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When judging, for investment purposes, the performance and rate of return of a particular fund, it is crucial to keep in mind the traditional purpose of an endowment: to provide perpetual income for support of the ministry of a church or church agency. Both "perpetual" and "income" are key words. To provide perpetual income, investments must be sound so that the principal of the endowment is not subject to imprudent risk of loss. To provide perpetual income, investements must be such as to pay a good rate of dividends or interest. The Program's Growth/Income Fund (formerly the Commingled Fund) is designed to achieve this purpose.
Many funds--with particularly attractive overall rates of return--achieve such returns by a higher than average risk of principal and/or by investing in the stocks of companies that pay low dividends in order to reinvest profits in expansion. Such reinvestment of profits can yield impressive capital gains. For certain endowments such as those in the Program's Total Return Fund, capital gains as well as interest and dividends can be spent. But, for the endowments in the Growth/Income Fund such capital gains are additions to the principal and not dividends which can be used to support the ministry for which the endowment was established.
Naturally, a certain amount of capital gain--in order to increase the principal and its earning power--is desirable in the Growth/Income Fund, but high capital gains and low income would defeat the purpose of the endowments in this fund and its investments are, therefore,structured to generate excellent current income and protect principal.
The Growth/Income Fund generated $1,837,444 in income during 2005. The largest amount of income came from the 87% of the assets invested at year end in fixed income securities and equities. Income from this portion was $1,524,441 (83% of total income). Church loans which, with cash reserves for future loans and distributions of earned income, comprised 13% of assets brought in $313,002 (17% of total income).
Fees paid to the investment managers totaled $109,170. Other expenses were $24,151 for a total of $133,322, equal to 31/100ths of one percent of the net year end commingled assets of $43,010,572.
Earnings paid and payable to agencies for 2005 totaled $1,365,238. (An additional $333,884 in income was reinvested in the various endowments in accordance with the trust agreements.)
When comparing the performance of the Growth/Income Fund with other funds it is important to keep in mind the various components included in the reported rates: interest and dividend income, realized capital gains/losses, and unrealized capital gains/losses due to the difference between the current market value of investments and their original cost or market value in previous reports.
Investment funds typically report their total rates of return. A total rate of return includes the effect of the fluctuation in market value of the various investments together with all realized/accrued income and capital gains/losses generated as investments are sold for more/less than their original cost. Because of the impact of fluctuation in market value, the total rate of return for any given year may be positive or negative. Such total rates of return are important indicators of a fund's overall performance. However, the rate of crucial importance for the Growth/Income Fund relates to the amount of income (interest and dividends) which it generates since for the endowments in this fund only income is available for support of the various ministries for which the endowments are established. The Rate of Income Paid Out is distinct from Total Rate of Return.
The rate at which income was paid out to participants for 2005 was 4.20% as compared with was 4.01% for 2004, 4.40% for 2003, 4.45% for 2002, 4.60% for 2001, 4.82% for 2000, 4.67% for 1999, 4.77% for 1998, 5.07% for 1997, 4.81% for 1996, 5.44% for 1995, and 5.22% for 1994.
Example: A church or church agency with a single Growth/Income account with a constant principal balance during 2005 of $100,000.00 would have received twelve checks which, when totaled, would equal $4,200.00.
During 2005, there were unrealized gains of $431,186 in the market value of the stock and bond portion. Sales of investments at less than their cost generated a realized loss of $264,221. This net gain of $166,965 when added to the interest and dividends of $1,837,444, yields a 2005 total rate of return for the stock and bond portion of the fund of +7.0%.
A comparison of return over the past quarter, year, five years, ten years, and since the professional managers began their work in 1981 is as follows:
Quarter 1 Year 5 Year 10 Year 1981ff 10/01/05 01/01/05 01/01/01 01/01/96 09/30/81 12/31/05 12/31/05 12/31/05 12/31/05 12/31/05 +1.9% +7.0% +6.9% +9.0% +11.7%
A net capital gain was credited to accounts during 2005 at a rate of +0.53%.
Example: A single Growth/Income account with a beginning principal balance during 2005 of $100,000.00 would have increased to $100,530 due to the capital gain adjustment.
In this computation, the portion invested in church loans is included at the full principal remaining due on each loan since the market value of the loans is unknown.
A comparison of return over the past quarter, year, five years, and ten years is as follows:
Quarter 1 Year 5 Year 10 Year 10/01/05 01/01/05 01/01/01 01/01/96 12/31/05 12/31/05 12/31/05 12/31/05 +1.5% +5.3% +5.5% +5.8%
In computing a total rate of return for all investments the rate of return for church loans is combined with the total rate of return for the stock & bond portfolio.
A comparison of return over the past quarter, year, five years, and ten years is as follows:
Quarter 1 Year 5 Year 10 Year 10/01/05 01/01/05 01/01/01 01/01/96 12/31/05 12/31/05 12/31/05 12/31/05 +2.0% +4.6% +5.7% +7.9% HOME FOUNDATION ENDOWMENTS For more information, contact Richard Magrill
Page updated on May 1, 2007 Pages maintained by Elinor Swindle Brown