and Subsidiaries FINANCIAL STATEMENTS May 31, 2018

and Subsidiaries FINANCIAL STATEMENTS May 31, 2018

VILLANOVA UNIVERSITY FINANCIAL STATEMENTS May 31, 2018 Table of Contents Report of Independent Auditors 1 Financial Statements: Consolidated Statements of Financial Position 2 Consolidated Statement of Activities for the year ended May 31, 2018 3 Consolidated Statement of Activities for the year ended May 31, 2017 4 Consolidated Statements of Changes in Net Assets 5 Consolidated Statements of Cash Flows 6 Notes to Financial Statements 7-27

To the Board of Trustees of Villanova University: Report of Independent Auditors We have audited the accompanying consolidated financial statements of Villanova University and its subsidiaries (the University ), which comprise the consolidated statements of financial position as of May 31, 2018 and 2017, and the related consolidated statements of activities, changes in net assets, and cash flows for the years then ended. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the University s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Villanova University and its subsidiaries as of May 31, 2018 and 2017, and the changes in their net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. October 8, 2018 PricewaterhouseCoopers LLP, Two Commerce Square, Suite 1800, 2001 Market Street, Philadelphia, PA 19013-7045 T: (267) 330-3000, F: (267) 330-3300, www.pwc.com/us

VILLANOVA UNIVERSITY AND SUBSIDIARIES Consolidated Statements of Financial Position at May 31, 2018 and 2017 ASSETS 2018 2017 Cash and cash equivalents $ 153,964 $ 139,649 Short-term investments 42,992 38,412 Accounts receivable, less allowances of $1,346 in 2018 and $1,282 in 2017 15,395 11,914 Other assets 5,840 4,491 Assets whose use is limited 31,991 95,565 Pledges receivable, net 111,595 107,705 Student loans receivable, net 10,325 10,497 Investments 763,762 697,265 Land, buildings and equipment, net 582,161 460,932 Total assets $ 1,718,025 $ 1,566,430 LIABILITIES Accounts payable $ 36,037 $ 28,401 Accrued expenses 40,071 38,592 Deposits 3,974 3,772 Deferred revenues 28,958 20,057 Accrued postretirement benefits 9,150 14,337 Refundable government loan funds 9,005 9,351 Long-term debt 281,614 294,532 Accrued pension cost 4,945 7,630 Total liabilities 413,754 416,672 NET ASSETS Unrestricted 636,506 561,305 Temporarily restricted 321,038 266,749 Permanently restricted 346,727 321,704 Total net assets 1,304,271 1,149,758 Total liabilities and net assets $ 1,718,025 $ 1,566,430 The accompanying notes are an integral part of the consolidated financial statements. 2

VILLANOVA UNIVERSITY AND SUBSIDIARIES Consolidated Statement of Activities for the Year Ended May 31, 2018 Temporarily Permanently 2017 Unrestricted Restricted Restricted Total Total OPERATING REVENUES Student related revenue: Student tuition and fees, net of $129,069 in student financial aid $ 304,660 $ 304,660 $ 291,132 Sales and services of auxiliary enterprises, net of $4,385 in student financial aid 68,887 68,887 65,338 373,547 373,547 356,470 Private gifts and grants 22,824 $ 42,996 65,820 74,364 Government grants 6,444 6,444 6,932 Endowment resources 12,666 14,100 26,766 24,744 Investment income 3,873 2 3,875 2,283 Other sources 24,814 1,051 25,865 20,625 Net assets released from restrictions 23,697 (23,697) - - Total operating revenues 467,865 34,452-502,317 485,418 OPERATING EXPENSES Salaries and fringe benefits 271,239 271,239 255,972 Supplies and services 49,013 49,013 44,673 Depreciation 23,004 23,004 21,020 Cost of goods sold 9,966 9,966 9,486 Interest on indebtedness 6,205 6,205 5,489 Travel and special events 16,221 16,221 13,944 Utilities 7,099 7,099 6,934 Other 40,878 40,878 34,989 Total operating expenses 423,625 - - 423,625 392,507 Change in net assets from operating activities 44,240 34,452-78,692 92,911 NON-OPERATING Investment Income Interest, dividends, and other income 2,052 4,412 $ 61 6,525 4,468 Realized gains/(losses) 14,433 14,694 86 29,213 16,599 Change in fair value of investments 17,783 17,763 (24) 35,522 51,885 Management fees and expenses (3,216) (2,932) (6) (6,154) (4,520) Endowment resources (12,666) (14,100) (26,766) (24,744) Other Rental property revenue 2,362 2,362 2,334 Rental property expenses (1,030) (1,030) (1,141) 19,718 19,837 117 39,672 44,881 Other components of postretirement benefit cost 2,811 2,811 (419) Grant for capital expenditures 3,563 3,563 3,000 Endowment and other gifts 556 24,906 25,462 19,245 Change in net assets from non-operating activities 26,648 19,837 25,023 71,508 66,707 Change in net assets prior to gain on bond refinancing 70,888 54,289 25,023 150,200 159,618 Loss on bond refinancing - - - - (5,054) Change in net assets before other adjustments $ 70,888 $ 54,289 $ 25,023 $ 150,200 $ 154,564 The accompanying notes are an integral part of the consolidated financial statements. 3

VILLANOVA UNIVERSITY AND SUBSIDIARIES Consolidated Statement of Activities for the Year Ended May 31, 2017 Temporarily Permanently 2016 Unrestricted Restricted Restricted Total Total OPERATING REVENUES Student related revenue: Student tuition and fees, net of $120,434 in student financial aid $ 291,132 $ 291,132 $ 277,388 Sales and services of auxiliary enterprises, net of $4,022 in student financial aid 65,338 65,338 66,528 356,470 356,470 343,916 Private gifts and grants 18,129 $ 56,235 74,364 45,933 Government grants 6,932 6,932 6,326 Endowment resources 13,025 11,719 24,744 22,068 Investment income 2,283 2,283 1,226 Other sources 19,584 1,041 20,625 22,283 Net assets released from restrictions 21,344 (21,344) - - Total operating revenues 437,767 47,651-485,418 441,752 OPERATING EXPENSES Salaries and fringe benefits 255,972 255,972 248,635 Supplies and services 44,673 44,673 43,505 Depreciation 21,020 21,020 19,434 Cost of goods sold 9,486 9,486 8,337 Interest on indebtedness 5,489 5,489 6,373 Travel and special events 13,944 13,944 14,475 Utilities 6,934 6,934 7,024 Other 34,989 34,989 34,138 Total operating expenses 392,507 - - 392,507 381,921 Change in net assets from operating activities 45,260 47,651-92,911 59,831 NON-OPERATING Investment Income Interest, dividends, and other income 2,405 2,038 $ 25 4,468 5,209 Realized gains/(losses) 8,308 8,227 64 16,599 9,548 Change in fair value of investments 25,700 26,151 34 51,885 (36,258) Management fees and expenses (2,425) (2,095) (4,520) (3,546) Endowment resources (13,025) (11,719) (24,744) (22,068) Other Rental property revenue 2,334 2,334 2,302 Rental property expenses (1,141) (1,141) (1,192) 22,156 22,602 123 44,881 (46,005) Other components of postretirement benefit cost (419) - - (419) (750) Grant for capital expenditures 3,000 - - 3,000 - Endowment and other gifts - - 19,245 19,245 28,559 Change in net assets from non-operating activities 24,737 22,602 19,368 66,707 (18,196) Change in net assets prior to gain on bond refinancing 69,997 70,253 19,368 159,618 41,635 Loss on bond refinancing (5,054) - - (5,054) - Change in net assets before other adjustments $ 64,943 $ 70,253 $ 19,368 $ 154,564 $ 41,635 The accompanying notes are an integral part of the consolidated financial statements. 4

VILLANOVA UNIVERSITY AND SUBSIDIARIES Consolidated Statements of Changes in Net Assets For the Years Ended May 31, 2018 and 2017 2018 2017 Unrestricted Net Assets: Change in net assets before other adjustments $ 70,888 $ 64,943 Adjustment for retirement plan obligations 4,313 3,240 Increase in unrestricted net assets 75,201 68,183 Temporarily Restricted Net Assets: Change in net assets 54,289 70,253 Increase in temporarily restricted net assets 54,289 70,253 Permanently Restricted Net Assets: Change in net assets 25,023 19,368 Increase in permanently restricted net assets 25,023 19,368 Increase in net assets 154,513 157,804 Net assets: Beginning of Year 1,149,758 991,954 End of Year $ 1,304,271 $ 1,149,758 The accompanying notes are an integral part of the consolidated financial statements. 5

VILLANOVA UNIVERSITY AND SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended May 31, 2018 and 2017 2018 2017 CASH FLOW FROM OPERATING ACTIVITIES Increase in net assets $ 154,513 $ 157,804 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 23,004 21,020 Contributions restricted for long-term investment (32,311) (32,867) Realized gains on sales of investments (29,213) (16,599) Change in market value of investments (35,522) (51,885) Pension and other postretirement benefit plan adjustments (7,124) (2,821) Receipt of contributed securities (17,850) (14,915) Amortization of debt (premium)/discount (2,313) 6,460 Changes in operating assets and liabilities: Accounts receivable (3,899) 796 Pledges receivable (6,016) (10,191) Provision for doubtful accounts 2,594 (2,655) Accounts payable and accrued expenses 2,999 1,363 Other changes 7,187 2,525 Net cash provided by operating activities 56,049 58,035 CASH FLOW FROM INVESTING ACTIVITIES Proceeds from sales of long-term investments 406,053 232,808 Purchases of long-term investments (389,965) (289,764) Proceeds from sales of short-term investments 38,291 377 Purchases of short-term investments (42,871) (37,455) Student loans receivable, net 122 468 Purchase of land, buildings and equipment (138,117) (83,789) Decrease in assets whose use is limited 63,574 42,342 Net cash used by investing activities (62,913) (135,013) CASH FLOW FROM FINANCING ACTIVITIES Contributions restricted for long-term investment 32,311 32,867 Repayment of debt principal (10,786) (10,541) Debt refinancing - (3,470) Government loan funds (346) 189 Net cash provided by financing activities 21,179 19,045 Net increase/(decrease) in cash and cash equivalents 14,315 (57,933) Cash and cash equivalents at beginning of year 139,649 197,582 Cash and cash equivalents at end of year $ 153,964 $ 139,649 SUPPLEMENTAL DISCLOSURES Purchases of property, plant, and equipment in accounts payable $ 24,484 $ 18,368 Cash paid for interest 12,442 12,268 Tax payments 527 496 The accompanying notes are an integral part of the consolidated financial statements. 6

VILLANOVA UNIVERSITY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2018 NOTE 1 - SUMMARY OF NATURE OF OPERATIONS, SIGNIFICANT ACCOUNTING POLICIES AND REPORTING PRACTICES: Nature of Operations Villanova University and Subsidiaries (the University ) is an independent, coeducational institution offering undergraduate and graduate instruction, located in Radnor Township, Delaware County, Pennsylvania. The campus presently covers approximately 278 acres and comprises 81 buildings. The University also has a Conference Center (The Inn at Villanova University) approximately one-half mile from the campus which encompasses 33 acres. The University has approximately 11,000 students, of whom approximately 6,500 are full-time undergraduates. Refer to Note 16 for a description of the University s subsidiaries. Significant Accounting Policies and Reporting Practices Principles of Consolidation The consolidated financial statements include the accounts of the University and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Financial Statement Presentation The accompanying consolidated financial statements have been prepared on the accrual basis of accounting. Resources are categorized for accounting purposes into separate classes of net assets based on the existence or absence of donor-imposed restrictions. In the accompanying consolidated financial statements, net assets that have similar characteristics have been combined into similar categories. Unrestricted Net Assets - Unrestricted net assets generally result from revenues derived from providing services, receiving unrestricted contributions, receiving dividends and interest from investing in incomeproducing assets, and unrestricted gains and losses, less expenses incurred in providing services, raising contributions, and performing administrative functions. Unrestricted net assets may be designated for specific purposes by action of the Board of Trustees. Temporarily Restricted Net Assets Temporarily restricted net assets generally result from contributions and other inflows of assets whose use by the University is limited by donor-imposed stipulations that either expire by passage of time or can be fulfilled and removed by actions of the University pursuant to those stipulations or by law. Gifts of cash and other non-capital assets are reported as temporarily restricted operating revenue if the gifts are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose for restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statement of activities as net assets released from restrictions. Contributions related to the construction or acquisition of fixed assets are also classified as temporarily restricted. When the associated assets are placed in service, the assets are released from restriction over the life of the asset commensurate with the depreciation expense incurred in the consolidated statement of activities. Permanently Restricted Net Assets Permanently restricted net assets generally represent the corpus of contributions and other inflows of assets whose use by the University is limited by donor-imposed stipulations that neither expire by the passage of time nor can be fulfilled or otherwise removed by the University. 7

NOTE 1 - SUMMARY OF NATURE OF OPERATIONS, SIGNIFICANT ACCOUNTING POLICIES AND REPORTING PRACTICES: (Continued) Fair Value The University utilizes the fair value standard, which defines the term fair value, establishes a framework for measuring it within US generally accepted accounting principles (US GAAP), and expands disclosures about fair value measurements. The standard established a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 Observable inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; Level 2 Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the same term of the financial instrument; and Level 3 Unobservable inputs to the valuation methodology in which there is little or no market data and which are significant to the fair value measurement. A financial instrument s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The University utilizes the practical expedient to estimate the fair value of investments at the measurement date using the net asset value (NAV) reported by the managers of such funds in accordance with their respective operating agreements, which generally requires fair valuation in accordance with US GAAP. Adjustment is required if the University expects to sell the investment at a value other than NAV or if the NAV is not calculated in accordance with US GAAP. The University holds investments in its portfolio which are generally valued based on the most current NAV. These amounts represent fair value of these investments at May 31, 2018 and 2017. The University performs additional procedures including due diligence reviews on its investments in investment companies and other procedures with respect to the capital account or NAV provided to ensure conformity with US GAAP. The University has assessed factors including, but not limited to, managers compliance with the Fair Value Measurement standard, price transparency, and valuation procedures in place. Investments in public equity consist of separate accounts, commingled funds, daily traded mutual funds, exchange traded funds, and limited partnership investments. Securities in the separate accounts are traded daily and are valued based on quoted market prices and categorized as Level 1. Securities held in daily traded mutual funds and exchange traded funds are generally valued based on quoted market prices in active markets obtained from exchange or dealer markets for identical assets, and are accordingly categorized as Level 1 in the fair value hierarchy, with no valuation adjustments applied. Commingled funds and limited partnership interests are valued at NAV and are categorized as Investments at NAV in the fair value hierarchy. Investments in bonds consist of a commingled fund. The commingled bond fund is valued at NAV and is categorized as Investments at NAV in the fair value hierarchy. Investments in hedge funds are valued at NAV and are categorized in accordance with the fair value standard. The liquidity terms for the hedge funds vary by individual investment, from monthly liquidity to illiquid. All of these investments are classified as Investments at NAV in the fair value hierarchy. Opportunistic investments consist of a daily traded mutual fund. Securities held in daily traded mutual funds are categorized as Level 1. 8

NOTE 1 - SUMMARY OF NATURE OF OPERATIONS, SIGNIFICANT ACCOUNTING POLICIES AND REPORTING PRACTICES: (Continued) Fair Value (Continued) Private investments consist of limited partnership interests. Limited partnership interests are valued at NAV and are categorized in accordance with the fair value standard. Since the University does not have the ability to redeem from the limited partnerships at the measurement date or is restricted from redeeming for an uncertain or extended period of time from the measurement date, the investments are classified as Investments at NAV in the fair value hierarchy using the practical expedient. Investments in split-interest agreements consist of irrevocable charitable remainder trusts, charitable gift annuities, and pooled income funds where the University serves as trustee. The assets, invested in equity or debt securities, are measured at fair value on a recurring basis at quoted market prices and are thus categorized as Level 1. Liabilities represent the present value of the estimated future distributions to beneficiaries over the terms of the agreements and are included in the accrued expenses line of the Statements of Financial Position. Investment gains and losses, and gains and losses associated with changes in the estimates of future distributions to beneficiaries, are included in net realized and unrealized gains and losses. Investments of operating funds include fixed-income securities with original maturities of greater than one year. The assets are valued using observable market data to the degree that they can be valued based on quoted market prices, but are traded infrequently. These are categorized as Level 2 in the fair value hierarchy. The University s pension assets consist of common collective trusts and cash. Investments in common collective trusts consist of equity securities and fixed income options traded in an active exchange market, as well as investments in mutual funds. The assets are valued at the net asset value of units held at year-end. When available, quoted market prices are used to value the underlying investments held by the collective trusts. For underlying investments consisting of fixed maturities, valuations are generally obtained from third-party pricing services for identical or comparable assets or liabilities, non-binding broker quotes (when pricing service information is not available) or through the use of valuation methodologies using observable inputs. For underlying investments where vendor pricing is not available, internally developed valuations using one or more unobservable inputs or non-binding quotes are used to determine fair value. These investments in common collective trusts are categorized as Investments at NAV in the fair value hierarchy, while cash is categorized as Level 1 in the hierarchy. Cash and Cash Equivalents Cash and cash equivalents represent demand deposits and other investments with an original maturity date not exceeding 90 days, while short-term investments reflect liquid investments with a maturity date in excess of 90 days, but less than one year. Endowment cash and cash equivalents are liquid investments with a maturity date of less than one year, though certain investments have the ability to invest in securities with maturities out to 13 months. The intent of the endowment cash and cash equivalents is to fund future investments in other asset categories. Operating funds are classified as follows as of May 31, 2018, based on the maturity of the underlying investments: Cash and cash equivalents $ 153,964 Short-term investments 42,871 Long-term invesments 46,280 Total $ 243,115 9

NOTE 1 - SUMMARY OF NATURE OF OPERATIONS, SIGNIFICANT ACCOUNTING POLICIES AND REPORTING PRACTICES: (Continued) Short-Term Investments Short-term investments include fixed-income securities with original maturities less than one year. Short-term investments are valued using observable market data to the degree that they can be valued based on quoted market prices. These are categorized as Level 2 in the fair value hierarchy. Investments The University records investments at fair value. Gains or losses on investments are recognized as increases or decreases in unrestricted net assets unless their use is temporarily or permanently restricted by explicit donor stipulations or by law. Accounts Receivable Accounts Receivable are primarily amounts related to student receivable balances, grant receivable balances, and other miscellaneous receivables net of an allowance for doubtful accounts. Investment Income Investment income related to long-term investments is recorded as non-operating income, and the portion of investment income that is utilized for operations under the University s endowment spending formula (see description in Note 3) is shown as a reduction in non-operating income ( Endowment resources ). Investment income related to the endowment is classified as unrestricted or temporarily restricted, depending on donor specifications and applicable law. Investment income related to operating funds is recorded as operating revenue. Student Loans Receivable Student loans receivable are stated net of allowances for doubtful accounts. Student loans receivable are principally amounts due from students under U.S. Government-sponsored loan programs, which are subject to significant restrictions. Land, Building, and Equipment Land, buildings and equipment are carried at cost or fair value on the date of gift. Depreciation is computed on a straight-line basis over the estimated useful lives of land improvements (10-25 years), buildings (10-55 years) and equipment (4-10 years). Capitalized Software Costs Capitalized software costs included in property, plant and equipment relate to purchased software, which is capitalized and depreciated on a straight-line basis over a five-year period. Early Retirement Benefits The University offers an early retirement program to full-time faculty members who meet certain eligibility criteria. The University accrues the present value of all future benefit payments for individuals who accept the University s early retirement offer at the time of acceptance. Deferred Revenue and Prepaid Expenses All revenues received and expenses paid prior to the end of the fiscal year which relate to the following fiscal year are recorded as deferred revenues or other assets, respectively. 10

NOTE 1 - SUMMARY OF NATURE OF OPERATIONS, SIGNIFICANT ACCOUNTING POLICIES AND REPORTING PRACTICES: (Continued) Noncash Gifts Noncash gifts are recorded at fair value on the date of donation. Employee Health Insurance The University is self-insured for employee health expenses and pays the actual cost of claims, and bears risk related to these claims. There are risk-mitigation strategies in place such as stop loss insurance to reduce the impact of catastrophic claims. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s). Actual results could differ from those estimates. Statement of Activities Operating revenues reflect all transactions increasing unrestricted and temporarily restricted net assets except those of a capital or long-term nature, such as gifts for long-term investments and endowments. Operating revenues include realized gains appropriated in accordance with the University s endowment spending policy (see description in Note 3). Student tuition and fees as well as sales and services of auxiliary enterprises are shown net of student financial aid. In addition, expenses associated with the operation and maintenance of plant, depreciation and interest expenses have been allocated to the functional operating expense categories in Note 12. Reclassification Certain amounts from prior years have been reclassified to conform to the current year s presentation. NOTE 2 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS: At May 31, 2018 and 2017, the fair value of cash and cash equivalents and deposits with bond trustees approximate their respective carrying amounts. The fair value of deposits with bond trustees are based on the quoted market price of the underlying securities (and would be considered Level 1). Determination of the fair value of student loans receivable, which are primarily federally sponsored student loans with U.S. government mandated interest rates and repayment terms and subject to significant restrictions as to their transfer or disposition, is not practicable. For the fiscal year ending May 31, 2018, the University has adopted the standard on Fair Value Measurement and Disclosure Requirements in Certain Entities That Calculated Net Asset Value (NAV) Per Share. As a result of the adoption, investments reported at net asset value per share, as a practical expedient, are no longer included within Levels 1, 2, or 3 in the fair value hierarchy. Application is retrospective, and, therefore, prior period financial data has been restated to conform to current year presentation. 11

NOTE 2 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS: (Continued) The following tables present the financial instruments carried at fair value on a recurring basis as of May 31, 2018 and May 31, 2017, respectively, and indicates the fair value hierarchy of the valuation techniques that were utilized to determine such fair value. The tables reflect investments classified as short-term investments and long-term investments in the Statements of Financial Position. Fair Value Measurements at May 31, 2018 Investments Fair Value Level 1 Level 2 Level 3 at NAV Cash & cash equivalents-endowment $ 33,303 $ 33,303 $ - $ - $ - Public equities 368,973 154,880 - - 214,093 Bonds 35,482 - - - 35,482 Hedge funds 147,036 - - - 147,036 Opportunistic strategies 15,595 15,595 - - - Private Investments 111,182 - - - 111,182 Split-interest agreements 4,504 4,504 - - - Investments of operating funds 89,151-89,151 - - Other investments 1,528 1,528 - - - Total $ 806,754 $ 209,810 $ 89,151 $ - $ 507,793 Fair Value Measurements at May 31, 2017 Investments Fair Value Level 1 Level 2 Level 3 at NAV Cash & cash equivalents-endowment $ 34,555 $ 34,555 $ - $ - $ - Public equities 345,201 185,696 - - 159,505 Bonds 35,789 16 - - 35,773 Hedge funds 116,528 - - - 116,528 Opportunistic strategies 15,611 15,611 - - - Private Investments 93,360 - - - 93,360 Split-interest agreements 4,386 4,386 - - - Investments of operating funds 87,981-87,981 - - Other investments 2,266 2,266 - - - Total $ 735,677 $ 242,530 $ 87,981 $ - $ 405,166 The methods described in Note 1 may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the University believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. 12

NOTE 2 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS: (Continued) Liquidity risk is the risk that the University will not be able to meet its obligations associated with financial liabilities due to restrictions on ability to redeem investments. The University has made investments in various long-lived partnerships and, in other cases, has entered into contractual agreements that may limit its ability to initiate redemptions due to notice periods, lock-ups and gates. Details on the estimated remaining life and current redemption terms by asset class and type of investment are provided below: Redemption Frequency Days Notice (if applicable) Remaining Life for Partnerships Cash & cash equivalents-endowment Daily N/A Public equities Daily, Monthly, Quarterly Daily, Monthly Weekly, Monthly Daily Varies 0-30 6-30 N/A Bonds Monthly 0-2 N/A Hedge funds Varies Varies N/A Opportunistic strategies Daily N/A Private Investments Illiquid Liquidating to 9.6 years Split-interest agreements Daily N/A Investments of operating funds Daily N/A Other investments Daily N/A NOTE 3 - NET ASSETS: 2018 2017 Temporarily restricted net assets consist of the following: Unexpended contributions for instruction and scholarships $ 38,633 $ 37,520 Unexpended contributions for capital expenditures 74,093 81,618 Property, plant, and equipment acquired through donations 101,405 60,261 Annuity and life income funds 3,487 3,421 Endowment accumulated change in market value of investments and realized gains 103,420 83,929 $ 321,038 $ 266,749 Permanently restricted net assets consist of the following: Student loans $ 1,882 $ 1,877 Endowment principal, primarily for scholarships and instruction 344,845 319,827 $ 346,727 $ 321,704 13

NOTE 3 - NET ASSETS: (Continued) The University s endowment consists of 841 individual funds established for a variety of purposes. The endowment includes donor-restricted endowment funds, funds designated by the Board of Trustees to function as endowments, and other funds set aside internally by the University. Net assets associated with endowment funds, including funds designated by the Board of Trustees to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. The Commonwealth of Pennsylvania has not enacted a version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA), or a version of the Uniform Management of Institutional Funds Act (UMIFA). Governing law resides in 15 Pa. C.S. 5548, Investment of Trust Funds. The University has interpreted relevant Pennsylvania law as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the University classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the University in a manner consistent with the standard of prudence prescribed by Pennsylvania law. The University has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the University must hold in perpetuity or for a donor-specific period(s) as well as board-designated funds. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce a real return, net of inflation and investment management costs, of at least 5% over the long term. Actual returns in any given year may vary from this amount. To satisfy its long-term rate-of-return objectives, the University relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The University targets a diversified asset allocation that places a greater emphasis on equity-based and alternative investments to achieve its long-term objective within prudent risk constraints. Under the University s spending policy, the University utilizes endowment and quasi-endowment resources to support operations at a level of 5% of the 12 calendar quarter moving average of the fair value of endowment and quasiendowment investment assets calculated as of December 31st of the year immediately preceding the beginning of the University s fiscal year. Any difference between actual investment income and the amounts distributed is retained to support operations of future years. These retained balances are used in any year that the actual total investment return is below the spending rate. The remaining realized and unrealized gains/losses are reported as non-operating revenues. In establishing this policy, the University considered the long-term expected return on its endowment. Accordingly, over the long term, the University expects the current spending policy to allow its endowment to maintain spending at an amount equal to or less than total return less inflation. 14

NOTE 3 - NET ASSETS: (Continued) At May 31, 2018, the endowment net asset composition by type of fund consisted of the following: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted funds $ - $ 103,420 $ 303,801 $ 407,221 Board-designated funds 303,371 - - 303,371 Total Funds $ 303,371 $ 103,420 $ 303,801 $ 710,592 Changes in endowment net assets for the fiscal year ended May 31, 2018 consisted of the following: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 278,810 $ 83,928 $ 278,690 $ 641,428 Investment return: Investment Income 2,052 4,372-6,424 Management and Admin Fees (3,140) (2,908) - (6,048) Net appreciation (realized and unrealized) 32,127 32,128-64,255 Total investment return 31,039 33,592-64,631 Contributions 1,556-25,111 26,667 Planned Savings 2,900 - - 2,900 Distribution for Spending (12,666) (14,100) - (26,766) Other additions to Unrestricted Endowment 1,732 - - 1,732 Endowment net assets, end of year $ 303,371 $ 103,420 $ 303,801 $ 710,592 At May 31, 2017, the endowment net asset composition by type of fund consisted of the following: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted funds $ - $ 83,928 $ 278,690 $ 362,618 Board-designated funds 278,810 - - 278,810 Total Funds $ 278,810 $ 83,928 $ 278,690 $ 641,428 15

NOTE 3 - NET ASSETS: (Continued) Changes in endowment net assets for the fiscal year ended May 31, 2017 consisted of the following: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 242,713 $ 61,737 $ 248,251 $ 552,701 Investment return: Investment Income 2,205 2,257-4,462 Management and Admin Fees (2,425) (2,095) - (4,520) Net appreciation (realized and unrealized) 34,242 33,748-67,990 Total investment return 34,022 33,910-67,932 Contributions 1,000-30,439 31,439 Planned Savings 12,500 - - 12,500 Distribution for Spending (13,025) (11,719) - (24,744) Other additions to Unrestricted Endowment 1,600 - - 1,600 Endowment net assets, end of year $ 278,810 $ 83,928 $ 278,690 $ 641,428 NOTE 4 - ASSETS WHOSE USE IS LIMITED: Assets whose use is limited were comprised primarily of unspent proceeds from the issuance of long-term debt related to construction projects, as well as amounts required to be held by bond trustees for debt service payments and amounts required to be held in escrow related to the University s self-insured health insurance program. NOTE 5 - INVESTMENTS: Investment gains reported in the consolidated statements of activities for the year ended May 31 consisted of the following: 2018 2017 Interest, dividends, and other income $ 6,525 $ 4,468 Net realized gains 29,213 16,599 Net change in unrealized gains and losses 35,522 51,885 Management fees and expenses (6,154) (4,520) $ 65,106 $ 68,432 The University uses various external investment managers to diversify the investments in alternative assets. The largest allocations to any investment manager as of May 31, 2018 and 2017 were 10.3% and 16.6%, respectively. At May 31, 2018, based on partnership agreements, the University was committed to invest an additional $88,900,000 in alternative investments, which is expected to occur over the next five to ten years. Alternative investments have liquidity restrictions. Amounts can be divested only at specified times based on terms in the partnership agreements. Refer to Note 2 for additional information on details of current redemption terms by asset class and type of investment. The financial statements of the limited partnerships are audited annually, generally as of December 31. 16

NOTE 6 - LAND, BUILDINGS, AND EQUIPMENT: Land, buildings, and equipment at May 31, 2018 and 2017 consisted of the following: 2018 2017 Land and improvements $ 27,170 $ 27,170 Buildings and improvements 675,435 639,604 Equipment 60,159 54,246 Construction in progress 150,287 52,947 Capitalized interest 11,119 7,465 Unamortized asset retirement costs 802 927 Aldwyn Lane Rental Properties Land and Buildings 18,385 18,385 943,357 800,744 Less accumulated depreciation (361,196) (339,812) $ 582,161 $ 460,932 NOTE 7 - ACCRUED EXPENSES: Accrued expenses at May 31, 2018 and 2017 consisted of the following: 2018 2017 Faculty and Staff Salaries $ 16,278 $ 15,684 Payroll Tax Withholdings 3,511 3,579 Interest on Long-Term Debt 3,146 3,248 Asset Retirement Obligations 2,428 2,431 Workers Compensation Claims 1,867 1,893 Vacation Accrual 1,558 1,484 Early Retirement Plan Payments 1,191 1,646 Copier Leases 591 683 Annuities Payable 296 299 Other 9,205 7,645 $ 40,071 $ 38,592 NOTE 8 LEASES: The University leases equipment, vehicles, and office space under operating leases expiring through May 2023. Operating rental expense for the years ended May 31, 2018 and 2017, totaling $1,301,000 and $1,970,000, respectively, is included in the accompanying Consolidated Statements of Activities. At May 31, 2018, future minimum lease payments under operating leases with remaining terms greater than one year were as follows : 2019 $ 962 2020 766 2021 748 2022 734 2023 696 Thereafter 2,023 Total minimum lease payments $ 5,929 17

NOTE 8 LEASES: (Continued) The University also leases copiers under capital lease agreements expiring through May 2023. Land, buildings and equipment, net includes $591,000 and $683,000 of capital leases at May 31, 2018 and May 31, 2017, respectively. At May 31, 2018, future minimum lease payments under capital leases with remaining terms greater than one year were as follows : 2019 $ 240 2020 181 2021 103 2022 51 2023 16 Total minimum lease payments $ 591 NOTE 9 - LONG-TERM DEBT: Long-term debt payable at May 31, 2018 consisted of the following: Unamortized Unamortized Bond Issuance Principal Premium Issuance Costs Delaware County Authority Bonds (a): 2016 Issue, 4% - 5%, maturing serially through 2031 $ 45,480 $ 9,465 $ (438) 2015 Issue, 3% - 5%, maturing serially through 2045 141,270 8,921 (938) 2014 Issue, 4% - 5%, maturing serially through 2024 47,235 5,763 (355) 2012 Issue, 5%, maturing serially through 2022 12,910 1,711 (164) 2010 Issue, 5%, maturing serially through 2019 6,145 305 (65) U.S. Dept. of HUD Bonds (b): 1969 Dormitory Bonds, 3%, maturing serially through 2019 75 - - Mortgage Note (c) Aldwyn Lane Rental Properties, 7.35% 4,294 - - $ 257,409 $ 26,165 (1,960) Total $ 281,614 18

NOTE 9 - LONG-TERM DEBT: (Continued) Long-term debt payable at May 31, 2017 consisted of the following: Unamortized Unamortized Bond Issuance Principal Premium Issuance Costs Delaware County Authority Bonds (a): 2016 Issue, 4% - 5%, maturing serially through 2031 $ 45,480 $ 10,141 $ (469) 2015 Issue, 3% - 5%, maturing serially through 2045 141,270 9,240 (971) 2014 Issue, 4% - 5%, maturing serially through 2024 50,860 6,586 (406) 2012 Issue, 5%, maturing serially through 2022 15,130 2,053 (197) 2010 Issue, 5%, maturing serially through 2019 10,030 458 (98) U.S. Dept. of HUD Bonds (b): 1969 Dormitory Bonds, 3%, maturing serially through 2019 150 - - Mortgage Note (c) Aldwyn Lane Rental Properties, 7.35% 5,275 - - $ 268,195 $ 28,478 (2,141) Total $ 294,532 (a) (b) (c) The University has pledged and granted to the Delaware County Authority a lien on and security interest in the University's unrestricted revenues and certain property and equipment to collateralize the annual principal maturities and interest payments which average approximately $23,533,000 through 2023, and $12,088,000 from 2024 to 2046. The University is required to maintain unrestricted net revenues equal to 100% of the annual debt service requirement. To collateralize the annual principal and interest payments, the University has granted a mortgage lien on the Stanford dormitory and related parcels of land. Annual principal and interest payments are approximately $77,000. The mortgage note on the Aldwyn Lane rental properties is collateralized by the related buildings and parcels of land. The mortgage note is non-recourse to the University. Equal monthly payments are to be made over the twenty-year term of the loan. Aggregate maturities of long-term debt including call provisions at 100% for each of the next five fiscal years are as follows : 2019 $ 11,358 2020 11,948 2021 15,205 2022 15,548 2023 15,430 Thereafter 187,915 Interest paid on long-term debt amounted to $12,442,000 and $12,268,000 for the years ended May 31, 2018 and 2017, respectively. Interest expense allocated to the functional expense categories in Note 11 amounted to $6,205,000 and $5,489,000 for the years ended May 31, 2018 and 2017, respectively. 19

NOTE 9 - LONG-TERM DEBT: (Continued) The Delaware County Authority bond agreements contain certain covenants, including financial covenants that require the University to generate net revenues at least equal to 100% of actual debt service requirements, and to certify that maximum annual debt service does not exceed 12% of unrestricted revenues. The University was in compliance with these financial covenant requirements at May 31, 2018 and 2017. NOTE 10 - PENSION AND OTHER POSTRETIREMENT BENEFIT COSTS: The University sponsors a defined contribution retirement plan under which the University makes annual contributions for the benefit of the participants to the Teachers Insurance Annuity Association of America-College Retirement Equities Fund (TIAA-CREF), and the University has no further liability. The University s contributions to the defined contribution plan amounted to $13,934,000 and $13,327,000 for the years ended May 31, 2018 and 2017, respectively. The University has a non-contributory defined benefit pension plan for certain full-time non-academic employees employed prior to May 31, 1999. Effective May 31, 2016, the defined benefit pension plan was frozen and there will be no future benefit accruals, as the result of the declining number of active employees participating in the plan. These employees were transitioned into the defined contribution pension plan effective June 1, 2016. The University will continue to fund the liabilities related to the benefits earned under the defined benefit pension plan prior to June 1, 2016. The University provides postretirement medical benefits to employees who meet certain eligibility requirements. The University accrues for expected medical postretirement benefits over the years that the employees render the necessary service. No employee who retires after May 31, 2018 shall receive a University contribution toward the cost of retiree medical or life insurance, and no faculty member who retires after May 31, 2018 under the early retirement program shall receive a contribution toward the cost of medical, dental or life insurance for the faculty member or any dependent. In March 2017, the Financial Accounting Standards Board ("FASB") issued ASU No. 2017-07, Compensation Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The new guidance requires that an employer present the service cost component of net periodic benefit cost in the same statement of activities line item or items as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers will present the other components of net periodic benefit costs separately from the service cost component, and the line item used in the statement of activities to present the other components of net periodic benefit cost must be disclosed. The new standard must be adopted retrospectively for the presentation of the service cost component and the other components of net periodic benefit cost in the statement of activities, and prospectively for the capitalization of the service cost component of net periodic benefit cost in assets. The standard also allows a practical expedient that permits an employer to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. The University adopted this guidance on June 1, 2017, and will record the other components of net periodic benefit cost in the statement of activities in Other components of postretirement benefit cost. The University also used the practical expedient for the basis of applying the retrospective presentation. The following table summarizes the reclassification of those costs from Salaries and fringe benefits to Other components of postretirement benefit cost in the Consolidated Statement of Activities, at May 31, 2017 : For the Year Ended May 31, 2017 Effect of As Reported Change Updated Salaries and fringe benefits $ 256,391 $ (419) $ 255,972 Other components of postretirement benefit cost - (419) (419) 20

NOTE 10 - PENSION AND OTHER POSTRETIREMENT BENEFIT COSTS: (Continued) The University recognizes the funded status (the difference between the fair value of plan assets and the benefit obligation) of its pension and other postretirement plans in the consolidated statement of financial position, with a corresponding adjustment to unrestricted net assets. Further, actuarial gains and losses that are not recognized in the Statement of Activities are recognized as other changes in unrestricted net assets. The following is a reconciliation of the beginning and ending balances of the pension benefits projected benefit obligation of the University : Change in Benefit Obligation 2018 2017 Benefit obligation at the beginning of the year $ 63,477 $ 64,785 Interest cost on projected benefit obligations 1,886 1,871 Actuarial (gain)/loss (1,254) 276 Benefits and administrative expenses paid (4,419) (3,455) Benefit obligation at the end of the year $ 59,690 $ 63,477 Benefits and administrative expenses paid includes $880,285 in payments made under a lump-sum buyout offered to terminated employees with vested benefits during the year ended May 31, 2018. The following table sets forth the funded status and amount recognized in the University s consolidated balance sheets for its defined benefit plan : 2018 2017 Change in Plan Assets Fair value of plan assets at beginning of year $ 55,847 $ 54,281 Actual return on plan assets 2,567 4,271 Employer contributions 750 750 Benefits and administrative expenses paid (4,419) (3,455) Fair value of plan assets at end of year $ 54,745 $ 55,847 Funded Status Actuarial present value of benefit obligations: Projected benefit obligation $ (59,690) $ (63,477) Plan assets at fair value* 54,745 55,847 Funded Status $ (4,945) $ (7,630) *Consist principally of investments in debt and equity funds. The principal assumptions used in determining the actuarial present value of projected benefit obligations were as follows: 2018 2017 Weighted average discount rate 4.00% 3.73% Rate of increase in compensation levels 3.00% 3.00% Expected long-term rate of return on assets 5.50% 5.75% 21