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, 2004
Date of Reporting Period: Semi-annual period ending February 28, 2006.
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
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The information is included as part of the report to shareholders filed under
Item 1 of this report and attached hereto.
ITEMS 7, 8 - PROXY VOTING POLICIES AND PURCHASES OF EQUITY SECURITIES:
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The information requested is not applicable to this open-end company.
ITEM 9 - SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
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None.
ITEM - 10 CONTROLS AND PROCEDURES
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The Fund operates through its five-member board of directors sitting as an
executive committee of the whole; the board members receive only nominal
director's fees. The Fund has no employees other than its officers none of whom
receives compensation in such role. (The Assistant Secretary to the Fund is its
counsel who receives compensation only for legal work, not in his role as a Fund
officer.) The Fund engages independent contractors to provide investment,
financial and custodial services. The Fund's principal executive and financial
officer is its major shareholder and one of the five directors. In his view the
following controls and procedures are effective to comply with the Regulations
under the Investment Company Act.
PORTFOLIO PROCEDURES
1. The Investment Advisor has discretion in investing the Fund's portfolio but
only within the guidelines established by the Board of Directors, and those
authorized to execute investment transactions act only on direction by the Board
or Advisor.
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.
CERTIFICATIONS
I, John H. McCoy, President and Treasurer of the Fund (the Company's principal
executive and financial officer) 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: 5/1/06
--------
/s/ John H. McCoy
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John H. McCoy, President and Treasurer
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: 5/1/06
--------
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: 5/1/06
--------
By: /s/ Edward Fackenthal
--------------------------------------------------
Edward Fackenthal, Counsel and Assistant Secretary
Date: 5/1/06
--------
NRM INVESTMENT COMPANY
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NRM INVESTMENT COMPANY
SEMI-ANNUAL FINANCIAL STATEMENTS
FEBRUARY 28, 2006
TABLE OF CONTENTS
PAGE NO.
FINANCIAL STATEMENTS:
Statement of Assets and Liabilities 1
Schedule of Investments 2-5
Statement of Operations 6
Statements of Changes in Net Assets 7
Financial Highlights 8
Notes to Financial Statements 9-11
NRM INVESTMENT COMPANY
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STATEMENT OF ASSETS AND LIABILITIES
UNAUDITED
FEBRUARY 28,
2006
------------
ASSETS
Investments at fair value (cost $13,522,988) $ 13,720,027
Cash 400,000
Receivable from sale of securities 68,000
Interest and dividends receivable 156,141
Prepaid expenses 6,106
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TOTAL ASSETS 14,350,274
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LIABILITIES
Dividends payable 102,478
Accrued expenses and other liabilities 162,167
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TOTAL LIABILITIES 264,645
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NET ASSETS, APPLICABLE TO 3,608,386 OUTSTANDING
SHARES, EQUIVALENT TO $3.90 A SHARE $ 14,085,629
=============
See notes to financial statements.
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1
NRM INVESTMENT COMPANY
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SCHEDULE OF INVESTMENTS
FEBRUARY 28, 2006 - UNAUDITED
PRINCIPAL
AMOUNT FAIR
MUNICIPAL BONDS - 89.6% OR SHARES VALUE
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GENERAL OBLIGATION BONDS - 24.8%
Pennsylvania State, Fourth Series, 5.00%, due 7/1/08 500,000 $ 516,715
Philadelphia, Pennsylvania School District, 5.00%, due 4/1/10 200,000 211,536
Pennsylvania State, 5.125%, due 9/15/10, callable 3/15/07 (AMBAC) 265,000 273,493
Bucks County, Pennsylvania, 5.00%, due 6/15/11, callable 6/15/09 at 100 100,000 104,736
Pittsburgh, Pennsylvania, 5.00%, due 9/1/12, callable 3/1/12 at 100
(AMBAC) 250,000 264,573
Abington Heights School District, Lackawana County, Pennsylvania,
4.25%, due 2/15/13, callable 2/15/08 (FSA) 200,000 201,972
Berks County Pennsylvania, 5.00%, due 11/15/14, callable 11/15/08 at
100 (AMBAC) 100,000 103,254
Philadelphia, Pennsylvania School District, 5.625%, due 8/1/15,
callable 8/1/12 at 100 (FGIC) 300,000 333,405
Philadelphia Pennsylvania School District, 5.25%, due 4/1/16, callable
4/1/09 at 100 (MBIA) 100,000 105,240
Wilson Pennsylvania School District, 5.375%, due 5/15/16, callable
5/15/12 (FSA) 425,000 463,849
Licking County, Ohio Joint Vocational School District, 5.50%, due
12/1/16, callable 12/1/12 at 100 (MBIA) 170,000 185,575
Pittsburgh, Pennsylvania, 5.50%, due 9/1/17, at 100 (FSA) 250,000 286,520
Fairfax County, Virginia, 5.50%, due 12/1/17, callable 12/1/07
at 102 135,000 142,371
Bucks County, Pennsylvania School District, 5.250%, due 12/1/17,
callable 4/1/07 at 100 200,000 206,308
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TOTAL GENERAL OBLIGATION BONDS 3,399,547
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HOUSING FINANCE AGENCY BONDS -3.2%
Odessa, Texas Housing Finance Corporation, Home Mortgage Revenue
Refunding, 8.45%, due 11/1/11, callable 11/1/05 at 103 34,136 35,017
California Housing Finance Agency, Home Mortgage, 10.25%, due 2/1/14,
callable 2/1/99 at 100 45,000 46,648
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, 2006 - UNAUDITED
PRINCIPAL
AMOUNT FAIR
MUNICIPAL BONDS - 89.6% (CONTINUED) OR SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSING FINANCE AGENCY BONDS - 3.2% (CONTINUED)
Alabama Housing Finance Authority, Single-Family Mortgage, 6.00%, due
10/1/16, callable 4/1/06 at 102 120,000 $ 122,520
Minnesota State Housing Finance Agency, Single-Family Mortgage, 5.95%,
due 1/1/17, callable 1/1/07 at 101.50 70,000 71,564
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 51,398
Utah State Housing Finance Agency, Single-Family Mortgage, 6.30%, due
1/1/18 10,000 10,034
Florida Housing Finance Corp., 5.25%, due 12/1/18, callable 12/1/08 at
102, 12/1/10 at 100 100,000 103,208
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TOTAL HOUSING FINANCE AGENCY BONDS 445,390
-----------
HOSPITAL REVENUE BONDS - .9%
Kalamazoo Michigan Hospital Finance Authority, Bronson Methodist,
5.75%, due 5/15/16 callable 5/15/06 at 102 (MBIA) 125,000 128,104
-----------
TOTAL HOSPITAL REVENUE BONDS 128,104
-----------
OTHER REVENUE BONDS - 60.7%
Radnor Township Pennsylvania School District, 5.75%, due 3/15/19, 500,000 511,980
pre-refunded 3/15/07
Parkland Pennsylvania School District, 5.00%, due 9/1/07 (FGIC) 170,000 191,029
Grand Rapids, Michigan Downtown Development Authority, 6.60%, due
6/1/08, callable 6/1/06 at 100 365,000 368,051
Montgomery County Pennsylvania Industrial Development Authority, 5.00%,
due 11/1/10 500,000 530,430
Allegheny County Pennsylvania Industrial Development Authority, 5.00%,
due 11/1/11 (MBIA) 100,000 107,088
Pennsylvania State Higher Educational Facilities Authority, (Messiah
College), 5.50%, due 5/1/11 500,000 530,740
Pennsylvania State Higher Educational Facilities Authority, 5.25%, due
1/1/12, callable 7/1/08 at 100 (MBIA) 175,000 181,661
Philadelphia Pennsylvania Gas Works, 18th Series, 5.00%, due 8/1/11
(CIFG) 430,000 456,737
See notes to financial statements.
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3
NRM INVESTMENT COMPANY
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SCHEDULE OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2006 - UNAUDITED
PRINCIPAL
AMOUNT FAIR
MUNICIPAL BONDS - 89.6% (CONTINUED) OR SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER REVENUE BONDS - 60.7%
Pennsylvania State Higher Educational Facilities Authority, 5.375%,
due 7/1/12, callable 7/1/09 at 100 (AMBAC) 100,000 $ 105,418
Pennsylvania Infrastructure Investment Authority, 5.00%, due 9/1/12 500,000 537,820
Jackson Mississippi Redevelopment Authority, Jackson Street Area
Project, 5.70%, due 4/1/13, callable 10/1/05 at 100 (MBIA) 100,000 100,144
Harrisburg Pennsylvania Recovery Facilities, 5.00%, due 9/1/13,
callable 9/1/08 at 101 (FSA) 100,000 104,666
Rock Hill South Carolina Utility System, 5.125%, due 1/1/14, callable
1/1/10 at 101 (FSA) 125,000 132,338
Philadelphia Pennsylvania Wastewater, 5.25%, due 11/1/14, callable
11/1/12 at 100 (FGIC) 250,000 272,372
Philadelphia Pennsylvania Water, 5.00%, due 7/1/14 250,000 271,977
Pennsylvania State Turnpike Commission, 5.25%, due 12/1/14, callable
12/1/08 at 101 (AMBAC) 230,000 241,506
Pennsylvania State Turnpike Commission, 5.25%, due 12/1/15, callable
12/1/08 at 101 (AMBAC) 200,000 209,485
Rochester Minnesota Independent School District No. 535, 5.75%, due
2/1/16, callable 2/1/10 at 100 100,000 107,662
Allegheny County PA Higher Educational Building Authority, 5.00%, due
6/15/16, callable 6/15/12 at 100 (AMBAC) 150,000 170,240
Ohio State Mental Health Capital Facilities, 5.50%, due 6/1/16,
callable 6/1/11 at 100 (MBIA) 250,000 269,338
Pennsylvania State Higher Educational Facilities Authority, 5.00%, due
6/15/16, callable 6/15/12 at 100 (AMBAC) 100,000 106,301
Philadelphia Pennsylvania Gas Works, Forth Series, 5.25%, due 8/1/16,
callable 8/1/13 250,000 271,365
Philadelphia Pennsylvania Industrial Development Lease Revenue, 5.40%,
due 2/15/17, callable 2/15/07 at 102 (MBIA) 100,000 103,760
Delaware River Joint Toll Bridge Authority, 5.25%, due 7/1/17,
callable 7/1/13 500,000 539,330
Delaware River Port Authority PA & NJ, 5.75% due 1/1/18, callable
1/1/10 at 100 (FSA) 100,000 107,730
Las Vegas Nevada Convention and Visitors Authority, 5.75%,
due 7/1/18, callable 7/1/09 at 101 (AMBAC) 100,000 108,027
Pennsylvania State Turnpike, Registration Fee Revenue, 5.375%, due
7/15/18, callable 7/15/11 at 101 (AMBAC) 100,000 109,516
Red River Texas Education Finance Corporation, St. Marks School,
6.00%, due 8/15/17, callable 2/15/10 at 100 300,000 323,991
Red River Texas Education Finance Corporation, St. Marks School,
6.00%, due 8/15/18, callable 2/15/10 at 100 150,000 161,198
See notes to financial statements.
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4
NRM INVESTMENT COMPANY
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SCHEDULE OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2006 - UNAUDITED
PRINCIPAL
AMOUNT FAIR
MUNICIPAL BONDS - 89.6% (CONTINUED) OR SHARES VALUE
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OTHER REVENUE BONDS - 60.7% (CONTINUED)
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 $ 101,142
Kennett Pennsylvania Consolidated School District, 5.25%, due 2/15/19,
callable 2/15/13 (FGIC) 500,000 542,645
Placer County California Water Agency, Certificates of Participation,
5.50%, due 7/1/19, callable 7/1/09 at 101 (AMBAC) 320,000 344,240
Brevard County Florida School Board Certificates, 5.50%, due 7/1/21,
callable 7/1/06 at 102 (AMBAC) 100,000 102,699
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TOTAL OTHER REVENUE BONDS 8,322,626
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TOTAL MUNICIPAL BONDS (COST $12,195,503) 12,295,667
-----------
OTHER SECURITIES -8.0%
UBS AG Enhanced Appreciation Securities, due 3/31/06 250,000 286,875
UBS AG Enhanced Appreciation Securities, due 6/30/06 750,000 810,000
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TOTAL OTHER SECURITIES (COST $1,000,000) 1,096,875
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SHORT-TERM INVESTMENTS - AT COST APPROXIMATING FAIR VALUE - 2.4%, FEDERATED
PENNSYLVANIA MUNICIPAL CASH TRUST #8 -(COST $327,485) 327,485 327,485
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TOTAL INVESTMENTS - 100% (COST $13,522,988) $13,720,027
===========
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,
2006
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INVESTMENT INCOME $ 238,575
---------------
EXPENSES
Investment advisory fees 7,696
Custodian fees 5,250
Transfer and dividend disbursing agent fees 950
Legal and professional fees 25,367
Directors' fees 6,200
Insurance 750
Capital stock tax 2,250
Miscellaneous 4,233
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TOTAL EXPENSES 52,696
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NET INVESTMENT INCOME 185,879
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized( loss) from investment transactions (1,618)
Net unrealized appreciation of investments 13,405
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NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 11,787
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 197,666
===============
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,
2006 AUGUST 31, 2005
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INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 185,879 $ 274,356
Net realized gain (loss) from investment transactions (1,618) 518,298
Net unrealized appreciation (depreciation) of investments 13,405 (133,043)
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 197,666 659,611
DISTRIBUTIONS TO SHAREHOLDERS (184,767) (781,880)
CAPITAL SHARE TRANSACTIONS (1,324,342) (59,678)
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TOTAL (DECREASE) IN NET ASSETS (1,311,443) (181,947)
NET ASSETS - BEGINNING OF YEAR 15,397,072 15,579,019
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NET ASSETS - END OF PERIOD/YEAR $ 14,085,629 $ 15,397,072
============= =============
See notes to financial statements.
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7
NRM INVESTMENT COMPANY
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FINANCIAL HIGHLIGHTS
AUGUST 31,
UNAUDITED FEBRUARY 28, --------------------------------------------------------------
2006 2005 2004 2003 2002 2001
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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 $3.794
Net investment income .051 .070 .119 .146 .163 .199
Net realized and unrealized gain (loss) on
investments .003 .097 .096 .006 .006 .054
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TOTAL FROM INVESTMENT OPERATIONS .054 .167 .215 .152 .169 .253
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Less distributions:
Dividends from capital gains - (.130) (.009) - - -
Dividends from net tax-exempt income (.045) (.061) (.103) (.146) (.163) (.199)
Dividends from net taxable income (.005) (.007) (.006) - - -
Distribution in excess of net investment
income - - - (.014) (.001) (.011)
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TOTAL DISTRIBUTIONS (.050) (.198) (.118) (.160) (.164) (.210)
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NET ASSET VALUE, END OF PERIOD/YEAR $3.904 $3.900 $3.931 $3.834 $3.842 $3.837
===============================================================================
TOTAL RETURN 1.40% 3.76% 5.59% 3.96% 4.40% 6.70%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in thousands) 14,086 $15,397 $15,579 $15,198 $15,285 $15,322
Ratio of expenses to average net assets .36% 1.23% .67% 1.07% 1.43% .95%
Ratio of net investment income to average net
assets 1.26% 1.75% 3.04% 3.78% 4.24% 4.93%
Portfolio turnover rate 41.21% 56.38% 47.45% 37.90% 16.82% 14.21%
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
non-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 period, 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
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. The annual flat rate was
$10,000 through December 31, 2005 and subsequently thereto 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.
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
$5,628,667 and $7,639,114, respectively, during the period ended
February 28, 2006.
At February 28, 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 $197,039 (aggregate
gross unrealized appreciation of $237,121,less aggregate unrealized
depreciation of $40,082).
NOTE 4 - DIVIDENDS PAYABLE
On December 15, 2005 the Board of Directors declared a quarterly
dividend of $.0284 per share to shareholders of record as of February
22, 2006, payable March 1, 2006.
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 $150,000 at February 28, 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.
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10
NOTE 5 - ENVIRONMENTAL LIABILITY (CONTINUED)
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.
The ultimate outcome may have a material adverse effect on the Fund's
financial position or results of operations.
NOTE 6 - TRANSACTIONS IN CAPITAL STOCK AND COMPONENTS OF NET ASSETS
Transactions in fund shares were as follows:
PERIOD/YEAR ENDED
------------------------------------------------------
FEBRUARY 28, 2006 AUGUST 31, 2005
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ---------- ---------- ----------
Shares issued in reinvestment of
dividends 5 $22 20 $80
Shares redeemed 340,065 (1,324,364) 15,015 (59,758)
-------- ----------- ------- --------
NET DECREASE (340,060) $(1,324,342) (14,995) $(59,678)
======== =========== ======= ========
The components of net assets at February28, 2006 and August 31,
2005 are as follows:
FEBRUARY 28, AUGUST 31,
2006 2005
------------- -----------
Capital shares, par value $.01 per share, 3,608,386 shares
and 3,948,446 shares issued and outstanding at February
28, 2006 and August 31, 2005 (10,000,000 full and
fractional shares
authorized); and capital paid-in $13,999,485 $15,323,827
Accumulated net realized loss on investment
transactions (1,618) -
Unrealized appreciation of investments 197,039 183,633
Overdistributed net investment income (109,277) (110,388)
----------- -----------
NET ASSETS $14,085,629 $15,397,072
=========== ===========
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