NOTICE AND PROXY STATEMENT
NAIC GROWTH FUND, INC.
NOTICE OF 1997 ANNUAL MEETING OF SHAREHOLDERS
MAY 14, 1998
To the shareholders of the NAIC Growth Fund, Inc.:
Notice is hereby given that the 1998 Annual Meeting of Shareholders
(the "meeting") of the NAIC Growth Fund, Inc. (the "Fund") will be held at
the Fund's principal executive offices located at 711 West Thirteen Mile
Road, Madison Heights, Michigan, on Thursday, May 14, 1998 at 2:00 p.m.
for the following purposes:
1. To elect a Board of eight (8) Directors;
2. To ratify or reject the selection of Arthur Andersen LLP as
independent auditors of the Fund for the calendar year ending December 31,
1998; and
3. To act upon such other business as may properly come before
the Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 20,
1998 as the record date for the determination of shareholders entitled to
vote at the Meeting or any adjournment thereof.
You are cordially invited to attend the Meeting. Shareholders who do
not expect to attend the Meeting in person are requested to complete, date
and sign the enclosed proxy form and return it promptly in the envelope
provided for that purpose. The enclosed proxy is being solicited on
behalf of the Board of Directors of the Fund.
By Order of the Board of Directors
Lewis A. Rockwell
Secretary
April 8, 1998
PROXY STATEMENT
NAIC GROWTH FUND, INC.
711 West Thirteen Mile Road
Madison Heights, Michigan 48071
1997 Annual Meeting of Shareholders
May 14, 1998
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of NAIC Growth Fund, Inc.,
a Maryland corporation (the "Fund"), to be voted at the 1998 Annual
Meeting of Shareholders of the Fund (the "Meeting"), to be held at the
executive offices of the National Association of Investors Corporation,
711 West Thirteen Mile Road, Madison Heights, Michigan 48071, at 2:00 p.m.
on May 14, 1998. The approximate mailing date of this Proxy Statement is
April 8, 1998.
All properly executed proxies received prior to the Meeting will be
voted at the Meeting in accordance with the instructions marked thereon or
otherwise as provided therein.
Unless instructions to the contrary are marked, proxies will be voted
for the election of eight Directors and for the ratification of the
independent auditors. Any proxy may be revoked at any time prior to the
exercise thereof by giving written notice to the Secretary of the Fund.
The Directors have fixed the close of business on March 20, 1998 as
the record date for the determination of shareholders entitled to notice
of and to vote at the Meeting and at any adjournment thereof.
Shareholders on the record date will be entitled to one vote for each
share held, with no shares having cumulative voting rights. As of
December 31, 1997, the Fund had outstanding 1,576,988 shares of common
stock, par value $0.001 per share. To the knowledge of management of the
Fund no person owned beneficially more than 5% of its outstanding shares
at such date.
To the knowledge of the Fund as of December 31, 1997, the following
number of shares of the Fund's common stock $0.001 par value were
beneficially owned by each director and by all directors and officers of
the Fund as a group:
Owner Number of Shares and Nature Percent of Class
of Beneficial Ownership as of
December 31, 1997 (a)
All Officers and Directors as
a group (8 persons) 40,563 2.57
Thomas E. O'Hara 7,583 *
Kenneth S. Janke 12,093 *
Lewis A. Rockwell 11,737 *
Peggy L. Schmeltz 6,248 *
Cynthia P. Charles 1,347 *
Carl A. Holth 1,085 *
James M. Lane 0 *
Benedict J. Smith 470 *
(a) The nature of beneficial ownership of shares shown in this column
is sole voting and investment power unless otherwise indicated. The
shares shown for Messrs. O'Hara, Janke and Rockwell include 6,483 shares
owned by the Mutual Investment Club of Detroit Limited Partnership, a
Michigan limited partnership, of which Messrs. O'Hara, Rockwell and Janke
are general partners. The individual retirement accounts of Messrs.
O'Hara and Janke are limited partners of the Mutual Investment Club of
Detroit Limited Partnership. The shares shown for Messrs. O'Hara and
Janke also include 229 shares owned by the National Association of
Investors Corporation and held by NAIC Associates, a Michigan co-
partnership, a nominee partnership in which Messrs. O'Hara, Janke and
James T. Sobol (Vice President of Finance of the Investment Adviser) are
the sole partners. The shares shown for Mr. Rockwell include 5,254shares
owned jointly with his wife. The shares shown for Mr. Janke include 5,381
shares owned by a trust of which he is trustee. The shares shown for Mrs.
Charles include 669 shares owned jointly with her children. The shares
shown for Mr. Holth are owned by a revocable living trust of which he is
trustee.
* Less than 1%.
The Directors have elected three (3) officers for the Fund. The
following sets forth information concerning each of these officers:
Office Name and Age Served Since
Chairman of the Board and
Chief Executive Officer Thomas E. O'Hara - 82 1989
President, Chief Operating
Officer and Treasurer Kenneth S. Janke - 63 1989
Secretary Lewis A. Rockwell - 79 1989
The Fund has no standing audit, 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.
A copy of the Fund's Annual Report for the year ended December 31,
1997, including audited financial statements, has been included with this
proxy statement.
The Directors of the Fund know of no business other than that
mentioned in Items 1 and 2 of the Notice of Meeting which will be
presented for consideration at the Meeting. If any other matter is
properly presented, it is the intention of the persons named in
the enclosed proxy to vote in accordance with their best judgment.
PROPOSAL NO. 1
(Election of Directors)
A Board of eight (8) Directors to serve for a term of one (1) year,
or until their successors are elected and qualified, is to be elected at
the Meeting. Unless authorization to do so is withheld, it is intended
that the proxies will be voted for the election of the nominees named
below. If any nominee becomes unavailable for election, an event not now
anticipated by the Board of Directors, the proxy will be voted for such
other nominee as may be designated by the Board of Directors. All
nominees are presently Directors of the Fund and have consented to
continuing as Directors. Listed below are all nominees and their
backgrounds.
Nominee Directors
Name and Address Age Position Director
Held Since
Thomas E. O'Hara * 82 Chairman of the Board, 1989
Chief Executive Officer
Chairman of the Board Trustee of the National Association of Investors
Corporation, the Fund's Investment Adviser (the "Investment Adviser").
Kenneth S. Janke * 63 Director, President, 1989
Chief Operating Officer
And Treasurer
President and Trustee of the Investment Adviser; Director, AFLAC; Partner,
NAIC Associates.
Lewis A. Rockwell * 79 Director and Secretary 1989
Attorney and Counsel to the law firm of Bodman, Longley & Dahling LLP,
counsel to the Fund and the Investment Adviser (January, 1990 to present);
attorney and member of the law firm of Rockwell and Kotz, P.C.(December,
1982 to January, 1990); Trustee and Secretary of the Investment Adviser.
Peggy L. Schmeltz * 70 Director 1989
Adult Education Teacher.
Cynthia P. Charles 76 Director 1989
Retired.
Carl A. Holth 64 Director 1989
President and Director, Greater Detroit Capital Corporation; Financial
Consultant and President of Carl A. Holth & Associates, Inc. (a private
financial consulting and business appraising firm located in Grosse Pointe
Woods, Michigan).
Benedict J. Smith 77 Director 1996
Retired; Senior Vice President, Manufacturers Bank (1970-1987); Director
and Treasurer, Detroit Executive Service Corps.; Director, Vista Maria;
Trustee, Henry Ford Health System, Behavioral Services.
James M. Lane 67 Director 1997
Retired; Senior Vice President, NBD Bank (1982-1994); Trustee for Wheaton
College, William Tyndale College, Baseball Chapel, Inc., Christian Camps,
Inc., and Financial Analysts Society.
* An "interested person" of the Fund within the meaning of Section
2(a)(19) of the Investment Company Act of 1940.
There were six (6) meetings of the Board of Directors held during
the past year. Each Director attended at least 75% of the meetings of the
Board of Directors during 1997, except Mr. Kenneth S. Janke who attended
four (4) and Mr. William Endicott who has resigned as Director effective
September 8, 1997.
Compensation of Directors and Officers
and Ownership Reports
The Directors of the Fund who are not affiliated with the Investment
Adviser or the Investment Adviser's affiliates are paid $1,500 per year
plus $100 per meeting attended. All other officers and directors,
including the Chairman, President and Secretary, are not compensated by
the Fund, except for out-of-pocket expenses relating to attendance at
meetings and other operations of the Fund.
Directors and officers of the Fund and certain of its affiliates and
beneficial owners of more than 10% of the Fund's common stock are required
to file initial reports of ownership and reports of changes in ownership
of the Fund's common stock pursuant to Section 16(a) of the Securities
Exchange Act of 1934, as amended. The Fund has reviewed such reports
received by it and written representations of such persons who are known
by the Fund, and based solely upon such review, the Fund believes that
during the year ended December 31, 1997 all filing requirements were met.
Investment Advisor
The Fund has entered into an Investment Advisory Agreement dated
October 2, 1989, as amended, between the National Association of Investors
Corporation (the "Investment Adviser") and the Fund (the "Advisory
Agreement"). The shareholders approved the continuance of the Advisory
Agreement through June 30, 1993 and modification to the Advisory Agreement
at the Annual Meeting of Shareholders which was held on May 21, 1992. The
Advisory Agreement, which became effective on July 2, 1990, continues in
effect for a period of two years from its effective date and thereafter
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. The
continuance of the Advisory Agreement through June 30, 1999 was approved
by the Board of Directors of the Fund at its meeting on December 4, 1997.
The Investment Adviser is a Michigan nonprofit corporation which
provides investment education and advisory services. The address of the
Investment Adviser is the same as the Fund. Messrs. O'Hara, Janke and
Rockwell, who are directors and officers of the Fund, are also trustees
and officers of the Investment Adviser. See "Proposal No. 1 - Nominee
Directors." The Fund is the Investment Adviser's sole advisory client. A
copy of the consolidated balance sheet as of September 30, 1997 of
National Association of Investment Clubs Trust, which wholly owns the
Investment Adviser, is attached hereto as Exhibit A.
The following table set forth the name, title and principal
occupation of the officers and trustees of the Investment Adviser. The
address of each is the address of the Fund.
Name Position With National
Association Of Investors Corporation
(Investment Adviser)
Warren B. Alexander Trustee
Retired
Donald E. Danko Trustee
Managing Editor of Better Investing.
Lorrie Gustin Trustee
Consultant, Stand In Office Services (1995-Present); Vice President of
W.R. Gustin & Associates, Inc. (1956-1995).
Robert W. Hague Trustee
Investment adviser for SIGMA Investment Counselors (1989-Present); Senior
Vice President of Federal-Mogul Corporation (1964-1989).
Richard H. Holthaus Trustee
Vice President, Fleishman-Hillard (1992-Present);Senior Vice President,
Christensen & Associates (1989-1992); Vice President of Investor Relations
for CitiCorp-CitiBank (1971-1989).
Kenneth S. Janke Trustee and President
None.
Kenneth R. Lightcap Trustee
Weller, O'Sullivan, Zucherman & Lightcap, (1996-Present) Vice President,
Director Public Relations, Pedone & Partners (1994-1996); Managing
Director,Manning Selvage & Lee (1992-1993); Vice President of Shareholder
Relations, Reebok Int'l, Ltd., (1989-1991); Vice President of
Public Affairs and Investor Relations for Chesebrough-Ponds, Inc.
(1976-1989).
Leroy F. Mumford Trustee
President of PlanCon Associates, Inc. (1982-Present).
Thomas E. O'Hara Trustee and Chairman
of the Board
None.
Lewis A. Rockwell Trustee and Secretary
Counsel to the law firm of Bodman, Longley & Dahling LLP (1990-Present);
Member of the law firm of Rockwell and Kotz, P.C. (1982-1990); President,
Director, Secretary, Sunshine-Fifty, Inc.
Ralph L. Seger, Jr. Trustee
President, Seger-Elvekrog, Inc. (1981-Present)
Sharon Vuinovich Trustee
Regional Vice President, McDonald's Corp.
Peggy L. Schmeltz Trustee
Adult Education Teacher.
Elizabeth N. Hamm Trustee
Adult Education Teacher.
The Investment Adviser is wholly owned by the National Association
of Investment Clubs Trust (the "Trust"), a trust formed under Michigan
law. The address of the Trust is the address of the Fund. The trustees
of the Investment Adviser are also the trustees of the Trust. No officer,
director or trustee of the Fund or the Investment Adviser has any direct
or indirect interest in the Investment Adviser or the
Trust.
Advisory Agreement
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.
Fees and Expense
For the services provided by the Investment Adviser under the
Advisory Agreement, the Fund is to pay to the Investment Adviser a monthly
fee at an annual rate of three-quarters of one percent (0.75%) of the
weekly net assets of the Fund, which fee is higher than those paid by most
other investment companies; however, if the weekly net asset value of the
Fund is below Three Million Eight Hundred Thousand and 00/100
($3,800,000.00) Dollars, no Investment Adviser's fee will be paid or
accrued by the Fund to the Investment Adviser for that week. The
Investment Adviser waived its fees from 1991 through 1995 and has waived
all of its fees for 1996 and 1997, except with respect to certain
costs and expenses incurred by the Investment Adviser in connection with
the Fund which are anticipated to be approximately six percent (6%) of the
three-quarters of one percent (0.75%) fees for 1997, or forty-five
hundredth of one percent (0.045%). These costs and expenses related to a
Consulting Agreement dated January 1, 1997 entered into by the Investment
Adviser and Hutner Capital Management Inc. ("Hutner"), whereby the
Investment Adviser retained Hutner as its consultant with respect to the
investment of certain of the assets of the Fund. Pursuant to the terms to
the Consulting Agreement, Hutner provided the Investment Adviser with
investment recommendations concerning such assets. The Investment Adviser
retained sole discretion to accept or reject such recommendations. For
its services, Hutner was paid a fee by the Investment Adviser equal to
1/2% per annum of the market value of the assets subject to the Consulting
Agreement. The arrangement with Hutner expired by its terms on December
31, 1997. The Fund made no other material payments to the Investment
Adviser in 1997.
In addition to the fee of the Investment Adviser, the Fund pays all
of the other costs and expenses of its operation including, among other
things, expenses for legal and auditing services, costs of printing
proxies, stock certificates and shareholder reports, charges of the
custodian, transfer agent, Securities and Exchange Commission fees, fees
and expenses of unaffiliated directors, accounting and pricing costs,
membership fees and trade associations, 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 in the event the average weekly net asset value of
the Fund falls below Three Million Eight Hundred Thousand and 00/100
($3,800,000.00) Dollars, the Investment Adviser will not be paid its fee,
nor will such fee be accrued. The Advisory Agreement provides that the
Fund may not incur annual aggregate expenses in excess of two percent (2%)
of the first Ten Million and 00/100 ($10,000,000.00) Dollars of the Fund's
average net assets, one and one-half percent (1 1/2%) of the next Twenty
Million and 00/100 ($20,000,000.00) Dollars of the average net assets, and
one percent (1%) of the remaining average net assets for any fiscal year.
Any excess expenses shall be the responsibility of the Investment Adviser.
The pro rata portion of the estimate annual excess expenses will be offset
against the Investment Adviser's monthly fee. In the event such amount
exceeds the fee payable in any month, no fees shall be collected by the
Investment Adviser at such time.
Termination
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 notice to the Fund.
Use of Name
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 offering was not well known. As a
result, the Investment Adviser consented to allow the Fund to use NAIC as
part of the Fund's name. The Fund acknowledges that the Investment
Adviser may withdraw from the Fund the use of its name, however in doing
so, the Investment Adviser agrees to submit the question of continuing the
Advisory Agreement to a vote of the Fund's shareholders at that time.
The Advisory Agreement also reserves the right of the Investment Adviser
to grant the use of its name in whole or in part to another investment
company or business enterprise. However, the Investment Adviser agrees to
submit the question of continuing the Advisory Agreement to the vote of
the Fund's shareholders at that time.
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.
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, the responsibility of investing in, purchasing or selling
securities; the availability of securities or purchasers or sellers of
securities; and the furnishing of analysis 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 will also make 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 will
invest may be traded in the over-the-counter market, and the Fund intends
to deal 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 will 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 Securities and
Exchange 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 its fiscal year ended December 31, 1997 was $8,244.
PROPOSAL NO. 2
(Selection of Independent Accounts)
The Board of Directors has selected Arthur Andersen LLP, independent
accountants, to examine the financial statements of the Fund for the year
ending December 31, 1998. Unless a contrary specification is made, the
accompanying proxy will be voted in favor of ratifying the selection of
such accountants. Representatives of Arthur Andersen LLP are expected to
be present at the Meeting where they will have the opportunity to make a
statement if they desire to do so, and will be available to respond to
appropriate questions. There has been no change in the Fund's accountants
since the creation of the Fund. The Board of Directors recommends that
shareholders vote "FOR" the ratification of Arthur Andersen LLP as the
independent accountants for the Fund.
PROPOSALS OF SHAREHOLDERS
Shareholder proposals for the 1999 Annual Meeting of Shareholders
must be received by the Fund at P.O. Box 220, Royal Oak, Michigan 48068
before the close of business on December 10, 1998 for consideration for
inclusion in the Fund's proxy statement. Shareholder proposals should be
addressed to the attention of the Fund's Secretary.
MISCELLANEOUS
The Board of Directors is not aware of any other business that will
be presented for action at the Meeting. If any other business comes
before the Meeting, the Management Proxy Committee has been directed by
the Board of Directors to cast such votes at its discretion. The cost of
preparing and mailing the notice of meeting, proxy statement and proxy to
the shareholders will be borne by the Fund.
By Order of the Board of Directors
April 8, 1998
Lewis A. Rockwell, Secretary
Exhibit A
Auditors Report
Plante & Moran LLP
Independent Auditor's Report
To the Trustees
National Association of Investment
Clubs Trust and Subsidiaries
We have audited the accompanying consolidated statement of financial
position of National Association of Investment Clubs Trusts and
subsidiaries ( a not-for-profit corporation) as of September 30, 1997
and 1996 and the related consolidated statements of activities and changes
in trust net assets and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are
free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
National Association of Investments Clubs Trust and subsidiaries as
of September 30, 1997 and 1996 and the changes in their net assets and
their cash flows for the years then ended, in conformity with generally
accepted accounting principles.
Plante & Moran, LLP
November 14, 1997
National Association of Investment Clubs Trust and Subsidiaries
Consolidated Statement of Financial Position
September 30, 1997 and 1996
1997 1996
Assets
Current Assets
Cash and cash equivalents $4,235,405 $ 4,358,202
Investments (Note 2) 962,512 4,805,230
Accounts Receivable (less allowance for
uncollectible accounts $29,955 in
1997 and 1996) 290,098 306,154
Inventories 337,454 295,172
Deferred tax asset (Note 4) 16,085 12,889
Prepaid expenses and other 212,653 185,934
Total current assets 6,054,207 9,963,581
Property, Buildings and Equipment (Note 3) 2,842,864 2,367,797
Other Assets
Investments (Note 2) 8,051,476 541,547
Deferred tax asset (Note 4) 62,000 --
Total other assets 8,113,476 541,547
Total assets $17,010,547 $12,872,925
Liabilities and Trust Net Assets
Current Liabilities
Accounts payable $ 445,010 $ 507,818
Deferred revenue 5,210,678 4,400,206
Accrued compensation 59,307 254,357
Other accrued liabilities 164,049 407,669
Federal income taxes payable 597,575 210,822
Total current liabilities 6,476,619 5,780,872
Deferred Compensation 1,807,078 541,072
Deferred Tax Liability (Note 4) -- 293,865
Total liabilities 8,283,697 6,615,809
Trust Net Assets - Unrestricted 8,726,850 6,257,116
Total liabilities and trust equity $17,010,547 $12,872,925
NATIONAL ASSOCIATION OF INVESTMENT CLUBS TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 and 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of National
Association of Investment Clubs Trust and its wholly-owned subsidiaries,
National Association of Investors Corporation, NAIC Investor Advisory
Service Corporation and National Investors Association (collectively, the
Trust). All significant intercompany transactions have been eliminated in
consolidation.
The Trust is engaged principally in providing its members with the tools
to make informed investment decisions in the common stock market. Revenue
consists primarily of membership dues, subscriptions, and sales of
publications and market analysis tools to members throughout the country.
Revenue Recognition - Membership dues and publication subscriptions are
deferred and recognized ratably over the applicable term. Advertising
revenue is recognized at the time of the publication. Sales revenue is
recognized at the time of shipment to members.
Cash Equivalents - The Trust considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
Investments - Investments in equity securities with readily determinable
fair market values and in all debt securities are recorded at fair market
value.
Inventories - Inventories consist primarily of investment software, books
and publications for sale to members, recorded at the lower of cost or
market value determined using the first-in, first-out method.
Property, Buildings and Equipment - Property, buildings and equipment are
recorded at cost. Depreciation is computed principally on the straight-
line method over the estimated useful lives of the assets. Costs of
maintenance and repairs are charged to expense when incurred.
Income Taxes - The Trust and its subsidiaries are not exempt from income
taxes. A current tax liability or asset is recognized for estimated taxes
payable or refundable on tax returns for the year. Deferred tax
liabilities or assets are recognized for the estimated future tax effects
of temporary differences between financial reporting and tax accounting
and operating loss carryforwards.
Profit-Sharing Plan - The Trust has a defined contribution profit-sharing
plan covering substantially all employees with more than one year of
service. The benefits are based on years of service and discretionary
employer contributions based on net profit of the Trust as a percentage of
participants' wages. Profit-sharing expense for fiscal 1997 and 1996
totaled $133,785 and $124,810, respectively.
Deferred Compensation - The Trust has deferred compensation arrangements
with an officer. One of the arrangements provides for a lump-sum benefit
at retirement and the other provides annual defined benefits for the
officer's lifetime. The estimate present value of the Trust's obligations
under these arrangements is reflected as a liability in the accompanying
statement of financial condition. Deferred compensation expense for
fiscal 1997 and 1996 totaled $1,122,174 and $13,507, respectively.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities and the
reported amounts of revenue and expenses. Actual results could differ
from those estimates.
Functional Allocation of Expenses - The costs of providing the Trust's
member services totaled approximately $14,052,000 and $11,438,000,
management and general costs totaled $707,000 and $555,700, and membership
development costs totaled $548,000 and $426,000 for 1997 and 1996,
respectively.
NOTE 2 - INVESTMENTS
Investments, stated at fair value, consist of the following:
1997 1996
U.S. government securities $3,354,485 $1,342,599
Corporate bonds 1,184,099 234,070
Equity securities 3,596,474 2,545,761
Certificate of deposit 712,512 982,376
Mutual funds 166,418 241,971
Total $9,013,988 $5,346,777
Investment income for the year ended September 30, 1997 and 1996 consists
of the following:
1997 1996
Dividend and interest $ 434,847 $ 337,252
Net unrealized gains and losses 946,440 251,917
$1,381,287 $ 589,169
NOTE 3 - PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment are summarized as follows:
1997 1996
Land $ 163,197 $ 163,197
Buildings and improvements 1,761,843 1,497,704
Machinery and equipment 1,230,233 868,605
Furniture and fixtures 574,092 466,960
Vehicles 51,218 51,218
Total cost 3,780,583 3,047,684
Less accumulated depreciation 937,719 679,887
Total $ 2,842,864 $ 2,367,797
Depreciation expense for the years ended September 30, 1997 and 1996
totaled $231,924 and $191,256, respectively.
NOTE 4 - INCOME TAXES
The provision for income taxes for the year ended September 30, 1997 and
1996 is as follows:
1997 1996
Current $1,625,341 $ 950,916
Deferred expense (benefit) (359,061) 21,000
Total income tax expense $1,266,280 $ 971,916
A reconciliation of the provision for income taxes from continuing
operations to income taxes computed by applying the statutory United
States federal tax rate to income before taxes is as follows:
1997 1996
Tax, computed at 34 percent of pretax income$1,270,245 $ 1,039,298
Effect of nondeductible expenses 13,680 --
Effect of nontaxable income (17,645) (67,382)
Total income tax expense $1,266,280 $ 971,916
The details of the net deferred tax liability are as follows:
1997 1996
Total deferred tax liabilities $ (743,895) $ (477,829)
Total deferred tax assets 821,980 196,853
Net deferred tax liability $ 78,085 $ (280,976)
Deferred tax liabilities result primarily from the use of accelerated
depreciation for tax reporting purposes and unrealized gains on
investments. Deferred tax assets result from expenses recorded for
financial reporting purposes but not currently deductible for tax purposes
and revenue deferred for financial reporting but currently taxable.
Cash paid for income taxes totaled $1,238,588 and $673,978 for the years
ended September 30, 1997 and 1996, respectively.
NOTE 5 - LOW COST INVESTMENT PLAN
The Trust acts as agent for members for the purchase of shares of
corporations that have a dividend reinvestment plan and are willing to
accept the Trust's purchases on behalf of members. Funds received from
members for such purchases are placed in escrow prior to the periodic
purchase dates specified by each corporation's dividend reinvestment
agent. At September 30, 1997 and 1996, member funds held in escrow by the
Trust totaled approximately $169,000 and $196,000 respectively.
Although these funds are held by the Trust, they are excluded from the
accompanying consolidated statement of financial position since they are
not assets of the Trust.
