IPS New Frontier Fund 1998 Annual Report
Fellow Shareholders:
We are pleased to present our first Annual Report from the Fund's
inception August 3, 1998 to November 30, 1998. We hope you have had a
chance to visit your Fund's Web site at http://www.ipsfunds.com. We
update all performance statistics monthly and portfolio stocks daily.
The Yahoo! Stocks button on the home page gives daily quotes, insider
trading, news and analysis specifically on each company in your Fund.
We've now been in existence for four months. Note from the graphic
below that we have outperformed the Value Line Index by 7.53%, and the
S&P 500 by 0.69% during the first four months of our existence. An
important characteristic of New Frontier Fund that all investors
should be aware of is the small number of stocks held. We expect to
keep this number below 20 stocks. We intend to buy mostly companies in
the high tech sector that we feel have been badly beaten up by clearly
short-term factors, either in the overall stock market, the company's
sector, or the company itself. We will also, however, buy any company
in any industry sector we feel has high growth potential and is very
undervalued. An example currently is the Fund's large position in
unregulated electric power generation companies like Calpine. Despite
beginning its existence at the start of the worst decline in this bull
market, by our definition a bear market, the Fund is off to a good
start. As of Dec. 31, the Fund's return is 16.1%, compared with 11.5%
for the S&P 500.
[graphical chart appears here - $10,000 Investment at Inception 8/3/98]
Figure 2. 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>
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Total Annual Return For: IPS New Frontier Value Line S&P 500
Fund Arithmetic Index Composite
<S> <C> <C> <C>
4 months ended 11/30/98 5.00% -2.53% 4.31%
</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
reinvested.<PAGE>
RECENT NEWS OF INTEREST
-----------------------
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, so that you will always know what
companies you own. The blue YAHOO! QUOTES button on the web site main
page is configured to provide extensive information to you for each
stock owned in the Fund. Fund assets as of 11/30/98 were $607,304, and
are just under $700,000 as of Dec. 31. We welcome your feedback, and
any suggestions you may have for additions to your Fund's website.
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<S> <C> <C> <S>
- ------------------------------------------------ MANAGEMENT'S DISCUSSION & ANALYSIS
| Table 1: Breakdown by Market Cap | ----------------------------------
| November 30, 1998 |
| | CLASSIFICATION BY MARKET CAPITALIZATION.
| Sector Number Percent |
| |
|1. Large Caps (>$10b) 4 28.5% | Table 1 presents the Fund's makeup
|2. Mid Caps 7 50.0% | by market capitalization as of
|3. Small Caps (<$1b) 3 21.5% | 11/30/98. 71.5% of the fund is composed
| | of mid- and small-cap companies.
| Total 14 100.0% | (Market capitalization is price per
| | share times number of shares
|Median Market Capitalization: $1.9b | outstanding, one good measure of a
---------------------------------------------- company's size.) We feel 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 Enron Corp. (ENE.O).
The the Fund's portfolio makes it primarily a mid-cap, technology
value fund. One of the consequences of a fund like New Frontier is
that, by focusing on stocks that drop in value a lot, it is by
definition buying volatile companies, and these tend to be smaller
companies in immature, high growth sectors, a characteristic of the
Fund we do not expect to change at present. Even the largest
capitalization company, Enron, is only about $19 billion in market
cap, so that represents the upper range of size. The smallest company
is Calpine, at a little over $500 million. Thus, the Fund's portfolio
is fairly evenly spread from mid-sized small-caps to smaller large-cap
stocks. While the Fund has no objectives defined by size, and can and
will buy companies of any size, we see no immediate reason to expect
the market cap distribution to change much from the current profile.
<PAGE>
- -----------------------------------------------------------------------
| [FIGURE 2 APPEARS HERE, a graphical chart, |
| however, the representative numbers are stated below as follows: |
| |
| Quarter Returns IPS New Frontier Fund |
| vs. Value Line Arithmetic Composit |
| |
| IPS New Frontier Value Line |
| Fund Quarterly Quarterly |
| Returns Returns |
| |
| 9/98 -1.92% -16.23% |
| 12/98 20.67% 19.80% |
- -----------------------------------------------------------------------
Figure 2. Volatility of returns relative to Value Line Arithmetic
Composite.
<PAGE>
VOLATILITY OF RETURNS
In order to gain a better perspective on your Fund's return and
risk characteristics, review Figure 2, at right. Note that, so far,
the Fund has been less volatile on the downside than the Value Line
Arithmetic Composite Index (VLAC). There are two reasons. First, the
Fund started out with a large cash position, since the market was
falling, as we saw no reason to begin investing until it was done.
This is a one-time benefit you should not expect to be repeated. The
Fund will be more volatile during market declines in the future
because we will enter them in a more fully-invested position.
The other reason is that we are buying stocks that have typically
dropped, in most cases, by 30% to 75%. We bought National
Semiconductor, for instance, at $9 per share, after it had fallen from
a high of around $40. If we can pick stocks this way successfully, we
should experience less volatility on the downside, simply because we
are buying them after they have fallen so much.
Page 2
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<S> <C> <S>
- -------------------------------------------- TURNOVER
| Table 2 |
| ------- | There are some characteristics of value investing, however, that
| | you should understand. When we buy undervalued companies, and they
|Industry Sector Position (%) | recover to fair value or greater, we can't just sit on them. If we do,
| 11/30/98 | we will have a portfolio no different than any other growth fund, and
|---------------------------------------- | just as risky on the downside. As a result, we plan to sell those
|Cash 28.9% | stocks that have recovered to what we feel is a reasonable value, and
|Financial & Brokerage 5.5% | reinvest the proceeds in other undervalued companies. This should
|Electronic Commerce 6.0% | maintain a portfolio of companies with less than average downside
|Natural Gas Utilities (new) 21.8% | risk, and good upside recovery potential. The cost of this strategy is
|Internet Service Providers 2.2% | that the Fund will have a fairly high turnover ratio, and will not
|Medical Services 4.9% | attempt to manage capital gains by selling off losing positions at the
|Semi-Conductors 8.1% | end of the year to cancel out capital gains.
|Software 12.8% |
|Telecommunications 9.7% |
|---------------------------------------- | ANALYSIS OF PORTFOLIO SECTORS
|Total 99.9% |
| | Note that we have invested a relatively large portion of your
|Note: Large changes are bolded. | Fund in Natural Gas Utilities. It has been a good bet, as the sector
- -------------------------------------------- accounts for 46.8% of the Fund's gains so far. This is consistent with
</TABLE>
the Fund's investment strategy, and reflects our view that the natural
gas power generators and distributors are badly undervalued as a
result of deregulation in the electric utility industry.
Our investments in the Financial & Brokerage sector reflect a
steep drop during the short bear market last summer in regional banks.
These banks dropped along with the large money center banks like
CitiBank and Chase, in response to potential losses from the Asia
crisis. Since they have no exposure to those problems, we felt this
offered an opportunity to benefit from a short-term decline unrelated
to fundamentals.
A similar severe, but clearly short-term, correction in the semi-
conductor industry badly trashed virtually all companies in that
sector. In the Telecommunications sector, deregulation and rapid
build-out of new, Internet-based telecom companies have created the
potential for adding new value for unregulated companies, much like is
happening with deregulation in the electric power sector. We hope
these examples of how we are investing for the Fund help you
understand better our approach to value in the high tech and
deregulated sectors of the U.S. economy.
COMMENTS ON GENERAL INVESTMENT STRATEGY
IPS New Frontier Fund is a non-diversified stock mutual fund.
This means that we can put up to 50% of fund assets in as few as
two companies. It helps to picture the Fund as two separate pools of
money. The first pool is 50% of the Fund, and just like any other
diversified fund - no more than 5% of assets can be invested in any
single company. The second pool allows us to invest all the money in
that part of the fund (the other 50% of assets) in as few as two
companies, because the limit is no more than 25% in any single
company. We haven't done that so far, but we have that ability if we
feel strongly enough about an undervalued company. While this
introduces an element of greater risk than that of diversified funds,
we hope to offset that risk by investing in stocks of companies that
have fallen drastically due to short term problems or concerns.
<PAGE>
As a general approach, we think our economy is going through a
fundamental technological revolution, similar to what occured
following the invention of the printing press, agriculture, or the
steam engine. Such new technologies are inherently more volatile than
more mature sectors of the stock market. The reason is simple. There
is a high level of uncertainty about how rapidly such companies will
grow, and what their opportunities are. Uncertainty is always
accompanied by greater than normal volatility. For a fund like New
Frontier that depends on volatility to produce large, temporarily
undervalued situations, should see more opportunities to profit from
undervalued stocks than has been the case historically. We will do our
best to be sure you do not miss these opportunities. Thank you again
for your confidence in IPS New Frontier Fund.
Robert Loest, Ph.D., CFA Gregory A. D'Amico
Senior Portfolio Manager President
================================================================
THIS ANNUAL REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS UNLESS IT IS PROCEEDED OR ACCOMPANIED BY A
PROFILE OR A PROSPECTUS FOR IPS NEW FRONTIER FUND.
=================================================================
Page 3
<PAGE>
FINANCIAL STATEMENTS
(Audited)
IPS NEW FRONTIER FUND
Statement of Assets and Liabilities
For the 4 months ended Nov. 30, 1998
Assets:
Investments in securities, at value -
identified cost $564,939.25 $605,864
Cash .89
Accrued income
Sales of fund shares 0
Security sales 0
Dividends 250
Interest 647
Other assets 0
--------
Total assets 606,762
Liabilities:
Accrued expenses 668
--------
Total liabilities 668
-------
Net Assets on May 31, 1998
Equivalent to $12.60 per share based on
48,109.991 shares of capital stock
outstanding $606,094
========
Statement of Operations
For the 4 months ended Nov. 30, 1998
Investment Income:
Income
Dividend income $812
Interest 2,386
--------
Total income 3,198
Expenses:
Management fees 2,067
--------
Total expense 2,067
-------
Net investment income 1,131
-------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments (18,829)
Change in unrealized appreciation
of investments for the year 40,925
--------
Net gain (loss) on investments 22,096
-------
Net Increase in Net Assets
Resulting from Operations $23,227
=======<PAGE>
FINANCIAL STATEMENTS
(Audited)
IPS NEW FRONTIER FUND
Statement of Changes in Net Assets
For the 4 months ended Nov. 30, 1998
Year ended
INCREASE (DECREASE) IN NET 1998
ASSETS FROM OPERATIONS:
Investment income-net $ 1,131
Net realized gain on (18,829)
investments
CHANGE IN UNREALIZED 40,925
APPRECIATION --------
Net increase in net assets 23,227
resulting from operations
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Investment income-net 0
Realized gains 0
-------
Net decrease in net assets due 0
to distributions to shareholders
CAPITAL SHARE TRANSACTIONS:
Issued-regular 585,868
Issued-in lieu of cash 0
distributions
Redeemed - regular ( 3,000)
--------
INCREASE IN NET ASSETS DUE 582,868
TO CAPITAL SHARE TRANSACTIONS
INCREASE IN NET ASSETS 606,094
NET ASSETS
Beginning of year 0
End of period $606,094
========
Page 4
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IPS NEW FRONTIER FUND
Notes to Financial Statements
Four Months Ended November 30, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The company is registered under the Investment Company Act of 1940 as
a non-diversified, open-end management investment company. The
company began selling shares and making investments on August 3, 1998.
The Fund provides investment management and advisory services for its
shareholders, which include individuals, qualified plans and trust
accounts located in 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, 1998, net unrealized appreciation on investments
for book and federal income tax purposes aggregated $40,925. The cost
of portfolio securities for book and federal income tax purposes was
$564,939.25.
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
As of November 30, 1998 there have been no distributions.
NOTE 4 - CAPITAL SHARE TRANSACTIONS
As of November 30, 1998, there were an unlimited number of shares of
no par value capital stock authorized and capital paid in aggregated
$582,868.<PAGE>
Transactions in capital stock for the period 8/3/98 through 11/30/98
were as follows:
Shares Amount
1998 1998
Shares sold 48,349 $585,868
Share issued in reinvestment
of Dividends 0 0
------- --------
Total 48,349 $585,868
Shares redeemed 239 3,000
------- --------
Net increase 48,110 $582,868
NOTE 5 - INVESTMENT TRANSACTIONS
The Fund made purchases of investment securities (excluding
short-term securities) of $453,774, during the period August 3, 1998
through November 30, 1998; there were no investment transactions
involving U.S. Government obligations.
As of November 30, 1998 the unrealized appreciation of securities was
$40,925; there are no accumulated undistributed net realized gains on
investment transactions.
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.
Page 5
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Notes to Financial Statements(continued)
Four Months Ended November 30, 1998
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 and
received benefits from securities trading commissions paid by the Fund
to SSNI.
NOTE 7 - PORTFOLIO MANAGER INVESTMENT DISCLOSURE
IPS New Frontier Fund prohibits its portfolio manager from trading in
individual stocks. All of the invested assets of portfolio manager
Robert Loest, as well as his immediate family, are invested in the IPS
Funds family.<PAGE>
<PAGE>
IPS NEW FRONTIER FUND
Financial Highlights, Selected Per Share Data and Ratios
For the period ended
Nov. 30, 1998
--------------------
Per share data:
NET ASSET VALUE:
Beginning of period $12.000
INCOME FROM INVESTMENT OPERATIONS
Net Investment income 0.029
Net realized and unrealized gain
(loss) on investments 0.571
-------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS 0.600
LESS DISTRIBUTIONS:
Dividends from net investment income 0.000
Dividends from net realized gains on investments (0.000)
-------
Total distributions $0.000
NET ASSET VALUE:
End of period 12.6000
=======
Total return (annualized) 16.143%
RATIOS:
Net assets, end of period (thousands) $606,094.250
Ratio of expenses to average net assets 1.39%
Ratio of net income to average net assets .76%
Portfolio turnover rate 15.48%
Average commissions per share $0.07959
See notes to financial statements.
Page 6
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IPS New Frontier Fund
Investment Portfolio November 30, 1998
=========================================================================================================================
Shares or Market Percent of Sector
EQUITY SECURITIES: Principal Amount Value Net Assets Weighting
=========================================================================================================================
<S> <C> <C> <C> <C>
Banking & Brokerage 5.5%
- ------------------- ----
National Commerce Bancorp 1,000 $15,500 2.6%
Medallion Financial 1,000 $18,125 3.0%
Electronic Commerce 6.0%
- ------------------- ----
Sterling Commerce 1,000 $36,250 6.0%
Electric & Gas Utilities 21.8%
- ------------------------- -----
CalEnergy 1,000 $31.375 5.2%
Calpine 2,000 $48,000 7.9%
Enron Corp. 1,000 $52,750 8.7%
Internet Service Providers 2.2%
- -------------------------- -----
Verio, Inc. 700 $13,300 2.2%
Medical Services 4.9%
- ---------------- -----
HBO & Company 1,200 $29,925 4.9%
Semi-Conductor Technology 8.1%
- ------------------------- -----
Analog Devices 1,000 $20,438 3.4%
National Semiconductor 2,000 $28,375 4.7%
Software 12.8%
- -------- -----
Computer Associates, Inc. 1,200 $52,950 8.7%
i2 1,000 $24,750 4.1%
Telecommunications (Service & Euipment) 9.8%
- ---------------------------------------
QWEST Communications 800 $32,000 5.3%
Uniphase 500 $27,094 4.5%
Other Assets 0.0%
- ------------ ----
Receivables Minus Payables $230 0.0%
Money Market Funds 28.9%
- ------------------ -----
Riverfront U.S. Govt Securities Fund 175,033 $175,033 28.9%
=====================================================================================================================
TOTAL ASSETS: 190,433 $606,094 100.0%
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Page 7
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and the Board of Trustees
IPS Funds
IPS New Frontier Fund
Knoxville, Tennessee
We have audited the accompanying statement of assets and liabilities
of IPS New Frontier Fund, including the schedule for investments in
securities, as of November 30, 1998, and the related statement of
operations, the statement of changes in net assets, and the financial
highlights for the period from inception (August 3, 1998) through
November 30, 1998. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements
and financial highlights based on our audit.
We conducted our audit 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 financial highlights 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, 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of IPS New Frontier Fund as of November 30, 1998, the results of its
operations, the changes in its net assets, and the financial highlights
for the initial period then ended, in conformity with generally accepted
accounting principles.
Knoxville, Tennessee
January 19, 1999
