Bonds to be paid or redeemed, has been deposited with the Bond Trustee in trust for the Holders of such Series 2016A Bonds; Defeasance Obligations shall be deemed to be sufficient to pay or redeem Series 2016A Bonds on a specified date if the principal of and the interest on such Defeasance Obligations, when due, will be sufficient to pay on such date the principal or the Redemption Price, as the case may be, of, and the interest accruing on, such Series 2016A Bonds to such date;

(3) Series 2016A Bonds in exchange or substitution for or in lieu of which other Series 2016A Bonds have been authenticated and delivered pursuant to the Trust Agreement; and

(4) Series 2016A Bonds deemed to have been paid in accordance with the Trust Agreement.

“Property” means any and all rights, titles and interests in and to any and all assets whether real or personal, tangible or intangible and wherever situated.

“Property, Plant and Equipment” means all Property which is property, plant and equipment under generally accepted accounting principles.

“Redemption Fund” means the Duke University Taxable Bonds Series 2016A Redemption Fund created and so designated by the Trust Agreement.

“Redemption Price” means, with respect to Series 2016A Bonds or a portion thereof, the redemption price specified in the Trust Agreement.

“S&P” means S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC, its successors and their assigns, and, if such entity is dissolved or liquidated or no longer performs the functions of a securities rating agency, “S&P” will be deemed to refer to any other nationally recognized securities rating agency designated by the University, by notice to the Bond Trustee.

“Securities Depository” means The Depository Trust Company, New York, New York, or any other recognized securities depository selected in accordance with the Trust Agreement, which maintains a book-entry system in respect of the Series 2016A Bonds, and shall include any substitute for or successor to the securities depository initially acting as Securities Depository.

“Series Resolution” means the resolution of the University providing for the issuance of the Series 2016A Bonds that is required to be adopted prior to the issuance of the Series 2016A Bonds by the provisions of the Trust Agreement.

“Sinking Fund Account” means the account in the Bond Fund created and so designated by the Trust Agreement.

“Sinking Fund Requirement” means, with respect to any Bond Year, the principal amount fixed or computed as provided in the Trust Agreement for the retirement of Series 2016A Bonds by purchase or redemption on October 1 of the following Bond Year. Any principal amount of Series 2016A Bonds

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retired by operation of the Sinking Fund Account by purchase in excess of the total amount of the Sinking Fund Requirement for such Series 2016A Bonds, to and including such October 1, will be credited against and reduce the future Sinking Fund Requirements for such Series 2016A Bonds in such manner as specified in an Officer’s Certificate of the University filed with the Bond Trustee pursuant to the Trust Agreement. The Sinking Fund Requirements for the Series 2016A Bonds are set forth in the front part of this Offering Memorandum under the caption “THE SERIES 2016A BONDS—Redemption–Mandatory Sinking Fund Redemption.”

“State” means the State of North Carolina.

“University Representative” means each of the persons at the time designated to act on behalf of the University in a written certificate furnished to the Bond Trustee, which certificate shall contain the specimen signature(s) of such person(s) and shall be signed on behalf of the University by its Executive Vice President or other designated officer.

SUMMARY OF THE TRUST AGREEMENT

Establishment of Funds

The Trust Agreement creates the following funds:

(i) The Bond Fund,

(ii) The Redemption Fund, and

(iii) The Cost of Issuance Fund.

The Trust Agreement also creates two separate accounts in the Bond Fund, which accounts are designated the “Interest Account” and the “Sinking Fund Account.” (Secs. 401 and 501)

Money in each of these funds and accounts will be held in trust, and will be subject to a lien and charge in favor of the Holders of the Series 2016A Bonds until paid out or transferred as provided in the Trust Agreement. (Secs. 401 and 501)

Cost of Issuance Fund

Payments from the Cost of Issuance Fund are to be made to pay Issuance Costs. (Sec. 402)

On or prior to April 1, 2017, any balance in the Cost of Issuance Fund shall be transferred by the Bond Trustee to the Interest Account to pay interest on the Series 2016A Bonds on April 1, 2017. (Sec. 405)

Trustee’s Application of Money Received

The University will pay to the Bond Trustee and the Bond Trustee will deposit all amounts received from the University in the following order, subject to credits provided in the Trust Agreement:

(i) into the Interest Account, on or before each Interest Payment Date, that amount which shall be equal to the interest payable on the Series 2016A Bonds on such Interest Payment Date;

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(ii) into the Sinking Fund Account, commencing on October 1, 20__ and continuing on each October 1 for which there is a Sinking Fund Requirement or on which Series 2016A Bonds are payable at maturity, that amount which shall be equal to the amount required to retire the Series 2016A Bonds to be called by mandatory redemption on such October 1 in accordance with the Sinking Fund Requirement therefor or to be paid at maturity on such October 1; and

(iii) to the credit of the Interest Account or the Redemption Fund, as applicable, any amount that may from time to time be required to enable the Bond Trustee to pay the interest on and Redemption Price of Series 2016A Bonds as and when Series 2016A Bonds are called for redemption other than mandatory redemption in accordance with the Sinking Fund Requirement therefor. (Sec. 502)

Bond Fund

Money on deposit in the Interest Account in the Bond Fund will be used to pay the interest on the Series 2016A Bonds when due. (Sec. 503)

Money held for the credit of the Sinking Fund Account in the Bond Fund will be applied to the retirement of Outstanding Series 2016A Bonds as follows: The Bond Trustee will call for redemption on the October 1 immediately following each Bond Year, as provided in the Trust Agreement, Series 2016A Bonds or portions thereof then subject to redemption in a principal amount equal to the aggregate Sinking Fund Requirement for the Series 2016A Bonds for such Bond Year, less the principal amount of any such Series 2016A Bonds retired by purchase during such Bond Year from funds in the Sinking Fund Account. If such October 1 is the stated maturity date of the Series 2016A Bonds, the Bond Trustee will not call such Series 2016A Bonds for redemption but, on such maturity date, will set aside the amount required for paying the principal of such Series 2016A Bonds when due and payable. On each redemption date, the Bond Trustee will set aside the respective amounts required for paying the interest on and the Redemption Price of the Series 2016A Bonds or portions thereof so called for redemption. (Sec. 504)

Redemption Fund

Money held for the credit of the Redemption Fund will be applied to the purchase or redemption of Series 2016A Bonds as provided in the Trust Agreement. (Sec. 505)

Investments

Money held by the Bond Trustee for the credit of all funds and accounts created under the Trust Agreement will be continuously invested and reinvested by the Bond Trustee in Investment Obligations to the extent practicable. Any such Investment Obligations will mature not later than the respective dates when the money held for the credit of such funds or accounts will be required for the purposes intended.

No Investment Obligations in any fund or account may mature beyond the latest maturity date of any Series 2016A Bonds Outstanding at the time such Investment Obligations are deposited.

Investment Obligations credited to any fund or account established under the Trust Agreement will be held by or under the control of the Bond Trustee and while so held will be deemed at all times to be part of such fund or account in which such money was originally held. Interest accruing on such Investment Obligations and any profit or loss resulting upon the disposition or maturity of the same will be credited to or charged against such fund or account. The Bond Trustee will sell at the most advantageous price obtainable with reasonable diligence or reduce to cash a sufficient amount of such Investment Obligations whenever it is necessary to provide moneys to make any payment or transfer of

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moneys from any such fund or account. The Bond Trustee will not be liable or responsible for any loss resulting from any such investment. (Sec. 602)

Events of Default

Each of the following events is an Event of Default under the Trust Agreement:

(a) payment of any installment of interest on any Series 2016A Bond shall not be made when the same shall become due and payable; or

(b) payment of the principal or the Redemption Price of any Series 2016A Bond shall not be made when the same shall become due and payable, whether at maturity or by proceedings for redemption or pursuant to a Sinking Fund Requirement or otherwise; or

(c) default in the due and punctual performance of any other of the covenants, conditions, agreements and provisions contained in the Trust Agreement or any agreement supplemental thereto and such default shall continue for 30 days (or such further time as may be granted in writing by the Bond Trustee) after receipt by the University of a written notice from the Bond Trustee specifying such default and requiring the same to be remedied, provided, however, that if such performance requires work to be done, action to be taken, or conditions to be remedied, which by their nature cannot be reasonably done, taken or remedied, as the case may be, within such 30-day period or other period, no Event of Default shall be deemed to have occurred or to exist if, and so long as, the University shall commence such performance within such period and shall diligently and continuously prosecute the same to completion. (Sec. 801)

Remedies of Bondholders

Upon the happening and continuance of any Event of Default, the Bond Trustee may, and upon the written request of the Holders of not less than 25% in aggregate principal amount of the Series 2016A Bonds then Outstanding shall, proceed to protect and enforce its rights and the rights of the Holders. (Sec. 803)

Except as provided in the Trust Agreement, no Holder shall have any right to institute any suit, action or proceeding in equity or at law on any Series 2016A Bond or for any remedy under the Trust Agreement unless the Holders of not less than 25% in aggregate principal amount of Series 2016A Bonds then Outstanding previously shall have given to the Bond Trustee written notice of the Event of Default on account of which such suit, action or proceeding is to be instituted, and unless also the Holders shall have made a written request of the Bond Trustee after the right to exercise such powers or right of action as the case may be, shall have accrued, and shall have afforded the Bond Trustee a reasonable opportunity either to proceed to exercise its powers or to institute such action, suit or proceedings in its or their name, and unless, also, there shall have been offered to the Bond Trustee reasonable security and indemnity against the costs, expenses and liabilities to be incurred therein or thereby, and the Bond Trustee shall have refused or neglected to comply with such request within a reasonable time; provided, however, the Holders of not less than 25% of the Series 2016A Bonds then Outstanding may institute any suit, action or proceeding in their own names for the benefit of all Holders. Except as provided in the Trust Agreement, no Holder will have any right in any manner whatsoever to enforce any right thereunder, and any individual rights given to such Holders by law are restricted by the Trust Agreement to the rights and remedies therein granted. (Sec. 808)

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Notice to Bondholders

Except as described below, notice of any Event of Default when required by the Trust Agreement will be mailed to all Holders of record. The Bond Trustee shall not be subject to any liability to any Holder by reason of its failure to mail any such notice. (Sec. 813)

Except upon the happening of an Event of Default with respect to the failure to make any payment of the principal or Redemption Price of and interest on the Series 2016A Bonds when due, the Bond Trustee may withhold notice of any Event of Default to the Holder, if in its opinion such withholding is in the interest of the Holders. (Sec. 813)

Payment of Bond Trustee’s Fees

If the University fails to make required payments to the Bond Trustee for compensation and expenses, the Bond Trustee may make such payment from any money in its possession and will be entitled to a preference therefor over any Series 2016A Bonds Outstanding. (Sec. 905)

Modification of the Trust Agreement

The University and the Bond Trustee may from time to time execute supplemental trust agreements without the consent of or notice to any Holder, to effect one or more of the following: (a) cure any ambiguity or defect or omission or correct or supplement any provision in the Trust Agreement or any supplemental trust agreement thereto; (b) grant to or confer upon the Bond Trustee for the benefit of the Holders of the Series 2016A Bonds any additional rights, remedies, powers, authority or security that may lawfully be granted to or conferred upon the Holders or the Bond Trustee which are not contrary to or inconsistent with the Trust Agreement as then in effect or to subject to the pledge and lien of the Trust Agreement additional revenues, properties or collateral, including Defeasance Obligations; (c) add to the provisions of the Trust Agreement other conditions, limitations and restrictions thereafter to be observed which are not contrary to or inconsistent with the Trust Agreement as then in effect; (d) add to the covenants and agreements of the University in the Trust Agreement other covenants and agreements thereafter to be observed by the University or to surrender any right or power reserved to or conferred upon the University which are not contrary to or inconsistent with the Trust Agreement as then in effect; (e) permit the qualification of the Trust Agreement under any federal statute or under any state securities law, and, in connection therewith, if the University so determines, to add to the Trust Agreement or any supplemental trust agreement such other terms, conditions and provisions as may be permitted or required by such federal statute or state securities law; (f) make any other change that is determined by the Bond Trustee, who may rely upon an Opinion of Counsel, to be not materially adverse to the interests of the Holders; (g) if all of the Series 2016A Bonds are Book Entry Bonds, amend, modify, alter or replace the Letter of Representations or other provisions relating to Book Entry Bonds; or (h) facilitate the issuance and delivery of certificated Series 2016A Bonds to Beneficial Owners if the book-entry system for the Series 2016A Bonds is discontinued. (Sec. 1101)

The Trust Agreement may be amended in any particular form by the Holders of not less than a majority in aggregate principal amount of the Series 2016A Bonds Outstanding, provided that nothing contained in the Trust Agreement will permit, without the consent of the Holders of all Series 2016A Bonds affected thereby, (a) an extension of maturity of principal or interest, (b) a reduction in the principal amount of or the rate of interest on any Series 2016A Bond, (c) a preference or priority of any Series 2016A Bond over any other Series 2016A Bond, or (d) a reduction in the aggregate principal amount of Series 2016A Bonds required for consent to such supplemental trust agreement. (Sec. 1102)

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Defeasance

When, among other things, the principal or Redemption Price of and interest due upon all of the Series 2016A Bonds is paid or sufficient money or Defeasance Obligations are held by the Bond Trustee for such purpose, then the right, title and interest of the Bond Trustee in the funds and accounts created by the Trust Agreement will cease and the Bond Trustee will release the Trust Agreement. (Sec. 1201)

Recourse Against the University Limited

The trustees, officers and employees of the University are not personally liable for any costs, losses, damages or liabilities caused or incurred by the University in connection with the Trust Agreement, or for the payment of any sum or for the performance of any obligation under the Trust Agreement. (Sec. 1307)

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Appendix D

Book-Entry Only System and Global Clearance Procedures

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The information set out below is subject to any change in or reinterpretation of the rules, regulations and procedures of DTC, Euroclear Bank S.A./N.V. as operator of the Euroclear System (“Euroclear”) or Clearstream Banking, S.A. (“Clearstream Banking”) (DTC, Euroclear and Clearstream Banking together, the “Clearing Systems”) currently in effect. The information in this section concerning the Clearing Systems has been obtained from sources that the University believes to be reliable, but none of the University, the Bond Trustee or the Underwriters take any responsibility for the accuracy, completeness or adequacy of the information in this section. Investors wishing to use the facilities of any of the Clearing Systems are advised to confirm the continued applicability of the rules, regulations and procedures of the relevant Clearing System. The University will not have any responsibility or liability for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in the Series 2016A Bonds held through the facilities of any Clearing System or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.

Clearing Systems

DTC Book-Entry Only System. DTC is a limited purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity, corporate and municipal debt and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants,” and together with Direct Participants, “Participants”). The DTC rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

Purchases of the Series 2016A Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2016A Bonds on DTC’s records. The ownership interest of each actual purchaser of each Series 2016A Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2016A Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Series 2016A Bonds, except in the event that use of the book-entry system for the Series 2016A Bonds is discontinued.

To facilitate subsequent transfers, all Series 2016A Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the Series 2016A Bonds with DTC and

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their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2016A Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 2016A Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Series 2016A Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2016A Bonds, such as redemptions, defaults, and proposed amendments to the Trust Agreement. For example, Beneficial Owners of the Series 2016A Bonds may wish to ascertain that the nominee holding the Series 2016A Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Bond Trustee and request that copies of notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the Series 2016A Bonds are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in the Series 2016A Bonds to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Series 2016A Bonds unless authorized by a Direct Participant in accordance with DTC’s Money Market Instrument Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the University as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series 2016A Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Principal, redemption and interest payments on the Series 2016A Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the University or the Bond Trustee, on a payment date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participants and not of DTC, its nominee, the Bond Trustee or the University, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, redemption proceeds and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the University, or the Bond Trustee. Disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of the Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the Series 2016A Bonds at any time by giving reasonable notice to the University or the Bond Trustee. Under such circumstances, in the event that a successor depository is not obtained, Series 2016A Bond certificates are required to be printed and delivered.

The University may decide to discontinue use of the system of book-entry only transfers through DTC (or a successor securities depository). In that event, Series 2016A Bond certificates for the applicable Series 2016A Bonds will be printed and delivered to DTC.

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THE BOND TRUSTEE, AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE SERIES 2016A BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS OF SUCH SERIES 2016A BONDS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY PARTICIPANT, OR OF ANY PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY SUCH NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OR SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE SERIES 2016A BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE.

Since DTC may only act on behalf of Direct Participants, who in turn act on behalf of Indirect Participants, any Beneficial Owner desiring to pledge Series 2016A Bonds to persons or entities that do not participate in DTC, or otherwise take actions with respect to such Series 2016A Bonds, will be required to withdraw the Series 2016A Bonds from DTC.

The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the University believes to be reliable, but the University takes no responsibility for the accuracy thereof.

Euroclear and Clearstream Banking. Euroclear and Clearstream Banking have advised the University as follows:

Euroclear and Clearstream Banking each hold securities for their customers and facilitate the clearance and settlement of securities transactions by electronic book-entry transfer between their respective account holders. Euroclear and Clearstream Banking provide various services including safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Euroclear and Clearstream Banking also deal with domestic securities markets in several countries through established depositary and custodial relationships. Euroclear and Clearstream Banking have established an electronic bridge between their two systems across which their respective participants may settle trades with each other.

Euroclear and Clearstream Banking customers are worldwide financial institutions, including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations. Indirect access to Euroclear and Clearstream Banking is available to other institutions that clear through or maintain a custodial relationship with an account holder of either system, either directly or indirectly.

Clearing and Settlement Procedures

The Series 2016A Bonds sold in offshore transactions will be initially issued to investors through the book-entry facilities of DTC, or Clearstream Banking and Euroclear in Europe if the investors are participants in those systems, or indirectly through organizations that are participants in the systems. For any of such Series 2016A Bonds, the record holder will be DTC’s nominee. Clearstream Banking and Euroclear will hold omnibus positions on behalf of their participants through customers’ securities accounts in Clearstream Banking’s and Euroclear’s names on the books of their respective depositories.

The depositories, in turn, will hold positions in customers’ securities accounts in the depositories’ names on the books of DTC. Because of time zone differences, the securities account of a Clearstream Banking or Euroclear participant as a result of a transaction with a participant, other than a depository holding on behalf of Clearstream Banking or Euroclear, will be credited during the securities settlement processing day, which must be a business day for Clearstream Banking or Euroclear, as the case may be, immediately following the DTC settlement date. These credits or any transactions in the securities settled during the processing will be reported to the relevant Euroclear participant or Clearstream Banking

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participant on that business day. Cash received in Clearstream Banking or Euroclear as a result of sales of securities by or through a Clearstream Banking participant or Euroclear participant to a DTC Participant, other than the depository for Clearstream Banking or Euroclear, will be received with value on the DTC settlement date but will be available in the relevant Clearstream Banking or Euroclear cash account only as of the business day following settlement in DTC.

Transfers between participants will occur in accordance with DTC rules. Transfers between Clearstream Banking participants or Euroclear participants will occur in accordance with their respective rules and operating procedures. Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and directly or indirectly through Clearstream Banking participants or Euroclear participants, on the other, will be effected in DTC in accordance with DTC rules on behalf of the relevant European international clearing system by the relevant depositories; however, cross-market transactions will require delivery of instructions to the relevant European international clearing system by the counterparty in the system in accordance with its rules and procedures and within its established deadlines in European time. The relevant European international clearing system will, if the transaction meets its settlement requirements, deliver instructions to its depository to take action to effect final settlement on its behalf by delivering or receiving securities in DTC, and making or receiving payment in accordance with normal procedures for same day funds settlement applicable to DTC. Clearstream Banking participants or Euroclear participants may not deliver instructions directly to the depositories.

The University will not impose any fees in respect of holding the Series 2016A Bonds; however, holders of book-entry interests in the Series 2016A Bonds may incur fees normally payable in respect of the maintenance and operation of accounts in the Clearing Systems.

Initial Settlement. Interests in the Series 2016A Bonds will be in uncertified book-entry form. Purchasers electing to hold book-entry interests in the Series 2016A Bonds through Euroclear and Clearstream Banking accounts will follow the settlement procedures applicable to conventional Eurobonds. Book-entry interests in the Series 2016A Bonds will be credited to Euroclear and Clearstream Banking participants’ securities clearance accounts on the business day following the date of delivery of the Series 2016A Bonds against payment (value as on the date of delivery of the Series 2016A Bonds). DTC participants acting on behalf of purchasers electing to hold book-entry interests in the Series 2016A Bonds through DTC will follow the delivery practices applicable to securities eligible for DTC’s Same Day Funds Settlement system. DTC participants’ securities accounts will be credited with book-entry interests in the Series 2016A Bonds following confirmation of receipt of payment to the University on the date of delivery of the Series 2016A Bonds.

Secondary Market Trading. Secondary market trades in the Series 2016A Bonds will be settled by transfer of title to book-entry interests in the Clearing Systems. Title to such book-entry interests will pass by registration of the transfer within the records of Euroclear, Clearstream Banking or DTC, as the case may be, in accordance with their respective procedures. Book-entry interests in the Series 2016A Bonds may be transferred within Euroclear and within Clearstream Banking and between Euroclear and Clearstream Banking in accordance with procedures established for these purposes by Euroclear and Clearstream Banking. Book-entry interests in the Series 2016A Bonds may be transferred within DTC in accordance with procedures established for this purpose by DTC. Transfer of book-entry interests in the Series 2016A Bonds between Euroclear or Clearstream Banking and DTC may be effected in accordance with procedures established for this purpose by Euroclear, Clearstream Banking and DTC.

General

None of Euroclear, Clearstream Banking or DTC is under any obligation to perform or continue to perform the procedures referred to above, and such procedures may be discontinued at any time.

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Neither the University nor any of their agents will have any responsibility for the performance by Euroclear, Clearstream Banking or DTC or their respective direct or indirect participants or account holders of their respective obligations under the rules and procedures governing their operations or the arrangements referred to above.

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