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SDA APOSTASY |
GCSDA Corruption #84
How General Conference Investments Are
Handled*
GC Treasurer Explains How Wall Street "Crash"
of `87
Affected the Church's Finances
Don Gilbert, Former Treasurer
General Conference of Seventh-day Adventists
Just one year ago, a bulging budget deficit, falling dollar, and
sagging confidence in the United States economy triggered the worst tailspin in
Wall Street's history.
October 19, 1987, quickly became Black Monday
when the Dow Jones industrial average plummeted 508 points, from 2246.7 to
1738.7, for a record loss of more than 22 percent. From Tokyo to Melbourne to
London, the shock was felt around the globe, dropping prices on nearly
everything from oil in the Persian Gulf to commodity prices in
Canada.
By year's end, stock market prices had recovered some, but
not enough to overcome the dramatic declines suffered. Stock market losses from
their high points in 1987 ranged from approximately 13 percent in Japan and 27
percent in the U.S. to 30-35 percent in Europe and 45-50 percent in some Far
Eastern markets, according to estimates of Morgan Guaranty Trust Company of New
York.
In the year since Black Monday, the world's stock markets have
continued to rock back and forth as investors have become wary of the markets
and uncertain of the outlook for the world's economy.
Church Impact
With the General Conference holding
more than $500 million in various investment funds, many church members have
asked how well the church fared during the Year of the Crash-1987.
The answer is, quite well. Although the loss in book value of investments for
the year totaled nearly $23.4 million, the losses were more than offset by the
realized capital gains, dividends, and interest income of $64
million.
No one, of course, would say that the stock market crash
didn't affect the church's earnings. It certainly did. But in a year when
countless businesses and individuals suffered massive losses, the church still
came through with a generous profit.
Why? I would attribute it to
these factors:
First, and most
important, only 26 percent of the money held by the General Conference was
invested in stocks. This means that nearly three fourths (74 percent) of all
invested funds were not directly susceptible to the stock market decline,
although the bonds in our portfolio were not immune to fluctuation.
As of December 31, 1987, invested money held by the GC was diversified among
these investments:
Percentage | |
Stocks | 26.1 |
Bonds | 33.6 |
Short-term investments | 4.6 |
Notes Receivable and Deposits | 13.6 |
Real Estate | 2.1 |
Second, the stock market regained some of its losses
by the end of the year. On December 31, 1987, the Dow Jones closed at 1938.8, up
200 points from Black Monday's close and, surprisingly, 43 points higher than at
the start of the year. This helped the church limit its "paper"
losses.
Third was a plan enacted
early in the year by the GC Treasury. The plan was to begin selling a portion of
its nearly $125 million in stocks and retaining the cash profits. Let me
explain.
In many respects, 1987 was a banner year for stock market
investors. The widely respected Dow Jones industrial average began the year at
1895.9 and then rose to its all-time high of 2722.4 on August 25, and so did
almost every major stock market index worldwide. It was a bull market, and
investors didn't want to be left out of the continually rising
market.
Inevitably, the financial markets seemed so overpriced that a
significant downward change seemed likely. But no one knew when an
adjustment would take place or how far down stock prices would
drop.
In this ongoing milieu, the GC Treasury decided in early 1987
to begin a specific program of selling stocks to cash in on some of the profits
gained from their increased market values. Under the direction of GC associate
treasurer Robert E. Osborn, the GC initiated its selling program in May and
continued to sell stocks throughout September and on into early
October.
Thus by early October-before the October 19 market crash-all
planned selling had been completed and the church had reaped $29,790,000 in
capital gains (profits) from its stock sales. We were certainly pleased, and we
believe that God was guiding His church through such unstable times.
To these stock profits we must add stock dividends and interest from all other
investments (minus any losses, including book losses) to arrive at the total net
return for the year. Though I can provide the dollar figures for the year (see
earlier), it is difficult to determine the cumulative yearly percentage gain for
all the church's investments because the capital amounts vary so much from day
to day.
Source of Dollars
Whenever our members hear that
the General Conference has more than a half billion dollars in investments, they
almost always ask, "Why does it have so much money stored away?"
Here's the reason. After members' tithes and offerings are given to their local
churches, specified percentages of these funds flow on to their conferences,
unions, divisions, and the General Conference. These funds become part of the
budgeted current operations of the worldwide church and are distributed
immediately for their appropriate functions.
Some of the funds,
though, may be designated for functions that may not need the funds right away,
such as building projects, world church programs, radio stations, educational
institutions. The GC then becomes the entity to hold these funds in short-term
investments until the funds are needed.
In addition, some excess or
reserve funds held by conferences, unions, and divisions around the world are
invested with the GC, which in turn combines all funds and invests them in
larger amounts, and returns any profits to the respective institutional
investors. This is a service provided by the GC to the world field. It provides
an especially valuable service to entities that do not have the time, expertise,
or quantity of funds to invest funds wisely or effectively, or who would prefer
to invest their funds outside their local countries.
Yet, out of the
approximately $550 million invested by the GC, the bulk of the funds is in two
retirement funds-one for the general church employees of North America
(currently $120.1 million) and one for the Adventist Health System (now $302.4
million).
As stated earlier, these funds are diversified mainly into
stocks, bonds, and short-term investments-including banker's acceptances,
commercial paper, intradenominational loans, and other instruments backed by the
U.S. government. Even the funds we have only overnight earn interest. They are
placed in interest-bearing accounts, for we believe that proper money management
is critical to the operation of the church.
Categories of Funds
All moneys received by the
General Conference for investment are placed into one of five funds, depending
upon the source or specific purpose of the investment. Presently these funds
total about $550 million.
1.
Investment Fund. Investments in this category are usually
long-term-both income and appreciated value are sought. This fund includes
portions of the general retirement funds, some GC allocated funds, and funds
invested for field organizations.
2. Income Fund. This fund serves the same
entities but, as the name indicates, has maximum spendable income as its primary
objective.
3.
International Fund. Money in this fund is invested primarily in
a few major world financial markets to provide a worldwide base of
investments.
4. Hospital
Retirement Fund for North American Division Health-Care Institutions.
This fund contains only health-care retirement funds and accounts for
more than half the total invested funds of the GC.
5. Miscellaneous Investments. This fund
includes various annuities, estate funds, and other similarly restricted
funds.
The first three funds-investment, income, and
international-are recorded and held in units and operated like mutual funds.
Annual Performance
A comparison of fund
performances for 1987 with other sample years, I believe, shows the result of
careful management. Here are the statistics:
Investment
Fund Percent |
International
Fund Percent |
Income
Fund Percent | |
1982 | + 18.3 | - 13.3 | + 28.1 |
1984 | + 7.0 | - 11.5 | + 12.7 |
1986 | + 12.7 | + 48.3 | + 17.5 |
1987 | + 5.9 | + 2.1 | + 2.2 |
The Hospital Fund had substantial earnings through 1986, but ended 1987 with a decline in stock valued of $9.6 million. At the time of this writing, the net deficit has dropped to $2.4 million, and an overall gain is expected by the end of 1988.
Safety Fund
As a safety precaution, the church
maintains a Reserve for Securities Fluctuation Fund to blunt the effect of a
severe market decline. This fund is funded entirely from realized capital gains
and is maintained at the minimum of 20 percent of the book value of fluctuating
securities.
The funds in this reserve account would be used, if
needed, to counter major losses sustained when a severe market decline occurs. I
am happy to say that even after Black Monday's loss we did not need to tap this
reserve. If this reserve were ever to be depleted, then and only then would
general church funds be affected.
The Securities Fluctuation Fund has
also become a valuable source of nontithe income for the church`s annual world
budget. From 1977 to 1987, earnings above church policy requirements in this
account have added $35.8 million to the world budget-a yearly average of $3.3
million. Only during two years, 1978 and 1982, were earnings in this fund
insufficient to provide funds above policy for distribution.
World Currencies
A related challenge facing the
church is the decline in the value of the U.S. dollar to some major world
currencies. In some areas of Europe and Africa the dollar decline has meant
fewer local moneys available after exchange of the GC appropriations. We
estimate the overall loss of available funds for local needs has approached the
$2 million mark. However, we are grateful for the continued acceptance of the
U.S. dollar in most countries throughout the world, which has been so important
in the advancement and support of God's work.
As God's family grows,
new members accept their responsibility for the support of His work. The need
for this become clearer when we realize that nearly 80 to 90 percent of the
funds for the church's global work is supplied and consumed locally. The funds
that flow through the General Conference provide the additional moneys needed.
This sharing of resources is vital.
The present financial plan to
keep the world work going has not faltered. Funds continue to be safely
distributed for their intended purposes. In reviewing the growth of God's work
and the distribution of funds, we can say thank You to God for letting us all
have a part "as God's fellow workers" (2 Cor 6:1, NIV).
Even as we
look forward to the day when the gospel shall be preached in all the world and
Jesus comes, we must not be discouraged at adverse situations during the present
time. Today's economic conditions continue to appear unstable. This should
emphasize our need to press forward together with the power of the Holy Spirit.
We thank God for the privilege of participating in His work.
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