NAIC GROWTH FUND, INC.
2002 SEMI-ANNUAL REPORT
n-30d
Contents
Report to Shareowners 2
Statement of Assets and Liabilities 3
Statement of Operations 4
Statements of Changes in Net Assets 5
Financial Highlights 6
Portfolio of Investments 7
Notes to Financial Statements 10
2002 Annual Meeting 13
Change in Accountants 14
NAIC Growth Fund, Inc., Board of Directors 15
Shareowner Information 16
Report to Shareowners:
June 30, 2002
The first six months of 2002 has been trying for all
investors. A combination of events sent the stock market reeling. The
war on terrorism lingers on along with the burst bubble of the tech
stocks, a slower than anticipated recovery in the world economies and
questionable accounting practices by some corporations.
Investor confidence is at a low point, with many newer
investors exiting the stock market. All of this has led to a gigantic
drop in stock prices. In 2001, the Dow Jones Industrial Average was down
7.1% and the S&P 500 declined 13.0%. For the first six months of this
year, they have eroded further, down 7.8% and 13.7% respectively. The
Nasdaq is still the hardest hit. After a fall of 21.1% in 2001, another
25.0% has been lost this year. In the first half of 2002, the NAV for the
Fund is down 3.4%.
For the most part, the managers have been holding
stocks, although there have been few sales earlier in the year. Positions
that were eliminated included ADC Telecommunications, American
Power Conversion, CenturyTel, Clayton Homes, Dana, EMC
Corporation, McDonald's and Molex. The result was approximately
$655,000 in long-term gains. The managers also trimmed positions with
sales of 5,000 shares of Citigroup and 5,000 shares of Household
international realizing about $550,000 in long-term capital gains.
In addition to stocks prices retreating, dividend
increases in stocks held have been at a much lower rate than in past
years. Yields on money market funds and T-bills are also down. As a
result, the Fund had less income this year than in the past. The Board of
Directors voted not to pay a semi-annual dividend. Some steps have
been taken to increase the total yield on the portfolio without trying to
sacrifice growth.
Thomas E. O'Hara Kenneth S. Janke
Chairman President
NAIC Growth Fund, Inc.
Statement of Assets and Liabilities
As of June 30, 2002 (unaudited)
ASSETS
Investment securities
-at market value (cost $8,973,010) $18,970,905
Short-term investments
-at amortized cost 3,993,993
Cash and cash equivalents 1,071,833
Dividends & interest receivable 41,871
Prepaid insurance 1,550
Prepaid fees 15,000
24,095,152
LIABILITIES
Dividends payable 0
Accounts payable 47,601 47,601
TOTAL NET ASSETS $24,047,551
SHAREOWNERS' EQUITY
Common Stock-par value $0.001 per share;
authorized 50,000,000 shares,
outstanding 2,247,006 shares $ 2,248
Additional Paid-in Capital 12,922,383
Undistributed net investment income 19,751
Undistributed net realized gain on investments 1,105,274
Unrealized appreciation of investments 9,997,895
SHAREOWNERS' EQUITY $24,047,551
NET ASSET VALUE PER SHARE $ 10.70
See notes to financial statements
NAIC Growth Fund, Inc.
Statement of Operations
For the six months ended June 30, 2002 (unaudited)
INVESTMENT INCOME
Interest $ 41,303
Dividends 159,333
200,636
EXPENSES
Advisory fees 92,594
Legal fees 24,198
Transfer agent & custodian fees 18,400
Insurance 9,300
Audit fees 9,000
Printing 6,255
Other fees & expenses 5,670
Mailing & postage 5,430
Other Professional Services 4,000
Annual shareowners' meeting 3,300
Directors' fees & expenses 3,045
Net Expenses 181,192
Net investment income 19,444
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments:
Proceeds from sale of
investment securities 2,226,603
Cost of investment
securities sold 1,121,328
Net realized gain on
investments 1,105,275
Unrealized appreciation of investments:
Unrealized appreciation at
beginning of year 11,952,273
Unrealized appreciation
at end of year 9,997,895
Net change in unrealized
appreciation on investments (1,954,378)
Net realized and unrealized
loss on investments (849,103)
NET DECREASE FROM OPERATIONS $ (829,659)
See notes to financial statements
NAIC Growth Fund, Inc.
Statements of Changes in Net Assets
six months ended year ended
June 30, 2002 December 31,2001
FROM OPERATIONS:
Net investment income $ 19,444 $ 79,412
Net realized gain on investments 1,105,275 1,370,543
Net change in unrealized
appreciation on investments (1,954,378) (1,854,878)
Net decrease/increase from
operations (829,659) (404,923)
DISTRIBUTIONS TO STOCKHOLDERS FROM:
Net investment income 0 80,695
Net realized gain from investment
transactions 0 1,370,543
Total distributions 0 1,451,238
FROM CAPITAL STOCK TRANSACTIONS:
Dividend reinvestment 869,088 1,607,357
Cash purchases 98,913 230,222
Net increase from capital stock
transactions 968,001 1,837,579
Net increase/(decrease) in
net assets 138,342 (18,582)
TOTAL NET ASSETS:
Beginning of period $23,909,209 $23,927,791
End of period (including
undistributed net investment
income of $19,444 and $307,
respectively $24,047,551 $23,909,209
Shares:
Shares issued to common stockholders
under the dividend reinvestment
and cash purchase plan 88,164 158,525
Shares at beginning of year 2,158,842 2,000,317
Shares at end of year 2,247,006 2,158,842
See notes to financial statements
NAIC Growth Fund, Inc.
Financial Highlights (a)
six months ended
June 30, 2002 years ended December 31,
(unaudited) 2001 2000 1999 1998 1997
Net asset value at beginning
of year $11.08 $11.96 $11.22 $10.86 $9.56 $7.89
Net investment income .01 .04 .09 .08 .12 .09
Net realized and unrealized
gain
(loss) on investments (.39) (.25) 2.18 .76 1.68 1.99
Total from investment operations (.38) (.21) 2.27 .84 1.80 2.08
Distribution from:
Net investment income - (.04) (.09) (.09) (.11) (.09)
Realized gains - (.63) (1.44) (.39) (.39) (.32)
Total distributions - (.67) (1.53) (.48) (.50) (.41)
Net asset value at end of
period $10.70 $11.08 $11.96 $11.22 $10.86 $9.56
Per share market value, Ask 11.05 10.75 11.00 10.25 10.75 15.25
end of period Bid 10.55 10.25 10.50 10.00 10.25 14.50
Total Investment Return
Annualized:
Based on market value
1 year 5.94% 3.70% 30.90% 2.85% (25.42%) 58.50%
from inception 11.42% 11.66% 12.57% 10.28% 11.30% 17.84%
Based on net asset value
1 year (6.74%) (1.59%) 27.27% 7.75% 18.84% 26.43%
from inception 11.55% 12.42% 13.81% 13.15% 13.79% 13.69%
Net Assets, end of year
(mil) $24,047.6 $23,909.2 $23,927.8 $22,351.7 $20,701.2 $17,335.3
Ratios to average net
assets annualized:
Ratio of expenses to
average net assets (b) 1.47% 1.57% 1.25% 1.00% 0.83% 0.96%
Ratio of net investment income
to average net assets (b) 0.16% 0.32% 0.74% .70% 1.13% 0.96%
Portfolio turnover rate 11.79% 1.77% 10.61% 4.20% 5.87% 6.31%
(a) All per share data for all periods has been restated to reflect the effect
of a 15% stock dividend which was declared on august 18, 2000 and
paid on September 29, 2000 to shareholders of record on September 18,
2000.
(b) For the years ended 2000, 1999, 1998, & 1997, the adviser
voluntarily waived all or a portion of its fees. Had the adviser not done
so in 2000, 1999, 1998, & 1997 the ratio of expenses to average net
assets would have been 1.44%, 1.37%, 1.39%, & 1.69% and the ratio of
net investment income to average net assets would have been 0.55%,
0.32%, 0.57%, & 0.23% for each of these years.
NAIC Growth Fund, Inc.
Portfolio of Investments - June 30, 2002 (unaudited)
% Common Stock Shares Cost Market
2.3 Auto Replacement
O'Reilly Auto* 20,000 $242,606 $551,200
9.8 Banking
Citigroup 15,000 57,417 581,250
Comerica, Inc. 7,000 257,470 429,800
Bank One Corp. 7,000 212,495 269,360
Huntington Banc. 24,200 221,906 469,965
Synovus Financial 22,000 196,008 605,440
2.0 Building Products
Johnson Controls 6,000 96,895 489,660
5.2 Chemicals
OM Group, Inc. 10,000 344,650 620,000
Polyone Corp. 10,000 88,000 112,500
RPM 18,000 190,250 274,500
Sigma Aldrich 5,000 94,938 250,750
3.0 Consumer Products
Colgate-Palmolive 8,000 98,500 400,400
Newell Rubbermaid 9,000 237,375 315,540
5.9 Electrical Equipment
Federal Signal 12,000 280,562 288,000
General Electric 20,000 324,991 581,000
Vishay Interch* 25,000 245,379 550,000
1.5 Electronics
Diebold 10,000 269,187 372,400
8.8 Ethical Drugs
Bristol-Myers Squibb 6,000 101,400 154,200
Eli Lilly 6,000 91,687 338,400
Johnson & Johnson 4,000 45,500 209,040
Merck & Co., Inc. 10,000 379,816 506,400
Pfizer, Inc. 18,000 283,820 630,000
Wyeth 6,000 90,510 307,200
4.4 Financial Services
Household Int'l 14,000 127,866 695,800
State Street Boston 8,000 75,500 357,600
6.2 Food
Albertson's 7,000 235,331 213,220
ConAgra 14,000 254,915 387,100
Heinz, H.J. 10,000 343,075 411,000
McCormick & Co. 20,000 223,975 515,000
6.3 Hospital Supplies
Biomet Corp. 15,750 122,250 427,140
Invacare 10,000 245,375 370,000
Stryker Corp. 14,000 160,063 749,140
1.7 Industrial Services
Donaldson Co. 12,000 162,563 420,480
4.8 Insurance
AFLAC, Inc. 20,000 143,906 640,000
American int'l Group 8,000 67,500 545,840
2.2 Machinery
Emerson Electric Co. 10,000 335,278 535,100
5.2 Multi Industry
Carlisle 8,000 318,631 359,840
Pentair 7,000 171,894 336,560
Teleflex 10,000 277,938 571,500
1.4 Office Equipment
Hon Industries 12,000 283,938 326,640
1.9 Realty Trust
First Industrial
Realty Trust 14,000 394,963 459,900
1.0 Semiconductor
Intel 12,000 228,563 219,240
2.4 Soft Drinks
PepsiCo 12,000 205,374 578.400
2.9 Transportation
Sysco Corp. 20,000 142,750 544,400
78.9% Investment
Securities $8,973,010 $18,970,905
Short-term Investments
16.6 United States Treasury Bill,
Maturing 7/25/02 $3,993,993
4.7 Misc. Cash Equivalents 1,130,254
21.3% $5,124,247
Total Investments $24,095,152
(0.2%) All other assets less liabilities (47,601)
100% TOTAL NET ASSETS $24,047,551
* Non-Income Producing Security
Top Ten Holdings - NAIC Growth Fund, 6/30/02
Market % of
Company Value Portfolio Investments
Stryker $749,140 3.9
Household Int'l 695,800 3.7
AFLAC 640,000 3.4
Pfizer 630,000 3.3
OM Group 620,000 3.3
Synovus Financial 605,440 3.2
Citigroup 581,250 3.1
General Electric 581,000 3.1
PepsiCo 578,400 3.0
Teleflex 571,500 3.0
See notes to financial statements
NAIC Growth Fund, Inc.
Notes to Financial Statements (unaudited)
(1) ORGANIZATION
The NAIC Growth Fund, Inc. (the "Fund") was organized under
Maryland law on April 11, 1989 as a diversified closed-end investment
company under the Investment Company Act of 1940. The Fund
commenced operations on July 2, 1990.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies
followed by the Fund not otherwise set forth in the notes to financial
statements:
Dividends and Distributions - Dividends from the Fund's net investment
income and realized net long- and short-term capital gains will be
declared and distributed at least annually. Shareowners may elect to
participate in the Dividend Reinvestment and Cash Purchase Plan (see
Note 4).
Investments - Investments in equity securities are stated at market value,
which is determined based on quoted market prices or dealer quotes.
Pursuant to Rule 2a-7 of the Investment Company Act of 1940, the
Fund utilizes the amortized cost method to determine the carrying value
of short-term debt obligations. Under this method, investment securities
are valued for both financial reporting and Federal tax purposes at
amortized cost, which approximates fair value. Any discount or
premium is amortized from the date of acquisition to maturity.
Investment security purchases and sales are accounted for on a trade date
basis. Interest income is accrued on a daily basis while dividends are
included in income on the ex-dividend date.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles in the united states
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.
Federal Income Taxes - The Fund intends to comply with the general
qualification requirements of the Internal Revenue Code applicable to
regulated investment companies. The Fund intends to distribute at least
90% of its taxable income, including net long-term capital gains, to its
shareowners. In order to avoid imposition of the excise tax applicable to
regulated investment companies, it is also the Fund's intention to declare
as dividends in each calendar year at least 98% of its net investment
income and 98% of its net realized capital gains plus undistributed
amounts from prior years.
The following information is based upon Federal income tax cost of
portfolio investments as of June 30, 2002:
Gross unrealized appreciation $ 10,029,329
Gross unrealized depreciation (31,434)
Net unrealized appreciation $ 9,997,895
Federal income tax cost $ 8,973,010
Expenses -The Fund's service contractors bear all expenses in
connection with the performance of their services. The Fund bears all
expenses incurred in connection with its operations including, but not
limited to, management fees (as discussed in Note 3), legal and audit
fees, taxes, insurance, shareowner reporting and other related costs.
Such expenses will be charged to expense daily as a percentage of net
assets. The Advisory Agreement provides that the Fund may not incur
annual aggregate expenses in excess of two percent (2%) of the first Ten
Million Dollars of the Fund's average net assets, one and one-half
percent (1 1/2%) of the next Twenty Million Dollars of the average net
assets, and one percent (1%) of the remaining average net assets for any
fiscal year. Any excess expenses shall be the responsibility of the
Investment Adviser, and the pro rata portion of the estimated annual
excess expenses will be offset against the Investment Adviser's monthly
fee. A director of the Fund provides professional services to the fund.
The fees for those services amounted to $4,000 for the six months ended
June 30, 2002.
(3) MANAGEMENT ARRANGEMENTS
Investment Adviser - Growth Fund Advisor, Inc., serves as the Fund's
Investment Adviser subject to the Investment Advisory Agreement, and
is responsible for the management of the Fund's portfolio, subject to
review by the board of directors of the Fund.
For the services provided under the Investment Advisory Agreement, the
Investment Adviser receives a monthly fee at an annual rate of three-
quarters of one percent (0.75%) of the average weekly net asset value of
the Fund, during the times when the average weekly net asset value is at
least $3,800,000. The Investment Adviser will not be entitled to any
compensation for a week in which the average weekly net asset value
falls below $3,800,000.
Plan Agent - Standard Federal Bank (SFB) serves as the Fund's
custodian pursuant to the Custodian Agreement. As the Fund's
custodian, SFB receives fees and compensation of expenses for services
provided including, but not limited to, an annual account charge, annual
security fee, security transaction fee and statement of inventory fee.
American Stock Transfer & Trust Company serves as the Fund's
transfer agent and dividend
disbursing agent pursuant to Transfer Agency and Dividend
Disbursement Agreements. Ameriican Stock Transfer & Trust
Company receives fees for services provided including, but not limited
to, account maintenance fees, activity and transaction processing fees
and reimbursement of out-of-pocket expenses such as forms and mailing
costs.
(4) DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Fund has a Dividend Reinvestment and Cash Purchase Plan (the
"Plan") which allows shareowners to reinvest dividends paid and make
additional contributions. Under the Plan, if on the valuation date the net
asset value per share is lower than the market price at the close of
trading on that day, then the Plan Agent will elect on behalf of the
shareowners who are participants of the Plan to take the dividends in
newly issued shares of the Fund's common stock. If net asset value
exceeds the market price on the valuation date, the Plan Agent will elect
to receive cash dividends, and will promptly buy shares of the Fund's
common stock on whatever market is consistent with best price and
execution. The number of shares credited to each shareowner
participant's account will be based upon the average purchase price for
all shares purchased.
(5) DISTRIBUTIONS TO SHAREOWNERS
No distributions were made this year to date. The tax character of
distributions paid during 2001 and 2000 was as follows:
Distributions paid from: 2001 2000
Ordinary income $80,695 $186,201
Long-term capital gain 1,370,543 2,875,672
1,451,238 3,061,873
As of June 30, 2002, the components of distributable earnings on a tax
basis were as
follows:
Undistributed ordinary income $19,751
Unrealized appreciation 9,997,895
(6) Investment transactions
Purchases and sales of securities, other than short-term securities for the
period ended June 30, 2002, were $1,187,677 and $2,226,603,
respectively.
(7) FINANCIAL HIGHLIGHTS
The Financial Highlights present a per share analysis of how the Fund's
net asset value has changed during the years presented. Additional
quantitative measures expressed in ratio form analyze important
relationships between certain items presented in the financial statements.
The Total Investment Return based on market value
assumes that shareowners bought into the Fund at the bid price and sold
out of the Fund at the bid price. In reality, shareowners buy into the
Fund at the ask price and sell out of the Fund at the bid price. Therefore,
actual returns may differ from the amounts stated.
2002 ANNUAL MEETING
The 2002 annual meeting of shareholders was held on April 18, 2002 for
the following
purposes:
1. To elect a Board of nine (9) Directors;
2. To ratify or reject the selection of Arthur Andersen LLP as
independent auditors of the Fund for the calendar year ending
December 31, 2002.
The following Directors were elected for Proposal 1: Thomas O'Hara,
Kenneth Janke, Lewis Rockwell, Carl Holth, Peggy Schmeltz,
Cynthia Charles, Benedict Smith, James Lane, and Luke Sims.
Cynthia Charles resigned from the Board of Directors,
effective April 18, 2002 due to medical reasons. For Proposal 2,
shareholders ratified the selection of Arthur Andersen LLP as
independent accountants of the Fund.
Tabulation Report
For Against Abstain Withheld
Proposal 1 - Election of
Directors
Thomas O'Hara 1,954,208 49,257
Kenneth Janke 1,961,438 42,027
Lewis Rockwell 1,951,638 51,825
Carl Holth 1,961,242 42,223
Peggy Schmeltz 1,957,113 46,352
Cynthia Charles 1,948,645 54,818
Benedict Smith 1,949,170 54,295
James Lane 1,959,651 43,814
Luke Sims 1,975,451 28,012
Proposal 2 - Selection of
Arthur Andersen LLP 1,428,424 496,983 78,062
Total shares issued and
outstanding on record date: 2,238,776
CHANGE IN ACCOUNTANTS
At a meeting held on May 9, 2002, the Board of Directors of NAIC
Growth Fund, Inc., at the recommendation of its Audit Committee,
approved the engagement of Plante & Moran, LLP as its independent
auditors for the fiscal year ending December 31, 2002 to replace the firm
of Arthur Andersen LLP ("Andersen"), who were dismissed as the
independent auditors of the Fund effective May 9, 2002.
The reports of Andersen on the Fund's financial statements for the past
two years did not contain an adverse opinion or a disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope, or
accounting principles.
In connection with the audits of the Fund's financial statements for the
fiscal years ended December 31, 2001 and 2000 and in the subsequent
interim period, there were no disagreements with Andersen on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which, if not resolved to the
satisfaction of Andersen, would have caused it to make a reference to the
matter in its report. In addition, there were no reportable events as
definedin Item 304(a)(1)(v) of Regulation S-K.
The Fund has requested Andersen to furnish it a letter addressed to the
Securities and Exchange Commission stating whether it agrees with the
above statements. Andersen has informed the Fund that it is no longer
furnishing such letters.
The Fund has not had any discussions nor received any written opinion
or oral advice from Plante & Moran, LLP during the two most recent
fiscal years and in the subsequent interim period with respect to either
the application of accounting principles to a specified transaction, either
completed or proposed, or as to the type of audit opinion that might be
rendered on the Fund's financial statements.
NAIC Growth Fund, Inc.
Board of Directors
Thomas E. O'Hara
Chairman,
Highland Beach, FL
Lewis A. Rockwell
Secretary,
Grosse Pointe Shores, MI
Carl A. Holth
Director,
Clinton Twp., MI
Kenneth S. Janke
President,
Bloomfield Hills, MI
Benedict J. Smith
Director,
Birmingham, MI
James M. Lane
Director,
Highland Beach, FL
Peggy L. Schmeltz
Director,
Bowling Green, OH
Luke E. Sims
Director,
Milwaukee, WI
Shareowner Information
The ticker symbol for the NAIC Growth Fund, Inc., on the Chicago
Stock Exchange is GRF. You may wish to visit the Chicago Stock
Exchange web site at www.chicagostockex.com.
The dividend reinvestment plan allows shareowners to automatically
reinvest dividends in Fund common stock without paying commissions.
Once enrolled, you can make additional stock purchases through
monthly cash deposits ranging from $50 to $1,000. For more
information, request a copy of the Dividend Reinvestment Service for
Stockholders of NAIC Growth Fund, Inc., from American Stock
Transfer & Trust Company, P.O. Box 922 Wall Street Station, New
York, NY 10038, telephone 1-800-937-5449.
Questions about dividend checks, statements, account consolidation,
address changes, stock certificates or transfer procedures write American
Stock Transfer & Trust Company, P.O. Box 922 Wall Street Station,
New York, NY 10038, telephone 1-800-937-5449.
Shareowners or individuals wanting general information or having
questions, write NAIC Growth Fund, Inc., P.O. Box 220, Royal Oak,
Michigan 48068. Telephone 877-275-6242 or visit us at our website at
www.naicgrowthfund.com.