Financial
ReportFISCAL YEAR 2020

2

MESSAGE FROM THE PRESIDENT

3

FINANCIAL OVERVIEW

9MESSAGE FROM THE PRESIDENT AND CEO
OF HARVARD MANAGEMENT COMPANYHARVARD UNIVERSITY ▪ TABLE OF CONTENTS

13

REPORT OF INDEPENDENT AUDITORS

14

FINANCIAL STATEMENTS

18

NOTES TO FINANCIAL STATEMENTS

1

Message from the President

I am pleased to submit Harvard University’s financial
results for fiscal year 2020.
The end of fiscal year 2020 ushered in the beginningof a pandemic that has changed our world in profoundways. The rapid spread of the virus in the greater
Boston area in late February and early Marchdemanded swift adaptation across the University,
including an unprecedented shift to remote learningand working for the balance of the spring semester.
As Massachusetts moved forward with a phased
reopening of the state, Harvard allocated resources
to reopen science laboratory facilities in the earlysummer. At the same time, careful and continuous
assessment of public health indicators and practices
informed changes to the fall semester, among themsignificant investments in virtual learning andaggressive COVID-19 screening protocols and othersafety measures. We welcomed a limited numberof students to campus in September and continue
to prioritize the health and safety of every memberof our community as we fulfill our teaching andresearch mission.
Meanwhile, Harvard scholars and researchers havemobilized to address the pandemic and to pushforward critical advances. In just three months, theMassachusetts Consortium on Pathogen Readiness(MassCPR), a multi-institution partnership convened
by Harvard Medical School, competitively selected
62 research projects at 15 institutions and provided$16.5 million in funding to spur efforts to prevent andtreat COVID-19. The Broad Institute has reimagined
its work to provide testing on an extraordinary scale
for institutions and organizations across the region.
Researchers at Harvard have also helped to reveal
racial disparities and deepen our understanding of
how the crisis has exacerbated them.

HARVARD UNIVERSITY ▪ MESSAGE FROM THE PRESIDENT

Scholarship outside of the shadow of the pandemic
reminds us that the work of repairing the world is
as varied as the interests and achievements of ourcommunity. We are developing groundbreaking
approaches for alleviating global poverty, exploring
inequality and injustice in America, identifying thebiological roots and molecular changes that giverise to autism-related disorders, and making many
more advancements that will enable humanity toconfront society’s greatest challenges. We also further
affirmed our commitment to ensuring that Harvard isaccessible to a diverse array of students and scholars.
This past year, financial aid and scholarships increased
by $31 million to support the development of the next
generation of leaders in their fields, and we anticipate
greater demand for support in the years ahead given
ongoing economic uncertainty.
Strong fiscal management across the Schools andUnits has enabled flexibility, but we at Harvard, alongwith colleagues at other colleges and universities,
have tough decisions ahead of us. How we manage
declining revenue and rising need for investment inexcellence amid new and necessary health protocols
will, in part, determine our successors’ ability to endure
and thrive. Fortunately, the people of Harvard—andalumni and friends around the world—have cometogether to see the institution through uncertainty
for generations.

Lawrence S. Bacow
PRESIDENT
October 22, 20202

Financial Overview
From the Vice President for Finance and the Treasurer

The financial effects on Harvard from the onset of thepandemic in March of this year were significant andsudden. Following the University’s early decision tosend most students home and move all teaching andresearch to a remote basis, revenues were immediately
impacted. Refunds of room and board charges, theclosing of research labs funded by sponsored support,
the cancellation of continuing and executive education
programs, and the virtual cessation of services suchas events and reunions, parking, and rent resulted in a$138 million drop in revenue, 3% less than 2019, withthe decline all concentrated in the last three months of
the fiscal year. When we think of total “lost revenue,”
however, the number is closer to $270 million, or
5% less from revenue projections made just prior to
the pandemic.
At the bottom line, the University showed a loss forthe year of $10 million from operations, compared
to last year’s operating surplus of $308 million. The
sharp year-to-year decline was directly the resultof the reduction in revenues, as well as a one-timevoluntary early retirement benefit program foreligible staff, and the write-down of select assets.
The loss would have been far greater without theimplementation of immediate cost control efforts
including cuts in discretionary spending, a freeze in
new hires and raises, no bonuses or overtime work,
voluntary salary cuts by senior leadership, and reduced
capital spending.
Despite these losses, Harvard’s underlying financial
position remains strong. Years of careful stewardshipby schools and units had replenished reserves fromthe losses of the Great Recession of 2008-09 andrecent coordinated steps positioned the University andHarvard Management Company (HMC) with ample
liquidity (i.e. cash and near-cash investments) andsubstantial unused committed borrowing capacity.
Through a refinancing of existing indebtedness, theUniversity has secured long term, low borrowing rates,and downside budget planning was already in place,the result of the “Recession Playbook,” an internalfinancial planning resource introduced over a year
ago. This sound financial management allowed the
HARVARD UNIVERSITY ▪ FINANCIAL OVRRVIRW

University to be in a position to cover sudden losses
from operations, while also investing in the mission,for example, by granting $645 million in financial
aid and scholarships to students, an increase of$31 million or 5%. We thank all of Harvard’s financial
stewards and budget managers for the hard work overthe last ten years in creating financial capacity andflexibility. We will no doubt need to call on it again in
coming months.
As we close the books on 2020, a few observations
on the unexpected:▪ Harvard pivoted with breathtaking speed in
March to remote learning. The logistics of helping
students safely depart campus and standing up allundergraduate and graduate courses on an on-line
basis was exceptional. Administrators, faculty andstaff reacted far more like seasoned crisis managers
or start-up entrepreneurs than staid guardians of
tradition in a nearly 400-year-old institution.
▪ Guided by the framework articulated in April 2020
by President Larry Bacow, Provost Alan Garber andExecutive Vice President Katie Lapp—prioritize thehealth and safety of the community; do everything
possible to maintain the excellence of the mission;and recognize that Harvard is its people—the
University turned to planning for the summer andfall. Thanks to this intensive work, Harvard has
successfully reopened its research labs, broadened
and strengthened its remote learning offerings,
established hybrid classrooms, and returned a limited
number of students, faculty, and staff to campus witha rigorous testing regimen for everyone living and/or
working on campus as well as robust contact tracing
practices in coordination with local and state publichealth authorities.
▪ It has been an extraordinary exercise in imagination,
teamwork, academic and administrative planning, andold-fashioned hard work across Harvard’s schools andin central administration. We are grateful to everyone
who has been involved in these important efforts.

3

Unfortunately, we cannot rest. The hardest partlikely lies ahead with ongoing challenges related tothe pandemic and the related economic upheaval, as
well as turmoil in our politics, societal inequities,
racial injustice and underlying pressures on higher
education. Each of these forces will affect the
University in varying degrees and influence ourfinancial outlook for years to come. With respect
to FY21, our most recent forecasts indicate thatrevenues will likely be down a second year in a row,
something Harvard has not experienced since the1930’s. At the same time, we have incurred significant
new investments and increased spending on
COVID-19 testing and tracing, the reconfigurationsof laboratories, classrooms and dormitories, theprocurement of personal protective equipment, andinvestments in technology and training for faculty andstudents for remote and hybrid learning. Testing andtracing costs alone are expected to be in the tens of
millions of dollars.

The University is blessed with alumni and otherphilanthropic supporters who rose to the occasion
this past spring, amidst the onset of the pandemic
and the stock market collapse, with a record-breaking
amount of gifts for current use for the year—morecurrent use dollars received than in any other year
in Harvard’s history. We thank our loyal donors forthis extraordinary support. As we have repeatedlyemphasized before, endowment distributions andcurrent giving constitute 46% of annual revenues
and enable Harvard’s pursuit of academic excellence.
We offer a note of caution, however, as many of the
donations in the Spring were in the form of earlycollections on past pledges. Consequently, pledge
receivables on the balance sheet are now down 13%
from a year ago and they will likely continue todecrease as donors pay pledges from the campaign.
In the current environment, with the backdrop
of a fragile economy, we should anticipate lessphilanthropy in the coming year.

Declining revenues and increasing costs is not asustainable equation, but it is our near-term reality.
Harvard’s decentralization, however, provides a key
advantage—resources are often managed locallyby those most knowledgeable and responsible foracademic and other activities. It is a time when eachand every member of our community can focus
on resource stewardship and assume a vigilant
responsibility to ensure that our declining resources
continue to be best used to support our primarycommitment to teaching and research.

The endowment earned a 7.3% return for the year,
which is an excellent outcome in the midst of market
volatility and places HMC’s results for the second year
in a row at the higher end of large peer universities.
Narv Narvekar, the President of HMC, is the firstto say that results should not be measured on a
year-to-year basis, but we have confidence that Narv
and his able team are making steady progress anddemonstrating proficiency in a variety of ways. Please
see Narv’s letter in this report for further informationon the endowment.

Given the levels of uncertainty, we will need to be as
flexible and adroit as possible. The reality is, we simply
do not know what is going to unfold, even as weengage in planning for the spring semester. Working
with the Corporation Committee on Finance, Harvard
has established three overriding financial principles
to maintain during the pandemic: to stay ‘liquid’(meaning to have sufficient operating cash available),to endeavor to reduce spending in line with declining
revenues, and to be on the lookout for investment
opportunities that will strengthen the mission for the
future. This compass will guide our decision making
and the management of resources in the weeks andmonths to come.

Stepping back from Harvard, we have cautioned inthese letters in recent years that higher education in
the United States is facing increasing pressures acrossall its traditional sources of revenue. Unfortunately,
the pandemic and the economic contraction has
exacerbated these issues, and we expect significant
difficulty for the sector, with existential issues forsome institutions. This looms as one of the many
challenges facing our nation due to the pandemic
and its consequences. While higher education as
we know it will be changed, we hope that it willcontinue its vital role as the engine of opportunity
for students, as well as an ongoing source of new
discoveries of knowledge, ideas, and future leaders fora better tomorrow.

HARVARD UNIVERSITY ▪ FINANCIAL OVRRVIRW

4

In the midst of the current difficulties, we areheartened to watch with appreciation as our faculty,
staff, students, and alumni actively contribute to thecountry and the world in providing epidemiologicalcounsel, leading research on COVID-19 cures, taking
legal action on behalf of foreign students, breaking
pedagogical new ground in remote and hybridclassrooms, contributing resources and talent to our
local communities, and finally, publishing articles,
papers and research in every field on the effects of thepandemic, and the possible best paths forward.
In closing, we want to once again thank each andevery donor to the University—past and present—for
understanding that Harvard’s excellence in teaching
and research is made possible through philanthropy.
We also want to thank faculty and staff for theirinspiring contributions, on a daily basis, in carrying

HARVARD UNIVERSITY ▪ FINANCIAL OVRRVIRW

on in the midst of this pandemic and making Harvard
one of the world’s preeminent institutions.

Thomas J. Hollister
VICE PRESIDENT FOR FINANCE

Paul J. Finnegan
TREASURER
October 22, 2020

5

FINANCIAL OVERVIEWThe University ended fiscal year 2020 with anoperating deficit of $10 million compared to a$308ı million surplus in fiscal year 2019. This financial
loss was driven by COVID-19 pandemic related declines
in revenue, as board and lodging payments wererefunded and executive education programs cancelled,
while the University continued to fully support salaries
and benefits for all workers. At the same time, theUniversity acted quickly to manage discretionary
spending in response, reducing those categories ofspend by $155 million. Despite volatile financial markets,
the University’s net assets increased by $893 million
to $50.2 billion at June 30, 2020 due to strong
performance from Harvard Management Company.

OPERATING REVENUE
In fiscal year 2020, total operating revenue decreased
3% or $138 million to $5.4 billion. As a result of the
COVID-19 pandemic, Harvard experienced significant
revenue declines, including the cancellation of
executive education programs, board and lodging
refunds, as well as slowdowns in other campus
activities including research.
Total student revenue decreased 11% to $1.1 billion
in fiscal year 2020. Modest decreases in net revenue
from traditional student programs (undergraduate
and graduate) were planned and driven by increases
in financial aid. Board and lodging revenue of$164 million declined 16% mainly driven by$32 million in refunds issued to students and families
for half of the spring semester. Net executive andcontinuing education totaled $410 million and wassubstantially impacted by the COVID-19 pandemic,
declining $90 million or 18% driven by related
program cancellations and enrollment declines.
Sponsored support was only modestly impacted by the
pandemic, as the University was able to quickly adapt
research activity to continue remotely. As a result,revenue from federal and non-federal sponsoredsources decreased just 2% to $918 million. Federal
funding, which accounted for approximately 67% of
total sponsored revenue in fiscal year 2020, decreased
2% to $616 million. Non-federal sponsored revenue,
attributable to funding from corporations, foundations,and other non-federal sponsors, decreased 2% to$301 million and includes newly awarded researchawards focused on COVID-19.
We are grateful to all donors who have continued
to support the University’s mission during thisunprecedented time, with current use giving continuing
at record levels. Current use gifts, received fromalumni, foundations and others, totaled $478 million,
representing approximately 9% of operating revenues
in fiscal year 2020. Combining gifts for current use
and Harvard’s endowment distribution, philanthropy
accounts for 46% of fiscal year 2020 revenue.
In fiscal year 2020, the endowment distribution
increased by 5% to $2.0 billion. This growth was
the combined impact of new gifts, as well as the
Corporation-approved distribution rate increase of 2.5%.
In the aggregate, Harvard’s endowment payout rate(i.e., the dollars withdrawn annually for operations as apercentage of the endowment’s prior year-end market
value) was 5.2% compared to 5.1% in the prior fiscal
year, and in line with the University’s targeted payout
rate range of 5.0% – 5.5%. The University continues
to be keenly focused on managing the endowment’s
payout rate in order to maintain an appropriate balance
between supporting the University’s near-term
programmatic needs and aspirations and safeguarding
the endowment’s long-term purchasing power.
FISCAL YEAR 2020 UNIVERSITY REVENUE SOURCES

Research Non-Federal
Sponsored
17%
FederalSponsored
DegreeSeeking
Education

Net Tuition
17%
Continuing &Executive
Education

6%

Current
Use Gifts

Philanthropy
46%

9%

11%

9%
37%
8%

Net
Endowment
Distribution

20%

Non-Academic

1 The 2019 “Net Operating Surplus” has been adjusted by $9.7 million to conform with current year presentation from theadoption of ASU 2017-07 (see Note 2).
HARVARD UNIVERSITY ▪ FINANCIAL OVRRVIRW

6FISCAL YEAR 2020 SOURCES OF OPERATING REVENUE

4%
17%

11%

6%
14%

11%

9%

6%
13%

7%

13%

19%

5%

6%

13%

16%

23%

12%
4%

2%
5%
17%

4%

8%

13%
13%

35%

12%

27%

3%

2%

21%

17%

24%
38%

7%

13%

43%
39%

61%

38%

20%
85%

30%

25%

8%

53%

10%
38%

37%

University

Radcliffe

Divinity

38%

29%

68%

Faculty Engineering &of Arts &AppliedSciences
Sciences

35%

Law

OPERATING EXPENSESThe University’s operating expenses increased by$180 million or 3%, to $5.4 billion as of June 30,
2020. Compensation expense (i.e. salaries, wages andbenefits) increased $158 million or 6% from the priorfiscal year which is inclusive of a $71 million estimatedaccrual related to the Voluntary Early Retirement
Incentive program offered to 1,599 staff members inJune 2020.
Additionally, while total non-compensation related
expenses increased year-over-year, fiscal year 2020
includes one-time costs related to asset impairment
and environmental remediation. The University acted
quickly to manage discretionary spending in response
to COVID-related revenue pressures and these
efforts resulted in a 6% decrease over prior year for
non-compensation related expenses, after removing
the impact of one-time charges. For example, travel
expenditures—supporting student and faculty
research and other programmatic activities—werereduced by $33 million, as world-wide travel shutdown
in mid-March.
HARVARD UNIVERSITY ▪ FINANCIAL OVRRVIRW

33%

Design25%

27%

Medicine

Kennedy
School27%

22%

Education

Dental20%

19%

Business

PublicHealthFISCAL YEAR 2020 OPERATING EXPENSES

Supplies &Equipment
Salaries &Wages

Services
Purchased
4%
12%

40%
Other

People
52%

15%

7%
3%
Space &
Occupancy
Interest

7%

Depreciation12%

Benefits

Space 17%

7

BALANCE SHEETInvestments and Endowment
In fiscal year 2020, the return on the endowment was
7.3% and its value (after the net impact of distributions
from the endowment for operations, and the additionof new gifts to the endowment during the year)
increased from $40.9 billion at the end of fiscal year
2019 to $41.9 billion at the end of fiscal year 2020.
More information can be found in the Message fromthe CEO of Harvard Management Company, found on
page 9 of this report.
The University has a policy of maintaining liquidity
outside of the General Investment Account (GIA)
through a combination of cash, cash equivalents andshort-term investments. These investments totaled$1.6 billion at June 30, 2020 compared to $1.0 billion
at June 30, 2019 (see Note 2).
MARKET VALUE OF THE ENDOWMENT AS OF JUNE 30, 2020
In millions of dollars

Business$4,091

Other$4,065

Debt
Bonds and notes payable increased from $5.2
billion at June 30, 2019 to $5.7 billion at June 30,
2020, resulting from the April 2020 refinancing
of $450 million in tax-exempt commercial paper
and issuance of $500 million in taxable debt. The
University maintained its AAA rating by S&P Global
Ratings and Aaa by Moody’s Investor Services.
Fixed assets
The University curtailed spending on capitalprojects and acquisitions as a result of the COVID-19
pandemic and for fiscal year 2020 it invested $627
million compared to $903 million in fiscal year 2019.
Significant capital projects, including the Science andEngineering Complex, were delayed due to pandemic
construction shutdowns. Over the past several years,
the University has invested in renewal projects acrossthe University that will allow us to prudently manage
capital projects during this upcoming period offinancial uncertainty.

President’s funds $2,629
Law $2,074
Public Health $1,666

Medical$4,528Engineering & Applied
Sciences $1,571

Faculty ofArts & Sciences$16,868

Kennedy School $1,316
Divinity $675
Radcliffe Institute $664
Education $628
Design $519
University professorship $377
Dental $223

TOTAL MARKET VALUE $41,894

HARVARD UNIVERSITY ▪ FINANCIAL OVRRVIRW

8

RI
TAS

Message from the CEO
OCTOBER 2020

Dear Members of the Harvard Community,
For the most recent fiscal year ended June 30, 2020, the return on the Harvard endowment was 7.3% andthe value stood at $41.9 billion. The endowment also distributed $2 billion toward the University’s operating
budget, supporting financial aid, research funds, faculty chairs, and more.

Performance
Asset Class

Allocation

ReturnPublic Equity

18.9%

12.2%

Private Equity

23.0%

11.6%

Hedge Funds

36.4%

7.9%

Real Estate

7.1%

-0.5%

Natural Resources

2.6%

-6.2%

Bonds/TIPS

5.1%

8.2%

Other Real Assets

1.3%-17.5%Cash & Other

5.6%

---

Endowment

100%

7.3%

Fiscal year 2020 (FY20) was another year in which asset allocation (or risk level) played a major role in
returns. Those who took the highest risks, generally speaking, garnered higher returns. Like FY19, it wasalso a year in which HMC’s manager performance served to overcome its lower allocation to certain higher
risk assets.
Having completed three full fiscal years of our transition of HMC’s organization and portfolio, I am proudof the progress our team has made. To date, we have focused on a number of important efforts, mostnotably: significant restructuring of the organization, implementing our investment approach across theportfolio, rebuilding the public market side of the portfolio, building on the historically successful parts of
the illiquid portfolio, and also dealing with significant illiquid portfolio issues. Additionally, we are in active
conversations with the University regarding its risk tolerance to ensure that future investment decisionsbalance the need for endowment growth with the need for stable endowment revenue.

OCTOBER2020
HARVARD
UNIVERSITY ▪ HARVARD MANAGEMENT COMPANY

91

Portfolio ProgressIn public markets, we have progressed more quickly than expected and have already begun running thelong-term performance marathon over the last three fiscal years, despite still being in the restructuring
period. By contrast, for illiquid markets, the situation is more complex. As previously mentioned, we arebuilding upon a historically strong private equity portfolio, reducing other illiquid exposure, while also
removing certain illiquid anchors. Not surprisingly, these changes take much longer and we will use theremaining two fiscal years of the restructuring period to work our way to the starting line.

Public Market Benchmark Relative Performance
In last year’s report, I noted that our annualized benchmark outperformance in the public markets portionof the portfolio (public equities and hedge funds, in aggregate), during the two-year period of FY18 andFY19, was in excess of 2.25% annualized. We considered this to be very good, albeit not excellent. More
importantly, it represented a positive step for HMC. It is worth noting again that we do not fixate on
benchmarks, but they serve a unique role in this circumstance for a few reasons:• Investments in public markets are ones on which we can have the most immediate
performance impact over the three fiscal years of the HMC transition.

• Public investments represent more than half of the endowment portfolio.
• All relevant private market benchmarks are not yet available.
At the end of FY20, HMC’s three-year public portfolio annualized outperformance now stands at 4.4%,
reflecting excellent performance for that period. This represents another positive step forward for HMC anda strong affirmation of our early progress in effecting the turnaround. Furthermore, this strong manager
performance has been critical in helping to offset HMC’s lower exposure to venture capital, a high-risk/
high-reward investment strategy.

Reducing Illiquid Portfolio Anchors
Last year’s report also discussed the many illiquid portfolio anchors weighing down the overall portfolio
and its performance. These legacy assets do not have a prospect of generating a return commensuratewith the risk and illiquidity they entail and, in some cases, may not provide a return at all. As is evident
from the performance chart above, outlining the performance of certain parts of the illiquid portfolio, theseassets weighed materially on performance again this past fiscal year. However, the very positive news isthat through sales and necessary write-downs we are working our way through these assets and are very
pleased that they now represent a considerably smaller percentage of the portfolio — now just in the lower
single digits. Our goal is to eventually remove them entirely from the portfolio, as opportunities present
themselves, and we believe there is a chance of doing so over the next two fiscal years.

Risk Tolerance
Determining risk tolerance is the fundamental and critical question, yet to be answered. Our goal clearly is
to maximize returns at the risk level determined by the University. Close followers of these letters will notethat HMC’s returns would have been materially higher in FY18, FY19, and FY20 with a higher risk level — inparticular, with a higher venture capital allocation — consistent with that of some of our peers. Simply put,
it is a tradeoff between higher returns and more long-term growth in the endowment versus having a lessvolatile University budget. This remains a critical and complex collaboration with the University, one thatis well under way and will guide future portfolio construction.

OCTOBER2020
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UNIVERSITY ▪ HARVARD MANAGEMENT COMPANY

102

Organizational Progress
Natural Resources (Agricultural) Joint Venture
As we recently announced, HMC spun-out its natural resources team into an independent firm, Solum
Partners. We simultaneously sold roughly a 50% interest in a collection of agricultural assets to a third-party
investor. Solum will manage this portfolio with both HMC and the third party serving as limited partners.
The talented team of asset managers that have formed this new firm will also continue to manage — andultimately liquidate — certain other HMC natural resource assets.
THERE WERE THREE MOTIVATIONS FOR THESE TRANSACTIONS:• Continue to right-size our exposure to natural resources• Retain and even build exposure to specific types of assets and platforms
with the appropriate level of risk/return/liquidity for an endowment• Ensure continued expert management of our natural resources portfolio
Because of the complexity of the assets and the jurisdictions involved, completing this transaction took
over two years. We look forward to our continued partnership with the talented team at Solum.

Harvard Management Trusts and Gifts
Historically, the Trusts & Gifts (T&G) group at HMC has worked closely with the University’s Planned Giving
Program (estates, trusts, non-cash assets, annuities, and donor advised funds) to process, administer, andsteward planned gifts and associated donors. We are proud of the T&G team’s efforts and accomplishments,
but after careful consideration, and in consultation with the University’s leadership, we have determinedthat the structure of T&G needs to evolve in order to best serve and help grow the University’s vast planned
giving program. To this end, we have decided to outsource the gift administration, tax reporting, and someinvestment functions to a third-party vendor that will have many more resources and a broader platform
with which to serve Harvard’s donors. Donors will continue to have the option of investing their remainder
trusts in Harvard’s endowment.
Throughout and following the transition, HMC and the University will continue to consider the donors’ andbeneficiaries’ interests as a key guiding principle in decision making, and HMC will remain a close advisor
on investment strategy. At the same time, both Harvard and HMC also believe that Harvard’s donors will
be best served if the donor relations and legal structuring teams within T&G are more closely integrated
with their counterparts at the University. The transition, both to a third-party vendor and to the University,
will be jointly managed by HMC and Harvard over the next 12 months before fully migrating oversight ofboth efforts to the University. We believe that these changes will present new opportunities to strengthen
and expand the planned giving program.

New Strategic Initiatives
Net-Zero Pledge
This past spring, Harvard University made a commitment for its endowment to be net-zero of greenhousegas (GHG) emissions by 2050. HMC is mindful that we do not make this pledge in isolation. Achieving thisgoal requires governments to uphold their commitments to the Paris Agreement, the further developmentof GHG-reducing technologies, and the cooperation of others in the investment management industry. Thatsaid, we are not waiting for others to do their part in order to start to prepare ourselves. This decades-longcommitment is in its infancy, but HMC has already begun work developing methodologies to assess ourportfolio and measure our progress over the course of this significant endeavor.

OCTOBER2020
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UNIVERSITY ▪ HARVARD MANAGEMENT COMPANY

113

Diversity and Inclusion
The topics of diversity and inclusion received significant attention this past year and will hopefully remain
an issue of industry-wide focus moving forward. While the gender and racial diversity of our externalmanagers is one that HMC has sought to improve in recent years, it is my strong view that diversity andinclusion efforts begin with our own team. We cannot expect more from our managers than we are willingto ask of ourselves. Currently, 55% of HMC’s senior staff members, including myself, are either ethnic andracial minorities or women. All high-performing organizations must draw talent from the broadest possible
pool and the diversity of our staff is one way to ensure that we meet that standard.
Along with our Board of Directors and members of the Harvard Corporation, we are exploring ways that
we can institutionalize these initiatives to ensure that we continue to improve in the years to come.

In Closing
After three full fiscal years of hard work, we are beginning to see the benefits of the ongoing transition. The
entire team is committed to maximizing the two remaining fiscal years to position both the organizationand the endowment for long-term success. To be sure, there is much left for us to accomplish, but theearly signs are encouraging and we remain confident in the direction we are headed.
Best regards,

N.P. “Narv” Narvekar
Chief Executive Officer

OCTOBER2020
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UNIVERSITY ▪ HARVARD MANAGEMENT COMPANY

124

Report of Independent Auditors
To the Joint Committee on Inspection of the Governing Boards of Harvard University:
We have audited the accompanying consolidated financial statements of Harvard University and its subsidiaries(the “University”), which comprise the consolidated balance sheet as of June 30, 2020, and the related consolidated
statements of changes in net assets with general operating account detail, changes in net assets of the endowment andof cash flows for the year then ended.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements inaccordance with accounting principles generally accepted in the United States of America; this includes the design,
implementation and maintenance of internal control relevant to the preparation and fair presentation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted
our audit in accordance with auditing standards generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments,
we consider internal control relevant to the University’s preparation and fair presentation of the consolidated financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the University’s internal control. Accordingly, we express no such opinion.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Harvard University and its subsidiaries as of June 30, 2020 and the changes in their net assets and their cash
flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As discussed in Note 2 to the consolidated financial statements, the University changed the manner in which it accounts
for restricted cash and certain other cash balances within the statements of cash flows and the manner in which it
accounts for leases in 2020. Our opinion is not modified with respect to this matter.
Other Matter
We previously audited the consolidated balance sheet as of June 30, 2019, and the related consolidated statements ofchanges in net assets with general operating account detail, changes in net assets of the endowment and of cash flows
for the year then ended (not presented herein), and in our report dated October 24, 2019, we expressed an unmodified
opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying
summarized financial information as of June 30, 2019 and for the year then ended is consistent, in all material respects,
with the audited consolidated financial statements from which it has been derived.

October 22, 2020

PricewaterhouseCoopers LLP,
Street,Boston, MA
02110
PricewaterhouseCoopers
LLP,125
101High
SeaportBoulevard,
Suite
500, Boston, MA 02210
T:
(617)
530
5000,
F:
(617)
530
5001,
www.pwc.com/us
T: (617) 530 5000, F: (617) 530 5001, www.pwc.com/us

HARVARD UNIVERSITY ▪ INDEPENDENT AUDITOR’S REPORT

13

BALANCE SHEETS
with summarized ﬁnancial information as of June 30, 2019

June 30
2020

In thousands of dollars
ASSETS:Cash and cash equivalents
Receivables, net (Note 4)
Prepayments and deferred charges
Operating leases – right of use assets (Note 18)
Notes receivable, net (Note 5)
Pledges receivable, net (Note 6)
Fixed assets, net (Note 7)
Interests in trusts held by others (Note 3)
Securities pledged to counterparties, at fair value (Note 3)
Investment portfolio, at fair value (Note 3)
TOTAL ASSETS

176,615
262,731304,920754,699372,234
2,403,175
8,435,255
427,359
214,010
48,111,441$ 61,462,439

$

$

$

$

LIABILITIES:
Accounts payable
Deferred revenue and other liabilities
Operating lease liabilities (Note 18)
Other liabilities associated with the investment portfolio (Notes 3 and 10)
Liabilities due under split interest agreements (Note 9)
Bonds and notes payable (Note 10)
Accrued retirement obligations (Note 11)

321,666
1,580,178
767,599
878,018
819,584
5,664,679
1,216,2512019

158,640
296,321266,7190373,623
2,765,827
8,271,711
420,371
49,971
46,723,970$ 59,327,153

398,134
1,517,022
0875,141
859,744
5,213,349
1,120,544

44,74866,733TOTAL LIABILITIES

11,292,723

10,050,667

NET ASSETS

50,169,716

49,276,486$ 61,462,439$ 59,327,153

Government loan advances (Note 5)

TOTAL LIABILITIES AND NET ASSETSNET ASSETS:
General Operating Account (GOA) (Note 8)
Endowment (Note 8)
Split interest agreements (Note 9)
TOTAL NET ASSETS

Without donor
restrictions

With donor
restrictions$ 4,922,307
7,374,810$ 2,754,836
34,519,570
598,193$ 37,872,599$ 12,297,117

June 302020$ 7,677,143
41,894,380
598,193$ 50,169,716

2019$ 7,773,417
40,929,700
573,369$ 49,276,486

The accompanying notes are an integral part of the consolidated ﬁnancial statements.

HARVARD UNIVERSITY ▪ FINANCIAL STATEMENTS

14

STATEMENTS OF CHANGES IN NET ASSETS WITH GENERAL OPERATING ACCOUNT DETAIL
with summarized financial information for the year ended June 30, 2019
In thousands of dollars
OPERATING REVENUE:
Net student income (Notes 2 and 12)

Without Donor
Restrictions

With Donor
Restrictions

For the year ended
June 302020
2019

1,070,156$ 1,070,156$ 1,200,838

Sponsored support (Note 13)
Federal government – direct costs
Federal government – indirect costs
Non-federal sponsors – direct costs
Non-federal sponsors – indirect costs
Total sponsored support

436,552
179,678
76,38522,279714,894

184,354
18,273
202,627

436,552
179,678
260,739
40,552
917,521448,832
181,948
267,257
39,353
937,390

Gifts for current use (Note 14)103,659

373,905

477,564

472,113

Investment income:Endowment returns made available for operations (Note 8)
GOA returns made available for operations
Other investment income
Total investment income

364,763
176,174
28,596
569,533

1,633,993
4,709
1,638,702

1,998,756
176,174
33,3052,208,235

1,908,423
180,634
39,134
2,128,191$$

Other revenue (Note 15)
Net assets released from restriction

699,354
2,092,571(2,092,571)

699,3540772,038
0

TOTAL OPERATING REVENUE

5,250,167

122,663

5,372,830

5,510,570

OPERATING EXPENSES:
Salaries and wages
Employee benefits (Note 11)
Services purchased
Space and occupancy
Depreciation (Note 7)
Supplies and equipment
Interest (Note 10)
Scholarships and other student awards (Note 12)
Other expenses (Note 16)
TOTAL OPERATING EXPENSES

2,131,511
620,752
670,485
364,163
376,855
243,870
180,727
163,618
630,897
5,382,878

02,131,511
620,752
670,485
364,163
376,855
243,870
180,727
163,618
630,897
5,382,878

2,038,478
555,793680,691379,290382,775
270,623
181,633
155,874
557,801
5,202,958

NET OPERATING (DEFICIT)/SURPLUS(132,711)

122,663(10,048)

307,6128,808
281,613(176,174)(171,440)
657
51,448(81,927)(12,670)
1,543
11,916
0(86,226)5,112
261,944(180,634)
352,553
1,656
86,372(136,456)(17,505)(92,420)
13,886
0294,508

NON-OPERATING ACTIVITIES:
Income from GOA Investments
GOA realized and change in unrealized appreciation, net (Note 3)
GOA returns made available for operations
Change in pledge balances (Note 6)
Change in interests in trusts held by others
Gifts for facilities and loan funds (Note 14)
Change in retirement obligations (Note 11)
Other changes
Transfers between GOA and endowment (Note 8)
Transfers between GOA and split interest agreements (Note 9)
Non-operating net assets released from restrictions
TOTAL NON-OPERATING ACTIVITIESGENERAL OPERATING ACCOUNT NET CHANGE DURING THE YEAR
Endowment net change during the year
Split interest agreements net change during the year (Note 9)
NET CHANGE DURING THE YEAR
Net assets, beginning of year
NET ASSETS, END OF YEAR

8,808
281,613(176,174)(171,440)
657
51,448(81,927)(12,670)(3,052)
148,302
164,900
32,189283,226
315,415
11,981,702$ 12,297,117

4,595
11,916(148,302)(251,126)(128,463)(96,274)
602,120
681,454964,680
1,695,964
24,824
24,824
14,218577,815
893,230
2,312,302
37,294,784
49,276,486
46,964,184$ 37,872,599 $ 50,169,716 $ 49,276,486

The accompanying notes are an integral part of the consolidated financial statements.

HARVARD UNIVERSITY ▪ FINANCIAL STATEMENTS

15

STATEMENTS OF CHANGES IN NET ASSETS OF THE ENDOWMENT
with summarized financial information for the year ended June 30, 2019

In thousands of dollars
Investment return (Note 3):
Income from general investments
Realized and change in unrealized appreciation, net
Total investment return
Endowment returns made available for operations
Net investment return

Without Donor
Restrictions

Gifts for endowment (Note 14)
Transfers between endowment and the GOA (Note 8)
Capitalization of split interest agreements (Note 9)
Change in pledge balances (Note 6)
Change in interests in trusts held by others (Note 8)
Other changes
Net assets released from restrictions
NET CHANGE DURING THE YEAR
Net assets of the endowment, beginning of year
NET ASSETS OF THE ENDOWMENT, END OF YEAR$

13,549477,536
491,085(364,763)
126,322
78,342
3,052(203)
75,713
283,226
7,091,584$ 7,374,810

For the year ended
June 30
2020
2019

With Donor
Restrictions$

60,756
2,124,590
2,185,346(1,633,993)
551,353

390,861(4,595)
12,136(191,451)
6,331(7,468)(75,713)
681,454
33,838,116$ 34,519,570$

74,3052,602,126
2,676,431(1,998,756)
677,675

469,203(1,543)
12,136(191,451)
6,331(7,671)
0964,680
40,929,700$ 41,894,380$

37,1892,289,499
2,326,688(1,908,423)
418,265

613,287
92,42015,213575,155
9,747(28,123)
0
1,695,964
39,233,736$ 40,929,700

The accompanying notes are an integral part of the consolidated financial statements.

HARVARD UNIVERSITY ▪ FINANCIAL STATEMENTS

16

STATEMENTS OF CASH FLOWS
with summarized financial information for the year ended June 30, 2019

For the year ended
June 30

In thousands of dollars

2020

2019

893,230$ 2,312,302

376,855(28,489)(2,940,852)
16,832(6,988)(14,147)(114,118)
18,886(335,376)(4,213)
181,349
95,70725,759382,775(27,272)(2,611,556)
11,928(11,403)30,786(92,158)
14,198(518,827)

33,590(38,201)
362,652(37,995)
77,367(27,070)(1,465,222)

4,937(135,794)(928,035)
77,182
189,568(1,123,138)(49,990)
52,515(1,136)
14,837,933(13,911,250)
296,726(764,415)
460,383(41,938)
49,720390
15,186,174(14,002,833)
374,719(994,830)
571,402

4,194(26,013)602,131(118,099)
95,232
335,376
56(21,985)
870,892(7,618)(33,455)
480,900(541,200)
77,960518,827
397
1,324
497,135

NET CHANGE IN CASH
Cash, beginning of year
CASH, END OF YEAR

(133,947)
1,494,545$ 1,360,598(54,601)
1,549,146$ 1,494,545

Cash and cash equivalents (per Balance Sheets)
Cash and cash equivalents held in investments (Note 3)
TOTAL CASH AND CASH EQUIVALENTS$

176,615
1,183,983$ 1,360,598

$

$
$
$
$

$
$

CASH FLOWS FROM OPERATING ACTIVITIES:
Change in net assets
Adjustments to reconcile change in net assets to net cash (used in) operating activities:
Depreciation
Amortization of premium and discount related to bonds and notes payable
Realized and change in unrealized appreciation, net
Change in fair value of interest rate exchange agreements
Change in interests in trusts held by others
Change in liabilities due under split interest agreements
Gifts of donated securities
Proceeds from the sales of gifts of unrestricted securities
Gifts for restricted purposes
Cost of issuance of debt
Loss on disposal of assets
Change in accrued retirement obligations
Non-cash operating lease costs
Changes in operating assets and liabilities:
Receivables, net
Prepayments and deferred charges
Pledges receivable, net
Accounts payable
Deferred revenue and other liabilities
Operating lease liability
NET CASH (USED IN) OPERATING ACTIVITIES$CASH FLOWS FROM INVESTING ACTIVITIES:
Loans made to students, faculty, and staff
Payments received on student, faculty, and staff loans
Change in other notes receivable
Proceeds from the sales and maturities of investments
Purchase of investments
Change associated with repurchase agreements
Additions to fixed assets
NET CASH PROVIDED BY INVESTING ACTIVITIESCASH FLOWS FROM FINANCING ACTIVITIES:
Change in overdrafts included in accounts payable
Change in split interest liability from new contributions, income and payments to annuitants
Proceeds from issuance of debt
Debt repayments
Proceeds from the sales of gifts of restricted securities
Gifts for restricted purposes
Affiliated entity contributions and distributions, net
Change in government loan advances
NET CASH PROVIDED BY FINANCING ACTIVITIESSupplemental disclosure of cash flow information:
Accounts payable related to fixed asset additions
Cash paid for interest
Non-cash proceeds from issuance of debt
Use of non-cash proceeds to refinance debt

35,237
212,831450,000(450,000)

41,239136,992

158,640
1,335,905$ 1,494,545
77,904
216,110

The accompanying notes are an integral part of the consolidated financial statements.
HARVARD UNIVERSITY ▪ FINANCIAL STATEMENTS

17

1. UNIVERSITY ORGANIZATION
Harvard University (the “University”) is a private, not-forprofit institution of higher education with approximately
6,700 undergraduate and 13,600 graduate students in fiscal
year 2020. Established in 1636, the University includes
the Faculty of Arts and Sciences, the John A. Paulson
School of Engineering and Applied Sciences, the Divisionof Continuing Education, ten graduate and professional
Schools, the Radcliffe Institute for Advanced Study, a varietyof research museums and institutes, and an extensive
library system to support the teaching and research
activities of the Harvard community. The President andFellows of Harvard College (the “Corporation”), a governing
board of the University, has oversight responsibility for all of
the University’s financial affairs. The Corporation delegates
substantial authority to the Schools and departments for the
management of their resources and operations.
The University includes Harvard Management Company(HMC), a wholly owned subsidiary founded in 1974 to
manage the University’s investment assets. HMC isgoverned by a Board of Directors that is appointed by
the Corporation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of presentation
The accompanying consolidated financial statements
have been prepared on the accrual basis of accounting
and include the accounts of the University and affiliatedorganizations controlled by the University. Significant interaffiliate accounts and transactions have been eliminated.
Funds transferred to the University on behalf of specificbeneficiaries (agency funds) are recorded as assets andliabilities in the Balance Sheets and are not included in theStatement of Changes in Net Assets with General Operating
Account Detail.
The financial statements include certain prior year
summarized comparative information in total, not by net
asset classification. This information is not presented in
sufficient detail to conform to generally accepted accounting
principles (GAAP). Accordingly, such information should
be read in conjunction with the University’s financial
statements for the year ended June 30, 2019, from which
the summarized information is derived. Certain prioryear amounts have been reclassified to conform to current
year presentation.

Net asset classifications
For the purposes of financial reporting, the University
classifies resources into two net asset categories pursuant
to any donor-imposed restrictions and applicable law.
Accordingly, the net assets of the University are classified
in the accompanying financial statements in the categories
that follow:
WITHOUT DONOR RESTRICTIONS — Net assets not subject todonor-imposed restrictions. Funds invested in fixed assets
and unrestricted endowment funds comprise 93% of the
University’s net assets without donor-imposed restrictions
as of June 30, 2020. In addition, this category includes

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS

gifts and endowment income balances where the donor
restriction has been met, University-designated loan funds,
and other current funds.
WITH DONOR RESTRICTIONS — Net assets subject to legal
or donor-imposed restrictions that will be satisfied either
by actions of the University, the passage of time, or both.
These net assets include net assets subject to donor-imposed
restrictions that are invested to provide a perpetual source ofincome to the University. Generally, donors of these assets
require the University to maintain and invest the originalcontribution in perpetuity, but permit the use of some or
all investment returns for general or specific purposes.
The appreciation on these perpetual contributions must
be reported as net assets with donor restrictions until
appropriated for spending in accordance with Massachusetts
law. Also included in this category are gifts donated for aparticular purpose and amounts subject to time restrictions
such as funds pledged for future payment.
Revenues from sources other than contributions are
generally reported as increases in net assets without
donor restrictions. Expenses are reported as decreases in
net assets without donor restrictions. Gains and losses
on investments are reported as increases or decreases in
net assets without donor restrictions, unless their use
is restricted by donor stipulations or by law. Investment
returns earned by restricted donor funds are initiallyclassified as net assets with donor restrictions and thenreclassified to net assets without donor restrictions when
expenses are appropriated or incurred for their intended
purpose. Expirations of donor restrictions on net assets
are reported as reclassifications from net assets withdonor restrictions to net assets without donor restrictions
and appear as “Net assets released from restrictions” and“Non-operating net assets released from restrictions” in theStatements of Changes in Net Assets.

18

Cash and cash equivalents
Effective July 1, 2019, the University adopted ASU 2016-18,
Restricted Cash (Topic 230): Statement of Cash Flows
which requires all cash and cash equivalents, including
cash amounts held in the endowment, to be included in

Cash, beginning of the year
Cash, end of the year
Proceeds from the sales and maturities of investments
Purchase of investments

Liquidity and availability
As part of the University’s liquidity management, it hasa policy to structure its ﬁnancial assets to be available asits general expenditures, liabilities and other obligations
come due. A signiﬁcant portion of the University’s annual
expenditures are funded by operating revenues in thecurrent year including student income, sponsored support,
endowment returns made available for operations, gifts for
current use and other revenues.

cash and cash equivalents presented in the Statements ofCash Flows. As a result of adopting this standard, certain
amounts previously reported as of June 30, 2019 were
adjusted to conform to the presentation requirements
as follows:
As previously
presented$
144,982
158,640
15,001,898(13,750,298)

Cash and cash
equivalents held
in investments$ 1,404,164
1,335,905
184,276(252,535)

New amount after
adoption of ASU$ 1,549,146
1,494,545
15,186,174(14,002,833)

The University’s ﬁnancial assets available within one yearof the balance sheet date for general expenditure, such as
operating expenses, scheduled principal payments on debt,
and capital construction costs not ﬁnanced with debt, are as
follows (in thousands):

June 30,
2020
FINANCIAL ASSETS
Cash and cash equivalents
Receivables, net
Pledge receivables due in one year
Cash, cash equivalents, and short-term investments held separately by General Operating Account (GOA)
Endowment and GOA returns made available for operations in the following year1
TOTAL FINANCIAL ASSETS AVAILABLE WITHIN ONE YEAR
LIQUIDITY RESOURCES
Credit facility, undrawn balanceTax-exempt commercial paper, undrawn balanceTaxable commercial paper, undrawn balance
TOTAL FINANCIAL ASSETS AND RESOURCES AVAILABLE WITHIN ONE YEAR$

176,615
262,731
190,190
1,559,440
2,184,082

2019$

158,640
296,321
221,587
1,013,861
2,175,806$ 4,373,058$ 3,866,215

1,500,000
1,000,000
2,000,000

1,500,000
650,000
2,000,000$ 8,873,058$ 8,016,215

1 Within its investment pools, the University holds cash, cash equivalents, repurchase agreements, and unencumbered US government securities that could beliquidated to fund this amount (Note 3).

Endowment and GOA returns liquidated from investments
and made available for operations over the course of theﬁscal year are distributed to University department andprogram budgets to spend, subject to donor restrictions
where applicable.
While the University has no intention of doing so, there
are additional investments held by the University and theendowment that could be liquidated in the event of an
unexpected disruption. While a portion of the endowment
is subject to donor restrictions, there is $7.4 billion and$7.1 billion in endowment funds without donor restrictions
at June 30, 2020 and 2019, respectively and $3.5 billion
and $3.7 billion of General Operating Account investments(GOA) at June 30, 2020 and 2019, respectively, that could be

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS

accessed with the approval of the Corporation and subject tothe redemption provisions described in Note 3.

Revenue recognition
Revenue is recognized when control of promised goods
or services is transferred to customers, in an amount thatreﬂects the consideration the University expects to beentitled to in exchange for those goods or services.
Student income is derived from degree programs as well
as executive and continuing education programs andincludes tuition, fees, and board and lodging. Student
income is recognized ratably over the academic period of
the course or program offered based on time elapsed, andscholarships awarded to students reduce the amount ofrevenue recognized. The University’s individual schools

19have various billing and academic cycles and the majority ofour programs are completed within the fiscal year. Student
income received in advance of services to be rendered isrecorded as deferred revenue which totaled $208.3 million
and $213.7 million, respectively, for the periods ended
June 30, 2020 and 2019, which are primarily recognized in
the subsequent fiscal year.
Total student income of $1.1 billion and $1.2 billion wasrecorded during the years ended June 30, 2020 and 2019,respectively. Student tuition, fees, board and lodging at
published rates is summarized as follows for the years
ended June 30, 2020 and 2019 (in thousands of dollars):
Undergraduate program
Graduate and professional degree programsContinuing education and executive programs
Board and lodging

2020$ 347,292
613,614425,867
164,3722019$ 339,475
605,833
516,077
196,822

Scholarships applied to student charges were $480,989 and $457,369 for theyears ended June 20, 2020 and 2019, respectively.

Unconditional contributions including pledges arerecognized immediately and classified as either net
assets with donor restrictions or net assets without
donor restrictions. Conditional contributions for whichcash is received are accounted for as a liability withindeferred revenue.
Sponsored support of $917.5 million includes support
from governmental and private sources. Certain sponsoredarrangements are considered exchange arrangements,
and revenue under these agreements is recognized basedon the University’s fulfillment of the contract, which
is typically based on costs incurred or the achievementof milestones. Other sponsored support is considered
contribution revenue, which is recognized when any
donor-imposed conditions have been met, if applicable.
Sponsored conditional contributions received, where thebarrier to entitlement is not yet overcome are recorded
as deferred revenues of $51.2 million as of June 30, 2020
and 2019. As of June 30, 2020, the University also had$1.4 billion awarded but not yet expended contributions
related to sponsored programs where the condition had
not yet been met. This is subject to federal appropriations.
Funding received in advance of recognition is recorded asdeferred revenue.
Other revenue of $699.4 million includes several revenue
streams considered exchange contracts with customers
totaling $579.7 million for fiscal year 2020. These revenues
are recognized at the point in time goods or services areprovided. Deferred revenues related to other income of$107.6 million and $109.0 million were recorded as of

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS

June 30, 2020 and 2019, which are primarily recognized in
the subsequent fiscal year.

Measure of operations
Revenues earned, expenses incurred, and returns madeavailable for operations for the purpose of teaching,conducting research, and the other programs and servicesof the University are the components of “Net operating
surplus” in the Statement of Changes in Net Assets with
General Operating Account Detail. The University’s nonoperating activity within the Statement of Changes in Net
Assets with General Operating Account Detail includes
contributions to the University’s building construction andrenovation funds, investment returns (net of amounts madeavailable for operations), change in pledge balances, longterm benefit plan obligation funding changes, and otherinfrequent transactions.

Collections
The University’s vast array of museums and libraries
contains priceless works of art, historical treasures, literaryworks, and artifacts. These collections are protected andpreserved for public exhibition, education, research, andthe furtherance of public service. They are neither disposedof for financial gain nor encumbered in any manner.
Accordingly, such collections are not recorded for financial
statement purposes.

Insurance programs
The University, together with the Harvard-affiliatedteaching hospitals, has formed a captive insurancecompany, Controlled Risk Insurance Company (CRICO), toprovide limited professional liability, general liability, andmedical malpractice insurance for its shareholders. The
University self-insures a portion of its professional liability
and general liability programs and maintains a reserve forincurred claims, including those related to Harvard Medical
School activities not occurring in the affiliated teaching
hospitals. CRICO provided malpractice coverage applies
with no deductible for medical professionals practicing
within Harvard’s University Health Services department,
the School of Dental Medicine, and the T.H. Chan Schoolof Public Health. The University also maintains reserves
for the self-insured portion of claims related to automobile
liability, property damage, and workers’ compensation;these programs are supplemented with commercial excess
insurance above the University’s self-insured limit. In
addition, the University is self-insured for unemployment,
the primary retiree health plan, and all health and dental
plans for active employees. The University’s claims
liabilities are recognized as incurred, including claims thathave been incurred but not reported, and are included inoperating expenses.

20

Tax
The University is a tax-exempt organization under
Section 501(c)(3) of the Internal Revenue Code.
On December 22, 2017, the Tax Cuts and Jobs Act (the“Act”) was enacted. The Act impacts the University inseveral ways, including the addition of excise taxes on
executive compensation and net investment income, as
well as new rules for calculating unrelated business taxable
income. The University records an estimate for related tax
expense based on currently available regulatory guidance of
the Act, and continues to evaluate the impact of the Act on
current and future tax positions.

Use of estimates
The preparation of financial statements in accordance with
U.S. GAAP requires management to make estimates andassumptions that affect reported amounts and disclosures.
Actual results could differ from those estimates.

New accounting pronouncements
Effective July 1, 2019, the University adopted ASU 2017-07,
Compensation — Retirement Benefits (Topic 715): Improving
the Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost. The amendment requires
the bifurcation of net benefit cost where the service cost
component continues to be presented with other employee
costs in operating income (or capitalized in assets) and theother components (such as interest, expected return onplan assets, and amortization of actuarially determinedamounts) are required to be presented as a nonoperatingchange in net assets without restrictions. The new standard
requires retrospective application and allows a practical
expedient that permits an employer to use the amounts
disclosed in its employee benefits footnote for the priorcomparative periods as the estimation basis for applying
the retrospective presentation. The University utilized thepractical expedient to estimate the impact on the fiscal 2019
information. The adoption of the standard resulted in thereclassification of $9.7 million in net periodic benefit costs,
other than service costs, from “Employee benefits” expense
to “Change in retirement obligations” nonoperating
expense presented in the Statement of Changes in Net Assets
with General Operating Account Detail. Therefore, the fiscal
2019 “Net Operating Surplus” increased $9.7 million, from$297.9 million to $307.6 million.
Effective July 1, 2019, the University adopted ASU 2016-02,
Leases, which requires a lessee to recognize a right of use
asset and a lease liability, initially measured at the present
value of the lease payments, in its balance sheet. The
guidance also expands the required quantitative and

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS

qualitative disclosures surrounding leases. The effects
of adopting this guidance resulted in the inclusion of
the present value of operating lease payments in the
Balance Sheets as “Operating leases—right of use assets”
of $780.5 million and “Operating leases liabilities” of$794.7 million upon adoption. The University elected the
package of practical expedients to not reassess: (1) whether
any expired or existing contracts are or contain leases,(2) lease classification for any expired or existing leases
and (3) initial direct costs for any expired or existing leases.
The University elected the short-term lease exemption
policy as well as the practical expedient that allows lessees
to treat the lease and non-lease components as a single
lease component. In addition, the University elected touse hindsight to reassess lease terms or impairment at the
adoption date. The effects of adopting this amendment are
addressed in Note 18.
Effective July 1, 2019, the University adopted ASU 2016-18,
Restricted Cash (Topic 230): Statement of Cash Flows. The
amendments in the update require that a statement of cash
flows explain the change during the period in the total of
cash, cash equivalents, and amounts generally described
as restricted cash or restricted cash equivalents. Therefore,amounts generally described as restricted cash andrestricted cash equivalents are now included with cash andcash equivalents when reconciling the beginning-of-period
and end-of-period total amounts shown on the statement ofcash flows. The effects of adopting this amendment resulted
in all cash and cash equivalents, including those held in theendowment, to be included in cash and cash equivalents
presented in the Statements of Cash Flows. The adoptionof this amendment is summarized in “Cash and cash
equivalents” on page 19.
Effective July 1, 2019, the University adopted ASU 2016-15,
Classification of Certain Cash Receipts and Cash Payments(Topic 230): Statement of Cash Flows. ASU 2016-15 clarifies
how certain cash receipts and cash payments in thestatement of cash flows are presented. The University
adopted ASU 2016-15 retrospectively. The guidance did nothave a significant impact on the University’s consolidated
financial statements.
Effective July 1, 2019, the University adopted ASU 2016-01,
Recognition and Measurement of Financial Assets andFinancial Liabilities, which addresses certain aspects ofrecognition, measurement, presentation and disclosureof financial instruments. This guidance allows an entity
to choose, investment-by-investment, to report an equity
investment that neither has a readily determinable fairvalue, nor qualifies for the practical expedient for fair21

value estimation using net asset value (NAV), at its costminus impairment (if any), plus or minus changes
resulting from observable price changes in orderlytransactions for the identical or similar investment of thesame issue. Impairment of such investments must be
assessed qualitatively at each reporting period. Entities
must disclose their ﬁnancial assets and liabilities bymeasurement category and form of asset either on
the face of the statement of ﬁnancial position or in
the accompanying notes. This guidance did not havea signiﬁcant impact on the University’s consolidated
ﬁnancial statements.
Effective July 1, 2018, the University adopted ASU 2016-14,
Presentation of Financial Statements for Not-for-Proﬁt
Entities. This guidance is intended to improve the net asset
classiﬁcation requirements and the information presented
in the ﬁnancial statements and notes. The standard requires
the University to reclassify its net assets (i.e., unrestricted,
temporarily restricted, and permanently restricted) into
two categories: net assets without donor restrictions andnet assets with donor restrictions. In addition, underwater
endowment funds were recognized as a reduction in net
assets with donor restrictions and enhanced disclosures are
required for board-designated amounts (Note 8), liquidity
and availability of ﬁnancial assets (Note 2), and expenses byboth their natural and functional classiﬁcation (Note 17).

Effective July 1, 2018, the University adopted ASU 2014-09
Revenue from Contracts with Customers (ASC 606) using
the modiﬁed retrospective transition method — i.e., byrecognizing the cumulative effect of initially applying
ASC 606 as an adjustment to the opening balance of net
assets at July 1, 2018. The University elected to apply thestandard only to contracts that are not completed as of that
date. The guidance did not have a signiﬁcant impact on the
University’s consolidated ﬁnancial statements.
Effective July 1, 2018, the University adopted ASU 2018-08,
Clarifying the Scope and the Accounting Guidance forContributions Received and Contributions Made, simultaneouslywith adoption of the new revenue standard, using themodiﬁed prospective transition method. The guidance did
not have a signiﬁcant impact on the University’s consolidated
ﬁnancial statements.
Effective July 1, 2018, the University adopted ASU 2018-13,
ASC 820 Fair Value Measurement, which simpliﬁes fairvalue measurement disclosures through the removal andmodiﬁcation of a number of investment related disclosure
requirements. Certain disclosures are no longer required
including amount of and reasons for transfers between
Levels 1 and 2; policy for timing of transfers between
levels and valuation processes for Level 3 investments.
The guidance did not have a signiﬁcant impact on the
University’s consolidated ﬁnancial statements.

3. INVESTMENTS
Investments are presented at fair value in accordance withGAAP and under the guidelines prescribed by the HMC
investment valuation policy, which is reviewed and approvedby the HMC Board of Directors on an annual basis.

The majority of the University’s investments are managed
by HMC in the GIA, a pooled investment account thatconsists primarily of endowment assets. Certain otherinvestments such as cash, short-term investments, split
interest agreements and other assets, are managed
separately from the GIA.

The University’s investment holdings as of June 30, 2020 and 2019 are summarized in the following table (in thousandsof dollars):
2020

2019

Investment portfolio assets
Pooled general investment account assets
Other investments
Investment portfolio, at fair value
Securities pledged to counterparties, at fair value
TOTAL INVESTMENT ASSETS$ 45,681,215
2,430,226
48,111,441
214,010
48,325,451$ 44,875,461
1,848,509
46,723,970
49,971
46,773,941

Pooled general investment account liabilities
Interest rate exchange agreement
TOTAL OTHER LIABILITIES ASSOCIATED WITH THE INVESTMENT PORTFOLIOTOTAL INVESTMENTS, NET

833,777
44,241
878,018$ 47,447,433

847,732
27,409875,141$ 45,898,800

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS22

As of June 30, 2020 and 2019, University net investments were comprised of the following components (in thousandsof dollars):
POOLED GENERAL INVESTMENT ACCOUNT
Endowment1
General operating account
Split interest agreements
Other internally designated funds
TOTAL POOLED GENERAL INVESTMENT ACCOUNT NET ASSETSOTHER INVESTMENTS OUTSIDE THE GENERAL INVESTMENT ACCOUNT
General operating and other investments2
Split interest agreements
TOTAL OTHER INVESTMENTS OUTSIDE THE GENERAL INVESTMENT ACCOUNTTOTAL INVESTMENTS, NET

2020

2019

$ 39,982,475
3,486,092
803,490789,391$ 45,061,448$ 38,843,726
3,716,277
780,737
736,960$ 44,077,700

1,771,698
614,287$ 2,385,985$ 47,447,433

1,168,724
652,376$ 1,821,100$ 45,898,800

1 Includes only the portion of the endowment invested in the GIA and excludes pledges, interests in trusts held by others, other non-GIA investments, and

GIA interest and dividends net of all internal and external management fees and expenses.

2 Consists primarily of repurchase agreements, US government securities, money markets, and ﬁxed income funds, net of unsettled trades, totaling $1,582,042

and $1,036,080 as of June 30, 2020 and 2019, respectively.

Investment return
A summary of the University’s total return on investments for ﬁscal years 2020 and 2019 is presented below (in thousandsof dollars):
Return on pooled general investment account:
Realized and change in unrealized appreciation, net
Interest, dividends, fees, and expenses, net
Total return on pooled general investment account1
Return on other investments:
Realized and change in unrealized appreciation/(depreciation), net
Interest, dividends, fees, and expenses, net
Total return on other investments
Realized and change in unrealized depreciation on interest rate exchange agreement, net
TOTAL RETURN ON INVESTMENTS 2

2020

2019

$ 2,931,018
83,852
3,014,870$ 2,612,986
42,631
2,655,617

9,834
45,685$55,519(19,070)$ 3,051,319(1,430)52,619$51,189(13,880)$ 2,692,926

1 Net of all internal and external management fees and expenses.

2 Total return on investments is comprised of returns on the endowment, GOA, Split Interest Agreements and other.

Fair value hierarchy
The University’s investments have been categorized based
upon the fair value hierarchy in accordance with ASC 820,
which prioritizes the inputs to valuation techniques used tomeasure fair value of investment assets and liabilities into
three levels:
LEVEL 1 Unadjusted quoted prices in active markets thatare accessible at the measurement date for identical,
unrestricted assets or liabilities;
LEVEL 2 Quoted prices in markets that are not considered tobe active or ﬁnancial instruments for which all signiﬁcant
inputs are observable, either directly or indirectly;

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTSLEVEL 3 Prices or valuations that require inputs
that are signiﬁcant to the fair value measurement,
unobservable and/or require the University to develop its
own assumptions.
Investments in externally managed funds where theUniversity utilizes net asset values (as reported byexternal managers) as a practical expedient for fair value
measurements are excluded from the fair value hierarchy.
The level of an asset or liability within the fair value
hierarchy is based on the lowest level of any input that issigniﬁcant to the fair value measurement. The University
endeavors to utilize all relevant and available information inmeasuring fair value.

23

The following is a summary of the levels within the fair value hierarchy for those investment assets and liabilities subject tofair value measurement as of June 30, 2020 and summarized as of June 30, 2019 (in thousands of dollars):
2020

Level 1ASSETS: 1
Cash and cash equivalents2
Repurchase agreements
Domestic equity
Foreign equity
Global equity
Domestic ﬁxed income
Foreign ﬁxed income
Emerging market equity and debt
High yield
Hedge funds
Private equity
Natural resources
Real estate
Inﬂation-indexed bonds
Due from brokers
Other investments
INVESTMENT ASSETS SUBJECT TO
FAIR VALUE LEVELING
Other investment assets not subject to fair value3
TOTAL INVESTMENT ASSETS 4Interests in trusts held by others5

Level 2

$ 1,183,983$ 477,918
1,356,614
788,498$ 2,259,044
1,079,005
1,542,236
613,8142,099,086
20,729282,956
3,276

2,973,471$

21,213
15,354935,440$ 6,707,149

INVESTMENT LIABILITIES SUBJECTTO FAIR VALUE LEVELING

264,452
477,858
1,291,911
24,627

25,664

4,629
6,712

$ 503,582$ 2,070,189

427,359

NON-INVESTMENT ASSETS SUBJECTTO FAIR VALUE LEVELINGTOTAL ASSETSLIABILITIES:Due to brokers6
Other liabilities subject to fair value

Level 32019
NAV asPractical
Expedient$$

12,373

12,373

Other investment liabilities not subject tofair value7
TOTAL INVESTMENT LIABILITIES 4
Liabilities due under split interest agreements5
NON-INVESTMENT LIABILITIES SUBJECTTO FAIR VALUE LEVELINGTOTAL LIABILITIES$

427,359$

246,410$

246,410$ 119,692$ 119,692$ 819,584$ 819,584

15,515,652
10,569,260
16,8003,169,662$ 37,738,944

Total

Total

$ 1,183,983
477,918
3,615,658
1,867,503
1,542,236
2,712,900
20,7293,256,427
267,728
15,515,652
11,047,118
1,329,924
3,209,643
935,440
30,293
6,712$ 1,335,905
774,644
3,901,454
2,293,307
1,660,465
1,813,376
25,5973,307,520
237,008
14,304,432
9,848,429
1,914,055
3,610,419
871,832
49,07917,793$ 47,019,864
1,305,587$ 48,325,451
427,359$ 45,965,315
808,626$ 46,773,941
420,371$427,359$ 48,752,810$
420,371$ 47,194,312$

132,065
246,410$33,912
288,372$

378,475$

322,284$

499,543878,018
819,584$

552,857
875,141
859,744$819,584$ 1,697,602$
859,744$ 1,734,885

1 Certain prior year amounts have been reclassiﬁed to conform to current year presentation.

2 This excludes money markets held in “Cash and cash equivalents” on the Balance Sheets of $65.0 million as of June 30, 2020, which are Level 1 investments.

There were no money markets held in “Cash and cash equivalents” as of June 30, 2019.

3 As of June 30, 2020, other assets not subject to fair value consists primarily of receivables for transactions that settled subsequent to the balance sheet dateof $1,189,950, before eliminating inter-company balances, and consolidated assets of $146,365. As of June 30, 2019, other assets not subject to fair value
consist primarily of receivables for transactions that settled subsequent to the balance sheet date of $599,651, before eliminating inter-company balances, andconsolidated assets of $159,745.
4 As of June 30, 2020 and 2019, total investments, net equal $47,447,433 and $45,898,800, respectively.
5 Amounts excluded from investments and included separately on the University’s Balance Sheets.
6 Includes fair value of an interest rate exchange agreement on the University’s debt portfolio of $44,241 and $27,409 as of June 30, 2020 and 2019, respectively.
7 As of June 30, 2020 and 2019, other liabilities not subject to fair value include consolidated liabilities of $167,795 and $199,693, respectively.

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS

24

The following is a rollforward of Level 3 investments for the year ended June 30, 2020 and the condensed June 30, 2019rollforward of Level 3 investments (in thousands of dollars).
Beginningbalance as ofJuly 1, 2019
INVESTMENT ASSETS:
High yield
Private equity
Natural resources
Real estate
Due from brokers
Other investments$

Net realized
gains/(losses)

234,110289,143
1,878,205
48,644
4,638
7,609

INVESTMENT ASSETS SUBJECTTO FAIR VALUE LEVELINGInterests in trusts held by others$ 2,462,349$ 420,371

NON-INVESTMENT ASSETS SUBJECTTO FAIR VALUE LEVELING$TOTAL ASSETS SUBJECTTO FAIR VALUE LEVELING$ 2,882,720

INVESTMENT LIABILITIES:Other liabilities subject to fair value$

288,372

TOTAL LIABILITIES SUBJECTTO FAIR VALUE LEVELING$

288,372

NET ASSETS SUBJECT TO
FAIR VALUE LEVELING$ 2,594,348$

Net change
in unrealized
appreciation(depreciation)1

328(17,187)
103,248
60

Purchases/
contributions

Sales/
distributions(9,850)85,395(258,527)(23,417)(9)(2,040)$443,087
219,633
261,320$$ (208,448)
$
6,988

$

924,040$ (1,195,344)

$

1,143
$ 87,592

420,371$$ 87,592$

0$ 87,592(403,223)(99,126)(692,335)
(660)

6,988

Endingbalance as ofJune 30, 2020$

264,452
477,858
1,291,911
24,6274,629
6,712$ 2,070,189
427,359$

427,359$ (201,460)$

924,040$ (1,195,344)$ 2,497,548$(2,493)$(76,849)$

37,380$246,410$(2,493)$(76,849)$

37,380$246,410$ (198,967)$ 1,000,889$ (1,232,724)$ 2,251,138

1 Total change in unrealized appreciation/(depreciation) relating to Level 3 investment assets and investment liabilities still held by the University at June 30,

2020 is $(233,329) and is reﬂected in “Realized and change in unrealized appreciation/(depreciation), net” in the Statements of Changes in Net Assets.
Net change
in unrealized
Beginning
appreciation
Net realizedbalance as ofPurchases/
July 1, 2018 gains/(losses) (depreciation)1 contributions
PRIOR YEAR NET ASSETS SUBJECTTO FAIR VALUE LEVELING2$ 2,909,705$ (71,820)$ (121,636)$ 288,911

EndingSales/ Transfers out balance as of
distributionsof Level 3 June 30, 2019
$ (238,778)$ (172,034)$2,594,348

1 Total change in unrealized appreciation/(depreciation) relating to Level 3 investment assets and investment liabilities still held by the University at June 30,

2019 is $(219,543) and is reﬂected in “Realized and change in unrealized appreciation/(depreciation), net” in the Statements of Changes in Net Assets.

2 Certain prior year amounts have been reclassiﬁed to conform to current year presentation.

Investment strategy and risk
The University utilizes a number of wholly owned
subsidiary entities to support its investment activities.
The consolidated ﬁnancial statements include all assets,
liabilities, income, and expenses associated with these
entities and intercompany accounts and transactions havebeen eliminated during consolidation.
The University’s investment strategy incorporates adiversiﬁed asset allocation approach and maintains,
within deﬁned limits, exposure to the movements of the
global public and private equity, ﬁxed income, real estate,
and commodities markets. Exposure to these markets
is achieved through direct investments in individual
securities, investments in special purpose vehicles
and/or through investments in vehicles advised byexternal managers.

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS

Investments in global markets involve a multitude ofrisks such as price, interest rate, market, sovereign,
currency, liquidity and credit risks, amongst manyothers. Additionally, the University’s direct investments
in natural resources expose it to a unique set of risks,namely environmental, social and geopolitical risks insome of the jurisdictions where these direct investments
reside. The University manages exposure to these risks
through established policies and procedures related toits ongoing investment diligence and operational due
diligence programs. The University also considers manager
concentration risk. As of June 30, 2020, 18% of the GIA
NAV was invested across 5 diversiﬁed fund managers. The
University anticipates that the value and composition of its
investments may, from time to time, ﬂuctuate substantiallyin response to any or all of the risks described herein.

25

Liquidity
Cash, cash equivalents, and short-term investments
are recorded at cost, which approximates fair value, andincludes cash in bank accounts, institutional money
market funds and other temporary investments held forworking capital purposes with original maturities of threemonths or less. Cash, cash equivalents, and short-term
investments do not include cash balances held as collateralby the University. Cash, cash equivalents, and short-term
investment balances designated for investment purposes
are included in the “Investment portfolio, at fair value” inthe Balance Sheets.
The University has various sources of liquidity at its disposal
within its investment pools, including money markets of$1.1 billion and repurchase agreements of $0.5 billion atJune 30, 2020. In addition, the University estimates that asof the balance sheet date, it could have liquidated additional
unencumbered US government securities of $2.7 billion
within one business day (assuming typical settlement
terms) to meet any immediate short-term needs of the
University (unaudited).

Repurchase agreements
The University Balance Sheets display the assets generated
by repurchase transactions. The University enters into thesetransactions under agreements containing master netting
arrangements. The University requires the fair value of thecollateral exchanged under these agreements to be equal toor in excess of the total amount of the agreement, includinginterest where applicable. At June 30, 2020 and 2019
the University had gross asset repurchase agreements of$0.5 billion and $0.8 billion which were fully collateralized.
The University does not offset repurchase agreementsthat are subject to master netting arrangements or similararrangements on the University’s Balance Sheets.

Dividend and interest income
Dividend income is recognized net of applicable
withholding taxes on the ex-dividend date. Non-cash
dividends are recorded at the fair value of the securities
received. Interest income and expense is recorded net of
applicable withholding taxes, on an accrual basis. The
University amortizes bond premiums and accretes bonddiscounts using the effective yield method and when cash
collection is expected.

Traded securities
Instruments listed or traded on a securities exchange arevalued at the last quoted price on the primary exchange
where the security is traded. Where there is no readily
available closing price on the valuation date, long positions
are valued at the bid price and short positions are valued at

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS

the ask price. Restrictions that are attached to a security arefactored into the valuation of that security, reﬂective of theestimated impact of those restrictions. Investments in nonexchange traded debt and equity instruments are primarily
valued using inputs provided by independent pricing
services or by broker/dealers who actively make markets inthese securities.

Derivatives
The University uses a variety of ﬁnancial instrumentswith off-balance sheet risk involving contractual or
optional commitments for future settlement, which areexchange traded or executed over the counter (OTC). These
instruments are used to (1) manage exposure to certain
asset classes and/or various market risks, (2) arbitrage
mispricings of related securities and (3) to manage theinterest, cost and risk associated with its outstanding
and/or future debt. These instruments are classiﬁed as
due to/from brokers and may include option, swap, credit
default, interest rate, and forward contracts. These types of
instruments are primarily valued using industry standard
models with independent market inputs, or by broker
quotes. Inputs such as prices, spreads, curves, and/or broker
quotes are evaluated for source reliability and consistency
with industry standards. Counterparty marks obtained
and utilized to determine daily collateral requirements
are also used to corroborate input reasonability. The
University considers current market conditions includinginterest rate and credit risks in its evaluation of inputs,
pricing methodologies, and models utilized to determine
fair values.
In connection with its investments in derivatives, theUniversity maintains master netting agreements andcollateral agreements with its counterparties. These
agreements provide the University the right, in the eventof default by the counterparty (such as bankruptcy or a
failure to pay or perform), to net a counterparty’s rights andobligations under the agreement and to liquidate and offset
collateral against any net amount owed by the counterparty.
Collateral, generally in the form of debt obligations issued
by the US Treasury, is exchanged on a daily basis asrequired by ﬂuctuations in the market.
Speciﬁc credit limits are established for counterparties
based on their individual credit ratings. Credit limits
are monitored daily by the University and are adjusted
according to policy, as necessary. Some of the ﬁnancial
instruments entered into by the University contain creditrisk-related contingency features that allow the parties to theagreement to demand immediate payment for outstanding
contracts and/or collateral.

26

The following table presents information about the University’s derivatives by primary risk exposure for the years ended
June 30, 2020 and 2019 (in thousands of dollars):

Primary risk exposure
Equity instruments
Fixed income instruments1
Currency instruments
Credit instruments
SUBTOTALAs of June 30, 2020
Average
Gross
Gross
Quarterly
derivative
derivative
Notional
assetsliabilities$ 3,443,938$ 59,867$ 122,097
117,000
44,241
21,020
10
14
4,723
4,703
$ 64,580$ 166,352

For theyear ended
June 30, 2020

As of June 30, 2019
Average
Gross
Gross
Net proﬁt/
Quarterly
derivative
derivative(loss)4
Notional
assetsliabilities$ 92,208 $ 1,686,686$ 63,618$ 25,824(19,070)
117,000
27,409(150)
1,151,191
527
468
21
4,726
4,723
$ 73,009$ 68,868$ 53,701

TOTAL COUNTERPARTY
NETTING 2(34,984)(34,984)(19,789)(19,789)

NET AMOUNTS INCLUDEDIN THE BALANCE SHEETS 3

29,596

131,368

49,07933,912TOTAL SECURITIES COLLATERALRECEIVED/POSTED 5

23,586

189,564

52,57926,690

NET AMOUNT

6,010(58,196)(3,500)7,222

0$ 7,222

NET AMOUNT IN ACCORDANCEWITH ASC 2106

$ 6,010$0$

For theyear ended
June 30, 2019
Net proﬁt/(loss)4$ 10,413(13,880)(1,408)12$ (4,863)

1 For the years ended June 30, 2020 and 2019, balances represent an interest rate exchange on the University’s debt portfolio.

2 GAAP permits the netting of derivative assets and liabilities and the related cash collateral received and paid when a legally enforceable master netting

agreement exists between the University and a derivative counterparty.

3 Included within the “Investment portfolio, at fair value” and “Other liabilities associated with the investment portfolio” line items of the Balance Sheets.
4 Included within “Realized and change in unrealized appreciation/(depreciation), net” within the Statements of Changes in Net Assets.
5 Includes securities posted to meet initial margin requirements on exchange traded futures.
6 Excludes any over-collaterized net amounts in accordance with ASC 210.

External advisors
Investments managed by external advisors include
investments in private equity, real estate, natural resources,
hedge funds and other externally managed funds. The
University generally utilizes the capital account balance
provided by the external advisor as a practical expedient
to fair value. To evaluate the adequacy of these fair value
measurements, the University has assessed factors
including, but not limited to, the external advisor’s
adherence to fair value principles in calculating the capital
account balance, the existence of transactions at NAV at
the measurement date and the existence or absence ofPrivate equity funds
Real estate funds
Other externally managed funds3
TOTAL

Fair value1$ 9,017,706
3,154,066
3,386,081$ 15,557,853

certain restrictions at the measurement date. In addition,
the University evaluates these external advisors throughongoing due diligence and operational oversight, which
includes an analysis of an advisor’s use of and adherence tofair value principles.
The University, as an investor, has commitments to makeperiodic contributions in future periods to the investments
managed by external advisors. The amounts of these
expected disbursements as of June 30, 2020 and 2019 aredisclosed below (in thousands of dollars):

As of June 30, 2020
Remaining
unfunded
Estimated
commitments
remaining life2$ 6,813,583
4 – 101,734,565
4 – 102,221,023
2–8$ 10,769,171

Fair value1,4$ 7,943,838
3,556,511
3,660,687$ 15,161,036

As of June 30, 2019
Remaining
unfunded
Estimated
commitments4
remaining life2$ 6,536,799
4 – 101,702,201
4 – 102,460,983
2–8$ 10,699,983

1 Represents the fair value of the funded portion of investments with remaining unfunded commitments.

2 The estimated remaining lives of these funds, expressed in years, are forward-looking projections based on the University’s estimates and could vary signiﬁcantly

depending on the investment decisions of external managers, changes in the University’s investment portfolio, and other circumstances.

3 Other externally managed funds primarily includes exposure to hedge funds and natural resources.
4 Certain prior year amounts have been reclassiﬁed to conform to current year presentation.

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS

27

Investments in externally managed funds generally have
limited redemption options for investors and, subsequent
to ﬁnal closing, may or may not permit subscriptions by
new or existing investors. These entities may also have theability to impose gates, lockups and other restrictions on an
investor’s ability to readily redeem out of their investment
interest in the fund.

Direct Investments
Direct investments in natural resources and private equity
are primarily valued using a combination of independent
appraisals and/or one or more industry standard valuation
techniques (e.g., income approach, market approach, or
cost approach). The income approach is primarily basedon the investment’s anticipated future income using
one of two principal methods: the discounted cash ﬂow
method or the capitalization method. Inputs and estimatesdeveloped and utilized with these techniques may besubjective, unobservable, and require judgment regarding
signiﬁcant matters such as estimating the amount andtiming of future cash ﬂows, forward pricing assumptions
and the selection of discount and capitalization rates thatappropriately reﬂect market and credit risks. The market
approach derives investment value through comparison
to recent and relevant market transactions with similar
investment characteristics. The cost approach is utilized
when the cost of the investment is determined to be thebest representation of fair value. This method is typicallyused for newly purchased or undeveloped assets. Whenapplicable, the University examines market data andcollaborates closely with independent appraisers to arriveat the best estimation of fair value for each respective
asset. The HMC Board of Directors discusses the valuation
process and results with HMC management, and makes
determinations on signiﬁcant matters impacting valuationthat may arise from time to time.
The following table presents the ranges of signiﬁcantunobservable inputs used to value the University’s Level 3
assets. While the inputs described below represent therange of inputs utilized as of the measurement date, these
inputs may change over time, which may have a material
effect on the valuation of these types of investments inthe future.

As of June 30, 2020

Signiﬁcant unobservable input
by asset class1,3,4
Natural resources:
Income approach discount rate
Price per planted hectare
Price per gross hectare
Discount for lack of marketability
High yield:
Shadow rating discount rate
Collateral coverage market risk factor
EBITDA multiple
Real estate:
Income approach discount rate
Income approach growth rate
Discount for lack of marketability
Private equity:
Income approach discount rate
EBITDA multiple
Book value multiplier
Other liabilities subject to fair value
Loan to valueMarket interest rate
NET AMOUNTLevel 3
investments
subject tofair value(in thousandsof dollars)2$ 469,811

264,027

As of June 30, 2019

Range ofinputs utilized in
valuation model

Weighted
averageof inputs
utilized in
valuation
model

6.0% – 16.0%$1,073 – $156,351$168 – $57,530
2.0% – 20.0%

10.8%$36,646$10,393
16.7%

6.8% – 15.8%
100%
9.0X – 19.5X

8.6%
100%
13.3X

14.5%
3.0%
15.0%

14.5%
3.0%
15.0%

6.0% – 15.0%
8.7X

14.0%
8.7X

5.0% – 43.5%
3.5% – 6.5%

16.8%
3.9%

22,868150,294(246,410)$ 660,590

Level 3
investments
subject tofair value(in thousandsof dollars)2$ 1,878,205

233,681

32,661

131,329(288,372)

Range ofinputs utilized in
valuation model

Weighted
averageof inputs
utilized in
valuation
model

6.0% – 16.0%$1,073 – $164,937$168 – $57,422
2.0% – 20.0%

10.2%$43,431$15,2319.0%

6.8% – 8.9%
100%
11.3X – 13.5X

8.0%
100%
11.9X

11.5% – 13.5%
3.0%
15.0%

12.5%
3.0%
15.0%

6.0% – 15.0%
8.7X
0.6X

12.4%
8.7X
0.6X

8.7% – 43.5%
2.5% – 10.5%

22.4%
5.2%

$ 1,987,504

1 The fair value of investments may be determined using multiple valuation techniques.
2 Included within Level 3 investments is $1,590,548 and $606,844 as of June 30, 2020 and 2019, respectively, which were valued using other inputs including,but not limited to, single source broker quotations, third party pricing, and prior transactions.

3 The range of inputs encompasses a variety of investment types within each asset class.
4 Certain prior year amounts have been reclassiﬁed to conform to current year presentation.

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS

28

4. RECEIVABLES
The major components of receivables, net of reserves for
doubtful accounts of $13.9 million and $12.2 million as ofJune 30, 2020 and 2019, respectively, were as follows (inthousands of dollars):

2020
61,93948,08550,155
22,1089,950
9,263
61,231$ 262,731

Federal sponsored support
Publications
Executive education
Tuition and fees
Non-federal sponsored support
Gift receipts
Other
TOTAL RECEIVABLES, NET$

2019
71,42562,872
62,842
19,146
10,821
4,430
64,785$ 296,321$

5. NOTES RECEIVABLE
Notes receivable are recorded initially at face value plus accrued interest, which approximates fair value. Notes receivable, andrelated allowance for doubtful accounts, were as follows (in thousands of dollars):Student Loans:
Government revolving
Institutional
Federally insured
Total student loans
Faculty and staff loans
Other loans
TOTAL

Receivable

2020
Allowance$$

39,382
83,000—122,382244,642
39,257$ 406,281

$

999
2,284
—
3,283
179
30,58534,047

Government revolving loans are funded principally withfederal advances to the University under the Perkins Loan,
the Health Professions Student Loan (HPSL) and Loansfor Disadvantaged Students in Health Professions (LDS)
Programs. These advances totaled $44.7 million and$66.7 million as of June 30, 2020 and 2019, respectively,
and are classiﬁed as liabilities in the Balance Sheets. Duringﬁscal year 2018, the Perkins Loan Program ended and as aresult the University began making required repayments to
the government. In ﬁscal year 2019, an annual repayment
was not due while the Department of Education calculated
the reimbursement owed to the University for public service
cancellations since ﬁscal year 2010, as required by law. The
University made a catch up payment of $22 million in ﬁscal
year 2020 for both years. Interest earned on the revolving
and institutional loan programs is reinvested to support
additional loans. The repayment and interest rate terms of
the institutional loans vary considerably.
Faculty and staff notes receivable primarily consists ofmortgage and educational loans. Mortgages include

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS

Net$

38,38380,716—
119,099
244,463
8,672$ 372,234

Receivable

2019
Allowance$$

49,21386,467344
136,024
234,148
29,475$ 399,647

$

1,266
2,481
159
3,906
179
21,93926,024

Net$

47,947
83,986
185
132,118
233,969
7,536$ 373,623

shared appreciation loans, loans that bear interest at theapplicable federal rate and interest-free loans. In addition,certain mortgages that bear interest at the current market
rate or applicable federal rate may be subsidized for an
initial period. The educational loans are primarily zerointerest loans.
The University assesses the adequacy of the allowancefor doubtful accounts by evaluating the loan portfolio,
including such factors as the differing economic risks
associated with each loan category, the ﬁnancial conditionof speciﬁc borrowers, the economic environment in which
the borrowers operate, the level of delinquent loans, thevalue of any collateral, and, where applicable, the existenceof any guarantees or indemniﬁcations. In addition tothese factors, the University reviews the aging of the loans
receivable and the default rate in comparison to prior years.
The allowance is adjusted based on these reviews. The
University considers the allowance at June 30, 2020 and2019 to be reasonable and adequate to absorb potential
credit losses inherent in the loan portfolio.

29

6. PLEDGES RECEIVABLE
Unconditional promises to donate to the University in the
future are initially recorded at fair value (pledge net of
discount) and subsequently amortized over the expected
payment period, net of an allowance for uncollectible
pledges. The University’s indicative 1- to 5-year taxable
unsecured borrowing rate is used to discount pledges
receivable at the end of the ﬁscal year they are received.
Discounts of $100.2 million and $149.6 million for theyears ended June 30, 2020 and 2019, respectively, were
calculated using rates ranging from 0.77% to 3.10%.
Pledges receivable included in the ﬁnancial statements asof June 30, 2020 and 2019 are expected to be realized asfollows (in thousands of dollars):Within one year
Between one and ﬁve years
More than ﬁve years
Less: discount and allowance foruncollectible pledges
TOTAL PLEDGES RECEIVABLE, NET

2020$ 354,025
1,416,099
880,9092019$ 408,858
1,635,428
992,743(247,858)$ 2,403,175(271,202)$ 2,765,827

Pledges receivable as of June 30, 2020 and 2019 havebeen designated for the following purposes (in thousandsof dollars):
2020

2019

General Operating Account balances:
Gifts for current use
Non-federal sponsored awards
Facilities and loan funds
Total General Operating Account balances$ 624,440
193,641
265,741
1,083,822$ 744,871
215,972
294,180
1,255,023

Endowment
TOTAL PLEDGES RECEIVABLE, NET

1,319,353$ 2,403,175

1,510,804$ 2,765,827

Because of uncertainties with regard to realizability
and valuation, bequest intentions and other conditional
promises are only recognized as assets if and when thespeciﬁed conditions are met. Non-bequest conditional
pledges totaled $56.7 million and $49.8 million as ofJune 30, 2020 and 2019, respectively.

7. FIXED ASSETS
Fixed assets are reported at cost or, if a gift, at fair value
as of the date of the gift, net of accumulated depreciation.
Depreciation is computed using the straight-line method
over the estimated useful lives of the assets.

Research facilities
Classroom and ofﬁce facilities
Housing facilities
Other facilities
Service facilities
Libraries
Museums and assembly facilities
Athletic facilities
Land
Construction in progress
Equipment
SUBTOTAL AT COST
Less: accumulated depreciation
FIXED ASSETS, NET

The major categories of ﬁxed assets as of June 30, 2020 and2019 are summarized as follows (in thousands of dollars):

2020$ 2,494,333
2,401,659
2,264,147
455,847804,215
509,095
979,825
246,291
1,042,977
1,401,333
1,367,264
13,966,986(5,531,731)$ 8,435,255

2019$ 2,432,190
2,291,410
2,241,939
448,844778,149
479,741
959,455
235,910
1,023,726
1,297,194
1,281,259
13,469,817(5,198,106)$ 8,271,711

Estimated useful life
(in years)
*
35
35
35
35
35
35
35
N/A
N/A
**

* Estimated useful lives of components range from 10 to 45 years.
** Estimated useful lives of equipment range from 3 to 10 years.

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS

30

Certain University facilities are subject to restrictions as
to use, structural modiﬁcations, and ownership transfer.
Included in the ﬁxed asset balances are restricted facilities
with a net book value of $304.6 million and $303.0 million
as of June 30, 2020 and 2019, respectively.
The costs of research facilities are separated into theshell, roof, ﬁnishes, ﬁxed equipment, and services. These
components are separately depreciated.

The University has asset retirement obligations of$200.7 million and $176.8 million, which are included
in “Deferred revenue and other liabilities” in the Balance
Sheets as of June 30, 2020 and 2019, respectively.
For the period ended June 30, 2020, right of use assets
from ﬁnance leases of $67.0 million are included in“Fixed assets” and lease liabilities from ﬁnance leases of$104.9 million are included in “Deferred revenue and otherliabilities” in the Balance Sheets.

Equipment includes general and scientiﬁc equipment,
computers, software, furniture, and vehicles.

8. ENDOWMENT AND GENERAL OPERATING ACCOUNT NET ASSETSThe University’s net assets consisted of the following as of June 30, 2020 and 2019 (in thousands of dollars):
2020
Without
donor
restrictions

With donor
restrictions

2019

Total

Without
donor
restrictions

With donor
restrictions

Total

NATURE OF SPECIFIC NET ASSETS
Perpetual endowment funds
Endowment funds and appreciation, subject
to distribution policy and appropriation
Endowment funds without restriction, board
designated and subject to distribution policy
Pledge balancesInterests in trusts held by others
TOTAL ENDOWMENT
Operating
Unexpended contributions andendowment distributions
Student loan funds
TOTAL GENERAL OPERATING ACCOUNT
Split interest agreements (Note 9)
TOTAL NET ASSETS$ 8,178,308 $ 8,178,308
24,628,858

24,628,858

1,319,353
393,051
34,519,570

7,374,810
1,319,353
393,051
41,894,380
4,922,307$ 7,374,810

7,374,810
4,922,307

2,655,577
2,655,577
99,25999,2594,922,307
2,754,836
7,677,143
598,193598,193$ 12,297,117 $ 37,872,599 $ 50,169,716

Endowment
The University’s endowment consists of 14,033 separate
funds established over many years for a wide variety of
purposes. Endowment fund balances are classiﬁed andreported in accordance with donor speciﬁcations andstate law. The endowment includes both donor-restricted
endowment funds and funds functioning as endowment
which are not subject to donor-imposed restrictions,however decisions to spend their principal require theapproval of the Corporation and therefore are classiﬁed as
Board-designated endowment funds. The majority of theendowment is invested in the GIA (Note 3).
The University is also the beneﬁciary of certain irrevocable
trusts held and administered by others. The estimated fairvalues of trust assets, which include the present valuesof expected future cash ﬂows from outside trusts and the

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS$ 7,848,495 $ 7,848,495
24,092,097

24,092,097

1,510,804
386,720
33,838,116

7,091,584
1,510,804
386,720
40,929,700
4,890,118$ 7,091,584

7,091,584
4,890,118

2,784,170
2,784,170
99,12999,1294,890,118
2,883,299
7,773,417
573,369
573,369$ 11,981,702 $ 37,294,784 $ 49,276,486

fair value of the underlying assets of perpetual trusts, arerecognized as assets and increases in net assets when therequired trust documentation is provided to the University.
The fair values of these trusts are provided by the external
trustees and are adjusted annually by the University.
These are included as Level 3 investments in the fair value
hierarchy table in Note 3.
The University’s endowment distribution policies aredesigned to preserve the value of the endowment in realterms (after inﬂation) and generate a predictable streamof available income. Each fall, the Corporation approves
the endowment distribution for the following ﬁscal year.
Distribution from an underwater endowment fund (a fundbelow its historic dollar value) could continue in limited anddeﬁned circumstances under the University’s endowment

31

distribution policy. To the extent that the fair value of adonor restricted endowment fund falls below its historic
dollar value it would be reported as a reduction of net assets
with donor restrictions.
At June 30, 2020 and 2019, funds in a deﬁcit position
were reported in net assets with donor restrictions and arecomprised as follows (in thousands):
2020

2019

Fair value of underwater endowment funds
Historic dollar value$ 20,355
22,605$ 27,240
32,672TOTAL DEFICIT OF UNDERWATERENDOWMENT FUNDS$ (2,250)$ (5,432)

The endowment distribution is based in part on
presumptive guidance from a formula that is intended toprovide budgetary stability by smoothing the impact ofannual investment gains and losses. The formula’s inputs
reﬂect expectations about long-term returns and inﬂation
rates. For ﬁscal year 2020, the endowment distribution
approved by the Corporation (prior to decapitalizations) was
equal to 5.2% of the fair value of the endowment invested
in the GIA as of the beginning of the ﬁscal year. The total
endowment distribution made available for operations

was $2.0 billion and $1.9 billion in ﬁscal year 2020 and
2019, respectively.
Each year the Corporation also approves certain
decapitalizations from the endowment to support strategic,
mission-critical activities or objectives that are typically
one-time or time-limited and therefore, are excluded fromnet operating surplus. These decapitalizations totaled$35.7 million and $32.2 million in ﬁscal year 2020 and
2019, respectively. These additional decapitalizations, in
combination with the endowment distribution, resulted
in an aggregate payout rate of 5.2% and 5.1% in ﬁscal year
2020 and 2019, respectively.

General operating account
The GOA consists of the general or current funds of the
University as well as the assets and liabilities related to
student and faculty loans and facilities. The GOA accepts,
manages, and pays interest on deposits made by University
departments; invests surplus working capital; makes loans;
and arranges external ﬁnancing for major capital projects.
It is used to manage, control, and execute all University
ﬁnancial transactions, except for those related to investment
activities conducted by HMC.

9. SPLIT INTEREST AGREEMENTS
Under split interest agreements, donors enter into trust
or other arrangements with the University in which the
University receives beneﬁts that are shared with otherbeneﬁciaries and institutions. Split interest agreement (SIA)
investment assets are invested primarily in the GIA andpublicly-traded securities, a small segment is managed by
an external advisor, and all are recorded in the “Investment
portfolio, at fair value” in the University’s Balance Sheets.
Additional disclosures are included in Note 3. Associatedliabilities are recorded at the present value of estimatedfuture payments due to beneﬁciaries and other institutions.

These liabilities are calculated using the University’scurrent taxable unsecured borrowing rate of 0.8% and 2.1%
as of June 30, 2020 and 2019, respectively. All split interest
agreement net assets and the respective activity are reported
within net assets with donor restrictions. Upon terminationof a split interest agreement, the net assets are transferredto the GOA or endowment accordingly.
The changes in split interest agreement net assets forﬁscal years 2020 and 2019 were as follows (in thousandsof dollars):
2020

Investment return:
Investment income
Realized and change in unrealized appreciation, net
Total investment return
Gifts (Note 14)1
Payments to annuitants
Transfers to endowment
Transfers between SIA and the GOA
Change in liabilities and other adjustments
NET CHANGE DURING THE YEAR
Total split interest agreement net assets, beginning of year
TOTAL SPLIT INTEREST AGREEMENT NET ASSETS, END OF YEAR$$

13,10137,42050,521
9,709(66,351)(12,136)(11,916)
54,997
24,824573,369
598,193

2019$$13,80745,69459,501
8,437(65,770)(15,213)(13,886)
41,14914,218559,151
573,369

1 Shown at net present value. The undiscounted value of these gifts was $27,237 and $18,508 for the years ended June 30, 2020 and 2019, respectively.

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS

32

Split interest agreement net assets as of June 30, 2020 and 2019 consisted of the following (in thousands of dollars):
2020
Split interest agreement investments (Note 3)
Charitable remainder trusts
Charitable lead trusts
Charitable gift annuities
Pooled income funds
Total split interest agreement investments1$

Liabilities due under split interest agreements:
Amounts due to beneﬁciaries
Amounts due to other institutions
Total liabilities due under split interest agreements

936,417
94,401
255,696
131,263
1,417,777

2019$(792,558)(67,186)(859,744)(751,217)(68,367)(819,584)

TOTAL SPLIT INTEREST AGREEMENT NET ASSETS, END OF YEAR$

598,193930,742
125,040
249,917
127,414
1,433,113$

573,369

1 For the year ended June 30, 2020, $803,490 of SIA investments are held in the pooled general investment account and $614,287 of SIA investments are heldin the other investments outside the general investment account. For the year ended June 30, 2019, $780,737 of SIA investments are held in the pooled generalinvestment account and $652,376 of SIA investments are held in the other investments outside the general investment account. Refer to Note 3.

10. BONDS AND NOTES PAYABLE
Bonds and notes payable as of June 30, 2020 and 2019 were as follows (in thousands of dollars):
Fiscal yearof issueFiscal Year of
ﬁnal maturity1

Effective
rate2

Outstanding principal
20203
20193

2000-2006
2000
2020

2033
2036
—

0.9%
1.2%
1.3%
1.2%

1992
2010
2011
2017
2020

2020
2022
2024
2041
2031

6.3%
4.8%
4.9%
3.9%
2.6%
4.0%

49,59097,7401,513,780
346,680
2,007,790

1,779,545

3.4%

2,256,895

2,378,650

5.6%
6.5%
4.9%
3.4%
3.3%
2.5%
4.3%

243,000
500,000
300,000
402,000
1,000,000
500,000
2,945,000

243,000
500,000
300,000
402,000
1,000,000
2,445,000

4.3%

2,945,000

2,445,000

Various87,84187,4053.9%

374,943$ 5,664,679

302,294$ 5,213,349

TAX-EXEMPT BONDS AND COMMERCIAL PAPER:
Variable-rate demand bonds and commercial paper:
Series R – daily
Series Y – weekly
Commercial paper
Total variable-rate bonds and commercial paper
Fixed-rate bonds:
Series N
Series 2010A
Series 2010B
Series 2016A
Series 2020A
Total ﬁxed-rate bonds
TOTAL TAX-EXEMPT BONDS AND COMMERCIAL PAPER$

131,200
117,905
249,105$

131,200
117,905
350,000
599,105
80,00049,590110,235
1,539,720

TAXABLE BONDS AND COMMERCIAL PAPER
Fixed-rate bonds:
Series 2008A
Series 2008D
Series 2010C
Series 2013A
Series 2016B
Series 2020B
Total ﬁxed-rate bonds

2008
2009
2011
2013
2017
2020

2039
2039
2041
2038
2057
2051

TOTAL TAXABLE BONDS AND COMMERCIAL PAPER
Notes payable
Unamortized bond issuance costs and originalissuance premium/discount, net
TOTAL BONDS AND NOTES PAYABLE

Various

Various

1 The weighted average maturity of the portfolio on June 30, 2020 was 18.8 years.

2 One-year average for variable rate debt. Exclusive of interest rate exchange agreement, which would increase the overall portfolio rate by

0.05% (3.93% vs. 3.88%).

3 Par only—balances exclude original issuance premiums/discounts.

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS

33

Interest expense related to bonds and notes payable was$179.5 million and $183.7 million for ﬁscal 2020 and
2019, respectively. The interest expense in the Statementof Changes in Net Assets with General Operating Account
Detail includes additional components related to capitalleases. Excluding unamortized discounts and premiums,
unamortized bond issuance costs, scheduled principal
payments are (in thousands of dollars):
Fiscal year
2021
2022
2023
2024
2025
Thereafter
TOTAL PRINCIPAL PAYMENTS

Principal payments$
88,185
109,619
54,890101,853
41,441
4,893,748$ 5,289,736

In ﬁscal 2020, the University issued $346.7 million of taxexempt ﬁxed-rate Series 2020A Bonds and $500.0 millionof taxable ﬁxed-rate Series 2020B Bonds. Proceeds from theSeries 2020A issue were used to reﬁnance the University’s$450 million outstanding Series EE tax-exempt commercial
paper. Proceeds from the Series 2020B issue were used
to fund institutional liquidity and capital spending.
In connection with the issuance of Series 2020A and
Series 2020B, the University’s AAA/Aaa credit ratings were
afﬁrmed by Standard & Poor’s Global Ratings and Moody’s
Investors Service, respectively.
The University has one unsecured, revolving credit facility
totaling $1.5 billion, which expires in March 2022. There
was no outstanding drawn balance on the credit facility atJune 30, 2020.

In February 2020, the University obtained reauthorizationof its $1 billion tax-exempt commercial paper program.
The University has a taxable commercial paper programavailable totaling $2 billion. There was no outstanding
drawn balance on either commercial paper program atJune 30, 2020.
As of June 30, 2020, the University had $249.1 millionof variable-rate demand bonds outstanding (excludingcommercial paper) with either a daily or weekly interest
rate reset, as noted in the bonds and notes payable tableon page 33. In the event that the University receives noticeof any optional tender on its variable-rate demand bonds,
or if the bonds become subject to mandatory tender,
the purchase price of the bonds will be paid from theremarketing of such bonds. However, if the remarketing
proceeds are insufﬁcient, the University will have a generalobligation to purchase the bonds tendered with cashon hand.

Interest rate exchange agreements
In ﬁscal 2020, the University had in place one interest rateexchange agreement, used to manage the interest cost andrisk associated with a portion of its outstanding debt.
The fair value of the interest rate exchange agreement
was $(44.2) million and $(27.4) million as of June 30,
2020 and 2019, respectively and is recorded in “Securities
lending and other liabilities associated with the investment
portfolio” on the University’s Balance Sheets.

11. EMPLOYEE BENEFITSThe University offers current employees a choice of
health plans, a dental plan, short-term and long-term
disability plans, life insurance, tuition assistance, anda variety of other beneﬁts such as subsidized passes for
public transportation and for Harvard athletic facilities.
In addition, the University has retirement plans covering
substantially all employees.
The University uses a measurement date of June 30 for its
pension and postretirement health plans.

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS

457(b) deferred compensation plan
The University offers a non-qualiﬁed deferredcompensation plan under Internal Revenue Code 457(b)to a select group of employees. There is no University
contribution related to the plan. The University hasrecorded both an asset and a liability related to the plan of$163.6 million as of June 30, 2020 and $151.2 million asof June 30, 2019; the assets are included in “Prepayments
and deferred charges” and the liabilities are included in“Deferred revenue and other liabilities” on the University’s
Balance Sheets.

34

Pension beneﬁts

Postretirement health beneﬁts

All eligible faculty members and staff are covered byretirement programs that include a deﬁned beneﬁt
component, a deﬁned contribution component, or a
combination of the two.

The University provides postretirement health coverageand life insurance to substantially all of its employees.
As of June 30, 2020, the University had internallydesignated and invested $779.8 million in the GIA tofund the postretirement health beneﬁt accrued liabilityof $955.6 million. As of June 30, 2019, the University
had internally designated and invested $727.9 million tofund the postretirement health beneﬁt accrued liability of$854.6 million.

In accordance with the Employee Retirement Income
Security Act (ERISA) requirements, the University has
established a trust to hold plan assets for its deﬁned beneﬁt
pension plans. The fair value of the trust’s assets was$959.4 million and $863.5 million as of June 30, 2020
and 2019, respectively. During ﬁscal years 2020 and 2019,
the University made cash contributions to the deﬁned
beneﬁt pension plan of $53.5 million and $14.9 million,
respectively. The University recorded expenses for
its deﬁned contribution plans of $153.4 million and$148.5 million for ﬁscal year 2020 and 2019, respectively.

The following table sets forth the pension andpostretirement plans’ funded status that is reported in the
Balance Sheets as of June 30, 2020 and 2019 (in thousandsof dollars):Pension beneﬁts
2020
Change in projected beneﬁt obligation:
Projected beneﬁt obligation, beginning of year
Service cost
Interest cost
Plan participants’ contributions
Plan change
Gross beneﬁts paid
Actuarial (gain)/loss
Special termination beneﬁts3

2019(51,817)
124,122$ 854,639
31,88031,5294,222(10,339)(21,479)
65,119$ 806,714
30,47434,7193,761
71(28,509)
7,409

1,220,094

1,129,397

955,571854,639

Change in plan assets:
Fair value of plan assets, beginning of year
Actual return on plan assets
Employer contributions
Plan participants’ contributions
Gross beneﬁts paid

863,492
87,47953,533

828,124
72,32014,865(45,090)(51,817)

17,257
4,222(21,479)

24,748
3,761(28,509)

FAIR VALUE OF PLAN ASSETS, END OF YEAR

959,414

863,49200$ (260,680)$ (265,905)$ (955,571)$ (854,639)

PROJECTED BENEFIT OBLIGATION, END OF YEAR 1

UNFUNDED STATUS 2$ 1,129,397
11,926
40,625$ 1,004,962
9,675
42,455(45,090)
42,471
40,765

Postretirement health beneﬁts
2020
2019

1 Measurement of the University’s pension obligation including assumed salary increases (required by GAAP).

2 These amounts totaling $1,216,251 as of June 30, 2020 and $1,120,544 as of June 30, 2019 are included in the “Accrued Retirement Obligations” line in the

Balance Sheets.

3 Represents costs associated with a voluntary early retirement program offered to plan participants during ﬁscal 2020.

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS

35

The accumulated pension beneﬁt obligation (ABO) is ameasurement of the University’s pension beneﬁt obligation,
based on past and present compensation levels and does
not include assumed salary increases. The ABO was$1,011.7 million and $968.9 million at June 30, 2020 and
2019, respectively. The funded status disclosed above has
been prepared in accordance with pension accounting rules.
When measured on an IRS funding basis, which informs
the University’s required cash contribution amount, theplan was overfunded at January 1, 2020.

Net periodic beneﬁt cost
Components of net periodic beneﬁt cost and other amounts
recognized in the Statements of Changes in Net Assets with
General Operating Account Detail are summarized as follows
for the years ended June 30, 2020 and 2019 (in thousandsof dollars):Pension beneﬁts
2020
2019
Components of net periodic beneﬁt cost:
OperatingService cost
Special termination beneﬁts
Total operating activity
Non-operating
Interest cost
Expected return on plan assets
Amortization of:Actuarial loss/(gain)
Prior service cost/(credit)
Total non-operating activity1
Total net periodic beneﬁt cost
Other amounts recognized in non-operating activity
in unrestricted net assets:
Current year net actuarial loss/(gain)
Current year net prior service cost
Amortization of:Prior service (cost)/credit
Actuarial (loss)/gain
Total other amounts recognized in non-operating activity1
TOTAL RECOGNIZED IN STATEMENTS OF CHANGES IN NETASSETS WITH GENERAL OPERATING ACCOUNT DETAIL

9,675$ 31,880$ 30,474

9,675

31,88030,474

40,625(44,856)

42,455(50,469)

31,52934,71915,682288
11,73964,4303,320
288(4,406)
5,269(11,189)(7,126)
13,21445,094(13,469)(7,132)
14,11844,592(151)

102,271

65,119(10,339)

7,409
71

(288)
(15,682)(16,121)(288)(3,320)98,663

7,126
11,18973,095

7,132
13,46928,081$ 48,309$ 103,932$ 118,189$ 72,673$ 11,926
40,76552,691$

Postretirement health beneﬁts
2020
2019

1 These amounts totaling $81,927 in ﬁscal year 2020 and $136,456 in ﬁscal year 2019 include gains and losses and other changes in the actuarially determined

beneﬁt obligations arising in the current period but that have not yet been reﬂected within net periodic beneﬁt cost/(income) and are included in the “Change
in Retirement Obligations” line in the Statements of Changes in Net Assets with General Operating Account Detail.

Cumulative amounts recognized as non-operating changes in net assets without donor restrictions are summarized asfollows for the years ended June 30, 2020 and 2019 (in thousands of dollars):

Net actuarial loss/(gain)
Prior service cost/(credit)

Pension beneﬁts
2020
2019
$ 180,814$ 196,647
894
1,181

Postretirement health beneﬁts
2020
2019
$ (168,947)$ (245,254)(49,599)(46,386)

CUMULATIVE AMOUNTS RECOGNIZED IN UNRESTRICTED NET ASSETS$ 181,708$ (218,546)

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS$ 197,828$ (291,640)

36

The estimated net actuarial loss and prior service cost forthe deﬁned beneﬁt plan that will be amortized from net
assets without donor restrictions into net periodic beneﬁt(income)/cost in ﬁscal year 2021 are $16.2 million and$0.3 million, respectively. The estimated net actuarial gainand estimated prior service credit for the postretirement
health beneﬁt that will be amortized from net assets
without donor restrictions into net periodic beneﬁt(income)/cost in ﬁscal year 2021 are ($7.9) million and($5.1) million, respectively.
Other assumptions and health care cost trend rates usedin determining the year end obligation as well as thenet periodic beneﬁt (income)/cost of the pension andpostretirement health plans are summarized as follows forﬁscal years 2020 and 2019:
Pension beneﬁts
2020
2019

Weighted-average assumptions used to determine beneﬁt obligation
as of June 30:
Discount rate
Compensation increase trend:
Average rate
Cash balance (or similar formula) interest crediting ratePension increases for in-payment beneﬁts increase trend:
Average rate
Initial rate
Ultimate rate
Year of ultimate
Health care cost trend rate:
Current rate
Ultimate rate
Year of ultimate
Weighted-average assumptions used to determine net periodic
beneﬁt (income)/cost:
Discount rate
Expected long-term rate of return on plan assets
Compensation increase trend:
Average rate
Initial rate
Ultimate rate
Year of ultimate
Pension increases for in-payment beneﬁts increase trend:
Average rate
Health care cost trend rate:
Initial rate
Ultimate rate
Year of ultimate

Postretirement health beneﬁts
2020
2019

3.15%

3.65%

3.35%

3.60%

3.50%

3.50%

3.50%

3.50%

5.25%

5.25%

N/A

N/A

N/A
0.00%
0.25%
2025

0.15%
N/A
N/A
N/A

N/A
N/A
N/A
N/A

N/A
N/A
N/A
N/A

N/A
N/A
N/A

N/A
N/A
N/A

6.50%
4.75%
2025

5.00%
4.75%
2023

3.65%
5.50%

4.30%
6.50%

3.60%
N/A

4.20%
N/A

3.50%
N/A
N/A
N/A

N/A
3.00%
4.00%
2021

3.50%
N/A
N/A
N/A

N/A
3.00%
4.00%
2021

0.15%

0.15%

N/A

N/A

N/A
N/A
N/A

N/A
N/A
N/A

5.00%
4.75%
2023

5.00%
4.75%
2023

As an indicator of sensitivity, a one percentage point change in assumed health care cost trend rate would affect 2020as shown in the following table (in thousands of dollars):
Effect on 2020 postretirement health beneﬁts service and interest cost
Effect on postretirement health beneﬁts obligation as of June 30, 2020

The expected return on pension plan assets is determinedby utilizing an independent advisor’s capital markets model,
which takes into account the expected real return, before
inﬂation, for each of the pension portfolio’s asset classes,
as well as the correlation of any one asset class to every
other asset class. This model calculates the real returns
and correlations and derives an expected real return for the

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS

1% point increase$ 17,082
188,143

1% point decrease$ (11,066)(217,621)

entire portfolio, given the percentage weighting allocated toeach asset class. After calculating the expected real return,an assessment is made to accommodate the expected
inﬂation rate for the forthcoming period. The ﬁnal expected
return on assets is the aggregate of the expected real returnplus the expected inﬂation rate.

37

Plan assets
The actual asset allocation of the investment portfolio for the pension plan at June 30, 2020 and 2019, along with target
allocations for June 30, 2021, is as follows:
2021 Target

June 30, 2020

June 30, 201930-55%
40-60%
0-5
0-5
0-5

36.2 %
59.0
0.0
3.3
1.5
100.0 %

38.7 %
47.1
0.0
12.5
1.7
100.0 %

Asset allocation by category for pension plan:
Equity securities
Fixed income securities
Real estate
Hedge funds
Cash
TOTAL OF ASSET ALLOCATION CATEGORIES

expects to keep this strategy in future years. The investment
program is also managed to comply with all ERISA
regulations.

The University’s investment strategy for the pension
portfolio is to manage the assets across a broad anddiversiﬁed range of investment categories, both domestic
and international. The objective is to achieve a risk-adjusted
return that is in line with the long-term obligations that the
University has to the pension plan beneﬁciaries. Duringﬁscal year 2020, the University increased its allocation toﬁxed income securities to manage the interest rate volatility
associated with its pension obligations. The University

The following is a summary of the levels within the fairvalue hierarchy for the pension plan assets subject to fairvalue measurement as of June 30, 2020 and 2019 (inthousands of dollars):
2020

Level 1
PLAN ASSETS:
Cash and short-term investments
Domestic equity
Foreign equity
Domestic ﬁxed income
Foreign ﬁxed income
Emerging market equity and debt
Hedge funds
Due from brokers
Buy-sell backs
Private equity
Real estate
PLAN ASSETS SUBJECT TO FAIR VALUE LEVELING
Other assets not subject to fair value
TOTAL PLAN ASSETSPLAN LIABILITIES:Due to brokers
Forward sale commitment
PLAN LIABILITIES SUBJECT TO FAIR VALUE LEVELING
Other liabilities not subject to fair value
TOTAL PLAN LIABILITIESHARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS

Level 2

2019

Level 3

$ 25,541
70,147
10,602
31,797

NAV aspractical
expedient$ 182,940
29,771
286,732$ 244,847
16,21325,78730,70067

2,184$ 138,154$0$ 261,060

$

0

$

$

0

0

$ 558,114

Total

Total

$ 25,541
182,940
99,918542,181
16,21357,58430,70067
02,184
0$ 957,328
2,086$ 959,414$ 26,135
163,500
107,557
368,338
22,55561,785
108,398
4
33,3434,234
27$ 895,876
1,085$ 896,961

$

$

$

0
0
0

$

0

49
19,806$ 19,855
13,615$ 33,47038

Expected future beneﬁt payments
Employer contributions of $20.0 million are expected forﬁscal year 2021 to fund the pension beneﬁt plan.

Fiscal year
2021
2022
2023
2024
2025
Thereafter

The following table summarizes expected beneﬁt payments
and subsidies for pension and other postretirement healthbeneﬁts for the University (in thousands of dollars):Pension$ 56,533
58,47360,58462,70864,608347,213

Expected beneﬁt payments
Postretirement health$ 23,318
25,64827,89130,14232,337
195,546

12. STUDENT FINANCIAL AID
Financial aid granted to students in ﬁscal 2020 and 2019 is summarized as follows (in thousands of dollars):
2020
Scholarships and other student awards:
Scholarships applied to student income1
Scholarships and other student awards paid directly to students
Total scholarships and other student awards$

Student employment
Student loans
Agency ﬁnancial aid2
TOTAL STUDENT FINANCIAL AID$

480,989
163,618
644,607
81,922
14,765
19,839761,133

2019$$

457,369
155,874
613,243
81,287
14,63920,326
729,495

1 Includes $202,221 and $192,712 in ﬁscal 2020 and 2019, respectively, of undergraduate scholarships applied to student income.
2 Represents aid from sponsors for which the University acts as an agent for the recipient.

13. SPONSORED SUPPORT
Total expenditures funded by US government sponsors
or by institutions that subcontract federally-sponsored
projects to the University were $616.2 million and$630.8 million in ﬁscal year 2020 and 2019, respectively.
The University’s principal source of federally-sponsoredfunds is the Department of Health and Human Services.
The University also has many non-federal sources ofsponsored awards and grants, including corporations,foundations, state and local governments, foreign
governments, and research institutes.

Sponsored grants and contracts normally provide forthe recovery of direct and indirect costs. Recovery of
related indirect costs is generally recorded at ﬁxed orpredetermined rates negotiated with the federal governmentand other sponsors. Predetermined federal indirect cost
rates have been established for the University Area and the
Medical School (including the School of Dental Medicine)
through ﬁscal year 2024 and for the T.H. Chan School of
Public Health through ﬁscal year 2023. Funds received forfederally-sponsored activity are subject to audit.

14. GIFTS
Gifts are classiﬁed as net assets with or without restrictionsin accordance with donor speciﬁcations.

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS

Additionally gifts are categorized by purpose as “Currentuse”, “Non-federal sponsored grants”, “Endowment funds”,“Split interest agreements”, or “Loan funds and facilities”.

39Gifts received for the year ended June 30, 2020 are as follows (in thousands of dollars):

Current use
Non-federal sponsored grants
Endowment funds
Split interest agreements1
Loan funds and facilities
TOTAL GIFTS

Gifts received$ 483,673
206,394463,743
9,709
51,241$ 1,214,760

2020
Donor redesignations/other changes$ (6,109)(3,767)5,460
0207$ (4,209)

Total
477,564
202,627
469,203
9,709
51,448$ 1,210,551$

1 Shown at net present value. The undiscounted value of these gifts was $27,237 for the year ended June 30, 2020.

Gifts received for the year ended June 30, 2019 are as follows (in thousands of dollars):

Current use
Non-federal sponsored grants
Endowment funds
Split interest agreements1
Loan funds and facilities
TOTAL GIFTS

Gifts received$ 472,432
197,236
614,561
8,437
85,744$ 1,378,410

2019
Donor redesignations/other changes
$
(319)
(778)
(1,274)0628$ (1,743)

Total
472,113
196,458
613,287
8,437
86,372$ 1,376,667$

1 Shown at net present value. The undiscounted value of these gifts was $18,508 for the year ended June 30, 2019.

15. OTHER REVENUE
The major components of other revenue for the years ended
June 30, 2020 and 2019 were as follows (in thousandsof dollars):Publications and royalties from copyrights
Rental and parking1
Services income
Health and clinic fees
Royalties from the commercializationof intellectual property2
Sales income
Interest income
Other student income
Other
TOTAL OTHER REVENUE

2020

2019

$ 239,002
125,573
114,410
68,813$ 238,385
141,375
136,288
64,78061,94728,4609,364
4,215
47,570$ 699,354

97,56829,888
10,961
5,112
47,681$ 772,038

1 The University is the lessor of space and facilities under operating leases,

the income from which is included in rental and parking.

2 Excludes distributions to external parties.

16. OTHER EXPENSES
The major components of other expenses for the years
ended June 30, 2020 and 2019 were as follows (inthousands of dollars):

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS

Fixed asset impairments
Subcontract expenses undersponsored projects
TravelPublishingTaxes and Fees
Advertising
Insurance
Postage
Telephone
Other
TOTAL OTHER EXPENSES

2020$ 182,435$

2019
40,741

152,916
71,08045,164
31,59738,022
17,176
14,765
12,78364,959$ 630,897

158,543
103,697
46,951
43,19938,56818,617
17,398
14,66375,424$ 557,80140

17. FUNCTIONAL AND NATURAL CLASSIFICATION OF OPERATING EXPENSES
Operating expenses by functional classiﬁcation for theyears ended June 30, 2020 and 2019 were as follows (inthousands of dollars):

Operating expenses are allocated functionally on a direct
basis. Operations and maintenance expenses are allocatedbased on square footage.

2020

Salaries and wages
Employee beneﬁts
Services purchased
Space and occupancy
Depreciation
Supplies and Equipment
Interest
Scholarships and other student awards
Other expense
TOTAL EXPENSES

Instruction andacademic support$ 1,090,715
287,492
350,815
103,658
46,45482,003
16,90821,252$ 1,999,297$

Research1
304,443
76,702
86,96959,117
117,990
49,27430,380399,932$ 1,124,807

Student services
and support$ 148,043
52,25956,72230,645
17,351
39,975
12,503
163,618
25,281$ 546,397

Institutional
support andauxiliary$ 588,310
204,299
175,979
170,743
195,060
72,618120,936
184,432$ 1,712,377

Total$ 2,131,511
620,752
670,485
364,163
376,855
243,870
180,727
163,618
630,897$ 5,382,878

1 The methodology used to allocate expenses for ﬁnancial statement purposes is different than methodologies used for other purposes, such as

governmental surveys.
2019

Salaries and wages
Employee beneﬁts
Services purchased
Space and occupancy
Depreciation
Supplies and equipment
Interest
Scholarships and other student awards
Other expense
TOTAL EXPENSES

Instruction andacademic support$ 1,043,852
268,689
363,109113,374
43,817
84,587
15,201

Research1$ 294,285
73,58385,59959,349119,333
57,42833,081

36,229$ 1,968,858

414,717$ 1,137,375

Student services
and scholarships$ 141,588
49,57760,31130,083
19,98543,222
11,890155,874
35,030$ 547,560

Institutional
support andauxiliary services$ 558,753
163,944
171,672
176,484
199,640
85,386
121,461
71,825$ 1,549,165

Total$ 2,038,478
555,793680,691379,290382,775
270,623
181,633
155,874
557,801$ 5,202,958

1 The methodology used to allocate expenses for ﬁnancial statement purposes is different than methodologies used for other purposes, such as

governmental surveys.

18. COMMITMENTS AND CONTINGENCIES
Lease commitments
The University is the lessee of equipment and space underoperating (rental) and ﬁnance leases. The University
determines whether a contract is a lease at inception.
Identiﬁed leases are subsequently measured, classiﬁed,
and recognized at lease commencement. The University
categorizes leases with contractual terms longer thantwelve months as either operating or ﬁnance. The
University’s leases generally have terms that range from
one to ﬁve years for equipment and one to twenty years forproperty, with certain leases inclusive of renewal options

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS

if they are considered to be reasonably assured at leasecommencement. Right of use assets and lease liabilities for
operating leases are included in “Operating leases—rightof use assets” and “Operating lease liabilities”, respectively,in the Balance Sheets. Finance lease right of use assets andlease liabilities are included in “Fixed assets” and “Deferred
revenue and other liabilities”, respectively, in the Balance
Sheets. Lease assets represent our right to use an underlying
asset for the lease term and lease liabilities represent our
obligation to make lease payments arising from the lease.

41

Operating and ﬁnance lease right of use assets andassociated lease liabilities are recognized based on thepresent value of future minimum lease payments to bemade over the expected lease term, using the collateralized
incremental borrowing rate at the commencement date indetermining the present value of future payments. Rent
expense related to operating leases, including short-termleases and variable lease payments, was $93.9 million and$105.4 million in ﬁscal year 2020 and 2019, respectively.
Maturity analysis of the annual undiscounted cash ﬂows
reconciled to the carrying value of the operating and ﬁnancelease liabilities (in thousands of dollars):
2021
2022
2023
2024
2025
Thereafter
TOTAL LEASE PAYMENTS
Less: Imputed Interest
PRESENT VALUE OF LEASE LIABILITIESOperating
Finance$ 82,278 $ 13,248
80,697
13,51977,596
13,58073,845
11,195
68,156
11,585564,388
125,635
946,960
188,762(179,361)(83,875)$ 767,599 $ 104,887

Weighted-average remaining lease term and discount rate
for operating and ﬁnance leases were as follows:
June 30, 2020
Weighted Average Remaining Lease Term
Operating Leases
Finance Leases
Weighted Average Discount Rate
Operating Leases
Finance Leases

16.1 YEARS
15.2 YEARS
2.5%
2.4%

The University leases properties to customers underagreements that are classiﬁed as operating leases. The
University’s lessor arrangements are all operating leases
and do not include any sales-type or direct ﬁnance leases.
Property leased to others are included in “Fixed assets” inthe Balance Sheets. Revenue is recognized to the extent thatamounts are determined to be collectible.

HARVARD UNIVERSITY ▪ NOTES TO FINANCIAL STATEMENTS

Fixed asset-related commitments
The University has various commitments for capitalprojects involving construction and renovation of certain
facilities, real estate acquisitions, and equipment purchases,
for which the outstanding commitments as of June 30,
2020 totaled approximately $281.5 million.

Environmental remediation
The University is subject to laws and regulations concerning
environmental remediation and has established reserves
for potential obligations that management considers to beprobable and for which reasonable estimates can be made.
These estimates may change substantially dependingon new information regarding the nature and extent ofcontamination, appropriate remediation technologies,
and regulatory approvals. Costs of future environmental
remediation have been discounted to their net present value.
Management is not aware of any existing conditions that it
believes are likely to have a material adverse effect on the
University’s ﬁnancial position, changes in net assets, orcash ﬂows.

GeneralThe University is a defendant in various legal actions
arising from the normal course of its operations. While it is
not possible to predict accurately or determine the eventual
outcome of such actions, management believes that theoutcome of these proceedings will not have a material
adverse effect on the University’s ﬁnancial position,changes in net assets, or cash ﬂows.
The University has evaluated subsequent events throughOctober 22, 2020, the date the ﬁnancial statements were
issued. The University has concluded that no material
events have occurred that are not accounted for in theaccompanying ﬁnancial statements or disclosed in theaccompanying notes.

42

PRESIDENT AND FELLOWSOF HARVARD COLLEGE

LAWRENCE S. BACOW

OFFICERSLAWRENCE S. BACOW
President

President

PAUL J. FINNEGANPAUL J. FINNEGAN

Treasurer

Treasurer

ALAN M. GARBER
TIMOTHY R. BARAKET T
KENNETH I. CHENAULT
MARIANO-FLORENTINO (TINO)CUÉLLARWILLIAM F. LEE
BIDDY MARTIN
KAREN GORDON MILLSDIANA L. NELSONPENNY PRITZKERDAVID M. RUBENSTEINSHIRLEY M. TILGHMAN
THEODORE V. WELLS, JR.

BOARD OF OVERSEERSGERALDINE ACUÑA-SUNSHINERAPHAEL W. BOSTIC
P. LINDSAY CHASE-LANSDALE
R. MARTIN CHÁVEZ
ALICE HM CHEN
PAUL L. CHOIPHILIP HART CULLOMFERNANDE R. V. DUFFLY
JANET ECHELMANHELENA BUONANNO FOULKESBRIAN GREENECARLA A. HARRIS
MEREDITH (MAX) HODGESMARILYN HOLIFIELDDARIENNE DRIVER HUDSON
VIVIAN HUNTTYLER JACKSKETANJI BROWN JACKSONBETH Y. KARLAN
JOHN B. KING JR.
MARGARET PURCE
ALEJANDRO RAMÍREZ MAGAÑA
YVET TE ROUBIDEAUXRESHMA SAUJANITHEA SEBASTIANTRACY K. SMITHLESLIE P. TOLBERTJAYSON U. TOWEH
KENT WALKER
JOHN SILVANUS WILSON, JR. –ON LEAVE

ProvostKATHERINE N. LAPP
Executive Vice President

PAUL ANDREW
Vice President for Public Affairs
and Communications

MARC GOODHEART
Vice President and Secretaryof the University

MARILYN HAUSAMMANN
Vice President for Human Resources

THOMAS J. HOLLISTER
Vice President for Finance andChief Financial Ofﬁcer

BRIAN K. LEE
Vice President for Alumni Affairs
and Development

DIANE LOPEZ
Vice President and General Counsel

ANNE H. MARGULIESVice President andChief Information Ofﬁcer

MEREDITH WEENICK
Vice President for Campus Services

MARTHA WHITEHEAD
Vice President for the Harvard Library