PRINCIPLED
EQUITY
MARKET
FUND
ANNUAL REPORT
DECEMBER 31, 1997
<PAGE>
To the Shareholders of the Principled Equity Market Fund:
The Principled Equity Market Fund's primary purpose is to achieve the
investment return provided by the overall unmanaged domestic equity markets,
while avoiding ownership of companies whose products, activities, and/or areas
of operation are not acceptable to the major constituencies of investors
concerned with the application of religious, ethical, social justice and other
principles to their investments (sometimes described as `concerned investors')
while incurring the lowest achievable costs.
This practice, sometimes referred to as `passive investing' or `indexing,'
typically has provided higher returns than the preponderance of actively-managed
investment strategies and accounts (including mutual funds). The practice
generally has not been available to many constituencies of concerned investors
because of the dearth of convenient investment vehicles with comprehensive
criteria which reflect their concerns. Consequently, the Eastern Mercy Health
System, now Catholic Health East, established this Trust in 1996 to enable its
component hospitals and other concerned investors to utilize a passive investing
strategy.
The Trust accomplished its purpose during 1997 - its first year of operation.
The two unmanaged indices generally thought to be most representative of the
overall domestic equity market are the Wilshire 5000 Index (composed of all
publicly-traded U.S. domestic equities) and the Russell 3000 Index (said to
constitute 98 percent of all domestic equities). These two `market
capitalization-weighted' indices recorded returns of 31.30 percent and 31.78
percent, respectively, for the calendar 1997, while the Trust recorded a return
of 31.55 percent almost exactly equal to, and falling between - these two
broadest market indices.
Most indices and market sectors provided significantly lower results. `Small
company' indices (such as the Russell 2000 Index) generally provided much lower
returns than the overall market, while indices in which larger companies
constitute a significantly higher proportion than in overall market (such as the
widely followed Standard & Poor's 500 Stock Index) provided modestly higher
returns. (The Trust is precluded from purchasing most of the largest companies,
including nearly one-third of the Standard & Poor's 500 Stock Index and 60
percent of its largest fifty companies because of concerns predominately
relating to environmental, weapons manufacture, and human rights issues,
including working conditions in underdeveloped areas.)
Size-based return differences have not persisted in the past, and seem
unlikely to do so in the future. Although periods of temporary aberrations occur
frequently, we are aware of no conclusive study or evidence which demonstrates
that over long periods of time either large companies or small companies
consistently provide returns which differ from those of the overall market to
any statistically-significant degree, and over extended periods the Russell
3000, the Whilshire 5000 and the Standard & Poor's 500 stock indices all have
recorded very similar returns.
With the exception of certain European single-country averages, the domestic
equity markets tended to provide higher returns than the foreign markets.
With respect to `investment style' indices, 1997 was another - and the third
consecutive - year in which certain organizations' `value' indices provided
higher returns than their analogous `growth' indices, while other sets of
`growth' indices provided higher returns than their corresponding `value'
indices. This further undermines the formerly popular but now somewhat
discredited and obsolete `style allocation' theories, which are not supported by
the preponderance of academic research of which we are aware and which depend
upon consistent negative correlation between universally-defined categories of
equities - neither of which conditions appear to exist in the `real world.'
<PAGE>
In concert with the majority of past periods, 1997 saw the major unmanaged
domestic market indices provide higher returns than the vast majority of
actively-managed equity accounts (particularly as represented by mutual funds,
which are audited, and whose reported returns tend to be less subject to
misrepresentation than unaudited statistics).
A brief list of indices and averages and the returns they recorded during 1997
follows this letter.
The Trust's expense ratio for 1997, representing the costs incurred by the
Trust, was 0.48 percent, or 48 `basis points,' less than one half of one percent
and much lower than the 1.45 percent average expense ratio reported for
actively-managed equity mutual funds by the Morningstar Organization, and
incurred by actively-managed investment accounts in general. This figure
excludes the hypothetical 10 basis point fee payable to the Trust's Advisor
(F.L. Putnam) which was waived by the Advisor and not paid by the Trust.
We are very pleased with the results achieved by the Trust during its first
year of operation, and will continue to pursue the Trust's goal of providing
concerned investors with the most comprehensive available alternative to achieve
the returns provided by the overall domestic equity markets while avoiding
investments they find objectionable. Please do not hesitate to contact us if you
have any questions concerning the Trust or your investment within it.
Sincerely,
David W.C. Putnam
President
RETURNS IN PERCENT FOR CALENDAR YEAR 1997
- -------------------------------------------------------------------------
Unmanaged Securities Market Indices*
-----------------------------------
Wilshire 5000 Stock Index (all 733 - 100% - of equity 31.30 %
market)
Russell 3000 Stock Index ( the 3000 largest U.S. 31.78
companies - 98% of equity market)
Standard & Poor's 500 Stock Index (500 largest U.S. 33.34
companies - 69% of equity market)
Russell 2000 Stock Index (the smallest 2000 of the 22.36
largest 3000 U.S. companies)
New York Stock Exchange (largest U.S. national stock 30.31
exchange)
NASDAQ (5800 equities traded `over the counter') 21.64
Mutual Fund Averages**
-------------------------
Domestic equity mutual funds average 24.35 %
(per Morningstar - 2598 funds with total
assets of $1.6 trillion - excludes `index' funds)
`Socially Responsible' equity mutual funds average 25.03
(per Morningstar - 33 funds with total assets of
$3.2 billion)
* Source: Chase Global Data and Research Company,
Concord, Massachusetts.
** Source: Morningstar, Inc., Chicago, Illinois.
- -------------------------------------------------------------------------
<PAGE>
- ---------------------------------------------------------------------------
PRINCIPLED EQUITY MARKET FUND
- ---------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
Assets:
Investments at quoted market value (cost $17,687,286 ;
see Schedule of Investments, Notes 1, 2, & 7)....... $ 21,796,213
Cash ................................................ 348,105
Dividends and interest receivable.................... 23,663
Organizational costs (Note 1)........................ 36,403
-----------
Total assets..................................... 22,204,384
-----------
Liabilities:
Dividend distribution payable........................ 176,872
Accrued expenses and other liabilities (Note 3 )..... 20,763
-----------
Total liabilities................................ 197,635
-----------
Net Assets:
Capital stock (unlimited shares authorized at no par
value, amount paid in on 1,706,087 shares outstanding)
(Note 1)............................................ 17,897,822
Net unrealized appreciation in value of investments
(Note 2)............................................. 4,108,927
-----------
Net assets (equivalent to $12.90 per share, based
on 1,706,087 capital shares outstanding)......... $22,006,749
===========
<PAGE>
===========================================================================
PRINCIPLED EQUITY MARKET FUND
===========================================================================
STATEMENT OF OPERATIONS
DECEMBER 31, 1997
Income:
Dividends........................................... $ 301,302
Interest............................................ 6,669
-----------
Total income..................................... 307,971
-----------
Expenses:
Management fees, net (Note 3)....................... 25,835
Custodian fees...................................... 13,618
Audit and accounting fees........................... 7,500
Administration fees (Note 4)........................ 6,000
Transfer fees (Note 4).............................. 6,000
Trustees' fees and expenses......................... 4,000
Legal fees.......................................... 1,500
Organizational expenses............................. 9,597
Other expenses...................................... 6,251
-----------
Total expenses................................... 80,301
Fees paid indirectly (Note 6)............... (8,118)
-----------
Net expenses................................ 72,183
-----------
Net investment income................................ 235,788
-----------
Realized and unrealized gain on investments:
Realized gain on investments-net................... 102,865
Increase in net unrealized appreciation in investments 4,108,927
-----------
Net gain on investments.......................... 4,211,792
===========
Net increase in net assets resulting from operations. $ 4,447,580
===========
<PAGE>
===========================================================================
PRINCIPLED EQUITY MARKET FUND
===========================================================================
STATEMENTS OF CHANGES IN NET ASSETS
Period Ended
Year Ended October 28,
December 31, 1996 to
1997 December 31,1996
------------- -----------------
From operations:
Net investment income................... $ 235,788 --
Realized gain on investments, net....... 102,865 --
Increase in net unrealized
appreciation in investments............ 4,108,927 --
----------- -----------
Net increase in net assets resulting
from operations..................... 4,447,580 --
------------ -----------
Distributions to shareholders:
From net investment income ($0.14 per
share in 1997).......................... (235,788) --
From net realized gain on investments
($0.06 per share in 1997)............... (102,865) --
------------ -----------
Total distributions to shareholders.. (338,653) --
------------ -----------
From capital share transactions:
Number of Shares
1997 1996
--------- ---------
Proceeds from sale of
shares.............. 799,491 894,026 8,795,782 8,940,260
Shares issued to
shareholders in
distributions
reinvested.......... 12,570 -- 161,780 --
Cost of shares -- -- -- --
redeemed............ -- -- -- --
------- -------- ---------- -----------
Increase in net
assets resulting
from capital
share transactions.. 812,061 894,026 8,957,562 8,940,260
========= ========= ----------- -----------
Net increase in net assets............... 13,066,489 8,940,260
Net assets:
Beginning of period.................... 8,940,260 --
============ ===========
End of period.......................... $ 22,006,749 $8,940,260
============ ===========
<PAGE>
===========================================================================
PRINCIPLED EQUITY MARKET FUND
===========================================================================
SELECTED PER SHARE DATA AND RATIOS
(for a share outstanding throughout each period)
Period Ended
Year Ended October 28,
December 31, 1996 to
1997 December 31,1996
-------------- --------------
Investment income ....................... $ 0.18 $ --
Expenses, net............................ 0.04 --
-------------- --------------
Net investment income ................... 0.14 --
Net realized and unrealized
gain on investments...................... 2.96 --
Distributions to shareholders:
From net investment income............. 0.14 --
From net realized gain on investments.. 0.06 --
-------------- --------------
Net increase in net asset value.......... 2.90 --
Net asset value:
Beginning of period.................... 10.00 10.00
============== ==============
End of period.......................... $12.90 $ 10.00
============== ==============
Ratio of expenses
to average net assets.................... 0.48% --
Ratio of net investment
income to average net assets............. 1.40% --
Portfolio turnover....................... 0.07 --
Average commission rate paid............. 0.0253 --
Number of shares out-standing at end of
period................................. 1,706,087 894,026
Per share data and ratios assuming no
waiver of advisory fees:
Expenses.............................. 0.06 --
Net investment income................. 0.13 --
Ratio of expenses to average net
assets............................... 0.58% --
Ratio of net investment income to
average net assets................... 1.30% --
<PAGE>
===========================================================================
PRINCIPLED EQUITY MARKET FUND
===========================================================================
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
COMMON STOCKS -- 99.04%
Aerospace/Defense Industry -- 0.51%
1,800 Gulfstream Aerospace........................... $ 52,650
1,000 Precision Castparts Corporation................ 60,312
----------
112,962
----------
Air Transport Industry -- 0.42%
400 Amr Corporation................................ 51,400
200 Federal Express Corporation.................... 12,212
1,200 Southwest Airlines Company..................... 29,550
----------
93,162
----------
Auto & Truck Industry -- 0.24%
1,000 Paccar Incorporated............................ 52,500
----------
Auto Parts (OEM) Industry -- 0.28%
600 Dana Corporation............................... 28,500
600 Oea Incorporated............................... 17,362
600 Superior Industries International.............. 16,087
----------
61,949
----------
Auto Parts (Replacement) Industry -- 0.19%
200 Echlin Incorporated............................ 7,237
1,050 Genuine Parts Company.......................... 35,634
----------
42,871
----------
Bank Industry -- 6.39%
1,000 Bank Of New York Company Incorporated.......... 57,812
2,500 Bankamerica Corporation........................ 182,500
500 Bankboston Corporation......................... 46,969
1,400 Citicorp....................................... 176,662
1,700 First Union Corporation........................ 87,125
900 JP Morgan and Company Incorporated............. 101,587
300 Keycorp........................................ 21,244
9,060 Nationsbank Corporation........................ 550,961
1,100 PNC Bank Corporation........................... 62,631
200 Wachovia Corporation........................... 16,225
300 Wells Fargo and Company........................ 101,831
----------
1,405,547
----------
<PAGE>
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PRINCIPLED EQUITY MARKET FUND
- ---------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
(Continued)
Bank (Midwest) Industry -- 2.15%
1,500 First Chicago Nbd Corporation.................. 125,250
2,700 Mellon Bank Corporation........................ 163,687
1,100 National City Corporation...................... 72,325
2,600 Norwest Corporation............................ 100,750
100 US Bancorp. ................................... 11,194
----------
473,206
----------
Beverage (Soft Drink) Industry -- 4.77%
8,600 Coca Cola Company.............................. 573,512
2,500 Coca Cola Enterprises Incorporated............. 88,906
10,700 Pepsico Incorporated........................... 387,875
----------
1,050,293
----------
Building Materials Industry -- 0.03%
100 Armstrong World Industries Incorporated........ 7,475
----------
Chemical (Basic) Industry -- 1.80%
8,500 Arco Chemical Company.......................... 395,250
----------
Chemical (Diversified) Industry -- 0.45%
1,400 Millipore Corporation.......................... 47,512
2,500 Pall Corporation............................... 51,719
----------
99,231
----------
Chemical (Specialty) Industry -- 0.81%
900 Ecolab Incorporated............................ 49,894
600 International Flavors and Fragrances........... 30,900
1,300 Praxair Incorporated........................... 58,500
800 Sherwin Williams Company....................... 22,200
400 Sigma Aldrich Corporation...................... 15,900
----------
177,394
----------
Coal/Alternate Energy Industry -- 0.08%
400 AES Corporation................................ 18,650
----------
<PAGE>
- ---------------------------------------------------------------------------
PRINCIPLED EQUITY MARKET FUND
- ---------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
(Continued)
Computer & Peripherals Industry -- 4.64%
200 Apple Computer Incorporated.................... 2,625
600 Cabletron Systems Incorporated................. 9,000
3,750 Cisco Systems Incorporated..................... 209,062
2,967 Compaq Computer Corporation.................... 167,635
1,300 Dell Computer Corporation...................... 109,200
3,600 EMC Corporation................................ 98,775
5,400 Hewlett Packard Company........................ 336,825
1,100 Seagate Technology Incorporated................ 21,175
900 Silicon Graphics Incorporated.................. 11,362
1,400 Sun Microsystems Incorporated.................. 55,825
----------
1,021,484
----------
Computer Software & Services Industry -- 4.14%
500 Automatic Data Processing Incorporated......... 30,687
3,750 Computer Associates International.............. 198,750
400 Electronic Data Systems Corporation............ 17,575
1,800 First Data Corporation......................... 52,650
4,300 Microsoft Corporation.......................... 555,775
2,500 Oracle Corporation............................. 55,781
----------
911,218
----------
Diversified Company Industry -- 0.79%
100 Crane Company.................................. 4,337
200 National Service Industries Incorporated....... 9,912
400 Raychem Corporation............................ 17,225
800 Thermo Electron Corporation.................... 35,200
2,400 Tyco International Limited..................... 108,150
----------
174,824
----------
Drug Industry -- 2.38%
8,000 Amgen Incorporated............................. 433,000
300 Biogen Incorporated............................ 10,912
800 Chiron Corporation............................. 13,600
27 Genzyme Corp-Tissue Repair..................... 186
900 Genzyme Corporation General Division........... 24,975
200 Interneuron Pharmaceuticals Incorporated....... 1,900
400 Quintiles Transnational Corporation............ 15,300
400 RP Scherer Corporation......................... 24,400
----------
524,273
----------
<PAGE>
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PRINCIPLED EQUITY MARKET FUND
- ---------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
(Continued)
Drugstore Industry -- 0.46%
400 Rite Aid Corporation........................... 23,500
2,500 Walgreen Company............................... 78,437
----------
101,937
----------
Electric Utility (Central) Industry -- 0.92%
800 Cinergy Corporation............................ 30,650
3,200 Dte Energy Holding Company..................... 111,000
2,000 Unicom Corporation............................. 61,500
----------
203,150
----------
Electric Utility (East) Industry -- 0.97%
1,800 Carolina Power and Light Company............... 76,275
800 Northeast Utilities............................ 9,450
800 P P and L Resources Holding Company............ 19,150
4,500 Peco Energy Company............................ 109,125
----------
214,000
----------
Electric Utility (West) Industry -- 4.09%
10,700 Edison International Incorporated.............. 290,906
2,100 Nevada Power Company........................... 55,781
20,300 Pacificorp..................................... 554,444
----------
901,131
----------
Electrical Equipment Industry -- 0.32%
233 Commscope, Incorporated........................ 3,176
1,300 Corning Incorporated........................... 48,262
200 W W Grainger Incorporated...................... 19,437
----------
70,875
----------
Electronics Industry -- 0.27%
1,100 Amp Incorporated............................... 46,200
700 NextLevel Systems, Incorporated................ 12,512
----------
58,712
----------
Entertainment Industry -- 1.08%
1,000 Safety Kleen Corporation....................... 27,437
3,400 Time Warner Incorporated Holding Company....... 210,800
----------
238,237
----------
Environmental Industry -- 0.29%
1,700 Republic Industries Incorporated............... 39,631
600 USA Waste Services Incorporated................ 23,550
----------
63,181
----------
<PAGE>
- ---------------------------------------------------------------------------
PRINCIPLED EQUITY MARKET FUND
- ---------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
(Continued)
Financial Services Industry -- 4.60%
2,600 American Express Company....................... 232,050
2,000 Cendant Corporation............................ 68,750
400 Deluxe Corporation............................. 13,800
700 Green Tree Financial Corporation............... 18,331
400 Household International Incorporated........... 51,050
2,400 Mbna Corporation............................... 65,550
3,020 Morgan Stanley Dean Witter Discover............ 178,558
8,900 Schwab (Chas) Corporation...................... 373,244
100 Transamerica Corporation....................... 10,650
----------
1,011,983
----------
Food Processing Industry -- 5.34%
2,200 General Mills Incorporated..................... 157,575
200 Hershey Foods Corporation...................... 12,388
3,800 HJ Heinz Company............................... 193,088
1,700 Kellogg Company................................ 84,363
400 Pioneer Hi Bred International Incorporated..... 42,900
700 Quaker Oats Company............................ 36,925
9,600 Unilever NV.................................... 599,400
600 Wm Wrigley Jr Company.......................... 47,738
----------
1,174,377
----------
Food Wholesalers Industry -- 0.19%
900 Sysco Corporation.............................. 41,006
----------
Foreign Telecommunications Industry -- 0.52%
1,300 Northern Telecom Limited....................... 115,375
----------
Gold/Silver Mining Industry -- 0.39%
3,200 Barrick Gold Corporation....................... 59,600
700 Newmont Mining Corporation..................... 20,563
400 Placer Dome Incorporated....................... 5,075
----------
85,238
----------
Grocery Industry -- 0.55%
1,400 Albertsons Incorporated........................ 66,150
400 American Stores Company........................ 8,225
200 Safeway Incorporated........................... 12,650
800 Winn Dixie Stores Incorporated................. 34,950
----------
121,975
----------
<PAGE>
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PRINCIPLED EQUITY MARKET FUND
- ---------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
(Continued)
Home Appliance Industry -- 0.10%
400 Whirlpool Corporation.......................... 22,000
----------
Hotel/Gaming Industry -- 0.19%
600 Marriott International Incorporated............ 41,550
----------
Household Products Industry -- 1.52%
400 Clorox Company................................. 31,750
2,400 Colgate Palmolive Company...................... 176,400
800 Newell Company................................. 34,000
600 Ralston Ralston Purina Group................... 55,763
1,500 Rubbermaid Incorporated........................ 37,500
----------
335,413
----------
Industrial Services Industry -- 0.11%
1,700 Laidlaw Incorporated........................... 23,163
----------
Insurance (Diversified) Industry -- 2.54%
1,100 American General Corporation................... 59,469
5,900 Equitable Companies, Incorporated.............. 293,525
600 Lincoln National Corporation Incorporated...... 46,875
800 Marsh and Mclennan Companies Incorporated...... 59,650
1,500 MGIC Investment Corporation.................... 99,750
----------
559,269
----------
Insurance (Life) Industry -- 0.33%
900 Conseco Incorporated........................... 40,894
400 Jefferson Pilot Corporation.................... 31,150
----------
72,044
----------
Insurance (Prop/Casualty) Industry -- 2.81%
2,200 Allstate Corporation........................... 199,100
900 Chubb Corporation.............................. 68,063
1,000 General Re Corporation......................... 212,000
700 Safeco Corporation............................. 34,125
1,100 St Paul Companies Incorporated................. 90,269
700 USF and G Corporation.......................... 15,444
----------
619,001
----------
<PAGE>
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PRINCIPLED EQUITY MARKET FUND
- ---------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
(Continued)
Machinery Industry -- 0.75%
1,100 Aeroquip Vickers Incorporated.................. 53,969
700 Donaldson Company Incorporated................. 31,544
200 Snap On Incorporated........................... 8,725
1,500 Stanley Works.................................. 70,781
----------
165,019
----------
Machinery (Construction & Mining) Industry --
0.94%
200 Case Corporation............................... 12,088
2,300 Caterpillar Incorporated....................... 111,550
800 Deere and Company.............................. 46,600
900 Ingersoll Rand Company......................... 36,450
----------
206,688
----------
Medical Services Industry -- 0.14%
700 Health Care and Retirement Corporation......... 28,175
200 Idexx Laboratories Incorporated................ 3,188
----------
31,363
----------
Medical Supplies Industry -- 2.26%
1,300 Allergan Incorporated.......................... 43,631
1,700 Becton Dickinson and Company................... 85,000
2,100 Boston Scientific Corporation.................. 96,338
100 Centocor Incorporated.......................... 3,325
1,100 Guidant Corporation............................ 68,475
3,800 Medtronic Incorporated......................... 199,500
----------
496,269
----------
Metals & Mining (Div.) Industry -- 0.61%
7,900 Inco Limited................................... 134,300
----------
Natural Gas (Distribution.) Industry -- 0.34%
1,300 Pacific Enterprises............................ 48,913
800 Washington Gas Light Company................... 24,750
----------
73,663
----------
<PAGE>
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PRINCIPLED EQUITY MARKET FUND
- ---------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
(Continued)
Natural Gas (Diversified) Industry -- 1.59%
852 Burlington Resources Incorporated.............. 38,180
200 Columbia Energy Group.......................... 15,713
600 Consolidated Natural Gas Company............... 36,300
5,000 Enron Corporation.............................. 207,813
400 Sonat Incorporated............................. 18,300
1,200 Williams Companies Incorporated................ 34,200
----------
350,506
----------
Newspaper Industry -- 0.56%
1,400 Gannett Incorporated........................... 86,538
200 Times Mirror Company........................... 12,300
400 Tribune Company................................ 24,900
----------
123,738
----------
Office Equip & Supplies Industry -- 1.11%
700 Ikon Office Solutions Incorporated............. 19,688
2,500 Pitney Bowes Incorporated...................... 224,844
----------
244,532
----------
Oilfield Services/Equip. Industry -- 1.74%
1,400 Baker Hughes Incorporated...................... 61,075
200 Cooper Cameron Corporation..................... 12,200
1,700 Diamond Offshore Drilling Incorporated......... 81,813
1,400 Dresser Industries Incorporated................ 58,713
400 Ensco International Incorporated............... 13,400
400 Global Marine Incorporated..................... 9,825
200 Helmerich and Payne Incorporated............... 13,575
200 Noble Drilling Corporation..................... 6,125
400 Reading and Bates Corporation.................. 16,750
700 Rowan Companies Incorporated................... 21,350
200 Smith International Incorporated............... 12,275
800 Transocean Offshore Incorporated............... 38,550
1,000 Varco International Incorporated............... 21,438
200 Western Atlas Incorporated..................... 14,800
----------
381,889
----------
Packaging & Container Industry -- 0.20%
600 Bemis Company Incorporated..................... 26,438
500 Sonoco Products Company........................ 17,344
----------
43,782
----------
<PAGE>
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PRINCIPLED EQUITY MARKET FUND
- ---------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
(Continued)
Paper & Forest Products Industry -- 0.56%
200 Chesapeake Corporation......................... 6,875
1,900 Rayonier Incorporated.......................... 80,869
1,800 Wausau - Mosinee Paper Corporation............. 36,225
----------
123,969
----------
Petroleum (Integrated) Industry -- 1.55%
3,200 Fina Incorporated.............................. 204,800
600 Murphy Oil Corporation......................... 32,513
800 Pennzoil Company............................... 53,450
800 Quaker State Corporation....................... 11,300
400 Sun Company Incorporated....................... 16,825
600 Tosco Corporation.............................. 22,688
----------
341,576
----------
Petroleum (Producing) Industry -- 0.24%
200 Pogo Producing Company......................... 5,900
1,900 Union Pacific Resources Group Incorporated..... 46,075
----------
51,975
----------
Publishing Industry -- 0.26%
900 Harcourt General Incorporated.................. 49,275
100 Mcgraw Hill Company Incorporated............... 7,400
----------
56,675
----------
Railroad Industry -- 3.03%
5,800 Burlington Northern Santa Fe Corporation....... 539,038
4,200 Norfolk Southern Corporation................... 128,100
----------
667,138
----------
Restaurant Industry -- 1.73%
7,300 McDonalds Corporation.......................... 348,575
1,070 Tricon Global Restaurants...................... 31,097
----------
379,672
----------
Retail (Special Lines) Industry -- 0.43%
2,250 Gap Incorporated............................... 79,734
400 TJX Companies Incorporated..................... 13,750
----------
93,484
----------
Retail Building Supply Industry -- 1.02%
3,800 Home Depot Incorporated........................ 223,725
----------
<PAGE>
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PRINCIPLED EQUITY MARKET FUND
- ---------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
(Continued)
Retail Store Industry -- 2.82%
4,300 Borders Group, Incorporated.................... 134,644
800 Dayton Hudson Corporation...................... 54,000
200 Dillards Incorporated Class A.................. 7,050
500 Federated Department Stores Incorporated....... 21,531
1,300 JC Penney Company Incorporated................. 78,406
1,000 K Mart Corporation............................. 11,500
300 May Department Stores Company.................. 15,806
7,500 Wal Mart Stores Incorporated................... 295,781
100 Woolworth Corporation.......................... 2,038
----------
620,756
----------
Securities Brokerage Industry -- 0.70%
2,100 Merrill Lynch and Company Incorporated......... 153,169
----------
Semiconductor Industry -- 2.32%
300 Advanced Micro Devices Incorporated............ 5,325
175 General Semiconductor, Incorporated............ 2,023
7,100 Intel Corporation.............................. 498,775
200 Micron Technology Incorporated................. 5,188
----------
511,311
----------
Semiconductor Cap Equip Industry -- 0.11%
800 Applied Materials Incorporated................. 24,100
----------
Shoe Industry -- 0.25%
1,400 Nike Incorporated.............................. 54,688
----------
Steel (General) Industry -- 0.12%
400 Nucor Corporation.............................. 19,325
400 Worthington Industries Incorporated............ 6,600
----------
25,925
----------
Telecomunication Equipment Industry -- 2.68%
300 Andrew Corporation............................. 7,200
6,600 Lucent Technologies Incorporated............... 527,175
700 Tellabs Incorporated........................... 37,012
600 US West Media Group............................ 17,325
----------
588,712
----------
<PAGE>
- ---------------------------------------------------------------------------
PRINCIPLED EQUITY MARKET FUND
- ---------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
(Continued)
Telecomunication Services Industry -- 8.80%
2,600 Airtouch Communications........................ 108,062
900 Alltel Corporation............................. 36,956
2,800 Ameritech Corporation.......................... 225,400
4,759 Bell Atlantic Corporation...................... 433,069
5,300 Bellsouth Corporation.......................... 298,456
2,300 MCI Communications Corporation................. 98,469
3,689 SBC Communications Incorporated................ 270,219
4,000 Sprint Corporation............................. 234,500
655 TCI Ventures A................................. 18,545
1,145 Tele Communications Inc New.................... 31,988
2,600 US West Communications Group................... 117,325
2,100 Worldcom Incorporated.......................... 63,525
----------
1,936,514
----------
Thrift Industry -- 3.42%
2,500 Federal Home Loan Mortgage Association 104,844
11,100 Federal National Mortgage Association.......... 633,394
200 HF Ahmanson and Company........................ 13,387
----------
751,625
----------
Tire & Rubber Industry -- 0.04%
400 Cooper Tire and Rubber Company................. 9,750
----------
Toiletries/Cosmetics Industry -- 1.06%
700 Avon Products Incorporated..................... 42,963
1,900 Gillette Company............................... 190,831
----------
233,794
----------
Total common stocks (cost $17,687,286)......... 21,796,213
----------
Total investments (cost $17,687,286)........... 21,796,213
----------
CASH & OTHER ASSETS,LESS LIABILITIES -- 0.96%........... 210,536
----------
Total Net Assets............................... $22,006,749
===========
<PAGE>
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PRINCIPLED EQUITY MARKET FUND
===========================================================================
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. Significant accounting policies:
Principled Equity Market Fund, a Massachusetts business trust (the "Trust"),
is registered under the Investment Company Act of 1940, as amended, as a
diversified, closed-end investment management company. The following is a
summary of significant accounting policies followed by the Trust which are in
conformity with those generally accepted in the investment company industry.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. Investment securities-- Security transactions are recorded on the date the
investments are purchased or sold. Each day securities traded on national
security exchanges are valued at the last sale price on the primary exchange
on which they are listed, or if there has been no sale, at the current bid
price. Other securities for which market quotations are readily available
are valued at the last known sales price, or, if unavailable, the known
current bid price which most nearly represents current market value.
Temporary cash investments are stated at cost, which approximates market
value. Dividend income is recorded on the ex-dividend date and interest
income is recorded on the accrual basis. Gains and losses from sales of
investments are calculated using the "identified cost" method for both
financial reporting and federal income tax purposes.
B. Income Taxes-- The Trust has elected to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and
to distribute each year all of its taxable income to its shareholders. No
provision for federal income taxes is necessary since the Fund intends to
qualify for and elect the special tax treatment afforded a "regulated
investment company" under subchapter M of the Internal Revenue Code. Income
and capital gains distributions are determined in accordance with federal
tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences
are permanent, such amounts are reclassified within the capital accounts
based on their federal tax basis treatment; temporary differences do not
require such reclassification.
C. Capital Stock-- The Trust records the sales and redemptions of its
capital stock on trade date.
D. Organizational Costs - Costs incurred in connection with organization and
registration are deferred and amortized over a period of 60 months from the
date upon which the Trust commenced operations.
2. Tax basis of investments:
At December 31, 1997, the total cost of investments for federal income tax
purposes was identical to the total cost on a financial reporting basis.
Aggregate gross unrealized appreciation in investments in which there was an
excess of market value over tax cost was $4,620,428. Aggregate gross
unrealized depreciation in investments in which there was an excess of tax
cost over market value was $511,501. Net unrealized appreciation in
investments at December 31, 1997 was $4,108,927.
<PAGE>
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PRINCIPLED EQUITY MARKET FUND
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
3. Investment advisory and sub-advisory agreements:
The Trust has entered into an Investment Advisory Agreement with F.L.Putnam
Investment Management Company ("F.L. Putnam" or the "Adviser") and a
Sub-Advisory Agreement with PanAgora Asset Management, Inc.
("PanAgora" or the "Sub-Advisor").
The Advisory Agreement provides that F.L. Putnam will be responsible for
overall management of the Trust's activities, will supervise the provision of
administrative and professional services to the Trust, will provide all
necessary facilities, equipment, personnel and office space to the Trust, and
will provide the Sub-Advisor with a list of acceptable securities from which
to select and effect investments for the Trust's portfolio. The Sub-Advisory
Agreement provides that PanAgora will be responsible for investment and
management of the Trust's securities portfolio using the list of securities
provided by F.L. Putnam. The agreements provide that the Trust will pay F.L.
Putnam 1/4 of 1 percent (0.25%) of the Trust's average monthly net assets per
year, of which F.L. Putnam will pay 60 percent or 15/100 of 1 percent (0.15%)
to PanAgora, leaving F.L. Putnam with a net fee of 1/10 of 1 percent (0.10%).
At the Trust's inception, F.L. Putnam elected to waive its total management
fee of $17,213 for at least the first year of the Trust's operation, and is
receiving no compensation for its services. PanAgora has received its portion
of the fee, in an amount equal to $25,835 of which $2,766 is included in
"Accrued expenses and other liabilities" in the accompanying Statement of
Assets and Liabilities.
4. Administration and transfer agent services:
The Trust has entered into an agreement with Anchor Investment Management
Corporation for administrative, transfer agent and dividend disbursing agent
services. Annual fees for these services are $12,000. At December 31, 1997,
administrative, transfer agent and dividend disbursing agent fees of $2,000
were due which were included in "Accrued expenses and other liabilities" in
the accompanying Statement of Assets and Liabilities.
5. Related parties:
The President and Secretary of the Trust is also a director and principal
stockholder of the Trust's investment adviser.
6. Certain Transactions:
For the year ended December 31, 1997 the total expense increase, as shown in
the statement of operations, is $8,118 as a result of an expense offset
arrangement with its custodian, Investors Bank & Trust Company. The Trust
could have invested the assets used by the custodian in an income producing
asset if it had not agreed to a reduction in fees under the expense offset
arrangement. In addition, the expense ratios in the Selected Per Share Data
and Ratios are based on the total expenses, which include amounts that would
have been paid in lieu of an expense offset arrangement
<PAGE>
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PRINCIPLED EQUITY MARKET FUND
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
7. Purchases and sales:
Aggregate cost of purchases and the proceeds from sales and maturities on
investments for the year ended December 31, 1997 were:
Cost of securities acquired:
U.S. Government and investments backed by
such securities........................ $ 130,723
Other investments....................... 18,756,628
=============
$18,887,351
=============
Proceeds from sales and maturities:
U.S. Government and investments backed by
such securities........................ $ 130,723
Other investments....................... 1,172,207
=============
$ 1,302,930
=============
<PAGE>
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PRINCIPLED EQUITY MARKET FUND
===========================================================================
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Trustees of Principled Equity Market Fund:
We have audited the accompanying statement of assets and liabilities of
Principled Equity Market Fund (a Massachusetts business trust), including the
schedule of investments, as of December 31, 1997, the related statement of
operations for the year then ended, the statements of changes in net assets and
the selected per share data and ratios for the year ended December 31, 1997 and
for the period from inception (October 28, 1996) to December 31, 1996. These
financial statements and per share data and ratios are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and per share data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per share data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and selected per share data and ratios
referred to above present fairly, in all material respects, the financial
position of Principled Equity Market Fund as of December 31, 1997, the results
of its operations for the year then ended, and the changes in its net assets and
the selected per share data and ratios for the year ended December 31, 1997 and
for the initial period ended December 31, 1996, in conformity with generally
accepted accounting principles.
LIVINGSTON & HAYNES, P.C.
Wellesley, Massachusetts,
January 14, 1998.
<PAGE>
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PRINCIPLED EQUITY MARKET FUND
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OFFICERS AND TRUSTEES
DAVID W.C. PUTNAM President,Secretary
President and Director and Trustee
F.L. Putnam Securities Company,
Incorporated and subsidiaries
HOWARD R. BUCKLEY Trustee
President, Chief Executive Officer, Mercy
Hospital, Portland Maine; President, Chief
Executive Officer and Director, Mercy Health
Systems of Maine
SISTER ANNE MARY DONOVAN Trustee
General Treasurer of the Sisters of Notre
Dame de Namur, Boston
SISTER JOAN GIBBINS Trustee
Treasurer, Mercy Health System of
Southeastern Pennsylvania
RONALD P. HOGAN Trustee
Chief Executive Officer, Saint Joseph's
Health System
WILLIAM H. IZLAR, JR. Trustee
Chairman and Director, Eastern Mercy
Health System
SISTER JUNE KETTERER Trustee
Provincial Superior, St. Joseph Province,
Sisters of Charity of Montreal
SISTER MARY LABOURE MORIN Trustee
President, Regional Community, Sisters of
Mercy of the Americas
C. KENT RUSSELL Treasurer
Chief Financial Officer, Eastern Mercy
Health System
DANIEL F. RUSSELL Trustee
President and Chief Executive Officer,
Eastern Mercy Health System
JOEL M. ZIFF Trustee
Director, Eastern Mercy Health System
<PAGE>
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PRINCIPLED EQUITY MARKET FUND
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INVESTMENT ADVISER
F.L. Putnam Investment Management Company
10 Langley Road, Suite 400, Newton Centre, Massachusetts 02159
(617) 964-7600
SUB-ADVISOR
PanAgora Asset Management, Inc.
260 Franklin St., 22nd Floor, Boston, Massachusetts 02110
CUSTODIAN
Investors Bank & Trust Company
89 South Street, Boston, Massachusetts 02111
INDEPENDENT PUBLIC ACCOUNTANT
Livingston & Haynes, P.C.
40 Grove St., Wellesley, Massachusetts 02181
ADMINISTRATOR AND TRANSFER AGENT
Anchor Investment Management Corp.
579 Pleasant St., Suite 4, Paxton, MA 01612
(508) 831-1171
LEGAL COUNSEL
Sullivan & Worcester
One Post Office Square, Boston, Massachusetts 02109
This report is not authorized for distribution to prospective investors in the
Trust unless preceded or accompanied by an effective prospectus which includes
information concerning the Trust's record or other pertinent information.
