Little Rock I

     The acrobat stepped out onto the wire, hesitating a bit as she brought her right foot off the tiny platform and placed it ahead of the left foot.  Another evening’s work, she thought, shaking slightly the twenty foot pole she carried perpendicular to her own body as well as to the wire.  She wanted her balance to be dynamic as she moved across to the other platform, which, somehow, looked farther away than usual, although of course it wasn’t.  Dynamic, not static.

     To the 14,000 people seated in the huge oval below, her task appeared to be one of allowing as little movement as possible.  In fact, constant movement was necessary for the acrobat to maintain her balance and to move forward along the wire to the other platform.

     The acrobat had done this hundreds of times before in a dozen arenas and tents.  Tonight for some reason, she was nervous.  Fearful and threatening images disturbed her concentration.

     The wire is a symbol, a symbol of the bridge between reality and the world we imagine we can build.  Our understanding of finances is one of the ways in which we try to build that bridge between reality and aspiration.  We need that understanding to comprehend our own institution and its dynamic, its need to imitate life by crossing the wire to the world we imagine we can build.

     We work hard to maintain a healthy equilibrium in drawing  income from our major funded sources.  The Annual Program Fund accounts for some 40% of our budgeted income;  we are limited by our ByLaws to planning income from the APF equal to the preceding year’s dollar contribution to our income plus an assumed increase of 7%.  The seven percent limit is one of the ways we keep our income budgeting from being too optimistic. 

     In looking ahead, we expect that in the 1988-89 fiscal years, our APF income will probably exceed our investment income as a proportion of our total income.  It does not mean things are not moving on the investment front.  In this area, however, trend lines are slower to assert themselves and more uncertain, slower to assert themselves because we employ a moving three year average in the recognition of income, damping the effort of the recent sharp rises in the equities.  More uncertain because the securities markets are uneven underfoot and subject to crosswinds making the maintenance of one’s balance a bit tricky.

     The Investment Committee, under the eye of the Board of Trustees, has been engaged in a program of our invested assets.  This has taken two forms.  The first has involved changes in the professional support organization on which we rely -- retention of a consultant as independent professional advisor to help with investment policy, management and the statistical monitoring of the performance of our funds.  We have also replaced two of our portfolio managers with three others;  these latter changes have been in place for almost two years and we are beginning to form opinions to how these managers are doing.  We need to see them through a full market cycle before we can begin to draw meaningful conclusions.

     The second form of changes has involved diversifying the kinds of investments we employ,  continuing to hold publicly traded stocks and bonds, but also moving into unlisted issues.

     These alternative investments, as the Investment Committee refers to them, consist, in broad groupings, of real estate, venture capital, and oil and gas investments.  We now have this diversification program largely in place, although some of our commitments will be paid over roughly the next year and a half.  By that point in time, these alternative investments will amount to approximately 15% of our total invested assets.  The purpose of this program is to spread risk, position ourselves counter cyclically to fluctuation in publicly traded issues, and to seek others, in some case more aggressive opportunities for capital appreciation.

     Now that’s what we have been doing, how we are positioning ourselves in our investment portfolios.  I want to put us right out on the wire now, and talk about the current context.

Little Rock II

 Let me summarize in four words:  economy calm, market nervous.

     I’m not going to say a great deal about the economy.  We are experiencing disinflation as a result of a significant and suffocating overhang of national and international debt.  Our own federal deficit is financed to the extent of approximately 60% by foreign buyers of our bonds.  We are enjoying relatively low interest rates and a ready money supply, or to put it another way, we are enjoying easy money.  The likely scenario is that a correction of our dire and threatening trade imbalance with the rest of the world will only obtain if there is a recession  in the United States or a boom in those countries with which we trade.  What often happens in a period of low interest rates and an open handed money supply is that the expansionary funds go into financial instruments, into essentially nonproductive investments, moving the money around among investors into takeovers, leveraged buy-outs, and the like.  This phenomenon can make it difficult to stimulate our economy via monetary policy.

     But I said I wasn’t going to speak at any length about the economy.  Our own economy is calm at the moment, it is the clouds overhead which are threatening and extensive.

     Now to the equities markets.  Equities, as most of you know, provide a unique investment vehicle.  They have offered significant returns over the long-term and an opportunity to keep abreast of inflationary trends.  Over several market cycles, not necessarily in any one year, the income stream which can be generated can be expected to be greater from a fund invested substantially in stocks than a fund predominantly in bonds or cash equivalents.  It seems to be the general wisdom, therefore to have a substantial position in equities in a fund with objectives which are longer rather than shorter term.

     I characterized the market as nervous, however.  The US equity market is in the 58th month of a bull market which is substantially longer than any of the last 10 bull markets.  The price rise - up over 175% - has outstripped that of any of the last 10 bull markets.  Only the market of 1924 to 1928 - up over 250% - has had a greater rise.  The S&P 425 Industrials Price/Earnings ratio is near an all time high.   The S&P 425 Price/Book Ratio was higher only in 1929 and the S&P 425 Yield has been equaled in only one quarter since 1929.

     Could this mean that what goes up must come down with a vengeance?  One commentator, an advisor to our Investment Committee, has said, ”There is the potential for a downturn that has the possibility of a magnitude of once in a generation, or even perhaps of once in a lifetime.”  Unfortunately, he goes on to say, “Neither we nor anyone else we know can predict if the downturn will come in the next quarter or the next year, or whether indeed it will come at all.  If we could predict the move, we would know exactly what asset allocation steps should be taken.”

     Perhaps the question is theological and not financial.  I know if I could predict that sort of thing with any consistency, my followers would be full of faith and fervor.  Alas it is not to be.  There is reason however, to believe in the possibility of a downturn within the next year or so.

     This does not mean the UUA or any of you should rush to get out of equities.  It does mean increasing allocations to alternative investments and/or to cash equivalents and watching individual issues more carefully.

     Market timing is a difficult to impossible discipline in which to succeed.  One must be right about the time to sell and also about the time to buy back in.  The market is perverse - it is best to compromise.  The risk of being out of the market entirely at the time of an upward movement is too great to take.  The uncertainties of walking that wire are great, as great as life.

Little Rock III

     The acrobat always paused at the lowest point on the wire.  The tension on the wire was strong, but there was enough slack for her to play it as she took each step, to maintain that constant motion essential to her equilibrium. This day, as she paused, her tension rose -- it rose and, in a sense, matched the tension in the wire.  She began to tremble.  The audience didn’t sense her sudden attack of nerves, but then, as the ends of balance pole began to vibrate in an increasing arc, they knew -- and the tension rose in them as well.  A few seconds passed like minutes.  The audience and the acrobat held their breath.

     One of the essences of civil disobedience is that the person expressing his or her moral or ethical conviction by violating a law expects and is ready to pay the civic penalty proscribed for the breaking of that law.  To cite just two recent examples here in our own UU community:  when the President, the Moderator and other concerned and motivated UUs trespassed on the nuclear test site, they knew they were assuming the risk of arrest and possible penalty as the price of expression of their conviction.

     When the Board of Trustees decided, two years ago, to divest our investment portfolios of our holding of the securities of companies doing business in or with South Africa, we knew there would be a cost to that step and a possible future loss of income.

     Now I have been counseled not to bring up the subject of the cost of our decision not to hold the 1988 General Assembly in Phoenix.  Leave well enough alone, they said.  The Moderator has already explained it, they said.  We don’t want to get into a big hoo-ha over this, they said.  Everything’s going very smoothly, they said.

     This is a financial matter, among other considerations, and I am a Financial Advisor.  I am called upon to give you advice you want as well as advice you may not want.  And my advice to you, my friends and fellow delegates, is that the Board of Trustees, as the elected leadership of a religious organization, has done the right thing, the responsible thing, indeed it has done the financially appropriate thing.

     The very first words I said to the General Assembly Delegates in 1982 as I gave my very first report as your very new Financial Advisor were:  “Our treasure is ourselves and what we stand for.”  What we stand for, not how highly valued our investments, how extensive our properties, how much money we raise every year -- what we stand for.

     Now I am as much of an institutionalist as anyone in this room.  I am as much concerned with guarding our assets as anyone in this room.  I am as much determined to spend every dollar wisely as anyone.  But I say to you that I don’t care about the $130,000 if it is saved at the cost of our conscience -- I don’t want the $130,000 if it is purchased with the institutional loyalty of, and our respect for, concerns sacred to our co-religionists of color.  I advise the delegates that I believe the Board has acted in a manner appropriate for fiduciaries who hold in trust our mission;  they have made a decision to commit funds in a manner consistent with our Principles and Purposes.  I refuse to believe the delegates to this assembly would have had us do otherwise.

     I don’t want to oversimplify this problem or display insensitivity to our co-religionists in Arizona, but I think our perspectives at the continental level must occasionally put certain kinds of concerns of broad social and ethical nature ahead of what we might normally consider our institutional responsibility to our local congregations.

Little Rock IV

     The acrobat knew she must do something or she would lose her balance.  She must conquer the wire to save herself.  She looked up at the objective, the far platform.  She took a step forward;  suddenly she was confident she would reach the platform.

     There are a number of programs, ongoing in nature, which will and, indeed are intended, to affect our equilibrium as we trace our steps across the wire of our institutional life.  I have commented on all of them in prior years in my written or oral reports, so I will not go into any detail, but you should have each of them in mind as you assess the financial balance of our Association.

     The new hymnal project involves a major investment in our future and a major financial commitment.  We don’t know that all the funding we are counting on will actually become available.  We are taking a risk but it is a risk we need to take in order responsibly to service the needs of our constituent congregations.

     A step forward on the wire for the UUA is our new field services program.  It is an experiment in rearranging the balance of our relationship as an Association with the dynamic parts of our constituency -- our member societies and the 23 district organizations.  With joint implementation by the districts and the UUA staff, it looks as if it is going to come together in terms of the people and the money.  As a well-known metaphysical theorist would say, however, it’s not over until it is over.

     The amount of resources to be committed by the districts to the cost of this program, has not yet reached the level it must -- and until it does, the UUA will need to carry a financial burden it cannot carry for long.  We have earmarked 25% of the proceeds of Visions For Growth for the field services.  In the budget for the coming year (1987-1988) field services and directly related costs run about $750,000 -- or almost 13% of our budget.  The financial plan for the department says this must be the peak year in terms of UUA budget dollar commitment.  It looks good so far -- we need to prove it is as good as it looks.

     The fiscal year now ending saw the beginning of a fully staffed Planned Giving Office.  In some ways it is hard to believe we are just getting to this -- other charitable and nonprofit institutions have found this a strong source of support.  The function is simply that of providing stimulation to and assistance for those who are able to plan to give to the UUA, either during their life times or in their wills, making use of various legal and tax saving methods.  A program such as this takes a lot of lead-in work and a certain amount of time for commitments to mature.  We decided this endeavor was important enough to make a capital investment in funding the office for the initial years.  We have confidence that it will be successful;  it will, over time return the capital investment and be self-funding;  it will be an institution builder.

     Another area in which we are trying to keep our balance, and at the same time, move forward is the Beacon Press.  We are in the midst of a Five Year Plan, designed to increase the output of new titles and make the Press more self-sufficient.  This requires a commitment of working capital, largely from Visions for Growth.

     Visions for Growth, the last of the balancing exercises of financial equilibrium about which I want to comment is coming to a close with less than 10% of its goal remaining to be raised.  This has certainly strengthened us and paved the way for future efforts to secure capital gifts for our Association.

Little Rock V

     And now a commercial break.   Two years from now the General Assembly will elect a new Financial Advisor.  The Nominating Committee will be deciding on its choices in the early fall of 1988, not so far away as these things go.  I haven’t a clue as to who that person will be.  Although I am, or course, totally objective about this office, I think it is most important.  I hope all of you will give this your best thought.  Ideally, a candidate would have financial and investment background as well as a history of significant UU involvement.

     Bill Schulz, Natalie Gulbrandsen, Kay Montgomery, Bob Sallies, Larry Wheeler.  These are the people who loom large in the life and work of the Financial Advisor.

     They have all given me great support and cooperation and have been a genuine pleasure to work with.  We don’t always agree -- sometimes we have strong celebrations of our diversity -- but our bond is that we know we each care a great deal about our Association.

     And tomorrow, the acrobat knew she would go out on the wire again.  It was what she wanted to do -- and yet she knew fear and uncertainty would mix with confidence as she took her left foot off the platform and placed it on the wire.  She knew this was a part of life.  For us she represented art imitating life.  For her she was life imitating art.  Her road was a little different;  the risks a bit greater;  the dangers a bit more predictable; but in the end she had to go the distance with her own strengths and weaknesses.

     She had to get herself in some level of dynamic balance, to keep moving forward, to make it across the wire, to challenge what lay beyond the tiny platform on other side.

Finance Committee Meeting

     May I ask you to share with me a few moments of aspiration and reflection:

     *Let us give thanks for the fact that we do not dwell in a fiscal Garden of Eden in which exist all the resources to solve all our concerns.

     *In which we pluck the treasures from the tree -- not as the result of our own efforts in the cultivation of the orchard, but as a result of the adoption of a posture of subservience, of sacrifice of freedom and responsibility.

     *Let us give thanks for the perspective which the need to perform fiscal triage gives us -- for the perspective gained when we are forced to focus on those things which are most important to us, and cast down those which are less so.

     *Let us give thanks for the struggle, for to the extent our accomplishments come easily, they would be worth that much the less to us.

     *Let us give thanks for the struggle for it is in casting out the lesser choices that our mission and our momentum gain focus and coherence.

     *Let us give thanks for the struggle for it is in the struggle that we are bound together in caring and in commitment.