LCMS Convention Workbook St. Louis, Missouri — 1975, Page 180

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180 ADMINISTRATION

As had been reported in previous convention reports, the
Board of Trustees had been investing an increasing proportion
of the funds of the Pension Plan in investment quality common
stocks for a number of years. The Trustees continued to pur-
chase common stocks selectively during the 2-year period, but
a larger amount of investments were made in high yielding short
term fixed income securities. For most of the period from 1960
through 1974 the market value of common stocks had exceeded
cost. In only three periods during that time — approximately
7 months in 1962, 3 months in 1970, and 8 months from July 1974
through February 1975—have the market values fallen below
aggregate cost. As previously indicated, market values had
equaled cost again by March 26, 1975. The Trustees have con-
fidence in the quality of the investments contained in the Pen-
sion Plan portfolio and believe that the common stock invest-
ments will prove advantageous. During the 5-year-11-month
period from Jan. 31, 1969, through Dec. 31, 1974, all security
sales resulted in net gains for each year or period, and the ag-
gregate net gain was approximately $2,500,000.

The previous report explained in detail the program and
procedure for distributing 50% of unrealized equity apprecia-
tion among the active members’ accounts and to the Annuity
Reserve (for retired members). This procedure was started as
of Jan. 31, 1969, and resulted in annual credits and also with-
drawals from accounts according to the market values as of the
end of each year. It was provided, however, that the sum of all
such reductions be limited so as not to exceed the sum of all
credit allocations of appreciation. The state of the stock market
at Dec. 31, 1974, resulted in the total withdrawal from all ac-
counts of the balance of previously credited appreciation. In
spite of this total withdrawal of equity appreciation, the net
result is that the accounts of the participants and the annuity
reserve have been credited with earnings including realized
capital gains equal to a compounded annual yield of 4.9% for
the period from Jan. 31, 1969, through Dec. 31, 1974. Annual
letters and account reports to the participants have shown
these results calculated in detail.

As stated previously, the board has continued its program
of fixed income investments. As low interest rate securities and
loans have matured, the board had been able to reinvest in
much higher yielding securities, in the range of 8% to 10% in
1974. In addition, the board has followed a policy of purchasing
securities maturing no more than 10 to 12 years from purchase.
As a result, 31% of all bonds mature in the next 5 years, and
40% in the following 5-year period for a total of 71% in the next
10 years. This affords great flexibility to the board in seeking
the most favorable investment opportunities in either equity
investments or fixed income investments from time to time. In
addition, the board has been able to obtain excellent returns
on short term temporary investments.

LLL Endowment Fund

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. Income earned by the fund amounted to $130,819 in
the fiscal year ended Jan. 31, 1974, and $121,255 in the fiscal
year ended Jan. 31, 1975. The following is a summary of the
invested assets of the fund, showing each class of securities at
cost at the beginning of the period and the end of each of the
two fiscal years:

Jan. 31, 1973 Jan. 31, 1974 Jan. 31, 1975
U.G. Government and Federal

Agencies Bonds $ 857,894 $ 806,178 $ 705,349
Utility Bonds 304,732 304,732 304,732
Railroad Bonds 97,495 97,495 97,495
Industrial Bonds 55,000 55,000 55,000
Private Placements ——_ 33,567 32,797 31,989
Common and Convertible

Preferred Stocks 1,414,826 1,537,988 1,689,688
Cash and Temp. Invest. 90,269 53,090 4,195

$2,853,783 $2,887,280 $2,888,448

The Board of Trustees applies the same investment prin-
ciples and policies in the investment of this fund as it does in

the investment of the Pension Fund. At Jan. 31, 1975, the total
market value of the fund was $2,544,000. Most of the deprecia-
tion at Jan. 31, 1975, is in the bond sector of the portfolio. Most
of the market decline in the 2 years ended Jan. 31, 1975, has
occurred in the common stock sector. However, at March 26,
1975, the market value of common stocks had recovered so
as to be nearly equal to cost.

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” (Section 9.27 of the Handbook of the Synod).

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.

Prior to Feb. 1, 1968, all individual trust accounts which
were unrestricted as to investment were combined in one single
pooled fund, and the income from the fund was annually allo-
cated ratably to the various synodical activities such as mis-
sions, colleges, seminaries, and special ministries which were
the designated beneficiaries of the trust. Most of the invest-
ments in the fund were made prior to 1959 and were primarily
high quality industrial and utility bonds yielding approximately
312% interest, which was favorable at the time of investment.
However, new accounts were averaged with older accounts
and unable to obtain higher yields or increasing income which
current investments could obtain.

As of Feb. 1, 1968, all the assets then contained 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. The fixed income investments of
this fund will be allowed to mature, and, on request or at such
time as the market value of all assets equals cost value of the
fund, accounts will be liquidated and transferred to Fixed In-
come Account “A” and/or Equity Account “B.”

All new moneys received after Feb. 1, 1968, for the various
trust accounts are invested in either Fixed Income Account “A”
or Equity Account “‘B” or a combination thereof, as requested
by the donor or beneficiary as the case may be, or as determined
by the Board of Trustees. The revised structure of these funds,
which was the result of extended study, is to provide appro-
priate trust vehicles to more closely suit the investment require-
ments of each new individual fund or trust account with its pur-
pose, or the direction of the donor or beneficiary, to give each
new trust an opportunity for investment at current yields in
the case of fixed income, and current market and yield in the
case of equity investment, and of most importance, to give
permanent endowments the opportunity of increasing income
and growth in value through equity investment. It is particularly
devised to provide current investment opportunities for the
grants, devises, and bequests received by the Synod and its
educational institutions (see Section 6.37¢ of the Handbook of
the Synod).

The following is a summary of the investments of the Com-
mon Investment Funds, showing each class of securities at cost
at the beginning of the period and the end of each of the two
fiscal years:

Fixed Income Account “A”™
Jan. 31,1973 Jan. 31, 1974 Jan. 31, 1975

U.S. Federal Agencies Bonds... $24,822. $ «124,822 $ 124,747
Utility Bonds 25,250 25,250 _
Railroad Bonds 81,140 81,140 81.140
Industrial Bonds 60,406 110,531 210,531
Cash and Temp. Invest. 12,280 93,833 4.881
$ 203,898 $ 435,576 $ 421,299