LCMS Convention Workbook St. Louis, Missouri — 1981, Page 199

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ADMINISTRATION 199

intermediate-term fixed-income securities, and in recent
months low-yielding bonds purchased many years ago have
been “swapped” for high-yielding short-term investments even
though large losses had to be taken. Since 1960 the market
values of common stocks have fallen below aggregate cost on
an infrequent basis and generally for fairly short periods of
time. The trustees have confidence in the quality of the equities
and fixed-income investments contained in the Pension Plan
portfolio and believe that the common stock investments will
prove advantageous. During the 11-year-11-month period from
Jan. 31, 1969, through Dec. 31, 1980, sales of equity and fixed-
income securities produced net realized gains for each year,
with the aggregate for the period being a net gain in excess of
$12,305,000. The past three years have produced $8,954,000, or
nearly 73% of the aggregate realized gains. These results were
credited to the “earnings” of the participants.

The period from Dec. 31, 1978, to Dec. 31, 1980, saw
drastically fluctuating market values in both stocks and
bonds. The market value of equity investments of the U:S.
portfolio at Dec. 31, 1980, of $57,438,657, was below cost by
$2,779,609. In the Canadian holdings the market value of
equity investments of $909,550 was above cost by $216,923.

A program and procedure for distributing unrealized equity
appreciation among the active members’ accounts and to the
Annuity Reserve (for retired members) was started as of Jan.
31, 1969, and resulted in annual credits or withdrawals from
accounts according to the market values as of the end of each
year. This program provided that the sum of all reductions be
limited to the sum of all credit allocations of appreciation. At
Dec. 31, 1978, all previously credited appreciation was with-
drawn. No entry was made for Unrealized Appreciation on
Equity Investments as of Dec. 31, 1979, because market
conditions, equity investment values (common stock) did not
change enough to cause any additions for the year. Due to the
volatility in the prices of common stocks during the past
several years, and anticipated to continue in future years, the
procedure of adding unrealized appreciation did not serve the
purpose that was intended. Since all of the appreciation
additions were removed as of Dec. 31, 1978, and with no change
during 1979, it was decided that effective Jan. 1, 1980, the
Pension Plan for Pastors and Teachers be amended to remove
the provisions regarding the handling of the unrealized appre-
ciation in equity investments. In lieu thereof the board has
determined to manage the investments based upon current
market conditions and to realize (sell) the gains and/or losses
of each investment based upon fundamental investment
strategies. The past two years’ results have been rewarding.
Annual letters and account reports to the participants have
shown the fund results. The compounded annual yield has
been reasonably favorable when one takes into account the
long-term investment objectives involved.

LLL Endowment Funds

The LLL Endowment Fund was established in 1918 by the
Lutheran Laymen’s League as a permanent endowment fund
with the purpose of furnishing income from investments to be
used in the assistance of payment of annuities to retired
pastors and teachers. All income from this fund is used to
assist the Synod in the subsidy payments made to retired
pastors and teachers. Net income distributed by the fund
amounted to $156,296 in the fiscal year ended Jan. 31, 1980,
and $141,499 in the fiscal year ended Jan. 31, 1979. The
following is a summary of the invested assets of the fund,
showing each class of securities at cost at the end of each of the
past three fiscal years (note: the fiscal year of the Synod was
changed as of July 1, 1980, to July 1 through June 30):

Jan. 31,1978 Jan. 31,1979 Jan. 31, 1980
U.S. Government and

Federal Agencies Bonds $ 553,645 $ 439,869 $ 439,869

Utility Bonds .................. 252,403 252,403 252,403
Railroad Bonds ................ 48,729

Industrial Bonds ............... 107,688 107,688 30,000
Private Placements ............ 29,322 28,837 28,095
Common Stocks ................ 1,825,282 2,211,895 1,987,805
Cash and Temp. Invest. ........ 53,063 47,432 470,746

$2,870,132 $3,088,124 $3,208,918

The Board of Trustees applies the same basic principles and
policies in the investment of this fund as it does in the
investment of the Pension Fund. The value of common stocks
over the past year was such that sales of securities resulted in
net gains of $119,547; this amount was reinvested as part of the
endowment principal. It is anticipated that such astrategy will
be a part of the investment philosophy for this fund.

Sundry Trusts

The Board of Trustees is also charged with the management,
conservation, and responsibility “for all legacies, bequests,
devises, endowments, foundations, annuity gifts, and all other
trust funds of the Synod and of the Synod’s institutions and
activities” (Bylaw 9.27).

Prior to Feb. 1, 1968, all individual trust accounts that were
unrestricted as to investment were combined in one single
pooled fund, and the income from the fund was annually
allocated ratably to the various synodical activities such as
missions, colleges, seminaries, and special ministries that were
the designated beneficiaries of the trust. Most of the invest-
ments in the pooled fund were made prior to 1959 and were
primarily high quality industrial and utility bonds yielding
approximately 3!2% interest, which was favorable at the time
of investment. However, new accounts were averaged with
older accounts and were unable to obtain the higher yields or
increasing income current investments could obtain.

Since Feb. 1, 1968, the numerous funds, gifts, legacies,
bequests, devises, and annuities comprising the Sundry Trusts
Funds have been managed under the structure of three common
investment funds designated as:

Fixed Income Account ‘“‘A”’
Equity Account ‘‘B”
Mixed Account “C”

Each individual fund or trust account is represented by units of
participation in the respective funds, and all additions to or
withdrawals from each of the three common funds are calcu-
lated at market value on a quarterly basis.

As of Feb. 1, 1968, all the assets in the single pooled fund
became assets of the common fund Mixed Account “C,” the
fund was “frozen,” and no new accounts were added to the fund
after that date. During 1976 the board liquidated all equity
investments and invested the proceeds in Equity Account “B”
so that better asset management would be possible. The fixed
income investments of this fund will probably be allowed to
mature or on request accounts will be liquidated and trans-
ferred to Fixed Income Account “A” or Equity Account “B.”

All new moneys received after Feb. 1, 1968, for various trust
accounts are invested in either Fixed Income Account “A” or
Equity Account “B”’ as requested by the donor or beneficiary or
as determined by the Board of Trustees. The revised structure
of these funds, which was the result of extended study, provides
appropriate trust vehicles to more closely suit the investment
requirements of each new individual fund or trust account. It is
particularly devised to provide current investment opportuni-
ties for the grants, devises, and bequests received by the Synod
and its educational institutions (see Bylaw 6.37 c of the
Handbook).

The following is a summary of the investments of the
Common Investment Funds, showing each class of securities
at cost at the end of each of the past three fiscal years:

Fixed Income Account ‘‘A”’

Jan. 31,1978 Jan.31,1979 Jan. 31, 1980
U.S. Federal Agencies

Bonds $ 14,746 $ 114,746 $ 14,747
Utility Bonds ................-. 106,875 106,875 106,875
Railroad Bonds ..............-. 182,231 185,402 185,403
Industrial Bonds ............... 899,117 1,082,270 1,257,907
Temp. Investments ............. 60,000 10,000

$1,202,969 $1,549,293 $1,574,932

Equity Account ‘“‘B”

Jan. 31,1978 Jan. 31,1979 Jan. 31, 1980
$1,766,580 $1,780,150 $1,956,053
130,000 50,000
$1,766,580 $1,910,150 $2,006,053

Common Stocks ................
Temp. Investments .............