Investment Policies and Objectives of the
General Board of Church and Society
June 30, 1996
Approved
Revised – May 2002
Purpose
The General Board of Church and Society (GBCS) Investment Portfolios were established for the
purposes of benefiting the programs of the GBCS, which are designed to carry out the mission
statement as defined in The Book of Discipline, and to maintain the physical plant of the GBCS.
Consistent with that purpose, the goal of investing the portfolios assets is to provide dollars to fund
current activities and to enhance the purchasing power of funds held for future expenditure.
Appendix A gives a description of the different funds, their purpose and history.
Denominational Parameters
The General Board of Church and Society carries out its responsibility for investing within the
policy of the denomination as stated in The Book of Discipline, and within the guidelines stated by
the General Council on Finance and Administration. In addition, the GBCS Board of Directors has
approved further policies by which the investment committee of the board shall operate. These
additional policies are explained in this document.
Fiduciary Responsibility
As we are entrusted with the management of invested funds, fiduciary responsibility is of utmost
importance. Fiduciary responsibility requires those responsible for investments to fulfill the legally
imposed duties of loyalty and care.
Duty of care - To invest with the care that a reasonably prudent person would use in regard
to investment of his/her own funds. Fulfilling this duty includes attention to appropriate risk levels,
diversification, and performance of investments.
Duty of loyalty - To manage funds with the interest of the General Board of Church and
Society paramount and without factoring in personal considerations; in other words, no conflict of
interest on the part of staff, officers, or trustees. Actual or apparent conflicts of interest may arise.
Those involved are required to disclose such conflict of interest to the Trustees Committee and
board of trustees, followed by abstention from participating in investment decisions where the
conflict exists.
Conflicts can arise when “related parties” - persons working for both entities - are involved in
determining the investment as well as when officers, trustees, or staff hold undisclosed investment
positions in or information about an entity into which board funds are placed.
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The Trustees, as the investment committee, have the responsibility of administering invested funds
in accordance with each fund’s purpose or restrictions. The investment committee has the authority
to expand or redefine the stated goals and objectives to reflect changing funding requirements,
capabilities, or purposes. Any changes enacted will be documented in an amendment to this
statement of investment policy and objectives.
Governance
Governance of the GBCS investments is the responsibility of the Board of Directors, and of the
Trustees Committee, to which the Board of Directors has delegated this responsibility. All actions
and minutes of the Trustees Committee meetings are reported to the Board of Directors for vote.
The Chief Financial Officer is the primary staff position with responsibility for acting with authority
on behalf of the Trustees and Board of Directors.
The Trustees Committee is authorized to delegate certain responsibilities to professional experts in
various fields. These fields include, but are not limited to:
1) Investment Management Consultant. The consultant may assist the Board in:
a. establishing investment policy, objectives and guidelines;
b. selecting investment managers;
c. the periodic review of investment managers;
d. measuring and evaluating investment performance;
e. and other tasks as deemed appropriate;
2) Investment Manager. The investment manager has discretion within policy guidelines to
purchase, sell, or hold the specific securities that will be used to meet the Fund’s investment
objectives;
3) Custodian. The custodian will physically (or through agreement with sub-custodian)
maintain possession of securities owned by the Fund, 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 within the Fund accounts.
Approved Investment Categories
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The GBCS Funds will be divided into the following categories:
Liquidity Fund: For the investment of funds to be held for less than five years.
Investment Fund: For the investment of funds expected to be invested for more than five
years.
Mission Related Investments: The Trustees may recommend to the Board of Directors nontraditional investments which have as an objective the support of mission related projects
and which otherwise would not meet investment policy guidelines. The following
limitations are placed on these types of investments:
1) The maximum amount to be invested in any group or single investment is $100,000;
2) No more than 5% of the Investment Fund value may be invested in non-traditional
mission related investments at any one time. The cost of the non-traditional
investments will be used to determine their value for purposes of this test.
Procedures
1) The following procedures will be followed to ensure the investment policy statement is
consistent with the current mission of GBCS and accurately reflects the current financial
condition:
a. This investment policy shall be reviewed annually by the Trustees Committee for any
necessary revisions.
b. Recommendations for any revisions or modifications will be made by the Trustees
Committee to the Board of Directors for approval.
2) The following procedures will be used to determine the dollar amounts to be placed in the
Investment Fund:
a. The Finance Committee will recommend the dollar amounts to be transferred
between the Liquidity Fund and the Investment Fund.
b. The Board of Directors will have final approval of the dollar amounts placed in
specific funds.
3) The services of an investment professional will be sought to manage portions of GBCS
funds. The following procedures shall be followed to engage a new or replace a current
investment professional under normal circumstances:
a. The Investment Consultant will provide a list of qualified candidates for each type of
investment manager to be hired to the Chief Financial Officer. This list shall include
qualified candidates from minority and women owned firms.
b. The Chief Financial Officer will select two candidates to be interviewed for each
position based on the advice of the investment consultant.
c. The Trustees Committee will interview the candidates and select the investment
managers.
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4) The following procedure shall be followed to replace a current investment professional in
situations where a rapid change in an investment management firm is advisable:
a. A list of previously interviewed and qualified investment managers will be
maintained by the investment consultant.
b. Recent performance information will be compiled by the investment consultant and
provided to the Trustees Committee.
c. A telephone conference call of the Trustees Committee will be held to discuss the
candidate(s) and select a qualified investment management firm.
5) While GBCS recognizes the variable nature of short-term investment performance, the
trustees would be notified by the Investment Consultant and a review would be initiated to
determine what, if any, action is required in the following events:
a. A 10% decline in value over a 12-month time frame.
b. Four consecutive quarters of performance below the relevant performance index.
c. A change in portfolio management.
Assignment of Responsibility
Responsibility of the Trustees Committee
The Trustees are charged by law with the responsibility of managing Fund assets in accordance with
each fund’s purpose and restrictions. The Trustees shall discharge its duties solely in the interest of
the Fund, with the care, skill, prudence and due diligence under the circumstances then prevailing,
that the prudent person, acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of like character with like aims. The specific responsibilities of the
Trustees relating to the investment management of Fund assets include:
1) Projecting the Funds financial needs and communicating such needs to the Investment
Manager(s) on a timely basis;
2) Determining the Fund’s risk tolerance and investment time horizon and communicating
these to the appropriate parties;
3) Establishing reasonable and consistent investment objectives, policies and guidelines which
will direct the investment of the Fund’s assets;
4) Prudently and diligently selecting qualified investment professionals, including Investment
Manager(s), Investment Consultant(s), and Custodian(s);
5) Quarterly evaluation of the performance of the Investment Manager(s) to assure adherence
to policy guidelines and monitor investment objective progress;
6) Developing and enacting proper controls procedures: For example, replacing Investment
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Manager(s) due to fundamental change in investment management process, or failure to
comply with established guidelines.
Responsibility of the Investment Consultant(s)
The Investment Consultant’s role is that of a non-discretionary advisor to the Investment Committee
of the Fund. Investment advice concerning the investment management of Fund assets will be
offered by the Investment Consultant, and will be consistent with the investment objectives,
policies, guidelines and constraints as established in this statement. Specific responsibilities of the
Investment Consultant(s) include:
1) Assisting in the development and periodic review of investment policy;
2) Conducting investment manager searches when requested by the Trustees;
3) Providing “due diligence”, or research, on the Investment Manager(s);
4) Providing recommendations on investment managers to hire;
5) Monitoring the performance of the Investment Manager(s) to provide the Investment
Committee with the ability to determine the progress toward the investment objectives;
6) Communicating matters of policy, manager research, and manager performance to the
Trustees;
7) Reviewing Fund investment history, historical capital markets performance and the contents
of this investment policy statement to any newly appointed members of the Trustees.
Responsibility of the Investment Manager(s)
Each Investment Manager must acknowledge in writing its acceptance of responsibility as a
fiduciary. Each Investment Manager will have full discretion to make all investment decisions for
the assets placed under its jurisdiction, while observing and operating within all policies, guidelines,
constraints, and philosophies as outlined in this statement. Specific responsibilities of the
Investment Managers(s) include:
1) Discretionary investment management including decisions to buy, sell, or hold individual
securities, and to alter asset allocation within guidelines established in this investment
statement;
2) The timely reporting of quarterly investment performance;
3) Communicating any major changes to economic outlook, investment strategy, or any other
factors, which affect implementation of investment process;
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4) Informing the Trustees of any qualitative change to investment management organization.
Examples include changes in portfolio management personnel, ownership structure,
investment philosophy, etc.;
5) Voting proxies, if requested by the Trustees, on behalf of the Fund, and communicating such
voting records to the Trustee on a timely basis.
Investment Objectives for Investment Fund
The objectives of the portfolio represent a long-term goal of maximizing the returns without
exposure to undue risk, as defined herein. It is understood that fluctuating rates of return are
characteristic of the securities markets. The primary concern should be long-term appreciation of
the assets and consistency of total return on the portfolio. Recognizing that short-term market
fluctuations may cause variations in the account performance, the portfolio is expected to achieve
the following objectives over a five-year moving time period:
1) The account's total expected return will exceed the Consumer Price Index by 5% annually.
On a quarter-to-quarter basis, the actual returns will fluctuate and can be expected to exceed
the target about half the time.
2) The account's total expected return will exceed the Treasury Bill Index by a minimum of 4%
annually. On a quarter-to-quarter basis, the actual returns will fluctuate and can be expected
to exceed the target about half the time.
Understanding that a long-term positive correlation exists between performance volatility (risk) and
expected returns in the securities markets, we have established the following short-term objective:
The portfolio should be invested to minimize the probability of low negative total returns,
defined as a one-year return worse than negative 11%. It is anticipated that a loss greater
than this will occur no more than one out of twenty years.
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Spending Policy
In recognition of the total return approach of investing as adopted in this policy, and having goals to
maintain the purchasing power of the funds available to support the mission of the Church and to
maintain the corpus of capital contribution, the level of spending in any budget year shall be
determined as follows:
The dollar amount shall be 5% of the moving average dollar value of the investment portfolio as of
December 31st for the three years prior to the current budget year.
Investment Guidelines
The investment policies and restrictions presented in this statement serve as a framework to achieve
the investment objectives at a level of risk deemed acceptable. These policies and restrictions are
designed to minimize interfering with efforts to attain overall objectives, and to minimize excluding
any appropriate investment opportunities.
Investment Restrictions
The Trustees have adopted the following restrictions to apply to the portfolio in its entirety. An
investment manager may not:
1) Purchase any private placements, which may not be publicly sold without registration under
the U.S. Securities Act of 1933;
2) Purchase any municipal or other tax-exempt securities;
3) Individual options contracts. However to the extent that mutual funds are used by GBCS the
mutual funds may buy or sell option contracts for the purposes of managing portfolio risk;
4) Permit the mortgage, pledge, or hypothecation of any assets of the portfolio;
5) Make direct investments in commodities or commodity contracts;
6) Short Sales;
7) Margin transactions or the use of leverage;
8) Hold more than 20% of its portfolio in any one industry;
9) Hold more than 5% of its portfolio in the securities of any one company at cost, as
determined at the time of purchase, or 10% of market value: (this limitation does not apply
to obligations issued or guaranteed by the United States Government);
10) Loan money or securities to any individual or corporation from the assets of the portfolio
other than through the purchase of marketable fixed income securities; and
11) Make any investments, which may be precluded by any special instructions issued in writing
from time to time by Trustees.
Investment managers may not deviate from these guidelines and restrictions without prior written
approval by the Trustees.
Social Responsibility - See Appendix B
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LIQUIDITY FUND
Purpose
The purpose of the Liquidity Fund is to provide sufficient cash to meet the financial obligations of
the GBCS in a timely manner.
Investment Objectives
The investment objectives of the Liquidity Fund are:
1) Preservation of capital;
2) Liquidity; and
3) To optimize the investment return within the constraints of the policy.
Investment Guidelines
Allowable Investments
The Trustees Committee shall be authorized to invest the GBCS Liquidity Fund as follows:
1) Federally-insured certificates of deposit not to exceed $100,000 including interest at
commercial banks or savings and loan institutions:
2) Money market funds that invest in government backed securities;
3) Interest bearing checking accounts in federally insured banks and savings and loans not to
exceed federally insured amounts;
4) Direct obligations of the U.S. Government, its agencies and instrumentalities;
5) Federal agency discount notes;
6) Repurchase agreements collateralized by U.S. Government securities with institutions whose
senior debt rating is rated Double A or better by Standard & Poor’s and/or Moody’s or
physical delivery of the collateral is made to a third party custodian.
7) Commercial paper rated A-1/P-1;
8) Corporate notes rated AA or better.
MATURITY
The maturities on investments for the liquidity fund shall be limited to five years or less.
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INVESTMENT FUND
TARGET ASSET MIX
The Fund shall be comprised of the asset classes listed in the table below. The target weight is the
desired weight for each asset class. The minimum weights and maximum weights are to allow for
normal market fluctuations.
ASSET CLASS
MINIMUM
WEIGHT
TARGET
WEIGHT
MAXIMUM
WEIGHT
26%
33%
40%
U.S. Mid Capitalization Stocks
4%
6%
8%
U.S. Small Capitalization Stocks
4%
6%
8%
11%
14%
17%
EQUITY
U.S. Large Capitalization Stocks
International Stocks
TOTAL EQUITY
59%
FIXED INCOME
Intermediate-term U.S.
Gov’t/Corp. Bonds
33%
TOTAL FIXED INCOME
41%
41%
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49%
EQUITIES
The equity asset classes should be maintained at risk levels roughly equivalent to the sectors of the
market represented, with the objective of exceeding a nationally recognized index measuring the
performance of the designated sector over a five-year moving time period net of fees and
commissions. Mutual funds conforming to the policy guidelines may be used to implement the
investment program.
The following definitions shall apply for the purposes of this policy:
U.S. Large Capitalization Stocks:
A portfolio of stocks comprised primarily of U.S. based
companies with the average of the stocks held having a market
value exceeding $10 billion and primary shares of which are
traded on a major U.S. stock exchange. The generally
accepted, nationally recognized index for the asset class is the
S&P 500 index.
U.S. Mid Capitalization Stocks:
A portfolio of stocks comprised primarily of U.S. based
companies having a market capitalization, on average,
between $2 billion and $10 billion. The generally accepted,
nationally recognized index for the asset class is the Russell
Midcap index.
U.S. Small Capitalization Stocks:
A portfolio of stocks comprised primarily of U.S. based
companies having a market capitalization, on average, less
than $2.0 billion. The generally accepted, nationally
recognized index for the asset class is the Russell 2000 index.
International Stocks:
Stocks of non-U.S. based companies, the primary shares of
which are traded on exchanges outside the U.S. The generally
accepted, nationally recognized index for the asset class is the
MSCI EAFE index.
FIXED INCOME
Investments in fixed income securities will be managed actively to pursue opportunities presented
by changes in interest rates, credit ratings, and maturity premiums. Mutual funds conforming to the
policy guidelines may be used to implement the investment program. The following definitions
shall apply for the purposes of this policy:
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U.S. Gov’t/Corp Intermediate Bonds:
A portfolio of fixed income securities having a
weighted average maturity of less than 10 years. A
maximum of 20% of the portfolio may be invested in
international bonds. A maximum of 10% of the
portfolio may be invested in securities not rated
investment grade or better. The generally accepted,
nationally recognized index for the asset class is the
Lehman Brothers Government Credit Index.
Loans to Maintain Physical Plant
From time to time the GBCS may desire to make major capital improvements to its physical plant.
In doing so, it may be advantageous to “borrow” the money from the Investment Fund rather than
seeking outside funds. The money “lent” to GBCS may be classified as a fixed income investment
for purposes of determining the appropriate asset mix.
Reporting
The investment consultant will prepare the following reports on a quarterly basis:
1) Performance evaluation of each investment manager to include:
a. Performance vs. Appropriate index
b. Performance vs. Peer group
2) Performance evaluation of composite asset classes (i.e. “equity”) to include:
a. Performance vs. Appropriate index
b. Performance vs. Similar portfolios
3) Performance evaluation of total portfolio:
a. Performance vs. Appropriate index
b. Performance vs. Similar portfolios
The report will provide the above information for the following time periods, as the passage of time
allows:
1) For the quarter
2) Year-to-date
3) Trailing 12 months, 3 years and 5 years.
APPENDIX B
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SOCIAL RESPONSIBILITY POLICIES
We seek companies that:
1) Have superior EEO records, and which include women and minorities at highest levels
2) Have superior recruitment, training, stated policies, and chain of responsibility
3) Offer superior work and family benefits
4) Create environments of tolerance for diversity which enhance the well being of all
5) Offer products or services that improve the lives of women and minorities
6) Have affirmative purchasing policies
7) Pay sustainable wages and benefits
8) Avoid environmental damage
9) Provide help to the local communities where their facilities are located
10) Promote human rights and workers’ rights
11) Use vendor and suppliers which endorse these standards
12) Are leaders in fair hiring, equal pay, worker health and safety, and worker participation
13) Contribute significantly to the community (programs, volunteer efforts, charitable giving,
CRA, partnering
14) Avoid animal testing
We do not purchase or hold securities of the following types of corporations:
Alcohol
Companies that produce alcoholic beverages or receive 3% or more revenue
from the manufacture of alcoholic beverages.
Tobacco
Companies that produce tobacco products or receive 3% or more of revenue
from the manufacture of tobacco related products.
Firearms
Companies that manufacture or distribute handguns and ammunition for
individual (civilian, non-civilian) use.
Defense
Companies that rank among the top 200 U.S. Department of Defense
Contractors or rank among the top 100 global defense for the past three years
or companies that receive 3% or more revenue from military contracts.
Military contracts can be for gasoline, buttons, etc. When identifiable,
contracts to supply military base PX’s are excluded from the restriction.
Weapons
Companies that make components for nuclear explosive devices, land mines,
booby traps, anti-personnel weapons or manufacture chemical and biological
weapons, and companies that receive 3% or more revenue from the
manufacture of military weapons, or the major components of military
weapons, or the major components of military weapon systems. Military
weapons include conventional and nuclear weapons as well as armaments
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and ammunitions.
Gambling
Companies that manage or own gambling enterprises or companies that
receive 3% or more revenue from gambling activities – casinos, horse and
dog racing, bingo halls, Jai Alai, card rooms – or gambling equipment and
supply manufacturers.
Sexual Harassment
Companies involved in recent major national controversies in employee
sexual harassment unless it can be demonstrated that effective programs have
ended the harassment. (Defined as any unwanted sexual advances or demand,
either verbal or physical, that is reasonably perceived by the recipient as
demeaning, intimidating, or coercive.)
Racism
Companies involved in recent major national controversies in employee
racism unless it can be demonstrated that effective programs ended the racist
practices. (Defined by as both personal and institutional racism.)
Environment
Companies that are the most egregious violators within each industry group.
Rather than eliminate entire industries, companies are evaluated against their
industry peers and those companies with the worst environmental records.
(And possess no mitigating factors, such as significant waste reduction,
recycling, innovation process changes.)
Nuclear Power
Companies that own or operate nuclear power plants.
Child Labor
Companies that produce products using child labor (according to the
Convention on Child Labor definitions of child labor).
Prison Labor
Companies that produce products using forced or unpaid prison labor. Since
much of this information is not easily verifiable, the source of the information
will be taken into consideration for company evaluations under this screen.
Pornography
Companies that receive 3% or more of their revenue from the manufacture or
distribution of pornography. Retailers of these products are not excluded
(e.g., grocery and drug stores) from the portfolio.
Media Violence
Companies that receive 3% or more of their revenue from television or
movies that undermine the truths of Christianity by failing to adopt public
and verifiable community interest standards, promoting violent solutions to
problems, and detailing acts of graphic violence.
Genetic Technology Companies that provide genetic therapy/products or services which:
a) Are for eugenic choices
b) Produce waste embryos
c) Result in changes that can be passed to offspring.
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Discrimination
Companies involved in recent major national controversies based on gender,
age, sexual orientation, religious affiliation, economic or mental status,
disability, or national origin.
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