X-Message-Number: 1186
From:
Subject: CRYONICS Money Update
Date: Mon, 14 Sep 92 10:50:36 PDT
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First the good news:
Eric Klien, the only attending member of the committee at that meeting
was able to convince the board to not do its latest attempt at
borrowing principal from the Endowment Fund. (Money has been borrowed
or taken from the Endowment Fund multiple times since it was formed
about a year ago.) What Alcor wanted to do was to borrow $25K from the
endowment fund with the promise that Alcor would pay this money back to
itself. In other words the borrower would be Alcor and the lender
would be Alcor. It is strongly desired by the Endowment Fund Advisory
Committee that the principal of the Endowment Fund remain intact and
that no money be taken or borrowed from it. Only the interest from the
fund should be taken or borrowed. Until this principal is followed,
Alcor should not expect its members to have a desire to contribute to
the Endowment Fund.
Second the bad news:
Despite both Investment Committees submitting their recommendations
eight days in advance, the board decided to not approve or disapprove
any of the recommendations. This sloppiness in handling Alcor's
financial matters was a factor in the resignation of the Advisory
members. It should be pointed out that NEVER in the history of the
Committees existance was their advice acted on in a prompt matter.
The smallest delay that we ever experienced was a little under a
month when we gave Alcor just one item to buy.
Following is the money update that was distributed at the last board
meeting:
SEPT 13TH, 1992 MONEY UPDATE
The Endowment Fund Advisory Committee has met via telephone
and has the following comments and recommendations:
The entire goal of an endowment fund is to create a growing
amount of principal whose interest is then used to run an
organization. Under no circumstances, should anything but
the accumulated interest (and capital gains for a stock based
endowment fund) be removed from the fund. As Carlos
Mondrag"n said on page 3 of the August 1991 issue of
Cryonics: "Only the interest will ever be used -
contributions to this fund will become part of the permanent
capital base." This quote was in italics in Carlos's article
because this line was considered so important.
The Endowment Fund began over a year ago with $400,000 and
additional contributions have been made to it since then,
including a few by a member of our Committee. The current
value of the Endowment fund is $41,873.64 + $106,898.06 +
$157,886.67 = $306,658.37. We know there has been no
catastrophic loss in the fund, so we can come to only one
conclusion -- $100,000 has been improperly spent from this
crucial fund!
The Committee wishes to emphasize that we DO NOT condone such
actions which are draining the lifeblood of Alcor. And we at
NO TIME recommended such actions.
The Committee DOES recommend the following actions:
1) Close the John Hancock Cash Management Fund currently
yielding 2.8%, the John Hancock U.S. Government Securities
Fund currently yielding 4.07%, and the Benham Adjustable Rate
Government Securities Fund currently yielding 6.14% to get a
higher rate of return.
2) Put 1/3 of the proceeds into Scudder Short Term Global
currently yielding 9.36%.
3) Put 1/3 of the proceeds into USLife Income currently
yielding 9.1%. This fund invests mainly in investment grade
corporates.
4) Put the remaining 1/3 of the proceeds into Pacific
American Income Fund currently yielding 8.4%. This fund
invests mainly in investment grade corporate bonds and
government bonds.
The Patient Care "Trust" Fund Advisory Committee has met via
telephone and has the following comments and recommendations:
After some careful research, the Committee has discovered
that it was not true when Alcor claimed again and again that
a trust fund was protecting the patient's funds. There is no
trust fund and patient's funds are completely unprotected
from government agencies and private lawsuits. Alcor has
failed in its primary duty to protect Alcor members who are
currently frozen. Not only has it failed, but it has covered
up this failure.
The Committee wishes to emphasize that we DO NOT condone this
coverup that has been perpetrated against Alcor's patients.
And we at NO TIME recommended such actions.
The Committee DOES recommend the following actions:
1) Close the First Interstate Bank account yielding 2.91%,
the Capital Preservation Fund yielding 3.09%, the Pacific
Horizons Fund yielding 3.30%, and all but $100,000 from the
Benham Adjustable Rate Government Securities Fund currently
yielding 6.14% to get a higher rate of return.
2) The Committee realizes that the account yielding 2.91% is
being maintained to have government security for a prepaid
suspension. But if Alcor wishes to have government security
it can buy T-bonds yielding in excess of 7%. Even better,
Alcor should just drop the rule of needing government
security for the small amount of $22,000 and just allow the
general performance of the nearly one million dollars in the
Patient Care Fund guarantee the principal.
3) Close the $53,000 TCW fund because the fund is now at a
premium. Close out the Wellcome stock because the Committee
considers it to be too high risk to be in our portfolio.
4) Take the money earned from closing the First Interstate
Bank account, the Capital Preservation Fund, the Pacific
Horizons Fund, all but $100,000 from the Benham Adjustable
Rate Government Securities Fund, the TCW fund, and the
Wellcome stock and do the following:
5) Put 1/4 of the proceeds into USLife Income yielding 9.1%.
6) Put 1/4 of the proceeds into Pacific American Income Fund
yielding 8.4%.
7) Put 1/4 of the proceeds into Dean Witter Government Income
yielding 8.2%. This fund invests entirely in Treasury agency
issues.
8) Put 1/4 of the proceeds into AIM Strategic Income yielding
6.7%. This fund is trading at a discount to NAV so has some
extra upside potential. 99% of AIM's portfolio is
convertible bonds of modest credit quality. The unique
feature of the fund is that it uses a strategy called
convertible bond arbitrage. This entails buying convertible
bonds and selling the common stock short against the bond.
This virtually eliminates the risk of the stock component of
the convertible and leaves the coupons. In addition, AIM
receives interest on the money received from selling short
the common, thus boosting yields further. This strategy
means that AIM has a very low volatility.
In addition to the specific financial recommendations by the
two committees, we have the following general
recommendations:
1) We must emphasize that our investigation of Alcor's
finances showed more irregularities than the false claim of a
trust and the gutting of the endowment fund. With the
limited information at our disposal, we could easily miss
tens of thousands of dollars being misspent or embezzled. We
must emphasize that as advisory committees, we are not and
were not legally responsible for any decisions or actions,
good or bad, by Alcor's board in investment matters or other
matters.
2) We agree with Dave Pizer's verbal suggestion he made after
the last board meeting to Eric Klien that the people handling
Alcor's money be bonded. This bonding would help give Alcor
members confidence that their money was not being mishandled.
Austin Tupler has volunteered to provide this service for
FREE. So there is no longer any excuse to delay this very
important bonding.
3) At the last Alcor business meeting, the majority (measured
in dollars) of the Committee's recommendations were rejected
by the board. This caused a significant loss of potential
gains.
4) Alcor should not be using full commission brokers such as
Dean Witter Reynolds when it already has open accounts with
discount brokers such as Charles Schwab. Not only is this a
waste of Alcor's money but it makes it harder to follow
finances spread over multiple brokerage accounts. In
addition, Alcor should consider using a deep discount broker
such as Pacific Brokerage Services which would cost Alcor 90%
less on average than Dean Witter Reynolds on average and 50%
less than a discount broker such as Charles Schwab. Or to
put in another way, if we spent $1000 on commissions with
Dean Witter Reynolds, the same transaction would cost about
$100 with Pacific Brokerage Services. So Dean Witter
Reynolds, charges 900% more on commissions!
5) Eric Klien, Bob Kreuger, and Courtney Smith have resigned
from the Endowment Fund Advisory Committee and the Patient
Care "Trust" Fund Committee effective August 27, 1992. A
copy of this resignation is attached to this update. We have
met one last time after our resignation to show good faith in
fulfilling our promise to give investment advice to Alcor.
[Copies of the resumes of the three Investment Advisory members, of
the letter of resignation by all three, the more detailed letter of
resignation by Courtney Smith, and the Endowment Explanation memo
passed around at the meeting are available by request.]
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