Unitarian-Universalist Church of Nashua, New Hampshire

Unitarian‑Universalist Church of Nashua, New Hampshire

Investment Review Committee Report for Fiscal Year 2002

NOTE: So that this report can be sent out in advance of the Annual Meeting, some figures do not include May data – May is the last month in our Fiscal Year.

The Investment Review Committee is chartered under the Church by‑laws to monitor and control, subject to direction from the Executive Committee, performance of the managers of the Church's invested funds. The major Church and Cemetery Trust Fund, the Anna Stearns Bequest, and the Retirement Pensions for Don Rowley and Louise Ekstrom (who served the Church as Minister and Church Secretary for many years) are all managed for the Church by Fleet Bank’s Investment Group. The Church/Cemetery funds are comprised of bequests and accumulated gains, with 17.67% of the total belonging to the cemetery. A group of small, restricted funds previously held as bank CD's are also managed by Fleet. The Sarah M. Balcom Fund is held by the Bank of New Hampshire as Trustee in perpetuity for the benefit of the Unitarian‑Universalist Church of Nashua. Two Helen Willis Boutwell Funds are also held in perpetuity by the Unitarian-Universalist Association for our benefit. Church Treasurer Jon Lasselle, Treasurer of the Cemetery Association Rick Spitz, Carol Houde, John Sanders, Diana Reilly and I make up the Investment Review Committee. During the year, Mark Govoni from the Manchester office of Fleet-NH replaced Gregory McConahey as our account manager. We appreciate Greg’s work with us and look forward to continued work with Mark. We met twice during the year with Greg and will have met twice with Mark by year’s end.

The Church/Cemetery Fund Investment Portfolio is conservative. We ask Fleet to achieve a high Total Return (income plus principal growth) for the portfolio while maintaining a balance of income and fund growth within Fleet's investment diversification guidelines. We believe this will best provide for the income needs of the Church year to year, protect the principal, and provide for growth. Over the long term, the goal is to increase the principal value of the account by more than the rate of inflation (3.8% over the past twelve months) to maintain and enhance the purchasing power of the account for future years. At present about 41.58% of the Church/Cemetery Fund is in fixed income securities (bonds, cash, and the Minister's mortgage) and the remaining 58.42% is in common stocks and convertible bonds. Cash comprises 6.79% of the total amount (13.06% of the equity portion), again, an increase from last year. This fund had a Total Return of (9.27%) for the twelve months ending April 30, 2002. The returns for the equity portion of the fund trailed the Standard and Poors 500 Equity benchmark, but the fixed income part exceeded the Lehman Bond index. For the fiscal year ending May 31, the Fund paid a total of $49,530.13 in income to the Church and $10,422.02 the Cemetery Trustees. Under the Total Return principle, the Church also received $60,000.00 from the Principal side of its account.

The Committees' instructions to Fleet for managing the Stearns' Fund and the Church/Cemetery Fund are identical. Stearns Fund diversification is 41.75% in Cash and Fixed Income instruments and 58.25% in equities. Cash on hand is 7.79% of the total of the account (13.29% of the Equity portion). During this past year the Anna Stearns Bequest paid out $44,506.12 in account income to the Church. Under the Total Return principle, the Church also received $50,000.00 from the Principal side of its account. This fund produced a Total Return of (10.09%) in the twelve months ending April 30, 2002. The Stearns Fund and the Church/Cemetery Fund are nearly identical in their proportions of equity and fixed income securities, and this produced nearly identical negative total returns. Like the Church/Cemetery Fund, the Stearns Fund trailed the Standard & Poors 500 benchmark and exceeded the Lehman Bond index. The total investment income received by the Church from our combined Fleet endowment accounts, therefore, was $104,458.27, and the total principal taken was $110,000.00.

Our other major invested account, the Sarah M. Balcom Fund, is an irrevocable trust managed by the Bank of New Hampshire for our benefit. As a consequence, we have no direct control over the investments in the fund and can only express our needs and goals to the Bank; we have asked the Bank to maximize income for the Church from this fund. As of December 31, 2001, this Fund had a market value of $265,027 ($281,222 in 2000), and had provided the Church with $5,761.17 during the calendar year 2001. ($4,982.83 in the previous year.)

The two Boutwell Funds are held by the Unitarian-Universalist Association and are managed for them by Investors Bank & Trust Company of Boston. The two funds were jointly worth $32,100.81 as of January 31, 2001, and gave us $2,003.75 in income. These funds are managed according to policies very similar to those Fleet and we are following; i.e., Total Return, a six percent draw (we are using 5.25% this year) based on thirteen rolling quarters (we use twelve), and an effort to be socially responsible. Note that the 5.25% is more than last year’s 5%, reflecting the probability that the annual fund drive will not raise enough to balance the budget without the increase.

In consultation with our account manager at Fleet, the Committee has set our annual Total Return expectation for the Fleet funds at 10%. This Total Return will be calculated as a rolling average over the previous 12 quarterly accounting periods. Our management policy is also related to total return performance over the previous 12 quarterly periods (3 years). The longer-term performance is shown for each account on a Total Return basis in the table below:

TOTAL RETURN HISTORY

(Expressed as a percent of prior year-end value adjusted for time-weighted additions/withdrawals of principal.)

FUND

FY02

FY01

FY00

FY99

FY98

FY97

AVERAGE

6 years

CHURCH/CEMETERY

(9.27)

(2.97)

6.54

9.71

20.76

15.91

6.78

A. STEARNS

(10.09

(4.36)

8.50

11.94

20.82

20.84

7.94

BALCOM *

(3.71)

1.65

8.12

12.28

28.26

15.22

10.30

BOUTWELL* #

(7.63)

* Figures are for calendar years. # Boutwell Fund figures for prior years not available.

The attached sheet shows the performance record of these accounts for the past fiscal year and also shows for the same period the change in value of the commonly followed Dow Jones Industrial Average and S & P 500 stock average, and as a measure of annual inflation, the Consumer Price Index. Although the market value of our funds has declined during the year, our long-term objectives continue to be met. While this may result in a smaller "bottom line" for us at some point as the market swings up and down, it does not mean a substantial decrease in the dollars available to fund our operations for the year because our spending policy is tied to a rolling average of twelve prior quarters.

For the year ahead, Fleet expects continued modest economic recovery and rising business profits. Interest rates are also expected to rise; with ten-year Treasury rates expected to range between 5.00% and 5.70%. These expectations, if met, will probably increase our income and take our total return out of negative territory.

Our account manager is maintaining the industry diversification recommended by Fleet by selling off portions of positions that rise substantially and tend to get the account out of balance. Similarly, projected and reported sales and earnings are closely watched in an effort to avoid holding companies vulnerable to market shock in the event of a quarterly disappointment in either. Obviously, the market is in a volatile position but to date Fleet continues to plot a successful track through the sometimes rough waters.

It is important for each member of the Church to recognize that while this endowment can be counted on to provide substantial support for our operating budget and for the special programs and outreach that we have funded, we must remember our primary source of funding has to be the annual contributions of the Church members. By making our own individual contributions we become a constituency which is more invested in our institution and its programs than if we stand on the sidelines and wait for others to pick up the tab. It is important to note that total funds received by the Church from our Church/Cemetery Fund last year was $119,952.15 and from the Anna Stearns Fund was $94,506.12. This combined total of $214,458.27 is about 6.08% of the combined average market value of Church (excluding Cemetery) endowment funds during the year. That this is more than the maximum recommended guideline of 5% of market value, reflects the fact that we cannot meet our budget and provide the staff and programs that the Church wants without taking more than is prudent from our endowment.