1997 Independent Auditors' Report

PENNSYLVANIA SOCIETY OF SONS OF THE REVOLUTION

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1997

NOTE 1:

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Pennsylvania Society of Sons of the Revolution (the "Society") has been instituted to perpetuate the memory of the men who participated in the military, naval and civil service of the colonies. Its members are male persons and lineal descendants of military, naval or marine officers, soldiers, sailors, or marines, of any of the thirteen colonies or states or of the Continental Congress or a lineal descendent of one who signed the Declaration of Independence.

A summary of the Society’s significant accounting policies consistently applied in the preparation of the accompanying financial statements is as follows:

A) Financial Statement Presentation

The Society utilizes the accrual basis of accounting and follows Statement of Financial Accounting Standards ("SFAS") No. 117, "Financial Statements of Not-for-Profit Organizations." Under SFAS No. 117, the Society is required to report information regarding its financial position and activities according to three classes of net assets: if applicable, unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. In addition, the Society is required to present a statement of cash flows:

The unrestricted net assets of the Society are reported in four funds as follows:

The General Fund - represents the portion of expendable funds that is available for support of the Society’s operations.

The Permanent Fund - Quasi-endowment - represents board-designated funds for investment purposes. Additions and disbursements from the fund are restricted under Section VI of the Society’s bylaws.

The Color Guard Fund - is used to support activities of The Color Guard who take care, custody, and proper display of the colors, flags, and standards of the Society.

Lancaster County Chapter Fund - represents funds that are available for operating activities of members residing in the Lancaster County area.

B) Accounting for Certain Investments

The Society follows SFAS No. 124, "Accounting for Certain Investments Held by Not-for-Profit Organizations." In accordance with SFAS No. 124, investments in equity securities with readily determinable fair values and all investments in debt securities are required to be reported at fair value with gains and losses included in the statement of activities. In addition, the Society uses the total return approach in managing its Permanent Fund (Quasi-endowment) investments. This investment approach emphasizes total investment return consisting of traditional yield plus or minus gains or losses. The Society has established a 7.0% spending rate that is satisfied first by traditional yield. To the extent that traditional yield is inadequate to meet the spending rate, net gains are made available for use by the General Fund and are recorded as a transfer in the accompanying statement of activities. Conversely, excesses of traditional yield over an amount equal to 7.0% of the beginning of the year Permanent Fund balances are recorded as a transfer from the General Fund to the Permanent Fund.

Gains and losses on securities are allocated using a percentage participation method based on market value.

C) Historical Collections

Historical collections are carried at appraised values, which exceed historical cost, and are not depreciated. There was no change in the appraised value in 1997.

D) Office Furniture and Equipment

The cost of office furniture and equipment has been depreciated over the estimated useful lives of the related assets. Depreciation was computed on the straight-line method.

Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When office furniture and equipment are sold or otherwise disposed of, the asset accounts and related accumulated depreciation accounts are relieved, and any gain or loss is included in operations.

The useful lives of office furniture and equipment for purposes of computing depreciation were as follows:

Office Furniture 7 Years

Equipment 5 Years

E) Income Taxes

The Society is exempt from federal and state income taxes under 501(c)(3) and is classified by the Internal Revenue Service ("IRS") as a private foundation under provision of the 1954 Tax Code. In addition, the IRS has determined that the Society qualifies as an exempt operating foundation and is not liable for tax on net investment income.

The Society is required to make certain distributions in accordance with IRS Regulations. As of December 31, 1997, the Society has complied with these requirements.

F) Use of Estimates

The preparation of financial statements in conformity with the accounting and reporting practices prescribed by generally accepted accounting principles, requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

G) Allowance for Doubtful Accounts

The Society provides an allowance for doubtful accounts equal to the estimated losses that will be incurred in the collection of all receivables. The estimated losses are based on a review of the current status of the existing receivables. An allowance for doubtful accounts for 1997 has not been established as the amount is considered immaterial.

H) Cash Equivalents

The Society considers all unrestricted highly liquid investments with an initial maturity of three months or less to be cash equivalents.

NOTE 2:

INVESTMENTS

Investments and net appreciation of investments (including realized and unrealized gains and losses) are summarized as follows:

Unrestricted

Permanent Fund

General Fund

Quasi-endowment

The Color Guard Fund

Total

Cost

Market

Cost

Market

Cost

Market

Cost

Market

Corporate Stocks

$434,912

$677,010

$832,391

$1,146,621

$   -

$   -

$1,267,303

$1,823,631

Corporate Bonds

-

-

-

-

50,000

50,000

50,000

50,000

Mutual Funds

-

-

-

-

2,151,226

3,300,770

2,151,226

3,300,770

Cash and Cash Equivalents

(see Note 1H)

57,237

   57,237

  97,040

    97,040

   195,619

   195,619

   349,896

   349,896

    Total

$492,149

$734,247

$929,431

$1,243,661

$2,396,845

$3,546,389

$3,818,425

$5,524,297

Excess of Market Over Cost:

  End of Year

$   -

$242,098

$   -

$ 314,230

$   -

$1,149,545

$   -

$1,705,873

  Beginning of Year

    -

  68,851

    -

   150,406

    -

   574,284

    -

   793,541

Unrealized Net Gains

-

173,247

-

163,824

-

575,261

-

912,332

Realized Net Losses

    -

  (1,191)

    -

    (2,291)

    -

    -

    -

    (3,482)

Total Net Realized and Unrealized Net Gains

$   -

$172,056

$   -

$  161,533

$   -

$  575,261

$   -

$  908,850

The securities owned by the General and Permanent Funds are held in an investment pool. Gains and losses on securities are allocated using a percentage participation method based on market value (see Note 1B).

NOTE 3:

HISTORICAL COLLECTIONS

The following is a summary of historical collections of the General Fund and The Color Guard Fund:

General Fund
Fine Arts	$141,200
Wayne Medal	100,000
Furnishings at Varnum’s Headquarters, Valley Forge	46,485
Furnishings at Waynesborough, Paoli	31,000
Furnishings at Harriton House, Bryn Mawr	41,750
Flags, Insignia, and Mementos	39,126
Wayne Artifact	79,500
Valley Forge Film and Duplicate Negative	19,871
Historic Rock Ford Print	4,900

	$503,832
The Color Guard Fund
J. Richardson Mug	$ 3,500
Locket of George Washington’s Hair	3,000
Silver Tray	250
1770 Prayer Book	75
Robertson Walker Silver Salver	1,000
Captain’s Badge of Office	345
George III Silver Tankard	4,139
Bunker Hill Flag	148

	$ 12,457

NOTE 4

OFFICE FURNITURE AND EQUIPMENT

The following is a summary of property and equipment - at cost, less accumulated depreciation:

Office Furniture	$ 5,233
Equipment	11,916
	17,149
Less: Accumulated Depreciation	3,965

	$ 13,184

Depreciation expense charged to operations for the year ended December 31, 1997, was $1,852.

NOTE 5

PENSION PLAN

The Society sponsors a defined contribution pension plan that covers all eligible employees. Contributions to the plan are based on total salaries. The Board elected to contribute 7_% of salaries in 1997.

NOTE 6

DESIGNATED FUNDS

The Board of Managers appropriates general funds for future projects on an annual basis. A summary of activity within designated funds for 1997, is as follows:

	Triennial Meeting	Public Programs	Equipment Acquisitions	Total

Balances - Beginning of Year	$ 12,656	$ 40,096	$ 12,174	$ 64,926

Current Year Additions	5,000	36,500	2,000	43,500

Allocated General Fund Expenditures	(17,656)	(28,672)	(11,387)	(57,715)

Balances - End of Year	$ -	$ 47,924	$ 2,787	$ 50,711

The Board also has board-designated funds which are functioning as a Quasi-endowment.

NOTE 7:

INVESTMENT RETURN

The Society is beneficiary of the Herbert C. Rorer Trust "B" from which it is presently receiving income. Since the Society has neither possession, nor control of this trust fund, the principal is not included in the accompanying statement of financial position. A portion of this income has been designated under the Trust to The Color Guard Fund; the remainder is for the general use of the Society and is recorded in the General Fund.

Investment return for 1997, is as follows:

	General Fund	Permanent Fund Quasi- endowment	The Color Guard Fund	Lancaster County Chapter Fund	Total Funds

Herbert C. Rorer Trust "B"	$147,205	$ -	$147,205	$ -	$ 294,410
Dividends and Interest	28,927	-	219,740	236	248,903
Net Realized and Unrealized Gains	172,056	161,533	575,261	-	908,850

	$348,188	$161,533	$942,206	$236	$1,452,163

NOTE 8:

OBLIGATIONS UNDER OPERATING LEASES

The Society is the leasee of office equipment and office space under operating leases expiring in 2001.

Minimum future rental payments under noncancellable operating leases having remaining terms in excess of one year as of December 31, 1997, for each of the next four years and in the aggregate are:

1998

$15,997

1999

15,518

2000

13,125

2001

2,205

Total Minimum Future Rental Payments

$46,845

Rent expense for office equipment and office space for the year ended December 31, 1997, was $15,650.

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