PROSPECTUS
[LOGO]
NAIC GROWTH FUND, INC.
5,000,000 Shares Common Stock
Par value $0.001 per Share
NAIC Growth Fund, Inc. is a diversified, closed-end
investment company. The Fund's investment objective is long-term
growth. The Fund utilizes the concept of "total return" for selecting
investments. "Total return" means the total of all income derived from,
and the capital appreciation value of, a particular investment. The Fund
tries to achieve total return by investing in those equity securities with
growth potential and that also may be expected to increase cash dividends
on a regular basis. While the Fund does not attempt to purchase equity
securities that have a high yield, relative to the popular stock averages, a
record of increased cash dividends is one of the factors taken into
consideration when selecting equity securities for the Fund's portfolio. The
Fund seeks to achieve its investment objective by investing in a diversified
portfolio of equity securities. The Fund's investments are selected by the
Fund's investment adviser, Growth Fund Advisor, Inc., an indirect
subsidiary of the National Association of Investment Clubs Trust.
The address of the Fund is 711 West Thirteen Mile
Road, Madison Heights, Michigan 48071, and its telephone number is
(877) 275-6242, ext. 331.
This prospectus relates to 5,000,000 shares of the Fund's
common stock, par value $0.001, which are being offered on a "best
efforts" basis by Broker Dealer Financial Services Corp. and, in BDFSC's
sole discretion, by other broker-dealers that enter into selected dealer
agreements with BDFSC. See "Underwriting." The Fund will sell shares
each week to investors at a price equal to the Fund's current net asset value
per share, which will fluctuate during this continuous offering and
generally will be determined as of the close of business each Thursday,
plus the applicable sales charge set forth below payable from the
subscription payments. The sales price will be determined by the
following formula: net asset value divided by (1 minus the applicable sales
charge), rounded to the nearest penny. Subscription payments will be
released from escrow by the Fund weekly in this manner upon acceptance
of subscriptions and determination of the Fund's current net asset value.
Subscriptions are irrevocable by the investor once received by the Fund.
There will be a sales charge payable by investors to BDFSC for any shares
sold pursuant to this prospectus, as follows:
- 3.5% of the gross sales price per share sold before any
broker-dealer enters into a selected dealer
agreement with BDFSC; and
- 5% of the gross sales price per share sold after any
broker-dealer enters into a selected dealer
agreement with BDFSC.
[LOGO] Broker Dealer Financial Services Corp.
Cover continued on next page
All offering expenses other than sales charges will be paid directly by the
Fund. The minimum investment (inclusive of sales charges) in this
offering by any investor is $500. There is no minimum number of shares
that must be sold in the offering. The offering will continue until all of the
shares are sold or until either the Fund or BDFSC terminates the offering
on 30 days' notice to the other party.
Price to Public(1) Sales Charge(1)(2) Proceeds to
Registrant(1)(3)
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Per Share $9.53 $0.48 $9.05
Total Maximum $47,650,000 $2,400,000 $45,250,000
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(1) Estimated based on the net asset value per share of $9.05 on April 17,
2003.
(2) Estimated based on the maximum sales charge of 5% per share.
The sales charge will be 3.5% of the gross sales price per share sold before
any broker-dealer enters into a selected dealer agreement with BDFSC;
and 5% of the gross sales price per share sold after any broker-dealer
enters into a selected dealer agreement with BDFSC.
(3) The Fund estimates that the total offering expenses payable by the
Fund, assuming that the offering continues for a period of two years, are
$167,081.
The Fund's common stock is listed on the Chicago Stock
Exchange under the market symbol "GRF."
An investment in the Fund involves risks. You should
consider the information under "Risk Factors" beginning on page 5 before
deciding whether to purchase the shares.
The Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
This prospectus sets forth important information about
the Fund that you ought to know before making a further investment.
Please read this prospectus carefully and retain it for future reference.
A Statement of Additional Information containing additional information
about the Fund has been filed with the Securities and Exchange
Commission. The Statement of Additional Information is dated July 9,
2003 and is incorporated by reference in this prospectus, see "Statement of
Additional Information", page 23. A copy of the Statement of Additional
Information dated July 9, 2003 is attached to this prospectus. You may
obtain a copy of an updated Statement of Additional Information, as
applicable, without charge on written or oral request to NAIC Growth
Fund, Inc., 711 West Thirteen Mile Road, Madison Heights, Michigan
48071, attention Statement of Additional Information, telephone (877)
275-6242, extension 331, or from the SEC's website at www.sec.gov. The
table of contents of the Statement of Additional Information appears on
page 23 of this prospectus.
The date of this prospectus is:
July 9, 2003
[COVER]
NAIC Growth Fund
Subscription Agreement
Enclosed
We have not authorized any dealer, salesman or other person to give any
information or to make any representation other than those contained in
this prospectus. You must not rely upon any information or representation
not contained in this prospectus as if we had authorized it. This prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
security other than the registered securities to which it relates, nor does
it constitute an offer to sell or a solicitation of an offer to buy any
securities in any jurisdiction to any person to whom it is unlawful to make
such an offer or solicitation in such jurisdiction. The information contained
in this prospectus is accurate as of the date on its cover.
TABLE OF CONTENTS
Page
Fund Expenses 1
Prospectus Summary 2
Financial Highlights 4
Risk Factors 5
The Fund 9
Investment Objective and Policies 10
The Investment Adviser 10
Use of Proceeds 13
Distribution Policy 13
Dividend Reinvestment and Cash Purchase Plan 14
Taxation 16
Description of Shares 16
Determination of Net Asset Value 18
How to Invest 19
Underwriting 19
Legal Matters 21
Reports to Shareholders 21
Independent Public Accountants 21
Financial Statements 21
Important Notice Concerning Arthur Andersen LLP 22
Statement of Additional Information 23
Further Information 23
-i-
FUND EXPENSES
The following table illustrates all expenses and fees that
you will incur as a shareholder of the Fund.
Shareholder Transaction Expenses
Sales Load (as a percentage of offering price)(1)
3.5% or 5.0%
Dividend Reinvestment and Cash Purchase Plan Fees (2)
0.0%
Annual Expenses (as a percentage of net assets attributable to common
shares)
Management Fees 0.75%
Other Expenses (3) 0.86%
Total Annual Expenses 1.61%
(1) BDFSC will be paid commissions at a rate of 3.5% of the gross sales
price per share sold until BDFSC uses any selected dealers. If BDFSC
uses any selected dealer, then the commission rate will increase to 5% of
the gross sales price per share for the duration of the offering. All other
offering expenses will be paid by the Fund.
(2) You will pay no special fees or charges if you choose to participate in
the Dividend Reinvestment and Cash Purchase Plan other than reasonable
transaction fees and a termination fee of $15 plus 10 cents per share. For
purposes of this table, brokerage commissions are not included as
Dividend Reinvestment and Cash Purchase Plan fees.
(3) "Other Expenses" are based on estimated amounts for the current
fiscal year.
The purpose of the foregoing table is to assist you in
understanding the various costs and expenses associated with investing in
the Fund. For a more complete description of the Dividend Reinvestment
and Cash Purchase Plan fees and the management fees, see "Dividend
Reinvestment and Cash Purchase Plan" and "The Investment Adviser,"
respectively.
Example 1 Year 3 Years 5 Years 10 Years
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You would pay the
following expenses on a $17 $52 $90 $197
$1,000 investment,
assuming a 5% return:
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This example should not be considered a representation
of future expenses or performance. Actual expenses may be greater or less
than those shown. Federal securities regulations require the example to
assume an annual return of 5%, but the Fund's actual return may be more
or less than 5%; the assumed 5% annual return is not a prediction of, and
does not represent, the projected or actual performance of the Fund's
shares. For purposes of this example, it has been assumed that the rates
listed above under "Annual Expenses" remain the same each year, and that
all dividends and distributions have been reinvested at net asset value.
-1-
PROSPECTUS SUMMARY
The following is a summary and does not contain all the
information that may be important to you. You should read the entire
prospectus before deciding to invest.
The Fund and Its Investment Objective
The Fund is a diversified closed-end investment
company. Its shares are traded on the Chicago Stock Exchange under the
symbol "GRF." The Fund's investment objective is long-term growth.
The Fund utilizes the concept of "total return" for selecting investments.
"Total return" means the total of all income derived from, and the capital
appreciation in value of, a particular investment. The Fund tries to achieve
total return by investing in those equity securities with growth potential
and that also may be expected to increase cash dividends on a regular
basis.
Principal Investment Strategies
The Fund seeks to achieve its investment objective
primarily through investment in a portfolio of equity securities that is
diversified, both by industry and company size. The Fund typically invests
in securities of "growth companies" that have price/earnings and
debt/equity ratios that are equal to or lower than the average of companies
in the same industry. Other important factors are the price of the stock in
relation to the underlying assets of the company and the growth potential
of the company. The Fund invests in securities according to the perceived
potential, whether those securities have large or small market
capitalization. The majority of holdings are in large market capitalization
stocks, but the Fund tries to have a balance in large, medium and small
companies (as measured by sales or revenues). Foreign securities may be
purchased, but special attention is given to the risks associated with such
securities. The Fund seeks to achieve long-term growth in value, with
little regard to short-term market fluctuations. In addition, the Fund
invests in companies that the Investment Adviser determines possess
"special situation" characteristics. In general, a company possesses
"special situation" characteristics if its securities are expected to
appreciate solely by reason of a development particularly or uniquely
applicable to that company. There can be no assurance that the Fund
can continue to meet its investment objectives.
The Offering
The Fund's authorized capital stock consists of
50,000,000 shares of common stock, $0.001 par value. As of March 31,
2003, the Fund had 2,344,602 shares of common stock outstanding. The
Fund is offering 5,000,000 shares of its common stock to investors on a
continuous "best efforts" basis through Broker Dealer Financial Services
Corp. ("BDFSC") and, in BDFSC's sole discretion, by other selected
broker-dealers. See "Underwriting." The Fund will sell shares each week
to investors at a price equal to the Fund's current net asset value per share,
which generally will be determined as of the close of business each
Thursday, plus the applicable sales charge. The sales price will be
determined by the following formula: net asset value divided by (1 minus
the applicable sales charge), rounded to the nearest penny. Subscription
payments will be deposited into an escrow account and used by the Fund
each week to purchase shares upon acceptance of subscriptions,
determination of the Fund's net asset value and receipt of collected funds
for the subscription. Subscriptions are irrevocable by the subscriber once
received by the Fund. The Fund's net asset value per share as of April 17,
2003, was $9.05. The minimum investment (inclusive of sales charges) by
an investor in the this offering is $500. There is no minimum number of
shares that must be sold in the offering. All costs of the offering, other
than sales commissions to BDFSC, will be paid directly by the Fund.
Unless otherwise directed by the investor, shares purchased by each
investor will be held by the Fund's transfer agent in noncertificated form
in the name of the investor.
Investment Adviser
The Fund's investment adviser is Growth Fund Advisor,
Inc., a Michigan corporation ("Investment Adviser"). Its parent
organization, National Association of Investment Clubs Trust, has been
engaged in providing
-2-
investment education and advisory services since
1951. The Fund's initial investment adviser was National Association of
Investors Corporation ("NAIC"), an affiliate of the Investment Adviser. As
part of a corporate reorganization, the Trust formed the Investment
Adviser, which succeeded NAIC as investment adviser to the Fund in
1999. The Investment Adviser follows the following four investment
principles developed by NAIC:
- Invest regularly
- Reinvest earnings
- Invest in "growth"
- Diversify
Advisory Fee
Under the Advisory Agreement, the Fund pays the
Investment Adviser an annual fee equal to 0.75% of the Fund's average
weekly net asset value. The Fund's predecessor investment adviser,
NAIC, waived the entire fee from the Fund's inception in 1990 through
1997. NAIC and the Investment Adviser, as applicable, collected 25% of
the fee in 1998, 50% of the fee in 1999, and 75% of the fee in 2000. The
Investment Adviser did not waive any of its fee during 2001 and 2002 and
has advised the Fund it does not intend to waive any fees in the future.
Risk Factors
An investment in the Fund involves certain risks,
including:
- Investing for long-term appreciation with little
regard to short-term market fluctuations. Price
fluctuations over the short term can have an
effect on the Fund's net asset value; stocks may
have significant fluctuations in price.
- Investing in "growth companies" that may be
more subject to business operating risks,
economic conditions or market trends and
volatility than other companies.
- Investing in "special situation" companies that
are expected to have developments (e.g., a
possible takeover, new product, etc.) uniquely
applicable to that company. If the anticipated
development does not occur, shares of "special
situation" companies may not appreciate in
value or may decrease in value.
- Reliance on key personnel of the Investment
Adviser.
- Characteristics of closed-end investment
companies, like the Fund, such as the shares trading
at a discount to the Fund's net asset value and
fluctuations in the market price of the Fund's shares.
- Securities of small and medium sized
companies may involve greater risk than investing in
larger companies.
- Foreign investments may be subject to
heightened political and economic risks, particularly in
countries with unstable governments, immature
economic structures, different legal systems,
economies based on few industries, and
national policies restricting investments by foreigners.
Distribution Policy
The Fund distributes to shareholders at least annually
substantially all net long-term and short-term capital gains, dividends and
other income of the Fund, after payment of Fund expenses.
Dividend Reinvestment and Cash Purchase Plan
You may elect to have all dividends and distributions
which accrue to you as a shareholder in the Fund automatically reinvested
pursuant to the Fund's Dividend Reinvestment and Cash Purchase Plan.
Depending upon market price per share compared to the then current net
asset value per share of the Fund, the Plan Agent will either (a) receive
shares from the Fund or (b) purchase shares on the open market on behalf
of the participants in the Plan. If you elect to participate in the Dividend
Reinvestment and Cash Purchase Plan, you may also elect to make
additional cash payments for investment by the Plan Agent in additional
Fund shares.
-3-
FINANCIAL HIGHLIGHTS(A)
The financial highlights present a per share analysis of
how the Fund's net asset value has changed during the periods presented.
You should read this information in conjunction with the Fund's audited
financial statements and notes incorporated by reference in the Statement
of Additional Information. The financial highlights for each of the years
ended December 31, 1993 through 2001 were derived from the Fund's
audited financial statements that have been audited by Arthur Andersen
LLP, independent certified public accountants. Plante & Moran, PLLC
replaced Arthur Andersen LLP as the Fund's independent certified public
accountants effective May 9, 2002. The financial highlights for the year
ended December 31, 2002 were derived from the Fund's audited financial
statements that have been audited by Plante & Moran, PLLC.
Year Ended December 31,
2002 2001 2000 1999 1998 1997 1996 1995 1994 1993
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NET ASSET VALUE
AT BEGINNING OF
PERIOD
$11.08 $11.96 $11.22 $10.86 $9.56 $7.89 $6.61 $5.00 $4.89 $4.71
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NET INVESTMENT
INCOME
..02 .04 .09 .08 .12 .09 .09 .07 .04 .03
NET REALIZED AND
UNREALIZED GAIN
ON INVESTMENTS
(1.48) (.25) 2.18 .76 1.68 1.99 1.52 1.66 .11 .19
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TOTAL FROM
INVESTMENT
OPERATIONS
(1.46) (.21) 2.27 .84 1.80 2.08 1.61 1.73 .15 .22
DISTRIBUTIONS
FROM:
NET INVESTMENT
INCOME
(.02) (.04) (.09) (.09) (.11) (.09) (.09) (.07) (.04) (.03)
REALIZED GAINS
(.52) (.63) (1.44) (.39) (.39) (.32) (.24) (.05) 0 (.01)
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TOTAL DISTRIBUTIONS
(.54) (.67) (1.53) (.48) (.50) (.41) (.33) (.12) (.04) (.04)
NET ASSET VALUE
AT END OF
PERIOD
$9.08 $11.08 $11.96 $11.22 $10.86 $9.56 $7.89 $6.61 $5.00 $4.89
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PER SHARE MARKET
VALUE, END OF
PERIOD
(LAST TRADE PRICE)(B)
$9.95 $10.75 $10.50 $10.00 $10.25 $14.50 $ 9.44 $6.88 $4.69 $4.75
TOTAL INVESTMENT
RETURN:
BASED ON MARKET VALUE
1 YEAR
2.10% 3.70% 30.90% 2.85% (25.42%) 58.50% 42.94% 49.70% (0.54%) 0.83%
FROM INCEPTION
10.86% 11.66% 12.57% 10.28% 11.30% 17.84% 12.59% 7.85% 0.27% 0.50%
BASED ON NET ASSET
VALUE
1 YEAR
(13.81%)(1.59%) 27.27% 7.75% 18.84% 26.43% 24.46% 34.60% 3.12% 4.65%
FROM INCEPTION
10.06% 12.42% 13.81% 13.15% 13.79% 13.69% 11.92% 9.78% 4.92% 5.45%
NET ASSETS, END OF
PERIOD (000's)
2002 $20,555.3
2001 $23,909.2
2000 $23,927.8
1999 $22,351.7
1998 $20,701.2
1997 $17,335.3
1996 $13,487.8
1995 $10,989.1
1994 $8,316.6
1993 $8,081.8
(A) All per share data for 2000, 1999, 1998, 1997, 1996, 1995, 1994 and
1993 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, and a 100% stock dividend
which was declared on August 22, 1997 and paid October 1, 1997 to
shareholders of record on September 12, 1997.
-4-
Year Ended December 31,
2002 2001 2000 1999 1998 1997 1996 1995 1994 1993
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RATIOS TO AVERAGE NET ASSETS:
RATIO OF EXPENSES
TO AVERAGE NET
ASSETS (C)
1.61% 1.57% 1.25% 1.00% 0.83% 0.96% 0.96% 1.19% 1.81% 2.00%
RATIO OF NET
INVESTMENT
INCOME
TO AVERAGE NET
ASSETS (C)
0.17% 0.32% 0.74% 0.70% 1.13% 0.96% 1.10% 1.16% 0.77% 0.63%
PORTFOLIO
TURNOVER RATE
11.19% 1.77% 10.61% 4.20% 5.87% 6.31% 5.93% 6.90% 6.56% 0.62%
AVERAGE
COMMISSION RATE
PAID PER SHARE
$0.125 $0.125 $0.125 $0.125 $0.125 $0.125 $0.125 $0.125 $0.125 $0.125
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(B) If there was no sale on the valuation date, the bid price for each such
date is shown.
(C) For the years ended 2000, 1999, 1998, 1997, 1996, 1995, and 1994, the
Investment Adviser voluntarily waived all or a portion of its fees. Had the
Investment Adviser not done so in 2000, 1999, 1998, 1997, 1996, 1995,
and 1994 the ratio of expenses to average net assets would have been
1.44%, 1.37%, 1.39%, 1.69%, 1.68%, 1.94%, and 2.00% and the ratio of
net investment income to average net assets would have been 0.55%,
0.32%, 0.57%, 0.23%, 0.38%, 0.41%, and 0.58% for each of these years.
RISK FACTORS
The following summarizes certain risks that you should
consider before deciding whether to invest in the Fund.
General Considerations
You should understand that all investments have risks.
Therefore, the Fund cannot guarantee you will not realize losses from
investing in the Fund. In addition, the Fund cannot give you any assurance
that the Fund's investment policy will be successful or that the Fund will
attain its investment objectives. The Fund is not intended to serve as a
complete investment program for an investor.
-5-
Long-Term Perspective
The Fund emphasizes investing in equity securities for
long-term capital appreciation as measured by "total return," with little
regard to short-term market fluctuations. The Fund tries to achieve total
return by investing in those equity securities with growth potential and that
also may be expected to increase cash dividends on a regular basis. While
the Fund does not attempt to purchase equity securities that have a high
yield, relative to the popular stock averages, a record of increased cash
dividends is one of the factors taken into consideration when selecting
equity securities for the Fund's portfolio. The Fund is intended for
investors who understand and are willing to accept the risks of seeking
long-term appreciation.
Investment in Growth Companies
Most of the companies in which the Fund invests are
"growth companies." A "growth company" is a company that has
exhibited faster-than-average gains in earnings over the last few years and
is expected to continue to show high levels of profitable growth. The
stocks of growth companies may involve more risk. For example, growth
companies may have limited product lines, markets or financial resources
and may lack management depth. In addition, stocks of such companies
may have limited marketability and may be subject to more abrupt or
erratic changes in stock price than securities of larger, more established
companies or than overall market averages in general.
Investment in Special Situation Companies
The Fund may also invest in companies that are
determined by the Investment Adviser to possess "special situation"
characteristics by reason of developments uniquely applicable to that
company, such as possible takeovers, new product announcements, etc. If
the anticipated development does not occur, shares of "special situation"
companies may not appreciate in value or may decrease in value.
Investment in Small and Medium Sized Companies
Investing in securities of small and medium sized
companies may involve greater volatility than investing in larger and more
established companies because they can be subject to more abrupt or
erratic share price changes than larger, more established companies. Small
companies may have limited product lines, markets or financial resources
and their management may be dependent on a limited number of key
individuals. Securities of these companies may have limited market
liquidity and their prices may be more volatile.
Investment in Foreign Companies
Investments in securities of foreign companies involve
certain inherent risks. Foreign investments may be subject to heightened
political and economic risks, particularly in countries with unstable
governments, immature economic structures, different legal systems,
economies based on few industries, and national policies restricting
investments by foreigners. There is also the risk of unpredictable
government confiscation of company assets and/or other controls.
Further, foreign issuers may not be subject to the same uniform
accounting, auditing, or financial reporting standards. The Fund's
investments in companies located in particular foreign countries could be
adversely affected by changes in the value of that country's currency.
-6-
Reliance on Key Personnel
Kenneth S. Janke is primarily responsible for the
investment decisions made by the Investment Adviser on behalf of the
Fund. Mr. Janke was also responsible, together with Thomas E. O'Hara,
for the investment decisions made on behalf of the Fund by the Investment
Adviser's predecessor, NAIC. Accordingly, Mr. Janke has been
responsible in whole or in part for the investment decisions made on behalf
of the Fund since the Fund's inception. Mr. Janke is a Director and
Chairman and Chief Executive Officer of the Adviser. Mr. Janke's
principal occupation during the past five years has been President (to
February, 2002), Chairman and Chief Executive Officer (from February,
2002 to July, 2002), and Chairman (from July, 2002) of NAIC. There can
be no assurance that a replacement can be found for Mr. Janke in the event
he severs his employment relationship with the Investment Adviser or is
unable to fulfill his role due to death or disability. There is no written
employment contract between Mr. Janke and the Investment Adviser. Mr.
Janke is 68 years old.
Offering Price
The shares will be sold in the offering at a price equal to
the Fund's net asset value per share as of the applicable determination date
(usually, the close of business on the Thursday immediately prior to the
sale in the offering), plus the applicable sales charge. The sales price will
be determined by the following formula: net asset value divided by (1
minus the applicable sales charge), rounded to the nearest penny. Because
the market value of the shares is likely to be different than the net asset
value per share at any given time, the purchase price of shares in the
offering may be more or less than the prevailing market price of the shares
at the time of the sale. Because shares of closed-end funds frequently trade
at market prices less than the net asset value per share, it is likely that the
offering price per share will be greater than the market price per share at
any given time.
Investment Company Shares
As with any security, shares of the Fund may increase or
decrease in value from time to time, and these changes may or may not be
related to changes in the value of the securities held by the Fund (as
reflected in its net asset value). In addition, shares of closed-end
investment companies like the Fund frequently trade at a discount from net
asset value. The possibility that shares of the Fund will trade at a discount
to net asset value is a risk which is separate from the risk that the Fund's
net asset value will decrease. The Fund cannot predict whether its shares
will trade in the future at a premium to or a discount from net asset value
or the level of any premium or discount.
Secondary Market for Fund's Shares
The issuance of shares in the offering may have an
adverse effect on the secondary market for the Fund's shares. The increase
in outstanding shares resulting from the offering may put downward
pressure on the market price for the shares of the Fund. The Fund also
issues shares through its Dividend Reinvestment and Cash Purchase Plan.
See "Dividend Reinvestment and Cash Purchase Plan." Shares may be
issued under the Dividend Reinvestment and Cash Purchase Plan at a
discount to the market price for the shares, which may also put downward
pressure on the market price for shares of the Fund.
-7-
Repurchase of Shares by the Fund
You will not have the right to have the Fund redeem
your shares. However, the Fund is authorized to repurchase shares when
they are trading at a discount of 10% or more below net asset value. If the
Fund decides to repurchase shares, it is permitted to borrow money to
finance these repurchases. Any such borrowing will exaggerate the effect
of an increase or decrease in the value of portfolio securities on the Fund's
net asset value. In addition, the Fund will be required to pay interest and
other costs (such as commitment fees or the cost of maintaining minimum
average balances) with respect to the borrowed funds, and these expenses
may exceed the benefit to the Fund from repurchasing its shares.
Anti-Takeover Provisions
Certain provisions of the Fund's Articles of
Incorporation and By-laws are designed to prevent a takeover of the Fund.
These provisions may have the effect of depriving shareholders of an
opportunity to sell their shares at a premium. See "Description of Shares."
Regulated Investment Company
The Fund has conducted and intends to continue to
conduct its operations so that it qualifies as a "regulated investment
company" for purposes of the Internal Revenue Code of 1986, as amended
(the "Code"). This relieves the Fund of any liability for federal income tax
to the extent that its earnings are distributed to its shareholders. If the
Fund fails at any time to qualify as a "regulated investment company," the
income of the Fund for that fiscal year will be taxed. This would result in a
decrease in income for distribution to shareholders of the Fund and a
reduction in the net asset value of the Fund.
-8-
THE FUND
The Fund is a diversified, closed-end investment
company. Its investment objective is long-term growth as measured by
"total return" on investment. "Total return" means the total of all income
derived from, and the capital appreciation in value of, a particular
investment over a particular period of time with particular emphasis on
capital appreciation. The Fund tries to achieve total return by investing in
those equity securities with growth potential and that also may be expected
to increase cash dividends on a regular basis. While the Fund does not
attempt to purchase equity securities that have a high yield, relative to the
popular stock averages, a record of increased cash dividends is one of the
factors taken into consideration when selecting equity securities for the
Fund's portfolio.
The Fund was incorporated under the laws of the State of
Maryland on April 11, 1989, and has registered under the Investment Company
Act of 1940, as amended (the "1940 Act"). The business of the Fund is
managed under the direction of its Board of Directors. The Fund's initial
offering of shares of Common Stock was completed on July 2, 1990 with
549,810 shares issued at a price of $10 per share. A 15% stock dividend
was declared on August 18, 2000 and paid on September 29, 2000 to
shareholders of record on September 18, 2000, and a 100% stock dividend
was declared on August 22, 1997 and paid October 1, 1997 to shareholders
of record on September 12, 1997. As of March 31, 2003, the Fund had
2,344,602 shares outstanding . The Fund has a total of 50,000,000
authorized shares of common stock.
The Fund is not a party to any material pending legal proceedings.
The Fund's common stock is listed on the Chicago Stock
Exchange (the "Exchange") under the symbol "GRF." The following table
shows, for the periods indicated, the Fund's (1) the high and low prices per
share on the Exchange, (2) net asset value per share on the date of the high
or low market price, and (3) the high and low premium (discount) to net
asset value per share on that day.
Price Per Share Applicable Net Premium/
Asset Value (Discount)
Per Share to NAV
----------------------------------------------------------------
Calendar
Quarters
Ended High Low High Low High Low
----------------------------------------------------------------
March 31, 2003 $11.00 $8.52 $9.02 $8.96 22.0% (4.9)%
December 31, 2002 11.00 8.70 9.10 9.45 20.9% (7.9)%
Sept. 30, 2002 10.85 8.70 10.39 9.50 4.4% (8.4)%
June 30, 2002 11.50 10.80 10.83 10.70 6.2% 0.9%
March 31, 2002 11.05 10.25 11.50 11.08 (3.9)% (7.5)%
December 31, 2001 11.05 10.25 11.50 10.97 (3.9)% (6.6)%
Sept. 30, 2001 12.25 10.50 11.65 10.97 5.2% (4.3)%
June 30, 2001 12.00 11.00 11.70 11.14 2.6% (1.3)%
March 31, 2001 11.63 10.75 11.69 10.59 (0.5)% 1.5%
December 31, 2000 12.25 10.75 13.18 12.42 (7.1)% (13.4)%
Sept. 30, 2000 11.52 10.65 13.37 13.04 (13.8)% (18.3)%
June 30, 2000 10.87 9.78 12.98 12.62 (16.3)% (22.5)%
March 31, 2000 10.16 8.80 11.11 11.03 (8.6)% (20.2)%
December 31, 1999 9.46 8.70 11.49 11.22 (17.7)% (22.5)%
Sept. 30, 1999 10.43 9.35 11.53 10.73 (9.5)% (12.9)%
June 30, 1999 10.22 9.35 11.44 11.35 (10.7)% (17.6)%
March 31, 1999 9.51 8.91 11.02 10.72 (13.7)% (16.9)%
----------------------------------------------------------------
-9-
On April 17, 2003, the net asset value per share was $9.05 and the high
sale price was $8.57, which represents a discount of 5.3% from the net
asset value. Like most closed-end investment companies, since the Fund's
inception its shares have generally traded on the market for an amount less
than their net asset value. The Fund cannot predict whether its shares will
trade in the future at a premium or discount to net asset value, and if so,
the level of such premium or discount.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is long-term
growth utilizing the concept of "total return" for selecting investments.
The Fund's investment objective may only be changed by the affirmative
vote of a majority of the Fund's outstanding common stock. The Fund
attempts to achieve its objective by investing primarily in a diversified
portfolio of equity securities. These securities may include common and
preferred stocks, securities convertible into common stocks, and securities
of "growth" companies and companies that possess "special situation"
characteristics. The Fund invests in securities according to the perceived
potential, whether those securities have large or small market
capitalization. The majority of holdings are in large market capitalization
stocks, but the Fund tries to have a balance in large, medium and small
companies (as measured by sales or revenues). Foreign securities may be
purchased, but special attention is given to the risks associated with such
securities. Accordingly, the Fund typically invests in the securities of
companies that have price/earnings and debt/equity ratios equal to or lower
than the average for companies in the same industry. Other important
factors the Investment Adviser takes into consideration are the price of the
stock in relation to the value of the underlying assets of the company. In
addition, the Fund does not generally invest in senior securities.
The Fund may not issue senior securities, purchase any
securities on margin or make short sales of securities, borrow money or
underwrite securities of other issuers, except under limited circumstances
permitted by the Fund's investment guidelines. For further information
concerning the Fund's investment guidelines, including the limitations on
and exceptions to such guidelines, see the information under the caption
"Investment Guidelines" in the Statement of Additional Information.
THE INVESTMENT ADVISER
Background
The Fund's investment adviser is Growth Fund Advisor,
Inc. (the "Investment Adviser"), a Michigan corporation that is registered
with the Securities and Exchange Commission under the Investment
Advisers Act of 1940. The Investment Adviser provides the Fund with
investment advisory services and, subject to the authority of the Board of
Directors of the Fund, is responsible for the overall management of the
Fund. The Fund is the Investment Adviser's only advisory client.
The Investment Adviser assumed the role of providing
investment advisory services to the Fund on September 1, 1999 from the
Fund's former investment adviser, National Association of Investors
Corporation ("NAIC"), a Michigan nonprofit corporation. The Investment
Adviser is an indirect wholly owned subsidiary of the National Association
of Investment Clubs Trust (the "Trust"), which is also the sole shareholder
of NAIC.
-10-
Trust was formed in 1951 by three investment clubs with the
objective of educating investors and promoting the formation of investment
clubs. NAIC was organized by the Trust in 1975 to further this objective.
Both NAIC and the Trust throughout their respective histories have been
integrally involved in educating investors and assisting and encouraging
the formation and operation of investment clubs. The Investment Adviser
was organized in March 1999 to take over the investment advisory
activities of NAIC, as part of a restructuring of NAIC and its various
affiliates.
NAIC publishes Better Investing, a monthly magazine
distributed to its members and other subscribers. Better Investing provides
investment and educational services to the public. Prior to the
incorporation of NAIC in 1975, Better Investing was published by the
Trust. The publication began in 1951 and was originally known as
National Association of Investment Clubs News. In 1955, the name was
changed to NAIC Bulletin and changed again in 1958 to Investment Club
Bulletin. In 1965, the publication name was changed to Better Investing.
As of December 31, 2001 Better Investing had over 375,911 subscribers,
making Better Investing one of the largest investor magazines in the
United States.
The Investment Adviser's address is 711 West Thirteen
Mile Road, Madison Heights, Michigan 48071.
Investment Principles
Through their work with investors over several decades
in connection with providing educational services, publishing Better
Investing magazine, and assisting and promoting the formation of
investment clubs, NAIC and the Trust developed an investment philosophy
based on certain investment principles. The Trust and NAIC advocate
their use in the NAIC Official Guide, Starting and Running a Profitable
Investment Club, one of the educational materials prepared by the Trust
and the NAIC. These investment principles may be summarized as
follows:
- Invest Regularly: Money should be invested regularly
without thought as to whether the stock market itself is high or low.
Forecasting short-term movements in the stock market is very difficult but
historically domestic stock prices have generally moved upwards over long
periods of time. Also, regular purchases of stocks over a period of time
without regard to whether the stock market is high or low will frequently
result in a lower average cost per share.
- Reinvest Earnings: The reinvestment of earnings
provides funds for the purchase of securities and generally builds up net
worth.
- Invest in "Growth": Buying stocks of companies whose
sales and earnings are expected to grow faster than the total economy and
faster than their competitors is important because such growth, if it is on a
sound basis, is likely to result in higher stock prices.
- Diversify: Investments should be diversified, both by the
type of industry and size of company.
NAIC has also developed a stock study program
designed to assist its members in (1) studying an individual company so as
to form a judgment as to its potential investment value, (2) comparing
several
-11-
companies and selecting for investment the stocks of companies that
best meet their investment objectives, and (3) keeping informed on the
stocks currently owned or which they contemplate owning in order to make
informed decisions concerning further purchases or sales.
The Investment Adviser uses the NAIC's investment
principles and the methodology of the NAIC's stock study program in
advising the Fund. However, the investment principles and stock study
program were developed by the Trust and NAIC primarily for use by
NAIC's members, and therefore they are not directly applicable in all
cases to the management of the Fund's portfolio. The Investment Adviser
may also use other investment principles or methods in managing the
Fund's investments.
Advisory Fee
The Fund and the Investment Adviser, as successor to
NAIC, are parties to an Investment Advisory Agreement dated October 2,
1989 (the "Advisory Agreement"). Pursuant to the Advisory Agreement
the Fund pays the Investment Adviser an annual advisory fee equal to
0.75% of the weekly net assets of the Fund. However, if the weekly net
assets of the Fund are less than $3,800,000 during any week, then no
advisory fee is paid or accrued by the Fund to the Investment Adviser for
that week. The advisory fee is paid on a monthly basis. The Investment
Adviser's predecessor, NAIC, waived all of its advisory fees since the
inception of the Fund in 1990 through 1997. The Investment Adviser or
its predecessor, as applicable, collected 25% of the fee in 1998, 50% of the
fee in 1999, and 75% of the fee in 2000. The Investment Adviser collected
all of its advisory fee in 2001 and 2002 and has advised the Fund it does
not intend to waive any of its fees in the future.
Payment of Expenses
In addition to the advisory fee paid to the Investment
Adviser, the Fund pays all of the other costs and expenses of its operation.
This includes, among other things, expenses for legal and auditing
services, costs of printing proxies, stock certificates and shareholder
reports, charges of the custodian and transfer agent, SEC filing fees, fees
and expenses of unaffiliated directors, accounting and pricing costs,
membership fees and trade association dues, insurance, interest, brokerage
costs, taxes, stock exchange listing fees and expenses, expenses of
qualifying the Fund's shares for sale in various states, and other
miscellaneous expenses properly payable by the Fund. The Advisory
Agreement provides that the Fund may not incur annual aggregate
expenses in excess of 2% of the first $10,000,000 of the Fund's average
net assets, 1.5% of the next $20,000,000 of average net assets, and 1% of
the remaining average net assets for any fiscal year. Any excess Fund
expenses are the responsibility of the Investment Adviser, and the pro rata
portion of the estimated annual excess expenses is offset against the
Investment Adviser's monthly advisory fee. In the event such amount
exceeds the advisory fee payable to the Investment Adviser in any month,
no advisory fees are paid to the Investment Adviser.
The Fund will pay the expenses of this offering, other
than the sales charges which are payable by the investors, directly from the
general assets of the Fund. These costs will not be considered an expense
of the Fund for purposes of the expense limitations of the Advisory
Agreement.
-12-
Portfolio Management
Kenneth S. Janke is primarily responsible for the
investment decisions made by the Investment Adviser on behalf of the
Fund. Mr. Janke was also responsible, together with Thomas E. O'Hara,
for the investment decisions made on behalf of the Fund by the Investment
Adviser's predecessor, NAIC. Accordingly, Mr. Janke has been
responsible in whole or in part for the investment decisions made on behalf
of the Fund since the Fund's inception. Mr. Janke is a Director and
Chairman and Chief Executive Officer of the Investment Adviser. Mr.
Janke's principal occupation during the past five years has been President
(to February, 2002), Chairman and Chief Executive Officer (from
February, 2002 to July, 2002), and Chairman (from July, 2002) of NAIC.
Legal Proceedings
The Investment Adviser is not a party to any material
pending legal proceedings.
USE OF PROCEEDS
The Fund estimates the net proceeds from the sale of the
shares offered hereby will be $45,082,919, based on the Fund's net asset
value of $9.05 on April 17, 2003, and a sale price per share of $9.53, an
estimated $2,400,000 sales charge, and an estimated $167,081 in expenses,
assuming that the offering continues for a two year period and all of the
shares are sold in the offering. The Fund will invest subscription proceeds
in the market as quickly as possible, consistent with the Fund's investment
philosophy. The rate at which subscriptions are invested may vary,
depending on the degree to which the Fund believes suitable investments
exist, given conditions in the markets generally and with certain companies
in particular, the rate at which subscriptions are received and other relevant
factors. The Fund's goal is to invest subscription proceeds within one
month of receipt of a subscription, but under certain market conditions and
depending upon the availability of suitable investments, it may take up to
three months to invest the proceeds.
Pending such investment, it is anticipated that the
proceeds will be invested in short-term debt obligations or instruments.
Investments in such short-term debt obligations or investments may reduce
the Fund's yield.
DISTRIBUTION POLICY
Dividends will be paid annually on the shares in amounts
representing substantially all the net investment income, if any, earned
each year. Dividend payments will vary in amount, depending on
investment income received and expenses of operation. Substantially all
of any taxable net capital gain realized on investments will be paid to
shareholders at least annually. The net asset value of each share that you
own will be reduced by the amount of the distributions or dividends that
you receive from that share.
-13-
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Fund invites you to join the Dividend Reinvestment
and Cash Purchase Plan (the "Plan"), which is provided to give you easy
and economical ways of increasing your investment in the Fund's shares.
If you have already elected to participate in the Plan, you don't need to do
anything further to maintain your election. Participation in the Plan is not
automatic and you must affirmatively elect to participate. American Stock
Transfer & Trust Company acts as the Plan Agent on behalf of
shareholders who are participants in the Plan.
A subscriber for shares in this offering (other than a
broker or a nominee from a financial institution) who is not currently a
shareholder of the Fund, or a person who is currently a shareholder of the
Fund who has not previously elected to participate in the Plan, or a
shareholder which has terminated its election, may elect to become a
participant in the Plan by filling in and signing a form of authorization
included as part of the subscription agreement accompanying this
prospectus and mailing the form to the Plan Agent, American Stock
Transfer & Trust Company, P.O. Box 922, Wall Street Station, New York,
New York 10038. The authorization must be signed by each of the
registered shareholders of an account. Your participation in the Plan is
voluntary and may be terminated or resumed at any time upon written
notice from you received by the Plan Agent prior to the record date of the
next dividend. Additional information regarding the election may be
obtained from the Fund.
Dividend payments and other distributions made by the
Fund to participants in the Plan are made in one of two ways. They are
paid to the Plan Agent either in cash (which then are used to purchase
shares in the open market), or by the delivery of newly-issued Fund shares.
The option chosen by the Plan Agent is the one that the Plan Agent
determines is the most favorable to Plan participants, as described below.
The Fund determines the net asset value of the Fund's
shares on a date (a "Valuation Date") which is not more than five business
days prior to a date fixed for payment of a dividend or other distribution
from the Fund. The Plan Agent then compares the determined net asset
value per share with the market price per share. For purposes of the Plan,
"market price" is the highest price bid at the close of the market by any
market maker on the date which coincides with the relevant Valuation
Date, or, if no bids were made on such date, the next preceding day on
which a bid was made. The market price was $8.57 on April 17, 2003.
If the net asset value per share in any such comparison is
lower than the market price per share, then the Plan Agent instructs the
Fund to satisfy its obligation with respect to any such dividend or other
distribution by issuing additional shares to the participants in the Plan. The
shares are issued at a price per share equal to the greater of the determined
net asset value per share or 95% of the market price per share determined
as of the close of business on the relevant Valuation Date.
However, if the net asset value per share (as determined
above) is higher than the market price per share, then the Plan Agent
instructs the Fund to satisfy its obligation with respect to any such
dividend or other distribution by a cash payment to the Plan Agent for the
account of Plan participants. The Plan Agent uses such cash payment to
buy additional shares in the "open market" for the account of the Plan
participants. However, the Plan Agent does not purchase shares in the open
market at a price in excess of the net asset value per share as of the
relevant Valuation Date. If the Plan Agent is unable to complete its
acquisition of shares to be purchased in the open market by the end of the
first trading day following receipt of the cash payment from the Fund, any
remaining funds are used by the Plan Agent to purchase newly issued
-14-
shares of the Fund's common stock from the Fund. The shares are issued
at a price equal to the greater of the determined net asset value per share or
95% of the market price per share as of the date coinciding with or next
preceding the date of the relevant Valuation Date.
Participants in the Plan have the option of making
additional cash payments to the Plan Agent, on a monthly basis, for
investment in the Fund's shares. Such payments may be made in any
amount from a minimum of $50 to a maximum of $1,000 per month. The
Fund may, in its discretion, waive the maximum monthly limit with
respect to any participant. At the end of each calendar month, the Plan
Agent determines the amount of funds accumulated. Purchases made from
the accumulation of payments during each calendar month are made on or
about the first business day of the following month ("Investment Date").
These funds are used to purchase shares of the Fund's common stock from
the Fund if the net asset value per share is lower than the market price per
share as of the Valuation Date which occurs not more than five business
days prior to the relevant Investment Date. In such a case, the Fund issues
the shares at a price per share equal to the greater of the determined net
asset value per share or 95% of the market price per share. If the net asset
value per share is higher than the market price per share, then the Plan
Agent uses such cash payments to buy additional shares in the open market
for the account of the Plan participants. However, the Plan Agent will not
purchase shares in the open market at a price in excess of the net asset
value as of the relevant Valuation Date. If the Plan Agent is unable to
complete its acquisition of shares to be purchased in the open market by
the end of the Investment Date, any remaining cash payments are used by
the Plan Agent to purchase newly issued shares of the Fund's common
stock from the Fund at a price per share equal to the greater of the
determined net asset value per share or 95% of the market price per share
as of the relevant Valuation Date. All cash payments received by the Plan
Agent in connection with the Plan are held without earning interest. To
avoid unnecessary cash accumulations, and also to allow ample time for
receipt and processing by the Plan Agent, participants that wish to make
voluntary cash payments should send such payments to the Plan Agent in
such a manner that assures that the Plan Agent will receive immediately
available funds by the end of the month. If a voluntary cash payment is
not received in time to purchase shares in any calendar month, such
payment will be invested on the next Investment Date. A participant may
withdraw a voluntary cash payment by written notice to the Plan Agent if
the notice is received by the Plan Agent at least 48 hours before such
payment is to be invested by the Plan Agent.
The Plan Agent performs bookkeeping and other
administrative functions, such as maintaining all participants' accounts in
the Plan and furnishing written confirmation of all transactions in the
accounts, including information needed by shareholders for personal and
tax records. Shares in the account of each participant are held by the Plan
Agent in noncertificated form in the name of the participant, and each
shareholder's proxy includes those shares purchased pursuant to the Plan
and of record as of the record date for determining those shareholders who
are entitled to vote on any matter involving the Fund. In case of
shareholders such as banks, brokers or nominees holding shares for others
who are the beneficial owners, the Plan Agent administers the Plan on the
basis of the aggregate number of shares certified from time to time by such
shareholders as held for the account of beneficial owners who have elected
to participate in the Plan.
There are no special fees or charges to participants in the
Plan other than reasonable transaction fees and a termination fee of $15
plus 10 cents per share. For purchases by voluntary cash payments under the
Plan, the Plan Agent will charge a pro rata share of the brokerage
commissions, if any. Brokerage charges for purchasing small blocks of
stock for individual accounts through the Plan are expected to be less than
the usual brokerage charges for such transactions, as the Plan Agent
purchases shares for all participants in larger blocks and prorating the
lower commission rate thus applied.
-15-
The automatic reinvestment of dividends and distributions does not relieve
participants of any associated income tax liability. See "Taxation."
The Fund reserves the right to amend or terminate the
Plan as applied to any voluntary cash payment received and any dividend
or distribution to be paid subsequent to a date specified in a notice of the
change sent to all shareholders at least ninety days before such specified
date. The Plan may also be terminated on at least ninety days' written
notice to all shareholders in the Plan. All correspondence concerning the
Plan should be directed to American Stock Transfer & Trust Company,
P.O. Box 922, Wall Street Station, New York, New York 10038.
TAXATION
The Fund has elected to qualify, and intends to remain
qualified, as a regulated investment company under Subchapter M of the
Internal Revenue Code. The Fund will distribute substantially all of its net
investment income and gains to shareholders. Therefore, it is not expected
that the Fund will be subject to any federal income tax. These distributions
are taxable as ordinary income or capital gains. Shareholders may be
proportionately liable for taxes on income and gains of the Fund, but
shareholders not subject to tax on their income will not be required to pay
tax on amounts distributed to them.
Each January you will be sent information on the tax
status of any distribution made during the
previous calendar year, including information on the amount and nature of
the income or gains.
Because each shareholder's situation is unique, you
should always consult your tax adviser
concerning the effect income taxes may have on your individual
investment.
DESCRIPTION OF SHARES
General
The Fund's only authorized class of capital stock is
common stock, par value $.001 per share, of which 50,000,000 shares are
authorized. The shares, upon issuance and payment therefor in accordance
with this prospectus, will be fully paid and non-assessable. The shares
have no preemptive, conversion or subscription rights and have equal
rights as to voting and liquidation.
Shareholders' right to elect directors of the Fund is non-
cumulative. This means that the holders of a majority of the Fund's
outstanding shares can elect all of the directors nominated for election at a
meeting called for that purpose if they choose to do so. If this happens, the
holders of the remaining shares will not be able to elect any directors.
Shares issued in accordance with this prospectus will be
held by the Fund's transfer agent in noncertificated form in the name of the
investor, unless the investor elects otherwise in the subscription agreement.
Each shareholder's proxy includes those shares purchased pursuant to the
Plan and of record as of the record date for determining those shareholders
who are entitled to vote on any matter involving the Fund. A shareholder
may request the transfer agent to issue certificates for its shares. Fractional
shares will be held and aggregated with other fractional shares and paid for
by check in the event a shareholder requests a certificate.
-16-
The following table provides certain information about the Fund's
common stock as of March 31, 2003.
(1) (2) (3) (4)
Title Amount Authorized Amount Held by Fund Amount Outstanding
of Class or For its Account Exclusive of Amount
Shown under (3)
--------------------------------------------------------------------------
Common stock
$0.001 par
value 50,000,000 0 2,344,602 shares
--------------------------------------------------------------------------
The number of the Fund's shareholders of record, as of
December 31, 2002, is 2,230. The Investment Adviser held no shares as of
such date and NAIC, the Investment Adviser's affiliate, held 29,544 shares
as of such date. The number of shares beneficially owned by all Fund
officers and directors as a group is 164,834 as of December 31, 2002, of
which 7,455 are held in investment clubs with which certain officers and
directors are affiliated.
Repurchase of Shares
The Fund's shareholders do not, and will not, have the
right to have their shares redeemed or repurchased by the Fund. The Fund
may repurchase its shares, however, from time to time as and when it is
deemed advisable by the Board of Directors of the Fund in order to attempt
to reduce or eliminate a market discount from the net asset value of the
shares. Such repurchases will be made, if at all, only when the shares are
trading at a discount of ten percent (10%) or more below the net asset
value of the shares, and in accordance with the 1940 Act which provides,
in part, that the Fund must notify stockholders of its intention to purchase
shares on the open market at some time within the six months preceding
the purchase. The Fund may incur debt to finance share repurchase
transactions by borrowing from banks and others on an unsecured basis as
a temporary measure as described below ("Temporary Borrowings").
Such Temporary Borrowings may not exceed five percent (5%) of the
value of the Fund's net assets at the time the loan is made. The Fund may
pledge up to ten percent (10%) of the lesser of the cost or value of its total
assets to secure Temporary Borrowings. The Fund will not borrow for
investment purposes. Immediately after any Temporary Borrowing, the
Fund will maintain asset coverage of not less than three hundred percent
(300%) with respect to all Temporary Borrowings. The Fund may not
enter into Temporary Borrowing transactions with affiliates.
The Fund is not required to repurchase shares.
Historically, the Fund has not repurchased any of its shares. The Board of
Directors, in consultation with the Investment Adviser, will review on a
regular basis, at meetings of the Board of Directors, the possibility of open
market repurchases of the Fund's shares. Any shares repurchased will be
canceled and returned to the status of authorized, but unissued common
stock. Any repurchases of shares of the Fund will decrease the total assets
of the Fund, thereby increasing the Fund's expense ratio.
The shares trade in the open market, so long as any
market exists, at a price that is a function of several factors, including
their net asset value and yield. The shares of closed-end investment
companies generally sell at market prices that vary from their net asset
values. If the Fund repurchases its shares at prices below their net asset
value, the net asset value of the remaining outstanding shares may be
increased, but there can be no assurance that the market price of the
remaining outstanding shares will be affected, either positively or
negatively. Further, interest on borrowings to finance share repurchase
transactions will reduce the Fund's net income. There can be no assurance
that any repurchase of the shares will result in the shares trading at a
price equal to or greater than their net asset value.
-17-
Certain Provisions of the Articles of Incorporation and By-laws
The Fund presently has provisions in its articles of
incorporation and by-laws that could have the effect of limiting the ability
of certain entities or persons and their affiliates that beneficially own more
than 5% of the outstanding shares of the Fund (a "Principal Shareholder")
to acquire control of the Fund or to cause it to engage in certain
transactions. The affirmative vote or consent of the holders of sixty-six
and two-thirds percent (66 2/3%) of the shares of the Fund is required to
authorize the conversion of the Fund from a closed-end to an open-end
investment company, and generally to authorize any of the following
transactions:
- Merger or consolidation of the Fund with or into any
Principal Shareholder;
- Issuance of any securities of the Fund to any Principal
Shareholder for cash;
- Sale, lease or exchange of all or any substantial part of
the assets of the Fund to any Principal Shareholder (except assets having
an aggregate fair market value of less than $500,000); or
- Sale, lease or exchange to the Fund, in exchange for
securities of the Fund, of any assets of any Principal Shareholder (except
assets having an aggregate fair market value of less than $500,000).
However, any such vote or consent is not be required
with respect to the foregoing transactions if the Board of Directors under
certain conditions approves such transaction. Reference is made to the
articles of incorporation and by-laws of the Fund on file with the Securities
and Exchange Commission for the full text of these provisions. See
"Further Information." These provisions could have the effect of depriving
shareholders of an opportunity to sell their shares at a premium over
prevailing market prices by discouraging a third party from seeking to
obtain control of the Fund in a tender offer or similar transaction.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares is computed based upon
the market value of the securities held by the Fund. Net asset value per
share is calculated by dividing the value of all of the securities held by the
Fund plus any cash or other assets minus all liabilities, including accrued
expenses, by the total number of shares outstanding at such time. It is
determined as of the close of business on Thursday of each week. If any
Thursday is not a business day, the net asset value is determined as of the
close of business on the last business day of the week preceding such
Thursday. Portfolio securities are valued at market. Securities and assets
for which market quotations are not readily available are valued at fair
value by the Investment Adviser in accordance with guidelines established
by the Fund's Board of Directors and provided to the Plan Agent.
Investments with maturities of 60 days or less are valued at amortized cost.
Shares of closed-end investment companies frequently
trade at a discount to net asset value, but in some cases trade at a premium.
The market price of the shares is determined by factors that are beyond the
control of the Fund. These factors include trading volume of such shares,
general market and economic conditions. The Fund cannot predict whether
its shares will trade at, below or above net asset value. The Fund can,
however, repurchase its own shares if they are trading at a discount of ten
percent (10%) or more of net asset value. See "Description of Shares."
-18-
HOW TO INVEST
To invest in the Fund, please follow the steps below. This will help avoid
any delays in processing your subscription.
- Read this Prospectus carefully.
- Determine how much you would like to invest. The
Fund's minimum investment is $500. The Fund reserves the right to
increase the amount of this minimum for certain purchases. Sales
charges payable to BDFSC will be deducted from your
subscription payment.
- Carefully complete and sign the enclosed subscription
agreement, including the optional Dividend Reinvestment and
Cash Purchase Plan section if you want to participate in the Plan.
By joining the Dividend Reinvestment and Cash Purchase Plan
now, you can avoid the delay and inconvenience of having to
submit an additional application later.
- Return the subscription agreement to NAIC Growth
Fund, Inc., c/o Growth Fund Advisor, Inc., P.O. Box 220, Royal Oak,
Michigan 48068 with your check made payable to "Standard Federal-
Corporate and Institutional Trust, Escrow Agent".
All subscriptions are subject to acceptance by the Fund
and approval by BDFSC. Either the Fund or BDFSC may reject a
subscription in its discretion for any reason. Subscriptions may not be
revoked by the subscriber once received by the Fund.
Shares sold pursuant to this Prospectus will be held by
the Fund's transfer agent in noncertificated form in the purchaser's name,
unless the purchaser elects otherwise in the Subscription Agreement. If a
purchaser elects to receive a certificate for its common shares in the
Subscription Agreement, the Fund will not issue fractional shares to the
purchaser and will refund the portion of the sales price representing the
fractional share, without interest, at the time of delivering the share
certificate. Fractional shares will be issued for shares held by the transfer
agent in noncertificated form. Such fractional shares will be aggregated
with any other fractional shares held by the transfer agent for the purchaser
from time to time and will be paid for by check, at the then-prevailing
market price, if the purchaser requests a certificate for its shares after the
acceptance of the purchaser's subscription in this offering.
UNDERWRITING
The Fund and Investment Adviser have entered into an
Underwriting Agreement with BDFSC, a form of which has been filed as
an exhibit to the Registration Statement of which this prospectus is a part.
The summary of the Underwriting Agreement contained herein is qualified
by reference to the Underwriting Agreement.
Subject to the terms and conditions of the Underwriting
Agreement, BDFSC will offer on a "best efforts" basis up to 5,000,000
shares of the Fund's common stock. BDFSC may also offer the shares
through certain selected dealers. BDFSC is located at 8800 N.W. 62nd
Avenue, Johnston, Iowa 50131. The offering will continue until all the
shares are sold or until either the Fund or BDFSC terminates the offering
on 30 days' notice to the other party.
-19-
Sales of shares will generally be made on a weekly basis. Subscribers will
submit Subscription Agreements and subscription payments as described
under "How to Invest." Subscriptions may not be revoked by the
subscriber once received by the Fund. The Fund's net asset value is
determined as of the close of business each Thursday or, if a Thursday is
not a business day, on the business day immediately preceding that
Thursday (a "Determination Date"). On the first business day following
each Determination Date, the Fund will sell shares at a price equal to the
net asset value per share on the Determination Date, plus the applicable
sales charge, to each subscriber whose subscription has been accepted by
the Fund and approved by BDFSC on or before the Determination Date
and whose subscription payment is held by the Escrow Agent in collected
funds on or before the Determination Date. The sales price will be
determined by the following formula: net asset value divided by (1 minus
the applicable sales charge), rounded to the nearest penny.
Funds in the escrow account will be held uninvested.
Standard Federal - Corporate and Institutional Trust, a division of LaSalle
Bank National Association of Troy, Michigan will act as the Escrow
Agent.
The minimum investment (inclusive of sales charges) in
this offering by any investor is $500. The Fund reserves the right to
increase the amount of this minimum for certain purchases. There is no
minimum number of shares that must be sold in the offering.
There will be a sales charge payable by investors to
BDFSC out of their subscription payments for any shares sold pursuant to
this prospectus, as follows:
- 3.5% of the gross sales price per share sold before a
selected broker-dealer enters into a selected dealer agreement with
BDFSC; and
- 5% of the gross sales price per share sold after any
selected broker-dealer enters into a selected dealer agreement with
BDFSC.
The Fund has paid BDFSC a non-accountable expense
allowance of $15,000.
In connection with the sale of shares on behalf of the
Fund, BDFSC may be deemed to be an underwriter within the meaning of
the Securities Act of 1933, as amended, and the compensation of BDFSC
may be deemed to be underwriting commissions or discounts. BDFSC has
from time to time acted, and may continue to act while principal
distributor, as broker in connection with the execution of the Fund's
portfolio transactions. See "Portfolio Transactions and Brokerage" in the
Statement of Additional Information.
The Investment Adviser will provide administrative
services to the Fund in connection with the offering of the shares,
including processing subscription agreements. No subscription will be
effective unless and until it is accepted by the Fund and approved by
BDFSC.
The Fund and the Investment Adviser have jointly and
severally agreed to indemnify BDFSC against certain liabilities, including
liabilities under the Securities Act of 1933, as amended, or to contribute to
payments that BDFSC may be required to make in respect thereof.
However, the Underwriting Agreement provides that the Fund will not
indemnify BDFSC to the extent that any loss, claim, liability, expense or
damage is found in a final judgment by a court of competent jurisdiction to
have resulted from the bad faith, willful misconduct or negligence of
BDFSC or any selected dealer which has entered into a selected dealer
agreement with BDFSC, or the breach by BDFSC or any such selected
dealer of its duties and obligations under the Underwriting Agreement.
-20-
LEGAL MATTERS
The legality of the shares offered hereby has been passed
on by Bodman, Longley & Dahling LLP, Detroit, Michigan, which serves
as counsel to the Fund and to the Investment Adviser. Lewis A. Rockwell
is counsel to the law firm of Bodman, Longley & Dahling LLP. Mr.
Rockwell is also an officer and director of the Fund and an officer and
director of the Investment Adviser.
Certain legal matters have been passed on for BDFSC by
Dorsey & Whitney LLP, Des Moines, Iowa.
REPORTS TO SHAREHOLDERS
The Fund issues to its shareholders reports that include
annual audited financial statements for each year ended December 31 and
unaudited financial statements for each six month period ended June 30.
The financial statements include a list of investments held.
INDEPENDENT PUBLIC ACCOUNTANTS
The audited financial statements for the year ended
December 31, 2002 included in and incorporated by reference into the
Statement of Additional Information have been audited by Plante &
Moran, PLLC, independent public accountants, as indicated in their report
with respect thereto. The financial statements of the Fund as of December
31, 2001 and for the year then ended, and the financial highlights for each
of the four years in the period then ended, incorporated by reference in the
Statement of Additional Information were audited by the Fund's former
independent auditor, Arthur Andersen LLP. Plante & Moran, PLLC
replaced Arthur Andersen LLP as the Fund's independent certified public
accountants effective May 9, 2002. Plante & Moran, PLLC did not
perform any other services for the Fund during the year ended December
31, 2002. The address of Plante & Moran, PLLC is 27400 Northwestern
Highway, Southfield, Michigan 48034.
FINANCIAL STATEMENTS
The Fund's audited financial statements for the fiscal
year ended December 31, 2002 are incorporated into the Statement of
Additional Information by reference from the Fund's Annual Report to
Shareholders for the year ended December 31, 2002. The Fund will
furnish without charge copies of its annual report and semi-annual report
and any subsequent annual and semi-annual reports to prospective
investors and shareholders upon request to the Fund, 711 West Thirteen
Mile Road, Madison Heights, Michigan 48071, telephone (877) 275-6242,
extension 331. These reports are also available on the Securities and
Exchange Commission's EDGAR database and may also be obtained from
the Securities and Exchange Commission. See "Further Information."
-21-
IMPORTANT NOTICE CONCERNING ARTHUR ANDERSEN LLP
Section 11(a) of the Securities Act of 1933 provides that
if any part of a registration statement at the time it becomes effective
contains an untrue statement of a material fact or an omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, any person acquiring a security pursuant
to such registration statement, unless it is proved that at the time of such
acquisition such person knew of such untruth or omission, may sue, among
others, every accountant who has consented to be named as having
prepared or certified any part of the registration statement or as having
prepared or certified any report or valuation which is used in connection
with the registration statement with respect to the statement in such
registration statement, report or valuation which purports to have been
prepared or certified by the accountant.
The financial statements of the Fund as of December 31,
2001 and for the year then ended, and the financial highlights for each of
the four years in the period then ended, incorporated by reference in the
Statement of Additional Information were audited by the Fund's former
independent auditor, Arthur Andersen LLP. However, the Fund has not
been able to obtain, after reasonable efforts, the written consent of Arthur
Andersen LLP with respect to the inclusion of such financial statements in
the Statement of Additional Information. Under these circumstances, Rule
437a under the Securities Act of 1933 permits the Fund to file this
registration statement without a consent of Arthur Andersen LLP. As a
result, you will not be able to sue Arthur Andersen LLP pursuant to
Section 11(a) of the Securities Act and therefore your right of recovery
under that section may be limited as a result of the lack of the written
consent.
-22-
STATEMENT OF ADDITIONAL INFORMATION
The Fund's Statement of Additional Information
contains additional information about the Fund which may be of interest to
you. A copy of the Statement of Additional Information dated July 9,
2003 is attached to this prospectus. You may obtain copy of an updated
Statement of Additional Information as applicable, without charge, on
written or oral request to the Plan Administrator, NAIC Growth Fund, Inc.,
711 West Thirteen Mile Road, Madison Heights, Michigan 48071,
attention: Statement of Additional Information, telephone (877) 275-6242,
extension 331.
The table of contents of the Statement of Additional
Information is as follows:
The Fund 1
Additional Investment Guidelines 1
Directors, Officers and Principal Shareholders 3
Investment Adviser and Investment Advisory Agreement 7
Dividend Reinvestment and Cash Purchase Plan 10
Custodian, Transfer Agent and Dividend Disbursing Agent 10
Independent Public Accountants 10
Portfolio Transactions and Brokerage 10
Taxation 12
Financial Statements 12
FURTHER INFORMATION
This Prospectus and the Statement of Additional
Information do not contain all of the information set forth in the
Registration Statement the Fund has filed with the Securities and
Exchange Commission. The complete Registration Statement is available
on the EDGAR Database on the Securities and Exchange Commission's
Internet site at http://www.sec.gov, and may also be obtained from the
Securities and Exchange Commission upon payment of the fee prescribed
by its rules and regulations.
-23-
NAIC GROWTH FUND, INC.
711 West Thirteen Mile Road
Madison Heights, Michigan 48071
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information ("Statement") is not a
prospectus. It relates to a prospectus of NAIC Growth Fund, Inc. (the
"Fund") dated July 9, 2003 (the "Prospectus"), and should be read together
with the Prospectus. This Statement does not include all information that a
prospective investor should consider before purchasing shares of the Fund,
and investors should obtain and read the Prospectus prior to purchasing
shares. This Statement incorporates by reference the entire Prospectus. A
copy of the Prospectus, and any document incorporated by reference in
this Statement, is available without charge to any prospective investor or
shareholder of the Fund upon written or oral request to, NAIC Growth
Fund, Inc., 711 West Thirteen Mile Road, Madison Heights, Michigan
48071, attention: Statement of Additional Information, telephone (877)
275-6242, extension 331.
TABLE OF CONTENTS
Page
The Fund 1
Additional Investment Guidelines 1
Directors, Officers and Principal Shareholders 3
Investment Adviser and Investment Advisory Agreement 7
Dividend Reinvestment and Cash Purchase Plan 10
Custodian, Transfer Agent and Dividend Disbursing Agent 10
Independent Public Accountants 10
Portfolio Transactions and Brokerage 10
Taxation 12
Financial Statements 12
The Prospectus and this Statement omit certain of the information
contained in the registration statement filed with the Securities Exchange
Commission (the "Commission"), Washington, D.C. The registration
statement may be obtained from the Commission upon payment of the fee
prescribed, or inspected at the Commission's office at no charge. The
registration statement is also available on the Commission's website
(www.sec.gov).
This Statement of Additional
Information is dated July 9, 2003
THE FUND
NAIC Growth Fund, Inc. (the "Fund") is a diversified closed-end
investment company. The Fund's investment objective is long-term
growth utilizing the concept of "total return" for selecting investments.
"Total return" for purposes of this Statement of Additional Information
("Statement") is the total of all income derived from, and the capital
appreciation in value of, a particular investment. The Fund tries to achieve
total return by investing in those equity securities with growth potential
and that also may be expected to increase cash dividends on a regular
basis. While the Fund does not attempt to purchase equity securities that
have a high yield, relative to the popular stock averages, a record of
increased cash dividends is one of the factors taken into consideration
when selecting equity securities for the Fund's portfolio. The Fund seeks
to achieve its investment objective through investment in a diversified
portfolio of equity securities. These securities may include those that
possess "special situation" characteristics. The Fund's Investment Adviser
is Growth Fund Advisor, Inc. (the "Investment Adviser"), an indirect
subsidiary of the National Association of Investment Clubs Trust.
ADDITIONAL INVESTMENT GUIDELINES
The investment objective, policies and restrictions of the Fund are
described in the Prospectus under "Investment Objective and Policies." In
addition, the Fund operates under the following additional guidelines.
These guidelines constitute fundamental policies that cannot be changed
without the affirmative vote of the holders of a majority of the Fund's
outstanding common stock. All percentage limitations set forth below
apply immediately after a purchase or initial investment. Any subsequent
change in any applicable percentage resulting from market fluctuations
does not require elimination of any security from the portfolio.
The Fund may not:
- Issue senior securities, as defined in the Investment Company Act
of 1940 (the "1940 Act"), or mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any securities owned or held
by the Fund except as may be necessary in connection with the borrowings
mentioned in bullet three below. Any such mortgaging, pledging or
hypothecating may not exceed 10% of the Fund's total assets, taken at the
lesser of cost or market value.
- Purchase any securities on margin or make short sales of
securities, except as follows. The Fund may (i) obtain such short-term
credit as may be necessary for the clearance of purchases and sales of
portfolio securities, and (ii) make short sales of securities so long as at all
times during which a short position is open, the Fund owns an equal
amount of such securities or, by virtue of ownership of securities, has the
right without payment of further consideration to obtain an equal amount
of the securities sold short (i.e., immediately convertible securities). No
more than 15% of the Fund's total assets taken at current value will be
held to cover such short sales at any one time.
- Borrow money, except that the Fund may borrow from banks and
others on an unsecured basis as a temporary measure to finance the
repurchase of its shares, or for other extraordinary or emergency purposes.
For further information, see the Prospectus under the caption "Description
of Shares - Repurchase of Shares." While there is no limit on the amount
which the Fund may borrow, the Fund has never borrowed any money.
-1-
- Underwrite securities of other issuers, except insofar as the Fund may be
deemed an underwriter under the Securities Act of 1933, as amended, in
selling portfolio securities.
- With respect to 50% of its net assets, invest in securities of any
one issuer if immediately thereafter, as a result of such investment, more
than 5% of the total assets of the Fund would be invested in the securities
of such issuer. This restriction does not apply to investments in United
States government securities.
- Purchase more than 10% of the outstanding voting securities of
any one issuer.
- Invest more than 25% of its net assets, taken at market value at
the time of each investment, in the securities of issuers of any particular
industry. This restriction does not apply to investments in United States
government securities.
- Invest in oil, gas or mineral leases.
- Invest in real estate or real estate limited partnerships.
- Invest in general and limited partnership interests.
- Invest in options.
- Invest more than fifteen percent 15% of net assets in illiquid
assets, including but not limited to, commodities or commodity contracts,
futures contracts, puts, calls, straddles, spreads, foreign securities, and
included within this 15% limitation no more than 10% of net assets in
companies with less than three years of operating history, nor more than
5% of net assets in restricted securities.
- Invest more than 5% of net assets in warrants valued at the lower
of cost or market of which at least 3% must be listed on the NYSE or
AMEX.
- Make loans of money or securities.
- Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition, or reorganization or
during Temporary Periods, if more than 10% of the market value of the
Fund's total assets would be invested in securities of other investment
companies, more than 5% of the market value of the Fund's total assets
would be invested in the securities of any one investment company, or the
Fund would own more than three percent 3% of any other investment
company's securities. See the information in the Prospectus under the
caption "Investment Objective and Policies."
- Engage in short-term trading resulting in portfolio turnover
greater than 50% annually.
- Effect brokerage transactions in its portfolio securities with any
broker-dealer affiliated directly or indirectly with its investment adviser,
unless such transactions (including the frequency thereof, the receipt of
commissions payable in connection therewith and the selection of the
affiliated broker-dealer affecting such transaction) are not unfair or
inequitable to the shareholders of the Fund. See "Portfolio Transactions
and Brokerage."
-2-
DIRECTORS, OFFICERS AND PRINCIPAL SHAREHOLDERS
The business of the Fund is managed under the direction of its Board of
Directors. The directors and officers of the Fund, their principal
occupations for at least the last five years and other pertinent information
are set forth below. The address of each is the address of the Fund.
Directors Who Are Interested Persons of the Fund and Officers
Thomas E. O'Hara
Age 87
Chairman of the Board and Director
Term of office
one year.
Served as a director since 1989.
Principal Occupation(s) During Past 5 Years
Chairman Emeritus of the Board and Trustee of the National
Association of Investors Corporation, a nonprofit corporation
engaged in investment education ("NAIC") and Chairman Emeritus
and Director of Growth Fund Advisor, Inc., the Fund's investment
adviser (the "Investment Adviser") from February, 2002 to present.
Chairman and Trustee of NAIC and Chairman and Director of the
Investment Adviser to February, 2002.
Number of Portfolios in Fund Complex Overseen by Director or
Nominee for Director**
One
Other Directorships Held by Director or Nominee for Director
None.
Kenneth S. Janke
Age 68
Director, President and Treasurer
Term of Office
one year.
Served as a director since 1989.
Principal Occupation(s) During Past 5 Years
Chairman and Trustee of NAIC and Chairman, Chief Executive Officer
and Director of the Investment Adviser from July, 2002. Chairman,
Chief Executive Officer and Trustee of NAIC and Chairman, Chief
Executive Officer and Director of the Investment Adviser from
February, 2002 to July 2002. President and Trustee of NAIC and
President and Director of the Investment Adviser to February, 2002.
Number of Portfolios in Fund Complex Overseen by Director or
Nominee for Director**
One
Other Directorships Held by Director or Nominee for Director
Director, AFLAC Incorporated (insurance)
Lewis A. Rockwell
Age 84
Director and Secretary
Term of office
one year.
Served as a director since 1989.
Principal Occupation(s) During Past 5 Years
Counsel to the law firm of Bodman, Longley & Dahling LLP, counsel to
the Fund, NAIC and the Investment Adviser; Trustee and Secretary of
NAIC; Director and Secretary of the Investment Adviser.
Number of Portfolios in Fund Complex Overseen by Director or
Nominee for Director**
One
Other Directorships Held by Director or Nominee for Director
None.
Peggy L. Schmeltz
Age 75
Director
Term of office
one year.
Served as a director since 1989.
Principal Occupation(s) During Past 5 Years.
Adult Education Teacher; Trustee of NAIC; Director of Bowling Green
State University Foundation Board. Former member of NYSE Advisory
Committee.
Number of Portfolios in Fund Complex Overseen by Director or
Nominee for Director**
One
Other Directorships Held by Director or Nominee for Director
None.
*The address of each is the address of the Fund. Messrs. O'Hara, Janke
and Rockwell and Mrs. Schmeltz are interested persons of the Fund within
the meaning of Section 2(a)(19) of the Investment Company Act of 1940.
Mr. O'Hara is an interested person because he is a trustee of NAIC and a
director of the Investment Adviser. Messrs. Janke and Rockwell are
interested persons because they are trustees and officers of NAIC and
directors and officers of the Investment Adviser, as noted above. Mrs.
Schmeltz is an interested person because she is a trustee of NAIC.
**The Fund is not part of any fund complex.
-3-
Directors Who Are Not Interested Persons of the Fund
Carl A. Holth
Age 70
Director
Term of office
one year.
Served as a director since 1989.
Principal Occupation(s) During Past 5 Years
President and Director, Greater Detroit Capital Corporation; Financial
Consultant and President of Carl A. Holth & Associates, Inc. (a private
financial consulting and business appraisal firm); Director, Sunshine
Fifty, Inc., and Harrison Piping Supply, Inc.
Number of Portfolios in Fund Complex Overseen by Director or
Nominee for Director**
One
Other Directorships Held by Director or Nominee for Director
None.
Benedict J. Smith
Age 82
Director
Term of office
one year.
Served as a director since 1989.
Principal Occupation(s) During Past 5 Years
Retired; Director and Treasurer, Detroit Executive Service Corps;
Director, Vista Maria (a nonprofit charitable organization); Trustee,
Henry Ford Health System, Behavioral Services.
Number of Portfolios in Fund Complex Overseen by Director or
Nominee for Director**
One
Other Directorships Held by Director or Nominee for Director
None
James M. Lane
Age 74
Director
Term of office
one year.
Served as a director since 1996.
Principal Occupation(s) During Past 5 Years
Retired; Director, Wheaton College, William Tyndale College,
Baseball Chapel, Inc. and Christian Camps, Inc.
Number of Portfolios in Fund Complex Overseen by Director or
Nominee for Director**
One
Other Directorships Held by Director or Nominee for Director
Chateau Communities, Inc. (Owner and operator of manufactured
home communities)
Luke E. Sims
Age 53
Director
Term of office
one year.
Served as a director since 2002.
Principal Occupation(s) During Past 5 Years
Partner in the law firm of Foley & Lardner; Director, Wilson-Hurd Mfg.
Co. and Notre Dame Middle School, Inc.
Number of Portfolios in Fund Overseen by Director or
Nominee for Director**
One
Other Directorships Held by Director or Nominee for Director
LaCrosse Footwear, Inc. (manufacturer and marketer of sporting and
industrial footwear)
* The address of each is the address of the Fund.
** The Fund is not part of any fund complex.
No person is known by the Fund to own of record or beneficially
5% or more of its outstanding shares of common stock.
The Fund has no standing nominating or compensation
committees of the Board of Directors, or committees performing similar
functions. The Fund has a Management Proxy Committee comprised of
Messrs. O'Hara and Janke to cast votes represented by properly executed
proxies. The Management Proxy Committee met one time during the
Fund's fiscal year ended December 31, 2002. The Fund also has an Audit
Committee comprised of Messrs. O'Hara, Holth and Smith. The Audit
Committee reviews the services
provided by the Fund's independent accountants and consults with the
accountants. The Audit Committee met 1 time during the Fund's fiscal
year ended December 31, 2002.
-4-
The following tables set forth the dollar range of the Fund's common
stock, par value $0.001 per share, which is the Fund's only equity security,
owned by each director, valued at the market price per share of $10.45 as
of December 31, 2002.
Directors Who Are Interested Persons of the Fund
Name of Director Dollar Range of Equity Aggregate Dollar Range
or Nominee Securities in the Fund of Equity Securities in
all Funds Overseen or to
be Overseen by Director
or Nominee in Family of
Investment Companies*
--------------------------------------------------------------------------
Thomas E. O'Hara $50,001 - $100,000 $50,001 - $100,000
Kenneth S. Janke Over $100,000 Over $100,000
Lewis A. Rockwell Over $100,000 Over $100,000
Peggy L. Schmeltz Over $100,000 Over $100,000
--------------------------------------------------------------------------
*The Fund is not part of a family of investment companies.
Directors Who Are Not Interested Persons of the Fund
Name of Director Dollar Range of Equity Aggregate Dollar Range
or Nominee Securities in the Fund of Equity Securities in
all Funds Overseen or to
be Overseen by Director
or Nominee in Family of
Investment Companies*
--------------------------------------------------------------------------
Carl A. Holth $10,001 - $50,000 $10,001 - $50,000
Benedict J. Smith $10,001 - $50,000 $10,001 - $50,000
James M. Lane $10,001 - $50,000 $10,001 - $50,000
Luke E. Sims Over $100,000 Over $100,000
--------------------------------------------------------------------------
*The Fund is not part of a family of investment companies.
No director, nor any of their immediate family members, owns any
securities beneficially or of record in the Fund's Investment Adviser or any
of its affiliates, or in the Fund's principal underwriter or any of its
affiliates.
The following tables set forth the aggregate compensation paid to all
directors in 2002. Directors who are affiliated with the Investment Adviser
or the Investment Adviser's affiliates do not receive any compensation for
service as a director. The Chairman and President are not compensated by
the Fund, except for reimbursement for out-of-pocket expenses relating to
attendance at meetings and other operations of the Fund. No other officer
of the Fund received compensation from the Fund in 2002 in excess of
$60,000.
-5-
Directors Who Are Interested Persons of the Fund
Name of Person,
Position
Thomas E. O'Hara,
Chairman and Director
Aggregate Compensation from Fund*
None
Pension or Retirement Benefits Accrued as Part of Fund Expenses
None
Estimated Annual Benefits Upon Retirement
None
Total Compensation from Fund and Fund Complex Paid to Directors**
None
Name of Person,
Position
Kenneth S. Janke,
President, Treasurer and Director
Aggregate Compensation from Fund*
None
Pension or Retirement Benefits Accrued as Part of Fund Expenses
None
Estimated Annual Benefits Upon Retirement
None
Total Compensation from Fund and Fund Complex Paid to Directors**
None
Name of Person,
Position
Lewis A. Rockwell,
Secretary and Director
Aggregate Compensation from Fund*
None
Pension or Retirement Benefits Accrued as Part of Fund Expenses
None
Estimated Annual Benefits Upon Retirement
None
Total Compensation from Fund and Fund Complex Paid to Directors**
None
Name of Person,
Position
Peggy L. Schmeltz,
Director
Aggregate Compensation from Fund*
$1900.00
Pension or Retirement Benefits Accrued as Part of Fund Expenses
None
Estimated Annual Benefits Upon Retirement
None
Total Compensation from Fund and Fund Complex Paid to Directors**
$1900.00
* All amounts shown are for service as a director.
** The Fund is not part of any fund complex.
Directors Who Are Not Interested Persons of the Fund
Name of Person,
Position
Carl A. Holth,
Director
Aggregate Compensation from Fund*
$1900.00
Pension or Retirement Benefits Accrued as Part of Fund Expenses
None
Estimated Annual Benefits Upon Retirement
None
Total Compensation from Fund and Fund Complex Paid to Directors**
$1900.00
Name of Person,
Position
James M. Lane,
Director
Aggregate Compensation from Fund*
$1900.00
Pension or Retirement Benefits Accrued as Part of Fund Expenses
None
Estimated Annual Benefits Upon Retirement
None
Total Compensation from Fund and Fund Complex Paid to Directors**
$1900.00
Name of Person,
Position
Benedict M. Smith,
Director
Aggregate Compensation from Fund*
$1900.00
Pension or Retirement Benefits Accrued as Part of Fund Expenses
None
Estimated Annual Benefits Upon Retirement
None
Total Compensation from Fund and Fund Complex Paid to Directors**
$1900.00
Name of Person,
Position
Luke E. Sims,
Director
Aggregate Compensation from Fund*
$1900.00
Pension or Retirement Benefits Accrued as Part of Fund Expenses
None
Estimated Annual Benefits Upon Retirement
None
Total Compensation from Fund and Fund Complex Paid to Directors**
$1900.00
* All amounts shown are for service as a director.
** The Fund is not part of any fund complex.
-6-
INVESTMENT ADVISER AND INVESTMENT ADVISORY
AGREEMENT
The Fund's Investment Adviser is Growth Fund Advisor, Inc., a Michigan
corporation (the "Investment Adviser"). The Investment Adviser is a
wholly owned subsidiary of N.A.I.C. Holding Corporation, a Michigan
corporation which conducts no business activities. The National
Association of Investors Corporation, a Michigan nonprofit corporation
("NAIC") and N.A.I.C. Holding Corporation are each wholly owned
subsidiaries of the National Association of Investment Clubs Trust (the
"Trust"). Mr. O'Hara is the Chairman Emeritus and a Trustee of the Trust;
Mr. Janke is the Chairman and a Trustee of the Trust; and Mr. Rockwell is
the Secretary and a Trustee of the Trust. The Fund is the Investment
Adviser's sole advisory client. The Trust was formed in 1951 by three
investment clubs with the objective of educating investors and promoting
the formation of investment clubs. NAIC was organized by the Trust in
1975 to further this objective. Both NAIC and the Trust throughout their
respective histories have been integrally involved in educating investors
and assisting and encouraging the formation and operation of investment
clubs. The Investment Adviser was organized in March 1999 to take over
the investment advisory activities of NAIC, as part of a restructuring of
NAIC and its various affiliates. For further information concerning the
Investment Adviser, see the information in the Prospectus under the
caption "The Investment Adviser."
Affiliated Persons
The following persons are "affiliated persons" of the Fund who are also
"affiliated persons" with respect to the Investment Adviser, as defined by
the 1940 Act:
Individual Position with Investment Adviser
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Thomas E. O'Hara(1) Chairman Emeritus of the Board and Director
Kenneth S. Janke(2) Chairman, Chief Executive Officer and Director
Lewis A. Rockwell(3) Secretary, Director
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(1) Mr. O'Hara is also the Chairman of the Board of Directors of the
Fund.
(2) Mr. Janke is primarily responsible for the investment decisions
made on behalf of the Fund by the Investment Adviser. Mr. Janke is also
the President and a Director of the Fund.
(3) Mr. Lewis A. Rockwell is counsel to the law firm of Bodman,
Longley & Dahling LLP, which acts as counsel for the Investment Adviser
as well as the Fund. Mr. Rockwell is also the Secretary and a Director of
the Fund.
Advisory Agreement
The Advisory Agreement between the Investment Adviser, as successor to
NAIC, and the Fund dated October 2, 1989 (the "Advisory Agreement")
provides that, subject to the direction of the board of directors of the Fund,
the Investment Adviser is responsible for the actual management of the
Fund's portfolio. The responsibility for making decisions to buy, sell or
hold a particular security rests with the Investment Adviser, subject to
review by the board of directors of the Fund.
The Investment Adviser is not dependent on any other party in providing
the investment advisory services required in the management of the Fund.
The Investment Adviser may, however, consider analyses from other
various sources, including broker-dealers with which the Fund does
business. The Investment Adviser is also obligated to perform certain
administrative and management services for the Fund and is obligated to
provide all of the office space, facilities, equipment and personnel
necessary to perform its duties under the Advisory Agreement.
-7-
Code of Ethics
The Fund and the Investment Adviser have adopted a Code of Ethics
under Rule 17j-1 of the Investment Company Act of 1940. This Code of
Ethics permits personnel subject to its provisions to invest in securities,
including securities that may be purchased or held by the Fund. The Code
of Ethics may be reviewed and copied at the Commission's Public
Reference Room in Washington, D.C. Information on the operation of the
Public Reference Room may be obtained by calling the Commission at 1-
202-942-8090. The Code of Ethics is also available on the EDGAR
Database on the Commission's internet site at http://www.sec.gov. Copies
of the Code of Ethics may be obtained, after paying a duplicating fee, by
electronic request at: publicinfo@sec.gov or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
Advisory Fee
For the services provided by the Investment Adviser under the Advisory
Agreement, the Fund will pay to the Investment Adviser a monthly
advisory fee at an annual rate of three-quarters of one percent (0.75%) of
the weekly net assets of the Fund. However, if the weekly net assets of the
Fund are below $3,800,000, then no advisory fee is paid or accrued by the
Fund to the Investment Adviser for that month. The Investment Adviser's
predecessor, NAIC, waived the advisory fee from the Fund's inception
through 1997. The Investment Adviser or its predecessor, as applicable,
collected 25% of the fee ($35,883) in 1998, 50% of the fee ($80,336) in
1999, and 75% of the fee ($139,978) in 2000. The Investment Adviser
collected all of the fee in 2001 ($182,924) and in 2002 ($175,533) and has
advised the Fund it intends to collect all of the fee thereafter.
Payment of Expenses
In addition to the advisory fee, the Fund pays all of the other costs and
expenses of its operation. These include, among other things, expenses for
legal and auditing services, costs of printing proxies, stock certificates and
shareholder reports, charges of the custodian and transfer agent,
Commission filing fees, fees and expenses of unaffiliated directors,
accounting and pricing costs, membership fees and trade association dues,
insurance, interest, brokerage costs, taxes, stock exchange listing fees and
expenses, expenses of qualifying the Fund's shares for sale in various
states, and other miscellaneous expenses properly payable by the Fund.
The Advisory Agreement provides that the Fund may not incur annual
aggregate expenses in excess of 2% of the first $10,000,000 of the Fund's
net assets, 1.5% of the next $20,000,000 of the net assets, and 1% of the
remaining net assets of the Fund for any fiscal year. Any excess expenses
are the responsibility of the Investment Adviser, and the pro rata portion of
the estimated annual excess expenses is offset against the Investment
Adviser's monthly advisory fee. In the event such amount exceeds the
advisory fee payable in any month, no fees are collected by the Investment
Adviser at such time.
The Fund will pay all expenses of this offering, other than sales charges
which are payable by the investors, directly from the general assets of the
Fund. These costs will not be considered an expense of the Fund for
purposes of the expense limitations of the Advisory Agreement.
-8-
Duration and Termination; Approval
The Advisory Agreement became effective on July 2, 1990. It has
been approved by a vote of the majority of the Board of Directors of the
Fund and by the vote of a majority of the Directors who are not parties to
the Advisory Agreement or interested persons of any such party (as
defined in the 1940 Act). The Advisory Agreement will continue in effect
only so long as such continuance is specifically approved at least annually
by the Board of Directors of the Fund or by a vote of the majority of the
outstanding voting securities of the Fund. Under the 1940 Act, this is the
vote (a) of 67% or more of the shares of the Fund present at an annual or
special meeting if the holders of more than 50% of the outstanding shares
are present or represented by proxy, or (b) of more than 50% of the
outstanding shares, whichever is less. The Advisory Agreement is not
assignable. The Advisory Agreement may be terminated at any time
without the payment of any penalty by the Board of Directors of the Fund
or by a vote of the majority of the outstanding voting securities of the
Fund. The Investment Adviser may terminate the Advisory Agreement
upon sixty days written notice to the Fund.
The continuance of the Advisory Agreement has been approved annually
by the Board of Directors of the Fund since its inception. It was last
approved by the Board of Directors of the Fund at its meeting on
December 5, 2002. The Board of Directors, in approving the continuance
of the Advisory Agreement, took into consideration that the Investment
Adviser principally uses the NAIC's investment principles and the
methodology of the NAIC's stock study program in advising the Fund,
which is consistent with the Fund's investment objective. The Board of
Directors also regularly reviews the performance of the Fund in
comparison to other closed end growth funds and based upon this review,
and taking into account the amount of the advisory fee, has determined that
it is in the best interest of the Fund to continue the Advisory Agreement.
Use of Name
The National Association of Investors Corporation ("NAIC"), the
predecessor to the Investment Adviser, has become well known through its
educational activities and publications. The Fund had no prior operating
history and therefore at the time of the initial public offering of the Fund's
shares was not well known. As a result, NAIC consented to allow the
Fund to use NAIC as part of the Fund's name. The Fund acknowledges
that NAIC may withdraw from the Fund the use of its name. However, if it
does so, the Investment Adviser has agreed to submit the question of
continuing the Investment Advisory Agreement to a vote of the Fund's
shareholders at that time. Pursuant to the Advisory Agreement NAIC may
grant the use of its name in whole or in part to another investment
company or business enterprise. However, the Investment Adviser has
agreed to submit the question of continuing the Advisory Agreement to the
vote of the Fund's shareholders at that time.
-9-
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Fund's Dividend Reinvestment and Cash Purchase Plan (the "Plan")
allows participating shareholders to reinvest all dividends and capital gain
distributions in additional shares of the Fund. The Plan also allows
participants to make optional cash investments monthly through American
Stock Transfer & Trust Company, the Plan Agent, in amounts ranging
from a minimum of $50 to a maximum of $1,000. With the Fund's
permission, participating shareholders may also make optional cash
investments in excess of the monthly maximum. Shares purchased by Plan
Participants in connection with the reinvestment of dividends or optional
cash investments may be issued by the Fund if the Fund's shares are
trading at a premium to net asset value. If the Fund's shares are trading at
a discount to net asset value, shares purchased under the Plan will be
purchased on the open market. Shares issued by the Fund under the Plan
will be issued at the greater of (i) net asset value or (ii) a discount of
5% to the market price. Shareholders in the Fund may elect to participate
in the Plan by notifying American Stock Transfer & Trust Company, P.O. Box
922, Wall Street Station, New York, New York 10038. Additional
information about the Plan may be obtained from the Fund at (877) 275-
6242, extension 331. For additional information, See "Dividend
Reinvestment and Cash Purchase Plan" in the Prospectus.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Standard Federal Bank N.A. ("SFB") acts as Custodian for the
Fund. SFB is a national banking association whose address is 2600
West Big Beaver Road, Troy, Michigan 48084. American Stock Transfer &
Trust Company acts as the Transfer Agent and Dividend Disbursing Agent for
the Fund. American Stock Transfer & Trust Company's address is P.O.
Box 922, Wall Street Station, New York, New York 10038.
INDEPENDENT PUBLIC ACCOUNTANTS
The audited financial statements for the year ended December 31, 2002
included in and incorporated by reference into the Statement of Additional
Information have been audited by Plante & Moran, PLLC, independent
public accountants, as indicated in their report with respect thereto. The
financial statements of the Fund as of December 31, 2001 and for the year
then ended, and the financial highlights for each of the four years in the
period then ended, incorporated by reference in the Statement of
Additional Information were audited by the Fund's former independent
auditor, Arthur Andersen LLP. Plante & Moran, PLLC replaced Arthur
Andersen LLP as the Fund's independent certified public accountants
effective May 9, 2002. Plante & Moran, PLLC did not perform any other
services for the Fund during the year ended December 31, 2002. The
address of Plante & Moran, PLLC is 27400 Northwestern Highway,
Southfield, Michigan 48034.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the policies established by the Board of Directors of the Fund,
the Investment Adviser is primarily responsible for the execution of the
Fund's portfolio transactions and the allocation of brokerage. In executing
such transactions, the Investment Adviser seeks to obtain the most
favorable execution and price taking into account such factors as price,
size of order, difficulty of execution and operation of facilities of the firm
involved and the firm's risk in positioning a block of securities.
-10-
The Investment Adviser and the Fund have no obligations to deal with any
broker or group of brokers in executing transactions in portfolio securities.
The Investment Adviser is also authorized to consider, in selecting brokers
or dealers with which such orders may be placed, certain statistical,
research and other information or services furnished to the Investment
Adviser by brokers or dealers (the terms "statistical, research and other
information or services" include advice as to the value of securities and the
responsibility of investing in, purchasing, or selling securities; the
availability of securities or purchasers or sellers of securities; and the
furnishing of analyses and reports concerning issuers, industries, securities,
economic factors and trends, and portfolio strategy in the performance of
accounts). The Investment Adviser may pay a broker a commission in
excess of that which another broker might charge in recognition of the
value of the statistical, research and other information provided by such
broker.
The Investment Adviser also makes recommendations as to the manner in
which voting rights, rights to consent to corporate action, or other rights
pertaining to the Fund's portfolio securities will be exercised.
A substantial portion of the securities in which the Fund invests may be
traded in the over-the-counter markets, and the Fund deals directly with
the dealers who make markets in the securities involved, except in those
circumstances where better prices and execution are available elsewhere.
Under the 1940 Act, persons affiliated with the Fund are prohibited from
dealing with the Fund as principal in the purchase and sale of securities.
Since transactions in the over-the-counter market usually involve
transactions with dealers acting as principal for their own account, the
Fund does not deal with affiliated persons in connection with such
transactions. However, affiliated persons of the Fund may serve as its
broker in the over-the-counter market and other transactions conducted on
an agency basis.
The Board of Directors of the Fund has adopted certain policies
incorporating the standards of Rule 17e-1 issued by the Commission under
the 1940 Act, which require that the commissions paid to affiliates of the
Fund, or to affiliates of such persons, must be reasonable and fair
compared to the commissions, fees or other remuneration received or to be
received by other brokers in connection with comparable transactions
involving similar securities during a comparable period of time. The rule
and procedures also contain review requirements and require the
Investment Adviser to furnish reports to the Board of Directors of the Fund
and to maintain records in connection with such reviews. After
consideration of all factors deemed relevant, the Board of Directors of the
Fund will consider from time to time whether the advisory fee will be
reduced by all or a portion of the brokerage commission given to brokers
that are affiliated with the Fund.
The aggregate dollar amount of brokerage commissions paid by the Fund
during the fiscal years ended December 31, 2000, 2001 and 2002 was
$19,294, $5,884, and $26,577 respectively. The lower amount of
brokerage commissions paid in 2001 was primarily due to a decrease in the
Fund's portfolio turnover rate. During the Fund's fiscal year ending
December 31, 2002, 100% of the brokerage commissions paid by the Fund
were paid to Broker Dealer Financial Services Corp. ("BDFSC"), the
Fund's principal underwriter, for 100% of the Fund's aggregate dollar
amount of transactions involving the payment of commissions effected
through such broker such year.
The rate of total portfolio turnover of the Fund through its fiscal year
ended December 31, 2002 was 11.19%.
-11-
TAXATION
Other Tax Consequences
In addition to the federal income tax consequences described in the
Prospectus applicable to an investment in the Fund, the Fund may be
subject to state or local taxes in jurisdictions in which the Fund may be
deemed to be doing business. Also, there may be other federal, state, or
local tax considerations applicable to the circumstances of a particular
investor. Prospective shareholders are therefore urged to consult their tax
advisers with respect to the effects of this investment on their own tax
situation.
FINANCIAL STATEMENTS
The Fund's statement of assets and liabilities, including the portfolio of
investments, as of December 31, 2002, 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 the last five years, are hereby incorporated by reference to
the Fund's Annual Report to Shareholders for the year ended December
31, 2002.
-12-