N-CSR 1 t11969a_ncsr.txt FORM N-CSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811 02995 Exact name of registrant as specified in charter: NRM Investment Company ---------------------- Address of principal executive offices: NRM Investment Company, Rosemont -------------------------------- Business Campus, Suite 112, Building 3 - 919 Conestoga Road, Rosemont, ---------------------------------------------------------------------- Pennsylvania 19010 ------------------ Name and address of agent for service: John H. McCoy, President, NRM Investment ---------------------------------------- Company, Rosemont Business Campus, Suite 112, Building 3 - 919 Conestoga Road, ------------------------------------------------------------------------------ Rosemont, Pennsylvania 19010 ---------------------------- Registrant's Telephone Number: (610) 527-7009 Date of fiscal year end: August 31, 2006 --------------- ITEM 1 - REPORTS TO STOCKHOLDERS -------------------------------- A copy of the report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act is attached hereto. ITEM 2 CODE OF ETHICS: ----------------------- The registrant has adopted a code of ethics. It is incorporated by reference to Exhibit to Item 11 (a)(1) to registrant's N-CSR filed for its fiscal year ending August 31, 2005. The code of ethics is available, without charge, upon request, by calling the Fund's assistant secretary, Edward Fackenthal, collect at 610 279 3370 or contacting him at his email address: edwardfackental@cs.com. The code of ethics is also available on the EDGAR Database on the Commission's Internet site at http://www.sec.gov. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT: ------------------------------------------ The Board of Directors does not have an audit committee and accordingly the entire board oversees the Registrant's accounting and financial reporting processes including the audits of its financial statements. The board employs an outside accountant responsible for normal bookkeeping, tax preparation and recordkeeping, and employs a firm of independent auditors to report on internal controls and certify its financial records on an annual basis. The bookkeeper and outside auditor both qualify as financial experts. The outside accountant and auditor are engaged on behalf of the Registrant by the Company's president and their engagements are ratified yearly by the shareholders. The outside auditor provides no services for the Registrant's investment adviser. Note: the members of the five-member board of directors own 86% of its shares. Registrant has no salaried employees to otherwise fulfill the role of financial expert. ITEM 4. ACCOUNTANT FEES AND SERVICES ------------------------------------ (a) Audit fees: 2005 2006 11,720 16,000 (b) Related fees 0 0 (c) (d) Tax & other fees 6,000 6,000(1) ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS --------------------------------------------- See Item 3. ITEM 6 - SCHEDULE OF INVESTMENTS -------------------------------- The information is included as part of the report to shareholders filed under Item 1 of this report and attached hereto. ITEMS 7, 8 ----------- Not applicable to Registrant ---------------- (1) Billed annually on a non-segregated basis. 2 ITEM 9 - SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS ----------------------------------------------------------- None. ITEM - 10 CONTROLS AND PROCEDURES --------------------------------- The Fund operates through its five-member board of directors sitting as an executive committee of the whole. It has no employees other than its officers none of whom receives compensation other than nominal director's fees. It engages independent contractors to provide investment, financial and custodial services. PORTFOLIO PROCEDURES 1. The Investment Advisor and those authorized to execute investment transactions do not have discretion to change the Fund's portfolio outside of the guidelines established by the Board of Directors. 2. Any significant inflows or outflows of cash will be brought to the President's attention to confirm that a related purchase or sale of securities or other disbursement was authorized by him. INVESTMENT CUSTODY AND SHAREHOLDER SERVICES 1. All transactions with shareholders and the custody of the Fund's Securities is performed by an independent corporate custodian. Any changes to these functions must be authorized by the Board of Directors. ACCOUNTING AND REPORTING 1. The recording, summarizing and reporting of all financial data will be performed by a CPA who is independent of the buying and selling of securities as well as the disbursement of the Fund's cash and transfer of the Fund's assets. 2. Upon discovery, the CPA will bring any unusual transaction directly to the President and/or Board's attention. 3. The CPA will provide directly to the Board of Directors a Statement of Net Assets and a Statement of Operations in accordance with generally accepted accounting principles within ten business days of each month end. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant: NRM Investment Company By: /s/ John H. McCoy -------------------------------------------- John H. McCoy, President and Treasurer Date: 10/30/06 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ John H. McCoy -------------------------------------------- John H. McCoy, President and Treasurer Date: 10/30/06 By: /s/ Edward Fackenthal -------------------------------------------------- Edward Fackenthal, Counsel and Assistant Secretary Date: 10/30/06 4 NRM INVESTMENT COMPANY -------------------------------------------------------------------------------- EXHIBITS 5 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and Board of Directors NRM Investment Company 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, 2006, and 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. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2006, 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, 2006, 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 Beard Miller Company LLP Reading, Pennsylvania October 26, 2006 1 NRM INVESTMENT COMPANY -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 2006 2006 ASSETS Investments at fair value (cost $13,954,228) $14,210,573 Cash 7,425 Interest and dividends receivable 161,349 Prepaid expenses 6,714 ----------- TOTAL ASSETS 14,386,061 LIABILITIES Accrued expenses and other liabilities 177,289 ----------- NET ASSETS, APPLICABLE TO 3,608,392 OUTSTANDING SHARES, EQUIVALENT TO $3.94 A SHARE $14,208,772 =========== SEE NOTES TO FINANCIAL STATEMENTS. -------------------------------------------------------------------------------- 2 NRM INVESTMENT COMPANY -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS AUGUST 31, 2006
PRINCIPAL FAIR AMOUNT OR SHARES VALUE MUNICIPAL BONDS - 57.0% ------------------------------------------------------------------------------------------------ General Obligation Bonds - 14.6% Philadelphia, Pennsylvania School District, 5.00%, due 4/1/10 200,000 $ 209,158 Bucks County, Pennsylvania, 5.00%, due 6/15/11, callable 6/15/09 at 100 100,000 103,741 Pittsburgh, Pennsylvania, 5.00%, due 9/1/12, callable 3/1/12 at 100 (AMBAC) 250,000 265,849 Pennsylvania State, First Series, 5.00%, due 7/1/13 300,000 322,926 Berks County, Pennsylvania, 5.00%, due 11/15/14, callable 11/15/08 at 100 (AMBAC) 100,000 102,665 Philadelphia, Pennsylvania School District, 5.625%, due 8/1/15, callable 8/1/12 at 100 (FGIC) 300,000 330,861 Wilson, Pennsylvania School District, 5.375%, due 5/15/16, callable 5/15/12 (FSA) 425,000 460,985 Pittsburgh, Pennsylvania, 5.50%, due 9/1/17, at 100 (FSA) 250,000 285,225 --------- TOTAL GENERAL OBLIGATION BONDS 2,081,410 --------- HOUSING FINANCE AGENCY BONDS - 1.1% Odessa, Texas Housing Finance Corporation, Home Mortgage Revenue Refunding, 8.45%, due 11/1/11, callable 11/1/05 at 103 28,384 28,907 California Housing Finance Agency, Home Mortgage, 10.25%, due 2/1/14, callable 2/1/99 at 100 45,000 46,489 Nevada Housing Division, Single-Family Mortgage, 7.35%, due 10/1/15 5,000 5,001 Minnesota State Housing Finance Agency, Single-Family Mortgage, 5.95%, due 1/1/17, callable 1/1/07 at 101.50 70,000 71,245 Utah State Housing Finance Agency, Single-Family Mortgage, 6.30%, due 1/1/18 5,000 5,024 --------- TOTAL HOUSING FINANCE AGENCY BONDS 156,666 ---------
SEE NOTES TO FINANCIAL STATEMENTS. -------------------------------------------------------------------------------- 3 NRM INVESTMENT COMPANY -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) AUGUST 31, 2006
PRINCIPAL FAIR AMOUNT OR SHARES VALUE MUNICIPAL BONDS - 57.0% (CONTINUED) --------------------------------------------------------------------------------------------- OTHER REVENUE BONDS - 41.3% Parkland, Pennsylvania School District, 5.35%, due 9/1/15 (FGIC) 170,000 $190,221 Grand Rapids, Michigan Downtown Development Authority, 6.60%, due 6/1/08, callable 6/1/06 at 100 365,000 365,398 Montgomery County, Pennsylvania Industrial Development Authority, 5.00%, due 11/1/10 500,000 526,165 Allegheny County, Pennsylvania Industrial Development Authority, 5.00%, due 11/1/11 (MBIA) 100,000 106,111 Pennsylvania State Higher Educational Facilities Authority, 5.25%, due 1/1/12, callable 7/1/08 at 100 (MBIA) 175,000 179,846 Philadelphia, Pennsylvania Gas Works, 18th Series, 5.00%, due 8/1/11 (CIFG) 300,000 316,230 Pennsylvania State Higher Educational Facilities Authority, 5.375%, due 7/1/12, callable 7/1/09 at 100 (AMBAC) 100,000 104,495 Pennsylvania Infrastructure Investment Authority, 5.00%, due 9/1/12 500,000 536,000 Jackson, Mississippi Redevelopment Authority, Jackson Street Area Project, 5.70%, due 4/1/13, callable 10/1/05 at 100 (MBIA) 100,000 100,129 Harrisburg, Pennsylvania Recovery Facilities, 5.00%, due 9/1/13, callable 9/1/08 at 101 (FSA) 100,000 103,689 Philadelphia, Pennsylvania Wastewater, 5.25%, due 11/1/14, callable 11/1/12 at 100 (FGIC) 250,000 271,137 Philadelphia, Pennsylvania Wastewater, 5.00%, due 7/1/14 250,000 271,172 Pennsylvania State Turnpike Commission, 5.25%, due 12/1/14, callable 12/1/08 at 101 (AMBAC) 230,000 239,415 Pennsylvania State Turnpike Commission, 5.25%, due 12/1/15, callable 12/1/08 at 101 (AMBAC) 200,000 207,908 Allegheny County, Pennsylvania Higher Educational Building Authority, 5.50%, due 3/15/16, callable 6/15/12 at 100 (AMBAC) 150,000 169,384 Pennsylvania State Higher Educational Facilities Authority, 5.00%, due 6/15/16, callable 6/15/12 at 100 (AMBAC) 100,000 105,845 Philadelphia, Pennsylvania Gas Works, Fourth Series, 5.25%, due 8/1/16, callable 8/1/13 250,000 270,085 Philadelphia, Pennsylvania Industrial Development Lease Revenue, 5.40%, due 2/15/17, callable 2/15/07 at 102 (MBIA) 100,000 102,755 Pennsylvania State Higher Educational Facilities Authority (Drexel University), 5.25%, due 11/1/17 500,000 528,330 Delaware River Port Authority PA and NJ, 5.75% due 1/1/18, callable 1/1/10 at 100 (FSA) 100,000 106,375
SEE NOTES TO FINANCIAL STATEMENTS. -------------------------------------------------------------------------------- 4 NRM INVESTMENT COMPANY -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) AUGUST 31, 2006
PRINCIPAL AMOUNT FAIR OR SHARES VALUE MUNICIPAL BONDS - 57.0% (CONTINUED) -------------------------------------------------------------------------------------------------------- OTHER REVENUE BONDS - 41.3% (CONTINUED) Chester County, Pennsylvania Health and Educational Authority (Devereux), 5.00%, due 11/1/18 405,000 $ 427,255 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) 100,000 100,566 Kennett, Pennsylvania Consolidated School District, 5.25%, due 2/15/19, callable 2/15/13 (FGIC) 500,000 540,150 ----------- TOTAL OTHER REVENUE BONDS 5,868,661 ----------- TOTAL MUNICIPAL BONDS (COST $8,081,092) 8,106,737 ----------- PREFERRED STOCK - 42.4% ABN Amro Capital Trust VI, 6.25% 20,000 508,400 Aegon NV , 6.50% 15,000 377,100 Aegon NV, 6.75% 10,000 255,300 Barclays Bank, PLC ADR 20,000 515,200 CIT Group, Inc., 6.35% 15,000 386,250 Federal Home Loan Mortgage Corporation, 6.42% 5,000 268,750 Goldman Sachs Group, Inc. 1/1000 B 15,000 385,350 HSBC USA, Inc., 1/40 Series H 20,000 527,800 ING Groep NV, 7.05% 10,000 253,400 ING Groep NV, Perpetual Debt Security 16,000 396,320 Lehman Brothers Holdings, Inc. C Dep. 1/10 10,000 508,500 Metlife, Inc., 6.50% 17,500 447,125 Prudential PLC, 6.50% 12,500 318,750 Royal Bank of Scotland Group PLC ADR Series Q 20,000 518,000 Santander Financial SA, 6.41% 14,000 353,500 ----------- TOTAL PREFERRED STOCKS (COST $5,789,045) 6,019,745 ----------- SHORT-TERM INVESTMENTS - AT COST APPROXIMATING FAIR VALUE - 0.6% Federated Pennsylvania Municipal Cash Trust #8 - (Cost $84,091) 84,091 84,091 ----------- TOTAL INVESTMENTS - 100% (COST $13,954,228) $14,210,573 ===========
SEE NOTES TO FINANCIAL STATEMENTS. -------------------------------------------------------------------------------- 5 NRM INVESTMENT COMPANY -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS YEAR ENDED AUGUST 31, 2006 2006 -------- INVESTMENT INCOME $550,208 -------- EXPENSES Investment advisory fees 26,475 Custodian fees 15,425 Transfer and dividend disbursing agent fees 1,850 Legal and professional fees 51,659 Directors' fees 8,000 Insurance 1,800 Capital stock tax 4,450 Provision for environmental claims 35,522 Miscellaneous 5,833 -------- TOTAL EXPENSES 151,014 -------- NET INVESTMENT INCOME 399,194 -------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain from investment transactions 141,159 Net unrealized appreciation of investments 72,712 -------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 213,871 -------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $613,065 ======== SEE NOTES TO FINANCIAL STATEMENTS. -------------------------------------------------------------------------------- 6 NRM INVESTMENT COMPANY -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED AUGUST 31, 2006 AND 2005
2006 2005 ------------ ------------ INCREASE IN NET ASSETS FROM OPERATIONS Net investment income $ 399,194 $ 274,356 Net realized gain from investment transactions 141,159 518,298 Net unrealized appreciation (depreciation) of investments 72,712 (133,043) ------------ ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 613,065 659,611 DISTRIBUTIONS TO SHAREHOLDERS (477,046) (781,880) CAPITAL SHARE TRANSACTIONS (1,324,319) (59,678) ------------ ------------ TOTAL DECREASE IN NET ASSETS (1,188,300) (181,947) NET ASSETS - BEGINNING OF YEAR 15,397,072 15,579,019 ------------ ------------ NET ASSETS - END OF YEAR $ 14,208,772 $ 15,397,072 ============ ============
SEE NOTES TO FINANCIAL STATEMENTS. -------------------------------------------------------------------------------- 7 NRM INVESTMENT COMPANY -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS YEARS ENDED AUGUST 31, 2006, 2005, 2004, 2003, AND 2002
2006 2005 2004 2003 2002 --------- --------- --------- --------- --------- PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED YEAR) Net asset value, beginning of year $ 3.900 $ 3.931 $ 3.834 $ 3.842 $ 3.837 --------- --------- --------- --------- --------- Net investment income .110 .070 .119 .146 .163 Net realized and unrealized gain on investments .059 .097 .096 .006 .006 --------- --------- --------- --------- --------- TOTAL FROM INVESTMENT OPERATIONS .169 .167 .215 .152 .169 --------- --------- --------- --------- --------- Less distributions: Dividends from capital gains (.021) (.130) (.009) - - Dividends from net tax-exempt income (.086) (.061) (.103) (.146) (.163) Dividends from net taxable income (.024) (.007) (.006) - - Distribution in excess of net investment income - - - (.014) (.001) --------- --------- --------- --------- --------- TOTAL DISTRIBUTIONS (.131) (.198) (.118) (.160) (.164) --------- --------- --------- --------- --------- NET ASSET VALUE, END OF YEAR $ 3.938 $ 3.900 $ 3.931 $ 3.834 $ 3.842 ========= ========= ========= ========= ========= TOTAL RETURN 4.40% 3.76% 5.59% 3.96% 4.40% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (in thousands) $ 14,209 $ 15,397 $ 15,579 $ 15,198 $ 15,285 Ratio of expenses to average net assets 1.05% 1.23% .67% 1.07% 1.43% Ratio of net investment income to average net assets 2.77% 1.75% 3.04% 3.78% 4.24% Portfolio turnover rate 88.85% 56.38% 47.45% 37.90% 16.82%
SEE NOTES TO FINANCIAL STATEMENTS. -------------------------------------------------------------------------------- 8 NRM INVESTMENT COMPANY -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2006 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 investment objective of the Fund is to maximize and distribute income and gains on a current basis. Its secondary objective is preservation of capital. 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. ------------------------------------------------------------------------------- 9 NRM INVESTMENT COMPANY -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2006 NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. NOTE 2 - INVESTMENT ADVISOR AND MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Fund has an investment advisory agreement which provides that the Fund pays to the investment advisor, as compensation for services provided and expenses assumed, a fee at the annual flat rate of $10,000 through December 31, 2005. Subsequently thereto this fee was increased to an annual rate of .30% of the Fund's net asset value. The chief executive officer of the investment advisor is on the Board of Directors of the Fund. Furthermore, the Fund's president and chairman of the Board owns 78.1% of the Fund's outstanding shares as of August 31, 2006. 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 $12,240,036 and $13,667,214, respectively, during the year ended August 31, 2006. At August 31, 2006, the cost of investment securities owned is the same for financial reporting and federal income tax purposes. Net unrealized appreciation of investment securities is $256,345 (aggregate gross unrealized appreciation of $286,678, less aggregate unrealized depreciation of $30,333). 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. ------------------------------------------------------------------------------- 10 NRM INVESTMENT COMPANY -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2006 NOTE 4 - ENVIRONMENTAL LIABILITY (CONTINUED) The Fund has accrued $150,000 at August 31, 2006 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 to date and for the past EPA costs is $7,000,000. There will be ongoing OU-1 operation and maintenance expenses for cleaning ground water for the indefinite future and for indefinite amounts. 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. The ultimate outcome may have a material adverse effect on the Fund's financial position or results of operations. NOTE 5 - TRANSACTIONS IN CAPITAL STOCK AND COMPONENTS OF NET ASSETS Transactions in fund shares were as follows:
YEARS ENDED AUGUST 31, --------------------------------------------------------- 2006 2005 -------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ----------- ----------- ----------- Shares issued in reinvestment of dividends 11 $ 45 20 $ 80 Shares redeemed (340,065) (1,324,364) (15,015) (59,758) ----------- ----------- ----------- ----------- NET DECREASE (340,054) $(1,324,319) (14,995) $ (59,678) =========== =========== =========== ===========
------------------------------------------------------------------------------- 11 NRM INVESTMENT COMPANY -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2006 NOTE 5 - TRANSACTIONS IN CAPITAL STOCK AND COMPONENTS OF NET ASSETS (CONTINUED) The components of net assets at August 31, 2006 and 2005 are as follows:
2006 2005 ------------ ------------ Capital shares, par value $.01 per share, 3,608,392 shares and 3,948,446 shares issued and outstanding at August 31, 2006 and 2005 (10,000,000 full and fractional shares authorized); and capital paid-in $ 13,999,508 $ 15,323,827 Unrealized appreciation of investments 256,345 183,633 Undistributed net investment income 66,347 0 Overdistributed net investment income* (113,428) (110,388) ------------ ------------ NET ASSETS $ 14,208,772 $ 15,397,072 ============ ============
* For federal income tax purposes, there is no undistributed net investment income. The book/tax difference arises from amounts reserved for environmental litigation described in Note 4 and not deducted for federal income tax purposes. NOTE 6 - DISTRIBUTIONS TO SHAREHOLDERS The tax character of distributions paid during 2006 and 2005 was as follows:
2006 2005 -------- -------- Distributions paid from: Tax-exempt interest dividends $316,754 $233,283 Taxable qualified dividends 67,700 937 Taxable ordinary dividends 17,779 29,498 Long-term capital gains 74,813 518,162 -------- -------- $477,046 $781,880 ======== ========
------------------------------------------------------------------------------- 12 NRM INVESTMENT COMPANY Financial Report August 31, 2006 NRM INVESTMENT COMPANY -------------------------------------------------------------------------------- TABLE OF CONTENTS AUGUST 31, 2006 PAGE FINANCIAL STATEMENTS: Report of Independent Registered Public Accounting Firm 1 Statement of Assets and Liabilities 2 Schedule of Investments 3 Statement of Operations 6 Statements of Changes in Net Assets 7 Financial Highlights 8 Notes to Financial Statements 9