N-CSRS 1 it03-164.txt ICM SERIES TRUST SEMI-ANNUAL REPORT As filed with the Securities and Exchange Commission on September 8, 2003 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 21 Custom House Street Suite 240 Boston, MA 02110 Date of fiscal year end: DECEMBER 31, 2003 Date of reporting period: JUNE 30, 2003 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. REPORTS TO STOCKHOLDERS. ICM FUNDS ICM SERIES TRUST ---------------------- ICM/ISABELLE SMALL CAP VALUE FUND Semi-Annual Report June 30, 2003 ICM/ISABELLE SMALL CAP VALUE FUND TABLE OF CONTENTS SHAREHOLDER LETTER ..................... 2 PORTFOLIO OF INVESTMENTS ............... 8 STATEMENT OF ASSETS AND LIABILITIES .... 11 STATEMENT OF OPERATIONS ................ 12 STATEMENTS OF CHANGES IN NET ASSETS .... 13 FINANCIAL HIGHLIGHTS ................... 14 NOTES TO FINANCIAL STATEMENTS .......... 18 SHAREHOLDER LETTER Dear Shareholder: 1st half 2003 - The Tale of Two Quarters The market sang to the same tune in the first quarter of 2003 as it did during the second half of 2002. The same drivers of the difficult markets then; a weak economy, geopolitical fears, a looming war, high energy prices, and dismal investor confidence - continued to dominate first quarter 2003 headlines. Market sentiment in early March was as poor as we have ever witnessed. And then the Iraqi war ended. With its conclusion, a huge dark cloud of negative market sentiment was lifted from the marketplace. Investors stopped looking in their rear view mirrors and looked forward to smoother economic roads. Stocks took notice and rallied strongly from their deeply undervalued and oversold conditions to a quarterly advance not seen for several years. In addition, money began flowing into equities again, merger and acquisition activity picked up, even IPO's got back into the headlines. Although current economic figures have not yet depicted a rapid, broad recovery, the stock market gains were generated across most industry groups. As is typical of recovering economies and markets, small caps led the charge. Overall, for the first six months of 2003, the Russell 2000 Index increased 17.0%, the S&P 500 Index grew by 10.8% and the ICM/Isabelle Small Cap Value Fund returned 11.2%. Despite the relative underperformance during the first half, which was understandably disappointing, the Fund increased 31.8% during the second quarter, outperforming the Russell 2000 Index and S&P 500 Index by 8.8% and 16.9%, respectively.* This provided a good and welcome sign that indeed our portfolio is well positioned to benefit from an economic recovery. As is also common in rising equity markets, merger and acquisition activity picks up its pace. The first half of 2003 was no exception, especially in the technology and biotechnology sectors. Three of our long-term portfolio companies - Scios, ELITE Information Group, and Signal Technology -were purchased by other companies at a premium price thus generating 2 exceptional returns for our shareholders. In addition, several of our companies experienced solid organic share appreciation during the first half, including: Network Equipment Technologies, Inc. (+115%), Quanta Services, Inc. (+102%), EPIX Medical, Inc. (+96%), Ariad Pharmaceuticals, Inc. (+91%), Tesoro Petroleum, Inc. (+52%), Praecis Pharmaceuticals, Inc. (+51%), and Castle (AM) & Co. (+44%). Notwithstanding our successes we are more disappointed with those companies that failed to participate in the market rally, including: AK Steel Holding Corp. (-55%) and MagneTek, Inc. (-43%). AK Steel Holding Corp. was plagued by higher energy prices, increasing medical and pension expenses as well as a failed purchase of National Steel. We believe that AK Steel Holding Corp. can yet be one of the most profitable steel companies in the industry, and could become an acquisition target in the future as the steel industry continues to consolidate. MagneTek, Inc. continues to be hit by spending slowdowns in the telecommunications sector in addition to incurring costs to build out its sales and marketing infrastructure. We believe MagneTek, Inc. has been successful at generating a strong new product portfolio which has the potential to produce much improved revenue growth and cash flow. We are well known for having great patience with our holdings, giving them ample, perhaps more than ample time in some cases, to reveal and execute their business strategy. However, we must make it clear, the more so in this era of harsh volatility, that improving economic results are what ultimately drives share prices up from being undervalued. If those results are not forthcoming, make no mistake about it, we will divest ourselves of any holding, in search of more attractive investment candidates. In fact, over the first half of the year, we invested new monies into several new companies that we believe represent real economic values. We continue to favor the energy sector, particularly those companies producing natural gas, which we believe will be supply-constrained over the next year, resulting in higher prices for this product. Newpark Resources (NR) is illustrative of this theme. In addition, we believe that retail and business services companies, which faltered as the war began, will likely show ongoing strength as consumer confidence improves. Navigant International, Inc. (FLYR), Paxar Corp. (PXR), and Steven Madden Ltd. (SHOO) are three such companies. Finally, we continue to find good value in the health care arena with investments in Maxygen, Inc. (MAXY) and U.S. Physical Therapy (USPH). 3 SO WHAT DOES THE FUTURE HOLD? The stock market has two key protagonists in its corner who have provided fiscal and legislative assistance - the Federal Reserve Bank, which is committed to flooding the markets with liquidity (via low interest rates), and a Republican Administration driven to generate economic growth (witness the new federal tax cut enacted in May). In our view, phase one of the market rally is now complete. Stocks are priced for an economic recovery and it will be imperative that corporate profits follow. Given the recent rally, valuation continues to be an important issue. The key question to consider is whether we are borrowing gains from the future with the current fundamental economic picture still uncertain for many companies. Again, we must reiterate that our investments are maintained strictly on the basis of economic value: just as we will jettison chronic laggards, those holdings that we believe have become over-valued will be sold and the proceeds re-directed at better opportunities. The first and second quarter corporate profits were driven largely by cost cutting and a weaker dollar as opposed to top-line growth. Corporations have taken advantage of low interest rates by refinancing and/or raising record amounts of "cheap" debt capital. Given the actions that managements have done to firm up their balance sheets, sales & administrative, and working capital infrastructures, many companies are levered for strong profit upside upon the onset of an economic recovery - when it comes. So, it appears that many of the pieces for an economic recovery are in place. However, there is still a lack of conviction in future demand, so capital spending and hiring remain soft. Thus, there remains a significant amount of unused manufacturing capacity at many companies. This will take time to work itself out. Overall, management confidence remains an important underlying factor. It's a long process for managements to regain confidence, however, this is what is needed to propel the second-half and 2004 corporate profits. Managements need to believe that a rebound will not peter out, as has repeatedly occurred since 2000. CEO confidence will lead to business spending, which will lead to inventory rebuilding and job creation, which leads to overall economic growth and corporate profits. Rising corporate profits inevitably leads to higher stock prices. 4 Whatever the economic and market environment is or will be, our job will remain the same - to find unrecognized economic value in businesses built for the long-term. As such, we believe our investment philosophy is a good roadmap for future market journeys, and we will continue to work diligently in an effort to build long-term returns for our shareholders. We thank you for your continued trust and greatly appreciate your support. On behalf of the entire ICM investment team, /s/ Warren J. Isabelle Warren J. Isabelle, CFA President *For additional Fund performance information please refer to pages 6 and 7. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. MARKET VOLATILITY CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE. RESULTS OF AN INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE FUND'S HISTORICAL PERFORMANCE. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than original cost. Total return figures include the reinvestment of dividends and capital gains. Returns stated are for the Fund's Investment Share Class; returns for other share classes will vary. The views in this letter were those of the Fund manager as of June 30, 2003 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 the Fund's investment methodology and do not constitute investment advice. (08/03). 5 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 Fund's 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. Date ICM/Isabelle Small Cap Value Fund RUSSELL 2000 Index ---- --------------------------------- ------------------ 3/9/1998 10,000 10,000 3/31/1998 10,000 10,431 4/30/1998 9,900 10,488 5/31/1998 9,460 9,924 6/30/1998 9,040 9,944 7/31/1998 7,770 9,139 8/31/1998 5,910 7,365 9/30/1998 6,110 7,941 10/31/1998 6,480 8,265 11/30/1998 6,730 8,698 12/31/1998 6,910 9,236 1/31/1999 7,250 9,359 2/28/1999 6,920 8,601 3/31/1999 6,690 8,735 4/30/1999 7,550 9,518 5/31/1999 8,260 9,657 6/30/1999 8,390 10,094 7/31/1999 8,390 9,817 8/31/1999 8,390 9,453 9/30/1999 8,250 9,455 10/31/1999 8,370 9,563 11/30/1999 9,280 10,061 12/31/1999 10,330 11,199 1/31/2000 10,860 11,020 2/29/2000 11,690 12,839 3/31/2000 11,880 11,993 4/30/2000 11,740 11,271 5/31/2000 11,260 10,614 6/30/2000 11,690 11,540 7/31/2000 11,530 11,168 8/31/2000 11,710 12,020 9/30/2000 12,050 11,667 10/31/2000 11,300 11,146 11/30/2000 10,840 10,002 12/31/2000 11,129 10,861 1/31/2001 12,009 11,427 2/28/2001 11,835 10,677 3/31/2001 11,794 10,155 4/30/2001 12,347 10,949 5/31/2001 13,043 11,218 6/30/2001 14,067 11,605 7/31/2001 12,808 10,977 8/31/2001 12,224 10,623 9/30/2001 9,972 9,193 10/31/2001 10,545 9,731 11/30/2001 11,067 10,484 12/31/2001 12,101 11,131 1/31/2002 12,071 11,015 2/28/2002 11,886 10,713 3/31/2002 13,699 11,575 4/30/2002 13,955 11,680 5/31/2002 13,473 11,162 6/30/2002 13,658 10,608 7/31/2002 11,549 9,006 8/31/2002 10,965 8,983 9/30/2002 9,829 8,338 10/31/2002 9,798 8,605 11/30/2002 10,811 9,373 12/31/2002 9,992 8,851 1/31/2003 9,409 8,606 2/28/2003 8,559 8,346 3/31/2003 8,426 8,454 4/30/2003 9,378 9,255 5/31/2003 10,494 10,248 6/30/2003 11,108 10,434 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. 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 were waived or expenses reimbursed; otherwise total return would have been lower. 6 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 Fund's 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. Date ICM/Isabelle Small Cap Value Fund RUSSELL 2000 Index --------- --------------------------------- ------------------ 3/27/1998 10,000 10,000 3/31/1998 9,970 10,074 4/30/1998 9,870 10,130 5/31/1998 9,460 9,584 6/30/1998 9,040 9,605 7/31/1998 7,780 8,827 8/31/1998 5,920 7,113 9/30/1998 6,120 7,670 10/31/1998 6,480 7,982 11/30/1998 6,740 8,401 12/31/1998 6,920 8,920 1/31/1999 7,260 9,039 2/28/1999 6,940 8,307 3/31/1999 6,690 8,437 4/30/1999 7,560 9,193 5/31/1999 8,270 9,327 6/30/1999 8,400 9,749 7/31/1999 8,400 9,481 8/31/1999 8,400 9,130 9/30/1999 8,270 9,132 10/31/1999 8,390 9,236 11/30/1999 9,300 9,717 12/31/1999 10,360 10,817 1/31/2000 10,890 10,643 2/29/2000 11,720 12,400 3/31/2000 11,920 11,583 4/30/2000 11,780 10,886 5/31/2000 11,300 10,251 6/30/2000 11,740 11,145 7/31/2000 11,580 10,787 8/31/2000 11,760 11,610 9/30/2000 12,100 11,268 10/31/2000 11,350 10,765 11/30/2000 10,900 9,660 12/31/2000 11,179 10,490 1/31/2001 12,079 11,036 2/28/2001 11,905 10,312 3/31/2001 11,854 9,807 4/30/2001 12,417 10,575 5/31/2001 13,113 10,835 6/30/2001 14,147 11,209 7/31/2001 12,888 10,602 8/31/2001 12,315 10,260 9/30/2001 10,042 8,879 10/31/2001 10,636 9,398 11/30/2001 11,158 10,126 12/31/2001 12,233 10,751 1/31/2002 12,202 10,639 2/28/2002 12,018 10,347 3/31/2002 13,850 11,179 4/30/2002 14,116 11,281 5/31/2002 13,625 10,780 6/30/2002 13,820 10,245 7/31/2002 11,690 8,698 8/31/2002 11,107 8,676 9/30/2002 9,950 8,053 10/31/2002 9,930 8,311 11/30/2002 10,953 9,053 12/31/2002 10,124 8,549 1/31/2003 9,541 8,312 2/28/2003 8,681 8,061 3/31/2003 8,548 8,165 4/30/2003 9,510 8,939 5/31/2003 10,646 9,898 6/30/2003 11,281 10,077 Past performance is not predictive of future results. 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 PORTFOLIO OF INVESTMENTS JUNE 30, 2003 (Unaudited) MARKET SHARES SECURITY VALUE ------- -------- ------------ COMMON STOCK - 99.11% CONSUMER DISCRETIONARY - 8.86% 70,000 4Kids Entertainment, Inc. + $ 1,302,000 329,100 InterTAN, Inc. + 2,698,620 34,000 Navigant International, Inc. + 438,600 27,700 Steven Madden Ltd. + 604,968 140,900 Tommy Hilfiger Corp. + 1,301,916 111,300 Tweeter Home Entertainment Group + 966,084 ------------ 7,312,188 ------------ CONSUMER STAPLES - 1.23% 150,800 Oneida Ltd. 1,017,900 ------------ ENERGY - 10.13% 42,800 Denbury Resources, Inc. + 574,804 210,500 Magnum Hunter Resources, Inc. + 1,681,895 339,700 Mission Resources Corp. + 594,475 211,700 Newpark Resources + 1,160,116 76,200 Southwestern Energy Co. + 1,143,762 195,800 Tesoro Petroleum Corp. + 1,347,104 178,300 Willbros Group, Inc. + 1,852,537 ------------ 8,354,693 ------------ FINANCIALS - 5.66% 68,400 Allmerica Financial Corp. + 1,230,516 250,500 iDine Rewards Network, Inc. + 3,441,870 ------------ 4,672,386 ------------ HEALTH CARE - 18.02% 16,100 Analogic Corp. 785,036 965,700 ARIAD Pharmaceuticals, Inc. + 4,335,993 205,400 Avigen, Inc. + 710,684 112,300 EPIX Medical, Inc. + 1,589,045 72,700 Maxygen, Inc. + 797,519 697,600 PRAECIS Pharmaceuticals, Inc. + 3,418,240 83,700 Theragenics Corp. + 359,910 109,000 United Therapeutics Corp. + 2,374,020 39,600 U.S. Physical Therapy, Inc. + 496,980 ------------ 14,867,427 ------------ INDUSTRIALS - 21.50% 91,800 Apogee Enterprises, Inc. 828,036 979,400 DT Industries, Inc. + 2,262,414 215,400 GenCorp, Inc. 1,914,906 The accompanying notes are an integral part of the financial statements. 8 ICM/ISABELLE SMALL CAP VALUE FUND PORTFOLIO OF INVESTMENTS JUNE 30, 2003 (Unaudited) (Continued) MARKET SHARES SECURITY VALUE ------ -------- ------------ INDUSTRIALS (CONTINUED) 200,900 Global Power Equipment Group, Inc. + $ 934,185 229,400 JLG Industries, Inc. 1,559,920 49,300 NACCO Industries, Inc. - Class A 2,905,742 285,800 Quanta Services, Inc. + 2,029,180 112,200 RTI International Metals, Inc. + 1,215,126 200,100 Sypris Solutions, Inc. 2,067,033 212,900 Transpro, Inc. + 953,792 85,500 Woodhead Industries, Inc. 1,070,460 ------------ 17,740,794 ------------ INFORMATION TECHNOLOGY - 7.03% 102,900 EMS Technologies, Inc. + 1,345,932 451,200 MagneTek, Inc. + 1,146,048 78,100 Network Equipment Technologies, Inc. + 657,602 90,400 Pioneer Standard Electronics, Inc. 766,592 174,300 Skyworks Solutions, Inc. + 1,180,011 184,200 Sycamore Networks, Inc. + 705,486 ------------ 5,801,671 ------------ MATERIALS - 24.54% 397,094 AK Steel Holding Corp. + 1,437,481 262,100 Castle (AM) & Co. + 1,716,755 422,700 Commonwealth Industries, Inc. 1,995,144 423,400 Crompton Corp. 2,984,970 310,000 Graphic Packaging International Corp. + 1,398,100 178,600 Material Sciences Corp. 1,732,420 41,100 Olin Corp. 702,810 45,900 Paxar Corp. + 504,900 525,300 PolyOne Corp. 2,337,585 206,800 Shaw Group, Inc. + 2,491,940 298,200 Terra Nitrogen Co., LP 1,520,820 126,800 Wausau-Mosinee Paper Corp. 1,420,160 ------------ 20,243,085 ------------ OTHER - 1.03% 381,200 Westaff, Inc. + 850,076 ------------ TELECOMMUNICATION SERVICES - 1.11% 104,100 Lightbridge, Inc. + 911,916 ------------ TOTAL COMMON STOCK (COST $87,026,135) $ 81,772,136 ============ The accompanying notes are an integral part of the financial statements. 9 ICM/ISABELLE SMALL CAP VALUE FUND PORTFOLIO OF INVESTMENTS JUNE 30, 2003 (Unaudited) (Continued) MARKET VALUE ------------ Total Investments (Cost $87,026,135) * - 99.11% $ 81,772,136 Other Assets Net of Liabilities - 0.89% 735,984 ------------ NET ASSETS - 100.00% $ 82,508,120 ============ ------------- LP Limited Partnership + Non-income producing security * Cost for federal income tax purposes is the same as for financial statement purposes and net unrealized depreciation consists of: Gross Unrealized Appreciation . . . . . . . . . $ 12,638,790 Gross Unrealized Depreciation . . . . . . . . . (17,892,789) ------------ Net Unrealized Depreciation . . . . . . . . . $ (5,253,999) ============ The accompanying notes are an integral part of the financial statements. 10 ICM/ISABELLE SMALL CAP VALUE FUND STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 2003 (Unaudited) ASSETS: Investments in securities at market value (cost $87,026,135) (Note 1) $ 81,772,136 Receivable for securities sold 1,259,790 Receivable for fund shares sold 36,707 Interest and dividends receivable 8,437 Prepaid expenses 20,896 ------------ TOTAL ASSETS 83,097,966 ------------ LIABILITIES: Payable for securities purchased 74,265 Payable to custodian (Note 3) 415,681 Payable to adviser (Note 3) 69,068 Accrued expenses 30,832 ------------ TOTAL LIABILITIES 589,846 ------------ NET ASSETS $ 82,508,120 ============ Investment Class Shares (Note 1): Net Assets (unlimited shares of $0.001 par beneficial interest authorized; 5,980,306 shares outstanding) $ 64,912,290 ============ Net asset value, offering and redemption price per Investment Class Share $ 10.85 ============ Institutional Class Shares (Note 1): Net Assets (unlimited shares of $0.001 par beneficial interest authorized; 1,597,397 shares outstanding) $ 17,595,830 ============ Net asset value, offering and redemption price per Institutional Class Share $ 11.02 ============ NET ASSETS CONSIST OF: Paid-in-Capital 91,241,509 Accumulated net investment loss (353,515) Accumulated net realized loss on investments (3,125,875) Net unrealized depreciation of investments (5,253,999) ------------ NET ASSETS $ 82,508,120 ============ The accompanying notes are an integral part of the financial statements. 11 ICM/ISABELLE SMALL CAP VALUE FUND STATEMENT OF OPERATIONS Six Months Ended June 30, 2003 (Unaudited) ---------------- INVESTMENT INCOME Dividends $ 278,837 Interest 10,837 ------------ TOTAL INCOME 289,674 ------------ EXPENSES Investment advisory fees (Note 3) 380,215 Distribution fees - Investment Class (Note 4) 71,624 Administration fees 38,021 Professional fees 38,249 Transfer agent fees 55,591 Accounting fees 26,559 Custodian fees 9,173 Amortization of organization costs (Note 1) 1,867 Miscellaneous fees 31,784 ------------ TOTAL EXPENSES 653,083 Expenses reimbursed (Notes 3 & 4) (9,894) ------------ NET EXPENSES 643,189 ------------ NET INVESTMENT LOSS (353,515) ------------ REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain on investments 1,835,126 Net change in unrealized appreciation (depreciation) of investments 6,236,128 ------------ Net realized and unrealized gain on investments 8,071,254 ------------ INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 7,717,739 ============ The accompanying notes are an integral part of the financial statements. 12 ICM/ISABELLE SMALL CAP VALUE FUND STATEMENTS OF CHANGES IN NET ASSETS Six Months Ended Year Ended June 30, 2003 December 31, (Unaudited) 2002 ---------------- ------------- OPERATIONS Net investment loss $ (353,515) $ (1,168,856) Net realized gain (loss) on investments 1,835,126 (4,619,483) Net change in unrealized appreciation (depreciation) of investments 6,236,128 (16,433,375) ------------- ------------- Increase (decrease) in net assets resulting from operations 7,717,739 (22,221,714) ------------- ------------- CAPITAL SHARE TRANSACTIONS Proceeds from shares subscribed: Investment Class 18,213,867 191,029,624 Institutional Class 60,952,788 59,296,256 Redemption of shares Investment Class (23,771,890) (194,708,806) Institutional Class (66,076,793) (62,810,631) ------------- ------------- Decrease in net assets derived from capital share transactions (a) (10,682,028) (7,193,557) ------------- ------------- TOTAL DECREASE IN NET ASSETS (2,964,289) (29,415,271) ------------- ------------- NET ASSETS Beginning of period 85,472,409 114,887,680 ------------- ------------- End of period (including accumulated net investment loss of $353,515 and $0, respectively) $ 82,508,120 $ 85,472,409 ============= ============= (a) Transactions in capital stock were: Investment Class Shares sold 1,951,143 16,287,250 Shares redeemed (2,585,522) (16,896,256) ------------- ------------- Decrease in shares outstanding (634,379) (609,006) ============= ============= Institutional Class Shares sold 6,623,654 5,062,126 Shares redeemed (7,141,111) (5,416,598) ------------- ------------- Decrease in shares outstanding (517,457) (354,472) ============= ============= The accompanying notes are an integral part of the financial statements. 13 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. SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, 2003 DECEMBER 31, INVESTMENT CLASS (UNAUDITED) 2002 ---------------- ------------ ------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 9.76 $ 11.82 ------------ ------------ Increase (decrease) from investment operations: Net investment loss (0.05) (0.14) Net gains (losses) on investments (both realized and unrealized) 1.14 (1.92) ------------ ------------ Net increase (decrease) from investment operations 1.09 (2.06) ------------ ------------ Less distributions from net realized gains -- -- ------------ ------------ Net Asset Value, End of Period $ 10.85 $ 9.76 ============ ============ Total Return*** 11.17%(1) (17.43)% Ratios/Supplemental Data Net assets, end of period (in 000s) $ 64,912 $ 64,552 Ratio of expenses to average net assets: Before waivers and/or reimbursements 1.78%(2) 1.80% After waivers and/or reimbursements 1.75%(2) 1.71% Ratio of net investment loss to average net assets: Before waivers and/or reimbursements (1.02)%(2) (1.17)% After waivers and/or reimbursements (0.99)%(2) (1.08)% Portfolio turnover rate 18.90% 50.41% ------------ * Commencement of investment operations. ** 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 the 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. 1 Not annualized. 2 Annualized. The accompanying notes are an integral part of the financial statements. 14 ICM/ISABELLE SMALL CAP VALUE FUND FINANCIAL HIGHLIGHTS (Continued) For the Year For the Year For the Year For the Period Ended Ended Ended March 9, 1998* December 31, December 31, December 31, through December 31, 2001 2000 1999 1998 ------------ ------------ ------------ -------------------- $ 10.87 $ 10.33 $ 6.91 $ 10.00 ------------ ------------ ------------ ------------ (0.08) (0.05) (0.12)** (0.04) 1.03 0.84 3.54** (3.05) ------------ ------------ ------------ ------------ 0.95 0.79 3.42 (3.09) ------------ ------------ ------------ ------------ -- (0.25) -- -- ------------ ------------ ------------ ------------ $ 11.82 $ 10.87 $ 10.33 $ 6.91 ============ ============ ============ ============ 8.74% 7.73% 49.49% (30.90)%(1) $ 85,386 $ 75,327 $ 9,993 $ 1,660 1.74% 1.82% 4.79% 8.81%(2) 1.74% 1.81% 1.95% 1.95%(2) (0.61)% (0.44)% (4.23)% (7.99)%(2) (0.61)% (0.43)% (1.39)% (1.13)%(2) 43.16% 53.91% 84.30% 21.43% 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. SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, 2003 DECEMBER 31, INVESTMENT CLASS (UNAUDITED) 2002 ---------------- ------------ ------------ Net Asset Value, Beginning of Period $ 9.89 $ 11.95 ------------ ------------ Increase (decrease) from investment operations: Net investment loss (0.03) (0.11) Net gains (losses) on investments (both realized and unrealized) 1.16 (1.95) ------------ ------------ Net increase (decrease) from investment operations 1.13 (2.06) ------------ ------------ Less distributions from net realized gains -- -- ------------ ------------ Net Asset Value, End of Period $ 11.02 $ 9.89 ============ ============ Total Return*** 11.43%(1) (17.24)% Ratios/Supplemental Data Net assets, end of period (in 000s) $ 17,596 $ 20,920 Ratio of expenses to average net assets: Before waivers and/or reimbursements 1.53%(2) 1.49% After waivers and/or reimbursements 1.50%(2) 1.44% Ratio of net investment loss to average net assets: Before waivers and/or reimbursements (0.77)%(2) (0.86)% After waivers and/or reimbursements (0.75)%(2) (0.82)% Portfolio turnover rate 18.90% 50.41% * Commencement of investment operations. ** 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 the 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. 1 Not annualized. 2 Annualized. The accompanying notes are an integral part of the financial statements. 16 ICM/ISABELLE SMALL CAP VALUE FUND FINANCIAL HIGHLIGHTS (Continued) For the Year For the Year For the Year For the Period Ended Ended Ended March 27, 1998* December 31, December 31, December 31, through December 31, 2001 2000 1999 1998 ------------ ------------ ------------ -------------------- $ 10.92 $ 10.36 $ 6.92 $ 10.00 (0.05) (0.02) (0.10)** (0.04) 1.08 0.83 3.54** (3.04) ------------ ------------ ------------ ------------ 1.03 0.81 3.44 (3.08) ------------ ------------ ------------ ------------ -- (0.25) -- -- ------------ ------------ ------------ ------------ $ 11.95 $ 10.92 $ 10.36 $ 6.92 ============ ============ ============ ============ 9.43% 7.90% 49.71% (30.80)%(1) $ 29,502 $ 26,225 $ 7,448 $ 3,734 1.49% 1.57% 4.54% 8.56%(2) 1.49% 1.56% 1.70% 1.70%(2) (0.36)% (0.18)% (4.14)% (7.74)%(2) (0.36)% (0.17)% (1.30)% (0.88)%(2) 43.16% 53.91% 84.30% 21.43% The accompanying notes are an integral part of the financial statements. 17 ICM/ISABELLE SMALL CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS JUNE 30, 2003 - (Unaudited) 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 its assets 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. Short-term 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. 18 ICM/ISABELLE SMALL CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS JUNE 30, 2003 - (Unaudited) (Continued) Securities (including restricted securities) for which market quotations are insufficient or not readily available, or in the judgment of the Fund's investment adviser, for which the prices or values available do not represent the fair value of the instrument, are valued in good faith, in accordance with procedures adopted by the Trust's Board of Trustees. Investments in other open-ended regulated investment companies are valued at 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. ORGANIZATION COSTS. Organization costs are amortized on a straight-line basis over five years from commencement of operations. If any of the original shares are redeemed by any holder thereof prior to the end of the amortization period, the redemption proceeds will be decreased by the pro rata share of the unamortized organizational costs as of the date of redemption. The pro rata shares will be derived by dividing the number of original shares redeemed by the total number of original shares outstanding at the time of redemption. E. 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, 19 ICM/ISABELLE SMALL CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS JUNE 30, 2003 - (Unaudited) (Continued) 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. F. 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. G. 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. In the event of default, the Fund may have difficulties disposing of such securities. H. 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. I. 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 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. 20 ICM/ISABELLE SMALL CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS JUNE 30, 2003 - (Unaudited) (Continued) NOTE 2 - PURCHASES AND SALES OF SECURITIES Purchases and sales of securities, other than short-term investments, aggregated $14,264,521 and $28,631,776, respectively, for the period ended June 30, 2003. 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 of the terms of the Agreement, ICM is obligated for as long as the Agreement remains in effect, to limit total Fund 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 period ended June 30, 2003, no advisory fees were waived nor other expenses reimbursed by ICM. DISTRIBUTOR - Forum Fund Services, LLC ("FFS"), a registered broker-dealer and a member of the National Association of Securities Dealers, Inc., is the Fund's distributor. FFS receives no compensation for its distribution services and no sales commissions. FFS may enter into arrangements with various financial institutions through which investors may purchase or redeem Shares. FFS may, at its own expense and from its own resources, compensate certain persons who provide services in connection with the sale or expected sale of Shares. 21 ICM/ISABELLE SMALL CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS JUNE 30, 2003 - (Unaudited) (Continued) Other Service Providers - Under separate servicing agreements, affiliates of Forum Financial Group, LLC (collectively, "Forum") provide certain administration, portfolio accounting and transfer agency services to the Fund. For its services, Forum receives a fee from the Fund and is reimbursed for certain out-of-pocket expenses. In addition, the Fund has entered into separate transfer agency 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. The Fund was reimbursed expenses of $4,589 by FCM. The custodian, Fifth Third Bank, has agreed to compensate the Fund and decrease custody fees for interest on any cash balances left uninvested. For the period ended June 30, 2003, the Fund's custodian expenses were not reduced. No Trustee or officer who is an employee of ICM, or Forum Financial Group, LLC, or any affiliate thereof, receives any compensation from the Trust for serving as a Trustee or officer of the Trust. NOTE 4 - 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 FFS, 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 FFS. For the period ended June 30, 2003, the Fund incurred $71,624 in distribution costs for Investment Class shares and FFS reimbursed expenses of $5,305. 22 This page intentionally left blank. This page intentionally left blank. 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. This information is not authorized for distribution unless accompanied or preceded by a current prospectus. Distributor: Forum Fund Services, LLC 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. Not applicable. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable. ITEM 5. [RESERVED] ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. [RESERVED] ITEM 9. CONTROLS AND PROCEDURES (a) - The certifying officers, whose certifications are included herewith, have evaluated the registrant's disclosure controls and procedures within 90 days of the filing date of this report. In their opinion, based on their evaluation, the registrant's disclosure controls and procedures are adequately designed, and are operating effectively to ensure, that material information relating to the registrant, including its consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which this report is being prepared. Further, in their opinion, the registrant's disclosure controls and procedures are adequately designed, and are operating effectively to ensure that information required to be disclosed by the registrant in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) - There were no significant changes in the registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. ITEM 10. EXHIBITS. (a) Not applicable. (b) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Exhibit filed herewith). (c) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Exhibit filed herewith).