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PROSPECTUS March 2, 1998
ICM SERIES TRUST
ICM/ISABELLE SMALLCAP VALUE FUND
ICM Series Trust (the "Trust") is an open-end investment company known as a
mutual fund. This Prospectus offers Investment Class Shares ("Investment Class
Shares") and Institutional Class Shares ("Institutional Class Shares", together
with the Investment Class Shares, the "Shares") of the ICM/ISABELLE SMALLCAP
VALUE FUND (the "Fund"). The Fund seeks capital appreciation by investing in a
diversified portfolio of securities consisting primarily of common stocks. Any
current income generated from these securities is incidental to the investment
objective of the Fund.
In order to achieve its investment objective, the Fund will invest at least
80% of its total assets in common stocks and common stock equivalents (such as
convertible bonds and preferred stock) of companies with a market capitalization
of less than $1 billion at time of purchase. Up to 20% of the Fund's total
assets may be invested in common stocks, common stock equivalents and debt
securities of companies not meeting the foregoing market capitalization
parameters. The Fund will not invest 25% or more of its assets in any one
industry group. See "Investment Objective and Approach of the Fund" in this
Prospectus. There is no assurance that the Fund will achieve its investment
objective.
This Prospectus provides information about the Fund which you should know
before investing. Please read and retain it for your future reference. More
information about the Fund is included in the Statement of Additional
Information (the "SAI"), also dated February xx, 1998, which is incorporated
into this Prospectus by reference. A copy of the Statement of Additional
Information may be obtained free of charge by calling 1-800-472-6114 or by
written request to the Trust at P.O. Box 5182, Westborough, Massachusetts
01581-5182. Additional information about the Trust has been filed with the
Securities and Exchange Commission (the "SEC") and is available upon request and
without charge. In addition, the SEC maintains a web site (http://www.sec.gov)
that contains the SAI, information incorporated by reference in this Prospectus
and the SAI and other information regarding registrants who file electronically
with the SEC.
Shares in the fund are not deposits or obligations of, or guaranteed or
endorsed by, any financial institutions, and are not insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency,
and involve risk, including possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Prospective investors should be aware that the Fund intends to close to new
investors once the Fund's total assets equal or exceed $500 million in total
assets. In such event, the Fund expects to continue to accept investments only
from existing shareholders. If the Fund closes, the right of existing
shareholders to redeem their shares will be not affected. See page 9 of this
Prospectus for more details.
Ironwood Capital Management, LLC ("ICM" or the "Adviser") serves as the
Fund's investment adviser. First Data Investor Services Group, Inc. ("Investor
Services Group") serves as the Fund's administrator (the "Administrator") and
transfer agent (the "Transfer Agent"). First Data Distributors, Inc. ("FDDI")
serves as the Fund's distributor.
Fund returns and share prices fluctuate and the value of your account upon
redemption may be more or less than your purchase price. Investments in the
securities of small capitalization companies may offer greater capital
appreciation potential than investments in mid to large large-cap company
securities, but may be subject to greater short-term price fluctuations. This
Fund is intended for investors who can accept the risks associated with its
investments and may not be suitable for all investors. See "Investment
Objective and Policies" for a discussion of these risks.
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TABLE OF CONTENTS PAGE
EXPENSE INFORMATION .................................... 4
THE FUND ............................................... 6
INVESTMENT OBJECTIVE AND APPROACH OF THE FUND .......... 6
INVESTMENT PRACTICES AND RISK CONSIDERATIONS ........... 7
MANAGEMENT OF THE FUND ................................. 13
HOW TO PURCHASE FUND SHARES ............................ 15
HOW TO REDEEM FUND SHARES .............................. 19
DISTRIBUTION PLAN ...................................... 22
DIVIDENDS, DISTRIBUTIONS AND TAXATION .................. 23
THE TRUST .............................................. 24
PERFORMANCE RESULTS .................................... 25
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION, OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, THE FUND'S SAI AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MAY NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON
TO WHOM, SUCH OFFERING MAY NOT LAWFULLY BE MADE.
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EXPENSE INFORMATION
This table is designed to help you understand the charges and expenses that
you, as a shareholder, will bear directly or indirectly when you invest in the
Fund. The amount of "Other Expenses" in the following table is based on
estimated expenses and projected assets for the current fiscal year.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES: INVESTMENT CLASS INSTITUTIONAL CLASS
---------------- -------------------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases None None
Maximum Sales Load Imposed on Reinvested Dividends None None
Deferred Sales Load None None
Redemption Fees* None None
Exchange Fee None None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES:
(As a Percentage of Average Net Assets)
<S> <C> <C>
Management fee 1.00% 1.00%
12b-1 fees .25%
Other Expenses (including administration, None
accounting and transfer agent fees,
custodian fees and printing expenses)
(after expense reimbursement) .70%** .70%**
---- ----
TOTAL FUND OPERATING EXPENSES:
(after expense reimbursement) 1.95%** 1.70%**
</TABLE>
* Broker-dealers holding your Shares may charge a fee for redemptions. In
addition, if you want to redeem Shares by wire transfer, the Fund's
Transfer Agent charges a fee, currently $20 for each wire redemption.
** The Adviser has voluntarily agreed to limit "Other Expenses" to 0.70% and
"Total Fund Operating Expenses" to 1.95% and 1.70% of average net assets
annually for Investment Class Shares and Institutional Class Shares,
respectively. In the absence of expense limitations, it is estimated that
"Total Fund Operating Expenses" would be approximately 3.05% annually for
Investment Class Shares and approximately 2.80% annually for Institutional
Class Shares. The Adviser may discontinue such expense limitations at any
time in its sole discretion.
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EXAMPLE:
You would pay the following expenses on a $1,000 investment assuming a 5%
annual return, redemption at fee and of each time period and that the percentage
amounts listed under "Total Fund Operating Expenses" remain the same each year.
Amounts in the table could increase, if the Adviser's limitation of expenses
were to be terminated.
1 Year 3 Years
------ -------
Investment Class Shares $20 $61
Institutional Class Shares $17 $54
THE EXAMPLE IS DESIGNED FOR INFORMATIONAL PURPOSES ONLY, AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURN. ACTUAL FUND
EXPENSES AND RETURN WILL VARY FROM YEAR TO YEAR AND MAY BE HIGHER OR LOWER THAN
THOSE SHOWN.
You can purchase Shares without charge directly from FDDI; you may be
charged a fee if you effect transactions in Shares through a securities dealer,
bank or other financial institution.
For further information regarding management fees, 12b-1 fees and other expenses
of the Fund, see "Management of the Fund," "Distribution Plan" and "How To
Purchase Fund Shares" in this Prospectus and "Management of the Fund" and
"Distribution Plan" in the SAI. The Fund's payment of a 12b-1 fee for the
Investment Class may result in long-term shareholders indirectly paying more
than the economic equivalent of the maximum sales charge permitted under the
Conduct Rules of the National Association of Securities Dealers, Inc. ("NASD").
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THE FUND
The Fund is a diversified series of the Trust, an open-end management
investment company organized under the laws of the Commonwealth of Massachusetts
as a "Massachusetts Business Trust" on November 18, 1997.
INVESTMENT OBJECTIVE AND APPROACH OF THE FUND
The investment objective of the Fund is to seek capital appreciation by
investing in a diversified portfolio of securities consisting primarily of
common stocks. The Fund seeks to achieve its objective by investing primarily in
equity securities issued by companies whose equity market capitalization at the
time of purchase is $1 billion or less. Once a portfolio security's market
capitalization exceeds $1 billion, the Adviser will evaluate whether the
investment remains consistent with the Fund's investment objective and, does not
expect, as a matter of policy, to dispose of such security solely because its
market capitalization exceeds $1 billion. Under normal circumstances, the Fund
will invest at least 80% of its total assets in common stocks and common stock
equivalents, issued by such small cap companies. Up to 20% of the Fund's total
assets may be invested in common stocks, common stock equivalents and debt
securities not meeting the foregoing small company equity market parameters. The
Fund will not invest 25% or more of its assets in any one industry group. The
Fund's investment objective is a fundamental policy of the Fund and may not be
changed without a vote of a majority of the outstanding voting securities of the
Fund. There is no assurance that the Fund's objective will be achieved. See
"Investment Practices and Risk Considerations" for a description of investment
practices of the Fund, including limited investments in foreign securities,
rights and warrants, hedging transactions, illiquid and restricted securities,
and Rule 144A private placements. Such investment practices described therein
are not Fundamental Policies and may be changed without shareholder approval.
ICM, the Fund's Adviser intends to pursue a value-oriented approach in
selecting securities for the Fund's portfolio. This approach seeks to identify
securities whose market value, in the Adviser's view, is less than their
economic value. As part of its value-oriented approach, ICM will seek to
identify companies with attributes which are not fairly valued in the market
place. These companies are often out of favor or not closely followed by
investors and, as a result, may offer the potential for substantial appreciation
over time. In selecting individual securities, ICM will perform in-depth
research and analysis of the issuer, including an analysis of cash flow
generating potential, and may conduct in-person visits or discussions with
management. ICM relies primarily on the knowledge, experience and
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judgment of its own staff, but also receives and uses information from a variety
of outside sources, including brokerage firms, electronic databases, specialized
research firms and technical journals.
As part of its investment approach, ICM looks to select securities for
investment by the Fund on the basis of its belief that the potential exists for
some catalyst to cause a stock's price to rise. Such a catalyst might include,
among other things, one or more of the following: increased investor attention,
asset sales, corporate restructuring or reorganizations, a cyclical turnaround
of a depressed business or industry, a new product/innovation, or significant
changes in management and shifts in the regulatory environment in which the
issuer operates.
The Fund's strategy of investing in small companies utilizing a
value-oriented approach will generally involve a long-term horizon of two to
three years. An investment in the Fund, therefore, should be considered a
long-term holding and not a complete investment program and may not be suitable
for all investors. For a discussion of the risks of investing in smaller
companies, see "Investment Practices and Risk Considerations" below.
There may be periods during which, in the opinion of ICM, market conditions
warrant a reduction of some or all of the Fund's securities holdings. During
such periods, the Fund may adopt a temporary "defensive" posture in which a
higher than usual portion of its total assets would be invested in short-term
liquid assets, cash or cash equivalents.
INVESTMENT PRACTICES AND RISK CONSIDERATIONS
The following is a description of certain investment techniques and the
risks associated therewith that the Fund may utilize. See the "Investment
Policies and Practices" section of the SAI for a description of additional
techniques which may be utilized and further discussion of certain techniques
discussed below.
The annual rate of portfolio turnover is anticipated not to exceed 50%. In
general, the Adviser will not consider the rate of portfolio turnover to be a
limiting factor in determining when or whether to purchase or sell securities in
order to achieve the Fund's objective.
The net asset value of the Fund's Shares will fluctuate with changes in the
market value of the Fund's portfolio securities. The market value of the Fund's
portfolio securities will increase or decrease due to a variety of economic,
market or political factors which cannot be predicted.
STOCKS OF SMALLER COMPANIES. The Fund's strategy of investing in small companies
carries more risk than investment in larger companies. In addition, the Fund may
invest in companies representing some of the
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smallest and least liquid equity securities in the U.S. markets. The low market
liquidity of the Fund's holdings may have an adverse impact on the Fund's
ability to sell certain portfolio securities at favorable prices and may also
make it difficult for the Fund to obtain market quotations based on actual
trades, for purposes of valuing the Fund's portfolio securities.
Investing in lesser-known, smaller capitalization companies involves
greater risk of volatility of the Fund's net asset value than is customarily
associated with larger, more established companies. Often smaller capitalization
companies and the industries in which they are focused are still evolving and,
while this may offer better growth potential than larger, more established
companies, it also may make them more sensitive to changing market conditions.
ICM will seek to minimize the risks described above by diversification of
the Fund's portfolio. However, there can be no assurance that such
diversification will prevent loss in value of certain portfolio securities or in
the Fund's net asset value.
CONVERTIBLE SECURITIES AND DEBT SECURITIES. Convertible securities are bonds,
notes, debentures, preferred stocks and other securities which may be converted
or exchanged at a stated or determinable exchange ratio into shares of common
stock. Convertible securities rank senior to common stock in an issuer's capital
structure and are consequently of higher quality and entail less risk than the
issuer's common stock. The Fund may also invest in nonconvertible preferred
stock consistent with the Fund's objective. As with all debt securities, the
market value of convertible securities tend to increase when interest rates
decline, and conversely, tend to decline when interest rates increase. In
addition, the prices of convertible securities often reflect changes in the
value of the underlying common stock. Although convertible securities purchased
by the Fund may frequently be investment grade, the Fund may also purchase
unrated securities or securities rated below investment grade (those rated lower
than BBB by Standard & Poor's Rating Service ("S&P"), a division of the
McGraw-Hill Companies, Inc., or lower than Baa by Moody's Investors Services,
Inc. ("Moody's")). The Fund reserves the right to invest up to 20% of its assets
in convertible securities and non-convertible debt securities, on an aggregated
basis, which may be unrated or rated below investment grade, provided that they
maintain a minimum grade of CCC by S&P or Caa by Moody's, or, if
unrated, are determined by ICM to be of comparable quality. With respect to
non-convertible debt securities, the Fund does not
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intend to invest more than 20% of its assets in non-convertible debt securities
regardless of their rating. Lower rated debt securities are commonly referred
to as "junk bonds".
Lower-rated securities generally offer a higher current yield than that
available for higher grade issues. However, lower-rated securities involve
higher risks, in that they are especially subject to adverse changes in general
economic conditions and in the industries in which the issuers are engaged, to
changes in the financial condition of the issues and to price fluctuations in
response to changes in interest rates. During periods of economic downturn or
rising interest rates, highly leveraged issuers may experience financial stress
which could adversely affect their ability to make payments of interest and
principal and increase the possibility of default. In addition, the market for
lower-rated debt securities has expanded rapidly in recent years, and its growth
paralleled a long economic expansion. At times in recent years, the prices of
many lower-rated debt securities declined substantially, reflecting an
expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on lower-rated debt securities rose
dramatically. Such higher yields did not reflect the value of the income stream
that holders of such securities expected. The higher yields were instead
reflective of the risk that holders of such securities could lose a substantial
portion of their value as a result of issuers' financial restructuring or
default. There can be no assurance that such declines will not recur. The market
for lower-rated debt issues generally is smaller and less active than that for
higher quality securities, which may limit the Fund's ability to sell such
securities at fair value in response to changes in the economy or financial
markets. Adverse publicity and investor perceptions associated with below
investment grade securities, whether or not based on fundamental analysis, may
also decrease the value of such debt securities.
SHORT SALES AGAINST THE BOX. The Fund may from time to time make short sales of
securities it owns or has the right to acquire through conversion or exchange of
other securities it owns. A short sale is "against the box" to the extent that
the Fund contemporaneously owns or has the right to obtain, at no added cost,
securities identical to those sold short. In a short sale, the Fund does not
immediately deliver the securities sold or receive the proceeds from the sale.
The Fund may not make short sales or maintain a short position if it would cause
more than 25% of the Fund's total assets, taken at market value, to be held as
collateral for the sales.
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The Fund may make a short sale in order to hedge against market risks when
it believes that the price of a security may decline, causing a decline in the
value of a security owned by the Fund or security convertible into, or
exchangeable for, the security, or when the Fund does not want to sell the
security it owns, because, among other reasons, it wishes to defer recognition
of gain or loss for U.S. federal income tax purposes.
FOREIGN SECURITIES. The Fund may invest up to 25% of its total assets in foreign
securities. Investments in foreign securities may involve potential benefits and
risks that are not typically associated with investments in securities of
domestic issuers. Foreign countries may have economic policies or business
cycles different from those of the U.S., and markets for foreign securities do
not necessarily move in a manner parallel to U.S. markets.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign issuer
than about a U.S. issuer. In addition, there is generally less government
regulation of foreign markets, companies and securities dealers than in the
United States. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers are less
liquid and more volatile than securities of comparable domestic issuers.
Investing in the securities of foreign issuers may also be subject to a
decline in the exchange rate of the currency in which a portfolio security is
quoted or denominated relative to the U.S. dollar, thus reducing the value of
the portfolio security. In addition, if the currency in which the Fund receives
dividends, interest or other payments declines in value against the U.S. dollar,
before such income is distributed as dividends to shareholders or converted to
U.S. dollars, the Fund may have to sell portfolio securities to obtain
sufficient cash to pay such dividends. Commissions on transactions in foreign
securities may be higher than those for similar transactions on domestic stock
markets. In addition, clearance and settlement procedures may be different in
foreign countries and, in certain markets, such procedures have on occasion been
unable to keep pace with the volume of securities transactions, thus making it
difficult to conduct such transactions.
The Fund may purchase American Depositary Receipts ("ADRs") or U.S. dollar
denominated securities of foreign issuers. ADRs are receipts
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issued by U.S. banks or trust companies with respect to securities of foreign
issuers held on deposit for use in the U.S. securities markets. While ADRs may
not be denominated in the same currency as the securities into which they may be
converted, many of the risks associated with foreign securities may also apply
to ADRs.
LENDING OF PORTFOLIO SECURITIES. The Fund may, in accordance with applicable
regulatory requirements, lend its portfolio securities to brokers, dealers, and
other financial institutions. Such loans may not exceed 25% of the Fund's total
assets, provided that the Fund may invest without limitation in short-term debt
obligations (including repurchase agreements) and publicly distributed debt
obligations. All loans must be secured by cash or cash equivalents in amounts at
least equal to the market value of the securities loaned. The advantage of such
loans is that the Fund continues to receive the income on the loaned securities
while at the same time earning interest on the cash amounts deposited as
collateral. The Fund may experience a loss or delay in the recovery of its
securities if the institution with which it has entered into a loan transaction
breaches its agreement with the Fund.
RIGHTS AND WARRANTS. The Fund may invest up to 5% of its net assets at the time
of purchase in warrants or rights. In addition, the Fund may acquire rights
and/or warrants which are attached to other securities in its portfolio, or
which are issued as a distribution by the issuer of a security held in its
portfolios. Rights and/or warrants are, in effect, options to purchase equity
securities at a specific price, generally valid for a specific period of time,
and have no voting rights, pay no dividends and have no rights with respect to
the corporation issuing them. The prices of warrants do not necessarily
correlate with the prices of underlying securities.
BORROWING. The Fund is authorized to borrow money for temporary purposes in
amounts not exceeding 5% of its total assets. Additionally, the Fund is
authorized to borrow money up to 33 1/3% of its assets, as permitted by
Investment Company Act of 1940, as amended, (the "1940 Act"), for the purpose of
meeting redemption requests. The Fund will not purchase securities when total
borrowings by the Fund are greater than 5% of its total assets.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements which
typically involve the acquisition by the Fund of debt secu-
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rities from a selling financial institution or broker-dealer. These agreements
provide that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security at a specified price and at
a fixed time in the future, usually not more than seven days from the date of
purchase. While repurchase agreements involve certain risks not associated with
direct investments in debt securities, including the risks of default or
bankruptcy of the selling financial institution, the Fund will review and
monitor the creditworthiness of any institution which enters into a repurchase
agreement with the Fund, and require the maintenance of adequate collateral.
ILLIQUID AND RESTRICTED SECURITIES. The Fund may invest in securities which are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), or which are
otherwise not readily marketable. Limitations on the resale of such securities
may have an adverse effect on their marketability, and may prevent the Fund from
disposing of them promptly at reasonable prices. The Fund may have to bear the
expense of registering such securities for resale and the risk of substantial
delays in effecting such registration. The Fund may not invest more than 15% of
its net assets in illiquid and restricted securities. Securities freely salable
among qualified institutional investors pursuant to Rule 144A under the
Securities Act, may be treated as liquid if they satisfy liquidity standards
established by the Board of Trustees. The continued liquidity of such securities
is not as well assured as that of publicly traded securities and accordingly,
the Board of Trustees will monitor their liquidity.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. From time to time the Fund may
purchase securities on a when-issued or delayed delivery basis or may purchase
or sell securities on a forward commitment basis. When such transactions are
negotiated, the price is fixed at the time of the commitment, but delivery and
payment can take place a month or more after the date of commitment. The Fund
will make such commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement if the Adviser deems
it advisable. The securities so purchased or sold are subject to market
fluctuation and no interest or dividends accrue to the purchaser prior to the
settlement date. At the time the Fund makes the commitment to purchase or sell
securities on a when-issued or delated delivery basis, it will record the
transaction and thereafter reflect the value, each day, of such security
purchased, or, if a sale, the proceeds to be received, in deter-
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mining its net asset value. At the time of delivery of the securities, their
value may be more or less than the purchase or sale price. The Fund will
establish a segregated account in which it will continually maintain cash or
cash equivalents or other liquid portfolio securities equal in value to the
securities purchased on a when-issued or delayed delivery basis.
WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a "when,
as and if issued" basis under which the issuance of the security depends upon
the occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring. The commitment for the purchase of any
such security will not be recognized in the portfolio of the Fund until the
Adviser determines that issuance of the security is probable. At such time, the
Fund will record the transaction and, in determining its net asset value, will
reflect the value of the security daily. At such time, the Fund will also
establish a segregated account in which it will maintain cash or cash
equivalents or other liquid portfolio securities equal in value to recognized
commitments for such securities.
HEDGING TRANSACTIONS. The Fund may utilize techniques to manage risks associated
with exposure to the effects of possible changes in security prices, or other
factors that affect the value of its portfolio. These techniques such as buying
and selling derivative securities such as options, forward foreign currency
exchange contracts, futures contracts, or options on futures contracts, involve
significant risks and may increase the volatility of the Fund. Hedging
transactions may be utilized by the Fund solely for risk management purposes and
not for speculation. No more than 5% of the Fund's net assets will be placed at
risk in hedging transactions.
MANAGEMENT OF THE FUND
The Board of Trustees of the Trust has overall responsibility for
management and supervision of the Fund. ICM, a Massachusetts limited liability
company with its principal office at One International Place, Boston,
Massachusetts 02110, acts as the Fund's Adviser pursuant to an Advisory
Agreement between ICM and the Trust. ICM was formed in August 1997, and
therefore, ICM has no previous experience in advising a mutual fund. Mr. Warren
J. Isabelle, CFA and Mr. Richard L. Droster are the controlling principals of
ICM, and are officers and Trustees of the Trust. Mr. Isabelle provided sixty
five percent and Mr. Droster provided thirty five percent, respectively of the
Trust's initial investment capital and, therefore, as of the date of this
Prospectus, own all of the initial outstanding shares of the Fund in such
proportionate amounts, and may be regarded to be control persons of the Fund.
Mr.
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Isabelle is the Fund's portfolio manager and primarily responsible for the
day-to-day and overall management of the Fund's portfolio. Until January 1997,
Mr. Isabelle was Senior Vice President and Head of Domestic Equity Management
for Pioneer Mutual Funds, and portfolio manager of Pioneer Capital Growth Fund
and Pioneer Small Company Fund. He managed Pioneer Capital Growth Fund since its
inception in July 1990 and Pioneer Small Company Fund since its inception in
November 1995 until January 1997. From February 1997 to May 1997, Mr. Isabelle
was Senior Vice President and Chief Investment Officer of Equities at Keystone
Investment Management Company.
Under the terms of its Advisory Agreement with the Trust, ICM is
responsible for supervising the investment activities of the Fund and is
authorized in its discretion to determine the securities to be purchased, sold
or otherwise disposed of by the Fund and the timing of such purchases, sales and
dispositions. ICM is responsible for all the expenses related to its services
for the Fund, with the exception of certain expenses which are to be paid by the
Fund, which include the charges and expenses of auditors; the charges and
expenses of any administrator, custodian, transfer agent, plan agent, dividend
disbursing agent and registrar appointed by the Trust with respect to the Fund;
fees and expenses involved in registering and maintaining registrations of the
Fund and/or its shares with regulatory agencies, individual states or blue sky
securities agencies, including the preparation of prospectuses and SAI for
filing with regulatory agencies; and distribution fees paid by the Fund with
respect to Investment Class Shares in accordance with Rule 12b-1 promulgated by
the SEC pursuant to the 1940 Act. See the SAI for a further description of the
Advisory Agreement.
As compensation for its management services and certain expenses which ICM
incurs, ICM is entitled to a management fee equal to 1.00% per annum of the
Fund's average daily net assets. This fee is computed daily and paid monthly.
See "Expense Information" in this Prospectus and "Investment Adviser" in the
SAI.
ADMINISTRATOR AND TRANSFER AND DIVIDEND DISBURSING AGENT. Investor Services
Group, a subsidiary of First Data Corporation, located at 4400 Computer Drive,
Westborough, Massachusetts 01581, serves as the Fund's Administrator pursuant to
an Administration Agreement with the Fund. Under the terms of the Administration
Agreement, Administrator is entitled to receive administration fees based on the
value of the aggregate average daily net
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assets of the Fund and any other fund offered by the Trust to which the
Administrator provides administrative services, computed daily and payable
monthly at a rate of 0.12% of the first $150 million of net assets; 0.15% of net
assets between $150 million and $500 million of net assets; 0.12% of next $500
million to $750 million in net assets; 0.09% of next $750 million to $1.5
billion in net assets; 0.075% of next $1.5 billion to $2.5 billion in net
assets; 0.05% of next $2.5 billion to $5 billion in net assets and 0.025% of net
assets in excess of $5 billion, subject to a minimum annual charge $55,000 per
fund. A separate fee of $35,000 per annum per Fund and $5,000 per class above
one class per annum, will be charged for fund accounting services. Investor
Services Group, 4400 Computer Drive, Westborough, Massachusetts 01581 is also
the Fund's Transfer and Dividend Disbursing Agent.
CUSTODIAN. The Fifth Third Bank, located at 37 Fountain Square Plaza,
Cincinatti, Ohio 45263, is the Custodian of the Fund's investments.
DISTRIBUTOR. FDDI, 4400 Computer Drive, Westborough, Massachusetts 01581, serves
as the distributor of the Fund's Shares. FDDI is a subsidiary of Investor
Services Group. FDDI is not compensated for its services as Distributor.
YEAR 2000 COMPLIANCE. The Fund's operations depend on the seamless functioning
of computer systems in the financial services industry, including those of the
Adviser, the Custodian and the Transfer Agent. The failure of computer systems
to properly process date-related information after December 31, 1999 because of
the method by which dates are encoded could adversely affect the handling of
securities trades, pricing and account servicing for the Fund. The Adviser has
made Year 2000 Compliance a high priority and is taking steps that it believes
are reasonably designed to address Year 2000 issues with respect to its computer
systems. The Adviser also has been informed that comparable steps are being
taken by the Fund's other major service providers. The Adviser does not
currently anticipate that the Year 2000 issues will have a material impact on
its ability to fulfill its duties as investment adviser to the Fund.
HOW TO PURCHASE FUND SHARES
The Fund continuously offers two classes of Shares designated as Investment
Class Shares and Institutional Class Shares. Institutional Class Shares are
offered exclusively to institutional investors, such as employee benefit plans,
other tax-exempt institutions, corporations and other individual purchasers of
shares in amounts greater than or equal to $500,000 ("Institutional Buyers").
The Shares of the Fund are sold without a sales charge. You may be charged a
nominal fee, if you effect transactions in Shares through a securities dealer,
bank or other financial institution. No certificates are issued for shares. The
Fund reserves the right to reject any purchase order.
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Minimum Investment and Minimum Balance Requirements:
- - INVESTMENT CLASS SHARES (individual investors)
TYPE OF ACCOUNT TO OPEN AN ACCOUNT MINIMUM ADDITION MINIMUM BALANCE*
- --------------- ----------------- ---------------- ----------------
Individual or joint $1,000 $100 $1,000
IRA $1,000 $100 $1,000
Automatic Investment $1,000 $100 $1,000
Plan (AIP)
- - INSTITUTIONAL CLASS SHARES (generally institutional investors)
TYPE OF ACCOUNT TO OPEN AN ACCOUNT MINIMUM ADDITION MINIMUM BALANCE**
- --------------- ------------------ ---------------- -----------------
Qualified Account $500,000 $50,000 $250,000
*To minimize expenses to all shareholders, the Trust reserves the right to close
any account which does not meet the minimum account size. If an account falls
below the minimum balance, the owner will be notified and given 45 days to meet
the minimum or establish automatic investments that total at least $1,200 per
year. If the 45 day deadline is not met, the Trust will redeem the Shares in the
account and send the proceeds to the address of record. See "Involuntary
Redemption" under "How to Redeem Fund Shares."
**The Trust may waive institutional account minimums if it is deemed
economically feasible and in the best interest of existing shareholders. This
may include agreeing to a letter of intent to meet the stated minimums in a
specified time period. Employees and Trustees of the Trust may purchase
institutional shares for their personal accounts. See "Involuntary Redemptions"
under "How to Redeem Fund Shares."
The initial investment must be accompanied or preceded by the Fund's Account
Application. The Fund reserves the right to vary the initial and subsequent
investment minimum requirements at any time.
You may purchase Shares by check or wire. Checks should be made payable to "ICM
Series Trust." For subsequent investments, your Fund account number should
appear on the check. Payments which are mailed should be sent to ICM Series
Trust, P.O. Box 5182, Westborough, Massachusetts 01581-5182, together with your
investment slip or, when opening a new account, your Account Application,
indicating the class of Shares being purchased. Neither initial nor subsequent
investments may be made by third party check.
Wire payments may be made if your bank account is in a commercial bank that is a
member of the Federal Reserve System. Immediately available funds may be
transmitted by wire to Boston Safe Deposit and Trust Company (ABA #011001234),
together with the name of the Fund and the Fund's DDA number, 145,718, for
purchase of Shares in your name.
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The wire must include your Fund account number (for new accounts, your Taxpayer
Identification Number ("TIN") should be included instead), and account
registration and dealer number, if applicable. If your initial purchase of Fund
Shares is by wire, please call 1-800-472-6114 after completing your wire payment
to obtain your Fund account number. Please include your Fund account number on
your Account Application and promptly mail the Account Application to the Fund,
as no redemptions will be permitted until the Account Application is received.
You may obtain further information about remitting funds in this manner from
your bank. All payments should be made in U.S. dollars and, to avoid fees and
delays, should be drawn only on U.S. banks. A charge will be imposed if any
check used for investment in your account does not clear. The Fund makes
available to certain large institutions the ability to issue purchase
instructions through compatible computer facilities.
Subsequent investments also may be made by electronic transfer of funds from an
account maintained in a bank or other domestic financial institution that is an
Automated Clearing House member. You must direct the institution to transmit
immediately available funds through the Automated Clearing House to Boston Safe
and Trust Deposit Company with instructions to credit your Fund account. The
instructions must specify your Fund account registration and your Fund account
number preceded by the digits "001" for Investment Class Shares and "101" for
Institutional Class Shares.
ICM SERIES TRUST AUTOMATIC INVESTMENT PLAN ("AIP") (INVESTMENT CLASS SHARES
ONLY). ICM Series Trust permits you to purchase Investment Class Shares (minimum
of $100 per transaction at regular intervals selected by you). Shares are
purchased by transferring funds from the bank account designated by you. At your
option, the bank account will be debited in the specified amount, and Shares
will be purchased, once a month on either the first or fifteenth day, or twice a
month, on both days. Only an account maintained at a domestic financial
institution which is an Automated Clearing House member may be so designated. To
establish an AIP account, you must file an authorization form with the Transfer
Agent. You may obtain the necessary authorization form by calling
1-800-472-6114. You may cancel your participation in this privilege or change
the amount of purchase at any time by mailing written notification to ICM Series
Trust, P.O. Box 5182, Westborough, Massachusetts 01581-5182, and the
notification will be effective ten business days following receipt. The Trust
may modify or terminate this privilege at any time or charge a service fee. No
such fee currently is contemplated. As noted above, under
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<PAGE> 18
the AIP, the Trust requires that you establish automatic investments that total
$1,200 per year.
DETERMINATION OF NET ASSET VALUE. Shares of the Fund are sold on a continuous
basis at the net asset value per share next determined after an order in proper
form is received and accepted by the Transfer Agent. Net asset value per share
of each class of Shares of the Fund is determined by dividing the value of its
assets, less liabilities attributable to that class, by the number of
outstanding shares of that class. The net asset value is computed once daily, as
of the close of regular trading on the New York Stock Exchange ("NYSE")
(currently 4:00 p.m., New York time) each day the NYSE is open for business.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the NYSE or American Stock Exchange or other
stock exchange or quoted by NASDAQ is valued at its latest sale price on that
exchange or quotation service prior to the time assets are valued; if there were
no sales that day and for securities traded on the other over-the-counter
markets, the security is valued at the mean between the most recently quoted bid
and asked prices; (2) when market quotations are not readily available,
including circumstances under which it is determined by the Adviser that sale or
bid prices are not reflective of a security's market value, portfolio securities
are valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Trust's Trustees;
(3) the value of short-term debt securities which mature at a date less than
sixty days subsequent to valuation date will be determined on an amortized cost
basis; and (4) the value of other assets will be determined in good faith at
fair value under procedures established by and under the general supervision of
the Trust's Trustees. Dividends receivable are accrued as of the ex-dividend
date. Interest income is accrued daily.
The Fund does not accept purchase and redemption orders on days the NYSE
is closed. The NYSE is currently scheduled to be closed on the following
holidays; New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day (observed), Independence Day, Labor Day, Thanksgiving and Christmas
day, and on the preceding Friday or subsequent Monday when one of these holidays
fall on a Saturday or Sunday, respectively.
Federal regulations require that you provide a certified TIN upon opening
or reopening an account. See the Fund's Account Application for further
information concerning this requirement. Failure to furnish a
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<PAGE> 19
certified TIN to the Fund could subject you to a $50 penalty imposed by the
Internal Revenue Service (the "IRS").
RETIREMENT PLANS. Shares of the Fund may be purchased in connection with
various types of tax deferred retirement plans, including but not limited to
individual retirement accounts ("IRAs"), Roth IRAs, educational IRAs and other
qualified plans. An individual or organization considering the establishment of
a retirement plan, should consult with an attorney and an accountant with regard
to the terms and tax aspects of the plan.
CLOSING THE FUND. The Fund intends to close to new investors when the
Fund's total assets equal or exceed $500 million. After the Fund closes to new
investors, the Fund expects to allow existing shareholders to make additional
investments in the Fund and at all times will permit shareholders to reinvest
dividends and capital gains distributions. The Trustees reserve the right to
close and re-open the Fund to new or existing shareholders at any time after the
Fund is closed.
The Fund intends to close when it reaches approximately $500 million in
total assets, not on a specific date. SHAREHOLDERS WILL NOT BE INFORMED IN
ADVANCE OF THE DATE ON WHICH THE FUND WILL CLOSE.
HOW TO REDEEM FUND SHARES
GENERAL. You may request redemption of your Shares at any time. Redemption
requests should be transmitted in accordance with the procedures described
below. When a request is received in proper form, the Fund will redeem the
Shares at the next determined net asset value.
Securities dealers, banks and other financial institutions may charge a
fee for affecting redemptions of Fund Shares. The value of the Shares
redeemed may be more or less than their original cost, depending upon the Fund's
then current net asset value.
The Fund ordinarily will make payment for all Shares redeemed within seven
days after receipt by the Transfer Agent of a redemption request in proper form,
except as provided by the rules of the SEC.
HOWEVER, IF YOU HAVE PURCHASED FUND SHARES BY CHECK OR THROUGH THE ICM
SERIES TRUST AIP AND SUBSEQUENTLY SUBMIT A WRITTEN REDEMPTION REQUEST TO THE
TRANSFER AGENT, THE REDEMPTION PROCEEDS WILL BE TRANSMITTED TO YOU PROMPTLY UPON
BANK CLEARANCE OF YOUR PURCHASE CHECK OR AIP ORDER, WHICH MAY TAKE EIGHT (8)
BUSINESS DAYS OR MORE BUT WILL NOT EXCEED FIFTEEN (15) CALENDAR DAYS. IN
ADDITION, THE FUND WILL REJECT REQUESTS TO REDEEM
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<PAGE> 20
SHARES BY WIRE OR TELEPHONE FOR A PERIOD OF EIGHT (8) BUSINESS DAYS AFTER
RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE CHECK OR THE AIP ORDER AGAINST
WHICH SUCH REDEMPTION IS REQUESTED. THESE PROCEDURES WILL NOT APPLY IF YOUR
SHARES WERE PURCHASED BY WIRE PAYMENT, OR IF YOU OTHERWISE HAVE A SUFFICIENT
COLLECTED BALANCE IN YOUR ACCOUNT TO COVER THE REDEMPTION REQUEST. PRIOR TO THE
TIME ANY REDEMPTION IS EFFECTIVE, DIVIDENDS ON SUCH SHARES WILL ACCRUE AND BE
PAYABLE, AND YOU WILL BE ENTITLED TO EXERCISE ALL OTHER RIGHTS OF BENEFICIAL
OWNERSHIP.
Shares will not be redeemed until the Transfer Agent has received your
Account Application.
The Fund offers a systematical withdrawal option. For further information
please call the Transfer Agent at 1-800-472-6114.
PROCEDURES. You may redeem Shares by using the regular redemption procedure
through the Transfer Agent, or, if you have checked the appropriate box and
supplied the necessary information on the Account Application or have filed a
Shareholder Services Form with the Transfer Agent, through the Wire Redemption
Privilege or the Telephone Redemption Privilege. The Trust reserves the right to
refuse any request made by wire or telephone, including requests made within
thirty (30) days after a change of address, and may limit the amount involved or
the number of such requests.
The Trust may modify or terminate any redemption privilege at any time or
charge a service fee upon notice to shareholders. No such fee is currently
contemplated. However, the Fund's Transfer Agent charges a $20 fee for each wire
redemption.
You may redeem Shares by telephone if you have checked the appropriate box
on the Account Application or have filed a Shareholder Services Form with the
Transfer Agent. If you select a Telephone Redemption Privilege (which is granted
automatically unless you refuse it), you authorize the Transfer Agent to act on
telephone instructions from any person representing himself or herself to be you
and reasonably believed by the Transfer Agent to be genuine. The Trust will
require the Transfer Agent to employ reasonable procedures, such as requiring a
form of personal identification, to confirm that instructions are genuine and,
if it does not follow such procedures, the Trust or the Transfer Agent may be
liable for any losses due to unauthorized or fraudulent instructions. Neither
the Trust nor the Transfer Agent will be liable for following telephone
instructions reasonably believed to be genuine.
During times of drastic economic or market conditions, you may experience
difficulty in contacting the Transfer Agent by telephone to request a redemption
of Fund Shares. In such cases, you should consider using the other redemption
procedures described herein. Use of these other redemption procedures may result
in your redemption request being processed at
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<PAGE> 21
a later time than it would have been if telephone redemption had been used.
During the delay, the Fund's net asset value may fluctuate.
REGULAR REDEMPTION. Under the regular redemption procedure, you may redeem
your Shares by written request mailed to ICM Series Trust., P.O. Box 5182,
Westborough, Massachusetts 01581-5182. Redemption requests must be signed by
each shareholder, including each owner of a joint account. You must provide a
signature guarantee if (1) you are redeeming shares worth more than $50,000; (2)
you are requesting that the proceeds check be made out to someone other than the
registered owners or be sent to an address other than the record address; (3)
the account registration has changed within the last thirty days; or (4) you are
instructing us to wire the proceeds to a bank account not designated on your
Account Application. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be accepted
from domestic banks, brokers, dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies and savings
associations, as well as from participants in the NYSE Medallion Signature
Program, the Securities Transfer Agents Medallion Program ("STAMP"), and the
Stock Exchanges Medallion Program. If you have any questions with respect to
signature-guarantees, please call 1-800-472-6114.
WIRE REDEMPTION PRIVILEGE. You may request by wire or telephone that
redemption proceeds (minimum $1,000) be wired to your account at a bank which is
a member of the Federal Reserve System, or a correspondent bank if your bank is
not a member. The Transfer Agent currently charges $20 for each wire redemption.
You also may direct that redemption proceeds be paid by check (maximum $150,000
per day) made out to the owners of record and mailed to your address. Redemption
proceeds of less than $1,000 will be paid automatically by check. Holders of
jointly registered Fund or bank accounts may have redemption proceeds of only up
to $250,000 wired within any thirty day period. You may make telephone
redemption requests by calling 1-800-472-6114. The SAI sets forth instructions
for transmitting redemption requests by wire. Shares held under retirement plans
are not eligible for this privilege.
TELEPHONE REDEMPTION PRIVILEGE. You may request by telephone that
redemption proceeds (maximum $50,000 per day) be paid by check and mailed to
your address. You may make telephone redemption instructions
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<PAGE> 22
by calling 1-800-472-6114. Shares held under retirement plans are not eligible
for this privilege.
Redemptions may be suspended or payment postponed during any period in
which any of the following conditions exist: the NYSE is closed or trading on
the NYSE is restricted; an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund to fairly determine the value of the net
assets of its portfolio; or the SEC, by order, so permits.
INVOLUNTARY REDEMPTION. As noted above under "How to Purchase Fund Shares -
Minimum Investment and Minimum Balance Requirements", the Trust reserves the
right to redeem your account at its option upon not less than 45 days' written
notice if your account's minimum balance is $1,000 or less for Investment Class
Shares and $250,000 or less for Institutional Class Shares and remains so during
the notice period. In addition, automatic investments in the AIP must total at
least $1,200 annually.
Redemptions are taxable transactions to shareholders. The net asset value
per Share received upon redemption or repurchase may be more or less than the
cost of Shares to an investor, depending on the market value of the Fund's
portfolio at the time of redemption or repurchase.
DISTRIBUTION PLAN (INVESTMENT CLASS SHARES ONLY)
The Trustees of the Trust have adopted a distribution plan (the "Plan")
with respect to the Investment Class Shares pursuant to Section 12(b) of the
1940 Act and Rule 12b-1 thereunder. Under the Plan, the Fund compensates FDDI,
Distributor of the Fund, at a fee calculated at an annual rate of 0.25 of the
value of the average daily net assets attributable to the Investment Class
Shares for distribution expenses borne, or paid to others, by FDDI. The Plan
permits payment for distribution expenses borne, or paid to others, by FDDI for
the purpose of financing or assisting in the financing of any activity which is
primarily intended to result in the sale of the Investment Class Shares of the
Fund. The types of distribution expenses
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<PAGE> 23
covered include, but are not limited to, the costs and expenses of direct
marketing activities, the design, preparation, printing and distribution of
promotional materials, advertising and offering materials, and shareholder
materials; the compensation of securities dealers, and other financial
intermediaries for sales activities. Amounts payable under the Plan are charged
to Investment Class Shares of the Fund and therefore reduce income allocated to
the Investment Class Shares. Payments under the Plan are not tied exclusively to
the distribution expenses actually incurred by the Distributor and the payments
may exceed distribution expenses actually incurred.
DIVIDENDS, DISTRIBUTIONS AND TAXATION
The Fund has elected to be treated and intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, (the "Code"), so that it will not pay federal income tax on income and
capital gains distributed to shareholders as required under the Code.
Under the Code, the Fund will be subject to a nondeductible 4% excise tax
on a portion of its undistributed ordinary income and capital gains if it fails
to meet certain distribution requirements with respect to each calendar year.
The Fund intends to make distributions in a timely manner and accordingly does
not expect to be subject to the excise tax.
The Fund makes distributions to shareholders from its net long-term capital
gains and income dividends, if any, at least annually. Dividends from income
and/or capital gains may also be paid at such other times as may be necessary
for the Fund to avoid federal income or excise tax. Generally, dividends from
the Fund's net investment income, market discount income, net short-term capital
gains, and certain net foreign exchange gains are taxable under the Code as
ordinary income, and dividends from the Fund's net long-term capital gains are
taxable as long-term capital gains.
Unless shareholders specify otherwise, all distributions will be
automatically reinvested in additional full and fractional Shares of the Fund.
For federal income tax purposes, all dividends are taxable as described above
whether a shareholder takes them in cash or reinvests them in additional Shares
of the Fund. Information as to the federal tax status of dividends and
distributions will be provided to shareholders annually.
Distributions by the Fund of the dividend income it receives from U.S.
domestic corporations, if any, may qualify for the dividends-received
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<PAGE> 24
deduction for corporate shareholders, subject to holding-period requirements and
debt-financing restrictions under the Code.
The Fund may be subject to foreign withholding taxes or other foreign taxes
on income (possibly including, in some cases, capital gains) on certain of its
foreign investments, which will reduce the yield on, or return from those
investments. If, as anticipated, the Fund does not qualify to pass such taxes
through to its shareholders, they will neither treat such taxes as additional
income nor be entitled to any associated foreign tax credits or deductions.
Dividends and other distributions and the proceeds of redemptions,
exchanges or repurchases of Fund Shares paid to individuals and other non-exempt
payees will be subject to 31% backup withholding of federal income tax if the
Fund is not provided with the shareholder's correct TIN and certification that
the number is correct and that the shareholder is not subject to backup
withholding or the Fund receives notice from the IRS or a broker that such
withholding applies. Please refer to the Account Application for additional
information.
The description above relates only to U.S. federal income tax consequences
for shareholders who are U.S. persons, i.e., U.S. citizens or residents or U.S.
corporations, partnerships, trusts or estates, and who are subject to U.S.
federal income tax. Non-U.S. shareholders and tax-exempt shareholders may be
subject to tax treatment that is different than described above. Shareholders
should consult their own tax advisors regarding state, local and other
applicable tax laws.
THE TRUST
The Fund is a diversified series of the Trust, an open-end management
investment company (commonly referred to as a mutual fund) organized as a
Massachusetts business trust on November 18, 1997. The Trust has authorized an
unlimited number of shares of beneficial interest. As an open-end management
investment company, the Trust continuously offers its shares to the public and
under normal conditions must redeem its Shares upon the demand of any
shareholder at the then current net asset value per share. See "How to Redeem
Fund Shares." The Trust is not required, and does not intend, to hold annual
shareholder meetings although special meetings may be called for the purpose of
electing or removing Trustees, changing fundamental investment restrictions or
approving an advisory contract. The Fund is currently the only series of the
Trust. The Trustees have the authority, without further shareholder approval, to
classify shares of beneficial interests in separate series. Additional series
may be added in the future. The Trustees also have authority
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to classify and reclassify any series or portfolio into one or more classes. As
of the date of this Prospectus, the Trustees have authorized the issuance of two
classes of Shares, designated as Investment Class Shares and Institutional Class
Shares. The Shares of each class represent an interest in the same portfolio of
investments of the Fund. Each class has equal rights as to voting, redemption,
dividends and liquidation, except that each class bears different distribution
fees and may bear other expenses properly attributable to the particular class.
Investment Class shareholders have exclusive voting rights with respect to the
Rule 12b-1 distribution plan adopted by holders of those shares in connection
with the distribution of shares.
When issued and paid for in accordance with the terms of the Prospectus and
SAI, Shares of the Trust are fully-paid and non-assessable. The Trust does not
issue certificates representing Shares. Instead, the Transfer Agent maintains a
record of your ownership and sends confirmations and statements of account. In
the event of liquidation, shareholders are entitled to share pro rata in the net
assets of the Fund available for distribution to such shareholders. Shares have
no preemptive, subscription or conversion rights. Shareholders are entitled to
one vote per Share, provided that, at the option of the Trustees, shareholders
will be entitled to a number of votes based upon the net asset values
represented by their Shares.
Shareholder inquiries may be made by writing the Fund at P.O. Box 5182,
Westborough, Massachusetts 01581-5182, or by calling 1-800-472-6114.
The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least a majority of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting for any purpose.
PERFORMANCE RESULTS
The average annual total return (for a designated period of time) on an
investment in the Fund may be included in advertisements, and furnished to
existing or prospective shareholders. The average annual total return for each
class is computed in accordance with the SEC's standardized formula. The
calculation for each class assumes the reinvestment of all dividends and
distributions at net asset value and does not reflect the impact of federal or
state income taxes. The periods illustrated would normally include one, three,
five and ten years (or since the commencement of the public offering of the
shares of a class, if shorter) through the most recent calendar quarter.
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<PAGE> 26
One or more additional measures and assumptions, including but not limited
to historical total returns; distribution returns; results of actual or
hypothetical investments; changes in dividends, distributions or share values;
or any graphic illustration of such data may also be used. These data may cover
any period of the Fund's existence and may or may not include the impact of
taxes or other factors.
Other investments or savings vehicles and/or unmanaged market indices,
indicators of economic activity or averages of mutual funds results may be cited
or compared with the investment results of the Fund. Rankings or listings by
magazines, newspapers or independent statistical or rating services, such as
Lipper Analytical Services, Inc., may also be referenced.
The Fund's investment results will vary from time to time depending on
market conditions, the composition of the Fund's portfolio and operating
expenses of the Fund. All quoted investment results are historical and should
not be considered representative of what an investment in the Fund may earn in
any future period. For further information about the calculation methods and
uses of the Fund's investment results, see the SAI.
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<PAGE> 27
ICM SERIES TRUST
ICM/ISABELLE SMALLCAP VALUE FUND
4400 Compute Drive
Westborough, Massachusetts 01581
Investment Class Shares
Institutional Class Shares
STATEMENT OF ADDITIONAL INFORMATION
February xx, 1998
ICM Series Trust (the "Trust") is an open-end management investment
company. Currently, the Trust offers one investment portfolio, ICM/Isabelle
Smallcap Value Fund (the "Fund"). The Fund currently offers two classes of
Shares, Investment Class Shares ("Investment Class Shares") and Institutional
Class Shares ("Institutional Class Shares", together with Investment Class
Shares, the "Shares").
This Statement of Additional Information ("SAI") is not a prospectus, but
should be read in conjunction with the Prospectus for the Fund dated February
xx, 1998, A copy of the Prospectus can be obtained free of charge by calling
1-800-472-6114 or by written request to the Trust at P.O. Box 5182, Westborough,
Massachusetts 01581-5182.
Ironwood Capital Management, LLC ("ICM" or the "Adviser") serves as the
Trust's investment adviser. First Data Investor Services Group, Inc. ("Investor
Services Group") serves as the Trust's administrator and transfer agent. First
Data Distributors, Inc. ("FDDI" or the "Distributor") serves as the Fund's
distributor.
<PAGE> 28
TABLE OF CONTENTS
Page
The Fund ........................................................ 3
Investment Policies and Practices................................ 3
Investment Restrictions.......................................... 7
Management of the Fund........................................... 8
Investment Adviser............................................... 9
Distribution Plan................................................ 10
Administrator.................................................... 11
Transfer Agent................................................... 11
Custodian........................................................ 11
Distributor...................................................... 12
Independent Public Accountants................................... 12
Purchase of Fund Shares.......................................... 12
Redemption of Fund Shares........................................ 12
Portfolio Transactions........................................... 13
Taxes............................................................ 14
Description of Shares............................................ 17
Shareholder and Trustee Liability................................ 18
Determination of Net Asset Value................................. 19
Investment Results............................................... 19
Registration Statement........................................... 20
Experts ......................................................... 21
Legal Counsel ................................................... 21
Independent Auditor's Report .................................... 22
Appendix......................................................... A-1
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS
AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
2
<PAGE> 29
THE FUND
The Fund is a series of the ICM Series Trust, an open-end management
investment company offering redeemable shares of beneficial interest. As of the
date of this SAI, the Fund is the only series of the Trust.
INVESTMENT POLICIES AND PRACTICES
The Fund's current prospectus (the "Prospectus") presents the investment
objective and principal investment policies of the Fund. Additional investment
policies and a further description of some of the policies described in the
Prospectus appear below.
CONVERTIBLE SECURITIES AND DEBT SECURITIES
The Fund may invest in convertible securities as described in the
Prospectus. The common stock underlying convertible securities may be issued by
a different entity than the issuer of the convertible securities. Convertible
securities entitle the holder to receive interest payments paid on corporate
debt securities or the dividend preference on a preferred stock until such time
as the convertible security matures or is redeemed or until the holder elects to
exercise the conversion privilege.
The value of convertible securities is influenced by both the yield of
non-convertible securities of comparable issuers and by the value of a
convertible security viewed without regard to its conversion feature (i.e.,
strictly on the basis of its yield), sometimes referred to as its "investment
value." The investment value of the convertible security will typically
fluctuate inversely with changes in prevailing interest rates. However, at the
same time, the convertible security will be influenced by its "conversion
value," which is the market value of the underlying common stock that would be
obtained if the convertible security were converted. Conversion value fluctuates
directly with the price of the underlying common stock.
By investing in convertible securities, the Fund obtains the right to
benefit from the capital appreciation potential in the underlying stock upon
exercise of the conversion right, while earning higher current income than would
be available if the stock were purchased directly. In determining whether to
purchase a convertible security, ICM will consider the same criteria that would
be considered in purchasing the underlying stock.
The Fund reserves the right to invest up to 20% of its assets in
convertible and non-convertible debt securities, on an aggregated basis, which
may be unrated or rated below investment grade, ratings lower than BBB by
Standard & Poor's Rating Service ("S&P"), a division of McGraw-Hill Companies,
Inc. or lower than Baa by Moody's Investors Services, Inc. ("Moody's"), provided
that they maintain a minimum grade of CCC by S&P or Caa by Moody's,
or, if unrated, are determined by ICM to be of comparable quality. With respect
to non-convertible debt securities, the Fund may not invest more than 20% of its
assets in non-convertible debt securities regardless of their rating.
Lower-rated securities generally offer a higher current yield than that
available for higher grade issues. However, lower-rated securities involve
higher risks, in that they are especially subject to adverse changes in general
economic conditions and in the industries in which the issuers are engaged, to
changes in the financial condition of the issues and to price fluctuations in
response to changes in interest rates. During periods of economic downturn or
rising interest rates, highly leveraged issuers may experience financial stress
which could adversely affect their ability to make payments of interest and
principal and increase the possibility of default. In addition, the market for
lower-rated debt securities has expanded rapidly in recent years, and its growth
paralleled a long economic expansion. At times in recent years, the prices of
many lower-rated debt securities declined substantially, reflecting an
expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on lower-rated debt securities rose
dramatically. Such higher yields did not reflect the value of the income stream
that holders of such securities expected. The higher yields reflected instead,
the risk that holders of such securities could lose a substantial portion of
their value as a result of issuers' financial restructuring or default. There
can be no assurance that such declines will not recur. The market for
lower-rated debt issues generally is smaller and less active than that for
higher quality securities, which may limit the Fund's ability to sell such
securities at fair value in response to changes in the economy or financial
markets. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may also decrease the values and prevailing levels of
interest rates
3
<PAGE> 30
which generally increase the value of debt securities, while an increase in
rates usually reduces the value of those securities.
RIGHTS AND WARRANTS
As stated in the Prospectus, the Fund may purchase rights or warrants,
which are privileges issued by corporations enabling owners to subscribe to and
purchase a specified number of shares of the corporation at a specified price
during a specified period of time. Subscription rights normally have a short
life span to expiration. The purchase of a warrant involves the risk that the
Fund could lose the purchase value of a warrant if the right to subscribe to
additional shares is not exercised prior to the warrants expiration. Also, the
purchase of warrants involves the risk that the effective price paid for the
warrant added to the subscription price of the related security may exceed the
value of the subscribed security's market price, such as when there is no
movement in the level of the underlying security.
LENDING OF PORTFOLIO SECURITIES
The Fund may lend its portfolio securities to registered brokers, dealers
and other financial institutions, provided that such loans are continuously
collateralized by cash or cash equivalents, which are maintained in an amount
that is at least the market value of the loaned securities. The advantage of
such loans is that the Fund continues to receive the income on the loaned
securities while at the same time earning interest on the cash amounts deposited
as collateral, which will be invested in short-term obligations. The Fund will
not lend more than 25% of the value of its total assets. As with any extensions
of credit, there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower of the securities fail financially.
However, these loans of portfolio securities will only be made to firms deemed
by the Fund's management to be creditworthy. The creditworthiness of firms to
which the Fund lends its portfolio securities will be monitored on an ongoing
basis by ICM pursuant to procedures adopted and reviewed, on an ongoing basis,
by the Board of Trustees.
When voting or consent rights which accompany loaned securities pass to
the borrower, the Fund will follow the policy of calling the loaned securities,
to be delivered within one day after notice, to permit the exercise of such
rights if the matters involved would have a material effect on the Fund's
investment in such loaned securities.
FOREIGN SECURITIES
The Fund may invest up to 25% of its total assets in foreign securities.
Foreign investments can involve significant risks in addition to the risks
inherent in U.S. investments. The value of securities denominated in or indexed
to foreign currencies, and of dividends and interest from such securities, can
change significantly when foreign currencies strengthen or weaken relative to
the U.S. dollar. Foreign securities markets generally have less trading volume
and less liquidity than U.S. markets, and prices on some foreign markets can be
highly volatile. Many foreign countries lack uniform accounting and disclosure
standards comparable to those applicable to U.S. companies, and it may be more
difficult to obtain reliable information regarding an issuer's financial
condition and operations. In addition, the costs of foreign investing, including
withholding taxes, brokerage commissions, and custodial costs, generally are
higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic or social instability, military action or unrest, or adverse diplomatic
developments. There can be no assurance that the Adviser will be able to
anticipate or counter these potential events and their impacts on the Fund's
share price.
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<PAGE> 31
Subject to the 25% limitation on investments in foreign securities, the
Fund may invest in securities of foreign issuers held by the Fund in the form of
American Depositary Receipts ("ADRs"). ADRs are certificates evidencing
ownership of shares of a foreign-based issuer held in trust by a bank or similar
financial institution.
BORROWING
The Fund is authorized to borrow money in amounts up to 5% of the value of
its total assets at the time of such borrowing for temporary purposes, and is
authorized to borrow money in excess of the 5% limit as permitted by the
Investment Company Act of 1940, as amended (the "1940 Act"), to meet redemption
requests. The Fund will not purchase securities while its borrowings exceed 5%
of its total assets. The Fund has no intention of increasing its net income
through borrowing. Any borrowing will be done from a bank with the required
asset coverage of at least 300%. If the 300% asset coverage should decline as a
result of market fluctuations or other reasons, the Fund may be required to sell
some of its holdings within three days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at the time. The Fund may also be required to
maintain average balances in connection with such borrowing or to pay a
commitment or other fees to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest rate.
ILLIQUID AND RESTRICTED SECURITIES
The Fund may not invest more than 15% of its net assets in illiquid
securities, including (i) securities for which there is no readily available
market; (ii) securities the disposition of which would be subject to legal
restrictions (so-called "restricted securities"); and (iii) repurchase
agreements having more than seven days to maturity. A considerable period of
time may elapse between the Fund's decision to dispose of such securities and
the time when the Fund is able to dispose of them, during which time the value
of the securities could decline. Restricted securities do not include those
which meet the requirements of Rule 144A of the Securities Act of 1933, as
amended (the "Securities Act") and which the Trustees have determined to be
liquid based on the applicable trading markets.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately placed but are
eligible for purchase and sale under Rule 144A under the Securities Act, which
permits the Fund to sell restricted securities to qualified institutional buyers
without limitation. ICM, pursuant to procedures adopted by the Trustees of
the Trust, will make a determination as to the liquidity of each restricted
security purchased by the Fund. In making this determination, ICM will consider
the trading markets for the specified security and the following factors:
(1) the frequency of trades and price quotes for the security; (2) the number
of dealers and other potential purchasers who have issued quotes on the
security; (3) any dealer undertakings to make a market in the security; and (4)
the nature of the security and the nature of the marketplace trades (the time
needed to dispose of the security, the method of soliciting offers, and the
mechanics of transfer). If a restricted security is determined to be "liquid,"
such security will not be included within the category "illiquid securities,"
which under current policy may not exceed 15% of the Fund's net assets.
SHORT SALES AGAINST THE BOX
The Fund may sell securities "short against the box." While a short sale is
the sale of a security that the Fund does not own, it is "against the box" if at
all times when the short position is open the Fund owns an equal amount of
securities or securities convertible into, or exchangeable without further
consideration for, securities of the same issue as the securities sold short.
To secure its obligations to deliver the securities sold short, the Fund
will deposit in escrow in a separate account with the Fund's custodian, an
amount at least equal to the securities sold short or securities convertible
into, or exchangeable for, the securities. The Fund may close out a short
position by purchasing and delivering an equal amount of securities sold short,
rather than by delivering securities already held by the Fund, because the Fund
may want to continue to receive interest and dividend payments on securities in
its portfolio that are convertible into the securities sold short.
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<PAGE> 32
HEDGING TRANSACTIONS
The Fund may utilize techniques to manage risks associated with exposure to
the effects of possible changes in security prices, or other factors that affect
the value of its portfolio. These techniques such as buying and selling
derivative securities such as options, futures contracts, or options on futures
contracts, involve significant risks and may increase the volatility of the
Fund.
However hedging transactions may be utilized by the Fund solely for risk
management purposes and not for speculation. The Fund will not place more
than 5% of its net assets at risk in such transactions.
REPURCHASE AGREEMENTS
When cash may be available for only a few days, it may be invested by the
Fund in repurchase agreements until such time as it may otherwise be invested or
used for payments of obligations of the Fund. These agreements, which may be
viewed as a type of secured lending by the Fund, typically involve the
acquisition by the Fund of securities from a selling financial institution such
as a bank, savings and loan association or broker-dealer. The agreement provides
that the Fund will sell back to the institution, and that the institution will
repurchase, the underlying security ("collateral") at a specified price and at a
fixed time in the future, usually not more than seven days from the date of
purchase. The collateral will be maintained in a segregated account and will be
marked to market daily to determine that the value of the collateral, as
specified in the agreement, does not decrease below the purchase price plus
accrued interest. If such decrease occurs, additional collateral will be
requested and, when received, added to the account to maintain full
collateralization. The Fund will accrue interest from the institution until the
time when the repurchase is to occur. Although such date is deemed by the Fund
to be the maturity date of a repurchase agreement, the maturities of the
collateral are not subject to any limits.
While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures designed to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions
whose financial condition will be continually monitored by ICM subject to
procedures established by the Board of Trustees. In addition, as described
above, the value of the collateral underlying the repurchase agreement will be
at least equal to the repurchase price, including any accrued interest earned on
the repurchase agreement. In the event of a default or bankruptcy by a selling
financial institution, the Fund will seek to liquidate such collateral. However,
the exercising of the Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a
default of the obligation to repurchase were less than the repurchase price, the
Fund could suffer a loss. It is the current policy of the Fund not to invest in
repurchase agreements that do not mature within seven days of any such
investment, together with any other illiquid assets held by the Fund, which
amount to more than 15% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
From time to time the Fund may purchase securities on a when-issued or
delayed delivery basis or may purchase or sell securities on a forward
commitment basis. When such transactions are negotiated, the price is fixed at
the time of the commitment, but delivery and payment can take place a month or
more after the date of commitment. The Fund will make such commitments only with
the intention of actually acquiring the securities, but may sell the securities
before settlement if the Advisor deems it advisable. The securities so purchased
or sold are subject to market fluctuation and no interest or dividends accrue to
the purchaser prior to the settlement date. At the time the Fund makes the
commitment to purchase or sell securities on a when-issued or delayed delivery
basis, it will record the transaction and thereafter reflect the value, each
day, of such security purchased, or, if a sale, the proceeds to be received, in
determining its net asset value. At the time of delivery of the securities,
their value may be more or less than the purchase or sale price. The Fund will
establish a segregated account in which it will continually maintain cash or
cash equivalents or other liquid portfolio securities equal in value to the
securities purchased on a when-issued or delayed delivery basis.
WHEN, AS AND IF ISSUED SECURITIES
The Fund may purchase securities on a "when, as and if issued" basis under
which the issuance of the security depends upon the occurrence of a subsequent
event, such as approval of a merger,
6
<PAGE> 33
corporate reorganization or debt restructuring. The commitment for the purchase
of any such security will not be recognized in the portfolio of the Fund until
the Adviser determines that issuance of the security is probable. At such time,
the Fund will record the transaction and, in determining its net asset value,
will reflect the value of the security daily. At such time, the Fund will also
establish a segregated account in which it will maintain cash or cash
equivalents or other liquid securities equal in value to recognized commitments
for such securities.
INVESTMENT RESTRICTIONS
FUNDAMENTAL RESTRICTIONS. The Fund has adopted the following fundamental
investment restrictions which may not be changed without the approval of holders
of a majority of the outstanding Shares of the Fund (which in the Prospectus and
SAI means the lesser of (i) 67% of the Shares of the Fund represented at a
meeting at which 50% of the outstanding Shares are represented or (ii) more than
50% of the outstanding Shares.
The Fund may not:
(1) Invest 25% or more of the total assets of the Fund in any one industry
(securities issued or guaranteed by the United States Government, its agencies
or instrumentalities are not considered to represent industries);
(2) With respect to 75% of the Fund's total assets, invest more than 5% of
the Fund's total assets (taken at market value at the time of purchase) in the
outstanding securities of any single issuer or own more than 10% of the
outstanding voting securities of any one issuer, in each case other than
securities issued or guaranteed by the United States Government, its agencies or
instrumentalities;
(3) Borrow money except that the Fund may (i) borrow money for temporary
purposes in amounts not exceeding 5% of its total assets and (ii) borrow money
for the purpose of meeting redemption requests, in amounts (when aggregated with
amounts borrowed under clause (i)) not exceeding 33 1/3% of its total assets;
(4) Pledge, mortgage or hypothecate its assets other than to secure
borrowings permitted by restriction 3 above (collateral arrangements with
respect to margin requirements for options and futures transactions are not
deemed to be pledges or hypothecations for this purpose);
(5) Make loans of securities to other persons in excess of 25% of the
Fund's total assets, provided the Fund may invest without limitation in
short-term debt obligations (including repurchase agreements) and publicly
distributed debt obligations;
(6) Underwrite securities of other issuers, except insofar as the Fund may
be deemed an underwriter under the Securities Act of 1933, as amended, in
selling portfolio securities;
(7) Purchase or sell real estate or any interest therein, including
interests in real estate limited partnerships, except securities issued by
companies (including real estate investment trusts) that invest in real estate
or interests therein;
(8) Purchase securities on margin, except for the use of short-term credit
necessary for the clearance of purchases and sales of portfolio securities, but
the Fund may make the margin deposits in connection with transactions in
options, futures and options on futures;
(9) Invest in commodities or commodity futures contracts, provided that
this limitation shall not prohibit the purchase or sale by the Fund or forward
foreign currency exchange contracts, financial futures contracts and options
on financial futures contracts, and options on securities and on securities,
foreign currencies and on securities indices, as permitted by applicable law; or
(10) Issue any senior securities, except as permitted by the 1940 Act.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The following restrictions have been
designated as non-fundamental and may be changed by a vote of the Trust's Board
of Trustees without the approval of shareholders.
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<PAGE> 34
The Fund may not:
(1) Sell securities short, except transactions involving selling
securities short "against the box";
(2) Make investments for the purpose of exercising control or management;
(3) Invest or maintain more than 15% of its net assets in illiquid
securities which cannot be readily resold because of legal or
contractual restrictions; or
(4) Invest in other investment companies except as permitted under the
1940 Act.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
the Fund's investments will not constitute a violation of such limitation,
except that any borrowing by the Fund that exceeds the fundamental investment
limitations stated above must be reduced to meet such limitations within the
period required by the 1940 Act (currently three days). Otherwise, the Fund may
continue to hold a security even though it causes the Fund to exceed a
percentage limitation because of fluctuation in the value of the Fund's assets.
MANAGEMENT OF THE FUND
The Fund is a series of the Trust, an open-end management investment
company offering redeemable shares of beneficial interest. The Trust's Board of
Trustees provides broad supervision over the affairs of the Fund and the Trust.
The officers of the Trust are responsible for the Fund's operations. The
Trustees and executive officers of the Trust are listed below, together with
their principal occupations during the past five years. An asterisk indicates
those Trustees who are interested persons of the Trust within the meaning of the
1940 Act.
NAME, AGE, POSITION WITH THE FUND
AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
Warren J. Isabelle, CFA* Portfolio Manager, Pioneer Capital Growth
Age 46 Fund, July 1990 to January 1997; Senior
Trustee, President and Chairman of Vice President and Head of Domestic Equity
the Board Management, Pioneer Mutual Funds, June 1994
One International Place to January 1997; Portfolio Manager, Pioneer
Boston, MA 02110 Small Company Fund; Senior Vice President
and Chief Investment Officer of Equities,
at Keystone Investment Management Company,
February 1997 through May 1997.
Richard L. Droster* Director of Institutional Marketing,
Age 36 Heartland Advisors, Inc. (Investment
Trustee and Vice-President Advisor, since 1992
One International Place
Boston, MA 02110
N. Stephen Ober Corporate Medical Director and Executive
Age 38 Vice President, Private Healthcare Systems,
Trustee Inc. (managed health care organization),
36 Washington Street, Suite 70 1990 through 1995; President and Chief
Wellesley Hills, MA 02181 Executive Officer, Synergy Health Care,
Inc. (health care information systems),
since 1995.
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<PAGE> 35
Donald A. Nelson, C.P.A. Assistant Professor, Department of
Age 52 Accounting and Finance, Merrimack
Trustee College, since 1975; Certified Public
Merrimack College Accountant, since 1972.
Andover, MA 01810
John A Fiffy Acquisition Consultant, Digital
Age 47 Equipment Corporation, Since 1993.
Trustee
Digital Equipment Corporation
200 Forest Street
Marlboro, MA 01752
Gary S. Saks Client Service Representative and New
Age 29 Accounts Assistant Manager, Furman Selz
Vice-President, Secretary Prime Brokerage Department (brokerage), Vice
Treasurer, and Chief Financial President and Treasurer December 1993 to
Officer July 1995; Consultant Air Travelers Service
One International Place Corporation, January 1997 to September
Boston, MA 02110 1997; Consultant, Dorchester Tire
Service January 1996 to December 1996.
The Trust pays no salaries or compensation to any of its officers. The Fund
will pay an annual trustee's fee of $2,000 to each Trustee who is not affiliated
with ICM or FDDI.
The following table estimates the amount of compensation to be paid by the
Trust during its fiscal year ending December 31, 1998 to the persons who are to
serve as Trustees during such period:
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension Total
Estimate Retirement Estimated Compensation
Name of Compensation Benefits Accrued Annual Benefits from the Trust and
Person from the as Part of upon Fund Complex
and Position Trust* Fund Expenses Retirement Paid to Trustee
- ------------ ------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Warren J. Isbelle $ 0 None None $ 0
Chairman of the Board,
President and Trustee
Richard L. Broster $ 0 None None $ 0
Vice-President and
Trustee
N. Stephen Ober $2,000 None None $2,000
Trustee
Donald A Nelson $2,000 None None $2,000
John A. Fiffy $2,000 None None $2,000
Trustee
</TABLE>
* The estimated compensation information is furnished for the Fiscal year
ended December 31, 1998.
** No Trustee receives any compensation from any mutual fund affiliated with
ICM other than the Trust.
As of the date of this SAI, Warren J. Isabelle owns sixty five percent and
Richard L. Droster owns thirty five percent, respectively of the initial
outstanding Shares of the Fund, and no other officer or Trustee of Trust owns
any Shares of The Fund.
INVESTMENT ADVISER
ICM, a Massachusetts limited liability company, whose address is One
International Place, Boston, Massachusetts 02110, is the Fund's investment
adviser. ICM was formed on August 15, 1997. Mr. Warren J.
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<PAGE> 36
Isabelle, President and Chief Investment Officer of ICM and Mr. Richard L.
Droster, Vice-President and Director of Marketing of ICM, are the controlling
principals of ICM and are officers and Trustees of the Trust.
The Trust, with respect to the Fund, has contracted with ICM, to act as its
investment adviser. A description of the services provided to the Fund under the
advisory contract (the "Advisory Agreement") and the expenses paid by the Fund
under such contract is set forth in the Prospectus under the caption "Management
of the Fund."
Under the terms of the Advisory Agreement, ICM is responsible for
supervising the investment activities of the Fund and is authorized in its
discretion to determine the securities to be purchased, sold or otherwise
disposed of by the Fund. ICM is responsible for all the expenses related to its
services for the Fund. Expenses not expressly assumed by ICM will be paid by the
Fund. The Adviser has undertaken to limit expenses to 1.95% of the average daily
net assets annually for Investment Class Shares and 1.70% of the average daily
net assets annually for Institutional Class Shares. The expenses borne by the
Fund include, but are not limited to: expenses of the Plan of Distribution
pursuant to Rule 12b-1 for Investment Class Shares (see "Distribution Plan");
charges and expenses of any administrator, registrar, custodian, stock transfer
and dividend disbursing agent; brokerage commissions; taxes; registration costs
of the Fund and its shares under federal and state securities laws; the cost and
expense of printing, including typesetting, and distributing prospectuses and
SAI of the Fund and supplements thereto to the Fund's shareholders; all expenses
of shareholders' and Trustees' meetings and of preparing, printing and mailing
of proxy statements and reports to shareholders; fees and travel expenses of
Trustees or members of any advisory board or committee who are not employees of
ICM or any corporate affiliate of ICM; all expenses incident to any dividend,
withdrawal or redemption options; charges and expenses of any outside service
used for pricing of the Fund's Shares; fees and expenses of legal counsel,
including counsel to the Trustees who are not interested persons of the Fund or
of ICM (not including compensation or expenses of attorneys who are employees of
the Adviser) and independent accountants; membership dues of industry
associations; interest on Fund borrowings; postage; insurance premiums on
property or personnel (including officers and Trustees) of the Fund which inure
to its benefit; extraordinary expenses (including, but not limited to, legal
claims and liabilities and litigation costs and any indemnification relating
thereto); and all other costs of the Fund's operation.
The Advisory Agreement will continue in effect for a period of two years
from its effective date and is renewable annually by the vote of a majority of
the Board of Trustees of the Trust (including a majority of the Board of
Trustees who are not parties to the contract or interested persons of any such
parties). The vote must be cast in person at a meeting called for the purpose of
voting on such renewal. The Advisory Agreement terminates if assigned and may be
terminated without penalty by either party upon sixty days' written notice, by
vote of the Board of Trustees or a majority of its outstanding voting
securities. Pursuant to the contract, ICM will not be liable for any error of
judgment or mistake of law or for any loss sustained by reason of the adoption
of any investment policy or the purchase, sale or retention of any securities on
the recommendation of ICM. ICM, however, is not protected against liability by
reason of willful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its obligations and
duties under the Advisory Agreement.
As compensation for its management services and expenses incurred, ICM is
entitled to a management fee from the Fund at the rate of 1.00% per annum of the
Fund's average daily net assets. The fee is computed and accounted for daily and
paid monthly.
DISTRIBUTION PLAN
(Investment Class Shares Only)
The Trust, on behalf of the Fund, has adopted a plan of distribution
pursuant to Rule 12b-1 under the 1940 Act with respect to the Investment Class
Shares of the Fund (the "Plan"). Pursuant to the Plan, the Fund uses its assets
to finance activities relating to the distribution of Investment Class Shares to
investors and provision of certain shareholder services. Certain categories of
such expenditures have been approved by the Board of Trustees and are set forth
in the Prospectus. See "Distribution Plan" in the Prospectus. The expenses of
the Fund pursuant to the Plan are accrued on a fiscal year basis and may not
exceed the annual rate of 0.25% of the Fund's average annual net assets
attributable to Investment Class Shares.
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<PAGE> 37
GENERAL. In accordance with the terms of the Plan, FDDI provides to the
Trust for review by the Trustees a quarterly written report of the amounts
expended under the Plan and the purpose for which such expenditures were made.
No interested person of the Trust, nor any Trustee of the Trust who is not
an interested person of the Trust, has any direct or indirect financial interest
in the operation of the Plan.
The Plan was adopted by a majority vote of the Board of Trustees, including
all of the Trustees who are not, and were not at the time they voted, interested
persons of the Trust, as defined in the 1940 Act (none of whom had or have any
direct or indirect financial interest in the operation of the Plan), cast in
person at a meeting called for the purpose of voting on the Plan. In approving
the Plan, the Trustees identified and considered a number of potential benefits
which the Plan may provide. The Board of Trustees believes that there is a
reasonable likelihood that the Plan will benefit the Fund and its future
shareholders. Under its terms, the Plan remains in effect from year to year
provided such continuance is approved annually by vote of the Trustees in the
manner described above. The Plan may not be amended to increase materially the
annual percentage limitation of average net assets which may be spent for the
services described therein without approval of the shareholders of the Fund
affected thereby, and material amendments of the Plan must also be approved by
the Trustees in the manner described above. The Plan may be terminated at any
time, without payment of any penalty, by vote of the majority of the Trustees
who are not interested persons of the Trust and have no direct or indirect
financial interest in the operations of the Plan, or by a vote of a majority of
the outstanding voting securities of the Investment Class (as defined in the
1940 Act). The Plan will automatically terminate in the event of its assignment
(as defined in the 1940 Act).
ADMINISTRATOR
The Trust has entered into an administration agreement ("Administration
Agreement") with Investor Services Group, a subsidiary of First Data
Corporation, 4400 Computer Drive, Westborough, Massachusetts 01581. Investor
Services Group furnishes the Trust with clerical help and accounting, data
processing, internal auditing and legal services and certain other services
required by the Trust, prepares reports to the Fund's shareholders, tax returns,
reports to and filings with SEC and state Blue Sky authorities, and generally
assists in all aspects of the Trust's operations, other than providing
investment advice. As compensation for its services under the Administration
Agreement, Investor Services Group is entitled to receive administration fees
based on the value of the aggregate average daily net assets of the Fund and any
other Fund offered by the Trust to which the Administrator provides
administration services, computed daily and payable monthly at a rate of 0.12%
of the first $150 million of net assets; 0.15% of net assets between $150
million and $500 million of net assets; 0.12% of next $500 million to $750
million in net assets; 0.09% of next $750 million to $1.5 billion in net assets;
0.075% of next $1.5 billion to $2.5 billion in net assets; 0.05% of next $2.5
billion to $5 billion in net assets and 0.025% of net assets in excess of $5
billion, subject to a minimum annual charge of $55,000 per fund. A separate fee
of $35,000 per annum per fund and $5,000 per class above one class per annum,
will be charged for Fund Accounting services.
TRANSFER AGENT
The Trust, on behalf of the Fund, has also contracted with Investor
Services Group, to act as transfer and dividend disbursing agent for the Trust.
Pursuant to the transfer agency agreement (the "Transfer Agency Agreement")
Investor Services Group: (i) issues and redeems Shares of the Fund; (ii)
addresses and mails all communications by the Fund to its record owners,
including reports to shareholders, dividend and distribution notices and proxy
materials for its meetings of shareholders; (iii) maintains shareholder
accounts; (iv) responds to correspondence by shareholders of the Fund; and (v)
makes periodic reports to the Board of Trustees concerning the operations of the
Trust.
CUSTODIAN
The Fifth Third Bank (the "Custodian"), located at 37 Fountain Square
Plaza, Cincinnati, Ohio 45263, is the custodian of the Fund's assets. The
Custodian's responsibilities include safekeeping and controlling the Fund's cash
and securities, handling the receipt and
11
<PAGE> 38
delivery of securities, and collecting interest and dividends on each Fund's
investments. The Custodian does not determine the investment policies of the
Fund or decide which securities the Fund will buy or sell. The Fund may,
however, invest in securities, including repurchase agreements, issued by the
Custodian and may deal with the Custodian as a principal in securities
transactions. Portfolio securities may be deposited into the Federal Reserve,
Treasury Department Book Entry System or the Depository Trust Company.
DISTRIBUTOR
FDDI, a subsidiary of Investor Services Group, serves as the distributor
for the Trust pursuant to a distribution agreement which is renewable annually.
Investment Class Shares and Institutional Class Shares are sold on a continuous
basis by FDDI as agent, although FDDI is not obligated to sell any particular
amount of shares. FDDI's principal offices are located at 4400 Computer Drive,
Westborough, Massachusetts 01581.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, located at 225 Franklin Street, Boston, Massachusetts
02110-2812, is the Trust's independent public accountant, providing audit
services, tax return review, and assistance and consultation with respect to the
preparation of filings with the SEC.
PURCHASE OF FUND SHARES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Purchase Fund
Shares."
TRANSACTIONS THROUGH SECURITIES DEALERS. Fund shares may be purchased and
redeemed through securities dealers which may charge a nominal transaction fee
for such services. Some dealers will place the Fund's Shares in an account with
their firm. Dealers also may require that the customer invest more than the
minimum investment, that the customer not request redemption checks to be issued
in the customer's name, fractional Shares not be purchased, or certain other
conditions.
There is no sales or service charge to individual investors by the Fund or
by FDDI, although investment dealers, banks and other institutions may make
reasonable charges to investors for their services. The services provided and
the applicable fees are established by each dealer or other institution acting
independently of the Fund. The Fund has been given to understand that these fees
may be charged for customer services including, but not limited to, same-day
investment of client funds; same-day access to client funds; advice to customers
about the status of their accounts, yield currently being paid or income earned
to date; provision of periodic account statements showing security and money
market positions; other services available from the dealer, bank or other
institution; and assistance with inquiries related to their investment. Any such
fees will be deducted from the investor's account monthly and on smaller
accounts could constitute a substantial portion of the distribution. Small,
inactive, long-term accounts involving monthly service charges may not be in the
best interest of investors. Investors should be aware that they may purchase
shares of the Fund directly from the Fund through FDDI without imposition of any
maintenance or service charges, other than those already described herein. In
some states, banks or other financial institutions effecting transactions in
Fund Shares may be required to register as dealers pursuant to state law.
RETIREMENT PLANS. Shares of the Fund may be purchased in connection with
various types of tax-deferred retirement plans, including, but not limited to,
individual retirement accounts ("IRAs"), Roth IRAs, Educational IRAs and other
qualified plans. An individual or organization considering the establishment of
a retirement plan should consult with an attorney and/or accountant with respect
to the terms and tax aspects of the plan.
REDEMPTION OF FUND SHARES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Redeem Fund Shares."
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WIRE REDEMPTION PRIVILEGE. By using this privilege, the investor authorizes
Investor Services Group (the "Transfer Agent") to act on wire or telephone
redemption instructions from any person representing himself or herself to be
the investor, and reasonably believed by the Transfer Agent to be genuine.
Ordinarily, the Fund will initiate payment for shares redeemed pursuant to this
privilege on the next business day after receipt if the Transfer Agent receives
the redemption request in proper form. Redemption proceeds ($1,000 minimum) will
be transferred by Federal Reserve wire only to the commercial bank account
specified by the investor on the Account Application or Shareholder Services
Form, or to a correspondent bank if the investor's bank is not a member of the
Federal Reserve System. The Transfer Agent will deduct a wire redemption fee of
$20 from the principal in the investor's account. Immediate notification by the
correspondent bank to the investor's bank is necessary to avoid a delay in
crediting the funds to the investor's bank account.
SIGNATURES. Written redemption requests must be signed by each shareholder,
including each holder of a joint account. You must provide a signature guarantee
if: (1) you are redeeming shares worth more than $50,000, (2) you are requesting
that the proceeds check be made out to someone other than the registered owners
or be sent to an address other than the record address, (3) the account
registration has changed within the last 30 days or (4) you are instructing us
to wire the proceeds to a bank account not designated on the Account
Application. The Transfer Agent has adopted standards and procedures pursuant to
which signature guarantees in proper form generally will be accepted from
domestic banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations,
as well as from participants in the NYSE Medallion Signature Program, the
Securities Transfer Agents Medallion Program and the Stock Exchanges Medallion
Program. Guarantees must be signed by an authorized signatory of the guarantor
and "Signature Guaranteed" must appear with the signature. The Transfer Agent
may request additional documentation from corporations, executors,
administrators, trustees or guardians, and may accept other suitable
verification arrangements from foreign investors, such as consular verification.
For more information with respect to signature guarantees, please call the
telephone number listed on the cover.
REDEMPTION COMMITMENT. Under ordinary circumstances, the Fund intends to
pay all redemption requests in cash. However, the Fund has committed itself to
pay in cash all redemption requests by any shareholder of record, limited in
amount during any 90-day period to the lesser of $250,000 or 1% of the value of
the Fund's net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the SEC. In the case of requests for
redemption in excess of such amount, the Board of Trustees reserve the right to
make payments in whole or in part in securities or other assets in case of an
emergency or any time a cash distribution would impair the liquidity of the Fund
to the detriment of the existing shareholders. In such event, the securities
would be readily marketable, to the extent available, and would be valued in the
same manner as the Fund's investment securities are valued. If the recipient
sold such securities, brokerage charges would be incurred.
SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or the
date of payment postponed (a) during any period when the NYSE is closed (other
than customary weekend and holiday closings), (b) when trading in the markets
the Fund ordinarily utilizes is restricted, or when an emergency exists as
determined by the SEC so that disposal of the Fund's investments or
determination of its net asset value is not reasonably practicable, or (c) for
such other periods as the SEC by order may permit to protect the Fund's
shareholders.
PORTFOLIO TRANSACTIONS
As of the date of this SAI, the Adviser does not currently have any clients
other than the Fund, but anticipates privately managing investment portfolios
for individuals, partnerships, corporations, and other institutional investors.
All orders for the purchase or sale of portfolio securities are placed on
behalf of the Fund by ICM pursuant to authority contained in the Fund's Advisory
Agreement. In selecting brokers or dealers, ICM will consider various relevant
factors, including, but not limited to, the size and type of the transaction;
the nature and character of the markets for the security to be purchased or
sold; the execution efficiency, settlement capability, and financial condition
of the dealer; the dealer's execution services rendered on a continuing basis;
and the reasonableness of any dealer spreads.
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<PAGE> 40
In those instances where it is reasonably determined that more than one
broker-dealer can offer the most favorable price and execution available, ICM
may select broker-dealers which provide brokerage and/or research services to
the Fund. The research received from broker-dealers may be useful to ICM in
rendering investment management services to the Trust, although not all such
research may be useful to the Fund. The receipt of such research will not reduce
ICM's normal independent research activities; however, it may enable ICM to
avoid the additional expenses which might otherwise be incurred if it were to
attempt to develop comparable information through its own staff. If ICM
determines in good faith that the amount of commissions charged by a
broker-dealer is reasonable in relation to the value of the brokerage and
research services provided by such broker, the Fund may pay a higher commission
to such broker-dealer than would be the case if no weight were given to the
furnishing of these supplemental services. Such supplemental services may
include advice concerning the value of securities; the advisability of investing
in, purchasing or selling securities, the availability of securities or the
purchasers or sellers of securities; furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and performance of accounts; and effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement). ICM
maintains a listing of broker-dealers who provide such services on a regular
basis. However, because it is anticipated that many transactions on behalf of
the Fund will be placed with broker-dealers (including broker-dealers on the
listing) without regard to the furnishing of such services, it is not possible
to estimate the proportion of such transactions directed to such dealers solely
because such services were provided.
Portfolio transactions may be placed with broker-dealers who sell shares of
the Fund subject to rules adopted by the National Association of Securities
Dealers. This policy does not imply a commitment to execute all portfolio
transactions through all broker-dealers that sell Shares of the Fund.
The Trustees periodically review ICM's performance of its responsibilities
in connection with the placement of portfolio transactions on behalf of the
Trust.
Investment decisions for the Fund are made independently from those of
other client accounts which may be managed by the Adviser. It is possible that
at times identical securities will be held by more than one fund and/or account.
However, positions in the same issue may vary and the length of time that the
Adviser may choose to hold investments in the same issue may likewise vary. To
the extent that the Fund or a private account managed by ICM may not be able to
acquire as large a position in such security as it desires, it may have to pay a
higher price for the security. Similarly, a fund may not be able to obtain as
large an execution of an order to sell or as high a price for any particular
portfolio security if ICM decides to sell on behalf of another account the same
portfolio security at the same time. On the other hand, if the same securities
are bought or sold at the same time by more than one fund or account, the
resulting participation in volume transactions could produce better executions
for the fund or the account. In the event more than one account purchases or
sells the same security on a given date, each day's transactions in such
security will be allocated between the Fund and all such client accounts in a
manner deemed equitable by the Advisor, taking into account the respective sizes
of the accounts and the amount being purchased or sold.
TAXES
It is the Fund's policy to meet the requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a
regulated investment company. These requirements relate to the sources of the
Fund's income, the diversification of its assets and the distribution of its
income to shareholders. If the Fund meets all such requirements and distributes
to its shareholders, in accordance with the Code's timing requirements, all
investment company taxable income and net capital gain, if any, which it earns,
the Fund will be relieved of the necessity of paying federal income tax.
In order to qualify as a regulated investment company under Subchapter M,
the Fund must, among other things, derive at least 90% of its annual gross
income from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including gains from options, futures and forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% income test"); and satisfy certain annual
distribution and quarterly diversification requirements. Tax diversification may
limit the Fund's investment
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<PAGE> 41
composition so that at least 50% of the Fund's total assets consist of cash
and cash items, U.S. Government securities, securities of other regulated
investment companies, and other securities. Other securities are limited with
respect to any one issuer to an amount that does not exceed 5% of the value of
the Fund's total assets and 10% of the issuer's outstanding voting securities;
and, in addition, no more than 25% of the value on the Fund's total assets can
be invested in a single issuer (other than U.S. Government securities or
securities of other regulated investment companies). Changes to the Federal tax
law repealed the 30% limit on gains from securities held for less than 3 months
(the "30% test") for tax years beginning after August 5, 1997. The Fund may
however, continue to observe the restriction until such time as certain state
taxing authorities adopt the new federal provisions.
Dividends from investment company taxable income, which includes net
investment income, net short-term capital gain in excess of net long-term
capital loss, and certain net foreign exchange gains, are taxable as ordinary
income, whether received in cash or reinvested in additional Shares. Dividends
from net long-term capital gain in excess of net short-term capital loss, if
any, whether received in cash or reinvested in additional Shares, are taxable to
the Fund's shareholders as long-term capital gains for federal income tax
purposes without regard to the length of time Shares of the Fund have been held.
Recently enacted federal legislation provides for additional categories of net
capital gain to be reported to shareholders each year beginning in 1997.
Shareholders who receive annual 1099-DIV information from the Fund will also be
provided with information with respect to the amount of 28% and 20% capital gain
that is included in the capital gain divided paid to shareholders during the
year. The federal income tax status of all distributions will be reported to
shareholders annually.
A 4% excise tax will be imposed on the excess, if any, of the Fund's
"required distribution" over the amount distributed within the calendar year.
The "required distribution" is defined generally as 98% of the Fund's ordinary
income earned during the calendar year; and 98% of capital gain net income for
the one year period ending October 31 (or December 31 if an election is made).
The required distribution also includes 100% of any undistributed amount from
prior years. The Fund generally expects to make distributions sufficient to
avoid the imposition of any excise tax. Any dividend declared by the Fund in
October, November or December as of a record date in such a month and paid
during the following January will be treated for federal income tax purposes as
received by shareholders on December 31 of the calendar year in which it is
declared.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain options and futures contracts relating to foreign currency, foreign
currency forward contracts, foreign currencies, or payables or receivables
denominated in a foreign currency are subject to Section 988 of the Code, which
generally causes such gains and losses to be treated as ordinary income and
losses and may affect the amount, timing and character of distributions to
shareholders. Any such transactions that are not directly related to the Fund's
investments in stocks or securities may need to be limited in order to enable
the Fund to satisfy certain tax qualification requirements. If the net foreign
exchange loss for a year were to exceed the Fund's investment company taxable
income (computed without regard to such loss), the resulting ordinary loss for
such year would not be deductible by the Fund or its shareholders in future
years.
If the Fund acquires any equity interest (under proposed regulations,
generally including not only stock but also an option to acquire stock) in
certain foreign corporations that receive at least 75% of their annual gross
income from passive sources (such as interest, dividends, rents, royalties or
capital gain) or hold at least 50% of their assets in investments producing such
passive income ("passive foreign investment companies"), the Fund could be
subject to federal income tax and additional interest charges on "excess
distributions" received from such companies or gain from the sale of stock in
such companies, even if all income or gain actually received by the Fund is
timely distributed to its shareholders. The Fund would not be able to pass
through to its shareholders any credit or deduction for such a tax. Certain
elections may, if available, ameliorate these adverse tax consequences, but any
such election would require the electing fund to recognize taxable income or
gain without the concurrent receipt of cash. The Fund may limit and/or manage
its holdings in passive foreign investment companies to minimize its tax
liability or maximize its return from these investments.
If the Fund invests in certain pay-in-kind securities ("PIKs"), zero coupon
securities, deferred interest securities or, in general, any other securities
with original issue discount (or with market discount if the Fund elects to
include market discount in income currently), the Fund must accrue income on
such investments for each taxable year, which generally will be prior to the
receipt of the corresponding cash payments. However,
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<PAGE> 42
the Fund must distribute, at least annually, all or substantially all of its net
income, including such accrued income, to shareholders to qualify as a regulated
investment company under the Code and to avoid federal income and excise taxes.
Therefore, the Fund may have to dispose of its portfolio securities under
disadvantageous circumstances to generate cash, or may have to leverage itself
by borrowing the cash, to satisfy distribution requirements.
For federal income tax purposes, the Fund is permitted to carry forward a
net capital loss for any year to offset its own capital gains, if any, during
the eight years following the year of the loss. To the extent subsequent capital
gains are offset by such losses, they would not result in federal income tax
liability to the Fund and therefore are not expected to be distributed as such
to shareholders.
At the time of an investor's purchase of Fund shares, a portion of the
purchase price may be attributable to realized or unrealized appreciation in the
Fund's portfolio or undistributed taxable income of the Fund. Consequently,
subsequent distributions on these shares from such appreciation or income may be
taxable to such investor even if the net asset value of the investor's shares
is, as a result of the distributions, reduced below the investor's cost for such
Shares and the distributions economically represent a return of a portion of the
investment.
Redemptions and exchanges are taxable events. Any loss realized by a
shareholder upon the redemption, exchange or other disposition of Shares with a
tax holding period of six months or less will be treated as a long-term capital
loss to the extent of any amounts treated as distributions of long-term capital
gain with respect to such Shares.
Options written or purchased and futures contracts entered into by the Fund
on certain securities, indices and foreign currencies, as well as certain
foreign currency forward contracts, may cause the Fund to recognize gains or
losses from marking-to-market at the end of its taxable year even though such
options may not have lapsed, been closed out, or exercised or such futures or
forward contracts may not have been performed or closed out. The tax rules
applicable to these contracts may affect the characterization as long-term or
short-term of some capital gains and losses realized by the Fund. Certain
options, futures and forward contracts relating to foreign currency may be
subject to Section 988, as described above, and may accordingly produce ordinary
income or loss. Losses on certain options, futures or forward contracts and/or
offsetting positions (portfolio securities or other positions with respect to
which the Fund's risk of loss is substantially diminished by one or more
options, futures or forward contracts) may also be deferred under the tax
straddle rules of the Code, which may also affect the characterization of
capital gains or losses from straddle positions and certain successor positions
as long-term or short-term. Certain tax elections may be available that would
enable the Fund to ameliorate some adverse effects of the tax rules described in
this paragraph. The tax rules applicable to options, futures or forward
contracts and straddles may affect the amount, timing and character of the
Fund's income and losses and hence of its distributions to shareholders.
For purposes of the 70% dividends-received deduction generally available to
corporations under the Code, dividends received by the Fund from U.S. domestic
corporations in respect of any share of stock with a tax holding period of at
least 46 days (91 days in the case of certain preferred stock) held in an
unleveraged position and distributed and designated by the Fund may be treated
as qualifying dividends. Any corporate shareholder should consult its tax
adviser regarding the possibility that its tax basis in its Shares may be
reduced, for federal income tax purposes, by reason of "extraordinary dividends"
received with respect to the Shares. In order to qualify for the deduction,
corporate shareholders must meet the minimum holding period requirement stated
above with respect to their Fund Shares, taking into account any holding period
reductions from certain hedging or other transactions or positions that diminish
their risk of loss with respect to their Fund Shares, and, if they borrow to
acquire Fund Shares, they may be denied a portion of the dividends-received
deduction. The entire qualifying dividend, including the otherwise deductible
amount, will be included in determining the excess (if any) of a corporation's
adjusted current earnings over its alternative minimum taxable income, which may
increase a corporation's alternative minimum tax liability.
The Fund may be subject to withholding and other taxes imposed by foreign
countries, including taxes on interest, dividends and capital gains, with
respect to its investments, if any, in those countries. Tax conventions between
certain countries and the U.S. may reduce or eliminate such taxes in some cases.
The Fund does not expect to satisfy the requirements for passing through to its
shareholders their pro rata share of
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qualified foreign taxes paid by the Fund, with the result that shareholders will
not include such taxes in their gross incomes and will not be entitled to a tax
deduction or credit for such taxes on their own tax returns.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions, and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
Federal law requires that the Fund withhold (as "backup withholding") 31%
of reportable payments, including dividends, capital gain dividends and the
proceeds of redemptions (including exchanges) and repurchases to shareholders
who have not complied with IRS regulations. In order to avoid this withholding
requirement, shareholders must certify on their Account Applications, or on
separate IRS Forms W-9, that the Social Security Number or other Taxpayer
Identification Number they provide is their correct number and that they are not
currently subject to backup withholding, or that they are exempt from backup
withholding. A Fund may nevertheless be required to withhold if it receives
notice from the IRS or a broker that the number provided is incorrect or backup
withholding is applicable as a result of previous under reporting of interest or
dividend income.
If, as anticipated, the Fund qualifies as a regulated investment company
under the Code, it will not be required to pay any Massachusetts income,
corporate excise or franchise taxes.
The description of certain federal tax provisions above relates only to
U.S. federal income tax consequences for shareholders who are U.S. persons, i.e.
U.S. citizens or residents or U.S. corporations, partnerships, trusts or
estates, and who are subject to U.S. federal income tax. This description does
not address the special tax rules that may be applicable to particular types of
investors, such as financial institutions, insurance companies, securities
dealers, or tax-exempt or tax-deferred plans, accounts or entities. Investors
other than U.S. persons may be subject to different U.S. tax treatment,
including a possible 30% non-resident alien U.S. withholding tax (or
non-resident alien withholding tax at a lower treaty rate) on amounts treated as
ordinary dividends from the Fund and, unless an effective IRS Form W-8 or
authorized substitute for Form W-8 is on file, to 31% backup withholding on
certain other payments from the Fund. Shareholders should consult their own tax
advisers on these matters and on state, local and other applicable tax laws.
DESCRIPTION OF SHARES
The Trust's Declaration of Trust permits the Board of Trustees to authorize
the issuance of an unlimited number of full and fractional Shares of beneficial
interest which may be divided into such separate series as the Trustees may
establish. Currently, the Trust consists of only one series. The Trustees may,
however, establish additional series of shares, and may divide or combine the
shares into a greater or lesser number of shares without thereby changing the
proportionate beneficial interests in the Trust. The Declaration of Trust
further authorizes the Trustees to classify or reclassify any series of the
shares into one or more classes. Pursuant thereto, the Trustees have authorized
the issuance of two classes of Shares of the Fund designated as, Investment
Class Shares and Institutional Class Shares. Each Share of a class of the Fund
represents an equal proportionate interest in the assets of the Fund allocable
to that class. Upon liquidation of the Trust, shareholders of each class of a
series are entitled to share pro rata in the net assets allocable to such class
available for distribution to shareholders. The Trust reserves the right to
create and issue additional series or classes of shares, in which case the
shares of each class of a series would participate equally in the earnings,
dividends and assets allocable to that class of the particular series.
Rule 18f-2 under the Act provides that any matter required to be submitted
by the provisions of the Act or applicable state law, or otherwise, to the
holders of the outstanding voting securities of an investment company such as
the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each class or
series affected by such matter. Rule 18f-2 further provides that a class or
series shall be deemed to be affected by a matter unless the interests of each
class or series in the matter are substantially identical or the matter does not
affect any interest of such class or series. However, Rule 18f-2 exempts the
selection of independent public accountants, the approval of principal
distribution contracts and the election of trustees from the separate voting
requirements of Rule 18f-2.
The Trust is not required to hold annual meetings of shareholders and does
not intend to hold such meetings. In the event that a meeting of shareholders is
held, each share of the Trust will be entitled,
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as determined by the Trustees, either to one vote for each share or to one vote
for each dollar of net asset value represented by such shares on all matters
presented to shareholders including the elections of Trustees (this method of
voting being referred to as "dollar based voting"). However, to the extent
required by the Act or otherwise determined by the Trustees, series and classes
of the Trust will vote separately from each other. Shareholders of the Trust do
not have cumulative voting rights in the election of Trustees. Meetings of
shareholders of the Trust, or any series or class thereof, may be called by the
Trustees, certain officers of the Trust or upon the written request of holders
of 10% or more of the Shares entitled to vote at such meetings. The shareholders
of the Trust will have voting rights only with respect to the limited number of
matters specified in the Declaration of Trust and such other matters as the
Trustees may determine or may be required by law.
The Declaration of Trust provides for indemnification of Trustees and
officers of the Trust unless the recipient is adjudicated (i) to be liable by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such person's office or (ii) not to
have acted in good faith in the reasonable belief that such person's actions
were in the best interest of the Trust. The Declaration of Trust provides that,
if any shareholder or former shareholder of any series is held personally liable
solely by reason of being or having been a shareholder and not because of the
shareholder's acts or omissions or for some other reason, the shareholder or
former shareholder (or heirs, executors, administrators, legal representatives
or general successors) shall be held harmless from and indemnified against all
loss and expense arising from such liability.
The Declaration of Trust permits the termination of the Trust or of any
series or class of the Trust (i) by a majority of the affected shareholders at a
meeting of shareholders of the Trust, series or class; or (ii) by a majority of
the Trustees without shareholder approval if the Trustees determine that such
action is in the best interest of the Trust or its shareholders.
The Declaration of Trust authorizes the Trustees, with shareholder
approval to cause the Trust, or any series thereof, to merge or consolidate with
any corporation, association, trust or other organization or sell or exchange
all or substantially all of the property belonging to the Trust or any series
thereof. In addition, the Trustees, without shareholder approval, may adopt a
master-feeder structure by investing all or a portion of the assets of a series
of the Trust in the securities of another open-end investment company.
The Declaration of Trust permits the Trustees to amend the Declaration of
Trust without a shareholder vote. However, shareholders of the Trust have the
right to vote on any amendment (i) that would affect the voting rights of
shareholders; (ii) that is required by law to be approved by shareholders; (iii)
that would amend the voting provisions of the Declaration of Trust; or (iv) that
the Trustees determine to submit to shareholders.
SHAREHOLDER AND TRUSTEE LIABILITY
As a Massachusetts business trust, the Trust's operations are governed by
its Declaration of Trust dated November 18, 1997, a copy of which is on file
with the office of the Secretary of State of The Commonwealth of Massachusetts.
Theoretically, shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the Trust or any series of the Trust and
provides that notice of such disclaimer may be given in each agreement,
obligation or instrument entered into or executed by the Trust or its Trustees.
Moreover, the Declaration of Trust provides for the indemnification out of Trust
property of any shareholders held personally liable for any obligations of the
Trust or any series of the Trust. The Declaration of Trust also provides that
the Trust shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss beyond his or
her investment because of shareholder liability would be limited to
circumstances in which the Trust itself will be unable to meet its obligations.
In light of the nature of the Trust's business and the nature and amount of its
assets, the possibility of the Trust's liabilities exceeding its assets, and
therefore a shareholder's risk of personal liability, is remote.
The Declaration of Trust further provides that the Trust shall indemnify
each of its Trustees and officers against liabilities and expenses reasonably
incurred by them, in connection with, or arising out of, any action, suit or
proceeding, threatened against or otherwise involving such Trustee or officer,
directly or indirectly, by reason of being or having been a Trustee or officer
of the Trust. The Declaration of Trust does not
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<PAGE> 45
authorize the Trust to indemnify any Trustee or officer against any liability to
which he or she would otherwise be subject by reason of or for willful
misfeasance, bad faith, gross negligence or reckless disregard of such person's
duties.
DETERMINATION OF NET ASSET VALUE
Shares of the Fund are sold on a continuous basis at the net asset value
per share next determined after an order in proper form is received and accepted
by the Transfer Agent. Net asset value per share of each Class of Shares of the
Fund is determined by dividing the value of its assets, less liabilities
attributable to that Class, by the number of Shares of that class outstanding.
The net asset value is computed once daily, on each day the NYSE is open, as of
the close of regular trading on the NYSE.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
stock exchange or quoted by NASDAQ is valued at its latest sale price on that
exchange or quotation service prior to the time assets are valued; if there were
no sales that day and for securities traded on the other over-the-counter
markets, the security is valued at the mean between the most recently quoted bid
and asked prices; (2) when market quotations are not readily available,
including circumstances under which it is determined by the Advisor that sale or
bid prices are not reflective of a security's market value, portfolio securities
are valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Fund's Trustees; (3) the
value of short-term debt securities which mature at a date less than sixty days
subsequent to the valuation date will be determined on an amortized cost basis;
and (4) the value of other assets will be determined in good faith at fair value
under procedures established by and under the general supervision of the Fund's
Trustees. Dividends receivable are accrued as of the ex-dividend date. Interest
income is accrued daily.
The Fund does not accept purchase and redemption orders on days the NYSE is
closed. The NYSE is currently scheduled to be closed on the following holidays:
New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Thanksgiving and Christmas Day, and
on the preceding Friday or subsequent Monday when one of these holidays falls on
a Saturday or Sunday, respectively.
INVESTMENT RESULTS
QUOTATIONS, COMPARISONS, AND GENERAL INFORMATION From time to time, in
advertisements, in sales literature, or in reports to shareholders, the past
performance of the Fund may be illustrated and/or compared with that of other
mutual funds with similar investment objectives, and to stock or other relevant
indices. For example, total return of the Fund's classes may be compared to
rankings prepared by Lipper Analytical Services, Inc., a widely recognized
independent service which monitors mutual fund performance; the Standard &
Poor's 500 Stock Index ("S&P 500"), an index of unmanaged groups of common
stock; the Dow Jones Industrial Average, a recognized unmanaged index of common
stocks of 30 industrial companies listed on the NYSE; or The Frank Russell
Indexes ("Russell 1000," "2000," "2500," and "3000,") or the Wilshire Total
Market Value Index ("Wilshire 5000"), two recognized unmanaged indexes of broad
based common stocks.
Performance rankings and listings reported in newspapers or national
business and financial publications, such as Barron's, Business Week, Consumers
Digest, Consumer Reports, Financial World, Forbes, Fortune, Investors Business
Daily, Kiplinger's Personal Finance Magazine, Money Magazine, New York Times,
Smart Money, USA Today, U.S. News and World Report, The Wall Street Journal, and
Worth may also be cited (if the Fund is listed in any such publication) or used
for comparison, as well as performance listings and rankings from various other
sources including Bloomberg Financial Markets, CDA/Wiesenberger, Donoghue's
Mutual Fund Almanac, Investment Company Data, Inc., Johnson's Charts, Kanon
Bloch Carre and Co., Lipper Analytical Services, Inc., Micropal, Inc.,
Morningstar, Inc., Schabacker Investment Management and Towers Data Systems,
Inc.
In addition, from time to time quotations from articles from financial
publications such as those listed above may be used in advertisements in sales
literature, or in reports to shareholders of the Fund.
19
<PAGE> 46
The Fund may also present, from time to time, historical information
depicting the value of a hypothetical account in one or more classes of the Fund
since the Fund's inception.
In presenting investment results, the Fund may also include references to
certain financial planning concepts, including (a) the need to evaluate
financial assets and obligations to determine how much to invest; (b) the need
to analyze the objectives of various investments to determine where to invest;
and (c) the need to analyze the time frame for future capital needs to determine
how long to invest. The investor controls these three factors, all of which
affect the use of investments in building assets.
One of the primary methods used to measure the performance of a class of
the Fund is "total return." "Total return" will normally represent the
percentage change in value of an account, or of a hypothetical investment in a
class of the Fund, over any period up to the lifetime of that class of the Fund.
Total return calculations will usually assume the reinvestment of all dividends
and capital gains distributions and will be expressed as a percentage increase
or decrease from an initial value, for the entire period or for one or more
specified periods within the entire period. Total return percentages for periods
of less than one year will usually be annualized; total return percentages for
periods longer than one year will usually be accompanied by total return
percentages for each year within the period and/or by the average annual
compounded total return for the period. The income and capital components of a
given return may be separated and portrayed in a variety of ways in order to
illustrate their relative significance. Performance may also be portrayed in
terms of cash or investment values, without percentages. Past performance cannot
guarantee any particular future result.
The Fund's average annual total return quotations for each of its classes
as that information may appear in the Fund's Prospectus, this SAI or in
advertising are calculated by standard methods prescribed by the SEC.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN QUOTATIONS Average annual total
return quotations for a class of Shares are computed by finding the average
annual compounded rates of return that would cause a hypothetical investment in
that class made on the first day of a designated period (assuming all dividends
and distributions are reinvested) to equal the ending redeemable value of such
hypothetical investment on the last day of the designated period in accordance
with the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1000 initial payment
made at the beginning of the designated period (or fractional portion
thereof)
For purposes of the above computation, it is assumed that all dividends and
distributions made by the Fund are reinvested at net asset value during the
designated period. The average annual total return quotation is determined to
the nearest 1/100 of 1%.
In determining the average annual total return (calculated as provided
above), recurring fees, if any, that are charged to all shareholder accounts of
a particular class are taken into consideration. For any account fees that vary
with the size of the account, the account fee used for purposes of the above
computation is assumed to be the fee that would be charged to a class's mean
account size.
REGISTRATION STATEMENT
This SAI and the Trust's Prospectus do not contain all the information
included in the Trust's Registration Statement filed with the SEC under the 1933
Act with respect to the securities offered hereby, certain portions of which
have been omitted pursuant to the rules and regulations of the SEC. The
Registration Statement, including exhibits filed therewith, may be examined at
the offices of the SEC in Washington, D.C.
20
<PAGE> 47
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents referred to are not necessarily complete, and, in
such instance, reference is made to the copy of such contract or other documents
filed as an exhibit to the Trust's Registration Statement, each such statement
being qualified in all respects by such reference.
EXPERTS
The statement of Assets and Liabilities of ICM Series Trust as of February
13, 1998, appearing in this SAI, has been audited by Arthur Andersen, LLP,
independent auditors, as set forth in their report thereon, appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
LEGAL COUNSEL
Lane Altman & Owens LLP, 101 Federal street, Boston, Massachusetts, 02110
acts as legal counsel to the Trust.
21
<PAGE> 48
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees of ICM/Isabelle Smallcap Value Fund:
We have audited the accompanying balance sheet of ICM/Isabell Smallcap Value
Fund (a Massachusetts business trust) (the Fund) as of February 13, 1998. This
balance sheet is the responsibility of the Fund's management. Our responsibility
is to express an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of the ICM/Isabelle Smallcap Value
Fund as of February 13, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 13, 1998
<PAGE> 49
ICM SERIES TRUST
ICM/ISABELLE SMALLCAP VALUE FUND
<TABLE>
<CAPTION>
ICM/Isabelle Smallcap Value Fund
Balance Sheet
As of February 13, 1998
<S> <C>
ASSETS:
Cash $100,000
Deferred organizational costs 72,000
--------
Total Assets $172,000
--------
LIABILITIES:
Accrued expenses $ 72,000
--------
NET ASSETS:
Total net assets (consisting of $100,000 paid in capital
for 10,000 Investment Class Shares outstanding) $100,000
========
NET ASSET VALUE PER SHARE
(10,000 Investment Class Shares issued, an unlimited
number of Shares authorized, $10 par value) $ 10
========
</TABLE>
<PAGE> 50
ICM/ISABELLE SMALLCAP VALUE FUND
NOTES TO THE BALANCE SHEET
FEBRUARY 13, 1998
1. ORGANIZATION
The ICM/Isabelle Smallcap Value Fund (the "Fund") is a diversified series of
the ICM Series Trust (the "Trust"). The Trust was organized as a massachusetts
business trust on November 18, 1997, and is being registered with the Securities
and Exchange Commission under the Investment Company Act of 1940 (the "1940
Act") as a diversified, open-end management investment company. Since
November 18, 1997, the Fund's activities have been limited to organizational
matters with no operating activities. The Fund intends to qualify under
Subchapter M of the Internal Revenue Code of 1986, as amended. Of the 10,000
initial Investment Class Shares outstanding, 6,500 are owned by Warren J.
Isabell and 3,500 are owned by Richard L. Drosler. As of February 13, 1998,
there were no Institutional Class Shares issued or outstanding. The investment
objective of the Fund is to seek capital appreciation by investing in a
diversified portfolio of securities consisting primarily of common stocks.
2. ORGANIZATIONAL COSTS
As of February 13, 1998, the Fund deferred organization-related costs of 72,500
which will be amortized on a straight-line basis over a period of up to five
years. Included in Accrued Expenses are $72,500 of such costs payable to
Ironwood Capital Management, LLC ("ICM"), the Fund's investment adviser.
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 expenses 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.
3. FUND SHARES
The Board of Trustees has authorized the issuance of two classes of shares
designated as Investment Class Shares and Institutional Class Shares.
Institutional Class Shares are offered exclusively to institutional investors,
such as employee benefit plans, other tax-exempt institutions, and other
individual purchasers of shares in amounts greater than or equal to $500,000.
The shares of each class represent an interest in the same portfolio of
investments of the Fund. Each class has equal rights as to voting, redemption,
dividends and liquidation, except that each class bears different distribution
fees and may bear other expenses properly attributable to the particular class.
Investment Class shareholders have exclusive voting rights with respect to the
Rule 12b-1 distribution plan adopted by holders of those shares in connection
with the distribution of shares.
4. MANAGEMENT AGREEMENT
The Board of Trustees of the Trust has overall responsibility for management and
supervision of the Fund. ICM, a Massachusetts limited liability company, acts as
the Fund's Adviser pursuant to an advisory Agreement between ICM and the Trust.
Under the terms of the Advisory Agreement with the Trust, ICM is responsible for
<PAGE> 51
supervising the investment activities of the Fund and is authorized in its
discretion to determine the securities to be purchased, sold or otherwise
disposed of by the Fund and the timing of such purchases, sales and
dispositions. ICM is responsible for all the expenses related to its services
for the Fund, with the exception of certain expenses which are to be paid by the
fund, including accounting, and regulatory fees.
As compensation for its management services and certain expenses which ICM
incurs, ICM is entitled to a management fee equal to 1.00% per annum of the
Fund's average daily net assets. This fee is computed daily and paid monthly.
5. TRANSFER AGENT AND ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group") a
subsidiary of First Data Corporation, serves as the Fund's administrator
pursuant to an Administration Agreement with the Fund for clerical help and
accounting, data processing, internal auditing, legal services and certain other
services. In addition, Investor Services Group acts as transfer agent of the
Fund. The Fund has agreed to pay the administrator administration fees based on
the value of the aggregate average daily net assets of the Fund, computed daily
and payable monthly at a rate of .12% of the first $150 million of net assets;
.15% of net assets between $150 million and $500 million of net assets; .12% of
the next $500 million to $750 million in assets; .09% of the next $750 million
to $1.5 billion in assets; .075% of the next $1.5 billion to $2.5 billion in net
assets; 0.05% of the next $2.5 billion to $5 billion in net assets; and .025% of
net assets in excess of $5 billion, subject to a minimum annual charge of
$55,000 per Fund. A separate fee of $35,000 per annum per Fund and $5,000 per
class above one class per annum, will be charged for Fund accounting services,
Transfer Agency fees are $18 per open account per annum and $2 per closed
account per annum, subject to minimum, of $20,000 per Fund per annum and $6,000
per class above one class per annum. In addition, the Fund will be charged for
various print mail services on an as performed basis. Such print mail fees are
subject to daily/minimum charges which the transfer agent has agreed to waive
for the first six months.
6. DISTRIBUTION PLAN
The Trustees of the Fund have adopted a distribution plan (the Plan) with
respect to the Investment Class Shares pursuant to Section 12(b) of the 1940 Act
and Rule 12b-1 thereunder. Under the Plan, the Fund pays FDDI (a subsidiary of
Investor Services Group), distributor of the Fund, a fee at an annual rate of
.25 of 1% of the value of the average daily net assets attributable to the
Investment Class Shares for certain service and distribution expenses borne, or
paid to others, by FDDI.
<PAGE> 52
APPENDIX A
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other market
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as
a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately based, in which case the rating is not published in
Moody's Investors Service, Inc.'s ("Moody's") publications.
A-1
<PAGE> 53
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believe
possess the strongest investment attributes are designated by the symbols Aa-1,
A-1, Baa-1, and B-1.
STANDARD & POOR'S RATINGS SERVICE
AAA: Bonds rated AAA have the highest rating assigned by Standard & Poor's
Ratings Service ("S&P"). Capacity to pay interest and repay principal is
extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in the highest rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. While they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of this obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties of major risk
exposures to adverse conditions.
C1: The rating C1 is reserved for income bonds on which no interest is
being paid.
D: Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
A-2
