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, 2007
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: four members of the five-member board of directors own 91.6% of its shares. Registrant has no salaried employees to otherwise fulfill the role of financial expert.
ITEM 4. ACCOUNTANT FEES AND SERVICES
2006 | 2007 | ||||
(a) Audit fees: | 16,000 | 17,000 | |||
(b) Related fees | 0 | 0 | |||
(c) (d) Tax & other fees | 6,400 | 6,800 | 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
_______________________
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 are 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
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.
4
CERTIFICATIONS
I, John H. McCoy, President and Treasurer of the Fund certify that:
1. I have reviewed this report on Form N-CSR of NRM Investment Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
5
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: 10/30/07
/s/ John H. McCoy
John H. McCoy, President and Treasurer
6
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: 10/30/07
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: 10/30/07
By: /s/ Edward Fackenthal
Edward Fackenthal, Counsel and Assistant Secretary
Date: 10/30/07
7
EXHIBITS
Financial Report
August 31, 2007
Table of Contents
August 31, 2007
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 | |
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, 2007, 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 and financial highlights. Our procedures included confirmation of securities owned as of August 31, 2007, 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 as of August 31, 2007, 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.
As discussed in Note 4 to the financial statements, the Fund has been identified as a potentially responsible party by the Environmental Protection Agency in remedial activities relating to an environmental matter. The Fund has recorded a liability of $1,150,000 as of August 31, 2007 as its best estimate of its remaining exposure in this matter. Due to the uncertainties in settling the environmental matter, it is at least reasonably possible that the Fund’s estimate of remaining exposure will change in the near term.
Beard Miller Company LLP
Reading, Pennsylvania
October 26, 2007
1
NRM Investment Company
August 31, 2007
2007 | ||||
Assets | ||||
Investments at fair value (cost $13,916,355) | $ | 13,836,254 | ||
Interest and dividends receivable | 148,721 | |||
Prepaid expenses | 4,469 | |||
Total Assets | 13,989,444 | |||
Liabilities | ||||
Accrued expenses and other liabilities | 1,174,426 | |||
$ | 12,815,018 | |||
See notes to financial statements.
2
NRM Investment Company
Schedule of Investments
August 31, 2007
Principal Amount or Shares | Fair Value | |||||||
Municipal Bonds - 56.0% | ||||||||
General Obligation Bonds - 8.0% | ||||||||
Bucks County, Pennsylvania, 5.00%, due 6/15/11, callable 6/15/09 at 100 | 100,000 | $ | 102,315 | |||||
Pittsburgh, Pennsylvania, 5.00%, due 9/1/12, callable 3/1/12 at 100 (AMBAC) | 250,000 | 262,813 | ||||||
Pennsylvania State, First Series, 5.00%, due 7/1/13 | 300,000 | 318,468 | ||||||
Berks County, Pennsylvania, 5.00%, due 11/15/14, callable 11/15/08 at 100 (AMBAC) | 100,000 | 101,371 | ||||||
Philadelphia, Pennsylvania School District, 5.625%, due 8/1/15, callable 8/1/12 at 100 (FGIC) | 300,000 | 325,821 | ||||||
Total General Obligation Bonds | 1,110,788 | |||||||
Housing Finance Agency Bonds - .9% | ||||||||
Odessa, Texas Housing Finance Corporation, Home Mortgage Revenue Refunding, 8.45%, due 11/1/11, callable 11/1/05 at 103 | 16,518 | 16,637 | ||||||
California Housing Finance Agency, Home Mortgage, 10.25%, due 2/1/14, callable 2/1/99 at 100 | 40,000 | 40,935 | ||||||
Minnesota State Housing Finance Agency, Single-Family Mortgage, 5.95%, due 1/1/17, callable 1/1/07 at 101.50 | 60,000 | 60,586 | ||||||
Total Housing Finance Agency Bonds | 118,158 | |||||||
Other Revenue Bonds - 47.1% | ||||||||
Parkland, Pennsylvania School District, 5.375%, due 9/1/15 (FGIC) | 170,000 | 186,703 | ||||||
Grand Rapids, Michigan Downtown Development Authority, 6.60%, due 6/1/08, callable 6/1/06 at 100 | 365,000 | 365,785 | ||||||
Faulkey Gully Municipal Utility District, Texas, 4.50%, due 3/1/09 (FSA) | 70,000 | 70,292 | ||||||
Montgomery County, Pennsylvania Industrial Development Authority, 5.00%, due 11/1/10 | 500,000 | 519,015 | ||||||
Allegheny County, Pennsylvania Industrial Development Authority, 5.00%, due 11/1/11 (MBIA) | 100,000 | 104,757 | ||||||
Pennsylvania State Higher Educational Facilities Authority, 5.25%, due 1/1/12, callable 7/1/08 at 100 (MBIA) | 175,000 | 177,097 | ||||||
Philadelphia, Pennsylvania Gas Works, 18th Series, 5.00%, due 8/1/11 (CIFG) | 300,000 | 313,164 | ||||||
Montgomery County Pennsylvania Higher Educational Authority, 5.00%, due 4/1/12 (Radian) | 225,000 | 230,810 | ||||||
See notes to financial statements.
3
NRM Investment Company
Schedule of Investments (Continued)
August 31, 2007
Principal Amount or Shares | Fair Value | |||||||
Municipal Bonds - 56.0% (Continued) | ||||||||
Other Revenue Bonds - 47.1% (Continued) | ||||||||
Pennsylvania State Higher Educational Facilities Authority, 5.375%, due 7/1/12, callable 7/1/09 at 100 (AMBAC) | 100,000 | $ | 103,027 | |||||
Pennsylvania Infrastructure Investment Authority, 5.00%, due 9/1/12 | 500,000 | 528,430 | ||||||
Pennsylvania State Higher Educational Facilities Authority, 5.50%, prerefunded 1/01/13 | 350,000 | 377,881 | ||||||
Jackson, Mississippi Redevelopment Authority, Jackson Street Area Project, 5.70%, due 4/1/13, callable 10/1/05 at 100 (MBIA) | 100,000 | 100,127 | ||||||
Harrisburg, Pennsylvania Recovery Facilities, 5.00%, due 9/1/13, callable 9/1/08 at 101 (FSA) | 100,000 | 102,293 | ||||||
Harrisburg, Pennsylvania Recovery Facilities, 5.00%, mandatory put 12/1/13 | 425,000 | 450,887 | ||||||
Philadelphia, Pennsylvania Wastewater, 5.25%, due 11/1/14, callable 11/1/12 at 100 (FGIC) | 250,000 | 266,695 | ||||||
Philadelphia, Pennsylvania Wastewater, 5.00%, due 7/1/14 | 250,000 | 267,093 | ||||||
Pennsylvania State Turnpike Commission, 5.25%, due 12/1/14, callable 12/1/08 at 101 (AMBAC) | 230,000 | 236,596 | ||||||
Pennsylvania State Turnpike Commission, 5.25%, due 12/1/15, callable 12/1/08 at 101 (AMBAC) | 200,000 | 205,737 | ||||||
Allegheny County, Pennsylvania Higher Educational Building Authority, 5.50%, due 3/15/16, callable 6/15/12 at 100 (AMBAC) | 150,000 | 166,173 | ||||||
Pennsylvania State Higher Educational Facilities Authority, 5.00%, due 6/15/16, callable 6/15/12 at 100 (AMBAC) | 100,000 | 104,260 | ||||||
Philadelphia, Pennsylvania Gas Works, Fourth Series, 5.25%, due 8/1/16, callable 8/1/13 | 250,000 | 269,280 | ||||||
Philadelphia, Pennsylvania Industrial Development Lease Revenue, 5.40%, due 2/15/17, callable 2/15/07 at 102 (MBIA) | 100,000 | 101,722 | ||||||
Chester County, Pennsylvania Health and Educational Authority (Devereux), 5.00%, due 11/1/18 | 405,000 | 418,608 | ||||||
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 | 100,000 | ||||||
Tobacco Settlement Financial Corporation, New Jersey, 5.00%, due 6/1/19 , callable 6/1/17 | 200,000 | 199,032 | ||||||
Volusia County Florida Educational Facilities Authority, 5%, due 10/15/25, callable 10/15/15 | 310,000 | 296,112 | ||||||
See notes to financial statements.
4
NRM Investment Company
Schedule of Investments (Continued)
August 31, 2007
Principal Amount or Shares | Fair Value | |||||||
Municipal Bonds - 56.0% (Continued) | ||||||||
Other Revenue Bonds - 47.1% (Continued) | ||||||||
North Carolina Medical Care Community Mortgage Revenue (Chatham Hospital), 5.25%, due 8/1/26, callable 2/1/17 at 100 (MBIA) | 250,000 | $ | 261,581 | |||||
Total Other Revenue Bonds | 6,523,157 | |||||||
Total Municipal Bonds (Cost $7,810,569) | 7,752,103 | |||||||
Preferred Stock – 43.4% | ||||||||
ABN Amro Capital Trust VI, 6.25% | 20,000 | 483,000 | ||||||
Aegon NV , 6.50% | 15,000 | 366,000 | ||||||
Aegon NV, 6.875% | 10,000 | 248,200 | ||||||
Barclays Bank, PLC ADR | 20,000 | 493,400 | ||||||
Deutsche Bank Contingent Cap Tr, 6.55% | 15,000 | 360,150 | ||||||
Federal Home Loan Mortgage Corporation, 6.42% | 5,000 | 271,250 | ||||||
Goldman Sachs Group, Inc. 1/1000 B | 15,000 | 365,850 | ||||||
HSBC USA, Inc., 1/40 Series H | 20,000 | 526,200 | ||||||
ING Group NV, 7.05% | 10,000 | 247,700 | ||||||
ING Group NV, Perpetual Debt Security | 16,000 | 371,520 | ||||||
Lehman Brothers Holdings, Inc. C Dep. 1/10 | 10,000 | 455,000 | ||||||
Metlife, Inc., 6.50% | 17,500 | 441,175 | ||||||
Prudential PLC, 6.50% | 12,500 | 309,375 | ||||||
Royal Bank of Scotland Group PLC ADR Series R | 10,000 | 232,500 | ||||||
Royal Bank of Scotland Group PLC ADR Series Q | 20,000 | 500,400 | ||||||
Santander Financial SA, 6.41% | 14,000 | 334,040 | ||||||
Total Preferred Stocks (Cost $6,027,395) | 6,005,760 | |||||||
Short-Term Investments - at Cost Approximating Fair Value - 0.6% | ||||||||
Federated Pennsylvania Municipal Cash Trust #8 – (Cost $78,391) | 78,391 | 78,391 | ||||||
Total Investments - 100% (Cost $13,916,355) | $ | 13,836,254 | ||||||
See notes to financial statements.
5
NRM Investment Company
Statement of Operations
Year Ended August 31, 2007
2007 | ||||
Investment Income | ||||
Interest | $ | 326,914 | ||
Dividends | 388,774 | |||
715,688 | ||||
Expenses | ||||
Investment advisory fees | 43,075 | |||
Custodian fees | 20,325 | |||
Transfer and dividend disbursing agent fees | 1,925 | |||
Legal and professional fees | 88,706 | |||
Directors’ fees | 6,400 | |||
Insurance | 1,200 | |||
Capital stock tax | 3,131 | |||
Provision for environmental claims and related costs | 1,021,372 | |||
Miscellaneous | 3,434 | |||
Total Expenses | 1,189,568 | |||
Net Investment Income (Loss) | (473,880 | ) | ||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain from investment transactions | 22,720 | |||
Net unrealized depreciation of investments | (336,446 | ) | ||
Net Realized and Unrealized Gain (Loss) on Investments | (313,726 | ) | ||
Net Decrease in Net Assets Resulting from Operations | $ | (787,606 | ) | |
See notes to financial statements.
6
NRM Investment Company
Statements of Changes in Net AssetsYears Ended August 31, 2007 and 2006
2007 | 2006 | |||||||
Increase in Net Assets from Operations | ||||||||
Net investment (loss) income | $ | (473,880 | ) | $ | 399,194 | |||
Net realized gain from investment transactions | 22,720 | 141,159 | ||||||
Net unrealized (depreciation) appreciation of investments | (336,446 | ) | 72,712 | |||||
Net (Decrease) Increase in Net Assets Resulting from Operations | (787,606 | ) | 613,065 | |||||
Distributions to Shareholders | (606,212 | ) | (477,046 | ) | ||||
Capital Share Transactions | 64 | (1,324,319 | ) | |||||
Total Decrease in Net Assets | (1,393,754 | ) | (1,188,300 | ) | ||||
Net Assets - Beginning of Year | 14,208,772 | 15,397,072 | ||||||
Net Assets - End of Year | $ | 12,815,018 | $ | 14,208,772 | ||||
See notes to financial statements.
7
NRM Investment Company
Financial HighlightsYears Ended August 31, 2007, 2006, 2005, 2004, and 2003
2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||
Per Share Data (for a share outstanding throughout the indicated year) | ||||||||||||||||||||
Net asset value, beginning of year | $ | 3.938 | $ | 3.900 | $ | 3.931 | $ | 3.834 | $ | 3.842 | ||||||||||
Net investment income (loss) | (.131 | ) | .110 | .070 | .119 | .146 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | (.088 | ) | .059 | .097 | .096 | .006 | ||||||||||||||
Total from Investment Operations | (.219 | ) | .169 | .167 | .215 | .152 | ||||||||||||||
Less distributions: | ||||||||||||||||||||
Dividends from capital gains | (.025 | ) | (.021 | ) | (.130 | ) | (.009 | ) | - | |||||||||||
Dividends from net tax-exempt income | (.064 | ) | (.086 | ) | (.061 | ) | (.103 | ) | (.146 | ) | ||||||||||
Dividends from net taxable income | (.079 | ) | (.024 | ) | (.007 | ) | (.006 | ) | - | |||||||||||
Distribution in excess of net investment Income | - | - | - | (.014 | ) | |||||||||||||||
Total Distributions | (.168 | ) | (.131 | ) | (.198 | ) | (.118 | ) | (.160 | ) | ||||||||||
Net Asset Value, End of Year | $ | 3.551 | $ | 3.938 | $ | 3.900 | $ | 3.931 | $ | 3.834 | ||||||||||
Total Return (Loss) | (5.79 | %) | 4.40 | % | 3.76 | % | 5.59 | % | 3.96 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of year (in thousands) | $ | 12,815 | $ | 14,209 | $ | 15,397 | $ | 15,579 | $ | 15,198 | ||||||||||
Ratio of expenses to average net assets | 8.62 | % | 1.05 | % | 1.23 | % | .67 | % | 1.07 | % | ||||||||||
Ratio of net investment income (loss) to average net assets | (3.43 | %) | 2.77 | % | 1.75 | % | 3.04 | % | 3.78 | % | ||||||||||
Portfolio turnover rate | 18.00 | % | 88.85 | % | 56.38 | % | 47.45 | % | 37.90 | % | ||||||||||
See notes to financial statements.
8
NRM Investment Company
Notes to Financial Statements
August 31, 2007
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. Dividend income is recognized on the ex-dividend date. 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.
See notes to financial statements.
9
NRM Investment Company
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 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, 2007.
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 $2,553,509 and $2,530,685, respectively, during the year ended August 31, 2007.
At August 31, 2007, the cost of investment securities owned is the same for financial reporting and federal income tax purposes. Net unrealized depreciation of investment securities is $80,101 (aggregate gross unrealized appreciation of $71,595, less aggregate unrealized depreciation of $151,696).
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 (OU-2) relates to drummed waste, soil cleanup, and past costs incurred by the EPA.
See notes to financial statements.
10
NRM Investment Company
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 believed its linkage to this portion of the claim to be weak.
See notes to financial statements.
11
NRM Investment Company
Note 4 - Environmental Liability (Continued) |
The Fund has accrued $150,000 at August 31, 2007 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 amounts asserted to date for the OU-1 and OU-2 matters are $3,700,000 and $2,500,000 respectively; in addition OU-2 includes past EPA costs of $7,500,000. 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.
In April 2007, Counsel for the Fund advised that, with minor exceptions, lengthy discovery proceedings have been concluded, the developed facts have been analyzed, and that the Fund has begun settlement negotiations. After considering the facts and plaintiffs’ contentions, Counsel believes that a payment by the Fund either by settlement or by recovery following further litigation is probable and that, in addition to the OU-1 costs the Fund has already incurred, there will be additional exposure estimated to be between $750,000 and $1,500,000 and that $1,000,000 is the present best estimate of the Fund’s liability. This amount has been charged to the Fund in April 2007. There has been no changes to this estimate as of August 31, 2007.
In addition, the EPA has made an inquiry about another site which may lead to a future claim and whose materiality is unknown. No amounts have been accrued for any claim associated with this inquiry.
Note 5 - Transactions in Capital Stock and Components of Net Assets |
Transactions in fund shares were as follows:
Years Ended August 31, | ||||||||||||||||
2007 | 2006 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares issued | 191,368 | $ | 690,808 | - | $ | - | ||||||||||
Shares issued in reinvestment of dividends | 24 | 94 | 11 | 45 | ||||||||||||
Shares redeemed | (191,368 | ) | (690,838 | ) | (340,065 | ) | (1,324,364 | ) | ||||||||
Net Increase (Decrease) | 24 | $ | 64 | (340,054 | ) | $ | (1,324,319 | ) | ||||||||
See notes to financial statements.
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NRM Investment Company
Note 5 – Transactions in Capital Stock and Components of Net Assets (Continued) |
The components of net assets at August 31, 2007 and 2006 are as follows:
2007 | 2006 | |||||||
Capital shares, par value $.01 per share, 3,608,416 shares and 3,608,392 shares issued and outstanding at August 31, 2007 and 2006 (10,000,000 full and fractional shares authorized); and capital paid-in | $ | 13,999,571 | $ | 13,999,508 | ||||
Unrealized (depreciation) appreciation of investments | (80,101 | ) | 256,345 | |||||
Undistributed net investment income | 8,976 | 66,347 | ||||||
Overdistributed net investment income* | (1,113,428 | ) | (113,428 | ) | ||||
Net Assets | $ | 12,815,018 | $ | 14,208,772 | ||||
* 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 2007 and 2006 was as follows:
2007 | 2006 | |||||||
Distributions paid from: | ||||||||
Tax-exempt interest dividends | $ | 231,348 | $ | 316,754 | ||||
Taxable qualified dividends | 285,798 | 67,700 | ||||||
Taxable ordinary dividends | - | 17,779 | ||||||
Long-term capital gains | 89,066 | 74,813 | ||||||
$ | 606,212 | $ | 477,046 |
Note 7 – New Accounting Pronouncements |
In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements.” The Statement defines fair value, establishing a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and expands disclosure about fair value measurements. The Statement establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) the reporting entity’s own assumptions about market participation assumptions developed based on the best information available in the circumstances (unobservable inputs). The Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and is to be applied prospectively as of the beginning of the fiscal year in which this Statement is initially applied.
See notes to financial statements.
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NRM Investment Company
Note 7 – New Accounting Pronouncements (Continued) |
Management is evaluating the application of the Statement to the Fund, and is not in a position at this time to evaluate the significance of its impact, if any, on the Fund’s financial statements.
See notes to financial statements.
14