1. Endowment Fund
June 30, 2007

2. Table of Contents Introduction…………………………………….………………......….1
Endowment History……………………………… …3
Endowment Growth…………………
Increases by Component………………………………
Endowment Performance….…………………………………….7
NACUBO Comparisons…...……………………………………..…..8
Size & Endowment per FTE Student……………………
Investment Performance……………………..…………..…….12
Asset Allocation……………………………………………….…16
Gift Flow Rate……………….…………………………………....18
Endowment Spending Rate..…………………………….....…21

3. Introduction
An endowment fund for an educational institution provides long-term continuous support for various programs and services. Lehigh University recognizes the importance of providing enduring financial support through endowment and desires to enhance its endowment position through the procurement of new endowment contributions and the prudent management of its invested funds.
Trustee Responsibilities
The University By-Laws provide that one of the general powers of the Board of Trustees is to oversee the management of the University's endowment and investments. The Board has delegated endowment management responsibility to its Finance Committee, which has specific responsibility for endowment and similar funds as defined in the By-Laws as follows:
1. Establish and monitor investment policies and guidelines.
2. Manage investments through the appointment of managers and/or internal management.
3. Review at least annually the investment performance.
4. Establish a policy regarding disbursement of income.
Because sound endowment management policy suggests a clear separation between certain functions such as asset allocation decisions and the determination of endowment spending policy, the Finance Committee has established an Investment Subcommittee that has particular responsibilities for the endowment fund. 1

4. Introduction 2 Committee Membership Trustee Finance Committee
F. J. Ingrassia, Chair
R. L. Brown, III M. K. Chrin W. W. Crouse, III
J. H. Glanville A. K. Harkness W. F. Hecht M. L. Paley J. R. Perella D. E. Singleton, III
E. J. Sussman R. C. Tschampion, III M. D. Zisman
Lehigh Liasion – Margaret Plympton
Investment Subcommittee
R. C. Tschampion, III, Chair
M. K. Chrin K. L. Clayton A. J. Greenwood
M. F. Hoben J. B. McGowan M. L. Paley
K. R. Parke S. Sethi
Lehigh Liasion – Peter Gilbert
Annual Reporting
The Trustee Finance Committee desires to report annually to the Board of Trustees upon the status of the University's endowment fund. These reports will present the general progress and stewardship of endowment at Lehigh. This report will give specific attention to:
1. Historical changes,
2. Performance and comparative data with other colleges and universities, and
3. Policies and procedures. 2

5. Realized and Unrealized Gains
Endowment History
The University's Endowment Fund has experienced rapid growth in market value over the past ten years from approximately $513 million at June 30, 1997, to $1,086 million at June 30, The value as of March 31, 2008 was approximately $1.1 billion.
The market value increase over the past 10 years can be broken down into the following components:
Gifts
Realized and Unrealized Gains
Reinvested Earnings
The following three pages highlight the market growth and the components of that growth over the past 10 years. Lehigh Endowment Fund’s 25-year performance history is provided on page 7. The endowment fund has returned an average total annual return of 13.3% over the 25-year period, which compares favorably to the composite index of 11.8%. 3

6. Lehigh University Endowment Fund Growth History4

7. Endowment Increase by Components June 30, 1997 through June 30, 2007
Bequests and Gifts $161,865, %
Investment Performance $735,407,000
Endowment Spending (325,036,000)
Net Appreciation ,371,000 72%
Increase $572,236, % 5

8. Lehigh University Endowment Fund Increase by Component June 30, 1997 to June 30, 20076

9. Lehigh University Endowment Fund 25 Year Performance History
June Total Return
Avg. Annual Return %
Composite Index (65% Equities/35% Bonds) %
Note: Returns for 1986 & after are net of manager fees 7

10. NACUBO Comparisons
The NACUBO Endowment Study (NES) is an annual report prepared by TIAA/CREF under the direction of the National Association of College and University Business Officers (NACUBO). The report is a useful tool for colleges and universities to help evaluate the effectiveness of their endowment policies and investment performance.
Lehigh has participated in the NES for over three decades. The 2007 Study reports on over 780 participating institutions of higher education.
The following pages compare various aspects of Lehigh's endowment fund with one or more of: a) the universe of all participating colleges and universities; b) participating independent schools; and c) participating institutions of similar endowment size (greater than $1 billion). The latter, when available, is the most useful standard of comparison for Lehigh. 8

11. Endowment Size and Endowment per FTE Student
NACUBO Comparisons
Endowment Size and Endowment per FTE Student
Page 10 indicates the growth of Lehigh's endowment fund from 1997 to As of June 30, 2007, the University ranks 72nd in endowment size among 785 participating institutions.
Lehigh's $176,383 endowment per FTE student compares favorably to the $160,882 for independent institutions over $500 million to $1 billion and $149,512 for all independent institutions. Although we have improved our position compared to these endowment classifications, Lehigh continues to rank in the lower half of the list among institutions with which we compete for students (see page 11). The endowment per FTE student for independent institutions with endowments greater than is $422,301. 9

12. NACUBO Comparisons 10 Endowment Size: 6/30/97 6/30/07
6/30/ /30/07
Lehigh $513,403,000 $1,085,639,000
Rank of of 785
Institutions Institutions
Endowment per FTE Student:
Lehigh $92, $176,383
Rank (Independent Institutions) n/a of 516
Average - All Schools $66, $56,766
Independent Institutions:
Over $500 million to $1 billion $165,636 $160,882
Over $1 billion n/a $422,301
All $92, $149,512 10

13. Endowment per FTE Student Lehigh vs. Aspirational Peers June 30, 2007
Market Value FTE Endowment
Institution in 000s Students per Student
Rice University $4,669,544 4, ,785
University of Notre Dame ,976, , ,963
Emory University ,561, , ,511
Northwestern University ,503, , ,390
Brown University ,780, , ,226
University of Pennsylvania 6,635,187 20, ,336
Lafayette College * ,421 2, ,609
Vanderbilt University 3,487,500 11, ,647
Cornell University 5,424,700 19, ,222
University of Rochester 1,726,300 7, ,522
LEHIGH UNIVERSITY ,085, , ,383
Tufts University 1,452,058 9, ,861
Carnegie Mellon University 1,115,740 9, , Georgetown University 1,059,343 13,141 80,614
George Washington University 1,147, ,954 57,505
* Lafayette College is included for informational purposes only. 11

14. Investment Performance
NACUBO Comparisons
Investment Performance
Lehigh's endowment returns for the five and ten-year periods ending June 30, 2007 ranked in the top third and top fifth of all endowment pools. This meets or exceeds Lehigh’s performance objective of top third performance vs. all endowment funds. Performance information can be found on the following three pages. 12

15. Average Annual Return Ending June 30, 2007 for Each Period
10 Yrs Yrs Yrs Year
Lehigh University 9.9% % % %
All Endowment Funds % % % 17.2%
LU Rank / / / /726
Greater than $1 billion % % % %
LU Rank 44/72 62/ / /76
Independent Institutions % % % 17.5%
LU Equity 11.9% 15.1% % 20.8%
S&P % 10.7% % %
LU Bonds % % % 7.4%
LB Aggregate 6.3% 6.3% 5.2% 7.5%
LU Composite Benchmark % 8.7% 9.0% 15.4%
Added Value over Benchmark 2.8% 3.3% 3.4% .3% 13

16. LU Investment Performance vs
LU Investment Performance vs. All Participating Institutions June 30, 2007
When doing graph if the low point is a positive number you must subtract the high from the low and put the net in the high cell and the low in the low cell. Then format the low cell on the graph to have no fill.
LU objective to be in top third over long run. In top quartile in 3, 5 and 10 years – objective achieved and exceeded.
Ivy’s handout
10 Years
5 Years
3 Years
1 Year
LEHIGH
9.9%
12.0%
12.4%
15.7%
High
17.8%
20.1%
25.0%
28.0%
1st Q
9.5%
14.0%
19.0%
Median
8.4%
11.3%
12.3%
17.5%
3rd Q
7.3%
9.8%
10.7%
15.6%
Low
3.4%
2.1%
2.3%
2.6% 14

17. NACUBO Comparisons Asset Allocation
The asset allocation of Lehigh's endowment fund at June 30, 2007 tends to reflect the average of all participating institutions with exception of under weightings in domestic equities, cash and real estate and over weightings in non-U.S. equities, fixed income, private equity/venture capital and other. The following page indicates asset allocation data as of June 30, 1997 and 2007. 15

18. Asset Allocation June 30, 2007 16 LU Average LU Average
6/30/ /30/07
LU Average LU Average
Equity – U.S % 52.6% % 40.5%
Equity – Global/Foreign % 11.2% % %
Fixed Income % 25.2% 19.3% 18.6%
Cash % 4.8% % 3.5%
Private Equity/Venture Capital 2.2% 1.5% % 3.2%
Hedge Funds % % %
Natural Resources %
Real Estate 0.3% % % 3.5%
Other % % % 1.4%
TOTAL % % 100.0% 100.0% 16

19. Endowment Gift Flow Rate
NACUBO Comparisons
Endowment Gift Flow Rate
The endowment gift flow rate measures the percent of the market value increase at June 30 related to gifts received during the year. The percentage can fluctuate significantly depending on the gift activity, such as endowment campaign gifts and large bequests received, in a particular year. The year by year gift flow rate is charted on the following page.
Fiscal year Fiscal year 2007
Lehigh University % 2.0%
Average - All Institutions % 2.9%
Over $1 billion N/A 2.4%
Over $500 million to $1 billion % 2.8%
Over $100 million to $400 million % N/A
Independent Institutions % 2.1% 17

20. Gift Flow Rate Fiscal Year 1997-200718

21. Endowment Growth and Gifts
NACUBO Comparisons
Endowment Growth and Gifts
Year to year endowment growth is influenced by gifts and investment performance. The university has experienced a period of strong investment performance over the past 10 years as well as other endowments. This has added to the value of the endowment fund resulting in additional income for the university’s educational mission. While we are pleased with the success of the investment results, we recognize that future returns are forecasted to be modest. For example, long term rates of return in the 8% range are expected to be the norm in the coming years. With the endowment spending of roughly 5% annually, the remaining 3% will help keep pace with the inflation rate and hopefully maintain the purchasing power of the endowment fund.
If we are to meet the challenge of endowment growth relative to our peers, gifts to endowment will be the key. A significant portion (60%) of Shine Forever: The Campaign for Lehigh, our current comprehensive campaign, is focused on endowment, particularly for endowed scholarships and endowed chairs. While Lehigh maintains a strong planned giving program to encourage testamentary gifts to endowment, the campaign provides an opportunity to emphasize current gifts to endowment from alumni and friends. These gifts will be the cornerstone to future growth of the endowment fund. 19

22. Endowment Spending Rate
NACUBO Comparisons
Endowment Spending Rate
Below are details of Lehigh's spending as a percentage of the current year’s average market value. Lehigh’s spending rate in 2007 was below the NACUBO average for all endowments, the average for endowments over $1 billion, and the independent institution average. Further information regarding Lehigh’s spending policy and historic spending rates can be found on following two pages.
FISCAL YEAR
Lehigh University 4.2% 4.2%
Average - All Institutions % 4.6%
Over $1 billion N/A 4.4%
Over $500 million to $1 billion 4.7% 4.4%
Over $100 million to $400 million % N/A
Independent Institutions % 4.7% 20

23. Endowment Spending Rate 1997 - 200721

24. Endowment Fund Spending Policy
NACUBO Comparisons
Endowment Fund Spending Policy
The Endowment will transfer to the University's Operating Fund annually 5% of the three year moving average market value of the Endowment. On a per unit basis, the transfer will result in a minimum increase of 0% and a maximum increase of 10% over the prior year's payout. 22