As filed with the Securities and Exchange Commission on March 7, 2005
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
ICM 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, 2004
Date of reporting period: JANUARY 1, 2004 - DECEMBER 31, 2004
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, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORT TO STOCKHOLDERS.
ICM FUNDS LOCO
ICM SERIES TRUST
------------------
ICM/ISABELLE SMALL CAP
VALUE FUND
Annual Report
December 31, 2004
ICM/ISABELLE
SMALL CAP VALUE FUND
TABLE OF CONTENTS
SHAREHOLDER LETTER ..................................................... 1
PORTFOLIO OF INVESTMENTS ............................................... 9
STATEMENT OF ASSETS AND LIABILITIES .................................... 13
STATEMENT OF OPERATIONS ................................................ 14
STATEMENTS OF CHANGES IN NET ASSETS .................................... 15
FINANCIAL HIGHLIGHTS ................................................... 16
NOTES TO FINANCIAL STATEMENTS .......................................... 20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ................ 26
ADDITIONAL INFORMATION ................................................. 27
FUND TRUSTEES AND OFFICERS ............................................. 29
SHAREHOLDER LETTER
Dear Shareholder:
Each year at about this time, we take the opportunity to communicate with you,
our shareholders, on the progress of the ICM/Isabelle Small Cap Value Fund's
(the "Fund") progress over the past year. While some correspondences are
prepared in cookie-cutter form and may read like a clinical report, it is my
desire to not only recite events, account for performance, and offer a view to
the future, but to also provide some insight into how we, as the investment
adviser to the Fund, are thinking, what challenges we have faced and how we have
handled them, and most importantly what we are doing to improve.
For the full year, your Fund returned 18.12%, performing just about on par with
the Russell 2000 Small Cap Index, which provided a total return of 18.33%, and
very favorably compared to the Standard & Poor's 500 Index, which gained 10.87%.
You will also be pleased to learn that your gains did not create any taxable
distribution. For a longer-term perspective, the Fund's 5-year and since
inception (3/9/98) average annual returns were 10.07% and 7.81% respectively.
(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 1-800-472-6114.)
In contrast to several of those prior to it, last year was more NORMAL, at least
in some respects. The economy finally mounted what seems to be a sustained
recovery, one of surprising strength. Notably, small caps outpaced their mid and
larger sized brethren by a sizable margin, as illustrated above by the large
disparity in returns between the S&P 500 and the Russell 2000 indices, some
7.46%.
The odd thing about all of this is that the economy grew as dramatically as it
did in the face of continued conflict in the Middle East, exploding energy and
commodity prices, and a sharply escalating budget deficit. Moreover, interest
rates remained historically low, even as the dollar continued to fall. Taken
together these trends seem incredible, confounding more than one EXPERT.
1
All of these circumstances cannot continue to happily coexist, but to predict
anything other than interest rates eventually having to rise and rise
significantly would be dangerous on our part as the recent history we have just
described would suggest.
It has been said, with increasing volume, that because small caps have
outperformed for each of the past five years, any undervaluation in them has
been more than made up for, to the point that small caps are just plain
expensive and therefore large caps will take center stage. We do not know
whether that will in fact occur, but we would offer that IN GENERAL, domestic
stocks are richly valued. This would, in turn, suggest that any rise in interest
rates and/or any slowdown in the economy would cause valuations to suffer.
However, there are some underlying trends that have finally begun to take hold
and will, we believe, continue to cycle upward for the foreseeable future.
Stocks that are sensitive to these trends have heretofore performed poorly, and
we have taken some lumps for owning a good number of them, but the worm has
turned so to speak, and we are now benefiting from those holdings in no small
measure and should continue to do so.
Every year we take pains to point out what is different about your Fund from the
perspective of portfolio construction. Unlike most funds, which tend to hug more
or less tightly to sector weightings relative to some index, we build the
portfolio one stock at time. If we are doing our homework with sufficient effort
and diligence, and adhere strictly to the philosophy of looking for economic
value that is unrecognized and selling after it has been recognized, it stands
to reason that we ought to fare reasonably well even if the AVERAGE STOCK is
overvalued. Regardless of the times, there are always attractive undervalued
situations to be found by the patient investor.
We feel that because of our valuation philosophy and somewhat contrary approach
to stock selection, we have, over the past few years, added and built positions
in exactly the kind of companies that would offer the great long term potential
we are seeking. Many of these holdings, however, are dependent on a particular
business or economic cycle, or are turn-around situations that require a
catalyst to make them viable. Until recently these ideas have not contributed
consistently, as the general economy has gone through a number of false starts.
That has all changed for the better as the trends we alluded to are now, in our
estimation, firmly in place.
2
Our holdings in basic industries, such as chemicals, metals, and paper, are a
cases in point. These industries suffered long and rather deep cyclical troughs
plagued by falling demand, high levels of debt, and continued pricing pressure
caused by globalization and overcapacity. Certain companies like Crompton
Corporation (NYSE: CK), a specialty chemical manufacturer, and PolyOne
Corporation (NYSE: POL), a distributor and manufacturer of plastics, struggled
through this period, perhaps more so since they were both products of multiple
mergers which concluded just as the downturn began. By hunkering down, though,
they were able to sell selected assets, rationalize their excess capacity, and
block and tackle operationally. Leaner and far more efficient, they positioned
themselves for the eventual turn in the cycle, and while the interim was very
painful, the view to the future we think will be far stronger and more durable
than is currently believed. Why? For the first time in a long while inflation is
beginning to have an impact. Supply and demand have tightened considerably,
while raw material inputs including energy have skyrocketed in price. Contrary
to popular belief, some inflation can be very good for basic industry since
ultimately, higher prices can be passed through to the customer, while profit
margins are maintained. The margins may stay the same, but as the base from
which they are taken goes up, the absolute number of dollars earned per unit
goes up. The critical inflection point has been a change in mindset to taking
control of pricing, rather than allowing the customer to control it, as has been
the case. We are clearly past that point.
Crompton Corporation shares gained a robust 65% for the year, but from a very
depressed base. Though the stock is now around $11 per share, we feel that over
time the company can indeed return to a 15% operating margin, in contrast with
today's 3% or so, resulting in earnings approaching the $2.00 per share level.
At a very reasonable specialty chemicals price to earnings multiple of 15 times,
the target price would be near $30, offering nearly 200% further upside
potential. Similarly, PolyOne Corporation returned 42%, again off of a very
depressed base. There is not as much upside, but at $9 or so, the share price
can still double, we believe. Plastics distribution will show tremendous upside
as a peak in the chemical business nears, but this will not occur for 18 to 24
months. In the mean time the company's 24% interest in a polyvinyl chloride
(PVC) plastics manufacturing joint venture is doing the heavy lifting. Applying
the same valuation multiple to our estimated peak earnings of $1.25 per
3
share would result in a target value of about $19. Wausau-Mosinee Paper
Corporation (NYSE: WPP) is a smaller paper company that makes specialty writing
papers, technical specialty papers, and towel and tissue paper. Well-run and
with a good balance sheet, Wausau-Mosinee simply needed to stay sharp until
business conditions improved. Last year the stock rose 32% and has further room
to appreciate. We believe that peak earnings potential here will approach $1.75
or more per share, which could boost the stock price to the low to mid twenty
dollar range, about 50% above today's selling price.
In the metals area, Commonwealth Industries, now called Aleris International
Inc. (NYSE: ARS) following its merger with IMCO Recycling, and A.M. Castle, a
metals distributor, have run the gauntlet and are now seeing the beginning of
what we feel will be an extended period of above-average growth.
Commonwealth/Aleris gained 71%, while Castle contributed about 64%. Castle
should continue to benefit as metals availability remains tight and pricing
strong, but further gains will be far more modest. Aleris on the other hand is
now a fully integrated scrap-to-aluminum sheet producer and has sharp aggressive
new management at the helm. With proper execution this issue should offer far
greater value in the near term.
Another trend that we should benefit from is a renewed construction cycle in
plant and equipment, ranging from energy and basic materials to power generation
and transmission. Many excesses have had to be worked off, but the tide has been
slowly turning and we have some excellent vehicles to capture the potential
value that will accrue. Willbros Group (NYSE: WG) a global energy construction
company, Global Power Equipment (NYSE: GEG) a supplier of equipment for gas
turbine power plants, Quanta Services Inc. (NYSE: PWR) a power and
telecommunication distribution and construction company, and Shaw Group Inc.
(NYSE: SGR) a global provider of comprehensive construction services to the
environmental, infrastructure, power and process industries will all benefit
from renewed spending in these areas.
Finally, the pharmaceutical industry is rapidly running out of new products to
fill the immense distribution channels they have created and must seek new
sources of supply. They will find them in many of the small biotechnology and
specialty pharmaceutical companies that seem to proliferate the landscape. We
have identified a number of these, all of which have the characteristics
4
we favor and which we feel present the classic value opportunity of high
potential with somewhat lower risk. We use the same kind of BUY SOMETHING FOR
NOTHING mentality here, except that we rely on intellectual property value,
clinical trials value, and of course tangible assets to give us a value cushion.
If the intellectual property is sound, the management is capable, and the
product addresses a large unmet demand, the upside typically takes care of
itself. We feel that Maxygen Inc. (NASDAQ: MAXY), NeoPharm Inc. (NASDAQ: NEOL),
Durect Corp. (NASDAQ: DRRX), Ariad Pharmaceuticals, Inc (NASDAQ: ARIA), Genitope
Corp. (NASDAQ: GTOP), and Neose Technologies, Inc. (NASDAQ: NTEC) possess the
appropriate characteristics to make them attractive investment candidates in
this context.
The future, then, looks arguably promising. However it may be asked: With a
number of positive trends in place and the holdings to benefit from them,
shouldn't the Fund have done better?
The continued out performance in small cap stocks certainly made the hurdle
somewhat more difficult, but not insurmountable. In short, we should have done
much better, but a couple of things happened along the way to greater success.
First, we have had, in my view too many holdings. We do best when focused, which
to me means concentrating our efforts on a smaller number of positions. The
added burden of more names serves in our case only to dilute our efforts,
leaving greater room for error. Accordingly, for the past several months we have
been scrutinizing the portfolio in an effort to regain that acuity. At present,
the number of portfolio positions has been reduced to 57 and that will drop to
perhaps less than 50 over time. Diversification has never been an issue and the
relatively fewer positions that the Fund will have will be far more than enough
to allow adequate breadth. Second, we had a number of poor performers that
suffered sharp drops in price due to unanticipated news. In some cases, we
should have been better informed as to the current situation, but were not and
the results reflect that. This was partly a consequence of having too many
names, but it also revealed that we needed to do more in the way of risk control
and near-term analysis. Again, we have been up to the task and have begun to
implement the appropriate tools to aid in the execution of our investment
process. For example, we now employ rolling quarterly analyses aimed at
discerning adverse trends before they are reflected in the stock price. As you
might expect, this is an iterative effort which will necessitate periodic
discussion on our part to keep you informed as to our progress.
5
Thus, while a respectable year was had, it could have been better. However, I
feel confident that we have addressed the critical issues, sharpened our focus,
and we now are much better prepared to enter a period that we believe will be
well suited to stock-pickers like us. It will be more important than ever for us
to execute properly, but we are up to the task and excited to get at it.
In closing, I cannot overstate our gratitude for your patience and support. I
look forward to apprising you of our continued progress during the current year.
Respectfully submitted,
/S/ WARREN J. ISABELLE
- ----------------------
Warren J. Isabelle
Portfolio Manager
BEFORE INVESTING YOU SHOULD CAREFULLY CONSIDER THE FUND'S INVESTMENT
OBJECTIVES, RISKS, CHARGES AND EXPENSES. THIS AND OTHER INFORMATION IS IN THE
PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED BY CALLING 1-800-472-6114 OR
VISITING THE FUND'S WEBSITE AT WWW.ICMFUNDS.COM. PLEASE READ THE PROSPECTUS
CAREFULLY BEFORE YOU INVEST.
INVESTMENTS IN SMALLER COMPANIES GENERALLY 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. TOTAL RETURN FIGURES INCLUDE THE REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS. SOME OF THE FUND'S FEES WERE WAIVED OR EXPENSES REIMBURSED;
OTHERWISE, RETURNS WOULD HAVE BEEN LOWER. RETURNS SHOWN ARE FOR THE FUND'S
INVESTMENT SHARE CLASS; OTHER SHARE CLASS RETURNS WILL VARY.
PRICE TO EARNINGS RATIO IS THE VALUE OF A COMPANY'S STOCK PRICE RELATIVE TO
COMPANY EARNINGS. THE RUSSELL 2000 INDEX IS AN UNMANAGED, MARKET VALUE WEIGHTED
INDEX, WHICH MEASURES PERFORMANCE OF THE 2,000 COMPANIES THAT ARE BETWEEN THE
1,000TH AND 3,000TH LARGEST IN THE MARKET. THE S&P 500 INDEX IS A BROAD-BASED,
UNMANAGED MEASUREMENT OF CHANGES IN STOCK MARKET CONDITIONS BASED ON THE
AVERAGE OF 500 WIDELY HELD COMMON STOCKS. ONE CANNOT INVEST DIRECTLY IN AN
INDEX.
THE VIEWS IN THIS REPORT WERE THOSE OF THE FUND MANAGER AS OF DECEMBER
31, 2004 AND MAY NOT REFLECT HIS VIEWS ON THE DATE THIS REPORT IS FIRST
PUBLISHED OR ANYTIME THEREAFTER. THESE VIEWS ARE INTENDED TO ASSIST
SHAREHOLDERS OF THE FUND IN UNDERSTANDING THEIR INVESTMENTS IN THE FUND AND DO
NOT CONSTITUTE INVESTMENT ADVICE. FORUM FUND SERVICES, LLC, DISTRIBUTOR.
(EFFECTIVE MARCH 1, 2005, FORUM FUND SERVICES, LLC WILL CHANGE ITS NAME TO
FORESIDE FUND SERVICES, LLC.) (02/05)
6
ICM/ISABELLE SMALL CAP VALUE FUND
Investment Class
ILLUSTRATION OF $10,000 INVESTMENT
The graph below reflects the change in value of a hypothetical $10,000
investment in the ICM/Isabelle Small Cap Value 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.
GRAPH OMITTED
Average Annual Return for the period ending 12/31/04
One year ..................... 18.12%
Five year .................... 10.07%
Inception (3/9/1998) ......... 7.81%
ICM/Isabelle
Small Cap Russell 2000
Date Value Fund Index
---- ---------- -----
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
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.
7
ICM/ISABELLE SMALL CAP VALUE FUND
Institutional Class
ILLUSTRATION OF $10,000 INVESTMENT
The graph below reflects the change in value of a hypothetical $10,000
investment in the ICM/Isabelle Small Cap Value 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.
GRAPH OMITTED
Average Annual Return for the period ending 12/31/04
One year ..................... 18.46%
Five year .................... 10.43%
Inception (3/27/1998) ........ 8.17%
ICM/Isabelle
Small Cap Russell 2000
Date Value Fund Index
---- ---------- -----
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
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.
8
ICM/ISABELLE SMALL CAP VALUE FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2004
MARKET
SHARES SECURITY VALUE
- ------ -------- -----
COMMON STOCK - 96.02%
CAPITAL GOODS - 6.13%
93,400 Lamson & Sessions Co.+ $ 849,940
104,000 Shaw Group, Inc.+ 1,856,400
111,300 Willbros Group, Inc.+ 2,565,465
----------
5,271,805
----------
CONSUMER CYCLICALS - 15.94%
67,900 4Kids Entertainment, Inc.+ 1,427,258
404,500 Danka Business Systems plc, ADR+ 1,278,220
41,800 Gevity HR, Inc. 859,408
80,200 Maytag Corp. 1,692,220
146,000 Navigant International, Inc.+ 1,776,820
69,900 Russell Corp. 1,361,652
56,700 Steven Madden Ltd.+ 1,069,362
175,600 Sunterra Corp.+ 2,465,424
259,500 Tweeter Home Entertainment Group+ 1,777,575
----------
13,707,939
----------
CONSUMER STAPLES - 4.92%
91,900 Chiquita Brands International, Inc. 2,027,314
114,100 Playtex Products, Inc.+ 911,659
28,000 United Stationers, Inc.+ 1,293,600
----------
4,232,573
----------
ENERGY - 6.47%
36,600 Denbury Resources, Inc.+ 1,004,670
119,300 Magnum Hunter Resources, Inc.+ 1,538,970
277,000 Newpark Resources+ 1,426,550
52,700 Whiting Petroleum Corp.+ 1,594,175
----------
5,564,365
----------
FINANCIALS - 5.71%
59,200 Allmerica Financial Corp.+ 1,943,536
65,200 Investment Technology Group, Inc.+ 1,304,000
160,700 PMA Capital Corp. - Class A+ 1,663,245
----------
4,910,781
----------
The accompanying notes are an integral part of the financial statements.
9
ICM/ISABELLE SMALL CAP VALUE FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2004 (Continued)
MARKET
SHARES SECURITY VALUE
- ------ -------- -----
HEALTH CARE - 16.79%
405,800 ARIAD Pharmaceuticals, Inc.+ $3,015,094
704,100 Durect Corp.+ 2,309,448
72,600 EPIX Pharmaceuticals, Inc.+ 1,300,266
55,000 Genitope Corp.+ 937,200
220,100 HealthTronics, Inc.+ 2,339,663
100,300 Maxygen, Inc.+ 1,282,837
72,800 Neopharm, Inc.+ 910,728
140,700 Neose Technologies, Inc.+ 945,504
90,700 U.S. Physical Therapy, Inc.+ 1,398,594
----------
14,439,334
----------
INDUSTRIALS - 5.51%
133,700 Global Power Equipment Group, Inc.+ 1,315,608
128,600 Quanta Services, Inc.+ 1,028,800
124,000 TeleTech Holdings, Inc.+ 1,201,560
196,400 Transpro, Inc.+ 1,198,040
----------
4,744,008
----------
INFORMATION TECHNOLOGY - 12.25%
196,100 ActivCard Corp.+ 1,745,290
62,400 Agilsys, Inc. 1,069,536
37,800 Analogic Corp. 1,693,062
145,000 Cherokee International Corp.+ 1,393,450
95,500 infoUSA, Inc.+ 1,068,645
161,500 MagneTek, Inc.+ 1,114,350
456,144 SoftBrands, Inc.+ 1,005,798
356,700 Sycamore Networks, Inc.+ 1,448,202
----------
10,538,333
----------
MATERIALS - 16.74%
101,408 Aleris International, Inc.+ 1,715,823
133,300 AM Castle & Co.+ 1,591,602
219,700 Crompton Corp. 2,592,460
125,900 Material Sciences Corp.+ 2,264,941
80,900 Olin Corp. 1,781,418
231,400 PolyOne Corp.+ 2,096,484
49,200 Wausau-Mosinee Paper Corp. 878,712
163,300 Western Silver Corp.+ 1,476,232
----------
14,397,672
----------
The accompanying notes are an integral part of the financial statements.
10
ICM/ISABELLE SMALL CAP VALUE FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2004 (Continued)
MARKET
SHARES SECURITY VALUE
- ------ -------- -----
OTHER - 1.39%
317,600 Westaff, Inc.+ $1,197,034
----------
TELECOMMUNICATION SERVICES - 1.14%
162,000 Lightbridge, Inc.+ 978,480
----------
UTILITIES - 3.03%
345,200 Aquila, Inc.+ 1,273,788
288,500 Dynegy, Inc. - Class A+ 1,332,870
----------
2,606,658
----------
TOTAL COMMON STOCK (COST $58,698,529) 82,588,982
----------
MONEY MARKET FUND - 5.01%
4,308,355 Fifth Third Institutional Money Market Fund
(Cost $4,308,355) 4,308,355
----------
The accompanying notes are an integral part of the financial statements.
11
ICM/ISABELLE SMALL CAP VALUE FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2004 (Continued)
MARKET
PRINCIPAL VALUE
- --------- -----
REPURCHASE AGREEMENT - 1.50%
$1,293,12 Fifth Third Bancorp, 1.25%, 12/31/04,
to be repurchased at $1,293,257 on 1/3/05,
collateralized by
Federal Home Loan Mortgage Corp.
5.00%, due 11/1/17, valued at $1,319,422
(Cost $1,293,122) $ 1,293,122
-----------
TOTAL INVESTMENTS (COST $64,300,006)* - 102.53% 88,190,459
OTHER ASSETS NET OF LIABILITIES - (2.53)% (2,172,329)
-----------
NET ASSETS - 100.00% $ 86,018,130
============
- ------------
ADR American Depositary Receipt.
+ Non-income producing security.
* Cost for Federal income tax purposes is $64,536,003; the difference
between book basis and tax basis is net unrealized appreciation
(depreciation) primarily due to the tax deferral losses on wash sales. The
net unrealized appreciation on a tax basis conists of:
Gross Unrealized Appreciation $ 24,385,964
Gross Unrealized Depreciation (731,508)
-------------
Net Unrealized Appreciation (Depreciation) $ 23,654,456
=============
PORTFOLIO HOLDINGS
% OF TOTAL INVESTMENTS
PIE CHART OMITTED
Health Care 16.37%
Materials 16.33%
Consumer Cyclicals 15.54%
Information Technology 11.95%
Energy 6.31%
Capital Goods 5.98%
Financials 5.57%
Industrials 5.38%
Money Market Fund 4.88%
Consumer Staples 4.80%
Utilities 2.95%
Repurchase Agreement 1.47%
Other 1.36%
Telecommunication Services 1.11%
The accompanying notes are an integral part of the financial statements.
12
ICM/ISABELLE SMALL CAP VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
ASSETS:
Investments in securities at market value
(cost $63,006,884) $86,897,337
Investments in repurchase agreements
(cost $1,293,122) 1,293,122
Receivable for securities sold 246,267
Receivable for Fund shares sold 24,896
Interest and dividends receivable 19,237
Prepaid expenses 13,045
-----------
TOTAL ASSETS 88,493,904
-----------
LIABILITIES:
Payable for securities purchased 2,208,493
Payable for Fund shares redeemed 88,493
Payable to adviser 70,448
Payable for trustees' fees and expenses 6,085
Other accrued expenses 102,255
-----------
TOTAL LIABILITIES 2,475,774
-----------
NET ASSETS $86,018,130
===========
NET ASSETS CONSIST OF:
Paid-in-Capital 59,439,593
Accumulated net realized gain
(loss) on investments 2,688,084
Net unrealized appreciation
(depreciation) of investments 23,890,453
-----------
NET ASSETS $86,018,130
===========
INVESTMENT CLASS SHARES:
Net Assets (unlimited shares of $0.001
par beneficial interest authorized;
4,343,677 shares outstanding) $70,825,144
===========
Net asset value, offering and
redemption price per Investment
Class Share $ 16.31
===========
INSTITUTIONAL CLASS SHARES:
Net Assets (unlimited shares of
$0.001 par beneficial interest authorized;
913,800 shares outstanding) $15,192,986
===========
Net asset value, offering and
redemption price per Institutional
Class Share $ 16.63
===========
The accompanying notes are an integral part of the financial statements.
13
ICM/ISABELLE SMALL CAP VALUE FUND
STATEMENT OF OPERATIONS
YEAR ENDED
DECEMBER 31, 2004
-----------------
INVESTMENT INCOME
Dividends $ 398,131
Interest 50,325
------------
TOTAL INCOME 448,456
------------
EXPENSES
Investment advisory fees 873,240
Administration fees 94,834
Transfer agent fees
Investment Class Shares 92,363
Institutional Class Shares 14,851
Distribution fees
Investment Class Shares 179,010
Accounting fees 61,384
Custodian fees 25,884
Professional fees 155,115
Registration fees 33,234
Trustees' fees and expenses 16,024
Miscellaneous fees 66,902
------------
TOTAL EXPENSES 1,612,841
Expenses reimbursed (28,023)
------------
NET EXPENSES 1,584,818
------------
NET INVESTMENT INCOME (LOSS) (1,136,362)
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on investments 6,212,138
Net increase from payment by affiliate (Note 6) 21,855
Net change in unrealized appreciation
(depreciation) of investments 8,290,142
------------
Net realized and unrealized gain (loss) on 14,524,135
------------
investments
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 13,387,773
============
The accompanying notes are an integral part of the financial statements.
14
ICM/ISABELLE SMALL CAP VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
OPERATIONS
Net investment income (loss) $ (1,136,362) $ (931,264)
Net realized gain (loss) on investments 6,212,138 1,415,100
Net increase from payment by affiliate 21,855
Net change in unrealized appreciation
(depreciation) of investments 8,290,142 27,090,438
------------ ------------
Increase (decrease) in net assets
resulting from operations 13,387,773 27,574,274
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares subscribed:
Investment Class 49,075,671 45,238,558
Institutional Class 2,633,693 74,529,769
Redemption of shares
Investment Class (56,958,648) (63,195,562)
Institutional Class (8,356,053) (83,383,754)
------------ ------------
Increase (Decrease) in net assets
from capital share transactions (a) (13,605,337) (26,810,989)
------------ ------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS (217,564) 763,285
------------ ------------
NET ASSETS
Beginning of period 86,235,694 85,472,409
------------ ------------
End of period (including
accumulated net investment income
of $- and $-, respectively) $ 86,018,130 $ 86,235,694
============ ============
(a) Transactions in capital stock were:
Investment Class
Shares sold 3,435,681 4,213,982
Shares redeemed (4,018,097) (5,902,574)
------------ ------------
Increase (Decrease) in shares
outstanding (582,416) (1,688,592)
============ ============
Institutional Class
Shares sold 186,489 7,762,501
Shares redeemed (573,322) (8,576,722)
------------ ------------
Increase (Decrease) in shares
outstanding (386,833) (814,221)
============ ============
The accompanying notes are an integral part of the financial statements.
15
ICM/ISABELLE SMALL CAP VALUE 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
DECEMBER 31, DECEMBER 31,
INVESTMENT CLASS 2004 2003
- ---------------- ---- ----
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.80 $ 9.76
---------- ----------
Increase (decrease) from
investment operations:
Net investment loss (0.19)* (0.13)*
Net realized and unrealized
gains (losses) on investments 2.70* 4.17*
---------- ----------
NET INCREASE (DECREASE) FROM
INVESTMENT OPERATIONS 2.51 4.04
---------- ----------
Less distributions from
net realized gains -- --
---------- ----------
NET ASSET VALUE, END OF PERIOD $ 16.31 $ 13.80
========== ==========
TOTAL RETURN ** 18.12% 41.39%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s) $ 70,825 $ 67,983
Ratio of expenses to average net assets:
Before waivers and/or 1.89% 1.94%
reimbursements
After waivers and/or 1.86% 1.88%
reimbursements
Ratio of net investment income
(loss) to average net assets:
Before waivers and/or (1.38)% (1.32)%
reimbursements
After waivers and/or (1.35)% (1.26)%
reimbursements
Portfolio turnover rate 90.58% 51.70%
<FN>
- --------------
* Based on average shares outstanding.
** 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
</FN>
ICM/ISABELLE SMALL CAP VALUE FUND
FINANCIAL HIGHLIGHTS (Continued)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2000
---- ---- ----
$ 11.82 $ 10.87 $ 10.33
----------- --------- ---------
(0.14) (0.08) (0.05)
(1.92) 1.03 0.84
----------- --------- ---------
(2.06) 0.95 0.79
----------- --------- ---------
-- -- (0.25)
----------- --------- ---------
$ 9.76 $ 11.82 $ 10.87
=========== ========= =========
(17.43)% 8.74% 7.73%
$ 64,552 $ 85,386 $ 75,237
1.80% 1.74% 1.82%
1.71% 1.74% 1.81%
(1.17)% (0.61)% (0.44)%
(1.08)% (0.61)% (0.43)%
50.41% 43.16% 53.91%
The accompanying notes are an integral part of the financial statements.
17
ICM/ISABELLE SMALL CAP VALUE 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
DECEMBER 31, DECEMBER 31,
INSTITUTIONAL CLASS 2004 2003
- ------------------- ---- ----
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.03 $ 9.89
---------- ----------
Increase (decrease)
from investment operations:
Net investment loss (0.16)* (0.10)*
Net realized and unrealized
gains (losses) on investments 2.76* 4.24*
---------- ----------
NET INCREASE (DECREASE) FROM
INVESTMENT OPERATIONS 2.60 4.14
---------- ----------
Less distributions from
net realized gains -- --
---------- ----------
NET ASSET VALUE, END OF PERIOD $ 16.63 $ 14.03
========== ==========
TOTAL RETURN ** 18.46% 41.86%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s) $ 15,193 $ 18,253
Ratio of expenses to average net assets:
Before waivers and/or 1.63% 1.61%
reimbursements
After waivers and/or 1.61% 1.55%
reimbursements
Ratio of net investment income
(loss) to average net assets:
Before waivers and/or (1.12)% (0.98)%
reimbursements
After waivers and/or (1.10)% (0.93)%
reimbursements
Portfolio turnover rate 90.58% 51.70%
<FN>
- ---------------
* Based on average shares outstanding.
** 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.
18
</FN>
ICM/ISABELLE SMALL CAP VALUE FUND
FINANCIAL HIGHLIGHTS (Continued)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2000
---- ---- ----
$ 11.95 $ 10.92 $ 10.36
---------- --------- ---------
(0.11) (0.05) (0.02)
(1.95) 1.08 0.83
---------- --------- ---------
(2.06) 1.03 0.81
---------- --------- ---------
-- -- (0.25)
---------- --------- ---------
$ 9.89 $ 11.95 $ 10.92
========== ========= =========
(17.24)% 9.43% 7.90%
$ 20,920 $ 29,502 $ 26,225
1.49% 1.49% 1.57%
1.44% 1.49% 1.56%
(0.86)% (0.36)% (0.18)%
(0.82)% (0.36)% (0.17)%
50.41% 43.16% 53.91%
The accompanying notes are an integral part of the financial statements.
19
ICM/ISABELLE SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 1- SIGNIFICANT ACCOUNTING POLICIES
ICM/Isabelle Small Cap Value Fund (the "Fund") is a series of the 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 Class shares and
Institutional Class shares (collectively, the "Shares"), each of which has equal
rights as to class and voting privileges. The Investment Class has exclusive
voting rights with respect to its distribution plan pursuant to Rule 12b-1 under
the 1940 Act ("12b-1 Plan") and is subject to 12b-1 Plan expenses. The Fund
commenced operations on March 9, 1998 (March 27, 1998 for the Institutional
Class). The investment objective of the Fund is to seek capital appreciation by
investing primarily in relatively undervalued common stocks of domestic small
market capitalization 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 generally accepted
accounting principles for investment companies.
A. SECURITY VALUATION. Exchange traded securities for which market quotations
are readily available are valued using the last reported sales price 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, such securities are valued at the mean of the last
bid and asked price. Non-exchange traded securities for which
over-the-counter quotations are available are generally valued at the mean
between the closing bid and asked prices. Money market instruments that
mature in sixty days or less may be valued at amortized cost unless the
Fund's investment adviser believes another valuation is more appropriate.
Investments in other open-ended regulated investment companies are valued at
net asset value.
20
ICM/ISABELLE SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 - (Continued)
The Fund values securities at fair value pursuant to procedures adopted by
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 due to, among other things, the occurrence of events after the
close of the securities markets on which the Fund's securities primarily
trade but before the time as of which the Fund calculates its net asset
value.
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 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 Trust 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 year ended December 31, 2004, the Fund reclassified $10 to decrease
accumulated net realized gain and $1,136,362 to decrease
21
ICM/ISABELLE SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 - (Continued)
accumulated net investment loss, with a decrease to paid-in capital of
$1,136,352. 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, 2004, distributable earnings on a tax basis were as
follows:
Undistributed Long-Term Gain $ 2,924,081
Unrealized Appreciation (Depreciation) 23,654,456
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 also require the financial institution to maintain collateral at
all times with a value equal to the amount the Fund paid for the securities.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the other party, including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities.
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 generally accepted accounting principles.
H. USE OF ESTIMATES. In preparing financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities
22
ICM/ISABELLE SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 - (Continued)
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
$72,380,387 and $80,958,787, respectively, for the year ended December 31, 2004.
NOTE 3 - ADVISORY FEES, SERVICING FEES, AND OTHER TRANSACTIONS WITH RELATED
PARTIES
INVESTMENT ADVISER - Ironwood Capital Management, LLC ("ICM") serves as the
investment adviser for the Fund pursuant to an investment advisory agreement
(the "Agreement"). Under the terms of the Agreement, ICM receives a 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, ICM is
obligated for as long as the Agreement remains in effect, to limit total annual
Fund operating expenses, including its investment advisory fee, to 1.95% of the
average daily net assets annually for the Investment Class and 1.70% of the
average daily net assets annually for the Institutional Class, and to waive such
fees and reimburse expenses to the extent that they exceed these amounts. For
the year ended December 31, 2004, no advisory fees were waived nor other
expenses reimbursed by ICM.
ADMINISTRATION AND OTHER SERVICES - Citigroup Global Transaction Services,
through its various affiliates (collectively "Citigroup"), provides
administration, portfolio accounting and transfer agency services to the Fund.
In addition, the Fund has entered into separate transfer agency and operating
agreements with Charles Schwab & Co., Inc. ("Schwab"), GoldK, and Fidelity
Capital Markets ("FCM"), whereby Schwab, GoldK, 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
23
ICM/ISABELLE SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 - (Continued)
statement of operations. The Fund participates in a commission recapture program
through FCM, pursuant to which FCM will pay certain expenses of the Fund, as
directed by the Fund. For the year ended December 31, 2004, the Fund was
reimbursed expenses of $21,514 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 year ended December 31, 2004, the Fund's custodian expenses
were reduced by $6,509, which are disclosed as fees waived on the accompanying
statement of operations.
DISTRIBUTOR - Forum Fund Services, LLC is the Fund's distributor (the
"Distributor). The Distributor is not affiliated with the Adviser or Citigroup
or its various affiliates. The Distributor receives no compensation from the
Fund for its distribution services. Effective March 1, 2005, the Distributor
will change its name to Foreside Fund Services, LLC.
No Trustee, officer or employee of ICM, or Citigroup, or any affiliate thereof,
receives any compensation from the Trust for serving as a Trustee or officer of
the Trust.
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.
24
ICM/ISABELLE SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 - (Continued)
During the year ended December 31, 2004, the Fund was charged $203 from
borrowings under the line of credit. As of December 31, 2004, the Fund had no
loans outstanding under the line of credit.
NOTE 5 - DISTRIBUTION PLAN
The Trustees of the Fund have adopted a 12b-1 Plan with respect to the
Investment Class 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 Class 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 Class shares for distribution expenses borne, or paid to others, by
the Distributor. For the year ended December 31, 2004, the Fund incurred
$179,010 in distribution costs for Investment Class shares.
NOTE 6 - INVESTMENT RESTRICTION VIOLATIONS
For the year ended December 31, 2004, the Adviser reimbursed the Fund to offset
a trading investment restriction violation. As a result of the trading
investment restriction, the Fund sold the violating securities at a loss. This
amount is reflected as payment by affiliate on the Statement of Operations and
Statements of Changes in Net Assets. This payment had no effect on the total
return of the Fund.
NOTE 7 - LITIGATION
On April 9, 2004 Ironwood Capital, Ltd. (the "Plaintiff") filed a complaint in
U.S. District Court, District of Massachusetts Eastern Division against the
Adviser, the Fund and Ironwood Partners, LLC (collectively, the "Defendants")
alleging trademark infringement resulting from the use of the "Ironwood Capital"
mark. The settlement to which the parties have agreed, but which has not been
finalized, will refrain the Defendants from using the "Ironwood Capital" mark.
The Adviser has committed to absorbing any costs associated with legal fees and
settlement that may result from this matter. As a result, it is not anticipated
that this litigation will have any financial impact on the Fund or its
shareholders.
25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
of the ICM Series Trust:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the ICM/Isabelle Small Cap Value
Fund (the "Fund") at December 31, 2004, the results of its operations, the
changes in its net assets and the financial highlights for each of the periods
indicated therein, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements 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 are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, MA
February 17, 2005
26
ADDITIONAL INFORMATION - (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 http://www.sec.gov. The Fund's proxy voting record for the
twelve-month period ended June 30, 2004, is available, without charge and upon
request, by calling (800) 472-6114, on the Fund's website
http://www.icmfunds.com and on the SEC's website at http://www.sec.gov.
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES
Effective June 30, 2004, 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, on the SEC's website at
http://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 two types of costs: (1) transaction
costs, including redemption fees; and (2) ongoing costs, including management
fees, distribution fees with respect to Investment Shares only and other Fund
expenses. The following example is intended to help you understand your 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, 2004, through December 31, 2004.
ACTUAL EXPENSES - The "Actual Return" row in the following table 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 = 8.6), then
multiply the result by the number in the "Expenses Paid During Period" column to
estimate the expenses you paid on your account during this period.
27
ADDITIONAL INFORMATION - (Unaudited) (Continued)
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES - The "Hypothetical Return" row in
the following 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.
Expenses shown in the table are meant to highlight your ongoing costs only and
do not reflect any transactional costs such as redemption fees. Therefore, the
"Hypothetical Return" row in 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
ACCOUNT VALUE ACCOUNT VALUE EXPENSES ANNUAL
JULY 1, DECEMBER 31, PAID DURING EXPENSE
2004 2004 PERIOD (A) RATIO
---- ---- ---------- -----
Investment Shares
Actual $ 1,000.00 $ 1,093.96 $ 10.00 1.90%
Return
Hypothetic Return $ 1,000.00 $ 1,015.58 $ 9.63 1.90%
Institutional Shares
Actual $ 1,000.00 $ 1,094.86 $ 8.79 1.67%
Return
Hypothetic Return $ 1,000.00 $ 1,016.74 $ 8.47 1.67%
- --------------
(a) Equals the Fund's annualized expense ratio, multiplied by the average
account value over the period, multiplied by the number of days in most
recent fiscal half-year, divided by 366 to reflect the half-year period.
28
FUND TRUSTEES AND OFFICERS - (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 Managing member and Chief
ISABELLE, CFA(2) President and 1998 to Investment Officer, Ironwood
Ironwood Capital Chairman of Present Capital Management, LLC,
Management, LLC the Board, August 1997 to present.
21 Custom House Street Valuation
Suite 240 Committee
Boston, MA 02110 (member)
Born: January 1952
- ------------------------------------------------------------------------------------
RICHARD L. Trustee and March Executive Vice-President,
DROSTER(3) Executive 1998 to Ironwood Capital
Ironwood Capital Vice- Present Management, LLC, August
Management, LLC President, 1997 to present.
21 Custom House Street Valuation
Suite 240 Committee
Boston, MA 02110 (member)
Born: August 1961
29
FUND TRUSTEES AND OFFICERS - (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
- ------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ------------------------------------------------------------------------------------
DONALD A. Trustee, Audit March Assistant Professor,
NELSON, CPA Committee 1998 to Department of Accounting
Merrimack College (Chairman), Present and Finance, Merrimack
Andover, MA 01810 Nominating College, 1975 to present;
Born: February 1946 Committee Certified Public Accountant,
and Valuation 1972 to present.
Committee
(member)
- ------------------------------------------------------------------------------------
JOHN A. FIFFY Trustee, March Acquisition Consultant,
Hewlett-Packard Co. Audit 1998 to Hewlett Packard Co.,
200 Forest Street Committee, Present a computer hardware
Marlboro, MA 01752 Nominating company, 1977 to present.
Born: December 1950 Committee
and Valuation
Committee
(member)
- ------------------------------------------------------------------------------------
THOMAS R. Trustee, May President & CEO, Benjamin
VENABLES Audit 2003 to Franklin Savings Bank, 2002
Benjamin Franklin Committee Present to present; Self-employed
Savings Bank and Business Consultant, 2001
P.O. Box 309 Nominating to 2002; President & CEO,
Franklin, MA 02038 Committee Lighthouse Bank, 2000 to
Born: April 1955 (member) 2001; Self-employed
(Consultant for Monc Real
Estate Development), 1997
to 2000
30
FUND TRUSTEES AND OFFICERS - (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 Operating Officer
Ironwood Capital President, 1998 to and Compliance Officer,
Management, LLC Secretary, Present Ironwood Capital
21 Custom House Street Treasurer and Management, LLC, August
Suite 240 Chief 1997 to present.
Boston, MA 02110 Financial
Born: May 1968 Officer
- ------------------------------------------------------------------------------------
CHERYL O. TUMLIN Chief Sept. Counsel, Investment
Forum Fund Services, Compliance 2004 to Company Services, Forum
LLC Officer Present Fund Services, LLC (a mutual
Two Portland Square fund distributor and compli-
Portland, ME 04110 ance services provider), August
Born: June 1966 2004 to present; Counsel,
Citigroup, December 2003 to
August 2004; Counsel, Forum
Financial Group, LLC (a mutual
fund administration company
acquired by Citigroup in 2003),
2001 to 2003 and 1996 to 1999;
Counsel, I-many Inc. (a soft-
ware development company), 1999
to 2001.
<FN>
- --------------
(1) Term of service is indefinite.
(2) Mr. Isabelle owns a controlling interest in ICM and is the portfolio
manager of the Fund.
(3) Mr. Droster is a principal He currently serves as Executive of ICM.
Vice-President.
EACH TRUSTEE OVERSEES THE FUND, WHICH IS THE ONLY PORTFOLIO WITHIN THE
COMPLEX. NO TRUSTEE HOLDS OTHER DIRECTORSHIPS THE STATEMENT OF
ADDITIONAL OR TRUSTEESHIPS. INFORMATION ("SAI") CONTAINS ADDITIONAL
INFORMATION ABOUT THE FUND'S TRUSTEES. THE SAI IS AVAILABLE WITHOUT
CHARGE AND UPON REQUEST, BY CONTACTING THE FUND AT (800) 472-6114.
31
</FN>
IRONWOOD CAPITAL MANAGEMENT, LLC
AND ICM 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 CAPITAL MANAGEMENT, LLC,
the investment manager of the ICM/Isabelle Small Cap Value Fund,
is an independent investment management firm specializing in
investing in small company stocks.
ICM Series Trust
Two Portland Square Portland,
ME 04101
1-800-472-6114
- --------------------------------------------------------------------------------
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, December 31, 2004, ICM 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
$19,000 in 2003 and $19,000 in 2004.
(b) Audit Related Fees - There were no audit-related fees billed to the
Registrant 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.
(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 $3,800 in 2003 and $6,000 in 2004. 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, or services provided to the investment adviser, 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 Forum, 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 $3,800 in 2003 and
$6,000 in 2004. 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 Section 302 of the Sarbanes-Oxley Act of 2002
(Exhibit filed herewith).
(a)(3) Not applicable.
(b) Certifications pursuant to 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 ICM SERIES TRUST
By: /s/ Warren J. Isabelle
-----------------------------
Warren J. Isabelle, President
Date March 4, 2005
----------------------
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 4, 2005
----------------------
By /s/ Gary S. Saks Treasurer
-----------------------------------
Gary S. Saks, Treasurer
Date March 4, 2005
----------------------