ML11297A043

Compliance Submissions, Self Guarantee Agreement Pursuant to 10 CFR Part 50, 10 CFR Part 70 and NUREG-1757, Vol. 3

ML11297A043
Person / Time
Site:	07000938, MIT Nuclear Research Reactor
Issue date:	10/12/2011
From:	Stone T Massachusetts Institute of Technology (MIT)
To:	Alexander Adams Office of Nuclear Material Safety and Safeguards
References
NUREG-1757, V3
Download: ML11297A043 (61)

Text

iir MASSACHUSETTS INSTITUTE OF TECHNOLOGY EXECUTIVE VICE PRESIDENT AND TREASURER 77 Massachusetts Avenue, Building 3-221 V/4* Fe'DE* L *,,s_. Cambridge, MA 02139-4307 Phone 617-253-1882 October 12, 2011 U.S. Nuclear Regulatory Commission Office of Nuclear Material Safety and Safeguards 11555 Rockville Pike 1 Whiteflint North Rockville, Maryland 20852 Attention: Alexander Adams Re: Compliance Submissions, Self Guarantee Agreement Pursuant to 10 CFR Part 50, 10 CFR Part 70 and NUREG-1757, Vol.3

Dear Mr. Adams:

In my capacity as the Executive Vice President and Treasurer of the Massachusetts Institute of Technology ("MIT"), a nonprofit university, I serve as MIT's Chief Financial Officer. 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 50 and 10 CFR Part 70, as ongoing compliance with MIT's Self-Guarantee Agreement, dated May 3, 2010 (the "Agreement"), and approved by the Nuclear Regulatory Commission on July 16, 2010.

In order to demonstrate ongoing compliance with the Agreement and 10 CFR Part 50 and 10 CFR Part 70, and MIT's ability to self-guarantee the decommissioning of the following facilities owned or operated by MIT, the current cost estimates or certified amounts for decommissioning each facility, so guaranteed, are shown below, along with their calculation (if applicable), and supporting attachments are enclosed:

Certified Amounts or Name of Facility License Number Location of Facility Current Cost Estimates MIT SNM-986 77 Massachusetts Ave. $1,125,000.00 Cambridge, MA 02139 MIT Research Reactor R-37 138 Albany St. $32,220,000.00 Cambridge, MA 02139 A. License No. SNM-986 Based upon the applicable quantities of special nuclear materials stored at this facility, in accordance with 10 C.F.R. 70.25(d), MIT must guarantee the statutory minimum of $1,125,000 for the proper disposal of these materials.

B. License No. R-37

1. Justification for 2005 $23M Decommissioning Estimate: " Q, )

Page 3 MIT Self-Guarantee, Decommissioning Expenses License Nos. R-37 and SNM-986 Duke Engineering provided MIT with a cost estimate of $23.OM. That study was completed in November 2001. It included a 10% contingency. Inflation was quite low and for some sectors of the economy slightly negative for the years 2001-2005. Accordingly, for our 2006 submittal, we used the uninflated detailed Duke estimate which was $23.0M. For 2008, we provided an estimate of $29.8 million, based on separate inflation factors applied against the labor costs, using the NUREG-1307, Rev. 12, Page D.1, Example 2,(Northeast Region) of 1.28 (labor) and 1.42 (burial).

2. Decommissioning Estimate for 2012:

For 2012, we estimate the decommissioning cost of the MIT Reactor to be $32.2 million. This figure is obtained by taking the $23.OM Duke estimate as a base and inflating it for both the cost of labor and burial as shown below:

Duke Study NUREG Inflation 2002 Cost  % of Total Model Inflator 2012 Cost Labor Portion $20,470,000 890/0 Labor 1.37 $28,043,900 Burial Portion $ 2,530,000 11°/ Burial 1.65 $ 4,174,500 Total $23,000,000 100% I $32,218,4001 Please note that labor was 89% of the total estimate and burial was 11%. The inflator figures are obtained from NUREG-1307, Rev. 14, Page D.1, Example 2 (Appendix D). We take the date of completion of the Duke study to be 2002 as this is closest to the actual date of November 2001. For labor, the cost index is 2.41 in 2010 and 1.862 for 2002. We assume that cost increases are linear through 2012 and obtain:

(1.862+((2.41-1.862)/(2010-2002))(2012-2002)) = 2.547 The inflation factor for 2012 as compared to 2002 is therefore 2.547/1.862 or 1.37. Hence, the labor portion of the cost is ($20.5M)(1.37) or $28.0 million. For burial, the same approach is used to yield a factor of 29.63, an inflation factor of 1.65 and a cost of $4.2 million (Please refer to Attachment 1).

I hereby certify that MIT is currently a going concern, and that it possesses positive tangible net worth in the amount of $12.1 billion, as of the fiscal year ending on June 30, 2011. This figure is derived from MIT's independently audited, year-end financial statements and footnotes for the latest completed fiscal year, which is enclosed. MIT's independent auditor, PricewaterhouseCoopers, has included its review of this letter, which is also enclosed.

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

MIT satisfies the following self-guarantee test:

Page 3 MIT Self-Guarantee, Decommissioning Expenses License Nos. R-37 and SNM-986

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: May 18, 2011

3. Description and date of maturity of bonds:

Amount Interest Rate Maturity Date Description

$750,000,000 5.60% May 18, 2111 Taxable Series B

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 /. </ /L L V--'"

Name: Theresa M. Stone

Title:

Executive Vice President and Treasurer (Chief Financial Officer)

Date: OC7* c /*)//? //

Enclosures

ATTACHMENT 1 NRC Decommissioning Estimate 2012 Duke Study (2002) 23,000,000.00 NRC Inflation Model 2012 Inflator 32,183,000.00 Labor Portion 20,470,000.00 89% Labor 1.37 28,000,000.00 Burial portion 2,530,000.00 11% Burial 1.65 4,183,000.00 2006 2012 LABOR 2.384 2.547 1.28 1.37 BURIAL 25.4385 29.6345 1.42 1.65

Appendix D Representative Examples of Decommissioning Costs for 2000 through 2010 In Section 3.4 of this revision and the four previous revisions ofNUREG-1307, decommissioning costs for four typical situations were developed. Results of these calculations are summarized below.

Example 1 (LLW Direct Disposal)

Reactor Type: PWR Thermal Power Rating: 3400 MW thermal Location of Plant: Northwest Compact LLW Burial Location: Washington 2000 2002 2004 2006 2008 2010 1.612 1.775 1.984 2.11 2.23 2.29 1.016 0.985 1.483 2.152 2.746 2.139 BD 2.223 3.634 5.374 6.829 8.283 8.035 Decommissioning Cost (Millions)

$175 $219 $280 $331 $381 $371 Example 2 (LLW Direct Disposal)

Reactor Type: PWR Thermal Power Rating: 3400 MW thermal Location of Plant: Atlantic Compact LLW Burial Location: South Carolina (Atlantic Compact) 2000 2002 2004 2006 2008. 2010 1.719 1.862 2.070 2.21 2.33 2.41 1.016 0.985 1.483 2.152 2.746 2.139 B, 17.922 17.922 19.500 22.933 25.231 27.292 Decommissioning Cost (Millions)

$545 $555 $612 $710 $779 $824 Example 3 (LLW Disposition by Waste Vendors)

Reactor Type: PWR Thermal Power Rating: 3400 MW thermal Location of Plant: Atlantic Compact LLW Burial Location: South Carolina (Atlantic Compact) 2000 2002 2004 2006 2008 2010 1.719 1.862 2.070 2.21 2.33 2.41 E. 1.016 0.985 1.483 2.152 2.746 2.139 B, 7.878 9.273 7.790 8.600 9.872 12.280 Decommissioning Cost (Millions) $313 $355 $341 $379 $425 $477 D. I

U.S. PUBLIC FINANCE HIGH PROFILE NEW ISSUE Moody's Assigns Aaa Rating To The Massachusetts Institute Of Technology's baUnsecured

$500 Million Of Taxable Revenue Bonds, I Unsecured SSecurity:

j general obligation

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. Series B; Outlook Remains Stable Bond Amount. i S5it) nillinr Aaa And Aaa/VMIG 1 Ratings Affirmed; MIT Will Have $2 Billion Of Rated Debt Outstanding Sale Date Use of Proceeds: Vanous capital improvement, Moody's Investors Service has assigned a Aaa rating to the Massachusetts Institute of Technology's (MIT) Taxable Revenue BondsSeries B. MIT is globally recognized for its prominent academic and research reputation and is located in Cambridge, Expendable Financial S7.2 Massachusetts, USA. *The university is authorized to issue up to $750 million, but may Resources ....... ....... ...... I billion

.............. . ...... ... . ... choose to issue as little as $500.million. At this:time, we have also affirmed the Aaa and Pro-Forma Direct Debt S2 4 *Aaa/VMIG I ratings assigned to the university's outstanding debt, asdetailed in the (including $750 million of i billion Series BBonds)

RATED DEBT section. The rating outlook is stable.

Unrestricted Monthly -. 4 Liquidity billion Expendable Financial I 3.0 times Summary Rating Rationale Resources to Operations Operating Cash Flow Margin i 16.4 MIT's Aaa rating and stable outlook reflect the university's market position as a global market leader in science and engineering education and its preeminent research reputation, Three-Year Average Debt 67 times I i Service Coverage I exceptionally large balance sheet which provides strong coverage of debt and operations, and history of extraordinary philanthropic support and operating surpluses. The university's Monthly Days Cash on Handri 377.5 long-term rating also incorporates MIT's high reliance on sponsored research, the need to days sustain strong philanthropic gifts and investment returns, as well as its significant capital Reliance on Grants and . i '!5 investment associated with its MIT 2030 development framework. MIT's ample liquid Contracts ..

... assets and capable management team support the highest short-term ratings based on its self-liquidity program.

Analyst Contacts:

NEW YORK 1,212.553.1653 Strengths Karen Kedem 1.2122.553.3614 Vice President - Senior Analyst Global market position as an elite science and engineering university with a preeminent Kaien.Kedemomuodys.com research profile; BOSTON Exceptionally large balance sheet providing strong coverage of pro-forma debt and Kimberly S. Tuby 1.617.204.5638 operations; Vice Presideot - SeniorkAualvst Kimnberly.Tuby@nroodys.corn

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. - -. . . . U.S. PUBLIC FINANCE I> History of extraordinary philanthropic support; I> Consistently healthy operating performance expected to continue due to strong oversight and fiscal stewardship; Challenges

)> Sustaining a long track-record of superior investment performance to support expense growth,

> High reliance (50% of operating revenues) on sponsored research, particularly from U.S. federal government agencies, which is expected to be pressured in the near-term;

> Significant long-term development framework for campus facility expansion and modernization, requiring sophisticated management of funding sources over the long-term.

Detailed Credit Discussion USE OF PROCEEDS: Bond proceeds will be used to finance various capital improvements and pay the 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) and expires on June 5, 2011. The second swap is with Deutsche Bank AG (rated Aa3/P-1) and expires on June 5, 2031. Under both swap agreements, 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 credit senior unsecured credit rating is below A3. MIT has the right to terminate the agreement anytime, but the counterparty does not. On the second swap, due June 5, 2031, the Institute must post collateral if its rating is A3 or below and the market value of the swap is a liability to MIT of at least $10 million.

The combined market valuation as of May 1,2011 was a liability to the university of $32.7 million.

DEBT STRUCTURE: Following the issuance of up to $750 million of fixed rate taxable bonds, Series B, a relatively moderate 18% of debt outstanding will be variable rate with a demand feature. MIT's variable rate debt with a demand feature includes $250 million of Series J- 1 and J-2 bonds and $176.5 million of notes payable under a bank line of credit. The current borrowing is expected to have a notably long maturity of up to 100 years, but it is expected that the bullet payments will be staggered so that the earliest payment would be in 30 years. The university will have the ability, though at a significant cost, to call the bonds before the scheduled maturity dates through a "make whole" provision. The "make whole" provision allows MIT to call a portion or all of the bonds at any time for the greater of par or a premium based on treasuries plus a spread. The use of taxable debt also provides flexibility in the use and investment of bond proceeds relative to tax exempt debt.

Market Position/Competitive Strategy: Global Reputation As A Science And Engineering University With A Large And Prominent Research Profile The Massachusetts Institute of Technology is a global market leading university with a premier niche as a research intensive science and engineering university. We expect that MIT's extraordinarily strong 2 MAY 9. 2011 HIGH PROFILE NEW ISSUE MOODY'S ASSIGNS Aaa RATING TOTHI MASSA(:.IUSTTS INSTITUTE OF TECHNOi.OCY'S

$500 MILLION OF TAXtSBLEBONDS, SERIES B: OUTLOOK REMAINS SARI.BE

_ _. U.S. PUBLC FINANCE NM academic and research reputation will continue to enable the university to attract the highest quality students and faculty as well as garner strong research grant awards. MIT is a large university serving more than 10,400 full-time equivalent students in fall 2010, 60% of whom are graduate students.

MIT's undergraduate demand metrics highlight its superior market position, with the university accepting 9.6% of freshmen applicants based on preliminary fall 2011 data. Moody's anticipates that yield on accepted students will be in line with recent years, in the mid-sixty percent range. In addition, the university's geographically diverse student population, with 8% of undergraduate enrollment and 38% of graduate enrollment from outside of the United States, demonstrates MIT's strong global standing. The university's global presence is aided by its free web-based course offerings. This program, known as Open Courseware (OCW), is a program through which MIT provides its educational materials online free of charge, and it has reached over 100 million users within only one decade of its implementation.

Like many of its peers, MIT has chosen not to exercise its considerable tuition pricing power based on its superior demand. Demonstrating its commitment to admit the best students regardless of ability to pay, MIT covers the full cost of tuition for all undergraduate students with family income below

$75,000. In addition, MIT does not consider home equity as a source of payment for families earning less than $100,000. Approximately 28% of the undergraduate enrollment is eligible for free tuition based on the expanded aid policy. The combined changes, implemented in fall 2008, resulted in a marginal increase in the tuition discount rate to 49% from 46%. The university remains committed to providing student aid and will complete a targeted five-year Campaign for Students, which is raising funds for various student-related purposes including financial aid, at the end of fiscal 2011, having raised $550 million to date compared to a $500 million goal. Student charges, including tuition and auxiliary services, represent a modest 12.6% of Moody's calculated operating revenue for FY 2010.

MIT's primary competitors are all highly rated (Aaa or Aa) universities, including Stanford University, Harvard University, Yale University, Princeton University, Carnegie Mellon University, California Institute of Technology, and Columbia University.

MIT maintains an extremely strong research profile, particularly since it does not have a medical school, with nearly $1.2 billion in direct research expenditures in FY 2010. Approximately half of the university's research is associated with the ownership and operation of a federally funded research and development facility, Lincoln Laboratory, which focuses on advanced electronics. MIT has operated the lab since its inception in 1951 and currently has a five-year contract with the Department of Defense which expires in March 2015. Management reports limited competition for this contract.

Excluding Lincoln Laboratory, research funding sources are relatively diverse and include 23% from Health and Human Services, 17% from Department of Defense, 12% from Department of Energy, 15% from corporations, 11% from National Science Foundation, 8% from non-profits, 5% from foreign governments, 5% from National Aeronautics and Space Administration, 2% from other federal, and 2% from internal sources. While federal funding for research will be challenged in the near-term, we expect that universities with large prominent research profiles will continue to secure ongoing grant awards. Management reports that growth of non-federal sources, particularly in regards to international research collaboration, has more than offset the slower pace of funding from US federal agencies. MIT 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. MIT's nearly $580 million in unspent grant awards combined with continued increases in grant applications are expected to help maintain MIT's robust research profile.

3 MAY 9, 2011 HlIGH PROFILE NEW ISSUE MOODY'S ASSIGNS An RATING TO THE MASSACHUSETTS INSTITUTE Of TECHNOl OCY'S SSOO MILLION OF l AXABLE BONDS, SERIES B: OU fLOO" REMAINS S.ARLE

L)S IU BLUýC INA N C FIGURE 1 Preeminent Reputation Fuels Growth of Research Expenditures x Campus Federal w*uss Campus Non Federal Broad Federal Broad Non Federal N Defense Labs Federal Lincoln Labs Federal

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$1,600 Cancer Institute

$1.400 Center Faculty Early Retirement

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$200 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

• Fiscal 2010 is the base year for constant dollars cited above Research activity remains strong despite the spin-off of a research institute. In FY 2010, the Broad Institute (rated A1), previously a unit of MIT, became a separately incorporated entity. Broad's research activity accounted for $178 million of research expenditures in FY 2009. Management reports that FY 2011 research expenditures are projected to exceed FY 2009 levels during which time the Broad Institute was incorporated. MIT has spun-off other independent research organizations including the Whitehead Institute for Biomedical Research (rated Aal) and Draper Laboratory (rated Aa3). These organizations maintain strong affiliations and close collaboration with the university, including some faculty with tenured appointments on the MIT faculty. Management does not anticipate additional separate incorporations of other research institutes in the near-term.

Operating Performance: Consistently Healthy Operating Performance Expected To Continue Due To Strong Fiscal Stewardship We expect MIT's history of healthy operating performance will continue due to strong fiscal stewardship combined with revenue growth driven by its superior market position. In FY 2010, operating cash flow margin reached a healthy 16.4%, averaging 14.4% over a three year period. Cash flow provided a strong 6.7 times coverage of $59.2 million of annual debt service during the same time period, though much of the university's debt is non-amortizing. Average debt service coverage remains sound covering $334 million of pro-forma maximum annual debt service (FY 2031) by an average of 1.5 times, assuming the largest bullet payment of $250 million. MIT's sources of revenue have remained relatively constant over time, with the university highly reliant on sponsored research revenue (including income associated with the Lincoln Laboratory). In FY2010, Moody's calculation of operating revenue included 51.5% from sponsored research, 20% from investment income, 12.6%

from student charges, 7.2% from gifts, and 8.8% from other sources. As noted above, the diversity of sources of research awards helps insulate the university from variability in any single funding source.

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The university's ongoing monitoring of operating performance, use of sensitivity analysis, and willingness to take actions to address budgetary pressure should contribute to MIT's long-term financial health. In response to the expected reduction in investment income related to the lagged effect of market declines on the university's endowment spending policy, MIT implemented and continues to pursue expense cuts. Management reports that the Institute is reviewing its endowment spending policy to evaluate how best to control for volatility experienced during the financial crisis.

Over fiscal years 2010 and 2011, MIT cut over $120 million in expenses compared to FY 2009 to absorb an 18% reduction in investment income implemented in FY 2011. Expense reductions were achieved through a combination of deferred capital and programmatic investments, moderation in compensation increases, and other savings initiatives. The university anticipates that it will achieve additional efficiencies and further reduce expense as it implements the suggestions of an Institute-wide task force. Notable cost-saving initiatives include the centralization of procurement to achieve greater economies of scale, increased automation of processes across campus, energy conservation projects, and improved space utilization.

Balance Sheet Position: Despite Significant Increase In Debt, Robust Balance Sheet Expected To Continue To Provide Ample Cushion For Debt And Operations MIT's robust balance sheet should continue to provide an ample cushion for debt and operations, despite an increase of as much as 40% in debt associated with the full authorized $750 million of Series B bonds, This conclusion is driven by the expectation of continued extraordinary philanthropic support, healthy operating surpluses, and long-term investment gains. As of the end of FY 2010, expendable financial resources (total net assets less permanently restricted endowment and property/equipment net assets) of $7.2 billion equaled 3.0 times the level of pro-forma debt and annual operating costs, assuming MIT issues $750 million of Taxable Revenue Bonds, Series B.

Incorporating the maximum authorized amount of the Series B issuance and $227 million of capitalized operating leases, expendable financial resources cover comprehensive debt by 2.7 times.

Moody's has reclassified $18.8 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 MAY 14, ?01i HIO i1" DR01 1 NI Vv SSLE MOOD"','AATICNA oaYRAJNT MOI11 MAYA(J'i IOW!.', I NrTIT0Tt 01 TTE 3'-NQhbY,v

$511) NWOI(iN 1~IAXABUlSTIN!IISFRi~I ES I 0'1011 AII51

U.ý, PUB~LIC I N.ANCE with an underfunded pension, the funds cannot be used for any other purpose and therefore are more akin to permanently restricted endowment funds.

Bond proceeds will be used to finance a portion of the MIT 2030 development framework which calls for significant renewal of facilities and infrastructure, construction of additional research buildings, and continued strategic development of real estate. MIT 2030 includes approximately $1.5 billion for academic plant and $1.5 billion for real estate investments. In addition, management reports that they anticipate pursuing a significant capital upgrade to the facilities at their Lincoln Laboratory facility in Lexington, MA. Management expects that the borrowing for the Lab, which will be guaranteed by the federal government, will appear as a capital lease on its financial statements. Financing for Lincoln Laboratory is not expected for at least three years. MIT 2030 incorporates $770 million in gifts towards academic plant improvements. The timing of capital projects will depend on philanthropic support as well as availability of real estate investments. Following the issuance of the Series B bonds, management does not anticipate borrowing for on-campus academic and research projects for at least five years.

MIT's large portfolio of institutional real estate is excluded from Moody's calculations of financial resources because we do not expect the Institute to liquidate large portions of these holdings under normal operating conditions. However, in the highly unlikely event that the Institute were to enter an extended period of financial stress, the ability to tap these real estate holdings provides an additional material credit strength not shown in the financial resource ratios.

Continued extraordinary philanthropic support should enable MIT to continue to make strategic investments in plant and programs as well as bolster its balance sheet. During FY 2008-2010, gifts per student have averaged a strong $30,000. MIT recently reported the receipt of a substantial gift of the majority of the stock of the privately held Bose Corporation. Additional information on the value of the gift is not available at this time. MIT remains successful in its current fundraising strategy of conducting smaller targeted campaigns, such as the initiatives to support student financial aid or particular capital projects. MIT's last fundraising initiative, the Campaign for MIT, concluded in 2006 and raised $2.05 billion compared to a goal of $2 billion.

Strong Investment Oversight And Adequate Liquidity The Institute's endowment is managed by the Massachusetts Institute of Technology's Investment Management Company (MITIMCo), a wholly owned subsidiary of MIT which is responsible for approximately $12.4 billion in investment assets, including endowed, excess working capital, and retirement plan assets as of June 30, 2010. MITIMCo staff consists of a staff of approximately 50 investment professionals and support staff. The company has its own MITIMCo Board which reports to MIT's Executive Committee. The asset allocation of the managed assets at March 31, 2011 included approximately: 25% in hedge funds, 24% in private equity, 12% in real estate, 10% in long-only international equity, 8% in long-only domestic equity, 8% in real assets, 6% in fixed income, 5%

in long-only emerging market equity, and 2% in cash. Although Moody's has not received full disclosure of the university's investment holdings, based on the information that we have received we believe the long-term investment pool is well diversified among managers and funds and remains less than 5% inyested with any one manager. Based on FY 2010 data, unfunded capital commitments of

$1.9 billion represent approximately 23% of total cash and investments.

6 MAY 9, 201i HIGH PROFILE NEW ISSUE:'MOODY'S ASSIGNS Aaa RATING TO THE MASSACHUSETTS INSTITUTE OF TECI-NOLOGY"'

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2001 2002 2003 2004 2005 200 6 2007 2008 2009 2010 MIT's recent investment performance has experienced less volatility than market averages. For example, in FY 2010 the endowment returned 10.2% relative to the National Association of College and University Business Officer's average of 12% and FY 2009 declines of 17.1% compared favorably to the industry average of 19%. Management reports an estimated growth in endowment assets in the range of 10-15% for the first nine months of fiscal 2011. The range of performance reflects MIT's high allocation to alternative investments which, the fair value for which are received on a lagged quarterly basis.

MIT currently maintains adequate liquidity within the endowment and its working capital to support its treasury function and ongoing operations. Our evaluation of the university's liquidity incorporates a number of potential calls on the liquidity of the Institute, including its self-liquidity debt, endowment spending requirements, private investment capital calls, and the general operating needs of the university. We note that MIT's debt structure is moderately conservative, with 18% of debt issued in a variable rate demand mode and an interest rate swap agreement which would only require collateral posting if the Institute's rating were lowered six or more notches. As estimated as of June 30, 2010, MIT could have up to $1.9 billion of private investment capital calls over multiple years. Based on Moody's calculations, management reports unrestricted cash and investments available to be liquidated within one month of nearly $2.4 billion which would provide 5.5 times coverage of demand debt and more than one year's worth of operating expenses (377.5 days monthly days cash on hand).

We expect that MIT will maintain sufficient liquidity relative to potential demands even as it, like peers, begins to invest longer-term. In addition, MIT holds highly liquid working capital assets held outside of the endowment. A substantial and sustained thinning of the Institute's liquidity relative to its needs could pressure the rating.

Ample Self Liquidity And Capable Management Support VMIG 1 Rating On Series J-1 And J-2 Bonds The highest short-term rating ofVMIG I on $250 million of Series J-1 and J-2 bonds is based on MIT's strong internal liquidity and treasury management. Discounted daily liquidity includes $376 million of funds in a 2a-7 money market fund, $520 million of U.S. Treasury and Agency securities,

$64 million in repurchase agreements, and $37 million in P-I rated banks as of March 31, 2010.

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Discounted daily liquidity provides strong coverage of nearly 4.0 times of the weekly variable rate demand bonds. The university also holds nearly $1.1 billion in readily saleable equity holdings (not discounted) that could be liquidated within a week's time. MIT has extensive treasury experience in managing its investment and debt portfolio, ensuring timely draws on available liquidity in the event of failed remarketings of the bonds.

Outlook The rating outlook remains stable reflecting expectations of MIT's continued superior academic and research reputation, strong philanthropic support, ample liquidity, and lack of additional borrowing plans for campus academic and research purposes for at least five years. We expect the Institute's strong global reputation in its market segments will, if anything, increase over time.

What Could Make The Rating Go Up Not applicable What Could Make The Rating Go Down Failure to sustain a strong liquidity position relative to potential liquidity needs; dramatic increase in leverage due to increased borrowing or severe investment losses; substantial and sustained deterioration in research profile or student demand Key Indicators (Fall 2010 Enrollment, FY 2010 financial data)

Total Full-Time Equivalent Enrollment: 10,429 Students Freshmen Selectivity: 10.1%

Freshmen Matriculation: 63.7%

Expendable Financial Resources: $7.2 billion Pro-Forma Direct Debt: $2.4 billion (including $750 million of Series B bonds)

Monthly Liquidity: $2.4 billion Expendable Financial Resources to Pro-Forma Debt: 3.0 times Expendable Financial Resources to Operations: 3.0 times Operating Cash Flow Margin: 16.4%

Average Debt Service Coverage: 6.7 times Monthly Days Cash on Hand: 377.5 days Reliance on Sponsored Research (% of Operating Revenue): 51.5%

Reliance on Investment Income (% of Operating Revenue): 20.0%

B MAY 9, 2011 HH1 ROFIm.[ NFW ISSU"L MOODY'S ASSICNS Aa, RAETINOTO TI-Q MASSA0.I.j rYS INSTITUTE Or TECHiNO.LO)CV' S500 MILLION OF IAXABLL BONDS, SERIES B; O TI OOK REMAINS SrABLL.

• ~-71 .. . L .' TI' LMiC NAr'JCE Rated Debt Series I, K, L, M, N, 0: Aaa Series B (Taxable): Aaa Series J-I and J-2: Aaa/VMIG I (self-liquidity)

Contacts Massachusetts Institute of Technology: Israel Ruiz at 617-253-4495 or Allen Marcum at 617-324-7207 Underwriter: Barclays Capital, John Augustine at 212-526-5436 or Jim Costello at 212-526-5730 Principal Methodology Used The principal methodology used in this rating was Moody's Rating Approach for Private Colleges and Universities published in September 2002.

Regulatory Disctosures Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning a credit.

q MAYW 20H1 IG ~i.

PROCI N W S.SUF Mc'j)DYS ., Aý'; ;N A AINf, I ) 1 IfI, MAL>ý( LILILTS INS rJ:r~iTj orL i F! ,w'~i[ oc)(v 33100M IL iLJ0NC1I A XAE3FFAO7NL13.SERIS L' BF(N .0FF'L li M WL Aý

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fiscal Year 2006 200;7 20 8 7008 20)10 $750 million Key Ratios Debt Outstanding ($'000) 1,053,489 1,078,234 1,335,393 1,735,843 1,728,526 2,421,654 Unrestricted Financial Resources ($'000) 2,957,245 3,581,109 3,683,062 2,598,950 2,908,566 2,927,407 Expendable Financial Resources ($'000) 7,541,501 9,119,241 9,320,054 6,852,342 7,228,259 7,247,100 Total Financial Resources ($'000) 9,296,304 11,884,461 12,029,633 9,003,632 9,349,038 9,349,038 Total Cash & Investments ($S000) 9,571,499 11,152,886 11,389,535 9,321,122 10,002,482 10,002,482 Monthly Liquidity ($000) 1,609,958 2,356,502 2,356,502 Annual Liquidity ($000) 3,120,803 3,536,338 3,536,338 Operating Revenue ($'000) 2,210,866 2,289,792 2,480,928 2,626,955 2,658,063 2,658,063 Total Expenses ($'000) 2,181,696 2,207,621 2,301,687 2,461,286 2,382,566 2,382,566 Total Gift Revenue ($'000) 232,472 332,874 385,952 303,890 246,580 246,580 Average Gift Revenue (3yr avg) ($'000) 179,965 222,337 317,099 340,905 312,141 312,141 Market Total Enrollment FTE 10,079 10,044 10,173 10,276 10,429 10,429 Total Enrollment that is Undergraduate (%) 40.6 41.2 40.6 41.0 40.9 40.9 Primary Selectivity (%) 13.3 12.5 11.9 10.7 10.1 10.1 Primary Matriculation (%) 66.2 68.7 66.0 64.0 63.7 63.7 Net tuition per student ($) 19,615 20,761 22,810 21,369 23,190 23,190 Total tuition discount (%) 46.6 47.0 45.6 49.7 49.1 49.1 Capital Ratios Unrestricted financial resources-to-direct debt (x) 2.81 3.32 2.76 1.50 1.68 1.21 Expendable financial resources-to-direct debt (x) 7.16 8.46 6.98 3.95 4.18 2.99 Total financial resources-to-direct debt (x) 8.82 11.02 9.01 5.19 5.41 3.86 Total cash & investments-to-direct debt (x) 9.09 10.34 8.53 5.37 5.79 4.13 Direct Debt-per-Student (S) 104,523 107,351 131,268 168,922 165,742 232,204 Direct debt-to-cash flow (x) 7.11 5.56 4.59 5.97 4.56 6.38 Debt to Operating Revenues (x) 0.48 0.47 0.54 0.66 0.65 0.91 Debt service to operations (%) 3.3 2.8 2.1 2.4 2.5 2.5 MADS to operations (%) 5.6 5.6 5.3 11.4 11.8 14.0 Variable Rate Exposure - before Swaps (%) 32.0 34.0 18.7 24.6 24.7 17.6 Monthly Liquidity to Demand Debt (%) 377.5 552.5 552.5 Annual Liquidity to Demand Debt (%) 731.7 829.1 829.1 Capital Spending Ratio (x) 1.72 1.55 2.56 2.39 3.73 3.73

.Capital Expenses to Operations (%) 5.5 5.1 4.8 7.3 6.8 6.8 Age of plant (number of years) (x) 5.50 6.58 7.08 6.99 8.47 8.47 Balance Sheet Ratios Unrestricted financial resources-to-operations (x) 1.36 1.62 1.60 1.06 1.22 1.23 Expendable financial resources-to-operations (x) 3.46 4.13 4.05 2.78 3.03 3.04 Total Financial Resources-to-Operations (x) 4.26 5.38 5.23 3.66 3.92 3.92 Monthly Days Cash on Hand (x) 251.5 377.5 377.5 Annual Days Cash on Hand (x) 487.6 566.5 566.5 Total Financial Resources-per-Student (S) 922,344 1,183,240 1,182,506 876,181 896,446 896,446 10 MAY 9. 1 11 !A rJC C I0rSUW .';OF ADY'S A TCa TW) TI. A S, I" TS '

4, Tt) ri. (,F T ir i.o OC,0"05 5 50,3 MILOClISIQ 1T

.1 O.A33 M),"5 SHOE S OUI '1I 33'WR MAN' 3.35 A5 E

ee~ ' L..&.PJUBIr FNANCE Fiscal Year 2006 2007 2008 2009 2010 17S0 rnrlion Operating Ratios Operating margin (%) 1.3 3.6 7.2 6.3 10.4 10.4 Average operating margin (%) 1.6 2.1 4.0 5.7 8.0 8.0 Operating margin excluding gifts (%) -4.7 -3.6 0.3 0.1 3.5 3.5 Operating Cash Flow Margin (%) 9.3 10.6 13.6 13.2 16.4 16.4 Debt Service Coverage (x) 2.88 3.86 6.88 5.98 7.37 7.37 MADS coverage (x) 1.67 1.97 2.75 1.23 1.55 1.30 Average MADS Coverage (x) 1.60 1.77 2.13 1.76 1.64 1.52 Average debt service coverage (x) 3.19 3.26 4.29 5.46 6.74 6.74 Average gifts per student (S) 17,855 22,136 31,171 33,175 29,930 29,930 Research Expense as a % of Total Expenses (%) 47.5 45.3 45.8 47.4 50.0 50.0 Return on net assets (%) 16.6 26.2 0.6 -22.1 3.8 3.8 Return on financial resources (%) i6.0 27.8 1.2 -25.2 3.8 3.8 Return on Cash and Investments (%) 10.2 9.9 3.6 -15.5 9.6 9.6 Sources of Revenue Tuition and Auxiliaries (%) 12.7 12.9 12.9 11.9 12.6 12.6 Investment Income (%) 16.7 18.6 19.3 20.4 20.0 20.0 Gifts (%) 5.7 6.9 6.9 6.2 7.2 7.2 Grants and contracts (%) 55.1 51.4 50.2 52.3 51.5 51.5 Other (%) 9.7 10.2 10.6 9.3 8.8 8.8 Moody's Related Research Prliyjcr or, MoodvyN, Kcv Priva(c I 1i hcr EduIc16ion Ratio (Ailculation:.,.Jil'201[) 1.8;i03 IndU SiLI/! C.IU t ICC

>>) 20)11 Outlook for US H-igler Educ.tion, Ia n1i.lry 2011 (1299)3,9)

Pa<nn Methcd vi oIo c

_____ for .riva[Q mlgc and Unive To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available. All research may not be available to all clients.

11 MAY 9, 2011 IHIGH PROFILE NEW ISSUE: MOODY'S ASSIGNS Aaa RATING TO TH[ MASSACHUSETTS INSTITUTE or TECHNO( OGY'S S500 MILLION OF TAXABLE BONDS, SERIES 3. OUTLOOK REMAINS S1 ABLE

- ma'U.S. PUBLIC FINANCE

, contact., conrinuedfrom pa'e o Report Number: 133044 Analyst Contacts:

NEW YORK 1.212.553.1653 Author Editors

... ................--- .. _...... Karen Kedem Kimberly Tuby

.John C. Nelson 1.212.553.4096 John C. Nelson M*anarong Director- Public Finance lofsn.N elson: eoodvs.corn Production Associate David Dombrovskis

© 2011 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). Allrights reserved.

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INVESTORS SERVICE 1? MAYT. 2011 HIGH PROFILENEW ISSUE:MOODY'S ASSIGNS Aaa RATING TO THr MIASSACHIJSrTTS INSTITUTE OF TECHNOLOGY'S

$500 MILLION OF TAXABLE BONDS, SEvIiESB; OUILOOI REMAINS SIABLE

pwc Report of Independent Auditors 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, 1o CFR Part 50 and 1o CFR Part 70. 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 tangible net worth in the CFO letter agrees with total net assets contained in the Institute's financial statements for the year ended June 30, 2011, 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 15, 2011;

2. 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

3. 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 14, 2011 PricewaterhouseCoopersLLP, 125 High Street, Boston, MA 02110 T: (617) 530 500o, F: (617) 530 5001, www. pwc.com/us

Report of the Treasurer for the year ended June 30, 2011 i'IiT Massachusetts Institute of Technology

The Corporation 2010-2011 as ofJune 30, 2011 Chairman: John S. Reed*

President: Susan Hockfield*

Executive Vice President and Treasurer: Theresa M. Stone*

Vice President for Institute Affairs and Secretary: Kirk D. Kolenbrander Life Members Shirley A. Jackson; David H. Koch; Patrick j. 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; Charles M. Vlest; Susan E. Whitehead; Brian G. R. Hughes; Norman E. Gaut; L. Robert Johnson; ArthurJ. Samberg*;

Gururaj Deshpande; Barrie R. Zesiger*; James H. Simons; John A. Thain.

Members Thomas P. Gerrity; Mark P. Gorenberg; Scott P. Marks, Jr.; Marjorie M.T. Yang; Alan G. Spoon; Lawrence K. Fish; Da-vid D. Ho; Robert B. Millard*; Carly S. Fiorina; Anita K. Jones*; Martin Y. Tang; 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; Harbo P. Jensen; Abigail P. Johnson; Frederick A. Middleton, Jr.; Barun Singh; Diana C. 'Walsh; Ursula M.

Burns; Diane B. Greene; Helen Greiner; Marta M. Luczynska; Victor J. Menezes; Antonia D. Schuman; Peter L. Slavin; Laura D. Tyson; Raja H.R. Bobbili; Rafael del Pino; Mohammed A. L. Jameel; Cleve L. Killingsworth; Alejandro Padilla; Tony Keng Yam Tan; Samuel W. Bodman; Sarah Stewart Johnson; Reginald Van Lee President of the Association of Alumni and Alumnae K. Anne Street Representatives of the Commonwealth Governor: Deval L. Patrick Chief Justice of the Supreme Judicial Court: Roderick L. Ireland Secretary of Education: S. Paul Reville Life Members Emeritus Ir~n~e duPont, Jr.; Norman B. Leventhal; George P. Gardner; Mitchell W Spellman; D. Reid Weedon, Jr.; Colby H.

Chandler; Carl M. Mueller; Louis XW Cabot; Christian J. Matthew; Paul M. Cook; William S. Edgerly; Frank Press; Edward E. David, Jr.; Emily V. Wade; Angus N. MacDonald; 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.; Raymond S.

Stata; BritJ. d'Arbeloff; Gordon M. Binder; Dana G. Mead Members' names are listed in chronological order of election to each category.

• member of the Executive Committee

Table of Contents

" Report of theTreasurer .............................................. 5-9

" Financial Statements The financialstatements summarize the finances of MIT for the fiscalyeari 2010 and 2011.

Statem ents of Financial Position ............................................. 11 Statem ents of Activities ................................................. 12-13 Statem ents of Cash Flows ................................................... 14 N otes to Financial Statem ents ............................................ 15-39 Report of Independent Auditors ............................................. 41

• Additional Information Five-Year Trend Analysis ................................................ 42-44

Report of the Treasurer To Members of the Corporation In fiscal 2011, MIT continued to improve its financial With respect to our physical resources, in fiscal 2011, we strength as it celebrated and reflected on its 150 years placed in service two important academic and research as an Institute and took important steps to embrace its buildings, the Koch Institute for Integrative Cancer future thoughtfully and responsibly. Research and the new building for the Sloan School of Management; and in recent weeks, the newly renovated Over the 150 days leading up to commencement, the Maseeh Hall (formerly XV1 or Ashdown House) wel-global MIT community celebrated MIT's 150 years of comed 468 undergraduates.

excellence and innovation. MIT marked this milestone with symposia, performances, exhibitions and gatherings, All three buildings opened on time and below their corn-including the Sesquicentennial Convocation, through bined $577.0 million budgets, thanks to strong partner-which we reflected on the Institute's past contributions ships between our research and academic colleagues and and drew inspiration for our future. These events have our facilities and other staff professionals. Other capital reminded us that MIT serves as a beacon to the world as projects, primarily renovations, have been, or are being, the embodiment of excellence in science, technology and executed with similar success.

entrepreneurship.

Looking to the future of MIT's physical resources, fiscal The Institute's financial strengthening can be highlighted 2011 saw the launch of MIT 2030, which was presented in several ways. to the Corporation last October. MIT 2030 provides a comprehensive framework, which will continuously On an ongoing basis, MIT's financial strength is mea-evolve over time, to guide campus renovation and sured by its total net assets. This gauge of our net worth construction planning over the coming decades, and increased by 17.3 percent from fiscal 2010 to $12,105.7 to form the basis of fundraising and MIT's borrowing million at June 30, 2011. Key elements of this balance plans to support capital projects and initiatives. MIT sheet measure are investments, physical plant and other 2030 was developed through a multi-year process led assets, offset by debt and other liabilities. This year's by our academic leadership to envision the future of the advance brings us closer to our historic peak of $12,770.0 Institute's academic and research mission and to identify million reached at fiscal 2008 year-end. The most the physical resources required to fulfill that mission.

important driver of this improvement was the excellent performance of our invested assets which are man- In fiscal 2011, the debt portion of the funding to support aged by our MIT Investment Management Company the capital investments envisioned in the first decade of (MITIMCo). MIT 2030 was secured. In May 2011, MIT completed an historic issuance of $750 million of hundred-year For the fourth consecutive year, MIT's consolidated taxable bonds, taking advantage not only of favorable operating activities were in fiscal balance, generating a interest rates but also unprecedented investor demand cumulative four-year surplus of revenues over expenses for MIT's AAA credit, which was affirmed based on totaling $756.9 million. While our results of operations the comprehensive view offered by the MIT 2030 always reflect some timing differences between receipt framework.

and expenditure of funds in various units across MIT as well as endowment payout decisions, four successive These hundred-year bonds are a stable, low cost source years of operating surpluses since 2008 point to the of funds for campus renovation and construction, and, fundamental overall financial discipline exercised by in conjunction with anticipated gift funding in about an the MIT community. Importantly, in fiscal 2011, we equal amount, will enable the roughly $1.5 billion level completed the multi-year adjustment process required of capital projects we deem actionable, given our current to sustain that balance after the 2008 market downturn. financial resources, to advance the first decade of the These adjustments included a significant reduction in overall MIT 2030 campus vision.

endowment payout accompanied by the final phase of Following are additional details on MIT's fiscal 2011 our three-year, fifteen percent general budget rebasing.

Statements of Financial Position and Statements of The collaboration of faculty, staff, students and alumni Activities.

to achieve those budget reductions and to develop nu-merous initiatives from the Institute-wide Planning Task Force has strengthened the fabric of MIT.

SUMMARY

5

Statements of Financial Position for restricted purposes that, under generally accepted accounting principles (GAAP) in the United States of The following discussion highlights key elements of America, are categorized as unrestricted if MIT spends MIT's financial position - net assets, investments, en-an equivalent amount of unrestricted funds for the same dowment, land, buildings and equipment, borrowings, purpose. Unrestricted net assets increased $844.0 mil-retirement plan assets and accrued benefit liabilities. lion, or 22.5 percent, to a total of $4,603.3 million. The Net Assets increase in unrestricted net assets is due primarily to the increase in unrestricted endowment value, investment Total net assets increased to $12,105.7 million, up 17.3 gain on other invested funds, release of temporarily percent from fiscal 2010 and approaching MIT's historic restricted funds when the buildings are put into use and peak level achieved at fiscal year-end 2008 of $12,770.0 the improvement of the retirement plan's overfunded million.

status. During fiscal 2010, unrestricted net assets were Net assets are presented in three categories to recognize decreased by $4.8 million to offset investment losses on the significant ways in which universities are different permanently restricted net assets where market value from profit-making organizations. These categories dropped below book value. These investment losses reflect the nature of the restrictions placed on gifts by reversed in fiscal 2011 and an adjustment of $22.0 mil-donors. lion was made to increase unrestricted net assets.

Permanently restricted net assets represent those gifts Investments for which the original principal is to be preserved. This Investments at fair value were $12,199.5 million atJune category includes gifts and pledges to true endowment 30, 2011, an increase of $2,285.6 million, or 23.1 per-together with assets held in trust, such as life income cent, from $9,913.9 million in the previous year. Over funds, which, when received or matured, will be added to the past five years, total invested assets have increased to the endowment. The increase in permanently restricted

$12,199.5 million from $9,500.2 million while distribu-net assets of $356.0 million, or 16.9 percent, to a total of tions for expenditures have totaled $2,367.1 million.

$2,457.9 million, primarily reflects new gifts and pledges More specific information is included in Note B to the made to permanently restricted endowment funds.

financial statements.

Temporarily restricted net assets represent those The financial statements include both realized and gifts that ultimately can be used to fund operating or unrealized gains and losses on investments. Realized and capital expenditures. They require an event or lapse of unrealized gains and losses, including those related to time to occur before they are available for spending.

the disposition of fixed assets, increased from a gain of Approximately 90 percent of the assets in this category

$784.3 million in fiscal 2010 to a gain of $1,483.7 million are accumulated market gains on permanently restricted in fiscal 2011.

endowment funds. This category also includes pledges not permanently restricted, gifts for construction proj- MIT's investment policy is based on the primary goal of ects that have not been completed and put into use, and generating high real rates of return without exceptional life income funds, which, upon maturity, will be available volatility. To reduce volatility, the portfolio is broadly for spending. The increase in temporarily restricted net diversified. To generate high real rates of return, MIT's assets of $581.5 million, or 13.0 percent, to a total of investment policy favors equity investments over fixed

$5,044.5 million, primarily resulted from the increase in income instruments and is heavily weighted towards the market value of assets held in permanently restricted inefficient markets such as private equity, real estate, and funds. The Commonwealth of Massachusetts requires marketable alternatives. Marketable alternatives include that all universities located within the Commonwealth investments in absolute return strategies, distressed debt, report accumulated market gains on both permanently and hedge funds. Total asset allocation among equity, and temporarily restricted net assets as temporarily marketable alternatives, and real estate investments in restricted net assets until appropriiated for use. fiscal 2011 was slightly lower than that in fiscal 2010.

Equity, marketable alternatives, and real estate invest-Unrestricted net assets comprise all the remaining ments at market value were 81.1 percent of investments economic resources available to MIT. This category as of June 30, 2011, as compared to 83.7 percent at June includes MIT's working capital and those assets, desig-30, 2010.

nated by MIT as "funds functioning as endowment," to be invested over the long term to generate support for MIT primarily invests through external fund managers, MIT's operations and capital projects. Also included thereby allowing MIT to tap into the best investment in this category are current funds received from donors talent globally. By identifying a wide variety of top-tier 6 MIT REPORT OF THE TREASURER 2011

investment managers with specific competencies, MIT These three projects, among others, are part of ongoing is able to construct a broadly diversified portfolio while campus development that adds state-of-the-art facilities accessing deep sector expertise. Decisions regarding for emerging areas of research, increases educational the selection of managers, direct investments, and asset infrastructure to support residential and community life, allocation are conducted by MITIMCo. The Board of and renews and renovates our existing physical resources.

Directors of MITIMCo holds four regularly scheduled MIT 2030 meetings during the fiscal year where investment policy, performance, and asset allocation are reviewed with This year, we launched MIT 2030 as a comprehensive MITIMCo professionals. framework for planning for our physical resources. MIT 2030 grew out of a long term visioning process by MIT's Endowment and Similar Funds academic leadership aimed at assuring MIT's premiere Endowment assets are managed to maximize total invest- position in education and research in the coming decade.

ment return relative to appropriate risk. The market MIT 2030 lays out options to provide the physical plat-value of investments in the endowment and similar form worthy of that mission. This framework makes pro-funds, excluding pledges for endowed purposes, totaled vision for new buildings where required for cutting edge

$9,712.6 million as of June 30, 2011 and $8,317.3 million science and technology research. In addition, MIT 2030 as of June 30, 2010 and approached the peak year-end incorporates a strong commitment to campus renova-level reached in fiscal 2008 of $9,947.6 million tion and renewal through proposed whole-building and This year, MIT's core Pool A endowment produced a Main Group section renovations, selective interventions return of 17.9 percent. Investment income and a por- in long-serving buildings, as well as broadly distributed updating of basic campus infrastructure. The aspirations tion of gains are distributed for spending in a manner that over the long term preserves for reinvestment an for our physical resources set forth in MIT 2030 will take many years to achieve. As a first step, an actionable set amount at least equal to annual inflation on the value of the investment at the beginning of that year. Endowment of options for the 2010-2020 decade has been identified, funds invested in Pool A, MIT's primary investment carrying an estimated cost of $1.5 billion. Based on our pool, receive distributions based on relative ownership current financial position, a program of that magnitude which is valued monthly. can be accomplished if funded equally by fundraising and debt.

Land, Buildings, and Equipment An important dimension of the MIT 2030 process has Land, buildings and equipment had a net book value of been to integrate into the broad vision of our campus

$2,451.5 million as of June 30, 2011, an increase of 5.3 the campus neighborhood development activityvwhich percent from $2,327.8 million as of June 30, 2010, driven is conducted by the MITIMCo real estate group. This by expenditures for research and educational facilities, program continues to achieve its goals of providing including the completion of the new 367,000 square-foot attractive commercial real estate returns for the endow-Koch Institute for Integrative Cancer Research as well as ment, improving the campus neighborhood and pro-a new 217,000 square-foot building for the Sloan School viding opportunities for large and small companies and of Management. institutes to locate in close proximity to MIT.

In addition to the buildings placed in service by fiscal Debt and Other Assets and Liabilities year-end, the newly-renovated Fariborz Maseeh Hall welcomed students last month. This historic 1900 In May 2011, based on the MIT 2030 vision of capital programs for the coming decade, MIT took the oppor-building at the corner of Massachusetts Avenue and tunity offered by the favorable interest rate environment Memorial Drive was constructed before MIT's move to Cambridge in 1916 and for many years served as and receptivity to MIT's AAA credit, which was affirmed graduate student housing, with the name of Ashdown based on the comprehensive view offered by the MIT 2030 framework, to issue an historic $750 million of House, before the completion of New Ashdown graduate hundred-year maturity taxable bonds. These funds will dormitory, which opened in August 2008. Maseeh Hall supports the Institute's goal of returning MIT's be held until required for capital projects envisioned in the 2010-2020 decade of MIT 2030. At fiscal year-end undergraduate population to the 4,500 level. This major 2011, MIT's total borrowings, which primarily support renovation was put on hold after the market downturn in 2008, but was subsequently made possible as funding was completed or future capital projects, were $2,467.8 mil-lion, up from $1,728.5 million a year ago.

provided through generous gifts of alumni donors.

SUMMARY

7

MIT's defined benefit pension plan had assets of $2,572.3 percent, from fiscal 2010, and has increased a total of million and liabilities of $2,458.6 million, resulting in $31.4 million, or 57.6 percent, over the last five years.

a net pension asset of $113.7 million at fiscal year-end MIT demonstrated strong growth in and diversity of 2011. MIT also maintains a postretirement welfare research funding in fiscal 2011. Total research revenues benefit plan with assets of $311.6 million and liabilities increased to $1,447.2 million, up $77.6 million, or 5.7 of $509.8 million, resulting in a net benefits liability of percent, from the previous year. Of these amounts,

$198.2 million at fiscal year-end 2011. The funding campus labs and centers at MIT experienced a $14.8 status of both plans improved in fiscal 2011 primarily due million, or 2.4 percent, increase in research revenues to favorable investment results. The investments of both to $618.9 million, and research revenues at Lincoln plans are managed by MITIMCo. MIT also offers a Laboratory totaled $804.8 million, an increase of $60.5 401k plan to its employees, which is not reflected on the million, or 8.1 percent. The Singapore-MIT Alliance balance sheet, invested at the direction of participants in for Research and Technology (SMART) generated a broad array of investment funds. $23.5 million of research revenue during fiscal 2011, an increase of $2.4 million, or 11.2 percent, for research Statements of Activities activities taking place in Singapore. Cumulative research Operating Activities awards and other funding received via the American In fiscal 2011, we grew our research activity and main- Recovery and Reinvestment Act of 2009 (ARRA) to-tained excellence in our education mission while exer- taled $150.4 million as of June 30, 2011. Of this figure, cising expense control in core administrative areas. MIT amounts expended for research in fiscal 2011 are in-ended the year with a surplus from operations of $179.5 cluded in the figures above.

million, $101.0 million lower than the fiscal 2010 result. Research revenues include reimbursement from sponsors The MIT community has demonstrated its commitment for both direct and indirect (facilities and administration) to financial discipline by achieving an operating surplus costs. MIT's modified total direct research expenditures, in each of the past four years. which form the basis for recovery of indirect costs, Operating revenues increased $87.5 million, or 3.3 increased by $52.9 million, or 6.8 percent.

percent, to $2,750.6 million, while operating expenses Growth in MIT's campus research is being driven by increased $188.6 million, or 7.9 percent, to a total of both Federal and non-Federal sponsors. Total Federal

$2,571.1 million. sponsorship of research grew $31.6 million, or 7.2 Year-over-year comparisons of the components of percent, to $469.5 million. Research volume sponsored operating results are influenced by fundamental trends, by the Department of Health and Human Services as well as such drivers as timing differences between grew $8.1 million, or 5.6 percent, to $152.7 million.

receipt of revenues and related expenditures in various Similarly, research volume sponsored by the Department units across the Institute and policy decisions on endow- of Defense increased $0.9 nmillion, or 0.8 percent, to mient payout. The Operating Activities section of our $107.8 million; Department of Energy volume grew by Statements of Activities on pages 12 and 13 sets forth $16.3 million, or 22.2 percent, to $89.6 million; National details on these trends. Some of the specific trends in Science Foundation volume grew by $5.1 million, or various revenue and expense categories are described 7.2 percent, to $74.9 million; and volume sponsored below. by the National Aeronautics and Space Administration decreased $2.5 million, or 8.3 percent, from last year to Operating Revenues $28.1 million.

MIT's operating revenues include tuition, research, Non-Federal funding for campus research increased by unrestricted gifts and bequests for current use, fees and $0.9 million, or 0.5 percent, to $178.2 million, with the services, other programs, investment income, the portion greatest increase coming from industry sponsors, offset of net investment gains distributed to funds under MIT's by a decrease in non-profit funding.

spending policy, auxiliaries, and payments on pledges for unrestricted gifts. While research is our largest source of revenue, we expe-rienced growth in other revenue categories as well, the Tuition revenue for graduate, undergraduate and non- largest being revenues from fees and services at $199.0 degree executive programs net of financial aid grew million, an increase of 22.6 percent. MIT's investment by $15.2 million, or 6.4 percent, to $253.5 million. income and gain distribution to support operations de-Reflecting MIT's commitment to increasing the afford- clined by $62.0 million to $496.8 million in fiscal 2011 as ability of undergraduate education, financial aid for we implemented the planned payout reduction required undergraduate students grew to $85.9 million, or 2.6 8 MIT REPORT OF THE TREASURER 201 1

to reach sustainable payout levels after the 2008 market favorable pledge activity and improvements of funding downturn. The distribution rate on endowed funds status of retirement plans were the principal contributors was 5.3 percent, or 4.9 percent on a three-year-average to positive non-operating performance.

basis, in fiscal 2011. Growth in MIT's combined revenue Gifts and Pledges categories was sufficient to offset the endowment dis-tribution decrease and resulted in our overall operating As of June 30, 2011, the Campaign for Students had revenue growth of 3.3 percent to $2,750.6 million. surpassed its goal of $500.0 million with over $578.0 mil-lion raised. The campaign was concluded concurrently Operating Expenses with MIT's celebrations of its 150th anniversary. Gifts to Operating expenses grew to $2,571.1 million, an increase the Campaign support scholarships, fellowships, educa-of 7.9 percent. This consolidated result combines dif- tional programming, and student life activities. Another fering underlying trends in units funded by the general important program, the MIT Energy Initiative (MITEI)

Institute unrestricted budget, the research enterprise and now has received funds from 1,576 donors and has raised expenditures from accumulated unit fund balances. $87.0 million in philanthropic dollars.

Overall Institute salary costs rose 4.1 percent while Gifts and pledges for fiscal 2011 totaled $522.4 million, employee benefits costs rose 23.4 percent. The benefit an increase of 111.9 percent from the fiscal 2010 total of increase results from amortization of pension investment $246.6 million. Gifts from individuals represented 65.5 losses of fiscal 2009 as required by US GAAP. Behind the percent of new gifts and pledges, up from 54.5 percent overall salary increase, salaries funded centrally through in the previous year. Gifts from foundations represented the general Institute unrestricted budget remained flat, 14.7 percent of new gifts and pledges in fiscal 2011, while salaries paid from research or designated funds down from 21.8 percent in the previous year. Gifts from grew. corporations and other sources represented 19.8 percent, Research expenses on campus and at Lincoln Laboratory down from 23.7 percent in fiscal 2010. New gifts and grew at 4.6 percent and 7.1 percent, with salary growth pledges for general purposes were the largest category of in those units at 6.2 percent and 7.7 percent, respectively. gifts for fiscal 2011.

Expenditures from units' funds grew by 16.1 percent MIT's full financial statements and footnotes, describing with salaries from this source growing 3.3 percent. our financial position and activities through June 30, Expenses in administrative and educational units grew 2011 are included on the following pages.

6.9 percent. Salaries were flat as units completed Closing Remarks planned reductions in their expense levels by imple-menting disciplined and targeted initiatives begun in This is my fifth and final report to the MIT Corporation fiscal 2009 as outgrowths of the Institute-wide Planning as its Executive Vice President and Treasurer. It has Task Force. Though the planned rebasing of budgets has been an honor and privilege to work with colleagues been completed, we expect to reap additional benefits throughout the MIT community whose passion for the from the efforts of the Task Force as we adopt further Institute and its mission assures its continued preemi-improvements in administrative and operating practices nence. I am deeply grateful to President Hockfield and in the coming years. to the Corporation for allowing me to serve the Institute in this position of trust.

Expense increases were concentrated in operating categories other than salaries. Supplies and services In closing, on behalf of the Institute, I wish to thank grew by 10.7 percent; depreciation increased by 12.0 the MIT community for its generous financial support, percent; and interest expense grew by 29.9 percent. The advice, and collaboration throughout the year and to cost of utilities, rent and repairs declined by 8.8 percent reaffirm our optimism for the future.

primarily due to an adjustment to MIT's obligations for asset retirements.

Respectfully submitted, Non-Operating Revenues, Gains and Losses Summary

'While operating activities contributed $179.5 million 5M4_ý to MIT's increase in net assets, non-operating activi- Theresa M. Stone ties added $1,601.9 million to MIT's final fiscal 2011 Executive Vice President and Treasurer total net asset balance of $12,105.7 million. Growth in invested assets net of distribution, gifts and bequests, September 15, 2011

SUMMARY

9

10 MIT REPORT OF THE TREASURER 2011 Massachusetts Institute of Technology Statements of Financial Position at June 30, 2011 and 2010 (in thousands of dolikn-,)

2011 2010 Assets C ash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,221 $ 133,973 Accounts receivable, net ...................................................... 261,206 203,116 Pledges receivable, net, at fair value ............................................. 422,965 412,310 Contracts in progress, principally U.S. Government ............................... 68,411 68,344 Deferred charges, inventories and other assets .................................... 70,127 54,306 Student notes receivable, net .................................................. 49,757 49,496 Investm ents, at fair value ...................................................... 12,199,451 9,913,877 M inority interests ........................................................... 282,041 230,433 Retirement plan asset-overfunded status ......................................... 113,715 18,841 Land, buildings & equipment (at cost $3,406,169 for June 2011; $3,208,140 forJune 2010),

net of accum ulated depreciation .............................................. 2,451,479 2,327,810 Total assets .............................................................. $16,050,373 $ 13,412,506 Liabilities and Net Assets Liabilities:

Accounts payable, accruals and other liabilities .................................... 366,161 $ 309,098 Liabilities due under life income fund agreements, at fair value ....................... 84,225 74,256 M inority interests ........................................................... 282,041 230,433 D eferred revenue and other credits ............................................. 123,215 112,516 A dvance paym ents ........................................................... 389,253 362,147 B orrowings ................................................................. 2,467,825 1,728,526 Government advances for student loans .......................................... 33,754 33,590 Accrued benefit liabilities ..................................................... 198,209 237,635 Total liabilities ........................................................... 3,944,683 3,088,201 Net Assets:

U nrestricted ................................................................ 4,603,280 3,759,301 Tem porarily restricted ........................................................ 5,044,519 4,463,066 Perm anently restricted ....................................................... 2,457,891 2,101,938 T otal net assets .......................................................... 12,105,690 10,324,305 Total liabilities and net assets ............................................... $ 16,050,373 $13,412,506 The accompanying notes are an integralpart of the financialstatements.

FINANCIAL STATEMENTS I1I

Massachusetts Institute of Technology Statements of Activities for the years ended June 30, 2011 and 2010 (in thousands of dollars) r- Unrestricted - F

- Temporarily Restricted 2011 2010 2011 2010 Operating Activities Operating Revenues:

Tuition and similar revenues, net of discount of

$240,299 in 2011 and $230,269 in 2010 ............ $ 253,478 $ 238,301 $ - $

Research revenues:

D irect ........................................ 1,250,388 1,172,406 Indirect ...................................... 196,818 197,197 Total research revenues .......................... 1,447,206 1,369,603 Gifts and bequests for current use .................... 111,114 108,674 Fees and services .................................. 198,971 162,300 O ther program s ................................... 87,133 70,439 Investm ent incom e ................................ 117,004 99,669 Net gains on investments, distributed ................. 379,793 459,138 Auxiliary enterprises ............................... 100,135 96,015 Net asset reclassifications and transfers ................ 55,813 58,964 Total operating revenues ............................ 2,750,647 2,663,103 Operating Expenses:

Salaries and wages ................................. 1,006,458 967,190 Em ployee benefits ................................. 223,568 181,116 Supplies and services ............................... 898,284 811,780 Subrecipient agreements ............................ 120,977 117,442 Utilities, rent, and repairs ........................... 131,539 144,201 D epreciation ..................................... 116,385 103,910 Interest expense ................................... 73,936 56,927 Total operating expenses ............................ 2,571,147 2,382,566 Results of operations ............................... 179,500 280,537 Non-Operating Revenues, Gains and Losses Pledges .......................................... 97,807 67,716 G ifts and bequests ................................. 7,401 3,507 Investm ent Incom e ................................ 1,226 2,861 Net gain on investments and other assets .............. 573,528 359,337 898,180 419,054 Distribution of accumulated investment gains ........... (133,843) (152,081) (245,950) (307,057)

Net change in life income funds ...................... 2,406 675 8,731 5,324 Pension-related charges other than net periodic pension benefit income (cost) ..................... 105,408 (238,137)

Transfer of net assets to The Broad Institute ............ (90,975)

Net asset reclassifications and transfers ................ 116,980 40,020 (185,942) (12 9,3 54)

Total non-operating activities ........................ 664,479 (81,161) 581,453 62,051 Increase in net assets ............................... 843,979 199,376 581,453 62,051 Net assets at the beginning of the year ................ 3,759,301 3,559,925 4,463,066 4,401,015 Net assets at the end of the year ...................... $ 4,603,280 $ 3,759,301 $5,044,519 $ 4,463,066 The acconipanying notes are an integralpart of the financialstatements.

1? MIT REPORT OF THE TREASURER 2011

Massachusetts Institute of Technology Statements of Activities for the years ended June 30, 2011 and 2010 (in thousands of dollars) r- Permanently Restricted 1 Total 2011 2010 2011 2010 Operating Activities Operating Revenues:

Tuition and similar revenues, net of discount of

$ - $ $ 253,478 S 238,301 $240,299 in 2011 and $230,269 in 2010 Research revenues:

- 1,250,388 1,172,406 Direct

- 196,818 197,197 Indirect

- 1,447,206 1,369,603 Total research revenues

- 111,114 108,674 Gifts and bequests for current use

- 198,971 162,300 Fees and services

- 87,133 70,439 Other programs

- 117,004 99,669 Investment income

- 379,793 459,138 Net gains on investments, distributed

- 100,135 96,015 Auxiliary enterprises

- 55,813 58,964 Net asset reclassifications and transfers

- 2,750,647 2,663,103 Total operating revenues Operating Expenses:

1,006,458 967,190 Salaries and wages 223,568 181,116 Employee benefits 898,284 811,780 Supplies and services 120,977 117,442 Subrecipient agreements 131,539 144,201 Utilities, rent, and repairs 116,385 103,910 Depreciation 73,936 56,927 Interest expense 2,571,147 2,382,566 Total operating expenses 179,500 280,537 Results of operations Non-Operating Revenues, Gains and Losses 12,770 28,651 110,577 96,367 Pledges 293,317 38,032 300,718 41,539 Gifts and bequests 7,480 4,442 8,706 7,303 Investment income 11,961 5,957 1,483,669 784,348 Net gain on investments and other assets (379,793) (459,138) Distribution of accumulated investment gains 17,276 9,038 28,413 15,037 Net change in life income funds Pension-related charges other than net periodic 105,408 (238,137) pension benefit income (cost)

(90,975) Transfer of net assets to The Broad Institute 13,149 30,370 (55,813) (58,964) Net asset reclassifications and transfers 355,953 116,490 1,601,885 97,380 Total non-operating activities 355,953 116,490 1,781,385 377,917 Increase in net assets 2,101,938 1,985,448 10,324,305 9,946,388 Net assets at the beginning of the year 2,457,891 $ 2,101,938 $ 12,105,690 $10,324,305 Net assets at the end of the year The accompanying notes are an integralpart of the financialstatements.

FINANCIAL STATEMENTS 13

Massachusetts Institute of Technology Statements of Cash Flows for the years ended June 30, 2011 and 2010 (in thousands of dollars,)

2011 2010 Cash Flow from Operating Activities:

Increase in net assets ................................. ......................... $ 1,781,385 $ 377,917 Adjustments to reconcile change in net assets to net cash used in operating activities:

N et gain on investm ents ................................................... (1,483,669) (784,348)

Change in retirement plan asset, net of change in accrued benefit liability ........... (134,300) 209,499 D epreciation ............................................................ 116,385 103,910 G ifts of securities ........................................................ (1,921) (4,135)

Net gain on life incom e funds .............................................. (25,383) (5,144)

Transfer of land, buildings and equipment to The Broad Institute ................. 82,563 Amortization of bond premiums and discounts and other adjustments .............. (7,949) (3,823)

Change in operating assets and liabilities:

P ledges receivable ........................................................ (10,655) 52,426 A ccounts receivable ....................................................... (58,090) 37,908 C ontracts in progress ..................................................... (67) 17,477 Deferred charges, inventories and other assets ................................. (15,821) 9,246 Accounts payable, accruals and other liabilities, excluding building and equipm ent accruals .................................................... 68,948 4,765 Liabilities due under life income fund agreements .............................. 9,969 1,650 Deferred revenue and other credits .......................................... 10,699 (62,554)

A dvance paym ents ........................................................ 27,106 18,851 Reclassify investment income ............................................. (8,706) (7,303)

Reclassify contributed securities received as payment on pledges ..................... (27,380) (28,121)

Reclassify contributions restricted for long-term investment ......................... (300,718) (41,539)

N et cash used in operating activities ....................................... (60,167) (20,755)

Cash Flow from Investing Activities:

Purchase of land, buildings and equipment ....................................... (251,932) (387,908)

Purchases of investm ents ..................................................... (41,050,404) (37,941,462)

Proceeds from sale of investments, including contributed securities ................... 40,570,574 38,373,562 Student notes issued ......................................................... (9,967) (9,641)

Collections from student notes ................................................. 9,282 8,863 Net cash (used in) provided by investing activities ......................... (732,447) 43,414 Cash Flow from Financing Activities:

Proceeds from contributions restricted for:

Investm ent in endowm ent ................................................. 293,317 38,032 Investm ent in plant and other .............................................. 7,401 3,507 Less: contributed securities, gifts for endowvment, plant and other ................. (267,356) (7,080)

Total proceeds from contributions ......................................... 33,362 34,459 Increase in investment income for restricted purposes .............................. 8,706 7,303 Proceeds from borrowings .................................................... 750,000 Repaym ent of borrowings ..................................................... (2,370) (2,260)

Increase in government advances for student loans ................................. 164 249 Net cash provided by financing activities ................................... 789,862 39,751 N et (decrease) increase in cash ................................................. (2,752) 62,410 Cash at the beginning of the year ............................................... 133,973 71,563 Cash at the end of the year .................................................... $ 131,221 $ 133,973 The accompanying notes are an integralpart of the financialstatements.

14 MIT REPORT OF THE TREASURER 201 1

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 nently 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 spending policy, auxiliary revenues, payments on pledges their 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, Restricted Cash pledges to be paid in the future, life income funds), or by interpretations of law (net gains on permanently restricted Certain cash balances, totaling $42.5 million and $83.1 gifts that have not been appropriated for spending). Gifts million atJune 30, 2011 and 2010, respectively, are specified for the acquisition or construction of long-lived restricted for use under certain sponsored research assets are reported as temporarily restricted net assets until agreements.

the monies are expended and the buildings are put into use, at which point they are reclassified to unrestricted net Sponsored Research assets. Net unrealized losses on permanently restricted Revenue associated with contracts and grants is recognized endowment funds for which the book value exceeds market as related costs are incurred. The capital costs of buildings value are recorded as a reduction to unrestricted net assets.

and equipment are depreciated over their estimated life Unrestricted net assets are all the remaining net assets of cycle and the sponsored research recovery allowance for MIT. Donor-restricted gifts and unexpended restricted depreciation is treated as indirect research revenue. MIT endowment income that are received and either spent, or has recorded reimbursement of indirect costs relating to the restriction is otherwise met within the same year, are sponsored research at negotiated fixed billing rates. The reported as unrestricted revenue. Gifts of long-lived assets income generated by the negotiated rates is adjusted each are reported as unrestricted revenue. fiscal year to reflect any variance between the negotiated fixed rates and rates based on actual cost. The actual cost Net asset reclassifications and transfers consist primarily rate is audited by the Defense Contract Audit Agency of payments on unrestricted pledges and use of building (DCAA) and a final fixed-rate agreement is signed by the funds in accordance with donor restrictions for buildings U.S. Government and MIT. The variance between the put into use during the year. Expirations of temporary negotiated fixed rate and the final audited rate results in a restrictions on net assets, release of permanent restrictions carry forward (over or under-recovery). The carry forward by a donor, and change of restrictions imposed by donors is included in the calculation of negotiated fixed billing are also reported as reclassifications of net assets among rates in future years. Any adjustment in the rate is charged unrestricted, temporarily and permanently restricted net or credited to unrestricted net assets.

assets.

NOTES TO FINANCIAL STATEMENTS 15

A. Accounting Policies (continued)

Land, Buildings and Equipment Depreciation expense was $116.4 million in 2011 and

$103.9 million in 2010. Net interest expense of $6.6 million Land, buildings and equipment are shown at cost when purchased or fair value as of the date of a gift when received and $17.6 million was capitalized during 2011 and 2010, respectively, in relation to MIT's construction projects.

as gifts, net of accumulated depreciation. When expended, costs associated with the construction of new facilities are shown as construction in progress until such projects are Tuition and Financial Aid completed. Depreciation is computed on a straight-line Tuition and similar revenues, shown in Table 2 below, basis over the estimated useful lives of 25 to 50 years for include tuition and fees in degree programs as well as buildings, 3 to 25 years for equipment, and 4 to 6 years for tuition and fees for executive and continuing education software. Fully depreciated assets were removed from the programs at MIT.

financial statements in the amount of $37.5 million and

$98.2 million during 2011 and 2010, respectively. Land, buildings and equipment at June 30, 2011 and 2010 are Table 2. Tuition and Similar Revenues shown in Table 1 below.

(in thousand, of dollars) 2011 2010 Tuition revenue ........ $ 457,494 $ 432,778 Table 1. Land, Buildings and Equipment Executive and continuing (in thousands of dollars) 2011 2010 education revenues ..... 36,283 35,792 L and ................. $ 59,598 $ 59,598 Total ................ 493,777 468,570 Land improvements ..... 60,795 61,830 Less: tuition discount ... (240,299) (230,269)

Educational buildings ... 2,936,816 2,425,618 Net tuition & similar Equipment ............ 164,909 149,320 revenue .............. $ 253,478 $ 238,301 Software .............. 29,938 36,733 Total ................ 3,252,056 2,733,099 Less: accumulated depreciation ........... (954,690) (880,330) Tuition support is awarded to undergraduate students by Construction in MIT based on need. Graduate students are provided with progress .............. 142,788 471,514 tuition support in connection with research assistance, Software projects in teaching assistance, and fellowship appointments. Total progress .............. 11,325 3,527 financial aid granted to students was $409.8 million and Land, buildings and $397.4 million in 2011 and 2010, respectively. Of that equipment ........... $ 2,451,479 $2,327,810 amount, $125.8 million in 2011 and $125.5 million in 2010 were aid from sponsors. Tuition support from MIT sources is displayed as tuition discount. Components of financial aid are detailed in Table 3 below.

Table 3. Financial Aid 1 2011 I I 2010 1 Institute External Total Institute External Total (in thousands of dollars) sources sponsors financial aid sources sponsors financial aid Tuition support ........... $ 240,299 $ 53,756 $ 294,055 $ 230,269 $ 54,722 $ 284,991 Stipends ................. 17,680 12,755 30,435 15,850 12,254 28,104 Student salaries ........... 26,051 59,284 85,335 25,820 58,484 84,304 Total .................. $ 284,030 $ 125,795 $ 409,825 $ 271,939 $ 125,460 $ 397,399 16 MIT REPORT OF THE TREASURER 201 I

A. Accounting Policies (continued)

Gifts and Pledges A rollforward of liabilities due under life income fund Gifts and pledges are recognized when received. Gifts of agreements is presented in Table 4.

securities are recorded at their fair value at the date of con-tribution. Gifts of equipment received from manufacturers Recently Adopted Accounting Standards and other donors are put into use and recorded by MIT On July 1, 2010, MIT adopted new guidance enhancing the at fair value. Gifts of equipment totaled $0.4 million and Fair Vahie Measurement standard. This standard requires

$0.6 million in 2011 and 2010, respectively. Pledges in the further disclosure of significant transfers in and out of amount of $423.0 million and $412.3 million were recorded Level 1 and Level 2 fair value measurements, including the as receivables atJune 30, 2011 and 2010, respectively, reasons for the transfers, and requires discussions of their with the revenue assigned to the appropriate classification fair value measurement disclosures on a disaggregated basis.

of restriction. Pledges consist of unconditional writ- Refer to Note B for further details.

ten promises to contribute to MIT in the future and are recorded after discounting the future cash flows to the On July 1, 2010, MIT adopted the accounting standard, present value. Credit Quality. This standard requires the disclosure about the credit quality of financing receivables and the related MIT records items of collections as gifts at nominal value. allowance for credit losses. The disclosures are included in They are received for educational purposes and most are Note E.

displayed throughout MIT In general, collections are not disposed of for financial gain or otherwise encumbered in On July 1, 2009, MIT adopted the Fair Udlue Measurements any manner. standard for estimating the fair value of investments in investment companies (limited partnerships) that have a calculated value of their capital account or net asset value Advance Payments (NAV) in accordance with, or in a manner consistent with, Amounts received by MIT from the U.S. Government, US GAAP. As a practical expedient, MIT is permitted under corporations, industrial sources, foundations, and other US GAAP to estimate the fair value of an investment at the non-MIT sponsors under the terms of agreements that measurement date using the reported NAV without further generally require the exchange of assets, rights, or privileges adjustment unless the entity expects to sell the investment between MIT and the sponsor are recorded as advance at a value other than NAV or the NAV is not calculated in payments. Revenue is recognized when MIT fulfills the accordance with US GAAP. MIT'S investments in private terms of the agreement. equity, real estate and marketable alternatives are fair-valued based on the most current NAV.

Life Income Funds On July 1, 2009, MIT adopted the accounting standard, MIT's life income fund agreements with donors consist Disclosuresabout Derivative Instruments. This standard primarily of irrevocable charitable gift annuities, pooled requires specific tabular disclosures presenting the fair income funds, and charitable remainder trusts for which value amounts of derivative instruments for assets and MIT serves as trustee. Assets are invested and payments liabilities and their location on the balance sheet, as well as are made to donors and other beneficiaries in accordance disclosure of derivative gains and losses and their location with the respective agreements. MIT records the assets on the income statement. The new disclosure requirements that are associated with each life income fund at fair value call for specific fair value and gain/loss information by the and records as liabilities the present value of the estimated derivative instrument's primary underlying risk exposure future payments at current interest rates to be made to (for example, interest rate, credit, foreign exchange rate, or the donors and beneficiaries under these agreements. overall price) on a gross basis.

Table 4. Liabilities Due Under Life Income Funds (in thjousands of dollars) 2011 2010 Balance at beginning of year ....................................... $ 74,256 $ 72,606 Additions for new gifts ........................................... 8,907 5,123 Terminations and payments to beneficiaries .......................... (12,164) (10,845)

Net investment and actuarial gain .................................. 13,226 7,372 Balance at end of year ........................................ $ 84,225 $ 74,256 NOTES TO FINANCIAL STATEMENTS 17

A. Accounting Policies (continued)

On July 1, 2009, MIT adopted the accounting standard, Use of Estimates Disclosuresabout PostretirementBenefit Plan Assets. This The preparation of financial statements in conformity standard provides guidance on expanded disclosures for plan with GAAP requires management to make estimates and assets of a defined benefit pension or other postretirement assumptions that affect the reported amounts of assets and plan. The adoption has no impact on the valuation of liabilities, contingent assets and liabilities at the date of the MIT's postretirement benefit plans. It does however require financial statements, and the reported amounts of revenues additional disclosures included in Note J. and expenses during the reporting period. Actual results could differ from those estimates.

Minority Interests MIT is the general partner for several private equity funds Reclassifications and has displayed the noncontrolling interests as minority CertainJune 30, 2010 balances and amounts previously interests on the Statements of Financial Position. reported have been reclassified to conform to the June 30, 2011 presentation.

Non-Cash Items Non-cash transactions excluded from the Statements of Subsequent Events Cash Flows include the increase in minority interest of MIT has evaluated subsequent events through September

$51.6 million and $62.1 million, as well as $23.2 million 15, 2011, the date the financial statements were issued.

and $35.1 million of accrued liabilities related to plant and There were no subsequent events that occurred after the equipment purchases for 2011 and 2010, respectively. balance sheet date that have a material impact on MIT's financial statements.

B. Investments Investment transactions are accounted for on the trade similar assets or liabilities, quoted prices in markets that date. Realized gains and losses are recorded by MIT using are not active, or other inputs that are observable or can be the average cost basis. Dividend income is recorded on the corroborated by observable market data for substantially ex-dividend date. the same term of the assets or liabilities. Inputs are obtained from various sources including market participants, dealers, As discussed in Note A, MIT values its investments in and brokers.

accordance with the principles of accounting standards which establish a hierarchy of valuation inputs based

• Level 3 - Unobservable inputs that are supported by little on the extent to which the inputs are observable in the or no market activity and that are significant to the fair marketplace. Observable inputs reflect market data value of the assets or liabilities.

obtained from sources independent of the reporting entity.

A financial instrument's categorization within the valuation Unobservable inputs reflect the entity's own assumptions hierarchy is based upon the lowest level of input that is about how market participants would value an asset or significant to the fair value measurement. Investments liability based on the best information available. Valuation may be classified as Level 2 when market information techniques used to measure fair value must maximize (observable net asset values) is available, yet the investment the use of observable inputs and minimize the use of is not traded in an active market. Market information, unobservable inputs. MIT follows a fair value hierarchy including observable net asset values, subscription and based on three levels of inputs, of which the first two are redemption activity, if applicable, and the length of considered observable and the last unobservable.

time until the investment will become redeemable are The following describes the hierarchy of inputs used to considered when determining the proper categorization measure fair value and the primary valuation methodologies of the investment's fair value measurement within the fair used by MIT for financial instruments measured at fair valuation hierarchy. Fund investments that have observable value on a recurring basis. The three levels of inputs are as market inputs (published net asset values) and from which follows: MIT has the ability to redeem within twelve months of June 30 are classified in the fair value hierarchy as Level 2.

• Level 1 - Quoted prices in active markets for identical assets or liabilities. Market price data is generally obtained Investment funds that have unobservable inputs or from from relevant exchange or dealer markets. which MIT does not have the ability to redeem within twelve months are classified in the fair value hierarchy as

• Level 2 - Inputs other than Level I that are observable, Level 3.

either directly or indirectly, such as quoted prices for 18 1MIT REPORT OF THE TREASURER 2011

B. Investments (continued)

Table 5 below presents MIT's investments at fair value as ofJune 30, 2011, grouped by the valuation hierarchy as defined in this note. There were no significant transfers in and out of Level 1 and Level 2 fair value measurements in 2011.

Table 5. Investments 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 Fiscal year 2011 Cash and cash equivalents ............. $ 1,175,776 $ - $ $ 1,175,776 Fixed incom e ........................ 601,874 319,03 3 76,652 997,559 Long equities ....................... 1,664,111 156,42 4 5,229,110 7,049,645 Short equities ....................... (628,455) (122 (628,577)

M arketable alternatives ................ 470,08 6 1,341,920 1,812,006 R eal estate .......................... - 1,659,027 1,659,027 Perpetual trusts ...................... - 64,040 64,040 Interest rate, credit &

other derivatives .................. (1,752) 71,72 7 69,975 Total investments ................... $ 2,811,554 $ 1,017,14 8 $ 8,370,749 $12,199,451 Fiscal year 2010 Cash and cash equivalents ............. $ 788,453 $ $ - $ 788,453 Fixed incom e ........................ 582,090 126,108 73,40 6 781,604 Long equities ....................... 1,377,596 137,280 4,130,24 1 5,645,117 Short equities ....................... (518,545) - (518,545)

M arketable alternatives ................ 415,808 1,399,08 5 1,814,893 R eal estate .......................... 1,352,64 4 1,352,644 Perpetual trusts ...................... 53,13 4 53,134 Interest rate, credit &

other derivatives .................. (1,592) (1,831) - (3,423)

Total investments ................... $ 2,228,002 $ 677,365 $ 7,008,51 0 $ 9,913,877 Cash and cash equivalents include cash, money market investment vehicles that do not have readily determinable funds, repurchase agreements and negotiable certificates fair values are determined by the external managers and of deposit and are valued at cost, which approximates fair are based on appraisals or other estimates that require value. Fixed income investments include US government, varying degrees of judgment. If no public market exists for agency, and other obligations. Fixed income investments are the investment securities, the fair value is determined by generally valued using independent pricing sources that use the external managers taking into consideration, among broker quotes or models using market observable inputs. other things, the cost of the securities, prices of recent Equity investments include public equities and private significant placements of securities of the same issuer, and equity investment funds. Public equities are generally valued subsequent developments concerning the companies to based on the closing price listed on a public securities which the securities relate. Using these valuations, most of exchange. Marketable alternatives include investments in these external managers calculate MIT's capital account or absolute return strategies, distressed debt, and hedge funds. net asset value (NAV) in accordance with, or in a manner Private equity and marketable alternative investments consistent with, US GAAP. As a practical expedient, MIT generally consist of funds and limited partnerships managed is permitted under US GAAP to estimate the fair value of by external managers. Securities held in these external its investments with external managers using the external NOTES TO FINANCIAL STATEMENTS 19

B. Investments (continued) managers' reported NAV without further adjustment unless ensure they are recorded at fair value as of June 30, 2011 MIT expects to sell the investment at a value other than and 2010.

NAV or the NAV is not calculated in accordance with US Furthermore, while MIT believes its valuation methods GAAP. Direct real estate holdings are valued at fair market are appropriate and consistent with those of other market value based on external appraisals. Perpetual trusts held by participants, the use of different methodologies or third parties are valued at the present value of the future assumptions to determine the fair value of certain financial distributions expected to be received over the term of the instruments could result in a different estimate of fair value agreement. Over-the-counter positions such as interest rate at the reporting date.

swaps, credit default swaps, options, exchange agreements, and interest rate cap and floor agreements are valued Table 6 is a rollforward of the investments classified by MIT using broker quotes or models using market observable within Level 3 of the fair value hierarchy defined on page 18 inputs. Because the interest rate swaps and other derivative atJune 30, 2011 and 2010.

instruments have inputs that can generally be corroborated All net realized and unrealized gains and losses relating to by market data, they are generally classified within Level 2.

financial instruments held by MIT and shown in Table 5 The methods described above may produce a fair value that are reflected in the Statements of Activities. Cumulative may not be indicative of net realizable value or reflective of unrealized gains related to Level 3 investments totaled future fair values. MIT has performed due diligence around $2,012.9 nmillion at June 30, 2011 and $1,260.0 million at its private equity and marketable alternative investments to June 30, 2010.

Table 6. Rollforward of Level 3 Investments Marketable Perpetual Total (in thousands of dollars) Fixed income Equities alternatives Real estate trusts investments Fiscal year 2011 Fairvalue, July 1, 2010 ..... $ 73,406 $ 4,130,241 $ 1,399,085 $ 1,352,644 $ 53,13 34 $ 7,008,510 Realized gains (losses) ..... (8) 9,965 (1) - 9,956 Unrealized gains ......... 919 572,184 156,892 174,570 10,90 36 915,471 Net purchases, sales, and settlements ........... 2,335 516,720 (165,830) 131,813 - 485,038 Transfer of assets between levels - (48,226) - (48,226)

Fair Value, June 30, 2011... $ 76,652 $ 5,229,110 $1,341,920 $ 1,659,027 $ 64,04O0 $8,370,749 Fiscal year 2010 Fair value, July 1, 2009 ..... $ 63,833 $ 3,979,877 $ 2,203,965 $ 1,256,126 $ 47,6118 $ 7,551,419 Realized gains (losses) ..... - (46) 1,868 (389) - 1,433 Unrealized gains ......... 9,270 282,355 203,573 76,600 5,5116 577,314 Net purchases, sales, and settlements ........... 303 (113,178) (594,513) 20,307 - (687,081)

Transfer of assets between levels - (18,767) (415,808) - (434,575)

Fair Value, June 30, 2010... $ 73,406 $ 4,130,241 $ 1,399,085 $1,352,644 $ 53,1334 $7,008,510 MIT enters into short sales whereby it sells securities Certain investments in real estate, equities, and private which may or may not be owned by MIT in anticipation investments may be subject to restrictions that (i) limit of a decline in the price of such securities or in order to MIT's ability to withdraw capital after such investment hedge portfolio positions. On June 30, 2011 and 2010, cash and (ii) may be subject to limitations that limit the amount collateral and certain securities owned by MIT were held that may be withdrawn as of a given redemption date.

at counterparty brokers to collateralize these positions and Most marketable alternative investments are held in funds are included in investments on the Statements of Financial where withdrawal is limited to monthly, quarterly, or other Position. periods, and may require notice periods. In addition, 20 MIT REPORT OF THE TREASURER 201 1

B. Investments (continued) certain of these funds are able to designate a portion of to respond quickly to changes in market conditions. MIT the investments as "illiquid" in "side-pockets," and these does have various sources of internal liquidity at its disposal, funds may not be available for withdrawal until liquidated including cash, cash equivalents, marketable debt and equity by the investing fund. Generally, MIT has no discretion securities, and lines of credit.

as to withdrawal with respect to its investment in private The unfunded commitments that MIT has made to various equity and real estate funds. Distributions are made investments at June 30, 2011 and 2010 are listed in Table 7 when sales of assets are made within these funds and the below. MIT expects these funds to be called currently and investment cycle for these funds can be as long as fifteen for a period to extend up to fifteen years.

to twenty years. These restrictions may limit MIT's ability Table 7. Unfunded Commitments (in thousands of dollars) 2011 2010 Equities .................... $ 1,275,577 $1,362,357 Marketable alternatives ........ 66,410 111,897 Real estate .................. 510,321 456,656 Total unfunded commitments $ 1,852,308 $1,930,910 C. Derivative Financial Instruments Effective July 1, 2009, MIT adopted an accounting standard cap agreements are executed over the counter.

which required entities to provide additional disclosures MIT's portfolio of interest rate caps and swaptions is regarding derivative instruments held.

designed for protection from significant increases in interest During the year ended June 30, 2011, MIT maintained rates. An interest rate swaption is an option to enter into an two interest rate swap agreements to manage the interest interest rate swap agreement on pre-set terms at a future cost and risk associated with its variable rate debt, further date. The purchaser and seller of the swaption agree on described in Note G. On June 5, 2011, one of these swap the expiration date, option type, exercise style, the terms agreements expired. Under the terms of the expired of the underlying swap and the type of settlement. As the agreement, MIT paid a fixed rate of 4.46% on a notional expiration date approaches, the swaption holder can either amount of $125 million and received a payment indexed to notify the seller of its intention to exercise or let the option the Securities Industry and Financial Market Association expire. An interest rate cap places a ceiling on a floating (SIFMA) municipal swap index rate. Under the remaining rate of interest on a specified notional principal amount for agreement, MIT pays a fixed rate of 4.91% and receives a a specific term. The buyer of the cap uses the cap contract payment indexed to SIFMA on a notional amount of $125 to limit its maximum interest rate exposure. If the buyer's million. AtJune 30, 2011, the remaining swap agreement floating rate rises above the cap strike, the cap contract had a total fair value of $(32.8) million and at June 30, 2010 provides for payments from the seller to the buyer of the had a fair value of $(35.5) million. This swap portfolio cap for the difference between the floating rate and the cap had a total net gain for 2011 of $7.7 million and had $4.9 strike. If the floating rate remains below the cap strike, no million in losses for 2010. The notional amounts of these payments are required. The cap buyer is required to pay derivatives are not recorded on MIT's Statements of an upfront fee or premium for the cap. The cap premium Financial Position. charged by the seller depends upon the market's assessment of the probability that rates will move through the cap strike For its investment management, MIT uses a variety of over the time horizon of the deal. The payoff is expected to financial instruments with off-balance sheet risk involving occur in extreme market conditions that would negatively contractual or optional commitments for future settlement.

impact other of MIT's assets.

MIT uses these instruments primarily to decrease its exposure to extreme market events and to partially offset Table 8 summarizes the notional exposure and net ending exchange rate movements with respect to any currency fair value relative to the financial instruments with off-exposure. These instruments include futures, credit default balance sheet risk as of June 30, 2011 and 2010 related to swaps, and interest rate cap and swaption agreements. The MIT'S investment management.

futures are exchange-traded and the swap, swaptions, and NOTES TO FINANCIAL STATEMENTS 21

C. Derivative Financial Instruments (continued)

Table 8. Derivative Financial Instruments Notional exposure I Net ending (in thousands of dollars) Long Short fair value

• Net gain (loss)**

Fiscal year 2011 Fixed income instruments Fixed income futures ...................... $ 2,500 $ (19,400) $ (67) $ 459 Options on interest rate exchange agreements 1,284,436 2,715 2,612 Interest rate caps and floors .............. 2,884,777 (2,863,000) 50,947 5,413 Total fixed income instruments ............... 4,171,713 (2,882,400) 53,595 8,484 Currency instruments Currency forwards ........................ 61,541 (16,884) (126) (830)

Total currency instruments .................. 61,541 (16,884) (126) (830)

Commodity instruments Commodity futures ............ 15,993 (110) (379)

Equity index future (29,159) (1,449) (1,449)

Total commodity futures ......... 15,993 (29,159) (1,559) (1,828)

Credit instruments .............. 732,533 (2,617,037) 50,873 (5,561) 2011 T otal ............................... $ 4,981,780 S(5,545,480) $ 102,783 $ 265 Fiscal year 2010 Fixed income instruments Fixed income futures ...................... $ $ (32,700) $ (526) $ (1,494)

Options on interest rate exchange agreements . 1,084,172 (82,198) 20,371 (17,547)

Interest rate caps and floors ................ 2,750,000 (1,950,000) 5,287 11,638 Total fixed income instruments ............... 3,834,172 (2,064,898) 25,132 (7,403)

Currency instruments Currency forwards ........................ 52,496 (53,829) (1,333) (1,007)

Total currency instruments .................. 52,496 (53,829) (1,333) (1,007)

Commodity instruments Commodity futures ....................... 1,364 269 (3,424)

Total commodity futures .................... 1,364 269 (3,424)

Credit instrum ents ......................... 200,607 (1,553,312) 12,969 35,390 2010 T otal ............................... $ 4,088,639 $ (3,672,039) $ 37,037 $ 23,556

• Tlhefifhi value of all derivativefinancial instrunments is reflected in investmnents at./air value in the Statements of FinancialPosition.

• • Net gain (loss) fioom the derivativefinancialinstwuments is located in the non-operatingsection as net gain on investments and other assets in the Statements ofActivities.

MIT REPORT OF THE TREASURER 2011

C. Derivative Financial Instruments (continued)

Table 9 provides further details related to MIT's credit Financial instruments with off-balance sheet risk involve instruments. The act of entering into a credit default swap counterparty credit exposure. MIT requires collateral contract is often referred to as "buying protection" or to the maximum extent possible under normal trading "selling protection" on an underlying reference obligation. practices. Collateral is moved on a daily basis as required The buyer is obligated to make premium payments to by fluctuations in the market. The collateral is generally in the seller over the term of the contract in return for a the form of debt obligations issued by the U.S. Treasury contingent payment upon the occurrence of a credit event or cash. In the event of counterparty default, MIT has with respect to the underlying obligation. The seller bears the right to use the collateral to offset the loss associated the obligation to "protect" the buyer in the event of default with the replacement of the agreements. MIT enters into of the underlying issuer. Upon this event, the cash payment arrangements only with counterparties believed to be which the buyer receives is equal to the clearing price creditworthy.

established by an auction of credit default swap claims, The following table summarizes the notional amounts and which is designed to approximate the recovery value of an fair value of the purchased and written credit derivatives, unsecured claim on the issuer in default. The swap will last classified by the expiration terms and the external credit for a predetermined amount of time, typically five years.

ratings of the reference obligations atJune 30, 2011 and Upon termination of the swap, the buyer is no longer 2010.

obligated to make any premium payments and there is no other exchange of capital.

Table 9. Credit Derivatives I Purchased protection - [ -- Written protection notional amount Purchased Written Offsetting Net written Net written notional Purchased Years to maturity notional purchased credit credit protection (in thousands of dollars) amounts fair value* <5 years 5-10 years amounts credit protection- protection fair value Fiscal year 2011 Credit rating on underlying or index A- to AAA ............... ... 861,248 $ (7,213) $ 270,653 $ 590,595 $732,533 $ (732,533) $ $ 30,348 BBB- to BBB+ .............. 917,741 (7,363) 187,098 730,643 Non-investment grade ....... 25,000 914 25,000 Non-rated ................. 20,000 (180) 20,000 ABX - AA index ............. 60,515 34,367 60,515 2011 Total ............. $1.884.504 S 20.525 $ 457.751 S1.426.753 S 732,533 S (732,533) $ - $30,348 Fiscal year 2010 Credit rating on underlying or index A- toAAA ................. $ 547,155 $ (3,897) $ 36,(000 $ 511,155 $ 200,607 $ (200,607) $ - $ 6,651 BBB- to BBB+ ............ 709,450 (6,819) 87,450 622,000 Non-investment grade ....... 47,000 1,296 - 47,000 Non-rated ................. 20,000 (292) - 20,000 ABX - AA index ............. 29,100 16,030 - 29,100 2010 Total .............. $1,352,705 S 6,318 $ 123,450 $1,229,255 $ 200,607 S (200,607) $ - $ 6,651

• The fair value of all credit derivativeinstru ments is reflected in investments, atfeir value in the Statements of FinancialPosition.

• • Net gain (loss) of the credit derivative instruments is located in the non-operatingsection as net gain on investnents and other assets in the Statements of Activities.

NOTES TO FINANCIAL STATEMENTS 23

D. Pledges Receivable Table 10 below shows the time periods in which pledges A review of pledges is periodically made with regard to receivable at June 30, 2011 and 2010 are expected to be collectability. As a result, the allowance for pledges that realized. 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 Table 10. Pledges Receivable $55.0 million and $59.0 million in 2011 and 2010, respec-(in thousands of dollars) 2011 2010 tively. MIT has gross conditional pledges, not recorded, for the promotion of education and research in the amount In one year or less ...... $ 109,181 $ 99,057 of $26.9 million and $44.1 million as ofJune 30, 2011 and Between one year and 2010, respectively.

five years ............. 187,608 193,666 More than five years .... 173,776 165,997 Pledges receivable are classified as Level 3 under the Less: allowance for valuation hierarchy described in Note B.

unfulfilled pledges ...... (47,600) (46,410)

Pledges receivable, net ................. $ 422,965 $ 412,310 Table 11 below is a rollforward of the pledges receivable for 2011 and 2010.

Table 11. Rollforward of Pledges Receivable (in thousands of dollars) 2011 2010 Balance at beginning of year ............................................... 412,310 $ 464,736 N ew pledges ........................................................... 107,830 61,630 Pledge paym ents received ................................................. (99,922) (139,549)

Decrease in pledge discount ............................................... 3,937 30,494 (Increase) decrease in reserve for unfulfilled pledges ............................ (1,190) 5,470 Transfer to The Broad Institute ............................................- (10,471)

Balance at end of year ............................................... $ 422,965 $ 412,310 E. Student Notes Receivable Table 12 below details the components of student notes receivable at June 30, 2011 and 2010.

Table 12. Student Notes Receivable (in thousands of dollars) 2011 2010 Institute-funded student notes receivable ..................................... $ 15,191 $ 16,570 Perkins student notes receivable ............................................ 37,566 35,926 Total student notes receivable ........................................ 52,757 52,496 Less: allowance for doubtful accounts ....................................... (3,000) (3,000)

Student notes receivable, net ......................................... $ 49,757 $ 49,496 24 24MIT REPORT OF THE TREASURER 201 1

E. Student Notes Receivable (continued)

Perkins student notes receivable are funded by the U.S. Factors also considered by management when per-Government and by MIT to the extent required by the forming its assessment, in addition to general economic Perkins National Direct Student Loan Program. Funds conditions and the other factors described above, in-advanced by the U.S. Government for this program, cluded, but were not limited to, a detailed review of the

$33.8 million and $33.6 million atJune 30, 2011 and aging of the student loan receivable detail and a review 2010, respectively, are ultimately refundable to the U.S. of the default rate by loan category in comparison to Government and are classified as liabilities. Due to the prior years. The level of the allowance is adjusted based nature and terms of the student loans, which are subject to on the results of management's analysis.

significant restrictions, it is not feasible to determine the fair value of such loans. Loans less than 120 days delinquent are deemed to have a minimal delay in payment and are generally Allowance for Credit Losses not written off but are reserved in accordance with Management regularly assesses the adequacy of the the terms discussed above. Loans more than 120 days allowance for credit losses by performing ongoing delinquent are subject to standard collection practices evaluations of the student loan portfolio, including such including litigation. Only loans that are deemed uncol-factors as the differing economic risks associated with lectible are written off and this only occurs after several each loan category, the financial condition of specific years of unsuccessful collection, including placement at borrowers, the economic environment in which the bor- more than one external collection agency.

rowers operate, the level of delinquent loans, the value Considering the other factors already discussed herein, of any collateral and, where applicable, the existence management considers the allowance for credit losses at of any guarantees or indenmifications. MIT's Perkins June 30, 2011 and 2010 to be prudent and reasonable.

receivable represents the amounts due from current Furthermore, MIT's allowance is general in nature and and former students under the Federal Perkins Loan is available to absorb losses from any loan category.

Program. Loans disbursed under the Federal Perkins Management believes that the allowance for credit Loan program are able to be assigned to the U.S. losses atJune 30, 2011 is adequate to absorb credit Government in certain non-repayment situations. In losses inherent in the portfolio as of that date.

these situations the Federal portion of the loan balance is guaranteed. Changes in the allowance for credit losses for the year ended June 30, 2011 were as shown in the following table.

Table 13. Roilforward of Allowance for Credit Losses Student notes (in thousands of dollars,) receivables Balance at beginning of year .............................................. $ 3,000 Provision for credit losses ................................................ 171 N et charge-offs ........................................................ (171)

Balance at end of year ................................................. $ 3,000 NOTES TO FINANCIAL STATEMENTS 25

F Accounts Payable, Accruals and Other Liabilities MIT's accounts payable, accruals and other liabilities atJune 30, 2011 and 2010 are shown in Table 14 below.

Table 14. Accounts Payable, Accruals and Other Liabilities (in thousands of dollars) 2011 2010 Accounts payable and accruals ............................................. $ 310,476 $ 256,213 Accrued vacation ........................................................ 55,685 52,885 Total ............................................................. $ 366,161 $ 309,098 G. Borrowings Table 15. Borrowings (in thousands of dollars / due dates are calendarbased) 2011 2010 EDUCATIONAL PLANT Massachusetts Health and Educational Facilities Authority (MHEFA)

Series I, 4.75%-5.20%, due 2028, par value $59,200 .......................... 59,613 $ 59,638 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 ................... 242,242 243,041 Series L, 3.0%-5.25%, due 2004-2033, par value $170,160 ..................... 182,072 185,394 Series M , 5.25%, due 2014-2030, par value $131,110 ......................... 143,897 144,968 Series N, 3.5%-5.0%, due 2014-2038, par value $325,195 ..................... 331,594 332,815 Series 0, 4.0%-6.0%, due 2016-2036, par value $266,460 ..................... 272,218 273,368 Total MHEFA ................................................... 1,481,636 1,489,224 Medium Term Notes Series A, 7.125%, due 2026 ............................ 17,355 17,351 Medium Term Notes Series A, 7.25%, due 2096 ............................. 45,443 45,441 Notes payable to bank, variable rate, due 2014 ............................... 83,033 83,033 Taxable Bonds, Series B, 5.60%, due 2111, par value $750,000 1................. 746,881 Total educational plant ............................................. 2,374,348 1,635,049 OTHER Notes payable to bank, variable rate, due 2014 ............................... 93,477 93,477 Total borrowings .................................................. $ 2,467,825 $ 1,728,526 1The proceeds of Taxable Bonds, Series B were held as liquid investments as ojf.June 30, 2011 and have not yet been invested in physical assets.

Fair value of the outstanding debt is approximately 5.0% and 7.0% greater than the carrying value in 2011 and 2010, respectively. Carrying value is based on estimates using current interest rates available for similarly rated debt of the same remaining maturities.

26 MIT REPORT OF THE TREASURER 2011

G. Borrowings (continued)

The aggregate amounts of debt payments and sinking fund Variable interest rates at June 30, 2011 are shown in Table requirements for each of the next five fiscal years are shown in 17 below.

Table 16 below.

Table 17. Variable Interest Rates Table 16. Debt Obligations (in thousands of dollars) Amount Rate (in thousands of dollars)

MHEFA Series J-1 ....... $ 125,000 0.04%

2012 .................. $ 2,490 MHEFA Series J-2 ....... 125,000 0.04%

2013 .................. 26,500 Notes payable to bank ..... 176,510 1.21%

2014 .................. 202,509 2015 .................. 59,110 2016 .................. 9,585 In the event that MIT receives notice of any optional tender on its Series J-1 and Series J-2 variable-rate bonds, MIT maintains a line of credit with a major financial or if these bonds become subject to mandatory tender, institution for an aggregate commitment of $500.0 million. the purchase price of the bonds will be paid from the As ofJune 30, 2011, $323.5 nmillion was available under this remarketing of such bonds. However, if the remarketing line of credit. The line of credit expires on March 28, 2014. proceeds are insufficient, MIT will be obligated to purchase the bonds tendered at 100 percent of par on the Cash paid for interest on long-term debt in 2011 and 2010 tender date.

was $78.7 million and $79.4 million, respectively.

During 2011, MIT issued $750.0 million in taxable bonds at a rate of 5.6% for a period of 100 years. This will be used to finance a comprehensive strategy for the next phase of MIT's physical plant development.

H. Commitments and Contingencies Federal Government Funding Leases MIT receives funding or reimbursement from Federal At June 30, 2011, there were no capital lease obligations.

agencies for sponsored research under Government grants MIT is committed under certain operating (rental) leases.

and contracts. These grants and contracts provide for Rent expense incurred under operating lease obligations reimbursement of indirect costs based on rates negotiated was $33.3 million and $33.1 million in 2011 and 2010, with the Office of Naval Research (ONR), MIT's cognizant respectively. Future minimum payments under operating Federal agency. MIT's indirect cost reimbursements have leases are shown in Table 18 below.

been based on fixed rates with carry forward of under or over-recoveries. AtJune 30, 2011 and 2010, MIT recorded Table 18. Lease Obligations a net over-recovery of $48.1 million and $12.3 million, (in thousands of dollars) respectively.

2012 .................. $ 31,815 The DCAA is responsible for auditing indirect charges 2013 .................. 30,599 to grants and contracts in support of ONR's negotiating 2014 .................. 23,458 responsibility. MIT has final audited rates through 2009.

MIT's 2011 research revenues of $1,447.2 million include 2015 .................. 10,304 reimbursement of indirect costs of $196.8 million, which 2016 .................. 8,335 includes the adjustment for the variance between the indirect cost income determined by the fixed rates and actual costs Investments for 2011. In 2010, research revenues were $1,369.6 million, which included reimbursement of indirect costs of $197.2 As of June 30, 2011, $9.3 million of investments were million. pledged as collateral to various supplier and government agencies.

NOTES TO FINANCIAL STATEMENTS 27

H. Commitments and Contingencies (continued)

Future Construction education, research, and technology transfers. Some of these MIT has contracted for educational plant in the amount agreements involve funding from foreign governments.

of $65.4 million atJune 30, 2011. It is expected that the These agreements subject MIT to greater financial risk than resources to satisfy these commitments will be provided do its normal operations. In the opinion of management, from unexpended plant funds, anticipated gifts, and the likelihood of realization of increased financial risks by unrestricted funds. MIT will be committing additional MIT under these agreements is remote.

resources to planned major construction projects and improvements to the current infrastructure over the next General several years. MIT is subject to certain other legal proceedings and claims that arise in the normal course of operations. In the opinion Related Entities of management, the ultimate outcome of these actions will MIT has entered into agreements, including collaborations not have a material effect on MIT's financial position.

with third-party not-for-profit and for-profit entities, for

1. Functional Expense Classification MIT's expenditures on a functional basis are shown in Table 19 below.

Table 19. Expenditures by Functional Classification (in thousands of dollars) 2011 2010 G eneral and adm inistrative ................................................ $ 523,676 $ 461,186 Instruction and unsponsored research ....................................... 659,839 613,345 Sponsored research ...................................................... 1,265,776 1,192,041 Auxiliary enterprises ..................................................... 110,631 104,489 Operation of Alumni Association ........................................... 11,225 11,505 Total operating expense ............................................. $ 2,571,147 $2,382,566 J. Retirement Benefits MIT offers a defined benefit plan and a defined con- MIT contributes to the defined benefit plan amounts that tribution plan to its employees. The plans cover substan- are actuarially determined to provide the retirement plan tially all of MIT's employees. with sufficient assets to meet future benefit requirements.

There were no contributions to the defined benefit plan in MIT also provides retiree welfare benefits (certain health 2011 or 2010.

care and life insurance benefits) for retired employees.

Substantially all of MIT's employees may become eligible for For purposes of calculating net periodic pension cost for those benefits if they reach a qualifying retirement age while the defined benefit plan, plan amendments are amortized working for MIT. Retiree health plans are paid for in part by on a straight-line basis over the average future service to retirees, their covered dependents, and beneficiaries. Benefits expected retirement of active participants at the date of are provided through various insurance companies whose the amendment. Cumulative gains and losses (including charges are based either on the claims and administrative changes in assumptions) in excess of 10 percent of the expenses paid during the year or annual insured premiums. greater of the projected benefit obligation or the market-Retiree life insurance plans are non-contributory and cover related value of assets are amortized over the average future the retiree only. MIT maintains a trust to pay for retiree service of active participants. The annual amortization shall welfare benefits. not be less than the total amount of unrecognized gains and losses up to $1 million.

28 MIT REPORT OF THE TREASURER 2011

J. Retirement Benefits (continued)

The amount contributed and expenses recognized during amendments are amortized on a straight-line basis over the 2011 and 2010 related to the defined contribution plan were average future service to full eligibility of active participants

$40.8 million and $39.2 million, respectivelyW at the date of amendment. Cumulative gains and losses (including changes in assumptions) in excess of 10 percent For purposes of calculating net periodic postretirement of the greater of the plan's obligation or the market-related welfare benefit cost, a portion of the current obligation, value of assets are amortized over the average future service related to the transition to the accounting standard Employer'rV of active participants. The annual amortization shall not be Accountingfor PostretirementBenefits Other than Pensions, less than the total amount of unrecognized gains and losses is being amortized on a straight-line basis over 20 years up to $1 nfillion.

from the date of adoption of that statement in 1994. Plan Components of Net Periodic Benefit (Income) Cost Table 20 summarizes the components of net periodic benefit (income) cost recognized in operating activity and other amounts recognized in non-operating activity in unrestricted net assets in the Statements of Activities for the years ended June 30, 2011 and 2010.

Table 20. Components of Net Periodic Benefit (Income) Cost Postretirement welfare Defined benefit plan benefit plan I I I (in thousands of dollars) 2011 2010 2011 2010 Components of net periodic benefit (income) cost Service cost ................................... 59,892 $ 54,179 $ 19,957 $ 16,581 Interest cost ................................... 134,756 131,994 27,380 25,901 Expected return on plan assets .................... (221,135) (222,291) (20,142) (20,422)

Amortization of transition amount ................. 4,776 4,776 Amortization of net actuarial (gain) loss ............. (2,323) (29,500) 10,266 4,409 Amortization of prior service cost ................. 2,180 2,180 3,556 3,556 Net periodic benefit (income) cost recognized in operating activity ............................ (26,630) (63,438) 45,793 34,801 Other amounts recognized in non-operating activity in unrestricted net assets Current year actuarial (gain) loss .................. $ (68,388) $ 183,119 $ (18,565) $ 40,438 Amortization of actuarial gain (loss) ................ 2,323 29,500 (10,266) (4,409)

Amortization of prior service cost ................. (2,180) (2,180) (3,556) (3,556)

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

Total other amounts recognized in non-operating activity .................................... (68,245) 210,439 (37,163) 27,697 Total recognized in Statements of Activities ...... $ (94,875) $ 147,001 $ 8,630 $ 62,498 The estimated net actuarial gain and prior service cost obligation for the postretirement welfare benefit plan that for the defined benefit plan that will be amortized from will be amortized from unrestricted net assets into net unrestricted net assets into net periodic benefit income periodic benefit cost during the next fiscal year are $11.4 during the next fiscal year are $1.0 million and $2.0 million, million and $4.8 million, respectively.

respectively. The estimated net actuarial loss and transition NOTES TO FINANCIAL STATEMENTS 29

J. Retirement Benefits (continued)

Cumulative amounts recognized as non-operating changes in unrestricted net assets are summarized in the following table for the years endedJune 30, 2011 and 2010.

Table 21. Cumulative Amounts Recognized in Unrestricted Net Assets Postretirement welfare Defined benefit plan benefit plan (in thousands of dollars) 2011 2010 I 2011 2010I Amounts recognized in unrestricted net assets consist of:

N et actuarial loss ............................... $ 126,184 $ 192,248 $ 156,141 $ 184,972 Prior service cost ............................... 6,821 9,002 - 3,556 Transition liability .............................. - - 9,551 14,327 Total cumulative amounts recognized in unrestricted net assets ....................... $ 133,005 $ 201,250 $ 165,692 $ 202,855 Benefit Obligations and Fair Value of Assets Table 22 summarizes the benefit obligations, plan assets, and amounts recognized in the Statements of Financial Position for MIT's retirement benefit plans. MIT uses a June 30 measurement date for its defined benefit pension and postretirement welfare benefit plans.

Table 22. Projected Benefit Obligations and Fair Value of Assets Postretirement welfare Defined benefit plan benefit plan (in thousands of dollars) 2011 2010 2011 2010 Change in projected benefit obligations Projected benefit obligations at beginning of year .... $ 2,293,877 $ 2,118,977 $ 472,170 $ 409,738 Service cost ................................... 59,892 54,179 19,957 16,581 Interest cost ................................... 134,756 131,994 27,380 25,901 Retiree contributions ............................ 3,496 3,200 Net benefit payments, transfers and other expenses... (115,523) (117,535) (23,574) (23,474)

Assumption changes and actuarial net loss ........... 85,590 106,262 10,409 40,224 Projected benefit obligations at end of year ...... 2,458,592 2,293,877 509,838 472,170 Change in plan assets Fair value of plan assets at beginning of year ......... 2,312,718 2,2 84,819 234,535 234,601 Actual return on plan assets ...................... 375,112 .45,434 49,116 20,209 Employer contributions ......................... - 50,399 2,038 Retiree contributions ............................ - 3,496 3,200 Net benefit payments, transfers and other expenses... (115,523) (1.17,535) (25,917) (25,513)

Fair value of plan assets at end of year ........... 2,572,307 2,3 12,718 311,629 234,535 Funded (unfunded) status at end of year ......... $ 113,715 $ 18,841 $ (198,209) $ (237,635)

Amounts recognized in the Statements of Financial Position consist of:

Benefit assets .................................. $ 113,715 18,841 $ $

Benefit liability ................................ - (198,209) (237,635)

T otal ...................................... $ 113,715 $ 18,84 1 $ (198,209) $ (237,635) 30 3MIT REPORT OF THE TREASURER 201 I

J. Retirement Benefits (continued)

The accumulated benefit obligation for MIT's defined Assumptions and Health Care Trend Rates benefit pension plan was $2,305.8 nmillion and $2,157.9 The expected long-term rate of return assumption million at June 30, 2011 and 2010, respectively.

represents the expected average rate of earnings on the MIT has recognized the effect of the expected Medicare funds invested or to be invested to provide for the benefits subsidy by reducing its accumulated postretirement benefit included in the benefit obligation. The long-term rate obligation by $64.6 million and $62.6 million as of June of return assumption is determined based on a number 30, 2011 and 2010, respectively. This initial reduction was of factors, including historical market index returns, the recognized as an actuarial gain. Additionally, the service and anticipated long-term asset allocation of the plans, histori-interest cost components of postretirement benefits cost cal plan return data, plan expenses and the potential to were reduced in 2011 and future periods. outperform market index returns.

Table 23. Assumptions Postretirement welfare Defined benefit plan benefit plan 2011 2010 2011 2010 Assumptions used to determine benefit obligation as of June 30:

D iscount rate .................................. 5.65% 5.84% 5.56% 5.71%

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

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

D iscount rate .................................. 5.84% 6.25% 5.71% 6.25%

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

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

Assumed health care cost trend rates:

Health care cost trend rate assumed for next year ..... 7.50% 7.50%

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 ..... 2018 2015 The average rate of salaiy increase is asslumed to be 3% fr 2012, and 4% thereafte:

As an indicator of sensitivity, a one percentage point change in the assumed health care cost trend rate would effect 2011 as shown in Table 24 below.

Table 24. Health Care Cost Trend Rate Sensitivity (in thousands of dollars) 1% point increase 1%point decrease Effect on 2011 postretirement service and interest cost .................... $ 7,970 $ (6,439)

Effect on postretirement benefit obligation as of June 30, 2011 .............. $$64,215 $ (52,361)

Plan Investments The investment objectives for the assets of the plans are to Investment policies and strategies governing the assets of minimize expected funding contributions and to meet or the plans are designed to achieve investment objectives exceed the rate of return assumed for plan funding purposes within prudent risk parameters. Risk management over the long term. The nature and duration of benefit practices include the use of external investment obligations, along with assumptions concerning asset managers, the maintenance of a portfolio diversified by class returns and return correlations, are considered when asset class, investment approach, security holdings, and determining an appropriate asset allocation to achieve the the maintenance of sufficient liquidity to meet benefit investment objectives. obligations as they come due.

NOTES TO FINANCIAL STATEMENTS 31

J. Retirement Benefits (continued)

Table 25 presents investment at fair value of MIT's defined benefit plan and postretirement welfare benefit plan, which are included in plan net assets as ofJune 30, 2011 and 2010, grouped by the valuation hierarchy detailed in Note B. There were no significant transfers in and out of Level 1 and Level 2 fair value measurements in 2011.

Table 25. Plan Investments 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 Defined Benefit Plan Fiscal year 2011 Cash and cash equivalents ............. 34,644 $ - $ 34,644 Fixed incom e ........................ 188,705 75,077 - 263,782 E quities ............................ 220,211 192,537 893,35 1,306,099 M arketable alternatives ................ 228,546 444,38 4 672,930 R eal estate .......................... 282,40 4 282,404 Interest rate futures .................. (17) (17)

Total plan investment ................. $ 443,543 $ 496,160 $ 1,620,13 9 $ 2,559,842 Fiscal year 2010 Cash and cash equivalents ............. $ 17,594 $ $ - $ 17,594 Fixed incom e ........................ 196,123 65,130 - 261,253 E quities ............................ 325,635 112,441 72 7,14 -9 1,165,225 M arketable alternatives ................ 42,150 597,03 2 639,182 R eal estate .......................... 225,24 -1 225,241 Interest rate futures .................. (196) - (196)

$ 539,156 $ 219,721 $ 1,549,42 2 $ 2,308,299 Less: Amounts held in 401(h) accounts .. (4,371)

Total plan investment ................. $ 2,303,928 Postretirement Welfare Benefit Plan Fiscal year 2011 Cash and cash equivalents ............. $ 4,382 $ 4,382

$m Fixed incom e ........................ 67,730 67,730 E quities ............................ 52,957 76,603 43,391 172,951 M arketable alternatives ................ 34,183 22,134 56,317 R eal estate .......................... 10,344 10,344 Total plan investment ................. $ 57,339 $ 178,516 $ 75,869 $ 311,724 Fiscal year 2010 Cash and cash equivalents ............. 4,211 $ $ 4,211 Fixed incom e ........................ 52,857 52,857 E quities ............................ 21,779 73,176 29,527 124,482 M arketable alternatives ................ 5,488 34,116 39,604 R eal estate .......................... 7,140 7,140 Total plan investment ................. $ 25,990 $ 131,521 $ 70,783 $ 228,294 32 MIT REPORT OF THE TREASURER 2011

J. Retirement Benefits (continued)

Table 26 is a rollforward of the investments classified by MIT's defined benefit plan and postretirement welfare benefit plan within Level 3 of the fair value hierarchy defined in Note B as at June 30, 2011 and 2010.

Table 26. Rollforward of Level 3 Plan Investment Marketable Total (in thousands of dollars,) Equities alternatives Real estate investments Defined Benefit Plan Fair value, July 1, 2010 ................. $ 727,149 $ 597,032 $ 225,241 $ 1,549,422 Realized losses ....................... (3,041) (3,041)

Unrealized gains ..................... 92,678 54,558 19,074 166,310 Net purchases, sales, settlements ......... 97,421 (30,696) 38,089 104,814 Transfers of assets between levels ......... (20,856) (176,510) (197,366)

Fair value, June 30, 2011 .............. $ 893,351 $ 444,384 $ 282,404 $ 1,620,139 Fair value, July 1, 2009 ................. $ 718,968 $ 625,515 $ 239,666 $ 1,584,149 Realized gains (losses) ................. (53) 755 702 Unrealized gains (losses) ............... 21,745 34,408 (38,337) 17,816 Net purchases, sales, settlements ......... (4,432) (21,496) 23,912 (2,016)

Transfers of assets between levels ......... (9,079) (42,150) (51,229)

Fair value, June 30, 2010 .............. $ 727,149 $ 597,032 $ 225,241 $ 1,549,422 Postretirement Welfare Benefit Plan Fair value, July 1, 2010 ................. $ 29,527 $ 34,116 $ 7,140 $ 70,783 Realized losses ....................... (3) (3)

Unrealized gains ..................... 5,101 3,274 1,717 10,092 Net purchases, sales, settlements ......... 16,910 (1,241) 1,487 17,156 Transfers of assets between levels ......... (8,145) (14,014) (22,159)

Fair value, June 30, 2011 .............. $ 43,390 $ 22,135 $ 10,344 $ 75,869 Fair value, July 1, 2009 ................. $ 23,511 $ 32,919 $ 6,519 $ 62,949 Realized gains (losses) ................. (5) 105 100 Unrealized gains (losses) ............... 2,948 (1,365) (108) 1,475 Net purchases, sales, settlements ......... 4,299 7,944 729 12,972 Transfers of assets between levels ......... (1,226) (5,487) (6,713)

Fair value, June 30, 2010 .............. $ 29,527 $ 34,116 $ 7,140 $ 70,783 NOTES TO FINANCIAL STATEMENTS 33

J. Retirement Benefits (continued)

The unfunded commitments which MIT's defined benefit plan and postretirement welfare benefit plan have made to various investments as of June 30, 2011 and 2010 are listed in Table 27 below.

Table 27. Unfunded Commitments Postretirement welfare Defined benefit plan benefit plan (in thousandsof doll/rs) 2011 2010 2011 2010 Equities ............................ $ 254,057 $ 303,601 $ 20,253 $ 26,662 Marketable alternatives ................ 33,009 38,084 2,844 3,839 Real estate .......................... 191,106 183,496 16,461 11,280 Total .............................. $ 478,172 $ 525,181 $ 39,558 S 41,781 Target allocations and weighted-average asset allocations of the investment portfolio for the MIT defined benefit plan and postretirement welfare benefit plan atJune 30, 2011 and 2010 are shown in Table 28.

Table 28. Plan Investment Allocation Defined benefit plan Postretirement welfare benefit plan Plan assets as of June 30 Plan assets as of June 30 Target I Target Allocation 2011 2010 Allocation 2011 2010 Cash & cash equivalents ....... - 2% 1% - 2% 2%

Fixed income ................ 8% 10% 11% 20% 23% 22%

Equities .................... 48% 51% 50% 50% 55% 55%

Marketable alternatives ........ 33% 26% 28% 25% 17% 18%

Real estate .................. 11% 11% 10% 5% 3% 3%

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

34 MIT REPORT OF THE TREASURER 201 1

J. Retirement Benefits (continued)

The following table summarizes the notional exposure regarding derivative financial instruments. The post-and net ending fair value of derivative financial instru- retirement welfare benefit plan did not have any out-ments held by the MIT defined benefit plan at June 30, standing derivative financial instruments at June 30, 2011 2011 and 2010. Refer to Note C for detailed discussion and 2010.

Table 29. Derivative Financial Instrument for Defined Benefit Plan Notional exposure Net ending fair (in thousands of dollars) [ Long Short value amount Net loss Fiscal year 2011 Fixed income instruments Fixed income futures ................ $ 1,000 $ (6,600) $ (17) $ (179)

Total fixed income instruments .......... 1,000 (6,600) (17) (179)

Currency and other instruments Currency forwards and other instruments - 138 - -

Total currency instruments ............... - 138 - -

2011 Total ......................... $ 1,000 $ (6,462) $ (17) $ (179)

Fiscal year 2010 Fixed income instruments Fixed income futures ................ $ - $ (11,900) $ (196) $ (649) 2010 Total ......................... $ - $ (11,900) $ (196) $ (649)

Contributions Expected Future Benefit Payments MIT does not expect to contribute to its defined benefit Table 30 reflects total expected benefit payments for pension plan, and expects to contribute approximately $34.9 the defined benefit and postretirement welfare benefit million to its postretirement welfare benefit plan in 2012. plans, as well as expected receipt of the federal subsidy.

These contributions have been estimated based on the same These payments have been estimated based on the same assumptions used to measure NUT's benefit obligations at assumptions used to measure MIT's benefit obligations at June 30, 2011. MIT also contributed $50.4 million and $2.0 June 30, 2011.

million to the postretirement welfare benefit plan in 2011 and 2010, respectively.

Table 30. Expected Future Benefit Payments Pension Other Federal (in thousands of dollars) benefits benefits' subsidy 2 2012 ........................................... $ 124,449 30,644 $ 2,421 2013 ........................................... 135,456 33,260 2,681 2014 ........................................... 139,877 35,680 2,954 2015 ........................................... 144,080 37,955 3,216 2016 ........................................... 148,273 40,200 3,496 2017-20211 ...................................... 803,934 232,511 21,544

'Other benefits reflect the total net benefits eapected to be paidfroni the plans (i.e., gross benefit reimburs-enentso/fset by retiree contributions).

2 Federalsubsidy reflects the amount MIT is expected to receive fr'om the government and reflects MIT's expected drugs daims experience.

NOTES TO FINANCIAL STATEMENTS 35

K. Components of Net Assets and Endowment Table 31 below presents the three categories of net assets invested with the endowment funds. A large component by purpose as of June 30, 2011. The amounts listed in the of temporarily restricted net assets in other invested funds unrestricted column under endowment funds principal is pledges, the majority of which will be reclassified to are those gifts and other funds received over the years that unrestricted net assets when cash is received.

MIT designated as funds functioning as endowment and Table 31. Fund Category 20111 Temporarily Permanently 2010 (in thousands of dollars) Unrestricted restricted restricted Total Total Endowment funds principal General purpose .................... 654,259 $ 787,370 $ 471,651 $ 1,913,280 $ 1,483,930 Departments and research ............. 420,093 697,712 415,123 1,532,928 1,349,620 Library ............................ 9,079 15,908 7,858 32,845 29,349 Professorships ...................... 405,253 1,856,041 608,366 2,869,660 2,523,743 Graduate general .................... 55,946 93,359 81,758 231,063 202,914 Graduate departments ................ 75,437 220,755 187,255 483,447 414,230 Undergraduate ...................... 165,028 775,685 320,896 1,261,609 1,115,077 P rizes ............................. 6,403 19,582 17,123 43,108 38,465 M iscellaneous ....................... 814,555 132,339 114,252 1,061,146 906,434 Investnent income held for distribution . 283,542 283,542 253,559 Endowment funds before pledges ....... 2,889,595 4,598,751 2,224,282 9,712,628 8,317,321 P ledges ............................ 140,946 140,946 146,137 Total endowment funds ............. 2,889,595 4,598,751 2,365,228 9,853,574 8,463,458 Other invested funds Student loan funds ................... 20,289 16,343 36,632 37,108 Building funds ...................... 47,979 48,257 96,236 188,769 Designated purposes:

- Departments and research ........... 280,162 280,162 265,207

- Other purposes .................... 89,883 89,883 83,620 Reserve funds ....................... 123,903 123,903 95,168 Real estate gifts held for sale ........... 6,261 6,261 6,275 Life income funds ................... 6,960 46,903 76,320 130,183 108,287 P ledges ............................ 282,019 282,019 264,945 Other funds available for current expenses 579,450 68,589 648,039 402,187 Funds expended for educational plant ... 558,798 558,798 409,281 Total other funds ................... 1,713,685 445,768 92,663 2,252,116 1,860,847 Total net assets at fair value ............ $ 4,603,280 $ 5,044,519 $ 2,457,891 $ 12,105,690 $10,324,305 36 MIT REPORT OF THE TREASURER 201 1

K. Components of Net Assets and Endowment (continued)

MIT's endowment consists of approximately 3,300 As 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 Executive Committee of the The remaining portion of the donor-restricted endowment MIT Corporation (Executive Committee) to function as fund that is not classified in permanently restricted net endowment. As required by US GAAP, net assets associated assets is classified as temporarily restricted net assets until with endowment funds, including funds designated by those amounts are appropriated for expenditure in a manner the Executive Committee to function as endowments, are consistent with the standard of prudence prescribed by classified and reported based on the existence or absence of UPMIFA. In accordance with UPMIFA, the Executive donor-imposed restrictions. Committee considers the following factors in making a determination to appropriate or accumulate endowment The Executive Committee of MIT has interpreted the funds:

Massachusetts-enacted version of Uniform Prudent Management of Institutional Funds Act (UPMIFA) as the duration and preservation of the fund allowing MIT to appropriate for expenditure or accumulate ii.

lii. the purposes of MIT and the endowment fund so much of an endowment fund as MIT determines is general economic conditions prudent for the uses, benefits, purposes and duration for iV. the possible effects of inflation and deflation which the endowment fund is established, subject to the iv. the expected total return from income and the intent of the donor as expressed in the gift instrument. appreciation of investments Unless stated otherwise in the gift instrument, the assets in vi. other resources of MIT an endowment fund shall be donor-restricted assets until vii. the investment policies of ALIT appropriated for expenditure by the Executive Committee.

Table 32. Endowment Net Asset Composition by Type of Fund Temporarily Permanently (in thousands of dollars) Unrestricted restricted restricted Total Fiscal year 2011 Donor-restricted endowment funds ................ $ (7,071) S 4,598,751 S 2,365,228 S 6,956,908 Board-designated endowment funds ............... 2,896,666 2,896,666 Total endowment funds ...................... $ 2,889,595 $ 4,598,751 $ 2,365,228 $ 9,853,574 Fiscal year 2010 Donor-restricted endowment funds ................ S (29,106) $ 3,945,500 $ 2,019,530 $ 5,935,924 Board-designated endowment funds ............... 2,527,534 2,527,534 Total endowment funds ...................... $ 2,498,428 $ 3,945,500 $ 2,019,530 $ 8,463,458 NOTES TO FINANCIAL STATEMENTS 37

K. Components of Net Assets and Endowment (continued)

Table 3 3. Changes in Endowment Net Assets Temporarily Permanently (in thousands of dollars) Unrestricted restricted restricted Total Fiscal year 2011 Endowment net assets, June 30, 2010 .............. $ 2,498,428 $ 3,945,500 $ 2,019,530 $ 8,463,458 Investment return:

Investm ent incom e ........................... 24,744 47,678 17,057 89,479 Net appreciation (realized and unrealized) ......... 423,568 906,844 11,961 1,342,373 Total investment return .......................... 448,312 954,522 29,018 1,431,852 C ontributions ................................. - 313,644 313,644 Appropriation of endowment assets for expenditure... (134,428) (300,831) (9,577) (444,836)

Other changes:

Underwater gain adjustment .................... 22,035 (22,035)

Net asset reclassifications and transfers to create board-designated endowment funds ............ 55,248 -21,595 12,613 89,456 Endowment net assets, June 30, 2011 ........... $ 2,889,595 $ 4,598,751 $ 2,365,228 $ 9,853,574 Fiscal year 2010 Endowment net assets, June 30, 2009 .............. $ 2,328,856 $ 3,807,297 $ 1,913,952 $ 8,050,105 Investment return:

Investm ent incom e ........................... 20,403 42,293 8,406 71,102 Net appreciation (realized and unrealized) ......... 276,468 414,261 5,957 696,686 Total investment return .......................... 296,871 456,554 14,363 767,788 C ontributions ................................. - 58,815 58,815 Appropriation of endowment assets for expenditure... (158,022) (364,531) (3,964) (526,517)

Other changes:

Underwater loss adjustment and funds held for reinvestment ........................ (4,794) 4,794 630 630 Net asset reclassifications and transfers to create board-designated endowment funds ............ 35,517 41,386 35,734 112,637 Endowment net assets, June 30, 2010 ........... $ 2,498,428 $ 3,945,500 $ 2,019,530 $ 8,463,458 Underwater Endowment Funds From time to time, the fair value of assets associated with net assets. Total underwater endowment funds reported in individual donor-restricted endowment funds may fall unrestricted net assets were $7.1 million and $29.1 million below the value of the initial and subsequent donor gift as of June 30, 2011 and 2010, respectively. The underwater amounts (underwater). When underwater endowment funds status of these funds resulted from unfavorable market exist, they are classified as a reduction of unrestricted fluctuations.

38 MIT REPORT OF THE TREASURER 201 1

K. Components of Net Assets and Endowment (continued)

Investment and Spending Policies To achieve its long-term rate-of-return objectives, MIT relies on a total return strategy in which investment returns MIT maintains its investments primarily in two investment are realized through both capital appreciation (realized and pools: Pool A, principally for endowment and funds unrealized gains) and current yield (interest and dividends).

functioning as endowment, and Pool C, principally MIT targets a diversified asset allocation that places greater for investment of current funds of MIT's schools and emphasis on equity-based investments to achieve its long-departments and MIT's operating funds. Pool A operates term objectives within prudent risk constraints.

as a mutual fund with units purchased and redeemed based on the previous month's unit market value of Pool A. The The Executive Committee of the Corporation votes to total market value of Pool A was $10,041.1 million at June distribute funds for operational support from general 30, 2011 and $8,603.4 million atJune 30, 2010. Pool A investments. In accordance with MIT's spending policy, includes certain operating and life income funds totaling these distributions are funded from both investment income

$754.5 million at June 30, 2011 and $454.7 million atJune and market appreciation. The distribution rates were $56.75 30, 2010. Certain assets are also maintained in separately and $69.21 per Pool A unit as ofJune 30, 2011 and 2010, invested funds. Separately invested funds totaled $424.4 respectively. In 2011, the amount distributed for spending million as of June 30, 2011 and $168.6 million as of from Pool A and Pool C totaled $513.6 million, compared June 30, 2010. to $581.8 million distributed in the prior year. During 2011, distributions from separately invested funds were $10.5 MIT has adopted endowment investment and spending million, compared to $4.2 million in 2010. The income policies designed to provide a predictable stream of earned in Pool C, or currently invested funds, was fully funding to programs supported by its endowment while distributed. In addition to the aforementioned distributions, maintaining the purchasing power of endowment assets. An there was also a special distribution of $10.8 million from additional investment goal is to maximize return relative to gains in Pool C in 2011. No such distribution was made in appropriate risk such that performance exceeds appropriate 2010.

benchmark returns at the total pool, asset class and individual manager levels.

L.The Broad Institute On July 1, 2009, The Broad Institute, previously a unit of Broad Institute is a self-administered collaboration of MIT, MIT, became a separately incorporated entity. The Broad Harvard University, and its affiliated hospitals.

Institute is a research center located adjacent to the MIT At separation on July 1, 2009, MIT transferred assets to the campus. Before July 1, 2009, MIT administered The Broad separately incorporated The Broad Institute.

Institute as a collaboration among MIT, Harvard University and its affiliated hospitals, and The XAqhitehead Institute for Biomedical Research. Following the separation, The NOTES TO FINANCIAL STATEMENTS 39

40 MIT REPORT OF THE TREASURER 2011 pwc 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, 2011 and 20o1, and the changes in their net assets and their 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.

September 15, 2011 PricewaterhouseCoopersLLP,125 High Street, Boston, MA 02110 T:(617) 530 5000, F: (617) 530 5001, www.pwc.com/us REPORT OF INDEPENDENT AUDITORS 41

Massachusetts Institute of Technology Five-YearTrend Analysis - Financial Highlights (in thousands of dollars) 2011 2010 2009 2008 2007 Financial Position:

Investments, at fair value ............... $12,199,451 $ 9,913,877 $ 9,517,348 $11,316,293 $11,068,922 Land, buildings, and equipment, at cost less accumulated depreciation 2,451,479 2,327,810 2,122,606 1,940,912 1,745,196 Borrow ings .......................... 2,467,825 1,728,526 1,735,843 1,335,393 1,078,234 Total assets .......................... 16,050,373 13,412,506 12,949,552 15,458,982 14,946,369 Total liabilities ....................... 3,944,683 3,088,201 3,003,164 2,689,008 2,251,065 Unrestricted net assets ................ 4,603,280 3,759,301 3,559,925 5,086,270 5,216,844 Temporarily restricted net assets ......... 5,044,519 4,463,066 4,401,015 5,765,302 5,684,006 Permanently restricted net assets ........ 2,457,891 2,101,938 1,985,448 1,918,402 1,794,454 Total net assets ....................... 12,105,690 10,324,305 9,946,388 12,769,974 12,695,304 Total endowment funds before pledges ... 9,712,628 8,317,321 7,880,321 9,947,636 9,943,111 Principal Sources of Revenue:

Tuition and similar revenues ............ $ 493,777 468,570 $ 431,772 $ 421,230 $ 394,652 Research revenues:

Cam pus direct .................... 456,416 431,611 497,493 448,065 407,650 Campus indirect .................. 162,497 172,525 193,289 173,455 163,148 Lincoln Laboratory direct ........... 770,672 719,883 642,101 587,076 573,696 Lincoln Laboratory indirect ......... 34,111 24,449 27,667 32,611 32,234 SM ART direct .................... 23,300 20,912 14,026 3,857 SMART indirect .................. 210 223 496 106 Gifts, bequests and pledges ............. 522,409 246,580 303,890 385,952 332,874 Net gain (loss) on investments and other assets . 1,483,668 784,348 (1,854,380) 154,765 1,673,275 Investment income and distributions ..... 505,503 566,110 586,576 422,457 331,242 Principal Purposes of Expenditures:

Total operating expenditures ............ $ 2,571,147 $ 2,382,566 $ 2,461,286 $ 2,294,247 $ 2,201,696 General and administrative ............. 523,676 461,186 497,043 486,444 482,527 Instruction and unsponsored research .... 659,839 613,345 680,848 641,241 608,423 Direct cost of sponsored research -

current dollars .................... 1,265,776 1,192,041 1,167,036 1,054,474 1,001,144 Direct cost of sponsored research -

constant dollars (2007 = 100) ........ 1,168,737 1,122,756 1,109,842 1,016,797 1,001,144 42 4MIT REPORT OF THE TREASURER 2011

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

(in thousands of dollars) 2011 2010 2009 2008 2007 Research Revenues:(A)

Campus:

Federal government sponsored:

Health and Human Services ............ 152,664 $ 144,561 $ 255,896 $ 226,307 $ 201,557 Department of Defense ................ 107,753 106,890 97,528 87,370 90,571 Department of Energy ................ 89,562 73,274 65,773 65,611 64,899 National Science Foundation ............ 74,859 69,801 61,386 64,973 65,057 National Aeronautics and Space Administration .............. 28,080 30,629 27,358 25,479 27,889 O ther Federal ....................... 16,602 12,717 14,559 14,169 14,431 Total Federal ........................ 469,520 437,872 522,500 483,909 464,404 Non-Federally sponsored:

State/local/foreign governments ......... 32,969 33,339 27,145 18,549 13,055 Non-profits ......................... 44,436 50,639 60,538 47,695 32,200 Industry ............................ 100,763 93,330 99,219 82,194 79,725 Total non-Federal .................... 178,168 177,308 186,902 148,438 124,980 Total Federal & non-Federal ........... 647,688 615,180 709,402 632,347 589,384 F&A and other adjustments ............ (28,775) (11,044) (18,620) (10,827) (18,586)

Total cam pus ........................ 618,913 604,136 690,782 621,520 570,798 Lincoln Laboratory:

Federal government sponsored .......... 803,599 749,974 675,329 606,850 607,270 Non-Federally sponsored .............. 2,511 3,068 2,989 3,602 4,602 F&A and other adjustments ............ (1,327) (8,710) (8,550) 9,235 (5,942)

Total Lincoln Laboratory .............. 804,783 744,332 669,768 619,687 605,930 SMART:-)

Non-Federal sponsored ................ 23,510 21,135 14,522 3,963 Total SM ART ....................... 23,510 21,135 14,522 3,963 Total Research Revenues ............ $ 1,447,206 $ 1,369,603 $ 1,375,072 $ 1,245,170 $1,176,728 cV The amounts in this table reflect revenues firom the originalsource offmids and The Broad institute.

• The amounts represent research that has taken place in Singapore.

FIVE-YEAR TREND ANALYSIS 43

Massachusetts Institute of Technology Five-YearTrend Analysis - Financial Highlights (continued) 2011 2010 2009 2008 2007 Students:

Undergraduate Full-tim e ........................ 4,252 4,201 4,118 4,119 4,068 Part-tim e ........................ 47 31 35 53 59 Undergraduate Applications Applicants ....................... 16,632 15,663 13,396 12,445 11,374 Accepted ........................ 1,676 1,676 1,589 1,553 1,514 Acceptance rate ................... 10% 11% 12% 12% 13%

Enrolled ......................... 1,067 1,072 1,048 1,067 1,002 Yield ............................ 64% 64% 66% 69% 66%

Freshmen ranking in the top 10%

of their class ................... 98% 95% 97% 97% 97%

Average SAT scores (math and verbal) ............... 1,473 1,455 1,453 1,458 1,461 Graduate Full-time ...................... 6,108 6,022 5,991 5,837 5,924 Part-tim e ........................ 159 130 155 211 202 Graduate applications Applicants ....................... 22,139 19,336 17,323 16,208 15,968 Accepted ........................ 3,431 2,994 3,215 3,058 3,002 Acceptance rate ................... 15% 15% 19% 19% 19%

E nrolled ......................... 2,141 1,939 2,000 1,823 1,877 Yield ............................ 62% 65% 62% 60% 63%

Tuition (in dollars):

Tuition and fees ...................... $ 39,212 $ 37,782 $ 36,390 $ 34,986 $ 33,600 Average room and board ............... 11,234 11,360 10,860 10,400 9,950 Student Financial Aid:

(in thousands of dollars)

Undergraduate tuition support .......... $ 92,060 $ 89,813 $ 78,534 $ 70,157 $ 65,529 Graduate tuition support ............... 201,995 195,178 187,732 174,847 172,021 Fellowship stipends ................... 30,435 28,104 27,509 25,647 25,020 Student loans ........................ 9,968 9,641 9,641 8,766 8,962 Student employnent .................. 85,335 84,304 82,287 78,892 77,732 Total financial assistance ............. $ 419,793 $ 407,040 $ 385,703 $ 358,309 $ 349,264 Faculty and staff (including unpaid appointments):

Faculty ............................. 1,017 1,025 1,008 1,007 997 Staff and fellows ..................... 12,662 12,577 13,393 12,852 12,454 44 MIT REPORT OF THE TREASURER 2011