1. Endowment Fund Report
June 30, 2009

2. Table of Contents Introduction…………………………………….………………......….1
Endowment History……………………………… …3
Endowment Growth…………………
Increases by Component………………………………
Endowment Performance….…………………………………….7
NCSE………………………...…………………………………………..8
Size & Endowment per FTE Student……………………
Investment Performance……………………..……………..….12
Asset Allocation……………………………………………….…15
Gift Flow Rate……………….…………………………………....16
Endowment Spending Rate..…………………………….....…19

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.
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. The Finance Committee is responsible for approving and recommending to the Board general guidelines for the management of the University’s endowment and investments.
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 as follows:
1. Fiduciary oversight of the Investment Office.
2. Recommend investment policy guidelines for the endowment and monitor conformance.
3. Recommend asset allocation targets and ranges, and monitor conformance.
Due to the increased size, complexity and sophistication of the investment portfolio, the Subcommittee has established an Investment Office with the delegated responsibility to manage the day-to-day operations of the investment program. 1

4. Trustee Finance Committee Investment Subcommittee
Introduction
Committee Membership
Trustee Finance Committee
F. J. Ingrassia, Chair
R. L. Brown III M. K. Chrin J. H. Glanville
T. J. Healy, Jr W. F. Hecht M. L. Paley
J. R. Perella D. E. Singleton III E. J. Sussman
R. C. Tschampion III M. D. Zisman Lehigh Liaison – Margaret Plympton
Investment Subcommittee
M. K. Chrin
K. L. Clayton J. Enslin A. J. Greenwood
S. Kreider M. L. Paley K. R. Parke S. Sethi
Lehigh Liaisons – Peter Gilbert, Mark Siddoway & Jennifer Sassani
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 grown in market value from approximately $676 million at June 30, 1999, to $886 million at June 30, The value as of December 31, 2009 approximately $978 million.
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 10.6% over the 25-year period, which compares favorably to the composite index of 9.7%. 3

6. Lehigh University Endowment Fund Growth History4

7. Endowment Increase by Components June 30, 1999 through June 30, 2009
Gifts and Other Additions $220,966,000
Investment Performance $264,015,000
Endowment Spending (274,342,000)
Increase $210,639,000 5

8. Lehigh University Endowment Fund Increase by Component June 30, 1999 to June 30, 2009 (in millions)6

9. Lehigh University Endowment Fund 25 Year Performance History
June 30
Total Return
1985
28.9
1986
24.3
1987
20.8
1988
3.3
1989
18.6
1990
8.3
1991
6.1
1992
13.6
1993
15.4
1994
2.1
1995
1996
16.9
1997
21.4
1998
21.8
1999
12.4
2000
19.3
2001
-4.6
2002
-5.7
2003
7.2
2004
16.1
2005
9.5
2006
12.0
2007
15.7
2008
-2.7
2009
-18.3
Avg. Annual Return
10.6%
Composite Index (65% Equities/35% Bonds)
9.7% 7

10. NCSE Comparisons
The National Association of College and University Business Officers (NACUBO) and Commonfund have published the NACUBO-Commonfund Study of Endowments® (NCSE). This 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 NACUBO sponsored Endowment Studies for over three decades. The 2009 Study reports on 842 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 of $500 million to $1 billion and greater than $1 billion. 8

11. Endowment Size and Endowment per FTE Student
NCSE Comparisons
Endowment Size and Endowment per FTE Student
Page 10 indicates the growth of Lehigh's endowment fund from 1999 to As of June 30, 2009, the University ranks 62nd in endowment size among 842 participating institutions.
Lehigh's $140,896 endowment per FTE student does not compare favorably to the $233,846 for independent institutions over $500 million to $1 billion but does compare favorably to $110,645 for all independent institutions. 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 $1 billion is $666,377. 9

12. NCSE Comparisons 10 Endowment Size: 6/30/99 6/30/09
6/30/ /30/09
Lehigh $675,595,000 $886,234,000
Rank of of 842
Institutions Institutions
Endowment per FTE Student:
Lehigh $119, $140,896
Rank (Independent Institutions) of of 533
Average - All Schools $91, $75,599
Independent Institutions:
Over $500 million to $1 billion $139,190 $233,846
Over $1 billion n/a $666,377
All $127, $110,645 10

13. Endowment per FTE Student Lehigh vs. Aspirational Peers June 30, 2009
Market Value FTE Endowment
Institution in 000s Students per Student
Rice University 3,612, , ,034
University of Notre Dame ,795, , ,579
Northwestern University 5,445,260 16, ,335
Emory University ,328,436 12, ,759
Brown University ,017, , ,916
Trustees of the Univ. of Penn ,170, , ,006
Vanderbilt University 2,833,614 12, ,319
Lafayette College * 535,585 2, ,812
Cornell University 3,966, , ,632
University of Rochester 1,314,603 8, ,837
LEHIGH UNIVERSITY , , ,896
Tufts University 1,103,440 9, ,251
Carnegie Mellon University 754,131 10,135 74,409
Georgetown University 883,182 13,919 63,452
George Washington University 1,011,000 20,598 49,082
* Lafayette College is included for informational purposes only. 11

14. Investment Performance
NCSE Comparisons
Investment Performance
Lehigh's endowment return for the ten year period ending June 30, 2009 ranked in the top third performance vs. all endowment funds. Returns for the one and five year periods ending June 30, 2009 ranked in the top half. Performance information can be found on the following two pages. 12

15. Average Annual Return Ending June 30, 2009 for Each Period
10 Yrs Yrs Yrs Year
Lehigh University 4.2% % % %
All Endowment Funds % % % -18.7%
LU Rank / / / /793
Greater than $1 billion % % % %
LU Rank 34/47 46/ / /53
$500 million - $1 billion % % % %
Independent Institutions % % % %
LU Global Equity N/A 0.1% -7.0% -27.7%
MSCI World (net) N/A 0.0% -8.0% -29.5%
LU Bonds N/A % % 0.8%
BC Treas Int N/A 4.9% 7.0% 6.1%
LU Composite Benchmark % 2.1% -3.0% -17.5%
Added Value over Benchmark 1.8% 0.3% 0.2% -0.8% 13

16. LU Investment Performance vs
LU Investment Performance vs. All Participating Institutions June 30, 2009
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
4.2%
2.4%
-2.8%
-18.3%
High
33.0%
31.4%
24.3%
15.9%
1st Q
4.8%
3.8%
-1.1%
-16.4%
Median
3.3%
2.1%
-2.6%
-19.1%
3rd Q
2.3%
1.3%
-4.0%
-21.7%
Low
-4.2%
-39.0%
-40.0% 14

17. Asset Allocation June 30, 2009 15 6/30/99 6/30/09
6/30/ /30/09
Equal Weighted Equal Weighted Equal Weighted
LU All Institutions LU All Institutions $500mm - $1billion
Global Equity % % % % %
Fixed Income % % % % %
Alternative Strategies % % % % %
ST Securities/Cash/Other % % % % %
TOTAL % % % % % 15

18. Endowment Gift Flow Rate
NCSE 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 2009
Lehigh University % 1.6%
Average - All Institutions % 1.6%
Over $1 billion N/A% 1.0%
Over $500 million to $1 billion % 2.4%
Independent Institutions % 1.2% 16

19. Gift Flow Rate Fiscal Year 1999-200917

20. Endowment Spending Rate
NCSE 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 2009 was above the NCSE 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 3.6% 5.0%
Average - All Institutions % 4.4%
Over $1 billion 4.1% 4.6%
Over $500 million to $1 billion 4.3% 4.9%
Independent Institutions % 4.5% 18

21. Endowment Spending Rate 1999 - 2009

22. 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. For fiscal year 2010 the spending amount per share has been reduced by 5% of computed amount in order to minimize the impact on the endowment corpus during the challenging economic environment. 20