NOVEMBER 2004

Main Street Meets Wall Street for Hundreds of Thousands of American Investors

NAIC Backgrounder

NAIC is a vital and essential thread in the fabric of the U.S. economy, an organization that helps hundreds of thousands of Americans with modest means to successfully participate in our equity markets.

NAIC serves 225,000 members with a full-time staff of 60, augmented by 1,800 dedicated volunteers.

NAIC has been educating and training a nation of successful investors for more than 50 years. Since its inception, the NAIC has educated over 5 million new and experienced investors from all walks of life. Our programs introduce individuals to the rewards of financial literacy and sound participation in the U.S. stock market. We provide the most detailed and factual investment information and education for our members so that they become lifetime investors, adhering to the old-fashioned, time-proven concepts of self-discipline and saving for the future.

The NAIC converted from taxable status to tax-exempt status in 1998. NAIC cited the following reasons, among others, in its application for tax-exempt status:

1. NAIC's broad educational nature which is recognized and respected by public officials, including those at the SEC;

2. Public attitudes toward investment education, which centered on growing demand for investor education across middle-class America;

3. IRS' approval of tax-exempt status in 1998 for the Alliance for Investor Education, an organization of which NAIC was a member; and

4. IRS' approval of tax-exempt status for other investment education entities, including the American Association of Individual Investors, which also was a member of the Alliance for Investor Education.

How does our tax-exempt status benefit NAIC members? First and foremost, it keeps NAIC dues low and costs down for our members. The NAIC is able to provide cost-efficient programs and financial literacy services to members -- bringing Wall Street to Main Street -- because we keep our focus and efforts on only one thing -- the principles of sound financial investment education for our members. Our tax-exempt status allows us to provide this education to the largest number of members possible in an efficient manner. In 1998, the IRS reviewed our proposed structure in great detail and approved it under their strict and comprehensive guidelines for tax-exemption. We consider this an ongoing covenant with our 225,000 members to fulfill that educational mission.

What is the NAIC's mission?

It is appropriate to restate the principles that are behind everything we do -- a reminder that every employee, officer, volunteer and trustee of the NAIC holds to the same commitment, standard of excellence and beliefs about our educational mission.

Our mission at NAIC is two-fold. We first introduce individuals to the benefits of owning stock. Second, the NAIC provides a program of investment education that allows individuals to become successful, strategic lifetime investors. The organization encourages a long-term approach to investing and financial literacy that focuses on the selection and ownership of quality companies with expected returns that may result in delivering a doubling in value over five-year time horizons.

The NAIC approach to strategic investing is a fundamental one. A member in an investment club, or an individual member, learns to use tools that help them take a vast amount of investment information and put it into a simple picture. The NAIC approach is a structured discipline that focuses on essential characteristics of companies and industries. Each company's track record is scrutinized against certain core characteristics, such as strong relative growth and profitability, and all investment decisions are based on these criteria.

While there is no crystal ball for perfect investment choices and no guarantees of financial success, NAIC members gain an understanding of why and how corporate sales drive earnings and earnings drive stock price. Expectations for investment returns are based on sound financial assumptions and judgments relative to continued sales growth, profit margins, and earnings being reflected in the stock price over the long-term. The NAIC equips its members with the tools and financial literacy to build a strategic framework for selecting investments and implementing a disciplined program of sound portfolio management.

Using the NAIC approach, less than 2 percent of NAIC investment clubs owned Enron stock. And, since our methodology is driven by earnings and historic price/earnings ratios analyzed through the use of the Stock Selection Guide, our members generally avoided the technology bubble since few of those companies had any earnings, most had extreme price/earnings ratios and none had any significant history.

How did the NAIC get started?

The NAIC began as an experiment in 1940 by Thomas E. O'Hara, now chairman emeritus of the NAIC. O'Hara partnered with the late George A. Nicholson, Jr., considered the father of the modern investment club movement, and a few other friends to form the Mutual Investment Club of Detroit. They believed in three investment principles: (1) invest regularly; (2) reinvest earnings; and (3) discover leadership growth companies at a reasonable price. A fourth principle -- encourage prudent diversification -- was added later.

Thomas E. O'Hara believed so strongly in the lessons learned through the Mutual Investment Club of Detroit experience that in 1951 he took the concept to a national level by creating the NAIC to further develop the principles of investing that the Mutual Investment Club of Detroit had used so successfully for 10 years. The NAIC's early objective was to spread the word that the principles really worked and could help anyone become a successful lifetime investor, including those of modest means. O'Hara, now 89, is still championing investment education and empowerment and is an active participant at NAIC events and an active personal investor using NAIC principles.

The NAIC's objectives have never changed. Individual investors and investment clubs understand that sound NAIC methodology provides a psychological buffer against the bewildering volatility of the stock market. The club environment becomes a launching pad for investors, removing some of the mystery and enabling members to create their own program of strategic, long-term investing.

Arthur Levitt, former Chairman of the Securities and Exchange Commission said it well, "For half a century, NAIC has been a leader in providing easily accessible and unbiased information to help individuals learn how to invest wisely." We have never strayed from that philosophy.

NAIC investors are anything but average. More than 225,000 members invest both on their own, and within the investment club structure where they learn and explore as a group. The NAIC has grown primarily through grass roots, word-of-mouth communications to become the premier investment education organization in the world.

What is the benefit of NAIC membership?

Long-term performance in the stock market by NAIC members has generally outperformed market benchmarks. The NAIC's Top 100 Index is a representative benchmark of the aggregate results achieved by NAIC investors. The Index is compiled from our annual survey of the most widely held companies. It is a unique Index that represents actual holdings of individual investors, not made up of selected companies. It is market-weighted, with each stock affecting the Index in proportion to the number of shares held by NAIC members based on the latest annual survey. This index was created in 1998 and has been calculated monthly back to 1986. Over 15 years since its inception, the Top 100 Index has achieved an annualized price appreciation of 12.5 percent versus 10.9 percent for the S&P 500 -- an advantage of 1.6 percentage points, or 14.7 percent higher than the S&P 500.

In addition to our 225,000 individual and club members, the NAIC partners with more than 200 of America's top publicly traded companies. Our members gain in-depth knowledge and understanding of these companies and the industries in which they operate through their active educational participation in our seminars and Investor Fairs. The companies, in turn, have the opportunity to reach new, well-informed investors.

The NAIC is passionate about educating American consumers. In 2004, in an effort to spread the word about strategic investing after the 2001 stock market downturn and subsequent market corrections, we contracted with Harris Interactive to carefully research the investment culture of the American public. The result was the creation of the Voice of the American Shareholder Poll, surveying all individual investors, not just NAIC members. We have conducted three quarterly surveys and have offered the results to all U.S. government agencies.

A significant portion of the poll is devoted to the Investor Confidence Index, modeled after the University of Michigan Consumer Confidence Index. The NAIC expects this to become a significant benchmarking measure for many governmental agencies and publicly traded companies. A main purpose of the Poll is to keep NAIC's curriculum and programs current. The results of the survey allow NAIC to keep its educational programs focused and up-to-date.

The Securities and Exchange Commission is currently using this NAIC data in creating its own educational roadmap for investors; the Department of Commerce has requested the data for use in tax policy design and the most recent request has come from the Department of the Treasury after hearing a presentation by NAIC's CEO, Richard A. Holthaus, at the 2004 annual meeting of the National Investor Relations Institute. We provide the data to these governmental agencies at no cost.

Peter Lynch, in his 1994 book, Beating the Street and in subsequent books, covers the NAIC with the headline "8,000 Investment Clubs Can't Be Wrong." Since the publication of that book, we have grown to more than 22,000 clubs, yet the philosophy remains the same. We offer the American consumer the best investment training and education available today -- we take the approach of the tortoise, not the hare.

How is NAIC structured?

The NAIC's current organizational structure provides for separation of tax-exempt operations and activities from taxable operations and activities. The tax-exempt operations are segregated from other activities in NAIC. NAIC's revenue is derived primarily from membership dues, magazine advertising, conference fees and sales of investment publications, software and materials.

The day-to-day operations of NAIC are managed at NAIC headquarters located in Madison Heights, Michigan. This cadre staff of 60 supports the chapters, clubs, members and volunteers in delivering educational programs throughout the country. The headquarters staff is organized around the areas of program development, membership building, publishing, chapter development and online services.

NAIC has two divisions, the National Investor Association ("NIA") and the Computer Group ("CG"). The NIA is managed by a volunteer board of 26 members who in turn, manage the 110 chapters and 22,000 clubs composed of more than 225,000 members. They organize national and regional events including the Better Investing National Convention. The CG is managed by a volunteer board of 34 members.

The CG created the first NAIC Web Site (the current Web Site approaches 7,000,000 page views per month) and promotes the use of technology tools and services to educate members in obtaining investment education and gathering information online. The CG advisory board is made up of volunteers with significant technology experience and backgrounds, including a number of doctoral degrees. The CG organizes and manages a myriad of regional technology trainings in addition to a national CompuFest held annually. The volunteer members of the NIA and CG boards receive no compensation.

The sole voting member of NAIC is the National Association of Investment Clubs Trust (the "Trust"), a taxable trust formed in 1951, under the State of Michigan trust laws. The Trust serves as the parent entity for both the tax-exempt operations and activities of NAIC and the taxable operations and activities described below. The Trust functions as a holding company without operations of its own.

The purpose of the Trust, as stated in its organizational documents, is to aid in the preservation and strengthening of democratic capitalism by educating people in the investment principles set forth by the original founders of the Mutual Investment Club of Detroit and to provide investment education to any investment club or individual. The Trust's mission is to provide a center for the exchange of information and ideas between member investment clubs, provide a means to form and actively promote new investment clubs; set and maintain standards for the clubs' operation; act as a source of stabilization of the investment club movement; teach the discriminating use of investment data; and provide training for club volunteers.

The Trust is governed by a Board of Trustees and is not owned, directly or indirectly, by any person or entity. The trustees are elected for life but may be removed at any time by a majority vote of the trustees. Many of the original trustees from 1951 are still active participants in fulfilling the mission of the Trust, which meets at least annually to manage the critical aspects of the entities for which the Trust is responsible. Their backgrounds range from a CPA and CFO, two attorneys, and retired corporate executives from the fields of marketing, advertising, banking and telecommunications. More than 500 years of cumulative educational, business and financial experience are represented on this board.

The Trust is also the sole shareholder of NAIC Holding Corporation, a Michigan for-profit corporation ("Holding"). This is a holding company for the Trust's taxable operations. Holding owns Growth Fund Advisor, Inc., a Michigan for-profit corporation ("Advisor") and NAIC Services Corporation, a Michigan for-profit corporation ("Services"). Prior to its dissolution in April 2004, NAIC Investor Advisory Service, a Michigan for-profit corporation ("IAS"), was also wholly-owned by Holding.

What other organizations are involved with NAIC?

Advisor is an investment advisory company that serves as the investment manager for NAIC Growth Fund, Inc., a Maryland corporation ("GRF"). Advisor's revenue consists solely of investment management fees paid by GRF. Services is presently inactive, without operations or activities. The financial results of the Trust, Holding, Advisor and Services are reported on a consolidated basis and they file a combined IRS Form 1120, U.S. Corporation Income Tax Return.

GRF is a publicly held, closed-end mutual fund. GRF is registered with the SEC, and its shares are listed on the Chicago Stock Exchange. GRF was founded to provide NAIC members and the public with an opportunity to invest in a diversified investment vehicle managed according to the NAIC investment philosophy. This investment management philosophy is unique among public mutual funds and has provided a clear demonstration of the long-term success of the NAIC investment philosophy. During the five years ended December 31, 2003, the NAIC Growth Fund's compound annual total return, dividends included, was 5.41 percent on a net asset value basis and 8.46 percent on a market value basis, compared with a compound annual return for the S&P 500 over the same period of -0.61 percent. GRF is a separate legal entity with its own Board of Directors and files its own IRS Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies.

The Investment Education Institute, a Michigan non-profit corporation ("IEI"), was formed in 1994 and provides a variety of programs for investment information and education with a primary focus on programs for youth. The IEI is incorporated as a directorship with no members. The IEI has its own board of directors who make decisions on programs and initiatives. Directors of IEI are volunteers and receive no compensation. IEI reports its financial activities separately and files an IRS Form 990-PF, Return of Private Foundation.

NAIC Associates, a Michigan co-partnership ("Associates"), serves as the nominee purchaser of corporate reinvestment plan shares on behalf of members under NAIC's Low Cost Investment Plan. Associates facilitates the transfer of shares to the participants in the plan.

Our commitment

Today, the mantle of leadership woven by O'Hara and Nicholson has been passed to Ken Janke and Dick Holthaus. Their credentials as experts in retail investing as well as their passion for the NAIC's mission are unassailable. Ken has been a leader with NAIC since 1960 -- more than 40 years of dedicated service. Ken has served as the Chairman of the World Federation of Investors, is a Fellow of the Financial Analysts Federation, a member of the New York Stock Exchange Individual Investor Advisory Committee and is a champion of the NAIC, serving as President and Director of the NAIC Growth Fund, the President of the Investment Education Institute and a leading member of the Board of Trustees of the National Association of Investors Corporation.

Dick has been a prominent voice of the NAIC for more than 20 years, serving on the Board of Trustees before joining the management team in 2002 as Chief Executive Officer. Dick brings years of significant financial and management expertise to NAIC, with a long tenure managing Citicorp's international financial network; as a senior executive with two prominent investor relations firms. Much of his career is marked by innovation aimed at either helping corporations attract individual (retail) investors or helping those individual investors find the right corporate investments for their needs.