IPS NEW FRONTIER FUND 1999 SEMI-ANNUAL REPORT
Fellow Shareholders:
We are pleased to present our Semi-annual Report for the six months ended
May 31, 1999. Total assets have more than tripled, from $606,000 to $2,063,000
during the period. Please note also that we have moved our corporate offices to
the address at the bottom of this page. All performance statistics are updated
monthly, and portfolio stocks daily on our Web site. Notably, your fund has
recently received attention in YOUR MONEY magazine, and has recently been
nominated as one of the top 10 best new funds in the U.S. by AMERICA ON-LINE.
Fund Manager Robert Loest was also recently interviewed in the May 10 issue of
BUSINESS WEEK. All investors should be aware of the small number of stocks held
by NEW FRONTIER FUND. We expect to keep this number below 20 stocks, although we
typically carry large cash positions, typically from 25% to 50%, but falling as
low as 13.8% at the end of Dec. 1998. Our strategy of buying mostly high tech or
Internet companies that have been badly beaten up by clearly short-term factors,
either in the overall stock market, the company's sector, or the company itself,
appears so far to be working. As you can see from the performance graph below,
your Fund has continued to distance itself from the major broad market indexes.
[FIGURE 1 APPEARS HERE in a graphical chart. The numbers, however, are
represented below]
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| |
| $10,000 INVESTMENT AT INCEPTION 8/3/98 |
| |
| 08/03/98 12/31/98 05/31/99 |
| |
| V.L. Arithmetic $10,000 $10,145 $11,065 |
| S&P 500 $10,000 $11,029 $11,739 |
| New Frontier $10,000 $11,836 $14,799 |
| |
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Figure 1. 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 NEW FRONTIER VALUE LINE S&P 500
FUND ARITHMETIC INDEX COMPOSITE
<S> <C> <C> <C>
6 months ended 5/31/99 40.94% 13.53% 12.53%
Inception 8/3/98 - 5/31/99 47.99% 10.65% 17.39%
</TABLE>
The total returns above include changes in the Fund's share price, plus
reinvestment of 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.
________________________________________________________________________________
Phone: 423.524.1676 Web site: http://www.ipsfunds.com 1225 Weisgarber Rd.
800.232.9142 ----------------------- Suite S-380
Fax: 423.544.0630 E-mail: [email protected] Knoxville, TN 37909
-----------------
<PAGE>
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| TABLE 1: BREAKDOWN BY MARKET CAP MAY 31, 1999 |
| |
| SECTOR NUMBER PERCENT |
| ------------------------------------------ |
| |
| 1. Large Caps (>$10b) 8 50.0% |
| 2. Mid Caps 8 50.0% |
| 3. Small Caps (<$1b) 0 0.0% |
| ----- -------- |
| |
| Total 16 100.0% |
| |
| MEDIAN MARKET CAPITALIZATION: $ 5.1B |
| WEIGHTED AVERAGE MARKET CAP: $ 11.3B |
| |
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MANAGEMENT'S DISCUSSION & ANALYSIS
----------------------------------
CLASSIFICATION BY MARKET CAPITALIZATION
TABLE 1 presents the Fund's makeup by market capitalization as of
5/31/99.100.0% of the Fund is composed of mid- and large-cap companies. (Market
capitalization is price per share times number of shares outstanding, one good
measure of a company's size.) The balance of the Fund's assets is held in cash
equivalents. 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 AMAZON (AMZN.O).
Note that the Fund's market cap distribution has shifted over the last six
months away from small caps and toward large cap companies, and that it no
longer holds any small caps. This is simply a reflection of the areas in the
stock market where we have found opportunity recently, and not due to any
planned shift. The crash in the tech and Internet stocks this Spring provided an
opportunity to add some large, high quality companies such as EMC CORP. (EMC.N)
that had fallen a great deal, and that we felt offered a better reward/risk
ratio than the smaller companies. We expect in the future that the Fund's market
cap profile will continue to be determined by where in the stock market we find
opportunity.
[FIGURE 2 APPEARS HERE in a graphical chart. The numbers,
however, are represented below]
----------------------------------------------------------
| |
| Quarter Returns: IPS New FrontierFund |
| vs. Value Line Arithmetic Composite |
| |
| IPS Value Line |
| Quarter ending New Frontier Arithmetic |
| Fund Composite |
| |
| 09/98 -1.92% -16.23% |
| 12/98 20.67% 19.80% |
| 03/99 19.11% -3.46% |
| 06/99 9.59% 17.24% |
| |
----------------------------------------------------------
Figure 2. Relative volatility of the NEW FRONTIER FUND, on a
quarterly basis, vs. the broad stock market as represented
by the VALUE LINE ARITHMETIC COMPOSITE.
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 New Frontier's downside
volatility has been significantly less than that of the overall market, as
represented by the VALUE LINE ARITHMETIC COMPOSITE (VLAC). However, the Fund is
still very volatile on a day-to-day basis, due to the small number of companies
it holds. Note also that, while the Fund outperformed the S&P 500 during the
quarter, it underperformed the VLAC. We feel a big part of the reason is the
resurgence of smaller companies during the second quarter of this year. Both the
Fund and the S&P 500 are underweighted in small companies, relative to the VLAC.
Another reason for the Fund's reduced volatility relative to the broader
market is its large cash position. It is typical for the Fund to carry cash
positions of 25% - 50% most of the time. This reduces volatility, and provides a
cash hoard for sharp corrections in the market or in particular companies we are
watching. Given the aggressive trading of this fund, the small number of
companies we own, and the large positions we occasionally take in the fund, we
feel that maintaining a large cash position is necessary.
CHANGES IN PORTFOLIO SECTORS
TABLE 2 on the shows a snapshot of the Fund's investment sector makeup and
changes over the last six months. Note first of all the large cash positions at
the end of both periods, which is typical. Also, you can see that for most
portfolio sectors, there have been major changes. In many cases we have gone
from 0% to a large position, as in the case of INFORMATION SERVICES, or from a
large position to nothing, as with NATURAL GAS UTILITIES.
Page 2
<PAGE>
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| |
| TABLE 2 |
| ------- |
| |
| INDUSTRY SECTOR POSITION (%) POSITION (%) |
| 5/31/99 11/30/98 |
| ____________________________________________________________ |
| |
| Cash 32.9% 28.9% |
| Financial & Brokerage 0.0% 5.5% |
| Computer & Internet Equip. 9.7% 0.0% |
| Electronic Commerce 11.8% 6.0% |
| Natural Gas Utilities 0.0% 21.8% |
| Information Services 14.5% 0.0% |
| Internet Service Providers 11.8% 2.2% |
| Medical Services 0.0% 4.9% |
| Semi-Conductor Technology 0.0% 8.1% |
| Software 15.3% 12.8% |
| Telecommunications 4.0% 9.7% |
| ___________________________________________________________ |
| |
| |
------------------------------------------------------------------
This is the result of successful stock picks. Our objective when we buy a
company is normally a 50% plus short-term gain. We are buying companies whose
stock price has plunged on what we believe are clearly short-term factors,
either particular to that company, or to the industry sector. If we are correct,
the stock recovers within a few months at most, and we sell it.
Thus, over a six month period we should experience large changes in the
Fund's investment sector make-up if we are accurate in our assessment of the
companies we purchase for you. So far, this has proven to be the case. This also
results in high turnover ratios and large capital gains, so be prepared to get
socked with a big capital gains distribution at the end of 1999. We think the
returns justify it, but all investors should understand our management strategy,
because it is better suited for qualified plans where capital gains are
tax-deferred, than for taxable accounts.
ANALYSIS OF PERFORMANCE
We have broken down our performance gains by investment sector below, and
listed the major contributors to each sector's performance.
<TABLE>
<CAPTION>
INVESTMENT SECTOR 6-MONTH RETURN PRIMARY CONTRIBUTORS
----------------- -------------- --------------------
<S> <C> <C>
Computer Networking (9.5)% COMS (-26.8%)
Electric Utilities 12.0%
Electronic Commerce 70.3% AMZN (+153.2%)
Financial & Banking 33.1% NCBC (+34.7%)
Information Services 57.5% BCST (+53.4%)
Internet Service Providers 103.8% CNCX (+85.3%), VRIO (+206.9%)
Medical Services 32.8% HBOC (+32.8%)
Natural Gas Utility 41.5% CPN (+45.7%)
Semiconductors 146.7% ADI (+50.2%), BRCM (+56.7%), NSM (+56.4%)
Software 8.0% ITWO (+19.2%)
Telecommunications 156.6% GBLX (+71.8%), JDSU (+63.6%), PCS (+79.5%)
</TABLE>
The largest contributors by far to the Fund's capital gains were the
Telecommunication, Semiconductor and Internet Service Provider sectors.
Together, they accounted for 70.7% of the six-month period's total capital gains
of $317,354. If you add in the Information Services sector - mostly Internet
companies BROADCOM (BRCM.O), LYCOS (LCOS.O), NETWORK SOLUTIONS (NSOL.O) and
YAHOO! (YHOO.O) - the total reaches nearly 90% of capital gains.
There is an obvious theme here. Virtually all of your capital gains came
from the Internet in one way or another. Most or all of the growth in our
economy comes from increasing connectivity. The Internet is increasingly the way
we communicate. We expect, for the foreseeable future, to concentrate our bets
on these areas. What this means for you is that your portfolio will be more
volatile than most funds on a day to day basis, because we are buying volatile
stocks, and we are taking large positions. You should not expect that your
portfolio will track the overall market on a daily basis, because performance
tends to be determined by individual companies in the Fund with very large
moves, not by the overall stock market. We sincerely appreciate your confidence
in IPS New Frontier Fund. Please visit your Web site, and let us know if you
have any questions or suggestions for us.
ROBERT A. 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
(Unaudited)
IPS NEW FRONTIER FUND
_____________________________________________________
STATEMENT OF ASSETS AND LIABILITIES
For the 6 months ended May 31, 1999
-------------------------------------
ASSETS:
Investments in securities, at value -
identified cost $2,110,843 $2,090,853
Cash 0.53
Accrued income
Sales of fund shares 210,832
Security sales 0
Dividends 127
Interest 2,529
Other assets 0
----------
Total assets 2,304,341
LIABILITIES:
Investments securities purchased 239,400
Accrued expenses 1,871
----------
Total liabilities 241,271
----------
Net Assets on May 31, 1999
Equivalent to $17.73 per share based on
116,336.035 shares of capital stock
outstanding $2,063,070
==========
________________________________________________________________________________
STATEMENT OF OPERATIONS
for the 6 months ended May 31, 1999
------------------------------------
INVESTMENT INCOME:
Income
Dividend income $1,599
Interest 9,048
Total income 10,647
Expenses:
Management fees 8,101
----------
Total expense 8,101
----------
Net investment income 2,546
----------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 386,841
Change in unrealized appreciation
of investments for the year (60,915)
----------
Net gain (loss) on investments 325,926
----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $328,472
==========
FINANCIAL STATEMENTS
(Unaudited)
IPS NEW FRONTIER FUND
_____________________________________________________
STATEMENT OF CHANGES IN NET ASSETS
For the 6 months ended May 31, 1999
------------------------------------
Six months ended Year ended
5/31 11/30
INCREASE (DECREASE) IN NET 1999 1998
ASSETS FROM OPERATIONS: ---- ----
Investment income-net $ 2,546 $1,131
Net realized gain on investments 386,841 (18,829)
CHANGE IN UNREALIZED (60,915) 40,925
APPRECIATION --------- -------
Net increase in net assets 328,472 23,227
resulting from operations
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Investment income-net (1,125) 0
Realized gains 0 0
--------- -------
Net decrease in net assets due to (1,125) 0
distributions to shareholders
CAPITAL SHARE TRANSACTIONS:
Issued-regular 1,147,544 585,868
Issued-in lieu of cash 1,125 0
distributions
Redeemed - regular (19,040) (3,000)
--------- ---------
INCREASE IN NET ASSETS DUE TO 1,129,629 582,868
CAPITAL SHARE TRANSACTIONS
INCREASE IN NET ASSETS 1,456,976 606,094
NET ASSETS 606,094 0
Beginning of year
End of period $2,063,070 $606,094
========== ========
Page 4
<PAGE>
IPS NEW FRONTIER 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
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 ($60,915). The cost of portfolio
securities for book and federal income tax purposes was $2,110,843.25.
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
December 14, 1998 was the record date for income distribution on December 15,
1998 of $0.023 per share aggregating $1,125.25.
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 $1,712,496.
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 70,623.917 48,349 $1,147,544 $ 585,868
Share issued in reinvestment
of Dividends 87.092 0 1,125 0
---------- ---------- ---------- ----------
Total 70,711.009 48,349 $1,148,669 $ 585,868
Shares redeemed 2,484.969 239 19,040 3,000
---------- ---------- ---------- ----------
Net increase 68,226.04 48,110 $1,129,629 $ 582,868
</TABLE>
NOTE 4 - INVESTMENT TRANSACTIONS
The Fund made purchases of investment securities (excluding short-term
securities) of $2,333,008 and $1,879,008, during the period November 30, 1998
through May 31, 1999; there were no investment transactions involving U.S.
Government obligations.
As of November 30, 1998 the unrealized appreciation of securities was ($60,915);
there are $386,841 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 1.40% of its average daily net assets to and
including $100,000,000, 1.15% of such assets from $100,000,001 to and including
$250,000,000, and 0.90% 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 5
<PAGE>
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 6 - 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.
__________________________________________________
IPS NEW FRONTIER FUND
Financial Highlights, Selected Per Share Data and Ratios
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________
FOR THE PERIOD ENDED FOR THE YEAR ENDED
MAY 31, 1999 NOV. 30, 1998
------------ -------------
PER SHARE DATA: PER SHARE DATA:
<S> <C> <C>
NET ASSET VALUE:
Beginning of period $12.600 $12.000
Income from investment operations
Net Investment income (0.034) 0.029
Net realized and unrealized gain
(loss) on investments 5.180 0.571
-------- --------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS 5.146 0.600
LESS DISTRIBUTIONS:
Dividends from net investment income (0.015) 0.000
Dividends from net realized gains on investments (0.000) (0.000)
--------- ---------
Total distributions $(0.015) $(0.000)
Net asset value:
End of period $17.730 $12.600
========= ---------
Total return (annualized) 82.279% 16.143%
Ratios:
Net assets, end of period (thousands) $ 2,063.1 $ 606.1
Ratio of expenses to average net assets 1.40 1.40%
Ratio of net income to average net asse (0.90%) 0.27%
Portfolio turnover rate 222.49% 15.48%
Average commissions per share $ 0.04913 $ 0.07959
____________________________________________________________________________________________________________
See notes to financial statements.
</TABLE>
Page 6
<PAGE>
<TABLE>
<CAPTION>
IPS New Frontier Fund
Investment Portfolio May 31, 1999
=================================================================================================================================
SHARES OR MARKET PERCENT OF SECTOR
EQUITY SECURITIES: PRINCIPAL AMOUNT VALUE NET ASSETS WEIGHTING
=================================================================================================================================
<S> <C> <C> <C>
COMPUTER & INTERNET HARDWARE 9.7%
- ---------------------------- ----
EMC Corp 2,000 $199,250 9.7%
ELECTRONIC COMMERCE 11.8%
- ------------------- -----
Amazon.com 600 $71,250 3.5%
Priceline 1,000 $112,031 5.4%
Verisign 500 $59,250 2.9%
INFORMATION & SERVICES 14.5%
- ---------------------- -----
Equifax 1,400 $50,400 2.4%
Lycos 1,000 $100,500 4.9%
Yahoo! 1,000 $148,000 7.2%
INTERNET SERVICE PROVIDERS 11.9%
- -------------------------- -----
@Home 1,000 $126,750 6.1%
Earthlink Network 1,000 $53,500 2.6%
Concentric Networks 2,000 $64,625 3.1%
Software 15.3%
- -------- -----
BMC Software 1,200 $59,325 2.9%
Broadvision 1,000 $52,000 2.5%
RealNetworks 2,000 $141,750 6.9%
i2 2,000 $63,250 3.1%
Telecommunications (Service & Euipment) 4.0%
- --------------------------------------- ----
Comcast Cable 1,000 $36,063 1.7%
Global Crossing 1,000 $47,438 2.3%
Money Market Funds 34.2%
- ------------------ -----
Riverfront U.S. Govt Securities Fund 705,472 $705,472 34.2%
Cash, Payables & Receivables -1.3%
- ---------------------------- -----
Excess of Cash & Receivables over Payables 0 ($27,783) -1.3%
=================================================================================================================================
TOTAL ASSETS: 725,172 $2,063,070 100.0%
</TABLE>
