T h e P r e s i d e n T ’ s r e P o r T o n P h i l a n T h r o P y 2 0 0 6 – 2 0 0 7

On the cOver: The new Business Building (front cover) and School of Forest Resources Building (back cover) were made possible in large part by private funds, and symbolize how philanthropy can transform the learning environment. Securing additional private support for students across the University is the highest priority for Penn State’s new capital campaign, now in its leadership gifts phase.

”Undergraduate scholarship support is the number one priority of our new capital campaign.”

—Graham B. Spanier, President, The Pennsylvania state University

President’srePortonPhilanthroPy 1

Thank you for helping to make the twelve months ending June 30, 2007, a landmark year in philanthropy at Penn state. The University received a record $190.3 million in gifts from more than 143,000 alumni and friends, both all-time highs. i extend to you, on behalf of the faculty, students, and staff, my deepest appreciation for your extraor-dinary generosity.

This historic level of philanthropy is a strong vote of confidence in Penn state’s ability to carry out its mission of teaching, research, and outreach. it also reflects the success-ful leadership of art nagle, who headed our volunteer fundraising efforts over the past four years. art deserves a standing ovation from the Penn state family.

on January 1, 2007, Penn state began the leadership gifts phase of a new capital campaign that will help it realize its full potential as the nation’s most comprehensive student-centered research university. Peter G. Tombros, a veteran business executive and longtime Penn state volunteer, chairs the campaign. see his message in this re-port for more information about this exciting initiative.

This report highlights five leadership gifts received this past fiscal year—gifts that exemplify the diverse ways private support is changing our academic landscape:

—William and Joan Schreyer continued their support of the Schreyer Honors College with a new gift of $25 million for endowment.

—Lewis Katz pledged $15 million to the Penn State Dickinson School of Law for facilities at the Carlisle and University Park campuses.

—Highmark Inc. committed $25 million for medical research and facilities at Penn State Milton S. Hershey Medical Center.

—J. Lloyd and Dorothy Huck directed $20 million to support teaching, research, and other academic activities for the Huck Institutes of the Life Sciences.

—Charles H. “Skip” Smith gave $10 million to begin construction of The Arbore-tum at Penn State.

The report also highlights Trustee scholarships, which include matching annual funds from the University and target students who have financial need. i am committed to making sure that qualified students are able to attend Penn state regardless of their financial circumstances. Undergraduate scholarship support is the number one priority of our new campaign.

every gift at every level is important. Collectively, gifts have the power to create new learning opportunities for faculty and students, increase the University’s worth to the Commonwealth and the nation, and enhance the value of a Penn state degree.

Thank you for all you do for Penn state. i look forward to your continuing support.

Graham B. Spanier, President The Pennsylvania state University

A Message from President Spanier

let me add my thanks to President spanier’s for your exceptional support of Penn state in 2006–07. as chair of the University’s capital campaign, i couldn’t ask for a more inspirational beginning to this fundraising effort. i’m especially pleased to report that Penn state received gifts totaling about $58 million from more than 75,000 alumni—the highest dollar amount and the second highest number of alumni donors ever.

art nagle’s hard work as Penn state’s chief volunteer fundraising leader for nearly four years has set the bar high.

Keeping a Penn state education affordable by increasing scholarship support is the campaign’s top priority. as state appropriations cover less and less of the University’s operating budget, Penn state has had to turn to tuition to fund an increasing portion of educational costs. however, the Board of Trustees and President spanier were determined that neither the institution nor its students should limit their ambitions. With support from alumni and friends, Penn state can remain broadly accessible.

scholarship support is therefore the first among six initiatives guiding the University and its volunteers as they seek to secure campaign commitments:

1. Ensuring Student Opportunity—students with the ability and ambition to attend the University will have this opportunity through scholarship support.

2. Enhancing Honors Education—students of exceptional ability will experience the best honors education in the nation.

3. Enriching the Student Experience—students will thrive in a stimulating atmosphere that fosters global involvement, community service, creative expression, and personal growth.

4. Building Faculty Strength and Capacity—students will study with the finest teachers and researchers.

5. Fostering Discovery and Creativity—students and faculty members will come together within and across disciplines to pioneer new frontiers of knowledge.

6. Sustaining a Tradition of Quality—students will continue to work and study with faculty whose scholarship is enhanced by continuing philanthropic support.

These initiatives describe a campaign that, at its heart, is for Penn state students—to enable our graduates to realize their full potential as individuals to sustain their families, advance their professions, and contribute to our nation’s strength. it is also a campaign to enable Penn state to realize its potential to create prosperity, keep our nation competitive, and enhance quality of life.

you’ll learn more about these six areas as the campaign gathers momentum. a dol-lar goal and public kickoff date will also be announced at a later date. Please join us in participating in the campaign and ensuring that Penn state continues to offer an unsurpassed educational experience.

Peter G. tombros, Campaign Chair

A Message from the campaign chair

In January 2007, ground was broken for a signature build-

ing (at right) for the Penn State Dickinson School of Law

on the University Park campus. New Jersey business leader,

philanthropist, and Dickinson alumnus Lewis Katz gave $15

million to support construction—the largest gift in the law

school’s 173-year history. In recognition of Katz’s generosity

and leadership in creating a unique two-campus law school,

the University Park facility will be named the Lewis Katz

Building. Meanwhile, the forthcoming addition to the law

school’s facility at its traditional home in Carlisle will bear the

name Lewis Katz Hall. Recent years have seen “dramatic

improvements in faculty stature, student and faculty diver-

sity, and career opportunities for Dickinson School of Law

graduates,” Katz observed. “It’s my privilege and pleasure

to help my alma mater.”

4President’srePortonPhilanthroPy

As chairman emeritus of Merrill Lynch & Co., William

Schreyer ’48 knows all about good investments. In 1997, he

and his wife, Joan, an Honorary Alumna of Penn State, en-

dowed the honors college that bears their name with a $30

million gift. “It was the best investment we ever made,” he

remarked last fall, as he and Joan disclosed their commit-

ment of an additional $25 million to the Schreyer Honors

College for scholarships and programs that emphasize

ethics, integrity, and civic engagement. “The college has

given many students the opportunity to see and serve the

world. We’re thrilled with the character and creativity of

these future leaders of society. They make us Penn State

proud every day.”

6President’srePortonPhilanthroPy

After H. O. Smith graduated as a member of Penn State’s

Class of 1921, he started his own company in State College,

designing and building commercial, residential, and cam-

pus structures that literally changed the community land-

scape. Desiring to honor his father’s memory, in May 2007

Charles H. “Skip” Smith ’48 made a lead gift of $10 million

to launch construction of The Arboretum at Penn State.

The gift was all the more fitting because, as a student,

H. O. Smith kept a series of diaries (now in the University

Archives) that described his numerous extended hikes in the

area and details about local flora and fauna. The Arboretum

at Penn State, featuring the H. O. Smith Botanic Gardens,

will be a unique teaching and research resource for academ-

ic disciplines across the University and is expected to draw

thousands of visitors annually. Completion of the 400-acre

Arboretum is scheduled in phases and depends almost en-

tirely on private donations.

8President’srePortonPhilanthroPy

Penn State’s Huck Institutes for the Life Sciences, a

consortium of 500 faculty from eight of the University’s col-

leges, encourages interdisciplinary learning in fields ranging

from immunology and genomics to toxicology and neuro-

sciences. The institutes’ namesakes, Lloyd and Dorothy

Huck, both members of Penn State’s Class of 1943, commit-

ted $20 million this year to support teaching, research, and

other academic activities in the life sciences. “The work being

done at the institutes holds tremendous promise for under-

standing and solving some of life’s most perplexing chal-

lenges,” said Lloyd Huck, retired chairman of Merck & Co.,

when their commitment was announced. Added Dottie:

“We’re very impressed with the students and faculty we

meet. We hope this gift, in an area of study important to us,

will long serve and support the generations who follow us.”

The Hucks, longtime Penn State volunteers and philanthro-

pists, have supported the University’s life sciences programs

for more than two decades.

10President’srePortonPhilanthroPy

In March 2007, Highmark Inc. and Penn State announced a

ten-year partnership aimed at increasing the quality and ac-

cessibility of health care. Through the partnership, Pitts-

burgh-based Highmark, one of the Commonwealth’s lead-

ing health insurers and a Blue Cross and Blue Shield

Association licensee, will commit $20 million to support

construction of the Penn State Children’s Hospital and $5

million for clinical research in cancer and other diseases at

Penn State Milton S. Hershey Medical Center (at right)

and elsewhere. Highmark will become the exclusive admin-

istrator of all health plans offered to University employees and

their dependents, and the partners will collaborate to de-

velop community health and wellness initiatives to benefit

those they serve. “The challenges in health are tremendous,

and the key players need to find ways to work together,”

explained Kenneth Melani, Highmark president and CEO.

“The idea of Penn State and Highmark working together is

very exciting.”

12President’srePortonPhilanthroPy

For many Penn state students, receiving scholarship support

can make the difference between affording an education

and giving up on their dreams. That’s why the University’s

Board of Trustees created the Trustee Matching Scholar-

ship Program. The program is unique in that the University

matches 5 percent of the principal of each gift annually,

combining the matching funds with income from the en-

dowment to effectively double the scholarship’s financial

impact. The matching funds become available as soon as

scholarship guidelines are signed, allowing donors to see

immediate results from their philanthropy. The program has

received more than $42 million in gifts since its creation

in 2002. in 2006–07, 4,390 Penn State students received

Trustee scholarships. More than half are the first generation

in their family to attend college. They are also among the

University’s hardest-working students, with a median grade-

point average of 3.31 last year.

14President’srePortonPhilanthroPy

SOUrCES AMOUnTS nUMBEr OF DOnOrS

Individuals $87,061,981 134,761

Alumni 58,014,147 75,123

Friends 29,047,834 59,638

Corporations 59,930,736 5,579

Foundations 22,279,913 445

Organizations 21,050,853 2,732

TOTal $190,323,483 143,517

P U r P O S E A M O U n T S

Property, Buildings, $55,116,758 Equipment

Student aid 38,146,719

Other Purposes 38,435,396

Research 32,452,551

Faculty Resources 12,909,384

academic Divisions 6,706,164

Public Service and Extension 4,297,965

library Resources 839,574

Unrestricted (University-wide) 1,418,972

TOTal $190,323,483

sourcesofGiftsreceived2006–07

designatedPurposesofGiftsreceived2006–07

29%

20%

20%

17%

7%

2%

1%1%

4%

WHeRe THe $190.3 MILLION CAMe fROM

WHeRe THe $190.3 MILLION WeNT

46%

31%

12%

11%

16President’srePortonPhilanthroPy

College of agricultural Sciences $9,218,024

College of arts and architecture/University arts Services 2,292,858

Smeal College of Business 7,072,993

College of Communications 2,496,316

The Dickinson School of law 1,427,378

College of Earth and Mineral Sciences 6,539,798

College of Education 2,448,741

College of Engineering 12,995,636

College of Health and Human Development 7,521,927

College of Information Sciences and Technology 1,301,922

Intercollegiate athletics 26,359,570

College of the liberal arts 4,203,680

College of Medicine/Medical Center 55,690,856

Outreach and Cooperative Extension 5,633,067

Penn State abington 2,309,191

Penn State altoona 807,225

Penn State Beaver 191,416

Penn State Berks 1,025,595

Penn State Delaware County 284,931

Penn State DuBois 306,894

Penn State Erie, The Behrend College 2,685,605

Penn State Fayette, The Eberly Campus 585,718

Penn State Great Valley 287,054

Penn State Greater allegheny 346,664

Penn State Harrisburg 786,336

Penn State Hazleton 329,210

Penn State lehigh Valley 101,051

Penn State Mont alto 660,007

Penn State New Kensington 99,141

Penn State Schuylkill 339,682

Penn State Shenango 310,887

Penn State Wilkes-Barre 698,920

Penn State Worthington Scranton 370,816

Penn State York 1,012,638

Research and Graduate Studies 4,144,846

Schreyer Honors College 4,687,697

Eberly College of Science 9,260,472

University libraries 2,255,390

Other* 11,232,331

GiftsdesignatedtospecificUnits2006–07

MILLIONS Of DOLLARS

* Includes University-wide scholarships, graduate fellowships, and student loan funds; International Programs; Office of Student Affairs.

President’srePortonPhilanthroPy 17

GrowthinPrivatesupportanddonorBase

GIfTS ReCeIveD (MILLIONS Of DOLLARS)

1998 > 123.4

1999 > 151.1

2000 > 170.8

2001 > 176.9

2002 > 180.7

2003 > 181.3

2004 > 151.3

2005 > 130.9

2006 > 165.2

2007 > 190.3

NUMbeRS Of DONORS

1998 > 114,764

1999 > 118,089

2000 > 116,053

2001 > 116,971

2002 > 124,519

2003 > 122,539

2004 > 120,680

2005 > 132,931

2006 > 132,791

2007 > 143,517

NeW COMMITMeNTS: GIfTS AND PLeDGeS (MILLIONS Of DOLLARS)

1998 > 251.4

1999 > 213.3

2000 > 198.8

2001 > 197.9

2002 > 196.4

2003 > 170.3

2004 > 200.9

2005 > 163.4

2006 > 173.0

2007 > 284.7

18President’srePortonPhilanthroPy

deferred gifts accounted for about 13 percent of all giving to Penn state in 2006–07. a deferred gift is simply a commitment made today that will provide future benefits to the University. Penn state benefited from more than $14 million in estate distributions in 2005–06; $11.1 million in life income gifts such as gift annuities and charitable remainder trusts were created. such gifts carry substantial income, estate, and gift tax advantages. in addition, they are often designated to es-tablish endowments, which offer perpetual support for programs designated by donors. endow-ment funds are usually named for donors or other individuals specified by donors.

For further information about making a planned gift, consult: Mike degenhart, director of Gift Planning and endowments, The Pennsylvania state University, 102 old Main, University Park, Pa 16802-1502; 1-888-800-9170; e-mail: plannedgiving@psu.edu.

deferredGivingin2006–07

Realized Bequests > $14,061,527

Gift annuities > $1,046,812

Charitable Remainder Trusts > $9,991,623

Charitable lead Trusts > $139,773

deferredGifts

1997 > $17.4

1998 > 22.4

1999 > 27.6

2000 > 18.2

2001 > 26.6

2002 > 24.3

2003 > 48.1

2004 > 30.0

2005 > 14.4

2006 > 21.1

2007 > 25.2

deferredGiving1997–2007(yearendingJune30)

MILLIONS Of DOLLARS

20President’srePortonPhilanthroPy

totalUniversityoperatingBudget2006–07

EXPEnDITUrES MILLIOnS OF DOLLArS

Instruction and academic Support $868.2

Medical Center/Clinic 808.9

Research 508.6

auxiliary Enterprises 280.2

Institutional Support 237.2

Physical Plant 165.7

Public Service 134.5

Student aid 36.1

Pa College of Technology (General Funds) 91.6

Student Services 78.1

TOTal $3,209.2

27.1%

25.2%

15.8%

8.7%

5.2%4.2%

1.1%2.9%

2.4%

7.4%

InCOME MILLIOnS OF DOLLArS

Tuition and Fees $1,061.6

Medical Center/Clinic 808.9

Restricted Funds* 558.9

State appropriation 327.7

auxiliary Enterprises 280.2

Philanthropy and other 153.5

agriculture (federal) 18.4

TOTal $3,209.2

33.1%

25.2%

17.4%

10.2%

8.7%

4.8%

0.6%

*primarily sponsored contracts and research grants

22President’srePortonPhilanthroPy

thestate’sshareofPennstate’sBudget

YEAr TOTAL BUDGET STATE PErCEnT APPrOPrIATIOnS OF TOTAL

2007–08 $3,411,528,000 $334,230,000* 9.8%

2006–07 $3,209,165,000 $327,715,000* 10.2%

2005–06 3,044,868,000 312,026,000* 10.2%

2004–05 2,786,403,000 317,179,000 11.4%

2003–04 2,560,309,000 307,844,000 12.0%

2002–03 2,402,717,000 322,592,000 13.4%

2001–02 2,294,015,000 334,813,000 14.6%

2000–01 2,150,394,000 331,949,000 15.4%

1999–00 2,011,084,000 314,134,000 15.6%

1998–99 1,932,520,000 299,144,000 15.5%

* Excludes state and federal medical assistance funding provided to Penn State Milton S. Hershey Medical Center through the Pennsylvania Department of Public Welfare.

President’srePortonPhilanthroPy 23

1998 > 40.6

1999 > 64.9

2000 > 61.7

2001 > 58.5

2002 > 69.1

2003 > 72.8

2004 > 56.5

2005 > 42.4

2006 > 51.4

2007 > 55.2

Giftstoendowment(yearendingJune30)

MILLIONS Of DOLLARS

endowments

endowed gifts are held by Penn state in perpetuity. The initial gift is invested, and a portion of the average annual investment return is spent for the purpose designated by the donor. The remaining income is added to the principal as protection against inflation. Thus an endowed gift today will have relatively the same value for future generations.

The long-Term investment Pool is Penn state’s endowment portfolio into which endowed funds es-tablished at the University are invested. This commingled pool operates much like a mutual fund. each endowment owns a number of units in the pool, just as an individual would purchase shares in a mutual fund. and as with a mutual fund, the value of each unit at the time funds are invested in the pool deter-mines how many units an individual fund acquires.

Penn state strives to be a good steward of its endowed gifts and follows a prudent management phi-losophy in investing these gifts so that they maintain their value in real terms over time. The University’s Board of Trustees has established four basic endowment management principles to guide the Universi-ty’s investment Council:

1. Provide sufficient current and future income to meet the University’s spending objectives and enhance its mission.

2. Focus on long-term performance.

3. accept a reasonable and prudent level of risk while maximizing “total” return.

4. diversify investments to reduce risk.

These four principles ensure that the spending power of each endowment gift will be maintained in the face of economic fluctuations.

24President’srePortonPhilanthroPy

investmentManagementUpdate

as of the end of fiscal 2007, endowment and similar funds were valued at $1.67 billion, of which $1.54 billion was invested in the long-Term investment Pool (lTiP). similar funds, which include charitable remainder trusts, charitable gift annuities, and other life income funds in addition to some donor-restricted funds, represented $132 million in assets that are not directly invested in the long-Term investment Pool. These amounts reflect the impact of investment returns and generous giving, net of consistent support for scholarships and University programs.

Penn state’s endowment investments consist of a diversified portfolio of public equities, bonds, private capital, and hedge funds in addition to real assets. in managing our investments, we adhere to a prudent, rational, long-term strategy that seeks to maintain steady growth while minimizing the effects of volatile market fluctuations.

at the end of fiscal year 2007, the endowment and similar funds were valued at nearly $1.7 billion. This represented a one-year net increase of $279 million, and a five-year net increase of $704 million. over this same period, the endowment has provided $276 million of program support, including $58 million in fiscal 2007. For the year ending June 30, 2007, the endowment returned 21.2 percent and has averaged 12.6 percent over the last five years. longer-term, Penn state’s endowment has averaged 9.9 percent per year, net of gifts and expenses, since June 30, 1987.

These results demonstrate long-term growth across various financial ups and downs, such as the bull market of the 1990s, the steep decline at the turn of the century, and the subsequent economic recovery. This, in turn, has allowed the endowment to support ever-increasing program spending, such as scholarships and faculty positions, while maintaining real, inflation-adjusted growth for future generations.

looking toward the future, the steady growth of the world economy has heightened inflation concerns, especially natural resources such as oil and gas. With approximately 15 percent of our investments regarded as inflation-sensitive, Penn state’s diversified endowment portfolio continues to be appro-priately invested for long-term growth and sustainable spending.

1998 > 580 > 47

1999 > 731 > 60

2000 > 927 > 77

2001 > 899 > 87

2002 > 842 > 101

2003 > 882 > 83

2004 > 1,007 > 100

2005 > 1,128 > 103

2006 > 1,280 > 110

2007 > 1,537 > 132

LTIP SIMILAr FUnDS

FiscalyearendingJune30,2007

LONG-TeRM INveSTMeNT POOL (LTIP) SIMILAR fUNDS

President’srePortonPhilanthroPy25

$627 million

$791 million

$1,004 million (1.0 billion)

$986 million

$943 million

$965 million

$1,107 million (1.11 billion)

$1,231 million (1.23 billion)

$1,390 million (1.39 billion)

$1,669 million (1.67 billion)

The Penn state endowment portfolio is broadly diversified, with 24 percent currently in fixed income securities, 46 percent in public equities (both U.s. and non-U.s.), and 30 percent in a variety of other (alternative) investments, including real estate, private equity, venture capital, energy, and hedge funds. The majority of the endowment’s assets are equity-type investments that, over the long term, generate returns in excess of inflation in order to preserve the endowment’s purchasing power for future generations.

in the year ending June 30, 2007, investment market returns for equities securities far exceeded returns for fixed income. Bonds, as measured by the lehman Brothers Bond index, earned a total return of 6.1 percent in fiscal 2007. large U.s. stocks, as measured by the s&P 500 index, returned 20.6 percent. non-U.s. stocks did much better, as the Morgan stanley all-Country World ex U.s. index gained 30.2 percent. Penn state’s “other” investments posted returns in line with public equities, with private equity and venture partnerships gaining 28.5 percent and 17.9 percent, respectively.

strong performance in nontraditional “other” equity investments in fiscal 2007 helped the Penn state endowment earn 21.2 percent, excluding the impact of new gifts and spending. While investment returns can vary from year to year, the endow-ment’s diversified portfolio can weather short-term fluctuations and generate positive returns over long periods of time. net of all fees and expenses, the Penn state en-dowment has averaged 9.1 percent per year over the last ten years, and 9.9 percent over the last twenty years.

endowmentassetMix

long-terminvestmentPerformanceofendowment

1-year > 21.2%

5-year > 12.6%

10-year > 9.1%

20-year > 9.9%

ALLOCATIOn

U.S. Equities

Fixed Income

Other (includes Real Estate, Private Capital, Venture Capital, Energy, Hedge Funds)

Non-U.S. Equities

32%

24%

30%

14%

WHeRe PeNN STATe INveSTeD ITS eNDOWeD fUNDS AS Of JUNe 30, 2007

AveRAGe ANNUALIzeD TOTAL ReTURNS fOR PeRIODS eNDING JUNe 30, 2007 (NeT Of feeS). TOTAL ReTURNS INCLUDe INTeReST, DIvIDeNDS, AND MARKeT APPReCIATION.

President’srePortonPhilanthroPy27

For further information, contact:

rodney P. Kirsch Senior Vice President for Development and Alumni relations The Pennsylvania State University 116 Old Main University Park Pa 16802-1501 814-863-4826 rpk6@psu.edu

Peter B. Weiler Vice President for Development The Pennsylvania State University 105 Old Main University Park Pa 16802-1501 814-865-0963 pbw3@psu.edu

David J. Lieb Associate Vice President for Development The Pennsylvania State University 119 Old Main University Park Pa 16802-1501 814-863-0664 djl120@psu.edu

”With support from alumni and friends, Penn State can remain broadly accessible.”

—Peter G. tombros, Campaign Chair

This publication is available in alternative media on request. The Pennsylvania state University is committed to the policy that all persons shall have equal access to programs, facilities, admission, and employment without regard to personal characteristics not related to ability, performance, or qualifications as determined by University policy or by state or federal authorities. it is the policy of the University to maintain an academic and work environment free of discrimination, including harassment. The Pennsylvania state University prohibits discrimination and harassment against any person because of age, ancestry, color, disability or handicap, national origin, race, religious creed, sex, sexual orientation, gender identity, or veteran status. discrimination or harassment against faculty, staff, or students will not be tolerated at The Pennsylvania state University. direct all inquiries regarding the nondiscrimination policy to the affirmative action director, The Pennsylvania state University, 328 Boucke Building, University Park, Pa 16802-5901; Tel 814-865-4700/V, 814-863-1150/TTy. Produced by the Penn state department of University Publications. U.ed. deV 08-08

This publication can also be found on the web at: president.psu.edu/philanthropy

www.giveto.psu.edu