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					Endowment Fund
 June 30, 2006
                 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
                             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
                                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.                                                                  2
                 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 Fund’s 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%.
             Lehigh University Endowment Fund
                                   Growth History


           $1,200

           $1,000

            $800
Millions




            $600

            $400

            $200

              $0
                    96   97   98   99   00   01   02   03   04   05   06   3/07
                                             June 30
                                                                                  4
   Endowment Increase by Components
       June 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%



                                                              5
Lehigh University Endowment Fund
Increase by Component June 30, 1996 to June 30, 2006




                                    Gifts
                                    29%




 Appreciation (net
   of spending)
       71%




                                                       6
Lehigh University Endowment Fund
          25 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
                                                                                  7
                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.

                                                                              8
              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).


                                                                          9
                     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
                                                                    10
           Endowment per FTE Student
                  Lehigh vs. Aspirational Peers
                         June 30, 2006

                           Market Value                 FTE        Endowment
Institution                       in 000s           Students        per Student
Rice University             $3,986,664                 5,014           795,107
Emory University              4,870,019              11,882            409,865
University 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             11,090            265,680
University of Pennsylvania     5,313,268             21,082            252,029
Cornell University             4,321,199             19,447            222,204
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
Carnegie 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.

                                                                                  11
              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 Lehigh’s performance objective of top third performance
vs. all endowment funds. Performance information can be found on
the following three pages.




                                                                       12
                      Average Annual Return
                 Ending 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%
S&P 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%    13
         LU Investment Performance vs.
          All Participating Institutions
                    June 30, 2006
 30.0%
 25.0%
 20.0%
 15.0%
 10.0%
  5.0%
  0.0%
 -5.0%
-10.0%
-15.0%
         10 Years   5 Years   3 Years   1 Year
LEHIGH    10.4%      7.6%     12.5%     12.0%
 High     17.2%     14.5%     21.5%     23.0%
 1st Q     9.7%      7.4%     13.6%     13.0%
 2nd Q     8.7%      6.2%     12.0%     10.8%
 3rd Q     7.6%      5.0%     10.2%      8.5%
  Low      3.4%     -3.4%     -2.3%     -2.7%    14
          LU Investment Performance vs.
                Large Endowments
                     June 30, 2006
30.00%
25.00%
20.00%
15.00%
10.00%
 5.00%
 0.00%
 -5.00%
-10.00%
          10 Years   5 Years   3 Years   1 Year
LEHIGH     10.4%      7.6%     12.5%     12.0%
 High      13.1%     11.8%     18.7%     20.0%
 1st Q     10.4%      7.9%     15.0%     14.0%
 2nd Q      9.5%      6.9%     13.4%     13.0%
 3rd Q      8.6%      6.2%     12.0%     11.0%
  Low       6.9%      4.4%     8.1%       5.6%    15
              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.




                                                                       16
                             Asset Allocation
                                 June 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%
                                                                      17
                   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%       18
                  Gift Flow Rate
                 Fiscal Year 1996-2006


4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
       96   97   98   99   00    01   02   03      04   05   06

                      Lehigh    Large Endowments
                                                                  19
                  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 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.

                                                                                      20
                  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 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 Lehigh’s 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%         21
       Endowment Spending Rate
                           1997 - 2006



6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%
       96   97   98   99     00    01    02   03     04   05   06

                      Lehigh      Large Endowments
                                                                    22
              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 year’s spending rate. The policy minimum and maximum
increases were changed to 0% and 10%, respectively, in fiscal year
2001.



                                                                  23

				
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