ML100070108

Request and Application, Self Guarantee, Decommissioning Expenses - License No. SNM-986, License No. R-37

ML100070108
Person / Time
Site:	07000938, MIT Nuclear Research Reactor
Issue date:	10/27/2009
From:	Dugan R Massachusetts Institute of Technology (MIT)
To:	Simpson J Office of Nuclear Material Safety and Safeguards
References
Download: ML100070108 (53)

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' I Massachusetts Institute of Technology Regina Dugan 77 Massachusetts Avenue Associate Counsel/Insurance Manager Cambridge, Massachusetts 02139-4307 Office of the General Counsel Building 12-090 Phone 617-253-2823 Fax 617-258-0267 Email dugan@mit.edu VIA FEDERAL EXPRESS October 27, 2009 Ms. Jo Ann Simpson U.S. Nuclear Regulatory Commission Office of Nuclear Material Safety and Safeguards O-12D3 Washington, DC 20055-0001 Re: Request and Application, Self Guarantee, Decommissioning Expenses - License No. SNM-986, License No. R-37 IlI~r

Dear Ms. Simpson:

MIT was recently made aware of the option for qualified licensees to self-guarantee the estimated decommissioning expenses associated with the above-referenced licensing activities. MIT presently holds securities in an escrow account with U.S. Bank, as reasonable assurance to the Nuclear Regulatory Commission, for funding such decommissioning expenses.

MIT requests the NRC's approval to self guarantee the required decommissioning assurance. The following documents are enclosed to complete MIT's application as guarantor of financial assurance for its estimated decommissioning expenses of the NRC licenses:

1. Letter from MIT's Chief Financial Officer in Support of Self Guarantee.

2. Report of MIT's Auditor, PricewaterhouseCoopers.

3. Schedule Reconciling Chief Financial Officer's Letter.

4. Executed Self Guarantee Agreement.

5. MIT's Bond Rating information.

6. MIT's most recent audited financials, Report of the Treasurerfor the year ended June 30, 2009.

Please contact me should any additional information be required to complete this process. Thank you for your assistance with this request.

V truly yours, Reg4nDtugan 49 Enclosures

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• Office of the Vice President for Finance Massachusetts Institute of Technology 77 Massachusetts Avenue, Building NE49-3000 Cambridge, Massachusetts 02139-4307 October 15, 2009 U.S. Nuclear Regulatory Commission Washington, D.C. 20555-0001 I am the Chief Financial Officer of the Massachusetts Institute of Technology ("MIT"), a nonprofit university. This letter is in support of MIT's use of the self-guarantee financial test to demonstrate financial assurance, as specified in 10 CFR Part 30. MIT has no parent company holding majority control of its voting stock.

MIT guarantees, through the self-guarantee submitted to demonstrate compliance under 10 CFR Part 30, the decommissioning of the following facilities owned or operated by MIT. The current cost estimates or certified amounts for decommissioning, so guaranteed, are shown for each facility:

Certified Amounts or Name of Facility License Number Location of Facility Current Cost Estimates MIT Research Reactor SNM-986 77 Massachusetts Av $1,125,000.00 Cambridge, MA 02139 MIT Research Reactor R-37 138 Albany St. $30,000,000.00 Cambridge, MA 02139 I hereby certifythat MIT is currently a going concern and that it possesses positive tangible net worth in the amount of $12,949.6 million*.

This fiscal year of this firm ends on June 30. The figures for the above item marked with an asterisk are derived from MIT's independently audited, year-end financial statements and footnotes for the latest completed fiscal year, ended June 30, 2009.

MIT is not required to file a Form 10-K with the U.S. Securities and Exchange Commission for the latest fiscal year.

This firm satisfies the following self-guarantee test:

1. Current bond rating of most recent uninsured, uncollateralized, and unencumbered issuance of this institution:

Rating: Aaa Name of rating service: Moody's Investors Service

2. Date of issuance of bonds: January 8, 2009

3. Description & date of maturity of bonds:

Amount Interest rate Maturity Date Description

$10,000,000 4.00% July 1, 2016 MHEFA Series 0 57586ECG4

$78,000,000 5.00% July 1, 2016 MHEFA Series 0 57586ECH2

$23,485,000 5.00% July 1, 2026 MHEFA Series 0 57586ECJ8

$47,975,000 5.75% July 1, 2026 MHEFA Series 0 57586ECK5

$42,000,000 5.50% July 1, 2036 MHEFA Series 0 57586ECL3

$65,000,000 6.00% July 1, 2036 MHEFA Series 0 57586ECM1

4. Is the rating specified on line 1 "A" or better? Yes I hereby certify that the content of this letter is true and correct to the best of my knowledge.

Signature /

Name: Terry Stone .T .- c0/ 44 .57OA/l

Title:

Chief Financial Officer Date: Qr9)6r /Yo)

PRECEWATERHOUsEC(4PERS 9 PricewaterhouseCoopers LLP 125 High St.

Boston MA, 02110 www.pwc.com Report of Independent Accountants To the Board of Trustees of Massachusetts Institute of Technology:

We have performed the procedures enumerated below, which were agreed to by Massachusetts Institute of Technology ("the Institute"), NRC MIT licenses SNM-986 and R-37, solely to assist you in complying with the Nuclear Regulatory Commission's financial assurance regulations, 10 CFR Part 30.

Management is responsible for the Institute's compliance with those regulations. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of those parties specified in this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose.

The procedures and associated findings are as follows:

1. Confirmed that the net worth in the "Per Financial Statements" column of the accompanying schedule agrees with total net assets contained in the Institute's financial statements for the year ended June 30, 2009, which we have audited in accordance with auditing standards generally accepted in the United States of America and have issued our report thereon dated September 16, 2009;

2. Confirmed that the tangible net worth in the "Per CFO's Letter" column of the accompanying schedule agrees with tangible net worth in the CFO's letter dated October 15, 2009;

3. Inquired of management as to the existence of any reconciling items between the CFO's Letter and the audited financial statements noting that there are none; and

4. Mathematically check the totals in the accompanying schedule, including the current cost estimates of decommissioning for each facility listed per the CFO's letter.

No exceptions were noted.

We were not engaged to and did not conduct an examination, the objective of which would be the expression of an opinion on compliance with the regulations. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you.

This report is intended solely for the information and use of management and the Board of Trustees of Massachusetts Institute of Technology and the Nuclear Regulatory Commission, and is not intended to be and should not be used by anyone other than these specified parties.

October 16, 2009

prCEWVATERHOUSECO4PERS U Schedule Reconciling Amounts Contained in Chief Executive Officer's or Chief Financial Officer's Letter with Amounts in, Financial Statements MIT YEAR ENDED JUNE 30, 2009 (000.000)

Per Financial Reconciling CFO's Letter Statements Items Net worth $12,949.6 0 $12,949.6 Less: Cost in excess of value of tangible assets 0 0 0 acquired Net worth after cost in excess of value of tangible $12,949.6 0 $12,949.6 assets acquired Accrued decommissioning costs included in current 0 0 0 liabilities Tangible net worth (plus $12,949.6 0 $12,949.6 decommissioning costs) $12,94.6_0_$2,949.

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SELF-GUARANTEE Guarantee made this 5 day of October, 2009, by Massachusetts Institute of Technology ("MIT"), a "non-profit university," organized under the laws of the Commonwealth of Massachusetts, herein referred to as "guarantor," to the U.S. Nuclear Regulatory Commission (NRC), beneficiary, on behalf of itself as licensee.

Recitals

1. The guarantor has full authority and capacity to enter into this self-guarantee under its bylaws, articles of incorporation, and the laws of the Commonwealth of Massachusetts.

2. This self-guarantee is being issued to comply with regulations issued by the NRC, an agency of the U.S. Government, pursuant to the Atomic Energy Act of 1954, as amended, and the Energy Reorganization Act of 1974. NRC has promulgated regulations in Title 10, Chapter I of the Code of Federal Regulations, Part 70, and Title 10, Chapter I of the Code of Federal Regulations, Part 72, which require that a holder of, or an applicant for, a materials license issued pursuant to 10 CFR Part 50 and 10 CFR Part 70, provide assurance that funds will be available when needed for required decommissioning activities.

3. The self-guarantee is issued to provide financial assurance for decommissioning activities for the MIT Research Reactor, 138 Albany Street, Cambridge. Massachusetts 02139, NRC License Number R-37, and MIT, 77 Massachusetts Avenue, Cambridge, Massachusetts, 02139, NRC License Number SNM-986 and required by 10 CFR Part 50 and 10 CFR Part 70 and Appendix E to 10 CFR Part 30.

4. The guarantor meets or exceeds the following financial test criteria, as a nonprofit university that issues bonds, and agrees to comply with all notification requirements as specified in 10 CFR Part 50 and 10 CFR Part 70 and Appendix E to 10 CFR Part 30.

The guarantor meets the following self-guarantee test:

(a) A current rating for its most recent uninsured, uncollateralized, and unencumbered bond issuance of AAA, AA, or A as issued by Standard & Poor's, or Aaa, Aa, or A as issued by Moody's.

5. The guarantor does not have a parent company holding majority control of its voting stock.

6. Decommissioning activities as used below refer to the activities required by 10 CFR Part 50 and 10 CFR Part 70, for decommissioning of the facilities identified above.

7. Pursuant to the guarantor's authority to enter into this guarantee, the guarantor guarantees to NRC that the guarantor shall:

(a) carry out the required decommissioning activities, as required by License No. SNM-986 and License No. R-37 or (b) set up a trust fund in favor of the above identified beneficiary in the amount of the current cost estimates for these activities.

8. The guarantor agrees to submit revised financial statements, financial test data, evidence of MIT's bond rating, and reconciling schedule annually within 90 days of the close of its fiscal year.

9. The guarantor agrees that if, at the end of any fiscal year before termination of this self-guarantee, it fails to meet the self-guarantee financial test criteria, it shall send within 90 days of the end of the fiscal year, by certified mail, notice to NRC that it intends to provide alternative financial assurance as specified in 10 CFR Part 50 and 10 CFR Part

70. Within 120 days after the end of the fiscal year, the guarantor shall establish such financial assurance.

10. The guarantor also agrees to notify the beneficiary promptly if the ownership of the licensed activity is transferred, and to maintain this guarantee until the new licensee provides alternative financial assurance acceptable to the beneficiary.

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11. The guarantor agrees that if it determines, at any time other than as described in Recital 9, that it no longer meets the self-guarantee financial test criteria or it is disallowed from continuing as a self-guarantor, it shall establish alternative financial assurance as specified in 10 CFR Part 50 and 10 CFR Part 70, as applicable, within 30 days.

12. The guarantor, as well as its successors and assigns, agrees to remain bound jointly and severally under this guarantee notwithstanding any or all of the following:

amendment or modification of the license or NRC-approved decommissioning funding plan for that facility, the extension or reduction of the time of performance of required activities, or any other modification or alteration of an obligation of the licensee pursuant to 10 CFR Part 50 and 10 CFR Part 70.

13. The guarantor agrees that it shall be liable for all reasonable litigation costs incurred by the beneficiary, NRC, in any successful effort to enforce the agreement against the guarantor.

14. The guarantor agrees to remain bound under this self-guarantee for as long as it, as licensee, must comply with the applicable financial assurance requirements of 10 CFR Part 50 and 10 CFR Part 70, for the previously listed facilities, except that the guarantor may cancel this self-guarantee by sending notice by certified mail to NRC, such cancellation to become effective not before an alternative financial assurance mechanism has been put in place by the guarantor.

15. The guarantor agrees that if it, as licensee, fails to provide alternative financial assurance as specified in 10 CFR Part 50 and 10 CFR Part 70, as applicable, and obtain written approval of such assurance from NRC within 90 days after a notice of cancellation by the guarantor is received by NRC from the guarantor, the guarantor shall make full payment under the self-guarantee. Such payment shall be held in escrow, by NRC, for the estimated decommissioning activities for the previously listed facilities, and shall satisfy guarantor's financial assurance required under 10 CFR Part 50 and 10 CFR Part 70, as may be subject to adjustment to keep such estimate current, until guarantor 3

furnishes evidence of alternative financial assurance in compliance with 10 CFR Part 50 and 10 CFR Part 70). Upon the approval by NRC of such alternative financial assurance, NRC shall return the payment made by guarantor in full.

16. The guarantor waives notice of acceptance of this self-guarantee by NRC. The guarantor expressly waives notice of amendments or modifications of the decommissioning requirements.

17. If the guarantor files financial reports with the U.S. Securities and Exchange Commission, then it shall promptly submit them to its independent auditor and to NRC during each year in which this self-guarantee is in effect.

18. The guarantor agrees that if, at any time before termination of this self-guarantee, its most recent bond issuance ceases to be rated in the category of "A" or above by either Standard & Poor's or Moody's, it shall provide notice in writing of such fact to NRC within 20 days after publication of the change by the rating service.

I hereby certify that this self-guarantee is true and correct to the best of my knowledge.

Effective date: ()1 Lr- .** _

SELF-GUARANTOR: Massachusetts Institute of Technology:

By: /

Theresa M. Stone Executive Vice President and Treasurer Signature of witness or notary:

(7AL.lp .NON PINKSTEN i~Q~j~ Notay Public~

C6UMONWEALTH OF MYJouin Dtom~

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Global Credit Research New Issue Moo' as " 9 DEC 2008 New Issue: Massachusetts Health & Educational Facilities Authority MOODY'S ASSIGNS Aaa RATING TO MASSACHUSETTS INSTITUTE OF TECHNOLOGY'S $275 MILLION SERIES 0 BONDS; OUTLOOK IS STABLE RATINGS AFFIRMED ON $1.5 BILLION OF RATED DEBT, INCLUDING CURRENT OFFERING Massachusetts Health & Educational Facilities Authority Higher Education MA Moody's Rating ISSUE RATING Revenue Bonds, Series 0 Aaa Sale Amount $275,000,000 Expected Sale Date 12/09/08 Rating Description Private University Revenue A-Moody's Outlook Stable Opinion NEW YORK, Dec 9, 2008 -- Moody's Investors Service has assigned a rating of Aaa to Massachusetts Institute of Technology's (MIT's or Institute's) $275 million Series 0 bonds to be issued through the Massachusetts Health and Educational Facilities Authority. The rating outlook is stable. Moody's has also affirmed our Aaa and Aaa/VMIG1 ratings on MIT's previously issued bonds as detailed at the end of this report. The Series 0 bonds will be issued in the fixed rate mode. Including the current offering, MIT will have a total of $1.7 billion of outstanding direct debt of which 75% is fixed rate and 25% is variable rate. A total of

$250 million of the variable rate debt has a put feature that is supported by the Institute's self-liquidity.

USE OF PROCEEDS: Series 0 proceeds will be used to fund a variety of capital projects on the Institute's campus, including a new graduate student residence, a new building for the School of Architecture +

Planning and the Media Laboratory, a new facility for the Sloan School of Management; a new underground parking garage, and a new facility for the Koch Institute for Integrative Cancer Research; to pay capitalized interest; and to pay costs of issuance.

LEGAL SECURITY: Unsecured general obligation of the Institute INTEREST RATE DERIVATIVES: MIT has two interest rate swap agreements related to its Series J variable rate bonds, each with a notional amount of $125 million. Swap payments are unsecured general obligations of the Institute. One of the swaps is with Merrill Lynch Capital Services and guaranteed by Merrill Lynch &

Co., Inc. (rated A2/P-1 under review for possible upgrade). Under this swap, which expires in 2011, MIT pays a fixed rate and receives a variable rate based on SIFMA. There are no automatic termination events, and the swap can be terminated by either party if the other party's senior unsecured credit rating is below A3. The market value of the swap was negative $7.5 million to MIT as of 11/28/2008. The second swap was originally with Lehman Brothers Commercial Bank, a subsidiary of Lehman Brothers Holdings, Inc. Earlier this month, MIT terminated that swap and entered into a new agreement for the same notional amount with Deutsche Bank AG (rated Aal/P-1). An upfront payment from the new counterparty offset MIT's payments associated with termination of the Lehman swap. Under the new swap, which expires in 2031, MIT pays a fixed rate and receives a variable rate based on SIFMA. This swap also has no automatic termination events, and the swap can be terminated by either party if the other party's credit senior unsecured credit rating is below A3. MIT has the right to terminate the agreement anytime, but the counterparty does not. The Institute must post collateral if its rating is A3 or below and if its rating is A2 and the market value of the swap is negative to MIT by at least $10 million.

STRENGTHS

• Exceptional balance sheet position with $12.0 billion of total financial resources at the end of FY 2008,

providing very.strong coverage of outstanding debt (6.9 times total financial resources to pro-forma direct debt), which will continue to provide a substantial financial cushion despite market declines in FY 2009;

• Premier student market position and research reputation (12% selectivity, 66% matriculation for fall 2008);

• Consistently healthy operating performance (13.7% operating cash flow margin in FY2008);

• Large portfolio of liquid assets and management team depth supporting highest short-term rating.

CHALLENGES

• Sustaining a long track-record of superior investment performance, which in the past has helped support expense growth;

• Managing growing commitments for expenses such as financial aid and debt service in the face of near-term budgetary pressures.

• High reliance (50% of operating revenues) on research grants and contracts, a revenue stream that has exhibited volatility in recent years, with an increase in FY 2008 following a decline in FY2007.

MARKET POSITION/COMPETITIVE STRATEGY: PREMIER ACADEMIC REPUTATION LEADS TO HIGHEST LEVELS OF STUDENT DEMAND AND ATTRACTION OF RESEARCH AWARDS Moody's anticipates that MIT's extraordinarily strong academic reputation will be sustained in the near future and will continue to lead to excellent student demand and an ability to attract top research faculty and grant awards. MIT's selectivity and matriculation rates have continued to improve from already strong levels, with selectivity of 11.9% and yield of 66.0% in fall 2008. MIT has an enrollment base that is more heavily oriented toward graduate educatiorn, with 41% of full-time equivalent enrollment in undergraduate programs. Over time, this share has increased as MIT embarked on a deliberate plan to shift the balance of undergraduates and graduates slightly.

Along with many of its peer institutions, MIT announced changes to its financial aid policies earlier this year, including covering full tuition from MIT and other grants for students with family income below $75,000 and eliminating loans for this population of students. In addition, MIT will no longer consider home equity as a source of payment for those families earning less than $100,000. The combined changes in the program will increase MIT's financial aid budget to $74 million, or approximately 10% from the prior year.

MIT's research profile remains extremely strong, with total grant and contract revenue of $1.2 billion in FY2008, including $620 million of grants at the Lincoln Laboratory. Research conducted at MIT's Cambridge campus rebounded by 5.8% to $622 million in FY 2008 after decreasing by 3.5% to $571 million in FY2007.

Growth of research revenue in FY 2008 was due in particular to increased non-federal sources, which improved by 18% on the strength of non-profit foundation funding. Although the environment for research funding remains very competitive and continues to face weak government funding, we expect MIT to remain well positioned to sustain research revenue over the medium and long-term. MIT has consistently worked with industry as a research partner and increasingly has developed relationships overseas to provide research and development expertise, including the Singapore-MIT Alliance for Research and Technology, which is projected to be a $350 million program over five years. Separate incorporation of the Broad Institute, an MIT research center located on campus and operated in collaboration with Harvard University and its affiliated hospitals and the Whitehead Institute for Biomedical Research that accounted for $142 million of research funding in FY 2008, is not expected to have a material impact on the Institute.

OPERATING PERFORMANCE: HIGHLY CONSISTENT AND FAVORABLE OPERATING PERFORMANCE EXPECTED TO CONTINUE DESPITE SHORT-TERM PRESSURE

,Moody's expects MIT to continue to generate favorable operating performance as diligent operating

.management has resulted in highly consistent performance over time. MIT's operating cash flow margin was 13.7% in FY2008 and has averaged 10.7% for the last three years. These annual cash flow margins produced a strong debt service coverage averaging 4.1 times from FY 2006 through FY 2008. This margin will decline with the additional debt MIT has issued this year (Series N of $325 million in August 2008 in addition to the current Series 0), with an estimated 2.0 times average coverage of maximum annual debt service. Operating revenues are heavily reliant on grant and contract income, with 50% of revenue from grants in FY2008. Excluding the Lincoln Laboratory contract, approximately 34% of revenues were from grants and contracts. MIT's other primary revenue sources include tuition and fees (13%),.investment income (19%) and gifts (7%). These diverse sources of revenue have remained relatively proportionate over time, with slightly less reliance on grant revenue and slightly more reliance on investment income in the past two years.

The Institute's budget planning is based on a financial framework that produced a balanced budget without use of restricted endowment funds for the first time in FY 2009. Given current investment losses, MIT is

projecting reduced revenues beginning in FY 2010 and has begun efforts to reducethe budget for that year by $50 million, which represents about 2% of total annual expenses. Potential target areas are new construction 5nd the pace of new faculty recruitment. MIT intends to maintain its commitment to financial aid, which increased $24 million, or 14%, between FY 2004 and FY 2008. With conservative endowment spending policies, highly predictable revenues and expenses, and strong financial management, we expect MIT to continue to generate healthy, although potentially reduced, cash flow.

Fundraising has been a growing strength of MIT, with average gift revenue climbing to nearly $320 million in recent years. Cash receipts for the current fiscal year to date are above the prior year at this time, and MIT reports it has received most of the gifts targeted for several current major capital projects.

BALANCE SHEET POSITION: EXCEPTIONAL BALANCE SHEET STRENGTH PROVIDES STRONG OPERATING AND DEBT CUSHION BUT WILL DECLINE WITH EXPECTED LOSSES.

MIT built balance sheet strength in recent years with high investment returns and growing gift revenue. Total financial resources were slightly above $12 billion in FY2008, compared to $1.7 billion of pro-forma direct debt and $2.3 billion of total expenses. The ratio of expendable financial resources to pro-forma direct debt is 5.4 times compared to 5.3 times in FY2004. Moody's has reclassified $791 million of unrestricted net assets representing the overfunded defined benefit plan to permanently restricted net assets. Although these funds represent a long-term strength since MIT is likely to need to make fewer contributions to the plan compared to other organizations with an underfunded pension, the funds cannot be used for any other purpose and therefore are more akin to permanently restricted endowment funds.

MIT's investment returns have remained among the best in the industry, with an average 20.2% annual return from FY 2004 through FY 2007. In FY 2008, the investment return.was 3.2%. The Institute's asset allocation is highly diversified. As of October 31, 2008, allocations were 28% to publicly traded equity (both domestic and international/emerging), 5% to fixed income, 27% to marketable alternatives, 20% to private equity, and 10% each to real estate and real assets. Although the valuation of nonmarketable assets is not precise, MIT roughly estimates that as of October 31, 2008, the decline in the market value of investments has been in the range of 20% to 25% from its June 30, 2008 value. As described above, MIT is taking action to reduce spending in FY 2010. Despite the reduction in investment value, however, the Institute retains a healthy balance sheet. With a pro-forma 30% decline in expendable financial resources, MIT's ratio of expendable financial resources to pro-forma direct debt would decline to 3.8 times, and expendable financial resources to operations would fall to 2.8 times. Moody's expects these investment results would be in line with MIT's Aaa-rated peers.

Previously, MIT was a relatively infrequent borrower given its size and balance sheet strength, utilizing gifts and cash flow to support capital investments. With the current Series 0 issue and the recent Series N borrowing (both in FY 2009 and totaling $610 million), the Institute is completing a number of large projects.

MIT plans to slow future capital spending plans in response to the current economic and financial environment. Within the next year, MIT will explore the establishment of a new line of credit and/or taxable commercial paper program of up to $500 million to provide additional liquidity capacity for operating needs.

SHORT TERM RATING RATIONALE:

The VMIGI rating on MIT's $250 million of weekly reset Series J-1 and J-2 bonds is supported by MIT's own strong interral liquidity. Daily liquidity includes $88 million of funds in a 2a-7 money market fund and $268 million of U.S. Treasury securities as of October 31, 2008. These figures exclude $48 million that remains locked up in the Commonfund Short-Term Fund. Another $667 million in weekly liquidity is available from exchange-traded equities and other funds and investments. MIT has extensive treasury experience in managing its investment and debt portfolio, ensuring timely draws on available liquidity to pay any failed remarketings of the bonds.

Outlook The outlook for MIT's credit position remains stable. Losses of investment market value and tighter operating performance can likely be sustained without pressuring the rating.

What could change the rating - UP Not applicable.

What could change the rating - DOWN Further substantial declines in endowment market value or operating performance; significant additional borrowing without strengthening balance sheet resources.

KEY DATA AND RATIOS (Fiscal year 2008 financial data; fall 2008 enrollment data)

'Figures in parentheses included a pro-forma 30% reduction to financial resources Total Enrollment: 10,173 full-time equivalent students Total Pro-forma Direct Debt (including current offering): $1.74 billion Expendable Resources to Debt: 5.4x (3.8x) (Moody's has removed $791 million from unrestricted net assets representing overfunded pensions and classified as permanently restricted)

Expendable Resources to Operations: 4.1x (2.8x) (Moody's has removed $791 million from unrestricted net assets representing overfunded pensions and classified as permanently restricted)

Total Financial Resources per Student: $1.2 million ($827,754)

Three-Year Average Operating Margin: 3.6%

RATED DEBT Series I, K, L, M, N, 0: Aaa Series J-1 and J-2: Aaa/VMIG1 (self-liquidity)

CONTACTS Massachusetts Institute of Technology: Israel Ruiz at 617-253-4495 or Allen Marcum at 617-324-7207 Underwriter: Barclays Capital, Jim Costello at 212-526-5730 or John Augustine at 212-526-5436 METHODOLOGY The principal methodology used in rating Massachusetts Institute of Technology was "Moody's Rating Approach for Private Colleges and Universities," which can be found at www.moodys.com in the Credit Policy

& Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy &

Methodologies directory.

The last rating action was on July 21, 2008 when the ratings of Massachusetts Institute of Technology were affirmed.

Analysts Laura C. Sander Analyst Public Finance Group Moody's Investors Service Roger Goodman Backup Analyst Public Finance Group Moody's Investors Service Contacts Journalists: (212) 553-0376 Research Clients: (212) 553-1653

© Copyright 2008, Moody's Investors Service, Inc. and/or its licensors including Moody's Assurance Company, Inc.

(together, "MOODY'S"). All rights reserved.

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MOODY'S hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MOODY'S have, prior to assignment of any rating, agreed to pay to MOODY'S for appraisal and rating services rendered, by it fees ranging from $1,500 to approximately $2,400,000. Moody's Corporation (MCO) and its wholly-owned credit rating agency subsidiary, Moody's Investors Service (MIS), also maintain policies and procedures to address the independence of MIS's ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually on Moody's website at www.moodys.com under the heading "Shareholder Relations - Corporate Governance - Director and Shareholder Affiliation Policy."

NEW ISSUE - BOOK EN Y ONLY In the opinion. of Edwards Angell Palmer &;Dodge LLP, Bond Counsel, based upon an analysis of existing law and assuming, among other-matters,,compliance with certain,covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under the Internal Revenue Code of 1986. Interest on theBonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes,,

altoug ntres sch isinludd n ajuted currn qernns when calculating corporate alternative minimum:

incme Unter exstiicuein qu yrt-a'I.

taxable: income. Under existing law, interest on the Bonds and any profit on the .sale of the Bonds are exempt from Massachusettspersonal income taxes and the Bonds are exempt from Massachusetts personalproperty taxds. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual-or receipt:of interest on, theBonds., See "TAX EXEMPTION' herein.

$266,460,000 MASSACHUSETTS HEALTH AND EDUCATIONAL FACILITIES AUTHORITY REVENUE BONDS, MASSACHUSETS INSTITUTErOF TECHNOLOGY ISSUE, SERIES 0 (2008)

Dated:, Date of delivery Due: July 1, asý shown below The Series 0 Bonds.(the "Bonds") will be issued only as fully registered bonds withOut coupons, and, when issued, Wilf be registered in the name of Cede &Co., as Bondo-ner and nominee for The Depository Trust Company ("DTC"), New York, New York DTC willact as securities depository for the Bonds. Ptirchases of the Bonds will be madem bookentry forim Purchasers will not receive certificates representing their interests in.the Bonds purchased. So0long as Cede & Co. is the Bondowner, as, nominee ofDTC, references herein to the Bondowners or registered owners shallmean Cede & Co., as aforesaid, and shall not mean the'beneficial owners of the Bonds. See "THE BONDS -Book-Entry Only System"n hereinr.

Prncipal of and interest on the Bonds will be paid by The Bank of New York Mellon Trust Company, N.A., New York, New York, as Trustee. So long as DTC or its nominee, Cede & Co., is the Bondowner, such payments will be made directly to such Bondowner,.,as more fully described herein.: Interest on the Bonds-will be payable:on July 1, 2009,. and semiannually thereafter on January 1and July 1 of each year to the Bondowners of record aslof the close ofbusiness on the fifteenth day of the month preceding such interest payment date.

The-Bonds are subjectto redemption prior to maturity as more fully described herein.

The Bonds shall be special obligations of the Massachusetts Health and Educational-Facilities Authority (the "Authority..")

payable solely from theRevenues (as hereinafter defined) of the Authority, includingpayments to The Bank of New York Mellon Trust Company, N.A., New:.York, New:York, asTrustee, for the account of the Authority by the Massachusetts Institute of Technology (the "Institute") in accordance with the proviions ofthe Agreement (as defined herein). Such payments pursuant to the Agreement are a general obligation of the Institute, Reference is made to this Official Statement for pertinent security provisions of the Bonds.

THE BONDS(SHALL NOT BE DEEMED TO*CONSTITUTE A DEBT OR LIABILITY OF*THE COMMONWEALTH OF'MASSACHUSETrS ORANY POL.ITICA SUBDIVISION THEREOF, OR A PLEDGE OF THE FAITH AND CREDIT

'OFTHE COMMONWEALTH:OF MASSACHuSE'rs OR ANYPOLITICAL SUBDIVISION THEREOF, BUT SHALL BE PAYABLE SOLELY FROM THE REVENUES PROVIDED UNDER :THE AGREEMENT. NEITHER.THE FAITH AND CREDIT NOR THE TAXING POWER OF THE COMMONWEALTH ORANY POLITICAL SUBDIMSION THEREOF IS C.

PLEDGED TO THERPAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE BONDS. THE ACT DOES NOT IN ANY WAY CREATE A SO-CALLED MORAL OBLIGATION OF THE COMMONWEALTH TO PAY DEBT SERVICE [IN THE EVENT OF DEFAULT BY THE INSTITUTE. THE AUTHORITY DOES NOT HAVE TAXING POWER.

$10,000,000 4.00%Bonds due July 1, 2016 - Yield 3.60% CUSIP No. 57586ECG4 778,0y000i000 5.00% Bonds due July 1, 2016 - Yield 3.60% CUSIP No. 57586ECH2

$23,485,000 5.00% Bonds due July 1,2026 - Yield 5.28% CUSI9 No. 57586ECJ8 847,975,000 5.75% Bonds due July 1, 2026.- Yield 5.28*% CUSIP No. 57586ECK5

$42,000,000 5.50%' Bonds due July 1, 2036- Yield 5.70% CUSIP No. 57556ECL3

$65,000,000 6.00% Bonds due July 1, 2036 - Yield 5.70*% CUSIP No. 57586ECM1 The Bonds are offered when, as and if issued and received by the Underwriters, subject to prior sale, to withdrawal or modifycationof the offer without notice, and to the approval of ter legality and certain other matters by Edwards Angell Palmer & Dodge Iii, Boston, Massachusetts,Bond Counsel to the Authority. Certain legal matters will be passed upon.

for the Institute by itscounsel, Mintz, Levin, Cohn, Ferris, Govsky and Popeo, P.C.I Boston, Massachusetts. Certain legal Is d seduponfor.thOeUnderwriters by, their iounsel, Orrick, Herrington &Sutcliffe LLP, New York, New York.

is ected tht onds in definitive form'will be available for delivery to DTC in New York, New York, on or'about CJanuary8,.2009..

CAPITAL Morgan Stanley Dated" December10, 2008

• Yield to the July 1,2018 optional redemption date.

CONTINUING DISCLOSURE The Authority has determined that. no financial or operating data concerning the Authority is material to.

an evaluationof the offering .ofthe-Bonds or to any decision to purchase, hold or sell the. Bonds'and the.Authority will not provide any such-,information. The Institute has undertaken all responsibilitiesfior- any cont!nuing.

disclosure to owners of the Bonds as described below*, and the Authority shall have 'no liability-to the owners of the Bonds orf ahyb other.person with -espect to Securities and.Exchange Commission Rule 15c2-12.

The Institute has.covenanted for the benefit of holders and beneficial owners of the Bonds to provide certain financial information relating to the Institute (the "Annual Report") by not later than. 180 days afterthe end.

ofeachfiscal year, commencing with the report for the 2009 fiscal year, and to provide notices of the occurrence of ceriain enumerated events,-'if material. The Annual Report and the notices of material' events will be filed by the. Institute or. a dissemination agentz with each Nationally Recognized Municipal Securities Information Repository and with the State Repository, if any. These covenants have been. made, in order to" assist the Underwriters in complying with Securities and Exchange Commission Rule. 15c2-12(b)(5) (the "Rule").

On the date of delivery of the offered Bonds, 'the Institute'and the Trustee-will enter into the Continuing Disclosure Agreement substantially in the .form attached hereto as Appendix E -. "FORM OF CONTINUING DISCLOSURE AGREEMENT."

The Institute has never failed to comply in all material respects- with any previous undertakings with regard to the Rule to provide annual reports or notices of material events*, except that'the filing with respect to A fiscal year 2006 was not made 'in a timely manner.

COMMONWEALTHNOTLIABLE ON THE BONDS:

The Bonds shall-not be deemed to constitute a debt or liability of the Commonwealth or any political subdivision thereof, or a pledge, of the faith and credit_.of the Commonwealth or any such political subdivision, but shall be payable solely from the Revenues derived by the Authority Under the Agreement Neither the faith and credit nor the taxing power 'of the Commonwealth or of any political subdivision thereof is pledged to the' payment of the principal 'ofor interest: on the :Bonds. The Act does not in any, way create' a so-called moral obligation of the Commonwealth or of any political subdivision thereof to pay debt service in the event .of default by the Institute. The Authority does not .have taxing power.

Moody's Investors Service, Inc. and St n Division of the McGraw-Hill Companies, Inc.

have assighedratiigs of"Aaa"'and '"AA'A" respectively,. to the'Bonds., Such ratings reflect only the views of such Organizations and any desired explanation of the significance of such ratings should'be obtained from the-rating agency furnishing the same, at the 'following addresses: Moody's Investors Service, Inc., 7 World Trade Center, 250 Greenwich Street_. NewYork, New York 10007; and Standard & Poor's,.55 Water Street, New York,. New York 10041. 'Generally, a. rating'agency'bases its rating on the information and materials- furnished to it, and. on investigations, studies' and assumptions of its own.

The above ratings are not. recommendations to buy, sell or own the Bonds, and. such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any or all.ratings may have an adverse effect on the market price of the Bonds..

UNDERWRITING The Bonds are being purchased for reoffering by Barclays Capital Inc., as. representative of the Underwriters. The Underwriters have agreed to purchase the Bonds.at an aggregate 'discount of $1,218,273.77.

from the public offering prices or yields'set forth on the cover page hereof and will be rcinmbursed for certain Report of the Treasurer for the year ended Massachusetts June 30, 2009 PIT Institute of Technology

Report of the Treasurer for the year ended June 30, 2009 Massachusetts Institute of Technology

The Corporation 2008-2009 as ofJune 30, 2009 Chairman: Dana G. Mead*

President: Susan Hockfield*

Executive Vice President and Treasurer: Theresa M. Stone*

Vice President for Institute Affairs and Secretary: Kirk D. Kolenbrander*

Life Members John S. Reed; Shirley A. Jackson; Raymond S. Stata*; David H. Koch; PatrickJ. McGovern; Robert A. Muh; Denis A. Bovin*; James A. Champy*; Judy C. Lewent; A. Neil Pappalardo*; Arthur Gelb; Edie N. Goldenberg; Robert M. Metcalfe; Kenan E. Sahin; John K. Castle; Susan E. Whitehead; Charles M. Vest; Brian G. R. Hughes; Norman E. Gaut; L. RobertJohnson; ArthurJ. Samberg*.

Members Barrie R. Zesiger*; Gordon M. Binder; Gururaj Deshpande; Linda C. Sharpe; John A. Thain; Thomas P. Gerrity; Mark P. Gorenberg; Scott P. Marks, Jr.; Marjorie M.T Yang; James H. Simons; Alan G. Spoon; Lawrence K. Fish; David D. Ho; Abigail P.Johnson; Robert B. Millard*; Carly S. Fiorina; Anita K. Jones*; Paula J. Olsiewski; Sanjay K. Rao; Milton H. Roye, Jr.; Martin Y. Tang; Robert L. Blumberg; R. Erich Caulfield; Raymond C. Kurzweil; Kenneth Wang; David A. Berry; James A. Lash; Paul E Levy; Megan J. Smith; Henri A. Termeer; Chiquita V White*; 0. Reid Ashe, Jr.;

John W.Jarve; Frederick A. Middleton, Jr.; Barun Singh; Diana C. Walsh; Ursula M. Burns; Diane B. Greene; Helen Greiner; Harbo P. Jensen; Marta M. Luczynska; Victor J. Menezes; Peter L. Slavin; Laura D. Tyson; Tony Keng Yam Tan.

President of the Association of Alumni and Alumnae Antonia D. Schuman Representatives of the Commonwealth Governor: Deval L. Patrick Chief Justice of the Supreme Judicial Court: Margaret H. Marshall Secretary of Education: S. Paul Reville Life Members Emeriti Irdnde duPont, Jr.; John C. Haas; Norman B. Leventhal; George P. Gardner; Mitchell W Spellman; D. Reid Weedon, Jr.;

Colby H. Chandler; Carl M. Mueller; Joseph G. Gavin, Jr.; Louis W. Cabot; Christian J. Matthew; Howard W.Johnson; Paul M. Cook; William S. Edgerly; Frank Press; Edward E. David, Jr.; Emily V. Wade; Angus N. MacDonald; Kenneth H. Olsen; George N. Hatsopoulos; Charles H. Spaulding; Mary Frances Wagley; Michael M. Koerner; Morris Tanenbaum; Breene M. Kerr; W Gerald Austen; Richard P Simmons; Morris Chang; Paul E. Gray; Alexander W. Dreyfoos, Jr.; Ronald A. Kurtz; DuWayne J. Peterson, Jr.

Members' names are listed in.chronological order of election to each category.

• memberof the Executive Committee

Table of Contents

" Report of theTreasurer ............................................... 5-8

" Financial Statements The financialstatements summarize the finances of MIT for the fiscal years 2008 and 2009 Statem ents of Financial Position .............................................. 9 Statem ents of Activities ................................................. 10-11 Statem ents of C ash Flows ................................................... 12 Notes to Financial Statem ents ............................................ 13-32 Report of Independent Auditors ............................................. 33

• Additional Information Five-Year Trend Analysis ................................................ 34-36

Report of the Treasurer To Members of the Corporation General investment performance across all invested assets including endowment, working capital, and retirement assets.

Fiscal 2009 was a notable year for MIT from a financial perspective. Guided by the comprehensive financial We are appreciative of the MIT community - our alumni, planning work conducted in 2008, we entered 2009 donors, board members, research partners, faculty and staff, with a balanced budget for the first time in many years. colleagues, and students - for their financial support, advice, As the worldwide economic crisis unfolded in the fall, and collaboration that were most generously offered as we we recognized likely effects on our future support from navigated this challenging year for MIT We are optimistic endowment, as well as possible pressures on gifts and grants that, with their continued involvement, MIT will emerge to MIT, net tuition (after needed financial aid), and research from this global economic contraction stronger, more funding. By carefully managing liquidity and expenses, flexible, and better equipped to fulfill the Institute's mission MIT concluded 2009 with the general Institute budget for the nation and the world.

and consolidated operating results in line with our plan.

Following are additional details on MIT's financial MIT was also able to secure $610.0 million of tax-exempt position, operating activities, gifts and pledges, investments, financing despite market turbulence and, as a result, will endowments, fixed assets, and borrowings.

complete construction of three major new buildings, the Koch Institute for Integrative Cancer Research, the Sloan Financial Position School of Management, and the Media Lab and School of Architecture and Planning, over the next eighteen months. Net assets are presented in three categories to recognize the significant ways in which universities are different from Starting in the fall and through early spring, administrative profit-making organizations. These categories reflect the units and academic departments, labs, and centers focused nature of the restrictions placed on gifts by donors.

on strategies to operate with reduced budgets. Projections were developed that indicated a potential need to reduce Permanently restricted net assets represent those gifts expenditures by ten to fifteen percent within two to for which the original principal is to be preserved. This three years. Initial savings have been achieved in 2009. category includes gifts and pledges to true endowment With additional 2010 budgeted savings of at least five together with assets held in trust, such as life income funds, percent, about half of the needed reductions will have which, when received or matured, will be added to the been achieved. The majority of units are planning to reach endowment. The increase in permanently restricted net ultimate required reductions in the 2011 budget cycle. assets of $67.0 million, or 3.5 percent, to a total of $1,985.4 In addition to these unit-based efforts, the Institute-wide million, primarily reflects new gifts and pledges made to Planning Task Force, through nine separate working restricted endowment funds.

groups, developed recommendations for improvements Temporarily restricted net assets represent those gifts to MIT's academic, research, and administrative activities that ultimately can be used to fund operating or capital aimed at strengthening our ability to fulfill MIT's mission expenditures. They require an event or lapse of time to while reducing required funding. The work of this task occur before they are available for spending. Over 90 force, which included close to 200 faculty, staff, and percent of the assets in this category are accumulated students working in cross-organizational groups, has been market gains on permanently restricted endowment funds.

an impressive demonstration of MIT's culture of tackling problems and of our community's commitment to the This category also includes pledges not permanently Institute's mission. restricted, gifts for construction projects that have not been completed and put into use, and life income funds, which, As we plan for future years, the level of endowment support upon maturity, will be available for spending. The decrease is an important factor.- Our endowment investment returns in temporarily restricted net assets of $1,364.3 million, for 2009 were down 17.1 percent. When adjusted for or 23.7 percent, to a total of $4,401.0 million, primarily planned support to MIT during 2009, endowment funds results from the decrease in the market value of assets held before pledges at June 30, 2009 were $7,982.0 million, in permanently restricted funds. The Commonwealth of down 20.7 percent from June 30, 2008 levels of $10,068.8 Massachusetts requires that all universities located within million. Consolidated net assets at year end were $9,946.4 the Commonwealth report accumulated market gains on million as ofJune 30, 2009, down $2,823.6 million from both permanently and temporarily restricted net assets as net assets of $12,770.0 million in 2008. The decrease in temporarily restricted net assets until appropriated for use.

net assets reflects the effect of the economy's impact on

SUMMARY

5

Unrestricted net assets comprise all the remaining economic over 2008. Included in the campus figure are Broad resources available to MIT. This category includes MIT's Institute research revenues of $166.3 million, which grew working capital and those assets designated by MIT as 17.0 percent over 2008. At Lincoln Laboratory, research "funds functioning as endowment," to be invested over the revenue totaled $669.8 million in 2009, an increase of 8.1 long term to generate support for MIT's operations and percent. Research at the Lincoln Laboratory is funded capital projects. Also included in this category are current primarily under a contract with the Department of Defense funds received from donors for restricted purposes that, (Air Force). At the Singapore-MIT Alliance for Research and under the accounting rules, are categorized as unrestricted Technology (SMART), $14.5 million of research revenue if MIT spends an equivalent amount of unrestricted funds was generated during 2009, its second year of operation, for for the same purpose. Unrestricted net assets decreased research activities taking place in Singapore.

$1,526.3million, or 30.0 percent, to a total of $3,559.9 On MIT's campus, the Department of Health and Human million. The decrease in unrestricted net assets is due to Services (primarily through the National Institutes of two major factors: first, the decrease in endowment value Health) was the largest research sponsor, growing $29.6 and second, the net decrease in the overfunded status of million, or 13.1 percent over 2008, and providing 37.0 retirement plan assets resulting from decreased fair value of percent of MIT's campus research revenue in 2009. Overall, plan assets and increased benefit obligations. During 2009 federal sponsorship of campus research grew 8.0 percent.

and 2008, unrestricted net assets were reduced by $24.0 Federal sponsorship from the Department of Defense grew million and $0.3 million respectively, to offset investment by $10.2 million, or 11.6 percent. National Aeronautics losses on permanently restricted net assets where market and Space Administration revenue increased $1.9 million, value dropped below book value. This amount will be or 7.4 percent, while revenue from the National Science restored to unrestricted net assets in-line with subsequent Foundation decreased $3.6 million, or 5.5 percent, over market value increases.

last year. Revenue from Department of Energy and other Operations federal agencies remained close to 2008 levels. Nonfederal funding for campus research increased by $38.5 million, or MIT's operations include tuition, research revenues, 25.9 percent, in 2009 with the greatest increases coming unrestricted gifts and bequests for current use, fees and from nonprofit foundations and foreign governments.

services, other programs, investment income, the portion of net investment gains distributed to funds under MIT's Research revenues include reimbursement from sponsors spending policy, auxiliary revenues, payments on pledges for both direct and indirect (facilities and administration) for unrestricted gifts, and operating expenditures. The costs. MIT's modified total direct research expenditures Statements of Activities, on pages 10 and 11, show that (MTDC or "base"), that form the basis for recovery of operating revenues exceeded operating expenses by $182.7 indirect costs, increased by $57.8 million, or 8.6 percent.

million in 2009, due primarily to unspent distributions Of this increase, $24.5 million is campus research; $33.3 from the endowment. In 2008, operating revenues exceeded million is Lincoln Laboratory and SMART research.

operating expenses by $114.2 million. Revenue from fees and services decreased $5.9 million, or Operating revenues increased $235.5 million, or 9.8 3.6 percent, to $157.1 million. This was due primarily to percent, to $2,644.0 million due primarily to increases in decreased revenues from technology licensing, for which distributed net gains on investments and research revenues 2008 revenue included amounts related to a non-recurring and offset by a decrease in investment income. Operating legal settlement. Investment income, defined as dividends, expenses increased $167.0 million, or 7.3 percent, to a total interest, and rents, decreased $83.5 million, or 45.3 percent, of $2,461.3 million driven primarily by increases in salaries to $100.6 million, due primarily to declining interest rates and wages and supplies and services. and economic conditions. Net asset reclassifications to operations of $57.8 million primarily reflect payments on Net tuition revenue decreased $11.7 million, or 5.1 unrestricted pledges received and released to operations in percent, to $217.4 million. Reflecting MIT's commitment 2009.

to increasing the affordability of.undergraduate education, financial support for undergraduate students from MIT Operating expenses increased $167.0 million, or 7.3 sources grew 12.5 percent. percent, to a total of $2,461.3 million in 2009. The largest component of the increase was sponsored research expense, In 2009, MIT experienced a 10.4 percent increase in which grew $112.6 million, or 10.7 percent. A significant research revenues, from $1,245.2 million to $1,375.1 contributor to this expense growth was The Broad million. On-campus research programs are carried out Institute, where direct spending for sponsored research at departments, labs, and centers where research revenue grew $23.0 milliorf to a total of $121.3 million. Instruction totaled $690.8 million in 2009, an 11.1 percent increase and unsponsored research increased $39.6 million, or 6.2 6 MIT REPORT OF THE TREASURER 2009

percent. General and administrative expenses increased The Board of Directors of the MIT Investment

$10.6 million, or 2.2 percent. Employee benefits expenses Management Company (MITIMCo) held four regularly increased $3.4 million, or 2.0 percent, due primarily to an scheduled meetings during the fiscal year. During increase in costs for employee and retiree medical benefits, 2009, MITIMCo, in conjunction with MIT's senior employment tax, and disability benefits, offset by pension administration, acted defensively to manage liquidity in credits resulting from the overfunded status of MIT's the turbulent markets while still capturing investment defined benefit plan in prior years. opportunities in the equity and marketable alternative arenas consistent with its investment policies and asset Gifts and Pledges allocation targets. Equities include investments in venture With the successful public launch of the Campaign for capital and private equity. Marketable alternatives include Students on October 3, 2008, the Campaign now stands investments in event arbitrage, distressed debt and hedge at a total of $351.3 million, with 70.3 percent of the $500 funds. The alternative investments are managed by more million goal raised. Gifts support scholarships, fellowships, than one hundred independent organizations primarily educational programming, and student life activities. The through pooled investment partnerships.

MIT Energy Initiative (MITEI) now has 1,154 donors, and Endowment and Similar Funds has raised $54.1 million as ofJune 2009.

The market value of investments in the endowment and Gifts and pledges for 2009 totaled $303.9 million, a similar funds totaled $7,982.0 million as of June 30, 2009.

decrease of 21.3 percent from the 2008 total of $386.0 The endowment assets are managed to maximize total million. Gifts from individuals represented 35.6 percent investment return relative to appropriate risk. Investment of new gifts and pledges, down from 50.9 percent in the income and a portion of gains are distributed for spending previous year. Gifts from foundations represented 40.9 in a manner that, over the long term, retains for reinvest-percent of new gifts and pledges in 2009, up from 35.2 ment an amount at least equal to the anticipated rate of percent in the previous year. Gifts from corporations and inflation. Endowment funds invested in Pool A, MIT's other sources represented 23.5 percent, up from 13.9 primary investment pool, receive distributions based on the percent in 2008. New gifts and payments on pledges number of units held. Units are valued monthly and new for unrestricted purposes were 7.7 percent of the total, gifts or other funds transferred to Pool A are credited with compared with 3.9 percent in 2008. The largest category Pool A units based on the previous month's market value of of gifts for 2009 was Research and Education, which the units in Pool A.

accounted for 62.0 percent of the total.

Land, Buildings, and Equipment Investments Fixed assets had a net book value of $2,120.6 million as of Investments at fair value were $9,519.4 million, a decrease June 30, 2009, an increase of 9.4 percent from $1,938.9 of $1,789.0 million, or 15.8 percent, from the $11,308.4 million as of June 30, 2008. The most significant area of million of the previous year. Over the past five years, total increase this past fiscal year was in the area of educational invested assets have increased from $7,250.5 million to buildings.

$9,519.4 million while distributions for expenditures have totaled $2,063.4 million. More specific Major ongoing construction projects include a new information is included in Note B to the Financial 163,000-square-foot building for the Media Lab and Statements. School of Architecture and Planning to be completed in October 2009, a new 217,000-square-foot building for the The financial statements include both realized and Sloan School of Management with a three-level, 430-unrealized gains and losses on investments. Realized and car garage located directly under the new building and unrealized gains and losses, including those related to the scheduled for occupancy in 2010, a new 367,000-square-disposition of fixed assets, decreased from a gain of $154.8 foot laboratory research building for the Koch Institute million in 2008 to a loss of $1,854.4 million in 2009. for Integrative Cancer Research to be completed by The asset allocation among fixed income, equity, marketable December 2010, significant improvements to Vassar alternatives, and real estate investments remained similiar Street west of Massachusetts Avenue, various utility and to 2008 during 2009. Equity, marketable alternatives, and infrastructure improvements, and exterior rehabilitation real estate investments at market value were 84.5 percent of the undergraduate dormitory at 305 Memorial Drive.

of the investments as of June 30, 2009, as compared to 88.5 More extensive renovations related to 305 Memorial percent atJune 30, 2008. Drive have been deferred as part of a portfolio of measures

SUMMARY

7

designed to preserve financial flexibility. These projects Summary are part of a new construction initiative that adds state-of-MIT's full financial statements and footnotes follow, the-art facilities for emerging areas of research, increases more fully describing our financial position and activities educational infrastructure that supports residential and through June 30, 2009. In closing, we again thank the community life, and revitalizes the physical campus. The MIT community for its generous financial support, advice, major project completed during 2009 was the new 540-bed and collaboration throughout the year and reaffirm our graduate residence at 235 Albany Street.

optimism for the future.

Borrowings Respectfully submitted, Total borrowings outstanding increased from $1,335.4 million as of June 30, 2008, to $1,735.8 million as ofJune 30, 2009, primarily due to the issuance of $610.0 million in new, tax-exempt debt to finance major construction projects currently underway and to replace $203.0 million in line of credit financing. MIT's publicly held debt continues to be Theresa M. Stone Executive Vice President and Treasurer rated AAA by both Moody's and Standard & Poor's. More specific information is included in Note G to the Financial September 16, 2009 Statements.

8 MIT REPORT OF THE TREASURER 2009

Massachusetts Institute of Technology Statements of Financial Position at June 30, 2009 and 2008 (in thousands of dollars) 2009 2008 2009 2008 Assets C ash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 77,387 $ 81,106 Accounts receivable, net ........ ............................................. 241,024 223,790 Pledges receivable, net, at fair value ............................................. 464,736 443,303 Contracts in progress, principally U.S. Government ............................... 85,821 67,938 Deferred charges, inventories and other assets .................................... 57,457 62,316 Student notes receivable, net .................................................. 48,953 47,327 Investm ents, at fair value ...................................................... 9,519,413 11,308,429 Collateral for securities lending and minority interest .............................. 168,306 363,516 Retirem ent plan asset-overfunded status ......................................... 165,842 922,338 Land, buildings & equipment, (at cost $2,994,190 forJune 2009; $2,728,805 forJune 2008),

net of accum ulated depreciation ................................................ 2,120,613 1,938,919 T otal assets .............................................................. $ 12,949,552 $15,458,982 Liabilities and Net Assets Liabilities:

Accounts payable, accruals and other liabilities ................................ $ 299,565 $ 267,837 Liabilities due under life income fund agreements ................................. 72,606 78,372 Collateral for securities lending and minority interest .............................. 168,306 363,516 D eferred revenue and other credits ............................................. 175,070 164,470 A dvance paym ents ........................................................... 343,296 315,202 B orrow in gs ................................................................. 1,735,843 1,335,393 Government advances for student loans .......................................... 33,341 33,057 Accrued benefit liabilities ..................................................... 175,137 131,161 Total liabilities ........................................................... 3,003,164 2,689,008 Net Assets:

Unrestricted ................................................................ 3,559,925 5,086,270 Tem porarily restricted ........................................................ 4,401,015 5,765,302 Perm anently restricted ....................................................... 1,985,448 1,918,402 Total n et assets .......................................................... 9,946,388 12,769,974 Total liabilities and net assets ............................................... $ 12,949,552 $15,458,982 The accompanying notes are an integralpart of the financialstatements.

FINANCIAL STATEMENTS 9

Massachusetts Institute of Technology Statements of Activities for the years ended June 30, 2009 and 2008 (in thousands of dollars)

-- Unrestricted -- i-Temporarily Restricted --

2009 2008 2009 2008 Operating Activities Operating Revenues:

Tuition and similar revenues, net of discount of

$214,383 in 2009 and $192,131 in 2008 ............ $ 217,389 $ 229,099 $ - $

Research revenues:

D irect ........................................ 1,153,620 1,038,998 In direct ...................................... 221,452 206,172 Total research revenues .......................... 1,375,072 1,245,170 Gifts and bequests for current use .................... 100,072 122,091 Fees and services .................................. 157,110 162,994 O ther program s ................................... 86,133 93,268 Investm ent incom e ................................ 100,624 184,119 Net gains on investments, distributed ................. 455,680 228,403 Auxiliary enterprises ............................... 94,041 91,190 Net asset reclassification and transfers ................. 57,837 52,094 Total operating revenue ............................ 2,643,958 2,408,428 Operating Expenses:

Salaries and wages ................................. 967,383 896,145 Em ployee benefits ................................. 173,616 170,266 Supplies and services ............................... 872,725 822,953 Subrecipient agreem ents ............................ 85,550 68,944 Utilities, rent, and repairs ........................... 181,264 177,308 D epreciation ..................................... 125,018 111,611 Interest expense ................................... 55,730 47,020 Total operating expenses ............................ 2,461,286 2,294,247 Results of operations ............................... 182,672 114,181 Non-Operating Revenues, Gains and Losses Pledges .......................................... 92,836 146,116 G ifts and bequests ................................. 2,730 9,967 Investm ent Incom e ................................. 5,084 6,384 Net (loss) gain on investments and other assets .......... (686,881) 65,515 (1,143,063) 81,041 Distribution of accumulated investment gains ........... (151,590) (78,579) (304,090) (151,306)

Net change in life income funds ...................... 1,775 (1,053) (4,669) 396 Pension-related charges other than net periodic pension (cost) .......................... (825,440) (188,325)

Net asset reclassifications and transfers .............. (46,881) (42,313) (13,115) (11,302)

Total non-operating activities ........................ (1,709,017) (244,755) (1,364,287) 81,296 (Decrease) Increase in net assets ...................... (1,526,345) (130,574) (1,364,287) 81,296 Net assets at the beginning of the year ................ 5,086,270 5,216,844 5,765,302 5,684,006 Net assets at the end of the year ...................... $ 3,559,925 $ 5,086,270 $ 4,401,015 $ 5,765,302 The accompanying notes are an integralpart of the financialstatements.

10 MIT REPORT OF THE TREASURER 2009

Massachusetts Institute of Technofogy Statements of Activities for the years ended June 30, 2009 and 2008 (in thousands of dollars) rF- Permanently Restricted Fr- Total 1 2009 2008 2009 2008 Operating Activities Operating Revenues:

Tuition and similar revenues, net of discount of

$ $ - $ 217,389 $ 229,099 $214,383 in 2009 and $192,131 in 2008 Research revenues:

- 1,153,620 1,038,998 Direct

- 221,452 206,172 Indirect

- 1,375,072 1,245,170 Total research revenues

- 100,072 122,091 Gifts and bequests for current use

- 157,110 162,994 Fees and services

- 86,133 93,268 Other programs

- 100,624 184,119 Investment income

- 455,680 228,403 Net gains on investments, distributed

- 94,041 91,190 Auxiliary enterprises

- 57,837 52,094 Net asset reclassifications and transfers

- 2,643,958 2,408,428 Total operating revenues Operating Expenses:

- 967,383 896,145 Salaries and wages

- 173,616 170,266 Employee benefits

- 872,725 822,953 Supplies and services

- 85,550 68,944 Subrecipient agreements

- 181,264 177,308 Utilities, rent, and repairs

- 125,018 111,611 Depreciation

- 55,730 47,020 Interest expense

- 2,461,286 2,294,247 Total operating expenses

- 182,672 114,181 Results of operations Non-Operating Revenues, Gains and Losses 35,028 59,856 127,864 205,972 Pledges 73,224 47,922 75,954 57,889 Gifts and bequests 4,046 3,551 9,130 9,935 Investment income (24,436) 8,209 (1,854,380) 154,765 Net (loss) gain on investments and other assets 1,482 (455,680) (228,403) Distribution of accumulated investment gains (22,975) 1,407 (25,869) 750 Net change in life income funds Pension-related charges other than net periodic (825,440) (188,325) pension income (cost) 2,159 1,521 (57,837) (52,094) Net asset reclassifications and transfers 67,046 123,948 (3,006,258) (39,511) Total non-operating activities 67,046 123,948 (2,823,586) 74,670 (Decrease) Increase in net assets 1,918,402 1,794,454 12,769,974 12,695,304 Net assets at the beginning of the year S 1,985,448 $ 1,918,402 $ 9,946,388 $ 12,769,974 Net assets at the end of the year The accompanyingnotes are an integralpart of the financialstatements.

FINANCIAL STATEMENTS I1

Massachusetts Institute of Technology Statements of Cash Flows for the years ended June 30, 2009 and 2008 (in thousands of dollars) 2009 2008 Cash Flow from Operating Activities:

(Decrease) increase in net assets. .......................... . . ...... ... $ (2,823,586) $ 74,670 Adjustments to reconcile change in net assets to net cash provided by operating activities:

Net loss (gain) on investm ents .............................................. 1,854,380 (154,765)

Change in retirement plan asset, net of change in accrued benefit liability ........... 800,472 179,589 D epreciation ............................................................ 125,018 111,611 Gifts of securities ........................................................ (1,894) (5,554)

N et loss on life income funds ............................................... 38,230 12,174 Amortization of bond premiums and discounts and other adjustments .............. (2,838) (2,039)

Change in operating assets and liabilities: ........................................

Pledges receivable ........................................................ (21,433) (111,860)

Accounts receivable ....................................................... (17,234) (16,455)

C ontracts in progress ..................................................... (17,883) (14,793)

Deferred charges, inventories and other assets ................................. 4,859 (1,536)

Accounts payable, accruals and other liabilities, excluding building and equipm ent accruals .................................................... 22,928 (830)

Liabilities due under life income fund agreements .............................. (5,766) 3,711 D eferred revenue and other credits .......................................... 10,600 2,050 Advance paym ents ........................................................ 28,094 36,452 Reclassify investm ent incom e .................................................. (9,130) (9,935)

Reclassify contributed securities received as payment on pledges ..................... (22,479) (34,535)

Reclassify contributions restricted for long-term investment ......................... (75,954) (57,889)

Net cash (used in) provided by operating activities ........................... (113,616) 10,066 Cash Flow from Investing Activities:

Purchase of land, buildings and equipment ....................................... (299,049) (285,877)

Purchases of investm ents ..................................................... (21,221,423) (65,738,595)

Proceeds from sale of investments, including contributed securities ................... 21,105,189 65,687,444 Student notes issued ......................................................... (16,016) (15,673)

Collections from student notes ................................................. 14,019 17,599 N et cash used in investing activities ....................................... (417,280) (335,102)

Cash Flow from Financing Activities:

Proceeds from contributions restricted for:

Investm ent in endowm ent ................................................. 73,224 47,922 Investm ent in plant and other .............................................. 2,730 9,967 Less: contributed securities, gifts for endowment, plant and other ................. (2,145) (13,457)

Total proceeds from contributions ......................................... 73,809 44,432 Increase in investment income for restricted purposes .............................. 9,130 9,935 Proceeds from borrowings and re-marketing of swap related to borrowings ............ 649,150 261,815 Repaym ent of borrowings ..................................................... (205,196) (2,085)

Increase in government advances for student loans ................................. 284 301 Net cash provided by financing activities ................................... 527,177 314,398 N et decrease in cash ......................................................... (3,719) (10,638)

Cash at the beginning of the year ............................................... 81,106 91,744 C ash at the end of the year .................................................... $ 77,387 $ 81,106 The accompanying notes are an integralpart of the financialstatements.

12 1MIT REPORT OF THE TREASURER 2009

Notes to Financial Statements A. Accounting Policies Basis of Presentation MIT administers its various funds, including endowments, The accompanying financial statements have been prepared funds functioning as endowments, school or departmental in accordance with generally accepted accounting principles funds and related accumulated gains in accordance with (GAAP) in the United States of America. The financial the principles of "Fund Accounting." Gifts are recorded statements include MIT and its wholly owned subsidiaries. in fund accounts and investment income is distributed to funds annually. Income distributed to funds may be a Net assets, revenues, expenses, gains and losses are classi-combination of capital appreciation and yield pursuant to fied into three categories based on the existence or absence MIT's total return investment and spending policies. Each of donor-imposed restrictions. The categories are perma-year, the Executive Committee of the Corporation approves nendy restricted, temporarily restricted and unrestricted the rates of distribution of investment return to the funds net assets. Unconditional promises to give (pledges) are from MIT's investment pools. See Note K for further recorded as receivables and revenues within the appropriate information on income distributed to funds.

net asset category.

MIT's operations include tuition, research revenues, Permanently restricted net assets include gifts, pledges, unrestricted gifts and bequests for current use, fees and trusts and remainder interests, and income and gains services, other programs, investment income, the portion that are required by donors to be permanently retained.

of net investment gains distributed to funds under MIT's Pledges, trusts and remainder interests are reported at their spending policy, auxiliary revenues, payments on pledges estimated fair values.

for unrestricted gifts, and operating expenditures. Results Temporarily restricted net assets include gifts, pledges, of operations are displayed in the Statements of Activities.

trusts and remainder interests, and income and gains that MIT is a nonprofit organization that is tax exempt under can be expended but for which restrictions have not yet Section 501(c)(3) of the Internal Revenue Code, originally been met. Such restrictions include purpose restrictions recognized in October 1926, with the most recent affirma-where donors have specified the purpose for which the tion letter dated July 2001.

net assets are to be spent, or time restrictions imposed by donors or implied by the nature of the gift (capital projects, pledges to be paid in the future, life income funds) or by Cash interpretations of law (net gains on permanently restricted Current banking arrangements do not require outstand-gifts, which have not been appropriated for spending). Net ing checks and wires to be funded until actually presented unrealized losses on permanently restricted endowment for payment. Outstanding checks and wires in the amount:

funds for which the book value exceeds market value are of $22.6 million and $21.4 million in 2009 and 2008, recorded as a reduction to unrestricted net assets. respectively, are recorded in accounts payable until they are presented to our banks for payment. Certain cash balances, Unrestricted net assets are all the remaining net assets of totaling $42.1 million and $41.0 million in 2009 and 2008, MIT. Donor-restricted gifts and unexpended restricted respectively, are restricted for use in connection with gov-endowment income that are received and either spent, or ernment research.

the restriction is otherwise met within the same year, are reported as unrestricted revenue. Gifts of long-lived assets are reported as unrestricted revenue. Gifts specified for the Sponsored Research acquisition or construction of long-lived assets are reported Revenue associated with contracts and grants is recognized as temporarily restricted net assets until the monies are as related costs are incurred. The capital costs of buildings expended and the buildings are put into use, at which point and equipment are depreciated over their estimated life they are reclassified to unrestricted net assets. cycle and the sponsored research recovery allowance for depreciation is treated as indirect research revenue. MIT Net asset reclassifications and transfers consist primarily has recorded reimbursement of indirect costs relating to of payments on unrestricted pledges and use of building sponsored research at negotiated fixed billing rates. The funds in accordance with donor restrictions. Expirations of income generated by the negotiated rates is adjusted each temporary restrictions on net assets and the release of per- fiscal year to reflect any variance between the negotiated manent restrictions by a donor are also reported as reclas- fixed rates and rates based on actual cost. The actual cost sifications of net assets from temporarily or permanently rate is audited by the Defense Contract Audit Agency restricted net assets to unrestricted net assets. (DCAA) and a final fixed-rate agreement is signed by the NOTES TO FINANCIAL STATEMENTS 13

A. Accounting Policies (continued)

U.S. Government and MIT. The variance between the Depreciation expense was $125.0 million in 2009 and negotiated fixed rate and the final audited rate results in a $111.6 million in 2008. Net interest expense of $10.5 carry-forward (over or under recovery). The carry-forward million and $4.8 million was capitalized during 2009 will be included in the calculation of negotiated fixed billing and 2008, respectively, in relation to MIT's construction rates in future years. Any adjustment in the rate is charged projects.

or credited to unrestricted net assets.

Land, Buildings and Equipment Tuition and Financial Aid Land, buildings and equipment are shown at cost or fair Tuition and similar revenues, shown in Table 2 below, value as of the date of a gift, net of accumulated deprecia- include tuition and fees in degree programs as well as tion. When expended, costs associated with the construc- tuition and fees for executive and continuing education tion of new facilities are shown as construction in progress programs at MIT until such projects are completed. Depreciation is com-puted on a straight-line basis over the estimated useful lives Table 2. Tuition and Similar Revenues of 25 to 50 years for buildings, 3 to 25 years for equipment, and 4 to 6 years for software. Fully depreciated assets were (in thousands of dollars) 2009 2008 removed from the financial statements in the amount of Tuition revenue ........ $ 409,195 $ 387,803

$42.5 million and $52.3 million during 2009 and 2008, Executive and continuing respectively. Land, buildings and equipment at June 30, education revenues ..... 22,577 33,427 2009 are shown in Table 1 below.

Total ................ 431,772 421,230 Less: tuition discount ... (214,383) (192,131)

Table 1. Land, Buildings and Equipment Net tuition ........... $ 217,389 $ 229,099 (in thousands of dollars) 2009 2008 L and ................. $ 51,944 $ 51,944 Educational buildings ... 2,372,275 2,181,649 Tuition support is awarded to undergraduate students by Equipment ............ 220,709 187,670 MIT based on need. Graduate students are provided with Software .............. 33,084 43,27.3 tuition support in connection with research assistance, Total ................ 2,678,012 2,464,536 teaching assistance and fellowship appointments. Total Less: accumulated financial aid granted to students was $376.1 million and depreciation ........... (873,577) (789,886) $349.5 million in 2009 and 2008, respectively. Of that Construction in amount, $118.7 million in 2009 and $117.6 million in 2008, progress .............. 309,468 260,991 was aid from sponsors. Tuition support from MIT sources Software projects in is displayed as tuition discount. Components of financial progress .............. 6,710 3,278 aid are detailed in Table 3.

Land, buildings and equipment ........... $2,120,613 $1,938,919 Table 3. Financial Aid (in thousands of dollars) 2009 I r 2008 Institute External Total Institute External Total Sources Sponsors Financial Aid Sources Sponsors Financial Aid Tuition support ............ $ 214,383 $ 51,883 $ 266,266 $ 192,131 $ 52,873 $ 245,004 Stipends ................. 15,566 11,943 27,509 13,418 12,229 25,647 Student salaries ........... 27,374 54,913 82,287 26,421 52,471 78,892 Total .................. $257,323 $ 118,739 $ 376,062 $ 231,970 $ 117,573 $ 349,543 14 MIT REPORT OF THE TREASURER 2009

A. Accounting Policies (continued)

Gifts and Pledges disclosures about fair value measurements. SFAS No.

Gifts and pledges are recognized when received. Gifts of 157 applies to fair value measurements that are already securities are recorded at their fair value at the date of con- required or permitted by other accounting standards and tribution. Gifts of equipment received from manufacturers does not require any new fair value measurements. The and other donors during 2009 and 2008 were put into use statement defines fair value as "the price that would be and recorded by MIT at fair value. Gifts of equipment received to sell an asset or paid to transfer a liability in totaled $2.0 million and $0.6 million in 2009 and 2008, an orderly transaction between market participants at the respectively. Pledges in the amount of $464.7 million and measurement date."

$443.3 million are recorded as receivables with the revenue MIT adopted FASB Staff Position 157-3, Determining the assigned to the appropriate classification of restriction Fair Value of a FinancialAsset When the Marketfor That for 2009 and 2008, respectively. Pledges consist of Asset Is NotActive (FSP 157-3), as of July 1, 2008. FSP unconditional written promises to contribute to MIT in the 157-3 amends SFAS No. 157 to clarify the application future and are recorded after discounting the future cash of fair value in inactive markets and allows for the use flows to the present value. of management's internal assumptions about future cash MIT records items of collections as a gift at nominal value. flows with appropriately risk-adjusted discount rates They are received for educational purposes and generally when relevant observable market data does not exist. The displayed throughout MIT. They are not disposed of for objective of SFAS No. 15 7 has not changed and continues financial gain or otherwise encumbered in any manner. to be the determination of the price that would be received in an orderly transaction that is not a forced liquidation or Advance Payments distressed sale at the measurement date. The adoption of FSP 157-3 did not have a material effect on MIT's results Amounts received by MIT from the U.S. Government, cor-of operations, financial position or liquidity.

porations, industrial sources, foundations and other non-MIT sponsors under the terms of agreements that generally MIT adopted the provisions of FASB Staff Position 157-4, require the exchange of assets, rights, or privileges between Determining Fair Value When the Volume and Level ofActivity MIT and the sponsor are recorded as advance payments. for the Asset or Liability Have Significantly Decreasedand Revenue is recognized when MIT fulfills the terms of the Identifying Transactions That Are Not Orderly (FSP 157-4),

agreement. as of July 1, 2008, and applied them prospectively in 2009.

FSP 157-4 provides additional guidance for estimating Life Income Funds fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have MIT's life income fund agreements with donors consist significantly decreased and re-emphasizes that regardless primarily of irrevocable charitable gift annuities, pooled of market conditions the fair value measurement is an exit income funds, and charitable remainder trusts for which price concept as defined in SFAS No. 157. The scope of MIT serves as trustee. Assets are invested and payments this FSP does not include assets and liabilities measured are made to donors and other beneficiaries in accordance under Level 1 inputs (quoted prices in active markets for with the respective agreements. MIT records the assets identical assets).

that are associated with each life income fund at fair value and records as liabilities the present value of the estimated SFAS No. 159 future payments at current interest rates to be made to In conjunction with SFAS No. 157, FASB issued Statement the donors and beneficiaries under these agreements. Life of Financial Accounting Standards No. 159, The Fair Value income fund liabilities are classified as Level 3 under the Optionfor FinancialAssetsand FinancialLiabilities- including valuation hierarchy disclosed in Note B.

an Amendment of FASB Statement No. 115 (SFAS No. 159).

SFAS No. 159 allows an entity the irrevocable option Recently Adopted Accounting Pronouncements to elect fair value to measure certain financial assets and SFAS No. 157 liabilities under an instrument-by-instrument election, and MIT adopted Financial Accounting Standards Board establishes additional disclosure requirements. MIT elected (FASB) Statement of Financial Accounting Standards the fair value option under the provisions of SFAS No.

No. 157, Fair Value Measurements (SFAS No. 157), as of 159 in accounting for pledges receivable and life income fund liabilities as of July 1, 2008. The adoption of SFAS July 1, 2008. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands No. 159 did not have a material impact on MIT's financial statements.

NOTES TO FINANCIAL STATEMENTS 15

A. Accounting Policies (continued)

UPMIFA and FSP 117-1 SFAS No. 165 In July 2009, the Commonwealth of Massachusetts enacted MIT adopted FASB Statement of Financial Accounting a version of the Uniform PrudentManagement of Institutional Standards No. 165, Subsequent Events (SEAS No. 165), as of FundsAct of 2006 (UPMIFA), which replaced Chapter 180A, June 30, 2009. SFAS No. 165 establishes general standards Massachusetts Attorney General's June 1995 statement of of accounting for and disclosure of events that occur after position, the Uniform,Management InstitutionalFunds Act the balance sheet date but before financial statements (UMIFA). The new law, which has an effective date of June are issued. The adoption of SFAS No.165 did not have a 30, 2009, eliminates the historical dollar threshold and material impact on MIT's financial statements. MIT has establishes prudent spending guidelines that consider both evaluated subsequent events through September 16, 2009, the duration and preservation of the fund. As a result of the date of financial statement issuance.

this enactment, subject to the donor's intent as expressed in a gift agreement or similar document, a Massachusetts Non-Cash Items charitable organization may now spend the amount of the Non-cash transactions excluded from the Statements of principal and income of an endowment fund, even from an Cash Flows include the (decrease) increase in collateral underwater fund, after considering the factors listed in the for securities lending and minority interest of ($195.2)

Act.

million and $35.5 million, as well as $30.3 million and $21.5 MIT adopted FASB Staff Position 117-1, Endowments million of accrued liabilities related to plant and equipment of Not-for-Profit Organizations:Net Asset Classificationof purchases, for 2009 and 2008, respectively.

Funds Subject to an Enacted Version of the Uniform Prudent Management of InstitutionalFunds Act, and Enhanced Use of Estimates Disclosuresfor All Endowment Funds (FSP 117-1), as of July The preparation of financial statements in conformity 1, 2008. FSP 117-1 provides guidance on the net asset with GAAP requires management to make estimates and classification of donor-restricted endowment funds for a assumptions that affect the reported amounts of assets and not-for-profit organization that is subject to an enacted liabilities and disclo'sure of contingent assets and liabilities version of UPMIFA. The adoption of FSP 117-1 had no at the date of the financial statements and the reported impact on the way that MIT classifies donor-restricted amounts of revenues and expenses during the reporting endowment funds, but does require additional financial period. Actual results could differ from those estimates.

statement disclosures about MIT's endowment funds. The additional disclosures are included in Note K.

Reclassifications Certain June 30, 2008 balances previously reported have been reclassified to conform to the June 30, 2009 presentation.

B. Investments Investment transactions are accounted for on the trade date. MIT may utilize various derivative instruments, such as Realized gains and losses are recorded by MIT using the forwards, futures, interest rate, total return or currency average cost basis. Premiums and discounts on securities swaps or forward contracts to increase or decrease its purchased and securities sold short are amortized using exposure to changes in the level of interest rates, underlying the effective yield method over the life of the respective asset values or to partially offset exchange rate movements.

security when cash collection is expected and included Derivative instruments are recorded at fair value. As of June in interest income (long investments) or interest expense 30, 2009, MIT had entered into several interest rate swap (short investments). Dividend income is recorded on the contracts. Certain of the contracts were executed to manage ex-dividend date. the interest rate risk associated with its Massachusetts Health and Educational Facilities Authority (MHEFA)

Cash equivalents include money market funds, commercial variable rate debt portfolios; others were to manage overall paper, banker acceptances and negotiable certificates of interest rate risk of the portfolio. The interest-rate swap deposit.

agreements were recorded at an estimated market value 16 MIT REPORT OF THE TREASURER 2009

B. Investments (continued) of ($9.8) million and ($25.0) million at June 30, 2009 and The following describes the hierarchy of inputs used to 2008, respectively, and the change in market value of ($6.9) measure fair value and the primary valuation methodologies million and ($10.6) million for 2009 and 2008 was included used by MIT for financial instruments measured at fair in non-operating net gain or loss on investments and other value on a recurring basis. The three levels of inputs are as assets. Pending spot and forward currency contracts totaled follows:

$0.6 million at June 30, 2009 and $1.8 million at June 30,

• Level I - Quoted prices in active markets for identical 2008.

assets or liabilities. Market price data is generally obtained As discussed in Note A, as of July 1, 2008, MIT adopted from relevant exchange or dealer markets.

SFAS No. 157 and has valued its investments in accordance

• Level 2 - Inputs other than Level 1 that are observable, with the principles of this standard.

either directly or indirectly, such as quoted prices for SFAS No. 157 establishes a hierarchy of valuation inputs similar assets or liabilities, quoted prices in markets that based on the extent to which the inputs are observable in are not active, or other inputs that are observable or can be the marketplace. Observable inputs reflect market data corroborated by observable market data for substantially obtained from sources independent of the reporting entity the same term of the assets or liabilities. Inputs are obtained and unobservable inputs reflect the entity's own assumptions from various sources including market participants, dealers, about how market participants would value an asset or and brokers.

liability based on the best information available. Valuation

• Level 3 - Unobservable inputs that are supported by little techniques used to measure fair value under SFAS No. 157 or no market activity and that are significant to the fair must maximize the use of observable inputs and minimize value of the assets or liabilities.

the use of unobservable inputs. SFAS No. 157 describes a fair value hierarchy based on three levels of inputs, of A financial instrument's categorization within the valuation which the first two are considered observable and the last hierarchy is based upon the lowest level of input that is unobservable, that may be used to measure fair value. significant to the fair value measurement.

Table 4 below presents MIT's investments at fair value as ofJune 30, 2009, grouped by the SFAS No. 157 valuation hierarchy as defined above.

Table 4. Investments 2009 2008 Quoted prices in Significant other Significant un-active markets observable inputs observable inputs (in thousands of dollars) (Level 1) (Level 2) (Level 3) Total fair value Total fair value Cash equivalents ............ $ 741,008 $ 10,915 $ 751,923 $ 433,989 Fixed income ............... 13,954 602,656 65,524 682,134 828,555 E quities ................... 607,585 3 4,445,655 5,053,243 6,305,729 Marketable Alternatives ...... 2,203,965 2,203,965 2,898,174 Real estate ................. 790,348 790,348 800,054 Perpetual trusts ............. 47,618 47,618 66,912 Interest rate swaps .......... (9,818) (9,818) (24,984)

Total investments ........... $ 1,362,547 $ 603,756 $ 7,553,110 $ 9,519,413 $ 11,308,429 NOTES TO FINANCIAL STATEMENTS 17

B. Investments (continued)

Investments included in Level 3 primarily consist of and specific risks inherent in, the instrument as well as MIT's ownership in alternative investments (principally the availability and reliability of observable inputs. Such limited partnership interests in hedge, private equity, real inputs include market prices for reference securities, yield estate, and other similar funds). Securities held by limited curves, credit curves, measures of volatility, prepayment partnerships that do not have readily determinable fair rates, and correlations of such inputs. The interest rate values are determined by the general partner and are swap arrangements have inputs which can generally be based on appraisals, or other estimates that require varying corroborated by market data and therefore are generally degrees of judgment. If no public market exists for the classified within Level 2.

investment securities, the fair value is determined by the Perpetual trusts held by third parties are valued at the general partner taking into consideration, among other present value of the future distributions expected to be things, the cost of the securities, prices of recent significant received over the term of the agreement.

placements of securities of the same issuer, and subsequent developments concerning the companies to which the The methods described above may produce a fair value that securities relate. MIT has performed due diligence around may not be indicative of net realizable value or reflective its alternative investments to ensure they are recorded at of future fair values. Furthermore, while MIT believes its fair value as of June 30, 2009 and 2008. valuation methods are appropriate and consistent with other market participants, the use of different methodologies or Interest rate swaps are valued using observable inputs, assumptions to determine the fair value of certain financial such as quotations received from the counterparty, dealers instruments could result in a different estimate of fair value or brokers, whenever available and considered reliable.

at the reporting date.

In instances where models are used, the value of the interest rate swap depends upon the contractual terms of, Table 5 below is a rollforward of the investments classified by MIT within Level 3 of the fair value hierarchy defined on page 17.

Table 5. Rollforward of Level 3 Investments Marketable Perpetual Total (in thousandsof dollars) Fixed income Equities alternatives Real estate trusts investments Fair value, July 1, 2008 .... $ 57,679 $ 4,915,258 $ -2,898,174 $ 800,055 $ 66,912 $ 8,738,078 Realized gains (losses) ..... - (62,307) (45,793) 91 - (108,009)

Unrealized losses ........ - (972,258) (522,800) (184,807) (19,850) (1,699,715)

Net purchases, sales, and settlements ........... 7,845 564,962 (125,616) 175,009 556 622,756 FairValue, June 30, 2009 ... $ 65,524 $4,445,655 $2,203,965 $ 790,348 $ 47,618 $7,553,110 All net realized and unrealized gains and losses relating to financial instruments held by MIT shown in Table 5 are reflected in the Statements of Activities. Unrealized gains related to Level 3 investments totaled $582.6 million at June 30, 2009 and

$2,262.5 million at June 30, 2008.

18 1MIT REPORT OF THE TREASURER 2009

C. Collateral for Securities Lending and Other Assets MIT has an agreement with a major financial institution 2009 and had $162.9 million on loan at June 30, 2008.

to lend its securities in exchange for a fixed annual fee less Cash collateral under management related to the securities a contractual rebate on the cash collateral received. All lending program was $164.9 million at June 30, 2008. As of securities are returnable on demand and are collateralized June 30, 2009 and 2008, MIT also recorded $168.3 million by daily cash deposits based on the market value of the and $198.6 million, respectively, of minority interest in securities loaned. MIT manages the investment process privately held investments. The cash collateral received for all cash collateral received and is indemnified against under the securities lending program and minority interest borrower default by the financial institution. MIT did are shown as assets and liabilities in the Statements of not have any investment securities on loan as of June 30, Financial Position.

D. Pledges Receivable Table 6 below shows the time periods in which pledges As discussed in Note A, MIT adopted SFAS No. 159 in receivable atJune 30, 2009 are expected to be realized. accounting for pledges receivable. Pledges receivable are classified as Level 3 under the valuation hierarchy as defined Table 6. Pledges Receivable by SFAS No. 157 and disclosed in Note B. Table 7 below is (in thousands of dollars) 2009 2008 a rollforward of the pledges receivable for 2009.

In one year or less ...... $ 152,686 $ 117,979 Between one year and Table 7. Rollforward of Pledges Receivable five years ............ 195,033 200,849 (in thousands of dollars)

More than five years .... 168,897 173,175 Less: allowance for Pledges receivable, June 30, 2008 ......... $ 443,303 unfulfilled pledges ...... (51,880) (48,700) N ew pledges ........................... 125,502.

Pledges receivable, Pledge payments received ................ (106,431) net ................. $ 464,736 $ 443,303 Decrease in pledge discount .............. 5,542 Increase in reserve for unfulfilled pledges .... (3,180)

Pledges receivable, June 30, 2009 .... $ 464,736 A review of pledges is periodically made with regard to collectability. As a result, the allowance for pledges that may not be fulfilled is adjusted, and some pledges have been canceled and are no longer recorded in the financial state-ments. In addition, pledges are discounted in the amount of

$89.5 million and $95.0 million in 2009 and 2008, respec-tively. MIT has gross conditional pledges, not recorded, for the promotion of education and research in the amount of

$114.0 million and $150.2 million as of June 30, 2009 and 2008, respectively.

NOTES TO FINANCIAL STATEMENTS 19

E. Student Notes Receivable Table 8 below details the components of student notes $33.3 million and $33.1 million at June 30, 2009 and receivable atJune 30, 2009 and 2008. 2008, respectively, are ultimately refundable to the U.S.

Perkins student notes receivable are funded by the U. Government and are classified as liabilities. Due to the Government and by MIT to the extent required by the nature and terms of the student loans, which are subject to Perkins National Direct Student Loan Program. Funds significant restrictions, it is not feasible to determine the fair value of such loans.

advanced by the U.S. Government for this program, Table 8. Student Notes Receivable (in thousands of dollars) 2009 2008 Institute-funded student notes receivable ..................................... $ 18,188 $ 19,974 Perkins student notes receivable ............................................ 33,765 30,353 Total student notes receivable ........................................ 51,953 50,327 Less: allowance for doubtful accounts ....................................... (3,000) (3,000)

Student notes receivable, net ......................................... $ 48,953 $ 47,327 F Accounts Payable, Accruals and Other Liabilities MIT's accounts payable, accruals and other liabilities at June 30, 2009 are shown in Table 9 below.

Table 9. Accounts Payable, Accruals and Other Liabilities (in thousands of dollars) 2009 2008 Accounts payable and accruals ............................................. $ 249,445 $ 220,107 Accrued vacation ........................................................ 50,120 47,730 Total ............................................................. $ 299,565 $ 267,837 20 MIT REPORT OF THE TREASURER 2009

G. Borrowings Table 10. Borrowings (in thousands of dollars/ due dates are calendar based) 2009 2008 EDUCATIONAL PLANT Massachusetts Health and Educational Facilities Authority (MHEFA)

Series I, 4.75%-5.20%, due 2028, par value $59,200 .......................... 59,663 $ 59,688 Series J-1, variable rate, due 2031 ......................................... 125,000 125,000 Series J-2, variable rate, due 2031 ......................................... 125,000 125,000 Series K, 5.25%-5.50%, due 2012-2032, par value $230,000 ................... 243,804 244,624 Series L, 3.0%-5.25%, due 2004-2033, par value $184,860 ..................... 188,616 191,804 Series M , 5.25%, due 2014-2030, par value $131,110 ......................... 145,998 146,981 Series N, 3.5%-5.0%, due 2014-2038, par value $325,195 ..................... 333,991 Series 0, 4.0%-6.0%, due 2016-2036, par value $266,460 ..................... 274,475 Total MHEFA ................................................... 1,496,547 893,097 Medium Term Notes Series A, 7.125%, due 2026 ............................ 17,347 17,343 Medium Term Notes Series A, 7.25%, due 2096 ............................. 45,440 45,438 Notes payable to bank, variable rate, due 2011 ............................... 48,033 251,039 Total educational plant ............................................. 1,607,367 1,206,917 STUDENT LOANS Notes payable to bank, variable rate, due 2011 ............................... 5,000 5,000 OTHER Notes payable to bank, variable rate, due 2011 ............................... 123,476 123,476 Total Borrowings ............................... S 1,735,843 $ 1,335,393 The aggregate amount of debt payments and sinking fund of $500.0 million. As ofJune 30, 2009, $323.5 million requirements for each of the next five fiscal years is shown in was available under this line of credit. The line of credit Table 11 below. expires on March 28, 2011.

Table 11. Debt Obligations Variable interest rates at June 30, 2009 are shown in Table (in thousands of dollars) 12 below.

2010 .................. $ 2,260 Table 12. Variable Interest Rates 2011 .................. 178,879 (in thousands of dollars) Amount Rate 2012 .................. 2,490 2013 .................. 26,500 MHEFA Series J-1 ....... $ 125,000 0.17%

2014 .................. MHEFA Series J-2 ....... 125,000 0.10%

26,000 Notes payable to bank ..... 176,509 0.370/o Cash paid for interest on long-term debt in 2009 and 2008 was $47.4 million and $46.7 million, respectively. In the event that MIT receives notice of any optional In 2009, fair value of the outstanding debt is approximately tender on its Series J- 1 and Series J-2 variable-rate bonds, 3 percent greater than the carrying value. In 2008, the or if these bonds become subject to mandatory tender, carrying value of the outstanding debt approximates fair the purchase price of the bonds will be paid from the value. Carrying value is based on estimates using current remarketing of such bonds. However, if the remarketing interest rates available for similarly rated debt of the same proceeds are insufficient, MIT will be obligated to remaining maturities. MIT maintains a line of credit with purchase the bonds tendered.

a major financial institution for an aggregate commitment NOTES TO FINANCIAL STATEMENTS 21

H. Commitments and Contingencies Federal Government Funding Investments MIT receives funding or reimbursement from Federal As of June 30, 2009, MIT is committed to invest Government agencies for sponsored research under approximately $2,342.6 million with equity managers and Government grants and contracts. These grants and con- with private partnerships for hedge funds, private equity tracts provide for reimbursement of indirect costs based on and other alternative investments. This compares to rates negotiated with the Office of Naval Research (ONR), $3,352.5 million as of June 30, 2008. As ofJune 30, 2009, MIT's cognizant Federal agency. MIT's indirect cost $42.6 million of investments were pledged as collateral to reimbursements have been based on fixed rates with carry- various supplier and government agencies, the largest being forward of under or over recoveries, except in 2008, during to the Nuclear Regulatory Commission and for self-insured which fixed rates were negotiated without carry-forward workers' compensation insurance.

for most on and off-campus research activity. At June 30, 2008, MIT recorded a net under-recovery of $5.8 million Future Construction resulting primarily from activity in its specialized service MIT has contracted for educational plant in the amount facility, where carry-forward arrangements were still in of $214.1 million atJune 30, 2009. It is expected that the place. At June 30, 2009, MIT recorded a net over-recovery resources to satisfy these commitments will be provided of $2.4 million. from unexpended plant funds, anticipated gifts, unrestricted funds and future borrowings. MIT will be committing The DCAA is responsible for auditing both direct and additional resources to planned major construction projects indirect charges to grants and contracts in support of and improvements to the current infrastructure over the ONR's negotiating responsibility. MIT has final audited next several years.

rates through 2007. MIT's 2009 research revenues of

$1,375.1 million include reimbursement of indirect costs Related Entities of $221.5 million, which includes the adjustment for the variance between the indirect cost income determined MIT has entered into agreements, including collaborations by the fixed rates and actual costs for 2009. In 2008, with third-party not-for-profit and for-profit entities for research revenues were $1,245.2 million, which included education, research and technology transfers. Some of these reimbursement of indirect costs of $206.2 million. agreements involve funding from foreign governments.

These agreements subject MIT to greater financial risk than Leases do its normal operations. In the opinion of management, the likelihood of realization of increased financial risks by At June 30, 2009, there were no capital lease obligations.

MIT under these agreements is remote.

MIT is committed under certain operating (rental) leases.

Rent expense incurred under operating lease obligations was $65.5 million and $62.3 million in 2009 and 2008, General respectively. Some of the leases expiring in 2010 are subject MIT is subject to certain other legal proceedings and claims to renewal. Future minimum payments under operating that arise in the normal course of operations. In the opinion leases are shown in Table 13 below. of management, the ultimate outcome of these actions will not have a material effect on MIT's financial position.

Table 13. Lease Obligations (in thousands of dollars) 2010 .................. $ 54,747 2011 .................. 49,467 2012 .................. 44,171 2013 .................. 40,959 2014 .................. 33,900 22 MIT REPORT OF THE TREASURER 2009

I. Functional Expense Classification MIT's expenditures on a functional basis are shown in Table 14 below.

Table 14. Expenditures by Functional Classification (in thousands of dollars) 2009 2008 General and adm inistrative ................................................ $ 497,043 $ 486,444 Instruction and unsponsored research ....................................... 680,848 641,241 Sponsored research ...................................................... 1,167,036 1,054,474 A uxiliary enterprises ..................................................... 104,443 100,545 O peration of alumni association ............................................ 11,916 11,543 Total operating expense ............................................. $2,461,286 $2,294,247 J. Retirement Benefits MIT offers a defined benefit plan and a defined con- During 2008, MIT amended its defined benefit plan tribution plan to its employees. The plans cover substan- to provide participants with immediate vesting of their tially all of MIT's employees. accrued benefits. The Pension Protection Act required MIT also provides retiree welfare benefits (certain health a change from five-year vesting to three-year vesting for MIT's defined benefit plan; this change has been treated as care and life insurance benefits) for retired employees.

mandatory and the impact has been reflected as an actu-Substantially all of MIT's employees may become eligible for arial loss. The change from three-year vesting to immediate those benefits if they reach a qualifying retirement age while vesting was reflected as a plan amendment.

working for MIT Retiree health plans are paid for in part by retirees and covered retirees, their covered dependents The amount contributed and expenses recognized during and beneficiaries. Benefits are provided through various 2009 and 2008 related to the defined contribution plan were insurance companies whose charges are based either on the $40.3 million and $37.8 million, respectively.

benefits and administrative expenses paid during the year or For purposes of calculating net periodic postretirement annual insured premiums. Retiree life insurance plans are benefit cost, a portion of the current obligation, related to non-contributory and cover the retiree only. MIT maintains the transition to SEAS No. 106, is being amortized on a a trust to pay for retiree welfare benefits.

straight line basis over 20 years from the date of adoption MIT contributes to the defined benefit plan amounts that of that statement in 1994. Plan amendments are amortized are actuarially determined to provide the retirement plan on a straight line basis over the average future service to full with sufficient assets to meet future benefit requirements. eligibility of active participants at the date of amendment.

There were no contributions to the defined benefit plan in Cumulative gains and losses (including changes in assump-2009 or 2008. tions) in excess of 10 percent of the greater of the plan's For purposes of calculating net periodic pension cost for obligation and the market related value of assets are amor-tized over the average future service of active participants.

the defined benefit plan, plan amendments are amortized on a straight line basis over the average future service to The annual amortization shall not be less than the total expected retirement of active participants at the date of amount of unrecognized gains and losses up to $1 million.

the amendment. Cumulative gains and losses (including changes in assumptions) in excess of 10 percent of the greater of the projected benefit obligation and the market related value of assets are amortized over the average future service of active participants. The annual amortization shall not be less than the total amount of unrecognized gains and losses up to $1 million.

NOTES TO FINANCIAL STATEMENTS 23

J. Retirement Benefits (continued)

Components of Net Periodic Benefit (Income) Cost and Other Amounts Recognized in Unrestricted Net Assets Table 15 summarizes the components of net periodic benefit (income) cost recognized in the Statement of Activities and other amounts recognized in unrestricted net assets for the years ended June 30, 2009 and 2008.

Table 15. Components of Net Periodic Benefit (Income) Cost and Other Amounts Recognized in Unrestricted Net Assets (in thousands of dollars) - Pension Benefits -- I Other Benefits 2009 2008 2009 2008 Components of net periodic benefit (income) cost Service cost ................................... 54,344 $ 47,122 $ 15,009 $ 13,335 Interest cost ................................... 134,080 127,332 25,137 21,084 Expected return on plan assets .................... (215,752) (201,487) (20,647) (19,756)

Amortization of transition amount ................. 4,776 4,775 Amortization of net actuarial (gain) loss ............. (31,172) (7,802) 2,380 1,000 Amortization of prior service cost ................. 2,180 2,103 3,555 3,557 One-time specific termination benefits (FAS 88) ...... 1,143 Net periodic benefit (income) cost .............. (55,177) (32,732) 30,210 23,995 Other amounts recognized in unrestricted net assets Current year actuarial loss ....................... 728,482 120,884 78,677 67,476 Amortization of actuarial gain (loss) ................ 31,172 7,802 (2,380) (1,000)

Current year prior service cost .................... 3,598 Amortization of prior service cost ................. (2,180) (2,103) (3,555) (3,557)

Amortization of transition obligation ............... - (4,776) (4,775)

Total recognized in unrestricted net assets ....... 757,474 130,181 67,966 58,144 Total recognized in net periodic benefit (income) cost and unrestricted net assets ................ $ 702,297 $ 97,449 $ 98,176 $ 82,139 The estimated net actuarial gain and prior service cost for cost and transition obligation for the other postretirement the defined benefit plan that will be amortized from unre- plans that will be amortized from unrestricted net assets stricted net assets into net periodic benefit income during into net periodic benefit cost during the next fiscal year are the next fiscal year are $29.5 million and $2.2 million, $4.4 million, $3.6 million and $4.8 million, respectively.

respectively. The estimated net actuarial loss, prior service 24 MIT REPORT OF THE TREASURER 2009

J. Retirement Benefits (continued)

Benefit Obligations and Fair Value of Assets Table 16 summarizes the funded status, benefit obligations, amounts recognized in the Statements of Financial Position, and amounts recognized in unrestricted net assets for the MIT's benefit plans. MIT uses a June 30 measurement date for its pension and postretirement benefit plans.

Table 16. Benefit Obligations and Fair Value of Assets (in thousands of dollars) -- Pension Benefits -- -1 m Other Benefits 2009 2008 2009 2008 Change in benefit obligation Benefit obligation at beginning of year ............. $ 2,066,978 $ 2,042,729 $ 382,845 $ 334,436 Service cost ................................... 54,344 47,122 15,009 13,335 Interest cost ................................... 134,080 127,332 25,137 21,084 Retiree contributions ............................ 3,105 2,914 Plan amendm ent ............................... 3,598 Net benefit payments and transfers ................ (111,972) (107,757) (22,043) (23,544)

Assumption changes and actuarial net loss (gain) ..... (25,596) (46,046) 5,685 34,620 Special termination benefits ...................... 1,143 Benefit obligation at end of year ............... 2,118,977 2,066,978 409,738 382,845 Change in plan assets Fair value of plan assets at beginning of year ......... 2,989,316 3,062,516 251,684 285,414 Actual return on plan assets ...................... (538,325) 34,557 (52,345) (13,100)

Employer contributions ......................... (54,200) - 54,200 Retiree contributions ............................ - 3,105 2,914 Net benefit payments and transfers ................ (111,972) (107,757) (22,043) (23,544)

Fair value of plan assets at end of year ........... 2,284,819 2,989,316 234,601 251,684 Funded (unfunded) status at end of year ......... $ 165,842 $ 922,338 $ (175,137) $ (131,161)

Amounts recognized in the statements of financial position consist of:

Benefit assets .................................. $ 165,842 $ 922,338 $ $

Benefit liability ................................ - (175,137) (131,161)

T otal ...................................... $ 165,842 $ 922,338 $ (175,137) $ (131,161)

Amounts recognized in unrestricted net assets consist of:

N et actuarial loss (gain) .......................... $ (20,371) $ (780,024) $ 148,942 $ 72,645 Prior service cost ............................... 11,182 13,362 7,113 10,668 Transition liability .............................. - 19,103 23,879 T otal ...................................... $ (9,189) $ (766,662) $ 175,158 $ 107,192 NOTES TO FINANCIAL STATEMENTS 25

J. Retirement Benefits (continued)

The accumulated benefit obligation for MIT's defined accumulated benefit obligation (ABO) or the projected benefit pension plan was $2,011.3 million and $1,966.5 benefit obligation (PBO). The ABO equals the present million atJune 30, 2009 and 2008, respectively. value of benefits as of the end of the fiscal year (June 30).

The PBO equals the ABO adjusted for the effect of future Defined benefit plan funding rules are set forth under the expected pay increases. As of June 30, 2009, the MIT Pension Protection Act of 2006 (PPA). On a PPA basis, defined benefit pension plan was 113.6 percent funded on the funded position of a plan is measured by comparing an ABO basis. This is based on an ABO of $2,011.3 million the actuarial value of assets with the funding target. The and the fair value of assets of $2,284.8 million.

actuarial value of assets is an average, of the fair market value over a three-year period adjusted for cash flow and expected The ABO and PPA funded percentages differ primarily due earnings, but not greater than 110 percent of the fair market to the difference in plan assets and economic conditions value. The funding target is the present value of benefits (and therefore plan valuation assumptions) between January accrued or earned as of the valuation date (January 1). As of 1, 2009 and June 30, 2009.

January 1, 2009 (the plan's valuation date), the MIT defined MIT has recognized the effect of the expected Medicare benefit pension plan was 129.7 percent funded on a PPA subsidy by reducing its accumulated postretirement benefit basis. This is based on a funding target of $1,957.2 million obligation by $67.8 million and $64.0 million as of June and an actuarial value of assets of $2,538.5 million.

30, 2009 and 2008, respectively. This initial reduction was Under accounting rules set forth in Statement of Financial recognized as an actuarial gain. Additionally, the service and Accounting Standards No. 87 Employers'Accountingfor interest cost components of postretirement benefits cost Pension (SFAS No. 87), the funded position of the plan is were reduced in 2009 and future periods.

measured by comparing the fair value of assets with the Table 17. Assumptions and Health Care Cost Trend Rates

-- Pension Benefits - I F- Other Benefits--,

2009 2008 2009 2008 Assumptions used to determine benefit obligation as of June 30:

Discount rate .................................. 6.25% 6.50% 6.25% 6.50%

Rate of compensation increase .................... 4.00%' 4.00%

Assumptions used to determine net periodic benefit (income) cost for year ended June 30:

Discount rate .................................. 6.50% 6.25% 6.50% 6.25%

Expected long-term return on plan assets ........... 8.00% 8.25% 7.00% 7.50%

Rate of compensation increase .................... 4.00% 4.00%

Assumed health care cost trend rates:

Health care cost trend rate assumed for next year ..... 8.00% 8.50%

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) ......................... 5.00% 5.00%

Year that the rate reaches the ultimate trend rate ..... 2015 2015 The average rate of salamy increase is assumed to be 2% for 2010 and 2011, 3% for 2012, and 4% thereafter.

The expected long-term rate of return assumption of factors, including historical market index returns, the represents the expected average rate of earnings on the anticipated long-term asset allocation of the plans, histori-funds invested or to be invested to provide for the benefits cal plan return data, plan expenses and the potential to included in the benefit obligation. The long-term rate outperform market index returns.

of return assumption is determined based on a number 26 MIT REPORT OF THE TREASURER 2009

J. Retirement Benefits (continued)

As an indicator of sensitivity, a one percentage point change in the assumed health care cost trend rate would effect 2009 as shown in Table 18 below.

Table 18. Health Care Cost Trend Rate Sensitivity (in thousandsof dollars) 1% point increase 1% point decrease Effect on 2009 post-retirement service and interest cost ................... $ 5,963 $ (4,941)

Effect on post-retirement benefit obligation as of June 30, 2009 .............. $ 46,870 $ (39,674)

Plan Assets Target allocations and weighted-average asset allocations of the investment portfolio for the MIT defined benefit plan and other postretirement benefit plans at June 30, 2009 and 2008 are shown in Table 19 below.

Table 19. Plan Assets Pension Benefits Other Benefits Plan Assets as of June 30 Plan Assets as of June 301 Target Target Allocation 2009 2008 Allocation 2009 2008 Cash ....................... - 4% - - 2% -

Equity securities ............. 73% 71% 79% 75% 77% 75%

Fixed income securities ........ 8% 8% 13% 20% 18% 24%

Real estate .................. 19% 17% 8% 5% 3% 1%

Total ..................... 100% 100% 100% 100% 100% 100%

The investment objectives for the assets of the plans are to Contributions minimize expected funding contributions and to meet or MIT does not expect to contribute to its defined benefit exceed the rate of return assumed for plan funding pur- pension plan, and expects to contribute approximately $36.8 poses over the long term. The nature and duration of ben- million to its other postretirement benefit plan in 2010.

efit obligations, along with assumptions concerning asset These contributions have been estimated based on the same class returns and return correlations, are considered when assumptions used to measure MIT's benefit obligation at determining an appropriate asset allocation to achieve the June 30, 2009.

investment objectives.

In 2009, under provision of Section 420 of the Internal Investment policies and strategies governing the assets of Revenue Code, the MIT defined benefit plan transferred the plans are designed to achieve investment objectives $54.2 million of excess pension assets to the postretirement within prudent risk parameters. Risk management practices welfare benefit plan. The Internal Revenue Code permits include the use of external investment managers and the transfers annually of an amount not to exceed actual maintenance of a portfolio diversified by asset class, invest- expenditures on retiree health care benefits. The transfer ment approach and security holdings, and the maintenance resulted in a negative contribution of $54.2 million for the of sufficient liquidity to meet benefit obligations as they defined benefit plan and a positive contribution of $54.2 come due. In 2008, the defined benefit plan participated million to the postretirement welfare benefit plan.

in securities lending programs in order to generate additional income by loaning plan assets to borrowers on a fully collateralized basis. The defined benefit plan .had no outstanding securities lending arrangements at June 30, 2009.

NOTES TO FINANCIAL STATEMENTS 27

J. Retirement Benefits (continued)

Expected Future Benefit Payments Table 20 reflects total expected benefit payments for the defined benefit and other postretirement benefit plans, as well as expected receipt of the federal subsidy. These payments have been estimated based on the same assumptions used to measure MIT's benefit obligation at year end.

Table 20. Expected Future Benefit Payments Pension Other Federal (in thousands of dollars) Benefits Benefits' Subsidy2 2010 ........................................... $ 117,270 28,759 $ 2,893 2011 ........................................... 125,361 31,154 3,176 2012 ............................................ 128,446 33,044 3,498 2013 ........................................... 131,426 34,870 3,814 2014 ........................................... 134,532 36,595 4,122 2015-2019 ...................................... 729,805 208,258 24,886 1

Other benefits reflect the total net benefits expected to be paidfrom the plans and exclude the participants'share of the cost, which is funded by participantcontributionsto the plans, and does not reflect any subsidy expected to be received from the governmentfor MITM retiree prescriptiondrug coverage.

2 Federalsubsidy reflects the amount MIT is expected to receive from the government and reflects MITM expected drugs claims experience.

28 MIT REPORT OF THE TREASURER 2009

K. Components of Net Assets and Endowment Table 21 below presents the three categories of net assets by purpose as of June 30, 2 009. The amounts listed in the unrestricted column labeled Endowment Funds Principal are those gifts received over the years that MIT designated as funds functioning as endowment and invested with the endowment funds. A large component of temporarily restricted net assets is pledges, the majority of which will be reclassified to unrestricted net assets when cash is received.

Table 2 1. Fund Category 20091 I Temporarily 2008 (inthousands of dollars) Unrestricted Restricted Restricted Total TotalI Endowment funds principal General purpose ................... $ 594,998 $ 707,929 $ 214,524 $1,517,451 $ 1,929,726 Departments and research ............ 325,179 562,495 383,533 1,271,207 1,597,782 Library........................... 7,883 12,781 7,799 28,463 36,031 Salaries and wages .................. 285,788 1,559,674 571,340 2,416,802 3,062,843 Graduate general ................... 47,580 72,129 69,981 189, 690 210,750 Graduate departments ............... 55,309 171,312 159,681 386,302 478,012 Undergraduate ..................... 142,731 629,330 286,449 1,058,510 1,333,218 Prizes............................ 4,780 15,278 17,167 37,225 47,583 Miscellaneous...................... 668,552 127,935 33,694 830,181 1,056,514 Investment income held for distribution.' 246,190 246,190 316,328 Endowment funds before pledges .... 2,378,990 3,858,863 1,744,168 7,982,021 10,068,787 Pledges........................... 169,784 169,784 165,713 Total endowment funds ............. 2,378,990 3,858,863 1,913,952 8,151,805 10,234,500 Other invested funds Student loan funds .................. 19,889 17,536 37,425 36,900 Building funds ..................... 58,258 147,623 205,881 185,771 Designated purposes: ................

- Departments and research ........... 258,747 258,747 246,194

- Other purposes ................... 51,440 51,440 47,038 Reserve funds ...................... 98,316 98,316 3,777 Real estate gifts held for sale .......... 7,908 7,908 7,653 Life income funds .................. 6,179 39,273 53,960 99,412 122,457 Pledges........................... 294,953 294,953 277,590 Other funds available for current expenses 254,780 60,303 315,083 1,154,847 Funds expended for educational plant ... 425,418 425,418 453,247 Total other funds .................. 1,180,935 542,152 71,496 1,794,583 2,535,474 Total net assets at fair value ........... $3,559,925 $4,401,015 S 1,985,448 $9,946,388 $12,769,974 NOTES TO FINANCIAL STATEMENTS 29

K. Components of Net Assets and Endowment (continued)

MIT's endowment consists of approximately 3,000 a result of this interpretation, MIT has not changed the individual funds established for a variety of purposes and way permanently restricted net assets are classified. See includes both donor-restricted endowment funds and note A for further information on net asset classification.

funds designated by the Board of Trustees to function as The remaining portion of the donor-restricted endowment endowments. As required by GAAP, net assets associated fund that is not classified in permanently restricted net with endowment funds, including funds designated by the assets is classified as temporarily restricted net assets Board of Trustees to function as endowments, are classified until those amounts are appropriated for expenditure in a and reported based on the existence or absence of donor manner consistent with the standard of prudence prescribed imposed restrictions. by UPMIFA. In accordance with UPMIFA, the Board of Trustees considers the following factors in making a The Board of Trustees of MIT has interpreted the determination to appropriate or accumulate endowment Massachusetts enacted version of Uniform Prudent Management of Institutional Funds Act (UPMIFA) as funds:

allowing MIT to appropriate for expenditure or accumulate i. the duration and preservation of the fund so much of an endowment fund as MIT determines is ii. the purposes of MIT and the endowment fund prudent for the uses, benefits, purposes and duration for iii. general economic conditions which the endowment fund is established, subject to the iv. the possible effect of inflation and deflation intent of the donor as expressed in the gift instrument. v. the expected total return from income and the Unless stated otherwise in the gift instrument, the assets in appreciation of investments an endowment fund shall be donor-restricted assets until vi. other resources of MIT appropriated for expenditure by the Board of Trustees. As vii. the investment policies of MIT Fiscal Year 2009 Table 22. Endowment Net Asset Composition by Type of Fund as of June 30, 2009 Temporarily Permanently (in thousands of dollars) Unrestricted Restricted Restricted Total Donor-restricted endowment funds ................ $ - $ 3,858,863 $ 1,913,952 $ 5,772,815 Board-designated endowment funds ............... 2,378,990 - - 2,378,990 Total endowment funds ...................... $ 2,378,990 $ 3,858,863 $ 1,913,952 $ 8,151,805 Table 23. Changes in Endowment Net Assets for the Fiscal Year ended June 30, 2009 Temporarily Permanently (in thousands of dollars) Unrestricted Restricted Restricted Total Endowment net assets, June 30, 2008 ............... $ 3,091,110 $5,320,317 $1,823,073 $10,234,500 Investment return:

Investment income ........................... 21,970 48,094 4,046 74,110 Net depreciation (realized and unrealized) ........ (618,016) (1,143,356) (24,337) (1,785,709)

Total investment return .......................... (596,046) (1,095,262) (20,291) (1,711,599)

Contributions ................................. 4,650 108,155 112,805 Appropriation of endowment assets for expenditure... (153,545) (364,402) - (517,947)

Other changes:

Underwater gain adjustment and funds held for reinvestment ......................... (23,984) 23,984 4,587 4,587 Net asset reclassifications and transfers to create board-designated endowment funds .............. 56,805 (25,774) (1,572) 29,459 Endowment net assets, June 30, 2009 ........... $ 2,378,990 $ 3,858,863 $ 1,913,952 $ 8,151,805 30 MIT REPORT OF THE TREASURER 2009

K. Components of Net Assets and Endowment (continued)

Fiscal Year 2008 Table 24. Endowment Net Asset Composition by Type of Fund as of June 30, 2008 Temporarily Permanently (in thousands of dollars) Unrestricted Restricted Restricted TotalI Donor-restricted endowment funds ................. $ - $ 5,320,317 $ 1,823,073 $ 7,143,390 Board-designated endowment funds .................. 3,091,110 - - 3,091,110 Total endowment funds ........................ 3,091,110 $ 5,320,317 $ 1,823,073 $10,234,500 Table 25. Changes in Endowment Net Assets for the Fiscal Year ended June 30, 2008 Temporarily Permanently (in thousands of dollars) Unrestricted Restricted Restricted TotalI Endowment net assets, June 30, 200 7................ 3,147,258 $5,273,222 $1,695,909 $10,116,389 Investment return:

Investment income .............................. 46,960 107,261 3,551 157,772 Net depreciation (realized and unrealized) ..... 86,065 131,332 8,209 225,606 Total investment return............................. 133,025 238,593 11,760 383,378 Contributions.................................... 15,242 - 106,129 121,371 Appropriation of endowment assets for expenditure. .. (116,874) (275,788) - (392,662)

Other changes:

Underwater gain adjustment and funds held for reinvestment ............................. (329) 329 1,482 1,482 Net asset reclassifications and transfers to create board-designated endowment funds ................. (87,212) 83,961 7,793 4,542 Endowment net assets, June 30, 2008 ............. $ 3,091,110 $ 5,320,317 $ 1,823,073 $10,234,500 Underwater Endowment Funds Investment and Spending Policies From time to time, the fair value of assets associated with MIT maintains its investments primarily in two investment individual donor-restricted endowment funds may fall pools: Pool A, principally for endowment and funds below the value of the initial and subsequent donor gift functioning as endowment, and Pool C, principally amounts (underwater). When underwater endowment for investmrent of current funds of MIT's schools and funds exist, they are classified as a reduction of unrestricted departments and MIT's operating funds. Pool A operates as net assets. Total under-water endowment funds reported in a mutual fund with units purchased and redeemed based on unrestricted net assets were $24.3 million and $0.3 million the previous month's unit market value of Pool A. The total as of June 30, 2009 and 2008, respectively. The underwater market value of Pool A was $8,143.7 million at June 30, status of these funds resulted from unfavorable market 2009 and $10,292.5 million in 2008. The total value of Pool fluctuations. A includes Pool C investments of $323.7 million at June 30, 2009 and $416.0 million in 2008. Certain assets are also maintained in separately invested funds. Separately invested funds totaled $162.1 million as of June 30 2009 and $192.3 million in 2008.

NOTES TO FINANCIAL STATEMENTS 3 31

K. Components of Net Assets and Endowment (continued)

MIT has adopted endowment investment and spending was $69.21 per Pool A unit, up 30.6 percent from $53.00 policies designed to provide a predictable stream of funding in 2008. The increase in the distribution per unit from to programs supported by its endowment while maintaining 2008 to 2009 is the result of a planned increase consistent the purchasing power of endowment assets. Under this with the comprehensive financial framework developed policy, the return objective for the endowment assets is in 2008. The financial framework addressed a long term to attain an average, annual, real total return of at least 6 structural imbalance in the funding of operations, bringing percent over the long term. Real total return is the sum of MIT's operating revenues into alignment with planned capital appreciation (or depreciation) and current income operating expenses in 2009, including adjusting the annual adjusted for inflation by the Higher Education Price Index endowment spending.

(HEPI). An additional investment goal is to maximize return relative to appropriate risk such that performance In 2009, the amount distributed for spending from exceeds appropriate benchmark returns at the total pool, Pool A and Pool C totaled $582.8 million, compared to asset class and individual manager levels. $443.5 million distributed in the prior year. In 2009, the distribution included $455.7 million from investment gains, To achieve its long-term rate of return objectives, MIT relies on a total return strategy in which investment returns or 78.2 percent of the total distributed to funds. In 2008, are realized through both capital appreciation (realized and the comparable amount distributed included $244.8 million, unrealized gains) and current yield (interest and dividends). or 54.9 percent, from investment gains. During 2009, MIT targets a diversified asset allocation that places greater distributions from separately invested funds were emphasis on equity-based investments to achieve its long- $3.3 million, compared to $3.9 million in 2008. The income term objectives within prudent risk constraints. earned in Pool C, or currently invested funds, was fully distributed. In addition to the aforementioned distributions, The Executive Committee of the Corporation votes to there was also a special distribution of $24.0 million from distribute funds for operational support from general gains in Pool C in 2009 and $5.0 million in 2008.

investments. In accordance with MIT's spending policy, these distributions are funded from both investment income and market appreciation. In 2009, the distribution rate L. Subsequent Events The Broad Institute On July 1, 2009, The Broad Institute, previously a unit of The Broad Institute's assets and liabilities reflected in MIT's MIT, became a separately incorporated entity. The Broad Statements of Financial Position as ofJune 30, 2009 were Institute is a research center located adjacent to the MIT $199.5 million and $106.2 million, respectively. Assets campus. Before July 1, 2009, MIT administered The Broad consist primarily of equipment, leasehold improvements, Institute as a collaboration among MIT, Harvard University accounts receivable, grants and contracts in progress, cash, and its affiliated hospitals, and The Whitehead Institute investments, and inventory. Liabilities include sponsor for Biomedical Research. Following the separation, The advances, agency funds held, and deferred landlord financed Broad Institute is a self-administered collaboration of MIT, leasehold improvements. At separation on July 1, 2009, Harvard University, and affiliated hospitals. MIT transferred these assets and liabilities to the separately incorporated Broad Institute. The Broad Institute's The separation was enabled by a $400 million gift pledged by Los Angeles philanthropists Eli and Edythe revenues as reflected in MIT's Statement of Activities in 2009 totaled $206.0 million; expenses were $215.4 million.

Broad to The Broad Institute. The gift serves to create an endowment to transform The Broad Institute from a 10-year experiment, as it was conceived when founded in 2004 with a $100 million gift of operating funds to MIT, into a permanent entity.

32 MIT REPORT OF THE TREASURER 2009

PfC4WATERHOUSE-CoPER, I PricewaterhouseCoopers LLP 125 High Street Boston MA 02110 Telephone (617) 530 5000 Facsimile (617) 530 5001 Report of Independent Auditors To the Audit Committee of the Massachusetts Institute of Technology In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of activities and cash flows present fairly, in all material respects, the financial position of the Massachusetts Institute of Technology (the "Institute")at June 30, 2009 and 2008, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Institute's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As described in Note A to the accompanying consolidated financial statements, as of July 1, 2008, the Institute adopted Financial Accounting Standards Board (FASB) Statement No. 157, Fair Value Measurements.

September 16, 2009 REPORT OF INDEPENDENT AUDITORS 33

Massachusetts Institute of Technology Five-YearTrend Analysis - Financial Highlights (Dollars in thousands) 2009 2008 2007 2006 2005 Financial Position:

Investments, at fair value .............. $ 9,519,413 $11,308,429 $ 11,061,142 $ 9,500,178 $ 8,022,655 Land, buildings, and equipment, at cost less accumulated depreciation. . 2,120,613 1,938,919 1,743,203 1,687,835 1,608,719 Borrowings......................... 1,735,843 1,335,393 1,078,234 1,278,489 1,249,591 Total assets......................... 12,949,552 15,458,982 14,946,369 12,362,451 10,856,158 Total liabilities ...................... 3,003,164 2,689,008 2,251,065 2,302,676 2,230,588 Unrestricted net assets, at market ....... 3,559,925 5,086,270 5,216,844 3,732,539 3,277,741 Temporarily restricted net assets, at market 4,401,015 5,765,302 5,684,006 4,699,881 3,792,029 Permanently restricted net assets, at market 1,985,448 1,918,402 1,794,454 1,627,355 1,555,800 Total net assets ...................... 9,946,388 12,769,974 12,695,304 10,059,775 8,625,570 Market value of endowment funds ....... 7,982,021 10,068,787 9,980,409 8,368,066 6,712,436 Principal Sources of Revenue:

Tuition and other income ............. $ 431,772 $ 421,230 $ 394,652 $ 373,309 $ 362,299 Research revenues:

Campus direct ................ 497,493 448,065 407,650 419,144 400,345 Campus indirect ................. 193,289 173,455 163,148 163,340 159,359

-Lincoln Laboratory direct .......... 642,101 587,076 573,696 602,426 579,915 Lincoln Laboratory indirect ......... 27,667 32,611 32,234 33,968 31,210 SMART direct................... 14,026 3,857 SMAIRT indirect ................. 496 106 Gifts, bequests and pledges ............ 303,890 385,952 332,874 232,472 177,305 Net (losses) gains on investments and other assets (1,854,380) 154,765 1,673,275 1,432,552 885,605 Investment distribution ............... 603,907 456,154 355,848 329,375 318,067 Principal Purposes of Expenditures:

Total operating expenditures ........... $ 2,461,286 $2,294,247 $2,201,696 $ 2,175,913 $2,032,517 General and administrative ............ 497,043 486,444 482,527 485,306 424,770 Instruction and unsponsored research .. 680,848 641,241 608,423 548,256 503,901 Direct cost of sponsored research -

current dollars ................... 1,167,036 1,054,474 1,001,144 1,035,417 996,943 Direct cost of sponsored research -

constant dollars (2005 = 100) ........ 1,042,176 954,803 940,104 997,433 996,943 Scholarships and fellowships ........... 214,383 192,131 185,399 174,140 165,458 34 34 MIT REPORT OF THE TREASURER 2009

Massachusetts Institute of Technology Five-YearTrend Analysis - Financial Highlights (continued)

(Dollarsin thousands) 2009 2008 2007 2006 2005 Research Revenues:(A)

Campus:

Federal government sponsored:

Health and Human Services ............ $ 255,896 $ 226,307 $ 201,557 $ 195,573 $ 180,682 Department of Defense ................ 97,528 87,370 90,571 89,552 86,096 Department of Energy ................ 65,773 65,611 64,899 67,265 69,927 National Science Foundation ........... 61,386 64,973 65,057 65,163 66,768 National Aeronautics and Space Administration .............. 27,358 25,479 27,889 31,228 32,170 O ther federal ........................ 14,559 14,169 14,431 15,570 11,954 Total federal ......................... 522,500 483,909 464,404 464,351 447,597 Non-federal sponsored:

State/local/foreign governments ......... 27,145 18,549 13,055 15,137 17,912 N on-profits ......................... 60,538 47,695 32,200 24,833 19,744 Industry ............................ 99,219 82,194 79,725 72,743 65,108 Total non-federal ..................... 186,902 148,438 124,980 112,713 102,764 Total federal & non-federal ............. 709;402 632,347 589,384 577,064 550,361 F&A and other adjustments ............ (18,620) (10,827) (18,586) 5,420 9,343 Total cam pus ........................ 690,782 621,520 570,798 582,484 559,704 Lincoln Laboratory:

Federal government sponsored .......... 675,329 606,850 607,270 631,292 606,441 Non-federal sponsored ................ 2,989 3,602 4,602 5,102 4,684 F&A and other adjustments ............ (8,550) 9,235 (5,942)

Total Lincoln Laboratory .............. 669,768 619,687 605,930 636,394 611,125 SMART.(B)

Non-federal sponsored ................ 14,522 3,963 Total SMART ....................... 14,522 3,963 Total Research Revenues ............ $ 1,375,072 $ 1,245,170 $ 1,176,728 $ 1,218,878 $ 1,170,829 (4) The amounts in this table reflect revenuesfrom the originalsource offunds.

(B) The amounts represent research that has taken place in Singapore.

ADDITIONAL INFORMATION 35

Massachusetts Institute of Technology Five-YearTrend Analysis - Financial Highlights (continued) 2009 2008 2007 2006 2005 Students:

Undergraduate Full-tim e ........................ 4,118 4,119 4,068 4,014 4,078 Part-tim e ........................ 35 53 59 52 58 Undergraduate Applications Applicants ....................... 13,396 12,445 11,374 10,440 10,466 A ccepted ........................ 1,589 1,553 1,514 1,494 1,665 Acceptance rate ................... 12% 13% 13% 14% 16%

Enrolled ......................... 1,048 1,067 1,002 996 1,077 Yield ............................ 66% 69% 66% 67% 65%

Freshmen ranking in the top 10%

of their class ................... 97% 97% 97% 97% 97%

Average SAT scores (math and verbal) ............... 1,453 1,458 1,460 i,461 1,471 Graduate Full-tim e ........................ 5,991 5,837 5,924 5,865 5,907 Part-tim e ........................ 155 211 202 275 277 Graduate applications Applicants ....................... 17,325 16,208 15,968 14,958 15,015 Accepted ...................... 3,215 3,058 3,002 3,115 3,159 Acceptance rate ................... 19% 19% 19% 21% 21%

E nrolled ......................... 1,955 1,825 1,857 1,876 1,782 Yield ............................ 61% 60% 62% 60% 56%

Student Financial Aid:

(in thousands of dollars)

Undergraduate tuition support .......... $ 78,534 $ 70,157 $ 65,529 $ 57,963 $ 54,649 Graduate tuition support .............. 187,732 174,847 172,021 167,297 161,384 Fellowship stipends ................... 27,509 25,647 25,020 32,440 31,717 Student loans ........................ 9,641 8,766 8,962 9,542 11,052 Student employment .................. 82,287 78,892 77,732 78,503 75,917 Total financial assistance ............. $ 385,703 $ 358,309 $ 349,264 $ 345,745 $ 334,719 Tuition (in dollars):

Tuition and fees ...................... $ 36,390 $ 34,986 $ 33,600 $ 32,300 $ 30,800 Average room and board ............... 10,860 10,400 9,950 9,500 9,100 Faculty and staff:

F aculty ............................. 1,009 1,008 998 992 983 Staff ............................... 13,320 12,832 12,453 11,970 11,490 36 MIT REPORT OF THE TREASURER 2009

Report of the Treasurer for the year ended *flflE Massachusetts June 30, 2009 IILI Technology nstitute of