-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, InAq2HsDA+elBkNIHCaTdasPxSlOof5GIodCCkz48BfmRe49sMvDPxAiRAVQOGHl WOHH5VLqG+kXFKCG6oSYDw== 0000950116-04-003928.txt : 20041228 0000950116-04-003928.hdr.sgml : 20041228 20041228141143 ACCESSION NUMBER: 0000950116-04-003928 CONFORMED SUBMISSION TYPE: N-1A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20041228 DATE AS OF CHANGE: 20041228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NRM INVESTMENT CO CENTRAL INDEX KEY: 0000313038 IRS NUMBER: 231922688 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-1A SEC ACT: 1933 Act SEC FILE NUMBER: 333-121694 FILM NUMBER: 041228185 BUSINESS ADDRESS: STREET 1: 919 CONESTOGA RD STREET 2: ROSEMONT BUSINESS CAMPUS STE 112 BLDG 3 CITY: ROSEMONT STATE: PA ZIP: 19010 BUSINESS PHONE: 6105250904 MAIL ADDRESS: STREET 1: 919 CONESTOGA ROAD STREET 2: ROSEMONT BUSINESS CAMPUS STE 112 BLDG 3 CITY: ROSEMONT STATE: PA ZIP: 19010 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NRM INVESTMENT CO CENTRAL INDEX KEY: 0000313038 IRS NUMBER: 231922688 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-1A SEC ACT: 1940 Act SEC FILE NUMBER: 811-02955 FILM NUMBER: 041228186 BUSINESS ADDRESS: STREET 1: 919 CONESTOGA RD STREET 2: ROSEMONT BUSINESS CAMPUS STE 112 BLDG 3 CITY: ROSEMONT STATE: PA ZIP: 19010 BUSINESS PHONE: 6105250904 MAIL ADDRESS: STREET 1: 919 CONESTOGA ROAD STREET 2: ROSEMONT BUSINESS CAMPUS STE 112 BLDG 3 CITY: ROSEMONT STATE: PA ZIP: 19010 N-1A 1 n1-a.txt N1-A.TXT As filed with Securities and Exchange Commission on December 28, 2004 Registration No. 2-66073 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM N-1a REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X POST-EFFECTIVE AMENDMENT NO. 30 X and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X AMENDMENT NO. 30 X NRM INVESTMENT COMPANY (Exact Name of Registrant as Specified in Charter) Rosemont Business Campus Suite 112, Building 1 - 919 Conestoga Road Rosemont, Pennsylvania 19010 (Address of Principal Executive Offices) Registrant's Telephone Number: (610) 527-7009 John H. McCoy, President, NRM Investment Company Rosemont Business Campus Suite 112, Building 1 - 919 Conestoga Road Rosemont, Pennsylvania 19010 (Name and Address of Agent for Service) It is proposed that this filing will become effective (check appropriate box) ______ immediately upon filing pursuant to paragraph (b) __X___ on December 30, 2004 pursuant to paragraph (b) ______ 60 days after filing pursuant to paragraph (a)(1) ______ on [date] pursuant to paragraph (a)(1) ______ 75 days after filing pursuant to paragraph (a)(2) ______on [date] pursuant to paragraph (a) of Rule 485 DECLARATION PURSUANT TO RULE 24f-2 The Registrant has registered an indefinite number or amount of securities under the Securities Act of 1933 pursuant to Section (a) (1) of Rule 24f-2. The Rule 24f-2 Notice for the Registrant's fiscal year ending August 31, 2004 was filed on October 30, 2004, and the notice for the current fiscal year ending August 31, 2005 will be filed no later than October 30, 2005 NRM INVESTMENT COMPANY Rosemont Business Campus Rosemont, Pennsylvania 19010 NRM Investment Company (the "Company") is a no-load, open-end, currently non-diversified investment company that has two principal objectives: one is to obtain interest income exempt from federal income taxes by investing one half or more of all of its assets in tax-exempt obligations; and the other is to obtain non-exempt income by investing up to one half of its assets in commercial debt obligations, common or preferred shares, convertible instruments, derivatives, and shares of other investment companies. To meet the foregoing objectives and at the same time to preserve capital, the Company's investments in exempt securities will have maturities generally not exceeding twenty years from date of purchase and generally will be rated "A" or better by major rating services. The non-exempt investments will be partly in shares of companies with large market capitalizations, ($5 billion or more) or in high quality taxable notes and bonds or convertible instruments, which generally, but not exclusively will be rated "A" or better by rating services; and partly in other instruments including (without limitation) derivatives based upon recognized indices and diversified or non-diversified investment companies which have growth and income potential deemed suitable to the Company and its adviser on an investment by investment basis. The Company employs an experienced and capable investment adviser in a further effort to meet its objectives. See the discussions under "Investment Objectives" and "Management of the Company." This Prospectus sets forth concisely the information about the Company that a prospective investor ought to know before investing. Investors should read this Prospectus and retain it for future reference. The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. No person has been authorized to give any information or to make any representations not contained in this Prospectus in connection with the offering made by this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company. This Prospectus does not constitute an offering by the Company in any jurisdiction in which such offering may not lawfully be made. December 30, 2004 TABLE OF CONTENTS SUMMARY OF OBJECTIVES, STRATEGIES AND RISKS 1 Primary Objectives 1 Secondary Objectives 1 Principal Investment Strategies 2 Municipal Bonds - Currently Available Securities 3 Municipal Bonds - When Issued Securities 4 Other Tax Free Investments Excluded 4 Common and Preferred Shares and Other Instruments 4 Other Investments 5 The Company's Change from a Diversified to a Nondiversified Fund 6 Summary of Principal Risks of Investing in the Fund 7 PERFORMANCE 8 Bar Chart and Table 8 Annual Total Return - 10 Years 8 Average Annual Total Returns (For Period Ending 12/31/03) 8 Plot Points for NRM Investment Company Graph 9 NRM Investment Company Total Return Calculation 9 After Tax Total Return Fiscal Year 10 NRM Investment Company - Total Return Calculations 10 FEES AND EXPENSES OF THE COMPANY 11 Annual Fund Operating Expenses 11 Portfolio Turnover 12 Risks of Investing in the Fund - Additional Information 13 MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE 14 MANAGEMENT OF THE COMPANY 15 Investment Adviser 15 Pending Legal Proceedings 17 Capital Stock 19 TABLE OF CONTENTS (Continued) SHAREHOLDER INFORMATION 19 Pricing of Shares 19 Purchase of Shares 20 Redemption of Fund Shares 20 In General 20 Frequent Purchases and Redemptions 21 Dividends 22 Taxes 22 FINANCIAL HIGHLIGHTS 25 APPLICATION FORM: NRM INVESTMENT COMPANY 26 Terms and Conditions 27 [PROSPECTUS OUTSIDE BACK COVER] 28 SUMMARY OF OBJECTIVES, STRATEGIES AND RISKS Primary Objectives The Fund's principal objective is to invest at least half of its assets in state and municipal bonds. Interest income from such sources is generally exempt from Federal Income tax. (For an exception to the tax-exempt nature of municipal issues, see the discussion under "Taxes" as it relates to "private activity bonds" and the alternative minimum tax.) So long as it invests at least half of its assets in state and municipal bonds, Fund distributions of interest to its shareholders from these tax-free sources will likewise be free from federal tax. At present approximately 64% of the Fund's assets are invested in state and municipal bonds. However should investment conditions change in the view of the directors and the adviser they may, within the limits of the following paragraph, alter the present policy to further implement and emphasize the Fund's secondary objective. Secondary Objectives The Fund's secondary objective is to obtain non-exempt income from assets composing less than half of the Fund's portfolio value. Its directors and adviser plan to divide this non-exempt part into two subparts the relative sizes of which will vary according to the decisions of the Board and the adviser at any given time. The first subpart consists of mutual funds, stock or other instruments of high quality according to recognized rating services of United States companies as well as in taxable treasury bonds, and taxable corporate bonds. The second subpart consists of a variety of investments including (without limitation) derivatives based upon recognized financial indices deemed suitable to the Company and its adviser and other financial instruments usually deemed more speculative than the first subpart described above. To accomplish the foregoing objectives, the Fund has employed an investment adviser to be aware of and analyze the state and municipal bond market and to recommend advantageous purchases and sales. By so doing, the adviser tries to maintain bonds with stated maturities from purchase in the intermediate range of five to twelve years, with competitive rates, with little risk of principal and rated "A" or better by Standard & Poor or Moody's rating service. The same adviser will make recommendations regarding the two subparts of the Fund's secondary investments. It considers economic and risk factors such as current interest rate yields, stock market valuation levels, diversification, and the growth potential of the investment. For the first sub-part, it considers high quality equity securities with a $5 billion minimum market capitalization and proven track records of consistent earnings and dividend growth. Shares in Mutual funds would also be considered after passing quality and track record screens. US Treasury securities and corporate bonds would be considered when appropriate and would follow screening similar to that of municipal securities - "A" rated or better with an intermediate overall maturity. The second sub-part consists of a variety of investments including (without limitation) derivatives based upon recognized financial indices. Derivatives are used to take advantage of expected market movements. They are structured to meet the goals of the fund from gaining enhanced appreciation to principal protection. For both taxable and non-taxable investments, it takes into account information contained in publications and advice from outside sources such as brokerage firms to make its recommendations. Principal Investment Strategies The Company relies upon the advice of its investment adviser. Regarding state and municipal bonds, the adviser attempts to maintain bonds, with stated maturities from purchase in the intermediate range of five to twelve years, competitive rates, with little risk of principal, and rated "A" or better by Standard & Poor or Moody's rating service. In normal markets, bonds with short duration tend to fluctuate in price less than bonds with long duration. Accordingly in an atmosphere of rising rates, the adviser tends to invest in bonds with shorter maturities and accordingly with less risk of principal deterioration. Central to the adviser's strategy relative to any equities the Company may purchase, it is its belief that company earnings drive stock prices. As a result, the adviser emphasizes the consistency and predictability of earnings growth (and related dividend growth), in addition to the absolute growth rate itself. The adviser uses an Investment Selection Committee comprised of portfolio managers and analysts. With respect to the first sub-part of the Company's equity investments, the Committee will consider an investment only if it meets the following criteria: (a) it is "A" rated or better by a major rating service (b) it has had consistent earnings and dividend growth (c) it is an industry leader (d) it has a market capitalization of $5 billion or more and (e) it is listed on a United States exchange. The committee, for this subpart will consider purchasing equities in another mutual fund only if the fund is rated four stars or better by Morningstar. 2 The directors will normally purchase shares or other instruments for investment and not for short term trading purposes. Nevertheless, such shares or instruments will be sold whenever the Company determines that it is no longer compatible with the Company's objectives and purposes. There can be no assurance that the purchases or sales individually or as a group, will produce either income or gain. The shares are subject to market conditions that change frequently and cannot be predicted with accuracy. In either category and in the sub-parts of the second category, the Company will buy with the objective of preserving capital yet taking advantage of market undervaluations. Except as provided by law, however, the Company's Board of Directors shall be unrestricted in purchasing or selling securities. There can be no assurance that the Company's objectives will be achieved. Municipal Bonds - Currently Available Securities As above, the Company intends to invest no less than one half of all of its assets in debt obligations issued by or on behalf of states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies, instrumentalities or authorities ("Municipal Bonds"), the interest from which, in the opinion of counsel to the issuer, is exempt from federal income tax. The Company presently intends to invest in obligations with maturities generally less than twenty-five years from date of purchase and most often from five to twelve years, but such obligations will not necessarily be held until maturity. Generally, Municipal Bonds with longer maturities tend to produce higher yields and are subject to greater market fluctuations as a result of changes in interest rates than are Municipal Bonds with shorter maturities and lower yields. The two principal classifications of Municipal Bonds are "general obligation" and "revenue" or "special obligation" bonds. General obligation bonds are secured by the issuer's pledge of its faith, credit and taxing power for the payment of principal and interest. Revenue or special obligation bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source such as from the user of the facility being financed. Qualified private activity bonds are in most cases revenue bonds and do not generally constitute the pledge of the credit or taxing power of the municipal issuer of such bonds; instead they are dependent for the payment of principal and interest on the credit standing of the private corporate user of the facility. The portfolio may also include "moral obligation" bonds, which are normally issued by special purpose public authorities. If an issuer of moral obligation bonds is unable to meet its obligations, the repayment of such bonds becomes a moral commitment but not a legal obligation of the state or municipality in question. 3 Municipal Bonds - When Issued Securities The Company may purchase Municipal Bonds on a "when-issued" or delayed delivery basis for delivery at a future specified date at a stated price and yield. The Company would generally not pay for such securities or start earning interest on them until they are received. The Company records when-issued securities as an asset on the date of the purchase commitment. Thereafter the securities are subject to changes in value based upon changes in the general level of interest rates. To the extent that the Company remains substantially fully invested at the same time that it has purchased "when-issued" or delayed delivery securities, as it would generally do, there will be greater fluctuations in its net assets than if the Company set aside cash to satisfy its purchase commitment. The Company does not intend to purchase "when-issued" or delayed delivery securities for speculative purposes but only in furtherance of its investment objective. If the Company sells a "when-issued" or delayed delivery security before delivery, any gain or loss would not be tax-exempt. When the Company engages in "when-issued" or delayed delivery transactions, it relies on the seller to consummate the trade. Failure of the seller to do so may result in the Company incurring a loss or missing the opportunity to obtain a price considered to be advantageous. Other Tax Free Investments Excluded Because of tax and financial risks inherent in advance refunding bonds, 501(c)(3) bonds, blind pools and so called gray box and black box issues, the Company does not plan to invest in these instruments. Common and Preferred Shares and Other Instruments The Company, as above, may make investments of less than one half of all of its assets in mutual funds, common or preferred shares or other financial instruments. Except as provided by law, the Company in so doing will not be barred from any sale or purchase. Although not restricted in its investments, the Company's Board of Directors, acting as a committee, normally relies upon its investment adviser and follows the adviser's investment philosophy.(1) That philosophy, which will be the Company's emphasis in making investment choices, is to build and protect the purchasing power of the Company's portfolio over time while minimizing risk. To accomplish these two goals, it recommends a fully invested portfolio and focusing on company earnings as the driver of its stock price. Accordingly the Adviser emphasizes consistency and predictability of earnings growth (and related dividend growth), share growth from general or sector economic conditions, and the selected company's position in the industry. With respect to the first sub-part of the Company's equity investments, the Adviser's Investment Selection Committee normally considers an equity investment only if it meets the following criteria: it is rated "A" or better by a major rating company; it has a history of consistent earnings and dividend growth; the issuer is an industry leader with a capitalization of $5 billion or more and is listed on a major United States exchange and the committee will consider purchasing equities in another mutual fund only if the fund is rated four stars or better by Morningstar. No such limits apply to the second sub-part of its equity investments. - -------- (1) See infra under "Investment Adviser." 4 The directors will normally purchase shares or other instruments for investment and not for short term trading purposes. Nevertheless, such shares or instruments will be sold whenever the Company determines that it is no longer compatible with the Company's objectives and purposes. There can be no assurance that the purchases or sales individually or as a group, will produce either income or gain. The shares are subject to market conditions that change frequently and cannot be predicted with accuracy. Other Investments As a temporary investment or to maintain liquidity, the Company also may hold a portion of its assets in cash or invest in any one or a combination of the following: investment grade debt securities; money market instruments, maturing in 12 months or less, such as domestic bank certificates of deposit (of domestic banks which are insured by the Federal Deposit Insurance Corporation and have total assets at the time of purchase of $1.5 billion); obligations of, or guaranteed by, the United States Government and its agencies and instrumentalities; tax-exempt commercial paper and municipal funds *(subject to investment restrictions); and repurchase agreements entered into with domestic banks where the underlying securities are any of the foregoing. These investments normally produce lower returns than the municipal bonds, common and preferred shares, and other investments explained under the preceding heading and accordingly will lower the income from investment operations and average annual returns for measuring periods. To the extent the Company invests in money market instruments or municipal funds * there will be a duplication of management fees which will also tend to lower income from investments and annual returns. * These are special purpose mutual funds whose earnings are generally exempt from federal income tax. 5 A description of the Fund's policies and procedures with respect to the disclosure of the Fund's portfolio securities is available in the Fund's Statement of Additional Information. The Company's Change from a Diversified to a Nondiversified Fund From its inception in 1979, the Company has invested a large majority of its investments in municipal bonds. By virtue of its by-laws, its traditional prospectus provisions, and the benefits afforded by the Internal Revenue Code respecting municipal bond funds, the Company will continue to invest no less than half of its portfolio in municipals. To avoid the risk of any municipality's insolvency and consequent inability to redeem its bonds, the Company, with few exceptions continues to invest less than five percent of its portfolio in any one municipal issuer. (For those where it invests more than five-percent, it relies upon an exemption provided by the Investment Company Act.) Concerning its non-bond, minority portfolio positions in equities wherein the Company invests directly in equity issuers or in other investment companies, the Company also with few exceptions invests less than five percent of its portfolio in any one company. Recently bonds yields were at or near historic lows. With US economic activity on the rise, prospects are for interest rates to rise which would bring a consequent decrease in value of the majority of the issues in the portfolio. At the Boards direction, the Adviser, in respect to the second sub-part of the equity category has selected certain enhanced appreciation notes, available only through single issuers and tied to the equity markets. It was felt that the opportunities presented by these notes would benefit the company and lessen the impact of the expected decline in bond prices within the portfolio, brought on by rising interest rates. So as not to be limited to twenty-five percent of the portfolio invested in issuers of less than five percent each of the Company's portfolio, the Board moved and the shareholders adopted a motion to amend its by-laws to remove the investment limits of a diversified company. It will in the future invest whatever fraction of its portfolio it deems prudent (consistent with Internal Revenue Code and Investment Company Act provisions) in issuers in which the Company holds a larger than five percent interest. 6 With the change comes the additional risk of less diversification. The Company and its investors will incur this risk as part of its strategy to maximize income and growth. Summary of Principal Risks of Investing in the Fund The risks of investing in the Company's fund include the economic condition of the municipalities that issue the bonds the Company buys. The issuer may fail to make principal payment or payment on time or its issue may lose its tax status. Interest rates change constantly and most often affect the value of the bonds. Normally if rates increase, the value of the portfolio decreases. To the extent the Company invests in securities other than in state and municipal bonds, there is a risk that the businesses in which the Company invests will fail or that general market conditions will lessen the value of their stock or other securities, or in the case of equities that the particular issuer will suffer a significant decrease in profits causing a depreciation in market value of its shares. An additional risk is the Company's concentration of investments. Since more than twenty-five percent of the Company's portfolio is invested in single issues exceeding five percent of the Company's assets, the Company is no longer a diversified investment company within the meaning of the Investment Company Act. It is a market tenet that the greater the concentration in single investments or sectors of investments, the greater the market risks. A still additional risk peculiar to investing in this Company is that, for the period of 1974 through 1979 the Company operated as a steel company; its waste generation has led to environmental proceedings in the past and one is pending. See "Pending Legal Proceedings." For any of the foregoing reasons or for other risks including those hereafter described, loss of money is a risk of investing in the Fund. For a more complete discussion of risks of investing in the Fund, see "Risks of Investing in the Fund - Additional Information" later in this prospectus. 7 PERFORMANCE Bar Chart and Table The bar chart and table shown below provide some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for 1, 5, and 10 years compared to those of a broad-based securities market index. How the Fund has performed in the past is not necessarily an indication of how the Fund will perform in the future. Annual Total Return - 10 Years NRM Investment Company Bar Chart Period 12/31/94 through 12/31/03* - ------ -------------------------- 12/31/1994 -0.21% 12/31/1995 13.03% 12/31/1996 4.33% 12/31/1997 7.09% 12/31/1998 5.68% 12/31/1999 -0.85% 12/31/2000 4.86% 12/31/2001 5.47% 12/31/2002 4.53% 12/31/2003 5.86% Average Annual Total Returns (For Period Ending 12/31/03) Past One Year Past 5 Years Past 10 Years NRM Investment Company 5.86% 3.94% 4.92% Lehman Bros. Municipal 4.13% 5.57% 5.42% 5 Year Bond Index *First 9 months of 2004: 2.36% The highest and lower results for quarters within the foregoing period are 5.25% for the period ending 3/31/95 and -0.76% for the period ending 12/31/99. 8 Plot Points for NRM Investment Company Graph (August 31, 1994 through August 31, 2004) Period NRM INDEX* ----------------------------------------------------------------- 1994 10,000 10,000 1995 10,279 10,790 1996 11,052 11,190 1997 11,617 11,603 1998 12,397 12,395 1999 13,369 12,668 2000 13,577 13,351 2001 13,736 14,570 2002 14,656 15,299 2003 15,301 15,845 2004 15,907 16,556 *Lehman Brothers 5 Year Municipal Bond Index ----------------------------------------------------------------- NRM Investment Company Total Return Calculation (Through August 31, 2004) Ending Redeemable Value Annualized Return $1000 Invested - ----------------------------------------------------------------------------- 1 Year 5.59% $1,055.90 5 Year 4.35% $1,237.10 10 Year 5.03% $1,634.00 * Past performance is not predictive of future performance 9 After Tax Total Return Fiscal Year For the one, five and ten year periods ended on August 31, 2004, the following material shows the Fund's average annual total return after taxes on distributions and after taxes on distributions and redemptions: NRM Investment Company - Total Return Calculations
- -------------------------------------------------------------------------------------------------- TOTAL RETURN TAX-EXEMPT TAXABLE TAXABLE CAP. GAINS Y/E PER FINANCIALS DIVIDENDS PER SHARE ORDIN. DIVIDENDS DIVIDENDS - -------------------------------------------------------------------------------------------------- 8/31/1994 2.79% 0.227 0 0 - -------------------------------------------------------------------------------------------------- 8/31/1995 7.52% 0.238 0 0 - -------------------------------------------------------------------------------------------------- 8/31/1996 5.11% 0.237 0 0 - -------------------------------------------------------------------------------------------------- 8/31/1997 6.71% 0.221 0 0 - -------------------------------------------------------------------------------------------------- 8/31/1998 7.84% 0.221 0 0.015 - -------------------------------------------------------------------------------------------------- 8/31/1999 1.56% 0.184 0 0.002 - -------------------------------------------------------------------------------------------------- 8/31/2000 1.17% 0.174 0.00244 0 - -------------------------------------------------------------------------------------------------- 8/31/2001 6.70% 0.210 0 0 - -------------------------------------------------------------------------------------------------- 8/31/2002 4.40% 0.164 0 0 - -------------------------------------------------------------------------------------------------- 8/31/2003 3.96% 0.146 0 0 - -------------------------------------------------------------------------------------------------- 8/31/2004 5.59% 0.103 0.006 0.009 - -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- AFTER TAX DIVIDENDS NET ASSET VALUE TOTAL RETURN FOR AVAILABLE PER FINANCIAL FINANCIAL AFTER TAX Y/E FOR REINVEST STATEMENTS STATEMENTS TOTAL RETURN - -------------------------------------------------------------------------------------------------- 8/31/1994 0.227 3.909 2.79% 2.79% - -------------------------------------------------------------------------------------------------- 8/31/1995 0.238 3.964 7.52% 7.52% - -------------------------------------------------------------------------------------------------- 8/31/1996 0.237 3.933 5.11% 5.11% - -------------------------------------------------------------------------------------------------- 8/31/1997 0.221 3.968 6.71% 6.71% - -------------------------------------------------------------------------------------------------- 8/31/1998 0.233 4.041 7.84% 7.77% - -------------------------------------------------------------------------------------------------- 8/31/1999 0.1856 3.921 1.56% 1.55% - -------------------------------------------------------------------------------------------------- 8/31/2000 0.1755 3.794 1.17% 1.16% - -------------------------------------------------------------------------------------------------- 8/31/2001 0.2100 3.837 6.70% 6.70% - -------------------------------------------------------------------------------------------------- 8/31/2002 0.1640 3.842 4.40% 4.40% - -------------------------------------------------------------------------------------------------- 8/31/2003 0.1460 3.835 3.96% 3.96% - -------------------------------------------------------------------------------------------------- 8/31/2004 0.1138 3.931 5.59% 5.54% - --------------------------------------------------------------------------------------------------
10 NRM Investment Company - Total Return Calculations
- ---------------------------------------------------------------------------------------------------------- AFTER TAX AVERAGE IF REDEEMED TOTAL AFTER TAX SHARES GAIN (LOSS) AFTER TAXES TOTAL Y/E RETURN BASIS HELD ON REDEMPTION GAIN (LOSS) REUTURN - ---------------------------------------------------------------------------------------------------------- 8/31/1994 - ---------------------------------------------------------------------------------------------------------- 8/31/1995 4.82% 5.833 1.492 0.031 0.025 5.468% 10 YEAR - ---------------------------------------------------------------------------------------------------------- 8/31/1996 - ---------------------------------------------------------------------------------------------------------- 8/31/1997 - ---------------------------------------------------------------------------------------------------------- 8/31/1998 - ---------------------------------------------------------------------------------------------------------- 8/31/1999 - ---------------------------------------------------------------------------------------------------------- 8/31/2000 4.34% 4.730 1.211 0.029 0.023 4.918% 5 YEAR - ---------------------------------------------------------------------------------------------------------- 8/31/2001 - ---------------------------------------------------------------------------------------------------------- 8/31/2002 - ---------------------------------------------------------------------------------------------------------- 8/31/2003 - ---------------------------------------------------------------------------------------------------------- 8/31/2004 3.96% 3.948 1.029 0.098 0.084 6.142% 1 YEAR - ----------------------------------------------------------------------------------------------------------
After-tax returns are calculated using the historical highest individual federal marginal income tax rates that do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investors tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their fund shares through tax-differed arrangements, such as 401K plans or individual retirement accounts. FEES AND EXPENSES OF THE COMPANY This table describes the expenses that you may pay if you buy and hold shares of the Fund. The Fund charges no shareholder fees, sales loads, exchange fee or redemption fees of any kind. Annual Fund Operating Expenses The following are expenses that are deducted from Fund Assets: Management Fees .06%(2) Other Expenses .61%(3) Total Annual Fund Operating Expenses .67% - ----------- (2) This percentage results from applying a fixed fee of $10,000 per year against the Fund's 2004 fiscal year average asset value. Should the assets increase the percentage will decrease; if they decrease, the percentage will increase proportionately. The Company does not impose sales charges of any kind (3) In the Company's prior year it accrued $173,000 attributable to an environmental reserve. During the Company's fiscal year ending 8/31/2004 monies were spent from and charged to the reserve and are not reflected in "Other Expenses". 11 EXAMPLE: THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S OPERATING EXPENSES REMAIN THE SAME. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE: ONE YEAR THREE YEARS FIVE YEARS TEN YEARS $70 $155 $382 $853 This example should not be considered a representation of past or future expenses or performance. Actual expenses may be greater or less than those shown. The purpose of the foregoing table is to assist the investor in understanding the various costs and expenses that an investor in the fund will bear directly or indirectly. A more complete description of management fees is included in the prospectus under "MANAGEMENT OF THE COMPANY." Portfolio Turnover The Company will not be restricted in engaging in active and frequent trading of portfolio securities to achieve its principal investment strategies. In the current fiscal year ending August 31, 2004 its turnover rate was 47.45%. In the year ending August 31, 2003 the turnover rate was 37.90% In the preceding three years the turnover rate has not exceeded 47.45%. To the extent the Company engages in trades it is likely that it will recognize gain which will increase the taxable income flowing through to the shareholders or loss which will decrease the net asset value of the Company and its shares. Trading in bonds will incur expenses measured by the difference between bid and asked prices; trading in other securities will incur commission expenses reducing net asset value. In purchasing and selling municipal bonds, common and preferred shares, or other investments, the Company's Board of Directors will not be restricted except as previously set forth in this Prospectus and in the Statement of Additional Information. 12 Risks of Investing in the Fund - Additional Information Generally the risks associated with the Company's investments in tax-free obligations involve the financial conditions of the state or municipal issuers. Changes in economic conditions or the policies of the issuers could have a significant effect upon the value of the securities that the Company owns. Further, market rates of interest have a direct bearing upon the value of the Company's securities regardless of the status of the issuers. The Company depends upon counsel for municipal issuers to opine upon the tax-free status of the investments. A risk inherent in investing in municipal issues is that the Internal Revenue Service may assert that the issue is not tax free, or if initially tax-free may have since lost qualified status. See also the foregoing discussion regarding the special risk involved in investing in "when issued" bonds. The investments the Company makes other than in tax-free bonds will be subject to all of the market risks generally associated with conditions within the issuer, within the issuer's industry, or within the economy as a whole. Although the Company will purchase only such investments, as the adviser believes to be undervalued, there is no certainty that this objective will be met. Corporate issuers do not issue "when issued" bonds; accordingly, there are no comparable risks regarding "when issued" bonds as there are in the municipal markets. Because the Company invests in shares of other mutual funds there is an indirect increase in management fees caused by the fees the funds pay for their management. For example, on the Company's present investments in mutual funds, the expense ratios those funds incur are 1.3% and 1.2%. An additional risk is the remaining liability of the Company itself for activities it conducted before it became an investment company. As shown under the heading of PENDING LEGAL PROCEEDINGS, a matter involving environmental issues is pending with respect to the Company's activities when it was an operating steel processing plant. There were like proceedings in the past, settled or successfully resisted. The pending matter is considered material. Presently counsel for the Company has determined that the Company's remaining share of a contracted obligation to clean the first phase of an environmentally damaged site will be $115,000 plus the cost of liaison counsel and a special allocator. The Company's remaining obligation is of such an indefinite nature that counsel is unable to predict an amount or range of liability; accordingly, the Company has not accrued any amount as an expense related to this remaining obligation. If and when amounts are accrued, they will decrease the net asset value of the fund and, as a consequence, the share values of the investors' shares. Based upon the foregoing or based upon other factors affecting the market generally or the Fund in particular, there is a risk of losing money by investing in the Fund. 13 MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE After holding rates at 1%, for exactly one year, the lowest Fed Funds rate in over 45 years, the FOMC began raising short-term rates in June 2004. Expectations for late 2003 and most of 2004 were for higher interest rates. The bond market performed well in early 2004 when the economic numbers did not indicate that the economy was performing as well as was expected. In the second quarter of 2004 interest rates rose as job growth numbers came in strong and other economic readings were positive. In the third quarter of 2004, bonds are again performing well, with the economy hitting a "soft spot" despite the FOMC raising short-term rates to 1 1/2% with expectations of two more quarter point increase by years end. The ten year treasury has ranged from 3.55% to 4.80% which was reached in June 2004. The ten-year now sits at a yield of 4.12%. The yield curve has flattened with short-term rates rising and longer bonds continuing to perform well. Short municipal bond yields are approximately 20 basis points higher while intermediate and longer bonds are yielding 30 basis points less than one year ago. The NRM portfolio has appreciated 5.59% during the last year. The Lehman Municipal 5 Index is up 4.49% over this same time period. The NRM portfolio has outperformed primarily due to two factors: longer average municipal bond portfolio maturity and out performance during the period of the mutual fund investments and the enhanced appreciation investments. A number of the bonds have been pre-refunded and this can be expected to continue in this low interest rate environment. The portfolio continues to consist of high quality, intermediate-term issues producing high current income, especially in this low interest rate environment. The current yield of securities in the portfolio is 4.00%. The company intends to adhere to its strategy and bonds in the portfolio continue to be investment grade, with an average of "AA1" in quality, while most are rated "AAA". The fixed income portfolio continues to be well diversified with general obligation, housing and revenue bonds across the United States. At August 31st the mutual fund investments comprised 11.7% of the portfolio and the enhanced appreciation investments comprised 23.9% of the portfolio. 14 MANAGEMENT OF THE COMPANY The Company's Board of Directors manages the business and affairs of the Company. The Company's by-laws provide for five directors and all positions are filled. Two of the directors serving, being John H. McCoy, Jr. and George W. Connell, are "interested persons" within the meaning of that term under the Investment Company Act of 1940. The sole compensation of the directors is $400 per meeting. There are normally four meetings per year. The Statement of Additional Information contains the names of and the general background information concerning each director of the Company. Investment Adviser The Company's traditional investment adviser has been Haverford Trust Company ("HTC"), a Pennsylvania state chartered commercial bank and trust company with its principal office at Suite 450, No. 3 Radnor Corporate Center, Radnor, Pennsylvania. In January 2004 HTC organized a wholly owned Pennsylvania subsidiary corporation named Haverford Investment Management, Inc. ("HIM") to perform advisory services. The Company's Board approved the change of advisers from HTC to HIM. Other than the corporate identity of the adviser "HIM" the agreement provisions with the Company will remain the same as with HTC. HIM is an SEC registered investment adviser. It provides portfolio management services to its clients. Its officers are also officers of the parent HTC. HTC has over $3 billion under management. The Pennsylvania State Department of Banking and The Federal Reserve Bank of Philadelphia duly govern HTC. HIM and HTC share various services such as investment research, accounting and operational services in addition to corporate offices. A committee comprised of individuals employed by both HIM and HTC makes the investment decisions. HIM will provide investment supervisory services to the Company on a nondiscretionary basis. The Company's Board acts as a committee-of-the-whole in making ultimate investment decisions respecting its portfolio. HIM's activities will include making purchases and sales of securities in accordance with the Board's directions, the Company's investment policies, the provisions of the Company's registration statement, the requirements of the Investment Company Act of 1940 and the requirements of the Internal Revenue Code of 1986. 15 Mr. George Connell, a 1958 graduate of the University of Pennsylvania and former first Vice President of Drexel Burnham Lambert, Incorporated, is HTC's director and sole shareholder. Mr. Joseph McLaughlin is HTC's president. Mr. Connell and Mr. McLaughlin are senior officers of HIM. Until the Board adopted the change in advisers from HTC to HIM, the same individuals as senior officers of HTC were responsible to the directors for day-to-day recommendations regarding the Company's portfolio. In addition to being a principal of HTC and indirectly controlling HIM, Mr. Connell was formerly an organizer, a sole shareholder, chairman, chief executive officer and chief investment officer of Rittenhouse Financial Services, a firm that the John Nuveen Company acquired on September 1, 1997. Thereafter he became the principal of HTC and has been involved in these financial entities for a period in excess of five years. In addition to being president of HTC, Mr. McLaughlin is its chief operating officer, serves on its Board of Directors, and is a member of the executive committee and its investment selection committee. He will serve essentially the same positions with HIM. Previously, he was vice president and manager of the Private Client Group of Rittenhouse Financial Services. Prior to joining HTC, he was a vice president at J.P. Morgan & Company and a manager at Peat, Marwick, Mitchell & Co. He is a Certified Public Accountant, serves on the Board of Directors of Philadelphia Hospitality, Inc. and is a member of the Philadelphia Estate Planning Council. He is President of St. Joseph's University Accounting Alumni Association and a member of the Board of Governors in the College of Business and Administration at St. Joseph's University, from which he graduated. Since November 27, 1992, the members of the Company's Board of Directors, taking the adviser's recommendations into account (1) have reviewed at the quarterly meetings all purchases and sales of the Company's portfolio (2) have directed the maintenance of records and (3) have been responsible for the day-to-day management of the portfolio; further, the Board also arranges for (4) the services of an independent certified public accountant; (5) custodial and transfer agency services; (6) the computation of net asset value by HTC; (7) the providing of fidelity bond coverage; (8) the providing of other administrative services and facilities necessary to conduct the Company's business; and (9) the providing of certain services necessary to comply with federal securities laws. The Company assumes all expenses therefore. 16 For the services provided by HIM, the Company pays it $10,000 annually in quarterly installments. This is a fixed fee amount and accordingly is not based upon assets under management. However, for the past year, the fee was equal to .06% of the Company's average net assets. Pending Legal Proceedings The United States Environmental Protection Agency ("EPA") identified the Company as one of several potentially responsible persons ("PRP") in respect to environmental harm to a farm denoted as "Boarhead" located in Upper Black Eddy, Bucks County, Pennsylvania. That matter as explained in the following paragraphs has progressed, is ongoing, unresolved and material. In November 1998 EPA, after naming the PRP's, issued a Record of Decision ("ROD") relative to estimated future cleanup costs, Those together with EPA's remedial costs already incurred totaled approximately $26,000,000. Responsibility for paying these incurred and potential costs (before considering cost allocation among responsible persons) depended upon evidence linking generators to the site. At the outset of the discovery, the public identification of some generators, and the analysis of linking evidence then available, the Company committed to participate in a first cleanup phase relative to groundwater, known as operable unit one ("OU 1"). A condition of the participation was that expenses so incurred would be subject to reallocation after all available linking evidence was found and analyzed. Since the evidence linking the Company to the site and produced after it joined OU 1 was, in counsel's view, weak, and since the Company's waste product did not involve drummed waste, the Company declined to participate in drum removal, related soil cleanup ("OU 2") and past EPA costs. To date there are seven entities sharing costs in the OU 1 group ("the OU 1 Group") of which the Company is one. The Company's contracted share is one third of a one-fifth share. (The Company and two others of the seven owned an alleged waste generator in Malvern Pennsylvania at different times and together are considered one member.) The Company has reserved $115,000 as its estimate to pay its share of OU 1 yearly operation and maintenance and EPA oversight costs. (The estimated cost for each of the next three years is slightly less than $40,000.) 17 Some members of the OU 1 Group participated in the OU 2 work and paid EPA past costs (the "OU 2 Group.") To recover OU 1 and OU 2 costs and amounts reimbursed to the EPA, all allegedly in excess of their ratable liability, members of the OU 2 Group, acting as a unit, on June 18, 2002 began a cost recovery suit in the District Court for the Eastern District of Pennsylvania under the caption Boarhead Farm Agreement Group v. Advanced Environmental Technology Corporation et al., No. 02-cv-3830. The group advances three categories of claims: the first is funding for soil aeration and treatment of VOC hot spots (OU 1) and the second, excavation and off-site disposal of buried drums (OU 2). The estimated, combined cost for these is approximately $3,000,000. The third is reimbursement of the past costs to EPA. They were negotiated down from $13,000,000 to $7,000,000. Unlike the OU 1 contract claims in which the Company has a one-fifteenth share, in the current litigation the Company is one of some nine non-settling defendants. The discovery aspect of the litigation has produced some linkage evidence respecting virtually all of the defendants. The weight of the evidence has not been determined. Of the amounts the Company already paid or will pay because of its OU 1 contract commitment, it will seek contribution or reimbursement from the other defendants. In respect to the OU 2 work and EPA reimbursement costs, the OU 2 Group will seek contribution from the Company and the other defendants. The other defendants will attempt to deflect responsibility to the Company and the Company will do the same regarding the other defendants. Ultimately there will be an allocation of responsibility under court supervision, a process that may take an additional year or longer. The allocation will be based upon many factors of which we have, at present, little information. It will ultimately resolve contracted and contribution claim costs. The Company has a separate claim against the corporate successor to the NRM business, Worthington Industries. There is credible precedence in regard to this indemnity claim. During or following the principal litigation, it will pursue this claim vigorously. Because of the numerous and uncertain variables underlying liability, the Company, except for the $115,000 OU 1 reserve mentioned above, has been unable to create a reserve for its share of this work, and the Company's net asset value does not reflect this potential liability. 18 Capital Stock As of October 20, 2004, the Company's president and chairman of the board, John H. McCoy owned beneficially and of record approximately 71% of the Company's outstanding shares and controlled the Company. As of the same date, five shareholders owned beneficially approximately 92% of the Company's outstanding shares. In addition to Mr. McCoy, these included directors Francis J. Rainer (4.9%); Joseph V. Somers (5.9%); George Connell (3.9%); and a non-affiliated shareholder, Samuel R. Gilbert, Jr. (5%). A redemption of a significant number of shares by one or more of these shareholders could require the Company to distribute or liquidate portfolio securities to obtain all or a portion of the redemption proceeds. The distribution of portfolio securities or liquidation of such securities under these circumstances could be disadvantageous to the Company's remaining shareholders and could so reduce the Company's total assets that continued operation, as an investment company would not be economically feasible. The recovery or booking of environmental claims against the Company after a significant redemption would likewise be disadvantageous to the remaining shareholders. If the major shareholders redeemed and an environmental claim was recovered against the Company at or about the same time, the reduction in net worth for the remaining shareholders could be significant and seriously threaten the ability of the Company to operate. SHAREHOLDER INFORMATION Pricing of Shares The net asset value per share for purposes of both purchases and redemptions is determined by the Adviser as of the close of trading (normally at 4:00 p.m. New York City time) on each day on which the New York Stock Exchange is open for trading, other than a day during which no share was tendered for redemption and no order to purchase or sell a share was received. It is computed by dividing the value of all portfolio securities and other assets, less liabilities, by the number of shares outstanding on such date. Portfolio securities for which market quotations are readily available (other than debt securities maturing in 60 days or less) are valued at market value. With respect to Company's investment in other open-end management investment companies registered under the Investment Company Act, the Company's net asset value is calculated based upon the net asset values for those investment companies. The prospectuses for those companies explain the circumstances under which those companies will use fair value pricing and the effect of using fair value pricing. Securities for which market quotations are not readily available are valued at their fair value by the Adviser under the supervision and responsibility of the Company's Board of Directors. Absent unusual circumstances, portfolio securities maturing in 60 days or less are valued at amortized cost. 19 Purchase of Shares Those wishing to make purchases of the Company's shares may send a check and completed application (see the form attached to this prospectus) directly to First National Trust Company, 551 Main Street, Johnstown, Pa., 15907. Full and fractional shares will be purchased for the shareholder's account at the net asset value per share next computed after receipt of the order. Initial investments must be for at least one share. There is no minimum investment for additional shares. The "stub" from the confirmation of the Company's transfer agent sent to the shareholder after each prior transaction should accompany such investment. The Company imposes no sales charge on purchases of its shares. Redemption of Fund Shares In General The Company will redeem its shares at their net asset value next computed after the receipt of a written redemption request. The redemption request shall be submitted according to the following procedures: if certificates have been issued for the shares to be redeemed, the certificates must be either endorsed or accompanied by a stock power, signed exactly as the shares are registered. If certificates have not been issued, a signed stock power must accompany the request or the request itself must be in similar form. In either case, unless the redemption proceeds are less than $1,000, the signature(s) on the certificate(s), stock power(s) or request(s) must be guaranteed by a member firm of a national securities exchange or a commercial bank. (Note: the required signature guarantee is not a "notarization" as commonly understood, and accordingly is not accomplished by using the services of a notary public.) Additional documents may be required for shares redeemed by corporate, partnership or fiduciary accounts. Payment will be made as soon as possible after receipt of a redemption request, and in the absence of unusual circumstances, no later than seven days after receipt of the request. Unusual circumstances which could delay payment are those determined by the Securities and Exchange Commission, or during any period when the New York Stock Exchange is closed (other than customary weekend and holiday closings), during which trading on the New York Stock Exchange is restricted, or for such other periods as the Securities and Exchange Commission may permit. The proceeds paid upon redemption may be more or less than the shareholder's cost, depending on the value of the Company's portfolio securities at the time of redemption. Except as provided in the next paragraph, redemption proceeds shall be paid in cash. 20 At the instance of a redeeming shareholder having shares of a value of $10,000 or more, the Company shall redeem his shares by distributing readily marketable securities owned by the Company valued on the above valuation date in the same manner as they would be for determining the Company's net asset value. (4) The redeeming shareholder seeking marketable securities may apply to redeem all but not less than all of his shares held on the date of the redemption request. On the date of the redemption, the shareholder will receive marketable securities and, possibly, cash (for rounding) with a fair market value on the valuation date equal to the net asset value of the shares being redeemed. Frequent Purchases and Redemptions The Company's Board of Directors has not adopted policies and procedures regarding frequent purchases and redemptions of shares. They are presently deemed unneeded. More than 90% of the Company's shares are owned by a limited number of long-term investors. No one of the group has ever purchased and sold or sold and purchased shares within any one-year period. Of the remaining group, purchases have been limited to dividend reinvestments totaling 13.2 shares, having a value less than $75.00. Redemptions are wholly unrelated and in the past fiscal year have been limited to fewer than five shares having a net asset value of less than $25. The Company has traditionally reserved the right to reject any purchase, and in the event of market abuse of any kind would reject the purchase request and close the account of any person attempting to engage in frequent purchases and redemptions. - --------- (4) For shares purchased within six months of the date of redemption where the redemption proceeds are the Company's securities, the Company shall distribute securities with a tax basis to the Company as close as possible to the purchase price the redeeming shareholder paid for his shares. For other shares being redeemed for Company securities, the Company shall distribute securities with a basis determined by multiplying the Company's basis for all of its securities by a fraction the numerator of which is the total number of shares being redeemed and the denominator of which is the total number of shares outstanding on the date of redemption 21 Redemption requests should be tendered to First National Trust Company 551 Main Street, Johnstown, Pa., 15907. For purchase and redemption information call 814-536-2110. Dividends The Company normally distributes its investment company income quarterly and its capital gain net income at least annually. In calculating interest income, premiums on securities are amortized but discounts (except for original issue discounts) are not accreted. Dividend accruals are normally made as of the ex-dividend dates of companies in which the Company owns shares. In determining amounts of capital gain to be distributed, any capital loss carryforwards from prior years will be offset against current capital gains. All distributions of net investment income and any capital gains paid by the Company will be paid by checks mailed to the shareholders, or by written request by a shareholder, will be reinvested in additional shares of the Company without sales charge at the net asset value per share as determined at the close of business on the payment date. Confirmation statements reflecting additional shares purchased through reinvestment of distributions will be mailed to all shareholders who do not receive their distributions in cash. Taxes The Company qualified for the fiscal year ended August 31, 2004 and intends to continue to qualify for and elect the special tax treatment afforded regulated investment companies under Subchapter M of the Internal Revenue Code. It emphasizes investments in state and municipal bonds. From such bond income, it will pay "exempt-interest" dividends of not less than 90% of its tax-exempt net income which may be treated by the Company's shareholders as items of interest excludable from their gross income. The exempt interest treatment of the dividends to shareholders will continue for as long as the Company holds no less than 50% of its assets in securities exempt from Federal tax. As heretofore indicated the Company intends to invest more than 50% of its assets in securities the ordinary income from which is exempt from federal tax. Non-exempt and capital gain income will be taxed to the shareholders whether the income is received in the form of a cash distribution or reinvested to acquire additional shares. 22 Interest on newly issued Municipal Bonds, the proceeds of which are used to provide financing for persons other than states and local governmental units (such bonds sometimes referred to as "private activity bonds") will generally be tax exempt if certain qualification requirements are met by the issuer, but for the most part in computing alternative minimum tax will be treated as an item of tax preference for individual and corporate shareholders; accordingly, it is anticipated that the Company, in purchasing new issues, will favor governmental operations bonds over private activity bonds. Any gain the Company recognizes on the disposition of exempt-interest securities it purchases after April 30, 1993 and which is attributable to accrued market discount will be taxed to the shareholders as ordinary income; the balance of the gain, if any, will be taxed to the Company or the shareholders as capital gain. The capital gain rate will depend upon the time the Company owns the security. It will be at ordinary rates if held for one year or less and at a maximum of 15% if held for more than one year. Exempt-interest dividends may be taxable to investors under state or local law as dividend income even though all or a portion of such distributions may be derived from interest on tax-exempt obligations which, if realized directly, would be exempt from such income taxes. For Pennsylvania residents, an exclusion from Pennsylvania State personal taxable income is allowed for dividends or distributions received from the Company to the extent they were earned by the Company from interest on Pennsylvania State and Local Government obligations. If a shareholder receives an exempt-interest dividend with respect to any share of the Company held for six months or less, any loss on the sale or exchange of such share shall be disallowed to the extent of the amount of the exempt-interest dividend. If a shareholder redeems any shares between dividend record dates, the amount of any undistributed interest income will be included in the net asset value per share and will increase the capital gain (or decrease the capital loss) realized by the shareholder upon redemption. Capital gains realized upon redemption are not exempt from federal income taxes. Although exempt interest dividends are excludable from shareholders' gross income, such dividends are taken into account in determining whether a portion of social security benefits will be subjected to income tax under Section 86 of the Internal Revenue Code. 23 Under the Code, interest on indebtedness incurred or continued to purchase or carry tax-exempt securities (which would in whole or in part include shares issued by the Company) will not be deductible by the borrower. Under procedures established by the Internal Revenue Service, a purpose to use borrowed funds to purchase or carry tax-exempt securities may be shown by either direct or circumstantial evidence. To the extent interest expense is incurred to purchase taxable investments, deductions therefore are generally limited to the amount of the net taxable investment income. Under the Code, corporate shareholders of the Company may be required to pay an alternative minimum tax based in part upon the difference between the shareholders' taxable income and its adjusted current earnings. In effect this may require a tax for corporate shareholders on exempt interest dividends. In addition to exempt interest dividends, the Company will pay dividends of at least 98% of the ordinary income it receives from investments generating taxable income on a calendar year basis; 98% of its capital gain net income (amounts, if any, in excess of current or carryforward losses) for every year ending on October 31; and, 100% of any undistributed amounts of ordinary and capital gain income from the preceding calendar year. These sums are fully taxable to the shareholders. Moreover, since five or fewer shareholders own more than half of the Company's stock, and since its ordinary income is from dividends and interest, it is a personal holding company within the meaning of section 542 of the Code. The Company's ordinary income (exclusive of tax-free interest) is personal holding company income and to the extent not distributed is subject to a tax of 15% of the personal holding Company income. Accordingly, for this additional reason, it is the Company's policy to distribute all of the Company's income currently. Dividends the Company passes through to its shareholders from non-exempt dividends it receives from its investments during the year of distribution (current earnings and profits) will be taxed to the shareholders by the Internal Revenue Service at a maximum rate of 15%. Other distributions from the Company's prior earnings and profits will be taxed at ordinary rates. The foregoing is only a brief summary of some of the important tax considerations generally affecting the Company and its shareholders. No attempt is made to present a detailed explanation of the federal, state and local income tax treatment of the Company or its shareholders. This discussion is not intended as a substitute for careful tax planning. Accordingly, potential investors in the Company are urged to consult their tax advisers with specific reference to their own tax situations. 24 In general, dividend record dates are set by the directors to occur on approximately the 23rd day of February, May, August and November. Shareholders will be advised annually within 60 days of the end of the Company's taxable year as to the federal income tax consequences of distributions made during such year, and will be similarly advised after the end of each calendar year. FINANCIAL HIGHLIGHTS The following financial highlights table is intended to help you understand the Fund's financial performance for the past 5 years. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been audited by Beard Miller Company, LLP. independent auditors, whose report, along with the Fund's financial statements, are included in the SAI or annual report, which are available upon request.
- ------------------------------------------------------------------------------------------------------------------- Years Ended August 31, 2004 2003 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------- PER SHARE DATA (for a share outstanding throughout the indicated year) Net asset value, beginning of year $3.834 $3.842 $3.837 $3.794 $3.921 Net investment income .119 .146 .163 .199 .184 Net realized and unrealized gain (loss) on investments .096 .006 .006 .054 (.135) --------------------------------------------------- Total from investment operations .215 .152 .169 .253 .049 Less distributions: Dividends from capital gains (.009) - - - - Dividends from net tax-exempt income (.103) (.146) (.163) (.199) (.174) Dividends from net taxable income (.006) - - - (.002) --------------------------------------------------- Distribution in excess of net investment income - (.014) (.001) (.011) - --------------------------------------------------- Total distributions (.118) (.160) (.164) (.210) (.176) --------------------------------------------------- Net asset value, end of year $3.931 $3.834 $3.842 $3.837 $3.794 =================================================== TOTAL RETURN 5.59% 3.96% 4.40% 6.70% 1.17% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (in thousands) $15,579 $15,198 $15,285 $15,322 $16,268 Ratio of expenses to average net assets .67% 1.07% 1.43% .95% .77% Ratio of net investment income to average net assets 3.04% 3.78% 4.24% 4.93% 4.83% Portfolio turnover rate 47.45% 37.90% 16.82% 14.21% 77.12% - -------------------------------------------------------------------------------------------------------------------
25 APPLICATION FORM: NRM INVESTMENT COMPANY Mail to: First National Trust Company, 551 Main Street, Johnstown, Pa., 15907 ________________________________________________________________________________ REGISTRATION: Individual ) Tenants in Common ) Trustees ) Joint Tenants ) Custodian ) Other ) ________________________________________________________________________________ (Name) Social Security No./(Tax Identification No.) ________________________________________________________________________________ (Name) Social Security No./(Tax Identification No.) ________________________________________________________________________________ PERMANENT MAILING ADDRESS: ________________________________________________________________________________ Street Address City State Zip GIFTS TO MINORS ________________________________________________As Custodian for ________________________________________________________________________________ Minor's First Name Initial Last Name Age Minor S.S.No. Under the _______________________Uniform Gifts to Minors Act. State Initial order, payment enclosed If this Application accompanies a check for the purchase of investment company shares, I enclose a check payable to First National Trust Company, and would like you to: Issue Certificate, ) or ) hold shares in account at Bank Check here if dividends and distribution are to be reinvested at net asset value without sales charge.) ________________________________________________________________________________ 26 This application is made in accordance with the provisions of the current Prospectus of the Company, a copy of which I have received, and the applicable terms and conditions on the reverse side. I am of legal age in the State of my residence. ________________________________________________________________________________ Date Signature of owner Signature of co-owner Terms and Conditions Purchases of Company Shares: Initial Purchase: Upon receipt of the application form from the subscriber, and accompanied by any necessary funds, First National Trust Company, acting as agent for the subscriber, will purchase as many shares (including fractional shares) of the Company as may be purchased at the net asset value next computed after receipt of the application form and payment to First National Trust Company, 551 Main Street, Johnstown, Pa., 15907. Fractional shares shall be purchased to the nearest one-thousandth (1/1000) of a share. Initial purchases must be for at least one share. Subsequent Purchases: Upon receipt of additional funds, First National Trust Company will purchase additional shares (including fractional shares) in the same manner as above. Additional purchases must be for at least one share. The Company reserves the right in its discretion to reject all or any portion of a purchase order and return the accompanying payment. I hereby certify that the Tax Identification No. contained herein is true, correct and complete and that I am not subject to backup withholding under Section 3406 (a)(1)(C) of the Internal Revenue Code. ________________________________________________________________________________ Date Signature of owner Signature of co-owner 27 [PROSPECTUS OUTSIDE BACK COVER] The Company's Statement of Additional Information contains additional information about the Fund, which in large part expands the discussion contained in the prospectus and which may be of interest to some investors. Much of this additional information may also be found in the Fund's annual and semi-annual reports to the shareholders. In the Fund's annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. The Statement of Additional Information and the Fund's annual and semi-annual reports are available, without charge, upon request, by calling the Fund's Custodian and Transfer Agent, First National Trust Company, 551 Main Street, Johnstown, Pa., 15907; personnel at First National Trust will be available to receive shareholder inquires and to furnish other pertinent information to interested people. Alternatively, for any of this information, you may call the Fund's assistant secretary, Edward Fackenthal, collect at 610 279 3370 or contact him at his Internet site edwardfackental@cs.com. Information about the Fund (including the SAI) can be reviewed and copied at the Securities and Exchange Commission's Public Reference Room in Washington, D.C. Information on the operation of the Commissions' Public Reference Room may be obtained by calling the Commission at 1 202 942 8090 and asking for the public reference file and referring to the Fund's Investment Company Act file number of 811 02995. The reports and other information about the Fund are available on the EDGAR Database on the Commission's Internet site at http://www.sec.gov. Copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the Public Reference Section of the Commission, Washington, D.C. 20549-0102 However you contact the Commission in regard to the Company, be sure to have the Company's Investment Company file number at hand: 811 02995. 811 02995 28 NRM INVESTMENT COMPANY December 30, 2004 STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information is not a prospectus and should be read in conjunction with the Prospectus of the Company having the same date as this Statement of Additional Information. A prospectus may be obtained without charge upon request, by calling the Fund's Custodian and Transfer Agent, First National Trust Company, 551 Main Street, Johnstown, Pa., 15907; personnel at First National Trust will be available to receive shareholder inquires and to furnish other pertinent information to interested people. Alternatively, for any of this information, you may call the Fund's assistant secretary, Edward Fackenthal, collect at 610 279 3370 or contact him at his Internet site edwardfackental@cs.com. Much of the information contained in this statement of Additional Information expands upon subjects discussed in the Prospectus. No investment in shares of the Company should be made without first reading the Prospectus of the Company. (i) NRM INVESTMENT COMPANY STATEMENT OF ADDITIONAL INFORMATION December 30, 2004 TABLE OF CONTENTS STATEMENT OF ADDITIONAL INFORMATION i FUND HISTORY 1 DESCRIPTION OF THE FUND ITS INVESTMENTS AND RISKS 1 Investment Objectives and Policies 1 Investment Policies and Restrictions 3 Disclosure of Portfolio Holdings 4 MANAGEMENT OF THE FUND 5 FISCAL YEAR DIRECTORS' FEES 7 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES 8 ADVISORY SERVICES 9 PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS 10 THE COMPANY'S COMMON STOCK 11 PURCHASE, REDEMPTION, PRICING OF SHARES; UNDERWRITING 11 OTHER INFORMATION OF INTEREST TO INVESTORS 11 Other Services 11 Accounting 11 Compliance 12 Custodian and Transfer Agent 12 Auditors 12 Counsel 12 TAXATION OF THE FUND 12 State and Local 14 Report of Independent Auditor Exhibit Financial Statements Exhibit FUND HISTORY The Company was incorporated on April 12, 1974, under the laws of the Commonwealth of Pennsylvania, as National Rolling Mills Co. Through August 30, 1979, the Company was actively engaged in operations as a steel processing plant. On August 31, 1979, the Company changed its name to NRM Investment Company and registered with the Securities and Exchange Commission as an open-end, diversified management investment company. DESCRIPTION OF THE FUND ITS INVESTMENTS AND RISKS Investment Objective and Policies The Company is an open-end, non-diversified(1), management investment company. As stated in the Prospectus, it intends to invest at least fifty percent of its assets in State and Municipal Bonds. Such Bonds include debt obligations issued to obtain funds for various public purposes, including the construction of a wide range of public facilities, refunding of outstanding obligations, and obtaining funds for general operating expenses and loans to other public institutions and facilities. In addition, certain types of private activity bonds are issued by or on behalf of public authorities to obtain funds for privately operated facilities. Such obligations are included within the term "Municipal Bonds" if the interest paid thereon is exempt from federal income tax. (See reference to "private activity bonds" under the discussion "TAXES" in the prospectus). Municipal Bonds also include short-term tax-exempt municipal obligations such as tax anticipation notes, bond anticipation notes, revenue anticipation notes, and Public Housing Authority notes that are fully secured by a pledge of the full faith and credit of the United States. Bond counsel to the respective issuing authorities render opinions relating to the validity of Municipal Bonds and to the exemption of interest thereon from federal income taxes at the time of issuance. Neither the Company nor the adviser will review the proceedings relating to the issuance of Municipal Bonds or the basis for such opinions. The District of Columbia, each state, each of its political subdivisions, agencies, instrumentalities and authorities, and each multi-state agency of which a state is a member, is a separate "issuer" as that term is used in the Prospectus and this Statement of Additional Information. The non-governmental user of facilities financed by private activity bonds is also considered to be an issuer. - ---------- (1) The Fund is no longer diversified, see text under heading "Investment Objective and Policies." The issuer's obligations under its Municipal Bonds are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors, such as the federal Bankruptcy Code, and laws, if any, which may be enacted by Congress or state legislatures imposing a moratorium on the payment of principal and interest or imposing other constraints or conditions upon enforcement of such obligations. There is also the possibility that as a result of litigation or other conditions, the power or ability of issuers to meet their obligations for the payment of interest and principal on their Municipal Bonds may be materially adversely affected. As explained in the prospectus, General Obligation bonds are those secured by the taxing authority of the issuer; the risks inherent in such investments are that interest rates may increase lessening the value of the bonds, or that the municipality by reason of insolvency, bankruptcy, or court imposed bar on collection would prohibit or postpone payment. Revenue bonds imply additional risk. Unlike general obligation bonds, these bonds are dependent entirely upon the income from the operation financed by the borrowing and not upon the municipality's general taxing power. Should the project fail the Fund would lose its investment. Private Activity Bonds bear still greater risk. Here the borrower although an issuer of the debt is a private concern borrowing funds from a conventional lender through a program created by an authority; should the borrower's project fail, there is no recourse to the municipality and the Fund would lose its investment. The Fund will invest less than fifty percent of its assets in stock, securities and instruments other than municipal bonds. For this portion of the Fund it plans to emphasize in securities from issuers with large market capitalizations of at least $5 billion, and of investment grade quality ranked "A" or better by major rating services, or in the event of a mutual fund purchase rated four stars or better by Morningstar. (By emphasizing in these areas, the Fund will not exclude the purchase or sale of any stock, security or other instrument should the directors deem it to be for the Fund's benefit.) General market conditions and unforeseeable downturns in any business or sector would adversely impact the Fund's capital and could lead to losses for the individual investor. Risks inherent in investing even in large capitalization issuers is the inability of the directors or their adviser to predict shifts in general or sector economic conditions which might have an adverse effect on the value of the shares or other instruments the Fund purchases. Also, particular issuers in which the Fund invests may suffer reversals regardless of outside economic conditions leading to depression in value of their stock or other instruments and a consequent downturn in net asset value of the Fund and its shares. 2 In addition to the investment limitations stated in the Prospectus, the Company is subject to the following limitations which may be changed only by a vote of a majority of the outstanding shares of the Company as required by Sections 8 and 13 of the Investment Company Act of 1940. Investment Policies and Restrictions The Company may not: 1. Borrow money except from banks for temporary purposes and then in amounts not in excess of 10% of the value of the Company's assets at the time of such borrowing; or mortgage, pledge or hypothecate any assets except in connection with any such borrowing and in amounts not in excess of the lesser of the dollar amounts borrowed or 10% of the value of the Company's assets at the time of such borrowing. (This borrowing provision is not for investment leverage, but to facilitate management of the portfolio where the liquidation of portfolio securities is deemed to be disadvantageous or inconvenient.) 2. Purchase securities on margin (except that it may obtain such short-term credits as may be necessary for clearance of purchases and sales of securities); make short sales of securities; or maintain a short position; 3. Make loans to other persons, except that the Company may purchase or hold Municipal Bonds or other debt instruments in accordance with its investment objective, policies, and restrictions; 4. Underwrite any issue of securities, except to the extent that the purchase of Municipal Bonds directly from the issuer thereof in accordance with the Company's investment objective, policies, and restrictions may be deemed to be underwriting; 5. Purchase or sell commodities or commodity contracts or real estate (except that the Company may invest in Municipal Bonds secured by real estate or interests therein); invest in oil, gas, or their mineral exploration or development programs. 6. Purchase any private activity bond where the payment of principal and interest are the responsibility of an issuer (including its predecessors and unconditional guarantors) which at the time of purchase had been in operation for less than three years; 3 7. Issue any class of senior security or sell any senior security of which it is an issuer, except that the Company may borrow money as set forth in paragraph 1. above. As therein provided, such borrowing will not be for investment leverage, but to facilitate management of the portfolio where the liquidation of portfolio securities is deemed to be disadvantageous or inconvenient; 8. Purchase the securities of any other investment company except as part of a merger, consolidation, or reorganization or purchase of assets approved by the Company's stockholders; provided, that the Company may purchase shares of any registered, open-end investment company if immediately after such purchase, the Company will not own more than 3% of the outstanding voting stock of any one investment company; 9. Knowingly invest more than 10% of the value of the Company's assets in securities with legal or contractual restrictions on resale; and, 10. Invest 25% or more of its total assets in securities of nongovernmental issuers engaged in related trades or businesses. The foregoing percentage limitations will apply at the time of the investment or other transaction and, except as provided in the next sentence, shall not be considered violated unless an excess or deficiency occurs immediately after and as a result of such investment or transaction. The Company will not permit its borrowing to exceed 10% of its assets at any time for more than three business days; should there be an excess of borrowing as a result of a decrease in the value of the portfolio, the Company shall repay such portion of the debt as is necessary to maintain the 10% ratio. Also, borrowing is not for investment leverage, but to facilitate management of the portfolio where the liquidation of portfolio securities is deemed to be disadvantageous or inconvenient. The Board has decided that within the meaning of the Investment Company Act the Company will be nondiversified. Accordingly, it may invest more than 25% of its assets in a group of issuers wherein it invests more than 5% in any one member of the group. Disclosure of Portfolio Holdings The individuals, entities and entity employees who have continuous and unrestricted access to records of the Company's portfolio are its Board Members who act as a committee-of-the-whole in making investments, the Company's investment adviser who passes on all proposals to purchase or sell portfolio securities, the Company's custodian which holds all of the portfolio and participates in pricing the holdings, the Company's non-auditing accountant who keeps records of the purchases and sales and who also participates in pricing, and the Company's broker/dealer (all of the foregoing being knows as "Access Persons."). 4 As a condition to the Company's ongoing appointment or employment of the Access Persons, they have pledged to the Company to treat the Company's holdings as confidential and, accordingly, not to disclose the holdings, purchases and sales, planned purchases, and all related discussions and deliberations to others except as required by law (such as with publicly available filings with government agencies or in periodic reports). Access Persons may freely disclose portfolio information to all other Access Persons, and periodically the Company will makes its portfolio known to the employees of the Company's auditing firm. The Company has adopted an Ethics Code that bars Access Persons from trading in securities the Company has traded in or has contemplated trading in for the duration of a fifteen day "blackout period" as defined in the Code and likewise bars trading in initial or limited public offerings except as the Code permits in exceptional circumstances. The Code has monitoring provisions wherein Access Persons are required to report their individual purchases and sale to a compliance officer who reports, independently, to the board. The Code also has sanction and disgorgement provisions applied to an Access Person who has violated Code provisions. No less frequently than annually, the compliance officer reports to the Board about the operation of the ethics code procedures and reports no less frequently than quarterly of any apparent past violations. The officer reports immediately about ongoing violations. MANAGEMENT OF THE FUND The Fund is managed by its Board of Directors with the authority and responsibilities enumerated in the Pennsylvania Business Corporation Law of 1988. The Board appoints the Company's officers. The directors and officers of the Company and their addresses and principal occupations during the past five years are as follows: 5
Name and Address Position and Age w/Registrant During Past Five Years - --------------------------------------------------------------------------------------------------------------------------- John H. McCoy* Director, **Former President of National Rolling Mills, Inc., a steel 280 Abrahams Lane Chairman, rolling plant. Prior thereto, he was President and Director of Villanova, PA 19035 and President National Rolling Mills Co. 82 Years Old Joseph V. Somers Director ** Former President of Somers Construction Company and Vice 1518 Mt. Pleasant Rd. President of Industrial Lift Truck Co. Villanova, PA 19085 83 Years Old Francis J. Rainer Director C.P.A. and former President, Rainer & Company, 6563 Ridgewood Drive a professional accounting corporation. He is also Naples, FL 34108 a former Vice-Chairman of the Board of Greater Delaware Valley 81 Years Old Savings & Loan. James Fisher Director ** Former Officer of National Rolling Mills Inc. Tedwyn Apartments Apt. 801 840 Montgomery Avenue Bryn Mawr, PA 19010 83 Years Old George W. Connell* Director Chairman, Chief Executive Officer, Director and sole shareholder #3 Radnor Corporate Ctr. of The Haverford Trust Company, a commercial bank and trust Suite 450 Company acting as the Company's investment adviser, CEO and 100 Matsonford Road Director of Rittenhouse Trust Securities, a registered brokerage Radnor, PA 19087 dealer, Member of the Investment Committee of Rittenhouse 68 Years Old Financial Services, Inc. a John Nuveen Company
* Interested Director - Mr. McCoy owns a majority of the shares of the Company and Mr. Connell is the Principal of the Company's Investment Adviser. **Retired for more than five years. 6 The Board performs all of the functions prescribed for Corporations by Section 1721 Pennsylvania Associations Code. As it relates to purchases and sales of portfolio securities, the Board functions as a committee-of-the-whole and meets quarterly. Investment of every Director in the Company exceeds $100,000.00. As explained under "Disclosure of Portfolio Holdings," the Company and its Investment Adviser have adopted codes of ethics under Rule 17j-1 of the Investment Company Act. Except as provided therein, the codes bar personnel and others known as "access persons" from investing in securities during a "black out period" that were or may be purchased or held by the Company. By reason of the nature of the Company's investments, in the past year it has not voted or had the opportunity to vote proxies relative to portfolio securities. Since registering as an investment company under the Investment Company Act of 1940, the Company has not paid and does not expect to pay any remuneration to any of its officers. The company pays each director a fee of $400 for each meeting of the Board of Directors attended and reimburses the directors for their related out-of-pocket expenses. For the past year the payments were as follows: NRM INVESTMENT COMPANY'S FISCAL YEAR DIRECTORS' FEES
MEETING DATE FISHER MCCOY SOMERS RAINER CONNELL TOTAL - --------------------------------------------------------------------------------------------------------------- 9/18/03 $ 400.00 $ 400.00 $ 400.00 -0- $ 400.00 $1,600.00 12/18/03 400.00 400.00 400.00 400.00 400.00 2,000.00 3/18/04 400.00 400.00 - 0 - - 0 - - 0 - 800.00 7/15/04 400.00 400.00 400.00 400.00 400.00 2,000.00 - --------------------------------------------------------------------------------------------------------------- F/Y Total $1,600.00 $1,600.00 $1,200.00 $800.00 $1,200.00 $6,400.00
7 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES As of October 20, 2004, John H. McCoy owned beneficially and of record 2,817,679 of the Company's outstanding voting securities and controlled the Company. His control is sufficient to appoint all members of the Board of Directors and carry out the business of the Company without the affirmative vote of any other shareholder or group of shareholders. The Company's principal shareholders are as follows: Percentage of Name and address Ownership -------------------------------------------------- John H. McCoy 71.0% 280 Abrahams Lane Villanova, PA 19035 Francis J. Rainer 4.9% 6563 Ridgewood Drive Naples, FL 34108 Joseph V. Somers 5.9% 1518 Mt. Pleasant Road Villanova, PA 19085 Samuel R. Gilbert, Jr. 5.0% 289 Hollybrook Drive Advance, NC 27006 George W. Connell 3.9% #3 Radnor Corporate Ctr. Suite 450 100 Matsonford Road Radnor, PA 19087 The percent owned is based on the number of outstanding shares of common stock at October 20, 2004. All such shares are owned of record and beneficially. All officers and directors of the Company, as a group owned as of October 20, 2004, 3,963,035 of the Company's common stock or 87% of its outstanding voting securities. 8 ADVISORY SERVICES Haverford Investment Management, Inc. ("HIM") located at Three Radnor Corporate Center, Radnor, PA 19087-4514 has been retained by the Company to act as investment adviser under an advisory agreement dated December ___, 2004. The agreement follows the provisions of a contract dated November 30, 1992 in which the Company contracted with Rittenhouse Financial Services. Rittenhouse eventually by assignment of September 3, 1997 transferred the advisory contract to Rittenhouse Trust Company which in turn changed its name to Haverford Trust Company. Haverford Trust Company in turn, in January 2004 organized a wholly owned subsidiary named HIM. The Company at its quarterly board meeting combined with its annual shareholder meeting resolved to contract with HIM for the calendar year 2005. The sole shareholder of the parent company is George Connell who indirectly controls the adviser. His qualifications, affiliations, and business history are contained in the prospectus. He is a Board member of the Company and accordingly an interested person. Under the Advisory Agreement, HIM assumes no responsibilities to the Company except, as provided in the prospectus, to make recommendations to the Company's Board respecting the purchases and sales of securities on a nondiscretionary basis and to adhere to the provisions of the Investment Advisers' Act of 1940 and other pertinent securities laws. For the services provided, the Company has agreed to pay HIM, on a quarterly basis, a fee at an annual flat rate of $10,000. In determining net asset value, the Company accrues HIM's fees on a daily basis. The agreement provides that except for violations of securities laws, HIM shall not be liable for any action it takes for services rendered or not rendered or for any mistakes of judgment or otherwise. For each of the fiscal years ending August 31, 2002 and August 31, 2003, and August 31, 2004, the Company paid HTC $10,000. For the year ending August 31, 2005 it is the intention to pay HIM at the same rate. UBS Financial Services Inc. acts as a principal in selling investments to the Company. It also furnishes advice regarding investments to the adviser and to the Company's Board. 9 PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS Purchases and sales of portfolio debt securities will normally (but not exclusively) be transacted with the issuer or with a primary market maker acting as principal on a net basis with no brokerage commissions being paid by the Company. Transactions placed through dealers serving as primary market makers reflect the spread between the bid and the asked prices. The Company will also purchase underwritten issues. When purchasing equity issues the directors have authorized the Adviser to execute transactions that may result in the Company paying some commissions. In years ending August 31, 2001, 2002, 2003 and 2004 the Company paid no commissions on its purchase of equity investments or no loads on the purchases of mutual funds. However, in the year ended August 31, 2000 the Company paid commissions on its purchases of equity investments. In the year preceding fiscal 2000 the Company paid no commissions in respect to portfolio transactions, and it is expected that it will not pay such commissions for the current fiscal year. The policy of the Adviser will be to seek "best execution" when placing portfolio transactions for the Company. "Best execution" means prompt and reliable execution at a price the Adviser has reason to believe represents the lowest cost, including any commission in the case of a purchase, or, in the case of a sale, the greatest proceeds reasonably available. Subject to and in accordance with the provisions of section 28(e) of the Securities Exchange Act of 1934, the Advisory Agreement authorizes the Adviser to place orders for the purchase and sale of the Company's securities with brokers or dealers who provide the Adviser with access to supplemental research and security and economic analysis even though such brokers and dealers execute such transactions at a higher net cost to the Company than may result if other firms were used. The Adviser in connection with its services to their advisory clients may also use these various services. The extent and continuation of this policy is subject to the review of the Company's Board of Directors. During the past fiscal year, the Adviser did not use this provision of the agreement; all transactions were with a single broker/dealer but at best execution as tested periodically by seeking other quotations. The Company does not expect its annual portfolio turnover rate to exceed 100%, but the rate of turnover will not be a limiting factor (as in fiscal 1991) when the Company deems it desirable to sell or purchase securities. The Company's portfolio turnover rates during the fiscal years ended August 31, 2004 and August 31, 2003 were 47.45% and 37.90% respectively. 10 THE COMPANY'S COMMON STOCK The Company was incorporated on April 12, 1974 under the laws of the Commonwealth of Pennsylvania. Each share in the Company has a par value of $.01 and has equal voting, dividend and liquidation rights. Shareholders are entitled to one vote for each full share held and fractional votes for fractional shares held. The shares are not restricted in either trading or retaining, there are no material obligations associated with owning the Company's shares other than investment risk and litigation risks described in the prospectus, and there are no preemptive, conversion or cumulative voting rights. Accordingly, holders of more than 50% of the shares voting for the election of directors can elect all of the directors. PURCHASE, REDEMPTION, PRICING OF SHARES; UNDERWRITING The Funds shares are offered to the public as described in the prospectus. There are no special purchase plans or methods; and there are no sales loads of any kind. Shares are offered to the public at net asset value determined as described in the prospectus. The Company has no underwriter. OTHER INFORMATION OF INTEREST TO INVESTORS Other Services Accounting Raymond J. Keefe, a certified public accountant with principal offices at 288 Lancaster Ave. Malvern, Pa 19355, provides certain administrative services to the Company. Mr. Keefe maintains the books and records of the Company, compiles its monthly and semi-annually financial statements, computes its net asset value and net income under the supervision of the adviser, prepares its federal and state income tax returns, and provides assistance in the preparation of its semi-annual and annual reports to the Securities and Exchange Commission. Mr. Keefe bears all expenses in connection with the performance of his services. For the services provided and expenses assumed, the Company pays Mr. Keefe on a quarterly basis an annual fee of $6,000 plus additional hourly compensation for additional or unanticipated work. 11 Compliance In addition to his services as the non-auditing accountant, the Company's Board employed Mr. Keefe as its Compliance Officer. For services rendered in this regard the Board will compensate him at the rate of $100.00 per hour for time spent. Custodian and Transfer Agent First National Trust Company, 551 Main Street, Johnstown, Pa., 15907 ("First National") serves as the Company's Custodian and Transfer Agent. As Custodian, First National holds the Company's assets subject to the instructions of the Company's officers. Auditors Beard Miller Company, LLP (f/k/a Beard & Company, Inc.) independent auditors, with offices at 2609 Keiser Boulevard, P.O. Box 311, Reading, Pennsylvania 19603-0311 serves as the Company's auditors. The financial statements of NRM Investment Company appearing in the 2000, 2001, 2002, 2003 and 2004 annual reports to shareholders for the years ended August 31, 2000, August 31, 2001, August 31, 2002, August 31, 2003, and August 31, 2004, have been audited by Beard Miller Company, LLP, independent auditors, as set forth in their report thereon included therein, and are incorporated by reference into this Statement of Additional Information. Counsel Edward Fackenthal, The Law Office of Edward Fackenthal, Suite 209, One Montgomery Plaza, Norristown, PA 19401, counsel to the Company, passed upon the legality of the shares offered hereby. TAXATION OF THE FUND As stated in the prospectus, the Company is qualified under Subchapter M of the Internal Revenue Code; Subchapter M provisions normally permit a deduction for the Company from its taxable income for distributions made to the Company's shareholders from its earnings. A failure to qualify under Subchapter M would result in a tax on the Company based upon its earned income, and an additional tax on the shareholders based upon their distributions. 12 In general, a tax is imposed upon the Company based upon its investment company taxable income and its net capital gains, which in each case are not distributed to its shareholders. In general, the Company's investment company taxable income will be its taxable income (determined for the most part in the same manner as an ordinary corporation), adjusted by excluding net long term capital gains over short term capital losses and further adjusted by excluding any net operating losses and by including the dividends paid deduction. The Company's capital gains subject to tax are computed separately and are based upon the excess of its long-term capital gains over its net short term capital losses. Unlike ordinary corporations, the Company will not recognize a gain when distributing property to its shareholders in redemption of its stock. The Company intends to distribute "exempt-interest" dividends as described in the Company's prospectus and distribute at least 98% of its ordinary income for each calendar year, 98% of its capital gain net income, if any, computed on the basis of an October 31st fiscal year, and 100% of undistributed adjusted taxable income amounts from the previous year. Accordingly, it is unlikely that the Company will pay any income tax. However, should the Company retain any earnings, it will be taxed on its undistributed investment company taxable income and capital gains and may be subject to an excise tax. To the extent income is distributed (whether in cash or additional shares) it will be exempt, or taxable to the shareholders as ordinary, or capital gain income, in proportion to the Company's receipt of such income. Since the Company has earnings and profits generated in years before it was an investment company, distributions to shareholders over and above the Company's income for a period will be taxable to the shareholders to the extent of the prior earnings and profits and will not be treated immediately as a return of capital. Distributions of non-exempt income from current earnings and profits will be taxed to shareholders by the Internal Revenue Service at a rate no greater than 15%. The Company is a personal holding company as defined by Sec. 542 of the Code. Retained income will be taxed at the highest corporate tax rate. The Company requested and on August 5, 1986 received a private ruling from the Internal Revenue Service relating to investments in taxable securities. The ruling interpreted the Tax Reform Act of 1984 in such a way as to confirm the Company's ability to make investments in securities generating taxable income without having o first make an accumulated earnings and profits distribution. Section 852 (b)(5) of the Code provides, in effect, that if, at the close of each quarter of its taxable year, at least 50% of the Company's total assets consists of tax free obligations, the income from such investments may be passed through to the shareholders, and for federal tax purposes, excluded by them from gross income reporting. By reason of this provision, the Company does not intend to invest more than 50% of its assets in securities generating taxable income. 13 If and to the extent declared by the Board of Directors, net realized long-term capital gains will be distributed annually. See "Dividends." The Company will have no tax liability with respect to net realized long-term capital gains which are distributed although the distributions will be taxable to shareholders as gain from the sale or exchange of a capital asset held for more than one year regardless of a shareholder's holding period of shares of the Company. Such distributions will be designated as a capital gain dividend in a written notice mailed by the Company to the shareholders not later than sixty days after the close of the Company's taxable year. State and Local. Depending upon the extent of the Company's activities in states and localities in which it maintains offices, in which its agents or independent contractors are located, or in which it is otherwise deemed to be conducting business, the Company may be subject to the tax laws of such states or localities. The foregoing discussion, as well as that contained in the Company's Prospectus, is only a summary of some of the important tax considerations generally affecting the Company and its shareholders. No attempt is made to present a detailed explanation of the federal income tax treatment of the Company or its shareholders and this discussion is not intended as a substitute for careful tax planning. Accordingly, potential investors in the Company are urged to consult their tax advisers with specific reference to their own tax situations. 14 NRM INVESTMENT COMPANY FINANCIAL REPORT AUGUST 31, 2004 NRM INVESTMENT COMPANY - -------------------------------------------------------------------------------- TABLE OF CONTENTS PAGE NO. FINANCIAL STATEMENTS: Report of Independent Registered Public Accounting Firm 1 Statement of Assets and Liabilities 2 Schedule of Investments 3 Statement of Operations 7 Statements of Changes in Net Assets 8 Financial Highlights 9 Notes to Financial Statements 10 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and Board of Directors NRM Investment Company Rosemont, Pennsylvania We have audited the accompanying statement of assets and liabilities of NRM Investment Company (the Fund), including the schedule of investments, as of August 31, 2004, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2004, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of NRM Investment Company at August 31, 2004, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ BEARD MILLER COMPANY LLP Reading, Pennsylvania October 1, 2004 NRM INVESTMENT COMPANY - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2004 - ------------------------------------------------------------------------------------------------------------------- ASSETS Investments at fair value (cost $15,275,193) $15,591,869 Interest receivable 125,269 Prepaid expenses 625 ---------------- TOTAL ASSETS 15,717,763 LIABILITIES Accrued expenses and other liabilities 138,744 ---------------- NET ASSETS, APPLICABLE TO 3,963,441 OUTSTANDING SHARES, EQUIVALENT $15,579,019 TO $3.93 A SHARE ================
See notes to financial statements. - ------------------------------------------------------------------------------- 2 NRM INVESTMENT COMPANY - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS
AUGUST 31, 2004 - ------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT FAIR MUNICIPAL BONDS - 64.3% OR SHARES VALUE - ------------------------------------------------------------------------------------------------------------------- GENERAL OBLIGATION BONDS - 14.1% Bucks County, Pennsylvania, 5.00, due 6/15/11, callable 6/15/09 at 100 100,000 $ 108,646 Pittsburgh, Pennsylvania, 5.00%, due 9/1/12, callable 3/1/12 at 100 (AMBAC) 250,000 273,343 Shelby County, Tennessee, 5.625%, due 4/1/14, callable 4/1/05 at 101 150,000 154,975 Berks County Pennsylvania, 5.00% due 11/15/14, callable 11/15/08 at 100 (AMBAC) 100,000 108,605 Philadelphia, Pennsylvania School District, 5.625%, due 8/1/15, callable 8/1/12 at 100 (FGIC) 300,000 336,030 Philadelphia Pennsylvania School District, 5.25%, due 4/1/16, callable 4/1/09 at 100 (MBIA) 100,000 107,779 Montgomery County Texas Municipal Utility District 67, 6.00%, due 9/1/16, callable 9/1/05 at 100 (AMBAC) 250,000 261,158 Licking County Ohio Joint Vocational School District, 5.375%, due 12/1/16, callable 12/1/12 at 100 (MBIA) 170,000 190,176 Pittsburgh Pennsylvania School District, 5.50%, due 9/1/17 (FSA) 250,000 288,828 Fairfax County, Virginia, 5.50%, due 12/1/17, callable 12/1/07 at 102 135,000 149,868 Bucks County, Pennsylvania School District, 5.250%, due 12/1/17, callable 4/1/07 at 100 200,000 215,746 ---------------- TOTAL GENERAL OBLIGATION BONDS 2,195,154 ---------------- HOUSING FINANCE AGENCY BONDS - 13.9% Fort Worth, Texas Housing Finance Corporation, Home Mortgage Revenue Refunding Series 1991, 8.50%, due 10/1/11, callable 10/1/01 at 103 25,000 25,080 Odessa, Texas Housing Finance Corporation, Home Mortgage Revenue Refunding, 8.45%, due 11/1/11, callable 11/1/05 at 103 58,682 58,869 California Housing Finance Agency, Home Mortgage, 10.25%, due 2/1/14, callable 2/1/99 at 100 60,000 65,271 Nevada Housing Division, Single-Family Mortgage, 7.35%, due 10/1/15 10,000 10,020 Alabama Housing Finance Authority, Single-Family Mortgage, 6.00%, due 10/1/16, callable 4/1/06 at 102 170,000 177,495
See notes to financial statements. - ------------------------------------------------------------------------------- 3 NRM INVESTMENT COMPANY - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 2004 - ------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT FAIR MUNICIPAL BONDS - 64.3% (CONTINUED) OR SHARES VALUE - ------------------------------------------------------------------------------------------------------------------- HOUSING FINANCE AGENCY BONDS - 13.9% (CONTINUED) Minnesota State Housing Finance Agency, Single-Family Mortgage, 5.95%, due 1/1/17, callable 1/1/07 at 101.50 $ 115,000 $ 120,913 Hawaii State Housing Finance and Development Corporation, Single-Family Mortgage, 5.45%, due 7/1/17 callable 7/1/07 at 102, callable 7/1/09 at 100 50,000 51,692 Utah State Housing Finance Agency, Single-Family Mortgage, 6.30%, due 1/1/18 25,000 25,144 Florida Housing Finance Corp., 5.25%, due 12/1/18, callable 12/1/08 at 102, 12/1/10 at 100 100,000 103,269 New Jersey State Housing and Mortgage Finance Agency, Multi-Family Housing, 6.05%, due 11/1/20, callable 5/1/05 at 102 (AMBAC) 450,000 463,383 St. Alphios Housing Corporation, Multi-Family, 8.20%, due 2/1/24 1,040,000 1,069,286 ---------------- TOTAL HOUSING FINANCE AGENCY BONDS 2,170,422 ---------------- HOSPITAL REVENUE BONDS - 2.2% Massachusetts State Health and Educational Facilities Authority, Newton Wellesley Hospital, 5.875%, due 7/1/15, callable 7/1/05 at 102, callable 7/1/07 at 100 (MBIA) 200,000 209,896 Kalamazoo Michigan Hospital Finance Authority, Bronson Methodist, 5.75%, due 5/15/16 callable 5/15/06 at 102 (MBIA) 125,000 135,777 ---------------- TOTAL HOSPITAL REVENUE BONDS 345,673 ---------------- OTHER REVENUE BONDS - 34.1% Grand Rapids, Michigan Downtown Development Authority, 6.60%, due 6/1/08, callable 6/1/06 at 100 365,000 373,840 Allegheny County Pennsylvania Industrial Development Authority, 5.00%, due 11/1/11 (MBIA) 100,000 111,009 Pennsylvania State Higher Educational Facilities Authority, 5.25%, due 1/1/12, callable 7/1/08 at 100 (MBIA) 175,000 190,409 Central and Western Chester County IDA, Heatherwood Project, 5.75%, due 2/1/12, callable 2/1/02 at 100 175,000 175,289 Pennsylvania State Higher Educational Facilities Authority, 5.375%, due 7/1/12, callable 7/1/09 at 100 (AMBAC) 100,000 110,892
See notes to financial statements. - ------------------------------------------------------------------------------- 4 NRM INVESTMENT COMPANY - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 2004 - ------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT FAIR MUNICIPAL BONDS - 64.3% (CONTINUED) OR SHARES VALUE - ------------------------------------------------------------------------------------------------------------------- OTHER REVENUE BONDS - 34.1% (CONTINUED) Jackson Mississippi Redevelopment Authority, Jackson Street Area Project, 5.70%, due 4/1/13, callable 10/1/05 at 100 (MBIA) $ 100,000 $ 104,270 Harrisburg Pennsylvania Recovery Facilities, 5.00%, due 9/1/13, callable 9/1/08 at 101 (FSA) 100,000 110,607 Rock Hill South Carolina Utility System, 5.125%, due 1/1/14, callable 1/1/10 at 101 (FSA) 125,000 137,390 Philadelphia Pennsylvania Wastewater, 5.25%, due 11/1/14, callable 11/1/12 at 100 (FGIC) 250,000 278,312 Pennsylvania State Turnpike Commission, 5.25%, due 12/1/14, callable 12/1/08 at 101 (AMBAC) 230,000 255,423 Pennsylvania State Turnpike Commission, 5.25%, due 12/1/15, callable 12/1/08 at 101 (AMBAC) 200,000 221,065 Rochester Minnesota Independent School District No. 535, 5.75%, due 2/1/16, callable 2/1/10 at 100 100,000 112,164 Allegheny County PA Higher Educational Building Authority, 5.50%, due 3/1/16 (AMBAC) 150,000 172,521 Ohio State Mental Health Capital Facilities, 5.50%, due 6/1/16, callable 6/1/11 at 100 (MBIA) 250,000 279,017 Pennsylvania State Higher Educational Facilities Authority, 5.00%, due 6/15/16, callable 6/15/12 at 100 (AMBAC) 100,000 107,322 Philadelphia Pennsylvania Industrial Development Lease Revenue, 5.40%, due 2/15/17, callable 2/15/07 at 102 (MBIA) 100,000 108,500 Delaware River Port Authority PA & NJ, 5.75%, due 1/1/18, callable 1/1/10 at 100 (FSA) 100,000 111,783 Las Vegas Nevada Convention and Visitors Authority, 5.75%, due 7/1/18, callable 7/1/09 at 101 (AMBAC) 100,000 112,499 Allegheny County Pennsylvania Sanitation Authority, 5.375%, due 12/1/17, callable 12/1/11 at 101 (MBIA) 950,000 1,059,402 Pennsylvania State Turnpike, Registration Fee Revenue, 5.375%, due 7/15/18, callable 7/15/11 at 101 (AMBAC) 100,000 110,807 Red River Texas Education Finance Corporation, St. Marks School, 6.00%, due 8/15/17, callable 2/15/10 at 100 300,000 333,237 Red River Texas Education Finance Corporation, St. Marks School, 6.00%, due 8/15/18, callable 2/15/10 at 100 150,000 166,618 Michigan Municipal Bond Authority, LOC Government Loans, 6.125%, due 12/1/18, callable 12/1/04 at 102, callable 12/1/06 at 100 (FGIC) 100,000 103,071
See notes to financial statements. - ------------------------------------------------------------------------------- 3 NRM INVESTMENT COMPANY - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 2004 - ------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT FAIR MUNICIPAL BONDS - 64.3% (CONTINUED) OR SHARES VALUE - ------------------------------------------------------------------------------------------------------------------- OTHER REVENUE BONDS - 34.1% (CONTINUED) Placer County California Water Agency, Certificates of Participation, 5.50%, due 7/1/19, callable 7/1/09 at 101 (AMBAC) $ 320,000 $ 354,765 Brevard County Florida School Board Certificates, 5.50%, due 7/1/21, callable 7/1/06 at 102 (AMBAC) 100,000 107,102 ---------------- TOTAL OTHER REVENUE BONDS 5,307,314 ---------------- TOTAL MUNICIPAL BONDS (COST $9,711,255) 10,018,563 ---------------- OTHER REGULATED INVESTMENT COMPANIES - 11.7% Colomos Convertible Growth and Income Fund, Class A 32,832 886,462 Colomos Global Income, Class A 119,838 938,333 ---------------- TOTAL OTHER REGULATED INVESTMENT COMPANIES (COST $1,895,302) 1,824,795 ---------------- OTHER SECURITIES - 23.9% UBS AG Enhanced Appreciation Securities, due 10/1/04 250,000 285,812 UBS AG Enhanced Appreciation Securities, due 12/31/04 750,000 783,750 UBS AG Enhanced Appreciation Securities, due 3/31/05 1,500,000 1,518,750 UBS AG Enhanced Appreciation Securities, due 5/31/05 750,000 741,563 UBS AG Enhanced Appreciation Securities, due 2/28/06 400,000 400,000 ---------------- TOTAL OTHER SECURITIES (COST $3,650,000) 3,729,875 ---------------- SHORT-TERM INVESTMENTS - AT COST APPROXIMATING FAIR VALUE - 0.1%, SEI TAX EXEMPT TRUST - PENNSYLVANIA TAX FREE FUND 18,636 18,636 ---------------- TOTAL INVESTMENTS - 100% (COST $15,275,193) $15,591,869 ================
See notes to financial statements. - ------------------------------------------------------------------------------- 6 NRM INVESTMENT COMPANY - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 2004 - ------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME $576,581 ---------------- EXPENSES Investment advisory fees 10,000 Custodian fees 9,249 Transfer and dividend disbursing agent fees 2,135 Legal and professional fees 58,308 Directors' fees 6,400 Insurance 1,346 Capital stock tax 12,349 Miscellaneous 4,856 ---------------- TOTAL EXPENSES 104,643 ---------------- NET INVESTMENT INCOME 471,938 ---------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain from investment transactions 565,490 Net unrealized depreciation of investments (190,718) ---------------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 374,772 ---------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $846,710 ================
See notes to financial statements. - ------------------------------------------------------------------------------- 7 NRM INVESTMENT COMPANY - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED AUGUST 31, 2004 2003 - ------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income $ 471,938 $ 579,791 Net realized gain (loss) from investment transactions 565,490 (31,622) Net unrealized appreciation (depreciation) of investments (190,718) 57,642 ---------------- ---------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 846,710 605,811 DISTRIBUTIONS TO SHAREHOLDERS (465,704) (634,765) CAPITAL SHARE TRANSACTIONS 15 (57,715) ---------------- ---------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 381,021 (86,669) NET ASSETS - BEGINNING OF YEAR 15,197,998 15,284,667 ---------------- ---------------- NET ASSETS - END OF YEAR $15,579,019 $15,197,998 ================ ================
NRM INVESTMENT COMPANY - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
YEARS ENDED AUGUST 31, 2004 2003 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------- PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED YEAR) Net asset value, beginning of year $3.834 $3.842 $3.837 $3.794 $3.921 ------------ ----------- ----------- ------------ ------------ Net investment income .119 .146 .163 .199 .184 Net realized and unrealized gain (loss) on investments .096 .006 .006 .054 (.135) ------------ ----------- ----------- ------------ ------------ TOTAL FROM INVESTMENT OPERATIONS .215 .152 .169 .253 .049 Less distributions: Dividends from capital gains (.009) - - - - Dividends from net tax-exempt income (.103) (.146) (.163) (.199) (.174) Dividends from net taxable income (.006) - - - (.002) Distribution in excess of net investment income - (.014) (.001) (.011) - ------------ ----------- ----------- ------------ ------------ TOTAL DISTRIBUTIONS (.118) (.160) (.164) (.210) (.176) ------------ ----------- ----------- ------------ ------------ NET ASSET VALUE, END OF YEAR $3.931 $3.834 $3.842 $3.837 $3.794 ============ =========== =========== ============ ============ TOTAL RETURN 5.59% 3.96% 4.40% 6.70% 1.17% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (in thousands) $15,579 $15,198 $15,285 $15,322 $16,268 Ratio of expenses to average net assets .67% 1.07% 1.43% .95% .77% Ratio of net investment income to average net assets 3.04% 3.78% 4.24% 4.93% 4.83% Portfolio turnover rate 47.45% 37.90% 16.82% 14.21% 77.12%
See notes to financial statements. - -------------------------------------------------------------------------------- 9 NRM INVESTMENT COMPANY - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS NRM Investment Company (the Fund) is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. VALUATION OF INVESTMENTS Investments in securities (other than debt securities maturing in 60 days or less) traded in the over-the-counter market, and listed securities for which no sale was reported on the last business day of the year, are valued based on prices furnished by a pricing service. This service determines the valuations using a matrix pricing system based on common bond features such as coupon rate, quality and expected maturity dates. Securities for which market quotations are not readily available are valued by the Investment Advisor under the supervision and responsibility of the Fund's Board of Directors. Investments in securities that are traded on a national securities exchange are valued at the closing prices. Short-term investments are valued at amortized cost, which approximates fair value. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME Investment transactions are accounted for on the date the securities are purchased or sold (trade date). Realized gains and losses from investment transactions are reported on the basis of identified cost for both financial and federal income tax purposes. Interest income is recorded on the accrual basis for both financial and income tax reporting. In computing investment income, the Fund amortizes premiums over the life of the security, unless said premium is in excess of any call price, in which case the excess is amortized to the earliest call date. Discounts are accreted over the life of the security. TRANSACTIONS WITH SHAREHOLDERS Fund shares are sold and redeemed at the net asset value. Transactions of these shares are recorded on the trade date. Dividends and distributions are recorded by the Fund on the ex-dividend date. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and distribute substantially all of its net investment income and realized net gain from investment transactions to its shareholders and, accordingly, no provision has been made for federal income taxes. ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. - -------------------------------------------------------------------------------- 9 NRM INVESTMENT COMPANY - -------------------------------------------------------------------------------- NOTE 2 - INVESTMENT ADVISOR AND MANAGEMENT FEES AND OTHER TRANSACTIONS \ WITH AFFILIATES The Fund has an investment advisory agreement which provides that the Fund will pay to the investment advisor, as compensation for services provided and expenses assumed, a fee at the annual flat rate of $10,000. The chief executive officer of the investment advisor is on the Board of Directors of the Fund. NOTE 3 - COST, PURCHASES AND SALES OF INVESTMENT SECURITIES Cost of purchases and proceeds from sales and maturities of investment securities, other than short-term investments, aggregated $7,345,685 and $7,275,469, respectively, during the year ended August 31, 2004. At August 31, 2004, the cost of investment securities owned is the same for financial reporting and federal income tax purposes. Net unrealized appreciation of investment securities is $316,676 (aggregate gross unrealized appreciation of $411,036, less aggregate unrealized depreciation of $94,360). NOTE 4 - ENVIRONMENTAL LIABILITY The Fund has been identified as a potentially responsible party ("PRP") by the Environmental Protection Agency ("EPA") in remedial activities related to an environmental matter. The claim is divided into two parts: the first relates to groundwater contamination (OU-1), and the second relates to drummed waste and soil cleanup (OU-2). In addition, there are past costs incurred by the EPA. The Fund has joined a group (OU-1 Group) of defendants to share the costs of the OU-1 matter and has declined to join a group (OU-2 Group) to share the costs of the OU-2 matter as the Fund believes its linkage to this portion of the claim to be weak. The Fund has accrued $115,000 at August 31, 2004 as its estimate of the remaining commitment to the OU-1 Group. The Fund's share of the costs is subject to reallocation after all available evidence is analyzed. The OU-2 Group has begun a cost recovery suit against the Fund and others for the OU-1 and OU-2 work as well as past EPA costs. The total amount asserted for both the OU-1 and OU-2 matters is $3,000,000 and for the past EPA costs is $7,000,000. Of the amounts the Fund has already paid or will pay because of its OU-1 contract commitment, it will seek contribution or reimbursement from the other defendants. The Fund believes there is little evidence to link it to the OU-2 matter but the OU-2 Group will assert otherwise. Ultimately there will be an allocation of responsibility under court supervision which will ultimately resolve contracted and contributed claim costs. However, the outcome to the Fund is clearly uncertain and cannot be measured. Therefore, no amount has been accrued in the financial statements relating to the OU-2 matter at August 31, 2004. - -------------------------------------------------------------------------------- 10 NRM INVESTMENT COMPANY - -------------------------------------------------------------------------------- NOTE 5 - TRANSACTIONS IN CAPITAL STOCK AND COMPONENTS OF NET ASSETS Transactions in fund shares were as follows:
YEARS ENDED AUGUST 31, -------------------------------------------------------------------------- 2004 2003 -------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------- Shares issued in reinvestment of dividends 13 $52 18 $ 70 Shares redeemed (9) (37) (15,014) (57,785) ---------------- ---------------- ---------------- ---------------- NET INCREASE (DECREASE) 4 $15 (14,996) ($57,715) ================ ================ ================ ================
The components of net assets at August 31, 2004 and 2003 are as follows:
2004 2003 - ---------------------------------------------------------------------------------------------------------------------------- Capital shares, par value $.01 per share, 3,963,441 shares and 3,963,437 shares issued and outstanding at August 31, 2004 and 2003 (10,000,000 full and fractional shares authorized); and capital paid-in $15,383,505 $15,383,490 Accumulated net realized loss on investment transactions - (529,401) Unrealized appreciation of investments 316,676 507,394 Overdistributed net investment income (121,162) (163,485) --------------- ---------------- NET ASSETS $15,579,019 $15,197,998 =============== ================
PART C OTHER INFORMATION (1) Item 22 (a) (i) Articles of Incorporation are incorporated by reference to the N1a filing of August 31, 2000, being Amendment 25, as Exhibit 23(a)(1) (ii) Amendment to Articles of Incorporation incorporated by reference to the N1a filing of August 31, 2000, being Amendment 25, as Exhibit 23(a)(2) (iii) Amendment to Articles of Incorporation incorporated by reference to the N1a filing of August 31, 2000, being Amendment 25, as Exhibit 23(a)(3) (b) (i) By-Laws are incorporated by reference to the N1a filing of August 31, 2000, being Amendment 25, as Exhibit 23(b)(1) (ii) Amendment to By-Laws are incorporated by reference to the N1a filing of August 31, 2000, being Amendment 25, as Exhibit 23(b)(2) (iii) Amendment to By-Laws are incorporated by reference to the N1a filing of August 31, 2000, being Amendment 25, as Exhibit 23(b)(3) (c) None (d) (i) Investment Advisory Agreement dated November 30, 1992 are incorporated by reference to the N1a filing of August 31, 2000, being Amendment 25, as Exhibit 23(d)(1) 1 (ii) Addendum to advisory agreement dated September 3, 1997, are incorporated by reference to the N1a filing of August 31, 2000, being Amendment 25, as Exhibit 23(d)(2) (iii) Addendum to advisory agreement dated December ?, 2003 attached as 23 (d)(iii). (e) Not applicable (f) Not applicable (g) (i) Custodian Agreement, dated March 9, 2000 is incorporated by reference to the N1a filing of August 31, 2000, being Amendment 25, as Exhibit 23(g)(1) (h) (i) Administration Agreement is incorporated by reference to the N1a filing of August 31, 2000, being Amendment 25, as Exhibit 23(h)(1) (i) Opinion of Counsel, pursuant to Registrant's Rule 24f-2 Notice attached as 23(i). (j) (i) Consent of Edward Fackenthal attached as 23 (j)(i) (ii) Consent of Beard Miller Company, LLP. attached as 23(j)(2). (k) None (l) None (m) None (n) None 2 (o) Ethics Code - is incorporated by reference to the N1a filing of January 16, 2001, being Amendment 26, as Exhibit O Item 23. Not applicable Item 24. Under the Company's bylaws the Company with certain exceptions indemnifies its directors and officers against expenses incurred defending claims relative to Company business and the Company has the power to purchase and maintain liability insurance on behalf of the same individuals. Item 25. The business of Haverford Trust Company, Inc., Suite 450, No. 3 Radnor Corporate Center, Radnor, Pennsylvania 19087 is summarized under "Advisory Agreement" in the Prospectus constituting Part I of this Registration Statement, which summary is incorporated herein by reference. Item 26. Not applicable Item 27. Books and other documents required to be maintained by section 31(a) of the 1940 Act and the Rules (17 CFR 270.31a-1 to 31a-3) promulgated thereunder, are maintained by Raymond J. Keefe, 288 Lancaster Ave. Malvern, Pa., 19355 except records relating to the custody of the Company's assets and the shareholder records which are maintained by First National Trust Company, 551 Main Street, Johnstown, Pa., 15907 and Registrant's articles of incorporation, By-Laws and Minute Books which are maintained by its Secretary, at the Company's principal executive offices, Conestoga Road, Rosemont, Pennsylvania, 19010. Item 28. Not applicable Item 29. Not applicable 3 NRM INVESTMENT COMPANY Power of Attorney I hereby appoint John H. McCoy attorney for me and in my name and on my behalf to sign the registration Statement on Form N-1A of NRM Investment Company and any amendments thereto to be filed with the Securities and Exchange Commission under the Securities Act of 1933 or the Investment Company Act of 1940, and generally to do and perform all things necessary to be done in that connection. I have signed this Power of Attorney on October _____, 2004. __________________________ Francis J. Rainer 1 NRM INVESTMENT COMPANY Power of Attorney I hereby appoint John H. McCoy attorney for me and in my name and on my behalf to sign the registration Statement on Form N-1A of NRM Investment Company and any amendments thereto to be filed with the Securities and Exchange Commission under the Securities Act of 1933 or the Investment Company Act of 1940, and generally to do and perform all things necessary to be done in that connection. I have signed this Power of Attorney on October _____, 2004. __________________________ Joseph V. Somers 2 NRM INVESTMENT COMPANY Power of Attorney I hereby appoint John H. McCoy attorney for me and in my name and on my behalf to sign the registration Statement on Form N-1A of NRM Investment Company and any amendments thereto to be filed with the Securities and Exchange Commission under the Securities Act of 1933 or the Investment Company Act of 1940, and generally to do and perform all things necessary to be done in that connection. I have signed this Power of Attorney on October _____, 2004. ______________________________ George W. Connell 3 NRM INVESTMENT COMPANY Power of Attorney I hereby appoint John H. McCoy attorney for me and in my name and on my behalf to sign the registration Statement on Form N-1A of NRM Investment Company and any amendments thereto to be filed with the Securities and Exchange Commission under the Securities Act of 1933 or the Investment Company Act of 1940, and generally to do and perform all things necessary to be done in that connection. I have signed this Power of Attorney on October _____, 2004. ______________________________ James Fisher 4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940 the Registrant has duly caused this Post-Effective Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Rosemont, Pennsylvania on October 30, 2004. NRM INVESTMENT COMPANY By:__________________________ John H. McCoy President Pursuant to the requirement of the Securities Act of 1933, this Post-Effective Amendment to the Registration Statement has been signed by the following person in the capacities and on the dates indicated: Signature Title Date _________________________ President (Chief Executive Officer) 10/30/04 John H. McCoy The Post-Effective Amendment No. 30 has also been signed by John H. McCoy, Attorney-In-Fact, on behalf of the following directors on the Date indicated: JOSEPH V. SOMERS FRANCIS J. RAINER GEORGE W. CONNELL JAMES FISHER Date 10/30/04 5 Part C EXHIBIT INDEX Exhibit/Item Item 22 (a) (i) Articles of Incorporation are incorporated by reference to the N1a filing of August 31, 2000, being Amendment 25, as Exhibit 23(a)(1) (ii) Amendment to Articles of Incorporation are incorporated by reference to the N1a filing of August 31, 2000, being Amendment 25, as Exhibit 23(a)(2) (iii) Amendment to Articles of Incorporation are incorporated by reference to the N1a filing of August 31, 2000, being Amendment 25, as Exhibit 23(a)(3) (b) (i) By-Laws are incorporated by reference to the N1a filing of August 31, 2000, being Amendment 25, as Exhibit 23(b)(1) (ii) Amendment to By-Laws are incorporated by reference to the N1a filing of August 31, 2000, being Amendment 25, as Exhibit 23(b)(2) (iii) Amendment to By-Laws are incorporated by reference to the N1a filing of August 31, 2000, being Amendment 25, as Exhibit 23(b)(3) (c) None (d) (i) Investment Advisory Agreement dated November 30, 1992 are incorporated by reference to the N1a filing of August 31, 2000, being Amendment 25, as Exhibit 23(d)(1) (ii) Addendum to advisory agreement dated September 3, 1997, are incorporated by reference to the N1a filing of August 31, 2000, being Amendment 25, as Exhibit 23(d)(2) 1 (iii) Addendum to advisory agreement Dated December 2003 attached. (e) Not applicable (f) Not applicable (g) Custodian Agreement, dated March 9, 2000 is are incorporated by reference to the N1a filing of August 31, 2000, being Amendment 25, as Exhibit 23(g)(1) (h) Administration Agreement is incorporated by reference to the N1a filing of August 31, 2000, being Amendment 25, as Exhibit 23(h)(i) (i) Opinion of Counsel, pursuant to Registrant's Rule 24f-2 Notice, attached as 23(i) (j) (i) Consent of Edward Fackenthal attached as 23(j)(i) (ii) Consent of Beard Miller Company, LLP attached as 23(j)(ii). (k) None (l) None (m) None (n) None (o) Ethics code incorporated by reference to the N1a filing of August 31, 2002, being Amendment 28, as Exhibit 23 (o). (2) Item 23. None (3) Item 24. The indemnity provisions are set forth in section 5 of Ex. 23 (b) 1. 2 (4) Item 25. The business of Haverford Trust Company, Inc., Suite 450, No. 3 Radnor Corporate Center, Radnor, Pennsylvania 19087 is summarized under "Advisory Agreement" in the Prospectus constituting Part I of this Registration Statement, which summary is incorporated herein by reference. (5) Item 26. Not applicable (6) Item 27. Books and other documents required to be maintained by section 31(a) of the 1940 Act and the Rules (17 CFR 270.31a-1 to 31a-3) promulgated thereunder, are maintained by Raymond J. Keefe, 288 Lancaster Ave. Malvern, Pa. 19355, except records relating to the custody of the Company's assets and the shareholder records, which are maintained by First National Trust Company, 551 Main Street, Johnstown, Pa., 15907. Registrant's articles of incorporation, By-Laws and Minute Books which are maintained by its Secretary, at the Company's principal executive offices, Conestoga Road, Rosemont, Pennsylvania, 19010. (7) Item 28. Not applicable (8) Item 29. Not applicable 3 EX-23 2 ex23-i.txt EXHIBIT 23 (I) EXHIBIT 23 (i) October 30, 2004 Securities and Exchange Commission Judiciary Plaza 450 Fifth Street N.W. Washington, DC 20549 OPINION OF COUNSEL Re: Opinion of Counsel Dear Ladies & Gentlemen: It is the opinion of the undersigned counsel for the Company that the shares being registered and referred to herein, will, when sold, be legally issued, fully paid and nonassessable. The Law Office of Edward Fackenthal BY: /s/ Edward Fackenthal --------------------- Edward Fackenthal EX-23 3 ex23-ji.txt EXHIBIT (J)(I) EXHIBIT 23 (j)(i) CONSENT OF COUNSEL We hereby consent to the use of our name and to the references to our firm under the caption "counsel" included in and made part of Part B of Post-Effective Amendment No. 26 to the Registration Statement (No. 2-66073) on Form N-1A under Securities act of 1933, as amended, of NRM Investment Company. THE LAW OFFICE OF EDWARD FACKENTHAL By: /s/ Edward Fackenthal -------------------------- Edward Fackenthal Dated: 10/30/04 EX-23 4 ex23-jii.txt EXHIBIT (J)(II) EXHIBIT 23 (j)(ii) CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the references to our Firm under the captions "Financial Highlights" in the Prospectus and "Auditors" in the Statement of Additional Information and to the incorporation by reference in this Post-Effective Amendment No. 30 to the Registration Statement (Form N-1A No. 2-66073) dated October 30, 2004, of NRM Investment Company of our report dated October 1, 2004, included in the 2004 annual report to shareholders of NRM Investment Company. /s/ BEARD MILLER COMPANY LLP Reading, Pennsylvania October 29, 2004 -----END PRIVACY-ENHANCED MESSAGE-----