ML12312A475

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

ML12312A475
Person / Time
Site:	07000938, MIT Nuclear Research Reactor
Issue date:	10/31/2012
From:	Ruiz I Massachusetts Institute of Technology (MIT)
To:	Adams M Office of Nuclear Material Safety and Safeguards
References
NUREG-1757, V03
Download: ML12312A475 (67)

Text

Massachusetts Institute of Technology Office of Executive Vice 77 Massachusetts Avenue President and Treasurer Cambridge, Massachusetts Building 4-204 02139-4307 Phone 617-253-3928 October 31, 2012 U.S. Nuclear Regulatory Commission Office of Nuclear Material Safety and Safeguards 11555 Rockville Pike 1 Whiteflint North Rockville, Maryland 20852 Attention: Alexander Adams Via Federal Express Re: Compliance Submissions, Self Guarantee Agreement Pursuant to 10 CFR Part 50, 10 i 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.

$33,149,000.00 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:

Duke Engineering provided MIT with a cost estimate of $23.0M. 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.OM. 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 1.40 (labor) and 1.72 (burial).

2. Decommissioning Estimate for 2012:

For 2013, we estimate the decommissioning cost of the MIT Reactor to be $33.1 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 23,000,000 %Total NUREG Inflator 33,149,000 Inflation Model Labor Portion 20,470,000 89% Labor 1.40 28,800,000 Burial Portion 2,530,000 11% Burial 1.72 4,349,000 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 2013 and obtain:

(1.862+ ((2.41-1.862)/(2010-2002))(2013-2002)) = 2.616 The inflation factor for 2013 as compared to 2002 is therefore 2.616/1.862 or 1.40. Hence, the labor portion of the cost is ($20.5M)(140) or $28.8 million. For burial, the same approach is used to yield a factor of 30.806, an inflation factor of 1.72 and a cost of $4.3 million (Please refer to ).

I hereby certify that MIT is currently a going concern, and that it possesses positive tangible net worth in the amount of $12.8 billion, as of the fiscal year ending on June 30, 2012.

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:

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

Rating: AAA Name of rating service: Standard & Poor's Financial Services LLC

2. Date of issuance of bonds: May 18, 2011

3. Description and date of maturity of bonds:

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

Signature Name: Israel Ruiz

Title:

Executive Vice President and Treasurer (Chief Financial Officer)

Date: /O -. 5/- ?,9AO/,

Enclosures

pwc IL Report of Independent Accountants To the Board of Trustees of Massachusetts Institute of Technology:

We have performed the procedures enumerated below, which were agreed to by Massachusetts Institute of Technology ("the Institute"), NRC MIT licenses SNM-986 and R-37, solely to assist you in complying with the Nuclear Regulatory Commission's financial assurance regulations, 10 CFR Part 50 and 10 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, 2012, 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 14, 2012;

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 checked 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 25, 2012 PricewaterhouseCoopersLLP, 125 High Street, Boston, MA 02110 T: (617) 530 5ooo, F: (617) 530 5001, www. pwc.com/us

ATTACHMENT I NRC Decommissioning Estimate 2013 Duke Study (2002) 23,000,000.00 NRC Inflation Model 2013 Inflator 33,149,000.00 Labor Portion 20,470,000.00 89% Labor 1.40 28,800,000.00 Burial portion 2,530,000.00 11% Burial, 1.72 4,349,000.00 2006 2013 LABOR 2.384 2.6155 1.28 1.40 BURIAL 25.4385 30.80575 1.42 1.72

Appendix D Representative Examples of Decommissioning Costs for 2000 through 2010 In Section 3.4 of this revision and the four previous revisions of NUREG-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 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 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 1.016 0.985 1.483 2.152 2.746 2.139 7.878 9.273 7.790 8.600 9.872 12.280 Decommissioning Cost (Millions) $313 $355 $341 $379 $425 $477 D.1

Massachusetts Development Finance

Agency, Massachusetts Institute Of Technology; Private Coll/Univ -

General Obligation Primary Credit Analyst:

Jessica Matsumori, San Francisco (1) 415-371-5083; jessica matsumoni@standardandpoors.com Secondary

Contact:

Nick Waugh, Boston (1) 617-530-8342; nicklwaugh@standardandpoors.com Table Of Contents

........................................................................................................... oo Rationale Outlook Economic Profile Financial Profile Related Criteria And Research www.standardandpoors.com

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Massachusetts Development Finance Agency, Massachusetts Institute Of Technology; Private Coll/Univ - General Obligation Long Term Rating AAA/A-1+/Stable Affirmed Long Tenn Rating AAA/Stable Affirmed Rationale Standard & Poor's Ratings Services affirmed its 'AAA' long-term rating and 'A-1+' short-term rating on the Massachusetts Institute of Technology's (MIT) outstanding debt, some of which was issued by the Massachusetts Development Finance Agency. The outlook is stable.

The 'AAA' rating reflects our view of MIT's substantial endowment, incredible demand for its programs, growing research, and positive operating performance. This offsets our view of the institute's adequate, but lower than average financial resource ratios compared to the 'AAA' category, due in part to its recent century bond issuance. MIT has significant capital plans during the next 10 years, which management plans to fund through a variety of sources, including non-recourse debt. The potential effect, if any, of these additional projects to MIT's credit rating will be assessed as the structure, amount, timing, etc., are better determined.

More specifically, the rating is supported by the institute's:

" Status as a pre-eminent research institute with $1.45 billion in research revenues in fiscal year 2011;

• Strong financial resources provided by an endowment and similar funds of $9.7 billion as of June 30, 2011;

" Significant demand, excellent student quality, and increasingly competitive admissions;

• Strong operating performance, supported by good revenue diversity and the demonstrated ability to raise funds; and

• Relatively high, but still manageable, debt levels, due in part to its recent $750 million century bond issuance.

The 'A-1+' short-term rating reflects our view of MIT's general credit strengths and considerable experience in managing its own liquidity. MIT is providing its own liquidity to support its $250 million of series J-1 (swapped to fixed) and J-2 variable-rate demand bonds (VRDBs). We believe MIT demonstrates sufficient liquid assets of high credit quality, largely in U.S. Treasuries, as well as a bank lines that it can use, among other things, to cover the purchase price of VRDBs in the event any of the bonds are tendered, but not successfully remarketed. As of June 30, 2012, availability of liquid assets was, in our opinion, a sufficient $1.157 billion in same-day liquidity composed of high quality US. government securities and cash. In our opinion, MIT has demonstrated the policies and procedures Standard & Poor's I Research I July 26, 2012 2

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Massachusetts Development Finance Agency, Massachusetts Institute Of Technology; Private Coll/Univ - General Obligation necessary to provide self-liquidity.

MIT had approximately $2.47 billion in debt outstanding as of June 30, 2011. Of the total debt, a small portion is variable-rate debt (12% or $302 million), and the largest portion is fixed-rate debt (87%). All debt is an unsecured general obligation of MIT.

MIT is implementing a large development framework during the next 10 years, also in conjunction with MIT 2030, to add new research facilities and new academic space, improve its infrastructure, and to reduce the amount of deferred maintenance on campus. The academic components' projected cost for the next 10 years is $1.55 billion, which we consider high, with the proceeds from the May 2011 $750 million 100-year taxable issuance supporting a portion of capital needs. Other financing sources include fund raising, internal funding sources, and external borrowings. There are other capital plans on campus, including additional financings in the form of nonrecourse debt for investment in the institute's existing real estate assets as well as a revitalization of Lincoln Lab, a federally funded research and development center managed by MIT. Management indicates that the existing real estate portfolio is managed like an endowment asset and provides important flexibility for future institutional development. Management indicated that it intends to pursue real estate financings that can be supported by nonrecourse arrangements supported by external lessees. The proposed new facilities at Lincoln Laboratory are likely to be financed by a third-party backed by federal assurances, which management believes would be effectively nonrecourse to MIT.

Outlook The stable outlook reflects our expectation that the university's extremely strong demand and financial performance will continue. We believe that MIT's financial resource ratios are relatively low for the rating category and the issuance of additional debt needs to be commensurate with growth in financial resources.

We would have a negative view of considerable deterioration of operating performance or dilution of financial resource measures relative to either operating expenses or debt during the next one to two years.

Economic Profile The institute The Massachusetts Institute of Technology is a private, nonsectarian, coeducational, nonprofit institution of higher education. As of fall 2011, MIT had 10,894 students, with about 6,400 full-time graduate students. MIT has 1,018 faculty members and more than 4,000 other academic staff. The institute is located on a 168-acre-residential campus fronting the Charles River in Cambridge, Mass. MIT is organized into five schools and one college: architecture and planning; engineering; humanities, arts and social sciences; management; science; and the Whitaker College of Health Sciences.

MIT is one of the pre-eminent research institutes in the world, composed of major interdisciplinary organizations as well as three off-campus research facilities in Massachusetts: Lincoln Laboratory in Lexington, Haystack Observatory in Tyngsboro, and the Bates Linear Accelerator Center in Middleton. MIT operates the Lincoln Laboratory as a www.standardandpoors.com 3

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MassachusettsDevelopment FinanceAgency, MassachusettsInstitute Of Technology; Private Coll/Univ - General Obligation federally funded research and development center focused on advanced electronics. In fiscal 2011, MIT's research activities grew to more than $1.447 billion, up from $1.18 billion in 2007.

In total, MIT's sponsored research revenue (which includes federal, foundation, industrial, and international sponsors) was a substantial 48.4% of MIT's adjusted unrestricted operating revenues in 2011. Management indicated that MIT negotiates its research recoveries on an annual basis with its agent - the Office of Naval Research. The fiscal 2012 indirect cost recovery rate is 60.5% and MIT's particular negotiated rates generally allow it to recover full costs in a multi-year period.

Management and governance MIT recently named L. Rafael Reif as its new president. President Reif began his service as the institute's president in July 2012 after serving as provost for seven years and in various other positions at MIT since 1980. MIT also has a new provost (Chris A. Kaiser) who has been on the faculty since 1991, executive vice president/treasurer (Israel Ruiz) who served as vice president for finance for four years prior to becoming executive vice president and in other MIT roles for six years before that, and vice president for finance (Michael Howard). MIT is governed by the MIT Corp., a 74-member body composed of national leaders in science, industry, and education. The Executive Committee, a smaller subset of the same body, has responsibility for the general administration of MIT, and approves borrowing plans. Management routinely prepares interim, full-accrual results, which the executive committee reviews. We view the preparation and review of interim financial statements as a best practice for the industry.

Demand and enrollment MIT is an exceptionally selective institute, and admissions remain very competitive at both the undergraduate level and graduate and professional level. Freshman applications at MIT continue to be extremely strong with only 9.7% of the institute's freshman applicants accepted for fall 2011 and a very strong 64.6% matriculating. Undergraduate student quality is impressive, with an average two-part SAT score of approximately 1473 and an average ACT score of

33. Freshman to sophomore retention is a very high 98% and approximately 91% of its undergraduate students graduate within five years. MIT draws students from 50 states and more than 115 countries. Total student charges of

$52,507 for the 2011-2012 academic year places MIT in line with its peer institutions, such as Harvard, Columbia, and Yale universities. Fall 2012 demand and enrollment information were not available as of this report, but we expect it to be similar to previous years.

MIT's professional schools are also highly competitive. For fall 2011, MIT enrolled 6,510 graduate and professional students. Applications for graduate and professional studies were flat from fall 2010 to 2011 at 22,220, with a low 14.9% of applicants accepted. There are no current plans to add new schools or significantly change the academic mission or structure of the institute. MIT is actively engaged with international partners, but has no plans to increase its physical footprint globally.

Financial Profile Standard & Poor's I Research I July 26, 2012 4

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Massachusetts Development Finance Agency, Massachusetts Institute Of Technology; Privjat Coil/Un'iv z Geeral SObligation Operating performance We consider MIT's diverse revenue stream a credit strength, with tuition and fees accounting for $494 million of unrestricted revenue (on a gross basis) in fiscal 2011. Other major revenue sources included sponsored research ($1.45 billion), gifts and bequests ($111 million), fees and services ($199 million), and endowment income and gain used for operations ($444.8 million). Federal research increased 7.2% for the year to $469.5 million in grants including those from the:

" Department of Health and Human Services ($152.7 million),

" Department of Defense ($107.8 million),

" Department of Energy ($89.6 million),

" National Science Foundation ($74.9 million), and

• NASA ($28.1 million).

The institute produced a $179.5 million surplus in fiscal 2011, continuing its positive operating performance from the past three years. Fiscal 2012 financial results were not available at the time of this report, but we anticipate additional net asset growth for the year. In 2011, MIT reduced its endowment distribution payout per unit by 18% in response to the financial crisis. Despite the increase in 2009, endowment spending as a percentage of trailing-three-year endowment market value was in our view moderate at about 5.7% in 2009 and fell to 4.9% for fiscal 2011. The institute implemented several cost-cutting measures in fiscals 2010 and 20 11, which resulted in about $120 million of budgetary savings. Most of these cuts were recurring administrative and maintenance efficiencies.

Financial resources In our opinion, MIT's financial resources remain quite strong. Total cash and investments exceeded $12.3 billion as of fiscal 2011 year-end, and provided 4.3x coverage of adjusted expenses and nearly 5.Ox coverage of debt then outstanding of $2.47 billion. Fiscal 2011 closed with expendable resources of approximately $9.7 billion or 3.4x annual adjusted operating expenses of $2.811 billion and 3.9x then-outstanding debt. These financial ratios relative to debt are improving, but still lower than historical levels. However, they remain in line with some other 'AAA' rated educational institutions.

Endowment and fund raising MIT Investment Management Co. (MITIMCo) manages the institute's investment assets under the supervision of a separate MITIMCo board. MIT's endowment assets totaled $9.7 billion as of June 30, 2011, up from $8.3 billion the previous year. The core Pool A endowment produced a 17.9% return for fiscal 2011. Including short-term investments, MIT had total cash and investments of approximately $12.3 billion as of June 2011. Of $12.2 billion of long-term investments as of June 30, 2011, a low $2.8 billion or 23%, was considered to be level 1, or active market securities, followed by $1.0 billion in level 2, and the majority in level 3 or $8.37 billion. Management reports that MIT's asset allocation has been stable and is tracking close to the policy. As of June 30, 2012, MIT held same-day liquid investments of about $1.157 billion.

MIT holds investments in two primary asset pools--pool A, which is composed of its long-term endowment investments and pool C--a pool of short-term, high-quality investments to provide working capital and to hold various reserves. From 2008-2010 the amount of reserves in pool C was increased to provide for additional liquidity.

Management indicates that it did not have to access its bank line for liquidity support during this period, and that the www.standardandpoors.com 5

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. Massachusetts Development FinanceAgency, Massachusetts Institute Of Technology; Private Coll/Univ -.General Obligation investment pool liquidity was sufficient to support calls on capital. As of June 30, 2011, MIT had total urifinded capital calls of approximately $1.85 billion. During the next several years,"management indicates that distributions from nonmarketable securities should exceed expected capitalcalls. The-unfunded commitment amount represents a moderate 19% of market value of endowment, which is lower than some of MIT's peers.

The institute implemented a planned reduction of the annual endowment distribution in fiscal 2011, with the distribution declining $81.7 million to $444.8 million for the year. The endowment distribution to support operations in 2011 equaled approximately 5.3% of endowed funds or 4.9% of the moving three-year average. Endowment spending for fiscal 2012 was estimated to be 4.9%.

MIT recently concluded a $500 million "Campaign for Students" fund-raising initiative -- with more than $578 million raised. Total gifts and pledges in fiscal 2011 were $522.4 million. It is likely that MIT will embark on another fund-raising drive, or series of fund-raising initiatives, in conjunction with its new strategic development framework, MIT 2030, but no plans have been publicly announced. Management reports that fiscal 2012 alumni-participation rate is approximately 29% for undergraduate, graduate, and professional alumni.

Debt MIT had a total debt of $2.47 billion as of June 2011, including about $176 million drawn under a $500 million bank line of credit. MIT's management has developed an. active approach to debt management aimed at providing the maximum financing flexibility. MIT maintains a $500 million bank line of credit for additional liquidity. We understand that the institute uses this line opportunistically and periodically for various funding purposes.

b MIT's debt structure includes a number of bullet maturities and due to the institute's tendency to use bullet maturities to repay principal on its debt, total annual debt service, on average, through fiscal 2041 is approximately $146 million, ranging from $46.4. million in 2039 to $334.5 million in 2031. MADS of $334.5 million in the next 30 years is in our view high at 11.9% of fiscal 2011 adjusted operating expenses. In 2011, the institute also issued century bonds, which produce MADS of $792,000 in 2111 (28% of fiscal 2011 expenses). Average annual debt service of $146 million is a more manageable 5.2% of fiscal 2011 expenses, and fiscal 2011 actual debt service was a much lower 2.88%.

MIT remains conservative in its use of variable-rate-debt exposure, compared with its peers, net of swaps. Total unhedged variable-rate-demand debt, excluding the line of credit, is 11% of debt. Including variable-rate bank debt, the exposure is approximately 12%. In our opinion, MIT has adequate liquidity to fund its VRDOs.

MIT has a defined-benefit and defined-contribution retirement plan for employees. Its defined-benefit plan is well funded and required no contribution in fiscal 2011. MIT had $198 million in accrued post-employment benefit obligations as of June 30, 2011, but we view this as a manageable level of exposure.

Contingent liabilities Standard & Poor's believes the institute's swap portfolio poses very low risk to the credit rating overall with a low degree of involuntary termination risk due to limited termination events other than those permissible, moderate counterparty risk, and the swap portfolio's sound economic viability during stressful economic cycles.

MIT has historically managed its debt carefully, in our opinion, limiting its exposure to variable-rate debt and interest rate swaps. MIT has one interest rate swap with Deutsche Bank. The agreement is a $125 million floating- to fixed-rate Standard & Poor's I Research I July 26, 2012 6

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Massachusetts Development Finance Agency, Massachusetts Institute Of Technology; Private Coll/Univ - General Obligation swap that synthetically fixes the series J-1 bonds at 4.91%, with MIT receiving a rate equal to the Securities Industry and Financial Markets Assn. (SIFMA) index less 15 basis points; the agreement terminates upon maturity in 2031. As of June 30, 2011, this swap had a notional amount and fair value of $125 million and negative $32.8 million respectively.

Table 1 Fiscal Year Ended Medians (2011)

Enrollment And Demand 2012 2011 2010 2009 'AAA! Rated Peers Headcount (HC) 10,894 10,566 10,384 10,299 MNR Full time equivalent (FTE) 10,762 10,429 10,277 10,172 9,099 Freshman acceptance rate (%) 9.7 10.1 10.7 11.9 15.0 Freshman matriculation rate (%) 64.6 63.7 64.0 66.0 42.0 Undergraduates as a % of total enrollment 40.2 40.7 40.8 40.3 56.0

(%)

Freshman retention (%) 98.0 97.0 97.0 98.0 97.0 Graduation rates (5 years) (%) 91.0 91.0 91.4 90.1 93.4 Income Statement Adjusted operating revenue ($000s) N.A. 2,990,946 2,893,372 2,858,341 MNR Adjusted operating expense ($000s) N.A. 2,811,446 2,612,835 2,675,669 MNR Net operating income ($000s) N.A. 179,500 280,537 182,672 MNR Net operating margin (%) N.A. 6.4 10.7 6.8 2.6 Change in unrestricted net assets ($000s) N.A. 843,979 199,376 (1,526,345) MNR Tuition discount (%) N.A. 48.7 49.1 49.7 42.5 Tuition dependence (%) N.A. 16.5 16.2 15.1 28.4 Debt Outstanding debt ($000s) N.A. 2,467,825 1,728,526 1,735,843 1,062,416 Current debt service burden (%) N.A. 2.9 3.1 9.6 5.9 Current MADS burden (%) N.A. 28.2 10.8 4.7 MNR Financial Resource Ratios Endowment market value ($000s) N.A. 9,712,628 8,317,321 7,880,321 5,401,221 Cash and investments ($000s) N.A. 12,330,672 10,047,850 9,596,800 MNR Unrestricted net assets ($000s) N.A. 4,603,280 3,759,301 3,559,925 MNR Expendable resources ($000s) N.A. 9,840,645 7,623,083 7,576,170 MNR Cash and investments to operations (%) N.A. 438.6 384.6 358.7 889.4 Cash and investments to debt (%) N.A. 499.7 581.3 552.9 639.8 Expendable resources to operations (%) N.A. 350.0 291.8 283.2 656.7 Expendable resources to debt (%) N.A. 391.6 441.0 436.5 507.0 Average age of plant (years) N.A. 8.2 8.5 7.0 10.5 N.A. not available; MNR median not reported; Total adjusted operating revenue = unrestricted revenue less realized and unrealized gains/losses and financial aid; Total adjusted operating expense = unrestricted expense plus financial aid expense; Net operating margin = 100*(net adjusted operating income/adjusted operating expense); Tuition dependence = 100*(gross tuition revenue/adj. operating revenue) Current debt service burden = 100*(current debt service expense/adjusted operating expenses); Current MADS burden = 100*(maximum annual debt service expense/adjusted operating expenses); Cash and investments = cash + short-term & long-term investments; Expendable resources = unrestricted net assets + temp. restricted net assets - (net PPE- outstanding debt); Average age of plant = accumulated depreciation/depreciation &

amortization expense.

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Massachusetts Development Finance Agency, Massachusetts Institute Of Technology; Private Coll/Univ - General Obligation Related Criteria And Research

• USPF Criteria: Higher Education, June 19, 2007

• USPF Criteria: Contingent Liquidity Risks, March 5, 2012

• USPF Criteria: Commercial Paper, VRDO, And Self-Liquidity, July 3, 2007 Ratings~

Jd 6 ~~~

02 ~Deal(sO Long Term Rating AAA/Stable Affirmed Standard & Poor's I Research I July 26, 2012 8

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I Report of the Treasurer for the year ended June 30, 2012 Massachusetts Institute of Technology

The Corporation 2011-2012 as ofJune 30, 2012 Chairman: John S. Reed*

President: Susan Hockfield*

Executive Vice President and Treasurer: Israel Ruiz*

Vice President and Secretary: Kirk D. Kolenbrander Life Members Shirley A. Jackson; David H. Koch; PatrickJ. McGovern; Robert A. Muh; Denis A. Bovin*; James A. Champy*; Judy C.

Lewent; A. Neil Pappalardo*; Arthur Gelb; Edie N. Goldenberg; Robert M. Metcalfe; Kenan E. Sahin; John K. Castle; Charles M. Vest; Susan E. Whitehead; Brian G. R. Hughes; Norman E. Gaut; L. Robert Johnson; Arthur J. Samberg*;

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

Members Alan G. Spoon; Lawrence K. Fish*; David D. Ho; Robert B. Millard*; Carly S. Fiorina; Anita K. Jones; Martin Y. Tang; Raymond C. Kurzweil; Kenneth Wang; 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; Samuel W Bodman; Sarah Stewart Johnson; Reginald Van Lee; Eve J. Higginbotham, Charlene C. Kabcenell; Barry Lam; Leonard H. Schrank; K. Anne Street, Alia Whitney-Johnson.

President of the Association of Alumni and Alumnae R. Gregory Turner 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~n6e duPont, Jr.; Norman B. Leventhal; Mitchell W. Spellman; D. Reid Weedon, Jr.; Colby H. Chandler; Carl M.

Mueller; Louis W. 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; Mary Frances Wagley; Michael M. Koerner; Morris Tanenbaum; Breene M. Kerr; W. Gerald Austen; Richard P. Simmons; Morris Chang; Alexander W. Dreyfoos, Jr.; Paul E. Gray; Ronald A. Kurtz; DuWayne J. Peterson, Jr.; Raymond S. Stata; Gordon M. Binder; Brit J. d'Arbeloff; 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 ............................................ 5-11

" Financial Statements The financialstatements summarize the finances of MIT for the fiscal years 2011 and 2012.

Statem ents of Financial Position ............................................. 13 Statem ent of Activities ..................................................... 14 Statem ents of C ash Flows ................................................... 15 N otes to Financial Statem ents ............................................ 16-46 Report of Independent Auditors ............................................. 47

• Additional Information Five-Year Trend Analysis ................................................ 49-51

Report of the Treasurer To Members of the Corporation MIT ends fiscal 2012 in a robust financial position. Institute of Science and Technology (SkTech) in Russia, Net assets increased 3.3 percent to end the year at and continues to explore other opportunities to engage

$12.8 billion, with the Institute's endowment before with the global community in higher education, research pledges reaching $10.1 billion and both surpassing the and innovation.

peaks achieved in fiscal 2008 before the financial crisis.

Turning to MIT's financial position and activities, the Operating revenues approached the $3 billion mark, Institute's solid condition can be highlighted in many almost doubling from a decade earlier, and exceeded ways:

expenses by $245.7 million, compared to $179.5 million in fiscal 2011. The year was marked by significant contri- The Institute's financial strength, as measured by the butions to education innovation, expanded international increase of 3.3 percent in total net assets, improved collaborations and ongoing excellence in research and primarily due to endowment performance, gifts and technological achievement. operating results, offset by an increase in unfunded postretirement benefit obligations.

In fiscal 2012, MIT benefited from solid investment returns and giving, healthy research growth, and unwav- MIT's operating revenues approached $3 billion driven ering fiscal stewardship by the entire MIT community. by growth in all revenue sources, and almost doubled These successes further strengthen the.Institute's foun- from a decade earlier. Tuition net of financial aid in-dation, position MIT to take advantage of compelling creased 8.9 percent driven by an increase of students opportunities as they arise, and enable us to address the and moderate financial aid growth. Research revenues critical need for renewing our aging campus. We are well showed healthy growth of 5.6 percent in spite of the di-poised to balance these needs with sound fiscal manage- minishing contribution from. the American Reinvestment ment, recognizing that some revenue sources may come and Recovery Act (ARRA) funding received in the under pressure in the continuing uncertain funding previous years. Fees and services, principally driven by climate. one-time technology licensing results, grew 10.3 per-cent. Finally, operating gifts increased by 40.6 percent Over the year following the Institute's 150th anniver-and contribution from investments into the Institute's sary, MIT's exceptional faculty and students continued operating revenue, driven by the endowment and other to generate groundbreaking discoveries and research invested assets, grew 10.2 percent.

and achieve educational milestones. Additionally, MIT continued to actively pursue initiatives to expand the Strong operating revenue growth, up 8.7 percent from Institute's role in bringing new learnings and technolo- fiscal 2011, complemented by managed, moderate gies to bear in solving the nation's and the world's great expense growth, up 6.7 percent from the previous year, challenges. Among the most significant fiscal 2012 led to operating results of $245.7 million in fiscal 2012, initiatives, the Institute announced the launch of edX/ a 36.9 percent increase from fiscal 2011 results. This MITx, a joint partnership with Harvard University to marks the fifth consecutive year of positive operating enhance campus-based teaching and learning, build a results for MIT. Through continued focus on fiscal global community of online learners and research how management, MIT has reversed the trend of operating students learn and how technologies can facilitate ef- losses that existed from fiscal 2003 through fiscal 2007 fective teaching both on campus and online. MIT also and significantly improved MIT's financial strength and embarked upon other new global initiatives, notably an flexibility for the future as illustrated in the Summary of international collaboration to help develop the Skolkovo Key Financial Highlights.

SUMMARY

OF KEY FINANCIAL HIGHLIGHTS (10-year trend)

(in millions of dollars) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Operating Revenues 1,658 1,832 2,031 2,141 2,180 2,408 2,644 2,663 2,751 2,990 Operating Expenses 1,687 1,840 2,037 2,182 2,208 2,294 2,461 2,383 2,571 2,744 Operating Results (29) (8) (6) (41) (28) 114 183 280 180 246 Net Assets 6,931 7,741 8,626 10,060 12,695 12,770 9,946 10,324 12,388 12,799 Endowment 5,134 5,870 6,712 8,368 9,943 9,948 7,880 8,317 9,713 10,150 Borrowings 912 1,286 1,250 1,278 1,078 1,335 1,736 1,729 2,468 2,460

SUMMARY

5

In fiscal 2011, MIT announced its development frame- reflect the nature of the restrictions placed on gifts by work for the campus and surrounding neighborhood, donors.

MIT 2030. This framework continues to guide MIT's capital planning and renewal decisions for programs in Net Assets the coming years, especially through 2020. In fiscal 2012, $ millions 14,000 12,383 12,708 MIT focused on advancing the approved capital project 12,000 priorities and preparing to launch the comprehensive 10,000 Accelerated Capital Renewal Program. 8,000 6,000 During fiscal 2012, MIT completed two major suc-4,000 cessful renovations, Fariborz Maseeh Hall (formerly 2,000 Old Ashdown-W1) and the former A.D. Little building 0

(E60). Fariborz Maseeh Hall's welcoming of 460 un- 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 aPen-nendy MT.mp OUnr..tocted dergraduates for the academic year just ended will allow MIT to achieve the goal of increasing its undergraduate student body to 4,500 students by the 2013-2014 aca- Permanently restricted net assets represent those gifts demic year, and E60 renovation provides further mod- for which the original principal is to be preserved. This ernization of the Sloan School's physical environment. category includes gifts and pledges to true endowment In addition, the renovations of Fariborz Maseeh Hall together with assets held in trust, such as life income and the E60 demonstrate MIT's commitment to sustain- funds, which, when received or matured, will be added to ability, having recently achieved, in the case of Fariborz the endowment. The increase in permanently restricted Maseeh Hall, or applied for LEED Gold certification. net assets of $154.9 million, or 6.3 percent, to a total of

$2,612.8 million, primarily reflects new gifts and pledges Enhancing the physical environment that sustains the made to permanently restricted endowment funds.

Institute's academic and research mission is essential de-spite the significant cost of upgrading the aging buildings Temporarily restricted net assets represent those and infrastructure. MIT remains committed to renewing gifts that ultimately can be used to fund operating or our existing campus, and is moving firmly ahead with capital expenditures. They require an event or lapse of an Accelerated Capital Renewal Program designed to time to occur before they are available for spending.

improve the quality of spaces most directly impacting the Approximately 90 percent of the assets in this category Institute's faculty and students. are accumulated market gains on permanently restricted endowment funds. This category also includes pledges The following are additional details on MIT's fiscal not permanently restricted, gifts for construction proj-2012 Statements of Financial Position and Statement of ects that have not been completed and put into use, and Activities.

life income funds, which, upon maturity, will be available Statements of Financial Position for spending. The increase in temporarily restricted The following discussion highlights key elements of net assets of $253.0 million, or 5.0 percent, to a total of

$5,297.6 million, primarily resulted from the increase in MIT's financial position - net assets; investments; the market value of assets held in permanently restricted endowment and similar funds; land, buildings and equip-ment; postretirement benefit assets and liabilities; and funds. The Commonwealth of Massachusetts requires that all universities located within the Commonwealth borrowings.

report accumulated market gains on both permanently Net Assets and temporarily restricted net assets as temporarily Total net assets increased to $12,799.3 million, up 3.3 restricted net assets until appropriated for use.

percent from fiscal 2011. This level marks a new historic Unrestricted net assets comprise all the remaining peak and demonstrates the recovery of net assets from economic resources available to MIT. This category the financial crisis of fiscal 2009. includes MIT's working capital and those assets, desig-Net assets are presented in three categories to recognize nated by MIT as "funds functioning as endowment," to the significant ways in which universities are different be invested over the long term to generate support for from profit-making organizations. These categories MIT's operations and capital projects. Also included in 6 MIT REPORT OF THE TREASURER 2012

this category are current funds received from donors Management Company (MITIMCo). The Board of for restricted purposes that, under generally accepted Directors of MITIMCo holds four regularly scheduled accounting principles (GAAP) in the United States of meetings during the fiscal year where investment policy, America, are categorized as unrestricted if MIT spends performance, and asset allocation are reviewed with an equivalent amount of unrestricted funds for the same MITIMCo professionals.

purpose. In fiscal 2012, MIT adopted new accounting Endowment and Similar Funds guidance dealing with noncontrolling interests (formerly minority interests) which dealt with reclassification of the Endowment assets are managed to maximize total invest-liability to net assets. Unrestricted net assets increased ment return relative to appropriate risk. The market

$3.6 million, or 0.1 percent, to a total of $4,889.0 mil- value of investments in the endowment and similar lion, including the effects of postretirement benefit assets funds, excluding pledges for endowed purposes, totaled and obligations. The increase in unrestricted net assets is $10,149.6 million as of fiscal year end 2012, an increase due primarily to the increase in unrestricted endowment of 4.5 percent over the $9,712.6 million level of last year, value, investment gain on other invested funds, and re- and surpassed the peak year end level reached in fiscal lease of temporarily restricted funds when the buildings 2008 of $9,947.6 million.

are put into use, offset by an increase in postretirement obligations. Endowment 12,000 $ millions 10,150 Investments 10,0009,713 Investments at fair value were $12,847.9 million at fiscal 8,000 year end 2012, an increase of $611.3 million, or 5.0 percent, from $12,236.5 million at the previous year 4,000 end. Over the past five years, total invested assets have 2,000 increased to $12,847.9 million from $11,068.9 million 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 while investment income and distributions have totaled

$2,635.3 million. More specific information is included in Note B to the financial statements.

This year, MIT's core Pool A endowment produced a The financial statements include both realized and return of 8.0 percent. Investment income and a portion unrealized gains and losses on investments. Realized and of gains are distributed for spending in a manner that unrealized gains and losses, including those related to the over the long term preserves for reinvestment an amount disposition of fixed assets, were $738.3 million in fiscal at least equal to annual inflation on the value of the in-2012 and $1,483.7 million in fiscal 2011. vestment pool at the beginning of that year. Endowment funds invested in Pool A, MIT's primary investment MIT's investment policy is based on the primary goal of pool, receive distributions based on relative ownership, generating high real rates of return without exceptional which is valued monthly.

volatility. To reduce volatility, the portfolio is broadly diversified. To generate high real rates of return, MIT's Land, Buildings, and Equipment investment policy favors equity investments over fixed Land, buildings and equipment had a net book value of income instruments and is heavily weighted towards less

$2,497.7 million as of fiscal year end 2012, an increase of efficient markets such as private equity, real estate, and

$46.2 million, or 1.9 percent, from $2,451.5 million the real assets. MIT primarily invests through external fund previous year, driven by expenditures for research and managers, thereby allowing MIT to tap into the best in-educational facilities, including the completion of major vestment talent globally. By identifying a wide variety of renovations to the 29 thousand square-foot building E60 top-tier investment managers with specific competencies, and the 186 thousand square-foot undergraduate resi-MIT is able to construct a broadly diversified portfolio dence Fariborz Maseeh Hall.

while accessing deep sector expertise. Decision authority for the selection of managers, direct investments, Capital projects in development as part of the MIT and asset allocation resides with MIT's Investment 2030 initial set of priorities include renovation projects

SUMMARY

7

SUMMARY

7

for Chemistry and Math in Building 2 and for the invested at the direction of participants in a broad array original Sloan building (E52), occupied by the Sloan of investment funds. The plan's investments market value School and the Department of Economics. We are also was $2,952.6 million at fiscal year end 2012.

actively studying a new facility for the Nano-Materials, Borrowings Structures and Systems (nMaSS) program. As part of the Accelerated Capital Renewal Program, the Institute The increase in borrowings over the last decade, along is studying multiple sets of projects and interventions to with gifts received from donors, helped finance the more maximize the impact of capital investments in renovating than doubling of the value of land, buildings and equip-spaces that enable the academic mission. ment as MIT has invested in its physical infrastructure to support its growing mission into the next century.

These projects, among others, are part of ongoing campus development that adds state-of-the-art facilities Near the end of fiscal 2011, MIT executed a $750 mil-for emerging areas of research, increases educational lion century bond issuance to finance the first decade of infrastructure to support residential and community life, projects and accelerate the renewal of the campus con-and renews and renovates our existing physical resources. templated by the MIT 2030 framework. The full impact of the interest expense of this debt is reflected for the Postretirement Benefit Assets and Liabilities first time in fiscal 2012. No new debt was issued in fiscal MIT's defined benefit pension plan had assets of $2,577.8 2012 and therefore borrowings have remained relatively million at fiscal year end 2012, an increase of $5.5 mil- unchanged from last year at just under $2.5 billion.

lion from $2,572.3 million at fiscal year end 2011. The MIT's financial strength is reviewed periodically by both plan's projected liabilities were $2,890.6 million at fiscal Moody's Investors Service and Standard & Poor's Rating year end 2012, up $432.0 million from $2,458.6 mil-Services. These agencies rated the century bond issuance lion a year earlier, resulting in a net pension liability of as "Aaa" and "AAA", their highest rating levels, and their

$312.8 million at fiscal year end 2012, which compares ongoing reviews of MIT's finances in and subsequent to to an overfunded status of $113.7 million at fiscal year fiscal 2012 have continued to affirm these ratings.

end 2011. MIT also maintains a postretirement welfare benefit plan that covers retiree expenses associated with Statement of Activities medical and life insurance benefits, with assets of $358.9 million and liabilities of $489.5 million at fiscal year end Operating Activities 2012, resulting in a net benefits liability of $130.6 mil- In fiscal 2012, MIT continued to grow research activity lion compared to $198.2 million at fiscal year end 2011. and maintain excellence in its education mission while On an accounting basis, the combined plans' fiscal 2012 exercising expense control in core administrative areas.

underfunded status was $443.4 million, up from $84.5 MIT ended the year with a surplus from operations of million one year ago. The investments of both plans' $245.7 million, $66.2 million, or 36.9 percent, higher assets are managed by MITIMCo. than the fiscal 2011 result. The MIT community has In prior years, defined benefit pension plan funding demonstrated its commitment to financial discipline by beyond market appreciation had not been necessary due achieving an operating surplus in each of the past five to positive investment performance and stable discount years.

rates. Since the financial and economic crisis of 2008, the combination of declining interest and discount Operating Activities rates and lower than expected asset returns has pushed 3,500 $ millions 2,990 MIT's pension obligations into unfunded territory for 3,000 "".2,571 2,751 275 2,500 the last four years. This situation will likely require the Institute to contribute additional capital in future years 2,000 1,5000 1,500 1,687

,8 beyond market appreciation of plan assets; such capital contributions will be funded through the employee 1,000 benefits rate. 500 MIT also offers a 401(k) plan to its employees, which 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 is not reflected in the Statements of Financial Position, NRevenues CExpensos 8 MIT REPORT OF THE TREASURER 2012

Operating revenues increased $239.6 million, or 8.7 $1,527.9 million, up $80.6 million, or 5.6 percent, from percent, to $2,990.3 million in fiscal 2012, while oper- the previous year. Of these amounts, on-campus depart-ating expenses increased $173.4 million, or 6.7 percent, ments, labs and centers at MIT experienced a $3 5.4 to a total of $2,744.6 million. million, or 5.7 percent, increase in research revenues to

$654.4 million. Research revenues at Lincoln Laboratory Year-over-year comparisons of the components of totaled $844.9 million, an increase of $40.1 million, or operating results are influenced by fundamental trends, 5.0 percent. The Singapore-MIT Alliance for Research as well as such drivers as timing effects and policy deci-and Technology (SMART) generated $28.6 million sions on endowment payout. The Operating Activities of research revenue during fiscal 2012, an increase of section of our Statement of Activities on page 13 sets

$5.1 million, or 21.6 percent, for research activities forth details on these trends. Some of the specific trends taking place in Singapore. Total research awards and in various revenue and expense categories are described other funding received via the American Recovery and below.

Reinvestment Act of 2009 (ARRA) totaled $151.5 mil-Operating Revenues lion. Of the $151.5 million figure, $128.7 million was to MIT's operating revenues include tuition, research, fund research with the remainder funding infrastructure unrestricted gifts and bequests for current use, fees and investments and student support. ARRA funding sup-services, other programs, endowment distribution and ported $31.2 million of research in fiscal 2012, included income from other investments, auxiliaries, and pay- in the research figures above. Total ARRA research ments on pledges for unrestricted gifts (within net asset volume through fiscal year end 2012 has been $102.5 reclassifications and transfers). million, leaving $26.2 million of the $128.7 million in committed ARRA research funding to support research in fiscal 2013 and beyond.

Revenues Research revenues include reimbursement from sponsors Net Asset for both direct and indirect (facilities and administration)

Reclasses costs. MIT's modified total direct research expenditures, Auxiliaries 2% Net Tuition which form the basis for recovery of indirect costs, 4% ~ 9 increased by $63.7 million, or 7.7 percent.

Growth in MIT's campus research is being driven by both Federal and non-Federal sponsors. Total Federal sponsorship of research grew $3.1 million, or 0.7 per-Other Prol cent, to $472.6 million. Research volume sponsored 4%

by the Department of Health and Human Services Fees & Services decreased $19.0 million, or 12.4 percent, to $133.7 7% million; research volume sponsored by the Department of Defense increased $9.7 million, or 9.0 percent, to

$117.5 million; Department of Energy volume grew by

$1.4 million, or 1.5 percent, to $90.9 million; National Science Foundation volume grew by $6.6 million, or Tuition revenue for graduate, undergraduate and non- 8.9 percent, to $81.5 million; and volume sponsored degree executive programs net of financial aid grew by by the National Aeronautics and Space Administration

$22.5 million, or 8.9 percent, to $276.0 million. The increased $2.1 million, or 7.6 percent, from last year to growth in tuition revenue was driven by a 3.1 percent $30.2 million.

increase in student population and a 3.9 percent increase Non-Federal funding for campus research increased by in tuition rate. Financial aid for undergraduate students

$18.2 million, or 10.2 percent, to $196.4 million, with grew to $88.0 million, or 2.4 percent above that for the greatest increase coming from industry sponsors.

fiscal 2011. Financial aid for graduate education grew to

$163.7 million, or by 6.0 percent. While research supports more than half of MIT's revenue, we experienced significant growth in other MIT demonstrated strong growth in research funding revenue categories as well, the largest being revenues in fiscal 2012. Total research revenues increased to from fees and services at $219.4 million, an increase of

SUMMARY

9

SUMMARY

9

$20.4 million, or 10.3 percent. The primary driver of 2012. Interest expense grew by 45.7 percent, driven by this strong growth of revenues was a one-time increase the century bond issuance in late fiscal 2011 to support in technology licensing fees. MIT's support from invest- the next phase of investment in the campus environment.

ments increased 10.2 percent due primarily to revenue Utilities, rent, and repairs grew by 24.9 percent, mainly from the increase in the endowment distribution rate, due to leasehold expenses incurred at Lincoln Lab, and additions to the endowment and other invested assets. depreciation increased by 7.5 percent.

The distribution rate on endowed funds was 4.9 percent, Non-Operating Revenues, Gains and Losses or 5.4 percent on a three-year-average basis, in fiscal Summary 2012.

Non-operating activities contributed $143.5 million to MIT also saw significant growth in support from its MIT's fiscal 2012 total net asset balance of $12,799.3 donor base in the form of gifts and bequests for current million. Growth in invested assets net of distribution, use. Gifts grew by $45.1 million, or 40.6 percent, mainly gifts and bequests, and improved pledge activity were due to gifts from foundations that supported program-the principal contributors to positive non-operating matic initiatives.

performance.

Operating Expenses Gifts and Pledges Operating expenses grew to $2,744.6 million, an increase Gifts to MIT support scholarships, fellowships, educa-of $173.4 million or 6.7 percent. This consolidated result tional programming, and student life activities. Gifts and combines differing underlying trends in units funded by pledges for fiscal 2012 totaled $433.4 million, a decrease the general Institute unrestricted budget, the research of 17.0 percent from the fiscal 2011 total of $522.4 enterprise and expenditures from accumulated unit fund million. Gifts from individuals represented 31.8 percent balances.

of new gifts and pledges, down from 65.5 percent in the previous year. Gifts from foundations represented 53.3 Depreciation Expenses percent of new gifts and pledges in fiscal 2012, up from Interest 19.8 percent in the previous year. Gifts from corpora-5%

4% tions and other sources represented 14.9 percent, up Utilities/Rent)

Repairs from 14.7 percent in fiscal 2011. New gifts and pledges 6% for research and education were the largest category of Subreciplent Agreements gifts for fiscal 2012.

4%

MIT's full financial statements and footnotes, further describing our financial position and activities through June 30, 2012, are included on the following pages.

Closing Remarks This past year has seen continued progress in the finan-cial condition of the Institute and its impact nationally and globally. We improved in most revenue sources and, coupled with managed expense growth, we realized improved results of operations. We grew net assets to a record level, and our endowment, aptly managed by Overall Institute salary costs rose 5.9 percent while MITIMCo and propelled by the generosity of our do-employee benefits costs rose 4.4 percent. Institute salary nors and friends, also achieved its highest market value in increases were 2.9 percent while headcount grew by history, surpassing its highest level before the fiscal 2009 3.0 percent. Behind the campus salary increase, salaries financial crisis.

funded centrally through the general Institute unre-stricted budget grew by 5.2 percent while those funded On every dimension, the last decade has witnessed a through research grew by 6.6 percent. vibrant MIT. Our faculty and students dramatically expanded MIT's research landscape, launching and Expense increases were concentrated in operating accelerating an array of interdisciplinary labs, centers, categories other than salaries and employee benefits in 10 MIT REPORT OF THE TREASURER 2012

and initiatives. The MIT learning community expanded In closing, I would like to acknowledge that although in both size and diversity, and students from around the our financial position is strong and able to sustain our world increasingly view MIT as the place to which they excellence, and positions the Institute to take advantage want to be connected. The future of MIT's campus is of future exciting directions and opportunities, we also now unfolding through the MIT 2030 framework, in face important challenges. Our principal revenue sources support of the Institute's academic priorities and physical are more volatile than in the past, and our funding model resources. Additionally, through a range of expanded col- may come under pressure in a still uncertain economic laborations, MIT continues to further its impact on the climate and changing competitive landscape for higher world with leadership in global education and research. education. At the same time, we must continue ad-On behalf of the MIT community, I take this opportu- dressing the need to rebuild and renew our campus. As nity to express our appreciation for Susan Hockfield's a result, we look forward to fiscal year 2013 and beyond leadership, dedication and vision as MIT's President with a continued commitment to balancing MIT's aspira-during the last eight years as well as for Executive Vice tions with prudent fiscal management and stewardship.

President and Treasurer Theresa (Terry) M. Stone who As always, the commitment and dedication of our stu-earlier in the year retired after five years of service to dents, faculty, staff, alumni, friends, and members of the MIT. I am grateful for the opportunity to have worked MIT Corporation are and will continue to be the most closely with them over the years and feel honored and valuable assets of the Institute in' successfully navigating privileged in being entrusted by the MIT Corporation future challenges and opportunities.

to succeed Terry in the role of MIT's Executive Vice President and Treasurer.

Respectfully submitted, We also take the opportunity to celebrate the selection of the Institute's seventeenth President by the MIT Corporation in May 2012.-Effective July 2, 2 012, MIT Provost L. Rafael Reif became the Institute's seventeenth President and, concurrently, Professor Chris A. Kaiser, who had led MIT's Department of Biology, became Israel Ruiz MIT's new Provost. Congratulations to both and we Executive Vice President and Treasurer look forward to the excitement of working together in September 14, 2012 advancing the Institute's mission and supporting it with appropriate financial and operational resources.

SUMMARY

11

12 MIT REPORT OF THE TREASURER 2012 Massachusetts Institute of Technology Statements of Financial Position at June 30, 2012 and 2011 (in thousands of dollars) 2012 2011 Assets C ash ...................................................................... $ 239,377 $ 131,471 Accounts receivable, net ...................................................... 208,297 261,206 Pledges receivable, net, at fair value ............................................. 479,659 385,885 Contracts in progress, principally U.S. Government ............................... 66,724 68,411 Deferred charges, inventories and other assets .................................... 93,499 71,735 Student notes receivable, net .................................................. 49,529 49,757 Investm ents, at fair value ...................................................... 12,847,866 12,236,531 N oncontrolling interests ...................................................... 304,436 282,041 Retirement plan asset-overfunded status ......................................... - 113,715 Land, buildings & equipment (at cost of $3,546,351 for June 2012; $3,406,169 for June 2011),

net of accumulated depreciation .............................................. 2,497,711 2,451,479 Total assets .............................................................. $ 16,787,098 $16,052,231 Liabilities and Net Assets Liabilities:

Accounts payable, accruals and other liabilities .................................... $ 378,369 $ 366,161 Liabilities due under life income fund agreements, at fair value ....................... 87,899 84,225 Deferred revenue and other credits ............................................. 155,476 124,848 Advance paym ents ........................................................... 428,507 389,478 Borrow ings ................................................................. 2,460,002 2,467,825 Government advances for student loans .......................................... 34,103 33,754 Accrued benefit liabilities ..................................................... 443,398 198,209 Total liabilities ........................................................... 3,987,754 3,664,500 Net Assets:

Unrestricted net assets controlled by the Institute ................................. $ 4,584,516 $ 4,603,280 Unrestricted net assets attributable to noncontrolling interests ....................... 304,436 282,041 Total unrestricted net assets ................................................ 4,888,952 4,885,321 Tem porarily restricted ........................................................ 5,297,554 5,044,519 Perm anently restricted ....................................................... 2,612,838 2,457,891 Total net assets .......................................................... 12,799,344 12,387,731 Total liabilities and net assets ............................................... $ 16,787,098 $16,052,231 The accompanying notes are an integralpart of the financial statements.

FINANCIAL STATEMENTS 13

Massachusetts Institute of Technology Statement of Activities for the year ended June 30, 2012 (with summarized financial information for the year ended June 30, 2011)

(in thousands ofdollars) 2012 Total Temporarily Permanently Unrestricted Restricted Restricted 2012 2011 Operating Activities Operating Revenues:

Tuition and similar revenues, net of discount of

$251,709 in 2012 and $240,299 in 2011 ........ $ 275,993 $ - $ 275,993 $ 253,478 Research revenues:

D irect ....................................... 1,319,112 - - 1,319,112 1,250,388 In direct ...................................... 208,738 - - 208,738 196,818 Total research revenues ......................... $ 1,527,850 $ - $ - $ 1,527,850 $ 1,447,206 Gifts and bequests for current use ................ 156,172 - 156,172 111,114 Fees and services .............................. 219,391 - 219,391 198,971 O ther program s ............................... 104,556 - 104,556 87,133 Support from investments:

Endowm ent ............................... 468,604 - - 468,604 444,836 Other investments .......................... 78,681 - - 78,681 51,961 Total support from investments .................. 547,285 - - 547,285 496,797 Auxiliary enterprises ........................... 108,868 - - 108,868 100,135 Net asset reclassifications and transfers ............ 50,181 - - 50,181 55,813 Total operating revenue ........................ $ 2,990,296 $ - $ - $ 2,990,296 $ 2,750,647 Operating Expenses:

Salaries and wages ............................. $ 1,065,529 -$ - $ 1,065,529 $ 1,006,458 Employee benefits ............................. 233,343 - 233,343 223,568 Supplies and services ........................... 926,760 - 926,760 898,284 Subrecipient agreements ........................ 121,892 - 121,892 120,977 Utilities, rent, and repairs ....................... 164,273 - 164,273 131,539 D epreciation ................................. 125,100 - 125,100 116,385 Interest expense ............................... 107,689 - 107,689 73,936 Total operating expenses ........................ 2,744,586 - 2,744,586 2,571,147 Results of operations ........................... $ 245,710 -$ - $ 245,710 $ 179,500 Non-Operating Activities Pledge revenue ............................... $ - $ 135,879 $ 46,869 $ 182,748 $ 110,577 Gifts and bequests ............................. 94,504 94,504 300,718 Investment income ............................ 489 6,853 7,342 8,706 Net gain on investments and other assets .......... 275,868 447,241 15,199 738,308 1,483,669 Distribution of accumulated investment gains ....... (155,527) (285,789) - (441,316) (379,793)

Net change in life income funds .................. (1,478) 3,766 4,284 6,572 28,413 Pension-related charges other than net periodic pension benefit income ...................... (394,469) - (394,469) 105,408 Net asset reclassifications and transfers ............ 11,132 (48,551) (12,762) (50,181) (55,813)

Total non-operating activities .................... (264,474) 253,035 154,947 143,508 1,601,885 Increase in net assets controlled by Institute ........ (18,764) 253,035 154,947 389,218 1,781,385 Change in net assets attributable to noncontrolling interests .................................. 22,395 - 22,395 51,6.08 Net assets at the beginning of the year ............ 4,885,321 5,044,519 2,457,891 12,387,731 10,554,738 Net assets at the end of the year .................. $ 4,888,952 $5,297,554 $2,612,838 $12,799,344 $12,387,731 The accompanvinv notes are an inteoral Partof the financialstatements.

14 MIT REPORT OF THE TREASURER 2012

Massachusetts Institute of Technology Statements of Cash Flows for the years ended June 30, 2012 and 2011 (in thousands of dollars) 2012 2011 Cash Flow from Operating Activities:

Increase in net assets ................................................... $ 411,613 $ 1,832,993 Adjustments to reconcile change in net assets to net cash used in operating activities:

N et gain on investm ents ................................................... (734,374) (1,483,669)

Change in retirement plan asset, net of change in accrued benefit liability ........... 358,904 (134,300)

D epreciation ............................................................ 125,100 116,385 Gifts of securities ........................................................ (2,978) (1,921)

N et gain on life incom e funds .............................................. (2,442) (25,383)

Change in noncontrolling interests .......................................... (22,395) (51,608)

Amortization of bond premiums and discounts and other adjustments .............. (2,431) (7,949)

Change in operating assets and liabilities:

Pledges receivable ........................................................ (93,774) (10,655)

Accounts receivable ....................................................... 52,909 (58,090)

C ontracts in progress ..................................................... 1,687 (67)

Deferred charges, inventories and other assets ................................. (21,764) (15,821)

Accounts payable, accruals and other liabilities, excluding building and equipment accruals .................................................... 21,970 68,948 Liabilities due under life income fund agreements .............................. 3,674 9,969 Deferred revenue and other credits .......................................... 30,628 10,699 Advance paym ents ........................................................ 39,029 27,106 Reclassify investm ent incom e .................................................. (7,342) (8,706)

Contributed securities received as payment on pledges ............................. (37,302) (27,380)

Contributions restricted for long-term investment ................................. (94,504) (300,718)

Net cash provided by (used in) operating activities ........................... 26,208 (60,167)

Cash Flow from Investing Activities:

Purchase of land, buildings and equipment ....................................... (183,958) (251,932)

Purchases of investm ents ..................................................... (52,463,972) (41,050,404)

Proceeds from sale of investments, including contributed securities ................... 52,638,753 40,570,574 Student notes issued ......................................................... (20,013) (9,967)

Collections from student notes ................................................. 20,198 9,282 N et cash used in investing activities ....................................... (8,992) (732,447)

Cash Flow from Financing Activities:

Proceeds from contributions restricted for:

Investm ent in endowm ent ................................................. 94,504 293,317 Investm ent in plant and other .............................................. 7,401 Less: contributed securities, gifts for endowment, plant and other ................. (9,015) (267,356)

Total proceeds from contributions ......................................... 85,489 33,362 Increase in investment income for restricted purposes .............................. 7,342 8,706 Proceeds from borrowings .................................................... 750,000 Repaym ent of borrowings ...................................................... (2,490) (2,370)

Increase in government advances for student loans ................................. 349 164 Net cash provided by financing activities ................................... 90,690 789,862 N et increase (decrease) in cash ................................................. 107,906 (2,752)

Cash at the beginning of the year ............................................... 131,471 134,223 C ash at the end of the year .................................................... $ 239,377 $ 131,471 The accompanyingnotes are an integralpart of the financialstatements.

FINANCIAL STATEMENTS 15

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, unre-Permanently restricted net assets include gifts, pledges, stricted gifts and bequests for current use, fees and services, trusts and remainder interests, and income and gains other programs, endowment distribution and income from that are required by donors to be permanently retained. other investments, auxiliary revenues, payments on pledges Pledges, trusts, and remainder interests are reported at for unrestricted gifts, and operating expenditures. Results their estimated fair values. of operations are displayed in the Statement of Activities.

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

where donors have specified the purpose for which the net assets are to be spent, or time restrictions imposed by Restricted Cash donors or implied by the nature of the gift (capital projects, pledges to be paid in the future, life income funds), or by Certain cash balances, totaling $60.3 million and $42.5 interpretations of law (net gains on permanently restricted million at June 30, 2012 and 2011, respectively, are gifts that have not been appropriated for spending). Gifts restricted for use under certain sponsored research specified for the acquisition or construction of long-lived agreements.

assets are reported as temporarily restricted net assets until The Institute had approximately $238.1 million and $129.8 the monies are expended and the buildings are put into million at June 30, 2012 and 2011, respectively, of its cash use, at which point they are reclassified to unrestricted net and cash equivalents accounts with a single institution. The assets. Net unrealized losses on permanently restricted Institute has not experienced any losses associated with endowment funds for which the book value exceeds market deposits at this institution.

value are recorded as a reduction to unrestricted net assets.

Unrestricted net assets are all the remaining net assets of Sponsored Research MIT. Donor-restricted gifts and unexpended restricted Revenue associated with contracts and grants is recognized endowment income that are received and either spent, or as related costs are incurred. The capital costs of buildings the restriction is otherwise met within the same year, are and equipment are depreciated over their estimated life reported as unrestricted revenue. Gifts of long-lived assets cycle and the sponsored research recovery allowance for are reported as unrestricted revenue. depreciation is treated as indirect research revenue. MIT Net asset reclassifications and transfers consist primarily has recorded reimbursement of indirect costs relating to of payments on unrestricted pledges and use of building sponsored research at negotiated fixed billing rates. The funds in accordance with donor restrictions for buildings income generated by the negotiated rates is adjusted each put into use during the year. Expirations of temporary fiscal year to reflect any variance between the negotiated restrictions on net assets, release of permanent restrictions fixed rates and rates based on actual cost. The actual cost by a donor, and change of restrictions imposed by donors rate is audited by the Defense Contract Audit Agency are also reported as reclassifications of net assets among (DCAA) and a final fixed-rate agreement is signed by the unrestricted, temporarily and permanently restricted net U.S. Government and MIT The variance between the assets. negotiated fixed rate and the final audited rate results in a 16 MIT REPORT OF THE TREASURER 2012

A. Accounting Policies (continued) carry forward (over or under-recovery). The carry forward Depreciation expense was $125.1 million in 2012 and is included in the calculation of negotiated fixed billing $116.4 million in 2011. Net interest expense of $3.8 rates in future years. Any adjustment in the rate is charged million and $6.6 million was capitalized during 2012 and or credited to unrestricted net assets. 2011, respectively, in connection with MIT's construction projects.

Land, Buildings and Equipment Land, buildings and equipment are shown at cost when Tuition and Financial Aid purchased or fair value as of the date of a gift when received as gifts, net of accumulated depreciation. When expended, Tuition and similar revenues, shown in Table 2 below, costs associated with the construction of new facilities are include tuition and fees in degree programs as well as shown as construction in progress until such projects are tuition and fees for executive and continuing education completed. Depreciation is computed on a straight-line programs at MIT basis over the estimated useful lives of 25 to 50 years for buildings, 3 to 25 years for equipment, and 4 to 6 years for software. Fully depreciated assets were removed from the Table 2. Tuition and Similar Revenues financial statements in the amount of $27.2 million and (in thousands of dollars) 2012 2011

$37.5 million during 2012 and 2011, respectively. Land, buildings and equipment at June 30, 2012 and 2011 are Tuition revenue ........ $ 491,046 $ 457,494 shown in Table 1 below. Executive and continuing education revenues ..... 36,656 36,283 Total ................ 527,702 493,777 Less: tuition discount ... (251,709) (240,299)

Table 1. Land, Buildings and Equipment Net tuition & similar (in thousands of dollars) 2012 2011 revenue .............. $ 275,993 $ 253,478 Land ................. $ 65,198 $ 59,598 Land improvements ..... 64,299 60,795 Educational buildings ... 3,106,569 2,936,816 Tuition support is awarded to undergraduate students by Equipment ............ 175,046 164,909 MIT based on need. Graduate students are provided with Software .............. 31,933 29,938 tuition support in connection with research assistance, Total ................ 3,443,045 3,252,056 teaching assistance, and fellowship appointments. Total Less: accumulated student support granted to students was $441.2 million depreciation ........... (1,048,640) (954,690) and $409.8 million in 2012 and 2011, respectively. Of that Construction in amount, $144.5 million in 2012 and $125.8 million in 2011 progress .............. 87,177 142,788 was aid from sponsors. Tuition support from MIT sources Software projects in is displayed as tuition discount. Components of student progress .............. 16,129 11,325 support are detailed in Table 3 below.

Land, buildings and equipment ........... $ 2,497,711 $2,451,479 Table 3. Student Support 2012 I I 2011 Institute External Total Institute External Total (in thousands of dollars) sources sponsors financial aid sources sponsors financial aid Tuition support ........... $ 251,709 $ 66,074 $ 317,783 $ 240,299 $ 53,756 $ 294,055 Stipends ................. 18,203 15,060 33,263 17,680 12,755 30,435 Student salaries ........... 26,723 63,412 90,135 26,051 59,284 85,335 Total .................. $ 296,635 $ 144,546 $ 441,181 $ 284,030 $ 125,795 $ 409,825 NOTES TO FINANCIAL STATEMENTS 17

A. Accounting Policies (continued)

Gifts and Pledges Revised Classifications Gifts and pledges are recognized when received. Gifts of On July 1, 2011, MIT adopted the accounting standard, securities are recorded at their fair value at the date of con- Not-for-ProfitEntities: Mergers and Acquisitions. This tribution. Gifts of equipment received from manufacturers standard specifies that noncontrolling interests (formerly and other donors are put into use and recorded by MIT at known as minority interests, classified as a liability) be fair value. Gifts of equipment totaled $0.4 million in 2012 reported within unrestricted net assets on the Statements of and 2011. Pledges in the amount of $479.7 million and Financial Position and the change in net assets attributable

$385.9 million were recorded as receivables at June 30, to noncontrolling interests be reported separately within 2012 and 2011, respectively, with the revenue assigned to the Statement of Activities. The standard had an effective the appropriate classification of restriction. Pledges consist date of June 30, 2011, but was not adopted until fiscal year of unconditional written promises to contribute to MIT 2012, and as a result, the Institute has revised the prior year in the future and are recorded after discounting the future presentation of its noncontrolling interests to conform to cash flows to the present value. the correct current year presentation and generally accepted accounting principles. The impact of this revision to the MIT records items of collections as gifts at nominal value.

prior year financial statements decreased total liabilities They are received for educational purposes and most are from $3,994.7 million to $3,664.5 million and increased displayed throughout MIT. In general, collections are not total net assets from $12,105.7 million to $12,387.7 million.

disposed of for financial gain or otherwise encumbered in As a result, the Institute reported net assets attributable to any manner.

non-controlling interests in the amount of approximately

$282.0 million. In addition, the increase in net assets Advance Payments on the Statement of Activities and Statements of Cash Amounts received by MIT from the U.S. Government, Flows changed from $1,781.4 million to $1,833.0 million.

corporations, industrial sources, foundations, and other Management does not believe that the impact of the prior non-MIT sponsors under the terms of agreements that year revision is material.

generally require the exchange of assets, rights, or privileges between MIT and the sponsor are recorded as advance Recently Adopted Accounting Standards payments. Revenue is recognized as MIT fulfills the terms On July 1, 2011, MIT adopted new guidance enhancing the of the agreement.

Fair Value Measurement standard. This standard requires further disclosure on the activity in the Level 3 rollforward Life Income Funds to be reported on a gross, rather than net, basis.

MIT's life income fund agreements with donors consist On July 1, 2010, MIT adopted new guidance enhancing the primarily of irrevocable charitable gift annuities, pooled Fair Value Measurement standard. This standard requires income funds, and charitable remainder trusts for which further disclosure of significant transfers in and out of MIT serves as trustee. Assets are invested and payments Level 1 and Level 2 fair value measurements, including the are made to donors and other beneficiaries in accordance reasons for the transfers, and requires discussions of their with the respective agreements. MIT records the assets fair value measurement disclosures on a disaggregated basis.

that are associated with each life income fund at fair value Refer to Note B for further details.

and records as liabilities the present value of the estimated future payments at current interest rates to be made to On July 1, 2010, MIT adopted the accounting standard, the donors and beneficiaries under these agreements. Credit Quality. This standard requires the disclosure about A rollforward of liabilities due under life income fund the credit quality of financing receivables and the related agreements is presented in Table 4. allowance for credit losses. The disclosures are included in Note E.

Table 4. Liabilities Due Under Life Income Funds (in thousands of dollars) 2012 2011 Balance at beginning of year ....................................... $ 84,225 $ 74,256 Additions for new gifts ............................................ 7,389 8,907 Terminations and payments to beneficiaries .......................... (12,200) (12,164)

Net investment and actuarial gain .................................. 8,485 13,226 Balance at end of year ......................................... $ 87,899 $ 84,225 18 MIT REPORT OF THE TREASURER 2012

A. Accounting Policies (continued)

Noncontrolling Interests Reclassifications AI4T is the general partner for several private equity funds Certain June 30, 2011 balances and amounts previously and has displayed the noncontrolling interests on the reported have been reclassified to conform to the June 30, Statements of Financial Position. 2012 presentation.

Non-Cash Items Subsequent Events Non-cash transactions excluded from the Statements of MIT has evaluated subsequent events through September

'Cash Flows include $12.9 million and $23.2 million of 14, 2012, the date the financial statements were issued.

accrued liabilities related to plant and equipment purchases There were no subsequent events that occurred after the for 2012 and 2011, respectively. balance sheet date that have a material impact on MIT's financial statements.

Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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.

B. Investments Investment transactions are accounted for on the trade

• Level 1 - Quoted prices in active markets for identical date. Dividend income is recorded on the ex-dividend date. assets or liabilities. Market price data is generally obtained Realized gains and losses are recorded by MIT using the from relevant exchanges or dealer markets.

average cost basis.

9 Level 2 - Inputs other than Level 1 that are observable, MIT values its investments in accordance with the either directly or indirectly, such as quoted prices for principles of accounting standards which establish a similar assets or liabilities, quoted prices in markets that hierarchy of valuation inputs based on the extent to which are not active, or other inputs that are observable or can be the inputs are observable in the marketplace. Observable corroborated by observable market data for substantially inputs reflect market data obtained from sources the same term of the assets or liabilities. Inputs are obtained independent of the reporting entity. Unobservable inputs from various sources including market participants, dealers, reflect the entity's own assumptions about how market and brokers.

participants would value an asset or liability based on the

• Level 3 - Unobservable inputs that are supported by little best information available. Valuation techniques used to measure fair value must maximize the use of observable or no market activity and that are significant to the fair value of the assets or liabilities.

inputs and minimize the use of unobservable inputs. MIT follows a fair value hierarchy based on three levels of inputs, A financial instrument's categorization within the valuation of which the first two are considered observable and the last hierarchy is based upon the lowest level of input that is is unobservable. significant to the fair value measurement. Investments may The following describes the hierarchy of inputs used to be classified as Level 2 when market information (including measure fair value and the primary valuation methodologies observable net asset values) is available, yet the investment is not traded in an active market. Market information, used by MIT for financial instruments measured at fair value on a recurring basis. The three levels of inputs are as including observable net asset values, subscription and redemption activity, if applicable, and the length of follows:

time until the investment will become redeemable are NOTES TO FINANCIAL STATEMENTS 19

B. Investments (continued)

Table 5. Investmnents 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 2012 Cash and cash equivalents ................. $ 1,599,874 $ $ - 1,599,874 U S treasury ............................  : 462,111 - 462,111 US government agency ................... 84,625 - 84,625 Domestic bonds**........................ 23,243 229,872 78,9d61 332,076 Foreign bonds**......................... 15,043 - 15,043 Common equity Long domestic equity ................... 933,902 1,559 279,5221 1,214,982 Long foreign equity .................... 290,853 5,891 - 296,744 Short domestic equity ................... (570,076) (609) 13) (570,688)

Short foreign equity .................... (76,711) - (76,711)

Equity*'

Absolute return ........................ 393,396 1,283,4 90 1,676,886 D om estic ............................. 69,625 27,701 1,038,5337 1,135,863 Foreign .............................. 8,124 281,523 1,070,9881 1,360,628 Private ............................... 2,610,0224 2,610,024 R eal estate* ............................. 1,964,9101 1,964,901 R eal assets** ............................ 1,648 75,377 536,2 66 613,291 Split interest agreements .................. 121,8116 121,816 O ther ................................. 2,6338 2,638 D erivatives ............................. (1,239) 5,002 - 3,763 Total investm ents ....................... $ 2,741,354 $ 1,119,380 $ 8,987,13 32 $ 12,847,866 Fiscal year 2011 Cash and cash equivalents ................. $ 1,175,781 $ - $ - $ 1,175,781 U S treasury ............................. 588,650 - 588,650 US government agency ................... 63,153 - 63,153 Dom estic bonds**........................ 22,075 243,806 75,644 341,525 Foreign bonds**......................... 12,074 3 12,077 Common equity Long domestic equity ................... 902,225 5,359 273,148 1,180,732 Long foreign equity .................... 318,089 7,916 326,005 Short domestic equity ................... (358,283) (122) (358,405)

Short foreign equity .................... (88,108) (88,108)

Equity**

Absolute return ........................ - 470,086 1,408,152 1,878,2338 Domestic ............................. 201,117 33,093 564,360 798,5; 70 Foreign .............................. 51,766 110,055 1,112,986 1,274,8( 07 Private ............................... - - 2,479,017 2,479,0117 Real estate*............................. - - 1,691,704 1,691,7( 14 Real assets** ............................ - - 699,098 699,09,98 Split interest agreements .................. - - 101,125 101,1 52 Other ................................. - - 2,592 2,5* 92 D erivatives ............................. (1,757) 71,727 - 69,9; 70 j

Total investments ....................... $ 2,811,555 $ 1,017,147 $ 8,407,829 $ 12,236,53 1

• Realestate includes direct investments and investments held through commingled vehicles.

• • Real assets, Equity, Domestic bonds and Foreign bonds categories include commingled vehicles that invest in these types of investments.

20 MIT REPORT OF THE TREASURER 2012

B. Investments (continued) considered when determining the proper categorization managers' reported NAV without further adjustment unless of the investment's fair value measurement within the fair MIT expects to sell the investment at a value other than valuation hierarchy. Fund investments that have observable NAV or the NAV is not calculated in accordance with market inputs (such as net asset values) and from which GAAP. Direct real estate holdings are valued at fair market MIT has the ability to redeem within twelve months of June value based on external appraisals. Other direct investments 30 are classified in the fair value hierarchy as Level 2. that are not readily marketable are valued by MIT based upon valuation information received from the entity which Investment funds that have unobservable inputs or from may include last trade information or valuations prepared which MIT does not have the ability to redeem within in connection with the administration of an employee twelve months are classified in the fair value hierarchy as stock ownership plan. MIT may also utilize industry Level 3.

standard valuation techniques. Split-interest agreements Table 5 on the previous page presents MIT's investments are generally valued at the present value of the future at fair value as of June 30, 2012 and 2011, grouped by distributions expected to be received over the term of the the valuation hierarchy as defined in this note. Transfers agreement. Over-the-counter positions such as interest between levels are recognized at the beginning of the rate and total return swaps, credit default swaps, options, reporting period. There were no significant transfers in and exchange agreements, and interest rate cap and floor out of Level 1 and Level 2 fair value measurements in 2012 agreements are valued using broker quotes or models using and 2011. Significant transfers out of level three and into market observable inputs. Because the swaps and other level two in 2012 and 2011 resulted from the expiration of over-the-counter derivative instruments have inputs that lockups which had prevented MIT from exiting the fund can generally be corroborated by observable market data, within twelve months. they are generally classified within Level 2.

Cash and cash equivalents include cash, money market The methods described above may produce a fair value that funds, repurchase agreements and negotiable certificates may not be indicative of net realizable value or reflective of deposit and are valued at cost, which approximates fair of future fair values. MIT performs ongoing due diligence value. Instruments listed or traded on a securities exchange around its non-public investments to determine that fair are valued at the last quoted price on the primary exchange value is reasonable as of June 30, 2012 and 2011.

where the security is traded. Investments in non-exchange Furthermore, while MIT believes its valuation methods traded debt are primarily valued using independent are appropriate and consistent with those of other market pricing sources that use broker quotes or models using participants, the use of different methodologies or market observable inputs. Investments managed by assumptions to determine the fair value of certain financial external advisors include investments in absolute return, instruments could result in a different estimate of fair value domestic, foreign and private equity, real estate and at the reporting date.

real asset commingled vehicles. The majority of these investments are not readily marketable and are reported at Table 6 is a rollforward of the investments classified by MIT fair value utilizing the most current information provided within Level 3 of the fair value hierarchy defined on page 19 by the external advisors. Securities held in these external at June 30, 2012 and 2011.

investment vehicles that do not have readily determinable All net realized and unrealized gains and losses relating fair values are determined by the external managers and to financial instruments held by MIT and shown in Table are based on appraisals or other estimates that require 5 are reflected in the Statement of Activities. Cumulative varying degrees of judgment. If no public market exists for unrealized gains related to Level 3 investments totaled the investment securities, the fair value is determined by

$2,476.9 million and $2,012.9 million for the years ended the external managers taking into consideration, among June 30, 2012 and 2011, respectively. The net change other things, the cost of the securities, prices of recent in unrealized gains (losses) related to these financial significant placements of securities of the same issuer, and instruments held by MIT at June 30, 2012 are disclosed in subsequent developments concerning the companies to Table 6.

which the securities relate. Using these valuations, most of these external managers calculate MIT's capital account or MIT enters into short sales whereby it sells securities which net asset value (NAV) in accordance with, or in a manner may or may not be owned by MIT in anticipation of a consistent with, GAAP. As a practical expedient, MIT is decline in the price of such securities or in order to hedge permitted under GAAP to estimate the fair value of its portfolio positions. Cash collateral and certain securities investments with external managers using the external owned by MIT were held at counterparty brokers to NOTES TO FINANCIAL STATEMENTS 21

B. Investments (continued) collateralize these positions and are included in investments portion of the investments as "illiquid" in "side-pockets,"

on the Statements of Financial Position. and these funds may not be available for withdrawal until liquidated by the investing fund. Generally, MIT has no Certain investments in real estate, equities, and private discretion as to withdrawal with respect to its investment investments may be subject to restrictions that (i) limit in private equity and real estate funds. Distributions are MIT's ability to withdraw capital after such investment made when sales of assets are made within these funds and (ii) may be subject to limitations that limit the amount and the investment cycle for these funds can be as long as that may be withdrawn as of a given redemption date.

fifteen to twenty years. These restrictions may limit MIT's Most absolute return, domestic equity and foreign equity ability to respond quickly to changes in market conditions.

commingled funds limit withdrawal to monthly, quarterly, MIT does have various sources of liquidity at its disposal, or other periods, and may require notice periods. In including cash, cash equivalents, marketable debt and equity addition, certain of these funds are able to designate a securities, and lines of credit.

Table 6. Roliforward of Level 3 Investments Fair Value Realized Gains Unrealized Transfer of Assets Fair Value (in thousands of dollars) Beginning (Losses) Gains (Losses) Purchases Sales between Levels Ending Fiscal Year 2012 Domestic bonds ..................... S 75,644 $ $ 1 $ 11,550 $ (7,879) $ (355) $ 78,961 Foreign bonds ....................... 3 - -(2) (1)

Common equity .....................

Long domestic equity ............... 273,148 8 5,379 7,716 (6,730) - 279,521 Short domestic equity .............. (3) - (3)

E quity .............................

Absolute return .................... 1,408,152 (7,750) 13,925 39,161 (169,998) - 1,283,490 D om estic ......................... 564,360 (10,918) 143,115 400,257 (58,277) - 1,038,537 Foreign .......................... 1,112,986 (24,375) (19,476) 181,410 (166,705) (12,859) 1,070,981 Private ........................... 2,479,017 (6,185) 125,079 319,630 (307,517) - 2,610,024 Real estate .......................... 1,691,704 5,149 142,723 441,466 (316,141) - 1,964,901 Real assets .......................... 699,098 (6,189) 12,094 (78,326) (90,411) 536,266 Split interest agreements .............. 101,125 2,319 18,478 (106) - 121,816 O ther .............................. 2,592 167 124 30 (275) - 2,638 Total investments $8,407,829 S (43,904) S 406,997 $1,431,792 $(1,111,956) $ (103,626) $ 8,987,132 Fiscal Year 2011 Domestic bonds ..................... $ 73,310 $ $ $ 10,680 $ (8,346) $ - $ 75,644 Foreign bonds ....................... 2 1 3 Common equity .....................

Long domestic equity ............... 12,163 1,005 273,982 (14,002) 273,148 E quity .............................

Absolute return .................... 1,452,998 (1) 164,512 21,394 (182,525) (48,226) 1,408,152 D om estic ......................... 393,870 103,227 132,000 (64,737) - 564,360 Foreign .......................... 887,667 12,378 75,121 492,852 (355,032) - 1,112,986 P rivate ........................... 2,092,094 (2,433) 335,577 374,407 (320,628) - 2,479,017 R eal estate .......................... 1,401,896 12 157,997 225,899 (94,100) - 1,691,704 R eal assets .......................... 639,663 66,748 24,786 (32,099) - 699,098 Split interest agreements .............. 90,214 10,911 - 101,125 O ther .............................. 1,713 373 575 (69) - 2,592 Total investments $7,045,590 $ 9,956 $ 915,471 $1,556,575 $(1,071,538) $ (48,225) $ 8,407,829 22 MIT REPORT OF THE TREASURER 2012

B. Investments (continued)

Details on the estimated remaining life, current redemption terms and restrictions by asset class and type of investment are provided below.

Table 7. Unfunded Commnitments r . - 2011

- 2012 Asset Class Unfunded (in thousands of dollars) Commitments FairValue Commitments Fair Value Redemption Terms Redemption Restrictions Equity:

Domestic $ 26,941 S 1,135,863 $ 21,000 $ 798,570 Redemption terms range from Lock-up provisions range daily to annually with 90 days none to 4 years notice Foreign 209,245 1,360,628 106,226 1,274,807 Redemption terms range from Lock-up provisions range from daily to quarterly with 90 days none to 8 years notice Absolute return 37,762 1,676,886 66,410 1,878,238 Redemption terms range from Lock-up provisions range from monthly with 3 business days none to not redeemable notice to closed end structures not available for redemption Private 1,261,309 2,610,024 1,047,183 2,479,017 Closed end funds not eligible Not redeemable for redemption Real estate 531,904 757,715 510,321 648,677 Closed end funds not eligible Not redeemable for redemption Real assets 135,516 613,083 101,168 698,948 Redemption terms range from I Not redeemable except for 1 fund annually with 90 days fund with a lock-up provision notice to all other funds are closed of 4 years end funds not eligible for redemption Totals $ 2,202,677 $8,154,198 $ 1,852,308 $ 7,778,257 NOTES TO FINANCIAL STATEMENTS 23

C. Derivative Financial Instruments During the year ended June 30, 2011, MIT maintained the expiration date, option type, exercise style, the terms two interest rate swap agreements to manage the interest of the underlying swap and the type of settlement. As the cost and risk associated with its variable rate debt, further expiration date approaches, the swaption holder can either described in Note G. On June 5, 2011, one of these swap notify the seller of its intention to exercise or let the option agreements expired. Under the terms of the expired expire. An interest rate cap places a ceiling on a floating agreement, MIT paid a fixed rate of 4.46% on a notional rate of interest on a specified notional principal amount for amount of $125 million and received a payment indexed to a specific term. The buyer of the cap uses the cap contract the Securities Industry and Financial Market Association to limit its maximum interest rate exposure. If the buyer's (SIFMA) municipal swap index rate. Under the remaining floating rate rises above the cap strike, the cap contract agreement, MIT pays a fixed rate of 4.91% and receives a provides for payments from the seller to the buyer of the payment indexed to SIFMA on a notional amount of $125 cap for the difference between the floating rate and the cap million. At June 30, 2012, the remaining swap agreement strike. If the floating rate remains below the cap strike, no had a total fair value of ($58.6) million and atJune 30, 2011 payments are required. The cap buyer is required to pay had a fair value of ($32.8) million. This swap portfolio had an upfront fee or premium for the cap. The cap premium a total net loss for 2012 of $25.8 million and a total net charged by the seller depends upon the market's assessment gain, of $7.7 million for 2011. The notional amounts of of the probability that rates will move through the cap strike these derivatives are not recorded on MIT's Statements of over the time horizon of the deal. The payoff is expected to Financial Position. occur in extreme market conditions that would negatively For its investment management, MIT uses a variety of impact other of MIT's assets.

financial instruments with off-balance sheet risk involving Table 8 summarizes the notional exposure and net ending contractual or optional commitments for future settlement. fair value relative to the financial instruments with off-MIT uses these instruments primarily to manage its balance sheet risk as of June 30, 2012 and 2011 related to exposure to extreme market events and fluctuations in asset MIT's investment management. Derivatives held by limited classes or currencies. Instruments utilized include futures, partnerships and commingled investment vehicles pose no total return and credit default swaps, and interest rate cap off-balance sheet risk to MIT due to the limited liability and swaption agreements. The futures are exchange-traded structure of these investments. To manage the counterparty and the swap, swaptions, and cap agreements are executed credit exposure of MIT's direct off-balance sheet financial over the counter. instruments, MIT requires collateral to the maximum Total return swaps involve commitments to pay interest in extent possible under normal trading practices. Collateral exchange for a market-linked return, both based on notional is moved on a daily basis as required by fluctuations in the

-amounts. To the extent the total return of the security or market. The collateral is generally in the form of debt index underlying the tranaction exceeds or falls short of obligations issued by the U.S. Treasury or cash. In the the offsetting interest rate obligation, MIT will receive a event of counterparty default, MIT has the right to use the payment from or make a payment to the counterparty. collateral to offset the loss associated with the replacement of the agreements. MIT enters into arrangements only MIT's portfolio of interest rate caps and swaptions is with counterparties believed to be creditworthy. On June designed for protection from significant increases in interest 30, 2012, cash collateral and certain securities owned by rates. An interest rate swaption is an option to enter into an MIT were held at counterparty brokers to collateralize interest rate swap agreement on pre-set terms at a future these positions and are included in investments on the date. The purchaser and seller of the swaption agree on Statements of Financial Position.

24 MIT REPORT OF THE TREASURER 2012

C. Derivative Financial Instruments (continued)

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

• Net gain (loss)**

Fiscal year 2012 Fixed income instruments Fixed income futures ...................... $ 8,900 $ (14,400) $ (29) $ 38 Options on interest rate exchange agreements . 2,577,777 (55,000) 32,292 (37,142)

Interest rate caps and floors ................ 2,250,000 3,592 (6,361)

Interest rate swaps ........................ (11,900) (270) (321)

Total fixed income instruments ............... 4,836,677 (81,300) 35,585 (43,786)

Currency instruments Currency forwards ........................ (148) 1,306 Total currency instruments .................. (148) 1,306 Commodity instruments Commodity futures ....................... 2,072 (1,062) (952)

Equity index futures ...................... 1,449 Equity index swaps ....................... - (60,036)

IO S index swaps .......................... - (18,889) 12 603 Total commodity and index futures ............ 2,0772 (78,925) (1,050) 1,100 Credit instrum ents ......................... 410,358 (1,629,309) 28,024 20,975 2012 T otal ............................... $ 5,249,107 $ (1,789,534) S 62,411 S (20,405)

Fiscal year 2011 Fixed income instruments Fixed income futures ...................... $ 2,500 $ (19,400) $ (67) $ 459 Options on interest rate exchange agreements . 1,884,777 (55,000) 57,946 9,119 Interest rate caps and floors ................ 2,250,000 (2,808,000) (4,221) (4,091)

Interest rate swaps ........................ (34,436) (63) 2,997 Total fixed income instruments ............... 4,137,277 (2,916,836) 53,595 8,484 Currency instruments Currency forwards .......... 61,541 (17,956) (131-) (836)

Total currency instruments .... 61,541 (17,956) (131) (836)

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 instrum ents ......................... 732,533 (2,617,037) 50,873 (5,561) 2011 T otal ............................... $ 4,947,344 $(5,580,988) $ 102,778 $ 259

• The fair value of all derivativefinancialinstruments is reflected in investments atfair value in the Statements of FinancialPosition.

• • Net gain (loss) from the derivativefinancial instruments is located in the non-operatingsection as net gain on investments and other assets in the Statement ofActivities.

NOTES TO FINANCIAL STATEMENTS 25

C. Derivative Financial Instruments (continued)

Table 9 provides further details related to MIT's credit which is designed to approximate the recovery value of an instruments. The act of entering into a credit default swap unsecured claim on the issuer in default. The swap will last contract is often referred to as "buying protection" or for a predetermined amount of time, typically five years.

"selling protection" on an underlying reference obligation. Upon termination of the swap, the buyer is no longer The buyer is obligated to make premium payments to obligated to make any premium payments and there is no the seller over the term of the contract in return for a other exchange of capital.

contingent payment upon the occurrence of a credit event The following table summarizes the notional amounts and with respect to the underlying obligation. The seller bears fair value of the purchased and written credit derivatives, the obligation to "protect" the buyer in the event of default classified by the expiration terms and the external credit of the underlying issuer. Upon this event, the cash payment ratings of the reference obligations at June 30, 2012 and which the buyer receives is equal to the clearing price 2011.

established by an auction of credit default swap claims, Table 9. Credit Derivatives F - Purchased protection I -- Written protection notional amount I Purchased Written Offsetting Net written Net written notional Purchased Years to maturity notional purchased credit credit protection (in thousands of dollars) amounts fair value* < 5years 5-10 years amounts credit protection- protection fair value Fiscal year 2012 Credit rating on underlying or index A- to AAA ................. $ 605,184 S (1,652) $ 61,150 $ 544,034 $ 410,358 $ (410,358) $ $ 17,783 BBB- to BBB+.............. 541,181 (5,703) 45,000 496,181 Non-investment grade ....... 5,000 (576) 5,000 Non-rated ................. 35,381 728 5,000 30,381 ABX - AA index ............. 32,205 17,444 32,205 2012 Total ............. $1,218,951 $ 10,241 $ 111,150 S1,107,801 $ 410,358 $ (410,358) $ - $17,783 Fiscal year 2011 Credit rating on underlying or index A- to AAA ................. S 861,248 $ (7,213) $ 270,653 $ 590,595 $732,533 S (732,533) $ - $ 30,348 BBB- to BBB+.............. 917,741 (7,363) 187,098 730,643 Non-investment grade ....... 25,000 914 - 25,000 N on-rated ................. 20,000 (180) - 20,000 ABX - AA index ............. 60,515 34,367 - 60,515 2011 Total ............. $1,884,504 $ 20,525 $ 457,751 $1,426,753 $ 732,533 $ (732,533) $ - $30,348

• The fair value of all credit derivative instruments is reflected in investments, at fair value in the Statements of FinancialPosition.

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

26 MIT REPORT OF THE TREASURER 2012

D. Pledges Receivable Table 10 below shows the time periods in which pledges A review of pledges is periodically made with regard to receivable atJune 30, 2012 and 2011 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 $30.9 million and $55.0 million in 2012 and 2011, respec-(in thousands of dollars) ' 2012 2011 tively. MIT has gross conditional pledges, not recorded, for the promotion of education and research in the amount of In one year or less ...... $ 158,236 $ 109,181 $118.2 million and $26.9 million as of June 30, 2012 and Between one year and 2011, respectively. MIT has pledges relating to research in five years ............. 232,983 187,608 the amount of $25.4 million and $8.0 million as of June 30, More than five years .... 141,780 136,696 2012 and 2011, respectively.

Less: allowance for unfulfilled pledges .... (53,340) (47,600) Pledges receivable are classified as Level 3 under the Pledges receivable, valuation hierarchy described in Note B.

net ................. $ 479,659 $. 385,885 Table 11 below is a rollforward of the pledges receivable for 2012 and 2011.

Table 11. Rollforward of Pledges Receivable (in thousands of dollars) 2012 2011 Balance at beginning of year ............................................... $ 385,885 $ 375,230 N ew pledges ........................................................... 164,333 107,830 Pledge payments received ................................................. (88,975) (99,922)

Decrease in pledge discount ............................................... 24,156 3,937 Increase in allowance for unfulfilled pledges .................................. (5,740) (1,190)

Balance at end of year ............................................... $ 479,659 $ 385,885 E. Student Notes Receivable Table 12 below details the components of student notes receivable atJune 30, 2012 and 2011.

Table 12. Student Notes Receivable (in thousands of dollars) 2012 2011 Institute-funded student notes receivable ..................................... $ 14,112 $ 15,191 Perkins student notes receivable ............................................ 38,417 37,566 Total student notes receivable ......................................... 52,529 52,757 Less: allowance for doubtful accounts ....................................... (3,000) (3,000)

Student notes receivable, net ......................................... $ 49,529 $ 49,757 NOTES TO FINANCIAL STATEMENTS 27

E. Student Notes Receivable (continued)

Perkins student notes receivable are funded by the U.S. conditions and the other factors described above, Government and by MIT to the extent required by the included, but were not limited to, a detailed review of Perkins National Direct Student Loan Program. Funds the aging of the student loan receivable and a review of advanced by the U.S. Government for this program, the default rate by loan category in comparison to prior

$34.1 million and $33.8 million atJune 30, 2012 and years. The level of the allowance is adjusted based on the 2011, respectively, are ultimately refundable to the U.S.

results of management's analysis.

Government and are classified as liabilities. Due to the nature and terms of the student loans, which are subject to Loans less than 120 days delinquent are deemed to significant restrictions, it is not feasible to determine the have a minimal delay in payment and are generally not fair value of such loans.

written off but are reserved in accordance with the terms Allowance for Credit Losses discussed above. Loans more than 120 days delinquent Management regularly assesses the adequacy of the al- are subject to standard collection practices including lowance for credit losses by performing ongoing evalua- litigation. Only loans that are deemed uncollectible are tions of the student loan portfolio, including such factors written off and this only occurs after several years of as the differing economic risks associated with each loan unsuccessful collection, including placement at more category, the financial condition of specific borrowers, than one external collection agency.

the economic environment in which the borrowers Considering the other factors already discussed herein, operate, the level of delinquent loans, the value of any management considers the allowance for credit losses at collateral and, where applicable, the existence of any June 30, 2012 and 2011 to be prudent and reasonable.

guarantees or indemnifications. MIT's Perkins receivable Furthermore, MIT's allowance is general in nature and represents the amounts due from current and former stu- is available to absorb losses from any loan category.

dents under the Federal Perkins Loan Program. Loans Management believes that the allowance for credit losses disbursed under the Federal Perkins Loan program are atJune 30, 2012 and 2011 is adequate to absorb credit able to be assigned to the U.S. Government in certain losses inherent in the portfolio as of that date.

non-repayment situations. In these situations the Federal Changes in the allowance for credit losses for the year portion of the loan balance is guaranteed.

ended June 30, 2012 and 2011 were as shown in the Factors also considered by management when per- following table.

forming its assessment, in addition to general economic Table 13. Rollforward of Allowance for Credit Losses (in thousands of dollars) 2012 2011 Balance at beginning of year .................................... $ 3,000 $ 3,000 Provision for credit losses ...................................... 41 171 N et charge-offs .............................................. (41) (171)

Balance at end of year ....................................... $ 3,000 $ 3,000 28 MIT REPORT OF THE TREASURER 2012

F Accounts Payable, Accruals and Other Liabilities MIT's accounts payable, accruals and other liabilities atJune 30, 2012 and 2011 are shown in Table 14 below.

Table 14. Accounts Payable, Accruals and Other Liabilities (in thousandsof dollars) 2012 2011 Accounts payable and accruals ............................................. $ 320,902 $ 310,476 Accrued vacation ........................................................ 57,467 55,685 Total ............................................................. $ 378,369 $ 366,161 G. Borrowings Table 15. Borrowings (in thousands of dollars/ due dates are calendar based) 2012 2011 EDUCATIONAL PLANT Massachusetts Health and Educational Facilities Authority (MHEFA)

Series I, 4.75%-5.20%, due 2028, par value $59,200 .......................... . $ 59,588 $ 59,613 Series J-1, variable rate, due 2031, par value ................................. 125,000 125,000 Series J-2, variable rate, due 2031, par value ................................. 125,000 125,000 Series K, 5.25%-5.50%, due 2012-2032, par value $230,000 ................... 241,405 242,242 Series L, 3.0%-5.25%, due 2004-2033, par value $170,160 ..................... 178,635 182,072 Series M, 5.25%, due 2014-2030, par value $131,110 ......................... 142,787 143,897 Series N, 3.5%-5.0%, due 2014-2038, par value $325,195 ..................... 330,327 331,594 Series 0, 4.0%-6.0%, due 2016-2036, par value $266,460 ..................... 271,022 272,218 Total MIHEFA .................................................... 1,473,764 1,481,636 Medium Term Notes Series A, 7.125%, due 2026 ............................ 17,359 17,355 Medium Term Notes Series A, 7.25%, due 2096 ............................. 45,445 45,443 Notes payable to bank, variable rate, due 2014 ............................... 83,033 83,033 Taxable Bonds, Series B, 5.60%, due 2111, par value $750,000 .................. 746,924 746,881 Total educational plant ............................................. 2,366,525 2,374,348 OTHER Notes payable to bank, variable rate, due 2014 ............................... 93,477 93,477 Total borrowings ................................................... $ 2,460,002 $ 2,467,825 1The proceeds of Taxable Bonds, Series B were held as liquid investments as of June 30, 2012 and 2011 and have notyet been invested in physical assets.

Fair value of the outstanding debt is approximately 22.0% and 5.0% greater than the carrying value in 2012 and 2011, respectively. Carrying value is based on estimates using current interest rates available for similarly rated debt of the same remaining maturities.

NOTES TO FINANCIAL STATEMENTS 29

G. Borrowings (continued)

The aggregate amounts of debt payments and sinking fund Variable ifiterest rates at June 30, 2012 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 thousandsof dollars) Amount Rate (in thousands of dollars)

MHEFASeriesJ-1 ....... $ 125,000 0.14%

2013 .................. $ 26,500 MHEFA Series J-2 ....... 125,000 0.15%

2014 .................. .... 202,509 Notes payable to bank ..... 176,509 0.84%

2015 .................. 59,110 2016 .................. 9,585 2017 .................. 98,090 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 purchaseprice of the bonds will be paid from the As of June 30, 2012, $323.5 million 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 2012 and 2011 tender date.

was $101.0 million and $78.7 million, respectively.

H. Commitments and Contingencies Federal Government Funding Leases MIT receives funding or reimbursement from Federal AtJune 30, 2012, 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 $37.1 million and $33.3 million in 2012 and 2011, 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. At June 30, 2012 and 2011, MIT recorded Table 18. Lease Obligations a net over-recovery of $56.7 million and $48.1 million, respectively. (in thousandsof dollars)

The DCAA is responsible for auditing indirect charges 2013 .................. . $ 38,755 to grants and contracts in support of ONR's negotiating 2014 .................. 37,311 responsibility. MIT has final audited rates through 2009. 2015 .................. 22,804 MIT's 2012 research revenues of $1,527.9 million include 2016 .................. 19,280 reimbursement of indirect costs of $208.7 million, which 2017 .................. .. 14,774 includes the adjustment for the variance between the indirect cost income determined by the fixed rates and actual costs for 2012. In 2011, research revenues were $1,447.2 million, Investments which included reimbursement of indirect costs of $196.8 million. As ofJune 30, 2012, $9.9 million of investments were pledged as collateral to various supplier and government agencies.

30 MIT REPORT OF THE TREASURER 2012

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 $51.5 million at June 30, 2012. It is expected that the These agreements subject AI4T 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 I. 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) 2012 2011 General and adm inistrative ................................................ $ 586,268 $ 523,676 Instruction and unsponsored research ....................................... 691,903 659,839 Sponsored research ...................................................... 1,335,638 1,265,776 Auxiliary enterprises ..................................................... 120,137 110,631 Operation of Alumni Association ........................................... 10,640 11,225 Total operating expense ............................................. $ 2,744,586 $2,571,147 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 2012 or 2011.

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-The basic retiree life insurance plan is non-contributory and related value of assets are amortized over the average future covers the retiree only. The supplemental life insurance plan service of active participants. The annual amortization shall is paid for by the retiree. MIT maintains a trust to pay for not be less than the total amount of unrecognized gains and retiree welfare benefits. losses up to $1 million.

NOTES TO FINANCIAL STATEMENTS 31

J. Retirement Benefits (continued)

The amount contributed and expenses recognized during this fiscal year so 2012 is the final year of amortization. Plan 2012 and 2011 related to the defined contribution plan were amendments are amortized on a straight-line basis over the

$43.5 million and $40.8 million, respectively. average future service to full eligibility of active participants at the date of amendment. Cumulative gains and losses For purposes of calculating net periodic postretirement (including changes in assumptions) in excess of 10 percent welfare benefit cost, a portion of the current obligation, of the greater of the plan's obligation or the market-related related to the transition to the accounting standard Employers' value of assets are amortized over the average future service Accountingfor PostretirementBenefits Other than Pensions, is of active participants. The annual amortization shall not be being amortized on a straight-line basis over 20 years from less than the total amount of unrecognized gains and losses the date of adoption of that statement in 1994. Plan changes up to $1 million.

resulted in a reduction of the remaining transition obligation 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 for the years ended June 30, 2012 and 2011.

Table 20. Components of Net Periodic Benefit (Income) Cost Postretirement welfare Defined benefit plan benefit plan (in thousands of dollars) 2012 2011 2012 2011 Components of net periodic benefit (income) cost Service cost .................................... $ 61,431 $ 59,892 $ 20,599 $ 19,957 Interest cost ................................... 138,858 134,756 26,207 27,380 Expected return on plan assets .................... (217,979) (221,135) (23,399) (20,142)

Amortization of transition amount ................. 1,194 4,776 Amortization of net actuarial (gain) loss ............. (1,000) (2,323) 9,314 10,266 Amortization of prior service cost ................. 1,970 2,180 (2,100) 3,556 Net periodic benefit (income) cost recognized in operating activity ............................ (16,720) (26,630) 31,815 45,793 Other amounts recognized in non-operating activity in unrestricted net assets Current year actuarial (gain) loss .................. $ 444,241 $ (68,388) $ (8,118) $ (18,565)

Amortization of actuarial gain (loss) ................ 1,000 2,323 (9,314) (10,266)

Current year prior service credit .................. - (23,919)

Amortization of prior service cost ................. (1,970) (2,180) 2,100 (3,556)

Reduction in transition obligation due to plan change. - (8,357)

Amortization of transition obligation ............... - (1,194) (4,776)

Total other amounts recognized in non-operating activity .................................... 443,271 (68,245) (48,802) (37,163)

Total recognized ............................ $ 426,551 $ (94,875) $ (16,987) $ 8,630 The estimated net actuarial loss and prior service cost for credit for the postretirement welfare benefit plan that will the defined benefit plan that will be amortized from unre- be amortized from unrestricted net assets into net periodic stricted net assets into net periodic benefit cost during the benefit cost during the next fiscal year are $10.6 million and next fiscal year are $17.5 million and $1.0 million, respec- $2.8 million, respectively.

tively. The estimated net actuarial loss and prior service 32 MIT REPORT OF THE TREASURER 2012

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, 2012 and 2011.

Table 21. Cumulative Amounts Recognized in Unrestricted Net Assets Postretirement welfare Defined benefit plan benefit plan (in thousands of dollars) 1 2012 20111 2012 2011 1 Amounts recognized in unrestricted net assets consist of-N et actuarial loss ............................... $ 571,425 $ 126,184 $ 138,708 $ 156,141 Prior service cost ............................... z1 Q4Z1 AQ 1 ')1 QIQ\

Transition liability .............................. - - - 9,551 Total cumulative amounts recognized in unrestricted net assets ....................... $ 576,276 $ 133,005 $ 116,890 $ 165,692 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 thousandsof dollars) 2012 2011 2012 2011 Change in projected benefit obligations Projected benefit obligations at beginning of year .... $2 2,458,592 $ 2,293,877 $ 509,838 $ 472,170 Service cost ................................... 61,432 59,892 20,599 19,957 Interest cost ................................... 138,858 134,756 26,207 27,380 Retiree contributions ............................ - - 3,834 3,496 Net benefit payments, transfers and other expenses... (116,351) (115,523) (22,109) (23,574)

Plan amendm ent ............................... - - (32,276)

Assumption changes and actuarial net loss ........... 348,056 85,590 (16,618) 10,409 Projected benefit obligations at end of year ...... 2 ,890,587 2,458,592 489,475 509,838 Change in plan assets Fair value of plan assets at beginning of year ......... 2,572,307 2,312,718 311,629 234,535 Actual return on plan assets ...................... 121,795 375,112 14,899 49,116 Employer contributions ......................... - 52,920 50,399 Retiree contributions ............................ - 3,834 3,496 Net benefit payments, transfers and other expenses ... (116,350) (115,523) (24,370) (25,917)

Fair value of plan assets at end of year ........... 2,577,752 2,572,307 358,912 311,629 Funded (unfunded) status at end of year ......... $ (312,835) $ 113,715 $ (130,563) $ (198,209)

Amounts recognized in the Statements of Financial Position consist of:

Benefit assets ..... .......................... $ - $ 113,71 5 $ $

Benefit liability ................................ (312,835) - (130,563) (198,209)

T otal ...................................... $ (312,835) $ 113,71 5 $ (130,563) $ (198,209)

NOTES TO FINANCIAL STATEMENTS 33

J. Retirement Benefits (continued)

The accumulated benefit obligation for MIT's defined actuarial gain.

benefit plan was $2,681.9 million and $2,305.8 million at Assumptions and Health Care Trend Rates June 30, 2012 and 2011, respectively.

The expected long-term rate of return assumption January 1, 2012, MIT began providing retiree drug represents the expected average rate of earnings on the coverage through an Employer Group Waiver Plan funds invested or to be invested to provide for the benefits (EGWP). Under EGWP, the cost of drug coverage is offset included in the benefit obligation. The long-term rate through direct federal subsidies, brand name drug discounts of return assumption is determined based on a number and reinsurance reimbursements. Prior to January 1, 2012, of factors, including historical market index returns, the MIT received retiree drug subsidy (RDS) payments directly anticipated long-term asset allocation of the plans, histori-from the federal government. The net effect of this change cal plan return data, plan expenses and the potential to reduced the accumulated postretirement benefit obligation outperform market index returns.

$56.4 million at June 30, 2012. This was treated as an Table 23. Assumptions Postretirement welfare Defined benefit plan benefit plan 12012 2011 I I 2012 20111 Assumptions used to determine benefit obligation as of June 30:

D iscount rate .. ............................... 4.49% 5.65% 4.41% 5.56%

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 .................................. 5.65% 5.84% 5.56% 5.71%

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 ..... 7.00% 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 2018 1 The average rate of salary increase is assumed to be 4% for 2013, and thereafter.

As an indicator of sensitivity, a one percentage point change in the assumed health care cost trend rate would effect 2012 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 2012 postretirement service and interest cost .................... $ 7,436 $ (6,022)

Effect on postretirement-benefit obligation as of June 30, 2012 ............... $ 63,584 $ (52,901)

Plan Investments investment objectives.

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 obligations as they come due.

34 MIT REPORT OF THE TREASURER 2012

J. Retirement Benefits (continued)

Table 25 presents investments at fair value of MIT's defined benefit plan and postretirement welfare benefit plan, which are included in plan net assets as ofJune 30, 2012 and 2011, 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 2012 or 2011.

Table 25A. Defined Benefit 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 Fiscal year 2012 Cash and cash equivalents ............. 92,684 $ $ $ 92,684 US treasury ......................... 130,713 130,713 US goverment agency ................. 18,253 18,253 Domestic bonds ..................... 53,331 53,331 Foreign bonds ....................... 265 265 Common equity Long domestic equity ............... 63,258 996 2,100 66,354 Long foreign equity ................. 14,669 3,721 18,390 Equity*

Absolute return .................... 334,067 289,429 623,496 D om estic ......................... 5,317 297,799 303,116 Foreign ........................... 2,874 190,879 158,171 351,924 P rivate ........................... 431,578 431,578 R eal estate .......................... 294,379 294,379 R eal assets* ......................... 18,935 157,611 176,546 D erivatives ......................... (9) 6,976 6,967 Total plan investments ................ 304,189 632,740 $ 1,631,067 $ 2,567,996 Fiscal year 2011 Cash and cash equivalents ............. 32,893 $ - $ - $ 32,893 US treasury ......................... 188,705 - 188,705 US goverment agency ................. 10,604 - 10,604 Domestic bonds ..................... 59,291 - 59,291 Foreign bonds ....................... 268 - 268 Common equity Long domestic equity ............... 72,774 1,049 73,823 Long foreign equity ................. 9,198 7,173 16,371 Equity*

Absolute return .. ................. 219,631 444,384 664,015 D om estic ......................... 18,900 5,467 175,339 199,706 Foreign ........................... 112,775 166,418 137,014 416,207 Private ........................... 399,681 399,681 R eal estate .......................... 282,404 282,404 R eal assets* ......................... 22,393 180,268 202,661 D erivatives ......................... (17) 13,230 13,213 Total plan investments ................ $ 435,228 $ 504,475 $ 1,620,139 $ 2,559,842

• Realassets and Equity categories include commingled vehicles that invest in these types of investments NOTES TO FINANCIAL STATEMENTS 35

J. Retirement Benefits (continued)

Table 25B. Postretirement Welfare Benefit 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 Fiscal year 2012 Cash and cash equivalents ............. $ 26,512 $ $ $ 26,512 US goverment agency ................. 2,147 2,147 Domestic bonds**.................... 66,632 66,632 Common equity Long domestic equity ............... 24,026 24,026 Long foreign equity ................. 1,565 1,565 Equity*

Absolute return .................... 53,986 21,705 75,691 D om estic ..................... . 325 49,236 49,561 Foreign ........................... 6,146 64,168 5,906 76,220 Private ........................... 16,936 16,936 R eal estate .......................... 14,627 i4,627 Real assets* ......................... 3,502 3,502 D erivatives ......................... 1,596 1,596 Total plan investments ................ $ 58,249 $ 188,854 $ 111,912 $ 359,015 Fiscal year 2011 Cash and cash equivalents ............. $ 5,765 $ $ - $ 5,765 US goverment agency .................

Domestic bonds** .................... 67,143 67,143 Common equity Long domestic equity ............... 17,145 17,145 Long foreign equity ................. 1,050 1,050 Equity*

Absolute return .................... - 30,622 22,134 52,756 Dom estic ......................... 3,086 35,374 19,876 58,336 Foreign ........................... 29,299 44,790 8,670 82,759 Private ........................... - 11,786 11,786 R eal estate .......................... - 10,344 10,344 R eal assets* ......................... - 3,059 3,059 D erivatives ......................... - 1,581 1,581 Total plan investments ................. $ 56,345 179,510 75,869 $ 311,724

• Realassets and Equity categoriesinclude commingled vehicles that invest in these types of investments

• • Includes common collective trusts (CCTs) 36 MIT REPORT OF THE TREASURER 2012

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, 2012 and 2011.

Table 26. Roilforward of Level 3 Investments Fair Value Realized Gains Unrealized Transfer of Assets Fair Value (in thousands of dollars) Beginning (Lasses) Gains (Losses) Purchases Sales between Levels Ending Defined Benefit Plan Fiscal Year 2012 Common equity Domestic equity ................... . S 1,049 $ 544 S - $ 1,191 $ (684) $ $ 2,100 Equity:

Absolute return .................... 444,384 (1,938) (1,054) 41,047 (43,593) (149,417) 289,429 D om estic ......................... 175,339 (3,639) 40,285 98,279 (12,465) - 297,799 Foreign .......................... 137,014 (7,051) 10,225 40,908 (22,925) - 158,171 P rivate ........................... 399,681 (11,085) 23,412 68,569 (48,999) - 431,578 R eal estate .......................... 282,404 9,552 52,080 (49,657) - 294,379 R eal assets .......................... 180,268 (12,828) 4,307 (14,136) - 157,611 Total plan investments $1,620,139 $ (23,169) $ 69,592 $ 306,381 $ (192,459) $ (149,417) $ 1,631,067 Fiscal Year 2011 Common equity Domestic equity.................... $ 1,049 $ - $ $ - $ $ - $ 1,049 Equity:

Absolute return .................... 596,309 - 55,281 20,657 (51,353) (176,510) 444,384 D om estic ......................... 97,514 - 35,124 49,530 (4,879) (1,950) 175,339 Foreign .......................... 84,592 (28) 25,676 27,107 (333) - 137,014 P rivate ........................... 351,093 - 17,445 73,677 (42,534) - 399,681 Real estate .......................... 227,871 (3,012) 20,461 63,820 (26,736) - 282,404 R eal assets .......................... 190,994 12,321 7,775 (11,917) (18,905) 180,268 Total plan investments $1,549,422 $ (3,040) $ 166,308 $ 242,566 $ (137,752) $ (197,365) $ 1,620,139 Postretirement Welfare Benefit Plan Fiscal Year 2012 Equity:

Absolute return .................... $ 22,134 $ - $ 230 $ 3,827 $ (2,560) S (1,926) $ 21,705 D om estic ......................... 19,876 - 5,292 24,068 - - 49,236 Foreign .......................... 8,670 (730) 1,115 2,400 (2,424) (3,125) 5,906 Private ........................... 11,786 - 969 5,508 (1,327) - 16,936 R eal estate ........................... 10,344 - 1,393 5,044 (2,154) - 14,627 R eal assets .......................... 3,059 - 121 371 (49) - 3,502 Tot tal plan investments $ 75,869 $ (730) $ 9,120 $ 41,218 $ (8,514) $ (5,051) $ 111,912 Fiscal Year 2011 Equity:

Absolute return .................... $ 34,226 $ 3,275 $ 994 $ (2,346) $ (14,015) $ 22,134 D om estic ......................... 7,832 2,951 9,093 - - 19,876 Foreign .......................... 12,995 (3) 802 3,044 (24) (8,144) 8,670 Private ........................... 6,182 1,125 5,106 (627) - 11,786 Real estate .......................... 7,140 1,717 3,440 (1,953) - 10,344 Real assets .......................... 2,408 222 431 (2) - 3,059 Total plan investments $ 70,783 $ (3) $ 10,092 $ 22,108 $ (4,952) $ (22,159) $ 75,869 NOTES TO FINANCIAL STATEMENTS 37

J. Retirement Benefits (continued)

The Plans have made investments in various long-lived partnerships, and in other cases, have entered into contractual arrangements that may limit their ability to initiate redemptions due to notice periods, lock-ups and gates. Details on estimated remaining life, current redemption terms and restrictions by asset class and type of investment for both the defined benefit plan and postretirement welfare plan are provided below as of June 30, 2012 and 2011.

Table 27. Unfunded Commitments Asset Class F Unfunded 2012 - - I .

Unfunded 2011 (in thoaands of dollars) Commitments FairValue Commitments FairValue Redemption Terms Redemption Restrictions Defined Benefit Plan Equity:

Domestic $ 2,382 S 303,116 $ 12,034 . 199,706 Redemption terms range from Lock-up provisions range from daily to annually with 90 days none to 4 years notice Foreign $ 54,900 $ 351,924 $ - $ 416,207 Redemption terms range from Lock-up provisions range from daily to quarterly with 90 days none to 5 years notice Absolute return $ 25,724 $ 623,496 $ 33,009 $ 664,015 Redemption terms range from Lock-up provisions range from monthly with 3 business days none to not redeemable notice to closed end structures not available for redemption Private $ 232,418 $ 431,578 $ 212,575 $ 399,681 Closed end funds not eligible Not redeemable for redemption Real estate $ 185,374 $ 294,379 $ 191,106 $ 282,404 Redemption terms range from 1 Not redeemable except for I fund quarterly with 45 days notice holding with a lock-up provision to all other funds are closed end of 5 years funds not eligible for redemption Real assets $ 39,427 $ 176,546 $ 29,448 $ 202,661 Redemption terms range from 1 Not redeemable except for 1 fund annually with 90 days fund with a lock-up provision notice to all other funds are closed of 4 year end funds not eligible for redemption Totals S 540,225 $ 2,181,039 $ 478,172 $ 2,164,674 Postretirement Welfare Benefit Plan Equity:

Domnestic $ 265 S 49,561 $ 559 $ 58,336 Redemption terms range from Lock-up provisions range from quarterly with 60 days notice to 30 months to 4 years annually with 90 days notice Foreign S 6,100 $ 76,220 $ - $ 82,759 Redemption terms range from Lock-up provisions range from daily with 28 days notice to none to 5 years annually with 60 days notice Absolute return $ 1,577 $ 75,691 $ 2,844 $ 52,756 Redemption terms range from Lock-up provisions range from monthly with 3 business days none to 5 years notice to quarterly with 90 days notice Private $ 21,754 $ 16,936 $ 16,931 $ 11,786 Closed end funds not eligible Not redeemable for redemption Real estate $ 16,780 $ 14,627 $ 16,461 $ 10,344 Closed end funds not eligible Not redeemable for redemption Real assets $ 3,938 $ 3,502 $ 2,763 $ 3,059 Closed end funds not eligible Not redeemable for redemption Totals $ 50,414 $ 236,537 $ 39,558 $ 219,040 38 MIT REPORT OF THE TREASURER 2012

J. Retirement Benefits (continued)

Target allocations and weighted-average asset allocations of the investment portfolio for the MIT defined benefit plan and postretirement welfare benefit plan at June 30, 2012 and 2011 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 Target Allocation 2012 2011 Allocation 2012 2011 Cash & cash equivalents ...... - 4% 2% - 8% 2%

Fixed income ................ 8% 8% 10% 20% 19% 22%

Equities .................... 52% 53% 51% 50% 48% 55%

Marketable alternatives ...... 29% 24% 26% 25% 21% 18%

Real estate .................. 11% 11% 11% 5% 4% 3%

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

The following table summarizes the notional exposure and net ending fair value of derivative financial instruments held by the MIT defined benefit plan at June 30, 2012 and 2011. Refer to Note C for detailed discussion regarding derivative financial instruments.

Table 29A. Derivative Financial Instruments for Defined Benefit Plan Notional exposure Net ending fair (in thousands of dollars) Long Short value amount Net gain (loss)

Fiscal year 2012 Fixed income instruments Fixed income futures ................ $ - $ (3,700) $ (9) $ 8 Interest rate swaps .................. - (3,743) (85) (1,056)

Total fixed income instruments .......... - (7,443) (94) (1,048)

Commodity and other instruments IOS index swaps .................... $ - $ (7,322) $ 5 $ 205 Total index instruments ................ - (7,322) 5 205 Credit instruments ...................... - (13,027) 7,056. (27) 2012 Total ......................... $ $ (27,792) $ 6,967 $ (870)

Fiscal year 2011 Fixed income instruments Fixed income futures ................ $ 1,000 $ (6,600) $ (17) $ (179)

Interest rate swaps .................. (13,206) (23) (23)

Total fixed income instruments .......... 1,000 (19,806) (40) (202)

Credit instruments ...................... (24,565) 13,253 (736) 2011 Total ......................... $ 1,000 $ (44,371) $ 13,213 $ (938) 39 FINANCIAL STATEMENTS TO FINANCIAL NOTES TO NOTES STATEMENTS 39

J. Retirement Benefits (continued)

Table 29B. Derivative Financial Instruments for Postretirement Welfare Benefit Plan Notional exposure Net ending fair (in thousands of dollars) Long Short value amount Net gain (loss)

Fiscal year 2012 Fixed income instruments Interest rate swaps ................ $ $ (857) $ (19) $ (242)

Total fixed income instruments .......... (857) (19) (242)

Commodity and other instruments IOS index swaps .................... $ $ (1,675) $ 1 $ 47 Total index instruments ................ (1,675) 1 47 Credit instrum ents ...................... (2,981) 1,614 (6) 2012 Total ......................... $ S (5,513) $ 1,596 $ (201)

Fiscal year 2011 Fixed income instruments Interest rate swaps ................ $ - $ (1,578) $ (3)- (3)

Total fixed income instruments ........... - (1,578) (3) (3)

Credit instruments ...................... (2,935) 1,584 (88) 2011 Total ......................... $ $ (4,513) $ 1,581 $ (91)

The table on the next page summarizes the notional amounts and fair value of the purchased and written credit derivatives classified by the expiration terms and the external credit ratings of the reference obligations at June 30, 2012 and 2011.

40 MIT REPORT OF THE TREASURER 2012

J. Retirement Benefits (continued)

Table 30. Credit Derivatives Purchased protection Purchased notional Purchased Years to maturity Net (in thousandsof dollars) amounts fair value* < 5 years 5-10 years gain/loss Defined Benefit Plan Fiscal year 2012 Credit rating on underlying or in dex ABX-AA index .............. $ 13,027 $ 7,056 $ - $ 13,027 $ 65 ABX-AAA index ............. - - (92) 2012 Total ............. $ 13,027 $ 7,056 $ - $ 13,027 $ (27)

Fiscal year 2011 Credit rating on underlying or in dex ABX-AA index .............. $ 24,565 $ 13,253 $ - $ 24,565 $ (736) 2011 Total ............. $ 24,565 $ 13,253 $ - $ 24,565 $ (736)

Postretirement Welfare Benefit Plan Fiscal year 2012 Credit rating on underlying or in dex ABX-AA index .............. $ 2,981 $ 1,614 $ - $ 2,981 $ 15 ABX-AAA index ............. (21) 2012 Total ............. $ 2,981 $ 1,614 $ - $ 2,981 $ (6)

Fiscal year 2011 Credit rating on underlying or in dex ABX-AA index .............. $ 2,935 $ 1,584 $ - $ 2,935 $ (88) 2011 Total ............. $ 2,935 $ 1,584 $ - $ 2,935 $ (88)

• The fair value of all credit derivative instruments is reflected in investments, atfair value in the Statements of Financial Position.

NOTES TO FINANCIAL STATEMENTS 41

J. Retirement Benefits (continued)

Contributions Expected Future Benefit Payments MIT expects to contribute $32.0 million and $13.7 Table 31 reflects total expected benefit payments for million to its defined benefit pension plan and to its the defined benefit and postretirement welfare benefit postretirement welfare benefit plan in 2013, respectively. 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 MIT's benefit obligations at assumptions used to measure MIT's benefit obligations at June 30, 2012. MIT also contributed $52.9 million and June 30, 2012.

$50.4 million to the postretirement welfare benefit plan in 2012 and 2011, respectively.

Table 31. Expected Future Benefit Payments Pension Other (in thousands of dollars) benefits benefits' 2013 ........................................... 144,049 $ 27,946 2014 ........................................... 149,891 29,833 2015 ........................................... 155,967 31,565 2016 ........................................... 162,285 33,233 2017 ........................................... 168,857 34,818 2018-2022 ...................................... 959,433 196,818

'Other benefits r~flect the total net benefits expected to be paidfrom the plans (i.e., gross benefit reimbursements offset by retiree contributions).

42 MIT REPORT OF THE TREASURER 2012

K. Components of Net Assets and Endowment Table 32 below presents the three categories of net assets invested with the endowment funds. A large component by purpose as ofJune 30, 2012. The amounts listed in of temporarily restricted net assets in other invested funds the unrestricted column under endowment funds are is pledges, the majority of which will be reclassified to 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 32. Fund Category 2012]

Temporarily Permanently 2011 (in thousands of dollars) Unrestricted restricted restricted Total Total Endowment funds General purpose .................... $ 694,038 $ 814,080 $ 462,659 $ 1,970,777 $ 1,913,280 Departments and research ............. 450,182 729,251 448,136 1,627,569 1,532,928 Library ............................ 9,320 16,539 7,876 33,735 32,845 Salaries and wages ................... 424,697 1,932,018 622,543 2,979,258 2,869,660 Graduate general .................... 59,528 98,188 83,660 241,376 231,063 Graduate departments ................ 79,647 236,635 192,477 508,759 483,447 Undergraduate ...................... 169,416 805,293 315,873 1,290,582 1,261,609 Prizes ............................. 6,578 20,682 18,015 45,275 43,108 M iscellaneous ....................... 818,741 133,326 209,110 1,161,177 1,061,146 Investment income held for distribution . 291,056 291,056 283,542 Endowment funds before pledges ....... 3,003,203 4,786,012 2,360,349 10,149,564 9,712,628 Pledges ............................ 158,710 158,710 140,946 Total endowment funds ............. 3,003,203 4,786,012 2,519,059 10,308,274 9,853,574 Other invested funds Student loan funds ................... 21,419 16,683 38,102 36,632 Building funds ...................... 60,772 18,014 78,786 96,236 Designated purposes:

- Departments and research ........... 270,541 270,541 280,162

- Other purposes .................... 113,768 44,158 157,926 89,883 Reserve funds ....................... 151,335 151,335 123,903 Real estate gifts held for sale ........... 1,592 1,592 6,261 Life income funds ................... 5,688 50,435 77,096 133,219 130,183 Pledges ............................ 320,948 320,948 282,019 Other funds available for current expenses 375,049 77,987 453,036 648,039 Funds expended for educational plant ... 581,149 581,149 558,798 Total other funds ................... 1,581,313 511,542 93,779 2,186,634 2,252,116 Noncontrolling interests .............. 304,436 304,436 282,041 Total net assets at fair value ............ $ 4,888,952 $ 5,297,554 $ 2,612,838 $ 12,799,344 $12,387,731 NOTES TO FINANCIAL STATEMENTS 43

K. Components of Net Assets and Endowment (continued)

MIT's endowment consists of approximately 3,500 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 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 i. the duration and preservation of the fund allowing MIT to appropriate for expenditure or accumulate ii. the purposes of MIT and the endowment fund so much of an endowment fund as MIT determines is iii. 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 v. 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 MIT appropriated for expenditure by the Executive Committee.

Table 33. Endowment Net Asset Composition by Type of Fund Temporarily Permanently (in thousands of dollars) Unrestricted restricted restricted Total Fiscal year 2012 Donor-restricted endowment funds ................ $ (3,444) $ 4,786,012 $ 2,519,059 $ 7,301,627 Board-designated endowment funds ...... ........ 3,006,647 3,006,647 Total endowment funds ...................... $ 3,003,203 $ 4,786,012 $ 2,519,059 $10,308,274 Fiscal year 2011 Donor-restricted endowment funds ................ $ (7,071) $ 4,598,751 $ 2,365,228 $ 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 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 $3.4 million and $7.1 million below the value of the initial and subsequent donor gift as of June 30, 2012 and 2011, 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.

44 MIT REPORT OF THE TREASURER 2012

K. Components of Net Assets and Endowment (continued)

Table 34. Changes in Endowment Net Assets Temporarily Permanently (in thousands of dollars) Unrestricted restricted restricted Total Fiscal year 2012 Endowment net assets, June 30, 2011 .............. $ 2,889,595 $ 4,598,751 $ 2,365,228 $ 9,853,574 Investment return:

Investment incom e ........................... 20,170 37,982 19,921 78,073 Net appreciation (realized and unrealized) ......... 201,806 447,240 15,200 664,246 Total investment return .......................... 221,976 485,222 35,121 742,319 Contributions ................................. - 115,592 115,592 Appropriation of endowment assets for expenditure... (142,780) (312,757) (13,067) (468,604)

Other changes:

Underwater gain adjustment .................... 3,627 (3,627)

Net asset reclassifications and transfers to create board-designated endowment funds ............ 30,785 18,423 16,185 65,393 Endowment net assets, June 30, 2012 ........... $ 3,003,203 $ 4,786,012 $ 2,519,059 $10,308,274 Fiscal year 2011 Endowment net assets, June 30, 2010 .............. $ 2,498,428 $ 3,945,500 $ 2,019,530 $ 8,463,458 Investment return:

Investment income ........................... 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 Contributions .............................. - 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 NOTES TO FINANCIAL STATEMENTS 45

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 $10,970.0 million at June distribute funds for operational support from general 30, 2012 and $10,041.1 million atJune 30, 2011. 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

$1,246.5 million atJune 30, 2012 and $754.5 million atJune and market appreciation. The distribution rates were $58.73 30, 2011. Certain assets are also maintained in separately and $56.75 per Pool A unit as of June 30, 2012 and 2011, invested funds. Separately invested funds totaled $426.3 respectively. In 2012, the amount distributed for spending million as of June 30, 2012 and $424.4 million as of from Pool A and Pool C totaled $554.3 million, compared June 30, 2011. to $513.6 million distributed in the prior year. During 2012, distributions from separately invested funds were $13.1 MIT has adopted endowment investment and spending million, compared to $10.5 million in 2011. 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 $17.7 million and additional investment goal is to maximize return relative to

$10.8 million from gains in Pool C in 2012 and 2011, appropriate risk such that performance exceeds appropriate respectively.

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

46 MIT REPORT OF THE TREASURER 2012

.L pwc Report of Independent Auditors To the Audit Committee of the Massachusetts Institute of Technology:

In our opinion, the accompanying consolidated statement of financial position and the related statement 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, 2012, and the changes in their net assets and their cash flows for the year 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 audit. The prior year summarized comparative information has been derived from the Institute's 2011 financial statements, and in our report dated September 15, 2011, we expressed an unqualified opinion on those financial statements. We conducted our audit 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 audit provides a reasonable basis for our opinion.

September 14, 2012 PricewaterhouseCoopersLLP, 125 HighStreet, Boston, MA 02110 T: (617)530 50oo, F: (617)53o 5oo0, www.pwc.com/us REPORT OF INDEPENDENT AUDITORS 47

48 MIT REPORT OF THE TREASURER 2012 Massachusetts Institute of Technology Five-YearTrend Analysis - Financial Highlights (in thousands of dollars) 2012 2011 2010 2009 2008 Financial Position:

Investments, at fair value ............... $12,847,866 $12,236,531 $ 9,950,239 $ 9,558,331 $ 11,359,923 Land, buildings, and equipment, at cost less accumulated depreciation.. 2,497,711 2,451,479 2,327,810 2,122,606 1,940,912 Borrowings .......................... 2,460,002 2,467,825 1,728,526 1,735,843 1,335,393 Total assets .......................... 16,787,098 16,052,231 13,415,618 12,950,103 15,457,229 Total liabilities ....................... 3,987,754 3,664,500 3,091,313 3,003,715 2,687,255 Unrestricted net assets ................ 4,888,952 4,885,321 3,759,301 3,559,925 5,086,270 Temporarily restricted net assets ......... 5,297,554 5,044,519 4,463,066 4,401,015 5,765,302 Permanently restricted net assets ........ 2,612,838 2,457,891 2,101,938 1,985,448 1,918,402 Total net assets ....................... 12,799,344 12,387,731 10,324,305 9,946,388 12,769,974 Total endowment funds before pledges ... 10,149,564 9,712,628 8,317,321 7,880,321 9,947,636 Principal Sources of Revenue:

Tuition and similar revenues ............ $ 527,702 $ 493,777 $ 468,570 $ 431,772 $ 421,230 Research revenues:

Campus direct .................... 471,155 456,416 431,611 497,493 448,065 Campus indirect .................. 183,200 162,497 172,525 193,289 173,455 Lincoln Laboratory direct ........... 819,645 770,672 719,883 642,101 587,076 Lincoln Laboratory indirect ......... 25,263 34,111 24,449 27,667 32,611 SM ART direct .................... 28,311 23,300 20,912 14,026 3,857 SMART indirect .................. 276 210 223 496 106 Gifts, bequests and pledges ............. 433,424 522,409 246,580 303,890 385,952 Net gain (loss) on investments and other assets . 738,308 1,483,669 784,348 (1,854,380) 154,765 Investment income and distributions ..... 554,627 505,503 566,110 586,576 422,457 Principal Purposes of Expenditures:

Total operating expenditures ............ $ 2,744,586 $ 2,571,147 $ 2,382,566 $ 2,461,286 $ 2,294,247 General and administrative ............. 586,268 523,676 461,186 497,043 486,444 Instruction and unsponsored research .... 691,903 659,839 613,345 680,848 641,241 Direct cost of sponsored research -

current dollars .................... 1,335,638 1,265,776 1,192,041 1,167,036 1,054,474 Direct cost of sponsored research -

constant dollars (2008 = 100) ........ 1,242,537 1,212,045 1,164,360 1,150,967 1,054,474 FIVE-YEAR TREND ANALYSIS 49

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

(in thousands of dollars) 2012 2011 2010 2009 2008 Research Revenues:(A)

Campus:

Federal government sponsored:

Health and Human Services ............ $ 133,687 $ 152,664 $ 144,561 $ 255,896 $ 226,307 Department of Defense ................ 117,458 107,753 106,890 97,528 87,370 Department of Energy ................ 90,940 89,562 73,274 65,773 65,611 National Science Foundation ........... 81,487 74,859 69,801 61,386 64,973 National Aeronautics and Space Administration .............. 30,204 28,080 30,629 27,358 25,479 Other Federal .... ................... 18,807 16,602 12,717 14,559 14,169 Total Federal ........................ 472,583 469,520 437,872 522,500 483,909 Non-Federally sponsored:

State/local/foreign governments ......... 38,273 32,969 33,339 27,145 18,549 N on-profits ......................... 48,373 44,436 50,639 60,538 47,695 Industry ............................ 109,745 100,763 93,330 99,219 82,194 Total non-Federal .................... 196,391 178,168 177,308 186,902 148,438 Total Federal & non-Federal ........... 668,974 647,688 615,180 709,402 632,347 F&A and other adjustments ............ (14,619) (28,775) (11,044) (18,620) (10,827)

Total cam pus ........................ 654,355 618,913 604,136 690,782 621,520 Lincoln Laboratory:

Federal government sponsored .......... 844,202 803,599 749,974 675,329 606,850 Non-Federally sponsored ............. 2,023 2,511 3,068 2,989 3,602 F&A and other adjustments ............ (1,317) (1,327) (8,710) (8,550) 9,235 Total Lincoln Laboratory .............. 844,908 804,783 744,332 669,768 619,687 SMART.:(B)

Non-Federal sponsored ................ 28,587 23,510 21,135 14,522 3,963 Total SMART ....................... 28,587 23,510 21,135 14,522 3,963 Total Research Revenues ............ $ 1,527,850 $ 1,447,206 $ 1,369,603 $ 1,375,072 $1,245,170 (A)The amounts in this table reflect revenues from the originalsource offunds and The Broad Institute.

( The amounts representresearch that has taken place in Singapore.

50 MIT REPORT OF THE TREASURER 2012

Massachusetts Institute of Technology Five-Year Trend Analysis - Financial Highlights (continued) 2012 2011 2010 2009 2008 Students:

Undergraduate Full-tim e ........................ 4,354 4,252 4,201 4,118 4,119 Part-tim e ........................ 30 47 31 35 53 Undergraduate Applications Applicants ....................... 17,909 16,632 15,663 13,396 12,445 Accepted ........................ 1,742 1,676 1,676 1,589 1,553 Acceptance rate ................... 10% 10% 11% 12% 12%

Enrolled ......................... 1,126 1,067 1,072 1,048 1,067 Yield ............................ 65% 64% 64% 66% 69%

Freshmen ranking in the top 10%

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

Average SAT scores (math and verbal) ............... 1,472 1,473 1,455 1,453 1,458 Graduate Full-time ....................... 6,342 6,108 6,022 5,991 5,837 Part-tim e ........................ 168 159 130 155 211 Graduate applications Applicants ....................... 22,219 22,139 19,336 17,323 16,208 Accepted ........................ 3,306 3,431 2,994 3,215 3,058 Acceptance rate ................... 15% 15% 15% 19% 19%

Enrolled ......................... 2,118 2,141 1,939 2,000 1,823 Yield ............................ 64% 62% 65% 62% 60%

Tuition (in dollars):

Tuition and fees ...................... $ 40,732 $ 39,212 $ 37,782 $ 36,390 $ 34,986 Average room and board ............... 11,775 11,234 11,360 10,860 10,400 Financial Assistance:

(in thousandsof dollars)

Undergraduate tuition support .......... $ 102,081 $ 92,060 $ 89,813 $ 78,534 $ 70,157 Graduate tuition support ............... 215,702 201,995 195,178 187,732 174,847 Fellowship stipends ................... 33,263 30,435 28,104 27,509 25,647 Student loans ........................ 9,556 9,968 9,641 9,641 8,766 Student employment .................. 90,135 85,335 84,304 82,287 78,892 Total financial assistance ............. $ 450,737 $ 419,793 $ 407,040 $ 385,703 $ 358,309 Faculty and staff (includingunpaid appointments):

Faculty ............................. 1,018 1,017 1,025 1,008 1,007 Staff and fellows ..................... 13,109 12,662 12,577 13,393 12,852 FIVE-YEAR TREND ANALYSIS 51