As filed with the Securities and Exchange Commission on March 8, 2007
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-08507
IRONWOOD SERIES TRUST
Two Portland Square
Portland, Maine 04101
207-879-1900
Warren J. Isabelle, President
Suite 240
21 Custom House Street
Boston, MA 02109
(800) 472-6114
Date of fiscal year end: DECEMBER 31, 2006
Date of reporting period: JANUARY 1, 2006 - DECEMBER 31, 2006
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
[IRONWOOD LOGO]
IRONWOOD SERIES TRUST
www.ironwoodfunds.com
-------------------------
IRONWOOD ISABELLE SMALL COMPANY
STOCK FUND
Investment Shares Symbol: IZZYX
Institutional Shares Symbol: IZZIX
Annual Report
December 31, 2006
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
TABLE OF CONTENTS
SHAREHOLDER LETTER ......................................................... 1
PORTFOLIO OF INVESTMENTS ................................................... 7
STATEMENT OF ASSETS AND LIABILITIES ........................................ 10
STATEMENT OF OPERATIONS .................................................... 11
STATEMENTS OF CHANGES IN NET ASSETS ........................................ 12
FINANCIAL HIGHLIGHTS ....................................................... 14
NOTES TO FINANCIAL STATEMENTS .............................................. 18
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM .................... 26
ADDITIONAL INFORMATION ..................................................... 28
FUND TRUSTEE AND OFFICERS .................................................. 31
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
SHAREHOLDER LETTER
To our Valued Shareholders:
No doubt you have heard the phrase "patience is a virtue" and just as likely
found an exception to that paradigm that has had a personal impact. The fact is
that many adages get to be so, because they are borne out the vast majority of
the time. With that in mind, I am pleased to report that your Fund's Investment
shares returned 23.68% for the year ended December 31, 2006, surpassing the
18.37% gain in the Russell 2000 Index by more than 5%.*
Refocusing the portfolio to have fewer holdings has been gradual and not without
some interim difficulties, but has allowed us to concentrate our efforts on
individual positions with increased intensity. We have said it before, and will
repeat it again, as it cannot be overstated, that the success of the Fund's
investments, we believe, is directly proportional to the level of understanding
we can bring to each of its holdings. We have always enjoyed the analytical
odyssey of searching for undervalued names, researching them as thoroughly as we
are capable, and developing from those efforts an investment thesis that offers
significant potential rewards to Fund shareholders over the longer term. The ART
is in what we make of a given situation - we want to find anomalies where we can
separate the actual risk from the commonly perceived risk. The SCIENCE is the
leg work required to understand how a given firm creates economic value and then
making a determination of how much of that value exists today and what can be
created over our investment horizon. With the right `hunch' and subsequent
conviction derived from our efforts, a solid portfolio of stocks, each offering
significant upward potential, but with individually different characteristics of
risk and reward, can be built.
Several years ago, for reasons that are unimportant now, we were pulled away
from that focus and the intensity of our efforts was diluted among far too many
portfolio holdings. Mind you, there are very good managers who have produced
better than average results with portfolios that are diversified across a very
large number of names, but that is not what we are good at. Thus, after some
painful introspection we realized that we needed to act in a manner that better
reflected our talents and skills, and began the refocusing process.
1
That process is on-going but I would suggest that we reached a point of
equilibrium early last year, after paring the number of holdings to forty or so.
While the small cap markets continued to perform well, despite repeated
admonitions that the END WAS NEAR, we believe your portfolio provided the BANG
FOR THE BUCK that its sharpened focus should provide. Moreover, that BANG came
from a variety of sectors and industries, as you should expect from a
diversified portfolio. Finally, as we have suggested in the past, we have been
far less tolerant in allowing undue risk to develop within any of our holdings,
and we will not rely unduly on the hope that the value to be realized is so
compelling as to keep us there.
For all of these reasons, the portfolio has recently performed more to our
expectations, but it has required patience. Our investments are purchased for
long term appreciation, and there are periods where either market, or industry,
or company-specific forces will adversely impact performance -for a time. If,
however, we have done our homework sufficiently and correctly, as a very famous
investor once said, "The value will out."
The year progressed in just such a fashion. The first quarter was particularly
rewarding, as our investments in energy, basic materials, and health care all
performed very well. But, just as quickly the second quarter saw fears that
inventories were building across the industrial economy and energy and commodity
prices had run their course, causing many of our earlier out performers to
retreat to a significant degree. The second half of the year was somewhat more
subdued, but your portfolio benefited immensely as it became clear that the sky
was not falling on the basic materials sector, or the entire economy for that
matter, and that interest rates would remain stable and near historic lows,
which of course bodes well for security valuations. This scenario, we propose,
instilled a much greater level of confidence among investors and management,
which, aided by more than ample monetary liquidity, touched off a wave of merger
and acquisition activity across the entire spectrum of market capitalizations.
We were gratified and offer as testimonial to the validity of our investment
philosophy and process to see that a number of our holdings, as businesses, were
considered attractive enough to warrant acquisition either by competitors, or
private equity investment groups, several at very substantial premiums to both
the current price and historical cost. ALERIS (ARS), formerly Commonwealth
Aluminum, which we had held for several years, was acquired by Texas Pacific
Group in December of last
2
year for $52.50 per share, producing a gain of more than 61% for the year, and
more than 900% over our average cost of $5.22 per share. BROADWING (BWNG), a
telecommunications company which we have in the past discussed at length, was
also effectively acquired last year by Level Three Communications and although
the formal closing was January 4, 2007, the final price, $15.65 per share,
represented a premium of about 159% over the 2005 year end closing price, and
284% above our average cost of $4.08. Further, SIRNA THERAPEUTICS (RNAI), a
small biotech company with very promising technology in the field of short
interference RNA, was bought by Merck for $13 per share. Again that merger was
formally consummated on January 3rd of 2007, but represented a gain of 154% over
average cost and 329% over the 2005 year end closing price. In fact your Fund
benefited from no less than seven acquisitions, which in addition to the three
aforementioned included WESTERN SILVER (WTZ) (+149% year; +290% cost), NAVIGANT
INTERNATIONAL (FLYR) (+52% year; +49% cost), RUSSELL CORP. (RML) (+34% year;
+35% cost), and DATASTREAM (DSTM) (+19% year; +50% cost). The combined impact of
this activity on portfolio performance was obviously significant, but equally as
important was the diversification in the source of those returns. Represented
were basic materials, telecommunications, healthcare, consumer service, consumer
non-durables, and technology.
Conversely, even as we made our share of missteps, we were again better at
mitigating risk by eliminating poor performers quickly. For example we sold
NEOPHARM (NASDAQ: NEOL), a small biotechnology company with a promising but
ultimately unapprovable therapy for treating gliomas, a deadly form of brain
cancer, when it became unclear to us that their phase III trial would produce
results satisfactory for eventual drug approval. We sold our shares between $5
and $6 per share against a cost of about $8.40. The loss, while significant,
pales in comparison to what would have been realized had we held on: NEOPHARM
closed the year at $1.67.
In all we added fourteen new positions last year, with two, CHEROKEE
INTERNATIONAL (NASDAQ: CHRK) and CHIQUITA BRANDS (NYSE: CQB), being names that
we had held in the past. We sold, including those names involved in acquisition
transactions, twenty-three positions.
Going into 2007 we are relatively comfortable with the composition of the
portfolio, although because of the heightened acquisition activity, the number
of holdings was reduced to just thirty-five by the end of the year. We are thus
actively seeking some new investment candidates, but
3
we will, as always, do so judiciously and deliberately, maintaining focus on, as
well as sensitivity to, both valuation and risk.
Looking out, the economic environment seems to pose somewhat of a quandary. The
general economy appears to be chugging along as ever, but the markets, although
continuing their ascent, look to be somewhat extended. As such we must remain
diligent in assessing and reassessing our positions in light of what might be
rapidly changing circumstances. That said, we feel that your portfolio has a
great deal of yet unrealized potential that is poised to manifest itself over
the coming months. Some holdings are newer and will take time to mature, but we
feel that there are a number of companies that we have been patient with that
are positioned to perform well during this year.
We appreciate the patience and support of our shareholders, and we will continue
to work diligently at producing the kind of result that such patience warrants.
Respectfully submitted,
/s/ Warren J. Isabelle
- ----------------------------
Warren J. Isabelle
Portfolio Manager
- ----------
* FUND PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO
GUARANTEE OF FUTURE RESULTS. FOR ADDITIONAL PERFORMANCE INFORMATION AND
RELATED DISCLOSURE PLEASE REFER TO THE PERFORMANCE CHART AND ANALYSIS
SECTION ON PAGES 5 AND 6.
INVESTMENTS IN SMALLER COMPANIES CARRY GREATER RISK THAN IS CUSTOMARILY
ASSOCIATED WITH LARGER COMPANIES FOR VARIOUS REASONS SUCH AS NARROWER
PRODUCT LINES, LIMITED FINANCIAL RESOURCES AND LESS DEPTH IN MANAGEMENT.
THE VIEWS IN THIS REPORT WERE THOSE OF THE FUND MANAGER AS OF DECEMBER 31,
2006 AND MAY NOT REFLECT HIS VIEWS ON THE DATE THIS REPORT IS FIRST
PUBLISHED OR ANYTIME THEREAFTER. THESE VIEWS ARE INTENDED TO ASSIST
SHAREHOLDERS IN UNDERSTANDING THEIR INVESTMENTS IN THE FUND AND DO NOT
CONSTITUTE INVESTMENT ADVICE.
4
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
INVESTMENT CLASS
ILLUSTRATION OF $10,000 INVESTMENT
The graph below reflects the change in value of a hypothetical $10,000
investment in the Ironwood Isabelle Small Company Stock Fund (the "Fund")
Investment Class compared with a broad-based securities market index since the
Investment Class' inception. The Russell 2000 Index is composed of the 2,000
smallest stocks in the Russell 3000 Index, a market weighted index of the 3,000
largest U.S. publicly traded companies. The Fund is professionally managed while
the Index is unmanaged and not available for investment.
[The following table was represented as a line chart in the printed material.]
IRONWOOD ISABELLE SMALL COMPANY STOCK
INVESTMENT VALUE REPORT
FUND INCEPTION (3/9/1998) TO 12/31/2006
INVESTMENT RUSSELL2000
DATE LOAD LOAD
---------- ---------- -----------
3/9/1998 10,000 10,000
3/31/1998 10,000 10,431
6/30/1998 9,040 9,944
9/30/1998 6,110 7,941
12/31/1998 6,910 9,236
3/31/1999 6,690 8,735
6/30/1999 8,390 10,094
9/30/1999 8,250 9,455
12/31/1999 10,330 11,199
3/31/2000 11,880 11,993
6/30/2000 11,690 11,540
9/30/2000 12,050 11,667
12/31/2000 11,129 10,861
3/31/2001 11,794 10,155
6/30/2001 14,067 11,605
9/30/2001 9,972 9,193
12/31/2001 12,101 11,131
3/31/2002 13,699 11,575
6/30/2002 13,658 10,608
9/30/2002 9,829 8,338
12/31/2002 9,992 8,851
3/31/2003 8,426 8,454
6/30/2003 11,108 10,434
9/30/2003 11,999 11,381
12/31/2003 14,129 13,034
3/31/2004 14,866 13,850
6/30/2004 15,255 13,915
9/30/2004 14,303 13,517
12/31/2004 16,688 15,423
3/31/2005 15,767 14,599
6/30/2005 16,176 15,229
9/30/2005 17,251 15,944
12/31/2005 17,491 16,125
3/31/2006 20,913 18,373
6/30/2006 19,012 17,449
9/30/2006 19,220 17,526
12/31/2006 21,633 19,087
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE
DATA QUOTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
FOR THE MOST RECENT MONTH END PERFORMANCE, PLEASE CALL (800) 472-6114. THE
PERFORMANCE TABLE AND GRAPH DO NOT REFLECT THE DEDUCTION OF TAXES THAT A
SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
TOTAL RETURN FIGURES INCLUDE THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS.
SOME OF THE FUND'S FEES HAVE BEEN WAIVED OR EXPENSES REIMBURSED; OTHERWISE TOTAL
RETURN WOULD HAVE BEEN LOWER.
5
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
INSTITUTIONAL CLASS
ILLUSTRATION OF $10,000 INVESTMENT
The graph below reflects the change in value of a hypothetical $10,000
investment in the Ironwood Isabelle Small Company Stock Fund (the "Fund")
Institutional Class compared with a broad-based securities market index since
the Institutional Class' inception. The Russell 2000 Index is composed of the
2,000 smallest stocks in the Russell 3000 Index, a market weighted index of the
3,000 largest U.S. publicly traded companies. The Fund is professionally managed
while the Index is unmanaged and not available for investment.
[The following table was represented as a line chart in the printed material.]
IRONWOOD ISABELLE SMALL COMPANY STOCK
INVESTMENT VALUE REPORT
FUND INCEPTION (3/27/1998) TO 12/31/2006
INSTITUTIONAL RUSSELL2000
DATE LOAD LOAD
---------- ------------- -----------
3/27/1998 10,000 10,000
3/31/1998 9,970 10,074
6/30/1998 9,040 9,605
9/30/1998 6,120 7,670
12/31/1998 6,920 8,920
3/31/1999 6,690 8,437
6/30/1999 8,400 9,749
9/30/1999 8,270 9,132
12/31/1999 10,360 10,817
3/31/2000 11,920 11,583
6/30/2000 11,740 11,145
9/30/2000 12,100 11,268
12/31/2000 11,179 10,490
3/31/2001 11,854 9,807
6/30/2001 14,147 11,209
9/30/2001 10,042 8,879
12/31/2001 12,233 10,751
3/31/2002 13,850 11,179
6/30/2002 13,820 10,245
9/30/2002 9,950 8,053
12/31/2002 10,124 8,549
3/31/2003 8,548 8,165
6/30/2003 11,281 10,077
9/30/2003 12,182 10,992
12/31/2003 14,362 12,588
3/31/2004 15,130 13,376
6/30/2004 15,539 13,439
9/30/2004 14,577 13,055
12/31/2004 17,013 14,895
3/31/2005 16,092 14,100
6/30/2005 16,563 14,709
9/30/2005 17,679 15,399
12/31/2005 17,918 15,574
3/31/2006 21,457 17,744
6/30/2006 19,517 16,853
9/30/2006 19,748 16,927
12/31/2006 22,234 18,434
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE
DATA QUOTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
FOR THE MOST RECENT MONTH END PERFORMANCE, PLEASE CALL (800) 472-6114. THE
PERFORMANCE TABLE AND GRAPH DO NOT REFLECT THE DEDUCTION OF TAXES THAT A
SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
TOTAL RETURN FIGURES INCLUDE THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS.
SOME OF THE FUND'S FEES HAVE BEEN WAIVED OR EXPENSES REIMBURSED; OTHERWISE TOTAL
RETURN WOULD HAVE BEEN LOWER.
6
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
MARKET
SHARES SECURITY VALUE
------ -------- ------------
COMMON STOCK - 101.59%
CAPITAL GOODS - 2.15%
73,900 Williams Controls, Inc.+ $ 1,071,550
------------
CONSUMER CYCLICALS - 12.68%
58,600 4Kids Entertainment, Inc.+ 1,067,692
1,239,700 Danka Business Systems plc, ADR+ 1,685,992
84,000 Hooker Furniture Corp. 1,317,120
186,300 Sunterra Corp.+ 2,240,258
------------
6,311,062
------------
CONSUMER STAPLES - 2.91%
90,700 Chiquita Brands International, Inc. 1,448,479
------------
ENERGY - 2.97%
128,400 Petrohawk Energy Corp.+ 1,476,600
------------
FINANCIALS - 9.81%
18,400 Arch Capital Group, Ltd.+ 1,244,024
79,500 Eastern Insurance Holdings, Inc.+ 1,157,520
27,400 Hanover Insurance Group, Inc. 1,337,120
74,200 USI Holdings Corp.+ 1,139,712
------------
4,878,376
------------
HEALTH CARE - 15.34%
265,801 ARIAD Pharmaceuticals, Inc.+ 1,366,218
319,300 Durect Corp.+ 1,417,692
420,200 Novavax, Inc.+ 1,722,820
240,100 Sirna Therapeutics, Inc.+ 3,123,701
------------
7,630,431
------------
INDUSTRIALS - 3.06%
330,500 Proliance International, Inc.+ 1,520,300
------------
MATERIALS - 21.72%
35,500 AM Castle & Co. 903,475
129,700 Chemtura Corp. 1,249,011
344,600 ICO, Inc.+ 1,943,544
116,000 Material Sciences Corp.+ 1,501,040
78,200 Novagold Resources, Inc. + 1,341,912
75,900 Olin Corp. 1,253,868
The accompanying notes are an integral part of the financial statements.
7
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006 - (Continued)
MARKET
SHARES SECURITY VALUE
------ -------- ------------
MATERIALS - CONTINUED
264,000 Omnova Solutions, Inc.+ $ 1,209,120
187,300 PolyOne Corp.+ 1,404,750
------------
10,806,720
------------
OTHER - 5.15%
466,800 Westaff, Inc.+ 2,562,732
------------
TECHNOLOGY - 17.41%
263,900 ActivIdentity Corp.+ 1,337,973
23,200 Analogic Corp. 1,302,448
157,700 Cherokee International Corp.+ 630,800
180,300 InFocus Corp. + 481,401
368,000 Iomega Corp.+ 1,299,040
419,900 MagneTek, Inc.+ 2,372,435
728,644 SoftBrands, Inc.+ 1,238,695
------------
8,662,792
------------
TELECOMMUNICATION SERVICES - 2.66%
84,800 Broadwing Corp.+ 1,324,576
------------
UTILITIES - 5.73%
273,000 Aquila, Inc.+ 1,283,100
216,500 Dynegy, Inc. - Class A+ 1,567,460
------------
2,850,560
------------
TOTAL COMMON STOCK (COST $36,347,494) 50,544,178
------------
TOTAL INVESTMENTS (COST $36,347,494)* - 101.59% 50,544,178
------------
OTHER ASSETS NET OF LIABILITIES - (1.59%) (789,906)
------------
NET ASSETS - 100.00% $ 49,754,272
============
+ Non-income producing security.
ADR American Depositary Receipt.
* Cost for Federal income tax purposes is $37,125,780 and net unrealized
appreciation (depreciation) consists of:
Gross Unrealized Appreciation $ 14,045,521
Gross Unrealized Depreciation (627,123)
------------
Net Unrealized Appreciation $ 13,418,398
============
The accompanying notes are an integral part of the financial statements.
8
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006 - (Continued)
PORTFOLIO HOLDINGS
% OF TOTAL INVESTMENTS
[The following table was represented as a pie chart in the printed material.]
Utilities 5.64%
Capital Goods 2.12%
Consumer Cyclicals 12.48%
Consumer Staples 2.87%
Energy 2.92%
Financials 9.65%
Health Care 15.10%
Industrials 3.01%
Materials 21.38%
Other 5.07%
Technology 17.14%
Telecommunication Services 2.62%
The accompanying notes are an integral part of the financial statements.
9
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
ASSETS:
Investments in securities at market value
(cost $36,347,494) $ 50,544,178
Receivable for Fund shares sold 82,270
Interest and dividends receivable 4,312
Prepaid expenses 15,751
------------
TOTAL ASSETS 50,646,511
------------
LIABILITIES:
Due to custodian 704,450
Payable for Fund shares redeemed 62,243
Payable to adviser 5,859
Payable for trustees' fees and expenses 7,283
Other accrued expenses 112,404
------------
TOTAL LIABILITIES 892,239
------------
NET ASSETS $ 49,754,272
============
NET ASSETS CONSIST OF:
Paid-in capital 36,335,874
Accumulated net realized gain (loss) on investments (778,286)
Net unrealized appreciation (depreciation) of investments 14,196,684
------------
NET ASSETS $ 49,754,272
============
INVESTMENT CLASS SHARES:
Net Assets (unlimited shares of $0.001 par beneficial
interest authorized; 3,433,733 shares outstanding) $ 46,186,599
------------
Net asset value, offering and redemption price
per Investment Class Share $ 13.45
------------
INSTITUTIONAL CLASS SHARES:
Net Assets (unlimited shares of $0.001 par beneficial
interest authorized; 254,226 shares outstanding) $ 3,567,673
------------
Net asset value, offering and redemption price
per Institutional Class Share $ 14.03
------------
The accompanying notes are an integral part of the financial statements.
10
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
STATEMENT OF OPERATIONS
YEAR ENDED
DECEMBER 31, 2006
-----------------
INVESTMENT INCOME
Dividends $ 347,748
Interest 22,618
-----------
TOTAL INCOME 370,366
-----------
EXPENSES
Investment advisory fees 680,152
Administration fees 61,215
Transfer agent fees
Investment Class Shares 112,804
Institutional Class Shares 16,047
Distribution fees
Investment Class Shares 157,543
Accounting fees 59,483
Custodian fees 19,895
Professional fees 148,034
Registration fees 46,299
Trustees' fees and expenses 31,429
Compliance services fees 36,912
Miscellaneous fees 87,136
-----------
TOTAL EXPENSES 1,456,949
Fees waived and expenses reimbursed (177,315)
-----------
NET EXPENSES 1,279,634
-----------
NET INVESTMENT INCOME (LOSS) (909,268)
-----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 9,758,029
Net change in unrealized appreciation
(depreciation) of investments (1,733,844)
-----------
Net realized and unrealized gain (loss) on investments 8,024,185
-----------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 7,114,917
===========
The accompanying notes are an integral part of the financial statements.
11
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------- -----------------
OPERATIONS
Net investment income (loss) $ (909,268) $ (967,078)
Net realized gain (loss) on investments 9,758,029 10,819,514
Net increase from payment by affiliate
and other service provider -- 1,516
Net change in unrealized appreciation
(depreciation) of investments (1,733,844) (7,959,925)
------------ ------------
Increase (decrease) in net assets
------------ ------------
resulting from operations 7,114,917 1,894,027
DISTRIBUTIONS TO SHAREHOLDERS:
Net realized gains:
Investment Class (11,290,626) (8,672,721)
Institutional Class (848,162) (1,868,751)
------------ ------------
Total distributions to shareholders (12,138,788) (10,541,472)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares subscribed:
Investment Class 76,340,325 8,629,573
Institutional Class 1,251,221 904,948
Reinvestment of distributions:
Investment Class 11,021,168 8,463,918
Institutional Class 754,704 1,796,885
Redemption of shares:
Investment Class (85,552,148) (30,621,231)
Institutional Class (10,783,631) (4,798,274)
------------ ------------
Increase (Decrease) in net assets
from capital share transactions (a) (6,968,361) (15,624,181)
------------ ------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS (11,992,232) (24,271,626)
------------ ------------
NET ASSETS
Beginning of period 61,746,504 86,018,130
------------ ------------
End of period (including accumulated
net investment loss of $ - and
$ -, respectively) $ 49,754,272 $ 61,746,504
============ ============
The accompanying notes are an integral part of the financial statements.
12
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
STATEMENTS OF CHANGES IN NET ASSETS - (Continued)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------- -----------------
NET ASSETS (CONTINUED)
(a) Transactions in capital stock were:
Investment Class
Shares sold 4,685,871 547,778
Reinvestment of distributions 835,570 614,663
Shares redeemed (5,606,838) (1,986,988)
---------- ----------
Increase (Decrease) in shares outstanding (85,397) (824,547)
========== ==========
Institutional Class
Shares sold 75,280 58,268
Reinvestment of distributions 54,848 126,720
Shares redeemed (664,149) (310,541)
---------- ----------
Increase (Decrease) in shares outstanding (534,021) (125,553)
========== ==========
The accompanying notes are an integral part of the financial statements.
13
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for one share of capital stock
outstanding throughout each year or period indicated.
YEAR ENDED YEAR ENDED
INVESTMENT CLASS DECEMBER 31, 2006 DECEMBER 31, 2005
----------------- -----------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.26 $ 16.31
---------- ----------
Increase (decrease) from investment operations:
Net investment loss (0.21)* (0.23)*
Net realized and unrealized gains
(losses) on investments 3.51* 0.91*
---------- ----------
NET INCREASE (DECREASE)
FROM INVESTMENT OPERATIONS 3.30 0.68
---------- ----------
Less distributions from net realized gains (4.11) (2.73)
---------- ----------
NET ASSET VALUE, END OF PERIOD $ 13.45 $ 14.26
========== ==========
TOTAL RETURN** 23.68% 4.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s) $ 46,187 $ 50,171
Ratio of expenses to average net assets:
Before waivers and/or reimbursements 2.13% 2.04%
After waivers and/or reimbursements 1.90% 1.95%
Ratio of net investment income
(loss) to average net assets:
Before waivers and/or reimbursements (1.59)% (1.56)%
After waivers and/or reimbursements (1.35)% (1.47)%
Portfolio turnover rate 131.30% 65.68%
- ----------
* Calculated based on average shares outstanding during the period.
** Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of
the investment at the end of the period. Total return reflects performance
based on net operating expenses. During any period in which fees were
waived or expenses reimbursed, total return would have been lower if
expenses had not been reduced.
The accompanying notes are an integral part of the financial statements.
14
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
FINANCIAL HIGHLIGHTS - (Continued)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003 DECEMBER 31, 2002
- ----------------- ----------------- -----------------
$ 13.80 $ 9.76 $ 11.82
---------- ---------- ----------
(0.19)* (0.13)* (0.14)
2.70* 4.17* (1.92)
---------- ---------- ----------
2.51 4.04 (2.06)
---------- ---------- ----------
-- -- --
---------- ---------- ----------
$ 16.31 $ 13.80 $ 9.76
========== ========== ==========
18.12% 41.39% (17.43)%
$ 70,825 $ 67,983 $ 64,552
1.89% 1.94% 1.80%
1.86% 1.88% 1.71%
(1.38)% (1.32)% (1.17)%
(1.35)% (1.26)% (1.08)%
90.58% 51.70% 50.41%
The accompanying notes are an integral part of the financial statements.
15
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for one share of capital stock
outstanding throughout each year or period indicated.
YEAR ENDED YEAR ENDED
INSTITUTIONAL CLASS DECEMBER 31, 2006 DECEMBER 31, 2005
- ------------------- ----------------- -----------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.68 $ 16.63
---------- ----------
Increase (decrease) from investment operations:
Net investment loss (0.18)* (0.20)*
Net realized and unrealized gains
(losses) on investments 3.64* 0.98*
---------- ----------
NET INCREASE (DECREASE)
FROM INVESTMENT OPERATIONS 3.46 0.78
---------- ----------
Less distributions from net realized gains (4.11) (2.73)
---------- ----------
NET ASSET VALUE, END OF PERIOD $ 14.03 $ 14.68
========== ==========
TOTAL RETURN** 24.09% 5.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s) $ 3,568 $ 11,576
Ratio of expenses to average net assets:
Before waivers and/or reimbursements 2.27% 1.81%
After waivers and/or reimbursements 1.69% 1.70%
Ratio of net investment income
(loss) to average net assets:
Before waivers and/or reimbursements (1.73)% (1.35)%
After waivers and/or reimbursements (1.15)% (1.24)%
Portfolio turnover rate 131.30% 65.68%
- ----------
* Calculated based on average shares outstanding during the period.
** Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of
the investment at the end of the period. Total return reflects performance
based on net operating expenses. During any period in which fees were
waived or expenses reimbursed, total return would have been lower if
expenses had not been reduced.
The accompanying notes are an integral part of the financial statements.
16
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
FINANCIAL HIGHLIGHTS - (Continued)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003 DECEMBER 31, 2002
- ----------------- ----------------- -----------------
$ 14.03 $ 9.89 $ 11.95
---------- ---------- ----------
(0.16)* (0.10)* (0.11)
2.76* 4.24* (1.95)
---------- ---------- ----------
2.60 4.14 (2.06)
---------- ---------- ----------
-- -- --
---------- ---------- ----------
$ 16.63 $ 14.03 $ 9.89
========== ========== ==========
18.46% 41.86% (17.24)%
$ 15,193 $ 18,253 $ 20,920
1.63% 1.61% 1.49%
1.61% 1.55% 1.44%
(1.12)% (0.98)% (0.86)%
(1.10)% (0.93)% (0.82)%
90.58% 51.70% 50.41%
The accompanying notes are an integral part of the financial statements.
17
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Ironwood Isabelle Small Company Stock Fund (formerly known as ICM/Isabelle Small
Cap Value Fund) (the "Fund") is a series of Ironwood Series Trust (formerly
known as ICM Series Trust) (the "Trust"), which was organized as a Massachusetts
business trust pursuant to a Declaration of Trust dated November 18, 1997. The
Trust is registered under the Investment Company Act of 1940, as amended (the
"1940 Act"). The Fund offers two classes of shares, Investment Shares and
Institutional Shares (collectively, the "Shares"), each of which has equal
rights as to class and voting privileges. The Investment Shares have exclusive
voting rights with respect to its distribution plan pursuant to Rule 12b-1 under
the 1940 Act ("12b-1 Plan") and are subject to 12b-1 Plan expenses. The Fund
commenced operations on March 9, 1998 (March 27, 1998 for the Institutional
Shares). The investment objective of the Fund is to seek capital appreciation by
investing its assets primarily in relatively undervalued common stocks of
domestic small companies. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with accounting principles generally
accepted in the United States of America for investment companies.
A. SECURITY VALUATION. Exchange traded securities and over-the-counter
securities listed on the NASDAQ National Market System for which market
quotations are readily available are valued using the last reported sales
price or the NASDAQ Official Closing Price ("NOCP"), provided by
independent pricing services as of the close of trading on the New York
Stock Exchange (normally 4:00 p.m. Eastern time), on each Fund business
day. In the absence of a sale or NOCP, such securities are valued at the
mean of the last bid and asked price. Non-exchange traded securities for
which quotations are available are generally valued at the mean between
the current bid and asked prices. Money market instruments that mature in
sixty days or less may be valued at amortized cost.
18
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 - (Continued)
The Fund values securities at fair value pursuant to procedures adopted by
the Trust's Board of Trustees (the "Board") if (1) market quotations are
insufficient or not readily available; or (2) the Adviser believes that
the prices or values available are unreliable. Fair valuation is based on
subjective factors and as a result, the fair value price of an asset may
differ from the asset's market price and may not be the price at which the
asset may be sold. Fair valuation could result in a different net asset
value ("NAV") than a NAV determined by using market quotes.
B. INVESTMENT INCOME AND SECURITIES TRANSACTIONS. Securities transactions
are accounted for on the date the securities are purchased or sold (trade
date). Cost is determined and gains and losses are based on the identified
cost basis for both financial statement and federal income tax purposes.
Dividend income is accrued and reported on the ex-dividend date. Interest
income and expenses are accrued daily.
C. NET ASSET VALUE PER SHARE. Net Asset value per share of each class of
shares of the Fund is determined daily as of the close of trading on the
New York Stock Exchange by dividing the value of the total assets, less
liabilities attributable to that class, by the number of outstanding
shares of that class. The net asset value of the classes may differ
because of different fees and expenses charged to each class.
D. FEDERAL INCOME TAXES. The Fund intends to continue to qualify each year
as a regulated investment company by complying with all requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies including, among other things, distributing
substantially all of its earnings to its shareholders. Therefore, no
federal income tax provision is required. The characterization of
distributions to shareholders for financial reporting purposes is
determined in accordance with federal income tax rules.
For the fiscal year ended December 31, 2006, the Fund reclassified
$909,268 to increase net investment income (loss), $398,091 to increase
accumulated net realized loss on investments and $511,177
19
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 - (Continued)
to decrease paid-in-capital. The reclassification has no impact on the net
asset value of the Fund and is primarily due to net operating losses.
As of December 31, 2006, distributable earnings on a tax basis were as
follows:
Unrealized Appreciation (Depreciation) $ 13,418,398
The tax character of distributions paid during 2006 and 2005 were as
follows:
2006 2005
----------- -----------
Ordinary Income $ 396,930 $ 4,097
Long-Term Capital Gain 11,741,585 10,537,375
----------- -----------
Total $12,138,515 $10,541,472
=========== ===========
E. INCOME AND EXPENSES. Expenses directly attributable to a particular
class are charged directly to such class. In calculating net asset value
per share of each class, investment income, realized and unrealized gains
and losses and expenses, other than class specific expenses, are allocated
daily to each class of shares based on the proportion of net assets of
each class at the beginning of that day.
F. REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements.
The Fund will require the financial institution with which the Fund enters
into a repurchase agreement to maintain collateral at all times with a
value equal to the amount the Fund paid for the securities. In the event
of default, the Fund may have difficulties with the disposition of any
securities held as collateral.
G. DISTRIBUTIONS TO SHAREHOLDERS. The Fund will distribute substantially
all of its net investment income and capital gains, if any, at least
annually. Distributions to shareholders are recorded on the ex-dividend
date. Income and capital gain distributions are determined in accordance
with income tax regulations, which may differ from accounting principles
generally accepted in the United States of America.
20
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 - (Continued)
H. NEW ACCOUNTING PRONOUNCEMENTS. In June 2006, Financial Accounting
Standards Board issued Financial Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (the "Interpretation") which is effective for
fiscal years beginning after December 15, 2006 and is to be applied to all
open tax years no later than June 30, 2007. This Interpretation prescribes
a minimum threshold for financial statement recognition of the benefit of
a tax position taken or expected to be taken in a tax return, and requires
certain expanded disclosures. Management has recently begun to evaluate
the application of the Interpretation to the Fund, and has not at this
time determined the impact, if any, resulting from the adoption of this
Interpretation on the Fund's financial statements.
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157 "Fair Value Measurements" ("SFAS 157") which is
effective for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. SFAS 157 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value
measurements. Management has recently begun to evaluate the application of
SFAS 157, and has not at this time determined the impact, if any,
resulting from its adoption on the Fund's financial statements.
In September 2006, the SEC issued Staff Accounting Bulletin 108,
CONSIDERING THE EFFECTS OF PRIOR YEAR MISSTATEMENTS WHEN QUANTIFYING
MISSTATEMENTS IN CURRENT YEAR FINANCIAL STATEMENTS ("SAB 108"). SAB 108
provides interpretive guidance on how the effects of the carryover or
reversal of prior year financial statement misstatements should be
considered in quantifying a current year misstatement. SAB 108 is
effective for financial statements covering the first fiscal year ending
after November 15, 2006. There was no material impact of the Fund's
adoption of SAB 108 on it financial condition or results of operation.
21
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 - (Continued)
I. USE OF ESTIMATES. In preparing financial statements in conformity with
accounting principles generally accepted in the United States of America,
management makes estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements,
as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term investments, aggregated
$84,511,790 and $99,780,338, respectively, for the fiscal year ended December
31, 2006.
NOTE 3 - ADVISORY FEES, SERVICING FEES, AND OTHER TRANSACTIONS WITH
RELATED PARTIES
INVESTMENT ADVISER - Ironwood Investment Management, LLC (formerly known as
Ironwood Capital Management, LLC) ("Ironwood") serves as the investment adviser
for the Fund pursuant to an investment advisory agreement (the "Agreement").
Under the terms of the Agreement, Ironwood receives an investment advisory fee
from the Fund, accrued daily and paid monthly, at an annual rate of 1.00% of the
average daily net assets of the Fund. Pursuant to the terms of the Agreement,
Ironwood is obligated for as long as the Agreement remains in effect, to limit
total annual Fund operating expenses to 1.95% of the average daily net assets
annually for the Investment Shares and 1.70% of the average daily net assets
annually for the Institutional Shares, and to waive such fees and reimburse
expenses to the extent that they exceed these amounts. For the fiscal year ended
December 31, 2006, advisory fees of $151,586 were waived by Ironwood.
INVESTMENT ADVISORY CONTRACT APPROVAL - On January 24, 2006, Ironwood
consummated a transaction (the "Transaction") with MB Investment Partners, Inc.
and MB Investment Partners and Associates LLC ("MBIPA"), pursuant to which MBIPA
acquired Ironwood. The
22
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 - (Continued)
Transaction resulted in a change in control of Ironwood and an assignment and
automatic termination of the Investment Advisory Agreement between Ironwood and
the Trust, on behalf of the Fund (the "Agreement"), pursuant to the terms of the
Agreement. On October 17, 2005, the Trust's Board of Trustees (the "Board")
approved an Interim Investment Advisory Agreement between the Trust, on behalf
of the Fund, and Ironwood (the "Interim Agreement"). The Interim Agreement
became effective upon closing of the Transaction and remained in effect until
April 18, 2006, at which time the Fund's shareholders approved, at a special
meeting, a new investment advisory agreement for a term of two years (the "New
Agreement," and, collectively with the Interim Agreement and the Agreement, the
"Advisory Agreements") between Ironwood and the Trust, on behalf of the Fund,
also approved by the Board on October 17, 2005. The terms, including without
limitation the advisory fee, of each of the Advisory Agreements, are the same in
all material respects, except with respect to those terms related to duration of
each Advisory Agreement, and execution and termination dates. The basis of the
Board's approval of both the Interim Agreement and New Agreement is set forth in
the Fund's Annual Report dated December 31, 2005.
ADMINISTRATION AND OTHER SERVICES - Citigroup Fund Services, LLC, ("Citigroup")
provides administration, portfolio accounting and transfer agency services to
the Fund.
In addition, the Fund has entered into separate service and operating agreements
with Charles Schwab & Co., Inc. ("Schwab") and Fidelity Capital Markets ("FCM"),
whereby Schwab and FCM make shares of the Fund available to their clients in
exchange for a servicing fee. These fees are included as part of the Transfer
Agency fees on the statement of operations. For the fiscal year ended December
31, 2006, the Fund was reimbursed expenses of $23,716 by FCM.
The custodian, Fifth Third Bank (the "Custodian"), has agreed to compensate the
Fund and decrease custody fees for interest on any cash balances left
uninvested. For the fiscal year ended December 31, 2006, the Fund was reimbursed
expenses of $2,013 by the Custodian.
23
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 - (Continued)
DISTRIBUTOR - Foreside Fund Services, LLC is the Fund's distributor (the
"Distributor"). The Distributor is not affiliated with the Adviser, Citigroup or
its affiliated companies. The Distributor receives no compensation from the Fund
for its distribution services.
Under a Compliance Services Agreement with the Fund, the Distributor provided a
Chief Compliance Officer to the Fund as well as certain additional compliance
support functions ("Compliance Services") during the fiscal year ended December
31, 2006. Since February 22, 2007, the Compliance Services have been provided by
Foreside Compliance Services, LLC ("FCS"), an affiliate of the Distributor,
pursuant to a Compliance Services Agreement between Citigroup and the Fund.
Neither the Distributor nor Citigroup has any role in determining the investment
policies or which securities are to be purchased or sold by the Fund.
No Trustee, officer or employee of Ironwood, or Citigroup, or any affiliate
thereof, receives any compensation from the Trust for serving as a Trustee or
officer of the Trust. Disinterested trustees received $31,429 in compensation
from the Trust during fiscal year 2006.
NOTE 4 - LINE OF CREDIT
The Fund has entered into a line of credit agreement with the Custodian to be
used for temporary purposes, primarily for financing redemptions. The agreement
provides that the Fund may borrow up to $5,000,000. The aggregate outstanding
principal amount of all loans may not exceed $5,000,000. Interest is charged to
the Fund, based on its borrowings, at a rate equal to the rate of interest on
overnight facilities which the Custodian is offering to other borrowers and
potential borrowers of comparable financial condition on the business day that a
loan is made pursuant to the agreement.
During the fiscal year ended December 31, 2006, the Fund was charged $19,522
from borrowings under the line of credit. As of December 31, 2006, the Fund had
no loans outstanding under the line of credit.
24
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 - (Continued)
NOTE 5 - DISTRIBUTION PLAN
The Trustees of the Fund have adopted a 12b-1 Plan with respect to the
Investment Shares pursuant to Section 12(b) of the 1940 Act and Rule 12b-1
thereunder, which permits the Fund to pay certain expenses associated with the
distribution of its Investment Shares. Under the 12b-1 Plan, the Fund
compensates the Distributor, at a fee calculated at an annual rate of up to
0.25% of the value of the average annual net assets attributable to the
Investment Shares for distribution expenses borne, or paid to others, by the
Distributor. For the fiscal year ended December 31, 2006, the Fund incurred
$157,543 in distribution costs for Investment Shares.
NOTE 6 - PAYMENTS BY AFFILIATE & OTHER SERVICE PROVIDER
For the year ended December 31, 2005, Citigroup reimbursed the Fund to offset an
accounting error. As a result, the Fund reimbursed the shareholders who placed
trades during the re-evaluation period. In order to compensate the Fund for the
overstated number of shares issued to subscribing shareholders during the
re-evaluation period, Citigroup reimbursed the Fund for the dollar value of
these shares. This amount is reflected as payment by other service provider on
the Statements of Changes in Net Assets. This payment had no effect on the total
return of the Fund.
NOTE 7 - OTHER INFORMATION
On December 31, 2006, 2 shareholders held approximately 48% of the outstanding
shares of the Fund. These shareholders are omnibus accounts, which are held on
behalf of several individual shareholders.
25
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
of the Ironwood Series Trust:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the Ironwood Isabelle Small Company Stock Fund,
a series of the Ironwood Series Trust (the "Fund"), as of December 31, 2006, and
the related statements of operations, and changes in net assets for each of the
two years in the period then ended and the financial highlights for each of the
two years in the period then ended. The financial highlights for the three years
ended December 31, 2004 were audited by another independent registered public
accounting firm whose report dated February 17, 2005 expressed an unqualified
opinion on those statements. 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 audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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. The Fund
is not required to have, nor were we engaged to perform an audit of the Fund's
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. Our procedures
included confirmation
26
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
of securities owned as of December 31, 2006, by correspondence with the
custodian and brokers. We believe that our audits provide 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 the
Ironwood Isabelle Small Company Stock Fund as of December 31, 2006, the results
of its operations, changes in net assets and financial highlights for each of
the two years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.
Grant Thornton LLP
Boston, Massachusetts
February 6, 2007
27
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
ADDITIONAL INFORMATION
DECEMBER 31, 2006 - (Unaudited)
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to securities held in the Fund's portfolio is
available, without charge and upon request, by calling (800) 472-6114 and on the
SEC's website at www.sec.gov. The Fund's proxy voting record for the most recent
twelve-month period ended June 30, is available, without charge and upon
request, by calling (800) 472-6114, on the Fund's website www.ironwoodfunds.com
and on the SEC's website at www.sec.gov.
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available, without charge and upon request, on the SEC's website at
www.sec.gov. or may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) SEC-0330.
SHAREHOLDER EXPENSES
As a shareholder of the Fund, you incur ongoing costs, including management
fees, distribution fees with respect to Investment Shares and other Fund
expenses. This example is intended to help you understand these ongoing costs
(in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The following example is based on $1,000 invested at the beginning of the period
and held for the entire period from July 1, 2006 through December 31, 2006.
ACTUAL EXPENSES - The first line of the table below provides information about
actual account values and actual expenses. You may use the information in this
line, together with the amount you invested, to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000
28
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
ADDITIONAL INFORMATION
DECEMBER 31, 2006 - (Unaudited), (Continued)
= 8.6), then multiply the result by the number in the first line under the
heading "Expenses Paid During Period" to estimate the expenses you paid on your
account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES - The second line of the table
provides information about hypothetical account values and hypothetical expenses
based on the Fund's actual expense ratio and an assumed rate of return of 5% per
year before expenses, which is not the Fund's actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing cost of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight your ongoing
costs only and do not reflect any transactional costs. Therefore, the second
line of the table is useful in comparing ongoing costs only, and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs had been included, your costs would have been
higher.
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING
JULY 1, 2006 DECEMBER 31, 2006 PERIOD*
------------- ----------------- -----------
Investment Shares
Actual Return $1,000.00 $1,137.86 $10.40
Hypothetical Return $1,000.00 $1,015.48 $ 9.80
Institutional Shares
Actual Return $1,000.00 $1,139.24 $ 9.17
Hypothetical Return $1,000.00 $1,016.64 $ 8.64
- ----------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIOS OF 1.93%
AND 1.70% FOR INVESTMENT SHARES AND INSTITUTIONAL SHARES,
RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE
PERIOD, MULTIPLIED BY THE NUMBER OF DAYS IN MOST RECENT FISCAL
HALF-YEAR/365 (TO REFLECT THE HALF-YEAR PERIOD).
29
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
ADDITIONAL INFORMATION
DECEMBER 31, 2006 - (Unaudited), (Continued)
FEDERAL TAX STATUS OF DIVIDENDS DECLARED DURING THE TAX YEAR
INCOME DIVIDENDS - All the income and any short-term capital gain dividends paid
by the Fund were ordinary income for federal income tax purposes. The Fund
designates 43.00% of its income dividend distributed as qualifying for the
corporate dividends-received deduction (DRD) and 42.61% for the qualified
dividend rate (QDI) as defined in Section 1(h)(11) of the Internal Revenue Code.
The Fund also designates 100% as qualified short-term capital gain dividends
exempt from U.S. tax for foreign shareholders (QSD).
CAPITAL GAIN DIVIDENDS - The Fund paid long-term capital gain dividends of
$11,741,858 for the tax year ended December 31, 2006.
30
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
FUND TRUSTEE AND OFFICERS
DECEMBER 31, 2006 - (Unaudited)
LENGTH PRINCIPAL OCCUPATION(S)
NAME, ADDRESS POSITION(S) OF TIME DURING THE PAST
AND DATE OF BIRTH WITH THE TRUST SERVED(1) FIVE YEARS
- --------------------------------------------------------------------------------
INTERESTED TRUSTEES
- --------------------------------------------------------------------------------
WARREN J. Trustee, March Chief Investment Officer,
ISABELLE, CFA(2) President and 1998 to Ironwood Investment
Ironwood Investment Chairman of Present Management, LLC, August
Management, LLC the Board, 1997 to present. Managing
21 Custom House Street Valuation Member, Ironwood
Suite 240 Committee Investment Management,
Boston, MA 02110 (member) LLC, August 1997 to
Born: January 1952 January 2006.
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
DONALD A. Trustee, Audit March Associate Professor,
NELSON, CPA Committee, 1998 to Department of Accounting
c/o Ironwood Nominating Present and Finance, Merrimack
Series Trust Committee, College, 1975 to present;
Two Portland Square Valuation Certified Public
Portland, ME 04101 Committee Accountant, 1972 to
Born: February 1946 and Qualified present.
Legal
Compliance
Committee
(member)
31
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
FUND TRUSTEE AND OFFICERS
DECEMBER 31, 2006 - (Unaudited), (Continued)
LENGTH PRINCIPAL OCCUPATION(S)
NAME, ADDRESS POSITION(S) OF TIME DURING THE PAST
AND DATE OF BIRTH WITH THE TRUST SERVED(1) FIVE YEARS
- --------------------------------------------------------------------------------
JOHN A. FIFFY Trustee, March Acquisition Consultant,
c/o Ironwood Audit 1998 to Hewlett Packard Co.
Series Trust Committee, Present (a computer hardware
Two Portland Square Nominating company), 1993 to present.
Portland, ME 04101 Committee,
Born: December 1950 Valuation
Committee
and Qualified
Legal
Compliance
Committee
(member)
- --------------------------------------------------------------------------------
THOMAS R. Trustee, May President & CEO, Benjamin
VENABLES Audit 2003 to Franklin Bank, 2002 to
c/o Ironwood Committee, Present present; Self-employed
Series Trust Nominating Business Consultant, 2001
Two Portland Square Committee, to 2002; President & CEO,
Portland, ME 04101 Valuation Lighthouse Bank, 2000 to
Born: April 1955 Committee 2001.
and Qualified
Legal
Compliance
Committee
(member)
32
IRONWOOD ISABELLE SMALL COMPANY STOCK FUND
FUND TRUSTEE AND OFFICERS
DECEMBER 31, 2006 - (Unaudited), (Continued)
LENGTH PRINCIPAL OCCUPATION(S)
NAME, ADDRESS POSITION(S) OF TIME DURING THE PAST
AND DATE OF BIRTH WITH THE TRUST SERVED(1) FIVE YEARS
- --------------------------------------------------------------------------------
OFFICERS
- --------------------------------------------------------------------------------
GARY S. SAKS Vice- March Chief Financial Officer,
Ironwood Investment President, 1998 to Ironwood Investment
Management, LLC Secretary, Present Management, LLC, August
21 Custom House Street Treasurer and 1997 to present. Chief
Suite 240 Chief Operating Officer,
Boston, MA 02110 Financial Ironwood Investment
Born: May 1968 Officer Management, LLC, August
1997 to January 2006.
- ----------
(1) Term of service is indefinite.
(2) Mr. Isabelle owns a minority interest in MB Investment Partners &
Associates, LLC the parent company of Ironwood Investment Management, LLC
("Ironwood" or the "Adviser") and is the portfolio manager of the Fund.
EACH TRUSTEE OVERSEES THE FUND, WHICH IS THE ONLY PORTFOLIO WITHIN THE COMPLEX.
NO TRUSTEE HOLDS OTHER DIRECTORSHIPS OR TRUSTEESHIPS. THE STATEMENT OF
ADDITIONAL INFORMATION ("SAI") CONTAINS ADDITIONAL INFORMATION ABOUT THE FUND'S
TRUSTEES. THE SAI IS AVAILABLE FOR FREE, UPON REQUEST BY CONTACTING THE FUND AT
(800) 472-6114.
33
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IRONWOOD INVESTMENT MANAGEMENT, LLC
AND IRONWOOD FUNDS
THE IRONWOOD TREE
is a small, hardy tree, which yields a very useful and solid wood. Patiently,
these trees remain under the forest canopy until taller neighbors fall.
Once given the opportunity, the Ironwood grows quickly
to reach its full potential. We believe this imagery is appropriate
for our firm as well as our investment style.
IRONWOOD INVESTMENT MANAGEMENT, LLC,
the investment manager of the Ironwood Isabelle Small Company
Stock Fund, is an independent investment management firm specializing
in investing in small company stocks.
Ironwood Series Trust
Two Portland Square
Portland, ME 04101
1-800-472-6114
DISTRIBUTOR
Foreside Fund Services, LLC
Two Portland Square, 1st Floor
Portland, ME 04101
www.foresides.com
- --------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless
preceded or accompanied by an effective prospectus, which includes informa- tion
regarding the Fund's risks, objectives, fees and expenses, experience of its
management, and other information.
There are risks associated with investing in funds of this type that invest in
stocks of small-sized companies, which tend to be more volatile and less liquid
than stocks of larger companies. Past Fund performance is not indicative of
future results.
FOR ACCOUNT INFORMATION, CURRENT PERFORMANCE AND PRICES, CALL 1-800-472-6114
BETWEEN THE HOURS OF 9:00 A.M. AND 5:00 P.M. (EASTERN TIME), MONDAY THROUGH
FRIDAY.
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, Ironwood Series Trust (the
"Registrant") has adopted a code of ethics, as defined in Item 2 of Form N-CSR,
that applies to its President and Treasurer. A copy of the code of ethics is
filed as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Mr. Donald A. Nelson has been approved as the "Audit Committee financial
expert." The Board of Trustees of the Registrant has determined that he is
"independent" for purposes of this item.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees - The aggregate fees billed for each of the last two fiscal
years (the "Reporting Periods") for professional services rendered by
the Registrant's principal accountant for the audit of the
Registrant's annual financial statements, or services that are
normally provided by the principal accountant in connection with the
statutory and regulatory filings or engagements for the Reporting
Periods, were $20,000 in 2005 and $25,125 in 2006.
(b) Audit-Related Fees - The aggregate fees billed in the Reporting
Periods for assurance and related services rendered by the principal
accountant that were reasonably related to the performance of the
audit of the Registrant's financial statements and are not reported
under paragraph (a) of this Item 4 were $0 in 2005 and $0 in 2006.
(c) Tax Fees - The aggregate fees billed in the Reporting Periods for
professional services rendered by the principal accountant to the
Registrant for tax compliance, tax advice and tax planning ("Tax
Services") were $2,500 in 2005 and $2,800 in 2006. These services
consisted of review or preparation of U.S. federal, state, local and
excise tax returns.
(d) Other Fees - There were no other fees billed in the Reporting Periods
for products and services provided to the Registrant by the principal
accountant, other than the services reported above.
(e) (1) Pursuant to the Registrant's Audit Committee Charter (the
"Charter"), before an auditor is engaged by the Registrant to render
audit services, the Audit Committee must review and approve the
engagement. In addition, the Registrant's Audit Committee must review
and approve in advance any proposal that the Registrant employ its
auditor to render "permissible non-audit services" (as defined in the
Charter consistent with Rule 2-01(c)(4) of Regulation S-X), except as
described below. The Committee must also review and approve in advance
any proposal (except as set forth below) that the investment adviser,
and any entity controlling, controlled by, or under common control
with the adviser that provides ongoing services to the Registrant (an
"Adviser-affiliated service provider"), employ the Registrant's
auditor to render non-audit services, if the engagement would relate
directly to the operations and financial reporting of the Registrant.
As a part of its review, the Committee must consider whether the
provision of such services is consistent with the auditor's
independence. Pre-approval by the Committee of non-audit services is
not required if: (1) (A) with respect to the Registrant, the aggregate
amount of all such permissible non-audit services provided to the
Registrant constitutes no more than 5% of the total amount of revenues
paid to the auditor by the Registrant during the fiscal year in which
the services are provided or (B) with respect to the adviser and any
Adviser-affiliated service provider, the aggregate amount of all such
non-audit services provided constitutes no more than 5% of the total
amount of revenues (of the type that would have to be pre-approved by
the Committee) paid to the auditor by the Registrant, the Adviser and
any Adviser-affiliated service provider during the fiscal year in
which the services are provided; (2) such services were not recognized
by the Registrant at the time of the engagement to be non-audit
services; and (3) such services are promptly brought to the attention
of the Committee and approved prior to the completion of the audit by
the Committee or its Delegate(s) (as defined below). The Committee may
delegate to one or more of its members ("Delegates") authority to
pre-approve the auditor's provision of audit services or permissible
non-audit services to the Registrant, or the provision of
non-audit services to the Adviser or any Adviser-affiliated service
provider. Any pre-approval determination made by a Delegate shall be
presented to the full Committee at its next meeting. The Committee
shall communicate any pre-approval made by it or a Delegate to
Registrant's fund administrator, who will ensure that the appropriate
disclosure is made in the Registrant's periodic reports and other
documents as required under the federal securities laws.
(e) (2) No services included in (b) - (d) above were approved pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable as less than 50%.
(g) The aggregate non-audit fees billed by the principal accountant for
services rendered to the Registrant for the Reporting Periods were
$2,500 in 2005 and $2,800 in 2006. There were no fees billed in each
of the Reporting Periods for non-audit services rendered by the
principal accountant to the investment adviser.
(h) The Registrant's Audit Committee has considered whether the provision
of any non-audit services rendered to the investment adviser, to the
extent applicable, that were not pre-approved (not requiring
pre-approval) is compatible with maintaining the Auditor's
independence. Any services provided by the principal accountant to the
Registrant or to the investment adviser requiring pre-approval were
pre-approved as required.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 11. CONTROLS AND PROCEDURES
(a) The registrant's President and Treasurer have concluded that the
registrant's disclosure controls and procedures (as defined in rule
30a-3(c) under the Investment Company Act of 1940 (the "Act")) are
effective, based on their evaluation of these disclosure controls and
procedures required by Rule 30a-3(b) as of a date within 90 days of
the filing date of this report.
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in rule 30a-3(d) under the Act) that
occurred during the registrant's last fiscal quarter that have
materially affected, or are reasonably likely to materially affect,
the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics (Exhibit filed herewith).
(a)(2) Certifications pursuant to Rule 30a-2(a) of the Investment Company Act of
1940 as amended, and Section 302 of the Sarbanes-Oxley Act of 2002 (Exhibit
filed herewith).
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) of the Investment Company Act of
1940, as amended, and Section 906 of the Sarbanes-Oxley Act of 2002 (Exhibit
filed herewith).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant Ironwood Series Trust
By /s/ Warren J. Isabelle
------------------------------
Warren J. Isabelle, President
Date March 8, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ Warren J. Isabelle
------------------------------
Warren J. Isabelle, President
Date March 8, 2007
By /s/ Gary S. Saks
-----------------------------
Gary S. Saks, Treasurer
Date March 8, 2007