ML15090A113

Response to Request for Additional Information Dated Jan. 29, 2015

ML15090A113
Person / Time
Site:	Reed College
Issue date:	03/23/2015
From:	Krahenbuhl M Reed College
To:	Document Control Desk, Office of Nuclear Reactor Regulation
References
Download: ML15090A113 (33)

Text

REED COLLEGE REACTOR FACI LITY 3203 Southeast Woodstock Boulevard Portland. Oregon 97202-8199 March 23, 2015 tehlpbone 503/777-7222 fax 503/777-7274 email reaicor@reed.edu ATTN: Document Control Desk U.S. Nuclear Regulatory Commission web Washington, DC 20555-0001 http://reactor.reed.edu Docket: 50-288 License No: R-112 Enclosed is the response to the Request for additional information dated Jan. 29, 2015.

I declare under penalty of perjury that the foregoing is true and correct.

Executed on Melinda Krahenbuhl, Ph.D.

Director, Reed Research Reactor

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REED COLLEGE OFFICE OF Financial Assurance for Cost of Decommissioning Activities THE TUASUUR Self-Guarantee Agreement Guarantee made by Reed College, a non-profit college, organized under the laws of the 3203 Southeast State of Oregon, herein referred to as the "guarantor" to the U.S. Nuclear Regulatory Woodstock Boulevard commission, on behalf of the college as licensee.

Portland, Oregon Recitals 97202-8199 1. The guarantor has full authority and capacity to enter into this self-guarantee by telephone the by-laws of the trustees of Reed College.

S03/777-7506 2. This self-guarantee is being issued to comply with regulations issued by NRC, an f- agency of the U.S. Government, pursuant to the Atomic Energy Act of 1954, as amended, and the Energy Reorganization Act of 1974. NRC has promulgated regulations in title 10, Chapter I of the Code of Federal Regulations, Part 50, mail which require that a holder of, or an applicant for, a materials license issued arvinl@reed.edu pursuant to 10 CFR Part 50, provide assurance that funds will be available when needed for required decommissioning activities.

3. The self-guarantee is issued to provide financial assurance for decommissioning activities for the licenses and facilities shown.

License# License description Estimate based on Certified amounts and year 2015 dollars of 2015 Cost Docket # estimates R- 112 Research and Test reactor 50-288 and related facilities $1,810,000.00 $1,810,000.00 located at Reed Collage Portland Oregon 97202 Subtotal $1,810,000.00 25% Contingency fund $453,750.00 Total Estimated cost $2,263,750.00

4. The guarantor meets or exceeds the following financial test for a nonprofit College that issues bonds. Specifically, the current rating for the college is Aa2/VMIGI by Moody's Investor Services, and agrees to comply with all notification requirements as specified in 10 CFR part 50, and Appendix A to 10 CFR part 30.

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

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

REED COLLEGE OFFICE OF

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

THE TREASURER

a. Carry out the required decommissioning activities, as required by the 3203 Southeast license listed above.

Woodstock Boulevard

8. The guarantor agrees to submit revised financial statements, financial test data Portland, Oregon annually within 90 days of the completion of our fiscal year audit.

9. The guarantor agrees that if, at the end of any fiscal year before termination of 97202-8199 this self-guarantee, it fails to meet the self-guarantee financial test criteria, it shall telephone send in 90 days of the end of the fiscal year, by certified mail to the NRC, that it 503/777-7506 intends to provide alternative financial assurance as specified in 10 CFR Part 30.

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

503/777-7775

10. The guarantor agrees that if it determines, at any time either than as described in email Recital 9, that it no longer meets the self-guarantee financial test criteria or it is arvinl@reed.edu disallowed from continuing as a self-guarantor, it shall establish alternative financial assurance as specified in 10 CFR part 50 within 30 days.

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

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

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

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

14. The guarantor agrees that if it, as licensee, fails to provide alternative financial assurance as specific in 10 CFR parts 50 and 70 and obtain written approval of such assurance from the NRC within 90 days after a notice of cancellation by the guarantor is received by the NRC from the guarantor, the grantor shall make full payment under self-guarantee.

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

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

REED COLLEGE

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

3203 Southeast Woodstock Boulevard I herby certify that this self- guarantee is true and correct to the best of my knowledge.

Portland, Oregon Effective date ,3 I-It L "

Q}7"}O,_ 1 an Reed College by:

telephone 5031777-7506 fax Lorraide )Gi*' ce Ofersident and Treasurer 503/777-7775 email State of Oregon County of Multnomah Signed before me this QI "rday of Marc-"h Patricia Blessington Henghan, Notary Pulic - State of Oregon

AUTHORIZING RESOLUTION OF THE BOARD OF TRUSTEES OF THE REED INSTITUTE dba REED COLLEGE RESOLVED that, except as may be expressly limited by a resolution or policy adopted by the Board of Trustees of The Reed Institute dba Reed College or its Executive Committee, that one of the following:

John R. Kroger, President ,

Lorraine J. Arvin, Vice Presi pet/Treasurer each hereby is authorized:

(a) to enter into any and all contracts and agreements on behalf of and in the name of The Reed Institute that they, or either of them, deems to be appropriate and in the best interests of The Reed Institute, including, but not limited to, all agreements for the sale, purchase, or lease of real or personal property; agreements for personal services; construction agreements; professional services agreements; grant agreements; charitable remainder trust agreements; and charitable gift annuity agreements; (b) to purchase or otherwise acquire, and to sell, assign, transfer, or otherwise dispose of, any and all property, real or personal, tangible or intangible, on behalf of and in the name of The Reed Institute as they, or either of them, deems to be appropriate and in the best interests of The Reed Institute, including but not limited to securities such as common or preferred stock, bonds, mortgages, notes, options, subordinated debentures and warrants of any corporation; interests in limited partnerships, limited liability companies, and real estate investment trusts; U.S. Treasury and government agency bonds; and savings accounts and deposits and interests in mutual funds, money market funds, investment trusts, annuities and insurance; (c) to make, collect, discount, negotiate, endorse and assign in the corporate name, any and all checks, drafts, notes, and other paper payable to or by The Reed Institute; to make and enter into any and all agreements, including, but not limited to, Special Depository Agreements and Arrangements with reference to the manner in which the conditions under which, or the purposes for which funds, checks or other items of The Reed Institute may be deposited, collected or withdrawn; to delegate to others such authority in connection with any Special Depository arrangement; and to do and perform such other and further acts and things in connection with or pertaining to the establishment of any account or the transaction of any banking business as they, or either of them, may deem necessary or appropriate and in the best interests of The Reed Institute; and (d) to execute and deliver any and all such documents as they, or either of them, may deem necessary or appropriate in connection with any of the transactions described in this resolution or to carry out the intent hereof.

CERTIFICATE The undersigned Assistant Secretary of The Reed Institute, dba Reed College, hereby certifies as follows:

I. John R. Kroger is the duly elected and currently serving President of The Reed Institute and Lorraine J. Arvin is the duly elected and currently serving Vice President/Treasurer of The Reed Institute.

2. The Board of Trustees of The Reed Institute duly adopted the attached Resolution on February 8, 2014. The Resolution has not been revoked or amended and remains in full force and effect.

3. The authority granted to John R. Kroger, President, and Lorraine J. Arvin, Vice President/Treasurer, has not been limited by any resolution or policy adopted by the Board of Trustees of The Reed Institute or its Executive Committee since this resolution was adopted.

Dated: -2015.

Assistant Secretary

llkfvým M,,j A-6.7J,I THE REED INSTITUTE Financial Statements June 30, 2014 and 2013 (With Independent Auditors' Report Thereon)

KPMG LLP Suite 3800 1300 South West Fifth Avenue Portland, OR 97201 Independent Auditors' Report The Board of Trustees The Reed Institute:

Report on the Financial Statements We have audited the accompanying statements of financial position of The Reed Institute (an Oregon nonprofit corporation) as of June 30, 2014 and 2013, and the related statements of activities and changes in net assets, and cash flows for the years then ended, and the related notes to the financial statements.

Management'sResponsibilityfor the FinancialStatenments Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the financial statements referred to above present fairly in all material respects, the financial position of The Reed Institute as of June 30, 2014 and 2013, and the change in its net assets and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.

(LL-P October 10, 2014 KPMG LLP is a Delaware limited liability partnership.

the U.S. member firm of KPMG International Cooperative

("KPMG International"), a Swiss entity.

THE REED INSTITUTE Statements of Financial Position June 30, 2014 and 2013 Assets 2014 2013 Current assets:

Cash and cash equivalents $ 6,506,607 7,084,290 Accounts receivable - student and other (note 8) 852,073 1,255,242 Short-term investments (note 3) 104,592 5,261,852 Contributions receivable, net of allowance $37,000 in 2014 and $39,000 in 2013 (note 8) 703,856 732,123 Prepaid expenses and other assets 4,659,873 4,172,093 Total current assets 12,827,001 18,505,600 Noncurrent assets:

Cash and cash equivalents whose use is limited 6,174,350 8,094,178 Accounts receivable noncurrent - student and other, net of allowance of

$60,239 in 2014 and $60,239 in 2013 (note 8) 5,088,951 5,071,786 Property, plant, and equipment, net (note 4) 138,782,755 133,522,663 Contributions receivable - noncurrent net of allowance of $587,000 in 2014 and $669,000 in 2013 (note 8) 11,120,028 12,679,319 Funds held in trust by others (note 7) 1,172,563 938,899 Long-term investments (note 3) 576,758,467 513,007,543 Other assets 480,865 537,999 Total noncurrent assets 739,577,979 673,852,387 Total assets $ 752,404,980 692,357,987 Liabilities and Net Assets Current liabilities:

Accounts payable and accrued liabilities $ 6,329,393 7,469,516 Postretirement benefits payable (note 6) 794,443 746,693 Debt and capital leases, current portion (note 5) 41,601,305 1,276,530 /

Deferred revenue 1,413,955 1,841,735 Total current liabilities 50,139,096 11,334,474 Long-term liabilities:

Liability for split-interest agreements 11,177,015 9,517,576 Postretirement benefits payable (note 6) 24,705,839 23,231,417 Refundable loan programs 2,756,743 2,812,342 Asset retirement obligation 3,053,284 3,023,307 Debt and capital leases, net of current portion (note 5) 39,819,982 82,631,287 Other liabilities 2,149,050 2,382,635 Total long-term liabilities 83,661,913 123,598,564 Total liabilities 133.801,009 134,933,038 Net assets (note 9):

Unrestricted 358,720,805 318,214,151 Temporarily restricted 95,501,981 77,071,769 Permanently restricted 164,381,185 162,139,029 Total net assets 618,603,971 557,424,949 Total liabilities and net assets 752,404,980 692,357,987 See accompanying notes to financial statements.

2

THE REED INSTITUTE Statement of Activities and Changes in Net Assets Year ended June 30, 2014 Temporarily Permanently Total Unrestricted restricted restricted 2014 Revenues, gains, and other support:

Tuition and fees $ 62,110,883 62,110,883 Less college-funded scholarships (22,800,465) -- (22,800,465)

Net tuition and fees 39,310,418 -- 39,310,418 Auxiliary enterprises 13,234,897 - 13,234,897 Gifts and private grants 11,501,436 2,906,083 125,803 14,533,322 Government grants, contracts, and student aid 1,269,601 - 1,269,601 Realized and unrealized gains 46,756,262 26,145,122 - 72,901,384 Other investment gains (losses) (375,541) 276,828 (98,713)

Other revenues and additions 2.136,325 23.820 2,160,145 Subtotal 74,522,980 29,051,205 426,451 104,000,636 Net assets released from restrictions 9,921,004 (9,921,004)

Total revenues, gifts, and other support 123,754,402 19,130,201 426,451 143,311,054 Expenses:

Educational and general:

Instruction 31,123,091 - 31,123.091 Research 1,331,839 - 1,331,839 Academic support 9,301,215 - 9,301,215 General institutional support 15,952,198 - 15,952,198 Student services 6,641,523 -- 6,641,523 Public affairs 5.471.642 -- 5,471,642 Total educational and general 69,821,508 - 69,821,508 Auxiliary enterprises

• 14,983.570 14,983,570 Total expenses 84,805.078 84,805,078 Increase from operations 38,949.324 19,130,201 426,451 58,505,976 Nonoperating activity:

Other interest expense (133,632) (133,632)

Change in value of split-interest agreements 1,302,448 1,704,371 3,006,819 Decrease in underwater endowments 1,710,10,1 (1,710,101)

Other additions (deductions) (19,139) (292,336) 111.334 (200,141)

Total nonoperating activity 1,557,330 (699,989) 1,815,705 2,673,046 Increase in net assets 40,506,654 18,430,212 2,242,156 61,179,022 Net assets, beginning of year 318,214,151 77,071,769 162,139,029 557,424.949 Net assets, end of year $ 358,720,805 95,501,981 164,381,185 618,603,971 See accompanying notes to financial statements.

3

THE REED INSTITUTE Statement of Activities and Changes in Net Assets Year ended June 30, 2013 Temporarily Permanently Total Unrestricted restricted restricted 2013 Revenues, gains, and other support:

Tuition and fees $ 59,506,803 -- 59,506,803 Less college-funded scholarships (21,171,230) -- (21,171,230)

Net tuition and fees 38,335,573 -- 38,335,573 Auxiliary enterprises 12,856,028 - 12,856,028 Gifts and private grants 4,849,951 407,617 6,373, 099 11,630,667 Government grants, contracts, and student aid 1,253,642 - 1,253,642 Realized and unrealized gains 37,741,807 18.646.049 - 56,387,856 Other investment (losses)/gains (328,458) (328,458)

Other revenues and additions 1,502,449 16, 190 1,518,639 Subtotal 57,875,419 19,053,666 6,389,:289 83,318,374 Net assets released from restrictions 10,474,983 (10,474,983)

Total revenues, gifts, and other support 106,685,975 8,578,683 6,389,289 121,653,947 Expenses:

Educational and general:

Instruction 28,952.979 28,952,979 Research 1,198,020 -- 1,198,020 Academic support 8,217,127 -- 8,217,127 General institutional support 15,143,674 - 15,143,674 Student services 6,447,472 - 6,447,472 Public affairs 5,647,331 -- 5,647,331 Total educational and general 65,606,603 - 65,606,603 Auxiliary enterprises 15,236,041 15,236,041 Total expenses 80,842,644 80,842,644 Increase from operations 25,843,331 8,578,683 6,389,289 40,811,303 Nonoperating activity:

Other interest expense (129,163) (129,163)

Change in value of split-interest agreements 2,934,815 829,972 524,475 1,354,447 Decrease in underwater endowments (2.934,815)

Other additions (deductions) (354,412) 41,739 134,580 (178,093)

Total nonoperating activity 2,451,240 (2,063,104) 659,055 -1,047,191 Increase in net assets 28,294,571 6,515,579 7,048,344 41,858,494 Net assets, beginning of year 289,919,580 70,556,190 155,090,685 515,566,455 Net assets, end of year $ 318,214,151 77,071,769 162,139,029 557,424,949 See accompanying notes to financial statements.

4

THE REED INSTITUTE Statements of Cash Flows Years ended June 30, 2014 and 2013 2014 2013 Cash flows from operating activities:

Increase in net assets 61,179,022 41,858,494 Adjustments to reconcile increase in net assets to net cash used in operating activities:

Depreciation and amortization costs 4,680,816 4,188,970 Contributions restricted for long-term investment (4,420,840) (7,599,391)

Noncash contributions (4,158,312) (1,087,570)

Net realized and unrealized gains on investments (71,972,813) (53,098,045)

Net realized and unrealized gains on split-interest agreements (2,773,155) (1,299,499)

Change in value of split-interest agreements (233,664) (54,948)

Change in asset retirement obligation 29,977 33,163 Change in fair value of derivative instruments (233,585) (871,842)

Changes in operating assets and liabilities that provided (used) cash:

Cash whose use is limited 1,919,828 2,593,305 Accounts receivable 386,004 (121,748)

Contributions receivable 1,587,558 3,169,629 Prepaid and other (460,900) (362,379)

Accounts payable and accrued liabilities (1,140,123) 556,479 Postretirement 11522,172 648,358 Deferred revenue (427,780) 747,295 Net cash used in operating activities (14,515,795) (10,699,729)

Cash flows from investing activities:

Proceeds from maturities/sales of investments 228,389,564 211,905,632 Purchases of investments (206,732,589) (211,004,590)

Contracts receivable collected 46,532 59,940 Contracts receivable advanced (16,278)

Proceeds from disposal of equipment 55,000 Purchase of property, plant, and equipment (9,940,908) (21,251,287)

Net cash provided by (used in) investing activities 11,746,321 (20,235,305)

Cash flows from financing activities:

Contributions restricted for long-term investment 4,420,840 7,599,391 Payment of debt principal/capital lease obligations (2,486,530) (91,941)

Payments on split-interest agreements (1,346,359) (1,219,992)

Increase (decrease) in obligations for split-interest agreements 1,659,439 (777,067)

Changes in governmental loan funds (55,599) (54,003)

Changes in deposit with bond trustee 12,804,568 Net cash provided by financing activities 2,191,791 18,260,956 Net decrease in cash and cash equivalents (577,683) (12,674,078)

Cash and cash equivalents, beginning of year 7,084,290 19,758,368 Cash and cash equivalents, end of year 6,506,607 7,084,290 Supplemental disclosure of cash flow information:

Interest paid 2,046,182 2,086,807 See accompanying notes to financial statements.

5

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013 (1) Background The Reed Institute (Reed College) was founded in 1908 by Simeon and Amanda Reed, with one central commitment: to provide a balanced, comprehensive education in liberal arts and sciences, fulfilling the highest standards of intellectual excellence. Reed College offers a B.A. in one of 22 major fields and numerous interdisciplinary fields, as well as a master of arts in liberal studies degree. The Reed College educational program pays particular attention to a balance between broad study in the various areas of human knowledge and close, in-depth study in a recognized academic discipline.

(2) Summary of Significant Accounting Policies (a) Accrual Basis The financial statements of Reed College have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.

(b) Basis of Presentation Net assets, revenues, expenses, gains, and losses are classified based on the existence or absence of donor-imposed restrictions. The definitions used to classify and report net assets are as follows:

• Unrestricted net assets - net assets that are not subject to donor-imposed stipulations or donor-restricted contributions whose restrictions are met in the same reporting period.

• Temporarily restricted net assets - net assets subject to donor-imposed stipulations that will be met either by actions of Reed College or the passage of time.

• Permanently restricted net assets - net assets subject to donor-imposed stipulations that they be permanently maintained by Reed College. Generally, the donors of these assets permit Reed College to use all or part of the income earned on related investments for general or specific purposes.

Revenues are reported as increases in unrestricted net assets unless their use is limited by donor-imposed restrictions. All expenses are reported as decreases in unrestricted net assets with the exception of activity related to life income agreements. Gains and losses on investments and other assets or liabilities are reported as increases or decreases in unrestricted net assets unless their use is restricted either by donor stipulation or by law. Expirations of temporary restrictions (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as reclassifications between the applicable classes of net assets and are reported as "net assets released from restriction" in the statements of activities and changes in net assets. Restrictions related to contributions for the purchase of capital additions are released when the asset is placed in service.

Income and net gains on investments of endowment and similar funds are reported as follows:

Increases in permanently restricted net assets if the terms of the gift or Reed College's interpretation of relevant state law require they be added to the principal of a permanently restricted net asset.

6 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013 Increases in temporarily restricted net assets if the terms of the gift impose restrictions on the use of the income or if endowment income has not yet been appropriated for expenditure.

Increases in unrestricted net assets in all other cases.

Reed College follows the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Subtopic 958-205., Not-for-Profit Entities - Presentation of Financial Statements, which provides guidance on the net asset classification of donor-restricted endowment funds for a not-for-profit organization that is subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA) and also requires disclosures about endowment funds, both donor-restricted endowment funds and board-designated endowment funds.

See note 10 for further disclosures.

(c) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets; allowances for student and contributions receivables; and the valuation of the interest rate swaps, investments, split-interest agreements, and actuarial assumptions.

(d) Revenues The principal sources of revenue, consisting of tuition, room and board, various other educational fees, unrestricted income from funds functioning as endowment, unrestricted gifts, and net assets released from restrictions, are accounted for in unrestricted net assets. Unrestricted net assets also include revenue from grants, auxiliary enterprises, and gains on disposal of assets.

The following assets have become available for general operating purposes from release from donor restrictions through the passage of time and through the maturation of various planned giving agreements for the years ended June 30, 2014 and 2013, respectively.

2014 2013 Maturation of planned giving agreements $ 32,086 399,594 Passage of time 981,258 2,067,434 Endowment earnings appropriated for expenditure 8,907,660 8,007,955 Total net assets released from restrictions $ 9,921,004 10,474,983 With a few exceptions, the monies in the endowment and similar funds are invested as a pool, and the related income of the pool is distributed to each participating fund based upon a spending formula and its relative proportion of the pool.

7 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013 In addition, monies, which are not required to meet short-terim demands, are combined and invested.

The income earned on these intermediate investments is allocated to each participating fund based upon its relative proportion of the combined investment.

(e) Investments Investments in marketable equity securities with readily determinable fair values and all investments in debt securities are carried at fair value. In conjunction with the adoption of FASB ASC Topic 820, Fair Value Measurement, Reed College has adopted the measurement provisions of FASB ASC Subtopic 820-10, Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), to certain investments in funds that do not have readily determinable fair values including private investments, hedge funds, and real estate. Net asset value (NAV), in many instances may not equal fair value that would be calculated pursuant to ASC Topic 820.

Realized and unrealized gains and losses arising from the sale, collection, or other disposition of investments, as well as all dividends, interest, and other investment income, are shown in the statements of activities and changes in net assets. Gains and investment income that are limited to specific uses by donor-imposed restrictions are reported as increases in unrestricted net assets if the restrictions are met in the same reporting period that the gains and income are recognized. Losses on investments related to gifts that the donor required to be invested in perpetuity (i.e., endowment funds) are classified as decreases in temporarily restricted net assets until the investments fall below the original gift at which point they decrease unrestricted net assets. Subsequent gains that restore the fair value of the assets of the endowment funds to the required level are classified as increases in unrestricted net assets.

09 Split-InterestAgreements Reed College has been named as a beneficiary for various split-interest agreements. Each agreement provides for contractual payments to stated beneficiaries for their lifetimes, after which remaining principal and interest revert to Reed College. Assets contributed are recorded at fair value. In addition, Reed College has recognized the present value of estimated future payments to be made to beneficiaries over their expected lifetimes as a long-term liability. The present values of these estimated payments were determined on the basis of published actuarial factors for ages of the respective beneficiaries discounted using the risk-free rate adjusted for mortality uncertainties and are not changed after the date of the gift. Annual adjustments are made between the liability and the net assets to record actuarial gains or losses. Differences between the assets contributed and the expected payments to be made to beneficiaries have been. recorded as contribution revenue in the year established. These donations are either temporarily restricted on the basis of time or permanently restricted based on the intent of the donor.

(g) ContributionsReceivable Unconditional promises to give (contributions) are recorded as gifts and private grant income and contributions receivable. Promises to give are not recognized until they become unconditional, that is, when the donor-imposed restrictions are substantially met. Contributions other than cash are recorded at their estimated fair value. Management estimates an allowance for uncollectible contributions based on risk factors such as prior collection history, type of contribution, and the 8 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013 nature of the fund-raising activity. Contributions are generally receivable within five years of the date the commitment was made and were discounted to present value using a discount rate commensurate with the risk involved. Amortization of the discount is recorded as additional contribution revenue in accordance with donor-imposed restrictions, if any, on the contributions.

(1i) Derivative Instruments Reed College accounts for derivatives in accordance with FASB ASC Subtopic 815-10, Accounting for Derivative Instruments and Certain Hedging Activities, as amended, which requires that all derivative instruments be recorded on the statements of financial position at their estimated fair values. Changes in the fair value are recognized in unrealized gains and losses, unrestricted, in the statements of activities and changes in net assets.

(i) Property,Plant,and Equipment, Net Property, plant, and equipment are stated at cost at the date of acquisition, if purchased, or at fair market value, at the date of receipt, if acquired by donation. Equipment under capital leases are stated at the present value of minimum lease payments. Depreciation is computed on a straight-line basis over the estimated useful lives of buildings (twenty to fifty years) and equipment and furmishings (five years). Plant and equipment held under capital leases are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. Routine repair and maintenance expenses and equipment replacement costs are expensed as incurred.

6f) DonatedMaterials Donated materials are included in the statements of activities and changes in net assets as "Gifts and private grants" at their estimated fair values at date of receipt. These materials are subsequently expensed when used.

(k) Income Tax Status The Internal Revenue Service has recognized Reed College as exempt from tax under the provisions of Section 501 (a) as an organization described under Section 501 (c)(3) of the Internal Revenue Code except to the extent of unrelated business income under Sections 511 through 515. Management believes that unrelated business income tax, if any, is immaterial, and therefore, no tax provision has been made. Reed College accounts for income taxes in accordance with FASB ASC Subtopic 740-10, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement 109, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a threshold of more likely than not for recognition of tax benefits of uncertain tax positions taken or expected to be taken in a tax return. ASC Subtopic 740-10 also provides related guidance on measurement, derecognition, classification, interest and penalties, and disclosure. As Reed College is exempt from taxation under Section 501(c)(3) of the Internal Revenue Code as a qualified educational institution and is generally not subject to federal or state income taxes, the adoption of ASC Subtopic 740-10 did not have a significant impact on the Reed College's financial statements.

9 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013 (l) Cash and Cash Equivalents Cash and cash equivalents represent cash in bank and other highly liquid investments with original maturities of three months or less, except for certain cash and cash equivalents included in the investment portfolio that are intended to be invested on a long term basis. Cash and cash equivalents whose use is limited are restricted for the Federal Perkins Loan program.

(n) Deferred Revenue Deferred revenues consist primarily of prepayments of tuition and fees related to future academic years.

(n) PostretirementBenefits Reed College has a noncontributory postretirement medical benefit plan covering participating employees upon their retirement. Reed College maintains a postretirement medical benefit plan and accounts for the plan within the framework of FASB ASC Topic 958-715 Not-for-Profit Entities -

Compensation-RetirementBenefits.

Reed College records annual amounts relating to its postretirement medical benefit plan based on calculations that incorporate various actuarial and other assumptions, including discount rates, mortality, and healthcare cost trend rates. Reed College reviews its assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is appropriate to do so. Reed College believes that the assumptions utilized in recording its obligations under its plans are reasonable based on its experience and market conditions.

(o) Concentrationof Risk Reed College's standard financial instruments include commercial paper, U.S. government and agency securities, corporate obligations, equity securities, mutual funds, hedge funds, private equity, and real estate. These financial instruments may subject Reed College to concentrations of risk.

Federal depository insurance coverage covers up to $250,000 per depositor, for each account ownership category.

10 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013 (3) Investments The fair value of investments at June 30, 2014 and 2013 are as follows:

2014 2013 Investments:

Long-term government bonds $ 25,000 25,000 Bond funds 19,861,676 25,369,871 Corporate bonds 1,996,740 1,968,060 Equity mutual funds 107,618,626 95,441,286 Hedge funds 297,254,925 253,405,577 Private equity 139,622,099 128,432,723 REITs 3,333,711 2,462,617 Real estate 3,522,313 3,681,161 Money market and other 3,627,969 7,483,100 Total investments $ 576,863,059 518,269,395 At June 30, 2014 and 2013, Reed College has approximately $437 million and $382 million, respectively, of investments that are not readily marketable (alternative investments). These investments represent 76%

and 74% of total investments and 71% and 68% of total net assets at June 30, 2014 and 2013, respectively.

These investment instruments may contain elements of both credit and market risk. Such risks include, but are not limited to, limited liquidity, absence of regulatory oversight, dependence upon key individuals, emphasis on speculative investments (both derivatives and nonmarketable investments), and nondisclosure of portfolio composition. Because these investments are not readily marketable, their estimated value is subject to uncertainty and, therefore, may differ from the value that would have been used had a ready market for such investments existed. Such difference could be material. See note 12 for investment fair value measurements.

The alternative investments are reported at net asset value (NAV). These investments are redeemable at NAV under the original terms of the partnership agreements and/or subscription agreements and operations of the underlying funds. However, it is possible that these redemption rights may be restricted or eliminated by the funds in the future in accordance with the underlying fund agreements. Due to the nature of the investments held by the funds, changes in market conditions and the economic environment may significantly impact the NAV of the funds and, consequently, the fair value of the Reed College interests in the funds. Furthermore, changes to the liquidity provisions of the funds may significantly impact the fair value of the Reed College interest in the funds.

At June 30, 2014, Reed College has committed $280,676,624 to private equity partnerships and hedge funds. As of June 30, 2014, Reed College has funded $219,353,502 of these commitments leaving an unfunded balance of $61,323,122. These commitments are callable by the general partners/advisers between now and 2024. The terminations of these partnerships/funds are based upon specific provisions in the agreements.

Included in investments are $25,659,799 and $19,761,009 of planned giving trusts held in mutual funds that are not available for spending as of June 30, 2014 and 2013, respectively.

I1I (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013 Within private equity and hedge funds, Reed College has funds invested in fifty-seven and forty-four limited partnerships, respectively, with ownership interests ranging from 0.02% to 16.57% at June 30, 2014 and 0.02% to 16.57% at June 30, 2013. Included in the assets of the various partnerships at times there are certain positions of derivative financial instruments.

Total investment income and realized and unrealized gains on investments that are not readily marketable was approximately $51,347,000 and $40,243,000 for the years ended June 30, 2014 and 2013, respectively.

(4) Property, Plant, and Equipment, Net Property, plant, and equipment at June 30, 2014 and 2013 consist of the following:

2014 2013 Land and land improvements $ 14,482,214 14,482,214 Buildings 183,687,925 152,391,052 Construction in progress 5,600,861 27,763,514 Equipment, furniture, and fixtures 14,125,246 13,318,558 217,896,246 207,955,338 Less accumulated depreciation (79,113,491) (74,432,675)

Net property, plant, and equipment $ 138,782,755 133,522,663 Depreciation expense was $4,486,684 and $4,035,028 for the years ended June 30, 2014 and 2013, respectively, and is allocated to the functional expenses based on the relative square footage of the department.

(5) Long-Term Debt (a) CapitalLease Obligations Reed College leases copiers over various terms. The carrying values of assets under capital lease at

• June 30, 2014 and 2013 are $97,679 and $206,010, respectively. Amortization costs of $108,331 and

$108,742 are included in accumulated depreciation for the years ended June 30, 2014 and 2013, respectively.

The payment schedule for the capital lease obligation is as follows:

2015 $ 86,790 2016 36,899 2017 15,370 139,059 Less amount representing interest (6,056)

$ 133,003 12 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013 (b) Notes Payable During 2008, Reed College refinanced the 2006 and the 2007 State of Oregon Bonds in the amount of $47,060,000. The 2008 State of Oregon notes mature on July 1, 2038 and bear interest based on a weekly basis set through the remarketing process.

Effective March 22, 2011, Reed College refinanced the 2000 State of Oregon Bonds in the amount of $19,080,000 and borrowed an additional $20,950,000 to be used to finance the construction of a new performing arts building.

Wells Fargo Bank is the liquidity facility provider for the 2008 Bond Issue should the bonds fail to remarket. The Liquidity Facility agreement remains in effect until April 22, 2015, unless renewed or terminated pursuant to the conditions set forth in the 2008 Liquidity Facility. The 2008 Bonds have been classified as current portion of long-term debt as of June 30, 2014 due to the existing liquidity facility being scheduled to expire within the next fiscal year. Management plans to renew or extend the terms of the liquidity facility prior to the April 2015 expiration date. This classification of the 2008 Bonds has no impact on the scheduled maturity dates and principal payments outlined in the table below.

Notes payable are summarized as follows:

2014 2013 2008 State of Oregon notes $ 41,710,000 44,105,000 2011 State of Oregon notes 40,030,000 40,030,000 81,740,000 84,135,000 Less discount (416.,392) (433,193)

Total $ 81,323,608 83,701,807 Principal payments on the notes payable become due as follows:

2011 State of 2008 State of Oregon notes Oregon notes Total 2015 $ 1,265,000 1,265,000 2016 1,310,000 1,310,000 2017 1,375,000 1,375,000 2018 1,415,000 1,415,000 2019 1,465,000 1,465,000 Thereafter 40,030,000 34,880,000 74,910,000

$ 40.03 0,000 41,710,000 81,740,000 13 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013 Interest on the State of Oregon notes payable bonds and amortization of discount and issuance costs are as follows:

2014 2013 Interest $ 2,046,183 2,086,807 Amortization of discount and issuance costs 31,149 31,149 Total interest expensed $ 2,077,332 2,117,956 Notes payable discount, net of amortization was $416,392 and $433,193 at June 30, 2014 and 2013, respectively. Issuance costs, net of amortization were $352,689 and $367,037 at June 30, 2014 and 2013, respectively. Amortization is calculated over the life of the notes. The fair value of the notes payable at June 30, 2014 and 2013 was approximately $86,063,564 and $85,662,154, respectively.

(c) InterestRate Risk Management In order to take advantage of fluctuations in long-term interest rates, Reed College has entered into an interest rate swap agreement with a notional amount $16,650,000, which allows Reed College to change the variable interest rate to a fixed interest rate on the State of Oregon notes payable.

In June 2006, Reed College issued $16.65 million of auction rate debt through the Oregon Facilities Authority. The College entered into an interest rate swap of like term, amortization, and notional amount with an investment bank to hedge this underlying variable rate debt. Reed College has subsequently refinanced the 2006 notes, however, retained this swap arrangement for interest rate risk management. Pursuant to this swap, Reed College works with a consulting firm to aid in monitoring changes in interest rates and the impact they may have on long-term debt.

During the years ended June 30, 2014 and 2013, $532,938 and $559,929 was paid, respectively, and is recorded in the statements of activities and changes in net assets as other investment gains (losses).

The change in unrealized gain and loss on the swap agreements for the years ended June 30, 2014 and 2013 was a gain of $233,585 and a gain of $871,842, respectively, and is recorded in the statements of activities and changes in net assets as realized and unrealized gains. The fair value of the swap agreement as of June 30, 2014 and 2013 was a liability of $2,149,050 and $2,382,635, respectively, which is recorded in the statements of financial position as other long-term liabilities.

(6) Retirement and Postretirement Benefits (a) Retirement Plan Reed College has a defined contribution pension plan administered through Teachers Insurance and Annuity Association - College Retirement Equities Fund. Employees are able to voluntarily contribute funds to this plan beginning on the first day of employment provided they are not students. Employees are eligible for fixed employer contributions the first month following the completion of a year of service, and must have attained the age of twenty-one. Participants are immediately vested in their employee and employer contributions and earnings thereon. Reed College's policy is to fund pension expenses as incurred. Expenditures relating to the plan were

$3,266,429 and $3,251,255 for the years ended June 30, 2014 and 2013, respectively, and are 14 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013 included in education and general expenses in the accompanying statements of activities and changes in net assets.

(b) Defined Benefit Retiree Medical Insurance Plan Reed College maintains a defined benefit retiree medical insurance plan, which is administered by Pioneer Educators Health Trust (PEHT) and is not funded. Employees hired after June 30, 2006 do not participate in this plan. In order to participate, employees hired prior to September 2, 2001 must retire from Reed College at or after age fifty-five with at least ten years of continuous service. In order to participate, employees hired between September 1, 2001 and June 30, 2006 must retire from Reed College at or after age fifty-five with twenty years of continuous service. Employees are covered for the lowest premium plan for his or her lifetime and spouses/domestic partners are covered at the rate of fifty percent of the lowest premium plan for his or her lifetime. Employer premium expenses were $753,292 and $726,709 for the years ended June 30, 2014 and 2013, respectively, and are included in education and general expenses in the accompanying statements of activities and changes in net assets.

The accrued liability for postretirement benefits at year-end is as follows:

2014 2013 Change in benefit obligation:

Benefit obligation at beginning of year $ 23,978,110 23,329,752 Service cost 471,440 445,567 Interest cost 1,104,535 1,144,831 Benefits paid (746,693) (741,405)

Actuarial gain (loss) 692,890 (200,635)

Benefit obligation at end of year and funded status $ 25,500,282 23,978,110 Amounts recognized in the balance sheet consist of:

$ 794,443 746,693 Postretirement benefits payable - current Postretirement benefits payable 24,705,839 23,231,417

$ 25,500,282 23,978,110 Net periodic benefit cost for the years ended June 30 included the following components:

2014 2013 Interest cost $ 1,104,535 1,144,831 Service cost 471,440 445,567 Net periodic benefit cost $ 1,575,975 1.590,398 15 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013 Reed College used the following actuarial assumptions to determine its employee benefit obligations at and net periodic benefit cost for the years ended June 30, 2014 and 2013, as measured at June 30:

2014 2013 Benefit obligation:

Weighted average discount rate 4.40% 4.85%

Rate of increase in per capita cost of covered 7.5% trending to 8% trending to healthcare benefits 4% in 2022 4% in 2021 Net periodic benefit cost: 4.85% 4.15%

Weighted average discount rate 8% trending to 7% trending to Rate of increase in per capita cost of covered 4% in 2022 4% in 2016 healthcare benefits Reed College's policy is to fund the plan as claims payments are made. In the 2014-2015 fiscal year, Reed College expects to contribute, from ongoing cash flows and current assets, $794,443 to the plan. Benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows for the years ending June 30:

Year:

2015 $ 794,443 2016 873,559 2017 944,153 2018 1,015,902 2019 1,092,257 2020-2022 6,421,508 (c) Emeriti Retiree Defined ContributionHealth Plan Reed College has a defined contribution retiree health plan for employees hired on or after July 1, 2006. Reed College makes contributions on each eligible employee's behalf once the individual reaches the age of 40 years. Employees are also eligible to make discretionary after-tax contributions to their account if the individual is 21 years or older. Employees are eligible to receive benefits from the plan if the employee has attained age 55 years and achieved 20 years of continuous service to Reed College. Employer expenses related to this plan were $256,061 and $314,667 for fiscal years ended June 30, 2014 and 2013, respectively, and are included in education and general expenses in the accompanying statements of activities and changes in net assets.

(7) Funds Held in Trust by Others Reed College has been named beneficiary of a portion of the remainder of three trusts in 2014 and four trusts in 2013 maturing at specified dates in the future. These trusts are administered by other entities. Reed College revalues the receivables using the fair value of expected future cash flows. At June 30, 2014 and 2013, the trusts receivable were $1,172,563 and $938,899, respectively, and were included under funds held in trust by others, noncurrent, in the statement of financial position.

16 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013 (8) Contributions and Accounts Receivable Contributions receivable consist of the following:

2014 2013 Annual fund $ 1,358,869 1,449,016 Campaign fund 547,470 248,530 Endowment fund 8,323,632 10,412,889 Plant fund 2,769,372 2,705,649 Gross contributions receivable $ 12,999,343 14,816,084 Contributions receivable reported on the statements of financial position were as follows:

2014 2013 Current:

Gross contributions receivable $ 740,856 771,123 Less allowance for doubtful accounts (37,000) (39,000)

Total current net contributions receivable 703,856 732,123 Long-term (one to five years):

Gross contributions receivable 12,258,487 14,044,961 Less allowance for doubtful accounts (587,000) (669,000)

Net long-term contributions receivable 11,671,487 13,375,961 Less discount to present value (551,459) (696,642)

Total long-term net contributions receivable 11,120,028 12,679,319 Total net contributions receivable $ 11,823,884 13,411,442 Reed College expects to receive $4,447,881 in fiscal year 2015 and $7,376,003 over the following three fiscal years, related to receivables outstanding at June 30, 2014.

Contributions receivable due in excess of one year are discounted at 0.743% to 1.552% and 0.267% to 0.776% for the years ended June 30, 2014 and 2013, respectively.

Of the net unconditional promises to give included above, $9,475,835 represents an unconditional promise to give from 16 members of the Reed College board of trustees due in one to three years.

17 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013 Accounts receivable consist of the following at June 30, 2014:

Unrestricted Restricted Loan fund Endowment Total Current:

Student accounts receivable $ (3,831) (3,831)

Related parties 24,080 464,938 489,018 Other receivables 190.196 176,690 366.886 186,365 200,770 464,938 852.073 Noncurrent:

Student accounts receivable 8,597 8,597 Reed loans 1,237,070 1,237,070 Related parties (324) (324)

Federal perkins loans 3,903,847 3.903.847 5,149.190 5,149,190 Less allowance for doubtful accounts (60.239) (60.239)

$ 186,365 200,770 5,088,951 464,938 5,941,024 Accounts receivable consist of the following at June 30, 201' Unrestricted Restricted Loan fund Endowment Total Current:

Student accounts receivable $ 34.623 34,623 Related parties 161,087 676,230 837,317 Other receivables 186,069 197,233 383,302 220,692 358,320 676,230 1,255.242 Noncurrent:

Student accounts receivable 21,481 21,481 Reed loans 1,230,494 1,230,494 Related parties 4,175 4,175 Federal perkins loans 3.875.875 3,875,875 5.132,025 5,132,025 Less allowance for doubtful

• (60.239) accounts (60,239)

$ 220.692 358,320 5,071,786 676,230 6,327,028 18 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013 The Federal Perkins Loans and Reed loans are generally payable at interest rates of 5% to 9% over approximately ten years. Repayment begins after a designated grace period following the student's college attendance. Principal payments, interest, and losses due to cancellation are shared by Reed College and the U.S. government in proportion to their share of funds provided. The Federal Perkins Loan program provides for cancellation of loans if the student is employed in certain occupations following graduation (employment cancelations). Such employment cancellations are absorbed in full by the U.S. government.

(9) Net Assets At June 30, 2014 and 2013, net assets consisted of the following:

2014 2013 Unrestricted:

Operating $ 4,235,170 7,175,458 Designated for special programs 11,281,607 10,061,408 Institutional loan programs 4,842,199 4,696,125 Funds functioning as endowment 126,491,681 121,627,459 Accumulated quasi-endowment gains 168,352,248 133,447,849 Net investment in plant 43,517,900 41,205,852 Total unrestricted $ 358,720,805 318,214,151 Temporarily restricted:

Educational and general programs $ 11,505,112 10,490,066 Annuity and life income funds 11,113,433 8,501,862 Accumulated endowment gains 70,289,646 55,557,331 Other temporarily restricted net assets 2,593,790 2,522,510 Total temporarily restricted $ 95,501,981 77,071,769 Permanently restricted:

True endowment funds $ 159,809,527 159,401,100 Annuity and life income funds 4,571,658 2,737;929 Total permanently restricted $ 164,381,185 162,139,029 (10) Endowments Through December 31, 2007, Reed College's management and investment of donor-restricted endowment funds were subject to the provisions of the Uniform Management of Institutional Funds Act (UMIFA). In 2006, the Uniform Law Commission approved the model act, UPMIFA, that serves as a guideline to states using the enacted legislation. Among UPMIFA's most significant changes is the elimination of UMIFA's concept of historic dollar value threshold, the amount below which an organization could not spend from the endowment fund, in favor of a more robust set of guidelines about what constitutes prudent spending.

Effective January 1, 2008, the State of Oregon enacted UPMIFA, the provisions of which apply to endowment funds existing on or established after that date.

In August 2008, the FASB issued FASB ASC Subtopic 958-205, Not-for-Profit Entities - Presentationof Financial Statements. ASC Subtopic 958-205 was effective for fiscal years 2014 and 2013 for Reed 19 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013 College. The major change in net assets classification resulting from ASC Subtopic 958-205 relates to the portion of the fund not stipulated by the donor to be restricted in perpetuity. In the absence of explicit donor instructions on the use of such funds, the earnings previously classified as either permanently restricted or unrestricted must be reported as temporarily restricted until appropriated for spending Reed College's endowment consists of approximately 450 individual funds of which approximately 65%,

or 291, funds are donor-restricted endowment funds. Net assets associated with endowment funds are classified and reported based on the existence of those donor restrictions. Endowment funds are invested on the basis of a total return policy to provide income and to realize appreciation on invested assets. Under this policy, a portion of realized and unrealized gains, in addition to interest and dividend income, can be used to support operations. Investment income used to support operations is allocated from funds that have a fair value in excess of historical value and are utilized in accordance with donor-imposed restrictions.

Reed College spends endowment income and capital gains within a spending policy that preserves principal in accordance with the UPMIFA. The policy on spending endowment income is to spend 5.25%

and 5.3% over a rolling 13-quarter moving average of the fair value or market value of endowment assets for fiscal years 2014 and 2013, respectively. If losses reduce the assets of a donor-restricted endowment fund below the donor-restricted corpus, temporarily restricted net assets will be reduced until the accumulated gains associated with a fund are reduced to $0. At that point, further losses reduce unrestricted net assets. The value of donor-restricted endowment funds with a fair value of associated assets that is less than the original gift amount is $366,018 and $2,076,119 for the years ended at June 30, 2014 and 2013, respectfully. Future gains that restore the corpus value will be recorded as increases in temporarily restricted net assets after replacing any losses charged to unrestricted net assets.

Endowment net assets by type of fund as of June 30, 2014:

Temporarily Permanently Unrestricted restricted restricted Total Donor-restricted endowment funds $ (366,018) 81,449,103 159,809,527 240,892,612 Board-designated endowment funds 294,414,691 -- -- 294,414,691 Total funds $ 294,048,673 81,449.103 159,809,527 535,307,303 Endowment net assets by type of fund as of June 30, 2013:

Temporarily Permanently Unrestricted restricted restricted Total Donor-restricted endowment funds $ (2,076,119) 65,921,743 159,401,101 223,246,725 Board-designated endowment funds 257,151,427 - - 257,151,427 Total funds $ 255,075,308 65,921,743 159,401,101 480,398,152 20 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013 Changes in endowment net assets for the years ended June 30, 2014 and 2013 are as follows:

Temporarily Permanently Unrestricted restricted restricted Total Endowment net assets, July 1, 2013 $ 255,075,308 65,921,743 159,401,101 480,398,152 Investment return:

Net investment gain 180,276 840,404 1,020,680 Net appreciation of investments 47,136,677 24,435,019 71,571,696 Contributions (162,352) (162,352)

Contributions from trust terminations 32,086 451,136 483,222 Appropriation of endowment assets for expenditure (13,207,812) (9,748,063) - (22,955,875)

Transfers to create board-designated endowment fund 4,957,778 4,957,778 Transfers and other reclassifications (125,640) 119,642 (5,998)

Endowment net assets, June 30, 2014 $ 294,048,673 81,449,103 159,809,527 535,307,303 Temporarily Permanently Unrestricted restricted restricted Total Endowment net assets, July 1, 2012 226,926,039 58,218.464 151,936,022 437,080,525 Investment return:

Net investment gain 426,675 1,991.294 -- 2,417,969 Net appreciation of investments 37,076,081 15,711,234 - 52,787,315 Contributions - 6,307,5 38 6,307,538 Contributions from trust terminations 399,594 -- 965,0 29 1,364,623 Appropriation of endowment assets for expenditure (10,303,385) (9,999,249) - (20,302,634)

Transfers to create board-designated endowment fund 672,379 672,379 Transfers and other reclassifications (122,075) 192,512 70,437 Endowment net assets, June 30, 2013 $ 255,075,308 65,921,743 159,401,101 480,398,152 (11) Commitments and Contingencies Reed College has placed certain of its medical and dental insurance coverage with the Pioneer Educators Health Trust (PEHT), formulated by seven Oregon colleges and universities for the purpose of providing medical and dental insurance to higher education institutions. Under the agreement, member institutions are required to make contributions to the fund at such times and in an amount as determined by the board of trustees for the various benefit programs sufficient to provide the benefits, pay the administrative expenses of the Plan, which are not otherwise paid by Reed College directly, and to establish and maintain a minimum reserve as determined by the board of trustees. In the event losses of PEHT exceed its capital and secondary coverages, the maximum contingent liability exposure to Reed College is approximately 21 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013

$537,644. This exposure fluctuates based on changes in actuarial assumptions, medical trend rates, and reinsurance amounts. The level of reinsurance is not expected to fluctuate significantly in the future.

On July 1, 1988, Reed College elected to place its liability insurance coverage with the College Liability Insurance Company, Ltd. (CLIC). CLIC was formed by seven similar western colleges and universities for the purpose of providing liability insurance to higher education institutions. As a portion of its capital, CLIC has placed a $2,000,000 standby letter of credit of which Reed College is contingently liable for a pro rata portion based upon premium contributions from covered institutions. In the event the losses of CLIC exceed its capital and secondary coverages, the maximum contingent liability exposure to Reed College is approximately $171,174. As of June 30, 2014 and 2013, there were no amounts outstanding against the standby letter of credit.

From time to time, Reed College is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, most of these claims and legal actions are covered by insurance and the ultimate disposition of these matters will not have a material effect on Reed College's financial position, statements of activities and changes in net assets, or cash flows.

(12) Fair Value Measurements (a) Fair Value of FinancialInstruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and cash equivalents, and accounts receivable: The carrying amounts, at face value or cost plus accrued interest, approximate fair value because of the short maturity of these instruments.

Contributions receivable and funds held in trust by others: The fair value is determined as the present value of future contractual cash flows discounted at an interest rate that reflects the risks inherent in those cash flows.

Investments: Equity securities are measured using quoted market prices at the reporting date multiplied by the quantity held. Debt securities are measured using quoted market prices multiplied by the quantity held when quoted market prices are available. Investments in real estate for which fair value is not readily determinable are carried at estimated fair values, if purchased, or at fair value at the date of receipt, if acquired by donation. Alternative investments, which are not readily marketable, are carried at estimated fair values. Reed College reviews and evaluates the values provided by the investment managers and estimates the fair value of the alternative investments using the NAV as a practical expedient.

Interest rate swaps: The fair value of interest rate swaps is determined using pricing models developed based on the LIBOR swap rate and other observable market data. The value was determined after considering the potential impact of collateralization and netting agreements, adjusted to reflect nonperformance risk of both the counterparty and Reed College.

Long-term debt: The fair value of Reed College's long-term debt is measured using quoted offered-side prices when quoted market prices are available.

22 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013 (b) Fair Value Hierarchy Reed College adopted FASB ASC Topic 820 Fair Value Measurements and Disclosures on July 1, 2008 for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level I measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy are as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that Reed College has the ability to access at the measurement date.

Level 2 inputs are inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 inputs are unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available.

The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

The following table presents assets and liabilities that are measured at fair value on a recurring basis at June 30, 2014:

Quoted prices in active Significant markets for other Significant identical observable unobservable assets inputs inputs Total (Level 1) (Level 2) (Level 3)

Assets:

Long-term government bonds 25,000 25,000 Bond funds 19,861,676 14,456,224 5,405,452 Corporate bonds 1,996,740 1,996,740 Equity mutual funds 107,618,626 91,354,379 16,264,247 Hedge funds 297,254,925 4,633,620 292,621,305 23 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013 Quoted prices in active Significant markets for other Significant identical observable unobservable assets inputs inputs Total (Level I) (Level 2) (Level 3)

Private equity $ 139,622,099 - - 139,622,099 REITs 3,333,711 - 3,333,711 -

Real estate 3,522,313 - 3,522,313 Money market and other 3,627,969 2,960,886 667,083 Funds held in trust by others 1,172,563 1,172,563 Total $ 578,035,622 110.793,229 30,304,113 436,938,280 Liabilities:

Interest rate swap $ 2,149,050 -- 2.149,050 The following table presents assets and liabilities that are measured at fair value on a recurring basis at June 30, 2013:

Quoted prices in active Significant markets for other Significant identical observable unobservable assets inputs inputs Total (Level 1) (Level 2) (Level 3)

Assets:

Long-term government bonds $ 25,000 25,000 Bond funds 25,369,871 20,871,409 4,498,462 Corporate bonds 1,968,060 1,968,060 Equity mutual funds 95,441,286 83,235,996 12,205,290 Hedge funds 253,405,577 4,623,911 248,781,666 Private equity 128,432,723 128,432,723 24 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013 Quoted prices in active Significant markets for other Significant identical observable unobservable assets inputs inputs Total (Level 1) (Level 2) (Level 3)

REITs $ 2,462,617 -- 2,462,617 Real estate 3,681,161 3,681,161 Money market and other 7,483,100 6,878,298 604,802 Funds held in trust by others 938,899 938,899 Total $ 519,208,294 111,010,703 26,363,142 381,834,449 Liabilities:

Interest rate swap $ 2,382,635 -- 2,382,635 The College's beneficial interest in irrevocable split-interest agreements held or controlled by a third party is classified as Level 1, Level 2, and Level 3 as the fair values are based on a combination of Level 1 inputs (observable market values of the trusts' investment portfolios), indirect observable inputs (Real Estate Investments Trusts), and significant unobservable inputs (real estate). The fair values are measured at the present value of the future distributions the College expects to receive over the term of the agreements.

Treasuries, registered bond mutual funds, registered large cap equity mutual funds, and money market funds are classified in Level I of the fair value hierarchy as defined above because their fair values are based on quoted prices for identical securities. Most investments classified in Levels 2 and 3 consist of shares or units in nonregistered investment funds as opposed to direct interests in the funds' underlying securities. Even though these shares and units in nonregistered investment funds are classified in Levels 2 and 3, some of the underlying securities are marketable or not difficult to value. In addition to evaluating the inputs as described above, the College's ability to redeem its interest at or near the date of the statements of financial position is also considered in determining the level in which a fund's fair value measurement is classified. The inputs or methodology used for valuing or classifying investments for financial reporting purposes are not necessarily an indication of the risks associated with those investments or a reflection of the liquidity of or degree of difficulty in estimating the fair value of each fund's underlying assets and liabilities.

25 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013 The following table presents Reed College's activity for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended June 30, 2014 and June 30, 2013, respectively:

Balance at June 30, 2012 $ 338,451,573 Total realized and unrealized gains 39,662,498 Purchases, issuances, and settlements (net) 3,720,378 Balance at June 30, 2013 381,834,449 Total realized and unrealized gains 51,070,160 Purchases, issuances, and settlements (net) 4,033,671 Balance at June 30, 2014 $ 436,938,280 The following table presents information for investments where the NAV was used as a practical expedient to measure fair value at June 30, 2014:

Lockup Redemption Redemption Fair value period frequency notice period Hedge funds $ 397,621 liquidating N/A N/A Hedge funds 4,633,620 none Daily I day Hedge funds 5,187,770 3 months Monthly 90 days Hedge funds 90,630,351 I month Monthly 10-30 days Hedge funds 6,099,600 12 months Quarterly 45 days Hedge funds 146,060,541 3 months Quarterly 30-75 days Hedge funds 7,617,539 3 months Triennial 15 days Hedge funds 12,713,585 9 months Semiannually 90 days Hedge funds 23,914,298 9 months Annually 60-90 days

$ 297,254,925 26 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2014 and 2013 The following table presents information for investments where the NAV was used as a practical expedient to measure fair value at June 30, 2013:

Lockup Redemption Redemption Fair value period frequency notice period Hedge funds $ 1,419,756 liquidating N/A N/A Hedge funds 4,623,911 none Daily I day Hedge funds 67,567,024 2 month Monthly 15 days Hedge funds 140,116,172 3-24 months Quarterly 30-90 days Hedge funds 13,489,783 9 months Semiannually 90 days Hedge funds 26,188,931 7-9 months Annually 60-90 days

$ 253,405,577 Reed College holds investments in private equity limited partnerships where NAV is used as a practical expedient to measure fair value at June 30, 2014. These partnerships do not allow for periodic redemptions, but rather liquidate upon the termination date as stated in the partnership agreement. At June 30, 2014, Reed held $139,622,099 of private equity limited partnerships and had termination dates that ranged from 2015 to 2023.

(13) Split-Interest Agreements The following schedule summarizes the change in value and its presentation in the statements of activities as related to the change in value of split-interest agreements:

2014 2013 Dividends and interest $ 776,985 634,051 Beneficiary payments (1,346,359) (1,219,992)

Investment fees (207,340) (176,624)

Net realized gain (loss) 312,804 (247,064)

Net unrealized gain 3,470,729 2,364,076 Total change in value $ 3,006,819 1,354,447 (14) Fund-Raising Expense Reed College expended $2,939,622 and $3,106,023 for the years ended June 30, 2014 and 2013, respectively, for payroll and benefits, informational materials, travel, and special events relating to fund-raising activities. These costs are all classified as public affairs in the statements of activities and changes in net assets.

(15) Subsequent Events Reed College has evaluated subsequent events from the statement of financial position date through October 10, 2014, the date at which the financial statements were available to be issued, and determined that there are no other items to disclose.

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