0.6 Chapter four: the turning tide, 1960-1982  (Page 11/14)

As has been mentioned, the onset of several economic crises in 1973 and 1974 dealt a painful blow to the stock markets. The average total return in equities in 1973 was -14.8 percent.

The Society's operating performance reflected the changes in the market. In 1968, the Society ran an operating surplus of $122,000, a figure 18 percent more than its total expenditures of $696,000. Investment income alone exceeded total expenditures by $40,000. The total balance of the various board-restricted reserves stood at $397,000. Just five years later, at the end of 1973, the Society ran a deficit of $31,000 on a budget of $981,000, and its board-designated reserves had fallen to $209,000.

The Society's 1967 decision to move to a total return endowment manage­ment policy was sound and is consistent with the way well-endowed and profes­sionally managed institutions operate today, but only as long as the Society remained within the 5 percent spending limit. In 1974, under pressure to balance its operating budget, the Society exceeded that limit for the first time. In that year, the Society received $590,000 in interest and dividends and sold stock to realize gains of $358,000. The total investment income recorded on the Society's finan­cial statements was $948,000, or 7 percent of the three-year moving average of the market value of its endowment. This figure exceeded the 5 percent spending limit by $250,000. Because the transfer of realized gains in excess of the spend­ing limit does not represent true operating activity, it is inappropriate to show these gains as regular operating revenue. Because of this fact, this analysis uses a cal­culation to determine an estimate of the Society's true operating income (and thus its deficits) by limiting the Society's investment income to a maximum of 5 per­cent of the endowment in a given year. Figure 4.3 shows the Society's operating revenues, expenditures, and deficits for the latter part of Heslin's tenure using the full amount recorded in the Society's financial statements. Figure 4.4 depicts the Society's operating activity with the 5 percent limit on investment income.