The President’s Report on Philanthropy and Endowments

20 07–20 08 Penn State’s goal is to become the nation’s most comprehensive, student-centered research university. Your support will help to make a Penn State education possible for thousands of men and women. and men of thousands for possible education State Penn a make to help will support Your

A Message from President Spanier

The extraordinary generosity shown to I would also call your attention to the Penn State for the year ending June 30, 2008, performance of the University’s endowment will benefit students, faculty, and staff for and similar funds. The Penn State Investment many years to come. On the pages that fol- Council maintained a disciplined approach low, you will learn more about the scope and to asset allocation during a year when the impact of private giving. Let’s start with a market environment was especially volatile. few of the year’s highlights. Please see pages 21–24 for a summary of how our endowment fared. I can assure you that The University received gifts from the Investment Council will continue to act 74,166 alumni, an all-time high that reflects with prudence and care in its role as fiscal a broad base of support for the capital cam- steward of endowed gifts. Because endow- paign, For the Future: The Campaign for Penn ments are sources of funds that students and State Students. The total number of alumni faculty can count on year after year, they play donors represents a 3 percent increase from an especially critical role in Penn State’s abil- the previous year, a remarkable achievement ity to offer scholarships, graduate fellowships, at a time when the number of alumni making faculty chairs and professorships, and the like. gifts to their alma maters nationally is flat or For those of you who have cre- in decline. ated endowments at the Univer- Giving overall totaled $181.5 million, sity, a back pocket in this report second only to the previous year’s $190.3 contains more detailed informa- million as the highest philanthropic total in tion about your investment in our Penn State’s history. These numbers represent students and faculty. actual gifts received and exclude pledges. June 30, 2008, marked eighteen The number of gifts received— months since the beginning of 281,155—also set a record. Many of these the For the Future campaign. My gifts came from first-time donors, who sincerest thanks go to Peter Tom- typically go on to become long-term bene- bros, who has done an extraor- factors. This trend points to a promising dinary job as volunteer campaign chair, and future for Penn State. to the remarkable team of Penn State alumni and friends that he has recruited to provide Endowments created through the additional volunteer leadership. Please read Trustee Matching Scholarship Program, Peter’s letter on page 3 to learn more about which aims to keep a Penn State education how the philanthropic events of 2007–08 have accessible to all qualified students, regard- given the campaign powerful momentum in less of their financial means, passed the $50 its initial phase. million mark. In creating this important initiative, the Board of Trustees agreed to A Penn State education is a unique expe- match 5 percent of the principal of each gift rience that challenges the mind, invigorates annually with University funds, and the spirit, and leaves an indelible imprint on combine these matching funds with income alumni. Your support will help to make that from the endowment to effectively double experience possible for thousands of men and the financial impact of the scholarship. More women, whether directly or indirectly. Thank than 4,600 students benefited from Trustee you for your commitment to our University. Scholarships in 2007–08.

Graham B. Spanier, President The Pennsylvania State University

2 0 0 7 – 2 0 0 8 1 P r e s i d e n t ’ s R e p ort on Philanthro p y and endow m e n t s Our vision is to affirm Penn State as the most comprehensive student-centered research university in America. 3 For the Future: The Cam- The Future: the For nsuringstudent opportunity; E nrichingthestudent experience; Building faculty strength and E The enthusiasm with which Penn Staters have greeted the campaign— the greeted have Staters Penn which with enthusiasm The am deeply grateful to the many alumni and friends who invested in Penn in invested who friends and alumni many the to grateful deeply am Chair , I State students and faculty in fiscal 2007–08, and in and 2007–08, fiscal in faculty and students State experi- have we months twelve past these Over Students. State Penn for paign Penn affirm to vision: campaign’s the communicating in success great enced research student-centered comprehensive most America’s as position State’s university. s ro b om G.T er t e For the Future:The Campaign for Penn State Students P You will find these objectives further defined in this report, and brought to life by personal by life to brought and report, this in defined further objectives these find will You in gifts made alumni of number record a message, his in noted has Spanier President As cam- the that remember must we results, these with be should Staters Penn all as proud As all and any meet successfully will we together and support, continuing your to forward look I nhancinghonors education; examples of Penn Staters who chose to create endowments that support each of these six areas. six these of each support that endowments create to chose who Staters Penn of examples successfully has State Penn way, the leading alumni with that, report to pleased am I 2007–08. When 14. page on shown as groups, constituent traditional our of all from support strong engaged cam- the since elapsed have that months eighteen the include to year fiscal past the beyond go we million $490 of total a pledged or given have groups these find we 2007, 1, January on began paign objectives. six the toward chal- economic face to certain are University our and nation Our go. to way long a has still paign toward generosity Americans’ speaking, Broadly future. the about optimistic remain I yet lenges, last the of four only In climate. recessionary a in even resilient, quite be to proved has education I addition, In year. previous the from declined education to philanthropy total has years forty a during than critical more never is support student for need the realize Staters Penn that know to difference enormous an make can scholarships funded Privately cycle. economic downward times. such at students countless you. Thank challenges. E capacity;Fostering discovery andcreativity; Sustaining traditiona ofquality. even though it is still in its leadership gifts phase and is not scheduled for a public launch until launch public a for scheduled not is and phase gifts leadership its in still is it though even with resonated has campaign the believe I me. to inspiration tremendous of source a 2010—is objectives: individual six its of appeal broad the of because donors 2 0 0 7 – 2 0 0 8 Message from the Campaign Chair Campaign the from A Message “As a single parent, I was terrified at the thought of going back to school to earn a degree because I have so many financial responsibilities at home. Scholarship money has lessened the burden of acquiring a college degree by giving me more time to study and more time to spend with my son.” —Nicole Gorke, scholarship recipient and Nursing student at Penn State Worthington Scranton Ensuring Student Opportunity 6

Enhancing Honors Education 7

Enriching the Student 8 Experience

Building Faculty Strength 9 and Capacity

Fostering Discovery and 10 Creativity

Sustaining a Tradition 11 of Quality

“Being on the receiving end of a scholarship is humbling. I try to ‘repay’ the honor by doing my best athletically and academically. I feel so proud when I’m wearing that Penn State jersey.”—Kiersten Wood, scholarship recipient, Human Development and Family Studies major, and member of the Penn State field hockey team Ensuring Student Opportunity

Private support for endowed scholarships and similar awards helps to keep a Penn State edu- cation within the financial reach of all students who have the ambition and ability to attend the University. There is a critical need for such sup- port. Undergraduates who take out loans to help finance their Penn State education are graduat- ing with an average debt of nearly $24,000—and that figure is rising each year.

Robert and Catherine Quinnan of Dunmore, Pennsylvania, have taken a leadership role in increasing the financial resources available to students. They endowed the James P. and Catherine M. Gilligan Memorial Scholarship to benefit undergraduates enrolled at Penn State Worthington Scranton. The endowment, which assists those who have financial need and superior academic records, honors the memory of Catherine Quinnan’s parents, both of whom were employed by the Dunmore School District.

Robert Quinnan is a graduate of the University of Detroit and chairs the Penn State Worthing- ton Scranton advisory board. Catherine Quinnan received her undergraduate and graduate de- grees from Marywood University in Scranton. “We’ve been impressed by the ways that the Worthington Scranton campus helps its students who have financial need. When I attended Marywood, I did so with scholar- ship assistance. I was grateful for that help, and I’m now very grateful to give back what I received.”

— C at h e r i n e Q u i nn a n

“Penn State Worthington Scranton is very similar to the type of universities Cathie and I each attended in that there are many first-generation students enrolled. The scholarship enabled us to aid those stu- dents and contribute to the economic de- velopment of northeastern Pennsylvania.”

— R o b e r t Q u i nn a n

P r e s i d e n t ’ s R e p ort on Philanthro p y and endow m e n t s Enhancing Honors Education

The Schreyer Honors College, which owes its of their financial means, have a unique matching creation in 1997 to a visionary endowed gift, component: The University matches 5 percent of is one of Penn State’s keystone academic the principal of each gift annually and combines programs, attracting undergraduates of ex- these funds with income from the endowment ceptional ability from around the nation to effectively double the financial impact of the and abroad. scholarship.

Rich and Ann Marie Whitney of Manhattan Beach, California, know that in order to com- “We view our gift as an investment in the pete successfully for the very best students, future of exceptionally talented young men the Schreyer Honors College needs addi- and women. For many, without some form tional private support. Rich himself was an honors student, graduating from Penn State of assistance, the cost of a Penn State edu- in 1989 as a University Scholar in the Smeal cation would be prohibitive or impose a College of Business. He now heads his own very significant burden on their family. For private equity investment firm. each, their engagement with the honors college will put them on a path that of- The Whitneys created the Rich and Ann fers the opportunity to impact the future Marie Whitney Trustee Scholarship to ben- of Penn State, their chosen professions, efit honors students. Trustee Scholarships, their communities, and quite possibly the designed to keep a Penn State education accessible to all qualified students regardless world.”

— R i c h a n d a N N Marie Whit n e y

Facing Page Top: Melissa Cardone is Top right: Rich and Ann Marie Whitney a 2007–08 recipient of the Gilligan Top left: Ryan Wood is a recipient Memorial Scholarship. of the Rich and Ann Marie Whitney Facing Page Bottom: Robert and Trustee Scholarship. Catherine Quinnan

2 0 0 7 – 2 0 0 8 7 Enriching the Student Experience

Students can reach their fullest potential for academic achievement and personal growth when they have opportunities for community service, creative expression, global involvement, and similar experiences that enrich their education. The Raymond A. Bowers Program for Excellence in Design and Construction of the Built Environment provides such enrichment for students in the Departments of Architectural Engineering, Architecture, and Landscape Architecture.

Raymond Bowers, a 1931 Penn State gradu- ate in Architectural Engineering, had a wealth of practical experience as head of Lewis C. Bowers & Sons, a leading New Jersey-based building design and construc- tion firm. Years before he passed away, he used gift planning to establish the endow- ment that today bears his name in order to help students better prepare to become leaders in the design and construction indus- try. The endowment supports interdisciplin- ary programming and projects, and exposes students to best professional practices within the industry.

Income from the Bowers endowment sup- ported design and construction of Morning- Star, a house built by the Penn State Solar Decathlon Team. MorningStar won fourth place in the Department of Energy’s 2007 Solar Decathlon. A team of students and faculty took two years to build an entirely solar-powered home to be entered into the international competition. The house will now be used as an educational tool at Penn State’s Center for Sustainability.

Top: Chimay J. Anumba, professor and head of the Department of Architectural Engineering, served as adviser and mentor to the Morningstar team.

Bottom: Raymond A. Bowers

8 P r e s i d e n t ’ s R e p ort on Philanthro p y and endow m e n t s Building Faculty Strength and Capacity

A truly exceptional education is one that Donald and Virginia Davis endowed the Don offers students opportunities to study with Davis Professorship in Ethics, in the College of the finest teachers and researchers—scholars Communications. Don Davis is a 1942 Penn State who have achieved preeminence in their graduate in Journalism. The Davis Professor fields and whose work can inspire similar is Patrick Parsons, who coordinates an ethics- achievements in their students. Endowed across-the-curriculum program that encourages chairs and professorships enable Penn State students and faculty to not only discuss ethical to recruit and retain scientists, artists, en- principles, but also live them. gineers, and many other kinds of world-re- nowned scholars. Similarly, endowed gradu- “The whole impact of a professorship in ate assistantships and fellowships enable ethics—not only the impact it would have the University to attract top-flight graduate on the College of Communications but students, who themselves are only a few how that impact would spread throughout years away from establishing distinguished the University—I just thought it would be careers in business and industry, public ser- a great idea.” vice, education, and many other fields. — D o n D av i s

Top right: Don Davis

Top left: Patrick Parsons, Don Davis Professor in Ethics, is a widely recognized authority on mass media ethics.

2 0 0 7 – 2 0 0 8 9 Fostering Discovery and Creativity

Penn State students and faculty thrive in an atmosphere of intellectual discovery. Path- ways for discovery are especially diverse in an interdisciplinary environment, where tra- ditional boundaries of learning are pushed aside in the quest for new knowledge and new solutions to old problems. Ultimately, such a commitment to innovation allows Penn State to better serve society.

Philanthropy plays a critical role in encour- aging and enabling interdisciplinary schol- arship and creativity, as exemplified by the Nicholas and Gelsa Pelick Biotechnology Innovation Fund. The Pelick Fund provides seed grants to support short-term interdisci- plinary research on high-risk and fundamen- tally new ideas in the life sciences, such as Melik Demirel’s investigations in biomateri- als, polymers, nanofabrication, protein en- gineering, biosensors, and molecular model- ing. Once they are up and running, the most promising research projects can then be po- sitioned to receive long-term support from more traditional funding sources, such as public agencies and corporate foundations.

Nicholas Pelick, who holds bachelor’s and master’s degrees from Penn State, is a re- tired co-founder of a research and develop- ment company.

“Dolly and I believe that this endow- ment is important to the life sciences at Penn State for the continuity of short- term research of novel ideas to expan- sion to long-term research. This brings in much-needed outside funding to allow faculty to excel in the research of new ideas, and the opportunity to ad- vance into new areas of biological and Top: Nicholas and Gelsa (“Dolly”) Pelick medical research.” Bottom: Melik Demirel is assistant professor of engineering science and mechanics. — N i c h o l a s P e l i ck

1 0 P r e s i d e n t ’ s R e p ort on Philanthro p y and endow m e n t s Sustaining a Tradition of Quality

Penn State Milton S. Hershey Medical Center has earned high marks in such diverse areas as patient care, operating efficiency, and special- ized fields of research and treatment. Most recently, Penn State Hershey Children’s Hospital is listed in U.S. News & World Report’s 2008 edition of “America’s Best Children’s Hospitals.” But sustaining a tradition of quality requires continuous support.

Penn State Hershey Medical Center aims to complete construction of a new children’s hospital by 2012 with the help of $65 million in philanthropy. The new facility gives high prior- ity to a family-focused environment that affords more privacy for families and patients. In sup- port of the new hospital, Edward and Jeanne Arnold of Lebanon, Pennsylvania, have created an endowment that provides seed money for the Hummingbird Program, a service that offers comprehensive medical, psychological, social, and spiritual support for children facing life- threatening, complex medical conditions, and for their families.

The Arnolds are vice chairs of the medical center campaign committee, and Jeanne Arnold serves on the Penn State Hershey Children’s Hospital executive committee.

“Ed and I became interested in support- ing a program that would enhance pa- tient care through our involvement with the Children’s Hospital. The opportunity for the Hummingbird Program was pre- sented to us as a suggestion from parents who wanted a palliative-care program. We met with two mothers who shared their stories, and then we saw for ourselves the need for underwriting and funding a pro- gram like this. Dr. Ceneviva also was very interested in such a program. The hum- mingbird is such a beautiful, magical little Top: Edward and Jeanne Arnold bird—a little fighter—that we felt it was a Bottom: Gary D. Ceneviva, M.D., staff physician in the Pediatric Intensive Care perfect symbol for these kids.” Unit at Penn state Milton S. Hershey Medical Center, is director of the — J e a nn e A r n o l d Hummingbird Program.

2 0 0 7 – 2 0 0 8 1 1 “The Schreyer Honors College has given me the chance to learn from great professors and scientists—people who are proven experts in their field.” —Anthony Tierno, scholarship recipient and Science major (Life Science option)

P r e s i d e n t ’ s R e p ort on Philanthro p y and endow m e n t s Summary of Gifts 1 4

Planning for the Future 1 6

Endowment Stewardship 2 0

Budget Summaries 2 8

Executive Committee 3 0 Summary of Gifts

Sources of Gifts Received 2007–08

Where the $181.5 million came from

23% SOURCES AMOUNTS NUMBER OF DONORS

Individuals $94,319,974 153,594 Alumni $64,472,983 74,166 52% Friends 29,846,991 79,428 Corporations 42,066, 747 6,124 Foundations 29,441,345 490 16% Organizations 15,642,675 2,903

TOTAL 9% $181,470,741 163,111

Designated Purposes of Gifts Received 2007–08

Where the $181.5 million went

24% 19% PURPOSES AMOUNTS

Student aid $49,074,276 Other 44,216,016 Property, buildings, 34,374,122 equipment 17% Research 31,144,190 27% Faculty resources 8,583,589 5% 3% Academic divisions 5,917,787 3% Public service 5,060,144 and extension 1% 1% Unrestricted 1,661,413 (University-wide) Library resources 1,439,204 TOTAL $181,470,741

1 4 P r e s i d e n t ’ s R e p ort on Philanthro p y and endow m e n t s Gifts Designated to Specific Units 2007–08 Growth in Private Support and Donor Base

College of Penn State Erie, 190.3 Agricultural Sciences The Behrend College 181.3 181.5 200 180.7 $11,473,585 $2,246,916 176.9 170.8 College of Arts and Penn State Fayette, 165.2 Architecture/University Arts The Eberly Campus 151.1 151.3 150 Services $570,574 130.9 $5,287,578 Penn State Great Valley Smeal College of Business $344,298 Gifts Received 100 $8,413,119 Penn State College of Greater Allegheny Communications $1,403,552 50 $2,636,217 Penn State Harrisburg The Dickinson $725,993 School of Law Penn State Hazleton $3,953,058 0 $466,386 99 00 01 02 03 04 05 06 07 08 (YEAR) College of Earth and In millions of dollars Mineral Sciences Penn State Lehigh Valley $12,017,380 $237,577 College of Education Penn State Mont Alto $2,724,947 $587,392 300 284.7 College of Engineering Penn State 277.5 New Kensington $18,192,094 $210,134 250 213.3 College of Health and 198.8 200.9 Human Development Penn State Schuylkill 197.9 $300,254 196.4 $9,018,584 New 200 173.0 170.3 College of Information Penn State Shenango Commitments: 163.4 Sciences and Technology $548,699 Gifts and 150 $1,382,750 Penn State Wilkes-Barre Pledges College of the Liberal Arts $605,376 100 $8,353,366 Penn State College of Medicine/ Worthington Scranton 50 Medical Center $580,300 $23,281,594 Penn State York 0 99 00 01 02 03 04 05 06 07 08 (YEAR) Eberly College of Science $510,102 $6,714,351 Intercollegiate Athletics In millions of dollars Penn State Abington $27,938,748 $1,315,158 Outreach and Penn State Altoona Cooperative Extension $804,851 $6,484,507 163,111 Penn State Beaver Research and 143,517 Graduate Studies 200 $234,432 132,931 $1,655,747 132,791 Penn State Berks 124,519 Schreyer Honors College 122,539 $432,263 150 $3,283,639 118,089 120,680 Penn State Brandywine 116,971 University Libraries $300,856 116,053 $2,234,936 Penn State DuBois Other* Numbers 100 $464,776 $13,534,652 of Donors

50

*Includes University-wide scholarships, graduate fellowships, and student loan funds; International 0 Programs; Office of Student Affairs; Office of 99 00 01 02 03 04 05 06 07 08 (YEAR) Educational Equity.

2 0 0 7 – 2 0 0 8 1 5 Planning for the Future

Deferred Giving in 2007–08

Realized Bequests $13,312,477 Gift Annuities $2,016,841 Charitable Remainder Trusts $6,067,917 Charitable Lead Trusts $139,511

P r e s i d e n t ’ s R e p ort on Philanthro p y and endow m e n t s Deferred Giving

A deferred gift is simply a commitment made today that will provide future benefits to the University.

Deferred gifts accounted for 12 percent of all giving to Penn State in 2007–08. The University benefited from more than $8 million in gift annuities, charitable re- mainder trusts, and other life income gifts. Such gifts carry substantial income, estate, and gift tax advantages. In addition, they are often designated to establish endow- ments, which offer perpetual support for programs designated by donors. Endowment funds are usually named for donors or other individuals specified by donors.

One of the easiest ways for benefactors to ensure that their financial support will continue for years to come is by including Penn State in their wills. This past year, Penn State received more than $13 million in realized bequests from estate distributions, primarily designated for endowments.

Benefactors can work with the University to create a Statement of Intent, a simple document that indicates how the funds are to be used. Bequests, for example, are typically made in several ways: A specific amount, a percentage of an estate, or the entire remainder of an estate can be left to the University. One can also create a con- tingent bequest that specifies monies will come to Penn State upon the occurrence of certain circumstances. For example, a bequest can go to an individual or come to Penn State in the event the person named is no longer living. Bequests can be directed to a specific purpose or designated as “unrestricted” to Penn State.

Deferred Giving 1998–2008 (Year ending June 30)

$22.4 1998 27.6 1999 18.2 2000 26.6 2001 24.3 2002 48.1 2003 30.0 2004 14.4 2005 21.1 2006 25.2 2007 21.5 2008 0 10 20 30 40 50

Millions of dollars

2 0 0 7 – 2 0 0 8 1 7 A deferred gift can also perpetuate current giving. This is an effective way to transform an existing gift into an enduring legacy. For example, if a benefactor’s cur- rent giving is $5,000 a year, the creation of a $100,000 endowment through a bequest can generate approximately $5,000 in income annually so that current giving continues indefinitely. Such a gift serves as a lasting tribute to one’s belief in higher education and as the capstone of one’s legacy to Penn State. Thus, the impact of a benefactor’s generosity extends far beyond a lifetime.

A gift to Penn State through a will or a life income gift may have significant income tax benefits and qualify for an estate tax charitable deduction. For informa- tion about gift planning, contact Michael J. Degenhart, Director of Gift Planning, The Pennsylvania State University, 214 The 103 Building, University Park, PA 16802-7001; 1-888-800-9170; E-mail: [email protected].

Creating Endowments

Endowments are created by blending a donor’s vision with Penn State’s goals and objectives. While endowments strengthen the University now, their premise is to plan for and strengthen Penn State’s future. Endowments can be created through gifts of cash, stock, or deferred gifts.

Endowment Minimums Endowment Category Minimum Gift

Penn State’s Board of Trustees Faculty Support has established minimum support Chancellor’s Chair $5,000,000 Dean’s Chair $5,000,000 levels for various types of Department Head’s Chair $3,000,000 endowments to guarantee that Faculty Chair $2,000,000 income will be adequate to achieve Professorship $1,000,000 the benefactor’s intent—now and Career Development Professorship $500,000 in the future. These endowments Graduate Student Aid may be named in recognition of Distinguished Graduate Fellowship $250,000 the generosity and vision of the Graduate Scholarship $50,000 donors, or in honor or memory of Undergraduate Student Aid persons of the donors’ choice. Trustee Matching Scholarship $50,000 Named endowments stand in College/Campus Scholarship $50,000 Honors College Scholarship $50,000 perpetuity as landmarks. Destiny Scholarship $50,000 Enrichment Scholarship $50,000 Renaissance Scholarship $30,000

Other Endowments Lectureship $100,000 Research $50,000 Program Support $25,000 Libraries $25,000 Program Award $20,000

1 8 P r e s i d e n t ’ s R e p ort on Philanthro p y and endow m e n t s “I’m inspired to work hard because someone has given me this opportunity, and I hope that I’ll be able to return the favor to future generations of Penn Staters.” —Alison Kilmartin, scholarship recipient and Penn State Dickinson School of Law student s e n t m y and endow p ort on Philanthro p e R

s i d e n t ’ s P r e

Endowment Stewardship Endowment Overview

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 des- ignated 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 oper- ates 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 Basic endowment management principles steward of its endowed gifts and fol- 1. Provide sufficient current and future income lows a prudent management philoso- to meet the University’s spending objectives phy in investing these gifts so that they and enhance its mission. maintain their value in real terms over 2. Focus on long-term performance. time. The University’s Board of Trustees 3. Accept a reasonable and prudent level of risk while maximizing “total” return. has established four basic endowment 4. Diversify investments to reduce risk. management principles to guide the University’s Investment Council. These four principles ensure that the spending power of each endowment gift will be maintained in the face of economic fluctuations.

80 72.8 69.1 70.2 70 64.9 61.7 58.5 60 56.5 55.2 51.4 Gifts to 50 42.4 Endowment 40 (Year ending June 30) 30

20

10

0 99 00 01 02 03 04 05 06 07 08 (YEAR)

In millions of dollars

2 0 0 7 – 2 0 0 8 2 1 Investment Management Update

Penn State’s endowment investments consist of a diversified portfolio of public equi- ties, 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 main- tain steady growth while minimizing the effects of volatile market fluctuations.

For many years the University has, as a rule, provided 5 percent of the pooled endowment’s five-year average market value for spending. However, given prospects for modest investment market returns, the payout rate will be reduced incrementally over a multiyear period. Beginning with 2007, the payout is being decreased 0.1 per- cent annually until 4.5 percent is achieved in 2012. The University’s spending policy balances out the “peaks” and “troughs” in the investment markets, saving a portion of the earnings in the good years to offset the less profitable years—thus providing generous current spending while preserving future purchasing power. This is known as “intergenerational equity.”

Market Value of Penn State’s Endowment and Similar Funds (Fiscal year ending June 30)

LTIP SIMILAR FUNDS

1998 580 47 $ 627 1999 731 60 791 2000 927 77 1,004 (1 billion) 2001 899 87 986 2002 842 101 943 2003 882 83 965 2004 1,007 100 1,107 (1.11 billion) 2005 1,128 103 1,231 (1.23 billion) 2006 1,280 110 1,390 (1.39 billion) 2007 1,537 132 1,669 (1.67 billion) 2008 1,488 128 1,616 (1.62 billion)

Millions of dollars

Long-Term Investment Pool (LTIP) Similar funds

As of the end of fiscal 2008, endowment and similar funds were valued at $1.62 billion, of which $1.49 billion was invested in the Long-Term Investment Pool. Similar funds, which include charitable remainder trusts, charitable gift annuities, and other life income funds in addition to some donor-restricted funds, represented $128 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.

2 2 P r e s i d e n t ’ s R e p ort on Philanthro p y and endow m e n t s At the end of fiscal year 2008, the endowment and similar funds were valued at nearly $1.6 billion. This represented a one-year net decrease of $53 million, and a five- year net increase of $509 million. Over this same period, the endowment has provided $284 million of program support, including $60 million in fiscal 2008. For the year ending June 30, 2008, the endowment returned -1.9 percent and has averaged 12.1 per- cent over the last five years. In the longer term, Penn State’s endowment has averaged 9.7 percent per year, net of gifts and expenses, since June 30, 1988.

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 subsequent economic recovery, and the recent downturn due to the credit crisis. This, in turn, has allowed the endowment to support 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 height- ened inflation concerns, especially natural resources such as oil and gas. With ap- proximately 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.

Endowment Asset Mix

Where Penn State invested its endowed funds 23% (As of June 30, 2008)

50% Public Equities Fixed Income Private Capital

27%

The Penn State endowment portfolio is broadly diversified, with 23 percent in fixed income as of June 30, 2008; 50 percent in public equities (both U.S. and non-U.S.); and 27 percent in a variety of other (alternative) investments, including real estate, private capital, venture capital, and energy. 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, 2008, investment market returns for equities turned negative after several years of positive performance, while fixed income returns were positive for the second consecutive year. Bonds, as measured by the Lehman Brothers Bond Index, earned a total return of 7.1 percent in fiscal 2008 while public equities, as measured by the All Country World Index, returned -6.6 percent. Penn State’s private capital, comprised of private partnership investments, outperformed both public equities and bonds, with private equity and venture partnerships gaining 12.4 percent and 11.5 percent, respectively.

2 0 0 7 – 2 0 0 8 2 3 Long-Term Investment Performance of Endowment

12.1 Penn State’s endowment earned an investment return of -1.9 percent, excluding the impact of new gifts and spending. While Average annualized 9.7 stock market returns often fluctuate from year to year, the total returns endowment’s well-diversified portfolio can weather short-term for periods ending 7.5 fluctuations and generate positive returns over long periods of June 30, 2008 time. Net of all fees and expenses, the Penn State endowment (Net of fees) 20-year has averaged 7.5 percent per year over the last ten years, and Total returns include 10-year 9.7 percent over the last twenty years, allowing the endowment interest, dividends, and market appreciation 5-year to maintain steady inflation-adjusted spending and to achieve -1.9 long-term intergenerational equity. 1-year

Penn State Investment Council C o u n c i l M e m b e r s

Gary Schultz, Chair Penn State’s Board of Trustees Senior vice president for finance and business/treasurer, The Pennsylvania created the Investment Council State University in response to the University’s David Branigan increasing asset base and complex Executive director, Office of Investment investment strategies. The council Management, The Pennsylvania State provides direct oversight of University

the endowment and long-term Timothy J. Crowe investment program, and regularly Managing director, Anchor Point reviews asset allocation, new asset Capital LLC classes, investment strategies, and Carmen Gigliotti manager performance. Managing director, Private Market Group, DuPont Capital Management

Edward R. Hintz Jr. President, HHR Asset Management

Arthur D. Miltenberger Vice president and chief financial officer (retired), R. K. Mellon & Sons

J. David Rogers Chief executive officer, J. D. Capital Management

Linda B. Strumpf Vice president and chief investment officer, The Ford Foundation

2 4 P r e s i d e n t ’ s R e p ort on Philanthro p y and endow m e n t s “Because of Scholarship support, I will be the first person in my family to graduate from an institution like Penn State.”—Mark Lowery, scholarship recipient and Agricultural and Extension Education major “as an international student at Penn State Greater allegheny, I enjoyed great relationships with professors who really cared about my success. They offered a hands-on education that reinforced what I learned from the textbook.” —Antony Palocaren, scholarship recipient and Engineering Science major “Thanks to generous donors who created my scholarship, I have to work only part-time during the academic year. And I can par- ticipate in extracurricular activities like Thon, which gives me a sense of purpose and pride.” —Lindsay Miller, scholarship recipient and Marketing major Budget Summaries

Total University Operating Budget 2007–08

Income 26.1%

MILLIONS OF DOLLARS 17.2% Tuition and fees $1,128.5 Medical Center/Clinic 891.1 Restricted funds* 586.4 State appropriation 334.2 9.8% 33.1% Auxiliary enterprises 297.2 Philanthropy and other 155.7 8.7% 4.6% Agricultural (federal) 18.4

TOTAL $3,411.5 0.5%

*primarily sponsored contracts and research grants

Expenditures

26.1% 15.4% MILLIONS OF DOLLARS

Instruction and academic support $912.5 Medical Center/Clinic 891.1 8.7% Research 526.4 Auxiliary enterprises 297.2 7.5% Institutional support 256.1 26.8% 5.2% Physical Plant 177.2 4.2% 2.6% Public service 142.8 Pennsylvania College of Technology 87.8 1.1% 2.4% (General funds) Student services 81.9 Student aid 38.5 TOTAL $3,411.5

2 8 P r e s i d e n t ’ s R e p ort on Philanthro p y and endow m e n t s The State’s Share of Penn State’s Budget

Y E A R tota l B U D G E T state appropr i at i O N S percent of tota l

2008–09 $3,607,440,000 $338,375,000* 9.4% 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%

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

“When I received a scholarship, it made me feel like Penn State truly cared about my education and my future success. That is the kind of university I want to be part of.” —Rafiattinuke “Shade” Adebowale, scholarship recipient and Health and Human Development student

2 0 0 7 – 2 0 0 8 2 9 s e n t m y and endow p ort on Philanthro p e R

s i d e n t ’ s P r e

Executive Committee Executive Committee For the Future: The Campaign for Penn State Students

P e t e r G . T o m b r o s E d w a r d J . B e ckw i t h L i n d a J . G a l l Campaign Chair Chair, Planned Giving Chair, Stewardship Advisory Council Committee E . L e e B e a r d Campaign Vice Chair J a m e s S . B r o a d h u r s t S t e v e A . G a r b a n Chair, Board of Trustees, Trustee Liaison Chair, Campus The Pennsylvania Committees Member, Board of Trustees, State University The Pennsylvania State University Peter M. Carli n o Chair, The Penn State E d w a r d R . H i n t z Milton S. Hershey Honorary Medical Center Campaign Chair

2 0 0 7 – 2 0 0 8 3 1 M a r t h a B . J o r d a n B r u c e R . M i l l e r R o b e r t E . P o o l e R i c h a r d K . S t r u t h e r s Chair, Annual Giving Campaign Vice Chair Chair, Leadership At-Large Member Committee Gifts Committee Chair, College Committees J o h n K . T s u i E d w a r d P. J u nk e r i i i C at h e r i n e S h u lt z R e i n At-Large Member A rthur J. Na g l e At-Large Member Chair, Corporate Honorary Relations Committee Campaign Chair J e ff e ry L . K i ng At-Large Member W i l l i a m A . s C h r e y e r J o s e p h V. Pat e r n o Honorary Honorary Campaign Chair Campaign Chair

3 2 P r e s i d e n t ’ s R e p ort on Philanthro p y and endow m e n t s Ex Officio Members

G r a h a m B . s Pa n i e r G a ry C . s C h u lt z President, Senior Vice President The Pennsylvania for Finance and State University Business/Treasurer, The Pennsylvania R o d n e y A . E r i ck s o n State University Executive Vice President and Provost, R o d n e y P. K i r s c h The Pennsylvania Senior Vice President State University for Development and Alumni Relations, The Pennsylvania State University

3 3 This publication can also be found on the Web at: president.psu.edu/philanthropy

For more information about philanthropy at Penn State 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 [email protected]

This publication is available in alternative media on request. ancestry, color, disability or handicap, national origin, race, religious creed, sex, sexual orientation, gender identity, or veteran status. Discrimination or harassment The Pennsylvania State University is committed to the policy that all persons against faculty, staff, or students will not be tolerated at The Pennsylvania State shall have equal access to programs, facilities, admission, and employment University. Direct all inquiries regarding the nondiscrimination policy to the without regard to personal characteristics not related to ability, performance, or Affirmative Action Director, The Pennsylvania State University, 328 Boucke Building, qualifications as determined by University policy or by state or federal authorities. University Park, PA 16802-5901; Tel 814-865-4700/V, 814-863-1150/TTY. It is the policy of the University to maintain an academic and work environment free of discrimination, including harassment. The Pennsylvania State University Produced by the Penn State Department of University Publications. U.Ed. DEV 09-12 prohibits discrimination and harassment against any person because of age, “My mother works very hard, and the scholarships I receive make her life so much easier and less stressful. And I’m able to get the most out of my education.”—Kristin MacLean, scholarship recipient and Psychology major “The scholarship has shown me that alumni care about their alma mater and want current students to share in their success.” The President’s Report on p h i l a n t h r o p y and endowments 2 0 0 7 – 2 0 0 8