PRINCIPLED
EQUITY
MARKET
FUND
ANNUAL REPORT
DECEMBER 31, 1998
1
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PRINCIPLED EQUITY MARKET FUND
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Comparison of the Change in Value of a $10,000 Investment in the Principled
Equity Market Fund, the Standard & Poors 500 Index and the Wilshire 5000 Index
[GRAPHIC OMITTED]
2
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PRINCIPLED EQUITY MARKET FUND
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STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
Assets:
Investments at quoted market value (cost $19,426,830 ;
see Schedule of Investments, Notes 1, 2, & 6)................. $27,488,532
Cash ......................................................... 476,683
Dividends and interest receivable.............................. 35,620
Investment securities sold..................................... 570,115
Organizational costs (Note 1).................................. 26,803
------------
Total assets.............................................. 28,597,753
------------
Liabilities:
Dividends payable.............................................. 1,130,381
Accrued expenses and other liabilities (Note 3 )............... 29,687
------------
Total liabilities......................................... 1,160,068
------------
Net Assets:
Capital stock (2,750,000 shares authorized at no par value,
amount paid in on 1,792,985 shares outstanding) (Note 1)...... 19,183,634
Accumulated undistributed net investment income (Note 1)....... 7,236
Accumulated realized gain from security transactions (Note 1).. 185,113
Net unrealized appreciation in value of investments (Note 2)... 8,061,702
------------
Net assets (equivalent to $15.30 per share, based on
1,792,985 capital shares outstanding).................... $27,437,685
============
3
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PRINCIPLED EQUITY MARKET FUND
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STATEMENT OF OPERATIONS
DECEMBER 31, 1998
Income:
Dividends..................................................... $ 372,099
Interest...................................................... 11,960
------------
Total income.............................................. 384,059
------------
Expenses:
Legal fees.................................................... 52,000
Chicago Stock Exchange listing fees........................... 15,000
Insurance..................................................... 11,620
Organizational expenses (Note 1).............................. 9,600
Audit and accounting fees..................................... 7,500
Custodian fees................................................ 7,100
Administration fees (Note 4).................................. 6,000
Transfer fees (Note 4)........................................ 6,000
Trustees' fees and expenses................................... 1,000
Other expenses................................................ 4,565
------------
Total expenses............................................ 120,385
------------
Net investment income.......................................... 263,674
------------
Realized and unrealized gain on investments:
Realized gain on investments-net............................. 2,070,836
Increase in net unrealized appreciation in investments....... 3,952,775
------------
Net gain on investments................................... 6,023,611
============
Net increase in net assets resulting from operations........... $ 6,287,285
============
4
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PRINCIPLED EQUITY MARKET FUND
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STATEMENTS OF CHANGES IN NET ASSETS
Year Ended Year Ended
December 31, December 31,
1998 1997
----------------------------
From operations:
Net investment income........................... $ 263,674 $ 235,788
Realized gain on investments, net............... 2,070,836 102,865
Increase in net unrealized
appreciation in investments.................... 3,952,775 4,108,927
-------------- ------------
Net increase in net assets resulting
from operations............................ 6,287,285 4,447,580
-------------- ------------
Distributions to shareholders:
From net investment income
($0.15 per share in 1998 and $0.14 per share in (256,438) (235,788)
1997)...........................................
From net realized gain on investments (1,885,723) (102,865)
($1.09 per share in 1998 and $0.06 per share in
1997)...........................................
-------------- ------------
Total distributions to shareholders......... (2,142,161) (338,653)
-------------- ------------
From capital share transactions:
Number of Shares
1998 1997
---------- -----------
Proceeds from sale of
shares.................. 20,766 799,491 273,995 8,795,782
Shares issued to share-
holders in distributions
reinvested.............. 66,132 12,570 1,011,817 161,780
Cost of shares redeemed.. -- -- -- --
-------- -------- ------------ -----------
Increase in net
assets resulting from
capital share
transactions............ 812,061 812,061 1,285,812 8,957,562
========== =========== ------------- -----------
Net increase in net assets....................... 5,430,936 13,066,489
Net assets:
Beginning of period............................ 22,006,749 8,940,260
============== ============
End of period ( including undistributed
net investment income of $7,236 and
$0, respectively............................ $ 27,437,685 $ 22,006,749
============== ============
5
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PRINCIPLED EQUITY MARKET FUND
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SELECTED PER SHARE DATA AND RATIOS
(for a share outstanding throughout each period)
Period Ended
Year Ended Year Ended October 28,
December 31, December 31, 1996 to
1998 1997 December 31,
1996
-------------------------------------------
Investment income ................ $ 0.22 $ 0.18 $ --
Expenses, net..................... 0.07 0.04 --
--------------------------- --------------
Net investment income ............ 0.15 0.14 --
Net realized and unrealized
gain on investments............ 3.49 2.96 --
Distributions to shareholders:
From net investment income...... 0.15 0.14 --
From net realized gain on
investments.................... 1.09 0.06 --
------------------------------------------
Net increase in net asset value... 2.40 2.90 --
Net asset value:
Beginning of period............. 12.90 10.00 10.00
==========================================
End of period................... $15.30 $12.90 $ 10.00
==========================================
Ratio of expenses
to average net assets.......... 0.48% 0.48% --
Ratio of net investment
income to average net assets... 1.06% 1.40% --
Portfolio turnover................ 0.29 0.07 --
Average commission rate paid...... 0.0292 0.0253 --
Number of shares outstanding at
end of period..................... 1,792,985 1,706,087 894,026
Per share data and ratios
assuming no waiver of advisory
fees:
Expenses....................... 0.14 0.06 --
Net investment income.......... 0.08 0.13 --
Ratio of expenses to average
net assets.................... 0.73% 0.58% --
Ratio of net investment income
to average net assets......... 0.81% 1.30% --
6
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PRINCIPLED EQUITY MARKET FUND
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SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
Value
Quantity (Note 1)
COMMON STOCKS -- 100.10%
Advertising Industry -- 0.49%
800 Interpublic Group Of Companies Incorporated..............$
63,800
1,200 Omnicom Group............................................ 69,600
-----------
133,400
Aerospace/Defense Industry -- 1.33%
6,700 Precision Castparts Corporation.......................... 296,475
1,400 Rockwell International .................................. 67,988
-----------
364,463
Agricultural Products Industry -- 0.01%
60 Agribrands International Incorporated*................... 1,800
-----------
Air Transport Industry -- 0.71%
800 Amr Corporation *........................................ 47,500
200 FDX Corporation ......................................... 17,838
1,100 Gateway 2000 Incorporated *.............................. 56,306
1,800 Southwest Airlines Company ............................. 40,838
600 US Airways Group Incorporated *.......................... 31,200
-----------
193,682
Auto & Truck Industry -- 0.15%
1,000 Paccar Incorporated...................................... 41,125
-----------
Auto Parts (OEM) Industry -- 0.29%
600 Dana Corporation ........................................ 24,525
600 Oea Incorporated ....................................... 7,088
600 Superior Industries International ....................... 16,688
1,300 Synovus Financial Corporation ........................... 31,200
-----------
79,501
Auto Parts (Replacement) Industry -- 2.27%
18,650 Genuine Parts Company.................................... 623,609
-----------
* Non income producing security.
7
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PRINCIPLED EQUITY MARKET FUND
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SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
(Continued)
Value
Quantity (Note 1)
Bank Industry -- 6.80%
1,700 BB&T Corporation ........................................ 68,531
2,430 Bank One Corporation .................................... 124,082
2,000 Bank of New York Company Incorporated ................... 80,500
11,889 BankAmerica Corporation (New) ........................... 714,826
1,000 Bankboston Corporation .................................. 38,938
300 Capital One Financial ................................... 34,500
3,500 Citigroup Incorporated .................................. 173,906
2,700 First Union Corporation ................................ 164,194
900 JP Morgan and Company Incorporated ...................... 94,556
600 Keycorp................................................. 19,200
1,100 Pnc Bank Corporation* ................................... 59,400
600 Wachovia Corporation .................................... 52,463
436 Washington Mutual Incorporated .......................... 16,732
5,600 Wells Fargo and Company ................................. 223,650
-----------
1,865,478
Bank (Midwest) Industry -- 2.76%
1,100 Comerica Incorporated .................................. 75,006
1,800 Fifth Third Bankcorp .................................... 128,363
2,700 Mellon Bank Corporation ................................. 185,625
1,100 National City Corporation ............................... 79,750
500 Northern Trust .......................................... 43,656
6,900 US Bankcorp (New) ....................................... 244,950
-----------
757,350
Beverage (Soft Drink) Industry -- 6.12%
17,200 Coca Cola Company ....................................... 1,152,400
2,500 Coca Cola Enterprises Incorporated ...................... 89,375
10,700 Pepsico Incorporated .................................... 437,363
-----------
1,679,138
Building Materials Industry -- 0.02%
100 Armstrong World Industries Incorporated ................. 6,031
-----------
Chemical (Basic) Industry --0.08%
1,100 Millennium Chemicals..................................... 21,863
-----------
* Non income producing security.
8
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PRINCIPLED EQUITY MARKET FUND
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SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
(Continued)
Value
Quantity (Note 1)
Chemical (Diversified) Industry --0.38%
1,400 Millipore Corporation ................................... 39,638
2,500 Pall Corporation ........................................ 63,281
-----------
102,919
Chemical (Specialty) Industry -- 0.39%
600 International Flavors and Fragrances .................... 26,513
1,300 Praxair Incorporated .................................... 45,825
800 Sherwin Williams Company ................................ 23,500
400 Sigma Aldrich Corporation ............................... 11,750
-----------
107,588
Coal/Alternate Energy Industry -- 0.07%
400 Aes Corporation*......................................... 18,950
-----------
Computer & Peripherals Industry -- 5.99%
200 3Com Corporation*........................................ 8,963
200 Apple Computer Incorporated ............................. 8,188
600 Cabletron Systems Incorporated*.......................... 5,025
5,625 Cisco Systems Incorporated* ............................. 522,070
5,934 Compaq Computer Corporation ............................. 249,228
5,200 Dell Computer Corporation*.............................. 380,575
3,600 EMC Corporation*........................................ 306,000
1,100 Seagate Technology Incorporated*........................ 33,275
900 Silicon Graphics Incorporated *.......................... 11,588
1,400 Sun Microsystems Incorporated*.......................... 119,875
-----------
1,644,787
Computer Software & Services Industry -- 7.20%
1,100 Ascend Communications.................................. 72,325
1,200 Automatic Data Processing Incorporated ................. 96,225
3,750 Computer Associates International ...................... 159,844
1,800 First Data Corporation.................................. 57,375
8,600 Microsoft Corporation................................... 1,192,713
9,200 Oracle Corporation...................................... 396,750
-----------
1,975,232
* Non income producing security.
9
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PRINCIPLED EQUITY MARKET FUND
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SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
(Continued)
Value
Quantity (Note 1)
Diversified Company Industry -- 2.25%
105 Berkshire Hathaway Class B*.............................. 246,750
150 Crane Company.......................................... 4,528
1,000 Hillenbrand Industries.................................. 56,875
200 National Service Industries............................ 7,600
400 Raychem Corporation..................................... 12,925
2,500 Service Corporation International....................... 95,156
800 Thermo Electron Corporation............................. 13,550
2,400 Tyco International Limited.............................. 181,050
-----------
618,434
Drug Industry -- 0.08%
200 Interneuron Pharmaceuticals*............................. 656
400 Quintiles Transnational Corporation*.................... 21,350
-----------
22,006
Drugstore Industry -- 0.68%
800 Rite Aid Corporation................................... 39,800
2,500 Walgreen Company....................................... 146,406
-----------
186,206
Electric Utility (Central) Industry -- 1.05%
800 Cinergy Corporation..................................... 27,500
3,200 Dte Energy Holding Company.............................. 137,800
1,400 FirstEnergy Corporation................................. 45,238
2,000 Unicom Corporation...................................... 77,125
-----------
287,663
Electric Utility (East) Industry -- 0.77%
800 P P and L Resources Holding............................ 22,300
4,500 Peco Energy Company..................................... 187,875
-----------
210,175
Electric Utility (West) Industry - 4.85%
10,700 Edison International Incorporated....................... 298,263
2,100 Nevada Power Company.................................... 54,600
15,900 PG & E Corporation (Holding) ........................... 500,850
20,300 Pacificorp.............................................. 427,569
1,954 Sempra Energy........................................... 49,583
-----------
1,330,865
* Non income producing security.
10
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PRINCIPLED EQUITY MARKET FUND
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SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
(Continued)
Value
Quantity (Note 1)
Electrical Equipment Industry -- 0.06%
400 W W Grainger Incorporated................................ 16,650
-----------
Electronics Industry -- 0.21%
1,100 Amp Incorporated......................................... 57,269
-----------
Entertainment Industry -- 2.84%
7,200 CBS Corporation......................................... 236,250
700 Safety Kleen Corporation................................ 9,888
6,800 Time Warner Incorporated................................ 422,025
1,500 Viacom Inc. Class B*.................................... 111,000
-----------
779,163
Environmental Industry -- 0.09%
1,700 Republic Industries Incorporated*........................ 25,288
-----------
Financial Services Industry -- 4.44%
2,600 American Express Company............................... 266,500
2,200 Associates First Capital Corporation.................... 93,225
2,000 Cendant Corporation*.................................... 38,625
400 Deluxe Corporation...................................... 14,625
3,400 Franklin Resources Incorporated........................ 108,800
1,200 Household International Incorporated.................... 47,550
100 Lehman Brothers Holdings Incorporated................... 4,406
3,600 Mbna Corporation........................................ 89,325
3,020 Morgan Stanley, Dean Witter............................ 214,420
5,850 Schwab (Chas) Corporation............................... 328,697
100 Transamerica Corporation................................ 11,550
-----------
1,217,723
* Non income producing security.
11
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PRINCIPLED EQUITY MARKET FUND
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SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
(Continued)
Value
Quantity (Note 1)
Food Processing Industry -- 2.04%
2,300 Bestfoods............................................... 122,475
2,200 General Mills Incorporated.............................. 171,050
1,300 Hershey Foods Corporation............................... 80,844
1,700 Kellogg Company......................................... 58,013
1,200 Pioneer Hi Bred International........................... 31,800
700 Quaker Oats Company..................................... 41,650
600 Wm Wrigley Jr Company................................... 53,738
-----------
559,570
Food Wholesalers Industry -- 0.18%
1,800 Sysco Corporation........................................ 49,388
-----------
Foreign Telecommunication Industry -- 0.47%
2,600 Northern Telecom Limited................................. 130,000
-----------
Furniture/Home Furnishings Industry -- 0.11%
1,400 Leggett & Platt.......................................... 30,800
-----------
Gold/Silver Mining Industry -- 0.27%
3,200 Barrick Gold Corporation................................ 62,400
700 Newmont Mining Corporation.............................. 12,775
-----------
75,175
Grocery Industry -- 0.82%
1,400 Albertsons Incorporated................................. 89,163
400 American Stores Company................................. 14,775
1,000 Kroger Company.......................................... 60,500
400 Safeway Incorporated*................................... 24,375
800 Winn Dixie Stores Incorporated.......................... 35,900
-----------
224,713
Healthcare Info Systems Industry -- 0.31%
3,000 HBO & Company............................................ 86,063
-----------
* Non income producing security.
12
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PRINCIPLED EQUITY MARKET FUND
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SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
(Continued)
Value
Quantity (Note 1)
Home Appliance Industry -- 0.19%
500 Maytag Corporation..................................... 31,125
400 Whirlpool Corporation ................................... 22,150
-----------
53,275
Hotel/Gaming Industry -- 0.13%
1,200 Marriott International Incorporated...................... 34,800
-----------
Household Products Industry -- 0.29%
800 Newell Company.......................................... 33,000
1,500 Rubbermaid Incorporated................................. 47,156
-----------
80,156
Industrial Services Industry -- 0.06%
1,700 Laidlaw Incorporated..................................... 17,106
-----------
Insurance (Diversified) Industry -- 3.01%
1,100 American General Corporation............................ 85,800
1,500 Cigna Corporation....................................... 115,969
5,900 Equitable Companies, Incorporated....................... 341,462
600 Lincoln National Corporation............................ 49,087
2,000 Lowe's Companies Incorporated........................... 102,375
1,200 Marsh and Mclennan Companies............................ 70,125
1,500 Mgic Investment Corporation............................. 59,719
-----------
824,537
Insurance (Life) Industry -- 0.66%
1,541 Conseco Incorporated.................................... 47,000
600 Jefferson Pilot Corporation............................. 45,000
1,100 SunAmerica Incorporated................................. 90,200
-----------
182,200
* Non income producing security.
13
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PRINCIPLED EQUITY MARKET FUND
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SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
(Continued)
Value
Quantity (Note 1)
Insurance (Property/Casualty) Industry -- 1.88%
4,400 Allstate Corporation.................................... 169,400
900 Chubb Corporation....................................... 58,275
600 Cincinnati Financial.................................... 21,975
1,100 Hartford Financial Services Group....................... 60,362
500 Progressive Corp., Ohio................................. 84,687
700 Safeco Corporation...................................... 30,056
2,594 St Paul Companies Incorporated.......................... 90,304
-----------
515,059
Machinery Industry --0.40%
1,100 Aeroquip Vickers Incorporated........................... 32,931
1,400 Donaldson Company Incorporated.......................... 29,050
200 Snap On Incorporated.................................... 6,962
1,500 Stanley Works........................................... 41,625
-----------
110,568
Machinery (Construction & Mining) Industry -- 0.65%
200 Case Corporation........................................ 4,362
2,300 Caterpillar Incorporated................................ 105,800
800 Deere and Company....................................... 26,300
900 Ingersoll Rand Company.................................. 42,525
-----------
178,987
Medical Services Industry -- 0.45%
700 HCR Manor Care, Incorporated............................ 20,562
1,300 IMS Health.............................................. 98,069
200 Idexx Laboratories Incorporated*........................ 5,381
-----------
124,012
Medical Supplies Industry -- 1.90%
700 Biomet, Incorporated.................................... 28,175
4,200 Boston Scientific Corporation*.......................... 112,612
100 Centocor Incorporated*.................................. 4,512
3,800 Medtronic Incorporated.................................. 282,269
1,700 Stryker Corporation..................................... 93,606
-----------
521,174
* Non income producing security.
14
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PRINCIPLED EQUITY MARKET FUND
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SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
(Continued)
Value
Quantity (Note 1)
Metals & Mining (Div.) Industry -- 0.30%
7,900 Inco Limited............................................. 82,456
-----------
Natural Gas (Distribution) Industry -- 0.08%
800 Washington Gas Light Company............................. 21,600
-----------
Natural Gas (Diversified) Industry -- 1.51%
852 Burlington Resources Incorporated....................... 30,512
300 Columbia Energy Group.................................. 17,325
600 Consolidated Natural Gas Company........................ 32,400
5,000 Enron Corporation....................................... 285,312
400 Sonat Incorporated...................................... 10,825
1,200 Williams Companies Incorporated......................... 37,425
-----------
413,799
Newspaper Industry -- 0.14%
200 Times Mirror Company.................................... 11,200
400 Tribune Company......................................... 26,400
-----------
37,600
Office Equipment & Supplies Industry -- 1.23%
700 Ikon Office Solutions Incorporated...................... 5,994
5,000 Pitney Bowes Incorporated............................... 330,312
-----------
336,306
Oil Exploration Industry -- 0.21%
1,300 Vastar Resources......................................... 56,144
-----------
* Non income producing security.
15
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PRINCIPLED EQUITY MARKET FUND
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SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
(Continued)
Value
Quantity (Note 1)
Oilfield Services/Equipment Industry -- 0.59%
1,940 Baker Hughes Incorporated............................... 34,192
200 Cooper Cameron Corporation*............................. 4,900
1,700 Diamond Offshore Drilling Incorporated.................. 40,269
400 Ensco International Incorporated....................... 4,275
400 Global Marine Incorporated*............................. 3,600
400 Helmerich and Payne Incorporated........................ 7,750
800 McDermott International................................. 19,750
200 Noble Drilling Corporation.............................. 2,587
472 R&B Falcon Corporation*................................. 3,569
700 Rowan Companies Incorporated*........................... 6,912
200 Smith International Incorporated*....................... 5,037
800 Transocean Offshore Incorporated........................ 21,450
1,000 Varco International Incorporated*....................... 7,750
-----------
162,041
Packaging & Container Industry -- 0.32%
600 Bemis Company Incorporated............................... 22,762
1,600 Crown Cork & Seal...................................... 49,300
550 Sonoco Products Company................................. 16,294
-----------
88,356
Paper & Forest Products Industry -- 0.96%
200 Chesapeake Corporation.................................. 7,375
300 Fort James Corporation.................................. 12,000
1,900 Rayonier Incorporated................................... 87,281
3,100 Weyerhaeuser Company.................................... 157,519
-----------
264,175
Petroleum (Integrated) Industry -- 0.33%
600 Murphy Oil Corporation.................................. 24,750
800 PennzEnergy Company..................................... 13,050
1,456 Pennzoil-Quaker State................................... 21,481
400 Sunoco Incorporated..................................... 14,425
600 Tosco Corporation....................................... 15,525
-----------
89,231
* Non income producing security.
16
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PRINCIPLED EQUITY MARKET FUND
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SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
(Continued)
Value
Quantity (Note 1)
Petroleum (Producing) Industry -- 0.26%
1,700 Anadarko Petroleum Corporation......................... 52,487
200 Pogo Producing Company.................................. 2,600
1,900 Union Pacific Resources Group........................... 17,219
-----------
72,306
Publishing Industry -- 0.21%
900 Harcourt General Incorporated........................... 47,869
100 Mcgraw Hill Company Incorporated........................ 10,187
-----------
58,056
Railroad Industry -- 2.66%
17,400 Burlington Northern Santa Fe............................ 595,950
4,200 Norfolk Southern Corporation............................ 133,087
-----------
729,037
Restaurant Industry -- 2.04%
7,300 McDonalds Corporation.................................... 560,731
-----------
Retail (Special Lines) Industry -- 0.78%
3,375 Gap Incorporated........................................ 189,422
800 Tjx Companies Incorporated.............................. 23,200
-----------
212,622
Retail Building Supply Industry -- 1.70%
7,600 Home Depot Incorporated.................................. 465,025
-----------
Retail Store Industry -- 2.16%
4,300 Borders Group, Incorporated*............................ 107,231
1,600 CVS Corporation......................................... 88,000
600 Clear Channel Communications*........................... 32,700
400 Costco Companies Incorporated*.......................... 28,875
1,600 Dayton Hudson Corporation............................... 86,800
625 Dollar General.......................................... 14,765
500 Federated Department Stores............................. 21,781
1,300 JC Penney Company Incorporated.......................... 60,937
1,800 May Department Stores Company.......................... 108,675
1,000 Sears Roebuck and Company............................... 42,500
100 Venator Group Incorporated*............................. 650
----------
592,914
* Non income producing security.
17
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PRINCIPLED EQUITY MARKET FUND
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SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
(Continued)
Value
Quantity (Note 1)
Securities Brokerage Industry -- 0.51%
2,100 Merrill Lynch and Company Incorporated................... 140,175
-----------
Semiconductor Industry - 0.23%
300 Advanced Micro Devices Incorporated*.................... 8,700
1,100 Micron Technology Incorporated*......................... 55,619
-----------
64,319
Semiconductor Capital Equipment Industry -- 0.48%
3,100 Applied Materials Incorporated*.......................... 132,331
-----------
Steel (General) Industry -- 0.08%
400 Nucor Corporation...................................... 17,300
400 Worthington Industries Incorporated..................... 5,000
-----------
22,300
Telecommunication Equipment Industry -- 0.79%
300 Andrew Corporation*..................................... 4,950
700 General Instrument Corporation*......................... 23,756
3,000 MediaOne Group*......................................... 141,000
700 Tellabs Incorporated*................................... 47,994
-----------
217,700
Telecommunication Services Industry -- 12.49%
2,600 Airtouch Communications*................................ 188,337
900 Alltel Corporation...................................... 53,831
5,600 Ameritech Corporation................................... 354,900
10,600 Bellsouth Corporation................................... 528,675
1,700 Comcast Corporation Class A............................. 99,769
3,700 MCI Worldcom Incorporated*.............................. 265,475
7,378 SBC Communications Incorporated......................... 395,645
4,000 Sprint Corporation (FON Group) ........................ 336,500
2,000 Sprint PCS .............................................. 46,250
1,310 TCI Ventures A*......................................... 30,867
2,045 Tele Communications Inc New*............................ 113,114
15,681 US West Incorporated.................................... 1,013,385
-----------
3,426,748
* Non income producing security.
18
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PRINCIPLED EQUITY MARKET FUND
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SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
(Continued)
Value
Quantity (Note 1)
Thrift Industry -- 3.58%
2,500 Federal Home Loan Mortgage Association.................. 161,094
11,100 Federal National Mortgage Association................... 821,400
-----------
982,494
Tire & Rubber Industry -- 0.03%
400 Cooper Tire and Rubber Company........................... 8,175
-----------
Toiletries/Cosmetics Industry -- 0.23%
1,400 Avon Products Incorporated.............................. 61,950
-----------
Total common stocks (cost $19,410,823).................. 27,464,532
-----------
RIGHTS & WARRANTS -- 0.09%
3,200 PetroFina S.A. Warrants* (cost 16,007) .................. 24,000
-----------
Total investments (cost $19,426,830).................... 27,488,532
-----------
CASH & OTHER ASSETS, LESS LIABILITIES -- (0.19)%.................... (50,847)
-----------
Total Net Assets........................................$27,437,685
===========
* Non income producing security.
19
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PRINCIPLED EQUITY MARKET FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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, 1998, 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 $9,031,477. Aggregate gross
unrealized depreciation in investments in which there was an excess of tax
cost over market value was $969,775. Net unrealized appreciation in
investments at December 31, 1998 was $8,061,702.
20
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PRINCIPLED EQUITY MARKET FUND
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(Continued)
3. Investment advisory and sub-advisory agreements:
The Trust 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") at its inception.
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 provided
that PanAgora 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%).
F.L. Putnam waived its total management fees of $24,990 for the year ended
December 31, 1998, and $17,213 for the year ended December 31, 1997. It
has received no compensation for its services since the inception of the
Trust.
Pursuant to a change in ownership of PanAgora Asset Management, Inc., the
Sub-Advisory Agreement with Panagora was terminated as of February 12, 1998.
The Trust entered into a consulting services agreement with Panagora Asset
Management, Inc. for the period February 12, 1998 to December 31, 1998.
Panagora received no compensation for its services under the consulting
services agreement.
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.
5. Related parties:
The President and Secretary of the Trust is also a director and a stockholder
of the Trust's investment adviser.
21
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PRINCIPLED EQUITY MARKET FUND
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(Continued)
6. Purchases and sales:
Aggregate cost of purchases and the proceeds from sales and maturities on
investments for year ended December 31, 1998 were:
Cost of securities acquired:
U.S. Government and investments backed by such
securities....................................... $ --
Other investments................................ 7,221,436
===============
$ 7,221,436
===============
Proceeds from sales and maturities:
U.S. Government and investments backed by such
securities......................................... $ --
Other investments................................ 7,552,727
===============
$ 7,552,727
===============
22
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PRINCIPLED EQUITY MARKET FUND
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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, 1998, the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended and the selected per share data
and ratios for each of the two years in the period then ended 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, 1998 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, 1998, the results
of its operations for the year then ended, and the changes in its net assets for
each of the two years in the period then ended and the selected per share data
and ratios for each of the two years in the period then ended and for the
initial period ended December 31, 1996, in conformity with generally accepted
accounting principles.
LIVINGSTON & HAYNES, P.C.
Wellesley, Massachusetts,
January 19, 1999.
23
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PRINCIPLED EQUITY MARKET FUND
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OFFICERS & TRUSTEES
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
DR. LORING E. HART Trustee
President, St. Joseph's College (Retired)
SISTER MARY LABOURE MORIN Trustee
President, Regional Community, Sisters of Mercy of
the Americas
DAVID W.C. PUTNAM President, Secretary
President and Director and Trustee
F.L. Putnam Securities Company, Incorporated and
subsidiaries
C. KENT RUSSELL Treasurer
Chief Financial Officer, Catholic Health East
DANIEL F. RUSSELL Trustee
President and Chief Executive Officer, Catholic
Health East
EDWARD T. SULLIVAN, JR Trustee
Business Manager, Secretary and Treasurer, Local
254 Service Employees International Union
MONSEIGNOR VINCENT TATARCZUK Trustee
Chancellor, Diocese of Maine (Retired)
GOERGE A. VIOLIN, M.D., F.A.C.S. Trustee
Physician; Principal, Medical Eye Care Associates
JOEL M. ZIFF Trustee
Director, Catholic Health East
24
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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 02459
(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 02482
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.
25
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