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
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Exact name of registrant as specified in charter: NRM Investment Company
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Address of principal executive offices: NRM Investment Company, Rosemont
--------------------------------
Business Campus, Suite 112, Building 1 - 919 Conestoga Road, Rosemont,
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Pennsylvania 19010
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Name and address of agent for service: John H. McCoy, President, NRM Investment
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Company, Rosemont Business Campus, Suite 112, Building 1 - 919 Conestoga Road,
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Rosemont, Pennsylvania 19010
- ----------------------------
Registrant's Telephone Number: (610) 527-7009
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Date of fiscal year end: August 31, 2004
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ITEM 1 - REPORTS TO STOCKHOLDERS
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A copy of the report transmitted to shareholders pursuant to Rule 30e-1 under
the Investment Company Act is attached hereto.
ITEMS 2 - 5
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The within N-CSR is a semi-annual report and accordingly the information
required by these items are not required at this time.
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.
ITEM 9 - SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
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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.
2
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
(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: 5/6/05
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/s/ John H. McCoy
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John H. McCoy, President and Treasurer
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: 5/6/05
-------------------------------
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: 5/6/05
-------------------------------
By: /s/ Edward Fackenthal
--------------------------------------------
Edward Fackenthal, Counsel and Assistant Secretary
Date: 5/6/05
-------------------------------
4
NRM INVESTMENT COMPANY
SEMI-ANNUAL FINANCIAL STATEMENTS
FEBRUARY 28, 2005
TABLE OF CONTENTS
PAGE NO.
FINANCIAL STATEMENTS:
Statement of Assets and Liabilities 1
Schedule of Investments 2
Statement of Operations 6
Statements of Changes in Net Assets 7
Financial Highlights 8
Notes to Financial Statements 10
NRM INVESTMENT COMPANY
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Attachment to Item I - NRM Investment Company - NCSR Semi-annual
STATEMENT OF ASSETS AND LIABILITIES
UNAUDITED
FEBRUARY 28,
2005
-----------------
ASSETS
Investments at fair value (cost $15,479,053) $ 16,015,906
Interest and dividends receivable 104,623
Prepaid expenses 3,251
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TOTAL ASSETS 16,123,780
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LIABILITIES
Dividends payable 202,135
Accrued expenses and other liabilities 128,142
-----------------
TOTAL LIABILITIES 330,277
-----------------
NET ASSETS, APPLICABLE TO 3,963,435 OUTSTANDING SHARES,
EQUIVALENT TO $3.98 A SHARE $ 15,793,503
=================
NRM INVESTMENT COMPANY
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SCHEDULE OF INVESTMENTS
FEBRUARY 28, 2005 - UNAUDITED
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PRINCIPAL
AMOUNT FAIR
MUNICIPAL BONDS - 48.3% OR SHARES VALUE
- ---------------------------------------------------------------------------- --------- ----------
GENERAL OBLIGATION BONDS - 13.6%
Bucks County, Pennsylvania, 5.00, due 6/15/11, callable 6/15/09 at 100 100,000 $ 107,211
Pittsburgh, Pennsylvania, 5.00%, due 9/1/12, callable 3/1/12 at 100
(AMBAC) 250,000 269,548
Shelby County, Tennessee, 5.625%, due 4/1/14, callable 4/1/05 at 101 150,000 151,882
Berks County Pennsylvania, 5.00%, due 11/15/14, callable 11/15/08 at
100 (AMBAC) 100,000 106,193
Philadelphia, Pennsylvania School District, 5.625%, due 8/1/15,
callable 8/1/12 at 100 (FGIC) 300,000 336,093
Philadelphia Pennsylvania School District, 5.25%, due 4/1/16, callable
4/1/09 at 100 (MBIA) 100,000 107,657
Montgomery County Texas Municipal Utility District 67, 6.00%, due
9/1/16, callable 9/1/05 at 100 (AMBAC) 250,000 254,857
Licking County, Ohio Joint Vocational School District, 5.50%, due
12/1/16, callable 12/1/12 at 100 (MBIA) 170,000 189,528
Pittsburgh, Pennsylvania, 5.50%, due 9/1/17, at 100 (FSA) 250,000 289,262
Fairfax County, Virginia, 5.50%, due 12/1/17, callable 12/1/07
at 102 135,000 147,550
Bucks County, Pennsylvania School District, 5.250%, due 12/1/17,
callable 4/1/07 at 100 200,000 212,250
----------
TOTAL GENERAL OBLIGATION BONDS 2,172,031
----------
HOUSING FINANCE AGENCY BONDS - 6.4%
Fort Worth, Texas Housing Finance Corporation, Home Mortgage Revenue
Refunding Series 1991, 8.50%, due 10/1/11, callable 10/1/01 at 103 10,000 10,003
Odessa, Texas Housing Finance Corporation, Home Mortgage Revenue
Refunding, 8.45%, due 11/1/11, callable 11/1/05 at 103 47,058 48,052
California Housing Finance Agency, Home Mortgage, 10.25%, due 2/1/14,
callable 2/1/99 at 100 55,000 57,254
Nevada Housing Division, Single-Family Mortgage, 7.35%, due 10/1/15 5,000 5,001
See notes to financial statements.
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2
NRM INVESTMENT COMPANY
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SCHEDULE OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2005 - UNAUDITED
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT FAIR
MUNICIPAL BONDS - 48.3% (CONTINUED) OR SHARES VALUE
- -------------------------------------------------------------------------- --------- ----------
HOUSING FINANCE AGENCY BONDS - 24.6% (CONTINUED)
Alabama Housing Finance Authority, Single-Family Mortgage, 6.00%, due
10/1/16, callable 4/1/06 at 102 155,000 $ 159,737
Minnesota State Housing Finance Agency, Single-Family Mortgage, 5.95%,
due 1/1/17, callable 1/1/07 at 101.50 105,000 108,246
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 51,740
Utah State Housing Finance Agency, Single-Family Mortgage, 6.30%, due
1/1/18 15,000 15,077
Florida Housing Finance Corp., 5.25%, due 12/1/18, callable 12/1/08 at
102, 12/1/10 at 100 100,000 104,473
New Jersey State Housing and Mortgage Finance Agency, Multi-Family
Housing, 6.05%, due 11/1/20, callable 5/1/05 at 102 (AMBAC) 450,000 459,887
----------
TOTAL HOUSING FINANCE AGENCY BONDS 1,019,470
----------
HOSPITAL REVENUE BONDS - 2.1%
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) 200,000 206,126
Kalamazoo Michigan Hospital Finance Authority, Bronson Methodist,
5.75%, due 5/15/16 callable 5/15/06 at 102 (MBIA) 125,000 132,487
----------
TOTAL HOSPITAL REVENUE BONDS 338,613
----------
OTHER REVENUE BONDS - 26.2%
Grand Rapids, Michigan Downtown Development Authority, 6.60%, due
6/1/08, callable 6/1/06 at 100 365,000 373,165
Allegheny County Pennsylvania Industrial Development Authority, 5.00%,
due 11/1/11 (MBIA) 100,000 109,773
Pennsylvania State Higher Educational Facilities Authority, 5.25%, due
1/1/12, callable 7/1/08 at 100 (MBIA) 175,000 186,916
Central and Western Chester County IDA, Heatherwood Project, 5.75%, due
2/1/12, callable 2/1/02 at 100 165,000 165,373
See notes to financial statements.
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3
NRM INVESTMENT COMPANY
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SCHEDULE OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2005 - UNAUDITED
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PRINCIPAL
AMOUNT FAIR
MUNICIPAL BONDS - 48.3% (CONTINUED) OR SHARES VALUE
- ------------------------------------------------------------------------- --------- --------
OTHER REVENUE BONDS - 26.2%
Pennsylvania State Higher Educational Facilities Authority, 5.375%,
due 7/1/12, callable 7/1/09 at 100 (AMBAC) 100,000 $108,427
Jackson Mississippi Redevelopment Authority, Jackson Street Area
Project, 5.70%, due 4/1/13, callable 10/1/05 at 100 (MBIA) 100,000 101,729
Harrisburg Pennsylvania Recovery Facilities, 5.00%, due 9/1/13,
callable 9/1/08 at 101 (FSA) 100,000 108,287
Rock Hill South Carolina Utility System, 5.125%, due 1/1/14, callable
1/1/10 at 101 (FSA) 125,000 135,310
Philadelphia Pennsylvania Wastewater, 5.25%, due 11/1/14, callable
11/1/12 at 100 (FGIC) 250,000 277,392
Pennsylvania State Turnpike Commission, 5.25%, due 12/1/14, callable
12/1/08 at 101 (AMBAC) 230,000 249,540
Pennsylvania State Turnpike Commission, 5.25%, due 12/1/15, callable
12/1/08 at 101 (AMBAC) 200,000 215,898
Rochester Minnesota Independent School District No. 535, 5.75%, due
2/1/16, callable 2/1/10 at 100 100,000 110,537
Allegheny County PA Higher Educational Building Authority, 5.00%, due
6/15/16, callable 6/15/12 at 100 (AMBAC) 150,000 172,307
Ohio State Mental Health Capital Facilities, 5.50%, due 6/1/16,
callable 6/1/11 at 100 (MBIA) 250,000 275,142
Pennsylvania State Higher Educational Facilities Authority, 5.00%, due
6/15/16, callable 6/15/12 at 100 (AMBAC) 100,000 107,435
Philadelphia Pennsylvania Industrial Development Lease Revenue, 5.40%,
due 2/15/17, callable 2/15/07 at 102 (MBIA) 100,000 106,734
Delaware River Port Authority PA & NJ, 5.75% due 1/1/18, callable
1/1/10 at 100 (FSA) 100,000 110,752
Las Vegas Nevada Convention and Visitors Authority, 5.75%,
due 7/1/18, callable 7/1/09 at 101 (AMBAC) 100,000 110,754
Pennsylvania State Turnpike, Registration Fee Revenue, 5.375%, due
7/15/18, callable 7/15/11 at 101 (AMBAC) 100,000 109,555
Red River Texas Education Finance Corporation, St. Marks School,
6.00%, due 8/15/17, callable 2/15/10 at 100 300,000 332,571
Red River Texas Education Finance Corporation, St. Marks School,
6.00%, due 8/15/18, callable 2/15/10 at 100 150,000 166,357
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) 100,000 102,606
Placer County California Water Agency, Certificates of Participation,
5.50%, due 7/1/19, callable 7/1/09 at 101 (AMBAC) 320,000 350,810
See notes to financial statements.
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4
NRM INVESTMENT COMPANY
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SCHEDULE OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2005 - UNAUDITED
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PRINCIPAL
AMOUNT FAIR
MUNICIPAL BONDS - 48.3% (CONTINUED) OR SHARES VALUE
- ------------------------------------------------------------------------ --------- ----------
OTHER REVENUE BONDS - 26.2% (CONTINUED)
Brevard County Florida School Board Certificates, 5.50%, due 7/1/21,
callable 7/1/06 at 102 (AMBAC) 100,000 $ 106,016
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TOTAL OTHER REVENUE BONDS 4,193,386
-----------
TOTAL MUNICIPAL BONDS (COST $7,532,740) 7,723,503
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OTHER REGULATED INVESTMENT COMPANIES - 18.7%
Colomos Convertible Growth and Income Fund, Class A 32,832 977,407
Colomos Global Income Fund, Class A 119,838 1,017,426
North Track S&P 100 Index Fund 30,628 996,937
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TOTAL OTHER REGULATED INVESTMENT COMPANIES (COST $2,895,302) 2,991,770
-----------
OTHER SECURITIES -24.3%
UBS AG Enhanced Appreciation Securities, due 3/31/05 1,500,000 1,695,000
UBS AG Enhanced Appreciation Securities, due 5/31/05 750,000 780,000
UBS AG Enhanced Appreciation Securities, due 2/28/06 400,000 429,000
UBS AG Enhanced Appreciation Securities, due 3/31/06 250,000 262,500
UBS AG Enhanced Appreciation Securities, due 6/30/06 750,000 733,125
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TOTAL OTHER SECURITIES (COST $3,650,000) 3,899,625
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SHORT-TERM INVESTMENTS - AT COST APPROXIMATING FAIR
VALUE - 8.7%, SEI TAX EXEMPT TRUST - PENNSYLVANIA TAX 1,401,011 1,401,011
FREE FUND
-----------
TOTAL INVESTMENTS - 100% (COST $15,479,053) $16,015,906
===========
See notes to financial statements.
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5
NRM INVESTMENT COMPANY
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STATEMENT OF OPERATIONS
UNAUDITED
SIX-MONTH PERIOD
ENDED FEBRUARY 28,
2005
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INVESTMENT INCOME $ 250,808
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EXPENSES
Investment advisory fees 5,000
Custodian fees 4,375
Transfer and dividend disbursing agent fees 1,850
Legal and professional fees 42,010
Directors' fees 4,000
Insurance 750
Capital stock tax 1,800
Provision for environmental claim 3,000
Miscellaneous 4,800
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TOTAL EXPENSES 68,585
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NET INVESTMENT INCOME 182,223
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from investment transactions 147,802
Net unrealized appreciation of investments 220,176
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NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 367,978
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 550,201
==================
See notes to financial statements.
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6
NRM INVESTMENT COMPANY
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STATEMENTS OF CHANGES IN NET ASSETS
UNAUDITED
PERIOD/ YEAR ENDED
--------------------------------
FEBRUARY 28, AUGUST 31,
2005 2004
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 182,223 $ 471,938
Net realized gain (loss) from investment transactions 147,802 565,490
Net unrealized appreciation (depreciation) of investments 220,176 (190,718)
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 550,201 846,710
DISTRIBUTIONS TO SHAREHOLDERS (335,703) (465,704)
CAPITAL SHARE TRANSACTIONS (14) 15
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TOTAL INCREASE IN NET ASSETS 214,484 381,021
NET ASSETS - BEGINNING OF YEAR 15,579,019 15,197,998
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NET ASSETS - END OF YEAR $15,793,503 $15,579,019
=========== ===========
See notes to financial statements.
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7
NRM INVESTMENT COMPANY
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FINANCIAL HIGHLIGHTS
UNAUDITED FEBRUARY 28, AUGUST 31,
------------ ---------------------------------------------------------------
2005 2004 2003 2002 2001 2000
------- ------- ------- ------- ------- -------
PER SHARE DATA (FOR A SHARE
OUTSTANDING THROUGHOUT THE
INDICATED YEAR)
Net asset value, beginning of year $ 3.931 $ 3.834 $ 3.842 $ 3.837 $ 3.794 $ 3.921
Net investment income .046 .119 .146 .163 .199 .184
Net realized and unrealized gain (loss) on
investments .093 .096 .006 .006 .054 (.135)
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TOTAL FROM INVESTMENT OPERATIONS .139 .215 .152 .169 .253 .049
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Less distributions:
Dividends from capital gains (.037) (.009) - - - -
Dividends from net tax-exempt income (.044) (.103) (.146) (.163) (.199) (.174)
Dividends from net taxable income (.004) (.006) - - - (.002)
Distribution in excess of net investment
income (.014) (.001) (.011) -
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TOTAL DISTRIBUTIONS (.085) (.118) (.160) (.164) (.210) (.176)
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NET ASSET VALUE, END OF PERIOD/YEAR $ 3.985 $ 3.931 $ 3.834 $ 3.842 $ 3.837 $ 3.794
=============================================================================
TOTAL RETURN 3.13% 5.59% 3.96% 4.40% 6.70% 1.17%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in thousands) 15,794 $15,579 $15,198 $15,285 $15,322 $16,268
Ratio of expenses to average net assets .44% .67% 1.07% 1.43% .95% .77%
Ratio of net investment income to average net
assets 1.16% 3.04% 3.78% 4.24% 4.93% 4.83%
Portfolio turnover rate 12.92% 44.18% 37.90% 16.82% 14.21% 77.12%
See notes to financial statements.
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8
NRM INVESTMENT COMPANY
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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.
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9
NRM INVESTMENT COMPANY
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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
$2,000,000 and $3,254,755, respectively, during the period ended
February 28, 2005.
At February 28, 2005, the cost of investment securities owned is
the same for financial reporting and federal income tax purposes. Net
unrealized appreciation of investment securities is $536,853 (aggregate
gross unrealized appreciation of $575,069,less aggregate unrealized
depreciation of $38,216).
NOTE 4 - DIVIDENDS PAYABLE
On December 16, 2004 the Board of Directors declared a quarterly
dividend of $.051 per share to shareholders of record as of February
22, 2005, payable March 1, 2005
NOTE 5 - 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 February 28, 2005 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.
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10
NOTE 5 - ENVIRONMENTAL LIABILITY (CONTINUED)
Therefore, no amount has been accrued in the financial statements
relating to the OU-2 matter at February 28, 2005.
NOTE 6 - TRANSACTIONS IN CAPITAL STOCK AND COMPONENTS OF NET ASSETS
Transactions in fund shares were as follows:
PERIOD/YEAR ENDED
--------------------------------------------------------------------------
FEBRUARY 28, 2005 AUGUST 31, 2004
---------------------------------- ------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------- ------------------------------------
Shares issued in reinvestment of
dividends 7 $25 13 $52
Shares redeemed 10 (39) 9 (37)
---------------- ---------------- ---------------- ----------------
NET DECREASE (3) ($14) 4 $15
================ ================ ================ ================
The components of net assets at February 28, 2005 and August 31,
2004 are as follows:
FEBRUARY 28, AUGUST 31,
-------------- -----------
2005 2004
-------------- ----------
Capital shares, par value $.01 per share, 3,963,438
shares and 3,963,441 shares issued and
outstanding at February 28, 2005 and August
31, 2004 (10,000,000 full and fractional shares
authorized); and capital paid-in $15,383,491 $15,383,505
Unrealized appreciation of investments 536,853 316,676
Overdistributed net investment income (126,841) (121,162)
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NET ASSETS 15,793,503 $15,579,019
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11