Investment Portfolio 2021 Annual Report - The Salvation Army USA Southern Territory

H PE M A R CH E S ON

2021 INVESTMENT PORTFOLIO ANNUAL REPORT

FOR YEAR ENDING DECEMBER 31, 2021 USA SOUTHERN TERRITORY

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2021 | INVESTMENT PORTFOLIO ANNUAL REPORT

William Booth, Founder Brian Peddle, General Willis Howell, Territorial Commander

Dear friends: We are thrilled to greet you with a report highlighting stories and our investment portfolio results for 2021. Often, at the start of a new year, you take time to reflect. 2021 provided The Salvation Army even more opportunities to meet human need in Jesus’ name. While there were challenges, God has been gracious and provided for us in many ways.

This report shares a few stories from across the USA Southern Territory of The Salvation Army.

Learn about how new ministries and programs were developed that opened new doors for our neighbors who rely on The Salvation Army for help getting back on their feet; we share about the opportunity to be beacons of hope to communities in the aftermath of devastating storms; and a powerful story from one of our volunteer bellringers. Each of these stories provides a glimpse into a different aspect of Who our hope is from. ‘Hope Marches On’ was our theme of the 2021 fundraising season. These three words encapsulate the Army’s resolute commitment to move forward with our efforts to serve others.

This report also gives us the opportunity to update our donors, supporters, and stakeholders on the investment operations of the Southern Territory. Over the years, the territory has developed an institutional investment portfolio designed to prudently manage and grow the assets that have been entrusted to The Salvation Army. The portfolio is the investment depository for assets territory wide and supports territorial operations. This annual report provides detailed information on our investment results, philosophy, and asset allocation. We also share the governance and management structure of the portfolio among other information.

In the investment markets, 2021 was a year of generally positive returns. Our portfolio increased by 17% with total assets under management growing to $2.9 billion. We thank God for these results, and we commit to continue ‘Doing the Most Good’ with the resources He has entrusted to us.

We are extremely hopeful for the year ahead. While events surround us that we cannot control, we are confident in the One who is in control. We give God the glory for the great achievements in 2021 and rely on Him as our source for 2022 and beyond.

Thank you for your continued support of The Salvation Army. Through your generous donations of time, resources, prayers, and all the other areas of support, we can be generous in our outreach to those we serve.

May God bless you!

Commissioners Willis and Barbara Howell Territorial Leaders USA Southern Territory

USA Southern Territory, 1424 Northeast Expressway, Brookhaven, GA 30329 p: 404.728.1300 “...there is no reward equal to that of doing the most good to the most people in the most need.” Evangeline Booth

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WHO WE ARE The Salvation Army has been referred to as “Christianity with its sleeves rolled up.” Hope is truly marching on in 132 countries around the world thanks to the men and women who have devoted their lives to making an impact in their communities. Founded in 1865, The Salvation Army remains an evangelical part of the universal Christian Church. Our message is based on the Bible. Our ministry is motivated by the love of God, and our mission is to preach the gospel of Jesus Christ and to meet human needs in His name without discrimination.

The Salvation Army’s programs and services have grown and evolved over the last 150 years as the needs for the programs and services arose. In 1884, a women’s rescue home was opened to assist those fleeing domestic violence and prostitution. Against a backdrop of poor and often dangerous working conditions, in 1891, The Salvation Army opened its own match factory in Old Ford, East London. From the frontlines of World War I and II to the countless emergency disaster services operations, The Salvation Army has been there to provide comfort, resources, and to share hope for those in need.

Those bells you hear during the holidays keep hope marching on by providing emergency assistance, family assistance, individual rehabilitation, denominational worship, social services, seniors, character building, youth and music programs and the list goes on. Over 30 million Americans will be given the hope that The Salvation Army offers throughout its myriad of services. 81 cents of every dollar given to us goes right back to meeting human need. The Salvation Army was ranked No. 2 on the list of “America’s Favorite Charities” by The Chronicle of Philanthropy.

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2021 | INVESTMENT PORTFOLIO ANNUAL REPORT

HOPE MARCHES ON HOPE AFTER THE STORM Cars lined up in the early morning

on December 21 at Mayfield High School in Mayfield, Kentucky where The Salvation Army’s Operation Christmas was stationed to help people impacted by the tornadoes that ripped through western Kentucky on December 10. Volunteers and Salvation Army officers and employees were there to give out gift cards, Christmas toys, hygiene kits, and food boxes in the drive-through operation. The Salvation Army’s multi-day relief effort was mirrored In four other storm-damaged communities across the region.

“As we prepare to celebrate the birth of our Savior, we want to share the joy of His birth with the people who were in the path of this storm,” said Major Ann Penhale, Divisional Leader of The Salvation Army of Kentucky and Tennessee.

Tonya came to The Salvation Army’s distribution site in Mayfield for assistance and shared the story of her family’s devastating financial setbacks because of the storm.

“Our house had damage and the power was out for over a week. We have family close by who didn’t lose power, but they are in quarantine with Covid right now so we couldn’t stay with them. I spent all of my

savings on a hotel room for me and my kids,” she explained. “I am out of a job right now because of the storm. I can find another job, but in the meantime, we are almost out of money.”

Tonya had other immediate financial setbacks from the storm – things you don’t think about. Two of her tires have to be replaced – they were destroyed the night of the storm by the debris on the streets.

Her perishable food was ruined and has to be replaced. Almost daily, she has had to make the 35-mile trip from Paducah, where she is staying, back to Mayfield and gas is expensive. The list of unexpected expenses goes on. But she remains hopeful and is helping people in her hometown who have lost even more.

“To the many people who have given to The Salvation Army’s disaster response – thank you and God bless you,” said Major Penhale. “You are the hands and feet of Jesus – we are here to share your generosity and love with the people who are rebuilding from this storm.”

“Thank you for being here. There are times you can’t do anything but help your neighbor and pray. You all are an answer to our prayers-you are doing God’s work,” she said.

God’s love is being shown through the hands and hearts of the people – the givers, the volunteers, the workers, the community itself. As the song goes by Bette Midler… ”Human kindness is overflowing and I think it’s gonna rain today.”

HOPE FOR THE HOMELESS IN SOUTHWEST FLORIDA With the stated goal to provide a respite for those experiencing

homelessness in the community, The Salvation Army opened the Homeless Resource Day Center (HRDC) in Fort Myers, Florida.

The Salvation Army worked closely with Lee County Department of Human and Veteran Services, and with local authorities, serving a pivotal role in creating the initiative.

After several months of preparing and retrofitting the space, the grand opening arrived on Jan. 26, 2021 and, while the center opened with a Monday through Friday schedule, that quickly pivoted to a six-day week.

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The center provides wide-ranging services include access to laundry facilities, showers, and a clothing closet, as well as lunch, snacks, emotional and spiritual, referrals, and comprehensive case management. The HRDC operates from 9 am to 6 pm Monday through Saturday, with no-cost life skills classes now offered twice a week. The life skills classes cover topics including goal setting, interviewing, and job seeking, with the potential expansion to on-site medical assistance at the center through a partnership with a local provider.

“The Salvation Army aims to walk alongside those struggling with homelessness,” said Major Carlyle Gargis, area commander. “Our hope is that anyone needing assistance can walk through these doors and find it. We want to get to the root of their current challenges that are keeping them from finding stable living.”

All told, the HRDC provides access to wrap-around services via The Salvation Army, and also presents the ability to meet with on-site partner agency representatives. That combination helps to meet the basic needs of individuals and families holistically, with both care and compassion.

“Because the homeless crisis locally is such a hot topic, I believe it’s given The Salvation Army an opportunity for those that either didn’t know what we were doing or perhaps marginalized the work to see the good that is coming out of what we’re able to do,” Streets said. “One of those pivotal things is our emotional and spiritual care, including our soldiers that come on a daily basis to help to bridge the spiritual and the practical, tangible assistance.”

“We want everyone to know that this is a place that we want to be a beacon of light for people. It may take patience, and compassion is key, but we want to be able to meet people at their point of need. That need may be different day by day, and we know that each individual arrives at our doors with their only story, and their own needs. We aren’t cookie-cutter. We take each person as an individual and as their own story… Homelessness can affect many individuals in a matter of circumstances. Many of us are just one crisis away from experiencing similar challenges, and our aim is to meet that need in a targeted way.”

CENTER OF HOPE - CORPUS CHRISTI, TEXAS Despite the clouds and moments

of rain, there was an incredible attendance for the dedication and ribbon cutting ceremony of The Salvation Army Sara & Dick Rathgeber Center of Hope in Corpus Christi on Wednesday, April 14, 2021. Attendees included Mr. & Mrs. Rathgeber, Corpus Christi Mayor Paulette Guajardo, Victory Building Team, Turner Ramirez Architects, territorial leaders Commissioners Willis and Barbara Howell, divisional leaders Lt. Colonels Ronnie and Sharon

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Raymer, and numerous donors and supporters from the community.

Mayor Guajardo took a moment to remind everyone the importance of working together.

“This is a historic day,” she said.

“We don’t have to say it, we all know it! Sitting here this morning, remembering how it was just an empty field, and now, here we are.

As Mayor of Corpus Christi, I am so proud to be a partner in this coming to fruition, because none of

this happens without every single one of us coming together – we all bring something to the table. It is our responsibility to help those who need help, and I am 110 percent behind The Salvation Army, working together to help our city move forward with His grace and His will to guide us along the way.”

The Salvation Army is uniquely suited to address the physical, emotional, and spiritual needs of men, women, children, and veterans who seek shelter. The

2021 | INVESTMENT PORTFOLIO ANNUAL REPORT

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programs help individuals focus on their needs and successfully transition from homelessness into a home of their own. Case managers work with every individual and family to make the necessary changes to get back on their feet.

moment as Captain Patrick Gesner and Lieutenant Laura Gesner, who led The Salvation Army as corps officers in Corpus Christi, took the scissors and invited Mr. Rathgeber to join them in cutting the ribbon and officially opening the building.

“We’re going to step off script for one moment,” said Commissioner Willis Howell during the ribbon cutting ceremony. “I learned last night from our friends Captain and Lieutenant Gesner, how they have had the scissors hanging in their office for three years, looking forward to this day and praying over the work taking place here in Corpus Christi. My wife and I are happy to stand up here, beside you, but we aren’t cutting the ribbon – you are!”

“I’m here to thank you, the officers and staff, and all those who helped make this possible” said Mr. Dick Rathgeber, the donor for which the center is named. “I’ve been associated with The Salvation Army for about 40 years, and I’ve gotten to know a lot of officers throughout this time. I quickly learned how this is not just a job to you, it’s a commitment. Now I like to help people in need, and I want to thank you all for hanging in there during the ups and downs of getting the money for this project, but you stuck with it and I thank you.”

From there, it was a beautiful

The Salvation Army’s ongoing shelter program in Corpus Christi will continue to meet human need in the Center for Hope, but at an even greater capacity. The new shelter is double the size of the existing facility, with 120 beds available for individuals and families, and 12 designated for Veterans. Those coming to the Center of Hope will receive shelter, food, and case management, with the goal of gaining self-sufficiency and long-term, secure housing.

Currently, an average of 12,000 meals, 700 hygiene products, and 200 baby products are provided each month. The Salvation Army anticipates the delivery of additional services, with the aim to positively impact more lives than ever before in Corpus Christi.

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HOPE THROUGH THE EYES OF A BELL RINGER Have you ever wondered about The Salvation Army bell ringers during the holiday season? I have to be frank and

admit that mostly I didn’t care one way or the other. However, I’m grateful to God this year for opening my eyes and heart to be His hands and feet for others through The Salvation Army.

While my husband and I were eating at a pancake breakfast, a Salvation Army officer and friend from another community service organization joined our table. Through these men, God allowed me to see two sides of myself.

One man was utterly weighed down and overwhelmed by the stress and preoccupation of this life and its worries. He was physically in the room but not present. How many times has that been me?

The second man had once been at the very bottom of life. Yet, through many years of hard, humble work and prayer, he was lifted from homelessness into a position of significant authority. Though busy with many responsibilities, he was a man of peace, calm and assured; not cocky, just grateful. The same God that saved him sent him on a mission to help his fellow man—and to help me as well.

We talked like old friends catching up and sharing our journeys. I could tell my story mattered to him — I mattered to him. He never asked or twisted my arm to volunteer; he didn’t have to. God already had my attention and told me He had equipped me for this very mission.

Reflecting on the day I volunteered to ring a bell for the Army reminds me of the Charles Dickens novella, “A Christmas Carol.” I was the Scrooge gifted one day to see Christmas present, past, and future. It was an experience I shall carry with me for the rest of my days.

The weather was perfect on that day, sunny and breezy at 70 degrees. My husband and I checked in at the local Wal-Mart and set up in front of the store. I was so anxious to begin that I started ringing the bell about 6 minutes early! We quickly began to see and learn many things about ourselves, people in the community, and His mission — Salvation. I learned it takes an Army to do God’s work.

I had started the day by wanting to collect the most significant amount in a Kettle that Christmas season! I had planned to be festive and entertaining and bring numerous props. Well, life happens, and I woke up with a case of vertigo and nausea. Sometimes, God will slow you down not to miss the important stuff. So God shifted my focus from making it all about a show into making a difference in the lives of others.

My husband and I did our best to recognize, be polite, and speak to each soul we encountered. To some, it softened their rigid exteriors. To others, we were still invisible as their lives were too busy or too overwhelming to see anything else.

I was reminded of my younger self as I watched some walk far around to the side of the building to avoid me, the bell-ringer and unwanted panhandler asking for money. We heard all the excuses that we had, at one time or another, felt the need to tell the bell ringer. “I don’t have any cash.” “I am in a hurry.” “I will catch you on the way out.” “I already gave at another store.”

We never directly asked for money or were pushy. We just greeted them and wished them well. God is not intrusive. He rings the bell and waits for us to develop a giving and thankful heart for His Mercies.

Some gladly sought me out to put money in the Kettle and would share their story of a time when the Army

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2021 | INVESTMENT PORTFOLIO ANNUAL REPORT

HOPE MARCHES ON had helped them or a close friend during life’s lowest points.

One lady thanked me, saying, “I could hear that bell as soon as I got out of my car, and it reminded me to bring some cash in with me in this plastic world because I know the Army is doing good in this community.”

I so loved seeing the children come to the Kettle.

Parents would give them change and instruct them to put it in the Kettle. Some freely did so, while others had difficulty letting go of the shiny coins! I remember those childhood years when I, too, wanted to keep all the money and had no idea about the gift of sharing or caring. Yet, their expressions, words, and actions all made my day better!

I also was given the gift of seeing my future self, and it was humbling. God showed me seasoned couples dedicated to serving their significant others in the twilight of their lives. Men would park and stand with a cane on unsure feet and slowly make their way to find a motorized cart for their partners, helping them out of their vehicles and onto the scooters. I prayed God would keep my husband and me together to help each other through our Golden years.

I also saw sadness in the elderly single men and women that passed by, alone, forgotten by time, technology, and busyness, and being rushed to the next life by those who saw them as no longer significant. I prayed this would not be my fate, but I also prayed that I would walk in His faith and power and purpose if I am alone, as I saw many single, seasoned adults do.

Others came on canes, walkers, and other devices, and some persisted in walking even though a machine might have made their lives easier. Some were lonely and just needed to talk and be heard.

As one woman approached me with her fingers in her ears, God reminded me that not everyone’s ailment was visible. As I silenced the bell, she thanked me and apologized for overly sensitive hearing. So many times, we are blind to the invisible pain in others. If only we would slow down and recognize that we all have struggles and are not the same, but we are all His and loved by Him. I tried hard to recognize the frontline workers we saw this day. If they were wearing scrubs and a hospital ID tag or military or law enforcement uniforms, I thanked them for their brave and challenging service. The people I recognized were appreciative that someone noticed them and their sacrifices of service and self.

At the end of the shift, the red kettle could barely hold another bill or coin. The Salvation Army van drove up and collected our kettle, they said they would count the kettles overnight and let us know the good we had done that day.

Whether I ever get a number or not on that kettle, I know we did good for others that day, and we were blessed for the experience.

As the van was packing up and we were packing up to go, a lady came out with money in her hand and asked if it was too late to donate. Not this night! The money went into the kettle before the van drove away. I pray the Lord is patient with you and me and that we are in the kettle of God’s will for our soul when he comes to gather.

Renee Davis, Story from Southern Spirit Online, Yesterday, Today, and Tomorrow: The journey and experience of a Salvation Army bell-ringer, December 21, 2021.

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2021 USA SOUTHERN

BY THE WE REHABILITATED CLOSE TO

HO

29 THOUSAND INDIVIDUALS FROM SUBSTANCE ABUSE

OVER

MARC

1 MILLION

PEOPLE PROVIDED WITH BASIC SOCIAL SERVICES

MORE THAN

120 THOUSAND INDIVIDUALS RECEIVED DISASTER ASSISTANCE

WE PROVIDED CORRECTIONAL SERVICES TO

51 THOUSAND INMATES

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2021 | INVESTMENT PORTFOLIO ANNUAL REPORT

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T E R R I T O R Y S TAT I S T I C S

NUMBERS OVER

OPE

3 MILLION

NIGHTS OF LODGING PROVIDED

CHES

N

WE SERVED

13 MILLION

INDIVIDUALS WITH MEALS

OVER

23 THOUSAND

YOUTHS ATTENDED SUMMER & DAY CAMPS

MORE THAN

437 THOUSAND

INDIVIDUALS VOLUNTEERED IN THE SALVATION ARMY

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investment portfolio The following sections provide information regarding The Salvation Army USA Southern Territory’s Investment Portfolio. The seven sections discuss the following areas of portfolio results and operations:

INTRODUCTION

INVESTMENT RESULTS & ASSET CLASS CONTRIBUTION

INVESTMENT PHILOSOPHY & ASSET ALLOCATION

PORTFOLIO GOVERNANCE AND MANAGEMENT

TARGET RETURN & RISK CONTROL

PARTICIPATION BY SALVATION ARMY UNITS

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2021 | INVESTMENT PORTFOLIO ANNUAL REPORT

introduction The programs and services provided by The Salvation Army through as described in the preceding pages were made possible through the endeavors of volunteers, employees, and officers across the Southern Territory. These efforts were also possible through the funding sources of the Army. All the local programs, relief operations, care, and long-term support could not be achieved without the gifts and outpouring of support given to The Salvation Army from public contributions. Those gifts come in many forms from individuals, corporations, foundations, wills, trusts, capital campaigns, planned gifts, or similar gifting entities, and provide the support for The Salvation Army Southern Territory.

The monetary gifts bestowed on the Army require a high standard of care. For more than one hundred and fifty years The Salvation Army has followed fiscal practices that have fostered public confidence and trust in its financial stewardship. These practices date back to the 1860s when the founder, William Booth, engaged a public accountant to audit the accounts of the newly formed East London Revival Association, which later became The Salvation Army.

As part of that standard of care, The Salvation Army Southern Territory has specific policies that act to help manage the different sources of funds that the Army allocates for the needs of the fifteen states and District of Columbia within its territory. Some funds are received for immediate use for general or specific purposes such as disaster relief or capital improvements. Other funds have longer time horizons and different purposes such as endowments, reserve accounts, retirement funds, and others that become part of the Army’s investment portfolio. The Salvation Army places great importance on our branding promise of “Doing the Most Good” when using gifts. Donors may contribute to the Army’s general purposes or for more specific purposes, places, or times. The Army adheres to those individual requests, but where there are no specific limits placed on the gift, the Army will distribute the gift by established formulas to support local communities and the broader organization.

The investment portfolio is governed by a specific investment policy that is meant to maintain the purchasing power of its assets over the long term. We outline this philosophy, asset allocation, results, and other portfolio information over the next pages in this report.

Many donors decide to make charitable gifts during their lives that are designed to strengthen their overall financial plan or estate. Also, many donors choose to make a positive impact on the future through charitable legacy planning. Our Planned Giving Team is available to donors who wish to explore these giving options which include Charitable Gift Annuities, Charitable Trusts, Pooled income funds and estate planning.

We provide more detail on these services and gift options on page 22 of this report.

The Salvation Army Southern Territory is a member of the Evangelical Council for Financial Accountability.

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investment results The chart below shows the investment results for The Salvation Army USA Southern Territory. The 2019, 2020, and 2021 results are included, along with performance numbers for 3 year, 5 year, and 10 year periods. Results are as of December 31 and are annualized and net of fees. On the following page further performance detail (Asset Class Attribution) is included on the seven composites shown below.

INVESTMENT RESULTS (Return net of fees) ASSET CLASS & BENCHMARK

10 year

5 year

3 year

DOMESTIC EQUITY COMPOSITE

15.3%

16.8%

24.0%

30.4%

16.7%

25.2%

• DJ US Total Stock Market

16.2%

117.9%

125.7%

30.9%

20.8%

25.7%

GLOBAL EQUITY COMPOSITE

--

--

29.9%

28.3%

61.5%

5.8%

--

1- -

120.4%

126.6%

16.3%

18.5%

8.4%

10.8%

14.5%

24.6%

15.7%

4.3%

7.3%

19.6%

113.2%

121.5%

10.7%

7.8%

17.1%

20.7%

22.9%

10.4%

11.7%

50.4%

16.5%

22.7%

26.7%

14.6%

9.3%

62.2%

2.5%

3.2%

3.4%

6.4%

5.6%

-1.7%

• Bloomberg Barclays Aggregate

2.9%

13.6%

14.8%

08.7%

07.5%

-1.5%

• FTSE World Government Bond Index

1.0%

02.9%

12.7%

05.9%

10.1%

-7.0%

4.4%

5.8%

7.5%

6.8%

5.2%

9.0%

4.6%

5.7%

8.4%

8.3%

10.3%

6.1%

4.2%

3.1%

5.8%

3.5%

-5.2%

20.6%

• NCREIF Townsend Blended Index

11.2%

9.2%

8.8%

7.3%

02.9%

16.5%

• NCREIF Timberland Index

5.3%

03.6%

13.7%

01.3%

00.8%

9.2%

9.8%

12.0%

16.2%

18.2%

13.4%

17.0%

12.2%

16.2%

18.3%

11.3%

19.2%

• MSCI ACWI

INTERNATIONAL EQUITY COMPOSITE • MSCI ACWI ex USA

PRIVATE EQUITY COMPOSITE • Burgiss Global Private Equity Index

TOTAL FIXED INCOME COMPOSITE

HEDGE FUNDS COMPOSITE • HFRI Fund of Funds Composite Index

REAL ASSETS COMPOSITE

TOTAL FUND *

• Salvation Army Policy Index

9.5%

12/31/19 12/31/20

12/31/21

Performance of * Includes Charitable Gift Annuity Pool

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2021 | INVESTMENT PORTFOLIO ANNUAL REPORT

asset class contribution DOMESTIC EQUITY COMPOSITE

GLOBAL EQUITY COMPOSITE

COMPOSITE RETURN: +25.2%

COMPOSITE RETURN: +5.8%

BENCHMARK RETURN: +25.7%

RELATIVE PERFORMANCE:

•

•

RELATIVE PERFORMANCE:

-0.5%

The Domestic Equity Composite delivered strong absolute returns but trailed the benchmark in relative terms during 2021. This composite is made up of large, mid, and small cap managers, both growth and value, and with active and passive management

The Global Composite delivered the best absolute and relative portfolio performance.

•

Within the asset class, the best performance was delivered by a global value equity growth manager whose absolute returns were the strongest at 9.6%. Value oriented investments performed best globally.

ACTUAL % OF PORTFOLIO:

28.0%

INTERNATIONAL EQUITY COMPOSITE

PRIVATE EQUITY COMPOSITE

COMPOSITE RETURN: +4.3%

COMPOSITE RETURN: +50.4%

BENCHMARK RETURN: +7.8%

RELATIVE PERFORMANCE:

-3.5%

•

The International Equity Composite is comprised of developed markets equities ex-US (e.g., the Eurozone and Japan), and emerging markets equities (e.g., China and Brazil).

•

The International Emerging Markets Composite was 13.0% of the portfolio for the year and had the best absolute returns among the international investments.

Silchester provided strong absolute and relative performance with their value-oriented process with an 11.8% return.

ACTUAL % OF PORTFOLIO:

BENCHMARK RETURN:

RELATIVE PERFORMANCE:

•

•

•

-11.8%

Private equity consists of the equities of companies that are not listed on any stock exchanges. These companies may be in early stages of development (often referred to as venture) or in more mature stages (often referred to as buyouts and special situations).

Private equity requires long-term commitments by investors. In return for the illiquidity, investors have the potential to receive superior future investment returns.

ACTUAL % OF PORTFOLIO:

16.2%

HEDGE FUNDS COMPOSITE -1.5%

COMPOSITE RETURN: +9.0%

-0.2%

BENCHMARK RETURN: +6.1%

RELATIVE PERFORMANCE:

The Fixed Income Composite is intended to reduce the impact on the portfolio when riskier assets (i.e., equities) decline. The Composite consists of fixed income securities and a small cash position.

The Fixed Income Composite delivered strong relative performance in an increasing interest rate environment.

Strong contributions came from Brandywine Global Fixed Income and Loomis Sayles Core Plus.

ACTUAL % OF PORTFOLIO:

5.5%

BENCHMARK RETURN: +62.2%

RELATIVE PERFORMANCE:

•

18.1%

TOTAL FIXED INCOME COMPOSITE COMPOSITE RETURN: -1.7%

-12.7%

•

The best performance within the Domestic Equity Composite was delivered by the large capitalization, growth-oriented investment managers.

ACTUAL % OF PORTFOLIO:

BENCHMARK RETURN: +18.5%

12.3%

+2.9%

•

Hedge funds offer differentiated return streams in contrast to traditional stocks and bonds. These strategies can be complex in nature or structure, but they provide returns that add diversification for a portfolio of investments.

•

An example of a hedge fund strategy would be Merger Arbitrage. In this strategy, an investment manager will try to produce a low volatility return stream by purchasing (long) a company (acquiree) that is being bought by another company (acquirer), and then take an opposing short position in the acquirer. The manager will deliver returns by capturing (arbitrage) the difference in price between the two companies based on the acquiree’s purchase price and the current price.

ACTUAL % OF PORTFOLIO: 7.6%

REAL ASSETS COMPOSITE COMPOSITE RETURN: 20.6%

BENCHMARK RETURN:

RELATIVE PERFORMANCE:

+16.5% +4.1%

•

Real assets tend to perform well when inflation rises.

Therefore, real assets are in the portfolio for inflation protection. Examples of real assets are timber, real estate, infrastructure, and natural resources.

•

Real Assets performed well on an absolute and relative basis for the portfolio. Higher inflation spurred on by the Covid 19 pandemic and easy monetary policy produced great returns among Real Estate and Natural Resources investments, with Private Real Estate delivering the best returns at 31.2%.

ACTUAL % OF PORTFOLIO:

THE SALVATION ARMY | USA SOUTHERN TERRITORY

12.4%

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investment philosophy INVESTMENT PHILOSOPHY The purpose of the portfolio is to support the operation of the Army through a net total return investment strategy and spending policy established to maintain or, ideally, increase the purchasing power of the portfolio without putting the principal value of these funds at imprudent risk. Total return is the sum of capital appreciation (or capital loss) plus current income (dividends and interest). The net total return is total return minus all fees (investment management fees, custodian, consultant, etc.).

ASSET ALLOCATION The following factors significantly influence the allocation of the portfolio’s assets:

•

•

•

•

•

•

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LONG-TERM FOCUS

The portfolio is managed toward the long-term support of the Army and is meant to be managed in perpetuity. Because of this long-term focus, the investment objectives of the portfolio can be directed toward assets that also achieve growth over longer time frames such as Private Equity, Hedge Funds, and Real Assets (Real Estate, Infrastructure, and Natural Resources).

DIVERSIFICATION

Investment diversification can improve the risk and return characteristics of an investment portfolio. This is achieved by using differentiated asset types, investment strategies, and investment managers with a variety of performance and risk characteristics. When managed together these differentiated characteristics lead to steadier investment returns, and further allow The Salvation Army to reach its goals.

RISK CONTROL

All investing includes some exposure to risk. Further information on the Territory’s view on Risk Control is described on page 20 of this report.

TARGET ALLOCATION

Strategic targets for each asset class have been adopted to achieve the long-term benefits of a widely diversified portfolio. These targets are displayed on page 17 of this report.

INVESTMENT SELECTION

Each asset class, strategy, and manager is carefully selected to help the portfolio achieve its investment return target and to reduce risk. The Territory attempts to identify “best in class” managers for inclusion in the portfolio.

INVESTMENT GUIDELINES

The Territory has adopted specific requirements and restrictions for each asset class. Among others, the Territory is conscious of Socially Responsible Investing (SRI) guidelines and Environmental, Social, and Governance (ESG) factors. The SRI guidelines restrict investments in objectionable products and activities including alcohol, tobacco, gaming, pornography, armaments, and entities with poor environmental records.

2021 | INVESTMENT PORTFOLIO ANNUAL REPORT

a n d a s se t a l lo c at i on ASSET ALLOCATION FRAMEWORK GROWTH ALLOCATION

6%

66%

6%

13%

14% 10% 3% 4%

22%

RISK REDUCTION ALLOCATION

8% 24% 4%

8%

12%

INFLATION PROTECTION ALLOCATION

Domestic Large & Mid Cap Equity

Domestic Fixed Income

Domestic Small Cap Equity

Global Fixed Income

International Large Cap Equity

Hedge Funds

Global Equity

Liquid Real Assets

Emerging Markets Equity

Illiquid Real Assets

Private Equity

THE SALVATION ARMY | USA SOUTHERN TERRITORY

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portfolio governance BOARD OF TRUSTEES

Holds ultimate fiduciary responsibility for investment portfolio

D E L E G A T E D

A U T H O R I T Y

OFFICE OF INVESTMENTS

CONSULTANT

CUSTODIAN

INVESTMENT ADVISORY BOARD

Conducts day-to-day portfolio operations and management

Responsible for performance reporting, strategy recommendations, and manager due diligence

Responsible for asset safekeeping and servicing

Provides oversight and guidance for portfolio management

INVESTMENT PORTFOLIO MANAGERS

Managers: 39 Strategies: 71

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2021 | INVESTMENT PORTFOLIO ANNUAL REPORT

and management PORTFOLIO GOVERNANCE Ultimate fiduciary responsibility for the oversight of the investment portfolio resides with the Board of Trustees of the Territory. The Board of Trustees is comprised of senior Salvation Army Officers who represent a cross section of different disciplines (i.e., ministry, business, program, personnel, and legal).

Board of Trustees members are appointed to their positions and the appointment requires approval of the Army’s International Headquarters.

While the Board of Trustees holds the fiduciary responsibility, each of the other entities on the previous page have been given delegated authority for various aspects of portfolio management. Each of these supporting entities has an important role in ensuring compliance to Salvation Army policy guidelines, employing best practices in investment management, and exercising the prudent stewardship of Salvation Army assets. While the Board of Trustees may delegate authority, it may not relinquish its fiduciary responsibility.

PORTFOLIO MANAGEMENT The USA Southern Territory employs a thoughtful investment process to construct and monitor the investment portfolio. The day-to-day management of the portfolio is one of the delegated responsibilities from the Board of Trustees. The Office of Investments oversees this function and works closely with the other remaining entities to ensure efficient operations. The collaboration between these five entities leads to the selection of investment strategies and external investment managers that align with the goals of the Salvation Army and the goals of the portfolio.

Collaborative due diligence for the USA Southern Territory is an ongoing process of monitoring and evaluating portfolio managers and strategies. Great care is exercised in this process which produces idea generation and decision making. Each of the entities has a role in this process that is vital to the successful operation of the portfolio. Articulated on the previous page is each entity’s principal role in this process. As a result of implementation of the collaborative due diligence process the current portfolio consists of 39 managers who invest across 71 strategies.

THE SALVATION ARMY | USA SOUTHERN TERRITORY

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target return & risk control TARGET RETURN The annual target return for The Salvation Army USA Southern Territory’s Investment Portfolio is based on two factors: the Southern Territory’s historical spending rate and the current expected inflation rate.

The spending rate is a calculation of the percentage of the Investment Portfolio required for funding the operations of The Salvation Army, and it is updated annually. In calculating the annual spending rate, a historical average of past annual spending rates is used to smooth out years when unforeseen circumstances have required abnormally high levels of spending. The current expected annual spending rate is 4.6%.

The rate of inflation impacts spending power. To preserve the spending power of the required spending rate, an estimate of annual inflation is added to the spending rate calculation. The current expected inflation rate used by the Southern Territory is 2.2%.

Adding together the current expected annual spending rate and the current expected inflation rate (4.6% + 2.2%) gives a figure of 6.8%. This figure is the current target return for the Southern Territory’s Investment Portfolio, and it is re-calculated annually.

In some years, the portfolio performance may not meet the target return because of adverse financial market conditions. For example, in some years stocks may not perform well and may not contribute positively to the overall performance of the portfolio. In those years, the spending needs of the Army must be met by drawing down a larger percentage of the overall portfolio. In other words, the spending rate must be increased in those years.

RISK CONTROL In attempting to achieve long-term spending and purchasing power goals, with an investment portfolio, there are risks involved. A key goal in managing the Army’s portfolio is risk control. Controlling risk helps in preserving the portfolio over time and allows for the Army to meet its goal of maintaining its inflation adjusted purchasing power. The Salvation Army USA Southern Territory strives to exercise prudence and to consider the risks involved in making investment decisions by seeking investments that not only accomplish return goals, but also produce steadier returns over time. This is accomplished by considering the volatility of investments individually and collectively.

Risks can also be measured in other ways beyond price movement or volatility. There are also the risks of not meeting return goals or opportunity cost, the risk of liquidity (not being able to raise cash from investments in a timely manner), the risk of macroeconomic changes, and the risk of policy or political change. For the Southern Territory, the greatest potential risk is the permanent loss of capital. A portfolio gain or loss is not permanent until it is realized. Avoiding, or at least limiting, permanent loss of capital is the primary risk control objective of the Southern Territory.

As discussed previously in this report, the measures taken to provide risk control and to limit a permanent loss of capital include having a long-term investment focus, a well-developed asset allocation framework, a diversified portfolio, and an investment due diligence process that employs quality investment managers. The portfolio is designed to be managed with the dual purpose of achieving (or exceeding) the target return and providing the appropriate risk control.

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2021 | INVESTMENT PORTFOLIO ANNUAL REPORT

participation by salvation army units FIXED RATES Reserves on deposit, excluding donor-restricted permanent endowments, receive a fixed rate of return.

Fixed-rate reserves include quasi-endowments and other deposits. The Territory’s governing board designates quasi-endowments to be set aside for a long but unspecified period, to provide interest income for current operations. Other fixed-rate deposits are eligible for current spending in accordance with any donor restrictions and with Army spending policy. The Territory approved a 5.00% interest allocation for quasi-endowments effective March 1, 2011.

Other fixed-rate reserves receive a market-based interest allocation. The rate matches U.S. market rates for interest-bearing bank deposits and money market accounts. Territorial Finance Council policy resets these allocations to market rates semi-annually. These rates became effective October 1, 2017.

Purchase & construction reserves All other fixed rate reserves

0.41% 0.70%

SPENDING POLICY Donor-restricted permanent endowments receive proportional allocations of dividends, interest, gains and losses based on the results of the territorial investment portfolio. Permanent endowment spending conforms to the Uniform Prudent Management of Institutional Funds Act. The Territory allocates an amount available for appropriation for spending each year equal to a weighted average of the prior year’s spending allocation, adjusted for inflation plus a percentage of the endowment fund’s fair value.* With long-term real growth expected through investment returns, the expected long-term average percentage rate is 4.50%.

The Territory thus expects the spending policy to allow its endowments to maintain or grow the purchasing power of the endowment assets held in perpetuity or for a specified term as well as to provide additional real growth through new gifts. *The prior year’s spending allocation is weighted at 60% and the percentage of the fund’s fair value is weighted at 40%. The percentage of the fund’s fair value varies in a band, depending on the ratio of the fund’s fair value to the purchasing power of the endowment gifts as measured by changes in CPI-U.

THE SALVATION ARMY | USA SOUTHERN TERRITORY

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planned giving services The USA Southern Territory is also Trustee of and responsible for the oversight of the investment and administrative functions of life income agreements. Currently, the Territory oversees or directly administers the activity of 1,311 of these life income agreements and makes payments to 819 income beneficiaries.

Gifts in these agreements are in excess of $103.6 million.

There are three different life income agreements that are managed by the territory: Charitable Gift Annuities (CGA’s), Charitable Remainder Trusts (CRT’s), and Pooled Income Funds (PIF’s). All three gift types pay out an income stream to the donor or a beneficiary for their lifetime and the remainder or residuum is distributed to the Army upon the death of the last beneficiary.

The investments of all three gift types are managed by Bank of New York Mellon Wealth Management (BNYMWM) who serves in an advisory capacity for these programs. The Army consults with BNYMWM for best practices in the operation, oversight, and investments of these funds.

The USA Southern Territory has had an active Planned Giving Program since the 1960’s. These Planned Giving programs provide donors with a way to make a meaningful gift to the Army while also maintaining an income stream during their lifetime. Payments to beneficiaries are made on an ongoing basis from these gifts. Charitable life income agreements can have significant tax advantages to donors.

L I F E I N CO M E AG R E E M E N T S

NUMBER OF AGREEMENTS

NUMBER OF BENEFICIARIES

FMV AS OF 12/30/2021

GIFT ANNUITIES

1,179

663

$69.4 M

83

107

$31.2 M

49

49

$ 3.0 M

1,311

819

$103.6 M

TRUSTS POOLED INCOME FUNDS

TOTAL

FOR INQUIRIES REGARDING THE PLANNED GIVING PROGRAM WEBSITE: WWW.TSALEGACYOFLOVE.ORG CONTACT NUMBER: 1-866-551-7585

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2021 | INVESTMENT PORTFOLIO ANNUAL REPORT

THE SALVATION ARMY SOUTHERN TERRITORY Potomac Division Kentucky & Tennessee Division

Arkansas &Oklahoma Division Texas Division

North & South Carolina Division Georgia Division

Alabama, Louisiana & Mississippi Division

Florida Division

SOUTHERN TERRITORIAL HEADQUARTERS

EVANGELINE BOOTH COLLEGE

ALABAMA, LOUISIANA & MISSISSIPPI DIVISION

GEORGIA DIVISION

Territorial Leaders Commissioners Willis J. & Barbara A. Howell 1424 Northeast Expressway Brookhaven, GA 30329 Tel: 404-728-1300

Divisional Leaders Majors Gregory (Kent) & Melody J. Davis 1450 Riverside Drive Jackson, MS 39202 Tel: 601-969-7560

ARKANSAS & OKLAHOMA DIVISION

President/Principal & Asst. Principal for Ministry Development & Campus Life Majors Thomas & Julie Anne Louden 1032 Metropolitan Parkway SW Atlanta, GA 30310 Tel: 404-753-4166

Divisional Leaders Majors Algerome E. & Teresa L. Newsome 1000 Center Place, SW Norcross, GA 30093 Tel: 770-441-6200

KENTUCKY & TENNESSEE DIVISION

Divisional Leaders Lt. Colonels Harold D. (Dean) & Pamela G. (Pam) Hinson 6601 North Broadway Ext., Ste. 300 Oklahoma City, OK 73116 Tel: 405-254-1100

Divisional Leaders Majors Arthur R. (Art) & Zella A. (Ann) Penhale 214-216 West Chestnut Street Louisville, KY 40202 Tel: 502-583-5391

FLORIDA DIVISION

NORTH & SOUTH CAROLINA DIVISION

Divisional Leaders Lt. Colonels Kenneth E. (Ken) & Dawn M. Luyk 5631 Van Dyke Road Lutz, FL 33558 Tel: 813-962-6611

Divisional Leaders Lt. Colonels James E. (Jim) & Linda P. Arrowood 501 Archdale Drive Charlotte, NC 28217 Tel: 704-522-4970

ADULT REHABILITATION CENTER COMMAND

Commander: & Director of Special Services: Majors William G. (Gary) & Elizabeth H. (Liz) Wilson 1424 Northeast Expressway Brookhaven, GA 30329 Tel: 404-728-1371

POTOMAC DIVISION

Divisional Leaders Lt. Colonels Allan R. & Fiona Hofer 2626 Pennsylvania Ave., NW Washington, DC 20037 Tel: 202-756-2600

TEXAS DIVISION

Divisional Leaders Lt. Colonels Ronnie L. & Sharon L. Raymer 1221 River Bend Drive Dallas, TX 75247 Tel: 214-956-6000

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THE SALVATION ARMY USA SOUTHERN T E RRITORY HEAD Q UARTERS O FFICE OF INVESTM ENTS 1424 NORTHEAST EXPRESSWAY BROOKHAVEN, GA 30329

INTERNATIONAL MISSION STATEMENT The Salvation Army, an international movement, is an evangelical part of the universal Christian church. Its message is based on the Bible.

Its ministry is motivated by the love of God. Its mission is to preach the gospel of Jesus Christ and to meet human needs in His name without discrimination.

SOUTHERN TERRITORY MISSION STATEMENT The Salvationists of the Southern Territory are answering God’s call to make radical followers of Jesus Christ who love inclusively, serve helpfully, and disciple effectively in the communities where they live.

To make a donation call Tel: 1-800-SAL-ARMY (1-800-725-2769) www.salvationarmysouth.org

© 2022 The Salvation Army, A Georgia Corporation