The President’s Report on Philanthropy 2006–2007
”Undergraduate scholarship support is the number one priority of our new capital campaign.”
— Graham B. Spanier, President, The Pennsylvania State University
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.
A Message from President Spanier 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 extraordinary 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 successful 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 report 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 Arboretum 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
President’s Report on Philanthropy
1
A Message from the Campaign Chair 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 dollar 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
In January 2007, ground was broken for a signature building (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 diversity, and career opportunities for Dickinson School of Law graduates,” Katz observed. “It’s my privilege and pleasure to help my alma mater.”
4 President’s Report on Philanthropy
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, endowed 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 commitment 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.”
6 President’s Report on Philanthropy
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 campus structures that literally changed the community landscape. 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 academic 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 entirely on private donations.
8 President’s Report on Philanthropy
Penn State’s Huck Institutes for the Life Sciences, a consortium of 500 faculty from eight of the University’s colleges, encourages interdisciplinary learning in fields ranging from immunology and genomics to toxicology and neurosciences. The institutes’ namesakes, Lloyd and Dorothy Huck, both members of Penn State’s Class of 1943, committed $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 understanding and solving some of life’s most perplexing challenges,” 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 philanthropists, have supported the University’s life sciences programs for more than two decades.
10 President’s Report on Philanthropy
In March 2007, Highmark Inc. and Penn State announced a ten-year partnership aimed at increasing the quality and accessibility of health care. Through the partnership, Pittsburgh-based Highmark, one of the Commonwealth’s leading 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 administrator of all health plans offered to University employees and their dependents, and the partners will collaborate to develop 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.”
12 President’s Report on Philanthropy
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 Scholarship 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 endowment 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 gradepoint average of 3.31 last year.
14 President’s Report on Philanthropy
Sources of Gifts Received 2006–07 Where the $190.3 million came from
Sources
Amounts Number of Donors
$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
$190,323,483
143,517
Individuals
46%
31% 12% 11%
Total
Designated Purposes of Gifts Received 2006–07 Where the $190.3 million went P u r pose
Property, Buildings, Equipment 20% 29%
20% 17% 7%
4% 2% 1%
1%
$55,116,758
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 Unrestricted (University-wide) Total
16 President’s Report on Philanthropy
A mou n ts
839,574 1,418,972 $190,323,483
Gifts Designated to Specific Units 2006–07 Millions of Dollars
$9,218,024
College of Agricultural Sciences
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 * Includes University-wide scholarships, graduate fellowships, and student loan funds; International Programs; Office of Student Affairs.
President’s Report on Philanthropy
17
Growth in Private Support and Donor Base
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
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
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
18 President’s Report on Philanthropy
Deferred Gifts 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 establish endowments, which offer perpetual support for programs designated by donors. Endowment 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.
Deferred Giving in 2006–07
Realized Bequests >
$14,061,527
Gift Annuities >
$1,046,812
Charitable Remainder Trusts >
$9,991,623
Charitable Lead Trusts >
$139,773
Deferred Giving 1997–2007 (Year Ending June 30) Millions of Dollars
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
20 President’s Report on Philanthropy
Total University Operating Budget 2006–07
INCOME
MILLIONS OF DOLLARS
$1,061.6
Tuition and Fees
33.1% 25.2% 17.4% 10.2% 8.7% 4.8%
Medical Center/Clinic
808.9
Restricted Funds*
558.9
State Appropriation
327.7
Auxiliary Enterprises
280.2
Philanthropy and other
153.5 18.4
Agriculture (federal)
0.6%
$3,209.2
Total
*primarily sponsored contracts and research grants
EXPENditures
MILLIONS OF DOLLARS
Instruction and Academic Support 25.2% 15.8%
27.1% 8.7% 7.4% 5.2% 4.2% 2.4% 1.1% 2.9%
22 President’s Report on Philanthropy
$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
The State’s Share of Penn State’s Budget 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’s Report on Philanthropy
23
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 established 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 determines how many units an individual fund acquires. Penn State strives to be a good steward of its endowed gifts and follows a prudent management philosophy 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 University’s Investment Council: 1. Provide sufficient current and future income to meet the University’s spending objectives and enhance its mission.
3. Accept a reasonable and prudent level of risk while maximizing “total” return. 4. Diversify investments to reduce risk.
2. Focus on long-term performance. These four principles ensure that the spending power of each endowment gift will be maintained in the face of economic fluctuations.
Gifts to Endowment (Year Ending June 30) Millions of Dollars
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
24 President’s Report on Philanthropy
Investment Management Update 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 appropriately invested for long-term growth and sustainable spending.
Fiscal Year Ending June 30, 2007
LTIP Similar Funds
1998 >
580 >
47
1999 >
731 >
60
2000 >
927 >
77
2001 >
899 >
87
2002 >
842 > 101
2003 >
882 >
$627 million $791 million $1,004 million (1.0 billion) $986 million $943 million
83
$965 million
2004 > 1,007 > 100
$1,107 million (1.11 billion)
2005 > 1,128 > 103
$1,231 million (1.23 billion)
2006 > 1,280 > 110
$1,390 million (1.39 billion)
2007 > 1,537 > 132 $1,669 million (1.67 billion) Long-Term Investment Pool (LTIP)
Similar Funds
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.
President’s Report on Philanthropy 25
Endowment Asset Mix Where Penn State invested its endowed funds as of June 30, 2007
allocation
U.S. Equities
32%
Fixed Income
24%
Other (includes Real Estate, Private Capital, Venture Capital, Energy, Hedge Funds)
30%
Non-U.S. Equities
14%
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 AllCountry 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.
Long-Term Investment Performance of Endowment Average annualized total returns for periods ending June 30, 2007 (net of fees). Total returns include interest, dividends, and market appreciation.
1-year >
21.2%
5-year >
12.6%
10-year >
9.1%
20-year >
9.9%
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 endowment’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 endowment has averaged 9.1 percent per year over the last ten years, and 9.9 percent over the last twenty years.
President’s Report on Philanthropy 27
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 can also be found on the web at: president.psu.edu/philanthropy 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
www.giveto.psu.edu