1997 ANNUAL REPORT
Fellow Shareholders:
We are pleased to present our annual report for the 12-month period
ended November 30, 1997. The Fund has now been in existence for nearly
three years, and again more than doubled assets under management for the
year. Your Fund received more favorable publicity, this time a #1 ranking
by Morningstar on America Online in the Growth & Income category, for the
three-month period ended July 31, 1997, with a quarterly total return of
27.4%. The Fund again ranked in the top ten Growth & Income funds by
Morningstar on AOL for the three-month period ended September 30, 1997,
with a total return of 16.2%. The Fund was also added to the University
of Tennessee 403(b) Program. The main reason for the Fund's high
rankings is its large technology position. The flip side of this is your
fund's higher volatility than that of the overall market during the
severe declines in technology stocks in the first and fourth quarters of
1997. A severe decline in technology coincided with the Fund's fiscal
year end, and is responsible for the lower return relative to the Value
Line Arithmetic Composite. In order to control this volatility without
adversely affecting the Fund's long term growth, over the fourth quarter
we have sold the more vulnerable companies, and built up the Fund's
electric and gas utilities sector. This has accomplished its desired
goal, and has also taken advantage of declining interest rates and a new
all-time high in the utility indexes. We discuss these factors in more
detail below.
GRAPHICS APPEAR HERE
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 $19,329 $18,620 $20,445
30-Nov $19,987 $18,952 $21,748
Figure 1. The data presented here 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.
<PAGE>
<TABLE>
<CAPTION>
TOTAL ANNUAL RETURN FOR: IPS MILLENNIUM VALUE LINE S&P 500
FUND ARITHMETIC INDEX COMPOSITE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
One year ended 11/30/97 18.75% 27.87% 27.29%
Inception 1/3/95 - 11/30/97 24.55% 26.80% 30.52%
</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>
RECENT NEWS OF INTEREST
-----------------------
In addition to FIDELITY'S FUNDSNETWORK no-fee plan, WATERHOUSE
SECURITIES and JACK WHITE SECURITIES, IPS Millennium Fund is now
available to you or your broker through CHARLES SCHWAB'S ONESOURCE
PROGRAM, a no-fee investment plan for no-load mutual funds. You can
navigate to Schwab's website by clicking on the Schwab logo on the Fund's
website at HTTP://WWW.IPSMILLENNIUM.COM. In addition, you may navigate
to the IRS website's Forms page to print out or download all IRS forms
necessary for the new types of IRAs such as Roth or Simple IRAs, as well
as any tax forms you may require. Just click on the IRS logo on either
the APPLICATIONS & IRS FORMS page, or the COOL LINKS: INVESTING PAGE.
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 also update the NAV daily on our website, with
additional performance and sector allocation information that is updated
at least monthly. If you click on the title of any investment sector,
you will also see a list of all companies owned in that sector. This
list is updated daily. Finally, we are in the process of adding to the
Fund's website information on the new ROTH IRAS, as well as calculators
of various kinds that will help you plan savings, retirement, mortgage
refinancing, and many other financial planning tasks. We welcome your
feedback, and any suggestions you may have for additions to your Fund's
website.
Table 1: BREAKDOWN BY MARKET CAP
- ------- DECEMBER 31, 1997
Sector Number Percent
-----------------------------------------------
1. Large Caps (>$10b) 12 27.4%
2. Mid Caps 35 54.8%
3. Small Caps (>$1b) 14 17.8%
---- -------
Total 61 100.0%
MEDIAN MARKET CAPITALIZATION: $3.2b
MANAGEMENT'S DISCUSSION & ANALYSIS
----------------------------------
CLASSIFICATION BY MARKET CAPITALIZATION.
TABLE 1 presents the funds makeup by market capitalization as of
12/31/97. As you can see, 72.6% OF THE FUND IS COMPOSED OF MID- AND
SMALL-CAP COMPANIES. (Market capitalization is price per share times
number of shares outstanding, one good measure of a company's size.)
Note that median market cap is a better measure of the type of fund you
own than is average market cap. The reason is that average market cap is
strongly biased by single, large outliers like MICROSOFT (MSFT, OTC),
one of our ten largest positions.
<PAGE>
Thus, the breakdown by capitalization sector presents a truer
picture of how your fund's assets are allocated than does a stated
investment objective like "GROWTH & INCOME" or "CAPITAL APPRECIATION",
objectives that may be achieved by the portfolio manager in so many
different ways that to compare funds based on such objectives is often
misleading. We recommend you use MORNINGSTAR'S STYLE BOXES to get a
better idea of the kind of fund you own. IPS Millennium Fund is
categorized by Morningstar as a MID-CAP BLEND FUND, which we view as a
fair description of the Fund. Morningstar's website is at
HTTP://WWW.MORNINGSTAR.NET.
Note that the Fund's median market cap has increased slightly since
the last report. The large cap sector has increased by 11.6% to 27.4%,
the mid-cap sector has increased by 5.6% to 54.8%, and the small cap
sector has DECREASED by 17.2%. One reason for the change is that some of
the companies have grown out of the small and mid cap categories into the
next larger category. A more important one is that management has
decreased the number of small companies to reduce volatility in a more
defensive posture, and added extensively to the electric and gas utility
sector, which has had the effect of increasing the median market cap,
since more utilities like DUKE ENERGY (DUK, NYSE) and ENRON (ENE, NYSE)
are large cap stocks.
VOLATILITY OF RETURNS
Another important aspect of your Fund's behavior is its risk, as
characterized by its voliatility. In TABLE 2 we have shown the Fund's
voliatility using calendar year (12/31/96-12/31/97) quarterly returns
compared with the VALUE LINE ARITHMETIC COMPOSITE and the S&P 500
COMPOSITE. We do this to illustrate the Fund's higher level of risk
compared with a broad stock index with a much lower technology component.
We believe that the Fund's larger technology holdings will resullt long-
term in a higher return. However, we cannot guarantee that it will, and
the downside is that oer shorter periods of time, such as quarterly or
annually, the fund can be more volatile than the overall stock market.
The Fund has experienced both very high returns and poor market
returns, on a quarterly basis, largely the result of the fortunes of the
technology sector. This contributed to the Fund's outperforming both the
VALUE LINE and S&P 500 INDEXES in 1996, but increasing volatility in the
technology sector, especially the last quarter of 1997, has hurt the
Fund's returns. Our largest position, APPLIED MATERIALS (AMAT, OTC),
for example, has fallen 50% from its high in the third quarter, on near
term concerns about overcapacity in the chip industry and a product upgrade
cycle. EMC Corp. (EMC, NYSE) has suffered similarly on no news at all, and
not even the sellers can find anything bad to say about it. Both own their
markets, are growing rapidly, and their fundamentals are unchanged. Given
the obvious short term nature of the concerns, we are holding onto them,
despite the prices.
COPYRIGHT 1998, IPS ADVISORY, INC. Page 2<PAGE>
Table 2: QUARTERLY TOTAL RETURNS, 1997
--------
QUARTER IPS MILLENNIUM V.L. ARITHMETIC S&P 500
ENDING: FUND COMPOSITE INDEX
-----------------------------------------------------
March -6.3% 0.7% 2.6%
June 17.8% 14.9% 16.8%
September 16.2% 12.7% 7.2%
December -5.3% -0.7% 2.7%
----------------------------------------------------
The Advisor has nevertheless made changes to decrease
volatility, and increase the return per unit of risk. We monitor
risk by measuring, on a monthly basis, THE RATE OF RETURN DIVIDED
BY THE MONTHLY STANDARD DEVIATION OF RETURNS, for both the Fund
and for the VALUE LINE ARITHMETIC COMPOSITE (producing Adjusted
Return, or normalized return per unit of risk). We then divide
the Fund's Adjusted Return by that for the VL index. Our goal is
an Adjusted Return that is higher for the Fund than for the VL
index, as measured by a number greater than 1.0 when dividing the
Fund's by VL's Adjusted Return.
During the fourth quarter, the Fund's Adjusted Return fell
below that of the VL index, and this alerted management that the
volatility of the market had increased less for the overall
market than it had for the Fund, and caused the Fund manager to
respond by making changes to the fund to improve its Adjusted
Return. This move has proven successful, but it will not be
evident until the end of the first 1998 FY quarter, assuming
market volatility does not change significantly. While this is a
somewhat technical explanation, we thought it necessary to
reassure investors that the Fund's large technology position is
being managed in terms of risk, and in order to explain the Fund
advisor's disciplined approach to monitoring risk and return. It
is useful to better understand how your management makes
adjustments to compensate for deviations in what we view as our
long term goal of earning more for the risk we take than does the
overall stock market, as measured by the equally-weighted VALUE
LINE ARITHMETIC COMPOSITE. Management expects that the Fund's
volatility should decrease in 1998, but it will still be greater
than that of the overall stock market.
CHANGES IN INVESTMENT POSITIONS : DECREASES & LOSSES
Changes in the Fund's sector holdings are illustrated below
in TABLE 3. Note that the largest changes have been bolded. The
fund sold many of its banking positions in the first quarter, due
to what management considered overly optimistic valuations in a
sector with long term sales growth only in the mid- to high-
single digits. This proved to have been premature, at least in
the short term, as bank valuations continued to climb, recently
reaching P/E ratios in the low to high 20s, something normally
seen only in growth stocks. We still view such lofty P/E ratios
as unsustainable for banking companies, and are beginning to see
a contraction in values.
Management also sold IONICS (ION, NYSE) due to concerns
about management's long term plans to enhance value, causing a
decline in the sector to 2% of the overall portfolio. Finally,
the Fund decreased its consumer non-durables segment by selling
NATURE'S SUNSHINE PRODUCTS (NATR, OTC) for a small loss, and
VIKING OFFICE PRODUCTS (VKNG, OTC) for a large loss. Both
companies experienced concerns about long term sales growth, and
Viking fell below our projected extreme low, which is a sell
signal that is rarely wrong. Both are now trading well above
where we sold them, so in hindsight we should not have sold, but
we nevertheless believe that following our sell discipline is the
proper long term approach. This is not a business where one bats
1000.
Other large recognized losses to your Fund resulted from
sales of INFORMIX (IFMX, OTC), sold for $16, now $5; 3 COM
(COMS, OTC), sold at $31, now $33; MEDIC COMPUTER SYSTEMS (MCSY,
OTC), sold at $15, now taken over; QUALCOMM (QCOM, OTC), sold at
$47, now $46; SCIENTIFIC GAMES (SG, NYSE), sold at $20, now $20;
CABLETRON SYSTEMS (CS, NYSE), sold at $30, now $14; CYBERCASH
(CYCH, OTC), sold at $11, now $11; and ASCEND COMMUNICATIONS
(ASND, OTC), sold at $28, now $30.
CHANGES IN INVESTMENT POSITIONS: INCREASES & GAINS
The Fund temporarily raised its cash position above what we
consider normal (less than 5%) due to asset repositioning while
we began the process of modifying the Fund's risk-return profile.
Cash levels above 5% are normally temporary, as management
believes it is the job of the Fund to offer investors a pure
stock option. It is the investor's responsibility to make
individual determinations of the level of cash they need, not the
responsibility of the Fund management.
COPYRIGHT 1998, IPS ADVISORY, INC. Page 3
<PAGE>
Management also made a major bet on TELECOMMUNICATIONS
companies which paid off handsomely. Deregulation will produce
some major winners, and also some obvious takeovers of
competitive local access providers (CLECs - alternative local
phone companies to the Baby Bells). We wanted to create an even
larger position in the CLECs especially, but did not have time as
things moved far faster than we anticipated. We were able,
though, to build up major positions in BROOKS FIBER PROPERTIES
(BFPT, OTC) and TELEPORT COMMUNICATIONS (TCGI, OTC). Brooks Fiber
has subsequently been purchased by WORLDCOM (WCOM, OTC - a top
ten stock for the Fund) for a gain to the Fund of over 110%.
Teleport will be bought by AT&T (T, NYSE), at a gain to the Fund
of about 54% at current prices. These are especially good
returns, considering the short period of time the stocks have
been held. The Fund also owns INTERMEDIA COMMUNICATIONS (ICIX,
OTC) and GTE Corp. (GTE, NYSE). Further increases in holdings to
replace the takeovers are not possible at this time due to sky
high valuations.
Table 3
-------
Industry Sector Position (%) Position (%)
11/30/96 11/30/97
- -------------------------------------------------------
CASH 3% 11%
Consumer Durables 3% 2%
Computer & Internet 10% 9%
Medical Services 6% 5%
BANKING & BROKERAGE 8% 3%
Insurance 3% 2%
SPECIALTY CHEMICAL 5% 2%
TELECOMMUNICATIONS 10% 13%
Broadcasting 0% 1%
Software 12% 10%
Petroleum 2% 1%
Pharmaceutical 3% 4%
Trucking & Transportation 1% 2%
Real Estate Investment Trusts 9% 7%
ELECTRIC UTILITIES 2% 10%
MISCELLANEOUS CONSUMABLES 8% 3%
Miscellaneous Services 4% 4%
Semi-Conductors 11% 10%
- -------------------------------------------------------
Note: Large changes are bolded.
In addition to Telecommunications, Fund management also
increased its holdings of electric and gas utilities
dramatically. AT THE WRITING OF THIS REPORT, THE SECTOR IS
APPROXIMATELY 16% OF FUND ASSETS. The reasons are threefold.
First, to take advantage of what we viewed as a dramatic long
term decline in interest rates. Second, to control portfolio
volatility. Third, to take advantage of low prices for companies
we think will be dramatic winners in the increasingly rapid
deregulation in this industry sector.
IT'S HARD TO OVERSTATE THE EFFECT ON THE INDUSTRY THAT
DEREGULATION WILL HAVE IN DECREASING THE RETURN ON UTILITY
ASSETS, AND INCREASING THE COST OF CAPITAL. This will make most
nuclear, coal and oil fired generating plants uneconomic to
operate. This provides a huge advantage for gas fired plants, and
in fact the utilities we are buying are either primarily gas
utilities, or have made large purchases to expand into gas.
NIPSCO (NI, NYSE), for example, just bought BAY STATE GAS for
$540m. Within a few years, more than half the consumers in the
U.S. will have access to a completely deregulated menu of energy
providers, much like long distance after deregulation. While this
is a relatively high risk area, it is one no fund manager can
afford to ignore for long.
Major recognized gains resulted from the sale of MBNA Corp
(KRB, NYSE), sold at $39, now $29; Equifax (EFX, NYSE), sold at
$32, now $34 (they sold their money losing insurance operations,
which had concerned us, and we repurchased it); Microsoft
(MSFT, OTC), sold at $86, now $135 (ok, ok - we screwed up,
we're human; we also bought it back!); Keycorp (KEY, NYSE),
sold at $54, now $66; and Rural Metro (RURL, OTC), sold for
$29, now $29.
NEW PURCHASES
Purchases of new stocks we've added to your Fund since the last
report are given below.
===========================================================================
Quantum Corp. (QNTM, OTC) Trustco Bank of NY (TRST, OTC)
GTE Corp. (GTE, NYSE) Intermedia Communications (ICIX, OTC)
Reckson Associates (RA, NYSE) Pairgain Technologies (PAIR, OTC)
Harbinger Corp. (HRBC, OTC) Yahoo! (YHOO, OTC) - Top 10
Peoplesoft (PSFT, OTC) Federal Express (FDX, NYSE)
Affymetrix (AFFX, OTC) Vitesse Semi-Conductor (VTSS, OTC)
Chirex (CHRX, OTC) Starwood Lodging (HOT, NYSE)
MCN Energy (MCN, NYSE) Open Market (OMKT, OTC)
===========================================================================
COPYRIGHT 1998, IPS ADVISORY, INC. Page 4<PAGE>
THE FUTURE, THROUGH A GLASS DARKLY
We wrote to you in the second quarter of 1997 that we felt a
first quarter correction could turn into a bear market.
Circumstances may have proved us premature only by about three
months. The overall stock market never again returned to the
peaks it subsequently reached in July and August of 1997, and
since the end of September has steadily deteriorated. We believe
we are now in a bear market, which has fallen first, and by far
the hardest, on high multiple growth companies in the technology
sector. Many of the most dominant and secure companies have
fallen by 25% to 50%, and many excellent, but less dominant
companies like QUANTUM (QNTM, O) - down 63% - have fallen even
more. This has resulted in large losses, in technology stocks
especially, that have been masked by the lesser declines of the
more popular large cap indicators such as the DOW JONES
INDUSTRIAL AVERAGE AND S&P 500 COMPOSITE.
TWO CONDITIONS ARE ANATHEMA TO STOCK MARKETS: INFLATION AND
UNCERTAINTY. While we do not expect significant inflation,
uncertainty is now the major factor causing the market's decline.
We expect it will be the end of the second quarter at the
earliest before the market begins to sort out the potential
damage caused by the collapse in the Pacific Rim economies, and
for the uncertainty to begin to decrease. At that point, we will
have been in a bear market for about 10 months, which is about
the average for post-WW II bear markets. Until then, we expect
the market to fare poorly. Fortunately for your Fund, we feel
technology has already suffered most of the damage that will
ultimately occur, and that bargains abound, although the stock
prices may not recover for some months yet.
WE EXPECT LESS DAMAGE TO TECHNOLOGY COMPANIES THAN THE
MARKET HAS CURRENTLY PRICED INTO ITS STOCKS. We expect
significant further damage to occur in the large, blue-chip
companies as the economic wreckage in the Pacific Rim countries
begins to affect the earnings of companies that do business
there. We believe the market has not yet fully assimilated this
into the prices of their stocks. We are already seeing massive
cancellations by Asian companies of orders for everything from
airplanes to lumber to automobile windshields, and earning
disappointments in 3M, BOEING and other market bulwarks.
The Asian economies are far behind the U.S. in information
and computer technology. THEY KNOW THIS, AND LIVE EVERY DAY IN
MORTAL FEAR THAT UNLESS THEY CATCH UP QUICKLY, THEY WILL ALL
RETURN TO THIRD WORLD STATUS. The effect we believe this will
have is that these countries will spend a disproportionate amount
of their devalued currency income on computer and information
technology, to continue to try and catch up to the U.S. and
Europe; they will cut back much more than the market now expects
in building infrastructure, hospitals and government buildings;
and will drastically decrease their purchase of cars,
refrigerators, industrial pumps, elevators, farm machinery,
chemicals, copper and a long list of other basic industrial
goods.
We are already seeing dramatic examples of this. INDONESIA,
FOR EXAMPLE, HAS HALTED MOST INFRASTRUCTURE BUILDING, even those
projects that directly benefit Suharto family members. Publicly
traded automobile permits, in those Asian countries that require
them, have dropped in price from over $10,000 a few months ago in
one country, to $10 or $20 now. This will spread. As we approach
Summer, markets will reassess the relative prospects of
technology and basic goods companies, we expect to the benefit of
technology.
We must also not forget that the dramatic currency meltdowns
in Asia have distracted the market's attention from a budding
recovery in Europe. Manufacturers are reporting better than
expected sales and profits there. Furthermore, BY FAR THE BULK OF
U.S. COMPANIES' FOREIGN ASSETS ARE IN EUROPE, NOT THE FAR EAST.
Less than 2% of all U.S. profits come from the hardest hit Asian
nations. These facts are neglected when the press compares U.S.
export sales to Asia with export sales to Europe, and means that
U.S. companies in general have less exposure to the Asian
problems than the financial press has led investors to believe.
As most of you know by now, we believe the U.S. is
catalyzing a phase shift to a highly connected civilization. It
will be faster and more far-reaching than the period following
the invention of the printing press in the mid-15th century,
which led directly to the Enlightenment and Protestant
Reformation, and the downfall of the Catholic Church as Europe's
major governmental and social force. That information revolution
knocked 1,000 years of the Dark Ages on the head, and put Western
humanity back on the road to higher living standards and freer
societies. During this information revolution, it is critical
that investors be aware of the scope and direction of change.
SUCH PERIODS NECESSARILY CREATE MORE VOLATILITY IN THE STOCK
MARKET BECAUSE THERE IS GREAT UNCERTAINTY, which always causes
unusually large fluctuations in stock values. It also produces
greater than normal opportunities. We do not intend to miss them.
Thank you again for your continued confidence in IPS MILLENNIUM
FUND.
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 is proceeded or accompanied by a
Prospectus for IPS Millennium Fund.
=================================================================
COPYRIGHT 1998, IPS ADVISORY, INC. Page 5
<PAGE>
FINANCIAL STATEMENTS
(Audited)
IPS MILLENNIUM FUND
Statement of Assets and Liabilities
For the 12 months ended November 30, 1997
-----------------------------------------
ASSETS:
Investments in securities, at value -
identified cost $8,533,470 $11,347,707
Receivables
Capital stock sold 333,000
Dividends 4,859
Interest 1,816
Other assets 7,680
----------
Total assets 11,695,062
LIABILITIES:
Accrued expenses 10,847
----------
Total liabilities 10,847
----------
NET ASSETS ON NOVEMBER 30, 1997
Equivalent to $22.31 per share based on
523,847.666 shares of capital stock
outstanding $11,684,215
==========
Statement of Operations
For the 12 months ended November 30, 1997
-----------------------------------------
Investment Income:
Income
Dividend income $77,462
Interest 16,608
Miscellaneous 360
----------
Total income 94,430
Expenses:
Management fees 112,787
Expense reimbursement ( 3,234)
Organizational cost 3,234
----------
Total expense 112,787
Net investment income ( 18,357)
----------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments ( 227,520)
Change in unrealized appreciation
of investments for the year 1,740,804
----------
Net gain (loss) on investments 1,513,284
----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,494,927
=========
COPYRIGHT 1998, IPS ADVISORY, INC.<PAGE>
FINANCIAL STATEMENTS
(Audited)
IPS MILLENNIUM FUND
Statement of Changes in Net Assets
For the 12 months ended November 30, 1997
-----------------------------------------
Year ended Year ended
1997 1996
---------- ----------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Investment income-net ($ 18,357) $ 2,608
Net realized gain on investments ( 227,520) 20,402
CHANGE IN UNREALIZED
APPRECIATION 1,740,804 894,048
--------- -------
Net increase in net assets 1,494,927 917,058
resulting from operations
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 4,773,237 3,176,461
Issued-in lieu of cash 24,531 16,251
distributions
Redeemed - regular (197,315) ( 105,600)
--------- ----------
INCREASE IN NET ASSETS DUE TO
CAPITAL SHARE TRANSACTIONS 4,600,453 3,087,112
INCREASE IN NET ASSETS 6,070,700 3,987,915
NET ASSETS
Beginning of year 5,613,515 1,625,600
End of year (including
undistributed net investment $11,684,215 $5,613,515
income of $2,608 in 1996) =========== ==========
Page 6
<PAGE>
IPS MILLENNIUM FUND
NOTES TO FINANCIAL STATEMENTS
TWELVE MONTHS ENDED NOVEMBER 30, 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 November 30, 1997, net unrealized appreciation on
investments for book and federal income tax purposes aggregated
$2,814,237. The cost of portfolio securities for book and
federal income tax purposes was $8,533,470 at November 30, 1997.
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 1997: December 9 was the
record date for a short term capital gains distribution on
December 10 of $0.0140 per share, aggregating $4,279 and for a
long term capital gains distribution of $0.0666 per share,
aggregating $20,401. The short term capital gains portion of the
distribution will be taxable to shareholders as ordinary income,
and the long term capital gains portion will be taxable as
capital gains.
<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 1, 1995.
The balance outstanding on November 30, 1997 was $7,679.
NOTE 4 - CAPITAL SHARE TRANSACTIONS
As of November 30, 1997, there were an unlimited number of shares
of no par value capital stock authorized and capital paid in
aggregated $9,117,526.
Transactions in capital stock for the period 11/30/96 through
11/30/97 were as follows:
<TABLE>
<CAPTION>
Shares Amount
------ ------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares sold 234,740.915 194,666.353 $4,773,237 $3,176,461
Shares issued in reinvestment
of dividends 1,312.499 1,093.636 24,531 16,251
----------- ----------- --------- ---------
Total 236,053.414 195,759.989 4,797,768 3,192,712
Shares redeemed 9,838.368 6,472.272 197,315 105,600
----------- ----------- --------- ---------
Net increase 226,215.046 189,287.717 4,600,453 3,087,112
=========== =========== ========= =========
</TABLE>
NOTE 5 - INVESTMENT TRANSACTIONS
The Fund made purchases and sales of investment securities
(excluding short-term securities) of 5,797,818 and 2,544,810,
respectively, during the period December 1, 1996 through November
30, 1997; there were no investment transactions involving U.S.
Government obligations.
As of November 30, 1997, the unrealized appreciation of
securities was $2,814,237; there were no accumulated
undistributed net realized gains on investment transactions.
COPYRIGHT 1998, IPS ADVISORY, INC. Page 7
<PAGE>
Notes to Financial Statements (continued)
Twelve Months Ended November 30, 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, and receive
commissions on trades for the Fund made through 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. The Investment Advisor has no soft dollar
arrangements with any company.
IPS MILLENNIUM FUND
Financial Highlights, Selected Per Share Data and Ratios
<TABLE>
<CAPTION>
Per share date for the year ended: Nov. 30, 1997 Nov. 30, 1996 Nov. 30, 1995
------------- ------------- -------------
<S> <C> <C> <C>
INCOME FROM INVESTMENT OPERATIONS
Net Investment income $ (0.046) $ 0.021 $ 0.121
Net realized and unrealized gain
(loss) on investments 3.576 3.959 2.982
------- ------- --------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS 3.530 3.980 3.103
LESS DISTRIBUTIONS:
Dividends from net investment income 0.000 (0.035) (0.107)
Dividends from net realized gains on investments (0.080) (0.081) 0.000
------- ------- --------
Total distributions $ (0.080) $(0.116) $ (0.107)
NET INCREASE IN NET ASSET VALUE $ 3.450 $ 3.864 $ 2.996
NET ASSET VALUE:
Beginning of period $ 18.860 $14.996 $ 12.000
End of period $ 22.310 $ 18.860 $ 14.996
======= ======= ========
Total return (ANNUALIZED) 18.746% 26.754% 28.831%
Ratios:
Net assets, end of period (thousands) $11,684.215 $5,613.515 $1,625,600
Ratio of expenses to average net assets 1.40% 1.40% 1.40%
Ratio of net income to average net assets 0.23% 0.76% 1.00%
Portfolio turnover rate 33.17% 55.17% 26.70%
Average commissions per share $0.04050 $0.05705 $0.10056
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
COPYRIGHT 1998, IPS ADVISORY, INC. Page 8
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and the Board of Trustees
IPS Funds
IPS Millennium Fund
Knoxville, Tennessee
We have audited the accompanying statement of assets and
liabilities of IPS Millennium Fund, including the schedule for
investments in securities, as of November 30, 1997, and the
related statement of operations for the year then ended, the
statement 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 three years in the period then ended. These
financial statements and per share data and ratios are the
responsibility of the Fund'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 November 30, 1997, by correspondence with
the custodian and brokers. 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, schedule and selected
per share data and ratios referred to above present fairly, in
all material respects, the financial position of IPS Millennium
Fund as of November 30, 1997, the results of its operations for
the year then ended, 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 three years in the period
then ended, in conformity with generally accepted accounting
principles.
Knoxville, Tennessee
January 14, 1998
COPYRIGHT 1998, IPS ADVISORY, INC. Page 9
<PAGE>
<TABLE>
<CAPTION>
IPS Millennium Fund
Investment Portfolio November 30, 1997
Shares or Market Percent of Sector
EQUITY SECURITIES: Principal Amount Value Net Assets Weighting
<S> <C> <C> <C> <C>
BANKING & BROKERAGE 2.92%
-----
Charles Schwab 1,500 $ 57,844 0.50%
Chase Manhattan Bank 500 $ 54,375 0.47%
National Commerce Bancorp 3,932 $ 115,994 0.99%
Trustco & Bank of NY 4,600 $ 112,700 0.96%
BROADCASTING 0.63%
-----
Heftel Broadcasting 1,000 $ 73,875 0.63%
COMPUTER & INTERNET EQUIPMENT 8.76%
-----
Cisco Systems 4,000 $345,000 2.95%
EMC Corp 18,000 $545,625 4.67%
Quantum Corp. 5,000 $132,500 1.13%
CONSUMER NON-DURABLES 2.58%
-----
Kent Electronics Corp. 9,000 $301,500 2.58%
DURABLE GOODS & EQUIPMENT 1.88%
-----
Idex Corp. 1,000 $ 33,313 0.29%
Thermo instruments 6,000 $ 186,375 1.60%
ELECTRIC & GAS UTILITIES 10.31%
------
Duke Power 8,000 $416,000 3.56%
Enron Corp. 6,000 $232,500 1.99%
MCN Energy Group 3,000 $114,563 0.98%
Nipsco 5,000 $234,063 2.00%
Scana Corp 3,000 $ 82,875 0.71%
Southern Co. 2,000 $ 48,000 0.41%
TECO Energy 3,000 $ 76,875 0.66%
SEMI-CONDUCTOR TECHNOLOGY 9.85%
-----
Applied Materials 18,000 $594,000 5.08%
Intel, Inc. 3,000 $234,000 2.00%
Linear Technology 2,500 $160,000 1.38%
Solectron Corp 2,000 $ 72,875 0.62%
Vitesse Semiconductor 2,000 $ 89,500 0.77%
INSURANCE 2.01%
-----
Executive Risk 1,000 $ 65,000 0.56%
Frontier Insurance Group 7,040 $ 169,400 1.45%
SPECIALTY CHEMICAL 2.21%
-----
Learonal 5,500 $145,750 1.25%
Sigma-Aldrich 3,128 $112,999 0.97%
TELECOMMUNICATIONS 13.27%
-----
Andrew Corporation 7,500 $198,750 1.70%
Brooks Fiber Properties 5,000 $273,750 2.34%
GTE Corporation 3,000 $152,250 1.30%
Intermedia Communications 1,000 $ 49,625 0.42%
Lucent Technologies 2,583 $206,963 1.77%
Pairgain Technologies 2,000 $ 47,250 0.40%
Teleport Communications 4,000 $196,000 1.68%
WorldCom, Inc. 13,300 $425,600 3.64%
INFORMATION & SERVICES 4.31%
-----
Apollo Group 1,000 $ 42,625 0.36%
Cendant Corp. 5,500 $ 158,125 1.35%
Equifax, Inc. 2,000 $ 68,250 0.58%
Open Market 3,000 $ 30,563 0.26%
Yahoo! 4,000 $ 204,500 1.75%
ENERGY 1.16%
-----
Amoco Corp. 1,500 $135,000 1.16%
MEDICAL SERVICES 4.89%
-----
HBO & Company 8,200 $367,975 3.15%
Quintiles Transnational 2,600 $203,125 1.74%
SOFTWARE 10.49%
------
Computer Associates, Inc. 7,500 $390,469 3.34%
Cybercash 5,000 $ 78,125 0.67%
Harbinger Corp. 5,000 $150,000 1.28%
Microsoft 1,000 $141,500 1.21%
Oracle Systems 7,725 $257,339 2.20%
Peoplesoft 1,000 $ 65,438 0.56%
Security Dynamics Technologies 4,200 $142,800 1.22%
PHARMACEUTICALS 3.87%
-----
Abbott Laboratories, Inc. 1,195 $ 77,675 0.66%
Affymetrix Inc 3,000 $ 103,125 0.88%
Chirex Inc 7,000 $ 170,625 1.46%
Pfizer, Inc. 1,200 $ 87,300 0.75%
Vical 1,000 $ 13,875 0.12%
REAL ESTATE INVESTMENT TRUST 6.78%
-----
BRE Properties 3,000 $ 86,250 0.74%
Mack-Cali Realty 4,000 $ 158,750 1.46%
Equity Residential Props 3,000 $ 150,000 1.28%
Kimco 4,000 $ 137,000 1.18%
Reckson Associates Reality Trust 3,000 $ 79,688 0.68%
Security Capital Pacific 3,000 $ 73,125 0.63%
Starwood Lodging 2,000 $ 107,250 0.92%
TRUCKING & TRANSPORTATION 1.74%
-----
Federal Express 1,000 $ 67,063 0.57%
Heartland Express 2,000 $ 47,250 0.40%
Sysco Corp. 2,000 $ 89,125 0.76%
Money Market Funds 9.45%
-----
Provident Insured Money Fund 538322 $ 538,322 4.61%
Riverfront U.S. Govt Securities Fund 566328 $ 566,328 4.85%
Other Assets 2.88%
-----
Receivables minus payables 336508 $ 336,508 2.88%
TOTAL INVESTED ASSETS: $11,684,215 100.0%
</TABLE>
COPYRIGHT 1998, IPS ADVISORY, INC. Page 11
