3. Establishing reasonable and consistent investment objectives, policies and guidelines
which will direct the investment of the Foundation's assets.
4. Prudently and diligently selecting qualified investment management.
5. Regularly evaluating the performance of advisors to assure adherence to policy
guidelines and monitoring investment objective progress,
developing and enacting proper control procedures:Tor example, replacement of fund
managers due to fundamental change in investment management process or failure to
conoply with established guidelines.
DELEGATION OF RESPONSfBILlTIES
The Board of Directors of Gnited Methodist Foundation is responsible for directing and
monitoring the investment management of assets. As such, the Board is authorized to
delegate certain responsibilities to professional experts in various fields. These include, but
are not limited to:
1 . Investment Management Consultant. The Investment Management Consultant's role is
that of a non-discretionary advisor. The Consultant may assist in establishing investment
policy, objectives, and guidelines; selecting investment managers; periodically reviewing
such managers; measuring and evaluating investment performance and informing the
Board regarding any qualitative change to investment management organizations.
Examples include changes in portfolio management personneC ownership structure,
investment philosophy, etc.
2. Investment Managers. The Investment Managers have discretion to purchase, sell, or
hold the specific securities that will be used to meet the Foundation's investment
objectives.
3. Custodian. The Custodian will physically (or through agreement with a sub-custodian)
maintain possession of securities owned by the Foundation, collect dividend and interest
payments, redeem maturing securities, and effect receipt and delivery following
purchases and sales. The Custodian may also perform regular accounting of all assets
owned, purchased, or sold, as well as movement of assets into and out of the accounts.
irSVESTMElST MANAGEMENT GOAL
PRIMARY GOAL
The Primary Investment Management Goal of Gnited Methodist Foundation is to obtain the
greatest possible return on invested funds at the lowest possible risk. Additionally, through
expert professional management, to maximize a balanced return of current income and
growth of principal througli a portfolio diversified between equities, fixed income, and cash
equivalent investments. And, to accomplish this Primary Goal, meeting all administrative
responsibilities, based upon and guided by the Social Principles of the Gnited Methodist
Church, the Statement of Investment Guidelines of The Board of the General Council on
Finance and Administration of The Gnited Methodist Church, and this Statement of
Investment Policy, Objectives, and Guidelines of the Gnited Methodist Foundation, Inc.
INVESTMENT OBJECTIVES
1. Preservation of Capital - Consistent with their respective investment styles and
philosophies, investment managers should make reasonable efforts to preserve capital,
understanding that losses may occur with individual securities.
2. Risk Aversion - Gnderstanding that risk is present in all types of securities and investment
styles, the Foundation recognizes that some risk is necessary to produce long-term
investment results that are sufficient to meet the Foundation's objectives. However, the
398
advisors are expected to make reasonable efforts to control risk, and will be evaluated
regularly to ensure that the risk assumed is commensurate with the given investment
style and objectives.
3. Adherence lo investment Discipline - Each Advisor is expected to adhere to the
investment management style for which they were hired. Advisors will be evaluated
regularlvfor adherence to investment discipline.
IMVESTMEm- TIME HORIZOM
The investment time horizon for the Foundation is 5 years
CAPITAL MARKETS ASSGMPTIONS
The following capital markets returns are based upon historical data (1926-1999) and have
been used to determine the specific investment goals above (Asset Class & Annualized
Return): Small Cap Stocks - 12.B%- Large Cap StocTcs (S&P 500) - 1 1.3%; Intermediate Govt
Bonds - 5.2%- 90 Day T-Bills - 3 A Expected CPl - 3.1%
SPECIFIC INVESTMENT GOALS
Over the investment time horizon established in this statement (5 years), it is the goal of the
aggregate Foundation to achieve a minimum total return of 6% per year net after expenses.
The investment goals above are the objectives of the aggregate Foundation and are not
meant to be imposed on each investment account (if more tnan one account is used) or
individual Investment Managers. The goal of the Investment Management Consultant, over
the investment horizon, shall be to select Investment Managers who are expected to:
1. Meet or exceed the market index, or blended market index, shown below for each
manager: Manager & Market Index: Large Capital Value, - Russell 1000 Value: Large
Capital Growth - Russell 1000 Growth; Small Capital Growth - Russell 2000 Grov^h;
International - EAFE GDP; Fixed Income - LB Govt/Corp Intermediate
2. The overall opal of each manager is to display a level of risk in the portfolio not
exceeding 95% of the standard deviation of the associated benchmark specified above.
Risk will Be measured by the standard deviation of quarterly returns.
INVESTMENT GUIDELINES
Allowable Assets:
Cash Equivalents - Treasury Bills, Money Market Funds
Fixed Income Securities - G.b. Government and Agency Securities Corporate Bonds and
Notes, Mortgage Backed Bonds, Preferred Stock, Principal Real Estate Loans, 10% maximum
in any one Corporate Bond
Equity Securities - Common Stocks, 5% maximum in any one stock. Convertible Notes
and Bonds, Convertible Preferred Stocks, American Depository Receipts (ADRs) of Non-G.S.
Companies, Stocks of Non-CI.S. Companies (Ordinary Shares), 25% Maximum in any one
sector
Prohibited Assets: Prohibited investments include, but are not limited to: Commodities
and Futures Contracts, Options
Prohibited Transactions: Prohibited transactions include, but are not limited to: Short
Selling, Margin Transactions
All investments are to be made in accordance with the "Statement of Investment Guidelines"
of The Investment Committee of the General Council on Finance and Administration of The
United Methodist Church.
ASSET ALLOCATION GUIDELINES
Investment management of the assets of the aggregate Foundation shall be in accordance
with the following asset allocation guidelines:
Aggregate Asset Allocation Guidelines (at market value); (Asset Class SAllocation):
Eguities - 65% (Style&Allocation): Large Capital Growth - 30%; Large Capital Value - 30%
Small Capital Equity - \ 5%: International - 1 5%r REIT - 1 0%
Fixed Income - 35% (Style & Allocation): Intermediate Term Securities - 100%
(Approximately 5% of total assets are held in Cash and Equivalents at any given time.)
fNVESTMENT MANAGER PERFORMANCE REVIEV/ AND EVALUATION
Performance reports generated by the Investment Management Consultant shall be compiled
at least quarterly and communicated to the Board for review. The investment performance
of total portfolios, as well as asset class components, will be measured against commonly
accepted performance benchmarks. Consideration shall be given to the extent to which the
investment results are consistent with the overall investment objectives, goals, and guidelines
as set forth in this statement. The Board intends to evaluate the portfolios over at least a three
year period, but reserves the right to terminate investment managers for any reason including
the following:
1 . Investment performance significantly less than anticipated given the discipline employed
and the risk parameters established, or unacceptable justification of poor results.
2. Significant qualitative changes to the investment management organization including:
personnel, strategy, research capabilities, organizational and business matters, and other
qualitative factors that may impact their ability to achieve the desired investment results.
INVESTMENT POLICY REVIEW
To assure continued relevance of the guidelines, objectives, financial status and capital
markets expectations as established in this statement of investment policy, the Board plans
to review investment policy at least annually.
Adopted: Board of Directors - 06/22/00
399
BOARD OF MISSIONS, INC.
FINANCIAL REPORT
CONTENTS
INDEPENDENT AUDITOR'S REPORT 39^)
FINANCIAL STATEMENTS
Statements of financial position 400
Statements of activities 400
Statements of cash flows 401
Notes to financial statements 402-403
M^GLADREY&PULLEN, llp RSM
Certified Public Accountants intematjonaj
INDEPENDENT AUDITORS REPORT
To the Board of Trustees
Board of Missions. Inc.
Raleiah, North Carolina
We have audited the accompanying statements of financial position of the Board of Missions. Inc.. as of
December 3 1, 1999 and 1998. and the related statements of activities and cash flows for the years then
ended. These financial statements are the responsibility of the Board's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit mcludes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the Board of Missions, Inc., as of December 31, 1999 and 1998, and the change in
its net assets and its cash flows for the years then ended in conformity with generally accepted
accounting principles.
y^cJ'Ukdt^ / /'^^-^^^
^/cJi:^^ /
Raleigh, North Carolina
March 22, 2000
400
STATEMENTS OF FINANCIAL POSITION
December 31, 1999 and 1998
ASSETS
Cash
Accounts receivable. United Methodist Foundation. Inc.
Interest receivable, less allowance for doubtful
interest receipts of $5,000 for both 1999 and 1998
Mortgage loans receivable, less allowance for doubtful
loans of SI 50.000 for both 1999 and 1998
Investments (Note 2)
Property (Note 3)
Total assets
S 630,296 % 819.584
2,210 1.674
2,644,306 3.147.216
1,092,008 266.397
1,449366 1.259.756
LIABILITIES AND NET ASSETS
Due to the North Carolina Conference. Southeastern Jurisdictic
of the United Methodist Church
Total liabilities
Net assets, unrestricted
Total liabilities and net assets
5,832,481 $ 5.529.965
See Notes to Financial St.
STATEMENTS OF ACTIVITIES
Yeai^ Ended December 31. 1999 and 1998
Changes in unrestricted net assets:
Revenues:
Interest, church loans
S 188,812 $
250.031
Investment income. United Methodist Foundation, Inc.
6,853
3.368
Unrealized gain (loss) on investments
19J95
(128)
Building service fee
27J10
14.512
Sale of land
156,164
Other
12,000
12.015
Donations
100,000
510,434
279,798
Expenses or distributions:
Salary, benefits and related expenses
153,758
145.015
Legal and accounting
2U09
7.782
Depreciation
2.172
2.130
Bad debt expense (recoveries)
8,868
(14.025)
Other
21,911
18.477
207,918
159.379
Change in net assets
Beginnit
Ending
$ 5,758,881 $ 5,456.365
See Notes to Financial Staternents.
401
STATEMENTS OF CASH FLOW
Years Ended December 31, 1999 and 1998
Cash Flows From Operating Activiiies
Change m net assets
Adjustments to reconcile change in net assets
to net cash provided by (used in) operating activities:
Depreciation
Provision for uncollectible accounts
Unrealized (gain) loss on investments
Realized gain on sale of property
Donated land
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable
Interest receivable
Decrease in due to Nonh Carolina Conference
Net cash provided by (used in) operating activities
2.172 2.130
(9,620)
(19,295) 128
(156.164)
(100,000)
(536) (1,584)
21,043 (8,688)
(117,395)
Cash Flows From Investing Activities
Mortgage loans originated
Principal payments on mortgage loans
Investment in the United Methodist Foundation, Inc.
Purchases of property and equipment
Proceeds from sales of property
Net cash provided by (used in) investing activities
(417,100) (352,900)
920,010 833,306
(806,316) (251,784)
(726,370)
790,752 ■
(239,024) 228.622
Net increase (decrease) in cash
Cash:
Beginnii
Ending
See Notes to Financial Statements.
402
NOTES TO FINANCIAL STATEMENTS
No(e 1. Nalure of Operations and Signiflcant Accounting Policies
Nature of operations : The Board of Missions, Inc. (the "Board") was established primarily to encourage
the construction of new churches and the remodeling and repairing of existing facilities by providing
financial assistance to churches established in eastern North Carolina. All loans are collateralized by a
first deed of trust on the Church property.
A summary of the Board's significant accounting policies follows:
Estimates : In preparing its financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the statement of financial
position date and the statement of activities for the period. Actual results could differ from those
estimates.
Net assets : Net assets, revenue and expenses, and gains and losses are classified as permanently
restricted, temporarily restricted or unrestricted based upon the existence or absence of donor-imposed
restrictions All of the net assets of the Board are classified as unrestricted due to the absence of any
donor restrictions.
Cash : Tlie Board places its cash with high quality financial institutions. At limes this cash is in excess
of the FDIC limit.
Investments : Investments in equity securities with readily determinable fair values and all investments
in debt securities are measured at fair value. Changes in the fair value of investments, including both
realized and unrealized gains and losses, are included in the accompanying statements of activities. In
determining realized gains and losses, the cost of investments is determined using the
specific-Identification method.
Properly : Property is capitalized at cost or at fair market value as of the date acquired when received
by gift. Depreciation of its building is computed using the straight-line method over an estimated
useful life of forty years.
Note 2. Investments
All investments are deposited with the United Methodist Foundation. Inc. Cost and fair values as of
December 31, 1999 and 1998 were as follows:
Cost S 1,068.527 $ 262.211
Fair value 1,092,008 266,397
The Board of Missions investment in the United Methodist Foundation, Inc. represents less than 2
percent of the equity of the Foundation. The Foundation's net assets were $64,177,692 at December 31.
1999 and consisted primarily of common stocks and fixed income securities.
403
Note 3. Property
A summary' ot"properr\' is as follows:
Undeveloped land
Land
Buildms?
iilaled depreciation
s
1,016.460
$
849,679
345,845
340,845
105,210
85.210
1,467,515
1.275,734
18,149
15,978
s
1,449,356
$
l.;59.756
The undeveloped land Is land held by the Board for future church sites. Included in the undeveloped
land is a 13.5 acre tract in the Wake Forest To\'.nship of Wake County. The Board acquired this tract of
land by an action of the Charge Conference of the former Morningstar Church lo transfer the deed of
trust to the Board along with the corresponding loan against the property. The Board paid off the loan on
this proper!) in 1996. The deed was transferred to the Board in 1997.
Note 4. Commitments
As of December 31. 1999. the Board had approve
which had not been disbursed.
404
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