* To invest assets entrusted to it so as to maximize the total return while preserving capital.

* To recommend the annual draw consistent with preservation of the purchasing power of the invested assets.

* To cause adequate communication to the parish at large at least annually as to the state of the invested assets, the expenditures for the year, the total return relative to a benchmark, etc. This normally would be done by the Treasurer at the Annual All-Parish Meeting. Semi-annual reports are to be made to the Vestry.

What We Do and What We Don't Do

To be specific, the Endowment Committee is an advisory group to the Vestry. We are separate and distinct from the Vestry so that we may provide objective and financially sound advice when the Vestry contemplates the use of investment funds. We are charged by the Investment Policy to offer this advice from the perspective of preserving these funds for the long-term benefit of the Church.

We don't participate in setting the budget, nor do we advise the Vestry in any way as to how money should be spent. We do tell them how much they have available to spend from the Endowment funds based on the established investment guidelines and the current investment market. We call this amount the "recommended annual draw" (referred to as the "portfolio return plan" in the bylaws).

The use of the word "recommended" is not accidental. As advisors, we can only advise. With an 80% majority, the Vestry is empowered to override our advice according to the bylaws.

The Endowment - What It Is and What It Isn't

The investment funds comprising "the Endowment" at Church of Our Saviour do not fall under the legal definition of endowment. A legal "endowment" is protected so that only the fund's earnings can be spent, while none of the original gift can be spent for any reason. As our "Endowment" is not governed in this way, the Church's investment funds are not provided the same legal protections governing preservation of principal and spending limits which are required for true endowments.

As of March 31, 2008, the COS Investment Funds listed as assets on our balance sheet totaled $16,497,071. Unfortunately, that total does not clearly represent what is available for the Church to use. Here's a breakdown of our invested funds:

The Keck Fund represents what remains from William Keck's original gift. This money is unrestricted (that is, may be spent in whole or in part for any reason authorized by the Vestry) and is the major part of what we commonly refer to as "the Endowment" for purposes of establishing the recommended annual draw (i.e., the amount of money the Vestry spends each year from the investment funds).

Prior to the Building for Tomorrow campaign, the Cleaver Fund was also considered part of "the Endowment" and therefore available to the Vestry to spend. However, this fund is now held as collateral against a loan from Bank of America used to partially finance our new campus buildings and improvements. This loan is due in the spring of next year with a payable amount of $3,716,667 as of March 31, 2008. The Vestry appropriately removed the collateral for this loan (effectively, the Cleaver Fund) from consideration as "Endowment", recognizing that it could not spend what has been promised elsewhere.

Finally, the Kirk Fund operates very much like a true endowment of which we are the beneficiary, not the trustee/owner. That is, we cannot use any of the principal from this fund. We currently receive an annual income stream representing 4% of the Kirk Fund assets, but we will never receive control over this principal. For this reason, the over $5 million of the Kirk Fund are not lumped in to the Church of Our Saviour "Endowment" for purposes of calculating the draw.

Understanding all of this, as of March 31, 2008, the "Endowment" funds available to Church of Our Saviour for the long-term support of our mission total $7,768,760

The Draw

So, if we are to preserve the purchasing power of the remaining "Endowment" for the long-term, how much is prudent to spend on an annual basis? In consultation with the professional money managers who assist us in managing the investments of these funds, it is clear to this Committee (and to any of you who serve on non-profit boards) that the maximum annual draw should be no more than 5% of a three year average balance for these funds. Why? If we take 5% every year from the Endowment, and add another 3.5% for inflation, plus 1% for management fees, we are requiring the fund to grow at an average rate of 9.5% every year just to break even. Much more demand for growth than that, and we would be putting the portfolio at too much risk by trying to chase performance, running counter to our duty to preserve and protect.

The estimated average three year "Endowment" balance for June 30, 2008, is $8,829,015. (Note that this average is higher than our actual current balance, reflecting the impact of spending in excess of our portfolio growth, even though our money managers have exceeded our 9.5% target over the past five years trailing.)

The chart below shows the actual

budgeted draw from the "Endowment" for fiscal (ending June 30) 2006 through 2008 in the red columns. The blue line (at the top of the chart) indicates what this amount represents as a percentage of the available funds. The green line (in the middles of the chart) represents the 5% recommendation for the annual draw.

It should be obvious to all that we are drawing more than twice the amount from our funds than is prudent to meet our long term stewardship of the "Endowment". As the Vestry begins its budget process for the next fiscal year (which begins July 1, 2008 and ends June 30, 2009), it is important to consider what happens to the "Endowment" if we continue to spend at twice the recommended rate, especially in an investment market which has experienced significant declines of late.

The Endowment Committee ran several "what ifs" and provides this chart to the left for your information. If we keep our spending at the current budgeted dollar level (with an annual 3.5% adjustment for inflation), and if the "Endowment" grows at 9.5% per year (which is unlikely for this fiscal year), the "Endowment" would disappear within 11 years.

What Happens if there is no Endowment?

Simply put, the church will be forced to operate on income from pledges and income from the Kirk Fund (the latter currently provides approximately $200,000 annually). To continue at our fiscal 2008 level, without consideration for inflation, pledges would have to increase by $972,000 annually. Today, the Endowment draw exceeds pledges by over $350,000.

Again, from an informational standpoint, we provide the following for your consideration.

1. As of March 31, 2008, while the Church of Our Saviour showed $38,127,532 in total assets, only $7,768,760 is available to support the cashflow needs of our budget via the draw. The rest of the assets are in our buildings, are the loan collateral, and are restricted funds.
2. In the past 50 years, there have been only 3 significant contributions to the "Endowment" funds (Keck, Kirk and Cleaver), so gifts of these funds are extremely rare.
3. If we limit the annual draw to the recommended 5% level, the endowment should exist to support the Church and its programs in perpetuity.

An Invitation

It is the Endowment Committee's desire to address all questions and/or concerns the parish membership holds with regard to the Endowment and its role in our Church finances. To that end, we hope you will contact us with any issues you would like us to discuss by dropping us a note in the mail addressed to:

Church of Our Saviour
ATTN: ENDOWMENT COMMITTEE
535 West Roses Road
San Gabriel, CA 91755

We will use the questions/comments received through the mail to develop the format for a Parish-wide Sunday forum we intend to hold in the near future. The correspondence with us at the above address will remain confidential. Please submit your comments or questions to us by June 10. Please remember that the Endowment Committee does not have input as to how the money is spent, but we did advise the Vestry at their meeting on May 20th that any draw above 5% would run counter to our duty to provide prudent stewardship of these funds. The full power and authority to spend or preserve the Endowment rests with the Vestry.

We encourage your active involvement with your Vestry and your Church and thank you for the time you have given us with this project.

Yours in Christ,

The Church of Our Saviour Endowment Committee

Rev. Michael Battle, John Ballance, Randy Ewig, Lindsey Robertson, Tim Reiniger (Treasurer), George Hall, Roy Stevens and Kathleen Gilmore