Endowment Fund

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Endowment Fund June 30, 2006
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Table of Contents

• Introduction........1
• Endowment History.....................
  ...3
• Endowment Growth..........................
  ..............4
• Increases by Component.............5
• Endowment Performance..7
• NACUBO Comparisons.......8
• Size Endowment per FTE Student.........
  9
• Investment Performance.....12
• Asset Allocation.16
• Gift Flow Rate.....18
• Endowment Spending Rate.......21

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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.
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Introduction
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
J. R. Perella D. E.
Singleton, III E. J. Sussman R. C. Tschampion,
III M. D. Zisman Investment
Subcommittee R. C. Tschampion, III, Chair K. L.
Clayton A. J. Greenwood M. F. Hoben P. N.
Leitner J. W. MacMurray J. B. Mc Gowan M. L.
Paley K. R. Parke 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.
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Endowment History
The University's Endowment Fund has experienced
rapid growth in market value over the past ten
years from approximately 439 million at June 30,
1996, to 939 million at June 30, 2006. The
value as of March 31, 2007 was over 1 billion
reflecting the favorable market conditions since
June 30, 2006. 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 Funds 25-year
performance history is provided on page 7. The
endowment fund has returned an average total
annual return of 13.2 over the 25-year period,
which compares favorably to the composite index
of 11.6.
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Lehigh University Endowment FundGrowth History
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Endowment Increase by ComponentsJune 30, 1996
through June 30, 2006
Bequests and Gifts 160,824,000
29 Investment Performance
715,925,000 Endowment Spending
(317,430,000) Net Appreciation
398,495,000 71 Increase
559,319,000 100

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Lehigh University Endowment FundIncrease by
Component June 30, 1996 to June 30, 2006
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Lehigh University Endowment Fund25 Year
Performance History
June 30

Total Return 1982
-0.8 1983 44.5
1984 -1.4 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 18.6
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
Avg. Annual Return
12.6
Composite Index (65 Equities/35 Bonds)
11.6 Note Returns for 1986
after are net of manager fees
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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 has been 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 2006 Study reports
on over 760 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 (over 500
million to 1 billion). The latter, when
available, is the most useful standard of
comparison for Lehigh.
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NACUBO Comparisons
Endowment Size and Endowment per FTE
Student Page 10 indicates the growth of Lehigh's
endowment fund from 1996 to 2006. As of June 30,
2006, the University ranks 70th in endowment size
among 765 participating institutions. Lehigh's
154,189 endowment per FTE student compares
favorably to the 107,372 for independent
institutions over 500 million to 1 billion and
126,357 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).
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NACUBO Comparisons
Endowment Size 6/30/96
6/30/06 Lehigh
438,721,000
939,473,000 Rank 59 of 472 70 of
765 Institutions Institutions Endowment
per FTE Student 6/30/96
6/30/06 Lehigh 79,464
154,189 Rank (Independent Institutions) 92
of 319 95 of 517
Average - All Schools 57,966
49,453 Independent
Institutions Over 500 million to 1 billion
151,475 107,372 All 79,089
126,357
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Endowment per FTE StudentLehigh vs. Aspirational
PeersJune 30, 2006


Market Value FTE
Endowment Institution
in 000s
Students per Student Rice University
3,986,664 5,014 795,10
7 Emory University
4,870,019 11,882 409,865 Universit
y of Notre Dame 4,436,624 11,307 392,
379 Northwestern University
5,140,668 16,030 320,690 Lafayette College
648,292 2,278 284,588 Brown
University 2,166,633
8,080 268,148 Vanderbilt University 2,946,392 11,0
90 265,680 University of Pennsylvania 5,313,268 21
,082 252,029 Cornell University 4,321,199 19,447 2
22,204 University of Rochester 1,491,275 7,
639 195,219 LEHIGH UNIVERSITY
939,473 6,093 154,189
Tufts University 1,215,413 8,814 137,896 Carneg
ie Mellon University 939,581 9,091 103,353
Georgetown University 834,497 12,746 65,471 The
George Washington University 963,697 19,509 49,398
Lafayette College is included for
informational purposes only.
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NACUBO Comparisons
Investment Performance Lehigh's endowment
returns for the one, five and ten-year periods
ending June 30, 2006 ranked in the top third of
all endowment pools. Endowment returns for the
one, five and ten year time periods meet or
exceed Lehighs performance objective of top
third performance vs. all endowment funds.
Performance information can be found on the
following three pages.
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Average Annual ReturnEnding June 30, 2006 for
Each Period

10 Yrs
5 Yrs 3 Yrs 1
Year Lehigh University 10.4 7.6
12.5 12.0 All Endowment Funds
8.8 6.3 11.9 10.7 LU Rank
72/477 130/589 263/656
236/700 Over 500 million to 1 billion
9.8 7.4 13.8 12.8 LU
Rank 13/51 20/55 43/61 40/61 Independent
Institutions 9.0
6.4 12.0 11.1 LU
Equity 12.6 8.1 17.5 16.2 SP
500 8.3 2.5 11.2
8.6 LU Bonds 6.5 5.8
3.1 -0.1 LB Aggregate 6.2 5.0 2.1 -0.8 LU
Composite Benchmark
7.9 3.6 8.0 5.3 Added Value over
Benchmark 2.5 4.0 4.5 6.7
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LU Investment Performance vs. All Participating
Institutions June 30, 2006
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LU Investment Performance vs. Large Endowments
June 30, 2006
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NACUBO Comparisons
Asset Allocation The asset allocation of
Lehigh's endowment fund at June 30, 2006 tends to
reflect the average of all participating
institutions with exception of under weightings
in domestic equities and cash and over weightings
in non-U.S. equities and fixed income. The
following page indicates asset allocation data as
of June 30, 1996 and 2006.
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Asset AllocationJune 30, 2006
6/30/96
6/30/06 LU
Average LU Average Equity
U.S. 45.0 51.6 37.1 42.5 Equity
Global/Foreign - 2.1 21.4 15.2 Fixed
Income 32.7 28.0 17.5 20.2 Cash
19.8 10.7 1.5 3.4 Private
Equity/Venture Capital 1.8 1.1 2.7
2.8 Hedge Funds - - 10.8
9.5 Natural Resources - - -
1.5 Real Estate 0.4 4.0 0.1
3.5 Other 0.3 2.5 8.9 1.4
TOTAL
100.0 100.0 100.0 100.0
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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 1996
Fiscal year 2006 Lehigh University
1.8 3.1 Average - All Institutions
5.4 3.3 Over 1 billion N/A 2.7 Over 500
million to 1 billion N/A 3.5 Over
100 million to 400 million 4.9
N/A Independent Institutions 3.7 2.6
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Gift Flow RateFiscal Year 1996-2006
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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 exceptional investment
performance over the past 10 years. This has
added to the value of the endowment fund
resulting in additional income for the
universitys 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.
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NACUBO Comparisons
Endowment Spending Rate Below are details of
Lehigh's spending as a percentage of the current
years average market value. Lehighs spending
rate in 2006 was below the NACUBO average for all
endowments, the average for endowments over 500
million to 1 billion, and the independent
institution average. Further information
regarding Lehighs spending policy and historic
spending rates can be found on following two
pages.
FISCAL
YEAR 1996
2006 Lehigh University 4.7 4.4 Average - All
Institutions 4.4 4.6 Over 500 million
to 1 billion N/A 4.5 Over 100 million to
400 million 4.3 4.6 Independent
Institutions 4.5 4.8
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Endowment Spending Rate1997 - 2006
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NACUBO Comparisons
Endowment Fund Spending Policy In fiscal year
1990-91, the University implemented a market
value based spending policy that was adopted by
the Finance Committee and the Board of Trustees
at its April 1989 meeting. This policy provided
for annual spending based on 5 of a three-year
moving average market value (using quarterly
market values) with a minimum increase of 3 per
year and a maximum increase of 6 per year over
prior years spending rate. The policy minimum
and maximum increases were changed to 0 and 10,
respectively, in fiscal year 2001.
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