IPS MILLENNIUM FUND
Two Centre Square - 625 South Gay Street - Suite 630 - Knoxville,
Tennessee 37902 - Phone 423/524-1676 - Fax 423/544-0630
Gregory D'Amico Robert Loest, Ph.D., CFA
President & Portfolio Manager Senior Portfolio Manager
1997 Semi-Annual Report
Fellow Shareholders:
We are pleased to present our semiannual report for the six
month period ended May 31, 1997. The Fund has now been in
existence for nearly two and a half years. This year your Fund
again received favorable publicity, this time in KIPLINGER'S
PERSONAL FINANCE MAGAZINE, with a total return of 38.2%, ranking
it #7 of the top ten Growth & Income Funds, for the one year
period ended Jan 20, 1997. However, it has been a difficult six
months for all funds with significant technology positions, and
your fund did not escape the severe decline in the technology
stocks in February and March. Our total return for the six months
ended May 31, 1997, was +4.22%, compared with +11.59% for the
VALUE LINE ARITHMETIC INDEX. You can see from the graph below
that the Fund's volatility is greater than that of the Value Line
Index due to its larger technology component, and while we expect
our longer term growth to be higher than that of the broader
indexes, performance is more variable over one or two quarter
periods. For the year ended May 31, 1997, the Fund gained 13.09%,
compared with 20.02% for the VALUE LINE ARITHMETIC INDEX. Small-
and mid-capitalization companies have not performed nearly as
well as larger ones for several years now, and IPS Millennium
Fund, although it does not have a size restriction, balances out
as a mid-cap fund, and therefore tends to suffer (and profit)
doubly from the fate of small caps and technology stocks.
GRAPHIC APPEARS HERE
Comparison of the Change in Value of a $10,000 Investment in
IPS Millennium Fund vs. the Value Line Arithmetic Index
$10,000 INITIAL INVESTMENT SINCE INCEPTION
Period V.L. Arithmetic Millennium Fund S&P 500
1995 03-Jan $10,000 $10,000 $10,000
28-Feb $10,490 $10,167 $10,665
31-May $11,216 $10,741 $11,743
31-Aug $12,208 $11,754 $12,440
30-Nov $12,488 $12,591 $13,464
31-Dec $12,641 $12,480 $13,720
1996 28-Feb $13,096 $13,150 $14,306
31-May $14,160 $14,707 $15,010
31-Aug $14,131 $13,878 $14,717
30-Nov $15,686 $15,960 $17,086
31-Dec $15,667 $15,537 $16,758
1997 28-Feb $16,301 $15,698 $17,903
31-May $17,442 $16,641 $19,237
31-Aug $0
30-Nov $0
31-Dec $0
Figure 1. Inception of the IPS MILLENNIUM FUND was Jan. 3, 1995. The
data presented herein and below represent past performance and are not a
guarantee of future performance. The value of your shares may fluctuate
and be worth more or less at redemption than their original cost.
<TABLE>
<CAPTION>
Total Annual Return For: IPS Millennium Value Line S&P 500
Fund Arithmetic Index Composite
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Six months ended 5/31/97 4.27% 11.59% 12.60%
One year ended 5/31/97 13.09% 20.02% 28.16%
Inception 1/3/95 - 5/31/97 23.49% 25.88% 31.09%
</TABLE>
The total returns above include changes in the Fund s share price, plus
reinvestment of any dividends (income) and capital gains (profits from
the sale of a stock). The VALUE LINE ARITHMETIC INDEX and the S&P 500
COMPOSITE have been adjusted to reflect total return with dividends and
capital gains reinvested. <PAGE>
Important Announcements Regarding Your Fund
We are happy to report to you that our website should be
accessible to the public sometime in early August. The URL will
be HTTP://WWW.IPSMILLENNIUM.COM. We have worked hard on it, and
we hope to provide our investors and others with periodic updates
on the Fund more frequently than the Annual and SemiAnnual
reports to shareholders. We also have additional areas planned
for the future for the site. Please let us know what you think,
and any suggestions you have that will help us to improve it for
you.
Some of the more interesting features on the site will be a
more frequently updated list of the Fund's Top Ten holdings with
links to the companies' websites, Portfolio Manager Commentary, a
detailed statement of the Fund's investment strategies and
philosophy, and a list of unusual links to other websites most
investors won't normally run across, like the SANTA FE INSTITUTE
and the BIONOMICS INSTITUTE. These are organizations where some
truly innovative and cutting-edge thinking is going on regarding
the economy, investing, and the direction of human civilization.
In addition, IPS Millennium Fund IS NOW AVAILABLE TO YOU OR
YOUR BROKER THROUGH JACK WHITE & COMPANY, WATERHOUSE SECURITIES,
AND FIDELITY'S FUNDS NETWORK. We are working on making it
available soon through Charles Schwab. These and other
announcements will also appear on our website News Announcements
page as they occur.
For those of you who like frequent updates on your fund's
NAV, please be sure to call our after-hours and weekend/holidays
number at 423-544-1842. We should also have the NAV updated weekly
on our web site initially, and later on a daily basis, with a performance
graph since inception to be added later.
IPS ADVISORY, INC., the Advisor to the Fund, has now replaced Provident
Bank as the Fund Accountant and Shareholder Servicing Agent. This change
should improve responsiveness to our shareholders. Provident Bank
remains the Fund Custodian, and is where you should continue to
send your investments in the Fund.
TABLE 1: BREAKDOWN BY MARKET CAP
Sector Number Percent
- -----------------------------------------------
1. Large Caps 10 15.9%
2. Mid Caps 31 49.2%
3. Small Caps 22 34.9%
---- ------
Total 63 100.0%
Average Market Capitalization: $12,65b
Average Sales Growth Rate: 27.7%
MANAGEMENT'S DISCUSSION & ANALYSIS
CLASSIFICATION BY MARKET CAPITALIZATION.
In order to better understand the characteristics of your
Fund, we thought it would be useful to present some statistics on
the Fund's portfolio makeup and its behavior. As you can see from
TABLE 1, 84% of the fund is composed of mid- and small-cap
companies, with more than twice as many small companies as large
ones. (Market capitalization is price per share times number of
shares outstanding, one good measure of a company's size.) Note
that our average market cap, at $12.7 billion, would make us a
large-cap fund based on that alone, which is deceiving, because
it is distorted by the $130 billion market cap of INTEL
(INTC, OTC), one of our ten largest positions.
Thus, the breakdown by capitalization sector presents a
truer picture of how your fund's assets are allocated than does
average market cap, or classification by investment style such as
Growth & Income, Growth, Capital Appreciation, etc. The reasons for large
disparities in the performance of funds are often clearer when
the funds are instead classified by market capitalization. IN FACT,
MANY FEEL THE BEST DIVERSIFICATION IS OBTAINED BY USING MARKET CAP OR A
COMBINATION, NOT INVESTMENT STYLE ALONE. This discussion is
especially relevant, since MORNINGSTAR has recently changed
its fund classification system to include a fund's market cap
sector, instead of the traditional investment styles mentioned above. Since
we have been classified as a Growth & Income fund due to our focus on
dividend paying stocks to offset some of the volatility of our large high
tech position, and Growth & Income Funds are typically large
capitalization funds, placing us in this group has often provided
a distorted measure of our relative performance. IPS MILLENNIUM
FUND should receive a more accurate classification under
MORNINGSTAR'S new system than is the case with other ranking
systems. However, MORNINGSTAR does not list funds less than
three years old, so we won't appear in their published rankings
until January, 1998, our three year anniversary.
SALES GROWTH VS. EARNINGS GROWTH
Further insight into your Fund can be gained by looking at
the average sales growth rate of 27.7%. In this case, it is not
distorted as much by outliers, as market cap is distorted by Intel.
Sales growth rate is more important than earnings growth for several
COPYRIGHT 1997, IPS ADVISORY, INC. Page 2
<PAGE>
reasons. First, earnings growth is more volatile and less
reliable than sales growth. Second, it is subject to many kinds
of manipulation by management, and sales is not. Third, if a
company really is growing rapidly, then sales should be growing
rapidly, also, not just earnings. Earnings growth rates cannot
forever exceed the sales growth rate. Eventually, internal
improvements in capital turnover and other efficiencies will run
out, and the company's growth will be capped at whatever the
highest rate of sales growth is. The only way to find the true
growth companies is to look at growth in sales, not earnings.
TABLE 2: MONTHLY TOTAL RETURNS
Month IPS Millennium V.L. Arithmetic S&P 500
(1997) Fund Composite Index
------------------------------------------------------------------
December -2.7% 0.2% -1.9%
January 6.0% 3.7% 6.1%
February -4.7% 0.4% 0.7%
March -7.3% -3.2% -3.9%
April 2.7% 2.4% 5.8%
May 11.3% 7.9% 5.8%
VOLATILITY OF RETURNS
Another important aspect of your Fund's behavior is its
volatility. In TABLE 2 we have shown the Fund's monthly returns
since its Nov. 30, 1996 Fiscal Year end, compared with the VALUE
LINE COMPOSITE and the S&P 500, to illustrate an important point.
OVER LONGER PERIODS OF TIME, HIGHER THAN AVERAGE GROWTH RATES ALSO
COME WITH HIGHER THAN AVERAGE VOLATILITY IN SHARE PRICE.
Six months is, of course, far too short a period to use for long
term comparisons, but it does illustrate one characteristic of your
fund you should understand. Our fortunes are tied more to the newer
kinds of companies that are building our civilization's future, such as
the networking stocks, rather than the older industrial companies
of our past. The sharp correction in high tech companies in March
and April demonstrates this dependence, as does the even larger
relative positive performance in May. While the Fund has done
very well in May and June, our 1997 Fiscal Year first half
performance, and 1997 year-to-date performance still reflect the
deep correction earlier this year. In addition, the 1-year
performance measures the period from a very high peak in May of
1996, just before the drastic market drop in June and July 1996,
to a partial recovery in May 1997 from a steep drop earlier this
year. FOR EXAMPLE, J.P. MORGAN'S INDEX OF NETWORKING-RELATED
STOCKS IS UP 42% FROM MAY 1 TO JUNE 27, BUT IS VIRTUALLY
UNCHANGED YEAR-TO-DATE. By the end of July, barring another sharp
decline, this will probably reverse again to a 1-year period of
high performance. This kind of whiplash reversal from
outperformance to underperformance to outperformance again, over
periods as short as a month or two, is typical of most funds with
greater than normal volatility, and thus should not by itself be
of concern to long-term investors.
THE LONGER TERM PERSPECTIVE
We wrote to you earlier this year regarding a correction
that could have turned into a bear market. Circumstances have
proved us wrong - so far. We still think we are due for a bear
market, but it may be pretty much limited to large capitalization
companies. By any MEASURE, THE VERY DEEP CORRECTION THAT BEGAN IN
JUNE OF 1996 WAS THE BEGINNING OF A BEAR MARKET IN SMALLER AND
HIGH TECH COMPANIES. It fits all the classic criteria of a bear
market if we just remove the top 100 or so of the S&P 500
companies. The decline was in excess of 20% (more than 10% is
generally considered a bear market, not just a correction), and
lasted about 10 months, until April of this year. It finished up
in a selling frenzy last March and April that was typical of what
marks the end of many bear markets.
Sanity seems to have been restored to the high tech and
small cap sector, and then some, and we are just beginning to see
a recovery, and possibly the long-term reversal of fortunes that
periodically occurs between small and large company stocks, and
makes diversification by market cap so useful. I still think the
large cap universe, particularly the top tier of traditional
companies in global businesses like GENERAL ELECTRIC, JOHNSON &
JOHNSON AND COCA COLA, are dramatically overvalued. They may
correct sharply, or just go nowhere for a few years. IF THIS
REVERSAL OCCURS, EXPECT GREATER THAN NORMAL VOLATILITY FOR THE
DURATION, since the reversal itself will create volatility, and
in addition small companies are more volatile than large ones by
nature.
There are other reasons to underweight index funds and
individual stocks of the largest companies, as we have mentioned
in previous reports. The June 2, 1997 issue of FORTUNE magazine
(p. 192) featured a graph of the 21-year performance, since 1976,
of the CAPITALIZATION-WEIGHTED S&P 500 as it is normally reported
(bigger companies count more than smaller ones), and the equally-
weighted S&P 500 (each company counts equally). If you had
invested $10,000 in the normal, CAP-WEIGHTED S&P 500, it would
have grown to $186,000, vs. $277,800 for the EQUALLY-WEIGHTED S&P
500, a dramatic difference in performance over meaningful time
periods. We mention this as a badly-needed antidote to the
current mania for indexed portfolios. Even John Bogle, the
Chairman of the Vanguard funds and the recognized king of
indexing, has warned investors that this has gone too far.
COPYRIGHT 1997, IPS ADVISORY, INC. Page 3
<PAGE>
ANALYSIS OF INVESTMENT POSITIONS & PERFORMANCE
The largest gains in your Fund the last 6 months again came
overwhelmingly from the SEMI-CONDUCTOR sector. Lesser
contributors to performance were MEDICAL INFORMATION SERVICES,
INSURANCE, TELECOMMUNICATIONS, DRUGS, and REAL ESTATE INVESTMENT
TRUSTS. Although they are now recovering strongly from their
lows, the biggest losses by far came from the COMPUTER NETWORKING
and SOFTWARE sectors, with a smaller loss in the MISCELLANEOUS
SERVICES sector.
Each of the ten largest losing companies from our 1996
annual report has now been sold to offset large capital gains and
minimize taxes to you. Individual companies with the largest
gains for your Fund over the last six months were, in order of
gains, APPLIED MATERIALS (AMAT, OTC), WORLDCOM (WCOM, OTC), EMC
CORP. (EMC, NYSE), FRONTIER INSURANCE GROUP (FTR, NYSE), and KENT
ELECTRONICS (KNT, NYSE). Not coincidentally, all but Frontier
Insurance were also the companies where we placed our biggest
bets. None of the companies we have placed special emphasis on
has resulted in a loss. In our last annual report, we "identified
three companies we felt offered the potential for much greater
than normal returns." These companies were Applied Materials, EMC
Corp. and Kent Electronics. Since that report, we made a similar
large investment in WorldCom. Frontier was simply a pleasant
surprise.
TABLE 3
Industry Sector Position (%) Position (%)
11/30/96 5/31/97
------------------------------------------------------
Cash 3% 5%
Consumer Durables 2% 1%
Computer & Internet 10% 12%
Medical Services 6% 8%
Banking & Brokerage 8% 3%
Insurance 3% 2%
Specialty Chemical 5% 5%
Telecommunications 10% 14%
Software 12% 11%
Petroleum 2% 2%
Pharmaceutical 3% 3%
Real Estate Investment Trusts 9% 7%
Electric Utilities 2% 5%
Miscellaneous Consumables 8% 4%
Miscellaneous Services 5% 6%
Semi-Conductors 11% 12%
The largest individual losses occurred in CASCADE
COMMUNICATIONS (CSCC, OTC), ANDREW CORP. (ANDW, OTC), COMPUTER
ASSOCIATES INT'L (CA, NYSE), AND CYBERCASH (CYCH, OTC). The
largest losses were much smaller than the largest gains.
Moreover, in all of the losers except Cybercash, market
conditions underlying these losses are clearly temporary, and
related to product transition cycles in the software and computer
networking sectors. Cybercash has been affected by the fact that
individual web-based commerce is not growing as fast as was
anticipated, and the uncertainty has hurt the company's stock
price, although they are far ahead of their nearest competitor,
Netherlands-based Digicash. Furthermore, they appear to be making
the adjustments necessary to take advantage of the main avenue of
development in web-based commerce, which is in the business-to-
business arena, an unexpected development.<PAGE>
As you can see from TABLE 3, we have increased our position
in the COMPUTER & INTERNET sector, by buying into the short-term
weakness last Spring. We have also increased our exposure in
MEDICAL INFORMATION SERVICES and TELECOMMUNICATIONS on weaknesses
in those sectors, and reduced our exposure in BANKING & BROKERAGE, REITs, and
MISCELLANEOUS CONSUMABLES.
ELECTRIC & GAS UTILITIES
Of special note, we built up our electric & gas utility sector from 2% to
5% of the portfolio, and have increased it further to 8% of the portfolio as
of 6/30/97. Our reason is that deregulation in this industry is proceeding
apace, and it is becoming clearer who the winners and losers will be. Also, this
sector has been badly undervalued for some time due to uncertainties
regarding deregulation, and is a value play that is becoming increasingly hard
to resist. While deregulation makes the companies much riskier, those
utilities that win will win big. We think it is increasingly obvious that
Duke (DUK, NYSE) and Enron (ENE, NYSE) will be two of them. We are looking
for utilities with a very low cost per kilowatt-hour, aggressive restructuring,
and management willingness to expand geographically and across
different energy sectors. Meanwhile, we get paid well to wait,
and reduce our volatility in the event of a bear market.
NEW PURCHASES
Significant new purchases of stocks we've added to your Fund
since the last report are given below. Note that broadcasting
(Heftel Corp) is a new sector for your fund.
==============================================================================
IDEX Corporation (IEX, NYSE) Invacare (IVCR, OTC)
Ascend Communications (ASND, OTC) Covance (CVD, NYSE)
COPYRIGHT 1997, IPS ADVISORY, INC. Page 4
<PAGE>
Phycor (PHYC, OTC) Comcast Cable (CMCSA, OTC)
ICG Communications (ICGX, OTC) Qualcomm (QCOM, OTC)
Teleport Communications (TCGI, OTC) McAfee Assoc. (MCAF, OTC)
Heftel Broadcasting (HBCCA, OTC) Affymetrix (AFFX, OTC)
Chirex (CHRX, OTC) Equity Residential (EQR, NYSE)
Enron (ENE, NYSE) NIPSCO (NI, NYSE)
SCANA Corp. (SCG, NYSE) TECO Energy (TE, NYSE)
Apollo Group (APOL, OTC) C/Net (CNWK, OTC)
Heartland Trucking (HTLD, OTC) Solectron (SLR, NYSE)
===========================================================================
OUTLOOK FOR THE FUTURE
As most of you know by now, we believe human civilization is
going through a dramatic change, similar to, but deeper and even
more far-reaching than, the period around the turn of the
century, when the telephone and automobile changed our lives
forever. During such periods, it is critical that investors be
aware of the change so as not to lose perspective. SUCH PERIODS
NECESSARILY CREATE MORE VOLATILITY IN THE STOCK MARKET BECAUSE
THERE IS GREAT UNCERTAINTY, and uncertainty always causes values
of stocks to fluctuate to an unusual degree. It also produces
greater than normal opportunities.
During those frequent periods when stocks in the newer
industries drop in price, it helps in maintaining our composure
to review what is really going on in our world. According to a
recent article in the July Special Issue of WORTH magazine,
spending on computers has grown from 0.4% of Gross Domestic
Product (GDP) to 3.4%. Computer and semiconductor production is
growing at quadruple the rate of overall GDP, and some sectors
will continue to grow at 30 - 40% per year for the next ten
years. Technology and electronics are now the U.S.'s largest
industrial employers. Our country's industry is no longer steel
and automobiles, it is high technology, and investment portfolios
that do not take this into account run more of a risk of
underperforming in the future.
According a recent report on CISCO SYSTEMS (CSCO, OTC) from
CREDIT SUISSE / FIRST BOSTON, "A RECENT STUDY BY THE EMERGING
TECHNOLOGIES RESEARCH GROUP ESTIMATES THE NUMBER OF INTERNET
USERS IN THE U.S. GREW FROM 8.4 MILLION IN 1995 TO 20.0 MILLION
IN 1996, AND EXPECTS THAT NUMBER TO REACH 36.3 MILLION BY YEAR-
END 1997." The report further revealed that network traffic
across MAE WEST in San Jose, CA and MAE EAST in Washington, D.C.
(major network exchange points) EXPERIENCED ABOUT A FIVE-FOLD
INCREASE over the course of the year ending April 1997.
Want more? According to the GEORGIA INSTITUTE OF TECHNOLOGY,
the Internet is the fastest growing market in the world, adding
about 1 million new users per month. THE ELECTRONIC MESSAGING
ASSOCIATION claimed two years ago that E-MAIL THEN EXCEEDED FIRST
CLASS MAIL VOLUME BY EIGHT TIMES. The US DEPARTMENT OF COMMERCE
projects that by the year 2000, service industries will employ 8
of every 10 working Americans. Roger Ibbotson, of the justly
renowned market data software and research firm, IBBOTSON
ASSOCIATES of Chicago, says that by year-end 2001 the Dow Jones
Industrials will hit 10,000, and will clear 34,000 by 2015. He
isn't some Pollyanna, either. He is simply predicting that stocks
will continue to do about what they have done over the past 70
years, including about a one in three chance that they will go
down in any one year. If you allow a bear market to scare you out
of stocks, then stocks are probably not for you, since being out
of the market will decrease your long term return significantly.
But if you are willing to tolerate this normal behavior in the
stock market, including routine, periodic declines of 20% or so,
then you could do as well as Roger Ibbotson thinks you will.
Come with us on what promises to be the most exhilarating
journey in human history. Don't listen to the pessimists. Sure,
they will be right occasionally. And sure, you will lose money
occasionally. But they will also be wrong much more often than
they are right. History shows us that you will make money much
more often than you lose, and that when you have gains, they are,
on average, much larger than your losses. We hope you are as
optimistic about the future as we are. Thank you again for your
continuing confidence in IPS Millennium Fund, and if we can be of
assistance to you in any way, please call us.
/s/ Robert Loest /s/ Gregory D'Amico
Robert Loest, Ph.D., CFA Gregory A. D'Amico
Senior Portfolio Manager Portfolio Manager
- --------------------------------------------------------------------
This annual report is not authorized for distribution to
prospective investors unless it proceeds, or is accompanied by, a
Prospectus for IPS Millennium Fund.
- --------------------------------------------------------------------
COPYRIGHT 1997, IPS ADVISORY, INC. Page 5
<PAGE>
FINANCIAL STATEMENTS
(Unaudited)
IPS MILLENNIUM FUND
Statement of Assets and Liabilities
For the six months ended May 31, 1997
Assets:
Investments in securities, at value -
identified cost $6,554,909 $8,016,394
Cash .81
Accrued income
Sales of fund shares 166
Dividends 4,334
Interest 1,953
Other assets 9,301
--------
Total assets 8,032,149
Liabilities:
Payables - Investment securities
purchased 52,000
Accrued expenses 9,041
-------
Total liabilities 61,041
--------
NET ASSETS ON MAY 31, 1997
Equivalent to $19.58 per share based on
407,041.635 shares of capital stock
outstanding $7,971,108
==========
Statement of Operations
For the six months ended May 31, 1997
Investment Income:
Income
Dividend income $34,067
Interest 7,216
Miscellaneous 360
-------
Total income 41,643
Expenses:
Management fees 45,801
Expense reimbursement ( 1,595)
Organizational cost 1,613
Total expense 45,819
--------
Net investment income ( 4,176)
--------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments ( 9,016)
Change in unrealized appreciation
of investments for the year 388,052
--------
Net gain (loss) on investments 379,036
---------
Net Increase in Net Assets
Resulting from Operations $374,860
========
<PAGE>
FINANCIAL STATEMENTS
(Unaudited)
IPS MILLENNIUM FUND
Statement of Changes in Net Assets
For the six months ended May 31, 1997
<TABLE>
<CAPTION>
Six months ended Year ended
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS: 1997 1996
--------------- ---------
<S> <C> <C>
Investment income-net ($ 4,176) $ 2,608
Net realized gain on investments ( 9,016) 20,402
CHANGE IN UNREALIZED
APPRECIATION 388,052 894,048
--------- --------
Net increase in net assets
resulting from operations 374,860 917,058
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Investment income-net 0 (5,150)
Realized gains (24,680) (11,105)
-------- --------
Net decrease in net assets due to
distributions to shareholders (24,680) (16,255)
CAPITAL SHARE TRANSACTIONS:
Issued-regular 2,067,802 3,176,461
Issued-in lieu of cash 24,531 16,251
distributions
Redeemed - regular ( 84,920) ( 105,600)
--------- -----------
Increase in net assets due to
capital share transactions 2,007,413 3,087,112
INCREASE IN NET ASSETS 2,357,593 3,987,915
NET ASSETS
Beginning of year 5,613,515 1,625,600
End of year (including
undistributed net investment
income of ($4,176) and
$2,608, realized gains of (
$9,016) and 20,402, and
unrealized net appreciation $7,971,108 $5,613,515
of $1,461,485 and $1,073,433 ========== ==========
for the six months ended
1997 & the year ended 1996,
respectively)
/TABLE
<PAGE>
IPS MILLENNIUM FUND
Notes to Financial Statements
Six Months Ended May 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The company is registered under the Investment Company Act of
1940 as a diversified, open-end management investment company.
The company began selling shares and making investments on
January 3, 1995. The Fund provides investment management and
advisory services for its shareholders, which include
individuals, qualified plans and trust accounts mostly located in
the Southeastern and Great Lakes areas of the United States.
SECURITY VALUATION - Investments in securities traded on a
national securities exchange (or reported on the NASDAQ national
market) are stated at the last reported sales price on the day of
valuation; other securities traded in the over-the-counter market
and listed securities for which no sale was reported on that date
are stated at the last quoted bid price. Short-term notes are
stated at amortized cost, which is equivalent to value.
FEDERAL INCOME TAXES - The Fund's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to
regulated investment companies and to distribute all its taxable
income to its shareholders. Therefore, no federal income tax
provision is required.
As of May 31, 1997, net unrealized appreciation on investments
for book and federal income tax purposes aggregated $1,461,485.
The cost of portfolio securities for book and federal income tax
purposes was $6,554,909.
DISTRIBUTIONS TO SHAREHOLDERS - Dividends to shareholders are
recorded on the ex-dividend date.
OTHER - The Fund follows industry practice and records security
transactions on the trade date for performance calculations and
the trade date plus one for fund accounting. Dividend income is
recognized on the ex-dividend date, and interest income is
recognized on an accrual basis. Discounts and premiums on
securities purchased are amortized over the life of the
respective securities.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - 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.
NOTE 2 - DISTRIBUTIONS TO SHAREHOLDERS
Distributions were paid as follows for F.Y. 1997: December 9,
1996 was the record date for a capital gains distribution on
December 10 of $0.080 per share, aggregating $24,680, with short-
term gains of (4,281.41) and long-term gains of (20,402.58). The
short-term gains will be taxable to shareholders as ordinary
income.
<PAGE>
NOTE 3 - ORGANIZATIONAL EXPENSES
The Fund has incurred amortized organizational expenses in the
amount of $16,281. Organizational expenses are being amortized
monthly over a period of 60 months, beginning on January 3, 1995.
The balance outstanding on May 31, 1997 was 9,300.83.
NOTE 4 - CAPITAL SHARE TRANSACTIONS
As of May 31, 1997, there were an unlimited number of shares of
no par value capital stock authorized and capital paid in
aggregated $5,094,524.
Transactions in capital stock for the period 11/30/96 through
5/31/97 were as follows:
<TABLE>
<CAPTION>
Shares Amount
------ ------
<S> <C> <C>
Shares sold 117,612.897 $2,067,802
Shares issued in reinvestment
of dividends 1,312.733 24,531
----------- ----------
Total 118,925.63 2,092,333
Shares redeemed 8,194.94 84,920
----------- ----------
Net increase 110,730.69 $2,007,413
</TABLE>
NOTE 5 - INVESTMENT TRANSACTIONS
The Fund made purchases and sales of investment securities (excluding
short-term securities) of $3,851,940 and $4,785,773, respectively,
during the period December 1, 1996 through May 31, 1997; there were no
investment transactions involving U.S. Government obligations.
As of May 31, 1997, the unrealized appreciation of securities was
$1,282,100; accumulated undistributed net realized gains on investment
transactions totaled ($9,016).
<PAGE>
Notes to Financial Statements (continued)
Six Months Ended May 31, 1997
NOTE 6 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund pays advisory fees for investment management and advisory
services under a management agreement with IPS Advisory, Inc.(the
Advisor). Under the agreement, the Advisor will pay all of the Fund's
operating expenses, excluding brokerage fees and commissions, taxes,
interest and extraordinary expenses. The Fund is obligated to pay the
Advisor a fee computed and accrued daily and paid monthly at an annual
rate of 1.40% of its average daily net assets to and including
$100,000,000, 1.15% of such assets from $100,000,000 to and including
$250,000,000, and 0.90% of such assets in excess of $250,000,000.
Certain officers and trustees of the Fund are also officers and directors
of the investment advisor.
Securities Service Network, Inc .(SSNI), the Fund's underwriter, has
received no income from sales commissions earned on sales of the Fund
shares, since it is a no-load fund. Mr. D'Amico and Mr. Loest are
registered representatives of SSNI.
All securities trades for the Fund have been made through SSNI. Mr.
D'Amico and Mr. Loest, as registered representatives of SSNI, received
benefits from securities trading commissions paid by the Fund to SSNI.
=============================================================================
IPS MILLENNIUM FUND
Financial Highlights, Selected Per Share Data and Ratios
<TABLE>
<CAPTION>
For the 6 months For the year ended
ended May 31, 1997 ended Nov. 30, 1996
------------------ -------------------
Per share data: Per share data:
<S> <C> <C>
Net asset value:
Beginning of period $18.860 $14.996
Income from investment operations
Net Investment income (0.012) 0.021
Net realized and unrealized gain
(loss) on investments 0.812 3.959
------ ------
Total income (loss) from investment operations 0.800 3.980
Less distributions:
Dividends from net investment income 0.000 (0.035)
Dividends from net realized gains on investments (0.080) (0.081)
------ ------
Total distributions $(0.080) $(0.116)
Net asset value:
End of period $19.580 $18.860
======= =======
Total return (annualized) 18.845% 26.754%
Ratios:
Net assets, end of period (thousands) $7,971.108 $5,613.515
Ratio of expenses to average net assets 1.40% 1.40%
Ratio of net income to average net assets 0.06% 1.00%
Portfolio turnover rate 16.74% 26.70%
Average commissions per share $0.03855 $0.10056
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
IPS Millennium Fund:
Investment Portfolio May 31, 1997
<TABLE>
<CAPTION>
Shares or Market Percent of Sector
EQUITY SECURITIES: Principal Amount Value Net Assets Weighting
========================================================================================================================
<S> <C> <C> <C> <C>
Machinery Industry 0.9%
- ------------------ ----
Idex Corp 1,000 $ 28,375 0.4%
Invacare 2,000 $ 43,000 0.5%
Broadcasting 0.6%
- ------------ ----
Heftel Broadcasting 1,000 $ 49,500 0.6%
Computer & Internet Hardware 13.1%
- ---------------------------- -----
Ascend Communications 3,000 $167,250 2.1%
Cascade Communications 3,200 $122,400 1.5%
Cabletron Systems 3,000 $132,000 1.7%
Cisco 3,000 $203,250 2.5%
EMC Corp 9,000 $358,875 4.5%
Solectron Corp 1,000 $ 62,500 0.8%
Semi-Conductor Technology 11.7%
- ------------------------- -----
Applied Materials 9,000 $587,250 7.3%
Intel, Inc. 1,500 $227,250 2.8%
Linear Technology 2,500 $125,313 1.6%
Property/Casualty Insurance 2.4%
- --------------------------- ----
Frontier Insurance Group 3,520 $193,160 2.4%
Banking & Brokerage 3.4%
- ------------------- ----
MBNA Corporation 1,500 $ 50,813 0.6%
Nat'l Commerce Bankcorp 3,932 $ 93,385 1.2%
Wells Fargo Bankcorp 500 $ 131,750 1.6%
Specialty Chemical 5.4%
- ------------------ -----
Ionics, Inc. 2,500 $ 119,375 1.5%
Learonal 3,000 $ 81,000 1.0%
Sigma-Aldrich 3,126 $ 95,795 1.2%
Thermo Instruments Systems 4,000 $ 137,000 1.7%
Communications 17.0%
- -------------- ------
Andrew Corporation 6,500 $177,125 2.2%
Brooks Fiber Properties 5,000 $128,750 1.6%
ICG Communications Inc 2,000 $ 32,000 0.4%
Kent Electronics 9,000 $292,500 3.7%
Lucent Technologies 1,583 $100,718 1.3%
Qualcomm Inc 3,000 $144,750 1.8%
Teleport Communications 3,000 $ 90,750 1.1%
WorldCom, Inc. 13,300 $394,013 4.9%
<PAGE>
Shares or Market Percent of Sector
EQUITY SECURITIES: Principal Amount Value Net Assets Weighting
========================================================================================================================
Information & Services 7.3%
- ---------------------- ------
Apollo Group 1,000 $ 35,375 0.4%
C/net 4,000 $ 92,500 1.2%
CUC International 5,500 $126,500 1.6%
Cybercash Inc 9,000 $117,000 1.5%
Equifax, Inc. 2,000 $ 62,500 0.8%
Heartland Express Inc 2,000 $ 43,500 0.5%
Scientific Games Holdings 3,000 $ 73,500 0.9%
Sysco Corp. 1,000 $ 34,872 0.4%
Medical Services 7.8%
- ---------------- -----
Covance Inc 1,000 $ 19,625 0.2%
HBO & Company 4,100 $262,913 3.3%
Phycor Inc 3,000 $ 85,875 1.1%
Quintiles Transnational 2,600 $162,500 2.0%
Rural/Metro, Inc. 3,075 $ 98,400 1.2%
Software 9.2%
- -------- -----
Computer Associates, Inc. 5,000 $273,750 3.4%
McAfee Associates 1,000 $ 68,813 0.9%
Oracle Systems 5,150 $240,119 3.0%
Security Dynamics Technologies 4,200 $154,875 1.9%
Drugs 2.6%
- ----- ------
Abbott Laboratories, Inc. 1,195 $ 75,285 0.9%
Affymetrix Inc 1,000 $ 30,750 0.4%
Chirex Inc 2,000 $ 23,000 0.3%
Pfizer, Inc. 1,200 $ 61,725 0.8%
Vical 1,000 $ 12,500 0.2%
Real Estate Investment Trust 6.6%
- ---------------------------- ------
BRE Properties 3,000 $ 73,285 0.9%
Cali Realty 4,000 $ 118,500 1.5%
Equity Residential Props 2,000 $ 94,500 1.2%
Kimco 4,000 $ 128,000 1.6%
Security Capital Pacific 3,000 $ 66,750 0.8%
Washington REIT 2,800 $ 47,600 0.6%
Electric Utilities 3.4%
- ------------------ ------
Duke Power 2,000 $ 90,000 1.1%
Nipsco 1,000 $ 40,500 0.5%
Scana Corp 3,000 $ 75,000 0.9%
TECO Energy 1,000 $ 24,875 0.3%
Wisconsin Energy 2,000 $ 48,250 0.6%
Energy 3.2%
- ------ -----
Amoco Corp. 1,500 $134,063 1.7%
Enron Corp 3,000 $122,250 1.5%
<PAGE>
Cable 0.4%
- ----- ----
Comcast 2,000 $ 34,875 0.4%
Money Market Funds 5.0%
- ------------------ ----
Provident Insured Money Fund 82, 266 $ 82,266 1.0%
Riverfront U.S. Govt Securities Fund 315,366 $316,366 4.0%
============================================================================================================================
TOTAL INVESTED ASSETS: $8,016,391 100.0%
</TABLE>
