Book-Entry Only Form Rating: S&P “A-1+” See “RATING” herein This Offering Memorandum provides information on the Notes. For convenience, selected information is presented on this cover page. To make an informed decision regarding the Notes, a prospective investor should read this Offering Memorandum in its entirety. Unless otherwise indicated, capitalized terms have the meanings given in this Offering Memorandum.

CARNEGIE MELLON UNIVERSITY TAXABLE COMMERCIAL PAPER NOTES Not to exceed $70,000,000

BofA Merrill Lynch, Dealer Taxable Commercial Paper

The Taxable Commercial Paper Notes (the “Notes”) will be issued by Carnegie Mellon University (the “University”), as fully-registered notes and, when initially issued, will be registered in the name of Cede & Co., as nominee for DTC, which will act as securities depository for the Notes. Purchases of beneficial ownership interests in the Notes will be made in book-entry form only in the principal amount of $100,000 or any integral multiple of $1,000 in excess thereof. Beneficial owners of the Notes will not receive physical delivery of note certificates so long as DTC or a successor securities depository acts as the securities depository with respect to the Notes. Interest on each Note will be payable on the maturity date of the applicable Note. So long as DTC or its nominee is the registered owner of the Notes, payments of the principal of and interest on the Notes will be made directly to DTC. Disbursements of such payments to DTC participants is the responsibility of DTC, and disbursement of such payments to the beneficial owners is the responsibility of DTC participants.

The Notes are not subject to redemption prior to their maturity dates.

Proceeds from the sale of the Notes may be used by the University to refund outstanding debt of the University, to finance capital projects, to otherwise support the operations of the University, and for any other lawful activity of the University. The Notes will be issued pursuant to an Issuing and Paying Agent Agreement between the University and U.S. Bank National Association.

THE NOTES ARE UNSECURED UNCOLLATERALIZED, GENERAL AND UNCONDITIONAL OBLIGATIONS OF THE UNIVERSITY. NEITHER THE FACILITIES OF THE UNIVERSITY NOR ANY OF ITS REVENUES ARE PLEDGED AS SECURITY FOR THE NOTES. SEE “SECURITY FOR THE NOTES” HEREIN.

This Offering Memorandum is dated February 11, 2015 and the information contained herein speaks only as of that date.

The information contained in this Offering Memorandum has been furnished by the University, DTC and other sources that are believed to be reliable. No dealer, broker, salesperson or any other person has been authorized by the University or Merrill Lynch, Pierce, Fenner & Smith Incorporated (the “Dealer”) to give any information or to make any representations other than those contained in this Offering Memorandum in connection with the offering contained herein, and, if given or made, such information or representations must not be relied upon as having been authorized by the University or the Dealer.

This Offering Memorandum does not constitute an offer to sell or solicitation of an offer to buy, nor shall there be any sale of the Notes by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information and expressions of opinion herein are subject to change without notice, and neither delivery of this Offering Memorandum nor any sale made thereafter shall under any circumstances create any implication that there has been no change in the affairs of the University or in any other information contained herein, since the date of this Offering Memorandum.

This Offering Memorandum contains “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements include, among others, statements concerning expectations, beliefs, opinions, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. When used in this Offering Memorandum, the words “project,” “estimate,” “intend,” “expect,” “scheduled,” “pro forma,” and similar words identify forward-looking statements. The forward- looking statements in this Offering Memorandum are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

The Dealer has reviewed the information in this Offering Memorandum in accordance with, and as a part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Dealer does not guarantee the accuracy or completeness of such information.

In connection with this offering, the Dealer may engage in transactions that stabilize, maintain or otherwise affect the market prices of the Notes. Such transactions may include overallotments in connection with the underwriting and the purchase of Notes to cover Dealer short positions and the imposition of penalty bids. Such transactions, if commenced, may be discontinued at any time.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFERING MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

TABLE OF CONTENTS

INTRODUCTION ...... 1 PAYMENT OF THE NOTES ...... 3 SECURITY FOR THE NOTES...... 4 THE NOTES ...... 5 PLAN OF REFUNDING ...... 6 EXISTING INDEBTEDNESS ...... 6 NOTEHOLDERS’ RISKS ...... 7 LITIGATION MATTERS ...... 7 LEGAL MATTERS ...... 7 TAX MATTERS ...... 7 CONTINUING DISCLOSURE ...... 8 RATING ...... 8 THE DEALER ...... 8 FINANCIAL STATEMENTS ...... 9 MISCELLANEOUS ...... 9

APPENDIX A - CARNEGIE MELLON UNIVERSITY APPENDIX B - AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF CARNEGIE MELLON UNIVERSITY AS OF AND FOR THE FISCAL YEARS ENDED JUNE 30, 2014 AND JUNE 30, 2013 APPENDIX C - PROVISIONS REGARDING BOOK-ENTRY-ONLY SYSTEM

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OFFERING MEMORANDUM

RELATING TO

CARNEGIE MELLON UNIVERSITY TAXABLE COMMERCIAL PAPER NOTES Not to exceed $70,000,000

INTRODUCTION

This Offering Memorandum, including the cover page, introduction, and appendices, provides information in connection with the issuance and sale by Carnegie Mellon University (the “University”) of its Taxable Commercial Paper Notes (the “Notes”), initially issued in book-entry form only. This introduction is not a summary of this Offering Memorandum. It is only a brief description of and guide to, and is qualified by more complete and detailed information contained in the entire Offering Memorandum, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Offering Memorandum. The offering of Notes to potential investors is made only by means of the entire Offering Memorandum.

See also the following appendices attached hereto: “APPENDIX A - CARNEGIE MELLON UNIVERSITY”, “APPENDIX B—AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF CARNEGIE MELLON UNIVERSITY AS OF AND FOR THE FISCAL YEARS ENDED JUNE 30, 2014 AND JUNE 30, 2013”; and “APPENDIX C—PROVISIONS REGARDING BOOK-ENTRY-ONLY SYSTEM.”

THE UNIVERSITY

Carnegie Mellon University is an independent, nonsectarian educational and research institution located on a 147 acre campus five miles from downtown Pittsburgh. The University is incorporated in the Commonwealth of Pennsylvania as a nonprofit corporation and is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended. See Appendix A for a more detailed description of the University and Appendix B for the University’s audited financial statements for the fiscal years ended June 30, 2014 and June 30, 2013.

AUTHORIZATION AND PURPOSE OF THE NOTES

The Notes are being issued pursuant to a resolution of the University adopted on January 16, 2015; and an Issuing and Paying Agent Agreement dated as of February 1, 2015 (the “Issuing and Paying Agent Agreement”), between the University and U.S. Bank National Association (the “Bank”) and other applicable provisions of law. All references herein to the Issuing and Paying Agent Agreement are qualified in their entirety by reference to such document. Copies of the Issuing and Paying Agent Agreement may be obtained from the University or the Dealer, see “Contact Persons” below, or the Bank.

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Pursuant to the Issuing and Paying Agent Agreement, the University is authorized to issue the Notes in an aggregate principal amount not to exceed $70,000,000 outstanding at any time.

The University may use proceeds of the Notes to refund outstanding debt of the University, to finance capital projects, to otherwise support the operations of the University, and for any other lawful activity of the University.

See “PLAN OF REFUNDING” herein.

SECURITY AND SOURCES OF PAYMENT

Expected Source of Payment of Notes. The University expects to pay the principal of and interest on the Notes from the proceeds of additional Notes, the proceeds of other refunding obligations and or/any other legally available funds of the University. The University’s ability to issue additional Notes or any other refunding obligations on terms favorable to the University for the purpose of refunding the Notes will depend on a variety of financial, market, and other factors.

See “PAYMENT OF THE NOTES” and “SECURITY FOR THE NOTES” herein.

NO REDEMPTION

The Notes are not subject to redemption prior to maturity.

NOTEHOLDERS’ RISKS

The purchase of the Notes involves investment risks, certain of which are described in this Offering Memorandum. See “NOTEHOLDERS’ RISKS” herein.

REGISTRATION, DENOMINATIONS, MANNER OF PAYMENT

The Notes are issuable only as fully-registered obligations without coupons and, when issued, will be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York (“DTC”), which will act as initial securities depository of the Notes. Purchases of Notes will be made in book-entry form only, in denominations of $100,000 or any integral multiple of $1,000 in excess thereof, through brokers and dealers who are, or who act through, DTC Participants. Beneficial Owners of the Notes will not be entitled to receive physical delivery of notes certificates so long as DTC or a successor securities depository acts as the securities depository with respect to the Notes.

Principal of and interest on each Note is payable on the maturity date of the Note through U.S. Bank National Association, as Paying Agent, to DTC, which will in turn be responsible to remit such principal and interest to its Participants, for subsequent disbursements to the

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Beneficial Owners of the Notes, as described under the caption “APPENDIX C—PROVISIONS REGARDING BOOK-ENTRY-ONLY SYSTEM” hereto.

CONTINUING DISCLOSURE UNDERTAKING

The University has not entered into a continuing disclosure agreement for the benefit of the owners and Beneficial Owners of the Notes. See “CONTINUING DISCLOSURE” herein.

CONTACTS

The contact for the University concerning the Notes is:

Treasurer’s Office Carnegie Mellon University Six PPG Place, Pittsburgh, PA 15222 (412) 268-6715 Fax: (412) 268-9882 [email protected]

The contact for the Dealer concerning the Notes is:

Merrill Lynch, Pierce, Fenner & Smith Incorporated Bank of America Tower One Bryant Park, 9th Floor New York, New York 10036 Attention: Municipal Money Markets Department (212) 449-5101 Fax: (646) 736-6960 [email protected]

OTHER MATTERS

The descriptions and summaries of the Issuing and Paying Agent Agreement, the Notes, and various other documents herein set forth do not purport to be comprehensive or definitive, and reference is made to each document for the complete details of its terms and conditions. All statements herein are qualified in their entirety by reference to such documents.

PAYMENT OF THE NOTES

The University expects to pay the principal of and interest on Notes from the proceeds of additional Notes, the proceeds of other refunding obligations and/or any other legally available funds of the University.

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The University’s ability to issue additional Notes or any other refunding obligations on favorable terms for the purpose of refunding the Notes will depend on a variety of financial, market, and other conditions that cannot be predicted at this time.

The University is responsible for managing its liquidity to provide for payment of maturing Notes when due. There is initially no liquidity facility with respect to the Notes. The Notes are payable from any legally available funds of the University as described under “SECURITY FOR THE NOTES.”

The University may elect to obtain a liquidity facility, or to substitute one liquidity facility for another, in order to provide liquidity with respect to the Notes by giving U.S. Bank National Association, as issuing and paying agent (the “Issuing and Paying Agent”), written notice of such election not less than 25 days and not more than 45 days before the liquidity facility is to become effective. The Issuing and Paying Agent shall notify, by certified mail, postage pre-paid, return receipt requested, the holders of the Notes with respect to which the new liquidity facility will provide liquidity not later than 15 days prior to the effective date of such liquidity facility. The notice shall identify the Notes affected, the provider of the new liquidity facility, the current rating on such Notes, the maturity date of the new liquidity facility and the rating that will apply to the Notes after giving effect to the new liquidity facility.

At any time, the University may elect to cancel or terminate a liquidity facility with respect to the Notes by giving the Issuing and Paying Agent written notice of such election not less than 25 days and not more than 45 days before the liquidity facility is to be cancelled or terminated. The Issuing and Paying Agent shall notify, by certified mail, postage pre-paid, return receipt requested, the Holders of the affected Notes not later than 15 days prior to the date of the cancellation or termination of such liquidity facility. The notice shall identify the Notes affected, state that the liquidity facility shall be cancelled or terminated and that such Notes shall no longer have the support of a liquidity facility, the current rating on such Notes and the rating on such Notes after giving effect to the cancellation or termination of the liquidity facility.

If the election of the University to obtain a liquidity facility or to substitute one liquidity facility with another or the cancellation or termination of a liquidity facility would result in any rating agency downgrading the rating on the Notes, then the University may not permit the new liquidity facility to be effective or the existing liquidity facility to be cancelled or terminated except on a date on which all outstanding Notes affected thereby have matured, in which case, the notices to the Holder required above in this section need not be given.

SECURITY FOR THE NOTES

SECURITY: ABSENCE OF COVENANTS

The Notes are unsecured, uncollateralized, general and unconditional obligations of the University. Neither the facilities of the University nor any of its revenues are pledged as security for the Notes. The University is absolutely and unconditionally obligated to timely pay the

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principal of and interest on the Notes when due. In making their investment decision, potential investors should look solely to the ability of the University to pay the Notes.

REMEDIES; NO CROSS DEFAULT

The Notes are not subject to acceleration. As such, if the University were to default on its payment obligations with respect to any Note, Notes not yet due would remain outstanding and not be payable until their maturity dates. In addition, there are no cross-default provisions in the Notes related to other debt of the University. Accordingly, if any other debt of the University were accelerated as a result of a default under the related financing documents, the holders of the Notes would have no right to accelerate principal on the Notes or make claims against the University and its assets unless and until there was a default in payment of the Notes. See also the information set forth in Appendix A and Appendix B regarding the University’s outstanding indebtedness.

THE NOTES

GENERAL DESCRIPTION

The Notes are issuable in registered form through the book-entry-only system of DTC, in denominations of $100,000 and integral multiples of $1,000 in excess thereof. The Notes will be dated their respective dates of issuance and delivery. Each Note shall mature on a Business Day that is not more than 270 after the date of issuance of such Note.

The University has entered into a Dealer Agreement dated as of February 1, 2015 (the “Dealer Agreement”) with Merrill Lynch, Pierce, Fenner & Smith Incorporated (the “Dealer”). Pursuant to the Issuing and Paying Agent Agreement and the Dealer Agreement, the Dealer, in consultation with an Authorized Representative (as defined in the Issuing and Paying Agent Agreement) of the University, will determine the interest rate and maturity date with respect to any Note on or before 11:00 a.m. New York Time (or such later time as shall be acceptable to the Issuing and Paying Agent) on the date of issuance of such Note. The Notes that bear interest shall bear interest from their date of issuance, calculated on a year consisting of 360 days, for the actual number of days elapsed. Different interest rates may be determined for Notes maturing on the same date. Any Note that does not bear interest may be sold at a discount from its principal amount (“Original Issue Discount”). The amount of Original Issue Discount on any such Note shall be determined by the Dealer in consultation with an Authorized Representative of the University.

U.S. Bank National Association, New York New York is the Issuing and Paying Agent for the Notes under the Issuing and Paying Agent Agreement. In such capacity, U.S. Bank National Association is referred to herein as the “Paying Agent” or “Issuing and Paying Agent.” The principal of and interest on the Notes in book-entry form will be paid at maturity through DTC at U.S. Bank National Association, as Issuing and Paying Agent, and distributed by DTC to its Participants, as described below under “APPENDIX C—PROVISIONS REGARDING BOOK- ENTRY-ONLY SYSTEM.”

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NO REDEMPTION

The Notes are not subject to redemption prior to maturity.

TRANSFER AND EXCHANGE OF NOTES

So long as the book-entry system is in effect with respect to the Notes, Beneficial Owners may transfer and exchange their interests in the Notes as described in “APPENDIX C— PROVISIONS REGARDING BOOK-ENTRY-ONLY SYSTEM.”

PLAN OF REFUNDING

A portion of the proceeds of the Notes will be used to refund the following Bonds (the “Refunded Bonds”):

FINAL PAR AMOUNT SCHEDULED INTEREST OF REFUNDED (1) (2) SERIES MATURITY RATE BONDS

Allegheny County Higher Education Building Authority Carnegie Mellon University Revenue Refunding Bonds, Series A of 2012 March 1, 2015 2.0% $ 3,800,000 Allegheny County Higher Education Building Authority Carnegie Mellon University Revenue Refunding Bonds, Series A of 2012 March 1, 2015 5.0 21,480,000 ______(1) Final scheduled maturity of bonds being refunded. (2) Interest rate of bonds being refunded.

EXISTING INDEBTEDNESS The University has incurred certain outstanding indebtedness in addition to the Notes. See “OUTSTANDING INDEBTEDNESS” in Appendix A to this Offering Memorandum.

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NOTEHOLDERS’ RISKS

GENERAL

Payment of the Notes depends solely on the ability of the University to make payments of principal and interest, if any, when due under the Notes. A number of factors, including those set forth below, may adversely affect the University’s ability to make timely payments. For more information on the University, see Appendix A attached hereto.

ABSENCE OF LIQUIDITY AND SECURITY PROVISIONS

The Notes are general unsecured obligations of the University. There are no financial tests of the University’s operations and no restrictions on the ability of the University to incur additional indebtedness or to mortgage property to secure such indebtedness. There also are no letters of credit, standby loan agreements or other liquidity facilities securing payment of the Notes, and there are no covenants requiring the University to maintain liquid assets for such payment. See “SECURITY FOR THE NOTES” herein.

LITIGATION MATTERS

The University, like other similar institutions, is subject to a variety of suits and proceedings arising in the ordinary course of business. In the opinion of management of the University, no such litigation currently pending against it if determined adversely to the University, adversely affects the University’s obligations under the Notes or would have a material adverse effect on its operations or financial condition considered as a whole. Further, in the opinion of management of the University, there is no action, suit or other proceeding pending or threatened against the University or before any court or administrative agency or other adjudicative body in which an unfavorable decision would have a material adverse effect on the University’s operations or financial condition considered as a whole or the execution and delivery of the Notes, nor is there any investigation or proceeding known to the management of the University by any person which may, in the opinion of management, result in such action, suit or other proceeding.

LEGAL MATTERS

Certain legal matters will be passed upon for the University by its special counsel Buchanan, Ingersoll & Rooney PC, Pittsburgh, Pennsylvania, and by Mary Jo Dively Esquire, Vice President and General Counsel to the University.

TAX MATTERS

Any interest on the Notes is not excludable from gross income for federal income tax purposes under the Internal Revenue Code of 1986, as amended. Investors should consult with their tax advisors with respect to any federal, state and local tax consequences of the purchase, ownership, receipt of interest on, or disposition of the Notes. Neither the Office of the General 7

Counsel of the University nor Buchanan, Ingersoll & Rooney PC, special counsel to the University, express any opinion as to any such tax consequences.

CONTINUING DISCLOSURE

The University has not entered into an agreement to provide continuing disclosure for the benefit of the holders of the Notes. The University, however, provides continuing disclosure filings, including annual financial statements of the University, to the Electronic Municipal Market Access (“EMMA”) system maintained by the Municipal Securities Rulemaking Board pursuant to continuing disclosure agreements related to previous debt offerings and SEC Rule 15c2-12 (the “Rule”). These filings by the University are currently available on the EMMA system. The same continuing disclosure information is also available on Carnegie Mellon’s Treasury website: http://www.cmu.edu/finance/treasury/.

The University’s current continuing disclosure obligations may be modified or terminated in the future in accordance with the prior continuing disclosure agreements and the Rule. The Dealer Agreement contemplates that the University’s continuing disclosure filings will continue to be utilized in the marketing of the Notes but requires the University to update this Offering Memorandum to the extent the audited financial statements or material changes to the information contained in this Offering Memorandum is not otherwise available through EMMA and the Carnegie Mellon Treasury website.

RATING

Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”), has assigned the Notes, a rating “A-1+”. Any explanation of the significance of such rating may only be obtained from S&P. The above rating is not a recommendation to buy, sell or hold the Notes.

There is no assurance such rating will continue for any given period of time or that such rating will not be revised downward or withdrawn entirely by S&P, if in the judgment of S&P’s circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Notes.

THE DEALER

Merrill Lynch, Pierce, Fenner & Smith Incorporated (the “Dealer”) has been appointed as the initial Dealer for the Notes pursuant to the Dealer Agreement. The Dealer will be paid a fee quarterly based on the principal amount and maturity of the Notes sold by the Dealer. The Dealer may at any time resign by providing the University with 30 days’ prior written notice. The Dealer may be removed at any time by the University upon 30 days’ prior written notice. Upon resignation or removal of the Dealer, the University shall promptly cause the Issuing and Paying Agent to give notice thereof by email to all holders of the Notes and to any rating agency which has assigned a rating to the Notes.

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FINANCIAL STATEMENTS

The financial statements of the University as of June 30, 2014 and June 30, 2013, and for the years then ended, are included in this Offering Memorandum and have been audited by the Pricewaterhouse Coopers LLP, independent accountants, as stated in their report in “APPENDIX B—AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF CARNEGIE MELLON UNIVERSITY AS OF AND FOR THE FISCAL YEARS ENDED JUNE 30, 2014 AND JUNE 30, 2013” of this Offering Memorandum.

MISCELLANEOUS

The Appendices are integral parts of this Offering Memorandum and must be read together with all other parts of this Offering Memorandum. The references herein to the Issuing and Paying Agent Agreement, are brief outlines of certain provisions thereof. Such outlines do not purport to be complete and reference is made to the Issuing and Paying Agent Agreement for full and complete statements of its provisions. Copies of the Issuing and Paying Agent Agreement may be obtained from the Bank, from the University and from the Dealer.

Any statements in this Offering Memorandum involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any estimates will be realized.

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This Offering Memorandum and its distribution and use by the Dealer has been duly authorized by the University.

CARNEGIE MELLON UNIVERSITY

By /s/ Jay Calhoun Jay Calhoun, Treasurer

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APPENDIX A

CARNEGIE MELLON UNIVERSITY APPENDIX A CARNEGIE MELLON UNIVERSITY

Table of Contents Page

HISTORY AND PHILOSOPHY OF THE UNIVERSITY ...... 1

SHARED GOVERNANCE OF THE UNIVERSITY ...... 1

UNIVERSITY VISION, MISSION, AND VALUES ...... 10

ACCREDITATION ...... 11

COLLEGES, SCHOOLS AND ACADEMIC PROGRAMS ...... 11

PHYSICAL PLANT ...... 19

LIBRARIES AND COMPUTING FACILITIES ...... 20

ADMISSION AND ENROLLMENT ...... 21

STUDENT TUITION AND FEES ...... 23

STUDENT FINANCIAL AID ...... 24

ALUMNI ...... 24

FACULTY AND STAFF ...... 25

PENSION PROGRAMS ...... 25

FISCAL YEAR 2014 FINANCIAL OVERVIEW ...... 26

ENDOWMENT AND INVESTMENTS ...... 28

OUTSTANDING INDEBTEDNESS ...... 31

MANAGEMENT’S DISCUSSION AND ANALYSIS OF CURRENT FINANCIAL POSITION ...... 34

APPENDIX A CARNEGIE MELLON UNIVERSITY

HISTORY AND PHILOSOPHY OF THE UNIVERSITY

Carnegie Mellon University (“Carnegie Mellon” or the “University”) is an independent, nonsectarian educational and research institution situated on a 147-acre campus five miles from downtown Pittsburgh, Pennsylvania. The University is incorporated in the Commonwealth of Pennsylvania as a non-profit corporation and is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code. The University began in 1900 when industrialist Andrew Carnegie founded the Carnegie Technical Schools in Pittsburgh’s Oakland section. In 1912, these schools became a degree-granting college – the Carnegie Institute of Technology. In 1967, the Carnegie Institute of Technology merged with the Mellon Institute of Research to form the University.

For more than 100 years, Carnegie Mellon has fostered a tradition of generating innovations with a global impact by combining systematic analysis and problem-solving with entrepreneurial creativity and hard work. These distinctive values of Carnegie Mellon remain in full force today, in all aspects of the University on display around the world.

The University offers undergraduate, master’s, doctoral and executive education degrees through 7 academic colleges and schools. In 2014, the Times Higher Education of London ranked Carnegie Mellon 24th in the world overall.

Carnegie Mellon programs in computer science, engineering, business, public policy, sciences, the arts and the humanities are consistently ranked among the best in the U.S. by national publications such as U.S. News & World Report, which ranked the University 25th among “National Universities” in September, 2014. U.S. News and World Report also ranked the University’s undergraduate business program as the 8th best and the engineering program as the 7th best in the nation. U.S. News & World Report’s graduate rankings placed the University’s computer science program as number one and the graduate engineering program as the 5th best in the nation, while the graduate business program ranked as the 18th best, the fine arts program ranked as the 7th best, and the graduate public policy program also ranked as the 7th best.

Carnegie Mellon seeks to provide education of the highest quality so that all students will be prepared to achieve their potential as thoughtful, well-informed individuals and leaders. In addition, the University encourages and supports scholarship, research and artistic production, both as essential components of its educational program and in fulfillment of the special role of an academic institution as a source of new knowledge and understanding.

SHARED GOVERNANCE OF THE UNIVERSITY

The notion of shared governance as it exists in higher education today is very different from the typical notion of governance in corporate America. A key component of shared governance as it relates to the faculty is their active involvement in many decisions. For example, all University policies relating to faculty affairs require the approval of the Faculty Senate which is the representative assembly of the faculty of the University. The Faculty Senate is comprised of elected members, members ex officios and appointed members from the entire faculty organization.

The trustees, faculty, administration, students and staff share the responsibility for achieving the mission and goals of the University. Below is a summary of the respective roles played by the trustees, faculty and administration.

A-1 The Board of Trustees

The Carnegie Mellon Board of Trustees (the “Board”) bears ultimate responsibility for the University, its policies, organization, financing and governance. Direct responsibilities include the supervision of the University’s finances, establishing and monitoring policy to ensure sound fiscal management, providing counsel and advice to the administrative leadership, and the appointment of the President of the University. Operating responsibilities and the authority to act are delegated to the President.

Much of the work of the Board takes place through its standing committees, including: Advancement, Audit, Compensation, Educational Affairs and Enrollment, Executive, Finance, Investment, Nominating and Governance, Property and Facilities, and Research and Technology Commercialization. Each Trustee serves as a member of at least one standing committee, typically aligned with individual expertise and interests. The Executive Committee includes the chair of each standing committee among its membership.

To optimize the interaction between the Trustees and the University administration, the President of the University assigns each Trustee to serve as a chair or co-chair of one or more advisory boards for all academic and many supporting units of the University. Through service on these advisory boards, Trustees become familiar with essential components of the University and are thus able to provide valuable advice and assistance to the President on means for improving the institution.

The Faculty

Carnegie Mellon’s faculty holds the primary responsibility of carrying out the educational, artistic and scholarly programs of the University. Every faculty member has the duty to conduct courses in a manner consistent with the highest standards of the profession. Through presentation of material in the classroom, the faculty strives to advance the art of teaching. One of the faculty’s primary goals is to instill in students a desire to learn and an enthusiasm for the subject matter at hand. The faculty as a whole also has the major responsibility for establishing and maintaining curricula that meet the standards and fulfill the educational goals of the University.

Other important responsibilities of the faculty are to engage in research, scholarship or artistic production and to further their professional development. While the particular areas of the University or personal commitment may change, continuing professional development remains as a distinguishing characteristic of the University and its faculty.

At Carnegie Mellon, the Faculty Senate has the prerogative of considering any topic relevant to the interests of the University as well as any topic affecting the welfare of the University community, and to make recommendations thereon. The Faculty Senate also conducts those academic affairs that are delegated to it by the President or by the Board of Trustees.

A-2 The Administration

The University’s administrative officers are responsible for supervising its programs, implementing and enforcing its policies, assessing the effects of policy and for recommending improvements or changes. The President, subject to the Board’s oversight, has full responsibility for administering the activities of the University. The President has the power to appoint, retire and determine the tenure of the faculty, with the approval of the Board. As the University’s Chief Executive Officer, the President delegates responsibility to the Provost and the Executive Vice President, and to the five vice presidents: the Vice President and Chief Financial Officer, the Vice President for University Advancement, the Vice President for Campus Affairs, the Vice President for Research, and the Vice President and General Counsel.

The Provost oversees the seven colleges and schools and all of the research institutes and academic support services. The Provost is assisted by the Vice Provost for Education. The Dean of each college or graduate school is the Chief Academic Officer for that unit. Department heads report directly to their Dean, and faculty report to their department head. In units that do not have multiple departments, faculty report directly to their Dean.

Administrative officers of the University strive to maintain a campus climate that encourages and facilitates the faculty’s ability to teach, engage in research, and take part in other scholarly and artistic activities, and the freedom of the students to learn and grow both inside and outside of the classroom. In order to do so, administrative officers communicate with faculty, staff and students individually and through the formally constituted committees and councils of the University.

Administrative officers share with the Trustees the responsibility for interpreting University policies and for communicating the University’s actions to the community at large. This responsibility requires that administrative officers interact with representatives of local, state and federal governments, industry and foundations, and community groups.

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The University’s current officers and trustees are listed on the following pages:

Officers of the Board

Raymond J. Lane Chairman E. Kears Pollock* Vice Chairman James E. Rohr Vice Chairman Subra Suresh President Nathan Urban1 Interim Provost John Lehoczky2 Interim Executive Vice President Jay Calhoun Treasurer Mary Jo Dively Vice President and General Counsel Pamela Eager Interim Vice President for University Advancement Cheryl M. Hays Secretary Farnam Jahanian1 Vice President for Research Charles A. Kennedy Chief Investment Officer Karen T. Khan Assistant Secretary Elizabeth Milavec Assistant Treasurer Michael Murphy* Vice President for Campus Affairs Amir Rahnamay-Azar Vice President for Finance and Chief Financial Officer ______* Alum(nus)(na) 1 Farnam Jahanian was appointed Provost effective 07/01/2015. 2 A search is underway to find Executive Vice President.

Life Trustees

The following individuals are designated as Life Trustees of the University:

Joel Adams* General Partner, Adams Capital Management, Inc. John R. Bertucci* Chairman, MKS Instruments, Inc. Frank Brunckhorst* Boar's Head Provisions Co., Inc. Erroll B. Davis, Jr. * Interim Superintendent, Atlanta Public Schools * 2 Linda A. Dickerson Principal, 501(c)(3)

A-4

Philip L. Dowd* Sherick Enterprises, LLC Dina Dublon* Francisco D'Souza* President and CEO, Cognizant Technology Solutions Howard Ellin* Partner, Skadden Arps Slate Meagher and Flom Edward H. Frank* Founder and Sole Proprietor, Compass Vineyards; Co-founder and CEO, Cloud Parity, Inc.

Yoshiaki Fujimori* President and CEO, LIXIL Group Corporation Ira J. Gumberg President and CEO, J.J. Gumberg Co. Torrence M. Hunt, Jr. Larry Jennings, Jr. * Senior Managing Director, ValStone Partners, LLC Tod S. Johnson * Chief Executive Officer, The NPD Group, Inc. Raymond J. Lane Partner Emeritus, Kleiner Perkins Caufield & Byers Bruce McWilliams* President and CEO, Intermolecular Ambar Paul* Director, Caparo Group Limited E. Kears Pollock* Retired Executive Vice President, PPG Industries, Inc. James E. Rohr Executive Chairman, The PNC Financial Services Group, Inc. Jonathan Rothberg* Founder and Chairman, Butterfly Networks, LAM Therapeutics, Quantum‐Si, Hyperfine Research, and 4 Combinator

David S. Shapira Executive Chairman, Board of Directors, Giant Eagle, Inc. J. Lea Hillman Simonds Manoj Singh* Chief Operating Officer, Deloitte James C. Stalder Donald E. Stitzenberg* Principal, CBA Associates David Tepper* President and Founder, Appaloosa Management Mary Ann Ulishney* Vice President and Wealth Specialist, Wells Fargo Bank, N.A. Sunil Wadhwani* Chairman and Co--‐founder, iGATE Corporation Paula Kauffman Wagner* Producer/Owner, Chestnut Ridge Productions

______* Alum(nus)(na)

A-5 Term Trustees

Terms Expire in 2015

Luis Ball* President, Allegheny Medical Systems, LLC Evan Frazier* Senior Vice President, Community Affairs, Highmark, Inc. Oscar Harris* Chief Executive Officer and Founder, Turner Associates Erren Lester* Director of Product Management, The Advisory Board Group Michael McQuade* Senior Vice President for Science and Technology, United Technologies Corporation Anne M. Molloy Executive Director, Posner Fine Arts Foundation David Porges Chairman, President and Chief Executive Officer, EQT Corporation Luke Skurman* Chief Executive Officer, Niche Rohet Tolani* Managing Director, Tolani Shipping (Singapore) Pte. Ltd. Carol A. Williams* Executive Vice President, Manufacturing and Engineering, The Dow Chemical Company

Terms Expire in 2016

Ronald Bianchini* President and Chief Executive Officer, Avere Systems Kushagra Bajaj* Vice Chairman, Bajaj Group Aristides Candris* President and CEO, Westinghouse Electric Company, Retired Eric Cooper David Coulter* Vice Chairman and Managing Director, Warburg Pincus LLC Russell Crockett* Senior Advisor, C14 Strategy LLC Dirk Gates Chief Executive Officer, Xirrus, Inc. Eric Giler* Chief Executive Officer, WiTricity Corporation Edward Grefenstette* Chief Investment Officer, Dietrich Charitable Trusts Jeffrey Housenbold* President and Chief Executive Officer, Shutterfly Manu Narayan* Performing Artist, Actor and Musician

Terms Expire in 2017

John Anderson President, Illinois Institute of Technology Keith Block* President and Vice Chairman, Salesforce.com Jeanne Cunicelli* Partner, Bay City Capital James Gianopulos Chairman and Chief Executive Officer, Twentieth Century Fox Film David McCormick Co-Chief Executive Officer, Bridgewater Associates William Meaney* President and Chief Executive Officer, Iron Mountain

A-6 Roy J. Shanker* Consultant Ajit Shetty* Retired Chairman of the Board, Janssen Pharmaceutica Lip-Bu Tan Chairman, Walden International; Chief Executive Officer, Cadence Design Systems Thomas Tull Founder, Chairman and Chief Executive Officer, Legendary Pictures

______

* Alum(nus)(na)

Ex-Officio Trustees

The following individuals serve as Ex-Officio Trustees of the University:

Subra Suresh President, Carnegie Mellon University

Bill Peduto Mayor, City of Pittsburgh

Bruce A. Kraus President, Pittsburgh City Council

Scott Sandage Chair, Faculty Senate, Carnegie Mellon University

Kristen Kurland President, Andrew Carnegie Society

Rebecca Allison President, Carnegie Mellon Alumni Association

______* Alum(nus)(na)

Emeritus Life Trustees

The following individuals serve as Emeritus Life Trustees of the University:

Paul A. Allaire Former Chairman and CEO, Xerox Corporation Arthur H. Aronson Retired Executive Vice President, Allegheny Teledyne Carol R. Brown Former President, Pittsburgh Cultural Trust Robert M. Brown, III President: B III Capital LLC Frank V. Cahouet Retired Chairman and CEO, BNY Mellon Douglas D. Danforth Retired Chairman and CEO, Westinghouse Electric Corporation W. Logan Dickerson President, Lindwood Farm, Inc. & Protos Foods, Inc. Edward Donley Former Chairman, Air Products and Chemicals, Inc. William B. Ellis Retired Chairman and CEO, Northeast Utilities

Cynthia Friedman Co-owner, Union Real Estate Company of Pittsburgh

A-7

Henry J. Gailliot Claire W. Gargalli William Goldsmith Chairman of the Board, Nucon Energy Group Richard D. Hamilton Retired Director of Product Supply, Procter and Gamble Wilton A. Hawkins Teresa Heinz Chairman, The Heinz Endowments Orion Hoch Chairman Emeritus, Litton Industries T. Jerome Holleran Chairman, Precision Medical Products, Inc. W. Lee Hoskins Retired Chairman and CEO, The Huntington National Bank Justin M. Johnson Retired Judge, Superior Court of Pennsylvania Patricia Askwith Kenner President, Campus Coach Lines David M. Kirr Partner, Kirr, Marbach & Company Hans W. Lange Edward E. Lucente Thomas A. McConomy Retired Chairman of the Board, Calgon Carbon Corporation Jack E. McGrath Retired Senior Vice President, Booz & Company Regina Gouger Miller Owner/Artist, Ginger and Spice; Regina Gouger Miller Studio Lindsay J. Morgenthaler Alessandro Ovi Executive Vice President, Fondazione Popoli Norman F. Parker Retired President, Varian Associates Charles J. Queenan, Jr. Chairman Emeritus, K&L Gates LLP John G. Rangos John G. Rangos, Sr. Charitable Foundation David M. Roderick Former Chairman and CEO, United States Steel Corporation Vincent A. Sarni Retired Chairman and CEO, PPG Industries, Inc. Joyce Bowie Scott J. Bowie Scott Studio Raymond Smith Chairman, Rothschild Continuation Investments William P. Snyder, III President and Chairman, The Wilpen Group, Inc. W. Lowell Steinbrenner Retired Chairman, Contours, Ltd. James M. Walton President Emeritus, Carnegie Institute Konrad M. Weis Former President and CEO, Bayer Corporation ______* Alum(nus)(na)

A-8

University Administration Fall Semester 2014

Subra Suresh President Nathan Urban1 Interim Provost John Lehoczky2 Interim Executive Vice President Ilker Baybars Dean, Carnegie Mellon-Qatar Amy L. Burkert Vice Provost for Education Jay S. Calhoun Treasurer Gina Casalegno Dean, Student Affairs Robert Dammon Dean, David A. Tepper School of Business Mary Jo Dively Vice President and General Counsel Pam Eager Interim Vice President of University Advancement James H. Garrett Jr. Dean, Carnegie Institute of Technology and Carnegie Mellon Silicon Valley Frederick J. Gilman Dean, Mellon College of Science K. Jimmy Hsia Vice Provost for International Programs and Strategy Steve Huth Chief Information Officer Farnham Jahanian1 Vice President for Research Ramayya Krishnan Dean, H. John Heinz III College Dan J. Martin Dean, College of Fine Arts Elizabeth A. Milavec Associate Vice President for Finance and Controller Andrew Moore Dean, School of Computer Science Michael C. Murphy* Vice President for Campus Affairs Paul D. Nielsen Chief Executive Officer and Director, Software Engineering Institute Amir Rahnamay-Azar Vice President for Finance and Chief Financial Officer Richard Scheines Dean, Marianna Brown Dietrich College of Humanities and Social Sciences Keith Webster Dean, University Libraries ______* Alum(nus)(na) 1 Farnam Jahanian was appointed Provost effective 07/01/2015. 2 A search is underway to find Executive Vice President.

A-9 UNIVERSITY VISION, MISSION, AND VALUES

Vision

Carnegie Mellon will meet the changing needs of society by building on its traditions of innovation, problem solving, and interdisciplinarity.

Mission Statement

To create and disseminate knowledge and art through research and creative inquiry, teaching, and learning, and to transfer our intellectual and artistic product to enhance society in meaningful and sustainable ways.

To serve our students by teaching them problem solving, leadership and teamwork skills, and the value of a commitment to quality, ethical behavior, and respect for others.

To achieve these ends by pursuing the advantages of a diverse and relatively small university community, open to the exchange of ideas, where discovery, creativity, and personal and professional development can flourish.

Values

Dedication, as exemplified by our commitment to the critical issues of society and our uncompromising work ethic.

Collaboration, as exemplified by our interdisciplinarity, our external partnerships, and our capacity to create new fields of inquiry.

Measuring excellence by impact, as exemplified by our focus on issues critical to regional development, national interest, and global welfare.

Entrepreneurship, as exemplified by our openness to new ideas, prudent use of resources, and readiness to act.

Depth driving breadth, as exemplified by our issue-driven research, our context-based general education initiatives, and our focus on problem solving and creative production at all levels.

Compassion, as exemplified by our focus on human welfare, the betterment of society, and the personal development of the members of our community.

Integrity and inclusion, as exemplified by our attention to the highest ethical standards in all domains, and our commitment to being a community which welcomes talented minds from diverse backgrounds and challenges them individually and collectively to achieve their best.

A-10 ACCREDITATION – Fall 2014

College Department Accreditation Agency Year of Last Accreditation Review

Carnegie Mellon University Middle States Commission on Higher 2008 Education (MSCHE)

Carnegie Institute of Technology Accrediting Board for Engineering and 2012 Technology (ABET)

College of Fine Arts

Architecture National Architectural Accrediting Board 2012 (NAAB)

Music National Association of Schools of Music 2012 (NASM)

H. John Heinz III College

School of Public Policy and National Association of Schools of Public 2013 Management Affairs and Administration (NASPAA)

Tepper School of Business The Association to Advance Collegiate 2014 Schools of Business International (AACSB)

COLLEGES, SCHOOLS AND ACADEMIC PROGRAMS

Carnegie Mellon offers its degree programs through seven colleges and schools on its Pittsburgh Pennsylvania campus: Carnegie Institute of Technology; College of Fine Arts; H. John Heinz III College; Marianna Brown Dietrich College of Humanities and Social Sciences; Mellon College of Science; School of Computer Science; and Tepper School of Business.

The University also operates branch campuses in Silicon Valley, California and in the Persian Gulf State of Qatar. Students enrolled in specific Carnegie Mellon University programs may also pursue opportunities at additional sites located domestically in California, New York, and Washington, D.C., and internationally in Australia, Japan, Portugal, and Singapore. The University continues to expand its global educational and research activities, most recently in Rwanda with Master’s Degree programs in Electrical and Computer Engineering and Information Technology and China, where CMU collaborates with Sun Yat Sen University in the delivery of a graduate engineering program. There are additional programs in Nanjing University of Science and Technology (NUST) in China and University of Plymouth, Centre for Robotic and Neural Systems in United Kingdom.

Carnegie Mellon’s strength in learning sciences and educational technologies is presenting an exploding range of opportunities for growth and impact on education at all levels, particularly in the last five years. Wide national attention has focused on the advanced model developed by Carnegie Mellon’s

A-11 Open Learning Initiative, whose team-developed courses combine digital instruction with class meetings and support from peer networks. Activity in this area is expected to intensify.

More than 120 centers and institutes support interdisciplinary research and educational programs. Traditionally, the University has fostered highly focused colleges and schools as well as a commitment to the strategy of educational and research programs that transcend disciplinary boundaries. Those two traditions have led to innovative inter-college alliances. The University intends to continue to pursue its strategy of selective growth, building on its strengths, leveraging its resources through interdisciplinary educational and research efforts and focusing resource allocations on its highest priorities.

Carnegie Institute of Technology (CIT) is one of the foremost engineering schools in the United States. Because of its emphasis on interdisciplinary research and partnerships with industry, the college produces graduates who are able to transfer their fundamental engineering knowledge into industrial practice. Faculty bring their knowledge of real-world problems into the classrooms and laboratories. The college includes seven departments: Biomedical Engineering, Chemical Engineering, Civil and Environmental Engineering, Electrical and Computer Engineering, Engineering and Public Policy, Materials Science and Engineering, and Mechanical Engineering, as well as two institutes: the Information Networking Institute and the Institute for Complex Engineered Systems.

Dean: James H. Garrett, Jr.

College of Fine Arts (CFA), founded in 1905, was the first comprehensive arts learning institution in the United States. Today, the college is a federation of schools with professional training programs in the visual and performing arts (Architecture, Art, Design, Drama, and Music) in which intensive training and the University setting enrich practice. The college shares numerous research projects, interdisciplinary centers and educational programs with other units across the University. In addition to undergraduate and graduate programs in each of the five schools, the college offers interdisciplinary bachelor’s degrees integrating studies in fine arts with work in the humanities, sciences, or computer science.

Dean: Dan J. Martin

The H. John Heinz III College at Carnegie Mellon University (HC) has gained international recognition for addressing complex problems in domains that span information systems, management, and public policy. As rapid change in technology continues to affect how organizations function, Heinz College provides students with the skills needed to transform both public and private organizations. The college consists of two schools, the School of Information Systems and Management and the School of Public Policy and Management; however, Heinz College integrates faculty across schools to collaborate beyond their own disciplines. Students and faculty focus on addressing relevant global problems, and this is supported by requirements for internships and apprenticeships along with the capstone project delivered for real organizations. Programs are also offered in Adelaide, Australia; Los Angeles, California; and Washington, DC. Heinz College offers master’s degrees in public policy and management, healthcare policy and medical management, arts and entertainment industry management, information systems management, information security policy and management, information technology, and biotechnology management, and also confers doctoral degrees and a range of executive programs.

Dean: Ramayya Krishnan

Marianna Brown Dietrich College of Humanities and Social Sciences (DC) has achieved international prominence with its distinctive departments, characterized by outstanding research and teaching faculty and interdisciplinary courses and programs, with an increasingly international dimension. The college includes seven departments, each with its own unique focus in research, teaching, and

A-12 professional leadership. Specialty areas include: cognitive science and health psychology (Psychology); second language acquisition (Modern Languages); logic and computation (Philosophy); Bayesian statistics (Statistics); social and cultural history, global studies, and policy-related history (History); behavioral decision-making policy and management, and international relations and politics (Social and Decision Sciences); and rhetoric, creative, professional, and technical writing (English).

Among its undergraduate degree and major options, the college offers programs in economics (with the Tepper School of Business) and an internationally recognized undergraduate degree in information systems (IS) for students interested in understanding and solving information-related problems in organizations. Additional interdepartmental program options include ethics, history and public policy, European studies, and linguistics. The college also administers the Center for the Neural Basis of Cognition (CNBC) jointly with the University of Pittsburgh. The CNBC, a cognitive neuroscience research center, offers a Ph.D. degree in Neural Computation.

Dean: Richard Scheines

Mellon College of Science (MCS) is a dynamic and collaborative college that is home to four departments: Biological Sciences, Chemistry, Mathematical Sciences, and Physics, and many research centers. MCS researchers are taking leadership roles in the University’s biotechnology initiative in the areas of biosensors, proteomics, bio imaging, tissue engineering, and neuroscience. MCS also focuses on several other strategic areas, including cosmology, green chemistry, computational biology, bioinformatics, nanotechnology, mathematical finance, sensor research, and biological physics. MCS undergraduates discover new science as integral parts of faculty research teams. Innovations developed by MCS faculty and alumni, which have formed the basis for numerous patents and spin-off companies, impact fields as diverse as plastics manufacturing, the environment, and human health.

Dean: Frederick J. Gilman

The School of Computer Science (SCS) faculty and graduates have advanced the field of computer science for more than 50 years. The school includes the departments of Computer Science and Machine Learning, as well as the Human-Computer Interaction Institute, the Institute for Software Research, the Language Technologies Institute, the Robotics Institute, and the Lane Center for Computational Biology. The school offers a range of undergraduate and master’s degrees, as well as a large doctoral program. SCS’s diverse interdisciplinary research and education extend into areas beyond the traditional boundaries of computer science. An example is the Entertainment Technology Center, a joint initiative of the School of Computer Science and the College of Fine Arts that brings together technologists and artists in close collaboration.

Dean: Andrew Moore

The Tepper School of Business (Tepper) curriculum has both rigor and breadth. Rigor comes from the strong emphasis placed on the development of quantitative and analytical problem-solving skills. The Tepper School requires one of the most extensive and diverse sets of quantitative courses among leading undergraduate curriculum models. The Tepper School’s approach to decision-making involves students in projects, case competitions, research, and leadership experiences in which they master skills to solve relevant management problems and gain confidence in their abilities to lead within dynamic, complex business situations.

The breadth of the curriculum is found in the required courses that give context and skill building to business studies. This range of academic options has been recently strengthened with new career track specialties which are available to assist students in gaining exposure to industry and functional areas of

A-13 study. Broadening and strengthening the academic experience provides students with greater opportunities for careers, graduate study, and leadership in the global business environment of today.

The Tepper School of Business has produced eight Nobel Prize winners in Economics: Herbert A. Simon (1978), Franco Modigliani (1985), Merton H. Miller (1990), Robert E. Lucas, Jr. (1995), Finn E. Kydland (2004), Edward C. Prescott (2004), Oliver E. Williamson (2009), and Dale T. Mortensen, (2010).

Dean: Robert M. Dammon

Carnegie Mellon University in Qatar

Carnegie Mellon’s Qatar campus (Qatar) began offering classes in fall 2004 and now offers Bachelor of Science degrees in biological sciences, business administration, computational biology, computer science, and information systems, adhering to the same standards and curriculum as the Pittsburgh campus. Enrollment has grown from 41 students in the inaugural class to a total of 427 in fall 2014. Seven classes have graduated from Carnegie Mellon University in Qatar.

Carnegie Mellon Qatar is a member of Qatar Foundation for Education, Science, and Community Development, which was established by His Highness Sheikh Hamad Bin Khalifa Al-Thani in 1995, and is chaired by Her Highness Sheikha Moza Bint Nasser. The Qatar Foundation created Education City – a campus which includes Carnegie Mellon University in Qatar, Virginia Commonwealth University, Texas A&M University, Weill Cornell Medical College, Georgetown University’s School of Foreign Service, and Northwestern University along with other educational centers and institutions. The State of Qatar is located in the Middle East, surrounded on three sides by the Arabian Gulf and bordered by Saudi Arabia in the southwest.

Dean: Ilker Baybars

Carnegie Mellon Silicon Valley

Carnegie Mellon’s Silicon Valley campus (Silicon Valley) was founded in 2002. Long known for its leadership in engineering and computer science research and education, Carnegie Mellon and the College of Engineering have established natural extension in Mountain View, California, one that integrates the rich heritage and resources of the Pittsburgh campus with the opportunities available in the highly innovative and entrepreneurial Silicon Valley. Carnegie Mellon Silicon Valley is dedicated to educating its students to become leaders in global technology, innovation and management and to performing innovative research that connects it to local, natural, and global high-tech companies. The campus offers part-time and full-time master’s programs in software engineering, software management, information technology, and entrepreneurship; and a Ph.D. in electrical and computer engineering. Each program provides the appropriate mix of technical, business, and organizational skills critical to our students’ success.

Dean: James H. Garrett, Jr.

A-14 Federally Funded Research and Development Center

The Software Engineering Institute (SEI), founded in 1984 and located in Pittsburgh, Pennsylvania, is a college-level unit of Carnegie Mellon University that operates a federally funded research and development center (FFRDC) sponsored by the U.S. Department of Defense. The SEI helps advance software engineering principles and practice and serves as a national resource in software engineering, cyber security, and process improvement. The SEI works closely with defense and government organizations, industry, and academia to continually improve software-intensive systems. Its core purpose is to help organizations improve their software engineering capabilities and develop or acquire the right software, defect free, within budget and on time, every time. The SEI transitions its technologies to the global software engineering community through its public courses, conferences, technical reports, and Partner Network.

Director: Paul D. Nielsen

Sponsored Research

As the University’s mission statement indicates, the University intends to continue to develop as a research university, one in which research and education are integral. The University’s research objectives are achieved with the support of various organizations and governmental agencies, as well as the use of unrestricted sources of funding. Sponsored research funding in fiscal year 2014 provided approximately $385 million of revenue, which represents about 36% of the University’s total unrestricted operating revenue. Sources of sponsored research revenues include the following:

Federal Government Department of Defense 39% National Science Foundation 22% Other Federal Agencies 25%

Sub-Total: Federal Government 86%

Industrial Sources 7% Other Foundations & Associations 7% Total Sponsored Research 100%

The University has established itself as a research university, drawing on the University’s interdisciplinary culture to explore new opportunities and, in so doing, making research, artistic creation, and education integral to one another across the breadth of the University’s academic disciplines. Below is the distribution of sponsored research revenues by type, as of June 30, 2014.

Science and Engineering 28% Computer Science 24% Research Institutes 40% Art, Humanities, Social Sciences & Management 8% Total Sponsored Research 100%

A-15 Research Centers and Institutes Fall Semester 2014

Carnegie Institute of Technology Bone Tissue Engineering Center (BTEC) Carnegie Mellon CyLab Carnegie Mellon Electricity Industry Center (CEIC) Center for Advanced Process Decision-Making (CAPD) Center for Atmospheric Particle Studies (CAPS) Center for Bioimage Informatics (CBI) Center for Circuits and System Solutions (C2S2) Center for Climate and Energy Decision Making (CEDM) Center for Complex Fluids Engineering (CCFE) Center for Environmental Implications of Nanotechnology (CEINT) Center for Implantable Medical Microsystems (CIMM) Center for Iron and Steelmaking Research (CISR) Center for Multiscale Modeling for Engineering Materials (CM2EM) Center for Nano-enabled Device and Energy Technologies (CNXT) Center for Product Strategy and Innovation Center for Sensed Critical Infrastructure Research (CenSCIR) Center for Silicon System Implementation (CSSI) Center for the Study and Improvement of Regulation (CSIR) Center for Water Quality in Urban Environmental Systems (WaterQUEST) Darpa Center for Memory Intensive Self-Configuring Integrated Circuits (MISCIC) Data Storage Systems Center (DSSC) Energy Institute General Motors Collaborative Laboratory at Carnegie Mellon Government/University/Industry(GUIde) Consortium on the Forced Response of Bladed Disks Green Design Institute Information Communication Technologies Institute (ICTI) Institute for Complex Engineered Systems (ICES) Materials Research Science and Engineering Center (MRSEC) Mobility Research Center NETL-Regional University Alliance (NETL-RUA) Pennsylvania Smart Infrastructure Incubator (PSII) Steinbrenner Institute for Environmental Education and Research (SEER) Western Pennsylvania Brownfields Center

College of Fine Arts Advanced Building Systems Integration Consortium (ABSIC) Center for Building Performance and Diagnostics (CBPD) Center for the Arts in Society (CAS) Remaking Cities Institute (RCI) STUDIO for Creative Inquiry (SfCI)

H. John Heinz III College Carnegie Mellon CyLab Center for Behavioral Decision Research (CBDR) Center for Economic Development (CED) Center for the Future of Work (CFW) iLab Institute for Social Innovation (ISI) Living Analytics Research Centre (LARC) Program of Research and Outreach on Gender Equity in Society (PROGRESS) Technology in the Arts Traffic21

A-16

Marianna Brown Dietrich College of Humanities and Social Sciences Center for African-American Urban Studies and the Economy (CAUSE) Center for Behavioral Decision Research (CBDR) Center for Cognitive Brain Imaging (CCBI) Center for Formal Epistemology (CFE) Center for International Relations and Politics Center for Strategy, Entrepreneurship, and Technological Change Center for Ethics and Policy (CEP) Center for the Arts in Society (CAS) Center for the Neural Basis of Cognition (CNBC) Child Language Data Exchange System (CHILDES) Children's School Humanities Center Laboratory for Empirical Approaches to Philosophy (LEAP) Laboratory for the Study of Stress, Immunity, and Disease Laboratory for Symbolic and Educational Computing (LSEC) Modern Language Resource Center (MLRC) Pittsburgh Mind-Body Center (PMBC) Pittsburgh Science of Learning Center (PSLC)

Mellon College of Science Art Conservation Research Center (ACRC) Bruce and Astrid McWilliams Center for Cosmology Center for Computational Finance Center for Atmospheric Particle Studies (CAPS) Center for Macromolecular Engineering (CME) Center for Membrane Biology and Biophysics Center for Molecular Analysis Center for Nano-enabled Device and Energy Technologies (CNXT) Center for Nonlinear Analysis (CNA) Center for Nucleic Acids Science and Technology (CNAST) Center for the Neural Basis of Cognition (CNBC) Institute for Green Science Molecular Biosensor and Imaging Center (MBIC) Pittsburgh NMR Center for Biomedical Research Pittsburgh Supercomputing Center (PSC) Ray and Stephanie Lane Center for Computational Biology

Office of the Provost ASTM Test Monitoring Center Carnegie Mellon CyLab Center for International Politics and Innovation (CIPI) Entertainment Technology Center (ETC) Hunt Institute for Botanical Documentation Steinbrenner Institute for Environmental Education and Research (SEER)

School of Computer Science Aladdin Center for Algorithm Adaptation Dissemination and Integration (Aladdin) CASOS Center for Computational Social and Organizational Science Center for Bioimage Informatics Center for Computational Thinking Center for Integrated Manufacturing Decision Systems (CIMDS) Center for the Foundations of Robotics Center for the Neural Basis of Cognition (CNBC) Center on Architecting Socio-Technical Ecosystems (COASTE)

A-17 Field Robotics Center (FRC) Medical Robotics Technology Center (MRTC) Molecular Biosensor and Imaging Center National Robotics Engineering Center (NREC) NSF Industry/University Cooperative Research Center Parallel Data Lab Pittsburgh Advanced Cognitive Tutor (PACT) Center Pittsburgh Science of Learning Center (PSLC) Pittsburgh Supercomputing Center Specification and Verification Center Vision and Autonomous System Center (VASC)

Software Engineering Institute Acquisition Support Program (ASP) Innovation Center (Software Prototyping, Emerging Technologies, Data Analytics) Interagency (intelligence Community and Civil and Defense Agencies) Military Services (C4ISR, Space, Ground, Sea, Aviation and UAVs, Enterprise) CERT Program Cyber Threat and Vulnerability Analysis Digital Intelligence and Investigation Enterprise and Workforce Development Secure Software and Systems Research, Technology, and System Solutions Program (RTSS) Advanced Mobile Systems Architecture-Centric Engineering (ACE) Cyber-Physical and Ultra-Large-Scale Systems Product Line Practice (PLP) Software Engineering Process Management (SEPM) Capability Maturity Model Integration (CMMI) Software Engineering Measurement and Analysis (SEMA) Team Software Process (TSP)

Tepper School of Business Accelerate Leadership Center Carnegie Bosch Institute for Applied Studies in International Management (CBI) Carnegie Mellon Electricity Industry Center (CEIC) Center for Behavioral Decision Research (CBDR) Center for Marketing Technology and Information Center for Organizational Learning, Innovation, and Performance Donald H. Jones Center for Entrepreneurship Green Design Institute

Carnegie Mellon Silicon Valley Carnegie Mellon Innovations Laboratory (CMIL) Center for Open Source Investigation (COSI) Center for Software and Systems Engineering CUDA Research Center Disaster Management Initiative Emergency Operations Center Lab Intelligent and High Performing Systems Lab International Center for Advanced Communication Technologies (InterACT) Mobility Research Center SmartSpaces Lab Solar Controls and Diagnostics Lab (SCDL)

A-18 PHYSICAL PLANT

The University’s Pittsburgh campus occupies 147.7 acres bordered by residential property to the north and the east, a major city park to the south and the Carnegie Museums of Pittsburgh, the University of Pittsburgh, and a residential/retail neighborhood to the west. The University has a physical plant of approximately 5.1 million gross square feet of space 13% of which is space leased to the University. The University has a total of approximately 3.8 million square feet of assignable space, which is allocated as follows: education and research activities comprise 52%; academic support and student services comprise 34%; and administrative and general support comprises 14%.

The University’s Institutional Master Plan (IMP) was approved by the City of Pittsburgh in 2012. The IMP establishes the foundation for future development opportunities on campus. It is both a guiding document for campus growth in alignment with the University’s strategic vision and also a legal document conforming to the City of Pittsburgh Zoning Code. Consistent with the framework of the IMP, and also the foundation provided in the previous 2002 Master Plan, the University has purchased several properties in the Forbes/Craig area, focusing primarily on the north and south sides of Forbes Avenue, working to connect the core of the campus to Mellon Institute and the SEI building along Fifth Avenue.

Capital Projects

The University has four large capital construction projects in process: Sherman and Joyce Bowie Scott Hall, Hamburg Hall renovation for the Heinz College, Jared L. Cohon University Center Addition and the David A. Tepper Quadrangle.

Construction is well under way for the Sherman and Joyce Bowie Scott Hall (“Scott Hall”). Scott Hall is being built near Hamerschlag Hall on the University’s Pittsburgh campus. The building is the future home to the new Wilton E. Scott Institute for Energy Innovation, the University’s Biomedical Engineering Department, Disruptive Health Care Technologies Institute, and the Institute for Complex Engineering Systems. The building will house a ten thousand square foot cleanroom, wet and dry labs, and office space for research. Funding for the project will be from a combination of gifts, borrowing, and University capital. The building is expected to be ready for occupancy in the first quarter of 2016.

The renovation of Hamburg Hall for the Heinz College is currently on Phase 2 of this multi-phase project. Phase 2 includes the construction of a new 150-seat classroom, and the transformation of the current rotunda into a collaborative hub for students, faculty and staff. This phase will replace several older building systems and will introduce significant life safety and ADA upgrades to the building including enclosed fire stairs, fire suppression and a new accessible entrance at the front of the building. Phase 2.5 will include the renovation of the West Wing of Hamburg Hall to provide additional classrooms and faculty offices for research centers. Funding for Phases 2 and 2.5 is a combination of gifts and University funds.. Future phases, which will commence when funding is in place, involve building an atrium and café to add more project and collaboration space to Hamburg Hall.

The Jared L. Cohon University Center Addition is a 62,000 square foot addition for recreational fitness and undergraduate student activities. The addition will include a large facility for weight lifting and a spacious cardiovascular fitness area for machines, three studios including a cycling studio, construction of a pool balcony, a studio theater and upgraded dining options. Funding is a combination of gifts and University funds. The project recently started construction and is expected to open in the spring of 2016.

The University began design on the David A. Tepper Quadrangle in 2014. The project anchor, a new 295,000 square foot building, will house the entire Tepper School of Business and will also be the location for several university-wide programs including a Welcome Center, an Entrepreneurship and

A-19 Innovation Center, a 600-seat auditorium, a fitness center and a dining facility. A dynamic landscaping plan is currently being developed for the Quadrangle which will integrate into the Forbes Avenue campus vision. Funding is a combination of gifts and university funds. The building will open in time for the 2018-2019 academic year.

Other current capital projects include upgrades to the entrance and public corridors on the ground floor of Mellon Institute, renovation of 4616 Henry Street for Information Networking Institute upgrades to campus dining facilities, and lab renovations in Mellon Institute and Wean Hall

Longer range plans for new buildings are embedded in a ten-year Institutional Master Plan (“IMP”), approved by the City of Pittsburgh in 2012. Elements of this plan include improvements for intercollegiate athletics, a new classroom building, and space for a “Brain-Hub Building” that will bring together Biology and Psychology, and development of acquired land that will integrate the traditional core of the campus with the Craig Street corridor that extends to the northern boundary of the campus along Fifth Avenue.

The University is currently working on an amendment to IMP which will rezone the properties acquired on Fifth Avenue to EMI (“Educational, Medical, and Institutional”) in order to allow for robust institutional development and to add several new properties and buildings to the 2012 IMP. The University is also conducting a planning process to implement improvements on Forbes Ave throughout campus that will connect the Tepper Quad to campus; the first action will be to upgrade existing intersections on Forbes Avenue.

LIBRARIES AND COMPUTING FACILITIES

The University supports a University Libraries system including three Pittsburgh-campus libraries (Sorrells Engineering & Science Library, Hunt Library, and the Mellon Institute Library); a rare book facility/executive meeting venue on campus, Posner Center; and an offsite storage facility for low-use materials. The University Libraries also operate a branch library on the Carnegie Mellon Qatar campus.

University Libraries’ collections numbered over 1.1 million print volumes; over 141,000 print and electronic subscriptions; over 1.1 million microforms; as well as graphic and audio/video materials, music scores and maps. The Libraries are responsible for unique collections including the Architecture Archives, fine and rare book and manuscript collections (notably the Posner Collection), technical reports, University theses, the University’s online repository (Research Showcase), and the University Archives. The latter features over 1.9 million full text pages of locally-digitized materials including the prestigious Heinz, Newell, Simon, Shull, Kanade, and Traub archival collections.

Besides the University Libraries, the Pittsburgh campus is also served by two research libraries (the Hunt Institute for Botanical Documentation Library and the Software Engineering Institute Library).

The Carnegie Mellon Pittsburgh campus offers both wired and wireless network connectivity for more than 56,000 computers and mobile devices. The University’s wired network utilizes over 530 linear miles of optical fiber to link all residence halls and academic and administrative buildings on campus. The wireless network covers more than five million square feet indoors and over one hundred thousand square feet of outdoor spaces.

Public computer labs offer 490 Macintosh, Windows and Linux computers as well as 100 virtual machines designed to provide academic applications on student-owned computers. These technology-rich teaching and learning spaces have an extensive complement of academic and productivity software. Included in these spaces is a state-of-the-art multimedia studio with equipment for animation

A-20 and computer modeling, music composition, digital video, imaging and sound recording, and an equipment lending service.

Support for standard classroom technologies and teaching technology is provided for over 100 lecture halls, classrooms and seminar rooms across campus. Some classrooms have additional features such as videoconferencing and a classroom response system.

The University community is supported through the technical Help Center, which is available Monday - Friday in person, by phone or by email to answer computing related questions. Online help is available anytime through an extensive document collection.

ADMISSION AND ENROLLMENT

The following table shows first-year applicants, acceptances, enrollment and average combined SAT scores for undergraduate enrollees for the last five academic years.

Fall Fall Fall Fall Fall 2010 2011 2012 2013 2014 Applicants 15,496 16,527 17,313 18,884 19,812 Accepted 5,164 5,0294,807 4,813 4,874 Acceptance Rate 33.3% 30.4% 27.8% 25.5% 24.6% Enrolled 1,486 1,436 1,408 1,442 1,474 Matriculation Rate 28.8% 28.6% 29.3% 30.0% 30.2% Average SAT Scores 1390 1402 1406 1421 1434

For the fall 2014 entering class, the number of first-year, first-time applicants to Carnegie Mellon was 19,812, which represents a 4.9% increase from applicants for fall 2013. The University continues to improve its admission selectivity, offering admission to 24.6% of applicants (4,874) as compared to 25.5% (4,813) in the previous year. The academic quality of the fall 2014 enrolled class – as measured by high school grade point average, combined SAT score, class rank percentage, and a rating of high school curriculum rigor – has improved in each of the past five years. The University continues to meet its goal of enrolling students who are skilled outside of the classroom, as the University’s average non-academic rating – composed of such measures as leadership, service, and extra-curricular achievement – is at a high level similar to the levels of past years.

The University’s student body is geographically diverse. The 2014 entering first-year class was drawn from 45 states including the District of Columbia and 24 countries. The following table lists the geographic distribution of the past five entering first-year classes by region:

Fall Fall Fall Fall Fall State of Residence 2010 2011 2012 2013 2014 New England States 8% 9% 7% 8% 7% Middle States (excl. PA) 28 32 29 28 27 Pennsylvania 17 14 13 13 11 Southern States 8 11 10 8 10 Southwestern States 5 3 4 4 4 Midwestern States 5 6 5 4 5 Western States 14 13 14 15 15 International2 12 9 15 17 18 Other1 3 3 3 3 3

A-21 ______1 Other includes U.S. Territories and U.S. citizens and permanent residents residing outside of the U.S. 2 International includes all non-resident alien students

Headcount and FTE

The following table lists the headcount and full-time equivalent (FTE) for both full- and part-time undergraduate students for the past five years.

Fall Fall Fall Fall Fall 2010 2011 2012 2013 2014 Headcount Full-time 5,911 6,093 6,083 6,104 6,104 Part-time 197 188 196 202 205 Total 6,108 6,281 6,279 6,306 6,309 Headcount FTE 5,978 6,163 6,155 6,179 6,177

The following table lists the headcount and FTE for both the full and part-time graduate students for the past five years:

Fall Fall Fall Fall Fall 2010 2011 2012 2013 2014 Headcount Full-time 4,500 4,850 5,359 5,775 6,019 Part-time 1,010 927 931 910 899 Total 5,510 5,777 6,290 6,685 6,918 Headcount FTE 4,907 5,221 5,731 6,132 6,443

Retention Rate

The following table lists the University’s first-year-to-sophomore retention rate for the years indicated:

2009 2010 2011 2012 2013 First-Year to Second- Year Retention Rate 96.3% 95.7% 95.3% 94.2% 96.0%

A-22 STUDENT TUITION AND FEES

The following table lists undergraduate and graduate tuition and fees and undergraduate room and board charges for the past five academic years. The University does not provide room and board for graduate students. Room and board is for standard double-occupancy and 26 meals per two weeks (an average of 13 meals per week).

2010-11 2011-12 2012-13 2013-14 2014-15 Undergraduate Tuition1 $41,500 $43,160 $44,880 $46,670 $48,030 Fees2 636 850 880 972 992 Room 6,300 6,550 6,810 7,070 7,280 Board 4,450 4,560 4,740 4,920 5,120 Total $52,886 $55,120 $57,310 $59,632 $61,422 Graduate Tuition3 CFA (Architecture) $32,100 $32,100 $34,750 $34,980 $35,220 CFA (Art) 31,810 31,810 32,750 33,360 34,000 CFA (Design) 33,000 33,000 35,000 36,000 37,000 CFA (Drama) 31,810 31,810 32,606 32,836 33,076 CFA (Music) 30,900 30,900 32,688 33,500 34,344 CIT 36,700 36,700 38,900 40,000 41,000 H. John Heinz III 37,400 37,400 40,452 41,666 43,904 Dietrich College4 34,800 34,800 36,900 38,000 39,140 MCS 36,000 36,000 38,800 40,000 41,000 SCS 36,000 36,000 38,800 40,000 41,000 Tepper5 52,070 52,070 55,800 56,768 58,300

1 Undergraduate tuition figure represents rates for incoming students. Carnegie Mellon introduced its first step-function tuition rate increase in fall 2000. Subsequent step-function increases were introduced in the fall semesters of 2003, 2006, 2007, 2008, 2011, 2012, 2013, and 2014. Step-function tuition rate increases minimize the financial impact on existing students by assessing higher tuition rates on incoming students than to returning students. 2 Fees include orientation fee for first-year students. Amounts have been restated for prior years. 3 Graduate tuition displayed is for the majority of programs within each college; however, tuition may vary by program. 4 Dietrich College was formerly known as Humanities and Social Sciences (H&SS) 5 Tepper tuition is for new students in the full-time MBA program; returning students pay a different rate. Tuition covers three semesters.

A-23 STUDENT FINANCIAL AID

Over the past five years, the percentage of undergraduates with need for financial aid has averaged 49%. Financial aid packages at the University consist of scholarships, grants, loans, and on- campus job opportunities. The following table shows undergraduate financial aid resources by source for fiscal years 2010 through 2014.

2010 2011 2012 2013 2014 Scholarships and Grants by Source Federal $5,928 $6,318 $5,472 $5,464 $5,428 State 917 823 749 684 594 Carnegie Mellon 62,888 67,462 71,699 71,378 73,872 ROTC 768 1,065 857 1,015 777 Other 4,561 4,390 4,148 3,624 3,558 Sub-Total $75,062 $80,058 $82,925 $82,165 $84,229 Self Help by Source Work-study $1,688 $1,501 $1,520 $1,562 $1,562 Loans 15,452 15,084 17,659 17,302 15,236 Total $92,202 $96,643 $102,104 $101,029 $101,027

% of Undergraduates Receiving 56% 56% 54% 53% 52% Financial Aid1

______

1 % of Undergraduates Receiving Financial Aid: Figures as reported to the Common Data Set, based on academic years. (Number of undergraduate students who applied for need-based aid, were determined to have financial need and received any financial aid, plus number of undergraduate students with no financial aid need who received non-need based scholarship or grant aid) divided by all undergraduate students.

ALUMNI

According to the University’s alumni database, the University has 81,633 active alumni. Active is defined as all alumni for whom the University maintains a current postal or e-mail address. The University’s alumni are located in 50 states, the District of Columbia and 139 countries around the world.

A-24 FACULTY AND STAFF

In the 2014-15 academic year, the University employed 5,367 full-time and part-time persons in the following capacities:

Full- Part- Time Time Total Tenure-Stream Faculty 666 8 674 Research Faculty 71 2 73 Teaching Faculty 198 3 201 Special Faculty 320 32 352 Faculty Librarians 29 0 29 Academic & Administrative Support 31 1 32 Faculty Other Instructional Faculty 21 41 62 Staff 3,488 456 3,944 Total 4,824 543 5,367

The University employs 684 full-time tenured and tenure-eligible faculty. The following table lists the number of tenured and tenure-eligible faculty by college or school and tenure status for the 2014- 15 academic year.

Tenure-Stream Faculty Percent Tenure- College Tenured Tenured Eligible Total College of Fine Arts 70 75% 23 93 Carnegie Institute of Technology 92 66% 48 140 Dietrich College of Humanities and Social Sciences 94 75% 31 125 Mellon College of Science 79 75% 26 105 School of Computer Science 81 75% 27 108 Tepper School of Business 37 49% 38 75 The Heinz College 20 67% 10 30 Qatar 4 100% 0 4 Other1 4 100% 0 4 TOTAL 481 70% 203 684

1 Includes Administration such as President, Provost and Vice Provost 2 The difference between Total Tenure-Stream Faculty in this table of 684 and Total Tenure-Stream Faculty in the preceding table of 674 is because of tenure eligibility versus job function/category.

PENSION PROGRAMS

The University sponsors 403(b) and 401(k) defined contribution plans for faculty, staff and the Campus Police Association. Employees who have a non-academic year eligible appointment receive contributions equal to 8% of base pay. Employees who hold academic year appointments receive contributions equal to 9.78% of base pay. For the 403(b) plan year ended December 31, 2014, the total

A-25 amount paid to Teachers Insurance Annuity Association College Retirement Equities Fund (TIAA-CREF) as the University’s contribution was $21.7 million, and the total amount paid to The Vanguard Group (Vanguard) as the University’s contribution was $9.7 million. For the 401(k) plan year ended December 31, 2014, the total amount paid to Vanguard as the University’s contribution was $2.1 million. Benefits are determined by TIAA-CREF and Vanguard on an individual basis at the time of retirement, depending upon the accumulated value of the investments in the individual’s account.

Three years of eligible service are required to meet the vesting requirement. (Prior employee participation at another eligible educational institution which offers a 403(b) retirement plan that meets these requirements may be recognized for vesting purposes.)

Employees of the University who are represented by the International Union of Operating Engineers (IUOE) receive pension benefits through their union’s pension fund. The University presently makes monthly contributions on behalf of employees for each straight-time hour paid including holidays, floating holidays, vacation, jury duty, sick leave and bereavement days (excluding sick and accident disability, workers compensation and overtime pay). The University currently contributes an amount equal to 8% of employees’ straight time hours paid.

See Note 15 to the Consolidated Financial Statements in Appendix B for further information concerning retirement plans and other post-employment benefits.

FISCAL YEAR 2014 FINANCIAL OVERVIEW

The University’s consolidated financial statements as of, and for the year ended, June 30, 2014 are included as Appendix B to this Official Statement. The University’s consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and include the accounts of Carnegie Mellon and other majority owned entities. The University presents its financial statements in accordance with the provisions of Accounting Standards Codification (ASC) 958, Not for Profit Entities. This standard requires the reporting of total assets, liabilities and net assets in a statement of financial position, reporting the changes in net assets in a statement of activities and reporting the sources and uses of cash and cash equivalents in a statement of cash flows.

ASC 958 also requires that net assets and revenues, gains, expenses and losses be classified as unrestricted, temporarily restricted or permanently restricted based on the existence or absence of donor- imposed restrictions as follows. Accordingly, net assets and changes therein are classified and reported as follows:

Permanently restricted – Net assets subject to donor imposed stipulations that the assets be maintained permanently by the University. Generally, the donors of these assets permit Carnegie Mellon to use all or part of the income earned on the related investments for general or specific purposes.

Temporarily restricted – Net assets subject to specific donor imposed or legal stipulations that can be fulfilled by actions of Carnegie Mellon pursuant to those stipulations or that expire by the passage of time.

Unrestricted – Net assets that are not subject to donor imposed stipulations.

Net Assets

The University’s total net assets increased from $1.8 billion as of June 30, 2013 to $2.1 billion as of June 30, 2014. The market value of the endowment increased from $1.1 billion as of June 30, 2013 to

A-26 $1.3 billion as of June 30, 2014. The following table presents the University’s total net asset classes at the end (June 30) of each of the last five fiscal years (in thousands).

2010 2011 2012 2013 2014

Unrestricted $ 573,972 $ 674,540 $ 674,645 $ 748,627 $ 810,825 Temporarily Restricted 259,026 392,427 403,931 484,461 643,561 Permanently Restricted 471,402 516,052 549,071 577,238 607,455 Total Net Assets $1,304,400 $1,583,019 $1,627,647 $1,810,326 $2,061,841

The following table reflects the University’s total net assets and expendable net assets at the end (June 30) of each of the last five fiscal years (in thousands).

2010 2011 2012 2013 2014

Total Net Assets $1,304,400 $1,583,019 $1,627,647 $1,810,326 $2,061,841 Less: Permanently Restricted Net Assets $(471,402) $(516,052) $(549,071) $(577,238) $(607,455) Less: Net Investment InPlant1 $(223,862) $(224,991) $(237,693) $(247,955) $(252,129) Expendable Net Assets2 $609,136 $841,976 $840,883 $985,133 $1,202,257

1 Investments in plant equal property, plant and equipment less accumulated depreciation, plus assets whose use is limited, plus required debt reserves and less long-term debt related to plant. 2 The University has presented Expendable Net Assets as a measure of net assets potentially expendable for University purposes, including debt service. It is not a measure that has been prepared in accordance with generally accepted accounting principles and may differ from comparable measures used by other universities.

Historical Operating Results

Set forth in the table below is the University’s unrestricted operating results and unrestricted operating surpluses available for debt service for the fiscal years indicated (in thousands, except for Net Tuition Per FTE Student):

2010 2011 2012 2013 2014

Unrestricted Operating Revenue $903,155 $940,657 $1,007,374 $1,065,466 $1,073,104 Less: Unrestricted Operating Expenses $(874,227) $(909,701) $(966,321) $(1,023,415) $(1,055,507)

Unrestricted Operating Results $28,928 $30,956 $41,053 $42,051 $17,597

A-27 Plus: Depreciation, Amortization and Interest Expenses $59,583 $60,748 $62,289 $65,709 $68,310 Unrestricted Operating

Surplus Available for Debt $88,511 $91,704 $103,342 $107,760 $85,907 Service1

Net Tuition Revenue $323,029 $339,290 $366,686 $398,694 $427,202 Net Tuition per FTE Student $ 30,636 $31,170 $32,210 $33,543 $34,701

1 Unrestricted Operating Surplus Available for Debt Service is presented as a measure of single-year funds potentially expendable for debt service. It is not a measure that has been prepared in accordance with generally accepted accounting principles.

ENDOWMENT AND INVESTMENTS

Earnings from endowment investments fund a variety of activities, ranging from the general operations of the University to specific purposes, such as scholarships or endowed professorships. The Investment Committee of the Board oversees and directs the endowment’s investment strategy and asset allocation with the objective of maximizing long-term investment performance within acceptable levels of risk.

The market value of the endowment increased from $1.1 billion as of June 30, 2013 to $1.3 billion as of June 30, 2014. Carnegie Mellon’s endowment is invested in a long-term pool, which also includes a portion of the University’s working capital reserves. The Long-Term Pool’s total investment return during fiscal year 2014 was 18.2% (net of fees).

The following table provides a summary of the total changes in market value (in thousands) of the endowment assets, excluding pledges, for the past five fiscal years ended June 30 (see Note 6 to the Consolidated Financial Statements in Appendix B for fiscal years ended June 30, 2013 and 2014):

2010 2011 2012 2013 2014 Beginning Endowment $754,131 $815,099 $1,017,338 $987,054 $1,075,637 Value Gifts/Transfers 20,329 31,589 21,674 38,205 35,016 Draw (52,949) (51,311) (46,854) (45,775) (49,810) Investment Performance 93,588 221,961 (5,104) 96,153 189,695 Ending Endowment Value $815,099 $1,017,338 $987,054 $1,075,637 $1,250,538

The June 30 investment market value of the University’s Long-Term Investment Pool (“LTP”), which consists of endowment assets and certain working capital/capital reserve assets for the last five fiscal years, is summarized in the table below (in thousands). Investments in the LTP consist primarily of domestic and non-U.S. public equities, private equities, fixed income, hedge funds, real estate, natural resources, other investments and cash.

A-28 2010 2011 2012 2013 2014 Endowment $811,733 $1,009,219 $979,229 $1,066,149 $1,235,968 University Capital Invested in the Long-Term Pool 130,521 163,637 163,912 183,781 225,789 Total Long-Term $942,254 $1,172,856 $1,143,141 $1,249,930 $1,461,757 1 Pool

1 The Long-Term Investment Pool includes endowment and selected University capital, which together represent a portion of the University’s total investments as reflected in the Consolidated Financial Statements in Appendix B. Differences between the endowment values in the two tables above represent endowment gifts pending investment and other accruals at June 30.

Investment Policy and Asset Allocation Targets

At Carnegie Mellon University, the Investment Committee of the Board of Trustees (the “IC”) is principally responsible for overseeing the University’s LTP, as managed by the University’s Chief Investment Officer and the other members of the investment office staff and supported by certain external advisors, as appropriate. The Chief Investment Officer reports to the University President and the Chair of the IC. While endowment funds account for the vast majority of assets in the LTP, the LTP also includes certain other non-endowment assets of the University. Although endowment funds are distinct in purpose or restriction, all of the assets in the LTP are managed on a commingled basis and tracked with unit accounting, much like a mutual fund.

To document the philosophy, policies, strategic objectives and procedures that drive the oversight and management of the LTP, investment office staff and senior university administration developed, and the IC has approved, the university’s Investment Policy Statement (“IPS”, last amended August 2011). The Investment Policy Statement serves as the “institutional memory” of the rationale behind the investment program and provides guidance for any future changes to the investment program. Areas that are covered by the IPS in detail include: (1) core principles and objectives of the investment program, (2) governance, (3) benchmarking, (4) investment philosophy and guidelines, (5) risk management, and (6) asset allocation.

The current Target Allocation was approved on November 21, 2013. The prior asset allocation targets were the same as current targets with the following exceptions: Private Equity investments were 22% and Other investments were 6%. The following table illustrates the LTP’s actual versus targeted asset allocations as of June 30, 2014.

Asset Target Allocation Actual Allocation US Public Equity 14% 14% International-Developed 6% 6% International-Emerging 9% 10% Fixed Income 10% 9% Private Equity 25% 29% Hedge Funds 18% 13% Real Assets 15% 12% Other 3% 1% Cash 0% 6% Total 100% 100%

A-29

Spending Policy

Pennsylvania Act 141 allows organizations to choose a total return spending policy whereby the board of trustees may annually elect to spend between two and seven percent of the fair market value of the endowment. The University maintains a total return spending policy. Endowment income distributions can consist of dividends and interest income and a withdrawal of accumulated capital gains. The main objective of the total return policy is to separate spending policy from investment policy. This approach permits asset allocation decisions to be made independently of the need for current income. The goal of the spending policy is to seek balance between supporting the University’s current programs while preserving the long term purchasing power of investment assets. The endowment spending rate is determined annually pursuant to a smoothing formula whereby an approved spending rate is applied to the trailing thirty-six month average of endowment market values at December 31. For fiscal years 2013, 2014 and 2015, the approved spending rate has been 5.0%.

See Note 6 to the Consolidated Financial Statements in Appendix B, and “MANAGEMENT’S DISCUSSION AND ANALYSIS OF CURRENT FINANCIAL POSITION” for further discussion on the University’s spending policy and the spending rate for the endowment.

Gifts and Grants

Contributions received with donor-imposed restrictions are reported as revenues of the temporarily restricted net asset class, and a reclassification to unrestricted net assets is made in the year when such donor-imposed restrictions are satisfied or expired. Grants are included in this classification when the activity specified by the grant is to be planned and carried out by the University and the University has the right to the benefits of carrying out the activity. This excludes sponsored grants that are treated as exchange contracts. The sum of gifts, unconditional pledges to give and grants to the University for fiscal years 2010-2014 is as follows ($ thousands):

2010 2011 2012 2013 2014 Unrestricted $23,294 $22,575 $21,661 $22,098 $24,227 Temporarily Restricted 27,964 19,149 64,743 61,792 66,796 Permanently Restricted 12,355 41,055 33,748 27,141 27,387 Total $63,613 $82,779 $120,152 $111,031 $118,410

The increase in temporarily restricted contribution revenue from 2011 to 2012 is due primarily to three donor pledges restricted for programs, facilities and fellowships.

Litigation and Contingencies

See “LITIGATION MATTERS” in the front part of this Official Statement for a discussion of certain legal actions to which the University is a party and Note 14 to the Consolidated Financial Statements in Appendix B for a discussion of certain other commitments and contingencies.

In addition, on March 6, 2009, the University filed a Complaint in the United States District Court for the Western District of Pennsylvania against Marvell Technology Group Ltd. and Marvell Semiconductor, Inc. (collectively, “Marvell”) asserting direct infringement and indirect infringement of one or more claims of United States Patent Nos. 6,201,839 B1 and 6,438,180 B1 (collectively, the “Patents”). The Complaint sought unspecified monetary damages and injunctive relief. In general, the

A-30 University claims that Marvell’s chips and software simulators perform the methods claimed in the Patents to ameliorate the effects of media noise in hard disk drives.

After a four week trial, on December 26, 2012, a jury found that Marvell infringed the Patents and that Marvell had not established that the Patents were invalid. The jury also awarded damages to the University in the amount of $1,169,140,271. After a series of post-trial motions, the District Court entered a final judgment on May 7, 2014 in the amount of $1,535,889,387, plus the ongoing royalty for the life of the Patents in the amount of $0.50 for each infringing chip sold by Marvell. On May 14, 2014, Marvell posted a bond in the amount of $1,545,451,000, which precludes the University from executing on the judgment during the pendency of the appeal. Marvell later posted an additional bond in the amount of $215,584,293 to secure a stipulated judgment for on-going royalties through March 4, 2014, the date that Marvell claims to have an effective sublicense of the Patents.

On May 14, 2014, Marvell filed its notice of appeal to the United States Court of Appeals for the Federal Circuit. On appeal, Marvell argues that the judgment should be reversed for a variety of reasons, including without limitation that no reasonable jury could have concluded that the Patents are not invalid and not infringed and that the University’s calculation of damages suffers from numerous legal flaws. The appeal has been fully briefed and is likely to be argued before the Federal Circuit in the second quarter of 2015.

If Marvell is unsuccessful at the Federal Circuit, Marvell may petition for an en banc rehearing by the Federal Circuit or may petition the United States Supreme Court for a writ of certiorari. Any recovery from Marvell is subject to the University’s split with the inventors under the Patents and attorneys’ fees.

OUTSTANDING INDEBTEDNESS

The total outstanding indebtedness in the University’s most recent audited financial statements at June 30, 2014 was $500.2 million (see Note 10 to the Consolidated Financial Statements in Appendix B to this Official Statement.) See “EXISTING INDEBTEDNESS” in the front part of this Official Statement.

The table on the following page shows the expected fiscal year debt service requirements for the University’s outstanding bond indebtedness.

A-31

Fiscal Year Series 2008A1 Series 2009 Series 2012A2 Series 2012B3 Series 2013 Total 4 2015 4,716,210 8,160,138 28,048,500 1,513,350 2,412,500 44,850,698 2016 4,716,210 8,160,138 1,618,500 1,513,350 2,412,500 18,420,698 2017 4,716,210 8,160,138 1,618,500 1,513,350 2,412,500 18,420,698 2018 4,716,210 59,326,675 1,618,500 1,513,350 2,412,500 69,587,235 2019 4,716,210 5,633,213 1,618,500 50,252,225 2,412,500 64,632,648 2020 4,716,210 64,166,606 1,618,500 2,412,500 72,913,816 2021 4,716,210 2,700,000 1,618,500 12,412,500 21,447,210 2022 4,716,210 61,350,000 1,618,500 1,912,500 69,597,210 2023 4,716,210 1,618,500 1,912,500 8,247,210 2024 4,716,210 34,423,500 1,912,500 41,052,210 2025 4,716,210 1,912,500 6,628,710 2026 4,716,210 1,912,500 6,628,710 2027 9,769,084 1,912,500 11,681,584 2028 4,499,833 24,162,500 28,662,333 2029 4,540,736 800,000 5,340,736 2030 4,569,953 800,000 5,369,953 2031 4,569,953 800,000 5,369,953 2032 4,569,953 800,000 5,369,953 2033 4,569,953 800,000 5,369,953 2034 4,569,953 800,000 5,369,953 2035 33,878,703 800,000 34,678,703 2036 32,693,703 800,000 33,493,703 2037 31,508,703 800,000 32,308,703 2038 26,117,897 800,000 26,917,897 2039 800,000 800,000 2040 800,000 800,000 2041 800,000 800,000 2042 800,000 800,000 2043 20,800,000 20,800,000 TOTAL 222,452,944 217,656,908 75,420,000 56,305,625 94,525,000 666,360,477

1. Assumes 2007 JPM swap rate of 3.77% on $5.1M until 2027 and 2006 PNC swap rate of 3.43% on $100.0M until 2028; unhedged portion assumes 3.50% rate. Includes estimated liquidity and remarketing expenses. 2. $25.3M of Series 2012A Bonds due in FY2015 will be placed on taxable commercial paper program and is expected to be rolled over past FY2016. 3. Assumes 2004 JPM swap rate of 3.03%. 4. Does not include debt service for the CIC capital lease during the first quarter of fiscal 2015, or the subsequent outstanding mortgage debt of $16.8 million that matures with a $7.4 million bullet payment on 3/1/2025.

The University has one liquidity facility in place with respect to its bond indebtedness. The Bank of New York Mellon (“BNY Mellon”) is the standby bond purchase agreement provider for the 2008 Bonds ($120.8 million outstanding par amount). This facility with BNY Mellon expires January 12, 2018.

The University also has a $50 million line of credit with PNC Bank. This facility provides a liquidity reserve for general purposes. The University has never drawn funds from this facility and has no plans to do so.

A-32

Interest Rate Swaps

The University utilizes interest rate swaps to manage the interest expense and risk of its debt. The table below outlines the University’s existing swap agreements as of June 30, 2014. See Note 12 to the Consolidated Financial Statements in Appendix B for further discussion.

Notional Mark to Value Effective University Market Value(1) Counterparty (in millions) Date University Pays Receives (in millions) JP Morgan $50.0 2004 3.03% 67% of 1M LIBOR $(5.1) PNC $100.0 2006 3.43% 67% of 1M LIBOR $(18.2) JP Morgan $5.0 2007 3.77% 67% of 1M LIBOR $(1.1) JP Morgan $40.3 2012 3.77% 67%of 1M LIBOR $(9.3) PNC $38.0 2012 SIFMA 1.92% $(0.4) Total $(34.1)

(1) As of June 30, 2014; negative mark-to-market (MTM) values are a liability for the University.

Each of the University’s swap agreements call for a posting of collateral by either counterparty based on a matrix that matches long-term debt ratings with posting thresholds. At Carnegie Mellon’s current S&P rating of AA-, that threshold requires posting of collateral for total liability values per counterparty in excess of $25.0 million. A drop in the credit rating of the University of one notch to A+ would reduce the threshold to $20.0 million. Based on the current threshold, Carnegie Mellon University did not need to post collateral in fiscal year 2014.

A-33 MANAGEMENT’S DISCUSSION AND ANALYSIS OF CURRENT FINANCIAL POSITION

Introduction

Fiscal year 2014 was a rewarding and challenging year for the university. Like many colleges and universities, we faced the government shutdown, decreasing federal funding due to sequestration and rising costs associated with growth and expansion. Amid increasing global competition for talent, Carnegie Mellon faces the challenge of attracting the best and the brightest students and faculty. These challenges mean the university must continue to do what we do best — innovate and create to forge our path for the future.

For fiscal year 2014 the University’s operating revenues exceeded its operating expenses, yielding an operating surplus of $17.6 million. Carnegie Mellon’s total net assets increased $251.5 million or 13.9% from fiscal year 2013 to an ending value of $2.1 billion at June 30, 2014. Investment returns, the impact of the results of operations, and new restricted gifts in fiscal year 2014 drove the increase.

Strategic Initiatives

Carnegie Mellon University has many exceptional accomplishments to share from the fiscal year. At the start of fiscal year 2014, the University celebrated Dr. Subra Suresh’s inauguration as the university’s 9th president. In his first year, Dr. Suresh gathered community input from faculty, students, staff, alumni, trustees, parents and friends of the University. In response to this feedback, a number of initiatives and projects were introduced, including:

• The Simon Initiative, which seeks to accelerate innovation and research to further enhance learning outcomes by creating strategic links between learning research and the development of new technology, products and entrepreneurial activities.

• Presidential Fellowships and Presidential Scholarships, an initiative to raise a minimum of $100 million of endowed awards by June 30, 2017. This initiative enables us to compete more effectively in recruiting the world’s brightest students.

• ProSEED is a university-wide seed-funding program that supports promising and creative ideas in education and research. ProSEED positions our community to apply for sustained support from federal, local, philanthropic and industrial funding sources.

Student Enrollment

The academic quality of the fall 2014 enrolled class – as measured by high school grade point average, combined SAT score, class rank percentage, and a rating of high school curriculum rigor – is at an all-time high. The University’s continuing goal of enhancing racial and ethnic diversity was also supported by the incoming class. The University continues to meet its goal of enrolling students who are skilled outside of the classroom, as the University’s average non-academic rating – composed of such measures as leadership, service, and extra-curricular achievement – is also climbing. See “Admission and Enrollment” for more detailed information and statistics.

Sponsored Projects Funding

Sponsored projects revenue, including indirect cost recoveries, accounted for 35.9% of total unrestricted operating revenues for fiscal year 2014, which is a decrease of $20.8 million or 5.1% from the prior year. This decline was driven largely by the federal spending cuts due to sequestration, which

A-34 resulted in decreases in research and development budgets across most federal agencies. This impacted funding across the university including the Software Engineering Institute (SEI), a global leader in cybersecurity and a Federally Funded Research and Development Center (FFRDC), that is the University’s largest single recipient of federal funding.

The federal government continues to be the largest source of sponsored projects revenue for the University, providing 85.7% of the revenue. The Department of Defense is the largest provider at 38.8% of the university’s total federal funding followed by the National Science Foundation providing 21.8% of total federal funding. The remaining sources of sponsored projects revenue are foundation/nonprofit (3.8%), industry (6.6%), state (0.8%), and other nonfederal (3.1%).

Budget Planning

The budget is an important annual planning document for the university that reflects choices, priorities and tactics that are developed in a very collaborative fashion with input from all of the University’s stakeholders. Because needs and opportunities change over time, Carnegie Mellon’s budget process allows reasonable flexibility and incentives for academic unit managers to adapt and optimize their activities as events unfold.

The resource allocation process, including the creation of operating and capital budgets as well as space allocation, is directed by the president, provost, and chief financial officer. Executive management advises on revenue and expenditure assumptions, budget parameters, university-wide priorities and institutional policies relating to finances. The undergraduate tuition rate and the overall budget are approved annually by the Board of Trustees.

Carnegie Mellon takes a prudent approach to forecasting revenues given current uncertainties in the external environment. Base increases to the operating unit budgets will be funded only through the reallocation of funds from the existing base budget or by base revenue increases. The budgeting strategy is designed to ensure a solid financial position for the University by preventing the extension of base operations beyond current revenue capacities, and by maximizing the University’s ability to respond to favorable variances throughout the course of the year. Due to the conservative nature of the budget process, actual operating results have produced favorable variances to the annual budget in each of the last five fiscal years.

Cash & Liquidity Management

The University maintains a liquidity position that is expected to meet cash needs and contingencies. Economic and capital market conditions also impact the targeted liquidity level at any point in time. Cash equivalents and other working capital assets in the operating account have regular peaks and valleys based on the collection and expenditure of tuition revenues during the academic year. These balances have ranged between $150 million and $350 million over the course of the two most recent academic years providing a certain source of liquidity against expected and potential demands. These high quality and very liquid assets are buttressed by a $50 million line of credit that has not been used but can be drawn for general purposes. A second tier of operating liquidity is invested in a passive, short duration, high quality bond portfolio with a market value of approximately $29 million at the end of fiscal year 2014.

The Long-Term Pool is positioned to meet the liquidity demands presented by the University’s draw for operations, and by capital calls from private equity managers. Sources to meet these cash demands primarily consist of liquid assets, including cash, as well as distributions from private investments and certain gifts to the University. The Investment Office regularly reassesses the liquidity of

A-35 all Long-Term Pool assets, uses a proprietary model to stress test Long-Term Pool liquidity on a regular basis, and coordinates its liquidity management of the Long-Term Pool with the Treasurer’s management of operating liquidity

Debt Management

The University uses debt to enhance its ability to maintain, improve, and expand its physical plant, equipment, and programmatic resources. These benefits are evaluated against the risks that debt can present to the financial health of the institution. As with endowment management, any decision on the University’s debt is made with careful consideration of the potential impact on both current and future generations of students. And any decisions to issue debt will be made by the University’s Finance Committee of the Board of Trustees.

Outstanding debt at the end of fiscal year 2014 was $500.2 million. This total is comprised of 4 bond issues totaling $473.8 million and debt related to the Collaborative Innovation Center of $26.4 million. The most recent transactions were the March 1, 2013 $59.6 million bond that is being used to finance a portion of the construction of Scott Hall, a nano-fabrication, energy innovation and biomedical engineering building, which is slated for completion and occupancy at the end of this calendar year, and the September 30, 2014 acquisition of the Collaborative Innovation Center (CIC) (see Appendix B, Note 10 and Note 19).

Fundraising / Capital Campaign Impact

Over the course of Carnegie Mellon’s Inspire Innovation campaign that ended in 2013, the University fundraising operation grew in staffing and budget, becoming a significantly more mature organization capable of securing annual commitments of $100 million or more and sustaining those results.

In fiscal year 2014, the year following achievement of a $1.2 billion campaign total, University Advancement forecasted another $100M+ year, and closed the year at $185 million in new commitments, including a single $67 million pledge for the largest capital project in Carnegie Mellon’s history. We are on track to close fiscal year 2015 above $110M in commitments, with several additional asks that will probably take longer to close than the end of this fiscal year.

Several focused goals and initiatives are driving post-campaign fundraising strategy and activities, including:

o A $115M goal covering three major capital projects o A $100M goal for endowment gifts designated for competitive graduate fellowship and undergraduate scholarship awards

Longer-range priorities for fund-raising will be determined by a university-wide strategic planning process currently under way. The University’s next campaign goal is expected be two to three times the size of the last one.

A-36 APPENDIX B

AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF CARNEGIE MELLON UNIVERSITY AS OF AND FOR THE FISCAL YEARS ENDED JUNE 30, 2014 AND JUNE 30, 2013

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Carnegie Mellon University Consolidated Financial Statements June 30, 2014 and 2013 Carnegie Mellon University Index June 30, 2014 and 2013

Page(s)

Independent Auditor’s Report ...... 1

Consolidated Financial Statements

Statements of Financial Position ...... 2

Statements of Activities ...... 3-4

Statements of Cash Flows ...... 5

Notes to Consolidated Financial Statements ...... 6-35

Independent Auditor’s Report

To the Board of Trustees Carnegie Mellon University and Subsidiaries

We have audited the accompanying consolidated financial statements of Carnegie Mellon University and its subsidiaries (“the University”), which comprise the consolidated statements of financial position as of June 30, 2014 and June 30, 2013, and the related consolidated statements of activities and changes in net assets and of cash flows for the years then ended.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; 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.

Auditor's Responsibility

Our responsibility is to express an opinion on the 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 our 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, we consider internal control relevant to the University'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 University'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 Carnegie Mellon University and its subsidiaries at June 30, 2014 and June 30, 2013, and the results of their changes in net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

November 13, 2014

PricewaterhouseCoopers LLP, 600 Grant Street, Pittsburgh, PA 15219 T: (412) 355 6000, F: (412) 355 8089, www.pwc.com/us Carnegie Mellon University Consolidated Statements of Financial Position June 30, 2014 and 2013

(dollars in thousands)

2014 2013 Assets Cash and cash equivalents (Note 2) $ 92,108 $ 141,339 Accrued interest and dividends 999 514 Accounts receivable, net (Note 3) 80,472 93,279 Pledges receivable, net (Note 4) 82,921 95,530 Student loans receivable, net (Note 3) 17,928 18,130 Investments (Note 5 and Note 7) 1,778,198 1,449,713 Assets held in trust by others (Note 7) 10,807 11,367 Unexpended bond proceeds (Note 2) 42,073 53,818 Other assets 40,366 41,079 Land, buildings and equipment, net (Note 9) 710,283 698,186 Total assets $ 2,856,155 $ 2,602,955 Liabilities Accounts payable and other liabilities (Note 2) $ 159,156 $ 154,741 Deferred revenue 106,272 105,512 Federal student loan funds 14,597 14,572 Present value of split interest agreements payable 14,062 13,755 Debt obligations (Note 10) 500,227 504,049 Total liabilities $ 794,314 $ 792,629 Net assets Unrestricted 810,825 748,627 Temporarily restricted (Note 11) 643,561 484,461 Permanently restricted (Note 11) 607,455 577,238 Total net assets $ 2,061,841 $ 1,810,326 Total liabilities and net assets $ 2,856,155 $ 2,602,955

The accompanying notes are an integral part of these consolidated financial statements.

2 Carnegie Mellon University Consolidated Statements of Activities Year Ended June 30, 2014

(dollars in thousands)

2014 Temporarily Permanently Unrestricted Restricted Restricted Total Revenue and other support Tuition and other educational fees revenue, net of financial aid $ 427,202 $ - $ - $ 427,202 Sponsored projects revenue (Note 8) 385,297 - - 385,297 Investment income (Note 5) 26,432 5,802 259 32,493 Contributions revenue (Note 4) 24,227 66,796 27,387 118,410 Auxiliary services revenue 56,917 - - 56,917 Other sources (Note 2) 97,847 (1,014) 264 97,097 Net assets released from restrictions 55,182 (55,182) - - Total revenue and other support $ 1,073,104 $ 16,402 $ 27,910 $ 1,117,416 Expenses Salaries $ 568,712 $ - $ - $ 568,712 Benefits 127,016 - - 127,016 Supplies and services 161,098 - - 161,098 Occupancy and related expenses 69,939 - - 69,939 Other operating expenses 60,432 - - 60,432 Depreciation and amortization 56,603 - - 56,603 Interest expense 11,707 - - 11,707 Total expenses $ 1,055,507 $ - $ - $ 1,055,507 Increase in net assets before nonoperating activities 17,597 16,402 27,910 61,909 Nonoperating activities Net realized/unrealized gain on investments (Note 5) 50,059 142,698 2,307 195,064 Other sources/(uses) (Note 2) (4,906) - - (4,906) Post retirement plan changes other than net periodic benefit costs (Note 15) (552) - - (552) Net assets released from restrictions (Note 2) - - - - Total nonoperating activities $ 44,601 $ 142,698 $ 2,307 $ 189,606 Increase in net assets $ 62,198 $ 159,100 $ 30,217 $ 251,515 Net assets Beginning of year 748,627 484,461 577,238 1,810,326 End of year $ 810,825 $ 643,561 $ 607,455 $ 2,061,841

The accompanying notes are an integral part of these consolidated financial statements.

3 Carnegie Mellon University Consolidated Statements of Activities Year Ended June 30, 2013

(dollars in thousands)

2013 Temporarily Permanently Unrestricted Restricted Restricted Total Revenue and other support Tuition and other educational fees revenue, net of financial aid $ 398,694 $ - $ - $ 398,694 Sponsored projects revenue (Note 8) 406,141 - - 406,141 Investment income (Note 5) 25,090 6,176 267 31,533 Contributions revenue (Note 4) 22,098 61,792 27,141 111,031 Auxiliary services revenue 54,806 - - 54,806 Other sources (Note 2) 104,958 (91) (363) 104,504 Net assets released from restrictions 53,679 (53,679) - - Total revenue and other support $ 1,065,466 $ 14,198 $ 27,045 $ 1,106,709 Expenses Salaries $ 542,366 $ - $ - $ 542,366 Benefits 118,370 - - 118,370 Supplies and services 169,811 - - 169,811 Occupancy and related expenses 66,585 - - 66,585 Other operating expenses 60,574 - - 60,574 Depreciation and amortization 54,390 - - 54,390 Interest expense 11,319 - - 11,319 Total expenses $ 1,023,415 $ - $ - $ 1,023,415 Increase in net assets before nonoperating activities 42,051 14,198 27,045 83,294 Nonoperating activities Net realized/unrealized gain on investments (Note 5) 16,269 66,403 1,122 83,794 Other sources/(uses) (Note 2) 13,202 - - 13,202 Post retirement plan changes other than net periodic benefit costs (Note 15) 2,389 - - 2,389 Net assets released from restrictions (Note 2) 71 (71) - - Total nonoperating activities $ 31,931 $ 66,332 $ 1,122 $ 99,385 Increase in net assets $ 73,982 $ 80,530 $ 28,167 $ 182,679 Net assets Beginning of year 674,645 403,931 549,071 1,627,647 End of year $ 748,627 $ 484,461 $ 577,238 $ 1,810,326

The accompanying notes are an integral part of these consolidated financial statements.

4

Carnegie Mellon University Consolidated Statements of Cash Flows Year Ended June 30, 2014 and 2013

(dollars in thousands)

2014 2013 Cash flows from operating activities Increase in net assets $ 251,515 $ 182,679 Adjustments to reconcile change in net assets to net cash provided by operating activities Realized and unrealized gains on investments (214,548) (100,719) Depreciation and amortization 56,604 54,390 Amortization of bond premium (2,990) (2,542) Gifts in kind and gifts of stock (2,264) (1,264) Loss on asset dispositions 1,448 817 Receipt of contributed securities (25,051) (20,056) Provision for bad debt and other allowances 1,598 976 Contributions held in trust by others 560 112 Contributions for land, buildings, equipment and (39,655) (29,496) permanent endowment Proceeds from sales of donated securities 11,406 6,803 (Increase) decrease in assets Accrued interest and dividends (485) (352) Accounts receivable, net 10,361 (2,796) Pledges receivable, net 13,134 880 Other assets 703 (10,224) Increase (decrease) in liabilities Accounts payable and other liabilities 939 (13,169) Pensions/postretirement liability 1,397 (1,219) Deferred revenue 760 9,606 Present value of split interest agreements 307 671 Net cash provided by operating activities $ 65,739 $ 75,097 Cash flows from investing activities Proceeds from sale and maturity of investments 744,810 531,869 Purchases of investments (856,633) (604,735) Unexpended bond proceeds 11,745 (53,818) Purchases of land, buildings and equipment (67,739) (63,845) Federal loan programs 25 (53) Disbursements of loans to students (2,193) (4,419) Repayments of loans from students 2,718 2,853 Net cash used for investing activities $ (167,267) $ (192,148) Cash flows from financing activities Proceeds from issuance of indebtedness - 60,530 Payment of bond issue costs - (530) Repayments of debt obligations (832) (6,744) Proceeds from sales of donated securities restricted for long term purposes 13,474 13,305 Contributions for land, buildings, equipment and permanent endowment 39,655 29,496 Net cash provided by financing activities $ 52,297 $ 96,057 Net decrease in cash and cash equivalents (49,231) (20,994) Cash and cash equivalents Beginning of year 141,339 162,333 End of year $ 92,108 $ 141,339 Noncash transactions Additions to land, buildings and equipment $ 2,015 $ 1,270 Gifts of stock $ 2,115 $ 1,413 Noncash stock contributions $ 25,051 $ 20,056

The accompanying notes are an integral part of these consolidated financial statements.

5 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

1. Carnegie Mellon

Carnegie Mellon University (“Carnegie Mellon” or the “University”) is a private, not-for-profit educational and research institution. Carnegie Mellon currently enrolls about 13,000 students and grants approximately 4,100 bachelors, masters and doctoral degrees each year. Approximately 81% of undergraduate students are from the United States of America. International students comprise approximately 19% of undergraduate, 58% of master’s, and 54% of Ph.D. students.

A substantial portion of Carnegie Mellon’s revenues are from sponsored research and other projects under federal, state, industrial and other contracts.

2. Summary of Significant Accounting Policies

Basis of Accounting and Reporting The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of Carnegie Mellon and other majority-owned entities. The consolidated entities are Benjamin Garver Lamme Scholarship Fund, Jack G. Buncher Charitable Fund, SEI-Europe GmbH, iCarnegie, Inc., and Carnegie Innovations, LLC. All significant inter-entity transactions and balances have been eliminated in consolidation. Carnegie Mellon is a joint sponsor with the University of Pittsburgh in MPC Corporation (MPC), a beneficiary of The Dietrich Foundation, and an owner as a tenant in common of the Bellefield Boiler Plant. The activities of MPC Corporation, The Dietrich Foundation, and the Bellefield Boiler Plant are not consolidated or recorded in Carnegie Mellon’s consolidated financial statements (see Note 16).

Carnegie Mellon’s net assets and revenue, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes therein are classified and reported as follows:

Unrestricted Net Assets Net assets that are not subject to donor imposed stipulations.

Temporarily Restricted Net Assets Net assets subject to specific donor imposed or legal stipulations that can be fulfilled by actions of Carnegie Mellon pursuant to those stipulations or that expire by the passage of time.

Permanently Restricted Net Assets Net assets subject to donor imposed stipulations requiring the assets be maintained permanently. Generally, the donors of these assets permit Carnegie Mellon to use all or part of the income earned on the related investments for general or specific purposes.

Revenues are reported as increases in unrestricted net assets unless use of the related assets is limited by donor-imposed restrictions. Expenses are reported as decreases in unrestricted net assets. Gains and losses on investments and other assets or liabilities are reported as increases or decreases in unrestricted net assets unless their use is restricted by the donor or by law. Expiration or satisfaction of temporary restrictions on net assets are reported as net assets released from restrictions.

6 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

Income and net gains and losses on investments are reported as follows:

• As changes in permanently restricted net assets, if so restricted by donor;

• As changes in temporarily restricted net assets, if the terms of the gift or relevant state law impose restrictions on the use of the income or gains and losses; and

• As changes in unrestricted net assets, in all other cases.

Reclassifications Certain prior year amounts have been reclassified to conform with current year’s presentation.

Cash Equivalents Cash equivalents include highly liquid investments with original maturities of three months or less.

Investments Debt and equity securities held by Carnegie Mellon are carried at fair value as established by the major securities markets with gains and losses reported in the Consolidated Statements of Activities. The alternative investments are carried at estimated fair value. Carnegie Mellon reviews and evaluates the values provided by the investment managers and agrees with valuation methods and assumptions used in determining the fair value of the alternative investments. Those estimated fair values may differ significantly from the values that would have been used had a ready market for these securities existed. Note 7- Fair Value provides additional information about inputs used to determine fair value for investments. Investments received as a gift are reflected as contributions at their market value at the date of the gift.

Carnegie Mellon utilizes various investment instruments. Investment securities, in general, are exposed to various risks, such as interest rate, credit and overall market volatility. Due to the level of risk associated with certain investment securities, changes could materially affect the amounts reported in the Consolidated Statements of Financial Position.

Endowment Investment policy for endowment assets is the responsibility of the Investment Committee of the Board of Trustees. Substantially all endowment assets are managed by outside investment managers and are held by an outside custodian.

Unrestricted endowment net assets include Carnegie Mellon funds, unrestricted gifts from donors, and any accumulated income and appreciation thereon, which is intended to remain in the endowment for the long-term support of Carnegie Mellon activities, but may be expended under trustee authorization. Also included is interest and dividend income on permanently restricted endowment assets where the distribution is unrestricted.

Temporarily restricted endowment net assets include cumulative gains and losses on permanent endowment assets and cumulative interest and dividend income on permanent endowment assets where the distribution/spending is restricted by the donor. The Trustees of Carnegie Mellon must annually authorize release of endowment gains according to Pennsylvania law. This classification also includes term endowments and endowment gifts whereby the donor permits distributions of the principal amount of the gift and accumulated appreciation.

7 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

Permanently restricted endowment net assets include contributions, contributed stock gains and losses, and donor stipulated income and appreciation that must be invested in perpetuity to provide a permanent source of income.

All endowment funds participate in a Carnegie Mellon investment pool. The investment pool provides income to its respective participants. Such income is used for the specific purpose prescribed by the donor or, if the purpose was not prescribed by the donor, the income is deemed to be unrestricted and used for general purposes. New endowment funds or additions to existing funds are assigned shares in the investment pool based upon the per share market value at the end of the previous month. Income distributions from the investment pool are based upon the number of shares held by each participant and the approved spending rate (see Note 6). Income distributions from the investment pool are based upon the “total return concept”. The annual income distributed from the investment pool includes interest and dividends and could include a portion of the accumulated capital gains. Any capital gains not distributed currently are reinvested in the investment pool and are available for distribution from the endowment assets in future years.

Unexpended Bond Proceeds Unexpended bond proceeds in the amount of $42.1 million and $53.8 million as of June 30, 2014 and June 30, 2013, respectively, represent proceeds from the issuance of the 2013 bonds which are held by a trustee under the bond indenture for capital expenditures.

Assets Held in Trust by Others Assets held in trust by others include the value of Carnegie Mellon’s beneficial interest in perpetual trusts and irrevocable trusts held by outside trustees. The present value of the perpetual trust’s estimated future cash receipts, which were measured by the fair value of the assets contributed to the trust, are recognized as assets and contribution revenues at the dates the trusts are established. The asset is adjusted periodically for changes in market value.

Various donors have established irrevocable trusts whereby Carnegie Mellon holds a remainder interest in the trust or is entitled to distributions over the life of the trust. The present value of the portion of the trusts estimated to be distributable to Carnegie Mellon over the life of the trusts or upon the termination of the trusts is recorded as assets and contribution revenues at the dates the trusts are established. The asset is adjusted periodically for changes in market value.

Land, Buildings and Equipment Land, buildings and equipment are recorded at cost at the date of acquisition or, if acquired by gift, at the estimated fair value as of the date of the gift. Additions to plant assets are capitalized while scheduled maintenance and minor renovations are expensed to operations. Buildings and equipment are reflected net of accumulated depreciation which is calculated on a straight-line basis over the estimated useful lives. Carnegie Mellon capitalizes interest during periods of construction. Carnegie Mellon reviews its land, buildings and equipment and other long-lived assets for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. Useful lives are as follows:

Buildings 35-50 years Renovations 20 years Land improvements 15 years Movable assets 5-20 years

Donated works of art, historical treasures and similar assets have been recognized at their estimated fair value based upon appraisals or similar valuations at the date of acquisition or

8 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

donation. If purchased, the assets are recognized at cost. The assets are depreciated over 99 years.

Accounts Payable and Other Liabilities Accounts payable and other liabilities includes accounts payable, accrued payroll and benefits, swap liabilities, Gate Loan Program, and other accrued expenses.

Federal Student Loan Funds This liability represents Perkins loan funds provided to students by the federal government through Carnegie Mellon. Carnegie Mellon is required to collect the loans on behalf of the federal government. The amount due from the students is reported in the Consolidated Statements of Financial Position as a component of student loans receivable, net.

Present Value of Split Interest Agreements Payable Carnegie Mellon’s split interest agreements with donors consist primarily of gift annuities, unitrusts, lead trusts, charitable remainder annuity trusts and life income agreements. Assets held under these agreements are included in investments. Generally, contribution revenues are recognized at the dates the agreements are established, after recording liabilities for the present value of the estimated future payments to be made to the beneficiaries. The liabilities are adjusted during the term of the trusts for changes in the value of the assets, accretion of the discount and other changes in the estimates of future benefits. The discount rates utilized for split interest agreements range from 1.2% to 6.2%. Distributions from the trusts are recorded in accordance with the donor’s stipulations as contributions and the carrying value of the assets are adjusted for changes in the fair value of the trust assets.

Operating Activities Carnegie Mellon’s measure of unrestricted operations as presented in the Consolidated Statements of Activities includes revenue from tuition and other educational fees, sponsored projects, investment return distributed according to Carnegie Mellon’s spending policy, unrestricted contributions, revenues from auxiliary services and other sources, and net assets released from restriction. Operating expenses are reported by natural classification.

Student Financial Aid Tuition and other educational fees are reported net of student financial aid. Student financial aid amounted to $127.4 million and $123.6 million for the years ended June 30, 2014 and 2013, respectively.

Sponsored Projects Revenue Sponsored projects revenue includes research and other programs sponsored by government, industrial, and other sources. Direct sponsored projects revenue represents reimbursement of costs incurred in direct support of sponsored projects. Such revenue is recognized when the direct costs are incurred. In addition, sponsored projects normally provide for the recovery of indirect costs supporting the project. Indirect sponsored projects revenue is recorded at rates established in advance by Carnegie Mellon through negotiations with the United States Government and other sponsors. Amounts received from sponsors under agreements that require the exchange of assets, rights or other privileges between Carnegie Mellon and the sponsor are recorded as deferred revenue until the contract terms are fulfilled. For the years ended June 30, 2014 and 2013, 45% of sponsored projects revenue is generated from two federal agencies.

9 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

Contributions Revenue Contributions include gifts, grants and unconditional promises to give that are recognized as revenues in the period such commitments are received. Conditional promises to give are recognized when the conditions on which they depend are substantially met. Unconditional promises to give to be received in future years are discounted, as of the date of the gift, at a rate commensurate with the pledge payment schedule. Prior to the adoption of Fair Value Measurement provisions of Accounting Standards Codification (ASC) topic 820, a risk-free rate was used. For pledges recorded subsequent to the adoption, a discount rate commensurate with fair market value is used. An allowance is estimated for uncollectible contributions based upon historical patterns and any known uncollectible accounts or accounts in arrears.

Contributions with Restrictions Met in the Same Year Contributions received with donor-imposed restrictions that are met in the same year as received are reported as revenues of the temporarily restricted net asset class, and a release of restriction is made to unrestricted net assets to reflect the satisfaction or expiration of such restrictions.

Capital Contributions Donors’ contributions to fund construction projects are classified as temporarily restricted net assets and are released from restriction through nonoperating activities when the facility is placed in service. $0.1 million of capital contributions were released from restriction during fiscal year 2013, and were reclassified from temporarily to unrestricted net assets through nonoperating activities. There were no capital contributions released from restriction during fiscal year 2014.

Contributions received after the asset is placed in service are classified as temporarily restricted net assets and are released from restriction through operating activities in the same fiscal year. $0.3 million and $3.4 million of capital contributions were released from restriction during fiscal year 2014 and 2013, respectively, and were reclassified from temporarily to unrestricted net assets through operating activities.

Auxiliary Services Revenue Carnegie Mellon’s auxiliaries exist primarily to furnish goods and services to students, faculty and staff. Managed as essentially self-supporting activities, Carnegie Mellon’s auxiliaries consist principally of housing services, dining services, telecommunications, parking, printing and publications, retail and other external services. Auxiliary revenues and expenses are reported as changes in unrestricted net assets.

Other Sources Other sources revenues are comprised of funding received for Carnegie Mellon’s international locations, royalty income, licensing revenue, affiliate/membership revenue and other miscellaneous revenues.

Nonoperating Activities – Other Sources and (Uses) Nonoperating activities-other sources/(uses) presented in the Consolidated Statements of Activities include:

• A $0.7 million gain and a $16.8 million gain in the fair value of the interest rate swap agreements for the period ended June 30, 2014 and 2013 , respectively (Note 12);

• Swap interest expense of $5.7 million for the period ended June 30, 2014 and 2013 (Note 12);

10 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

Income Taxes Carnegie Mellon is a non-profit organization as described in Section 501(c)(3) of the Internal Revenue Code (the “Code”) and is generally exempt from income taxes on related income pursuant to Section 501(a) of the Code.

Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported consolidated financial statements and related accompanying footnote disclosures. Actual results could differ from those estimates and these differences could be material. Carnegie Mellon’s significant estimates include: allowance for uncollectible accounts, asset retirement obligations, legal contingencies, accrued post retirement liability, and valuation of investments.

Recent Accounting Pronouncements In October 2012, the FASB issued ASU 2012-05 concerning the classification of cash receipts arising from the sale of donated financial assets in the statement of cash flows of not-for-profit entities. The guidance requires that the cash receipts from the sale of donated securities that were converted nearly immediately into cash should be classified as cash inflows from operating activities unless the donor restricted the use of the contributed resources to long-term purposes, in which case those cash receipts should be classified as cash flows from financing activities. Otherwise, cash receipts from the sale of donated financial assets should be classified as cash flows from investing activities. Carnegie Mellon implemented ASU 2012-05 for the financial statements as of June 30, 2014 and retrospectively to the financial statements as of June 30, 2013. Adoption of ASU 2012-05 increased cash flows from operating activities by $6.8 million, decreased cash flows from investing activities by $20.1 million, and increased cash flows from financing activities by $13.3 million for the year ended June 30, 2013.

In May 2014 the FASB issued ASU 2014-09, Revenue from Contracts with Customers, a principles-based standard to recognize revenue from customer contracts. ASU 2014-09 is effective for Carnegie Mellon’s fiscal year ending June 30, 2018. The University is evaluating the impact that the ASU may have on its financial statements.

3. Accounts and Student Loans Receivable

Accounts receivable at June 30, 2014 and 2013, consist of the following (dollars in thousands):

2014 2013 Sponsored project grants and contracts Federal $ 43,097 $ 43,833 Other 8,579 10,813 Total sponsored projects $ 51,676 $ 54,646 Student accounts 5,387 6,715 Other 27,024 36,341 $ 32,411 $ 43,056 Allowance for doubtful accounts (3,615) (4,423) Net accounts receivable $ 80,472 $ 93,279

11 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

Other accounts receivable consists primarily of Carnegie Mellon’s international programs, consolidated majority-owned entity receivables, affiliate and membership agreements, license agreements and other miscellaneous revenue sources.

Student Loans Receivable Net student loans receivable of approximately $17.9 million and $18.1 million, as of June 30, 2014 and 2013 respectively, primarily represent student loans made under the Perkins federal loan program. These loans are reported net of an allowance for doubtful accounts of approximately $0.5 million and $0.9 million as of June 30, 2014 and 2013, respectively.

4. Pledges Receivable and Contributions

Pledges as of June 30, 2014 and 2013 are discounted to the present value of future cash flows as of the date of the gift and are due as follows (dollars in thousands):

2014 Temporarily Permanently Restricted Restricted Total

In one year or less $ 9,273 $ 4,686 $ 13,959 Between one year and five years 48,310 30,731 79,041 More than five years 1,103 780 1,883 Pledges receivable, gross $ 58,686 $ 36,197 $ 94,883 Less Unamortized discount 4,138 4,369 8,507 Allowance for unfulfilled pledges 2,182 1,273 3,455 Pledges receivable, net of allowances $ 52,366 $ 30,555 $ 82,921

2013 Temporarily Permanently Restricted Restricted Total

In one year or less $ 2,506 $ 2,072 $ 4,578 Between one year and five years 60,986 41,555 102,541 More than five years 1,425 1,070 2,495 Pledges receivable, gross $ 64,917 $ 44,697 $ 109,614 Less Unamortized discount 4,552 5,552 10,104 Allowance for unfulfilled pledges 2,415 1,565 3,980 Pledges receivable, net of allowances $ 57,950 $ 37,580 $ 95,530

Pledges receivable, as of June 30, 2014 and 2013, net of allowances, are intended for the endowment in the amounts of $30.6 million and $37.6 million, respectively, and other donor restricted and unrestricted purposes in the amounts of $52.4 million and $58.0 million, respectively.

12 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

Contribution revenue includes gifts and unconditional pledges to give and is recorded in the appropriate net asset category based upon donor stipulations. Contributions for the fiscal years ended June 30, 2014 and 2013 are as follows (dollars in thousands):

2014 2013 Unrestricted $ 24,227 $ 22,098 Temporarily restricted 66,796 61,792 Permanently restricted 27,387 27,141 Total $ 118,410 $ 111,031

Conditional promises, which depend on the occurrence of a specified future and uncertain event, such as matching gifts from other donors, are recognized as contribution revenue when the conditions are substantially met. Total combined unpaid conditional pledges for Carnegie Mellon were approximately $70.9 million and $10.1 million as of June 30, 2014 and 2013, respectively. These amounts were not recognized as contribution revenue during the respective fiscal year as the conditions had not been met. In fiscal year 2014, the David A. Tepper Charitable Foundation, Inc. pledged $67.0 million to help establish a new university gateway and interactive hub through the creation of the David A. Tepper Quadrangle which includes a new building that will serve as the home for the Tepper School of Business. The pledge is conditioned upon university and external fundraising matching contributions and construction milestones. As of June 30, 2014, $9.0 million has been received and recognized as deferred revenue.

5. Investments

Investments by major category at June 30, 2014 and 2013 are as follows (dollars in thousands):

2014 2013 Uninvested cash $ 177,811 $ 176,856 Fixed income 191,891 160,356 Short term fixed income investments 132,035 17,508 Common stock 468,643 378,834 Alternative investments 807,818 716,159 Total investments $ 1,778,198 $ 1,449,713

Investments are held for the following purposes (dollars in thousands):

2014 2013 Endowment $ 1,235,968 $ 1,066,149 Reserves for working capital and plant - short term 260,756 149,644 Reserves for working capital and plant - long term 225,789 183,781 Split interest agreements 24,635 21,978 Other investments 31,050 28,161 Total investments $ 1,778,198 $ 1,449,713

13 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

Nearly all fixed income securities are United States Treasury and Agency obligations, investment grade corporates, and asset backed securities. Common stock investments at June 30, 2014 are composed of approximately 59.7% domestic equities and 40.3% international and emerging market equities. Common stock investments at June 30, 2013 were composed of approximately 51.4% domestic equities and 48.6% international and emerging market equities. Alternative investments are largely investments in buyout funds, venture capital, real estate, natural resources and hedge funds.

The allocation to each major category in the table above represents the actual allocation of the short term and long term investment pools, split interest agreements, and other miscellaneous investments on a combined basis. Each investment pool maintains a unique investment strategy. Actual allocations on a combined basis should not be interpreted as an investment allocation policy for a particular investment pool. In addition, the above asset category allocations do not reflect the effective allocation exposures resulting from investment strategies that include derivatives.

The following schedule summarizes the investment return for the fiscal years ended June 30, 2014 and 2013 (dollars in thousands):

2014 2013 Dividends and interest (net of $3.7 million and $3.0 million of investment fees) $ 13,009 $ 14,608 Net realized gains on sale of investments 68,922 45,014 Net unrealized gains on investments 145,626 55,705 Total return on investments $ 227,557 $ 115,327

Operating investment income as reported on the Consolidated Statements of Activities includes dividends and interest earned on unrestricted funds as well as unrestricted accumulated gains utilized for current operations in the amounts of $19.5 million and $16.9 million in the years ended June 30, 2014 and 2013, respectively. The accumulated gains are reclassified from net realized gains to dividends and interest income. This reclassification is not reflected in the table above.

Certain of Carnegie Mellon’s outside investment managers, including alternative asset managers, are authorized and do, in fact, purchase and sell derivative instruments in order to manage interest rate risks, foreign currency fluctuations and other market positions.

Carnegie Mellon’s international portfolios maintain market benchmarks, for performance evaluation and risk control purposes that are unhedged with respect to foreign currencies. Unhedged benchmarks reflect the full impact of foreign currency fluctuations stemming from the benchmarks’ foreign currency positions. Investment managers of these international portfolios have the discretion to, and certain do in fact, manage foreign currencies through foreign exchange contracts to protect the portfolios from potential foreign currency losses and to benefit from potential gains. Carnegie Mellon’s investment managers understand that they are assuming active management risks to the extent that they assume foreign currency exposures that differ from the foreign currency exposures in their relevant market benchmarks (as documented in the formal investment guidelines for each manager).

Gains or losses from derivative instruments are reported as realized and unrealized gains or losses in the Consolidated Statements of Activities. The market value of all derivative instruments is included in the market value of the investments.

14 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

Under the terms of certain limited partnership agreements, Carnegie Mellon is obligated to periodically advance additional funding for venture capital, buyout, real estate, and natural resources fund investments. At June 30, 2014 and 2013, Carnegie Mellon had unfunded commitments of approximately $257.3 million and $226.8 million, respectively, for which capital calls had not been exercised. Such commitments generally have fixed expiration dates or other termination clauses. Carnegie Mellon maintains sufficient liquidity in its investment portfolio to cover such calls.

Alternative investments are less liquid than Carnegie Mellon’s other investments. The following tables summarize these investments by strategy type at June 30, 2014 and 2013 (dollars in thousands):

2014 Number Fair Alternative Investment Strategy of Funds Value Hedge funds 20 $ 190,433 Natural resources 19 94,181 Private equity (buyout) funds 47 154,228 Real estate 16 79,329 Venture capital 94 274,065 Other 12 15,582 Total 208 $ 807,818 Total investments $ 1,778,198

% Alternative 45.4%

2013 Number Fair Alternative Investment Strategy of Funds Value Hedge funds 20 $ 169,481 Natural resources 19 81,932 Private equity (buyout) funds 40 136,563 Real estate 14 74,038 Venture capital 88 233,250 Other 14 20,895 Total 195 $ 716,159 Total investments $ 1,449,713

% Alternative 49.4%

15 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

6. Endowments

The following tables provide a summary of the changes in value of the endowment net assets, excluding pledges, for the years ended June 30 (dollars in thousands):

2014 Temporarily Permanently Unrestricted Restricted Restricted Total

Endowment net assets, beginning of year $ 228,790 $ 321,418 $ 525,429 $ 1,075,637 Gifts and other additions Contributions (excluding pledges) 94 3 34,272 34,369 Terminated life income trusts and income and gains reinvested - - 647 647 Total gifts and other additions $ 94 $ 3 $ 34,919 $ 35,016 Investment income Interest and dividends $ 4,125 $ 5,235 $ 44 $ 9,404 Net realized gains on sale of securities 12,183 44,905 187 57,275 Net unrealized gains 26,169 96,847 - 123,016 Total investment gain $ 42,477 $ 146,987 $ 231 $ 189,695 Income distributed Cash and accrued interest and dividends $ (4,125) $ (5,235) $ (44) $ (9,404) Accumulated realized investment gains (17,725) (22,494) (187) (40,406) Total income distributed $ (21,850) $ (27,729) $ (231) $ (49,810) Endowment net assets, end of year $ 249,511 $ 440,679 $ 560,348 $ 1,250,538 (1)

(1)Includes $14,570 of endowment gifts and other transfers pending investment and other accruals.

2013 Temporarily Permanently Unrestricted Restricted Restricted Total

Endowment net assets, beginning of year $ 224,965 $ 274,831 $ 487,258 $ 987,054 Gifts and other additions Contributions (excluding pledges) 34 - 37,016 37,050 Terminated life income trusts and income and gains reinvested - - 1,155 1,155 Total gifts and other additions $ 34 $ - $ 38,171 $ 38,205 Investment income Interest and dividends $ 4,687 $ 5,776 $ 45 $ 10,508 Net realized gains on sale of securities 8,747 29,478 152 38,377 Net unrealized gains 10,774 36,494 - 47,268 Total investment gain $ 24,208 $ 71,748 $ 197 $ 96,153 Income distributed Cash and accrued interest and dividends $ (4,687) $ (5,776) $ (45) $ (10,508) Accumulated realized investment gains (15,730) (19,385) (152) (35,267) Total income distributed $ (20,417) $ (25,161) $ (197) $ (45,775) Endowment net assets, end of year $ 228,790 $ 321,418 $ 525,429 $ 1,075,637 (2)

(2)Includes $9,488 of endowment gifts and other transfers pending investment and other accruals.

16 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

The following tables outline the endowment net asset composition by type of fund for fiscal years 2014 and 2013 (dollars in thousands):

2014 Temporarily Permanently Unrestricted Restricted Restricted Total

Donor-restricted endowment funds $ - $ 440,679 $ 560,348 $ 1,001,027 Board-designated funds 249,511 - - 249,511 Total funds $ 249,511 $ 440,679 $ 560,348 $ 1,250,538

2013 Temporarily Permanently Unrestricted Restricted Restricted Total

Donor-restricted endowment funds $ - $ 321,418 $ 525,429 $ 846,847 Board-designated funds 228,790 - - 228,790 Total funds $ 228,790 $ 321,418 $ 525,429 $ 1,075,637

Unless the donor specifies that only a certain amount of the endowment may be spent, Pennsylvania Act 141 allows organizations to choose a total return spending policy strategy, whereby the board of trustees may annually elect to spend between 2% and 7% of the fair market value of the endowment. Carnegie Mellon maintains a total return spending policy. Endowment income distributions can consist of dividend and interest income and a withdrawal of accumulated capital gains, when necessary. The main objective of the total return spending policy is to separate spending policy from investment policy. This approach permits asset allocation decisions to be made independently of the need for current income. Carnegie Mellon targets a diversified asset allocation to achieve its long term objectives with prudent risk constraints. The endowment spending rate is determined annually pursuant to a smoothing formula whereby an approved spending rate percentage is applied to the trailing thirty-six month average of endowment market values at December 31. For fiscal years 2014 and 2013, the approved spending rate was set at 5.0%. As a result of the spending rate formula, the effective spending rate (defined as the endowment draw totals for the fiscal years ended 2014 and 2013 divided by the June 30 endowment market values for the those fiscal years) was $4.0% and 4.3%, respectively.

7. Fair Value

In fiscal year 2009, the University adopted the Fair Value Measurement provisions of Statement of Accounting Standards No. 157, now Accounting Standards Codification (“ASC-820”) Topic 820. The University did not elect fair value accounting for any assets or liabilities that are not currently required to be measured at fair value.

ASC 820 establishes a hierarchy to prioritize valuation inputs based on the extent to which the inputs are observable in the marketplace. Observable inputs reflect market data obtained from sources independent of the reporting entity and unobservable inputs reflect the entities own

17 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

assumptions about how market participants would value an asset or liability based on the best information available.

Following is a description of the University's valuation methodologies for assets and liabilities measured at fair value: Fair value for Level 1 is based upon quoted prices in active markets that the University has the ability to access for identical assets and liabilities. Market price data is generally obtained from exchange or dealer markets. The University does not adjust the quoted price for such assets and liabilities, which include active listed equities, mutual funds, government supported obligations and cash equivalents. Fair value for Level 2 is based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active or assets subject to transfer restrictions. Inputs are obtained from various sources including market participants, dealers, and brokers. Investments which can be redeemed on the measurement date or in the near term are included in this category. Fair value for Level 3 is based on valuation techniques that use significant inputs that are unobservable as they trade infrequently or not at all.

18 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

The following tables present the financial instruments carried at fair value for fiscal years 2014 and 2013 by caption in the Consolidated Statements of Financial Position by the valuation hierarchy defined above (dollars in thousands): 2014 Quoted Significant Prices in Other Significant Active Observable Unobservable Markets Inputs Inputs Total Fair (Level 1) (Level 2) (Level 3) Value

Assets Deferred compensation plan assets $ 5,337 $ 3,918 $ 1,341 $ 10,596 Unexpended bond proceeds $ 42,073 $ - $ - $ 42,073 Investments Uninvested cash (a) $ 82,649 $ 95,162 $ - $ 177,811 Common stock U.S. - Equity 179,539 45,972 4,544 230,055 International - Developed 2,511 89,862 - 92,373 International - Emerging 98,960 47,255 - 146,215 Short term fixed income investments - 132,035 132,035 Fixed income (with commingled funds) (a) 191,608 283 - 191,891 Hedge funds Absolute Return Strategies - 84,568 30,121 114,689 Directional Return Strategies - 25,786 49,958 75,744 Natural resources (a) - - 94,181 94,181 Private equity (a) - - 428,293 428,293 Real estate (a) - - 79,329 79,329 Other - - 15,582 15,582 Total investments $ 555,267 $ 520,923 $ 702,008 $ 1,778,198

Beneficial interests held by third party - - 2,622 2,622 Perpetual trusts held by third party - - 8,185 8,185 Total assets held in trust by others $ - $ - $ 10,807 $ 10,807 Total assets at fair value $ 602,677 $ 524,841 $ 714,156 $ 1,841,674

Liabilities Interest rate swaps payable $ - $ 34,104 $ - $ 34,104 Total liabilities at fair value $ - $ 34,104 $ - $ 34,104

(a) Presentation as a single class is appropriate based on the nature and risks of these investments.

19 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

2013 Quoted Significant Prices in Other Significant Active Observable Unobservable Markets Inputs Inputs Total Fair (Level 1) (Level 2) (Level 3) Value

Assets Deferred compensation plan assets $ 3,456 $ 3,210 $ 1,191 $ 7,857 Unexpended bond proceeds $ 53,818 $ - $ - $ 53,818 Investments Uninvested cash (a) $ 77,272 $ 99,584 $ - $ 176,856 Common stock U.S. - Equity 156,782 35,817 2,429 195,028 International - Developed 4,274 66,908 - 71,182 International - Emerging 76,843 35,781 - 112,624 Short term fixed income investments - 17,508 - 17,508 Fixed income (with commingled funds) (a) 160,065 291 - 160,356 Hedge funds Absolute Return Strategies - 81,079 28,177 109,256 Directional Return Strategies - 21,940 38,285 60,225 Natural resources (a) - - 81,932 81,932 Private equity (a) - - 369,813 369,813 Real estate (a) - - 74,038 74,038 Other - - 20,895 20,895 Total investments $ 475,236 $ 358,908 $ 615,569 $ 1,449,713

Beneficial interests held by third party - - 3,909 3,909 Perpetual trusts held by third party - - 7,458 7,458 Total assets held in trust by others $ - $ - $ 11,367 $ 11,367 Total assets at fair value $ 532,510 $ 362,118 $ 628,127 $ 1,522,755 Liabilities Interest rate swaps payable $ - $ 34,754 $ - $ 34,754 Total liabilities at fair value $ - $ 34,754 $ - $ 34,754

(a) Presentation as a single class is appropriate based on the nature and risks of these investments.

There were no significant transfers between Level 1 and Level 2 for fiscal years 2014 and 2013.

Investments included in Level 3 primarily consists of the University's ownership in alternative investments (principally limited partnership interests in private equity, real estate, natural resources, and certain hedge funds). The majority of alternative investment values represent the University’s ownership interest in the net asset value (NAV) or fair value of the respective partnership. In 2009, new guidance related to the Fair Value Measurement standard was issued for estimating the fair value of investments in investment companies that have a calculated value of their capital account or NAV in accordance with, or in a manner consistent with GAAP. As a practical expedient, the University is permitted under GAAP to estimate fair value of an investment

20 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

at the measurement date using the reported NAV without further adjustment unless the entity expects to sell the investment at a value other than NAV or if the NAV is not calculated in accordance with GAAP. The guidance also permits the University to consider the length of time the investment can be redeemed after the measurement date when determining its categorization as Level 2 or Level 3.

The fair values of the securities held by limited partnerships that do not have readily determinable fair values are determined by the general partner and are based on appraisals, or other estimates that require varying degrees of judgment. If no public market exists for the investment securities, the fair value is determined by the general partner taking into consideration, among other things, the cost of the securities, prices of recent significant placements of securities of the same issuer, completed or pending third party transactions in comparable issues, recapitalizations and other transactions across the capital structure and subsequent developments concerning the companies to which the securities relate. The University has well established controls surrounding investment valuation and has performed due diligence regarding these investments to ensure NAV is an appropriate measure of fair value as of June 30. Management’s internal controls surrounding the review of third party provided NAV include frequent communication with fund managers, review of audited financial statements and fund valuation policies, and continuous monitoring of existing investments.

Unexpended bond proceeds are valued at the net asset value of the money market fund.

Beneficial remainder and lead trusts held by third parties are valued at the present value of the future distributions expected to be received upon termination of the trust or over the term of the trust agreement and approximate fair value. Perpetual trusts are valued based upon the University’s percentage interest in the fair value of the underlying trust assets.

Interest rate swaps are valued using observable inputs, such as quotations received from the counterparty, dealers or brokers, whenever available and considered reliable. In instances where models are used, the value of the interest rate swap depends upon the contractual terms of, and specific risks inherent in, the instrument as well as the availability and reliability of observable inputs. Such inputs include market prices for reference securities, yield curves, credit curves, measures of volatility, prepayment rates, assumptions for nonperformance risk, and correlations of such inputs. The interest rate swap arrangements have inputs which can generally be corroborated by market data and are therefore classified within Level 2.

The valuation methods described above may produce fair value calculations that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the University believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

The guidance also requires additional disclosures to enable users of the financial statements to understand the nature and risk of the University’s investments. Investments which can be redeemed at NAV on the measurement date or in the near term are classified as Level 2 and investments which cannot be redeemed on the measurement date or in the near term are classified as Level 3. Any hedge fund with a monthly or quarterly redemption period held by the University was deemed to have met the near term transfer restrictions and these assets were classified as Level 2. All other hedge fund assets were classified as Level 3.

21 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

The following redemption table clarifies the nature and risk of the University’s investments and liquidity for financial instruments classified by the University within the fair value hierarchy as of June 30, 2014 (dollars in thousands):

Unfunded Redemption Redemption Fair Value Commitments Frequency (a) Notice Period (a) Hedge funds Semi-annual Absolute Return Strategies $ 114,689 $ - and Annually 30-90 days Directional Return Strategie 75,744 - Natural resources 94,181 22,194 Private equity 428,293 190,945 Real estate 79,329 28,079 Other 15,582 16,127 Total investments $ 807,818 $ 257,345

(a) Hedge fund investments held by the University may be subject to restrictions related to the initial investment that limit the University’s ability to redeem capital from such investments during a specified period of time subsequent to the University’s investment of capital in such funds, typically known as a lock-up period. Capital available for redemption after the lock-up period has expired may also be subject to limits which restrict the available redemption period to monthly, quarterly, semi-annually or annually and require 30 – 90 days prior written notice, potentially limiting the University ability to respond quickly to changes in market conditions.

Other Level 3 assets, including classifications of natural resources, private equity, and real estate, cannot be redeemed upon request. Instead, the nature of these investments in this category is that distributions are received through the liquidation of the underlying assets of the fund. It is estimated that the underlying assets of these funds would be liquidated over approximately 4 to 8 years.

The following table includes a roll forward of the Consolidated Statements of Financial Position amounts for financial instruments classified by the University within Level 3 of the fair value hierarchy (dollars in thousands):

Deferred Common Hedge Private Real Natural Trusts Held Compensation Stock Funds Equity Estate Resources by Others Other Total

Fair value, July 1, 2013 $ 1,191 $ 2,429 $ 66,462 $ 369,813 $ 74,038 $ 81,932 $ 11,367 $ 20,895 $ 628,127 Realized gains (losses) - - - 45,704 2,079 5,243 105 3,432 56,563 Unrealized gains (losses) 32 237 8,271 38,809 9,711 17,187 998 (908) 74,337 Purchases 156 - 8,000 56,662 10,388 7,334 - 1,238 83,778 Sales - - (2,654) (82,695) (16,887) (17,515) - (9,075) (128,826) Issuances - 1,879 ------1,879 Transfers in (out) (38) - - - - - (1,663) - (1,701) Fair value, June 30, 2014 $ 1,341 $ 4,544 $ 80,079 $ 428,293 $ 79,329 $ 94,181 $ 10,807 $ 15,582 $ 714,156

22 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

Deferred Common Hedge Private Real Natural Trusts Held Compensation Stock Funds Equity Estate Resources by Others Other Total

Fair value, July 1, 2012 $ 1,099 $ 1,016 $ 55,391 $ 369,266 $ 69,094 $ 73,523 $ 11,479 $ 28,352 $ 609,220 Realized gains (losses) - - - 25,042 1,209 2,755 - 3,739 32,745 Unrealized gains (losses) (54) 300 5,411 5,577 4,299 4,855 461 (457) 20,392 Purchases 158 - 6,000 37,144 8,882 12,936 - 1,705 66,825 Sales - - (340) (67,216) (9,446) (12,137) - (12,444) (101,583) Issuances - 1,113 ------1,113 Transfers in (out) (12) - - - - - (573) - (585) Fair value, June 30, 2013 $ 1,191 $ 2,429 $ 66,462 $ 369,813 $ 74,038 $ 81,932 $ 11,367 $ 20,895 $ 628,127

All net realized and unrealized gains (losses) in the table above are reflected in nonoperating activities in the accompanying Consolidated Statements of Activities. Net unrealized gains (losses) relates to those financial instruments held by the University at June 30.

8. Sponsored Projects Revenue

The major components of sponsored projects revenue for the years ended June 30, 2014 and 2013 are as follows (dollars in thousands):

2014 2013 Federal Direct $ 278,351 $ 294,421 Indirect 52,020 57,790 Total federal $ 330,371 $ 352,211 State, industrial and other Direct $ 46,768 $ 45,673 Indirect 8,158 8,257 Total state, industrial and other $ 54,926 $ 53,930 Total sponsored projects revenue $ 385,297 $ 406,141

Included in other sponsored projects revenue for the fiscal years ended June 30, 2014 and 2013 are amounts from private sources (foundation grants) which amounted to $12.5 million and $11.9 million, respectively.

23 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

9. Land, Buildings and Equipment

Land, buildings and equipment at June 30 consist of the following (dollars in thousands):

2014 2013 Buildings $ 978,651 $ 970,789 Moveable equipment 208,985 253,248 Utilities and building-related assets 60,556 57,750 Land improvements 12,664 12,664 Leasehold improvements 17,851 14,457 Subtotal $ 1,278,707 $ 1,308,908 Accumulated depreciation (672,613) (683,696) Subtotal $ 606,094 $ 625,212 Land 46,771 45,682 Construction in progress 57,418 27,292 Land, buildings and equipment, net $ 710,283 $ 698,186

Included in the cost of buildings is $40.9 million for the Collaborative Innovation Center (CIC) and its tenant improvements for the years ended June 30, 2014 and 2013. The CIC building was constructed on land owned by Carnegie Mellon. This land is subject to a long-term ground lease between Carnegie Mellon and the Regional Industrial Development Corporation (RIDC). In April 2014 Carnegie Mellon notified RIDC of its intent to acquire the CIC building by terminating the ground lease for the price specified in the ground lease. The transaction closed in September 2014. See Note 19, Subsequent Events, for additional information.

The University acquired $6.7 million and $11.3 million in equipment through grants for the years ended June 30, 2014 and 2013, respectively.

Also included in movable equipment is unamortized computer software cost of $9.7 million and $9.9 million for the years ended June 30, 2014 and 2013, respectively. Amortization expense of $3.3 million and $3.1 million was charged to expense for the years ended June 30, 2014 and 2013, respectively.

24 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

10. Debt Obligations

Debt obligations consist of the following as of June 30, 2014 and 2013, including unamortized premiums of $20.3 million and $23.2 million, respectively. (dollars in thousands): Interest % 2014 2013

Allegheny County Higher Education Building Authority, Variable Revenue Refunding Bonds, Series 2008 Variable $ 120,820 $ 120,820 Pennsylvania Higher Education Facility Authority, Fixed University Revenue Bonds, Series 2009 3.5-5.0% 177,987 179,071 Allegheny County Higher Education Building Authority, Fixed Revenue Refunding Bonds, Series A of 2012 2.0-5.0% 65,398 66,632 Allegheny County Higher Education Building Authority, Variable Revenue Refunding Bonds, Series B of 2012 Variable 50,000 50,000 Allegheny County Higher Education Building Authority, Variable Revenue Bonds, Series 2013 4.0-5.0% 59,634 60,306 Collaborative Innovation Center financing 5.2% 26,388 27,220 Total debt obligations $ 500,227 $ 504,049

Series 2008 Bonds On April 10, 2008, Carnegie Mellon issued, through the ACHEBA, Variable Rate University Revenue Bonds, Series A of 2008, with a face value of $120.8 million (the “2008 Bonds”). The proceeds of the 2008 Bonds were used to finance the cost of refunding all of the outstanding 2006 Bonds and the 2007 Bonds. The 2006 and 2007 Bonds were called for optional redemption, at a redemption price of 100% of the principal amount plus accrued interest, pursuant to the optional redemption provisions. The 2008 Bonds are subject to a mandatory sinking fund redemption as follows: $5.1 million in fiscal year 2027, $30.0 million in fiscal year 2035, $30.0 million in fiscal year 2036, $30.0 million in fiscal year 2037, and $25.7 million in fiscal year 2038. The 2008 Bonds currently pay interest at a variable market rate determined daily by the Bonds’ remarketing agent. Average interest rates on the 2008 Bonds were 0.05% and 0.12% during fiscal years 2014 and 2013, respectively.

Carnegie Mellon has entered into a Standby Bond Purchase Agreement (SBPA) with a financial institution that will purchase the 2008 bonds if they cannot be remarketed. This SBPA was renewed on April 5, 2012 for a three year term ending in April of 2015. If the Bank does not wish to renew the agreement, it must provide notification at least 60 days prior to the expiration date.

Series 2009 Bonds On August 5, 2009, Carnegie Mellon issued through the PHEFA, Fixed Rate Revenue Bonds, Series 2009, with a face value of $172.4 million (the “2009 Bonds”). The proceeds of the 2009 Bonds, including an original issue premium of $10.8 million, were used to finance the cost of refunding all the outstanding 1995 Bonds, to fund certain capital acquisitions and projects, and to pay certain costs of issuance of the Bonds. The 2009 Bonds mature at $52.4 million in fiscal year 2018, $60.0 million in fiscal year 2020, and $60.0 million in fiscal year 2022. The 2009 Bonds maturing on or after August 1, 2019 are subject to optional redemption prior to their scheduled maturity on or after February 1, 2019. The 2009 Bonds bear fixed rates of interest, and the effective interest rate on the 2009 Bonds, including the effect of the original issue premium, was 4.1% during fiscal years 2014 and 2013.

25 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

Series 2012 Bonds On March 1, 2012, Carnegie Mellon issued through the ACHEBA, Revenue Refunding Bonds, Series A of 2012, with a face value of $58.1 million and Series B of 2012, with a face value of $50.0 million (the “2012 Bonds”). The proceeds of the 2012 Bonds, including an original issue premium of $10.2 million, were used to finance the cost of refunding the 1998 Bonds and the 2002 Bonds, and to pay certain costs of issuance of the Bonds. The Series A of 2012 Bonds mature at $25.3 million in fiscal year 2015, which are expected to be refinanced at maturity dependent upon market conditions at the time, and $32.8 million in fiscal year 2024. The 2012 Bonds maturing on or after March 1, 2023 are subject to optional redemption prior to their scheduled maturity on or after March 1, 2022. The Series B of 2012 Bonds mature at $50.0 million in fiscal year 2019. The Series A of 2012 Bonds bear fixed rates of interest, and the effective interest rate, including the effect of the original issue premium were 2.64% during fiscal years 2014 and 2013. The Series B of 2012 Bonds bear variable rates of interest based on one month LIBOR. Average interest rates on the Bonds were 0.79% and 0.83% during fiscal years 2014 and 2013, respectively.

Series 2013 Bonds On March 1, 2013, Carnegie Mellon issued through the ACHEBA, Revenue Bonds, Series 2013, with a face value of $52.3 million (the “2013 Bonds”). The proceeds of the 2013 Bonds, including an original issue premium of $8.3 million, are being used to finance a portion of the costs of the construction, furnishing and equipping of The Nano Fabrication, Energy Futures, and Biomedical Engineering Technologies Building and to pay certain costs of issuance of the Bonds. The Series 2013 Bonds mature at $10.0 million in fiscal year 2021, $22.3 million in fiscal year 2028 and $20.0 million in fiscal year 2043. The 2013 Bonds maturing on or after March 1, 2028 are subject to optional redemption prior to maturity on or after March 1, 2023. The 2013 Bonds bear fixed rates of interest and the effective interest rate including the effect of the original issue premium were 3.33% and 3.19% during fiscal years 2014 and 2013, respectively

Collaborative Innovation Center Financing A lien has been recorded against the land on which the CIC building has been constructed related to a loan outstanding between the Pennsylvania Industrial Development Authority and the RIDC in connection with the CIC building. In addition, Carnegie Mellon has a financing obligation recorded in connection with the CIC building as of June 30, 2014 and 2013 in the amount of $26.4 million and $27.2 million, respectively. The interest rate associated with this financing obligation is 5.2%. Under terms of a space lease commitment, Carnegie Mellon makes monthly payments to RIDC which approximated $2.2 million in fiscal years 2014 and 2013. These monthly payments are applied to reduce the CIC financing obligation and record related interest expense. The space lease term concludes on January 31, 2015. The residual value of the financing obligation at the conclusion of the space lease term approximates the amount which Carnegie Mellon would have to pay in order to exercise a purchase option for the CIC building. In April 2014 Carnegie Mellon notified RIDC of its intent to exercise the purchase option for the CIC building. The transaction closed in September 2014 and is disclosed in Note 19, Subsequent Events.

With the exception of fixed rate long-term debt, we believe that the reported carrying amounts of our long-term debt approximate their fair values. At June 30, 2014 and 2013, the fair value of Carnegie Mellon’s long-term debt obligations are approximately $509.5 million and $513.6 million, respectively. The fair value was determined using market comparisons available for instruments with similar terms and maturities and would be classified within level 2 of the fair value hierarchy.

Cash paid for interest on financing obligations for the fiscal years ended June 30, 2014 and 2013 totaled $15.3 million and $13.0 million, respectively. The University utilizes interest rate swaps to synthetically adjust its exposure to variable rates. Including the swap expense, cash paid for

26 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

interest for the fiscal years ended June 30, 2014 and 2013 was $21.0 million and $18.7 million, respectively.

Aggregate maturities of bonds and other debt instruments for each of the next five years ending June 30 are as follows (dollars in thousands):

2015 51,667 2016 - 2017 - 2018 52,430 2019 - Thereafter 375,875 Total $ 479,972

The University has outstanding variable rate demand bonds (VRDB) in the amount of $120.8 million which is subject to daily optional tender by the bondholders. These bonds are reflected in the table above based on original scheduled maturities. In the event that a bondholder tenders these variable rate demand bonds, the purchase price will be repaid from the remarketing of the bonds to a new investor. However, in the unlikely event that none of the bonds could be remarketed, the Standby Bond Purchase Agreement (SBPA) provider would purchase the bonds. The bonds would then become amortizing five-year bank bonds, payable back to the liquidity provider per the terms of the agreement.

Carnegie Mellon entered into a SBPA with a financial institution to provide credit support for its 2008 VRDB. The Agreement requires the guarantor to purchase the bonds if they cannot be successfully remarketed to investors. The three year term of the SBPA ends in April of 2015. In the unlikely event that CMU could not renew or replace this SBPA when it matures, the $120.8 million 2008 VRDB would become subject to a mandatory tender.

The University has a $50.0 million unsecured line of credit agreement that expires on October 19, 2015. No advances have been made to date.

11. Temporarily and Permanently Restricted Net Assets

Temporarily restricted net assets are available for the following purposes as of June 30 (dollars in thousands): 2014 2013 Endowment earnings $ 440,679 $ 321,418 Capital and other donor designations 142,359 96,774 Pledges and assets held in trust by others 52,730 59,675 Split interest agreements 4,417 3,584 Term endowments 2,524 2,218 Loan funds 852 792 Total $ 643,561 $ 484,461

27 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

Permanently restricted net assets as of June 30 are comprised of (dollars in thousands):

2014 2013 Endowment $ 560,348 $ 525,429 Pledges and assets held in trust by others 41,000 47,223 Split interest agreements and other donor designations 6,107 4,586 Total $ 607,455 $ 577,238

12. Derivative Instruments and Hedging Activities

Carnegie Mellon has entered into the following interest rate swap agreements to adjust the exposure to variable interest rates:

Notional Amount Interest Counterparty Swap Effective ( $ in Rate paid Interest Term Termination Cancellation Agreement Date Thousands ) by CMU Received (in years) Date Option

Oct 2004 spot Oct 2004 $ 50,000 3.0% 67% of 1M LIBOR 15 Oct 2019 Oct 2014* Apr 2006 forward Dec 2006 $ 100,000 3.4% 67% of 1M LIBOR 22 Dec 2028 Dec 2016 May 2007 spot Jun 2007 $ 5,125 3.8% 67% of 1M LIBOR 20 Mar 2027 NA May 2007 forward Mar 2012 $ 40,325 3.8% 67% of 1M LIBOR 20 Mar 2032 NA Mar 2012 spot Mar 2012 $ 38,000 SIFMA 1.92% 12 Mar 2024 NA * Counterparty cancellation option is monthly after October 1, 2014.

The following fair values of the swap agreements were recorded as accounts payable and other liabilities in the Consolidated Statements of Financial Position for the years ended June 30, 2014 and 2013 (dollars in thousands):

Derivatives Reported as Liabilities Date of Swap Agreement 2014 2013 Oct 2004 spot $ (5,067) $ (5,731) Apr 2006 forward (18,223) (18,239) May 2007 spot (1,079) (1,031) May 2007 forward (9,292) (8,734) Mar 2012 spot (443) (1,019) Total $ (34,104) $ (34,754)

The fair value of these agreements is estimated to be an amount that Carnegie Mellon would receive (receivable) or pay (liability) to voluntarily terminate the agreement. Based upon the University’s credit rating, the University is required to post collateral equal to the amount by which

28 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

the liability value exceeds $25.0 million for each of its counterparties. No collateral was required as of June 30, 2014 and June 30, 2013.

The following interest (expense) and mark to market gains/(losses) were recorded as other sources under nonoperating activities in the Consolidated Statements of Activities for the years ended June 30, 2014 and 2013 (dollars in thousands):

Interest Fair Value Total Date of Swap (Expense) Revenue (Loss) Gain (Loss) Gain Agreement 2014 2013 2014 2013 2014 2013 Interest rate swaps: Oct 2004 spot $ (1,456) $ (1,436) $ 664 $ 2,089 $ (792) $ 653 Apr 2006 forward (3,315) (3,275) 16 10,830 (3,299) 7,555 May 2007 spot (188) (185) (48) 564 (236) 379 May 2007 forward (1,476) (1,459) (558) 5,250 (2,034) 3,791 Mar 2012 spot 706 672 576 (1,892) 1,282 (1,220) Total $ (5,729) $ (5,683) $ 650 $ 16,841 $ (5,079) $ 11,158

Carnegie Mellon utilizes energy forward contracts, which are physically settled, to hedge against the future changes in the cost of electricity and natural gas. These contracts limit Carnegie Mellon’s exposure to higher rates; however, they could also limit the benefit of decreases in rates. These contracts qualify for normal purchases and sales exemptions and are not required to be recognized on the balance sheet at fair value because Carnegie Mellon takes physical delivery of the electricity and natural gas and the gains and losses are already recognized in the cost.

13. Expenses by Functional Category

Operating expenses by functional category for the years ended June 30, 2014 and 2013 are as follows (dollars in thousands): 2014 2013 Instruction and departmental research $ 353,792 $ 351,435 Sponsored projects 347,932 360,150 Administration and institutional support 125,094 111,125 Academic support 133,003 108,134 Student service 47,096 46,527 Auxiliary services and activities 48,590 46,044 Total $ 1,055,507 $ 1,023,415

Total fundraising expense of $17.0 million and $16.8 million ($16.2 million and $16.0 million in administration and institutional support) is included above for the years ended June 30, 2014 and 2013, respectively.

14. Commitments and Contingencies

Carnegie Mellon is a defendant in a number of legal actions seeking damages and other relief. While the final outcome of each action cannot be determined at this time, management has recorded a reserve in operating activities for those cases in which the loss is both probable and

29 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

estimable. For the other legal actions that are not reserved, legal counsel and management are of the opinion that the liability, if any, will not have a material effect on Carnegie Mellon’s consolidated financial statements.

Carnegie Mellon receives significant financial assistance from the federal government, including the sponsorship of federal research projects. Research grants and contracts normally provide for the recovery of direct and indirect costs. Entitlement to the recovery of the applicable direct and related indirect costs is generally conditional upon compliance with the terms and conditions of the grant agreements and applicable federal regulations, including the expenditure of the resources for eligible purposes. Substantially all grants and Carnegie Mellon’s indirect cost rate are subject to financial and compliance reviews and audits by the grantors. In management’s opinion, the likelihood of an adverse material outcome upon its financial position from those reviews and audits is remote.

Lease expense primarily related to facilities was $19.5 million and $17.0 million (excluding international donated space of $8.8 million and $9.4 million) for the years ending June 30, 2014 and 2013, respectively. Future minimum operating lease payments at June 30, 2014 are as follows (dollars in thousands):

2015 $ 18,727 2016 9,443 2017 7,349 2018 2,583 2019 1,591 Thereafter 1,668 Total $ 41,361

At June 30, 2014 and 2013 Carnegie Mellon had contractual obligations of approximately $69.4 million and $8.2 million, respectively, in connection with major construction projects. Remaining expenditures on construction in progress are estimated to be $288.3 million.

Carnegie Mellon has two letters of credit with a commercial bank totaling $0.5 million. There were no draws against these letters of credits as of June 30, 2014 and 2013.

15. Retirement Plans and Other Post-Employment Benefits

Carnegie Mellon sponsors two defined contribution retirement plans for eligible faculty and staff, healthcare plans for retirees, and participates in a multi-employer pension fund for union staff. Such plans are fully funded on a current basis. Retirement plan expense for the year ended June 30, 2014 and 2013 totaled $33.4 million and $32.0 million, respectively. Carnegie Mellon contributed $0.4 million to the Central Pension Fund of the International Union of Operating Engineers, a multi-employer plan in fiscal years 2014 and 2013.

30 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

Carnegie Mellon provides certain health care benefits for eligible retired employees. The liability for post-retirement benefit obligations is recorded in the Consolidated Statements of Financial Position in accounts payable and other liabilities. Cumulative amounts recognized within post- retirement benefit obligations and not yet recognized as components of net periodic benefit cost consist of the following at June 30 (dollars in thousands):

2014 2013 Net actuarial gain $ (5,771) $ (5,920) Prior service credit (915) (1,317) Total $ (6,686) $ (7,237)

The net actuarial gain at June 30, 2014 and June 30, 2013 of $5.8 million and $5.9 million, respectively, resulted primarily from assumption changes due to Health Care Reform legislation passed in fiscal year 2010. Health Care Reform had implications for the University’s Post-65 Retiree Major Medical Plan which pays primarily prescription drug benefits supplemental to Medicare Part D coverage. Medicare Part D plans offer richer coverage than was previously provided for prescriptions resulting in a decrease in the University’s prescription drug costs.

The components of net periodic benefit costs and other changes in benefit obligations recognized in the statement of activities for the years ended June 30, 2014 and 2013 are as follows (dollars in thousands):

2014 2013 Components of net periodic benefit cost Service cost $ 1,085 $ 1,209 Interest cost 990 895 Amortization of prior service credit (403) (403) Amortization of net gain (294) (77) Net periodic benefit cost $ 1,378 $ 1,624 Other changes in benefit obligation recognized in the statement of activities Assumption changes and actuarial gain $ (145) $ (2,869) Amortization of prior service credit 403 403 Amortization of net gain 294 77 Total recognized in nonoperating activities $ 552 $ (2,389) Total recognized in net periodic benefit cost and nonoperating activities $ 1,930 $ (765)

During fiscal year 2015, amortization of $0.4 million prior service credit and $0.3 million actuarial gain is expected to be recognized as components of net periodic benefit cost.

31 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

The reconciliation of the accumulated benefit obligation and funded status at June 30 is as follows (dollars in thousands): 2014 2013 Benefit obligation, beginning of year $ 19,724 $ 20,803 Service cost 1,085 1,209 Interest cost 990 895 Assumption changes and actuarial gain (145) (2,869) Benefit payments (347) (314) Benefit obligation, end of year $ 21,307 $ 19,724 Fair value of plans' assets - - Funded status $ 21,307 $ 19,724

The assumed discount rate used for calculating the benefit obligation for the fiscal years ending June 30, 2014 and 2013 was 4.4% and 4.8%, respectively. An annual rate of increase in the per capita cost of covered healthcare benefits for the fiscal years ending June 30, 2014 and 2013 of 7.0% and 7.3%, respectively, was assumed. The rate was assumed to decrease gradually to 5.0% by 2022 and remain at 5.0% thereafter.

The health care cost trend rate assumption has a significant effect on the amounts reported. Increasing the assumed healthcare cost trend rate by 1.0% in each year would increase the benefit obligation as of June 30, 2014 and 2013 by $3.8 million and $3.4 million, respectively, and increase the aggregate service cost and interest cost components for 2014 and 2013 by $0.4 million and $0.5 million, respectively. Decreasing the assumed health care cost trend rate by 1.0% in each year would decrease the benefit obligation as of June 30, 2014 and 2013 by $3.0 million and $2.7 million, respectively, and decrease the aggregate service cost and interest cost components for 2014 and 2013 by $0.3 million and $0.4 million, respectively.

Expected benefits to be paid in future fiscal years are as follows (dollars in thousands): Total Expected Retiree Employer Benefit June 30 Contributions Payments Payments 2015 $ 761 $ 375 $ 1,136 2016 1,112 549 1,661 2017 1,447 725 2,172 2018 1,752 854 2,606 2019 2,049 973 3,022 2020-2024 14,553 6,144 20,697 In conjunction with an agreement made with the federal government, Carnegie Mellon has established a separate trust, which is available to general creditors only in the event of insolvency. Assets in the trust to fund post-retirement health care and other post-employment benefits are $21.6 million at June 30, 2014 and 2013, respectively. These assets are reflected as investments in the accompanying Consolidated Statement of Financial Position. Carnegie Mellon will not make a contribution to the trust in fiscal year 2015 since these trust assets exceed the benefit obligation.

32 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

16. Related Party Transactions

Sponsored projects revenue for fiscal years 2014 and 2013 includes $6.1 million and $7.5 million, respectively, received from MPC Corporation (MPC), a nonprofit related entity of Carnegie Mellon and the University of Pittsburgh. The revenue primarily represents federal funding from various contracts received by MPC, for which MPC has subcontracted to Carnegie Mellon for support of a supercomputer and related activities.

Sponsored projects revenue for fiscal year 2013 includes $0.1 million received from the Pittsburgh Life Sciences Greenhouse, a nonprofit related entity of MPC.

Carnegie Mellon is an owner as a tenant in common of the Bellefield Boiler Plant (“Bellefield”) for the purpose of sharing of the steam produced by the plant. Bellefield operates such that all of the operating costs of the plant are passed to the owners in the form of steam prices. Carnegie Mellon is obligated for a percent of liabilities based upon use of steam produced by Bellefield. As of June 30, 2014 and 2013, Carnegie Mellon’s percentage obligation was 15.2%. Included in other assets at June 30, 2014 and 2013 are $0.9 million and $0.4 million of advances, respectively, resulting primarily from operating surpluses. Included in occupancy and related expenses is $3.9 million and $4.3 million, respectively, for steam costs paid to Bellefield for the years ended June 30, 2014 and 2013, respectively.

Carnegie Mellon is one of fifteen designated institutions of higher learning and other charitable organizations named as beneficiaries of The Dietrich Foundation (the “Foundation”) created by William S. Dietrich II pursuant to an Amended and Restated Declaration of Trust dated August 23, 2011. The Foundation came into existence as a Pennsylvania charitable trust on October 6, 2011 and was granted exemption from Federal income tax under section 501(c)(3) of the Internal Revenue Code, specifically as a Type I charitable supporting organization under section 509(a)(3). The Foundation’s primary mission is to provide ongoing and increasing financial support to a number of educational institutions, largely in the greater Pittsburgh area, including Carnegie Mellon. The Foundation is governed by a Board of nine (9) Trustees. Five (5) of the Trustees are Educational Institutions Trustees, of which two (2) are appointed by Carnegie Mellon.

The Foundation is expected to make annual distributions that will be allocated among the pre- specified supported organizations, which are divided into two primary groups: (a) six (6) educational institutions which collectively shall receive 90% of the annual distribution amount, and (b) nine (9) other charitable organizations or component funds of such charitable organizations which collectively shall receive 10% of the annual distribution amount. Carnegie Mellon is included in the 90% group. As of June 30, 2014, Carnegie Mellon’s distribution share remained at 53.5%.

The distributions to Carnegie Mellon have been recorded as permanently restricted contribution revenue as received and held in a permanently restricted endowment fund(s) designated as the Dietrich Foundation Endowment Fund. The endowed fund(s) will be managed in accordance with Carnegie Mellon’s generally applicable investment and disbursement policies in effect for its other permanently restricted endowment. Distributions made from the endowed fund(s) will be used for the purpose(s) authorized by the Foundation’s Trustees. Distributions of $10.3 million and $7.7 million were received in fiscal years 2014 and 2013, respectively.

33 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

17. Conditional Asset Retirement Obligations

Asset retirement obligations are included within accounts payable and other liabilities in the Consolidated Statements of Financial Position. As of June 30, 2014 and 2013 $5.0 million and $4.9 million of conditional asset retirement obligations have been recorded, respectively. These obligations are discounted to the present value of future cash flows as of the date of expected abatement.

The following table reconciles the asset retirement obligations as of June 30, 2014 and 2013 (dollars in thousands): 2014 2013 Asset retirement obligations as of July 1 $ 4,884 $ 4,767 Accretion expense 212 197 Liabilities assumed - - Liabilities settled or disposed (115) (80) Asset retirement obligations as of June 30 $ 4,981 $ 4,884

The discount rates used range from 3.3% to 5.1%. The expected aggregate undiscounted amount is $7.6 million. The majority of the obligation will be paid out over the next 5 to 25 years.

18. Guarantees

In the ordinary course of business, Carnegie Mellon engages in transactions with third parties involving the provision of goods and/or services. The contracts for these transactions may require Carnegie Mellon to indemnify the third party or others under certain circumstances. The terms of indemnity vary from contract to contract. The amount of the liability associated with such indemnification obligations, if any, is not expected to be material.

Carnegie Mellon has contractually agreed to indemnify its trustees and officers, and in some cases its employees and agents, against certain liabilities incurred as a result of their service on behalf of or at the request of Carnegie Mellon and also advances, on behalf of those indemnified, the costs incurred by them in defending certain claims. Carnegie Mellon carries insurance that limits its exposure for this indemnification obligation. The amount of the liability associated with any known pending or threatened claims covered by this indemnification obligation, if any, is not expected to be material.

Carnegie Mellon has contractually agreed to indemnify specified parties in connection with bond offerings in which it has been involved. The indemnification obligation covers losses, claims, damages, liabilities and other expenses incurred by the underwriters as a result of any untrue statements or material omissions made by Carnegie Mellon in connection with the bond offerings. The amount of the liability associated with any known pending or threatened claims covered by this indemnification obligation, if any, is not expected to be material.

34 Carnegie Mellon University Notes to Consolidated Financial Statements June 30, 2014 and 2013

19. Subsequent Events

The University has performed an evaluation of subsequent events through November 13, 2014, the date on which the consolidated financial statements were issued.

On September 30, 2014 Carnegie Mellon acquired the CIC building from RIDC by way of termination of the ground lease with RIDC (See Note 9). As part of the agreement to terminate the ground lease, Carnegie Mellon assumed a $16.8 million mortgage note, paid off an additional $0.8 million in debt, paid total cash consideration to RIDC of approximately $0.3 million, and assumed RIDC’s obligation to fund any shortfall (if any) between the amount of real estate and parking taxes collected and pledged to, and the debt service and the annual costs for, the outstanding tax increment financing (“TIF”) to which the CIC building is subject. The $16.8 million mortgage note matures March 1, 2025 and requires monthly principal and interest (6.78% annual rate) payments starting October 1, 2014. As of September 30, 2014 the balance of the outstanding TIF note is $2.7 million. Carnegie Mellon must make semi-annual payments of the shortfall between the amount of real estate and parking taxes collected and pledged to, and the debt service and annual costs for, the TIF, if any, starting October 15, 2014 through October 15, 2022. As detailed in Notes 9 and 10, Carnegie Mellon previously recorded the cost of the CIC building in land, buildings, and equipment and the financing obligation as part of debt obligations.

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APPENDIX C PROVISIONS REGARDING BOOK-ENTRY-ONLY SYSTEM

DTC will act as securities depository for the Notes. The Notes 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 Note certificate will be issued for each maturity of the Notes, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world’s largest securities depository, 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. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, 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”). DTC has Standard & Poor’s rating of AA+. The DTC Rules applicable to its Direct Participants are on file with the Securities and Exchange Commission.

Purchases of Notes under the DTC system must be made by or through Direct Participants, which are to receive a credit for the Notes on DTC’s records. The ownership interest of each actual purchaser of each Note (“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 Notes 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 Notes, except in the event that use of the book-entry system for the Notes is discontinued.

To facilitate subsequent transfers, all Notes deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as C-1

may be requested by an authorized representative of DTC. The deposit of Notes with DTC and 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 Notes; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Notes 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 Notes may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Notes, such as redemptions, tenders, defaults, and proposed amendments to the Note documents. For example, Beneficial Owners of Notes may wish to ascertain that the nominee holding the Notes 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 registrar and request that copies of notices be provided directly to them.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Notes unless authorized by a Direct Participant in accordance with DTC’s 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 Notes are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Payments on the Notes are to 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 Paying Agent, on the payable date in accordance with their respective holdings shown on DTC’s records. Payments by Direct or Indirect Participants to Beneficial Owners are to 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 Direct or Indirect Participant and not of DTC nor its nominee, the Paying Agent, or the University, subject to any statutory or regulatory requirements as may be in effect from time to time. Payments 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 Paying Agent, disbursement of such payments to Direct Participants is the responsibility of DTC, and disbursement of such payments to the Beneficial Owners is the responsibility of Direct and Indirect Participants.

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

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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, Note certificates will be printed and delivered to DTC.

The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the University believe to be reliable, but neither the University nor the Dealer takes any responsibility for the accuracy thereof.

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