Annual Report 1996-97, California Institute of Technology

Annual Report 1996-97 CALIFORNIA INSTITUTE Of TECHNOLOGY The Art of Science "Scientific truth should be presented in different forms, and should be regarded as equally scientific, whether it appears in the robust form and the vivid coloring of a physical illustration, or in the tenuity and paleness of a symbolic expression." JAMES CLERK MAXWELL Address to the Mathematics and Physics Section, British Association for the Advancement of Science, 1870 Research scientists travel a path with no clear end; there is often no telling where the questions they ask will lead them. They seek to deepen our understanding of the natural world, a pursuit requiring an intuitive mind, an adventurous spirit, and the vision to perceive coherence where others see only confusion. These are also the concerns and qualities of the artist. The images on pages 6-19 illustrate some of the research pursued by Caltech faculty last year-and capture moments when science and art intersect. LETTER FROM THE CHAIR OF THE BOARD iscal 1996-97 was a year of transition for Caltech, with the Institute preparing for a change in leadership. As is the case with most periods of transition, this one included both satisfactions and challenges, both happy and sad moments. While it was a pleasure to salute Dr. Everhart's many contributions to Caltech in these pages last year (and although we certainly do not begrudge him and Mrs. Everhart their well-earned retirement!), we still miss him. And although the opportunity to select a new chief executive was exciting, a certain amount of anxiety inevitably surrounded the process. It is, after all, a momentous respon- sibility to decide who should head an institu- tion like Caltech, a daunting task to find the right person to follow in the footsteps of 1 Robert Millikan, Lee DuBridge, Harold Brown, Marvin Goldberger, and Thomas Everhart. As chair of the Board of Trustees and the trustees' presidential selection commit- tee, I worked closely with the faculty com- mittee whose job it was to identify and inter- view potential presidential candidates, and so had an ideal vantage point from which to observe the process from beginning to end. I was deeply impressed with the thorough and conscientious way all the members of the faculty committee undertook their assignment. They pursued this work for the better part of a year with unflagging energy and enthusiasm, while continuing to meet their usual research and teaching responsibil- ities, and in the end presented the trustee committee with an outstanding short list of candidates. As a result of the work of these two committees, I had the privilege on May 13, Drs. Moore and Baltimore on Inauguration Day 1997, of announcing the appointment of Dr. David Baltimore as Caltech's next president. He took office on October 15, 1997, and was formally inaugurated on March 9, 1998. Dr. Baltimore is perhaps the most influen- tial living biologist, and certainly one of the most accomplished. His discovery of the enzyme reverse transcriptase and its role in the replication of certain kinds of viruses has had profound implications for our under- standing of such diseases as cancer and AIDS (and won him the Nobel Prize in physiology or medicine in 1975). The considerable influ- ence he now wields in Washington had its genesis in the 1970s, when he played a pivotal role in the development of a consen- sus on national science policy regarding recombinant DNA research. As chair of the National Institutes of Health AIDS Vaccine Research Committee, he now leads our nation's efforts to find a vaccine for the disease. A longtime professor at MIT, Dr. Baltimore served as founding director of that university's Whitehead Institute for Biomedical Research from 1982 to 1990, an undertaking that his colleagues praised as remarkably skilled and effective. He was also a professor at the Rockefeller University from 1990 to 1994, and Rockefeller's presi- dent from 1990 to 1991. As Professor Kip Thorne, chair of the faculty presidential search committee, has so aptly remarked, "The coming decade will be an era of unparalleled advances in biology, in large measure as a result of growing intellectual ties to engineering, mathematics, chemistry, physics, and the earth sciences. Nobody understands this more clearly than David Baltimore.... He is eminently qualified to lead Caltech into the 21st century because of his vision, his exceptional wisdom and intellectual abilities, his creativity, his remarkable leadership skills, and his dedication to education as well as research." Dr. Baltimore's variety of strengths, reflective of a mind that has been described as both scientific and humanistic, will ideally complement Caltech's eclectic, interdisciplinary approach to research The appointment of a new chief executive was certainly the most notable administrative transition of 1996-97, but the Board of Trustees experienced considerable change as well. We were saddened by the deaths of Honorary Life Trustee Mrs Norman Chandler; Senior Trustee Chauncey J. Medberry III; Life Trustee Gilbert W. Fitzhugh; and Chair Emeritus R. Stanton Avery, who headed the Board from 1974 to 1984. The Board also regretfully accepted the of watch with such equanimity. I saw first- hand that this institution's greatness stems resignation of Dr. Yuan T. Lee, whose presi- in no small part from its stability and dency of Academia Sinica required his reloca- resilience-which are in turn products of a tion to Taiwan. On a happier note, the Board consistently clear vision of its own past, pre welcomed as a new trustee Dr. David Ho, sent, and future. That said, I nevertheless a Caltech alumnus (BS '74) and well-known can't conclude that Caltech has arrived at AIDS researcher who was Time magazine's some theoretical condition of "business as 1997 Man of the Year. usual" now that the transitional year is past. We all know that change can be On the contrary. With Dr. Baltimore at the stressful, and that we-individuals and insti- helm, it's a good bet that the excitement has tutions alike-often reveal our true selves in how we respond to stress. Despite being tested by the unusual demands of 1996-97, the Caltech community carried on with its customary self-assurance. Students contin- just begun. Phan Me Gordon E. Moore Chair of the Board of Trustees ued to receive a first-class science and engineering education; faculty continued to pursue cutting-edge research; staff provided their usual expert support to accomplish special transition-year tasks. It was exhilarat- ing to observe Caltech weathering a change Research Highlights Division of Biology Although it looks a bit like a green camellia, the flower on the far right is actually a mutant Arabidopsis, a member of the mustard family. The CLAVATAl and AGAMOUS genes of this particular plant have been modified to make it produce far more than the usual number of petals (the near-right photo shows Arabidopsis in its humbler wild state). It's one of various mutations produced by Caltech biologist Elliot Meyerowitz and his colleagues, who manipulate the genes that control floral organ number to study how plant cells communicate with each other during development. "A lot of what we eat is flowers, or parts of flowers-like seeds, fruits, and grains," says Meyerowitz. "With the amount of arable land decreasing and world population increasing, it might turn out to be a valuable thing to be able to design and grow flowers according to our wishes." Even if we're not concerned about pro- ducing exciting new food, however, it's vital to learn the rules that govern cell communication. Plant and animal development are similar enough that discoveries about how cells interact will likely apply not only to Arabidopsis, but to us as well. PLATES 1A AND B Arabidopsis thaliana PLATE 2 Glucose-sensing polymer Division Chemistry and Chemical Engineering A piece of modern sculpture? No, it's a computer-generated model of a glucose-sensing polymer. Designed in the lab of Caltech chemical engineer Frances Arnold, this bit of technology has the potential to improve the lives of the 100 million people worldwide who suffer from diabetes. Here's how it works. The polymer is molecularly imprinted-in something like the way plastic is molded, but on a very small scale-with pockets that recognize and attract glucose molecules. When a glucose molecule gets captured in a pocket and reacts with the pocket's copper-compound lining, a hydrogen ion is released. The ion raises the acidity level in the surrounding blood—a change that can be easily detected with something as simple as litmus paper. The polymer's design is being licensed by a medical diagnostics firm for development into a reliable, inexpensive device to automatically monitor blood glucose levels. Having such a product readily available to diabetics would be a major step toward preventing such complications of their disease as blindness, amputations, and kidney failure. 9 Division of Engineering and Applied Science As unlikely as it might seem, what's going on in this photo could have a salutary effect on your golf game. It's a demonstration of the nature of Liquidmetal, a metallic glass developed in the lab of William Johnson, Caltech's Mettler Professor of Engineering and Applied Science. Golf clubs with Liquidmetal heads are due on the American market in April 1998, and represent the first commercial application of the material. Conventional metals have an orderly crystalline molecular structure. Liquidmetal's molecules, however, are arranged randomly, making it almost perfectly elastic: it absorbs minimal energy from objects that strike it. Johnson illustrates this property by dropping ball bearings simultaneously into three clear acrylic tubes, each of which has a different metal at its base. The balls dropped on stainless steel (left) and titanium (right) bounce moder- ately for a few seconds, then stop. But the ball in the Liquidmetal-based tube (center) rebounds like a Super Ball and continues bouncing for more than a minute before coming to rest. Why use such a marvelous material to make something as nonessential as golf clubs? As Johnson points out, "Golf is a very demanding application: the club head moves at 100 to 110 miles per hour for thousands of impacts over the life of the club." The lessons learned from engineering a substance that can withstand the rigors of golf could speed the design of other products-from tennis rackets and bicycle frames to jet-engine compressor blades and medical prostheses. PLATE 3 Metallic glass demonstration 15 MILLIONS OF YEARS 0 15 MILLIONS OF YEARS Division Geological and Planetary Sciences The period between 530 and 515 million years ago was unique in Earth's evolutionary history. Life forms diversified at 20 times the normal rate, and virtually all the animals living today first appeared. What caused this "evolutionary Big Bang"? Caltech geobiologist Joseph Kirschvink and his colleagues have found evidence of an apparently unique terrestrial event that could provide the answer. Studying fossil magnetism in rocks has convinced them that a major reorganization of Earth's tectonic plates also happened half a billion years ago. The plates' movement changed Earth's balance of mass, causing its spin axis to shift 90 degrees. As a result, continents that had been near the north and south poles relocated to the equator, and two opposite points on the equator became the new poles. (The progression of this "true polar wander" event can be seen in the computer animation frames above.) The wandering continents caused ocean currents to shift every million years or so, which routinely disrupted ecosystems and fragmented animal populations. "This is a great script for increasing diversity," Kirschvink theorizes, "because evolutionary innovations are much more likely to survive in small, inbreeding populations than in large, freely interbreeding groups." 12 PLATES 4A, B, C, AND D True polar wander 1S MILLIONS OF YEARS 0 MILLIONS OF YEARS 13 Quinzic figures Ba mad /at la Pren 丫 2elle dela ซา TO 8 le Claudu Mai Lecercapenne Sile du perches 14 Rata A86이 6 PLATE 5 Land enclosure, Bretteville-l'Orgueilleuse, 1666-67 Division the Humanities and Social Sciences How do you explain economic growth? By doing a bit of sleuthing into a traditional case of economic stagnation, according to Philip Hoffman, an economic historian in Caltech's humanities and social sciences division. In his prize-winning book, Growth in a Traditional Society, the venue of his self-described "detec-tive work" is the French countryside between 1450 and 1815. "Contrary to what scholars have long believed," says Hoffman, "things like peasant customs, farming practices, and property rights did little to cause French economic stagnation during this period." The map pictured here, drawn for a 1666 survey of land surrounding a Norman village, shows that while some fields had been consolidated into large parcels, others remained minuscule. Hoffman found that neither enclosure—a practice thought to be responsible for the superior productivity of England during this same period-nor farm size had much bearing on 17th-century agricultural productivity in France. So what did influence growth rates? The same kinds of things, it turns out, that affect the productivity of developing nations today: politics and war. 15 Jet Propulsion Laboratory The whole world was watching—or so it seemed to the JPL and Caltech communities— last July 4, when Mars Pathfinder landed on the red planet. On July 5 the intrepid Sojourner rover trundled down the spacecraft's rear ramp and set out to explore Mars's rocky surface. It wasn't long before the Imager for Mars Pathfinder (IMP) was sending back images like this one: a composite panoramic view taken over the course of Pathfinder's eighth, ninth, and tenth days on Mars. This photo captures several now-familiar features both of the spacecraft and of Martian geography. At the left is one of four lander petals visible to IMP, as well as part of the low-gain antenna and one of several deflated air 16 bags. On the lander petal directly to the right are the fully deployed forward (left) and rear (right) ramps. Immediately above the rear ramp is the rock that mission scientists dubbed Barnacle Bill. Farther up and to the right, Sojourner is caught in a close encounter with the rock Yogi. The Twin Peaks are visible on the horizon (left of center), about one to two kilometers away from the lander. Mars Pathfinder is the second in NASA's Discovery program of low-cost spacecraft with highly focused science goals. The Jet Propulsion Laboratory, an operating division of Caltech, developed and managed the Mars Pathfinder mission for NASA's Office of Space Science in Washington, D.C. PLATE 6 Mars, July 1997 17 Division of Physics, Mathematics and Astronomy What if you could look into the sky and see how the universe probably appeared milliseconds after the Big Bang? In May 1997, Catech astronomers George Djorgovski, Shri Kulkarni, Mark Metzger, and Charles Steidel did just that, while observing a gamma-ray burst-one of the "outstanding mysteries of modern astronomy," according to Djorgovski. After the burst was detected by the Italian-Dutch satellite BeppoSAX, the Caltech team was able to determine the burst's location from its visible-light afterglow (pictured). They then established for the first time that gamma-ray bursts come from far beyond our galaxy—in fact, from a distance that's more than half the size of the observable universe. By September, the astronomers had also learned that the burst's remnant "fireball" is 85 times larger in diameter than our solar system and is currently expanding at about 85 percent of the speed of light. Although it's still not known what causes gamma-ray bursts, these recent discoveries have greatly narrowed the range of possible theoretical models of what are probably the most energetic-and enigmatic events in the universe. 18 PLATE 7 Gamma-ray burst 19 1996-1997 THE YEAR IN REVIEW hroughout 1996-97, the Caltech community seemed at times to be holding its breath, as it waited to learn who its new chief execu- tive would be. But the Institute was far from "on hold" last year. In many ways, in fact, administrators, faculty, and staff were busier than ever, both with preparations for the presidential transition and with work on continuing projects. Research facilities and programs continued to evolve; process engineering entered a new phase; community outreach broadened in scope. Caltech's reputation continued undiminished as well: the Institute was again ranked as one of the nation's top research universities, as well as the "best buy" in American undergraduate education. The Changing Face of Caltech s in previous years, modi- fications to the Institute's physical facilities were among the most obvious changes on campus. The Sherman Fairchild Library of Engineering and Applied Science, which was completed in fall 1996, was officially dedicated on January 14, 1997. Funded by a grant from the Sherman Fairchild Foundation, the library now houses under one roof the engineering collections previously distributed among eight different departmental libraries. It also offers the latest technological 21 advances in information delivery, including workstations wired for high-speed network access; a variety of data storage options, including Zip and Jaz drives and CD recorders; and a multimedia conference room. The dedication of the Sherman Fairchild Library marked the completion of three years of continuous building on the Caltech campus. The Moore Laboratory of Engineering and Avery House—a residence for students, faculty, and visiting entrepre-neurs-are also products of this construction period. A less-evident, but also noteworthy, change in campus research facilities came in April 1997, when Caltech's 10-foot wind tunnel-the biggest and fastest on the West Coast when it was finished in 1929—was ceremoniously dismantled. Early in its 68-year history, the wind tunnel had helped establish Southern California as the aircraft- manufacturing capital of the country. It tested most of the Allied warplanes used in World War II, and many generations of students learned hands-on aeronautics in its giant test section. About 200 people attended the closing ceremony, the highlight of which was a flyover by vintage warplanes originally tested in the tunnel. Various parts of the dismantled tunnel have now been shipped off to museums across the country. (The balances used to measure the aerodynamic forces acting on models tested in the tunnel, for instance, will be displayed in the Smithsonian Institution in Washington, D.C.) The dismantled 10-foot tunnel will eventually be replaced by the John W. Lucas 22 Wind Tunnel, the construction of which is currently under way, thanks to a gift from the Richard M. Lucas Foundation. When finished, the Lucas tunnel will be one of two facilities available for wind-tunnel research at Caltech (the other is the T5 hypervelocity shock tunnel, which was installed on the roof of Guggenheim Laboratory in 1990). Administrative Process Engineering (APE), the campuswide effort to redesign the Institute's business practices and procedures, made significant progress last year. In November 1996, it was announced at one of a series of "town hall" meetings that several software vendors would hold campus demonstrations of their products. All interested members of the campus community were invited to attend these demonstrations and preview the computer programs that might be chosen to streamline administrative tasks. In May 1997, after much research and discussion by APE team members, Oracle and its partner firm, Exeter, were selected to supply Caltech's new administrative software. A change management team was also added to the roster of APE personnel to better communicate the project's growing complexity to the campus community. APE has been under way since early 1995, and is scheduled for completion in late 1999—just in time to head off "Year 2000" problems in administra- tive computers. Campus Programs and Events number of notable visitors 1996-97. In October 1996, Beckman Auditorium hosted a tribute to the late base- ball player Jackie Robinson, a Pasadena native. The event included a panel discussion led by Robinson's Dodger teammates Tommy Lasorda and Joe Black. Robinson's widow, Rachel, was also on hand to sign her recently published memoir, Jackie Robinson: An Intimate Portrait. In January 1997, film director Oliver Stone delivered the fifth annual Michelin lecture, speaking on "Film, Chaos, and Mass Delusion." In March, former Massachusetts governor and onetime presidential candidate Michael Dukakis addressed a campus audience on the topic of politics and public policy. In May, astronaut Ellen Ochoa spoke at the Institute's annual Semana Latina celebration. And in October 1997, stock market analyst and investor Warren Buffett made a rare public appearance when he visited campus as the Institute's second DuBridge Distinguished Lecturer. An overflow crowd turned out for Buffett's "conversation with" Shelby Coffey III, former editor of the Los Angeles Times. Another memorable event was April's Hale-Bopp comet program, which was cosponsored by JPL's Galileo and Stardust projects and the IPL Astronomy Club. Telescopes set up on the west lawn of Beckman Institute provided comet-viewing opportunities, following which the comet's codiscoverers, Alan Hale and Thomas Bopp, joined other astronomers for a panel discussion in Beckman Auditorium. April also saw the debut of a weekly lecture series dubbed Astronomy/Geology 0.1. Modeled on last year's very successful Biology 0.1 program, the series comprised 10 lectures given by Caltech earth and space scientists. The lectures were designed to explain recent discoveries in those fields in a manner accessi- ble to nonspecialists. In May the fourth annual Media and Science Symposium was held in Caltech's Ramo Auditorium. Entitled "The 21st Century: The Multimedia Age," it featured David Gergen, PBS commentator and editor at large for U.S. News @ World Report, as keynote speaker. In June the entire campus community was invited to a farewell luncheon for outgoing president Dr. Thomas E. Everhart and his wife, Doris. Held on Beckman Mall, the event featured box lunches for more than 3,000 guests, music by Caltech's jazz bands, gift presentations, and a chance for everyone to shake hands with the Everharts and wish them well in their retirement. Although it did not fall within the fiscal year officially covered by this report, the biggest Institute celebration of the past decade also deserves mention here. On the afternoon of March 9, 1998, delegates from academic institutions across the nation and the world converged on campus for the inauguration of David Baltimore as Caltech's sixth president. Maxine Singer, president of the Carnegie Institution of Washington, 23 D.C., delivered the invited speaker's address; other speakers included Martha Throop Smith-the great-granddaughter of Caltech founder Amos Throop -and Feynman Professor of Theoretical Physics Kip Thorne, who had headed the faculty presidential search committee. The official bestowal of presidential authority came when Board Chair Gordon Moore and Vice Chair Benjamin Rosen placed the academic hood of Robert Millikan, Caltech's first chief executive, on Dr. Baltimore's shoulders. The hood has been used for the inauguration of all Caltech presidents except Millikan himself, who, according to archivist Judith Goodstein, was never inaugurated. (Millikan served as director of the Norman Bridge Laboratory of Physics and chairman of the Institute's executive council.) Following the investiture, Dr. Baltimore delivered his inaugural address, in which he recounted some of the observations he had made during his first five months at the Institute. He remarked that he had already come to love Caltech, because "its values are ones in which I deeply believe: honesty, clear thinking, hard work, land] a striving for elegance and novelty." He also posed several questions about the Institute's self-image and direction as "an open invitation to the many constituencies on the campus to participate in a dialogue" that will provide perspective for setting priorities in the future. Besides Monday's formal ceremony, the occasion of Dr. Baltimore's inauguration was marked by a variety of other celebratory events. An all-day Festschrift, a symposium honoring Dr. Baltimore's scientific achievements-and his birthday-took place on Sunday, March 8. Inauguration Day itself included a delegates' luncheon at the Huntington Library, a campus reception on the Athenaeum West Lawn following the inaugural ceremony, and a dinner for faculty and trustees in the Braun Athletic Center. Community Outreach n fall 1996, a group of 36 prominent Pasadena citizens became "ambassadors for Caltech" when they agreed to serve on the newly formed Beckman Auditorium Community Council (BACC). The council's mission is to increase Beckman Auditorium's visibility in the San Gabriel Valley and to encourage community members to think of Caltech as a provider of entertainment, arts, and educational programming. The BACC's cochairs for the 1996-97 season were television newscaster Jess Marlow and social activist Jane Olson. In February, the Pasadena Center for Improving Elementary Science Education, one of several programs conducted as part of a Caltech-Pasadena Unified School District (PUSD) partnership, announced that three additional school districts had been selected to begin a four-year pilot program of hands-on science education for elementary stu- dents. Inglewood Unified, Whittier City, and South Bay Union will join nine other California school districts now participating in the program, which is the fruit of a 24 12-year collaboration between Caltech's Precollege Science Initiative (CAPSI) and the Pasadena Unified School District. The CAPSI-PUSD program has also been successfully installed in school districts in Maui, Hawaii. Caltech also showed its commit- ment to the continuing education of its own community last year by instituting a student-staff tutoring program. A collaborative effort of the Caltech Y, the Office of Minority Student Affairs, and the Latino Association for Science and Engineering Students, this program paired staff members who desired tutoring for themselves or their children with Caltech student volunteers. Tutoring was available in a wide variety of subjects, at levels from elementary to advanced. Also in the spring, ESL classes were offered on campus for the first time to staff members wishing to strengthen their English-language skills. Teaching and Research News ne of the chief advantages of a Caltech undergraduate education— the wealth of opportunities to do real, hands-on scientific research-was also strengthened last year, with the debut of the TIDE (Teaching and Interdisciplinary Education) program in May 1997. TIDE represents an expansion of the mission of the SURF (Student Undergraduate Research Fellowships) program, itself an important element of Caltech student life for the past 20 years. Following the model of Professor Nate Lewis's successful Chemistry Animation Project, TIDE pairs up faculty and students who have a particular interest in improving science education. Together, they design and produce computer-based graphics and other teaching tools for use in a variety of Institute courses. Nineteen students participated in TIDE during the summer of 1997. The students worked on projects like JPL's KidSat—a pilot program that uses an electronic still camera on board a space shut- tle to bring images of Earth and space to U.S. middle-school classrooms via the Internet— and computer-based language instruction for use in Caltech French and Spanish classes. TIDE is supported by a three-year grant from the National Science Foundation, as well as by Caltech funds. In May it was also announced that Caltech will play a key role in NPACI, the newly formed National Partnership for Advanced Computational Infrastructure. NPACI, a coalition of 37 research laboratories and universities led by UC San Diego, will link together geographically separated high-performance computers, data servers, archival storage units, and visualization systems. The combined power of these components will make it possible to tackle research problems that could not previously be handled by solitary computers. A few of the many other innova- tive research projects pursued last year by Institute faculty are highlighted visually on pages 6-19 in this report. 25 Supporting the Institute n fiscal year 1997, Caltech received $67.1 million from private donors, an increase of eight percent over fiscal 1996. This generous support came from a variety of sources, including foundations, corporations, trustees, alumni, and other friends. The W. M. Keck Foundation awarded Caltech $5 million for interdisciplinary research projects on biological systems. The grant will establish the Discovery Fund in Basic Medical Research, which will support Institute faculty who combine expertise in computing, physics, engineering, or chemistry with biology to address biomedical problems arising from such undertakings as the Human Genome Project. The Burroughs Wellcome Fund has also pledged to support interdisciplinary research at Caltech with a grant of $2.5 million for a new program of graduate and postdoctoral training in the emerging field of computational molecular biology. The James Irvine Foundation con- tributed $1.1 million to continue the Irvine Minority Graduate Fellowships Program and to support faculty and student diversity programs and community outreach. The award will fund graduate and undergraduate research fellowships and part of the Young Engineering and Science Scholars program. Toward a similar end, the Institute has received a $350,000 grant from the Andrew W. Mellon Foundation. This grant will allow Caltech to participate in the Mellon Minority Undergraduate Fellowship Program, 26 which promotes the recruitment and mentoring of outstanding undergraduates who wish to pursue doctorates in science fields that have traditionally attracted few underrepresented minority students. The Charles Lee Powell Foundation, which has funded a professorship at Caltech since 1975, continued its generous support of the Institute last year by making another in a series of grants for research, equipment, and graduate fellowships in the Division of Engineering and Applied Science. The Powell Foundation also donated $2 million toward the renovation of the Booth Computing Center, a Caltech facility constructed in 1963. The remodeled building, which will be known as the Powell-Booth Laboratory for Computational Science, will give the campus community broader, easier access to Caltech's high-performance computing systems, and will include such enhancements as a virtual-reality lab and video-conferencing equipment. A $200,000 grant from the Booth Ferris Foundation will provide additional funding for the rehabilitation of the Booth Computing Center. Caltech also benefited greatly last year from the support of the Federal Emergency Management Agency and the Office of Emergency Services. These agencies awarded the Institute a $7.4 million match- ing grant for the construction of TriNet, a real-time earthquake information system for Southern California that is being developed in cooperation with the U.S. Geological Survey and the California Division of Mines and Geology. (Caltech must now raise an additional $2.3 million from private sources in order to benefit fully from this grant.) Notable corporate gifts last year included $2.3 million from Intel Corporation in connection with its "Technology for Education 2000" program, and $700,000 from IBM in support of the Center for Advanced Computational Research. As in past years, individual donors played an essential role in maintaining the Institute's financial well-being. Alumni giving has reached an impressive new level, thanks to alumni response to the generous challenge pledge of trustee Stanley Rawn (BS '52, MS '53). By September 1997, the end of the three-year challenge period established by Dr. Everhart, approximately 2,200 new donors had responded, increasing participation in the Alumni Fund from 30.7 to 43.4 percent of alumni. The members of the Caltech Associates were also a most valuable source of support last year, contributing nearly $9 million for a variety of purposes one of which was the establishment of the Thomas E. and Doris Everhart Endowed Scholarship. The Everharts were also honored last year by the Board of Trustees' establishment of the Thomas E. and Doris Everhart Professorship.) A number of individuals also made generous bequests and life-income gifts that enriched Caltech's endowment by nearly $16.8 million. Graduates and Rankings total of 485 students altech's 103rd annual participated in commencement on June 13, 1997. Of that number, 202 students received bachelor of science degrees, 98 of them with honor; 104 were awarded MS degrees; six received the degree of Engineer; and 173 students received PhDs. As has been true historically for Caltech undergraduates, approximately half of the bachelor's degree recipients planned to attend graduate school. Top graduate school choices were Stanford, Princeton, and MIT. The class of '97 also followed tradition in another area: success in competing for gradu- ate fellowships. Twelve National Science Foundation Fellowships were awarded to seniors and nine to recent Caltech graduates. Several other students received Department of Defense, Howard Hughes, Hertz, and Churchill fellowships. Three graduates were awarded fellowships to study at Oxford or Cambridge for one year, and one student received a full fellowship to Washington University Medical School. Bachelor's degree recipients who chose employment over graduate school- 39 percent of the graduating class-found an unusually receptive job market. Many reported having several job offers. Forty-one different companies hired at least one Caltech BS graduate, with Aerojet, Applied Materials, First Quadrant, Integrated Computing Engines, Intel, Mitchell Madison Group, and Tenfold Corporation hiring more than one apiece. 27 Also following tradition, the Institute's 173 new PhDs divided their job searches between academia and industry. Seventy-six graduates (43 percent) were hired by such organizations as Intel, McKinsey, Mitchell Madison, Teradyne, and TRW. Eighty-one graduates (47 percent) accepted academic positions, 14 of which were tenure-track faculty appointments at Cornell, the University of Michigan, the University of Pennsylvania, Georgia Tech, and other insti-tutions. Sixty-seven PhDs took postdoctoral positions at home or abroad. In October 1997, the Institute had further reason to be proud of the achievements of its alumni when it was announced that Robert C. Merton (MS '67) had been named a Nobel laureate in economics. He is the first Caltech alumnus to receive a Nobel Prize in that field. Counting new president David Baltimore, 25 Institute faculty and alumni have won a total of 26 Nobel Prizes to date. achievement, given that the program was unranked at its inception only 25 years ago. And finally, many of the Institute's graduate programs continued to place highly in U.S. News e World Report's 1996 national rankings: Program Aerospace Engineering Biology Chemistry: inorganic physical organic polymer Geology: geochemistry geophysics techtonics/structural Physics: astrophysics Rank # 2 5 overall 2 overall 1 2 3 3 1 overall 1 1 3 1 (shared with Harvard and MIT) 1 The success of Caltech graduates only reinforces the preeminent position the Institute continues to hold among American universities, as reflected in a variety of national rankings. In August 1997, Money magazine declared Caltech America's "best college buy" for the second year in a row. In December 1996, the Institute's political science group was ranked sixth in the nation after adjustment for its relatively small size, according to a report issued by the journal Political Science and Politics-a phenomenal 28 Awards and Honors NATIONAL AWARDS AND HONORS Achievement Rewards for College Scientists, Scientist of the Year: Peter B. Dervan, Bren Professor of Chemistry and Chair of the Division of Chemistry and Chemical Engineering American Academy of Arts and Sciences, Fellow: Pamela Bjorkman, Associate Professor of Biology and Associate Investigator, Howard Hughes Medical Institute Andrew P. Ingersoll, Professor of Planetary Science Jerrold E. Marsden, Professor of Control and Dynamical Systems Douglas C. Rees, Professor of Chemistry and Full Investigator, Howard Hughes Medical Institute American Association for the Advancement of Science, Fellow: Kenneth G. Libbrecht, Professor of Astrophysics American Council of Learned Societies, 1996-97 Arnold L. and Lois P. Graves Award: Kevin M. Gilmartin, Associate Professor of Literature Aviation Week and Space Technology Hall of Fame, Inductee: Edward C. Stone, Vice President, Director of the Jet Propulsion Laboratory, and David Morrisroe Professor of Physics National Academy of Engineering, Member: Mark E. Davis, Warren and Katharine Schlinger Professor of Chemical Engineering Hans G. Hornung, C. L. "Kelly" Johnson Professor of Aeronautics and Director of the Graduate Aeronautical Laboratories National Academy of Sciences, Member in the Institute of Medicine: Peter B. Dervan, Bren Professor of Chemistry and Chair of the Division of Chemistry and Chemical Engineering Member: John H. Schwarz, Harold Brown Professor of Theoretical Physics INTERNATIONAL AWARDS AND HONORS European Association of Geochemistry, Houterman Award: Kenneth A. Farley, Associate Professor of Geochemistry Geochemistry Fellow: Edward M. Stolper, William E. Leonhard Professor of Geology and Chair of the Division of Geological and Planetary Sciences The J. William Fulbright Foreign Scholarship Board in Italy, 1997-98 Fulbright Florence Chair: Robert A. Rosenstone, Professor of History International Congress on Fracture, Honorary Fellow: Wolfgang G. Knauss, Professor of Aeronautics and Applied Mechanics Royal Society of Canada, Foreign Fellow: Samuel Epstein, William E. Leonhard Professor of Geology, Emeritus Royal Swedish Academy of Sciences, Foreign Member: Harry B. Gray, Arnold O. Beckman Professor of Chemistry and Director of the Beckman Institute Russian Academy of Natural Sciences, Kapitsa Medal: Wolfgang G. Knauss, Professor of Aeronautics and Applied Mechanics World Commission on Dams, Member: Thayer Scudder, Professor of Anthropology STATE AWARDS AND HONORS Board of the California Council for the Humanities, Member: William F. Deverell, Associate Professor of History AWARDS AND HONORS FROM PROFESSIONAL SOCIETIES American Astronautical Society, 1996 Space Flight Award: Edward C. Stone, Vice President, Director of the Jet Propulsion Laboratory, and David Morrisroe Professor of Physics Council of the American Astronomical Society, 1997 Helen B. Warner Prize: Charles C. Steidel, Associate Professor of Astronomy American Chemical Society, 1997 E. Bright Wilson Award in Spectroscopy: Ahmed H. Zewail, Linus Pauling Professor of Chemical Physics and Professor of Physics American Choral Directors Association, Chair, National Repertoire and Standards Committee for Women's Choirs: Monica J. Hubbard, Director, Women's Glee Club American Geophysical Union, 1997 Inge Lehmann Medal: Donald V. Helmberger, Professor of Geophysics American Institute of Chemical Engineers, Thomas Baron Award in Fluid-Particle Systems: Richard C. Flagan, Professor of and Executive Officer for Chemical Engineering American Physical Society, Fellow: E. Sterl Phinney III, Professor of Theoretical Astrophysics Petr Vogel, Senior Research Associate in Physics; Lecturer in Physics American Political Science Association, 1997 CQ Press Award, Corecipient: Jonathan N. Katz, Assistant Professor of Political Science American Society of Civil Engineers, 1997 Nathan M. Newmark Medal: Wilfred D. Iwan, Professor of Applied Mechanics 1997 Simon W. Freese Environmental Engineering Award and Lecture: James J. Morgan, Marvin L. Goldberger Professor of and Executive Officer for Environmental Engineering Science Economic History Association, Gyorgy Ranki Prize: Philip T. Hoffman, Professor of History and Social Science and Executive Officer for the Humanities Geochemical Society, Geochemistry Fellow for 1997: Edward M. Stolper, William E. Leonhard Professor of Geology and Chair of the Division of Geological and Planetary Sciences Inorganica Chimica Acta, Sigillum Magnum: Harry B. Gray, Arnold O. Beckman Professor of Chemistry and Director of the Beckman Institute Microwave Theory and Techniques Society, 1997 Distinguished Educator Award: David B. Rutledge, Professor of Electrical Engineering Midwest Political Science Association, Executive Council Member: D. Roderick Kiewiet, Professor of Political Science 1997 Pi Sigma Alpha Award for Best Paper, Corecipient: Jonathan N. Katz, Assistant Professor of Political Science Minerals, Metals, and Materials Society, 1997 Robert Lansing Hardy Award: Sossina M. Haile, Assistant Professor of Materials Science Social Science History Association, 1997 Allan Sharlin Memorial Award: Philip T. Hoffman, Professor of History and Social Science and Executive Officer for the U.S. Association of Computational Mechanics, Fellow: Michael Ortiz, Professor of Aeronautics and Applied Mechanics FOUNDATION AWARDS Arnold and Mabel Beckman Foundation, 1997 Beckman Young Investigator Award: Raymond Deshaies, Assistant Professor of Biology The Camille and Henry Dreyfus Foundation, 1997 Teacher-Scholar Award: Konstantinos P. Giapis, Assistant Professor of Chemical Engineering John Simon Guggenheim Memorial Foundation, 1997 Guggenheim Fellowship: H. David Politzer, Professor of Theoretical Physics Haynes Foundation, 1997 Faculty Fellowship: R. Michael Alvarez, Associate Professor of Political Science The David and Lucile Packard Foundation, 1997 Fellowship in Science and Engineering: Charles C. Steidel, Associate Professor of Astronomy Searle Scholars Program, 1997 Searle Scholar Award: Bruce A. Hay, Assistant Professor of Biology 31 Alfred P. Sloan Foundation, Research Fellow: James R. Arvo, Associate Professor of Computer Science Emlyn W. Hughes, Associate Professor of Physics Welch Foundation, 1997 Robert A. Welch Award in Chemistry: Ahmed H. Zewail, Linus Pauling Professor of Chemical Physics and Professor of Physics UNIVERSITY HONORS Johnson Research Foundation, University of Pennsylvania, 1997 Johnson Foundation Prize: Stephen L. Mayo, Assistant Professor of Biology and Assistant Investigator, Howard Hughes Medical Institute Koc University, Prize for the Best Paper of the Year 1996 in Economic Design, Corecipients: John O. Ledyard, Professor of Economics and Social Sciences and Chair of the Division of the Humanities and Social Sciences David P. Porter, Visiting Associate in Economics and Senior Economist, Jet Propulsion Laboratory Virginia Polytechnic Institute, National Fresenius Award: Erick M. Carreira, Associate Professor of Chemistry INSTITUTE HONORS Distinguished Alumni Awards: Robert W. Conn, MS '65, PhD '68 Sharon R. Long, BS '73 Richard H. MacNeal, MS '47, PhD '49 Douglas D. Osheroff, BS '67 Endowed Professorships: Jacqueline K. Barton, Arthur and Marian Hanisch Memorial Professor K. Mani Chandy, Simon Ramo Professor Fred E. C. Culick, Richard L. and Dorothy M. Hayman Professor of Mechanical Engineering H. Jeff Kimble, William L. Valentine Professor Robert J. McEliece, Allen E. Puckett Professor 32 Associated Students of the California Institute of Technology (ASCIT), Award for Teaching Excellence: Glen A. George, Lecturer in Computer Science and Electrical Engineering Kevin M. Gilmartin, Associate Professor of Literature Emlyn W. Hughes, Associate Professor of Physics Sean P. Mauch, Graduate Student in Applied Mathematics Brian M. McKeever, Graduate Student in Mathematics Charles C. Steidel, Associate Professor of Astronomy Richard M. Wilson, Professor of Mathematics Division of Biology, Lawrence L. and Audrey W. Ferguson Prize for Outstanding Biology PhD Thesis: Hyejin Kang, Graduate Student in Biology Richard P. Feynman Prize for Excellence in Teaching, Recipient: R. David Middlebrook, Professor of Electrical Engineering Graduate Student Council, 1997 GSC Teaching Awards: James L. Beck, Professor of and Executive Officer for Applied Mechanics and Civil Engineering Kenneth A. Farley, Associate Professor of Geochemistry Teaching Awards for Mentoring: Kerry J. Vahala, Professor of Applied Physics Simon J. Wilkie, Assistant Professor of Economics Outstanding Teaching Assistant Awards: Amit Manwani, Graduate Student in Computation and Neural Systems David C. Polidori, Graduate Student in Applied Mechanics Sam T. Roweis, Graduate Student in Computation and Neural Systems Michael W. Vanik, Graduate Student in Applied Mechanics Erik Winfree, Graduate Student in Computation and Neural Systems REPORT OF THE CHIEF FINANCIAL OFFICER he California Institute of Technology repeated banner financial performance in 1997. Federally sponsored research was the signal contributor to revenue growth, while the continuation of the bull market through 1997 raised Caltech's endowment to a new high. Net assets increased by $172.2 million. Stat osition The Statement of Financial Position reflects this year's strong investment performance and changes in the value of Campus Properties. Investments increased 23 percent, from $954.5 million in 1996 to $1,175.2 million in 1997. Campus Properties decreased from $567.4 million to $525.8 million, largely as a consequence of an agree- ment reached with the National Science Foundation (NSF) to transfer assets of the 33 Laser Interferometer Gravitational-Wave Observatory (LIGO) from Caltech to the United States government. The absence of offsetting large capital projects in 1997 also contributed to this decrease. Net assets increased from $1,458.9 million to $1,631.1 million. ENDOWMENT MARKET VALUE Fiscal years 1989-97 (in millions) $605.8 $580.6 $546.0 $499,8 1989 1990 1991 1992 1993 1994 34 $703.3 1995 $1,039.7 $836.6 1996 1997 UNDERGRADUATE AND GRADUATE STUDENT ENROLLMENT Fiscal years 1989-97 ENDOWMENT PER STUDENT Fiscal years 1989-97 (in millions) 969 823 1,025 803 1,083 888 1,026 883 983 856 1989 1991 1993 1995 1997 1989 $0.28 1991 $0.30 1993 1995 $0.31 $0.37 1997 $0.57 Undergraduate students Graduate students PROFESSORIAL FACULTY Fiscal years 1989-97 ENDOWMENT PER PROFESSORIAL FACULTY Fiscal years 1989-97 (in millions) 284 274 278 1]]| 1989 1991 1993 1995 1997 1989 $1.82 1991 $2.00 1993 $2.19 1995 $2.48 1997 $3.74 CALIFORNIA INSTITUTE OF TECHNOLOGY Annual Report 1996-97 35 Statement of Activities The primary contributors to overall perfor- mance in 1997 were gains in investments— up $93.0 million over gains in the prior period-and reimbursement of direct costs in federally sponsored research—up $39.5 million over 1996. The extraordinary growth in sponsored research is due primarily to the flow-through of NSF funds to construct and SPONSORED RESEARCH Fiscal years 1989-97 (in millions) Other than LIGO LIGO $111.0 $103.5 1989 1990 1991 1992 1993 1994 36 equip the LIGO facilities. Underlying sponsored research (that is, excluding LIGO) increased 8.8 percent, a testimony to the competitiveness of Caltech faculty. Total Revenues, Gains, and Other Support were $610.3 million, and Total Expenses, $438.1 million. The difference is an increase of $172.2 million in Caltech's net assets between 1996 and 1997. $217.5 $176.8 $125.4 1995 1996 1997 The Jet Propulsion Laboratory expend- ed and was reimbursed for $1,249.5 million for 1997. Statement of Cash Flows A Statement of Cash Flows follows the Statement of Activities and exhibits an improvement in Caltech's cash position between years. SPONSORED RESEARCH PER FACULTY WITH LIGO Fiscal years 1989-97 (in millions) SPONSORED RESEARCH PER FACULTY WITHOUT LIGO Fiscal years 1989-97 (in millions) 1989 $0.28 1991 $0.34 1993 $0.37 1995 $0.44 1997 $0.78 1989 $0.28 1991 $0.34 1993 $0.37 1995 $0.42 1997 $0.55 CALIFORNIA INSTITUTE OF TECHNOLOGY Annual Report 1996-97 37 Comm ntary Fiscal years 1997 and 1996, taken together, portray extraordinary performance. The com- bined increase in net assets of $359.2 million constitutes a change of 28.2 percent over the 1996 beginning net assets value of $1,271.9 million-two good years indeed! The accompanying charts reveal the growing capital base enabling the enlight- ened work of Caltech faculty, students, and staff. They also reveal the fact that most numeric indicators at Caltech, when normal- ized to almost any denominator, are over the top of most scales. John R. Curry Vice President for Business and Finance 38 Stat ent of Fin Po tion September 30, 1997 and 1996 (in thousands) Assets Cash Accounts Receivable United States Government Pledges Other Student and Employee Accounts Investments Deferred United States Government Billings Prepaid Expenses and Other Assets Campus Properties Total Assets 1997 29,184 217,263 38,160 4,821 18,475 1,175,167 124,039 88,302 525,760 $ 2,221,171 1996 2,515 166,510 41,145 3,223 16,939 954,513 108,702 96,511 567,425 $1,957,483 Liabilities Accounts Payable and Accrued Expenses United States Government $ 350,082 $ 288,499 Other 29,718 11,474 Deferred Compensation 33,809 33,054 Deferred Student Revenue and Refundable Advances 20,526 19,879 Revocable Trust Funds and Agency Funds 19,561 15,446 Annuities Payable and Trust Agreement Liabilities 61,763 54,234 Revenue Bonds Payable 74,575 76,000 Total Liabilities $ 590,034 $ 498,586 Net Assets Unrestricted $ 1,252,549 $1,109,682 Temporarily Restricted 84,048 88,848 Permanently Restricted 294,540 260,367 Total Net Assets $ 1,631,137 $1,458,897 Total Liabilities and Net Assets $ 2,221,171 $1,957,483 See accompanying notes to financial statements. CALIFORNIA INSTITUTE OF TECHNOLOGY Annual Report 1996-97 39 Statement of Activities Fiscal Year Ended September 30, 1997, with Summarized Information for the Fiscal Year Ended September 30, 1996 (in thousands) GENERAL CAMPUS OPERATIONS Revenues, Gains, and Other Support Student Tuition and Fees Less Scholarship Allowances Student Tuition and Fees, Net Investment Income Realized Gain on Disposal of Investments Unrealized Appreciation in Investments Contributions United States Government Grants and Contracts Reimbursement of Direct Costs Recovery of Indirect Costs and Management Allowance Other Grants and Contracts Auxiliary Enterprises Other Total Revenues and Gains Net Assets Released from Restrictions Total Revenues, Gains, and Other Support Expenses Campus Operating Expenses Instruction and Departmental Research Organized Research Other Student Aid Institutional and Student Support Plant Operation, Maintenance, and Utilities Auxiliary Enterprises Total Campus Operating Expenses Interest on Revenue Bonds Payable Other Total Expenses JET PROPULSION LABORATORY Reimbursement of Direct Costs Direct Costs of Organized Research Total Increase in Net Assets Net Assets at Beginning of Fiscal Year Net Assets at End of Fiscal Year See accompanying notes to financial statements. 40 Unrestricted Temporarily Restricted 1997 Permanently Restricted Total $ 33,207 (14,794) 18,413 29,814 171,183 47,707 4,832 178,677 65,937 6,485 13,073 13,772 $ 549,893 31,088 $ 580,981 $ $ 156 5,327 20,805 462 3,888 29,823 $ 26,288 (31,088) $ (4,800) $ 34,173 $ 34,173 $ $ 33,207 (14,794) 18,413 30,432 180,398 47,707 55,460 178,677 65,937 6,485 13,073 13,772 610,354 610,354 $ 109,612 214,326 284 55,095 21,936 13,092 $ 414,345 3,733 20,036 $ 438.114 $ $ 109,612 214,326 284 55,095 21,936 13,092 414,345 3,733 20,036 438,114 $ 1,249,527 $ 1,249,527 $ 142,867 1,109,682 $ 1,252,549 $ (4,800) 88,848 $ 84,048 $ 34,173 260,367 $ 294,540 $ 1,249,527 $ 1,249,527 $ 172,240 1,458,897 $ 1,631,137 CALIFORNIA INSTITUTE OF TECHNOLOGY Annual Report 1996-97 1996 Total $ $ $ 32,889 (15,563) 17,326 28,767 71,354 63,738 50,830 139,190 64,739 7,007 11,947 18,445 473,343 473,343 $ 91,559 104,447 307 44,445 22,260 11,170 $ 274,188 3,774 8,366 $ 286,328 $ 1,063,482 $1,063,482 $ 187,015 1,271,882 $1,458,897 41 Statement of Cash Flows Fiscal Year Ended September 30, 1997 and 1996 (in thousands) Cash Flows from Operating Activities Total Increase in Net Assets Adjustments to Reconcile Total Increase in Net Assets to Net Cash Provided By Operating Activities Depreciation (Increase decrease in Accounts Receivable Increase (decrease) in Accounts Payable and Accrued Expenses Contributions Restricted for Long-Term Investment Realized Gain on Disposal of Investments Unrealized Appreciation in Investments Other Net Cash Provided By Operating Activities 1997 $ 172,240 39,348 (49,366) 79,827 (29,823) (180,398) (47,707) 42,756 $ 26,877 1996 $ 187,015 34,530 8,351 (11,057) (18,692) (71,354) (63,738) (21,625) $ 43,430 Cash Flows from Investing Activities Proceeds From Disposal of Investments $ 809,918 $ 530,756 Purchases of Investments (791,769) (484,038) Purchases of Campus Properties (46,755) (107,329) Net Cash Used In Investing Activities $ (28,606) $ (60,611) Cash Flows from Financing Activities Contributions Restricted for Long-Term Investment Repayment of Revenue Bonds $ 29,823 (1,425) $ 18,692 (1,050) Net Cash Provided By Financing Activities $ 28,398 $ 17,642 Net Increase in Cash $ 26,669 $ 461 Cash at Beginning of Fiscal Year 2,515 2,054 Cash at End of Fiscal Year $ 29,184 2,515 See accompanying notes to financial statements. 42 Note to nts NOTE A: Summary of Significant Accounting Policies GENERAL - The California Institute of Technology (the Institute) is a private, not-for-profit institution of higher education based in Pasadena, California. The Institute provides education and training services primarily for students at the undergraduate, graduate, and postdoctoral levels, and performs research, training, and other services under grants, contracts, and similar agreements with sponsoring organizations, primarily departments and agencies of the United States government. The Institute is a tax-exempt organization under federal and state income, gift, estate, and inheritance tax laws. BASIS OF ACCOUNTING AND REPORTING - The financial statements of the Institute have been prepared on the accrual basis of accounting. In fiscal 1996, the Institute retroactively adopted three accounting standards promulgated by the Financial Accounting Standards Board: Statement No. 116, Accounting for Contributions Received and Contributions Made; Statement No. 117, Financial Statements of Not-for-Profit Organizations; and Statement No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations. Statement No. 116 requires pledges (unconditional promises to give) from donors be recorded as receivables and revenues in the fiscal year such pledges are received. Statement No. 117 establishes standards for external financial reporting by not-for-profit organizations that changes the format and content of the financial statements. It also requires that net assets be classified for accounting and reporting purposes into three categories according to donor-imposed restrictions: permanently restricted, temporarily restricted, and unrestricted. Statement No. 124 requires investments in equity securities with readily determinable fair values and all debt securities be reported at fair value. Permanently restricted net assets include gifts, charitable remainder unitrusts, pooled income funds, gift annuities, other split-interest agreements, and pledges receivable which require by donor restriction that the corpus be invested in perpetuity. Income generated from these assets may be used in accordance with donor restrictions. Temporarily restricted net assets include gifts for which donor-imposed restrictions have not been met (primarily for future capital projects), charitable remainder unitrusts, pooled income funds, gift annuities, other split-interest agreements, and pledges receivable for which the ultimate purpose of the proceeds is not permanently restricted. Unrestricted net assets are those not subject to donor-imposed restrictions. Gains and losses on investments are reported as unrestricted revenue unless their use is restrict- ed by donor-imposed stipulations or by law. Donor-restricted gifts which are received and utilized within the same fiscal year are reported as unrestricted revenue. Gifts of long-lived assets with no donor-imposed time restrictions are reported as unrestricted revenue in the fiscal year received. Gifts restricted to the acquisition or construction CALIFORNIA INSTITUTE OF TECHNOLOGY Annual Report 1996-97 43 of long-lived assets are reported as temporarily restricted revenue. The temporarily restricted net assets resulting from these gifts are reclassified as unrestricted when the donor-imposed restrictions are fulfilled. The preparation of financial statements in conformity with generally accepted accounting prin- ciples requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingencies as of the date of the financial statements and revenues and expenses recognized during the reporting period. Actual results could differ from those estimates. The Statement of Activities includes certain prior-year summarized comparative information that has not been detailed as to net asset category. Such information does not include sufficient detail to constitute a presentation in conformity with generally accepted accounting principles Accordingly, such information should be read in conjunction with the Institute's financial statements for the fiscal year ended September 30, 1996, from which the summarized financial information was derived. Certain reclassifications have been made to the prior year financial statement presentation for comparative purposes. INVESTMENTS - Investments are stated at fair value (Note B). The fair value of marketable securities and short-term commercial obligations is estimated based on quoted market prices for those or similar financial instruments. The fair value of real estate, mortgages, notes, and other investments is estimated by professional appraisers or Institute management. Purchases and sales of securities are recorded on trade dates, and realized gains and losses are determined on the basis of the average cost of securities sold. All investments of endowment and similar funds are carried in an investment pool unless special considerations or donor stipulations require they be held separately. Pooled endowment and similar funds are invested on a total return basis to provide both income and investment appreciation. The Institute utilizes a pooled endowment spending policy that establishes allocations for current spending, consistent with an annual budget plan approved by the Board of Trustees. The spending policy allows the expenditure of a prudent amount of the total investment return over a period of time that preserves the future purchasing power of endowment principal. CAMPUS PROPERTIES - Campus properties are recorded at cost of construction or acquisition, or at appraisal value at date of gift, less accumulated depreciation computed on a straight-line basis over the estimated useful lives (Note C). The Institute provides for the renewal and replacement of its campus properties from funds designated for this purpose. 44 SPLIT-INTEREST AGREEMENTS AND PERPETUAL TRUSTS — The Institute's split-interest agreements with donors consist primarily of irrevocable charitable remainder trusts for which the Institute serves as trustee. Assets held in these trusts are included in investments. Contribution revenues are recognized at the dates the trusts are established after recording liabilities for the present value of the estimated future payments to be made to the beneficiaries. The liabilities are adjusted during the term of the trusts for changes in the value of the assets, accretion of the discount, and other changes in the estimates of future benefits. The Institute is also the beneficiary of certain perpetual trusts held and administered by others. The present values of the estimated future cash receipts from the trusts are included in assets. Contribution revenues are recognized at the dates the trusts are established. Distributions from the trusts are recorded as investment income and the carrying value of the assets is adjusted for changes in the estimates of future receipts. JET PROPULSION LABORATORY - The Institute manages and operates the Jet Propulsion Laboratory (JPL) under a cost-reimbursable contract, which includes a management allowance with the National Aeronautics and Space Administration (NASA). JPL land, buildings, and equipment are owned by the United States government and excluded from the Institute's financial statements. However, receivables and liabilities arising from JPL operating activities are those of the Institute and are reflected in its financial statements. The direct costs of organized research and the related reimbursement of these costs arising from JPL activities are segregated in the Statement of Activities. STUDENT TUITION AND FEES - The Institute maintains a policy of offering qualified applicants admission without regard to financial circumstances, as well as a policy of meeting in full the demonstrated financial need of those admitted. Student need in all programs throughout the Institute is generally fulfilled through a combination of scholarships and fellowships, loans, and employment during the academic year. In accordance with preferred industry practice, student tuition and fees have been reduced by scholarship allowances in the amounts of $14.8 million and $15.6 million for the fiscal years ended September 30, 1997 and 1996, respectively. Scholarship allowances are defined as the differences between the stated charges for goods and services provided by the Institute and the amounts that are billed to the students and/or third parties making payments on behalf of the students. CALIFORNIA INSTITUTE OF TECHNOLOGY Annual Report 1996-97 45 NOTE B: Investments Institute investments consisted of the following as of September 30, 1997 (in thousands): Marketable securities Debt securities $ 220,385 Equity securities 851,388 Total marketable securities $1,071,773 Short-term commercial obligations 31,694 Real estate, mortgages, notes, and other 71,700 Total investments $1,175,167 At September 30, 1997, Institute assets include endowments as follows (in thousands): Consolidated endowment pool Separately invested endowments Total $ 950,514 89,155 $1,039,669 NOTE C: Ca Campus properties consist of the following (in thousands): September 30, 1997 1996 Land and land improvements Buildings, including construction in progress Equipment Campus Properties - cost Less accumulated depreciation Campus Properties - net $ 22,476 339,327 437,561 $ 799,364 (273,604) $ 525,760 $ 21,804 419,930 419,617 $ 861,351 (293,926) $ 567,425 Depreciation has been calculated, using the straight-line method, with life years of 20, 40, and a range of 3 to 50 for land improvements, buildings, and equipment, respectively. 46 NOTE D: Pledges Receivable Pledges receivable consist of unconditional promises to contribute to the Institute in the future and are recorded after discounting the present value of the future cash flows. At September 30, 1997, pledges receivable are expected to be realized in the following periods (in thousands): Within one year $ 15,526 Between one year and five years 26,175 More than five years 275 Subtotal $ 41,976 Less allowance for uncollectible pledges (1,180) Less discount (2,636) Total $ 38,160 NOTE E: Re ayable On May 29, 1991, the Institute issued $50 million in California Educational Facilities Authority Revenue Bonds for the purpose of financing and refinancing the acquisition, construction, and completion of certain educational facilities, and to defease the outstanding principal amount of the Institute's Series 1985 bonds. The Series 1991 bonds are repayable with interest from the general revenues of the Institute over a 30-year period. Interest rates are fixed and range from 4.8% to 6.4% per annum. Required principal and interest payments are approximately $4 million per year for the fiscal years 1992 through 2005, approximately $3 million per year for fiscal years 2006 through 2016, and approximately $2 million per year thereafter until 2021, when the bonds will be fully redeemed. On October 27, 1994, the Institute issued $30 million in California Educational Facilities Authority Revenue Bonds for the purpose of financing and refinancing the acquisition, construction, and completion of additional educational facilities. The Series 1994 bonds are variable rate bonds maturing on January 1, 2024, repayable with interest from the general revenues of the Institute. Principal of and premium, if any, on the bonds is payable upon presentation. The applicable interest rate on these bonds is adjusted weekly by the trustee, and as of September 30, 1997, was 3.80%. The rates are determined by the Remarketing Agent. NOTE F: Revolving Line of Credit The Institute has a revolving bank credit facility, which provides maximum borrowing of up to $15 million, and which expires in July 1998. The unsecured borrowings under this facility bears interest at LIBOR plus 0.2% per annum. At September 30, 1997, there were no borrowings outstanding under this facility. CALIFORNIA INSTITUTE OF TECHNOLOGY Annual Report 1996-97 47 NOTE G: Campus Operating Expenses Campus operating expenses for the fiscal years ended September 30, 1997 and 1996 consisted of the following (in thousands): Instruction and Departmental Research Organized Research Other Student Aid Institutional and Student Support Salaries $ 56,037 $ 44,175 $ 22,423 Staff Benefits 17,504 14,362 7,379 Materials and Supplies 24,082 49,305 23,916 Travel 2,827 2,740 769 Other Student Aid $ 284 Utilities Depreciation Construction Costs of Government Assets 9,162 28,636 608 and Other 75,108 Total $ 109,612 $ 214,326 $ 284 $ 55,095 NOTE H: Components of Net Assets The following presents the net asset categories by purpose as of September 30, 1997 and 1996 (in thousands): Operating Funds Pledges Receivable Student Loan Funds Invested in Plant Life Income and Annuity Funds Endowment and Other Funds Functioning as Endowment Total Unrestricted $ 42,162 437,064 773,323 $1,252,549 Temporarily Restricted $30,596 4,359 25,891 23,202 $ 84,048 48 1997 1997 Permanently Restricted $ 7,564 10,004 33,949 243,023 $ 294,540 Plant Operation, Maintenance, and Utilities Auxiliary Enterprises $ 7,403 2,456 2,766 26 8,708 577 $ 3,376 1,080 8,232 39 365 Total $ 133,414 42,781 108,301 6,401 284 8,708 39,348 $ 21,936 $13,092 75.108 $ 414,345 1996 Total $ 42,162 38,160 10,004 441,423 59,840 1,039,548 $1,631,137 Total $ 29,293 41,145 9,514 492,944 44,879 841,122 $1,458,897 CALIFORNIA INSTITUTE OF TECHNOLOGY Annual Report 1996-97 1996 Total $ 125,645 307 34,530 (10,402) $ 274,188 49 NOTE 1: Re Institute retirement plans, covering substantially all of its employees, are funded by periodic transfers to the respective insurance companies. Academic and senior administrative staff are covered by a defined contribution pension plan. Non-academic staff were covered by a defined benefit pension plan that was terminated effective December 31, 1993. The Institute provided two plans effective January 1, 1994, for employees who were participants in the terminated defined benefit pension plan: (1) a successor defined benefit pension plan which could be elected by participants who attained age 55 and had 10 or more years of service and (2) the defined contribution plan for all other employees. Substantially all of the participants in the terminated defined benefit pension plan irrevocably elected to participate in the defined contribution pension plan. Retirement benefits under the terminated defined benefit pension plan and the successor defined benefit plan are based on years of service and career average compensation, and accrued partially on a fixed dollar basis and partially on a variable dollar basis. The Institute's defined benefit plan funding policy is to contribute amounts sufficient to maintain retirement plan assets at levels adequate to cover all accrued benefit liabilities. The net pension cost for the successor defined benefit plan for the fiscal year ended September 30, 1997, was $172,000. The funded status and projected benefit obligation of the plan at September 30, 1997, were approximately $37.5 million and $39.6 million, respectively. Pension costs for the defined contribution plan for the fiscal year ended September 30, 1997, were $9.5 million ($9.0 million in fiscal 1996) for the Campus and $32.0 million ($31.0 million in fiscal 1996) for JPL. NOTE L Pastri stemployment Benefits Other than Pensions The Institute provides certain postretirement health and life insurance benefits. The Institute's policy is to immediately recognize any gains and losses resulting from changes in the accumulated postretire-ment benefit obligation. Amounts included in the Statement of Activities are summarized as follows (in thousands): Campus TPL Service cost-benefits attributed to service during the year 502 $ 1,735 Interest cost on accumulated benefit obligation 1,556 6,278 (Gain) loss due to assumption changes (542) 10,664 Net $ 1,516 $ 18,677 The accumulated postretirement benefit obligation as of September 30, 1997, was as follows (in thousands): Campus TPL Retirees $ 12,117 $ 51,058 Fully eligible employees 4,922 18,455 Other active employees 5,804 22,789 Total $ 22,843 $ 92,302 50 The Institute expects to recover approximately one-half for the Campus and all for JPL of this postre-tirement obligation through future charges to United States government grants and contracts. The unfunded JPL amount of $92.3 million is included in the Statement of Financial Position as part of accounts payable and accrued expenses. A deferred United States government billing of the same amount has been recorded because certain provisions set forth in the Institute's contract with NASA provide for reimbursement of such costs if the contract should ever be terminated. The Institute also has recorded a deferred United States government billing of approximately $31.7 million relating to accrued vacation benefits that are covered by similar contract provisions. Although these deferred billing amounts may not be currently funded, and therefore may need to be funded as part of future NASA budgets, the Institute believes it has the contractual right to insist that such funding be made available. An annual discount rate of 7.25% (7.75% in 1996) and a 6.50% (8% in 1996) annual rate of increase in the per capita cost of covered health care benefits for retirees were assumed for 1997. This cost trend rate is assumed to decrease at a rate of 1% per year, leveling off at a rate of 4.50% in 1999 and thereafter. The health care cost trend rate has a significant effect on the amounts reported As of September 30, 1997, a 1% increase in the assumed cost trend rates in each year would increase the accumulated post retirement benefit obligation by $3.2 million and $13.3 million, and the net periodic postretirement benefit cost for the year by $0.3 million and $1.3 million for the Campus and JPL, respectively. NOTE K: Disclosures Ahout Fair Value of Financial Instruments For those financial instruments for which it is practical, the following methods and assumptions were used to estimate fair value: CASH AND ACCOUNTS RECEIVABLE-The carrying value approximates fair value. STUDENT AND EMPLOYEE ACCOUNTS-Due to the nature and terms of these financial instru-ments, which can be subject to significant restrictions, it is not practical to estimate their fair value. INVESTMENTS— As described in Note A, the Institute accounts for its investments on a market value basis and, accordingly, the carrying value approximates fair value. REVENUE BONDS PAYABLE- The fair value of revenue bonds payable is estimated based on the quoted market prices for the bonds or similar financial instruments and approximates the carrying value. CALIFORNIA INSTITUTE OF TECHNOLOGY Annual Report 1996-97 51 NOTE L: Contingencies The Institute receives funding or reimbursement from governmental agencies for various activities, which are subject to audit. The Institute is a defendant in various legal actions incident to the conduct of its operations. Except as specifically discussed below, officials of the Institute do not expect that liabilities, if any, for these legal actions will have a significant impact on the Institute's financial position or operating results. In February 1997, the Office of Inspector General of NASA issued a subpoena for a large number of financial records relating to the operation of the Jet Propulsion Laboratory. The Institute is in the process of providing the requested financial records, and Institute representatives have had ongoing discussions with appropriate government officials. Government officials have made no claims against the Institute, but their investigation of the financial records is continuing. The Institute is unable to predict whether any claims may be made, or if made, the ultimate resolution thereof. The Institute is also a defendant in a civil lawsuit seeking to recover damages arising out of the alleged discharge of toxic materials at or near the Jet Propulsion Laboratory. The Institute has denied all of the plaintiff's material allegations, has asserted various affirmative defenses, and has asserted claims against the United States for indemnification. The Institute intends vigorously to defend this case and to press its indemnification claims. The Institute has been named as a potentially responsible party (PRP) by NASA under the Comprehensive Environment Response, Compensation and Liability Act, as amended. As a PRP, the Institute may be jointly liable for contribution towards clean-up costs, estimated to be in excess of $100 million, of the NASA/JPL Superfund site. The Institute believes that it will have recourse to the government for any liabilities it may incur in connection with being named a PRP for that site. Officials of the Institute presently are not able to predict the impact, if any, that final resolution of the matters discussed in the preceding three paragraphs will have on the Institute's financial position or operating results. 52 Report of Independent Accountants Price Waterhouse LLP To the Board of Trustees of the California Institute of Technology In our opinion, the accompanying statement of financial position and the related statements of activities and of cash flows present fairly, in all material respects, the financial position of the California Institute of Technology (the "Institute") at September 30, 1997, and the changes in its net assets and its cash flows for the year then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Institute's management; our responsibility is to express an opinion on these statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. Price Waterhoe UP Los Angeles, California February 10, 1998 CALIFORNIA INSTITUTE OF TECHNOLOGY Annual Report 1996-97 53 Board of Trustees (as of March 11, 1998) Gordon E. Moore, Chair David Baltimore, President Benjamin M. Rosen, Vice Chair Walter L. Weisman, Vice Chair TRUSTEES George L. Argyros Chairman and Chief Executive Officer Arnel and Affiliates David Baltimore* President California Institute of Technology Donald R. Beall Chairman of the Executive Committee Rockwell International Corporation Gordon M. Binder Chairman and Chief Executive Officer Amgen Mike R. Bowlin Chairman and Chief Executive Officer ARCO Donald L. Bren Chairman of the Board The Irvine Company Eli Broad* Chairman and Chief Executive Officer SunAmerica Inc. Harold Brown President Emeritus Counselor Center for Strategic and International Studies (CSIS) Harry M. Conger Chairman of the Board Homestake Mining Company William H. Davidow General Partner Mohr Davidow Ventures Mildred S. Dresselhaus Institute Professor of Electrical Engineering and Physics Massachusetts Institute of Technology Richard M. Ferry Chairman Korn/Ferry International Arthur L. Goldstein Chairman and Chief Executive Officer Ionics, Incorporated William T. Gross Chairman and Founder idealab! David D. Ho Director The Aaron Diamond AIDS Research Center Bobby R. Inman Private Investor 54 Louise Kirkbride President Acme Software, Inc. Kent Kresa Chairman, President and Chief Executive Officer Northrop Grumman Corporation Edward M. Lambert Managing Director Meridian Ventures, Inc. York Liao Executive Director Varitronix Limited Ronald K. Linde* Independent Investor and Chairman of the Board The Ronald and Maxine Linde Foundation Gordon E. Moore* Chairman Emeritus Intel Corporation Peter W. Mullin Chairman and Chief Executive Officer Mullin Consulting, Inc. Philip M. Neches Consultant and Entrepreneur Ronald L. Olson Senior Partner Munger, Tolles e Olson Stephen R. Onderdonk* President and Chief Executive Officer (Retired) Econolite Control Products, Inc. Pamela B. Pesenti Nonprofit Consultant Sidney R. Petersen* Chairman and Chief Executive Officer (Retired) Getty Oil Company Stanley R. Rawn, Jr. Private Investor Arthur Rock Principal Arthur Rock and Company Compaq Computer Corporation Richard M. Rosenberg Chairman and Chief Executive Officer BankAmerica Corporation Stephen A. Ross Co-Chairman Roll and Ross Asset Management Corporation Sterling Professor of Economics and Finance Yale University Robert J. Schultz Vice Chairman (Retired) General Motors Corporation Dennis Stanfill* Private Investor Walter L. Weisman Former Chairman and Chief Executive Officer American Medical International, Inc. Virginia V. Weldon Senior Vice President for Public Policy (Retired) Monsanto Company Albert D. Wheelon* Chairman and Chief Executive Officer (Retired) Hughes Aircraft Company Gayle E. Wilson Nonprofit Consultant SENIOR TRUSTEES Robert Anderson Chairman Emeritus Rockwell International Corporation Victor K. Atkins President Atkins Company Walter Burke Treasurer Sherman Fairchild Foundation, Inc. Jewel Plummer Cobb* President Emerita, California State University, Fullerton Trustee Professor, California State University, Los Angeles Richard P. Cooley Retired Chairman Seafirst Bank Camilla C. Frost Trustee of the Chandler Trust and a Director and Secretary-Treasurer Chandis Securities Company Southern California Edison Company Shirley M. Hufstedler President and Chief Executive Officer Atlantic Richfield Company Listowel Incorporated Harry Wetzel Chairman and Chief Executive Officer The Garrett Corporation LIFE TRUSTEES Robert O. Anderson Chairman and Chief Executive Officer (Retired) Atlantic Richfield Company Stephen D. Bechtel, Jr. Chairman Emeritus and Director Bechtel Group, Inc. Arnold O. Beckman Chairman Emeritus Founder Chairman Beckman Instruments, Inc. Benjamin F. Biaggini Chairman (Retired) Southern Pacific Company Charles C. Gates Chairman of the Board Cody Company Philip M. Hawley Chairman P. M. Hawley, Inc. William A. Hewitt Former Chairman, Deere @ Company Former Ambassador to Jamaica Earle M. Jorgensen Chairman Emeritus Earle M. Jorgensen Company Robert S. McNamara President (Retired) The World Bank Ruben F. Mettler Chairman Emeritus Retired Chairman and Chief Executive Officer TRW Inc Rudolph A. Peterson President and Chief Executive Officer (Retired) BankAmerica Corporation Simon Ramo Co-Founder and Director Emeritus TRW Inc. Mary L. Scranton Nonprofit Consultant Charles H. Townes Nobel Laureate and Professor in the Graduate School University of California, Berkeley Lew R. Wasserman Chairman Emeritus Universal Studios Inc. William E. Zisch Vice Chairman (Retired) Emeritus Director Science Applications International Corporation * Members of the Board of Trustees Audit Committee. Sidney R. Petersen is chair, Dennis Stanfill is vice chair, and John R. Curry, Peter Hughes, Steven E. Koonin, and Harry M. Yohalem are advisory members. CALIFORNIA INSTITUTE OF TECHNOLOGY Annual Report 1996-97 55 Institute Administrative Council (as of March 11, 1998) David Baltimore President Steven E. Koonin Vice President and Provost Christopher E. Brennen Vice President for Student Affairs John R. Curry Vice President for Business and Finance Peter B. Dervan Chair Division of Chemistry and Chemical Engineering David L. Goodstein Vice Provost John O. Ledyard Chair Division of the Humanities and Social Sciences J. Ernest Nunnally Vice President for Institute Relations Robert L. O'Rourke Associate Vice President for Institute Relations Charles W. Peck Chair Division of Physics, Mathematics and Astronomy Thomas W. Schmitt Assistant Vice President for Human Resources John H. Seinfeld Chair Division of Engineering and Applied Science Melvin I. Simon Chair Division of Biology David J. Stevenson Chair of the Faculty Edward M. Stolper Chair Division of Geological and Planetary Sciences Edward C. Stone Vice President and Director Jet Propulsion Laboratory Mary L. Webster Executive Assistant to the President and Secretary, Board of Trustees Harry M. Yohalem General Counsel 56 1996-97 Annual Report © 1998 California Institute of Technology Produced by the Office of Public Relations Editor/Writer: Barbara DiPalma Contributors: Michael Farquhar, Julie Hakewill Design: Denton Design Associates Photography and image credits: Page 2: Robert Paz. Plates 1A&B: Steven Clark. Plate 2: Guohua Chen. Plate 3: Robert Paz. Plates 4A, B, C, D: Wayne Waller, Caltech Digital Media Center. Plate 5: map reprinted by permission of Archives départementales du Calvados (France). Plate 6: the Imager for Mars Pathfinder, developed by the University of Arizona's Lunar and Planetary Laboratory under contract to the Jet Propulsion Laboratory; Peter Smith, Principal Investigator. Plate 7: Djorgovski et al., Palomar Observatory. California Institute of Technology Pasadena, California 91125