Dynamic Style Rotation Fund 1999 Semi-annual Report
Fellow Shareholders:
We are pleased to present our Semi-annual Report for the six months ended
May 31, 1999. We hope you have had a chance to visit your 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. In Figure 1 below we have shown your Fund's return relative to both the
S&P 500 and the Value Line Arithmetic Composite (VLAC).
[GRAPHIC OMITTED but is represented below]
Period V.L. Arthmetic S&P 500 DSR Fund
------ -------------- ------- --------
8/03/98 3-Aug $ 10,000 $ 10,000 $10,000
31-Aug $ 8,536 $ 8,556 $ 9,200
30-Nov $ 9,747 $ 10,431 $11,167
12/31/98 31-Dec $ 10,145 $ 11,029 $12,283
29 Feb $ 9,641 $ 11,135 $12,508
05/31/99 31 May $ 11,065 $ 11,739 $12,675
FIGURE 1. The data presented herein and below represent past performance and are
not a guarantee of future performance. The value of your investment may
fluctuate and be worth more or less at redemption than their original cost.
<TABLE>
<CAPTION>
TOTAL ANNUAL RETURN FOR: DYNAMIC STYLE VALUE LINE S&P 500
ROTATION FUND ARITHMETIC INDEX COMPOSITE
<S> <C> <C> <C>
6 months ended 5/31/99 13.51% 13.53% 12.53%
Since inception on 8/3/99 26.75% 10.65% 17.39%
</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>
TABLE 1: BREAKDOWN BY MARKET CAP
MAY 31, 1999
SECTOR NUMBER PERCENT
-----------------------------------------
1 Large Caps (>$10b) 23 92.0%
2 Mid Caps 2 8.0%
3 Small Caps (<$1b) 0 0.0%
-- -----
Total 25 100.0%
MEDIAN MARKET CAPITALIZATION: $64B
MANAGEMENT DISCUSSION AND ANALYSIS
FUND REVIEW
The Fund employs a technique of "Dynamic Style RotationSM", the rotation or
tilting of the Fund's investment weightings between large and small
capitalization, and growth and value equity securities as general economic
conditions change. By rotating the Fund's investment emphasis in accordance with
favorable market conditions for the appropriate equity investment strategy, the
Fund believes that it will be able to employ the most effective equity
investment style for a given set of market conditions.
As a starting point for the Fund on August 3 1998, our initial style modeling
suggested a portfolio of large capitalization stocks that offer liquidity as
well as consistent and superior earnings growth prospects relative to the
market. The specific market capitalization ranges of the equities in the Fund
are illustrated in Table 1. Our principal goal in the past six months since the
annual report was to position the Fund in such a way that in the event of a
market downturn, damage to the returns would be minimal, yet still aligned in
such a way that it would still see gains in the event of a market run to the
upside.
[GRAPHIC OMITTED but is represented below]
------------------------------------------------------
| [Figure 2 appears here, a graphical chart, |
| however, the representatives number are as |
| follows: |
| |
| Quarter Returns: Dynamic Style Fund |
| vs. Value Line Arithmetic Composition |
| |
| IPS Dynamic Style Value Line |
| Fund Quarterly Returns Quarterly Returns |
| 9/98 -4.33% -16.23% |
| 12/98 28.40% 19.80% |
| 3/99 3.53% -3.46% |
| 6/99 4.58 17.24% |
-------------------------------------------------------
FIGURE 2. Relative volatility of the DSR FUND, on a quarterly basis, vs. the
broad stock market as represented by the VALUE LINE ARITHMETIC COMPOSITE.
In managing the Fund, we continually monitor and adjust weightings in
the portfolio among various equity investment styles and investment disciplines
which, in our opinion, are most likely to enable the Fund to meet its investment
objective. During the previous six months, our investments in the technology
sector, which outperformed the overall market, had the most positive impact on
the Fund's performance lead by COMVERSE TECHNOLOGY (CMVT.O), CISCO SYSTEMS
(CSCO.O), and DELL COMPUTER (DELL.O) (although Dell is no longer in the Fund).
Our overweighting of the Technology and Health/Pharmaceutical sectors will
likely continue for the near future. While this is our current strategy in the
market, the daily release of news articles, economic statistics, and market
sentiment can change our near-term style-based allocations.
COPYRIGHT 1999, IPS ADVISORY, INC. PAGE 2
<PAGE>
While our goal is to generate superior returns, with the market hitting all-time
highs, we are always investing with the downside in mind. Style-based stock
selection combined with tactical asset allocation is the basis for risk control,
and we are always conscious of this fact to make sure that each addition to the
Fund improves its overall risk/reward characteristics. As you can see by
reviewing Figure 2, our attention to the risk/reward ratio has so far minimized
the downside risk of your Fund. Please bear in mind, though, that our ability to
manage risk in the past does not mean we will always be able to do so in the
future.
TABLE 2
INDUSTRY SECTOR POSITION (%) POSITION (%)
5/31/99 11/30/98
-----------------------------------------------------------------
Cash 43.0% 7.4%
Banking & Brokerage 8.3% 14.8%
Computer & Internet Equip 9.2% 31.8%
Consumer Durables 5.1% 11.1%
Consumer Staples 4.7% 6.7%
Energy 4.3% 0.0%
Entertainment 1.0% 0.0%
Information & Services 3.4% 3.1%
Internet Service Providers 3.0% 0.0%
Pharmaceuticals & Biotech 5.8% 19.2%
Retail 2.9% 3.1%
Software 3.1% 2.8%
Technology 4.8% 0.0%
Telecommunications 1.4% 0.0%
- ------------------------------------------------------------------
TOTAL 100.0% 100.0%
ECONOMIC AND FINANCIAL COMMENTARY
On June 30, the Federal Reserve Board raised the Federal Funds Rate by .25% to
5% in a widely expected move. (The Federal Funds Rate is the interest rate
charged by banks with excess reserves at a Federal Reserve District Bank, to
banks needing overnight loans to meet reserve requirements. This rate is the
most accurate predictor of interest rates, since it is set daily by the market)
What was not widely anticipated was the Fed's move to a neutral bias alluding
that there is no imminent inflation threat. Therefore, the likelihood of another
rate hike this year is slim. We believe that the rapid rise in interest rates
over the last six months will do just enough to remove any excesses from the
economy and allow it to resume a healthy pace of growth, thus eliminating the
need for continued Fed intervention. In our view, the Fed's increase in
short-term interest rates represents more of an undoing of a prior process
rather than the beginning of a new one. The Fed cut rates three times in late
1998 in response to a crisis that has since abated. As a result, short-term
rates were artificially low and simply needed to be brought back to a pre-crisis
level.
It is important to see that the Fed is focusing on the threat of inflation
rather than putting a speed limit on growth. The markets understand that it is
likely to take a funds rate of 6% to bring economic growth below 3%. The current
growth rate of 4%, combined with low unemployment and even lower inflation,
should be more than adequate evidence that achieving price stability does not
require making sacrifices in growth or employment.
The question that we are asking is, given the rate hike to 5%, where does the
equity market go from here? The key, to us, lies not in valuations. Very few
stocks reach valuation levels so extreme that they cannot continue to react to
positive or negative fundamental surprises. We believe the key lies in earnings.
Even when earning growth is generally decelerating, liquidity pushing money into
equities will generously reward those few areas capable of sustaining or
accelerating growth (through unit growth, pricing power, or both). Money will
continue to flow into these areas and increase valuations as long as their
relative earnings growth remains superior. Only when that relative growth fades
will investors begin to search for new destinations for their funds. Thus, the
defining factor for the stock market - and its saving grace - is earnings.
Whether measured by S&P 500 earnings or corporate profits, the trough seems to
have been reached in the third and fourth quarter of last year. Profit margins
have stabilized. Barring some unusual event double-digit earnings growth should
be registered in the second half of this year, against very easy comparisons.
COPYRIGHT 1999, IPS ADVISORY, INC. PAGE 3
<PAGE>
We still feel that a combination of Large-Cap Growth and Value stocks will be
rewarded in the third and fourth quarters. We will be reducing cash to reflect a
more fully invested posture over the next few months. We do feel that the Fed
will control inflationary pressures allowing the markets to reach new highs. If
Small-Cap stocks confirm we will also add these into the portfolio.
As to market risks, the most obvious wild card is a Y2K-related sell-off if
investor confidence is shaken. This may sound too neat, since a pattern of ugly
August-September-October has been established, but because the publicity on this
topic will probably ramp up soon, the chances of a tumble would probably be
greatest in the early fourth quarter.
SUMMARY
With interest rate concerns lessened, we expect earnings growth to be the
primary determinant of share prices over the remainder of the year,
notwithstanding Y2K issues. As well, the goldilocks combination of just enough
growth coupled with little or no inflation should continue to propel the equity
market forward. As events unfold, the Fund remains committed to the long-term
success of its investors.
We appreciate your investment in the IPS DYNAMIC STYLE ROTATIONSM FUND, and we
will continue to seek rewarding returns on your behalf.
Sincerely,
John J. Bartoletta Darren J. Clauws
Portfolio Manager Assistant Portfolio Manager
<PAGE>
FINANCIAL STATEMENTS
(UNAUDITED)
DYNAMIC STYLE ROTATION FUND
----------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
For the 6 months ended May 31, 1999
------------------------------------
ASSETS:
Investments in securities, at value -
identified cost $578,907.38 $618,829
Cash .15
Accrued income
Sales of fund shares 0
Security sales 0
Dividends 0
Interest 1,025
Other assets 0
--------
Total assets 619,854
LIABILITIES:
Payables - investment securities 17,701
Accrued expenses 654
--------
Total liabilities 18,355
--------
NET ASSETS ON MAY 31, 1998
Equivalent to $15.21 per share based on
39,539.396shares of capital stock
outstanding $601,499
========
STATEMENT OF OPERATIONS
For the 6 months ended May 31, 1999
------------------------------------
INVESTMENT INCOME:
Income
Dividend income $ 865
Interest 2,907
--------
Total income 3,772
Expenses:
Management fees 2,671
Total expense 2,671
--------
Net investment income 1,101
--------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 3,578
Change in unrealized appreciation
of investments for the year 18,536
--------
Net gain (loss) on investments 22,114
--------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $23,215
========
<PAGE>
FINANCIAL STATEMENTS
(UNAUDITED)
DYNAMIC STYLE ROTATION FUND
----------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the 6 months ended May 31, 1999
------------------------------------
6 Months ended Year ended
5/31/99 11/30/98
INCREASE (DECREASE) IN NET 1999 1998
--------- ---------
ASSETS FROM OPERATIONS:
Investment income-net $ 1,101 $ 12
Net realized gain on 3,578 (1)
investments
CHANGE IN UNREALIZED 18,536 21,385
--------- ---------
APPRECIATION
Net increase in net assets 23,215 21,396
resulting from operations
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Investment income-net 0 0
Realized gains 0 0
--------- ---------
Net decrease in net assets due 0 0
to distributions to shareholders
CAPITAL SHARE TRANSACTIONS:
Issued-regular 413,882 150,058
Issued-in lieu of cash 0 0
distributions
Redeemed - regular (7,052) 0
--------- ---------
INCREASE IN NET ASSETS DUE TO 406,830 150,058
CAPITAL SHARE TRANSACTIONS
INCREASE IN NET ASSETS 430,045 171,454
NET ASSETS 171,454 0
Beginning of year
End of period $ 601,499 $ 171,454
========= =========
<PAGE>
DYNAMIC STYLE ROTATION FUND
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED MAY 31, 1999
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 August 3, 1995. 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 May 31, 1999, net unrealized appreciation on investments for book and
federal income tax purposes aggregated $18,536. The cost of portfolio securities
for book and federal income tax purposes was $302,730.
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 May 31, 1999 there have been no distributions.
NOTE 3 - CAPITAL SHARE TRANSACTIONS
As of May 31, 1999, there were an unlimited number of shares of no par value
capital stock authorized and capital paid in aggregated $556,887.71.
Transactions in capital stock for the period 11/30/98 through 05/31/99 were as
follows:
<TABLE>
<CAPTION>
Shares Amount
------ ------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Shares sold 25,868.126 12,911 $ 413,881.86 $150,058
Share issued in reinvestment
of Dividends 0 0 0 0
---------- ------ -------------- --------
Total 25,868.126 12,911 $ 413,881.86 $150,058
Shares redeemed 452.864 0 7,052.15 0
---------- ------ -------------- --------
Net increase 25,415.262 12,911 $ 406,829.71 $150,058
</TABLE>
NOTE 4 - INVESTMENT TRANSACTIONS
The Fund made purchases and sales of investment securities (excluding short-term
securities) of $242,671 and $81,098.36, respectively, during the period December
1, 1998 through May 31, 1999; there were no investment transactions involving
U.S. Government obligations.
As of May 31, 1999 the unrealized appreciation of securities was $18,536; there
are $3,578 undistributed net realized gains on investment transactions .
NOTE 5 - 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 1.50% of its average daily net assets to and
including $100,000,000, 1.30% of such assets from $100,000,001 to and including
$250,000,000, and 1.10% of such assets in excess of $250,000,001.
Certain officers and trustees of the Fund are also officers and directors of the
investment advisor.
<PAGE>
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
SIX MONTHS ENDED MAY 31, 1999
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.
--------------------------------------------------------------
DYNAMIC STYLE ROTATION FUND
FINANCIAL HIGHLIGHTS, SELECTED PER SHARE DATA AND RATIOS
================================================================================
<TABLE>
<CAPTION>
For the Period Ended For the Period Ended
May 31, 1999 November 30, 1998
------------ -----------------
Per Share Data: Per Share Data:
<S> <C> <C>
NET ASSET VALUE:
Beginning of period $ 14.720 $ 12.000
INCOME FROM INVESTMENT OPERATIONS
Net Investment income 0.047 0.001
Net realized and unrealized gain
(loss) on investments 0.443 1.3999
--------- ---------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS 0.490 1.400
LESS DISTRIBUTIONS:
Dividends from net investment income 0.000 0.000
Dividends from net realized gains on investments (0.000) (0.000)
--------- ---------
Total distributions $ (0.000) $(0.000)
NET ASSET VALUE:
End of period $ 15.210 $13.400
========= =========
Total return (ANNUALIZED) 6.396% 40.279%
RATIOS:
Net assets, end of period (thousands) $ 601.5 $ 171.5
Ratio of expenses to average net assets 1.50% 1.50%
Ratio of net income to average net assets 1.03% 0.14%
Portfolio turnover rate 41.03% 0.04%
Average commissions per share $ 0.28038 $ 0.50000
</TABLE>
- -------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
DYNAMIC STYLE ROTATION FUND
INVESTMENT PORTFOLIO MAY 31, 1999
SHARES OR MARKET PERCENT OF SECTOR
EQUITY SECURITIES: PRINCIPAL AMOUNT VALUE NET ASSETS WEIGHTING
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Banking & Brokerage 8.3%
------------------- ----
American Express 195 $ 23,632 3.9%
Chase Manhattan Bank 170 $ 12,304 2.0%
J. P. Morgan & Co. 100 $ 13,931 2.3%
Computer & Internet Equipmet 9.2%
---------------------------- ----
Cisco Systems 207 $ 22,537 3.7%
Comverse Technology Inc. 300 $ 20,269 3.4%
International Business Machines 110 $ 12,794 2.1%
Consumer - Durable Goods & Equipment 5.1%
------------------------------------ ----
General Electric Company 230 $ 23,388 3.9%
Maytag Corp. 100 $ 7,056 1.2%
Consumer Staples 4.7%
---------------- ----
Clorox Co. 110 $ 11,013 1.8%
Phillip Morris Cos., Inc. 250 $ 9,641 1.6%
Proctor & Gamble Co. 80 $ 7,470 1.2%
Energy 4.3%
------ ----
Chevron Corporation 150 $ 13,875 2.3%
Schlumberger LTD 200 $ 12,038 2.0%
Entertainment 1.0%
------------- ----
Walt Disney Company 200 $ 5,825 1.0%
Information & Services 3.4%
---------------------- ----
Time Warner 300 $ 20,419 3.4%
Internet Service Providers 3.0%
-------------------------- ----
America Online 150 $ 17,850 3.0%
Pharmaceuticals & Biotechnology 5.8%
------------------------------- ----
Bristol Meyers Squib 200 $ 13,750 2.3%
Merck 180 $ 12,150 2.0%
Schering Plough Group 200 $ 9,013 1.5%
Retail 2.9%
------ ----
Walgreen Co. 200 $ 4,650 0.8%
Wal-Mart Stores Inc. 300 $ 12,788 2.1%
Software 3.1%
-------- ----
Microsoft Corp. 230 $ 18,558 3.1%
Technology 4.8%
---------- ----
Motorola Inc. 200 $ 16,563 2.8%
United Technologies Corp. 200 $ 12,413 2.1%
Telecommunications (Service & Equipment) 1.4%
---------------------------------------- ----
MCI / Worldcom 100 $ 8,638 1.4%
Money Market Funds 45.9%
------------------ -----
Riverfront U.S. Gov't Sec 276,177 $276,177 45.9%
Cash, Payables & Receivables -2.9%
---------------------------- -----
Excess of Cash & Receivables over Payables ($ 17,330) -2.9%
TOTAL ASSETS 280,839.00 $601,499 100.0%
</TABLE>
