UNIVERSITY of PITTSBURGH - (Variable) Registered Seriesof2018) $110,000,000 PANTHERS™ * Price

This Preliminary Official Statement and the information contained herein are subject to completion, amendment or other change without notice. The securities described herein may not be sold nor may offers to buy be accepted prior to the date the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. in Pennsylvania.See“TAXEXEMPTION”herein. the NotesisexemptfromPennsylvaniapersonalincometaxandcorporatenettax,arepropertytaxes alternative minimumtaxundercircumstancesdescribed“TAXEXEMPTION”herein.NoteCounselisalsooftheopinionthatintereston of theindividualfederalalternativeminimumtax;however,interestpaidtocertaincorporateholdersNotesindirectlymaybesubject tax, assumingcontinuingcompliancewiththerequirementsoffederaltaxlaws.InterestonNotesisnotapreferenceitemforpurposes † * The dateofthisOfficialStatementisAugust __,2018. UNIVERSITY). THEUNIVERSITYHASNO TAXINGPOWER. SUBDIVISION, AGENCYORINSTRUMENTALITY THEREOF(OTHERTHANTHE CREDIT ORTHETAXINGPOWEROF THE COMMONWEALTHORANYPOLITICAL UNIVERSITY HASNOPOWERATANYTIMEORINMANNERTOPLEDGE THE FOR THEPAYMENTOFPRINCIPALORINTERESTONNOTES. THE OR INSTRUMENTALITYTHEREOF(OTHERTHANTHEUNIVERSITY)ISPLEDGED POWER OFTHECOMMONWEALTHORANYPOLITICALSUBDIVISION,AGENCY ON THENOTES.NEITHERFULLFAITHANDCREDITNORTAXING UNIVERSITY) SHALLBELIABLEFORTHEPAYMENTOFPRINCIPALORINTEREST SUBDIVISION, AGENCYORINSTRUMENTALITYTHEREOF(OTHERTHAN THE THAN THEUNIVERSITY).NEITHERCOMMONWEALTHNORANYPOLITICAL POLITICAL SUBDIVISION,AGENCYORINSTRUMENTALITYTHEREOF(OTHER THE COMMONWEALTH OF PENNSYLVANIA (THE “COMMONWEALTH”) OR ANY THE NOTESDONOTCONSTITUTEANOBLIGATIONORINDEBTEDNESS OF Dated: DateofDelivery New Issue–Book-EntryOnly commencing October1,2018,andatmaturityorearlierredemption. month, calendar each of Day Business first the on monthly payable be will Notes the on Interest Notes.” the for Rate Interest of Determination – NOTES Thursday. Interest on the Notes will be computed based on the actual number of days elapsed over a year of 365 or 366 days, as the case may be. See “THE Adjustment Date,basedupontheSIFMARatepublishedforsuchweek,witheffectivedateeachadjustmentofAdjustedtobe for the Notes” for a description of the SIFMA Rate, the Adjusted SIFMA Rate and the determination thereof. The Adjusted SIFMA Rate shall adjust on each from their delivery date at a variable rate equal to the Adjusted SIFMA Rate, as further described herein. See “THE NOTES – Determination of Interest Rate System” herein. Only Book-Entry - NOTES “THE See herein. described fully more as Participants, Indirect and Direct DTC of responsibility the is Owners Beneficial the to payments such of Disbursement Notes. any of herein) defined (as Owner Beneficial any to payments make to obligation no have will Agent Paying the and principal ofandinterestontheNoteswillbemade,whendue,directlytoDTCbyU.S.BankNationalAssociation,asPayingAgent(the“PayingAgent”), and shallnotmeantheactualpurchasersofNotes.SolongasDTCoritsnominee,Cede&Co.,isregisteredownertheNotes,payments will not receive certificates representing their beneficial ownership in the Notes. References herein to registered owners shall mean Cede & Co., as aforesaid, (“DTC”), NewYork,Yorkinthedenominationof$5,000oranyintegralmultiplethereof.DTCwillactasSecuritiesDepositoryforNotes.Purchasers without coupons,andwhenissued,willberegisteredinthenameofCede&Co.,asownernomineeforTheDepositoryTrustCompany of theUniversityPittsburgh-OfCommonwealthSystemHigherEducation(the“University”).TheNoteswillbeissuableasfullyregisterednotes York, NewYorkonoraboutAugust __,2018. New in DTC to delivery for available be to expected are Notes The Massachusetts. Boston, LLP, Traurig, Greenberg counsel, their by Underwriters the for delivery of the Notes. Certain legal matters will be passed upon for the University by its Office of General Counsel. Certain legal matters will be passed upon

Underwriters haveagreedto,nor isthereanydutyor obligationto,update thisOfficialStatement toreflectany changeorcorrectionin theCUSIP®number printedabove. of convenience the for after theissuanceof the Notesasaresultofvarioussubsequent actionsincluding,butnotlimitedto,a refundinginwholeorpartoftheNotes. NeithertheUniversitynor solely provided being is above changed being listed to subject is number number CUSIP® The thereof. CUSIP® correctness the to The respect with made is database. representation no and CGS Notes, the of the issuance of time for the at only Noteholders substitute a as way any in serve not does and database a create to S&P by Association Bankers American the of behalf on Global managed is (“CGS”) Services Global CUSIP Association. Bankers American the of trademark registered a is CUSIP® Preliminary, subjecttochange. In the The Notesaresubjecttoredemptionpriormaturityasdescribedherein. See“THENOTES-Redemption.” The Notesarebeingissuedto:(i)reimbursetheUniversityforcertaincapital expenditures;and(ii)paythecostsofissuanceNotes. THE NOTESAREUNSECUREDGENERALOBLIGATIONSOFUNIVERSITY. The Noteswillbedatedthedateofinitialissuanceanddeliverythereof.matureonsetforthabove.Thebearinterest The PANTHERS™(PittAssetNotes-Tax-ExemptHigherEducationRegisteredSeriesof2018)(the“Notes”),whenissuedwillbegeneralobligations The NotesareofferedsubjecttotheapprovinglegalopinionofBallard SpahrLLP,Philadelphia,Pennsylvania,NoteCounsel,tobefurnishedupon Market Intelligence. Copyright© 2018 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended not is data This Services. Global CUSIP by provided is herein data CUSIP® reserved. rights All Services. Global CUSIP 2018 Copyright© Intelligence. Market opinion of Ballard Spahr LLP, Note Counsel, interest on the Notes is excludable from gross income for purposes of federal income Barclays $110,000,000 Amount Principal *

PRELIMINARY OFFICIAL STATEMENT DATED AUGUST 15, 2018 Of theCommonwealthSystemofHigherEducation (Pitt AssetNotes–Tax-ExemptHigherEducation SIFMA Rateplus___ Interest Rate Interest Payable:FirstBusinessDayofeachMonth UNIVERSITY OF PITTSBURGH - (Variable) Registered Seriesof2018) $110,000,000 PANTHERS™ * Price

Wells FargoSecurities Ratings: Moody’s:“Aa1” Due: September15,2021 CUSIP † S&P: “AA+”

ISSUER University of Pittsburgh – Of the Commonwealth System of Higher Education Pittsburgh, Pennsylvania

NOTE COUNSEL Ballard Spahr LLP Philadelphia, Pennsylvania

UNDERWRITERS Barclays Capital Inc. New York, New York Wells Fargo Securities New York, New York

UNDERWRITERS’ COUNSEL Greenberg Traurig, LLP Boston, Massachusetts

PAYING AGENT U.S. Bank National Association Pittsburgh, Pennsylvania

Information contained in this Official Statement was obtained in part from officials of the University of Pittsburgh - Of the Commonwealth System of Higher Education (the “University”), trade and statistical services, and from other sources which are deemed to be reliable. In accordance with its responsibilities under the federal securities laws, the Underwriters have reviewed the information in this Official Statement but do not guarantee its accuracy or completeness. All quotations from and summaries and explanations of provisions of laws and documents in this Official Statement do not purport to be complete and reference is made to such laws and documents for full and complete statements of their provisions. Any statements made in this Official Statement involving estimates or matters of opinion, whether or not expressly so stated, are intended merely as estimates or opinions and not as representations of fact. The information and expressions of opinion contained herein are subject to change without notice; neither the delivery of this Official Statement nor any sale of the Notes shall under any circumstances create any implication that there has been no change in matters described herein since the date of this Official Statement. This Official Statement and the information herein are subject to completion or amendment without notice. Under no circumstances shall this Official Statement constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No dealer, broker, salesman or any other person has been authorized by the University or the Underwriters to give any information or make any representation, other than those contained in this Official Statement, in connection with the offering of or solicitation of offers for the Notes. If given or made, such information or representation must not be relied upon as having been authorized by the University or the Underwriters. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME WITHOUT NOTICE. THE ORDER AND PLACEMENT OF MATERIALS IN THIS OFFICIAL STATEMENT, INCLUDING THE APPENDICES, ARE NOT TO BE DEEMED TO BE A DETERMINATION OF RELEVANCE, MATERIALITY OR IMPORTANCE, AND THIS OFFICIAL STATEMENT, INCLUDING THE APPENDICES, MUST BE CONSIDERED IN ITS ENTIRETY. THE OFFERING OF THE NOTES IS MADE ONLY BY MEANS OF THIS ENTIRE OFFICIAL STATEMENT. THE NOTES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACT. THE REGISTRATION OR QUALIFICATION OF THE NOTES IN ACCORDANCE WITH APPLICABLE PROVISIONS OF THE SECURITIES LAWS OF CERTAIN STATES, IF ANY, IN WHICH THE NOTES HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN CERTAIN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAVE PASSED UPON THE MERITS OF THE NOTES OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT Certain statements included or incorporated by reference in this Official Statement constitute “forward- looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the United States Securities Act of 1933, as amended (the “Securities Act”). Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “budget” or other similar words. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD- LOOKING STATEMENTS INVOLVES KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE UNIVERSITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD- LOOKING STATEMENTS IF OR WHEN ITS EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED, OCCUR.

TABLE OF CONTENTS Page INTRODUCTORY STATEMENT ...... 1 Purpose of this Official Statement ...... 1 Purpose of the Offering ...... 1 The University ...... 1 Security for the Notes ...... 1 Noteholders’ Risks ...... 2 Underlying Documents ...... 2 THE NOTES ...... 2 General ...... 2 Determination of Interest Rate for the Notes ...... 2 Redemption ...... 3 Defeasance ...... 4 Book-Entry Only System ...... 5 2018 PROJECT ...... 7 ESTIMATED SOURCES AND USES OF FUNDS ...... 7 NOTEHOLDERS’ RISKS...... 7 No Obligation of the Commonwealth ...... 8 Inadequate Revenues ...... 8 Decrease in Research Funding ...... 8 Decrease or Delay in Commonwealth Funding ...... 8 Change in Affiliation with UPMC ...... 9 Failure to Maintain Tax-Exempt Status of the Notes ...... 9 Negative Impact of State and Federal Legislation ...... 9 Remedies May Not Be Enforced ...... 9 Bankruptcy ...... 10 Other Risks ...... 10 TAX EXEMPTION ...... 10 LEGAL MATTERS ...... 11 CONTINUING DISCLOSURE UNDERTAKING ...... 11 INDEPENDENT AUDITORS ...... 12 PAYING AGENT...... 12 UNDERWRITING ...... 13 RATINGS ...... 13 OTHER MATTERS ...... 14

APPENDIX A - Information Concerning University of Pittsburgh – ...... A-1 Of the Commonwealth System of Higher Education APPENDIX B - Consolidated Financial Statements as of and for the Years Ended June 30, 2017 and 2016 ...... B-1 APPENDIX C - Form of Note Counsel Opinion ...... C-1

OFFICIAL STATEMENT

relating to

$110,000,000* UNIVERSITY OF PITTSBURGH - Of the Commonwealth System of Higher Education PANTHERS™ (Pitt Asset Notes - Tax-Exempt Higher Education Registered Series of 2018)

INTRODUCTORY STATEMENT

Purpose of this Official Statement

The purpose of this Official Statement, including the cover page and the Appendices hereto, is to set forth information in connection with the offering by the University of Pittsburgh - Of the Commonwealth System of Higher Education (the “University”) of $110,000,000* aggregate principal amount of its PANTHERS™ (Pitt Asset Notes - Tax-Exempt Higher Education Registered Series of 2018) (the “Notes”). The Notes are authorized to be issued pursuant to a Resolution of the Board of Trustees of the University, duly adopted on June 24, 2005. The University will enter into an Issuing and Paying Agent Agreement, dated as of August 1, 2018 (the “Issuing and Paying Agent Agreement”), with U.S. Bank National Association, Pittsburgh, Pennsylvania (the “Paying Agent”), pursuant to which the Paying Agent will act as the initial Paying Agent, Registrar and Authenticating Agent for the Notes.

Purpose of the Offering

The proceeds of the Notes will be used to: (i) reimburse the University for certain capital expenditures; and (ii) pay the costs of issuance of the Notes.

The University

The University is a non-sectarian, coeducational, state-related, research university. The University’s main campus is situated on 132 acres in the City of Pittsburgh, Pennsylvania and comprises approximately 100 academic, research and administrative buildings, and residence halls. In addition to the main campus in Pittsburgh, the University has four regional campuses located in western Pennsylvania. The campuses located in Bradford, Greensburg and Johnstown offer four-year baccalaureate programs. The campus located in Titusville offers an undergraduate curriculum, with associate degree offerings in a range of programs.

The University is part of the Commonwealth System of Higher Education, and as such is an instrumentality of the Commonwealth of Pennsylvania (the “Commonwealth”). However, the University retains its status as a private institution whereby the majority of the membership of its Board of Trustees is appointed by the University. Additional information about the University, including its history, operations and organization, is attached as Appendix A hereto. The consolidated financial statements of the University as of and for the years ended June 30, 2017 and 2016 are attached as Appendix B hereto.

Security for the Notes

The Notes are unsecured general obligations of the University.

THE NOTES ARE GENERAL OBLIGATIONS OF THE UNIVERSITY AND ARE NOT AN OBLIGATION OR INDEBTEDNESS OF THE COMMONWEALTH, OR ANY POLITICAL SUBDIVISION, AGENCY OR INSTRUMENTALITY THEREOF (OTHER THAN THE UNIVERSITY). NEITHER THE FULL

* Preliminary, subject to change.

FAITH AND CREDIT NOR THE TAXING POWER OF THE COMMONWEALTH OR ANY POLITICAL SUBDIVISION, AGENCY OR INSTRUMENTALITY THEREOF (OTHER THAN THE UNIVERSITY) IS PLEDGED FOR THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE NOTES. THE UNIVERSITY HAS NO TAXING POWER.

Noteholders’ Risks

There are risks involved in the purchase of the Notes. See “NOTEHOLDERS’ RISKS” herein.

Underlying Documents

The descriptions and summaries of various documents set forth in this Official Statement do not purport to be comprehensive or definitive and reference is made to each document for complete details of all terms and conditions. All statements herein are qualified in their entirety by the terms of each such document. Copies of all such documents will be available for inspection at the corporate trust office of the Paying Agent in Pittsburgh, Pennsylvania.

THE NOTES General

The aggregate principal amount of the Notes is $110,000,000∗. The Notes shall be dated the date of their initial delivery and shall bear interest from such date at a variable rate as described below under the heading “Determination of Interest Rate for the Notes”. Interest on the Notes shall be payable monthly on the first Business Day of each calendar month, commencing October 1, 2018 (each an “Interest Payment Date”), and at maturity or earlier redemption. The Notes will mature on September 15, 2021* (the “Maturity Date”). The Notes are subject to redemption prior to the Maturity Date as described below under the heading “Redemption”.

So long as any Notes are registered in the name of DTC or any nominee thereof, all payments of the principal of or interest on such Notes shall be made to DTC or its nominee as described under “THE NOTES - Book-Entry Only System.” If the book-entry only system is not in effect, interest on the Notes is payable by check or draft mailed to the Noteholders as of the close of business of the business day immediately preceding each Interest Payment Date (each, a “Record Date”). If the book-entry only system is not in effect, principal of the Notes will be payable upon surrender thereof at the designated corporate trust office of the Paying Agent on the Maturity Date. Principal of and interest on the Notes are also payable by wire transfer to a designated account at the election of any registered owner of the Notes in an aggregate principal amount of $1,000,000 or more, provided that any such election shall be received by the Paying Agent in writing at least one business day prior to the applicable Record Date.

Determination of lnterest Rate for the Notes

The Notes shall bear interest from and including their date of delivery at the Adjusted SIFMA Rate. Except for the initial Adjusted SIFMA Rate applicable to the Notes upon their issuance, which shall be determined by Barclays Capital Inc., as representative of the Underwriters of the Notes (the “Representative”) on or prior to the date of issuance of the Notes, the Adjusted SIFMA Rate for the Notes will be determined by the Calculation Agent and the authority to so determine such rate is hereby delegated by the University to the Calculation Agent; provided, however, the Adjusted SIFMA Rate shall not exceed the Maximum Rate. The Adjusted SIFMA Rate shall adjust on each Adjustment Date, based upon the SIFMA Rate published for such week, with the effective date for each adjustment of the Adjusted SIFMA Rate to be each Thursday. Upon determining the Adjusted SIFMA Rate for a given week, the Calculation Agent shall notify the University of such rate by electronic mail (e-mail) or by telephone or in such other manner as may be appropriate on the date of such determination, which notice, if provided by telephone, shall be promptly confirmed in writing. Such notice shall be provided by not later than 5:00 p.m. New York City time on the Adjustment Date. Interest on the Notes will be computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be. The determination of the Adjusted

∗ Preliminary, subject to change.

SIFMA Rate (absent manifest error) shall be conclusive and binding upon the University and the Owners of the Notes. If for any reason the Adjusted SIFMA Rate shall not be established, the Notes shall bear interest at the Adjusted SIFMA Rate last in effect until a new Adjusted SIFMA Rate shall be established pursuant to the terms hereof.

The Paying Agent is acting as the initial Calculation Agent with respect to the Notes.

“Adjusted SIFMA Rate” means the sum of the SIFMA Rate plus, ___%. Notwithstanding the foregoing, (i) the Adjusted SIFMA Rate to be applicable to the Notes from the initial date of issuance of the Notes to and including the first Adjustment Date shall be as set forth in a certificate executed by the Representative and the University and delivered to the Paying Agent, and (ii) the Adjusted SIFMA Rate shall in no event exceed the Maximum Rate.

“Adjustment Date” means Wednesday of each week, or if such day is not a U.S. Government Securities Business Day, the next succeeding U.S. Government Securities Business Day.

The “Maximum Rate” for the Notes is equal to the lesser of the maximum rate permitted by law and 9% per annum.

“SIFMA Rate” means for any day the level of the most recently effective index rate which is compiled from the weekly interest rate resets of tax-exempt variable rate issues included in a database maintained by Municipal Market Data which meet specific criteria established from time to time by the Securities Industry and Financial Markets Association (SIFMA) and is issued on Wednesday of each week, or if any Wednesday is not a U.S. Government Securities Business Day, the next succeeding U.S. Government Securities Business Day. If such index is no longer published or otherwise not available, the SIFMA Rate for any day will mean the level of the “S&P Weekly High Grade Index” maintained by Standard & Poor’s Securities Evaluations Inc. for a 7-day maturity as published on the Adjustment Date or most recently published prior to such Adjustment Date. If at any time neither such index is available, the SIFMA Rate will be the prevailing rate on an Adjustment Date determined by the Calculation Agent, in consultation with the University, for tax-exempt state and local government bonds.

“U.S. Government Securities Business Day” means any day other than: (a) a Saturday, a Sunday; or (b) a day on which the Securities Industry and Financial Markets Association (SIFMA) recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in U.S. government securities; or (c) a day on which the Calculation Agent or the Paying Agent is required or permitted by law to close.

Redemption

Optional Redemption. The Notes are subject to redemption prior to the Maturity Date, at the option of the University, in whole or in part on any date, on or after March 15, 2021*, at a redemption price equal to the principal amount to be redeemed, without premium, plus accrued but unpaid interest to the date of redemption.

Selection of Notes for Redemption. If less than all of the Notes are to be redeemed, the particular Notes to be redeemed will be selected by the Paying Agent by lot or by such other method the Paying Agent deems fair and appropriate.

Notice of Redemption. Official notice of any such redemption shall be given by the Paying Agent on behalf of the University by mailing a copy of an official redemption notice by first class mail at least 30 days and not more than 60 days prior to the redemption date to each Registered Owner of the Notes to be redeemed at the address shown on the Note Register or at such other address as is furnished in writing by such Registered Owner to the Paying Agent. Official notice of redemption having been given as aforesaid, the Notes or portions of the Notes so to be redeemed shall, on the redemption date, become due and payable at the redemption price specified therein, and from and after such date (unless the University shall default in the payment of the redemption price) the Notes or portions of the Notes shall cease to bear interest. ______∗ Preliminary, subject to change.

As long as DTC remains the sole Registered Owner of the Notes, notice of redemption shall be sent to DTC as provided in the Issuing and Paying Agent Agreement. Any failure of DTC to advise any DTC Participant, or of any DTC Participant, Indirect Participant or nominee to notify the Beneficial Owner, of any such notice and its content or effect will not affect the validity of the redemption of the Notes call for redemption. See “Book-Entry Only System” below.

An optional redemption notice may state (i) that it is conditioned upon the deposit of moneys, in an amount equal to the amount necessary to effect the redemption, with the Paying Agent no later than the redemption date, and/or (ii) that the University retains the right to rescind such notice at any time prior to the scheduled redemption date if the University instructs the Paying Agent in writing to rescind the redemption notice (in either case, a “Conditional Redemption”), and such notice and redemption shall be of no effect if such moneys are not so deposited or if the notice is rescinded as described below.

Any Conditional Redemption may be rescinded in whole or in part at any time prior to the redemption date if the University instructs the Paying Agent in writing to rescind the redemption notice. The Paying Agent shall give prompt notice of such rescission to the affected Noteholders. Any Notes subject to Conditional Redemption where redemption has been rescinded shall remain Outstanding, and the rescission shall not constitute an Event of Default.

Further, in the case of a Conditional Redemption, the failure of the University to make funds available in part or in whole on or before the redemption date shall not constitute an Event of Default.

Failure to give any notice to any Owner, or any defect therein, shall not affect the validity of any proceedings for the redemption of any other Notes. Any notice mailed shall be conclusively presumed to have been duly given and shall become effective upon mailing, whether or not any Owner receives the notice.

Defeasance

The Issuing and Paying Agent Agreement will terminate when the principal of and interest on all the Notes have been or are deemed to be paid. The Notes shall be deemed to have been paid when the Paying Agent holds (a) cash in an amount sufficient to make all unpaid payments of principal and interest on the Notes, (b) Government Obligations (as defined below), maturing on or before the dates when payment of principal and interest shall become due, the principal amount of which and interest thereon, when due, is or will be, in the aggregate, sufficient without reinvestment to make all such payments, or (c) any combination of cash and such Government Obligations in an aggregate amount sufficient without reinvestment to make all such unpaid payments of principal and interest on all Notes. Moneys held by the Paying Agent for the payment and discharge of any of the Notes which remain unclaimed for the earlier of (x) one year after the date when all of the Notes shall have become due and payable and (y) one day before such moneys would escheat to the Commonwealth under then applicable Commonwealth law, shall, upon receipt of a written request from the University, be repaid by the Paying Agent to the University. Upon any such repayment to the University, the Paying Agent will thereupon be released and discharged with respect thereto and the holders of such Notes payable from such moneys shall look only to the University for the payment of such Notes. In the absence of any such written request from the University, the Paying Agent is required from time to time to deliver such unclaimed funds to or as directed by pertinent escheat authority, as identified by the Paying Agent in its sole discretion, pursuant to and in accordance with applicable unclaimed property laws, rules or regulations. Any such delivery will be in accordance with the customary practices and procedures of the Paying Agent and the escheat authority.

As used herein, “Government Obligations” means any of the following: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed as to full and timely payment by, the United States of America; (b) obligations issued by an organization or entity controlled or supervised by and acting as an instrumentality of the United States of America, the payment of the principal of and interest on which is fully and unconditionally guaranteed as a full faith and credit obligation of the United States of America (including any securities described in clause (a) above issued or held in book-entry form in the name of the Paying Agent only on the books of the Department of Treasury of the United States of America); (c) any certificates or any other evidences of an ownership interest in obligations or specified portions thereof (which may consist of specified portions of the interest thereon) of the character described in clause (a) or (b) above, which obligations are held by a bank or trust company organized and existing under the laws of the United States of America or any state thereof in

the capacity of custodian; (d) except for purposes of defeasance, stripped obligations of interest issued by the Resolution Funding Corporation pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”), the interest on which, to the extent not paid from other specified sources, is payable when due by the Secretary of the Treasury pursuant to the FIRREA; and (e) obligations of any state or political subdivision thereof or any agency or instrumentality of such a state or political subdivision, provided that cash, obligations described in clauses (a), (b), (c) or (d) above, or a combination thereof have been irrevocably pledged to and deposited into a segregated escrow account for the payment when due of the principal or redemption price of and interest on such obligations, and provided further that, at the time of purchase, such obligations are rated by Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Services in their respective highest rating category.

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 the Notes in the aggregate principal amount of such issue 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 3.6 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 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 a Standard & Poor’s rating of AA+. The DTC rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

Purchases of the Notes under the DTC system must be made by or through Direct Participants, which will 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 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 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, 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 the notices be provided directly to them.

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

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 MMI 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 such Notes are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Payments of principal of and interest on the Notes will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from the Paying Agent on the payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such 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. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Paying Agent. Disbursement of such payments to Direct Participants will be the responsibility of DTC and disbursement of such payments to the Beneficial Owners will be the responsibility of the Direct and Indirect Participants.

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

The University may decide to discontinue use of the system of book-entry only transfers through DTC (or successor securities depository). In that event, Note certificates will be printed and delivered to DTC.

NEITHER THE UNIVERSITY NOR THE PAYING AGENT WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DIRECT PARTICIPANTS OR THE PERSONS FOR WHOM DIRECT PARTICIPANTS ACT AS NOMINEES WITH RESPECT TO THE PAYMENTS TO DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS.

The University and the Paying Agent shall not have any responsibility or obligation to any Participant in DTC, any person claiming a beneficial ownership interest in the Notes under or through DTC or any Direct Participant, or any other person which is not shown on the Note registration books as being an Owner, with respect to: (i) the Notes; (ii) the accuracy of any records maintained by DTC or any such Participant; (iii) the payment by DTC or any such Participant of any amount in respect of the principal or interest on the Notes; (iv) any notice which is permitted or required to be given to Owners under the Issuing and Paying Agent Agreement; or (v) any consent given or other action taken by DTC or its nominee as holder.

Beneficial Owners of the Notes will not receive or have the right to receive physical delivery of Notes and will not be or be considered to be owners thereof under the Issuing and Paying Agent Agreement. So long as Cede & Co. is the registered owner of the Notes, as nominee of DTC, references herein to the holders, owners or registered owners of the Notes shall mean Cede & Co. and shall not mean the Beneficial Owners of the Notes.

For every transfer or exchange of any of the Notes, the Beneficial Owner may be charged a sum sufficient to cover any tax, fee or other governmental charge that may be imposed in relation thereto.

When reference is made to any action which is required or permitted to be taken by the Beneficial Owners, such reference shall only relate to action by such Beneficial Owner or those permitted to act (by statute, regulation or otherwise) on behalf of such Beneficial Owners for such purposes. So long as a book-entry only system is used, when notices are given, they shall be sent by the Paying Agent to DTC only.

The Paying Agent and the University, so long as a book-entry only system is used for the Notes, will send any call notices or other notices to holders only to DTC. Any failure of DTC to advise any Direct Participant, or of any Direct Participant to notify the Indirect Participant or Beneficial Owner, of any such notice and its content or effect will not affect the validity of the calling of the Notes or of any other action premised on such notice.

None of the University, the Paying Agent or the Underwriters can and none of them give any assurances that DTC, Direct Participants or others will distribute (i) payments of debt service on the Notes paid to DTC or its nominee, as the registered owner, or (ii) any notices to the Beneficial Owners, or that they will do so on a timely basis or that DTC will serve and act in a manner described in this Official Statement.

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

2018 PROJECT

The proceeds from the sale of the Notes will be used by the University to: (i) reimburse the University for certain capital expenditures; and (ii) pay the costs of issuance of the Notes.

ESTIMATED SOURCES AND USES OF FUNDS

The proceeds of the Notes will be used for the purposes described under “2018 PROJECT” herein. The estimated sources and uses of the proceeds of the Notes are as follows:

SOURCES:

Par Amount of Notes……………………..……………… $ Total Sources of Funds………………………….. $

USES:

Reimbursement to the University………………………………………… $ Costs of Issuance (1) ……………………………………….. Total Uses of Funds……………………………… $ ______(1) Includes Underwriters’ discount, legal fees, Paying Agent fees, rating agency fees, printing costs and other fees associated with the issuance of the Notes.

NOTEHOLDERS’ RISKS

Purchase of the Notes involves a degree of risk. Potential investors should read this Official Statement (including the Appendices hereto) in its entirety in order to identify risks and determine whether the Notes are an appropriate investment. The following section is intended only as a summary of certain risk factors attendant to an investment in the Notes. The Noteholders’ risks discussed below relate principally to the University and are not necessarily inclusive of every risk which a purchaser of Notes may incur.

No Obligation of the Commonwealth

The Notes are general, unconditional and unsecured obligations of the University. The Notes do not constitute a debt of the Commonwealth or any political subdivision, agency or instrumentality thereof (other than the University). The University has no power at any time or in any manner to pledge the credit or the taxing power of the Commonwealth or any political subdivision or instrumentality thereof (other than the University). THE UNIVERSITY HAS NO TAXING POWER.

Inadequate Revenues

Payment on the Notes is dependent primarily upon the ability of the University to generate revenues sufficient to provide for their payment while meeting its operating expenses and other cash requirements. No representation or assurance can be given that the University will generate sufficient revenues in order to meet its payment obligations. Future legislation, competition from other educational institutions, regulatory actions, economic conditions, changes in the number of students in attendance at the University, reductions in research support from governmental, corporate or foundation sponsors or in appropriations from the Commonwealth, or other factors could adversely affect the University’s ability to generate such revenues.

Decrease in Research Funding

The University conducts research activities sponsored by various entities, including agencies and departments of the federal government, the Commonwealth, local governmental entities, companies and foundations. Revenues from grants and contracts for the fiscal years ended June 30, 2017 and 2016 were $764.5 million and $726.5 million, respectively, with approximately 59% of the funding awarded through the National Institutes of Health. For the fiscal year ended June 30, 2017, approximately 35% of the operating revenues of the University came from grants and contracts. Revenues from grants and contracts for the fiscal year ended June 30, 2018 are expected to be more than $800 million*, representing approximately 36%* of the University’s total operating revenues for such fiscal year. The University’s ability to retain research staff and meet budgetary forecasts is in part dependent on receiving research funding from federal and state agencies, as well as other sponsors. There can be no assurance that these agencies and sponsors will continue to support research at their current levels. In addition, there are other organizations that compete with the University for these grants and contracts. There can be no assurance that the University will continue to receive an equal amount of research grants and contracts in the future.

Decrease or Delay in Commonwealth Funding

For the year ended June 30, 2017, the University’s appropriation from the Commonwealth was $158.9 million. which represented approximately 7.3% of the University’s total operating revenues for such fiscal year. For the fiscal year ended June 30, 2018, the University’s appropriation from the Commonwealth was budgeted to be approximately $169.7 million, which represented approximately 7%∗ of the University’s total operating revenue for such fiscal year.

The University’s appropriation is dependent upon the adoption by the Commonwealth of its annual budget. In prior fiscal years, there were delays in the adoption by the Commonwealth of its annual budget, causing delays in the ability of the University to finalize its annual operating budget. However, the Commonwealth approved its 2018-2019 budget on a timely basis, which included a $4.4 million increase in the University’s general education appropriation from the fiscal year ended June 30, 2018. The amount of the Commonwealth’s general education appropriation included in the University’s operating budget for the fiscal year ending June 30, 2019, represents approximately 7.6% of total budgeted operating revenues.

There can be no assurance that appropriations by the Commonwealth to the University will be made in the amounts budgeted for the current fiscal year, or in future fiscal years will be made on a timely basis, or at past levels or at levels requested by the University.

∗ Preliminary, unaudited and subject to change.

Change in Affiliation with UPMC

The University has several contractual agreements with UPMC, including an academic affiliation agreement, support services agreement, reorganization agreement and a trademark licensing agreement (collectively, the “Relationship Agreements”). UPMC is an independent, non-profit corporation that is the parent organization for a number of hospitals, including UPMC Presbyterian (which serves as the primary teaching hospital for the University’s Schools of the Health Sciences) and other health-care related entities. The University may appoint one-third of the board members of UPMC subject to approval of the UPMC Nominating Committee under the Relationship Agreements; however, neither the University nor UPMC are under the control of the other. Under the Relationship Agreements, UPMC provides, among other things, financial support and certain administrative services for the benefit of the research and academic programs within the University’s Schools of the Health Sciences. The Relationship Agreements automatically renew for successive two-year terms, unless either party gives the other party at least two years’ written notice before the end of any term of its decision to terminate the agreement. The most recent two-year term began July 1, 2018. For additional information, see Note 12 to the Audited Financial Statements in Appendix B. There can be no assurance that any or all of the Relationship Agreements will continue to be renewed or renewed on the same terms in the future, or that UPMC will continue to provide, among other things, financial support and certain administrative services for the benefit of the University. See Appendix A under the heading “GENERAL INFORMATION – University Relationship with UPMC.”

Failure to Maintain Tax-Exempt Status of the Notes

The tax-exempt status of the Notes is based on the continuing compliance by the University with covenants contained in tax and arbitrage related certifications executed and delivered by the University on the original date of issuance and delivery of the Notes. These covenants relate generally to restrictions on the use of facilities financed or refinanced with proceeds of the Notes, arbitrage limitations and rebate of certain excess investment earnings, if any, to the federal government. Failure by the University to comply with such covenants could cause interest on the Notes to become subject to federal income taxation retroactive to the date of issuance of the Notes or some later date.

Negative Impact of State and Federal Legislation

In recent years, the activities of non-profit, tax-exempt corporations have been subjected to increasing legal and regulatory oversight by federal, state and local legislative and administrative agencies, including, among others, the United States Congress, the Internal Revenue Service, the U.S. Securities and Exchange Commission, the Pennsylvania General Assembly, and local taxing authorities. Various proposals have been and may be considered in the future at the federal, state and local levels which may restrict the definitions of tax-exempt or non-profit status, impose new restrictions on the activities of tax-exempt, non-profit corporations, or tax or otherwise burden the activities of such corporations, including proposals to (i) broaden or strengthen federal and local tax law provisions respecting unrelated business income of non-profit corporations, or (ii) reduce or eliminate real estate tax exemptions available to charitable organizations. There can be no assurance that future changes in the laws, rules, regulations, interpretations and policies relating to the definition, activities or taxation of non-profit, tax-exempt corporations will not have material adverse impacts on the future operations or costs of the University.

Remedies May Not Be Enforced

The remedies available to Noteholders in the event the Notes are not paid when due are dependent upon judicial action which would be subject to discretion or delay. Under existing law and judicial decisions, including specifically the U.S. Bankruptcy Code, remedies specified may not be readily available or may be limited. A court may decide not to order specific performance.

The various legal opinions delivered concurrently with the original delivery of the Notes are qualified as to enforceability of the various legal instruments by limitations imposed by bankruptcy, reorganization, insolvency or other similar laws or legal or equitable principles affecting creditors’ rights.

Bankruptcy

If the University files a petition, or if a petition is filed successfully against the University, for relief under the Federal Bankruptcy Code, the filing would operate as an automatic stay of the commencement or continuation of any judicial or other proceeding against the University and its property. The University’s property, including its revenues, could be used for the benefit of the University despite the claims of its creditors, including the Paying Agent. The University could file a plan in a bankruptcy proceeding for the adjustment of its debts which could modify the rights of creditors, including the Noteholders. A plan, if confirmed by the court, could bind the University and all of the University’s creditors and could discharge, subject to certain limited exceptions, all claims against the University held by creditors who had notice or actual knowledge of the case. No plan may be confirmed unless, among other conditions, the plan is feasible and either (i) has been accepted by each class of claims impaired thereunder, or (ii) at least one impaired class of creditors (excluding insiders) has voted in favor of the plan and the court finds that the plan is fair and equitable with respect to each class of non-accepting creditors impaired thereunder and does not discriminate unfairly.

A class of claims is deemed to have accepted a plan if at least two-thirds in dollar amount and more than one half in number of the allowed claims of the class that are voted with respect to the plan are cast in favor of the plan.

Other Risks

In the future, the following factors, among many others, may adversely affect the operations of the University to an extent that cannot be determined at this time.

(1) Decreases in tuition revenues due to, among other things: (i) a reduction in student enrollment, (ii) a decrease in student loan funds or other financial aid for higher education, or (iii) changes in the demand for higher education in general or for programs offered by the University in particular.

(2) Any significant decrease in charitable gifts and other support provided by government, individuals, foundations and corporations for the benefit of the University.

(3) Increased litigation and insurance costs and decreased availability of liability insurance.

(4) Increases in employee compensation expenses (including, but not limited to, wages, health care and other fringe benefits), as well as increases in pension and postretirement obligations.

(5) Increases in other operating costs, including costs and availability of energy.

(6) Changes in the senior management of the University or in the strategic direction or mission of the University.

(7) Any failure by the University to comply with any federal, state or local law, rule or regulation, including but not limited to, financial aid, research grants and contracts, environmental and other health and safety matters, resulting in sanctions, fines or other penalties.

(8) The occurrence of natural disasters, acts of terrorism (including cyber terrorism), acts of war, imposition of governmental embargoes or sanctions, riots, or any other similar events, which may damage the facilities of the University, interrupt utility service, or otherwise impair the operations of the University.

TAX EXEMPTION

In the opinion of Ballard Spahr LLP, Bond Counsel, interest on the Notes is excludable from gross income for purposes of federal income tax under existing laws as enacted and construed on the date of initial delivery of the Notes, assuming the accuracy of the certifications of the University and continuing compliance by the University with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”). Interest on the Notes is not an item of tax preference for purposes of the individual federal alternative minimum tax. The corporate alternative

minimum tax was repealed by legislation enacted on December 22, 2017 (known as the “Tax Cuts and Jobs Act”), effective for tax years beginning after December 31, 2017. For tax years beginning on or before December 31, 2017 interest on the Notes is not an item of tax preference for purposes of the corporate alternate minimum tax in effect prior to enactment of the Tax Cuts and Jobs Act; however, interest on Notes held by a corporation (other than an S Corporation, regulated investment company, or real estate investment trust) indirectly may be subject to federal alternative minimum tax because of its inclusion in the adjusted current earnings of a corporate holder. Note Counsel expresses no opinion regarding other federal tax consequences relating to ownership or disposition of, or the accrual or receipt of interest on, the Notes.

Note Counsel is also of the opinion that, under the laws of the Commonwealth as enacted and construed on the date of initial delivery of the Notes, interest on the Notes is exempt from Pennsylvania personal income tax and corporate net income tax, and the Notes are exempt from personal property taxes in Pennsylvania.

LEGAL MATTERS

Legal matters incident to the authorization, issuance and sale of the Notes will be passed upon on the date of delivery of the Notes by Ballard Spahr LLP, Philadelphia, Pennsylvania, Note Counsel. Certain legal matters regarding the Notes will be passed upon for the University by its Office of General Counsel. Certain legal matters will be passed upon for the Underwriters by their counsel, Greenberg Traurig, LLP, Boston, Massachusetts.

CONTINUING DISCLOSURE UNDERTAKING

In order to comply with the requirements of Securities and Exchange Commission Rule 15c2-12(b)(5)(i) (the “Rule”) the University has agreed in the Issuing and Paying Agent Agreement to file within 180 days after the end of each of its fiscal years for as long as the Notes are outstanding, commencing with the fiscal year ending June 30, 2018, an annual report with the Municipal Securities Rulemaking Board (the “MSRB”) through its Electronic Municipal Market Access system (“EMMA”) for municipal securities disclosures or in an electronic format as otherwise prescribed by the MSRB.

As agreed, the annual report of the University will include: (i) annual financial statements prepared in accordance with generally accepted accounting principles and audited by a certified public accountant in accordance with generally accepted auditing standards; and (ii) certain financial information and annual operating data, substantially of the type included in Appendix A hereto in the sections titled “CERTAIN UNIVERSITY OPERATING INFORMATION” and “CERTAIN UNIVERSITY FINANCIAL INFORMATION.” In the event the University's audited financial statements for a fiscal year are not available by the date the annual report for such fiscal year is required to be filed, the University has agreed to include its unaudited financial statements for such fiscal year in such annual report and file its audited financial statements when such audited financial statements become available.

The University also has covenanted in the Issuing and Paying Agent Agreement to provide to MSRB, via EMMA, notice, in a timely manner (not in excess of 10 business days after the occurrence of the event), of the occurrence of any of the following events with respect to the Notes:

(a) principal and interest payment delinquencies; (b) non-payment related defaults, if material; (c) unscheduled draws on debt service reserves reflecting financial difficulties; (d) unscheduled draws on credit enhancement reflecting financial difficulties; (e) substitution of a credit or liquidity provider, or its failure to perform; (f) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Notes or other material events affecting the tax status of the Notes; (g) modifications to rights of registered or beneficial owners of the Notes, if material; (h) Note calls, if material, and tender offers; (i) defeasances; (j) release, substitution or sale of property securing repayment of the Notes, if material;

(k) rating changes; (l) bankruptcy, insolvency, receivership or similar event of the University; (m) the consummation of a merger, consolidation, or acquisition involving the University or the sale of all or substantially all of the assets of the University, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (n) appointment of a successor or additional paying agent or the change of name of a paying agent, if material.

For the purposes of the event identified in subparagraph (l) above, the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for the University in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the University, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the University.

In addition, the University has agreed to provide in a timely manner to the MSRB, via EMMA, notice of a failure to provide the required annual financial information on or before the date specified in the Issuing and Paying Agent Agreement.

The University reserves the right to modify from time to time the specific types of information provided or the format of the presentation of such information to the extent necessary or appropriate in the judgment of the University; however, the University has agreed in the Issuing and Paying Agent Agreement that any such modification will be done in a manner consistent with the Rule. The University reserves the right to terminate its obligation to provide annual financial information and notices of material events, as set forth above, if and when the University no longer remains an obligated person with respect to the Notes within the meaning of the Rule. The University acknowledges that its undertaking pursuant to the Rule described under this heading is intended to be for the benefit of the owners of the Notes and shall be enforceable by any owner of Notes; provided that, the right of such owners to enforce the provisions of this undertaking shall be limited to a right to obtain specific enforcement of the University to comply with the provisions of this undertaking and shall not be an Event of Default under the Issuing and Paying Agent Agreement with respect to the Notes.

The University is subject to existing continuing disclosure obligations pursuant to the Rule as set forth in other written agreements. The University has not failed to comply, in all material respects, with its continuing disclosure undertakings under such agreements in the previous five years; except that the University’s rating from S&P was upgraded from “AA” to “AA+” on June 10, 2014, and the University posted notice of the upgrade on August 25, 2014.

INDEPENDENT AUDITORS

The consolidated financial statements of the University of Pittsburgh – Of the Commonwealth System of Higher Education as of June 30, 2017 and 2016, and for the years then ended, included in Appendix B to this Official Statement, have been audited by KPMG LLP, independent auditors, as stated in their report appearing therein.

PAYING AGENT

The obligations and duties of the Paying Agent are described in the Issuing and Paying Agent Agreement and the Paying Agent has undertaken only those obligations and duties which are expressly set forth in the Issuing and Paying Agent Agreement. The Paying Agent has not independently passed upon the validity of the Notes, the security therefor, the adequacy of the provisions for payment thereof or the tax-exempt status of the interest on the Notes. The Paying Agent has relied upon the opinion of Note Counsel for the validity of and tax-exempt status of the interest on the Notes. The Issuing and Paying Agent Agreement expressly provides that the Paying Agent shall not be responsible

for any loss or damage resulting from any action or inaction taken by it in good faith in reliance upon an opinion of counsel. UNDERWRITING

The Notes will be purchased for reoffering by the firms listed on the cover page hereof (the “Underwriters”), for whom Barclays Capital Inc. is acting as Representative, pursuant to a Note Purchase Agreement (the “Purchase Contract”) to be entered into between the University and the Underwriters prior to the issuance of the Notes. The Underwriters will agree, subject to the conditions set forth in the Purchase Contract, to purchase the Notes at an aggregate price equal to $______(reflecting the par amount of the Notes, less an underwriters’ discount in the amount of $______). The Underwriters will agree to reoffer the Notes at the initial reoffering price set forth on the cover page hereof. The Purchase Contract will provide that the Underwriters will purchase all of the Notes if any are purchased, and that the University will indemnify the Underwriters against losses, claims, damages and liabilities arising out of any materially incorrect statement or information contained in or material information omitted from this Official Statement pertaining to the University and the related materials. Subject to the provisions of the Purchase Contract, the public offering price set forth on the cover page of this Official Statement may be changed after the initial offering by the Underwriters.

Each of the Underwriters and their respective affiliates are financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. Each of the Underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various investment banking services for the University, for which they received or will receive customary fees and expenses.

In the ordinary course of their various business activities, each of the Underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the University.

Wells Fargo Securities is the trade name for certain securities-related capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including Wells Fargo Bank, National Association, which conducts its municipal securities sales, trading and underwriting operations through the Wells Fargo Bank, NA Municipal Products Group, a separately identifiable department of Wells Fargo Bank, National Association, registered with the Securities and Exchange Commission as a municipal securities dealer pursuant to Section 15B(a) of the Securities Exchange Act of 1934. Wells Fargo Bank, National Association, acting through its Municipal Products Group (“WFBNA”), one of the Underwriters of the Notes, has entered into an agreement (the “WFA Distribution Agreement”) with its affiliate, Wells Fargo Clearing Services, LLC (which uses the trade name “Wells Fargo Advisors”) (“WFA”), for the distribution of certain municipal securities offerings, including the Notes. Pursuant to the WFA Distribution Agreement, WFBNA will share a portion of its underwriting compensation with respect to the Notes with WFA. WFBNA has also entered into an agreement (the “WFSLLC Distribution Agreement”) with its affiliate Wells Fargo Securities, LLC (“WFSLLC”), for the distribution of municipal securities offerings, including the Notes. Pursuant to the WFSLLC Distribution Agreement, WFBNA pays a portion of WFSLLC’s expenses based on its municipal securities transactions. WFBNA, WFSLLC, and WFA are each wholly-owned subsidiaries of Wells Fargo & Company.

RATINGS

The Notes have been assigned a rating of “Aa1” by Moody’s Investors Service, Inc. and a rating of “AA+” S&P Global Ratings. Any explanation of the significance of such ratings may only be obtained from the rating agency furnishing the same. There is no assurance that such ratings will be maintained for any given period of time or that such ratings may not be revised downward or withdrawn entirely by the rating agency furnishing the rating if, in such rating agency’s judgment, circumstances so warrant. Any downward change in or the withdrawal of either such rating may have an adverse effect on the price at which the Notes may be resold by the owner of such Notes. The University has provided the rating agencies with information not contained herein.

OTHER MATTERS

The references herein to the Notes, the Issuing and Paying Agent Agreement, and the Tax Certificate are brief outlines of certain provisions thereof. Such outlines do not purport to be complete. For full and complete statements of such provisions, reference is made to the Issuing and Paying Agent Agreement, the Tax Certificate and the form of the Notes.

The attached Appendices are integral parts of this Official Statement and should be read together with all foregoing statements.

[Remainder of this page intentionally left blank.]

The University has authorized the execution and distribution of this Official Statement.

UNIVERSITY OF PITTSBURGH – OF THE COMMONWEALTH SYSTEM OF HIGHER EDUCATION

By: Paul Lawrence Treasurer

15 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX A

INFORMATION CONCERNING

UNIVERSITY OF PITTSBURGH- Of the Commonwealth System of Higher Education

APPENDIX A

TABLE OF CONTENTS

Page GENERAL INFORMATION ...... A-1 General Description ...... A-1 Commonwealth Status of the University ...... A-1 The Trustees of the University ...... A-2 Administration ...... A-7 Academic Programs ...... A-10 Faculty ...... A-11 Accreditation ...... A-11 Strategic Plan ...... A-11 Planning and Budgeting System ...... A-12 Retirement ...... A-12 Facilities Plan ...... A-13 Competition - Universities Inside and Outside of Region ...... A-15 Fundraising ...... A-16 Labor Relations ...... A-16 Insurance ...... A-16 Litigation ...... A-16 University Relationship with UPMC ...... A-17 CERTAIN UNIVERSITY OPERATING INFORMATION ...... A-17 Enrollment ...... A-17 Undergraduate Applications and Acceptances ...... A-17 Academic Quality ...... A-18 Student Tuition and Fees ...... A-18 CERTAIN UNIVERSITY FINANCIAL INFORMATION ...... A-18 Management Discussion ...... A-22 Grants and Contracts ...... A-23 Endowment Funds of the University ...... A-23 Debt Structure of the University ...... A-24

i APPENDIX A

UNIVERSITY OF PITTSBURGH- Of the Commonwealth System of Higher Education

GENERAL INFORMATION

General Description

The University of Pittsburgh - Of the Commonwealth System of Higher Education (the “University”) is a non- sectarian, coeducational, state-related, research university. Located in the Oakland area of the City of Pittsburgh, the University’s main campus is within an hour’s commuting distance of approximately 2.4 million people. The University’s main campus is situated on 132 acres and is comprised of approximately one hundred academic, research, and administrative buildings and residence halls. In addition to the main campus in Pittsburgh, the University has four regional campuses in western Pennsylvania. The regional campuses located in Johnstown, Greensburg and Bradford offer four-year, baccalaureate programs and the regional campus located in Titusville offers an undergraduate curriculum, with associate degree programs.

As of the 2017-2018 academic year, the University offered 496 distinct degree programs and additionally offered numerous combined major, dual, joint, and cooperative degree programs. During the 2018 fiscal year, the University conferred 10,386 degrees and certificates. The University’s full-time equivalent enrollment in Fall Term 2017 was 24,519 undergraduate students and 8,171 graduate students. In support of its educational and research programs, the University employs over 13,400 full-time and part-time faculty, research associates, and staff.

The University has been recognized for excellence in a number of areas, including:

• The Chronicle of Higher Education named the University as one of the “Top Fulbright Producers for U.S. Students and Scholars” for 2017-18. • The Wall Street Journal/Times Higher Education College Rankings in 2017 ranked the University as the “Best Public University in the Northeast.” • The Princeton Review in 2018 included the University in its list of “Colleges That Pay You Back: The 200 Schools that Give You the Best Bang for Your Tuition Buck.” • Reuters in 2017 listed the University as one of the “Top 100 Most Innovative Universities in the World.”

Commonwealth Status of the University

The University derives its corporate existence under the laws of the Commonwealth of Pennsylvania (the “Commonwealth”) through acts of the Pennsylvania State Legislature establishing an “Academy or Public School in the town of Pittsburgh” on February 28, 1787 and incorporating the “Western University of Pennsylvania” on February 18, 1819. The University’s name was changed to “University of Pittsburgh” by order of the Court of Common Pleas of Allegheny County on July 11, 1908. On July 28, 1966, the Pennsylvania State Legislature enacted the “University of Pittsburgh-Commonwealth Act” which further changed the name of the University to “University of Pittsburgh - Of the Commonwealth System of Higher Education” and established the University as an instrumentality of the Commonwealth to serve as a state-related institution of the Commonwealth System of Higher Education. The Commonwealth appoints twelve members of the thirty-six voting members of the University’s Board of Trustees (the “Board of Trustees” or the “Board”). The full composition of the Board is described in more detail under “The Trustees of the University.”

As a state-related institution, the University receives an annual operating appropriation, which is subject to the Commonwealth’s annual budget process. The University is required to submit a request for current operating funds to the Governor. In developing the executive budget, the Governor may adjust this request. Final appropriation approval rests with the Pennsylvania State Legislature, which may also adjust the amount of the appropriation. For more information, see “NOTEHOLDERS’ RISKS – Decrease or Delay in Commonwealth Funding” in the front part of this Official Statement.

A-1 APPENDIX A

The Trustees of the University

The Board has full and complete authority to conduct the affairs of the University and is responsible for advancing the purposes of the University; promoting and protecting its independence, academic freedom and integrity; and enhancing and preserving its assets for the benefit of future generations of students and society at large. The Board establishes the educational philosophy and objectives of the University, approves the annual budget submitted by the Chancellor and Chief Executive Officer of the University (the “Chancellor”), and oversees the use and investment of all funds of the University and its property.

While the Board delegates general administrative, academic and management authority to the Chancellor, it retains ultimate responsibility for all University affairs and reserves its direct authority in at least three areas: selection of a Chancellor; approval of major institutional policies, particularly those related to the fiduciary responsibilities of the Board; and definition of the mission and goals of the University.

The Board is composed of 36 voting members, consisting of the Chancellor; 17 Term Trustees elected by the Board; six Alumni Trustees elected by the Board from nominations from various sources, including the Pitt Alumni Association; and 12 Commonwealth Trustees, four each appointed by the Governor, the President Pro Tempore of the Senate and the Speaker of the House, of which 11 seats are currently filled. There is, in addition, a class of up to 16 Special Trustees elected by the Board, of which 14 seats are currently filled. Special Trustees may attend all meetings of the Board and are entitled to and exercise all rights, responsibilities, and privileges of Trusteeship, except the right to vote at Board meetings. Emeritus Trustees, of which there are currently 27, are elected for life and may attend meetings but they are not entitled to vote. The Board also includes the Governor of Pennsylvania, the Secretary of Education of Pennsylvania, the Allegheny County Executive, and the Mayor of the City of Pittsburgh, all four of whom are non-voting, ex officio members of the Board.

The Board elects its Chairperson, Vice Chairperson(s), Chairperson-Elect, the Chancellor, and all other officers of the University. Three or more regular meetings of the Board, including the annual meeting, are convened each year.

The Executive Committee exercises the power of the Board, at all times when the Board is not in session. The Executive Committee of the Board is composed of the Chairperson; the Vice Chairperson(s) and the Chairperson- Elect (unless such offices are vacant); the Chancellor; and the chairperson of each standing committee of the Board.

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A-2 APPENDIX A

MEMBERSHIP OF THE BOARD Fiscal Year 2018-2019

Members Ex Officio (non-voting) Tom Wolf Governor of the Commonwealth of Pennsylvania

Pedro A. Rivera Rich Fitzgerald William Peduto Pennsylvania Secretary of Education Allegheny County Executive Mayor of the City of Pittsburgh

Member Ex Officio (voting) Patrick D. Gallagher Chancellor and Chief Executive Officer

Term Trustees (voting)

John A. Barbour Dawne S. Hickton Executive Chairman President and Founding Partner Buchanan Ingersoll & Rooney P.C Cumberland Highstreet Partners, Inc.

Eva Tansky Blum Patricia D. Horoho Retired Executive Vice President and Director, Chief Executive Officer Community Affairs OptumServe PNC Bank, N.A. Retired Chair & President The PNC Foundation

Mary Ellen Callahan Robert G. Lovett Assistant General Counsel - Privacy Partner Walt Disney Company Lovett Bookman Harmon Marks LLP

Vaughn S. Clagette, MD Roberta A. Luxbacher The Southeast Permanente Medical Group Retired Vice President Wholesale Specialties Global Business Unit ExxonMobil Fuels, Lubricants & Specialties Marketing Company

James P. Covert Martha Hartle Munsch Former President and Chief Executive Officer Retired Partner The Institute for Transfusion Medicine Reed Smith LLP

Edward J. Grefenstette John H. Pelusi, Jr. President, Chief Executive Officer, Retired CEO and Vice Chairman and Chief Investment Officer HFF, Inc. The Dietrich Foundation Retired Managing Member of Holliday Fenoglio Fowler, LP (HFF, LP) Current Executive Managing Director HFF, LP and Member of Executive Committee and Leadership Team

Ira J. Gumberg Thomas E. Richards President and Chief Executive Officer Chairman and Chief Executive Officer J.J. Gumberg Co. CDW

A-3 APPENDIX A

Keith E. Schaefer Stephen R. Tritch Executive Chairman Retired Chairman City Paper Box Westinghouse Electric Company

William E. Strickland, Jr. Executive Chairman Manchester Bidwell Corporation

Alumni Trustees (voting)

Jane Bilewicz Allred S. Jeffrey Kondis Retired President Manager, Corporate Marketing Allred Marketing, Inc. L.B. Foster Company

Gary T. Brownlee Larry J. Merlo Business Advisor President and CEO Indiana Small Business Development Center CVS Health Purdue University

Michael A. Bryson Jack D. Smith, MD Retired Executive Vice President Chairman, Department of Orthopedics The Bank of New York Mellon Corporation Excela Health System

Commonwealth Trustees (voting)

Jay Costa, Jr. Herbert S. Shear State Senator, 43rd District Executive Chairman Commonwealth of Pennsylvania Shear Family Foundation

Bradley J. Franc Thomas L. VanKirk Director Executive Vice President and Chief Legal Houston Harbaugh P.C. Officer Highmark Health

Sy Holzer Peter C. Varischetti Special Advisor to the Chairman President PNC Bank, Pittsburgh Varischetti Holdings, LP

Thomas O. Johnson II John J. Verbanac Vice President – External Affairs Chief Executive Officer CONSOL Energy, Inc. Summa Development, LLC

William K. Lieberman Jake Wheatley, Jr. President State Representative, 19th District W.K. Lieberman Company, LLC Commonwealth of Pennsylvania

John A. Maher III State Representative, 40th District Commonwealth of Pennsylvania

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Special Trustees (non-voting)

G. Nicholas Beckwith III Thomas M. Kurtz Chairman and Chief Executive Officer President and Chief Executive Officer Arch Street Management, LLC The Windber Research Institute and Windber Medical Center

Douglas M. Browning David J. Morehouse Founder Chief Executive Officer and President D.M. Browning & Associates, LLC Pittsburgh Penguins

Louis R. Cestello Marlee S. Myers Regional President for Pittsburgh and Partner Southwestern Pennsylvania Morgan Lewis & Bockius LLP PNC Bank, N.A.

David C. Chavern Jeannine T. Schoenecker President and Chief Executive Officer President and Chief Operating Officer Newspaper Association of America American Refining Group, Inc.

Deborah J. Gillotti The Honorable Shawndya L. Simpson Chief Operating Officer Justice nVoq Incorporated Supreme Court of the State of New York

Tamara M. Haddad Michael G. Wells President and Chief Executive Officer Founding Managing Director Haddad Media Princeton Biopharma Capital Partners, LLC

Robert M. Hernandez Marna Cupp Whittington Retired Vice Chairman and Chief Financial Officer Retired Chief Executive Officer USX Corporation Allianz Global Investors

Emeritus Trustees (non-voting)

J. David Barnes A. Alice Kindling Chairman Emeritus Retired Public Health Administrator BNY Mellon Allegheny County Health Department

Steven C. Beering Paul E. Lego President Emeritus Retired Chairman & Purdue University Chief Executive Officer Westinghouse Electric Corporation

Thomas G. Bigley George L. Miles, Jr. Retired Managing Partner Chairman Emeritus Ernst & Young WQED

John G. Conomikes Frank E. Mosier Director, The Hearst Corporation Mosier Enterprises, Inc.

George A. Davidson, Jr. Alfred L. Moyé Retired Chairman Retired Director of University Affairs Dominion Resources, Inc. Hewlett-Packard Company

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Catherine D. DeAngelis, MD Thomas H. O’Brien Distinguished Service Professor, Emerita Chairman, Retired Johns Hopkins University PNC Financial Services Group

Herbert P. Douglas, Jr. Anthony J.F. O’Reilly Retired Vice President Chairman Schieffelin & Somerset Co. Waterford Wedgwood PLC

The Honorable D. Michael Fisher Robert A. Paul Circuit Judge Chairman United States Court of Appeals for the Third Circuit The Louis Berkman Company

E. Jeanne Gleason The Honorable James C. Roddey Chair Former Chief Executive Pennsylvania Council on the Arts Allegheny County

J. Roger Glunt Farrell Rubenstein President Business Consultant Glunt Development Co., Inc.

Earl F. Hord Richard P. Simmons Retired Director Chairman Emeritus Department of Economic Development Allegheny Technologies, Inc. Allegheny County

Charles M. Steiner The Honorable Dick Thornburgh Of Counsel K&L Gates LLP

John A. Swanson Thomas J. Usher President Non-Executive Chairman of the Board Swanson Analysis Services, Inc. Marathon Petroleum Corporation

Burton M. Tansky Retired Chief Executive Officer The Neiman Marcus Group

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A-6 APPENDIX A

UNIVERSITY CORPORATE OFFICERS

Chairperson of the Board Chancellor and Chief Executive Officer Eva Tansky Blum Patrick D. Gallagher

Provost and Senior Vice Chancellor Senior Vice Chancellor for Health Sciences Ann E. Cudd and Dean of the School of Medicine Arthur S. Levine

Senior Vice Chancellor for Research Senior Vice Chancellor and Chief Legal Officer Rob A. Rutenbar Geovette E. Washington

Senior Vice Chancellor and Chief Financial Officer Senior Vice Chancellor for Business and Operations Arthur G. Ramicone Gregory A. Scott

Chief Investment Officer Senior Vice Chancellor for Engagement Gregory G. Schuler and Secretary of the Board Kathy W. Humphrey

Treasurer Deputy Secretary and Senior Associate Legal Counsel Paul Lawrence Cynthia C. Moore

Assistant Treasurer Susan M. Gilbert

Administration

University policy is shaped with the involvement of Trustees, administrators, faculty members, staff and students. An environment of collegiality with consultation and consensus-building are typically used for approaching decisions, especially in academic and financial matters.

The Chancellor is the chief academic and administrative officer of the University and serves as an ex officio voting member of the Board. The Board has entrusted the Chancellor with the superintendence, protection, and development of the welfare and reputation of the University. The Chancellor’s deputies in guiding instruction and research are the Provost and Senior Vice Chancellor, the Senior Vice Chancellor for Health Sciences, the Senior Vice Chancellor for Research, the deans of the various schools and faculties, the presidents of the regional campuses, the department chairs and the directors of University centers and institutes. These positions are recruited and selected in accordance with procedures that involve representative members of the faculty and staff, as well as student leaders. Faculty of the University, particularly those of the relevant schools, and students are urged to recommend candidates for these positions.

The University’s governance is one of shared responsibilities and authority, with the ultimate legal authority residing in the Board. The University is organized by campuses, colleges/schools and centers. Each school is administered by a dean. In most of the schools the basic organizational unit is the academic department, headed by a chair. Traditionally, and by specific delegation from the Trustees and the Chancellor, departmental faculties determine curriculum design, instructional practice, grading and admissions, and propose faculty appointments and promotions. In other areas, including budget operations, personnel management and salary practice, authority is specifically delegated from the Trustees through an administrative chain including the Chancellor, the Senior Vice Chancellor and Chief Financial Officer, the Senior Vice Chancellor for Business and Operations, the Provost and Senior Vice Chancellor, the Senior Vice Chancellor for Health Sciences, deans and regional campus presidents and chairs of the academic departments.

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Members of the faculty express their views, recommendations and requests through their departmental and school faculty meetings and committees, through the University Senate, the Faculty Assembly, and through the University Planning and Budgeting System (the “PBS”). For more information on the PBS, which has the widest participation by administrators, faculty, staff and students in planning and budgeting, see “Planning and Budgeting System.”

The following table lists the University’s principal administrative officers:

UNIVERSITY SENIOR ADMINISTRATION Fiscal Year 2018-2019

Patrick D. Gallagher ...... Chancellor and Chief Executive Officer

Ann E. Cudd ...... Provost and Senior Vice Chancellor

Arthur S. Levine ...... Senior Vice Chancellor for Health Sciences and Dean of the School of Medicine

Rob A. Rutenbar …………………………………………………………..……Senior Vice Chancellor for Research

Arthur G. Ramicone ...... Senior Vice Chancellor and Chief Financial Officer

Gregory G. Schuler………………………………………………………………………….Chief Investment Officer

Paul Lawrence …………………………………………………………………………...………………… Treasurer

Gregory A. Scott ...... Senior Vice Chancellor for Business and Operations

Geovette E. Washington ...... Senior Vice Chancellor and Chief Legal Officer

Kathy W. Humphrey ...... Senior Vice Chancellor for Engagement and Secretary of the Board of Trustees

Brief resumes of selected officers of the University are set forth below:

Patrick D. Gallagher, Chancellor and Chief Executive Officer. B.S., Benedictine College; M.S. Physics and Ph.D., University of Pittsburgh. On February 8, 2014, Dr. Gallagher was unanimously elected the 18th Chancellor of the University. Dr. Gallagher began his service as Chancellor and Chief Executive Officer of the University on August 1, 2014. Dr. Gallagher most recently served as the Undersecretary of Commerce for Standards and Technology and Director of the National Institute of Standards and Technology (NIST), a position he held from 2009 to 2014. He also served as the Acting Deputy Secretary of the U.S. Department of Commerce, which concluded on June 9, 2014. At NIST, Dr. Gallagher served in a number of capacities, including deputy director, director of the NIST Center for Neutron Research, and leader of the Research Facilities Operation Group in the Center for Neutron Research, as well as a NIST agency representative at the National Science and Technology Council.

Ann E. Cudd, Provost and Senior Vice Chancellor. B.A., Swarthmore College; Master of Arts in Economics and Master of Arts in Philosophy, University of Pittsburgh; Doctorate in Philosophy, University of Pittsburgh. Prior to her election as Provost and Senior Vice Chancellor on June 29, 2018, Dr. Cudd served as Boston University’s Dean of the College and Graduate School of Arts and Sciences. She also held the position of professor of philosophy at Boston University and is an accomplished teacher and scholar. Prior to her arrival in Boston, Dr. Cudd served for 27 years at the University of Kansas, where she earned the title of University Distinguished Professor of Philosophy and held various positions of increasing responsibility, including most recently as Vice Provost and Dean of Undergraduate Studies. Dr. Cudd will begin her tenure at the University in fall 2018.

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Arthur S. Levine, Senior Vice Chancellor for Health Sciences and Dean of the School of Medicine. A.B., Columbia College; Columbia University Graduate Faculties; M.D., Chicago Medical School. Dr. Levine served as the Scientific Director of the National Institute of Child Health and Human Development until he joined the University as Senior Vice Chancellor for Health Sciences and Dean of the School of Medicine in 1998. In May 2014, Dr. Levine was appointed the John and Gertrude Petersen Dean, marking the first time in the School of Medicine’s 128-year history that an endowed chair was established exclusively for the Dean of the School of Medicine.

Rob A. Rutenbar, Senior Vice Chancellor for Research. B.S., Electrical Engineering, Wayne State University; M.S. and Ph.D. computer information and control engineering, University of Michigan. Dr. Rutenbar was elected to serve as Senior Vice Chancellor for Research at the June 30, 2017 meeting of the Board of Trustees and assumed his role on July 1, 2017. Prior to coming to the University of Pittsburgh, Dr. Rutenbar served as the Abel Bliss Professor of Engineering and led the Department of Computer Science at the University of Illinois at Urbana- Champaign. Prior to joining the University of Illinois in 2010, Dr. Rutenbar held the Stephen J. Jatras Chair in Electrical and Computer Engineering at Carnegie Mellon University, where he served on the engineering faculty for 25 years. Dr. Rutenbar is a fellow of the Association for Computing Machinery and the Institute for Electronics Engineers (IEEE). He is a two-time recipient of the IEEE Donald O. Pedersen Best Paper Award, the IEEE Circuits and Systems Industrial Pioneer Award, and was recognized with distinguished alumnus awards from the University of Michigan and Wayne State University.

Arthur G. Ramicone, Senior Vice Chancellor and Chief Financial Officer. B.S., Pennsylvania State University; M.B.A., Pennsylvania State University. In December 2010, Mr. Ramicone was named Chief Financial Officer and served as Interim Executive Vice Chancellor from January 2015 until April 2016. At the February 27, 2015, Board of Trustees meeting, Mr. Ramicone earned the added distinction of Senior Vice Chancellor. Mr. Ramicone was a Certified Public Accountant with Deloitte Haskins & Sells (now known as Deloitte & Touche LLP) from 1978 to 1985 and spent three years in industry before coming to the University as Manager of Internal Audit in 1988. Appointed as Associate Vice Chancellor, Budget and Administration in July 1995, Mr. Ramicone assumed the duties of Vice Chancellor for Budget and Controller in February 1996. Mr. Ramicone will retire from the University in fall 2018. A national search committee has been established for the position of Senior Vice Chancellor and Chief Financial Officer; a formal appointment and election by the Board of Trustees is expected to occur in fall 2018.

Gregory G. Schuler, Chief Investment Officer. Bachelor of Commerce and M.B.A., University of British Columbia. Mr. Schuler also holds the Chartered Financial Analyst (CFA) designation. The Board of Trustees elected Mr. Schuler as Chief Investment Officer on June 29, 2018. Prior to his election, Mr. Schuler served as the Chief Investment Officer and Treasurer for BJC HealthCare since 2011. Prior to joining BJC HealthCare, Mr. Schuler served as Vice President of Investments for Kisco Management Corporation, where he managed the investment activities for the Kohlberg Family Office and its foundation portfolios. He began his career as a Financial Advisor with Mobil Oil Canada and went on to hold positions of increasing responsibility in the private sector. Mr. Schuler will assume his position at the University on August 20, 2018.

Paul Lawrence, Treasurer. B.S. Finance, Pennsylvania State University; M.B.A. University of Pittsburgh. Mr. Lawrence was elected Treasurer of the University of Pittsburgh by the Board of Trustees on June 29, 2018. Prior to this appointment, Mr. Lawrence held various positions of increasing responsibility at the University. He most recently served as Assistant Treasurer for more than eighteen years and earned the added distinction of Managing Director of Investments in 2015. He joined the University in 1994 after working in the private sector as a Forensic Accountant with a public accounting firm. Mr. Lawrence holds the Chartered Financial Analyst (CFA) designation and is a member of the CFA Institute and the CFA Society of Pittsburgh.

Gregory A. Scott, Senior Vice Chancellor for Business and Operations. B.S. Civil Engineering, Pennsylvania State University; M.B.A., National University. Mr. Scott was appointed to his position at the February 26, 2016 Board of Trustees meeting and assumed his role on April 1, 2016. Mr. Scott is a veteran of the U.S. Navy. He began his career as an officer in the Civil Engineering Corps in 1991 while serving as assistant resident officer in charge of construction in Twentynine Palms, CA, and assistant public works officer in Indian Head, MD. After spending four years there, his academic career started in 1997 as director of project management at Rutgers University. In 2001, he joined Pennsylvania State University as the manager of construction services in the Office of Physical Plant. Within that same office, he became the director of commonwealth services in 2005. In 2013, Mr. Scott assumed the role of Assistant Vice President at Pennsylvania State University, which he held until joining the University of Pittsburgh.

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Geovette E. Washington, Senior Vice Chancellor and Chief Legal Officer. A.B., Wesleyan College; J.D., Duke University. The Board unanimously elected Ms. Washington as Senior Vice Chancellor and Chief Legal Officer of the University on June 19, 2015. Ms. Washington has served as Senior Vice Chancellor and Chief Legal Officer of the University since August 17, 2015. Previously, Ms. Washington most recently served as General Counsel and Senior Policy Advisor for the Office of Management and Budget (OMB) at the White House, a position she held from 2013 to August 2015. Prior to that, she served as Deputy General Counsel at the U.S. Department of Commerce from April 2010 to May 2013. Before joining the Department of Commerce, Ms. Washington spent fourteen years in the District of Columbia litigation firm of Baach Robinson and Lewis PLLC (now Lewis Baach), where she was an associate for four years and a partner for ten years.

Kathy W. Humphrey, Senior Vice Chancellor for Engagement and Secretary of the Board of Trustees. B.S. Education, Central Missouri State University (now the University of Central Missouri); M.A. Higher Education Administration, University of Missouri-Kansas City; Ph.D. Educational Leadership, Saint Louis University. Dr. Humphrey was appointed as Senior Vice Chancellor for Engagement and Secretary of the Board in January 2015. She also has a faculty appointment in the School of Education and previously served as Vice Provost and Dean of Students, a position she held for nine years. Prior to joining the leadership team at the University of Pittsburgh, Dr. Humphrey served for six years as the Vice President for student development at Saint Louis University.

Academic Programs

The distinctive character of the University is defined by its commitment to academic excellence, its specialized programs, and the array of scholarly interests and talents represented among its schools, campuses, centers, and institutes. The University addresses and supports the higher educational needs of western Pennsylvania and the nation through the following schools and campuses:

Kenneth P. Dietrich School of Arts and Sciences School of Dental Medicine College of General Studies School of Nursing University Honors College School of Pharmacy Joseph M. Katz Graduate School of Business/ Graduate School of Public Health College of Business Administration School of Medicine School of Education School of Health and Rehabilitation Sciences John A. Swanson School of Engineering University of Pittsburgh at Bradford School of Law University of Pittsburgh at Greensburg Graduate School of Public and International Affairs University of Pittsburgh at Johnstown School of Social Work University of Pittsburgh at Titusville School of Computing and Information

The University offered the following degree programs for the 2017-2018 academic year: 21 associate, 224 baccalaureate, 148 master’s, and 103 doctoral degree programs. Of these doctoral programs, there are 85 research/scholarship programs and 18 professional practice programs. The Dietrich School of Arts and Sciences offers both undergraduate and graduate degree programs across its divisions of Humanities, Natural Sciences, and Social Sciences. Also administered through the Dietrich School of Arts and Sciences is the College of General Studies which offers undergraduate degree programs. Other schools that offer both undergraduate and graduate degree programs include: the Swanson School of Engineering and the Schools of Education, Social Work, Computing and Information, Nursing, and Health and Rehabilitation Sciences. The Katz Graduate School of Business and the College of Business Administration offer graduate and undergraduate degree programs, respectively. The School of Dental Medicine offers an associate degree program in Dental Hygiene and graduate degree programs. The Schools of Law, Medicine, Pharmacy, the Graduate School of Public and International Affairs and the Graduate School of Public Health offer graduate degree programs. A Bachelor of Philosophy degree is available in all baccalaureate degree programs and is offered through the University Honors College.

Collectively, the degree program offerings at the regional campuses in Bradford, Greensburg, Johnstown, and Titusville include associate degree programs and baccalaureate programs, along with various other programs of study that go beyond the standard curriculum which are made available through inter-campus initiatives.

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The University’s schools and campuses offer, in addition to degree programs, both undergraduate and graduate certificate programs. In addition to these schools, the University Center for International Studies offers undergraduate and graduate certificate programs in areas such as African Studies, Asian Studies, European Studies, European Union Studies, Global Studies, Latin American Studies, Russian and East European Studies, and Transatlantic Studies. Between the schools, there are numerous cross-disciplinary opportunities that exist such as dual, joint, and cooperative degree programs which provide students with even a wider range of degree options.

Faculty

As of the Fall Term 2017, the University had a full-time faculty of 4,637, of whom 28% had tenure. With respect to highest earned degree, 90% of the University’s faculty held doctoral degrees and 9% held Master’s degrees, which included technical degrees in some disciplines.

Most faculty members engage in both teaching and research. The research and scholarly achievements of the faculty are recognized internationally and are significant factors in attracting undergraduate and graduate students and post-doctoral fellows. Many faculty are members or fellows of the National Academy of Sciences, the Institute of Medicine, the National Academy of Engineering, the National Academy of Education, the American Academy of Arts and Sciences or other prestigious scholarly bodies. Members of the faculty have made major contributions to their particular disciplines. Landmark achievements by University faculty include the development of the polio vaccine, the first synthesis of a complex hormonal protein, and the development of a conservative but effective treatment for breast cancer.

Accreditation

The University is accredited by the Middle States Commission on Higher Education (the “Commission”), 3624 Market Street, Philadelphia, PA 19104, 267-284-5000. In May 2017, the University submitted to the Commission a Periodic Review Report, which summarized a midpoint review of a ten-year accreditation cycle. In November 2017, the Commission formally reaffirmed the University’s accreditation through 2022 and commended the University for the quality of the Periodic Review Report Process. The Commission praised the University’s “institutional culture of assessment and strategic linkages between planning and budgeting” and affirmed that the University is a world-renowned research university. The review process began in fall 2015 and focused on evaluating past achievements and assessing progress toward institutional goals. University leaders, faculty, administration, and staff drafted a report focused on assessment and continuous improvement. Also, this midpoint review included demonstrating verification of compliance with accreditation-relevant federal regulations. The next evaluation visit by the Commission is scheduled for 2021-2022. In addition to university accreditation, various programs of the University receive specialized accreditation from numerous professional peer-accrediting agencies.

Strategic Plan

In 2015, the University undertook an extensive strategic planning process, engaging the Board of Trustees, alumni, faculty, staff, students and community leaders in the region and the Commonwealth. The result, The Plan for Pitt: Making a Difference Together (Academic Years 2016-2020) (“The Plan for Pitt”), is a mission driven plan that identifies six strategic priorities:

• Consistently Deliver Excellence in Education; • Create an Impact through Pioneering Research; • Build Community Strength; • Extend the University’s Global Reach; • Provide Top Value; and • Secure an Adequate Resource Base.

For each strategic priority, an identifiable goal was established, with a set of strategies designed to achieve the goal. The University is in the fourth year of implementation of The Plan for Pitt and believes that the efforts to date have resulted in measurable improvements, including further strengthening its academic programs, research base, reputation as a leading research institution in the health sciences, and relationships with industry and the community.

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Planning and Budgeting System

The PBS is an integrated, comprehensive system that incorporates the priorities of, and input from, senior management, responsibility centers and department units. Under the PBS, administrators, faculty, staff and students participate at the smallest organizational unit level, typically the department, where the University’s missions of teaching, research and public service are accomplished. Planning and budgeting at this level take place with consideration of detailed information on past and projected enrollments, revenues and expenditures, and in the context of long-range missions and goals. At the responsibility center level, representatives of faculty, staff and students are involved, along with the relevant administrators, in coordinating and prioritizing the plans and budgets of the constituent departments. At the Vice Chancellor level, all responsibility centers’ plans and budgets are prioritized and integrated. Consolidated plans are then submitted to the Chancellor and the University Planning and Budgeting Committee (“UPBC”). The Chancellor, with active participation by the UPBC, integrates the proposals received into performance, personnel, capital and financial plans and budgets to form a comprehensive University plan and budget. The Chancellor then presents the final plan and budget to the Board for appropriate action.

The four most significant sources of operating revenue for the University are: (i) research grants and contracts; (approximately 35% of University operating revenues for fiscal year 2017); (ii) net tuition and fees (approximately 28% of University operating revenues for fiscal year 2017); (iii) sales and services revenue (approximately 16% of University operating revenues for fiscal year 2017, of which approximately 44% were associated with housing, food service, book store and other auxiliary operations); and (iv) the Commonwealth appropriation revenue (approximately 7% of University operating revenues for fiscal year 2017).

The University is one of a group of 62 American research universities chosen for membership in the Association of American Universities. It consistently ranks among the top 20 American universities in overall awards for federal science and engineering research and development. According to the National Institutes of Health (“NIH”) funding rankings as of August 6, 2018, the faculty of the University’s medical and public health schools ranks fifth, the University ranks number three in funding from the NIH’s National Institute of Mental Health, and the School of Nursing ranks fifth among U.S. nursing schools. According to the U.S. National Science Foundation’s rankings of federally funded research, the University ranked ninth overall and fifth among public institutions for 2016. Please refer to “NOTEHOLDERS’ RISKS – Decrease in Research Funding” in the front part of this Official Statement for additional information.

Operating revenue from tuition and fees is estimated by the Office of the Chief Financial Officer using a comprehensive model based on full-time equivalent enrollment projections, which are estimated by the appropriate academic units and reviewed by the Office of the Provost. The annual tuition rate is determined by considering factors such as inflation, market conditions and other economic information.

The Commonwealth has made annual appropriations for current operations to the University since the University obtained its state-related status in 1966. However, there is no assurance that such appropriations will continue to be made, or will be made at current levels or at levels requested by the University. See “NOTEHOLDERS’ RISKS – Decrease or Delay in Commonwealth Funding” in the front part of this Official Statement. In addition to an annual appropriation for current operations, the Commonwealth also appropriates funds for capital projects in support of the University’s academic mission. The capital program appropriation is based on the University’s capital budget, a ten-year plan that is updated annually by the University. For example, these Commonwealth capital appropriations have most recently financed portions of the following capital projects: Parran Hall renovation, Hillman Library renovation, Clapp/Langley/Crawford Hall addition, and the Benedum Hall renovation.

Retirement

The University provides post-retirement medical and life insurance benefits to eligible employees and their spouses/domestic partners upon retirement through a contributory benefit plan. Additional information is detailed in Note 9 of the Audited Financial Statements in Appendix B.

The University maintains its own retirement plans and is not a member of the state’s defined benefit program. The University provides eligible employees an opportunity to participate in the Defined Contribution Program (the “403(b) and 401(a) Plans”). Prior to November 2, 2015, the University offered the Noncontributory Defined Benefit

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Pension Plan (the “DB Plan”) to new eligible employees. As of June 30, 2018, only one union’s new hires have this eligibility and the University is in negotiations to discontinue this offering. The DB Plan option was previously eliminated through negotiation for all other union groups.

403(b) and 401(a) Plans. Eligible employees may contribute from 3% to 8% of base salary under the 403(b) and 401(a) Plans with eligible new hires automatically enrolled at a 3% contribution rate unless they change or opt- out of that election. The University makes a matching contribution which is subject to a vesting requirement of approximately three years of service (employees hired before January 1, 1995 were immediately vested). The University contributes one times an employee’s contributions during the vesting period and one and one-half times after fulfillment of the vesting requirement. All participant contributions and vested University contributions are available for retirement annuity income and/or other options of cashability and transferability. University contributions amounted to $79.0 million in fiscal year 2017 and $76.2 million in fiscal year 2016.

Faculty and staff may elect to make supplemental tax-deferred contributions without a University matching contribution, but within the limits permitted by tax regulations. Employees who are not eligible for the University matching contribution may make elective tax-deferred contributions within the limits permitted by tax regulations.

DB Plan. Employees who started participation in the DB Plan prior to January 1, 2016 are eligible to continue in the plan but may change enrollment to the 403(b) and 401(a) Plans. The DB Plan is a defined benefit plan and does not require employee contributions. Benefits are subject to a five-year vesting period and are payable beginning at age 65, with reduced benefits available for earlier retirement. The benefit is computed as 2.1% of annual salary up to the Social Security Wage Base for each year of credited service. University contributions to the DB Plan were $15.0 million for fiscal year 2017 and $10.9 million for the fiscal year 2016.

The University’s pension plan funding is reviewed annually and incorporates information obtained through an annual independent actuarial valuation of the plan’s liabilities. The valuation also includes an economic assumption regarding long-term investment returns on plan assets, which, as of June 30, 2017, was 7.25% per year. In addition, the actuarial valuation includes an assumed discount rate on the plan’s liabilities of 3.9%. The unfunded net liability (plan liabilities less plan assets) as of June 30, 2017 and 2016 was $26.0 million and $47.6 million, respectively, or 83% and 69% funded, respectively, based on the fair value of the plan assets as a percentage of liabilities. Additional information on the University’s DB Plan obligation can be found in Note 9 of the Audited Financial Statements in Appendix B.

Facilities Plan

In January 2016, the University formed a facilities master plan committee and working group as part of the University’s strategic planning efforts to develop the next 10-year facilities capital plan. The committee interacted broadly across the University to develop priorities. The committee drafted a new 10-Year Facilities Capital Plan: 2016-2027 (the “Capital Plan”) to support the programmatic mission of the University. The Capital Plan provided a “roadmap” for ensuring the University’s facilities can meet programmatic objectives over the 10-year period and, as such, had built in contingencies to review and, if necessary, adjust the Capital Plan’s direction. In concert with the Capital Plan, the University also commissioned the development of a comprehensive University Master Plan effort, which is set to conclude during fall 2018. The University Master Plan will be used as a reference guide for future updates to the Capital Plan.

Following are examples of significant facilities projects that have been recently completed or are currently underway and which were derived from the Capital Plan:

• John P. Murtha Center for Public Service and National Competitiveness. This multiple phase project on the University of Pittsburgh at Johnstown campus included the construction of a new building known as the John. P. Murtha Center for Public Service. The building features a large multi-purpose room, museum exhibit space, and administrative offices. An additional component of the project consisted of the renovation of The John P. Murtha Engineering and Science Building. The project was completed in August 2017.

A-13 APPENDIX A

• Victoria Hall Skills and Simulation Lab Renovation. This project expanded the size and functionality of the School of Nursing skills and simulation labs to support current and future enrollment. Renovations created three new simulation labs, a recording studio, a skills lab with functioning headwalls and computers, a telehealth lab, student study areas, a student services suite, PhD study areas, new restrooms, and corridor improvements. The project was completed in August 2017.

• Thomas E. Starzl Biomedical Science Tower (BST) 10th Floor West Laboratory Renovation. This project consisted of the renovation of the 10th floor of the Thomas E. Starzl Biomedical Science Tower (BST) to accommodate recruitment for the Department of Immunology at the University of Pittsburgh School of Medicine. The renovations created modern, open laboratory space with associated support spaces. These changes increased the efficiency of space usage, incorporated natural lighting, modernized utility distribution systems, improved overall workflows and created a dynamic environment for open resource sharing. The project was completed in December 2017.

• Hillman Library Renovation- Phase 1. This project is the first of three to four phases of renovation, which includes the renovation of the fourth floor of the Hillman Library and replaces mechanical and electrical systems. Phase 1 concentrates on infrastructure work in the basement and penthouse and renovates approximately 30,000 square feet of space on the fourth floor. Reconfiguration of the fourth floor will create quiet-study spaces for students, a book stack area, a staff service area, a PhD and faculty study room, as well as modifications to stairs as required for American with Disabilities Act (ADA) compliance. The project is scheduled for completion in August 2018.

• Schenley Quad Renovation. This project will remove surface parking from the Quad, and turn the space into a pedestrian mall for students. It will include new seating areas, new lighting, landscaping, and improved ADA access. This project is scheduled for completion in August 2018.

• Renovate Alumni Hall Admissions. The project consists of the renovation space on the first through fourth and seventh floors of Alumni Hall for the Office of Admissions and Financial Aid. Currently, renovations are underway in the seventh-floor auditorium which will included new finishes, new seating and audio visual equipment upgrades to support large program events and functions. A state-of-the-art presentation room was created on the third floor to showcase the university and welcome prospective students. A similar presentation room is currently under construction on the first floor. The project is scheduled for completion in September 2018.

• Johnstown Campus Chemical Engineering Building Addition. An addition to the east side of the Engineering and Science building is under construction to meet the needs of the new University of Pittsburgh at Johnstown Chemical Engineering program. The addition includes a classroom and a chemical engineering lab and simulation space. Equipment in the labs will mirror industrial applications such as understanding heat exchangers, distillation towers, steam generators and simulation of a control center in power plants. The project is scheduled for completion in January 2019.

The capital projects set forth in the Capital Plan, including those facilities outlined above, have or will be financed with a combination of debt, Commonwealth funds, gifts, grants and internal funds.

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A-14 APPENDIX A

Competition - Universities Inside and Outside of Region

The following table compares the tuition and required fees for undergraduate students enrolled full-time for two terms in the Dietrich School of Arts and Sciences for the 2017-2018 academic year to selected competing institutions.

Undergraduate Tuition and Required Fees Academic Year 2017-2018

Private

Carnegie Mellon University ...... $53,910 George Washington University ...... $53,518 Boston University...... $52,082 New York University ...... $50,464 Duquesne University ...... $36,394

Public

University of Pittsburgh: In-State ...... $19,080 Out of-State ...... $30,642 Pennsylvania State University: In-State ...... $18,436 Out-of-State ...... $33,664 University of Michigan: In-State ...... $14,826 Out-of-State ...... $47,476 Rutgers University: In-State ...... $14,638 Out-of-State ...... $30,579 University of Delaware: In-State ...... $13,160 Out-of-State ...... $33,150 The Ohio State University: In-State ...... $10,591 Out-of-State ...... $29,695 University of Maryland: In-State ...... $10,399 Out-of-State ...... $33,606 ______SOURCE: “The Chronicle of Higher Education” (http://www.chronicle.com/interactives/tuition-and-fees).

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A-15 APPENDIX A

Fundraising

Since the conclusion of its $2.1 billion Building Our Future Together Capital Campaign in June 2013, the University has remained committed to fundraising excellence in the support of students, research and institutional growth. The following table indicates cash received as reported to the Council for Aid to Education (totals reflect cash only and do not include pledges or noncash gifts) at June 30 for the periods indicated. For the fiscal year ended June 30, 2018, the University raised more than $130 million in cash (preliminary; unaudited).

Cash Received (in thousands) 2017 $122,703 2016 $127,155 2015 $124,602 2014 $117,068 2013 $127,859

SOURCE: University of Pittsburgh - Office of Institutional Advancement

The amounts listed above do not match the amounts listed in the University’s audited financial statements as “Contributions” due to differences in recognition standards, particularly those related to corporate and foundation grants, some of which are included in the totals above but are accounted for as “Grants and contracts” in the audited financial statements. See “CERTAIN UNIVERSITY FINANCIAL INFORMATION – Grants and Contracts,” and Appendix B.

Labor Relations

The University considers its relationship with organized labor to be good and has not experienced a work stoppage or strike since prior to 1980. Of the over 13,000 full and part-time faculty and staff, approximately 800 are members of nine different collective bargaining units. The collective bargaining agreements covering these employees expire between 2018 and 2021.

Insurance

The University is self-insured for certain activities and purchases commercial insurance policies for others. Self-insured programs include employee health insurance (through an agreement with UPMC), workers’ compensation and unemployment compensation. Insurance expense is accrued based on the respective third-party administrators’ and actuaries’ estimates of loss experience and outstanding liabilities. The self-insurance accrual is subject to periodic adjustment by the University based on actual and projected loss experience factors for each program. The Board has designated sufficient quasi-endowment funds to be utilized as payments on such claims as required.

Major insurance policies include: primary general liability, educators’ legal liability (a.k.a. director & officers and employment practices liability), property, crime, automobile, information security (cyber), environmental, fiduciary and international liability insurance, as well as excess workers’ compensation and excess liability (umbrella) insurance. Physicians, healthcare professionals and students requiring medical malpractice coverage are insured through a captive insurer owned by UPMC.

Litigation

The University, as with other similar institutions, is subject to a variety of suits and proceedings arising in the ordinary course of business. In the opinion of the University, no such litigation currently pending against it would, if determined adversely to the University, have a material adverse effect on its financial condition. For additional information pertaining to commitments and contingencies, including certain contractual obligations, see Note 13 of the Audited Financial Statements in Appendix B.

A-16 APPENDIX A

University Relationship with UPMC

The University has several contractual agreements with UPMC, including an academic affiliation agreement, support services agreement, reorganization agreement and a trademark licensing agreement (collectively, the “Relationship Agreements”). UPMC is an independent, non-profit corporation that is the parent organization for a number of hospitals, including UPMC Presbyterian-Shadyside (which serves as the primary teaching hospital for the University’s Schools of the Health Sciences) and other health-care related entities. Neither the University nor UPMC are under the control of the other. Under the Relationship Agreements, UPMC provides, among other things, financial support and certain administrative services for the benefit of the research and academic programs within the University’s Schools of the Health Sciences. The Relationship Agreements automatically renew for successive two- year terms, unless either party gives the other party at least two years’ written notice before the end of any term of its decision to terminate the agreement. The most recent two-year term began July 1, 2018. For additional information, see “NOTEHOLDERS’ RISKS - Affiliation with UPMC” in the front part of this Official Statement and Note 12 to the Audited Financial Statements in Appendix B.

CERTAIN UNIVERSITY OPERATING INFORMATION

Enrollment

The following table indicates the University’s full-time equivalent (“FTE”) enrollment for periods indicated. For the Fall Term 2017, students enrolled at the Pittsburgh Campus represented 82% of total FTE enrollment.

For the Fall Term

Students 2017 2016 2015 2014 2013 Undergraduate 24,519 24,442 24,272 24,217 24,067 Graduate* 8,171 8,281 8,442 8,497 8,565 Total FTE all students 32,690 32,723 32,714 32,714 32,632 ______* Inclusive of Doctorate – Professional Practice SOURCE: University of Pittsburgh - Office of Institutional Research.

Undergraduate Applications and Acceptances

The following data indicates direct applications and acceptances for full- and part-time, first-time freshmen at the five University campuses for the periods shown. Matriculations indicate the number of freshmen enrolled on the census date for each period.

For the Fall Term

2017 2016 2015 2014 2013 Applications 36,163 37,447 36,577 35,892 32,163 Acceptances 21,652 21,198 20,098 19,739 17,970 Matriculations 5,668 5,644 5,648 5,614 5,462

Acceptances/Applications 59.9% 56.6% 54.9% 55.0% 55.9% Matriculations/Acceptances 26.2% 26.6% 28.1% 28.4% 30.4%

A-17 APPENDIX A

The following data indicates direct applications and acceptances for full- and part-time, first-time freshmen who apply to the Pittsburgh Campus schools that admit traditional, first-time students, according to competitive admissions standards. These schools include the Dietrich School of Arts and Sciences, the Swanson School of Engineering, the School of Nursing, and the College of Business Administration. Matriculations indicate the number of freshmen enrolled at these schools on the census date for each period.

For the Fall Term

2017 2016 2015 2014 2013 Applications 27,679 29,175 30,658 30,629 27,634 Acceptances 16,528 16,165 16,504 16,271 15,047 Matriculations 4,019 3,954 4,014 3,847 3,854

Acceptances/Applications 59.7% 55.4% 53.8% 53.1% 54.5% Matriculations/Acceptances 24.3% 24.5% 24.3% 23.6% 25.6%

SOURCE: University of Pittsburgh - Office of the Provost and University of Pittsburgh, Office of Institutional Research.

Academic Quality

The following table indicates academic quality as shown by average SAT scores (defined as the combined average of math and reading scores, excluding the writing component) of the full-time first-time freshman students enrolled in the Pittsburgh Campus schools for the periods indicated.

For the Fall Term

2017 2016 2015 2014 2013 Pittsburgh Campus 1327 1309 1297 1297 1293 National Average 1060 1002 1006 1010 1010

SOURCE: University of Pittsburgh - Office of the Provost for Pittsburgh Campus information and College Board for National Average information.

Student Tuition and Fees

The following table indicates tuition and required fees for undergraduate students enrolled full-time for two terms in the Dietrich School of Arts and Sciences at the Pittsburgh Campus for the periods indicated.

For the Fall Term

2017 2016 2015 2014 2013 In-State Tuition $19,080 $18,618 $18,192 $17,772 $17,100 Out-of-State Tuition $30,642 $29,758 $28,958 $28,168 $27,106

SOURCE: University of Pittsburgh - Office of Institutional Research.

CERTAIN UNIVERSITY FINANCIAL INFORMATION

The University’s consolidated statement of activities for fiscal years 2013 through 2017 and the related consolidated balance sheets at June 30, 2013 through June 30, 2017 appear in the following tables and have been derived from the University’s audited financial statements. Certain 2016 operating expense line items include reclassifications related to the presentation of internal cost recovery to conform with the 2017 presentation.

A-18 APPENDIX A

Statement of Activities (in thousands)

Changes in Unrestricted Net Assets 2017 2016 2015 2014 2013

Operating Revenues Net tuition and fees $ 600,558 $ 588,087 $ 580,633 $ 561,438 $ 545,698 Commonwealth appropriation 158,899 154,335 147,392 147,797 144,308 Commonwealth construction grants 24,645 21,289 37,513 40,392 43,996 Grants and contracts 764,478 726,531 713,892 697,577 759,392 Contributions for operations 32,462 35,158 33,537 35,923 31,967 Investment income – operating investments 6,808 6,080 5,401 5,618 8,532 Endowment distributions for operations 126,472 118,245 101,886 96,629 87,513 Sales and services, educational, auxiliary and rental revenue 364,628 355,748 350,225 319,754 293,960 Other 78,351 82,463 78,916 89,601 65,073 Net assets released from restrictions 13,667 13,753 12,521 12,633 19,687 Total Operating Revenues 2,170,968 2,101,689 2,061,916 2,007,362 2,000,126

Other Revenues (Losses) Investment gains (losses), net of endowment distributions for operations 212,108 (115,864) (34,030) 268,595 118,481 Change in fair value of interest rate swaps 33,826 (34,522) (7,315) (1,343) 41,166 Nonperiodic changes in benefit plans 54,787 (96,523) (24,540) (23,518) 43,398 Bond refunding (46,464) - - - - Total Other Revenues (Losses) 254,257 (246,909) (65,885) 243,734 203,045

Operating Expenses Salaries and benefits 1,250,060 1,180,146 1,152,681 1,121,457 1,131,966 Supplies 115,802 106,618 107,841 101,930 107,384 Business and professional 347,621 332,685 336,643 298,161 297,487 Utilities 47,018 46,658 48,974 48,719 47,093 Depreciation 177,781 175,135 168,539 159,266 151,542 Interest, maintenance, facilities cost and other 145,717 161,151 146,027 151,559 145,248 Total Operating Expenses 2,083,999 2,002,393 1,960,705 1,881,092 1,880,720

Increase (Decrease) in Unrestricted Net Assets 341,226 (147,613) 35,326 370,004 322,451

Changes in Temporarily Restricted Net Assets Operating Revenues (Losses) Contributions for operations 12,361 18,853 11,520 11,124 5,392 Net assets released from restrictions (13,667) (13,753) (12,521) (12,633) (19,687) Total Operating (Losses) Revenues (1,306) 5,100 (1,001) (1,509) (14,295)

Other Revenues (Losses) Investment gains (losses), net of endowment distributions for operations 116,142 (94,750) (43,237) 176,001 65,800 Total Other Revenues (Losses) 116,142 (94,750) (43,237) 176,001 65,800

Increase (Decrease) in Temporarily Restricted Net Assets 114,836 (89,650) (44,238) 174,492 51,505

A-19 APPENDIX A

2017 2016 2015 2014 2013 Changes in Permanently Restricted Net Assets Other Revenues Contributions for endowment $ 29,006 $ 22,123 $ 33,902 $ 23,755 $ 26,015 Investment gains, net of endowment distributions for operations 2,329 2,373 2,111 1,974 2,737 Total Other Revenues 31,335 24,496 36,013 25,729 28,752

Increase in Permanently Restricted Net Assets 31,335 24,496 36,013 25,729 28,752

Increase (Decrease) in Net Assets 487,397 (212,767) 27,101 570,225 402,708

Net Assets Beginning of Year 4,187,673 4,400,440 4,373,339 3,803,114 3,400,406

Net Assets End of Year $ 4,675,070 $4,187,673 $ 4,400,440 $ 4,373,339 $ 3,803,114

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A-20 APPENDIX A

Summary of Consolidated Balance Sheets (in thousands)

Assets 2017 2016 2015 2014 2013

Cash and cash equivalents $ 22,494 $ 6,400 $ 49,582 $ 60,831 $ 196,807 Operating investments 521,879 558,801 569,806 539,378 407,586 Inventories and deferred charges 20,924 20,984 20,546 19,258 17,695 Accounts and notes receivable, net 192,103 188,277 143,498 160,875 160,053 Contributions receivable, net 33,193 31,935 34,545 34,336 32,857 Student loans receivable, net 45,384 47,611 45,852 47,485 48,569 Deposits of bond and note proceeds - 6,598 19,291 - 90,403 Foundation assets 27,893 26,351 26,419 26,006 22,726 Endowment investments at fair value 3,970,047 3,546,458 3,610,395 3,514,183 2,994,207 Endowed funds held by third parties 22,944 22,079 23,140 22,714 19,954 Property, plant and equipment, net 1,783,096 1,774,065 1,785,749 1,795,335 1,788,475

Total Assets $ 6,639,957 $ 6,229,559 $ 6,328,823 $ 6,220,401 $ 5,779,332

Liabilities

Accounts payable and accrued expenses $ 96,032 $ 95,212 $ 98,125 $ 100,952 $ 103,358 Accrued payroll and related liabilities 80,779 74,796 72,507 70,344 75,008 Deferred student and other revenue 53,238 50,801 45,252 42,638 43,775 Advanced receipt of grant funds 64,061 62,689 60,596 63,768 71,582 Refundable U.S. government student loans 34,338 33,897 33,647 33,280 32,928 Other liabilities 112,330 148,811 116,071 107,982 103,685 Pension and postretirement obligations 554,086 589,385 479,334 444,025 406,825 Conditional asset remediation obligation 30,644 37,346 41,219 40,929 40,571 Bonds and notes payable 939,379 948,949 981,632 943,144 1,098,486

Total Liabilities 1,964,887 2,041,886 1,928,383 1,847,062 1,976,218

Net Assets

Unrestricted 3,105,495 2,764,269 2,911,882 2,876,556 2,506,552 Temporarily Restricted 829,574 714,738 804,388 848,626 674,134 Permanently Restricted 740,001 708,666 684,170 648,157 622,428

Total Net Assets 4,675,070 4,187,673 4,400,440 4,373,339 3,803,114

Total Liabilities and Net Assets $ 6,639,957 $ 6,229,559 $ 6,328,823 $ 6,220,401 $ 5,779,332

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A-21 APPENDIX A

Management Discussion

The University’s total operating revenues for fiscal year 2017 increased by $62.9 million, or 3.0%, from the prior fiscal year. This increase is primarily attributable to increases in grants and contracts of $37.9 million, net tuition of $12.5 million, endowment distributions for operations of $8.2 million, sales and services – educational of $6.7 million, Commonwealth appropriations of $4.6 million, and Commonwealth construction grants of $3.4 million, offset by decreases in contributions for operations of $9.2 million and other revenues of $4.1 million.

The University’s total expenses increased $81.6 million in fiscal year 2017 from the prior fiscal year. This increase is primarily attributable to increases in compensation of $69.9 million, business and professional expenses of $14.9 million, supplies of $9.2 million, and maintenance and facilities of $3.5 million, offset by decreases in interest of $10.9 million and other expenses of $8.0 million.

Total other (non-operating) activities increased $718.9 million primarily due to a $538.8 million increase in realized/unrealized gains on investments, a $151.3 million decrease in nonperiodic changes in benefit plans (partially due to an increase in discount rates), and a $68.3 million increase in unrealized gains on interest rate swaps, offset by $46.5 million in 2017 bond refunding expenses (see Note 7 of the Audited Financial Statements in Appendix B for additional information regarding 2017 bond refundings).

The total assets of the University increased 6.6% from the prior fiscal year. The University’s endowment was approximately $4.0 billion, which represents an increase of $423.6 million, or 11.9%, from the prior fiscal year. For current information on the University's endowment portfolio, please see “Endowment Funds of the University”.

Capital spending for 2017 totaled $189.7 million, of which $24.6 million was expended by the Commonwealth on behalf of the University. See Note 6 of the Audited Financial Statements in Appendix B for additional information regarding property, plant, and equipment.

Total net assets increased by 11.6% and were approximately $4.7 billion at June 30, 2017. Net assets are categorized according to the existence or absence of donor-imposed restrictions. Unrestricted net assets are comprised primarily of the net investment in property, plant and equipment, donated funds designated to individual University departments, and funds reserved for debt service and capital projects. Temporarily restricted net assets are comprised of cumulative realized and unrealized gains of the University’s endowment investment and unconditional pledges that are subject to certain time or event restrictions. Permanently restricted net assets are comprised of endowment contributions and unconditional endowment pledges.

The following information for the Fall Term 2018 is preliminary and subject to change: enrollment is expected to be steady compared to the Fall Term 2017; applications from out-of-state residents increased, resulting in an overall increase in applications of more than 7%; and acceptances and matriculations are both all expected to be in line with previous years, with matriculations to the Pittsburgh Campus schools estimated at approximately 4,100. The average SAT scores (defined as the combined average of math and reading scores, excluding the writing component) is expected to increase in the Fall Term 2018 and be the highest average to date for full-time first-time freshman students enrolled in the Pittsburgh Campus schools.

The University’s fiscal year 2018 financial statements are expected to be finalized and released on or about September 21, 2018. Upon their release, the University will file or cause to be filed such financial statements with the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access System (EMMA). The University expects that revenues, expenses, assets and liabilities will be in line with previous fiscal years, with previous trends generally continuing. Total operating revenues are expected to have increased by more than 4%∗ in fiscal year 2018, as compared to the prior fiscal year. Likewise, total operating expenses are expected to have increased by more than 4%* from fiscal year 2017. The University’s total net assets are expected to have increased by approximately 7%* as of June 30, 2018, as compared to the prior fiscal year end.

∗ Preliminary, unaudited and subject to change.

A-22 APPENDIX A

Grants and Contracts

The table below shows grants and contracts awarded to the University from governmental and private agencies during the five fiscal years ended June 30, 2017.

Grants and Contracts (in thousands)

2017 $764,478 2016 $726,531 2015 $713,892 2014 $697,577 2013 $759,392

SOURCE: University of Pittsburgh audited financial statements for fiscal year 2013 through fiscal year 2017.

Endowment Funds of the University

As of June 30, 2017, the University's endowment funds had a fair value of $3.97 billion and a cost basis of $3.44 billion. Endowment net asset activity during the fiscal years 2017 and 2016 primarily consisted of contributions ($85.7 million in fiscal year 2017 and $146.2 million in fiscal year 2016), endowment earnings ($19.2 million in fiscal year 2017 and $17.2 million in fiscal year 2016), and investment gains/losses ($441.6 million gain in fiscal year 2017 and $110.2 million loss in fiscal year 2016.) As of March 31, 2018, the fair value of the University’s endowment funds was $4.20 billion (unaudited). See Notes 4 and 10 of the Audited Financial Statements in Appendix B for additional information regarding the University’s investment policies and management of the endowment, as well as the University’s spending policy. The following table indicates the fair value and cost basis of the University's endowment funds as of June 30 for the years indicated.

2017 2016 2015 2014 2013 (in billions) Fair Value $3.97 $3.55 $3.61 $3.51 $2.99 Cost Basis $3.44 $3.27 $3.12 $2.82 $2.60 ______SOURCE: University of Pittsburgh audited financial statements for fiscal year 2013 through fiscal year 2017.

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A-23 APPENDIX A

Debt Structure of the University

The following is a description of the University’s outstanding bonds and notes payable as of June 30, 2018 (unaudited). See also Note 7 of the Audited Financial Statements in Appendix B for additional information regarding the University’s debt structure as of June 30, 2017, including applicable interest rate information.

Unaudited Principal Outstanding at June 30, 2018 (in thousands) BONDS PAYABLE: Fixed to Maturity Series 2017-A, taxable $ 477,500 Series 2017-B, taxable 103,335 Series 2014-A, tax-exempt 49,000 $ 629,835 Commercial Paper Mode (1) Series 2014-B1/B2, tax-exempt $ 46,000 Series 2017-C1/C2/C3, taxable 160,000 $ 206,000

Total Bonds Payable $ 835,835

NOTES PAYABLE: Noninterest-bearing promissory note 171

Total Notes Payable $ 171

Total Debt $ 836,006 ______(1) Commercial Paper maturity dates are approximately 45 days on a rolling basis.

The University maintains operating lines of credit from four banking institutions, with an aggregate available amount of $100 million. As of June 30, 2018, there were no outstanding balances under the lines of credit. See Note 7 of the Audited Financial Statements in Appendix B.

The University has entered into certain interest rate swap agreements pursuant to which the University pays a fixed rate of interest and the swap counterparty pays a variable rate of interest. For a more detailed discussion of these agreements see Note 8 of the Audited Financial Statements in Appendix B.

A-24 APPENDIX B

UNIVERSITY OF PITTSBURGH – OF THE COMMONWEALTH SYSTEM OF HIGHER EDUCATION

CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016

[THIS PAGE INTENTIONALLY LEFT BLANK] UNIVERSITY OF PITTSBURGH

FINANCIAL REPORT FISCAL YEAR 2017 KPMG LLP BNY Mellon Center Suite 3400 500 Grant Street Pittsburgh, PA 15219-2598

Independent Auditors’ Report

The Board of Trustees of the University of Pittsburgh – Of the Commonwealth System of Higher Education:

We have audited the accompanying consolidated financial statements of the University of Pittsburgh – Of the Commonwealth System of Higher Education, which comprise the consolidated balance sheets as of June 30, 2017 and 2016, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the University of Pittsburgh – Of the Commonwealth System of Higher Education as of June 30, 2017 and 2016, and the changes in its net assets and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.

Pittsburgh, Pennsylvania September 22, 2017

KPMG LLP is a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. CONSOLIDATED FINANCIAL STATEMENTS

UNIVERSITY OF PITTSBURGH CONSOLIDATED BALANCE SHEETS JUNE 30, 2017 AND 2016 (in thousands of dollars)

2017 2016 ASSETS: Cash and cash equivalents (Notes 1 and 5) $ 22,494 $ 6,400 Operating investments (Notes 4 and 5) 521,879 558,801 Inventories and deferred charges 20,924 20,984 Accounts and notes receivable, net (Note 2) 192,103 188,277 Contributions receivable, net (Note 3) 33,193 31,935 Student loans receivable, net 45,384 47,611 Deposits of bond proceeds (Notes 1 and 5) - 6,598 Foundation assets (Note 1) 27,893 26,351 Endowment investments (Notes 4 and 5) 3,970,047 3,546,458 Endowed funds held by third parties (Note 5) 22,944 22,079 Property, plant, and equipment, net (Note 6) 1,783,096 1,774,065

TOTAL ASSETS $ 6,639,957 $ 6,229,559

LIABILITIES: Accounts payable and accrued expenses $ 96,032 $ 95,212 Accrued payroll and related liabilities 80,779 74,796 Deferred student and other revenue 53,238 50,801 Advanced receipt of grant funds 64,061 62,689 Refundable U.S. government student loans 34,338 33,897 Other liabilities (Notes 5 and 8) 112,330 148,811 Pension and postretirement obligations (Note 9) 554,086 589,385 Conditional asset remediation obligation (Note 6) 30,644 37,346 Bonds and notes payable (Note 7) 939,379 948,949

TOTAL LIABILITIES 1,964,887 2,041,886

NET ASSETS: Unrestricted (Notes 1 and 10) 3,105,495 2,764,269 Temporarily restricted (Notes 1 and 10) 829,574 714,738 Permanently restricted (Notes 1 and 10) 740,001 708,666

TOTAL NET ASSETS 4,675,070 4,187,673

TOTAL LIABILITIES AND NET ASSETS $ 6,639,957 $ 6,229,559

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

-1 - CONSOLIDATED FINANCIAL STATEMENTS

UNIVERSITY OF PITTSBURGH CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2017 COMPARED TO SUMMARY INFORMATION FOR THE YEAR ENDED JUNE 30, 2016 (in thousands of dollars)

2017 Temporarily Permanently OPERATING REVENUES: Unrestricted Restricted Restricted Total 2016 Tuition and fees $ 788,455 $ - $ - $ 788,455 $ 764,499 Tuition discounts (187,897) - - (187,897) (176,412) Net tuition and fees 600,558 - - 600,558 588,087 Commonwealth appropriation 158,899 - - 158,899 154,335 Commonwealth construction grants 24,645 - - 24,645 21,289 Grants and contracts 764,478 - - 764,478 726,531 Contributions for operations 32,462 12,361 - 44,823 54,011 Investment income – operating investments 6,808 - - 6,808 6,080 Endowment distributions for operations 126,472 - - 126,472 118,245 Sales and services, educational and other 193,600 - - 193,600 186,864 Sales and services, auxiliary 152,767 - - 152,767 150,533 Rental revenue 18,261 - - 18,261 18,351 Other 78,351 - - 78,351 82,463 Net assets released from restrictions 13,667 (13,667) - - - Total operating revenues 2,170,968 (1,306) - 2,169,662 2,106,789

OPERATING EXPENSES: Salaries and wages 949,288 - - 949,288 906,494 Fringe benefits 300,772 - - 300,772 273,652 Total compensation 1,250,060 - - 1,250,060 1,180,146 Supplies 115,802 - - 115,802 106,618 Business and professional 347,621 - - 347,621 332,685 Utilities 47,018 - - 47,018 46,658 Maintenance and facilities 52,152 - - 52,152 48,674 Depreciation 177,781 - - 177,781 175,135 Interest 31,343 - - 31,343 42,212 Other 62,222 - - 62,222 70,265 Total operating expenses (Note 11) 2,083,999 - - 2,083,999 2,002,393

Change in net assets from operating activities 86,969 (1,306) - 85,663 104,396

OTHER ACTIVITIES: Investment gains (losses), net of endowment distributions for operations 212,108 116,142 2,329 330,579 (208,241) Contributions for endowment - - 29,006 29,006 22,123 Change in fair value of interest rate swaps 33,826 - - 33,826 (34,522) Nonperiodic changes in benefit plans (Note 9) 54,787 - - 54,787 (96,523) Bond refunding (Note 7) (46,464) - - (46,464) - Total other activities 254,257 116,142 31,335 401,734 (317,163)

CHANGE IN NET ASSETS 341,226 114,836 31,335 487,397 (212,767) NET ASSETS, BEGINNING OF YEAR 2,764,269 714,738 708,666 4,187,673 4,400,440 NET ASSETS, END OF YEAR $ 3,105,495 $ 829,574 $ 740,001 $ 4,675,070 $ 4,187,673

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

-2 - UNIVERSITY OF PITTSBURGH CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2016 (in thousands of dollars)

2016 Temporarily Permanently OPERATING REVENUES: Unrestricted Restricted Restricted Total Tuition and fees $ 764,499 $ - $ - $ 764,499 Tuition discounts (176,412) - - (176,412) Net tuition and fees 588,087 - - 588,087 Commonwealth appropriation 154,335 - - 154,335 Commonwealth construction grants 21,289 - - 21,289 Grants and contracts 726,531 - - 726,531 Contributions for operations 35,158 18,853 - 54,011 Investment income – operating investments 6,080 - - 6,080 Endowment distributions for operations 118,245 - - 118,245 Sales and services, educational and other 186,864 - - 186,864 Sales and services, auxiliary 150,533 - - 150,533 Rental revenue 18,351 - - 18,351 Other 82,463 - - 82,463 Net assets released from restrictions 13,753 (13,753) - - Total operating revenues 2,101,689 5,100 - 2,106,789

OPERATING EXPENSES: Salaries and wages 906,494 - - 906,494 Fringe benefits 273,652 - - 273,652 Total compensation 1,180,146 - - 1,180,146 Supplies 106,618 - - 106,618 Business and professional 332,685 - - 332,685 Utilities 46,658 - - 46,658 Maintenance and facilities 48,674 - - 48,674 Depreciation 175,135 - - 175,135 Interest 42,212 - - 42,212 Other 70,265 - - 70,265 Total operating expenses (Note 11) 2,002,393 - - 2,002,393

Change in net assets from operating activities 99,296 5,100 - 104,396

OTHER ACTIVITIES: Investment (losses) gains, net of endowment distributions for operations (115,864) (94,750) 2,373 (208,241) Contributions for endowment - - 22,123 22,123 Change in fair value of interest rate swaps (34,522) - - (34,522) Nonperiodic changes in benefit plans (Note 9) (96,523) - - (96,523) Bond refunding - - - - Total other activities (246,909) (94,750) 24,496 (317,163)

CHANGE IN NET ASSETS (147,613) (89,650) 24,496 (212,767) NET ASSETS, BEGINNING OF YEAR 2,911,882 804,388 684,170 4,400,440 NET ASSETS, END OF YEAR $ 2,764,269 $ 714,738 $ 708,666 $ 4,187,673

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

- 3 - CONSOLIDATED FINANCIAL STATEMENTS

UNIVERSITY OF PITTSBURGH CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2017 AND 2016 (in thousands of dollars)

2017 2016 CASH AND CASH EQUIVALENTS: End of year $ 22,494 $ 6,400 Beginning of year 6,400 49,582 CHANGE IN CASH AND CASH EQUIVALENTS $ 16,094 $ (43,182) CASH FLOWS FROM OPERATING ACTIVITIES: Change in net assets $ 487,397 $ (212,767) Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 177,781 175,135 Nonperiodic changes in benefit plans (54,787) 96,523 Bond refunding 46,464 - Write-off of issuance costs and net premiums on refunded bonds (5,467) - Net bond premium amortization (2,360) (4,163) Loss on disposal of plant assets 2,882 1,254 Investment (gains) losses (437,093) 110,426 Change in fair value of interest rate swaps (33,826) 34,522 Contributions restricted for long-term investment (57,024) (46,431) Changes in operating assets and liabilities: Accounts, notes, contributions, and loans receivable, net 13,195 (56,695) Other assets 60 (438) Accounts payable and accrued expenses (3,648) (289) Pension and postretirement obligations 19,488 13,528 Conditional asset remediation obligation (6,702) (3,873) Other liabilities 3,328 507 Government student loans and deferred revenue 4,250 7,892 Net cash provided by operating activities 153,938 115,131 CASH FLOWS FROM INVESTING ACTIVITIES: Expended for property, plant, and equipment - University (165,049) (143,416) Expended for property, plant, and equipment - commonwealth (24,645) (21,289) Change in accounts payable for property, plant, and equipment 4,468 (2,624) Purchases/sales of operating investments, net 29,875 12,067 Purchases of endowment investments (2,163,200) (1,646,384) Proceeds from sales/maturities of endowment investments 2,182,433 1,600,290 Change in endowed funds held by third parties, excluding gains 453 (396) Change in foundation assets (1,542) 68 Net cash used for investing activities (137,207) (201,684) CASH FLOWS FROM FINANCING ACTIVITIES: Principal repayment of debt including bond refundings (846,161) (130,500) Proceeds from issuance of debt including bond refundings 847,881 101,980 Defeasance of debt (49,927) - Change in deposits of bond proceeds 6,598 12,693 Contributions restricted for long-term investment 40,972 59,198 Net cash (used for) provided by financing activities (637) 43,371 CHANGE IN CASH AND CASH EQUIVALENTS $ 16,094 $ (43,182) Supplemental disclosure of cash flow information: Cash paid for interest (excluding fees) $ 43,071 $ 46,194 Noncash investing activity for property, plant, and equipment - accounts payable $ 25,274 $ 20,806

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

-4 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING PRACTICES

Organization (thirty-six voting members), including twelve Founded in 1787, the University of Pittsburgh (the commonwealth trustees and sixteen special trustees University) is one of the oldest institutions of higher elected by the board. Special trustees may attend all education in the United States. The University’s mission meetings of the board and are entitled to and exercise all is to provide high-quality undergraduate and graduate rights, responsibilities, and privileges of trusteeship, programs in the arts and sciences and professional fields; except the right to vote at board meetings. engage in research, artistic, and scholarly activities that advance learning through the extension of the frontiers of As a state-related institution, the University receives an knowledge and creative endeavor; cooperate with annual operating and capital appropriation from the industrial and governmental institutions to transfer commonwealth. The appropriation results from the knowledge in science, technology, and health care; offer commonwealth’s annual budget process, which as of the continuing educational programs adapted to the personal auditor’s opinion date, has not been completed for 2018. enrichment, professional upgrading, and career There is no assurance that such appropriation will advancement interests and needs of adult Pennsylvanians; continue to be made, or will be made, at current levels or and make available to local communities and public at levels requested by the University. The appropriation agencies the expertise of the University in ways that are from the commonwealth was $158.9 million in 2017 and consistent with the primary teaching and research $154.3 million in 2016. In addition to the annual functions and contribute to social, intellectual, and appropriation, the commonwealth also funds certain economic development in the commonwealth, the nation, capital projects in support of the University’s mission. and the world. Amounts funded by the commonwealth for capital projects were $24.6 million in 2017 and $21.3 million in The University’s main campus in the City of Pittsburgh 2016. comprises 16 schools and several academic centers educating nearly 29,000 students in various Basis of Presentation undergraduate, graduate, and doctorate-professional The consolidated financial statements include the programs. Four regional campuses with a total accounts of the University, which do not include the net enrollment approximating 6,100 students are located assets or activities of the University of Pittsburgh Medical throughout western Pennsylvania. Center (UPMC) or the University of Pittsburgh Physicians (UPP) clinical practice plans, as they are Relationship with the Commonwealth of Pennsylvania separate legal entities not controlled by the University. The University derives its corporate existence under the The University does have the right to designate one-third laws of the Commonwealth of Pennsylvania (the of the members of the UPMC Board of Directors and any commonwealth) by reason of the act of the General Executive Committee thereof. Assembly of the commonwealth establishing an “Academy or Public School in the town of Pittsburgh” on The other activities section of the Consolidated February 28, 1787 and from the act of February 18, 1819 Statements of Activities includes investment gains incorporating the “Western University of Pennsylvania.” (losses), net of endowment distributions for operations; In 1908, the University’s name was changed to the contributions for endowment; change in fair value of “University of Pittsburgh” by order of the Court of interest rate swaps; nonperiodic changes in pension and Common Pleas of Allegheny County. In 1966, the postretirement benefit plans; and certain bond refunding Pennsylvania State Legislature enacted the “University of activities. Endowment distributions for operations Pittsburgh-Commonwealth Act,” which changed the name represent those distributions not reinvested in the of the University to the “University of Pittsburgh – of the endowment (see Note 10). Commonwealth System of Higher Education” and established the University as an instrumentality of the Basis of Accounting commonwealth to serve as a state-related institution in the The consolidated financial statements have been prepared Commonwealth System of Higher Education. The on the accrual basis of accounting in conformity with University is a Pennsylvania nonprofit corporation subject accounting principles generally accepted in the United to the Nonprofit Corporation Law of 1988. States of America (GAAP) as promulgated by the Financial Accounting Standards Board (FASB). The entire management, control, and conduct of the instructional, administrative, and financial affairs of the In accordance with GAAP, the University’s net assets University are vested in the Board of Trustees. The have been classified as unrestricted, temporarily Board of Trustees is comprised of fifty-two members restricted, or permanently restricted based upon the

- 5 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

existence or absence of donor-imposed restrictions. Advanced receipts of grants and contracts are also Unrestricted net assets are not subject to donor-imposed classified as deferred revenue, with revenue being restrictions and are used for general operating purposes of recognized as funds are expended and sponsored the University. This class of net assets also includes programs are executed. certain contributions and endowment distributions from earnings whose donor-imposed restrictions have been met Tuition discounts are recorded to the extent that either within the fiscal year. Temporarily restricted net assets institutional financial aid or aid funded by contributions, are subject to certain time or purpose restrictions by the endowment distributions, and grant activities are awarded. donor. Upon satisfaction of these restrictions, the net Tuition discounts attributable to institutional funds in assets are transferred to unrestricted. Amounts released 2017 and 2016 were $162.6 million and $152.1 million, from restrictions relate primarily to cash collections on respectively. Tuition discounts attributable to pledges, where purpose restrictions had already been met. contributions, endowment distributions, and grant Temporarily restricted net assets at June 30, 2017 and activities were $25.3 million and $24.3 million in 2017 2016 consist of endowment balances ($801.6 million and and 2016, respectively. $686.1 million, respectively); the net present value of temporarily restricted contributions and unconditional Cash and Cash Equivalents and Operating pledges ($22.6 million and $23.7 million, respectively); Investments and split-interest agreements ($5.4 million and $4.9 Cash equivalents consist of operating investments with million, respectively). Permanently restricted net assets original maturities of 90 days or less. Operating are those subject to permanent donor-imposed restrictions investments include U.S. Treasury instruments and other and at June 30, 2017 and 2016 consist of endowment high-quality, liquid securities that at the time of purchase balances ($713.5 million and $684.9 million, are rated A3/P-1 or better by Moody’s Investors Service respectively); the net present value of permanently or A-/A-1 or better by Standard & Poor’s Ratings restricted contributions and unconditional pledges ($13.1 Services. Operating investments, together with cash, are million and $10.7 million, respectively); and private utilized to fund the University’s short-term operating student loan funds ($13.4 million and $13.1 million, needs and are invested with the expectation that such respectively). Net assets restricted for purpose are for securities can be liquidated at their current value within a programmatic purposes including scholarships, seven-day period. Cash and cash equivalents that are part instruction, and research. of endowment investments are shown therewith, as such funds are utilized for endowment purposes rather than Donor-restricted endowed contributions require that the University operating needs. original corpus of the contributions be maintained in perpetuity. The distributions from earnings generated by Allowance for Doubtful Accounts these contributions may be either expended or reinvested The University maintains allowances for doubtful in the endowment, in accordance with donor restrictions accounts to reflect management’s best estimate of and endowment contribution and spending policies (see probable losses inherent in receivable balances. Note 10). Management determines the allowances for doubtful accounts based on known troubled accounts, historical Estimates experience, and other currently available evidence. The preparation of the consolidated financial statements Receivables are written off when management determines requires management to make estimates and assumptions they will not be collected. that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of Contributions the consolidated financial statements, and the reported The University records at fair value unconditional pledges amounts of revenues and expenses during the reporting (which are agreements with donors involving non- period. Actual results could differ materially from those reciprocal transfers of cash or other assets) as either estimates. temporarily restricted or permanently restricted contributions depending on the nature of the donor- Revenue Recognition imposed restrictions. Contributions whose restrictions are Revenue for programs or activities to be conducted in met in the same fiscal year in which they are received are future periods, such as student tuition and room and combined and reported with unrestricted contributions. board, is classified as deferred revenue. Revenue for Contributions receivable are discounted at a risk-adjusted these activities is recognized as services are provided. rate commensurate with the donor’s payment plan.

-6 - Conditional pledges of cash or other assets are recognized like holdings, such as mezzanine and subordinated debt as contribution revenues and receivables when the interests, in venture, buyout, or recapitalized companies conditions surrounding the pledge are substantially met. or properties. Real assets are physical assets, or financial assets associated with such physical assets, whose income Bequests are considered to be intentions to give and do streams and/or fair values tend to rise with inflation; they not fall within the definition of an unconditional pledge, include real estate, natural resources, commodities, and and hence, are not recognized in the consolidated other hard assets. Marketable alternatives consist of financial statements. distressed debt and hedging strategies, including event- driven hedging strategies, such as merger or credit Deposits of Bond Proceeds arbitrage, and value-driven hedging strategies, such as Deposits of bond proceeds consist of unspent funds, long/short, market neutral, and other hedging strategies. which will be used for certain capital projects or for repayment of certain debt obligations. These funds are In the case of indirect holdings, changes in market invested in cash, cash equivalents, U.S. Treasury conditions, economic environment, regulatory instruments, and other high-quality, liquid securities and environment, currency exchange rates, interest rates, and are reported on the Consolidated Balance Sheets at fair commodity prices may significantly impact the NAV of value. the funds holding the investments and, consequently, the fair value of the University’s interest in such funds and Foundation Assets could materially affect the amounts reported in the The University’s foundation assets represent the Bradford consolidated financial statements. Although a secondary Educational Foundation (BEF). The BEF is a 509(a)(3) market exists for these investments, it is not active, and Type III supporting organization whose sole purpose is to individual transactions are typically not observable. receive, administer, and distribute property for the benefit When transactions do occur in this limited secondary of the University of Pittsburgh Bradford campus. The market, they may occur at discounts to the reported NAV. BEF is governed by an independent board of directors, It is therefore possible that if the University were to sell with the majority of members being non-University these investments in the secondary market, a buyer may members. Although the University does not exercise require a discount to the reported NAV, and the discount control of the BEF, all assets held by the BEF are held for could be significant. The University attempts to manage the financial benefit of the University. As such, the these risks through diversification, ongoing due diligence consolidated financial statements include the net assets of fund managers, maintaining adequate liquidity, and and annual change in net assets of the BEF. continuously monitoring economic and market conditions.

Endowment Investments Dividend income is recognized net of applicable The University’s endowment investments are reported at withholding taxes on the ex-dividend date. Noncash fair value. The fair value of direct University holdings in dividends are recorded at the fair value of the securities publicly traded securities and exchange traded funds are received. Interest income and expenses are recorded net based upon quoted or published market prices. The fair of applicable withholding taxes on the accrual basis of value of all other investments, which consist of indirect accounting. holdings in both privately and publicly traded assets, is determined using net asset value (NAV) per share or unit Fair Value Measurements of interest. Used as a practical expedient for the Fair value is defined as the price that would be received to estimated fair value, NAV per share or its equivalent is sell an asset or paid to transfer a liability in an orderly provided by the fund manager and reviewed by the transaction between market participants at the University. Indirect holdings of private assets primarily measurement date. The three levels of the fair value consist of University interests in funds investing in hierarchy are as follows: nonmarketable alternatives, real assets, and/or distressed securities, whereas indirect holdings of publicly traded Level 1 – Unadjusted quoted prices in active markets assets primarily consist of University interests in for identical assets or liabilities that are available at marketable alternatives or other commingled funds. the measurement date. Nonmarketable alternatives are private equity or equity-

-7 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Level 2 – Inputs other than quoted prices included generally depreciates such assets over 5 to 10 years. within Level 1 that are observable for the asset or Works of art, historical treasures, and similar assets liability, either directly or indirectly. include a variety of paintings, sculptures, photographs, antiques, and furnishings, as well as scholarly papers and Level 3 – Unobservable inputs for the asset or archives. These assets are used for public exhibition, the liability that are used to measure fair value when preservation of artifacts and antiques for future observable inputs are not available. These inputs are generations, and scholarly research. Due to their nature, developed based upon the best information available these assets are not depreciated. Library books, which in such circumstances. include hard copy publications, periodicals, and electronic publications with rights to archival content, are In the event that changes in the inputs used in the fair depreciated over a period of 7 years. Maintenance and value measurement of an asset or liability result in a repairs are expensed as incurred. transfer of the fair value measurement into a different level, such transfers are recognized at the end of the Insurance Liabilities reporting period. The University is self-insured through an agreement with UPMC to provide medical coverage for its employees. A Derivative Financial Instruments liability for estimated incurred but unreported claims of The University records derivatives at fair value on the $8.6 million and $6.3 million has been recorded at Consolidated Balance Sheets with changes in fair value June 30, 2017 and 2016, respectively, based upon reflected in the Consolidated Statements of Activities (see management’s analysis of claims history. This liability is Note 8). reflected in accrued payroll and related liabilities on the Consolidated Balance Sheets. Split-Interest Agreements These agreements with donors consist primarily of The University is also self-insured for certain other charitable gift annuities, pooled income funds, and activities, including workers’ compensation, irrevocable charitable remainder trusts for which the unemployment compensation, and litigation claims. University serves as trustee. Assets are invested and Liabilities have been established for these programs payments are made to donors and/or other beneficiaries in generally based on third-party administrators’ estimates accordance with the respective agreements. Other using the University’s historical loss experience. The liabilities include $12.3 million and $11.5 million at self-insurance accrual is subject to periodic adjustment by June 30, 2017 and 2016, respectively, for split-interest the University based on actual loss experience factors. agreements. Liabilities for these other self-insured obligations aggregated $9.0 million and $10.5 million at June 30, Property, Plant, and Equipment, Net 2017 and 2016, respectively, and are included in accrued Property, plant, and equipment is recorded at cost, or if payroll and related liabilities on the Consolidated Balance acquired by contribution, at fair value as of the date of the Sheets. contribution. Depreciation is calculated using the straight- line method. Useful lives generally range from 15 to 40 Grants and Contracts years for buildings and improvements and 5 to 10 years The University conducts sponsored program activity with for furnishings and equipment. As assets are retired, sold, various sponsors, including agencies and departments of or otherwise disposed, the cost and related accumulated the federal government, the commonwealth, local depreciation are removed from the accounts, and gains or government entities, companies, and foundations. losses are recognized in the Consolidated Statements of Sponsored activity in 2017 and 2016 was $764.5 million Activities. Costs associated with the construction of new and $726.5 million, respectively, with approximately 66% facilities and renovation and expansion of existing of the funding awarded through the National Institutes of facilities are capitalized within construction in progress Health. Most University sponsored activity is conducted until such projects are placed in service. The University on a cost reimbursable basis with the University receiving capitalizes software and certain implementation costs and funding after the related expenses have been incurred.

- 8 - Certain sponsors, however, provide funding in advance of University for fiscal year 2020, and early adoption is related expenses, and such funding is recorded as permitted. The University is currently evaluating the advanced receipt of grant funds on the Consolidated impact this ASU will have on the consolidated financial Balance Sheets. Revenue from sponsored awards is statements and related disclosures. recognized as the related expenses are incurred. There is no assurance that sponsored awards will continue to be In August 2016, FASB issued ASU No. 2016-14, Not-for- made at current levels. Profit Entities (NFPs)(Topic 958): Presentation of Financial Statements for Not-for-Profit Entities. The The University incurs both direct and indirect costs in the ASU is effective for the University for fiscal year 2019, conduct of its sponsored activity. Recovery of indirect and early adoption is permitted. The ASU reduces the costs through federal awards is based upon predetermined number of net asset classes presented from three to two: rates negotiated with the Department of Health and with donor restrictions and without donor restrictions; Human Services. Indirect cost recovery rates from requires all NFPs to present expenses by their functional nonfederal sources may vary. Funds received through and natural classifications in one location in the financial federal sources are subject to audit each year in statements; and requires NFPs to provide quantitative and accordance with the Office of Management and Budget’s qualitative information about management of liquid Uniform Guidance. resources and availability of financial assets to meet cash needs within one year of the balance sheet date. The Government Loan Funds University is currently evaluating the impact this ASU U.S. government student loans are recorded as liabilities will have on the consolidated financial statements and because these funds are refundable to the federal related disclosures. government under certain conditions. Student loan funds donated by private groups, organizations, or individuals In February 2016, FASB issued ASU No. 2016-02, are recorded as permanently restricted net assets since Leases (Topic 842). The ASU is effective for fiscal year such funds operate on a revolving fund basis with 2020, and early adoption is permitted. The ASU will principal and interest payments remaining in the fund for require lessees to report most leases as assets and future lending. liabilities on the balance sheet, while lessor accounting will remain substantially unchanged. The ASU requires a Tax-Exempt Status modified retrospective transition approach for existing The University is exempt from federal income tax under leases, whereby the new rules will be applied to the Section 501(c)(3) of the United States Internal Revenue earliest year presented. The University is currently Code. Accordingly, it is not subject to income taxes evaluating the impact this ASU will have on the except to the extent it has taxable income from activities consolidated financial statements and related disclosures. that are not related to its exempt purpose. The University annually reviews its tax positions and has determined that In May 2014, FASB issued ASU No. 2014-09, Revenue there are no material uncertain tax positions that require from Contracts with Customers (Topic 606), which will recognition in the consolidated financial statements. No replace the current revenue recognition requirements in provision for income taxes was required for 2017 or 2016. GAAP. The core principle of this ASU is that a company should recognize revenue to depict the transfer of Reclassifications promised goods or services to customers in an amount Certain 2016 operating expense line items include that reflects the consideration to which the company reclassifications related to the presentation of internal cost expects to be entitled in exchange for those goods or recovery to conform with the 2017 presentation. services. In addition, the ASU requires disclosures about the nature, amount, timing, and uncertainty of revenue Recent Accounting Pronouncements and cash flows arising from contracts with customers. In March 2017, FASB issued the Accounting Standards Two transition methods are permitted: the full Update (ASU) No. 2017-07, Improving the Presentation retrospective method, in which case the standard would of Net Periodic Pension Cost and Net Periodic be applied to each prior reporting period presented and Postretirement Benefit Cost. This ASU requires the cumulative effect of applying the standard would be presentation of the service cost component of the net recognized at the earliest period shown; or the modified periodic benefit cost within the same line item or items as retrospective method, in which case the cumulative effect other compensation costs arising from services rendered of applying the standard would be recognized at the date by relevant employees during the period, and presentation of initial application. The ASU is effective for fiscal year of the other cost components of net periodic benefit cost 2019. The University is currently evaluating the impact separately and outside of the change in net assets from this ASU will have on the consolidated financial operating activities. The ASU is effective for the statements and related disclosures.

-9 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2: ACCOUNTS AND NOTES RECEIVABLE,NET

Accounts and notes receivable, net, at June 30 consists of the following:

2017 2016 (in thousands of dollars)

Sponsored grant receivables, net $ 109,813 $ 105,398 Hospitals and affiliated organizations receivables, net 31,944 40,580 Plant construction receivables due from commonwealth 22,708 9,090 Other receivables, net 12,930 11,199 Student receivables, net 11,745 9,173 Interest income receivables 1,926 1,694 Commonwealth appropriation receivable 1,037 11,143 Total accounts and notes receivable, net $ 192,103 $ 188,277

NOTE 3: CONTRIBUTIONS RECEIVABLE,NET

Contributions receivable, net, at June 30 consists of the following:

2017 2016 (in thousands of dollars) Amounts due in: Less than one year $ 14,856 $ 15,599 One to five years 18,322 16,558 Greater than five years 2,350 2,153 Gross contributions receivable 35,528 34,310 Less: Allowance for uncollectible pledges (846) (1,654) Unamortized discounts (1,489) (721) Total contributions receivable, net $ 33,193 $ 31,935

At June 30, 2017 and 2016, the five largest outstanding totaling $239.5 million and $207.9 million at June 30, pledge balances represented 29% and 37%, respectively, 2017 and 2016, respectively. These bequests and of the University’s net contributions receivable. conditional pledges have not been recognized in the consolidated financial statements. The University has been named a beneficiary in the wills of numerous donors or has received conditional pledges

- 10 - NOTE 4: ENDOWMENT AND OPERATING INVESTMENTS

Investments at June 30 consist of the following:

2017 2016 (in thousands of dollars) Endowment investments: Pooled $ 3,934,117 $ 3,513,665 Nonpooled 35,930 32,793 Subtotal endowment investments 3,970,047 3,546,458 Operating investments (Note 1) 521,879 558,801 Total endowment and operating investments $ 4,491,926 $ 4,105,259

Composition of endowment investments: Cash and cash equivalents $ 99,132 $ 65,204 Domestic equities 628,229 554,918 International equities 841,031 715,179 U.S. government and government agencies’ securities, bank acceptances and certificates, and commercial paper 222,563 173,468 Corporate bonds and other obligations 121,745 143,856 Alternative investment funds, partnerships, and exchange traded funds: Marketable alternatives 739,118 679,765 Nonmarketable alternatives 681,045 624,905 Real assets 637,184 589,163 Total endowment investments $ 3,970,047 $ 3,546,458

Composition of operating investments: U.S. government and government agencies’ securities, repurchase agreements, and commercial paper $ 300,341 $ 347,117 Corporate bonds and other obligations 201,126 192,190 Other 20,412 19,494 Total operating investments $ 521,879 $ 558,801

Unless precluded by size or donor restrictions, individual the University in perpetuity. Accordingly, the endowment fund assets are pooled and collectively University’s investment policy is intended to optimize managed on a unitized basis. Each endowment fund long-term total return — income plus capital appreciation subscribes to or disposes of units in the pool using fair — relative to the level of risk taken. value per unit at the beginning of the month such subscription or disposition occurs to account for the The University’s investment policy contemplates the transaction. effects of its spending policy. The endowment spending policy balances the need for reliable and predictable The philosophies and policies employed in the earnings distributions to support current University management of the endowment are long-term by activities with the desire to maintain the purchasing power definition, as they are based on the expectation that the of endowment assets so that they can continue providing endowment will continue to provide financial support to financial support for future generations (see Note 10).

- 11 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the University’s investments at June 30, 2017 and 2016, for which NAV was used as a practical expedient to estimate fair value:

Fair Value Unfunded Redemption Determined Using NAV Commitments Redemption Notice Asset Class 2017 2016 at June 30, 2017 Frequency Period (in thousands of dollars) International equities $ 127,969 $ 108,485 $ - Quarterly 60-120 days

Marketable alternatives: Redeemable within one year 585,896 483,100 - 90-365 days 30-180 days Redeemable beyond one year 45,829 156,848 - 1-3 years 30-60 days Nonredeemable 35,957 39,817 30,079 NA NA Total marketable alternatives 667,682 679,765 30,079

Nonmarketable alternatives 681,045 624,905 403,483 NA NA

Real assets: Redeemable 52,718 65,811 - Monthly 10 days Nonredeemable 570,938 523,352 313,274 NA NA Total real assets 623,656 589,163 313,274 Total $ 2,100,352 $ 2,002,318 $ 746,836

Descriptions follow for each asset class set forth in the in equity and equity-like securities of mostly nonpublicly table above: traded companies over investment periods of typically three to five years during which committed capital may be International Equities called and invested. The University’s interests in private A portion of the University’s investments in emerging equity funds are considered to be illiquid in that they are market equities includes an interest in one fund that holds not easily transferable and typically achieve liquidity over publicly traded emerging market equities. multi-year periods when and if the fund managers distribute proceeds realized from underlying fund assets. Marketable Alternatives The University’s investments in marketable alternatives Real Assets are interests in commingled funds that hold various The University’s investments in real assets are interests in combinations of long and short positions predominantly commingled funds that hold various combinations of in publicly traded equities, fixed income, and financial publicly and nonpublicly traded physical assets (such as derivatives. Funds that are nonredeemable typically have real estate, natural resources, commodities, and utilities), investment periods of three or more years during which the financial assets and derivatives associated with such committed capital may be called and invested. The physical assets, and the equity and equity-like securities University’s interests in the nonredeemable funds are of companies engaged in physical asset ownership, considered to be illiquid in that they are not easily operations and/or services. Funds that are nonredeemable transferable and typically achieve liquidity over multi- typically have investment periods of three or more years year periods when and if the fund managers distribute during which committed capital may be called and proceeds realized from the underlying fund assets. invested. The University’s interests in the nonredeemable funds are considered to be illiquid in that they are not Nonmarketable Alternatives easily transferable and typically achieve liquidity over The University’s investments in nonmarketable multi-year periods when and if the fund managers alternatives are interests in commingled, private equity distribute proceeds realized from the underlying fund funds, including venture capital. These funds are invested assets.

- 12 - NOTE 5: FAIR VALUE MEASUREMENTS

The following tables summarize the inputs used in valuing the University’s assets and liabilities carried at fair value, excluding investments stated at NAV as a practical expedient, at June 30, 2017 and 2016:

2017 Level 1 Level 2 Level 3 Total Assets (in thousands of dollars) Cash and cash equivalents $ 21,173 $ 1,321 $ - $ 22,494 Endowment investments: Cash and cash equivalents 57,510 41,622 - 99,132 Domestic equities 615,254 12,975 - 628,229 International equities 708,761 - 4,301 713,062 U.S. government, corporate bonds, and other obligations 278,319 56,641 9,348 344,308 Marketable alternatives 71,436 - - 71,436 Real assets 13,528 - - 13,528 Subtotal endowment investments(1) 1,744,808 111,238 13,649 1,869,695 Operating investments: U.S. government, corporate bonds, and other obligations 412,748 88,719 - 501,467 Other 1,699 - 18,713 20,412 Endowed funds held by third parties - - 22,944 22,944 Total assets $ 2,180,428 $ 201,278 $ 55,306 $ 2,437,012 Liabilities Interest rate swaps $ - $ 77,315 $ - $ 77,315

2016 Level 1 Level 2 Level 3 Total Assets (in thousands of dollars) Cash and cash equivalents $ 4,057 $ 2,343 $ - $ 6,400 Endowment investments: Cash and cash equivalents 35,539 29,665 - 65,204 Domestic equities 541,057 13,861 - 554,918 International equities 598,898 - 7,796 606,694 U.S. government, corporate bonds, and other obligations 257,724 55,820 3,780 317,324 Subtotal endowment investments(1) 1,433,218 99,346 11,576 1,544,140 Operating investments: U.S. government, corporate bonds, and other obligations 441,045 98,262 - 539,307 Other 1,397 - 18,097 19,494 Deposits of bond proceeds 5,806 792 - 6,598 Endowed funds held by third parties - - 22,079 22,079 Total assets $ 1,885,523 $ 200,743 $ 51,752 $ 2,138,018 Liabilities Interest rate swaps $ - $ 111,141 $ - $ 111,141

(1) The subtotals of endowment investments within the fair value tables above exclude investments of $2,100,352 and $2,002,318 as of June 30, 2017 and 2016, respectively, which are measured at NAV and are not classified in the fair value hierarchy (see Note 4).

- 13 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the change in the Level 3 activity for the years ended June 30, 2017 and 2016:

U.S. Government Other and Corporate Endowed Funds International Equities and Other Held by Third Parties Total (in thousands of dollars)

Fair Value - June 30, 2015 $ 12,848 $ 3,780 $ 41,326 $ 57,954 Capital calls/purchases 3,485 - 894 4,379 Distributions/sales (6,499) - (495) (6,994) Realized gains 263 - - 263 Unrealized losses (2,301) - (1,549) (3,850) Fair Value - June 30, 2016 7,796 3,780 40,176 51,752 Capital calls/purchases - 5,380 1,537 6,917 Distributions/sales (3,018) - (638) (3,656) Transfers out (1,275) - - (1,275) Realized gains 675 - - 675 Unrealized gains 123 188 582 893 Fair Value - June 30, 2017 $ 4,301 $ 9,348 $ 41,657 $ 55,306

Realized and unrealized gains (losses) for Level 3 activity investments held at June 30, 2017 were $0.03 million. are reported in other activities in the Consolidated Unrealized losses related to investments held at June 30, Statements of Activities. Unrealized gains related to 2016 were $2.8 million.

- 14 - NOTE 6: PROPERTY,PLANT, AND EQUIPMENT,NET

Property, plant, and equipment, net, at June 30 is summarized below:

2017 2016 (in thousands of dollars)

Land $ 63,533 $ 61,546 Buildings and improvements 3,150,047 3,048,432 Equipment 746,030 750,761 Library books 287,073 276,837 Works of art, historical treasures, and similar assets 20,949 20,838 Construction in progress 120,102 93,484 Subtotal 4,387,734 4,251,898 Less: Accumulated depreciation (2,604,638) (2,477,833) Total property, plant, and equipment, net $ 1,783,096 $ 1,774,065

The amount capitalized in property, plant, and equipment analysis of such obligations and determined that asbestos related to expenditures funded by the commonwealth on remediation costs represented the primary source of the behalf of the University totaled $729.5 million and liability. The University reviewed facilities on all $707.3 million at June 30, 2017 and 2016, respectively. campuses and estimated the timing, method, and cost of The net book value of these items was $331.5 million and remediation. The resulting liability for conditional asset $335.5 million at June 30, 2017 and 2016, respectively. remediation obligations recognized at June 30, 2017 and 2016 was $30.6 million and $37.3 million, respectively. The University has recognized a liability for conditional asset retirement obligations. The University performed an

- 15 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7: BONDS AND NOTES PAYABLE

Bonds and notes payable at June 30 are reported based upon outstanding principal and consist of the following:

Range of Years Outstanding Principal Remaining 2017 Effective (in thousands of dollars) to Maturity Interest Rates 2017 2016 Variable-rate bonds: Series 2017-C1, taxable 14-22 1.00%-1.12% $ 55,000 $ - Series 2017-C2, taxable 22-24 1.00%-1.12% 55,000 - Series 2017-C3, taxable 15-20 1.00%-1.27% 50,000 - Series 2014-B1/B2, tax-exempt 8-18 0.50%-0.92% 46,000 46,000 Series 2007-B, tax-exempt - 0.48%-0.93% - 44,621 Series 2005-A, tax-exempt - 0.45%-0.91% - 40,000 Series 2005-B, tax-exempt - 0.50%-0.92% - 45,000 Series 2005-C, tax-exempt - 0.47%-0.95% - 30,000 Series 2002-B, tax-exempt - 0.50%-0.78% - 15,000 Total variable-rate bonds 206,000 220,621

Fixed-rate bonds and notes: Series 2017-A, taxable 3 mos.-19 1.00%-3.65% 512,480 - Series 2017-B, taxable 3 mos.-13 0.91%-3.60% 104,380 - Series 2014-A, tax-exempt 19-27 3.51%-3.65% 49,000 49,000 Series 2009-A/B, tax-exempt - 3.88%-5.10% - 312,640 Series 2007-B, tax-exempt - 4.28%-4.69% - 60,000 Series 2005-A, tax-exempt - 4.69%-4.83% - 35,000 Series 2002-A, tax-exempt - 3.31%-4.31% - 25,000 Series 2002-B, tax-exempt - 4.53%-4.74% - 14,500 Series 2000-A/B/C, tax-exempt - 4.37%-5.07% - 124,400 Series 2016 PANTHER Notes, due August 15, 2017 0.60% 70,000 - Series 2015 PANTHER Notes, due August 2, 2016 0.30% - 100,000 Noninterest-bearing promissory note 171 171 Total fixed-rate bonds and notes 736,031 720,711

Unamortized net premium 1,517 12,125 Debt issuance costs (4,169) (4,508) Total bonds and notes payable $ 939,379 $ 948,949

The principal payments of bonds and notes payable for the next five years ending June 30 in millions of dollars are: 2018 $ 106.0 2019 $ 43.6 2020 $ 42.6 2021 $ 41.6 2022 $ 41.2

- 16 - The foregoing principal payments do not include $206.0 for defeasance of bond liabilities. Therefore, neither the million of variable-rate demand bonds (VRDBs) in escrow accounts nor the refunded bonds are included in commercial paper (CP) mode, all of which have final the Consolidated Balance Sheet at June 30, 2017. The maturity dates between 2030 and 2041. These bonds bear A/B refundings resulted in a $46.5 million reduction to short-term rates that are fixed over staggered periods of net assets, which is reflected in the other activities section approximately 45 days each and are remarketed at the of the Consolidated Statement of Activities for the year expiry of their respective rate periods. ended June 30, 2017. This reduction in net assets represents the amount of principal required from the A/B Liquidity support for the $206.0 million of outstanding refundings in excess of the face value of the refunded VRDBs in CP mode is provided by the University. In the bonds, net of interest expense up to the date of the event that the University receives notice of an optional refundings and new debt issuance costs. A $5.5 million tender on its VRDBs in CP mode, the tendered bonds will write-off of debt issuance costs and net premiums be purchased with remarketing proceeds. If the associated with the refunded bonds is reflected as a net remarketing proceeds are insufficient to purchase all decrease in interest expense in the Consolidated tendered bonds, the University would have a current Statement of Activities for the year ended June 30, 2017. obligation to meet the shortfall. As an additional source of liquidity for this situation, the University entered into a On May 4, 2017, the University issued $160.0 million in $75.0 million unsecured standby liquidity agreement with Taxable University Refunding Bonds (Series 2017-C); a financial institution that matures in June 2018. Since such bonds were issued as VRDBs in CP mode. The the University commenced providing self-liquidity in proceeds were used to redeem $159.6 million tax-exempt October 2009, there have been no failed remarketings. Series 2005-A/B/C and Series 2007-B VRDBs at their CP maturity date. On January 17, 2017, the University issued $512.5 million fixed-rate Taxable University Refunding Bonds In July 2016, the University issued its Pitt Asset Notes – (Series 2017-A). The proceeds were used to fund an Tax-Exempt Higher Education Series (PANTHERS) of escrow account that was irrevocably placed with a trustee 2016 in the amount of $70.0 million. The entire amount to meet the principal and interest payments of the Series was used to partially refund the $100.0 million of 2000-A/B/C ($124.4 million), Series 2002-A ($20.0 PANTHERS of 2015 that matured on August 2, 2016. million), Series 2002-B ($14.5 million) and Series 2009- The PANTHERS of 2016 matured and were repaid on A/B ($290.3 million) fixed-rate bonds until their August 15, 2017. respective first call date and to redeem $15.0 million tax- exempt Series 2002-B VRDBs in CP mode. The Series The University had three general unsecured credit 2017-A bonds were issued at par. facilities aggregating $75.0 million at June 30, 2017. No draws were made under the facilities during 2017 or 2016. On March 21, 2017, the University issued $104.4 million Although each of the three credit facilities carry an expiry fixed-rate Taxable University Refunding Bonds (Series date of October 24, 2017, it is management’s intention to 2017-B). The proceeds were used to fund an escrow extend each facility for another 364-day term. account that was irrevocably placed with a trustee to meet the principal and interest payments of the Series 2005-A Interest costs incurred in 2017 and 2016 were $31.3 ($35.0 million) and Series 2007-B ($60.0 million) fixed- million and $42.2 million, respectively. Included in these rate bonds until their respective first call date. The Series amounts are net swap payments and capitalized interest 2017-B bonds were issued at par. associated with various construction projects. Capitalized interest for 2017 and 2016 was $0.7 million and $0.8 The Series 2017-A and Series 2017-B refundings (A/B million, respectively. refundings) referenced above meet the legal requirements

- 17 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8: DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS

The University does not issue or trade derivative financial The University liabilities arising from variable-to-fixed instruments except as described herein. University interest rate swap agreements associated with certain financial assets are invested on its behalf with various University debt obligations had an aggregated fair value investment managers, some of whom are authorized to of $77.3 million and $111.1 million at June 30, 2017 and employ derivative instruments, including swaps, futures, 2016, respectively, and are included in other liabilities on forwards, and options. These derivatives are generally the Consolidated Balance Sheets (see also Note 5). The used for managing interest rate or foreign currency risk or fair value represents the estimated amount the University to attain or hedge a specific financial market position. would be required to pay to terminate these agreements as Additionally, the University has entered into various of the respective fiscal year-end. The University recorded interest rate swap agreements to hedge its interest rate risk in the Consolidated Statements of Activities unrealized associated with certain debt obligations. gains of $33.8 million in 2017 and unrealized losses of $34.5 million in 2016 due to changes in fair value of the The University may be exposed to financial loss should a swaps. derivative counterparty fail to perform pursuant to the instrument. In the case of exchange-traded derivatives, The aggregate notional amount of the swap agreements the counterparty is the exchange itself. In the case of associated with University debt was $350.3 million and over-the-counter derivatives, the counterparty is typically $365.3 million at June 30, 2017 and 2016, respectively. a financial institution. Counterparty risks are mitigated These swaps were entered into for the sole purpose of by using creditworthy counterparties, settling positions hedging interest payable on certain University VRDBs. periodically, and requiring collateral to be posted at The variable interest rates received by the University predetermined levels of exposure. under the swap agreements are either 67% or 70% of one- or three-month London Interbank Offered Rates Not including University derivative instruments held by (LIBOR), while the fixed rates paid by the University various alternative investment funds, the University range from 3.25% to 5.14%. Net swap payments made or invested in futures contracts with gross notional values of received by the University are reported in interest expense $50.9 million and $51.2 million at June 30, 2017 and in the Consolidated Statements of Activities. No 2016, respectively. When the University uses futures to collateral was called or posted during 2017 or 2016 with replicate an investment position, it has opted to do so on a respect to these swap agreements. Furthermore, the fully collateralized basis. Futures contracts are marked- University does not anticipate posting collateral pursuant to-market daily based on settlement prices established by to these swap agreements since there are no collateral the board of trade or exchange on which they are traded. thresholds applicable to the University given the Gains and losses are realized when the contracts expire or University’s current credit ratings. are closed. There was an unrealized loss on these future contracts of $0.2 million at June 30, 2017 and an unrealized gain of $1.4 million at June 30, 2016.

- 18 - NOTE 9: PENSION AND POSTRETIREMENT OBLIGATIONS

Pension Postretirement The University provides retirement benefits under The University also provides postretirement medical and contributory or noncontributory plans to substantially all life insurance benefits to eligible employees and their employees. The University’s contributory plan provides spouses upon retirement through a contributory benefit for participant directed investment in certain investments plan. managed by the Teachers Insurance and Annuity Association (TIAA) and College Retirement Equities Though funding is not required, the University has elected Fund (CREF) and in certain investment funds of the to fund its postretirement liability via a quasi-endowment Vanguard Group. The plan requires three years of service fund, which is managed within the University’s pooled for vesting of the University contribution. Employees endowment investments (see Notes 4 and 10). The fair hired before January 1, 1995 were immediately vested. value of these investments at June 30, 2017 and 2016 was University contributions to this plan in 2017 and 2016 $410.6 million and $354.3 million, respectively, and is were $79.0 million and $76.2 million, respectively. included in endowment investments on the Consolidated Balance Sheets. Although the University has established The noncontributory plan is a defined-benefit pension this quasi-endowment for the postretirement plan, plan that covers employees who do not participate in the payments to beneficiaries of this plan are currently made contributory plan. The plan was amended to freeze new through nonendowed operating funds. entrants effective November 3, 2015. The plan provides for vesting after five years with pension benefits accruing Under the Medicare Prescription Drug, Improvement, and at 2.1% of base salary or the Social Security wage base, Modernization Act of 2003, the federal government whichever is lower. Pension benefits are payable upon provides a subsidy to employers equal to 28% of the normal retirement at age 65 or early retirement at age 55, employer’s qualifying prescription drug costs for retirees in accordance with the conditions and pension eligibility if the plan offered by the employer is at least actuarially criteria described in the plan. University contributions to equivalent to Medicare Part D. The University is this plan in 2017 and 2016 were $15.0 million and $10.9 qualified for and receives the subsidy via a reduction in million, respectively. premiums charged by its provider.

- 19 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The University uses a measurement date of June 30 for plan assets and the benefit obligations. Information related to the benefit obligation, assets, and funded status of the defined-benefit pension plan and the postretirement benefit plan as of and for the years ended June 30, 2017 and 2016 is summarized in the table below:

Defined-Benefit Plan Postretirement Plan 2017 2016 2017 2016 (in thousands of dollars) Net periodic benefit cost: Service cost $ 8,136 $ 6,255 $ 19,525 $ 15,276 Interest cost 5,851 5,605 20,237 21,431 Expected return on plan assets (7,427) (6,990) - - Actuarial loss 3,443 1,113 5,789 2,897 Amortization of prior service credit - (52) (4,025) (3,964) Net periodic benefit cost $ 10,003 $ 5,931 $ 41,526 $ 35,640

Funded status: Benefit obligation at beginning of year $ 151,266 $ 117,822 $ 541,785 $ 455,755 Service cost 8,136 6,255 19,525 15,276 Interest cost 5,851 5,605 20,237 21,431 Actuarial (gain) loss (7,000) 22,722 (36,470) 66,435 Benefits paid (1,376) (1,138) (17,037) (17,112) Benefit obligation at end of year $ 156,877 $ 151,266 $ 528,040 $ 541,785

Fair value of plan assets at beginning of year $ 103,666 $ 94,243 Actual return on plan assets 13,537 (370) Actual plan contributions 15,004 10,931 Benefits paid (1,376) (1,138) Fair value of plan assets at end of year $ 130,831 $ 103,666

Funded status – liability recognized on Consolidated Balance Sheets: Pension and postretirement obligations $ (26,046) $ (47,600) $ (528,040) $ (541,785)

Accumulated benefit obligation $ 149,723 $ 144,496

Estimated 2018 employer contribution to the defined-benefit plan: (in thousands of dollars) $ 6,652

- 20 - Defined-Benefit Plan Postretirement Plan 2017 2016 2017 2016

Weighted-average assumptions used to determine the benefit obligation (liability) at June 30: Discount rate 3.9% 3.9% 3.9% 3.8% Rate of compensation increase 3.0% 3.0% - - Assumed health care trend cost: Initial trend – pre-age 65 retirees - - 7.0% 7.0% Initial trend – post-age 65 retirees - - 7.0% 7.0% Ultimate trend - - 4.5% 4.5% Year to reach ultimate - - 2025 2024

Weighted-average assumptions used to determine the net periodic cost (expense) for the years ended June 30: Discount rate 3.9% 4.8% 3.8% 4.8% Rate of compensation increase 3.0% 3.0% - - Expected long-term return on plan assets 7.25% 7.5% - - Assumed health care trend cost: Initial trend – pre-age 65 retirees - - 7.0% 7.0% Initial trend – post-age 65 retirees - - 7.0% 6.0% Ultimate trend - - 4.5% 4.5% Year to reach ultimate - - 2024 2023

Defined-Benefit Postretirement Estimated future benefit payments: Plan Plan (in thousands of dollars)

2018 $ 2,540 $ 16,878 2019 $ 2,821 $ 19,343 2020 $ 3,176 $ 20,587 2021 $ 3,578 $ 22,188 2022 $ 4,024 $ 23,884 2023 - 2027 $ 27,357 $ 140,502

- 21 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A one-percentage point change in assumed health care cost trend rates would have the following effects on the postretirement plan:

Increase Decrease (in millions of dollars)

Revised Percent Revised Percent Amount Change Amount Change

Service and interest cost (medical component only) $ 39.3 6.1% $ 32.6 12.1% Total periodic benefit cost $ 45.5 9.5% $ 34.2 17.7% Benefit obligation for health care benefits $ 510.7 5.8% $ 435.9 9.7% Total benefit obligation $ 556.0 5.3% $ 481.6 8.8%

Pension Assets participants and beneficiaries; cover reasonable expenses Assets related to the University’s defined-benefit pension incurred to provide such benefits, including expenses plan are segregated in a trust managed by a third-party incurred in the administration of the trust and the plan; investment manager. The fair value of these assets at provide sufficient liquidity to meet benefit and expense June 30, 2017 and 2016 was $130.8 million and $103.7 payment requirements on a timely basis; and provide a million, respectively. The fund is invested through total return that, over the long term, maximizes the ratio common collective trust funds in domestic and of trust assets to liabilities by maximizing investment international equities and fixed-income securities using return, at an appropriate level of risk. The expected return the S&P 500 Index as a benchmark for domestic equities, on plan assets is based on a weighted average of the the MSCI EAFE Index for international equities, and the individual expected return for each asset category in the Barclays Intermediate Government/Credit Bond Index for plan’s portfolio. Expected return comprises inflation plus the fixed-income securities. Common collective trust the real rate of return for each asset class. funds are similar to mutual funds; however, they are generally not registered with the U.S. Securities and Over the long term, asset allocation is believed to be the Exchange Commission and participation is not open to the single greatest determinant of risk and return. Asset public but limited to institutional investors. The specific allocation will deviate from the target percentages due to investment objective is to meet or exceed the investment market movement, cash flows, and investment manager policy benchmark over the long term. Plan investments performance. Material deviations from the asset are determined using NAV per share available at the allocation target can alter the expected return and risk of measurement date, as published by the fund manager. the trust. However, frequent rebalancing to the asset The plan has no unfunded commitments. Pension plan allocation targets may result in significant transaction assets are Level 1 in the fair value hierarchy. costs, which can impair the trust’s ability to meet its investment objective. The long-term investment strategy for pension plan assets is to meet present and future benefit obligations to all

- 22 - The target allocation for both fiscal years and the fair value of the University’s pension plan assets at June 30, by asset category, were as follows:

Target Allocation 2017 2016 Asset class: (in thousands of dollars) Equity securities: Stock index and small cap 35% $ 45,684 $ 36,616 International 35% 45,748 35,438 Debt securities 30% 39,098 31,312 Cash and cash equivalents - 301 300 Total pension plan assets $ 130,831 $ 103,666

- 23 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10: ENDOWMENT NET ASSETS

The commonwealth has not adopted The Uniform Prudent percentage of 4.25% of the endowment’s three-year Management of Institutional Funds Act of 2006 average fair value, provided that such distribution is not (UPMIFA) and, instead, enacted in December 1998 less than the amount distributed in the previous year. The Pennsylvania Act 141 (codified as Title 15 of the endowment income distribution amounts for both 2017 Pennsylvania Consolidated Statutes §5548(c) and referred and 2016 represent 4.25% of the endowment’s three-year to herein as Title 15) to govern the investment of average fair value. restricted funds held in trust by Pennsylvania nonprofit corporations. Title 15 permits Pennsylvania nonprofit Employing the total return approach, the University corporations to elect a total return approach for records the original value of an endowed contribution as a determining income distributions from restricted funds permanently restricted asset, along with any endowment held in trust, whereby income is defined as a stipulated income distributions that are reinvested in the percentage of the value of the assets held; the stipulated endowment. Nonendowed funds that lack third-party percentage must be determined at least annually and may donor restrictions but function as endowments (quasi- be no less than 2% nor more than 7%, and the value of the endowments) are classified as unrestricted net assets. assets held must be averaged over a period of three or Gains and losses attributable to donor-restricted endowed more preceding years. A resolution to elect a total return funds are recorded as temporarily restricted net assets, approach for determining endowment income whereas gains and losses attributable to quasi-endowment distributions for the University’s consolidated investment funds are recorded as unrestricted net assets. pool was passed by the University’s Board of Trustees on October 21, 1999. The University’s endowment income distribution is determined annually using a stipulated

The University’s endowment net assets at June 30 were as follows:

2017 Temporarily Permanently Unrestricted Restricted Restricted Total (in thousands of dollars) Donor-restricted endowment funds $ - $ 801,566 $ 713,522 $ 1,515,088 Quasi-endowment funds 2,439,453 - - 2,439,453 Total endowment net assets $ 2,439,453 $ 801,566 $ 713,522 $ 3,954,541

2016 Temporarily Permanently Unrestricted Restricted Restricted Total (in thousands of dollars) Donor-restricted endowment funds $ - $ 686,118 $ 684,922 $ 1,371,040 Quasi-endowment funds 2,163,439 - - 2,163,439 Total endowment net assets $ 2,163,439 $ 686,118 $ 684,922 $ 3,534,479

- 24 - The change in endowment net assets for the years ended June 30, 2017 and 2016 was as follows:

Temporarily Permanently Unrestricted Restricted Restricted Total (in thousands of dollars)

Endowment net assets – June 30, 2015 $ 2,164,556 $ 780,998 $ 653,935 $ 3,599,489 Endowment return: Endowment earnings 14,978 - 2,237 17,215 Losses (15,270) (94,880) (62) (110,212) Total endowment return (292) (94,880) 2,175 (92,997) Contributions 173 - 28,812 28,985 Distributions for operations (118,245) - - (118,245) Net transfers 117,247 - - 117,247 Endowment net assets – June 30, 2016 2,163,439 686,118 684,922 3,534,479 Endowment return: Endowment earnings 17,146 - 2,057 19,203 Gains 326,039 115,448 117 441,604 Total endowment return 343,185 115,448 2,174 460,807 Contributions 497 - 26,426 26,923 Distributions for operations (126,472) - - (126,472) Net transfers 58,804 - - 58,804 Endowment net assets – June 30, 2017 $ 2,439,453 $ 801,566 $ 713,522 $ 3,954,541

Approximately 99% of the University’s endowment funds provides general oversight, policy guidance, and are collectively managed in a broadly diversified pool of performance review of the consolidated investment pool assets called the consolidated investment pool. The and approves asset allocation and spending policies. Investment Committee of the Board of Trustees

- 25 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11: FUNCTIONAL EXPENSES

The University accounts for expenses according to major classes of program services or functions. Functional expenses for the years ended June 30 consist of the following:

2017 2016 (in thousands of dollars) Instruction $ 581,624 $ 566,786 Research 707,495 676,069 Public service 85,899 85,449 Academic support 205,833 193,807 Libraries 47,342 47,240 Student services 166,434 150,751 Institutional support 145,404 139,898 Auxiliary enterprises 143,968 142,393 Total functional expenses $ 2,083,999 $ 2,002,393

Costs related to the operation and maintenance of property, including depreciation of property and equipment and interest on related debt, are primarily allocated to program and support activities based upon salary effort.

NOTE 12: RELATED PARTIES

The University has relationships and affiliation transactions with these entities, which include providing agreements with separately incorporated entities including certain facilities-related services, telephone, mailing, UPMC and affiliated hospitals and UPP. These printing, and various other services, which are reimbursed relationships include a common paymaster arrangement at cost. Reimbursements from UPMC, UPP, and for certain University School of Medicine (SOM) faculty affiliated hospitals for clinical compensation and other with academic and clinical responsibilities; contractual costs totaled $136.8 million and $137.6 million in 2017 obligations for UPMC and UPP to support certain and 2016, respectively. educational and research functions at the University; and property rental agreements. Transactions with all related In 1998, the University signed a 10-year agreement with entities are conducted in the ordinary course of business UPMC that included financial commitments designed to and are discussed below. further the two entities’ commitment to their interrelated teaching, research, clinical care, and community service Certain University SOM faculty and staff provide clinical missions. As part of the agreement, UPMC provides services through their University appointments to UPMC, $12.5 million annually in funding for the SOM. UPMC UPP, and affiliated hospitals. The University invoices also provides additional funding up to $2.5 million these entities monthly for reimbursement of the clinical annually on a matching basis. The match is on a one-to- portion of the associated compensation costs. SOM two basis with UPMC matching $1 for every $2 provided faculty members, having both a University academic by the University to support health sciences programs. appointment and a separate, external appointment for The University has received this match each year since clinical responsibilities, participate in the common the inception of the agreement. This agreement was paymaster arrangement for purposes of determining amended in 2007 under essentially the same terms, except appropriate FICA taxation. In addition to the reimbursable for a provision to provide an additional $10.0 million per compensation costs, the University also engages in other year in 2007, increased annually by $0.5 million from

- 26 - 2008 through 2016. The University received $30.0 million in 2017 and 2016, respectively, and are reported million and $29.5 million (including the annual match) in as sales and services, educational and other in the 2017 and 2016, respectively. Effective July 1, 2016, the Consolidated Statements of Activities. term of the agreement was extended through June 30, 2020. The amounts from this agreement are reported as The University is involved in certain rental arrangements other revenue in the Consolidated Statements of in which the University acts as both lessor or lessee with Activities. UPMC and its affiliates. Rental revenue from UPMC and affiliates totaled $10.2 million and $10.0 million in 2017 The UPMC agreement was further amended in 2009 to and 2016, respectively. Rent expense paid to UPMC and include additional financial support through the affiliates totaled $21.9 million in both 2017 and 2016. Children’s Hospital of Pittsburgh of UPMC (CHP) to the University of at least $7.5 million annually related to an In April 2013, the University entered into a five-year agreement detailing the transfer of certain pediatric agreement with UPMC to provide full-time, armed police research programs from CHP to the University. This aid, support, and assistance for certain UPMC facilities. transfer standardized procedures, eliminated duplication Payments made by UPMC for these services totaled $2.4 of services, improved efficiency, reduced costs, and million and $2.3 million in 2017 and 2016, respectively, enhanced recruitment efforts for pediatric programs. The and are reported as other revenue in the Consolidated University received $11.6 million and $10.9 million in Statements of Activities. 2017 and 2016, respectively, related to this additional support. These amounts are reported as sales and UPMC serves as the provider of health insurance services, educational and other in the Consolidated coverage to all eligible University employees who enroll Statements of Activities. in the plan. The University is self-insured for these costs and reimburses UPMC for actual claims cost. Health UPMC also provided $15.1 million and $14.7 million in insurance expense including administrative fees totaled 2017 and 2016, respectively, of contractual dean’s tax, $118.4 million and $107.2 million in 2017 and 2016, which represents support for the academic and research respectively, and is reported as fringe benefits in the activities of the SOM. This activity is reported as sales Consolidated Statements of Activities. and services, educational and other in the Consolidated Statements of Activities. UPMC receives federal matching funds for costs incurred by academic medical centers for medical assistance UPMC provides additional academic support to the SOM services. The funds are remitted to the University to for new programs, faculty recruitment, and general support the activities of the SOM, the Western Psychiatric support of the School’s academic mission. The Institute and Clinic (WPIC), the Center for Public Health University received $52.5 million and $59.5 million in Practice, and the clinic within the School of Dental 2017 and 2016, respectively, related to this additional Medicine. These remittances were $12.1 million and support. These amounts are reported as sales and $11.1 million in 2017 and 2016, respectively, and are services, educational and other in the Consolidated reported as commonwealth appropriation revenue in the Statements of Activities. Consolidated Statements of Activities.

UPMC also provided $2.3 million and $2.9 million in In 2003, the University and UPMC created the Medical 2017 and 2016, respectively, for the Institute for and Health Sciences Foundation (MHSF), a separate Personalized Medicine. These amounts are reported as 501(c)(3) organization. The MHSF serves as a unified other revenue in the Consolidated Statements of fundraising organization for the University’s schools of Activities. the health sciences and UPMC. The arrangement calls for the cost of MHSF to be split between the University and Additionally, UPMC provided support to various UPMC. UPMC’s share of total operating costs for MHSF departments within the SOM to augment their operating totaled $3.6 million and $3.7 million in 2017 and 2016, budgets. These payments were made to those respectively, and is reported as other revenue in the departments that do not generate sufficient revenues to Consolidated Statements of Activities. All contributions meet their research and academic costs. Payments made generated by MHSF are credited to the University or by UPMC for this purpose totaled $9.3 million and $9.0 UPMC based upon donor intent.

- 27 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In November 2004, the University entered into an and equipment is $191.9 million and $190.7 million at agreement with UPMC to jointly construct and own the June 30, 2017 and 2016, respectively, related to the land, Carrillo Street steam plant, a gas-fired steam-generating buildings, and equipment used by WPIC. Accumulated facility. The University funded 78.1% of construction depreciation related to these assets totaled $163.8 million costs with UPMC funding the remaining 21.9%. The and $159.9 million at June 30, 2017 and 2016, plant provides steam to each entity’s respective buildings respectively. and is managed by the University. The University also has an arrangement with UPMC A lease arrangement exists between the University and whereby certain research-related costs incurred by UPMC the commonwealth for WPIC. Since 1949, the University (primarily staff compensation) in relation to WPIC and has managed WPIC under an agreement between the the UPMC Hillman Cancer Center (UHCC) research University and the commonwealth whereby the awards are charged to such awards via an electronic University rents for a consideration of $1 per year the billing and reimbursed to UPMC each month. Payments land, building, equipment, and other items that are used totaled $23.1 million in 2017 and $23.2 million in 2016 by WPIC. The agreement provides for continuing terms and are recorded as expenses in the Consolidated of 10 years each; however, this agreement is cancelable Statements of Activities. All billings are recorded at cost. by either party on one year’s written notice. In 1992, the University subleased to UPMC the land, building, UPMC provided support payments to UHCC for various equipment, and other items subject to the current lease subsidies, research initiatives, and general support. These arrangement between the commonwealth and the payments totaled $14.4 million in both 2017 and 2016, University. This sublease arrangement continued to be in and are primarily reported in other revenue in the effect during 2017 and 2016. Included in property, plant, Consolidated Statements of Activities.

- 28 - NOTE 13: COMMITMENTS AND CONTINGENCIES

At June 30, 2017 and 2016, the University had The University receives significant financial assistance outstanding contractual commitments of $75.6 million from the federal government including the sponsorship of and $63.4 million, respectively, for property, plant, and federal research projects. Grants and contracts normally equipment expenditures. provide for the recovery of direct and indirect costs. Recovery of indirect costs is recorded at predetermined The University engages in various leasing activities as rates negotiated with the federal government. Entitlement both a lessor and lessee. Rental revenue from operating to these resources for the recovery of the applicable direct leases was $18.3 million and $18.4 million in 2017 and and related indirect costs is generally conditioned upon 2016, respectively. Rental expense for operating leases compliance with the terms and conditions of the grant was $47.8 million in 2017 and $45.5 million in 2016. agreements and applicable federal regulations, including Minimum future rental revenue and expense under the expenditure of the resources for eligible purposes. operating leases that have initial or remaining Substantially all grants and the University’s indirect cost noncancelable lease terms for the years ended June 30 are rate are subject to financial and compliance reviews and as follows: audits by the grantors. In management’s opinion, the likelihood of a material adverse outcome on the Rental Rental University’s financial position from those reviews and Revenue Expense audits is remote. (in thousands of dollars) 2018 $ 16,524 $ 46,303 As part of ongoing operations, the University enters into 2019 $ 13,439 $ 45,130 utility contracts to secure electric and natural gas rates. 2020 $ 6,631 $ 36,617 These contracts are with various utility suppliers and 2021 $ 6,179 $ 22,796 some of the contracts cover multiple years. The 2022 $ 3,574 $ 16,829 University monitors the energy markets on an ongoing Thereafter $ 11,606 $ 105,670 basis and will make commitments on new rates if deemed in the best interest of the University. The University is a defendant in a number of legal actions seeking damages and other relief from the University. The University conducts a review of contracts and While the final outcome of each action cannot be agreements that may contain guarantees, including loan determined at this time, legal counsel and University guarantees such as standby letters of credit and management are of the opinion that the liability, if any, in indemnifications. In certain contracts, the University these legal actions will not have a material adverse effect agrees to indemnify a third-party service provider under on the University’s consolidated financial statements. certain circumstances. Pursuant to its bylaws, the University provides indemnification to directors, officers, The University receives significant support from UPMC and, in some cases, employees and agents against certain to continue the two entities’ commitment to their liabilities incurred as a result of service provided on interrelated teaching, research, clinical care, and behalf of or at the request of the University. The terms of community service missions. There are various indemnity vary from agreement to agreement, and the agreements between the University and UPMC that amount of indemnification, if any, cannot be reasonably provide for this support (see Note 12), but there is no determined. guarantee these agreements will be renewed in future periods.

NOTE 14: SUBSEQUENT EVENTS

The University has evaluated subsequent events through there were no subsequent events requiring disclosure or September 22, 2017, the date on which the consolidated adjustment to the consolidated financial statements. financial statements were issued, and determined that

- 29 - MEMBERSHIP OF THE BOARD OF TRUSTEES FISCAL YEAR 2017

2016 – 20 M EMBERS A LUMNI T RUSTEES E MERITUS T RUSTEES E X OFFICIO John A. Barbour (NONVOTING) Eva Tansky Blum J. David Barnes 2014 – 18 Edward J. Grefenstette Steven C. Beering Tom Wolf, Governor Jane Bilewicz Allred Patricia D. Horoho Thomas G. Bigley of the Commonwealth of F. James McCarl III John H. Pelusi Jr. Pennsylvania John G. Conomikes 2015 – 19 George A. Davidson Jr. Pedro Rivera, 2017 – 21 Michael A. Bryson Catherine D. DeAngelis Secretary of Education Ira J. Gumberg Herbert P. Douglas Jr. of the Commonwealth of Dawne S. Hickton 2016 – 20 D. Michael Fisher Pennsylvania Roberta A. Luxbacher S. Jeffrey Kondis E. Jeanne Gleason Thomas E. Richards Jack D. Smith J. Roger Glunt Rich Fitzgerald, Chief Earl F. Hord Executive of Allegheny 2017 – 21 A. Alice Kindling County Larry J. Merlo Paul E. Lego George L. Miles Jr. William Peduto, Mayor of Frank E. Mosier the City of Pittsburgh Alfred L. Moyé Thomas H. O’Brien Anthony J.F. O’Reilly M EMBER S PECIAL T RUSTEES C OMMONWEALTH Robert A. Paul E X O FFICIO T RUSTEES (VOTING) James C. Roddey 2014 – 18 G: Governor appointment Farrell Rubenstein Patrick Gallagher, Chancellor Brian Generalovich H: House appointment Richard P. Simmons and Chief Executive Officer Robert M. Hernandez S: Senate appointment Charles M. Steiner Robert P. Randall John A. Swanson Sam S. Zacharias Burton M. Tansky 2013 – 17 Dick Thornburgh Sy Holzer (G) 2015 – 19 Thomas J. Usher Thomas VanKirk (H) G. Nicholas Beckwith III Edward P. Zemprelli William K. Lieberman (S) T ERM T RUSTEES Louis R. Cestello Thomas M. Kurtz 2014 – 18 2014 – 18 Jeannine T. Schoenecker Kevin Washo Jr. (G) Mary Ellen Callahan John A. Maher III (H) James Covert 2016 – 20 John J. Verbanac (S) Terrence P. Laughlin David C. Chavern Keith E. Schaefer Marlee S. Myers 2015 – 19 Shawndya L. Simpson Jake Wheatley Jr. (G) 2015 – 19 Herbert S. Shear (H) 2017 – 21 Robert G. Lovett Peter C. Varischetti (S) Martha Hartle Munsch Douglas M. Browning William E. Strickland Jr. Deborah J. Gillotti 2016 – 20 Stephen R. Tritch Tamara M. Haddad Bradley J. Franc (G) Thomas O. Johnson II (H) Jay Costa Jr. (S)

The consolidated financial statements have been reviewed and approved by the University’s Audit Committee. The Audit Committee is comprised of outside directors having requisite financial expertise and meets regularly with University management and both i reporting matters. The committee meets with the external auditors in private sessions and is also responsible for approving ned each year. Nonvoting representatives on the committee include members of the University’s administration as well as student, faculty, and staff representatives.

- 30 - APPENDIX C

PROPOSED FORM OF APPROVING OPINION OF NOTE COUNSEL

Ballard Spahr LLP will render an opinion in substantially the following form in connection with the issuance of the Notes

Re: [$110,000,000] University of Pittsburgh – Of the Commonwealth System of Higher Education PANTHERSTM (Pitt Asset Notes – Tax-Exempt Higher Education Registered Series of 2018)

Ladies and Gentlemen:

We have acted as note counsel to the University of Pittsburgh – Of the Commonwealth System of Higher Education (the “University”) in connection with the issuance by the University of [$110,000,000] aggregate principal amount of its PANTHERS™ (Pitt Asset Notes – Tax-Exempt Higher Education Registered Series of 2018) (the “Notes”). The Notes are issued pursuant to the University of Pittsburgh - Commonwealth Act, Act of July 28, 1966, P.L. 87, as amended (the “Act”), an Issuing and Paying Agent Agreement dated as of August 1, 2018 (the “Agreement”) by and between the University and U.S. Bank National Association, as paying agent, authenticating agent and registrar (the “Bank”), and a Resolution of the Board of Trustees of the University adopted on June 24, 2005 (the “Resolution”).

Proceeds of the Notes will be used by the University to (i) reimburse the University for certain capital expenditures; and (ii) pay the costs of issuance of the Notes (collectively, the “Project”).

Pursuant to Section 1317(24) of the Tax Reform Act of 1986, obligations of certain educational organizations, including the University, shall be treated as obligations issued for a governmental purpose, but only with respect to a trade or business carried on by the University that is not an unrelated trade or business, as determined pursuant to Section 513(a) of the Internal Revenue Code of 1986, as amended (the “Code”). The University has covenanted in its Tax Certificate and Agreement dated the date hereof (the “Tax Certificate”) that it is an organization described in Section 501(c)(3) of the Code and that it will not use the proceeds of the Notes in an unrelated trade or business as determined pursuant to Section 513(a) of the Code, except as permitted under the Code.

An officer of the University has stated in the Tax Certificate the reasonable expectations of the University on the date of issue of the Notes as to future events that are material for the purposes of Section 148 of the Code, pertaining to arbitrage bonds. The University has covenanted in the Tax Certificate that it will comply with the requirements of the Code, including Section 148(f) of the Code which provides for the rebate of certain arbitrage profits to the United States. The University has also delivered for filing with the Internal Revenue Service a report of the issuance of the Notes as required by the Code as a condition of the exclusion from gross income of the interest on the Notes for federal income tax purposes.

In our capacity as note counsel, we have examined such matters of law, documents, records of the University and other instruments as we deemed necessary to enable us to express the opinions set forth below, including original counterparts or certified copies of the Agreement, the Resolution, the Tax Certificate and the other documents listed in the closing memorandum in respect of the Notes. We also have examined an executed Note and we assume that all other Notes have been similarly executed and have been authenticated and delivered. We also have assumed that the Agreement has been duly authorized, executed and delivered by the Bank.

Based on the foregoing, we are of the opinion that, under existing law:

C-1 APPENDIX C

1. The University is a nonprofit corporation and an instrumentality of the Commonwealth of Pennsylvania (the “Commonwealth”) validly subsisting under the laws of the Commonwealth pursuant to the Act and has the power to undertake the Project and to issue and sell the Notes.

2. The Agreement has been duly authorized, executed and delivered by the University and constitutes the valid and binding obligation of the University enforceable against the University in accordance with its terms, except as the rights created thereunder and the enforcement thereof may be limited by bankruptcy, insolvency or other laws or equitable principles affecting the enforcement of creditors’ rights generally.

3. The issuance and sale of the Notes have been duly authorized by the University. Based on the assumption as to execution and authentication set forth above, the Notes have been duly executed and delivered by the University and authenticated by the Bank and are valid and binding obligations of the University enforceable against the University in accordance with their terms, except as the rights created thereunder and the enforcement thereof may be limited by bankruptcy, insolvency or other laws or equitable principles affecting the enforcement of creditors’ rights generally.

4. The Notes are exempt from personal property taxes in Pennsylvania, and interest on the Notes is exempt from Pennsylvania personal income tax and Pennsylvania corporate net income tax, under the laws of the Commonwealth as enacted and construed on the date of initial delivery of the Notes.

5. Interest on the Notes is excludable from gross income for purposes of federal income tax under existing laws as enacted and construed on the date of initial delivery of the Notes, assuming the accuracy of the certifications of the University and continuing compliance by the University with the requirements of the Code. Interest on the Notes is not an item of tax preference for purposes of the individual federal alternative minimum tax. The corporate alternative minimum tax was repealed by legislation enacted on December 22, 2017 (known as the "Tax Cuts and Jobs Act"), effective for tax years beginning after December 31, 2017. For tax years beginning on or before December 31, 2017 interest on the Notes is not an item of tax preference for purposes of the corporate alternate minimum tax in effect prior to enactment of the Tax Cuts and Jobs Act; however, interest on Notes held by a corporation (other than an S Corporation, regulated investment company, or real estate investment trust) indirectly may be subject to federal alternative minimum tax because of its inclusion in the adjusted current earnings of a corporate holder. Note Counsel expresses no opinion regarding other federal tax consequences relating to ownership or disposition of, or the accrual or receipt of interest on, the Notes.

We express no opinion regarding the accuracy, completeness, sufficiency or fairness of the information set forth in the official statement or other offering documents of the University delivered to purchasers of the Notes.

We call your attention to the fact that the Notes are not obligations of, and do not pledge the credit or taxing power of, the Commonwealth or any political subdivision thereof. The University has no taxing power.

Very truly yours,

C-2