1999 Independent Auditors' Report

PENNSYLVANIA SOCIETY OF SONS OF THE REVOLUTION

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1999

NOTE 1:

NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Pennsylvania Society of Sons of the Revolution (the "Society") (a Pennsylvania not-for-profit corporation) 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 6.0% 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 6.0% 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. In April of 1999, an insurance appraisal was performed increasing the carrying values of the historical collections.

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. 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, 1999, 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) Cash and Cash Equivalents

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

The Society maintains its deposits with several Pennsylvania banks. Total cash balances are federally insured by the FDIC up to $100,000 per financial institution. As of December 31, 1999, $31,198 was uninsured.

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

Fair Value

Cost

Fair Value

Cost

Fair Value

Cost

Fair Value

Corporate Stocks

$544,882

$1,445,804

$1,037,653

$1,988,402

$    -

$    -

$1,582,535

$3,434,206

Mutual Funds

   -

   -

   -

   -

3,035,678

5,164,030

3,035,678

5,164,030

Cash and Cash Equivalents

21,800

21,800

32,586

32,586

105,333

105,333

159,719

159,719

    Total

$566,682

$1,467,604

$1,070,239

$2,020,988

$3,141,011

$5,269,363

$4,777,932

$8,757,955

Excess of Fair Value Over

Cost:

   End of Year

$    -

$ 900,922

$    -

$ 950,749

$    -

$2,128,352

$    -

$3,980,023

  Beginning of Year

   -

411,814

   -

397,509

   -

1,622,635

   -

2,431,958

Unrealized Net Gains

   -

489,108

   -

553,240

   -

505,717

   -

1,548,065

Realized Net Gains

   -

15,002

   -

22,426

   -

   -

   -

37,428

Total Realized and

Unrealized Net Gains

$    -

$ 504,110

$    -

$ 575,666

$    -

$ 505,717

$    -

$1,585,493

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 fair 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	$115,000
Wayne Medal	120,000
Furnishings at Varnum’s Headquarters, Valley Forge	68,190
Furnishings at Waynesborough, Paoli	72,000
Furnishings at Harriton House, Bryn Mawr	47,800
Mementos	2,000
Wayne Artifacts	150,000

	$574,990

The Color Guard Fund
J. Richardson Mug	$ 8,500
Locket of George Washington’s Hair	20,000
Bronze Paperweight	1,100
1770 Prayer Book	1,500
Silver Medal	2,000
Oak Gavel	1,000
George III Silver Tankard	2,500
Oak Lathe	300
Fragment of George Washington's Coffin	700

	$ 37,600

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	10,226

	$ 6,923

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 1999. Pension expense for the year ended December 31, 1999, amounted to $3,250.

NOTE 6

DESIGNATED FUNDS

The Board of Managers appropriates general funds for future projects on an annual basis. For the year ended December 31, 1999, the Board designated $5,000 for the Triennial Meeting.

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 1999, is as follows:

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

Herbert C. Rorer Trust "B"	$155,888	$ -	$ 162,732	$ -	$ 318,620
Dividends and Interest	28,948	-	458,714	182	487,844
Net Realized and Unrealized Gains	504,110	575,666	505,717	-	1,585,493

	$688,946	$575,666	$1,127,163	$182	$2,391,957

NOTE 8:

OBLIGATIONS UNDER OPERATING LEASES

The Society is the leasee of office equipment and office space under operating leases expiring in 2003.

Minimum future rental payments under noncancellable operating leases having remaining terms in excess of one year as of December 31, 1999, for each of the next four years are:

2000

$16,125

2001

5,205

2002

3,000

2003

2,500

Total Minimum Future Rental Payments

$26,830

Rent expense for office equipment and office space for the year ended December 31, 1999, was $16,382.

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