Dynamic Style Rotation Fund 1998 Annual Report
Fellow Shareholders:
We are pleased to present our first Annual Report from the
Dynamic Style Fund's inception August 3, 1998 to November 30, 1998.
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. We are very happy with the returns that we
have realized in the Fund over the short period that the fund has been
in existence. The superior performance that we have seen since
inception, relative to the overall market, is illustrated in FIGURE 1.
[FIGURE 1 APPEARS HERE - $10,000 INVESTMENT AT INCEPTION 8/3/98]
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: Dynamic Style Value Line S&P 500
Rotation Fund Arithmetic Index Composite
<S> <C> <C> <C>
4 months ended 11/30/98 11.67% -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.
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<TABLE>
<CAPTION>
<S> <C>
Management Discussion and Analysis
- -------------------------------------------------------
| TABLE 1: Breakdown by Market Cap | Fund Review
| November 30, 1998 |
| --------------------------------------- | The Fund employs a technique of "Dynamic Style RotationSM", the
| Sector Number Percent | rotation or tilting of the Fund's investment weightings between large
| | and small capitalization, and growth and value equity securities as
| 1. Large Caps (>$10b) 15 90.1% | general economic conditions change. By rotating the Fund's investment
| 2. Mid Caps 2 9.9% | emphasis in accordance with favorable market conditions for the
| 3. Small Caps (<$1b) 0 0.0% | appropriate equity investment strategy, the Fund believes that it will
| ---------------------------------------- | be able to employ the most effective equity investment style for a
| Total 17 100.0% | given set of market conditions.
| |
| Weighted Average Market Capitalization: $98.7b | As a starting point for the Fund on August 3rd, 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 first two months 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 see substantial gains in the event of a market run to the
upside.
</TABLE>
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 past few
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), INTERNATIONAL
BUSINESS MACHINEs (IBM.N), and MICROSOFT (MSFT.O). 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.
<TABLE>
<CAPTION>
<S> <C>
While our goal is to generate superior returns, we are always
investing with the downside in mind. Style-based stock selection ------------------------------------------------------
combined with tactical asset allocation is the basis for risk control, | [Figure 2 appears here, a graphical chart, |
and we are always conscious of this fact to make sure that each | however, the representatives number are as |
addition to the Fund improves its overall risk/reward characteristics. | follows: |
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 | Quarter Returns: Dynamic Style Fund |
in mind, though, that our ability to manage risk in the past does not | vs. Value Line Arithmetic Composition |
mean we will always be able to do so in the future. | |
| IPS Dynamic Style Value Line |
| Fund Quarterly Returns Quarterly Returns |
| 9/98 -4.33% -16.23% |
Market and Economic Outlook | 12/98 28.40% 19.80% |
-------------------------------------------------------
There is a myriad of uncertainties that may restrict the
market's potential in the early half of 1999: impeachment proceedings; Figure 2. Volatility of DSR Fund vs. V.L. Arithmetic Index
global economic and financial
</TABLE>
Page 2
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risks; the blossoming trade skirmish with Europe; a divergent market;
and earnings uncertainties. Along the way, other issues, such as Y2K
compliance, may capture investors' attention and produce volatility.
<TABLE>
<CAPTION>
<S> <C> <S>
- -----------------------------------------------------
| TABLE 2 | The expected further easing of the Federal Reserve's policy
| ------- | stance is likely to provide the necessary liquidity and support to
| | keep the equity market from succumbing to the 20% decline that
| Industry Sector Position(%) | traditionally defines a bear market. But this short-term buoyancy
| 11/30/98 | does not change the underlying picture profits remain under
| ------------------------------------------------- | pressure, which will lead to a further decline in equity prices,
| Cash 7.4% | personal wealth, and eventually weaker consumption and investment. As
| Financial & Brokerage 14.8% | a result, growth in the U.S. is expected to slow from about 3.4% in
| Computer & Internat Hdwr 31.8% | 1998 to just 1.6% in 1999. Table 2 illustrates how we have positioned
| Consumer Durables 11.1% | your Fund at the end of November to deal with our anticipated economic
| Consumer Staples 6.7% | conditions.
| Information & Services 3.1% |
| Pharmaceutical & Biotech 2.8% |
| Retail 3.1% |
| Software 2.8% |
| ---------------------------------------------------
| Total 100.0% |
| |
| NOTE: Large changes are bolded. |
----------------------------------------------------
</TABLE>
Essentially, 1999 appears destined to be a tug-of-war between the
low inflation-low interest rate environment on one side versus the
stagnation of corporate earnings growth on the other. In this
environment, those companies perceived to be producing continuing or
improving profits should provide support and resiliency to the market.
Summary
Just because the market is at historically high valuation levels
doesn't mean it can't go higher. You should not have to worry about
the overall direction of the market if you are properly positioned and
diversified. This is not to say that we will always remain fully
invested in equities in the Fund. If we felt that the time was right,
we would hold a larger cash position to reduce the account volatility,
and by doing so reduce our overall market exposure.
In summary, we are approaching the new year in much the same way
we did last year - cautiously. Patient investors will be rewarded in
this market as it will ultimately be driven by the long-term
fundamentals, not the short-term technical and emotional moves. As
events unfold, the Fund remains committed to the long-term success of
our investors.
<PAGE>
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
- ---------------------------------------------------------------------
THIS ANNUAL REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS UNLESS IT IS PROCEEDED OR ACCOMPANIED
BY A PROSPECTUS FOR DYNAMIC STYLE ROTATION FUND.
- ----------------------------------------------------------------------
Page 3
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FINANCIAL STATEMENTS
(Audited)
Dynamic Style Rotation Fund
Statement of Assets and Liabilities
For the 4 months ended Nov. 30, 1998
- ------------------------------------------------------------
ASSETS:
Investments in securities, at value -
identified cost $150,176.45 $171,561
Cash .91
Accrued income
Sales of fund shares 0
Security sales 0
Dividends 39
Interest 53
Other assets 0
---------
Total assets 171,653
LIABILITIES:
Accrued expenses 199
---------
Total liabilities 199
---------
NET ASSETS ON MAY 31, 1998
Equivalent to $13.40 per share based on
12,791.143 shares of capital stock
outstanding $ 171,454
=========
===========================================================================
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Statement of Operations
For the 4 months ended Nov. 30, 1998
INVESTMENT INCOME:
Income
Dividend income $265
Interest 320
------
Total income 585
Expenses:
Management fees 573
Expense reimbursement 0
Organizational cost 0
-----
Total expense 573
-----
Net investment income 12
-----
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments (1)
Change in unrealized appreciation
of investments for the year 21,385
------
Net gain (loss) on investments 21,384
------
Net Increase in Net Assets
Resulting from Operations $21,396
=======
Page 4
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FINANCIAL STATEMENTS
(Audited)
Dynamic Style Rotation Fund
Statement of Changes in Net Assets
For the 4 months ended Nov. 30, 1998
INCREASE (DECREASE) IN NET 1998
ASSETS FROM OPERATIONS: ----
Investment income-net $12
Net realized gain on investments (1)
CHANGE IN UNREALIZED 21,385
APPRECIATION ------
Net increase in net assets 21,396
resulting from operations
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Investment income-net 0
Realized gains 0
--
Net decrease in net assets 0
due to distributions to
shareholders
CAPITAL SHARE TRANSACTIONS:
Issued-regular 150,058
Issued-in lieu of cash 0
distributions
Redeemed - regular 0
INCREASE IN NET ASSETS DUE 150,058
TO CAPITAL SHARE
TRANSACTIONS
INCREASE IN NET ASSETS 171,454
NET ASSETS
Beginning of year 0
End of period $171,454
========
Page 5<PAGE>
DYNAMIC STYLE ROTATION 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 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 states 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 $21,385. The cost
of portfolio securities for book and federal income tax purposes was
$137,306.
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.
<PAGE>
NOTE 3 - 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
$150,058.
Transactions in capital stock for the period 8/03/98 through 11/30/98
were as follows:
Shares Amount
1998 1998
Shares sold 12,911 $150,058
Share issued in reinvestment
of Dividends 0 0
------ --------
Total 12,911 $150,058
Shares redeemed 0 0
------ --------
Net increase 12,911 $150,058
NOTE 4 - INVESTMENT TRANSACTIONS
The Fund made purchases and sales of investment securities (excluding
short-term securities) of $137,340 and $32.15, respectively, 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
$21,385.
Page 6<PAGE>
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Notes to Financial Statements(continued)
Twelve Months Ended November 30, 1998
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 $100,000,000 to and including
$250,000,000, and 1.10% of such assets in excess of $250,000,000.
Certain officers and trustees of the Fund are also officers and
directors of the investment advisor.
Securities Service Network, Inc .(SSNI), the Fund's underwriter, has
received no income from sales commissions earned on sales of the Fund
shares, since it is a no-load fund. Mr. D'Amico and Mr. Loest are
registered representatives of SSNI.
All securities trades for the Fund have been made through SSNI.
Mr. D'Amico and Mr. Loest, as registered representatives of SSNI,
received benefits from securities trading commissions paid by the Fund
to SSNI.
NOTE 6 - CONTINGENCIES
Based upon its review of its records, the Fund believes that it did
not meet the IRS qualifications for the tax exempt status afforded to
a regulated investment company for the year ended November 30, 1998.
However, the Fund is currently reviewing its records further to
confirm whether or not the Fund met the IRS qualifications. If the
Fund failed to meet these qualifications, then the Fund will pay tax
on its net investment income and immediately, or (b) pay taxes on
unrealized gains when and if such gains are later realized (unless
such gains are not realized for 10 years, in which case the Fund would
not be required to pay taxes on the gains at all). If the Fund failed
to meet the IRS qualifications, the Fund's investment manager will
reimburse the Fund for any tax or other liabilities incurred as a
result thereof so that there would be no adverse financial
consequences for the Fund or its shareholders,
Page 7
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DYNAMIC STYLE ROTATION FUND
Financial Highlights, Selected Per Share Data and Ratios
For the period ended
November 30, 1998
--------------------
Per share data:
Net asset value:
Beginning of period $12.00
Income from investment operations
Net Investment income $0.001
Net realized and unrealized gain 1.399
(loss) on investments ------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS 1.400
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 $13.400
=======
Total return (annualized) 40.279%
Ratios:
Net assets, end of period (thousands) $171,454.370
Ratio of expenses to average net assets 1.39%
Ratio of net income to average net assets .03%
Portfolio turnover rate 0.04%
Average commissions per share $0.50000
See notes to financial statements.
Page 8<PAGE>
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<TABLE>
<CAPTION>
Dynamic Style Rotation Fund
Investment Portfolio Nov. 30, 1998
Shares or Market Percent of Sector
EQUITY SECURITIES: Principal Amount Value Net Assets Weighting
<S> <C> <C> <C> <C>
Banking & Brokerage 14.8%
- ------------------- -----
American Express 145 $14,573 8.5%
Chase Manhattan Bank 170 $10,784 6.3%
Computer & Internet Equipment 31.8%
- ----------------------------- -----
Cisco Systems 217 $16,356 9.5%
Comverse Technology Inc. 200 $11,500 6.7%
Dell Computer 180 $10,946 6.4%
International Business Machines 95 $15,675 9.1%
Consumer - Durable Goods & Equipment 11.1%
- ------------------------------------ -----
General Electric Company 150 $13,575 7.9%
Maytag Corp. 100 $ 5,413 3.2%
Consumer Staples 6.7%
- ----------------- ----
Clorox Co. 40 $ 4,445 2.6%
Proctor & Gamble 80 $ 7,010 4.1%
Information & Services 3.1%
- ---------------------- -----
Time Warner 50 $ 5,294 3.1%
Pharmaceuticals & Biotechnology 19.2%
- -------------------------------- -----
Bristol Myers Squibb 100 $12,256 7.1%
Merck 40 $ 6,195 3.6%
Schering Plough Group 50 $ 5,353 3.1%
Warner Lambert Company 120 $ 9,068 5.3%
Retail 3.1%
- ------ -----
Walgreen Co. 100 $ 5,369 3.1%
Software 2.8%
- -------- -----
Microsoft Corp. 40 $ 4,880 2.8%
Other Assets -0.1%
- ------------ -----
Receivables Minus Payables $ (107) -0.1%
Money Market Funds 7.5%
- ------------------ -----
Federated U.S. Treasury Fund 12,870 $12,870 7.5%
TOTAL ASSETS: $171,454 100.0%
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Page 9
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and the Board of Trustees
IPS Funds
Dynamic Style Rotation Fund
Knoxville, Tennessee
We have audited the accompanying statement of assets and liabilities
of Dynamic Style Rotation 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 Dynamic Style Rotation 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
