ADVANCE CAPITAL I, INC. P.O. Box 3144
AN INVESTMENT COMPANY WITH FIVE FUNDS Southfield, MI 48037
Michigan (248) 350-8543
Toll Free (800) 345-4783
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PROSPECTUS
ADVANCE CAPITAL I, INC. (the COMPANY) is an open-end,
diversified management investment company (a mutual fund)
offering shares in five investment portfolios.
INVESTMENT OBJECTIVES:
THE GROWTH PORTFOLIOS:
The EQUITY GROWTH FUND seeks to provide long-term growth of
capital through investment primarily in common stocks of small,
rapidly growing companies. Total return will consist primarily
of capital appreciation (or depreciation). Current income is
not an objective of the EQUITY GROWTH FUND. The BALANCED FUND
seeks to provide capital appreciation, current income, and
preservation of capital by investing in a diversified portfolio
of common stocks and bonds. Common stocks are generally
expected to represent approximately 60% of total assets, and
fixed income securities, including cash reserves, will represent
the remaining assets. There is no assurance that either Fund will
achieve its investment objective. The CORNERSTONE STOCK FUND seeks
to provide long term growth of capital through investing primarily
in common stocks of large, well-established companies. Total return
will consist primarily of capital appreciation (or depreciation).
Current income is not an objective of the CORNERSTONE STOCK FUND and
any such income should be considered incidental.
THE INCOME PORTFOLIOS:
The BOND FUND and the RETIREMENT INCOME FUND seek to provide
investors with high current income. Each Fund invests in fixed
income securities within prescribed maturity and credit quality
standards. There is no assurance that either of these Funds will
achieve its investment objective. Up to 33 percent of the
RETIREMENT INCOME FUND may be invested in fixed income securities
which carry quality ratings below investment grade from the major
rating agencies. Securities with such ratings are commonly
referred to as "high yield bonds" or "junk bonds" and are
considered speculative by these agencies. See "Investment Risks
of Lower Rated Securities".
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THIS PROSPECTUS PROVIDES KEY INFORMATION YOU NEED TO KNOW ABOUT
THE COMPANY BEFORE INVESTING. WHILE THE PROSPECTUS IS DESIGNED
TO BE CONCISE AND STRAIGHTFORWARD, YOU MAY HAVE QUESTIONS OR
REQUIRE ADDITIONAL INFORMATION. PLEASE DO NOT HESITATE TO
CONTACT US DIRECTLY.
SET THIS INFORMATION ASIDE FOR FUTURE REFERENCE.
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Additional information about the COMPANY, contained in the
Statement of Additional Information, has been filed with the
Securities and Exchange Commission and is available upon request
without charge by writing to the COMPANY at the above address or
by calling (248) 350-8543 or (800) 345-4783. The Statement of
Additional Information bears the same date as this Prospectus
and is incorporated by reference in its entirety into this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
October 28, 1998
TABLE OF CONTENTS
Page
------
THE EXPENSE TABLE............................................ 2
FINANCIAL HIGHLIGHTS......................................... 2
GENERAL INFORMATION.......................................... 5
INVESTMENT INFORMATION....................................... 5
Investment Objectives - Growth Funds............. 5
Investment Objectives - Income Funds............. 5
Investment Policies of the Funds................. 6
Other Investment Policies........................ 9
Investment Risks of Lower Rated Securities....... 12
Investment Limitations........................... 12
DISTRIBUTION OF SHARES....................................... 13
NET ASSET VALUE.............................................. 13
INVESTING IN THE FUNDS....................................... 13
Purchases By Mail................................ 14
Purchases By Wire................................ 14
Minimum Investment Required...................... 14
What Shares Cost................................. 14
Certificates and Confirmations................... 14
Dividends........................................ 14
Capital Gains.................................... 15
TRANSFERRING SHARES.......................................... 15
REDEEMING SHARES............................................. 15
Written Requests................................. 15
Signatures....................................... 15
Telephone Requests............................... 15
Receiving Payment................................ 16
Redemption Before Purchase Instruments Clear..... 16
Accounts With Low Balances....................... 16
Redemption In Kind............................... 16
DISTRIBUTION PLAN............................................ 16
MANAGEMENT OF THE COMPANY.................................... 17
EXPENSES OF THE COMPANY...................................... 18
TAX INFORMATION.............................................. 19
DESCRIPTION OF CAPITAL STOCK................................. 19
MISCELLANEOUS................................................ 19
<PAGE>
THE EXPENSE TABLE
The purpose of the Expense Table is to assist in
understanding the various fees and expenses, both direct and
indirect, that will accompany an investment in the Advance
Capital I, Inc. - Equity Growth, Bond, Balanced, Retirement
Income and Cornerstone Stock Funds (the FUNDS). This
information may be useful when comparing these FUNDS to other
investment alternatives. See MANAGEMENT OF THE COMPANY and
EXPENSES OF THE COMPANY for more information.
<TABLE>
<CAPTION>
EQUITY RETIREMENT CORNERSTONE
GROWTH BOND BALANCED INCOME STOCK
------ ---- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
and Reinvested Dividends
(as a percentage of offering price)..................... 0% 0% 0% 0% 0%
Deferred Sales Load (as a percentage of
original purchase price)................................ 0% 0% 0% 0% 0%
Redemption Fee............................................ None None None None None
Exchange Fee.............................................. None None None None None
Annual Fund Operating Expenses
(as a percentage of average net assets):
Management Fees........................................... .70% .40% .70% .50% .40%
12b-1 Fees (A)............................................ .25% .00% .25% .25% .25%
Other Expenses............................................ .12% .14% .09% .07% .09%
---- ---- ---- ---- ----
Total Fund Operating Expenses............................. 1.07% .54% 1.04% .82% .74%
===== ==== ===== ==== ====
</TABLE>
<TABLE>
<C> <C> <C> <C> <C> <C>
Example:
You would pay the following expenses on a $ 11 $ 6 $ 11 $ 8 $ 8 1 Year
$1,000 investment, assuming (1) a 5% $ 34 $ 17 $ 33 $ 26 $ 24 3 Years
annual return and (2) redemption at the $ 59 $ 30 $ 57 $ 45 NA 5 Years
end of each period. $131 $ 68 $127 $100 NA 10 Years
</TABLE>
(A) Annual 12b-1 fees of .25% have been authorized for all FUNDS
and suspended indefinitely in the Bond Fund. (See DISTRIBUTION
PLAN for additional information)
THE AMOUNTS SHOWN IN THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED
A REPRESENTATION OF PAST OR FUTURE EXPENSES. THE ACTUAL
EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The financial highlights for the Equity Growth, Bond, Balanced,
and Retirement Income Funds for the years ended December 31, 1995
through December 31, 1997 have been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report covering those years is included
in the Statement of Additional Information. The financial highlights
for the years ended December 31, 1988 through December 31, 1994 were
audited by other independent accountants whose reports for those periods
expressed unqualified opinions.
2
<PAGE>
The tables below give you information about each fund's financial history.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
EQUITY GROWTH FUND (a) ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
SELECTED PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $14.72 $12.53 $9.08 $9.46 $9.94 $9.83 $8.89 $9.79 $8.79 $7.46
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income
(loss) (0.09) (0.07) (0.03) (0.03) 0.12 0.10 0.14 0.19 0.26 0.24
Net realized and unrealized
gain (loss) on investments 2.69 2.26 3.48 (0.35) 0.07 0.11 1.78 (0.90) 1.85 1.47
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 2.60 2.19 3.45 (0.38) 0.19 0.21 1.92 (0.71) 2.11 1.71
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions
Net investment income 0.00 0.00 0.00 0.00 (0.12) (0.10) (0.14) (0.19) (0.26) (0.24)
Net realized gain on
investments (0.07) 0.00 0.00 0.00 (0.55) 0.00 (0.84) 0.00 (0.85) (0.14)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.07) 0.00 0.00 0.00 (0.67) (0.10) (0.98) (0.19) (1.11) (0.38)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end
of year $17.25 $14.72 $12.53 $9.08 $9.46 $9.94 $9.83 $8.89 $9.79 $8.79
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN 17.68% 17.48% 38.00% -4.02% 2.13% 2.22% 20.94% -7.47% 23.81% 22.48%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of year
(in thousands) $54,332 $38,767 $25,625 $12,634 $7,577 $7,094 $6,275 $4,310 $2,405 $692
Ratio of expenses to
average net assets 1.07% 1.09% 1.12% 1.21% 1.16% 1.22% 1.38% 1.46% 1.31% 0.74%
Ratio of net investment
income (loss) to average
net assets -0.58% -0.50% -0.29% -0.30% 1.27% 1.05% 1.37% 2.04% 2.59% 2.75%
Portfolio turnover rate 20.53% 24.75% 13.86% 18.05% 135.55% 96.05% 86.48% 81.13% 112.31% 156.56%
Average commission rate
per share (b) $0.0259 $0.0261
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
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1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
BOND FUND ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
SELECTED PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $10.37 $10.79 $9.61 $10.82 $10.51 $10.52 $9.91 $9.90 $9.54 $9.83
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.69 0.70 0.70 0.71 0.72 0.70 0.74 0.77 0.78 0.80
Net realized and unrealized
gain (loss) on investments 0.24 (0.42) 1.18 (1.21) 0.45 0.01 0.62 0.02 0.36 (0.28)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.93 0.28 1.88 (0.50) 1.17 0.71 1.36 0.79 1.14 0.52
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions
Net investment income (0.69) (0.70) (0.70) (0.71) (0.72) (0.70) (0.74) (0.78) (0.78) (0.81)
Net realized gain on
investments (0.09) 0.00 0.00 0.00 (0.14) (0.02) (0.01) 0.00 0.00 0.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.78) (0.70) (0.70) (0.71) (0.86) (0.72) (0.75) (0.78) (0.78) (0.81)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end
of year $10.52 $10.37 $10.79 $9.61 $10.82 $10.51 $10.52 $9.91 $9.90 $9.54
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN 9.41% 2.81% 20.15% -4.64% 11.48% 7.04% 14.26% 8.52% 12.64% 4.87%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of year
(in thousands) $4,203 $4,430 $4,527 $3,999 $4,741 $5,793 $2,439 $1,488 $778 $565
Ratio of expenses to
average net assets 0.54% 0.55% 0.55% 0.60% 0.61% 0.75% 0.85% 0.87% 0.86% 0.45%
Ratio of net investment
income to average net assets 6.65% 6.71% 6.80% 7.06% 6.57% 6.69% 7.36% 8.00% 7.93% 8.14%
Portfolio turnover rate 21.95% 19.77% 6.69% 21.92% 35.99% 38.22% 25.47% 7.41% 2.25% 63.69%
</TABLE>
(a) Effective December 29, 1993, the investment objectives of
the Equity Growth Fund were changed by shareholder vote and
T. Rowe Price Associates, Inc. became the sub-investment
adviser with the primary responsibilty for the daily security
investment decisions.
(b) For fiscal years beginning after September 1, 1995, a fund
is required to disclose its average commission rate per
share for security trades on which commissions are charged.
3
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
BALANCED FUND (a) ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
SELECTED PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $13.68 $12.57 $9.97 $10.58 $10.36 $10.38 $9.55 $10.10 $9.35 $8.33
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.45 0.41 0.35 0.32 0.29 0.33 0.39 0.44 0.48 0.43
Net realized and unrealized
gain (loss) on investments 2.32 1.37 2.75 (0.61) 0.22 (0.02) 1.39 (0.55) 1.24 1.01
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 2.77 1.78 3.10 (0.29) 0.51 0.31 1.78 (0.11) 1.72 1.44
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions
Net investment income (0.45) (0.41) (0.35) (0.32) (0.29) (0.33) (0.39) (0.44) (0.47) (0.42)
Net realized gain on
investments (0.31) (0.26) (0.15) 0.00 0.00 0.00 (0.56) 0.00 (0.50) 0.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.76) (0.67) (0.50) (0.32) (0.29) (0.33) (0.95) (0.44) (0.97) (0.42)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end
of year $15.69 $13.68 $12.57 $9.97 $10.58 $10.36 $10.38 $9.55 $10.10 $9.35
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN 20.50% 14.48% 31.53% -2.72% 4.97% 3.07% 18.32% -1.08% 18.59% 17.52%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of year
(in thousands) $99,421 $75,202 $59,299 $44,221 $46,690 $42,440 $22,677 $14,128 $3,948 $745
Ratio of expenses to
average net assets 1.04% 1.06% 1.07% 1.10% 1.08% 1.13% 1.38% 1.35% 1.29% 0.53%
Ratio of net investment
income to average net assets 3.02% 3.17% 3.11% 3.18% 2.77% 3.24% 3.75% 4.56% 4.68% 4.62%
Portfolio turnover rate 10.13% 12.79% 22.72% 34.97% 101.29% 42.39% 50.94% 46.72% 83.79% 106.94%
Average commission rate
per share (b) $0.0266 $0.0278
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995 1994 1993
RETIREMENT INCOME FUND ----- ----- ----- ----- -----
SELECTED PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $10.20 $10.51 $9.22 $10.54 $10.00
------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.74 0.75 0.76 0.76 0.82
Net realized and unrealized
gain (loss) on investments 0.45 (0.31) 1.29 (1.32) 0.61
------ ------ ------ ------ ------
Total from investment
operations 1.19 0.44 2.05 (0.56) 1.43
------ ------ ------ ------ ------
Less distributions
Net investment income (0.74) (0.75) (0.76) (0.76) (0.82)
Net realized gain on
investments 0.00 0.00 0.00 0.00 (0.07)
------ ------ ------ ------ ------
Total distributions (0.74) (0.75) (0.76) (0.76) (0.89)
------ ------ ------ ------ ------
Net asset value, end
of year $10.65 $10.20 $10.51 $9.22 $10.54
====== ====== ====== ====== ======
TOTAL RETURN 12.20% 4.54% 22.96% -5.34% 13.92%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of year
(in thousands) $200,511 $170,799 $139,299 $84,162 $47,343
Ratio of expenses to
average net assets 0.82% 0.82% 0.84% 0.88% 0.88%
Ratio of net investment
income to average net assets 7.21% 7.45% 7.64% 7.89% 7.41%
Portfolio turnover rate 16.60% 8.34% 15.63% 12.27% 37.59%
</TABLE>
(a) Effective December 29, 1993, T. Rowe Price Associates,
Inc. became the sub-investment adviser with the primary
responsibility for the daily equity investment decisions
for the Balanced Fund.
(b) For fiscal years beginning after September 1, 1995, a
fund is required to disclose its average commission rate
per share for security trades on which commissions are charged.
4
<PAGE>
GENERAL INFORMATION
Advance Capital I, Inc. (the COMPANY) is a mutual fund
consisting of five separate portfolios. Each FUND has a
specific investment objective and may be used independently or
in combination with the other FUNDS, to serve different
investment needs. The minimum initial aggregate investment in
the COMPANY is $10,000 ($2,000 for IRA Accounts). The initial
investment may be distributed among any of the FUNDS as long as
a minimum $1,000 investment is maintained in each FUND selected.
COMPANY shares are sold, exchanged and redeemed at net asset
value. There are no sales commissions or deferred sales charges
imposed by the COMPANY.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVES - GROWTH FUNDS:
The EQUITY GROWTH FUND seeks to provide long-term growth of
capital through investment primarily in common stocks of small,
rapidly growing companies. Total return will consist primarily
of capital appreciation (or depreciation). Current income is
not an objective of the EQUITY GROWTH FUND.
The EQUITY GROWTH FUND's share price will fluctuate with
changing market conditions, and any investment in it may be
worth more or less when redeemed than when purchased. The Fund
should not be relied upon as a complete investment program, nor
used to play short-term swings in the stock market. In
addition, stocks of small companies generally are subject to
more abrupt or erratic price movements than securities of larger
companies or the market averages in general. There is no
assurance that the Fund will achieve its investment objective.
The BALANCED FUND seeks to provide capital appreciation,
current income, and preservation of capital by investing in a
diversified portfolio of common stocks and bonds. Common stocks
are generally expected to represent approximately 60% of total
assets. Fixed income securities, including cash reserves, will
represent the remaining assets.
The Fund's share price will fluctuate with changing market
conditions, and any investment in it may be worth more or less
when redeemed than when purchased. The Fund should not be
relied upon for short-term financial needs, nor used to play
short-term swings in the stock market. There is no assurance
that the Fund will achieve its investment objective.
The CORNERSTONE STOCK FUND seeks to provide long term growth
of capital through investing primarily in common stocks of large,
well-established companies. Total return will consist primarily
of capital appreciation (or depreciation). Current income is not
an objective of the Cornerstone Stock Fund and any such income
should be considered incidental.
The Fund's share price will fluctuate with changing market
conditions, and any investment in it may be worth more or less
when redeemed than when purchased. The Fund should not be
relied upon for short-term financial needs, nor used to play
short-term swings in the stock market. There is no assurance
that the Fund will achieve its investment objective.
INVESTMENT OBJECTIVES - INCOME FUNDS:
The BOND FUND seeks to provide investors with a high level
of current interest income consistent with relative stability of
principal and liquidity. In pursuit of this objective, the BOND
FUND will invest in debt
5
<PAGE>
securities rated no lower than A3 by Moody's Investors Service,
Inc. (Moody's) or A- by Standard & Poor's Corporation (S&P) and
in U.S. Government obligations and other debt securities of the
types listed under OTHER INVESTMENT POLICIES. The average
weighted maturity of the portfolio securities will be between 3
and 10 years. There is no assurance that the Fund will achieve
its investment objective.
The RETIREMENT INCOME FUND seeks to provide investors with
the highest level of current income without undue risk of
principal. In pursuit of this objective, the RETIREMENT INCOME
FUND will invest at least half of the portfolio in government
and corporate fixed income securities rated no lower than Baa3
by Moody's or BBB- by S&P. The average weighted maturity of the
portfolio securities in the RETIREMENT INCOME FUND will be
between 5 and 22 years. The RETIREMENT INCOME FUND
seeks to maximize income with respect to a portion of its assets
which may be as much as 33 percent of the Fund. Such maximum
return is ordinarily associated with high yield, high risk bonds
and similar securities in the lower rating categories of the
recognized rating agencies. Such high yield, high risk or "junk
bonds" generally involve greater price volatility as well as
risk of principal and income than do bonds in the higher rating
categories. High yield bonds are considered predominately
speculative. See INVESTMENT RISKS OF LOWER RATED SECURITIES.
There is no assurance that the Fund will achieve its investment
objective.
While the COMPANY will use its best efforts to achieve the
investment objective of each FUND, their achievement cannot be
assured. No investment objective of any FUND may be changed
without a vote of a majority of the particular FUND's
outstanding shares (as defined under MISCELLANEOUS). Except as
noted below in INVESTMENT LIMITATIONS, none of the investment
policies of any FUND may be changed without a vote of the
holders of a majority of the outstanding shares of the FUND.
INVESTMENT POLICIES OF THE FUNDS:
INVESTMENT POLICIES OF THE EQUITY GROWTH FUND: To achieve
its objective, the Equity Growth Fund invests primarily in a
diversified group of small growth companies. These are companies in
the development stage of their corporate life cycle, yet have
demonstrated or are expected to achieve long-term earnings
growth which reaches new highs per share during each major
business cycle. Also, companies are sought which are early
enough in their corporate life cycle not to have been widely
recognized by the investment community. The Equity Growth Fund
may also invest in companies which offer the possibility of
accelerating earnings growth due to rejuvenated management, new
products, or structural changes in the economy. Current income
is not a factor in the selection of stocks. The Equity Growth
Fund may invest in securities not listed on a national
securities exchange, but such securities generally will have an
established over-the-counter market.
While companies in the Equity Growth Fund may offer greater
opportunity for capital appreciation than larger, more
established companies, investments in small and emerging growth
companies involve greater risks. Such companies, for example,
may have limited markets, product lines, management or financial
resources. Further, stocks traded over-the-counter may trade
less frequently and in smaller volume than exchange-listed
stocks. These securities may also be more sensitive to market
changes than larger, more established companies or the market
averages in general. The Equity Growth Fund is suitable only
for those investors who are willing and able to assume the risks
inherent in its investment program.
The Equity Growth Fund will have at least 65% of its total
assets invested in equity securities, not including stock index
futures and options. The Equity Growth Fund invests primarily
in common stocks but also may invest in preferred stocks,
convertible debt securities, stock index futures and may
purchase or write options. The Equity Growth Fund may invest in
preferred stocks or convertible debt securities when, in the
6
<PAGE>
opinion of the investment adviser, these securities provide a
better relationship of risk and expected return
than the common stock alone. The Equity Growth Fund may also hold as
a temporary defensive measure other types of securities including
obligations issued or guaranteed by the U.S. Government, money
market instruments, repurchase agreements collateralized by such
obligations and cash at such times and in such proportions as,
in the opinion of the Investment Adviser or Sub-Adviser,
prevailing market conditions may warrant. See OTHER INVESTMENT
POLICIES.
INVESTMENT POLICIES OF THE BALANCED FUND: To achieve its
objective, the Balanced Fund invests in common stocks which will
consist primarily of larger, established companies, but will
also include small and medium-sized companies which are believed
by the investment adviser to exhibit good prospects for growth.
Bond and fixed income investments will include U.S. Government
and agency securities, investment grade corporate securities
(rated Baa3 or better by Moody's or BBB- or better by S&P at the
time of purchase) and other debt securities of the types listed
under OTHER INVESTMENT POLICIES. In the event that a security held
by the Balanced Fund is downgraded, the Fund may continue to
hold such security until such time as the investment adviser
deems it advantageous to dispose of the security. The average
maturity of the Fund's fixed income investments will vary with
economic conditions.
The Balanced Fund will generally be invested approximately
60% in equity securities and 40% in debt securities. Equity
securities will not represent less than 25% and fixed-income
debt securities may represent as much as 75%, but not less than
25%, of the portfolio, with the percentage varying as market
conditions change. As the anticipated return from dividends and
internal growth of equity securities approaches the expected
return available from high-quality fixed-income securities, the
incremental return from the more speculative and less senior
equity securities declines. As this occurs, the Balanced Fund
would increase the portion of its assets invested in
fixed-income securities and decrease the portion of the assets
invested in equities. Conversely, as the incremental
anticipated return from equities exceeds that for fixed-income
securities, the Balanced Fund can be expected to increase the
portion of its assets invested in equities and decrease that
portion invested in fixed-income securities. In the event such
movements in anticipated returns from equity and debt securities
occur, they are expected to take place gradually over 3 to 5
year periods and may not reach extreme variations. Adjustments
in the proportion of the Balanced Fund invested in fixed-income
securities may cause an increase in portfolio turnover and an
increase in expenses to the Balanced Fund.
The Balanced Fund may invest in preferred stocks or
convertible debt securities when, in the opinion of the
investment adviser, these securities provide a better
relationship of risk and expected return than the common stock
alone, and may also invest in stock index futures and may
purchase or write options. The Balanced Fund may also hold as a
temporary defensive measure other types of securities including
obligations issued or guaranteed by the U.S. Government, money
market instruments, repurchase agreements collateralized by such
obligations and cash at such time and in such proportions as, in
the opinion of the Investment Adviser or Sub-Adviser, prevailing
market conditions may warrant. See OTHER INVESTMENT POLICIES.
INVESTMENT POLICIES OF THE CORNERSTONE STOCK FUND: To achieve
its objectives, the Cornerstone Stock Fund will invest primarily in
a diversified group of larger, more established companies. These
companies will generally be over $10 billion in market
capitalization at the time of purchase. Companies of this size tend
to have established product lines, solid market positions, substantial
financial resources and a market for their stocks that is highly liquid.
By comparison, smaller companies typically have more limited market
exposure, less product diversity, fewer financial resources and less
liquid markets for their securities. The additional perceived risk
associated with these smaller companies can be offset with higher
growth opportunities which, at times, can lead to dramatically rising
stock prices.
7
Although economic, political and investor sentiment may change,
historical returns provide evidence that stocks of larger companies
generally return less, over long periods of time, than those of
smaller companies. Because the CORNERSTONE STOCK FUND seeks to
identify and hold stocks of companies that have demonstrated the
ability to produce steadily growing revenue and earnings, it is well
suited for investors who have long term growth objectives.
The CORNERSTONE STOCK FUND will invest at least 70 percent of
its assets in stock securities, not including stock index futures
and options. The Cornerstone Stock Fund invests primarily in
common stocks but may also invest in preferred stocks, convertible
debt, stock index futures and may purchase or write options. As
a temporary or defensive measure the Fund may also hold other
types of securities including obligations issued or guaranteed
by the U.S. Government, money market instruments, repurchase
agreements collateralized by such obligations and cash at such
time and in such proportions as, in the opinion of the Investment
Adviser, prevailing market conditions may warrant. See OTHER
INVESTMENT POLICIES.
INITIAL INVESTMENT POLICY OF THE CORNERSTONE STOCK FUND: Until
such time as the Fund has held shareholder investments for a period
of six months or the total amount invested in the Fund reaches $10
million, the Investment Adviser shall have complete discretion to
determine when to begin the investment activities of the Cornerstone
Stock Fund. Until such time as investment activities are begun,
shareholder monies will remain invested in money market equivalent
securities.
INVESTMENT POLICIES OF THE BOND FUND: The Bond Fund will
invest at least 65% of its assets in corporate or U.S.
Government bonds. The remainder of the Bond Fund may be
invested in the following types of securities: preferred stocks,
U.S. Government agency securities, U.S. Government obligations
and money market instruments (See OTHER INVESTMENT POLICIES for
definitions of these types of securities). At no time will more
than 50% of the assets be invested in obligations issued or
guaranteed by the U.S. Government.
The Bond Fund will invest in corporate debt obligations and
preferred stock rated no lower than A3 by Moody's or A- by S&P.
If the quality rating criteria are met at the time of
investment, a later decline in the rating by either or both of
the rating agencies shall not be a violation of the investment
policies of the Bond Fund. At no time will bonds rated below
BBB- by S&P and Baa3 by Moody's be held in the Bond Fund. The
Investment Adviser supplements the rating and the maturity
information with internal credit analysis and security research.
These analyses take into consideration such factors as a
corporation's present and potential liquidity, profitability,
internal capability to generate funds, and adequacy of capital.
Unrated obligations will be considered, if based on the Investment
Adviser's analysis of the financial merits of the obligations,
it concludes they are of comparable investment quality to the
rated instruments. No more than 5% of the portfolio may consist
of unrated obligations.
When, in the opinion of the Investment Adviser, a defensive
investment posture is warranted, the Bond Fund may invest
temporarily and without limitation in high-grade, short-term
money market instruments.
The Bond Fund's average weighted maturity will be adjusted
according to the interest rate outlook. During periods of
anticipated rising interest rates and falling bond prices, a
shorter average maturity may be adopted to cushion the effect of
price declines on the Bond Fund's net asset value. When rates
are expected to fall and bond prices rise, a longer average
maturity may be expected. An adjustment in the average maturity
of the Bond Fund holdings, due to anticipated changes in
interest rates, may cause an increase in portfolio turnover
and may result in an increase in expenses to the Bond Fund.
8
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INVESTMENT POLICIES OF THE RETIREMENT INCOME FUND: The
Retirement Income Fund will invest at least 65% of its assets in
corporate or U.S. Government bonds. The remainder of the
Retirement Income Fund may be invested in the following types of
securities: preferred stocks, U.S. Government agency securities,
U.S. Government obligations and money market instruments (See
OTHER INVESTMENT POLICIES for definitions of these types of
securities). At no time will more than 50% of the assets be
invested in obligations issued or guaranteed by the U.S.
Government.
The Retirement Income Fund will invest at least 50 percent
of the portfolio in obligations of, or guaranteed by, the U.S.
Government or its agencies or corporate debt securities or
preferred stock rated no lower than Baa3 by Moody's or BBB- by
S&P. The Fund may invest as much as 33 percent of the portfolio
in lower rated, high-yielding securities, rated between Ba1 and
B2 by Moody's or between BB+ and B by S&P, which may provide
poor protection for payment of principal and interest. These
bonds are commonly referred to as "junk bonds". If the quality
rating criteria are met at the time of investment, a later
decline in the rating by either or both of the rating agencies
shall not be a violation of the investment policies of the
Retirement Income Fund. At no time will bonds rated below B- by
S&P and B3 by Moody's be held in the Retirement Income Fund.
See "Investment Risks of Lower Rated Securities". The
Investment Adviser supplements the rating and the maturity
information for the Retirement Income Fund in a manner similar
to that for the Bond Fund. Unrated obligations will be
considered, if based on the Investment Adviser's analysis
of the financial merits of the obligations, it concludes they
are of comparable investment quality to the rated instruments.
No more than 5% of the portfolio may consist of unrated
obligations. When, in the opinion of the Investment Adviser, a
defensive investment posture is warranted, the Retirement
Income Fund may invest temporarily and without limitation in
high-grade, short-term money market instruments.
The Retirement Income Fund has a flexible investment policy
which allows the Investment Adviser to adjust the maturity and
the quality of the securities held in the portfolio. The
average weighted maturity will be adjusted according to the
interest rate outlook in a manner similar to the Bond Fund as
described above. The mix of the quality of the securities held
in the portfolio will similarly be adjusted by the Investment
Adviser. The degree to which the Retirement Income Fund holds
high yield, high risk securities will be based on the Adviser's
forecast of the economy and its judgment concerning the
comparative value of high yield, high risk securities and higher
quality issues. Any adjustment in the maturity or the quality
of the Retirement Income Fund holdings may cause an increase in
portfolio turnover and may result in an increase in expenses to
the Fund.
OTHER INVESTMENT POLICIES:
GOVERNMENT OBLIGATIONS: Each FUND may invest in
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. U.S. Government agencies that
are supported by the full faith and credit of the U.S.
Government include securities of the Federal Housing
Administration, the Department of Housing and Urban Development,
the Export-Import Bank, the Farmers Home Administration, the
General Services Administration, the Maritime Administration,
and the Small Business Administration. Generally less than 50%
of the Bond Fund, the Retirement Income Fund or the bonds in the
Balanced Fund will be invested in obligations of the U.S.
Government or agencies supported by the full faith and credit
of the U.S. Government. The Equity Growth Fund and Cornerstone
Stock Fund will have less than 5% of its assets invested in
obligations of the U.S. Government or agencies supported by
the full faith and credit of the U.S. Government except when
in the opinion of the Investment Adviser a temporary defensive
investment posture is warranted.
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Each FUND may invest on a limited basis in obligations of
certain agencies or instrumentalities which do not carry the
full faith and credit of the U.S. Government, such as the
Federal National Mortgage Association or the Federal Home Loan
Mortgage Corporation securities. Each FUND will invest in the
obligations of such agencies or instrumentalities only when the
Investment Adviser believes the credit risk with respect to the
agency or instrumentality is minimal. No more than 20% of the
assets of the Bond Fund or the bonds in the Balanced Fund will
be invested in these types of securities. No more than 5% of
the Equity Growth Fund or the Cornerstone Stock Fund will be
invested in these types of securities.
MONEY MARKET INSTRUMENTS: Each FUND, consistent with its
primary investment objective, anticipates under normal
conditions that no more than 20% of its assets will be invested
in high-quality money market instruments. Under unusual market
or economic conditions (e.g., if short-term interest rates
exceed long term rates), during the initial start-up phase of a
FUND or for temporary defensive purposes each FUND may invest up
to 100% of its assets in money market instruments. Money market
instruments are defined as commercial paper and bank obligations.
Bank obligations include bankers' acceptances, negotiable
certificates of deposit and non-negotiable time deposits earning
a specified return and issued by a U.S. bank which is a member of
the Federal Reserve System or insured by the Federal Deposit
Insurance Corporation, or by a savings and loan association or
savings bank that is insured by the Federal Savings and Loan
Insurance Corporation. Investment in bank obligations is limited
to the obligations of financial institutions having more than
$2 billion in total assets at the time of purchase. Investment
in time deposits is limited to no more than 5% of the value of a
FUND's total assets at the time of purchase.
Investments in commercial paper will be limited to issues
within the highest rating, at the time of purchase, of S&P or
Moody's or, if not rated, are determined by the Investment
Adviser to be of comparable quality.
REPURCHASE AGREEMENTS: The U.S. Government obligations in
which the FUNDS invest may be purchased pursuant to repurchase
agreements. Repurchase agreements are arrangements in which
banks, brokers, dealers, and other recognized financial
institutions sell U.S. Government securities (limited to those
with remaining maturities of five years or less) to the FUNDS
and agree at the time of sale to repurchase them at a mutually
agreed upon time and price. The FUNDS or their Custodian will
take possession of the securities subject to repurchase
agreements. Repurchase agreements may also be viewed as loans
made by the FUNDS which are collateralized by the securities
subject to repurchase. Advance Capital Management, Inc., the
Investment Adviser, will monitor such transactions to ensure
that the value of the underlying securities will be at least
equal at all times to the total amount of the repurchase
obligation, including the interest factor. In the event of a
bankruptcy or default of certain sellers of repurchase
agreements, the FUNDS could experience costs and delays in
liquidating the underlying security which is held as collateral,
and the FUNDS might incur a loss if the value of the collateral
held declines during this period.
VARIABLE AND FLOATING RATE INSTRUMENTS: Unrated variable
or floating rate instruments will make up not more than 5% of
any FUND's assets. These instruments require the Investment
Adviser to monitor closely the earning power, cash flows and
other liquidity ratios of the issuers to insure they can meet
payment on demand. These instruments often provide a higher
yield than money market rates because they are viewed by the
issuer and purchaser as longer-term obligations whose pricing
may be based on shorter-term rates.
NON-INTEREST-BEARING SECURITIES: The Bond Fund has not
invested in non-income-producing securities in the past.
Further, there are no present plans to invest in
non-income-producing securities in the Bond Fund or the
Retirement Income Fund. Non-income-producing securities
include zero coupon bonds, which pay interest only at maturity
and payment in kind ("PIK") bonds, which pay interest in the
form of additional
10
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bonds. Although there are no plans to do so, the Retirement
Income Fund may invest up to 5 percent of its assets in such
securities. Should non-interest-bearing securities be held
in the Retirement Income Fund, there are special tax
considerations associated with them. The Retirement Income
Fund will report interest on these securities as income even
though it receives no cash interest until the security's
maturity or payment date. Therefore, the Retirement Income
Fund may have to dispose of some portfolio securities under
disadvantageous circumstances to generate cash to satisfy
distribution requirements.
STOCK INDEX FUTURES CONTRACTS AND OPTIONS: The Equity
Growth Fund, the Balanced Fund and the Cornerstone Stock Fund
(the Growth Portfolios) may enter into stock index futures
contracts (or options thereon) to hedge all or a portion of
its equity portfolio, or as an efficient means of regulating
its exposure to the equity markets. The Growth Portfolios
will not use futures contracts for speculation. The Funds
will limit the use of futures contracts so that: (1) no more
than 5% of each of the Growth Portfolios' assets would be committed
to initial margin deposits or premiums on such contracts and
(2) immediately after entering into such contracts, no more
than 30% of the Equity Growth Fund's total assets or 20% of the
Balanced Fund's or Cornerstone Stock Fund's assets would be
represented by such contracts. The Growth Portfolios may also
write covered call options and purchase put options on securities
and financial indices. The aggregate market value of each Fund's
portfolio securities covering call options will not exceed 25%
of the Equity Growth Fund's net assets or 15% of the Balanced
Fund's or Cornerstone Stock Fund's net assets. Futures contracts
and options can be highly volatile and could reduce each Fund's
total return, and a Fund's attempt to use such investment for
hedging purposes may not be successful. Successful futures
strategies require the ability of the Investment Adviser to
predict future movements in securities prices, interest rates
and other economic factors. Each Fund's potential losses from
the use of futures extends beyond its initial investment in such
contracts. Also, losses from options and futures could be significant
if a Fund is unable to close out its position due to disruptions in
the market or lack of liquidity.
PORTFOLIO TRANSACTIONS: Although the FUNDS do not intend
to invest for the purpose of seeking short-term profits,
securities in the portfolios will be sold whenever the
Investment Adviser or Sub-Adviser believes it is appropriate to
do so in light of the respective FUND's investment objectives,
without regard to the length of time a particular security may
have been held. Although it is not possible to predict the
annual portfolio turnover rate, it is not expected to exceed
125% for the Equity Growth Fund, the Retirement Income Fund,
the Cornerstone Stock Fund or the equity portion of the Balanced
Fund and not expected to exceed 75% for the Bond Fund or the bond
portion of the Balanced Fund when measured over any extended
number of years. Portfolio trading and turnover involve
transaction costs which reduce investor returns. Higher portfolio
turnover rates will further increase costs. In addition, higher
portfolio turnover may increase distributions of taxable capital
gains and ordinary income to shareholders.
The Investment Adviser and Sub-Adviser use various brokerage
firms to carry out portfolio transactions. The COMPANY has
authorized the Investment Adviser and Sub-Adviser to place
brokerage orders with some brokers who help to distribute shares
of the FUNDS. The Investment Adviser or Sub-Adviser will do so
only when it reasonably believes that the commissions and the
transaction quality are comparable to that available from other
qualified brokers.
The COMPANY has authorized the Investment Adviser or
Sub-Adviser to pay higher commissions to those firms that
provide research services. The Investment Adviser and
Sub-Adviser may use this research information in managing
the FUNDS' assets, as well as assets of other clients.
11
<PAGE>
INVESTMENT RISKS OF LOWER RATED SECURITIES:
The Retirement Income Fund may invest as much as 33 percent
of the Fund in lower rated, high-yielding securities (rated Ba or
lower by Moody's or BB or lower by S&P) which may provide poor
protection for payment of principal and interest. These bonds
are commonly referred to as "junk bonds". These securities are
considered to be speculative and involve greater risk of default
or volatility in price changes due to the credit worthiness of the
issuer than do securities assigned higher quality ratings.
The fixed income market has experienced a dramatic increase in
the large scale use of such securities to fund highly leveraged
corporate acquisitions and restructurings. The high yield, high
risk bond market is relatively new and many of the outstanding high
yield bonds have not endured a major business recession. A long
term track record on bond default rates, such as that for investment
grade corporate bonds, does not exist for the high yield market.
It may be that future default rates on high yield, high risk bonds
will be more widespread and higher than in the past, especially
during periods of deteriorating economic conditions.
High yield, high risk bonds may also carry call risk, or the
risk that bonds will be redeemed by the issuer during periods of
declining interest rates. Replacing the called bonds with a lower
yielding security will reduce the return for investors. Conversely,
in periods of rising interest rates, the value of high yield bonds
will decline, thereby reducing the value of the Funds assets.
Credit quality in the high yield, high risk bond market can
change suddenly and unexpectedly, and even recently-issued
credit ratings may not fully reflect the actual risks posed by a
particular high-yield security. For these reasons it is the
Retirement Income Fund's policy not to rely primarily on ratings
issued by established credit rating agencies, but to utilize
such ratings in conjunction with the investment adviser's own
independent and ongoing review of credit quality.
The market for lower rated securities may be less active
and thinner than that for higher quality securities. This may
adversely affect the price at which these securities can be
sold. The market prices of lower rated securities may fluctuate
more than higher rated securities and may decline significantly
in periods of general economic decline and also following
periods of rising interest rates. During a period of economic
downturn or a prolonged period of rising interest rates, the
ability of issuers of lower quality debt to continue to service
their payment obligations, meet projected goals or obtain
additional financing may be seriously impaired. Under such
conditions, it may become difficult to value these securities
accurately. The Fund may also be forced to sell securities at a
significant loss in order to meet shareholder redemptions.
Overall, investors should expect that the lower quality
bonds in the Retirement Income Fund may fluctuate in price
independently of the broad bond market and prevailing interest
rate trends, and that price volatility at times may be very
high, especially as a result of credit concerns, market
liquidity and anticipated or actual adverse changes in economic
activity.
The Retirement Income Fund's policies regarding lower rated
debt securities are not fundamental and may be changed at any time
without shareholder approval.
INVESTMENT LIMITATIONS:
The following investment limitations are matters of
fundamental policy and may not be changed with respect to a FUND
without the vote of the holders of a majority of the FUND's
outstanding shares (as defined under MISCELLANEOUS).
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<PAGE>
The FUNDS will not:
o borrow money or pledge securities;
o commit more than 10% of their respective net assets
to non-liquid securities, including repurchase agreements
with maturities longer than seven days, or to securities
subject to restrictions on resale;
o purchase the securities of any one issuer, other than the
U.S. Government or any of its instrumentalities, if immediately
after such purchase more than 5% of the value of its total
assets would be invested in such issuer, except that up to
15% of the value of each FUND's total assets may be invested
without regard to the 5% limitation;
o invest more than 5% of each respective FUND's total assets in
securities of issuers that have records of less than three years
of continuous operations;
o invest more than 25% of each respective FUND's total assets
in any one industry;
o acquire more than 10% of the voting securities of any one
issuer.
If a percentage limitation is satisfied at the time of the
investment, a later increase or decrease in such percentage
resulting from a change in the value of a FUND's portfolio
securities will not constitute a violation of such limitation.
DISTRIBUTION OF SHARES
Advance Capital Services, Inc., a wholly-owned subsidiary
of Advance Capital Group, Inc., is the principal distributor for
shares of the COMPANY. It is a Michigan corporation organized
on August 5, 1986 and a registered broker-dealer with the
National Association of Securities Dealers, Inc. The
distributor is responsible for soliciting orders for the sale of
shares of the FUNDS and will undertake such advertising and
promotion as it believes reasonable in connection with such
solicitation.
NET ASSET VALUE
Each FUND's net asset value per share is determined by
dividing the sum of the market or appraised value of all
securities and all other assets less liabilities by the number
of shares of the FUND outstanding. Each FUND's net asset value
per share is calculated on days that the New York Stock Exchange
is open.
INVESTING IN THE FUNDS
Shares of the COMPANY are sold on days on which the New
York Stock Exchange is open. Shares may be purchased either by
mail or wire. The COMPANY reserves the right to reject any
purchase request.
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<PAGE>
PURCHASES BY MAIL: Shares may be purchased initially by
completing the Application for Purchase of Shares accompanying
this prospectus. Mail the Application and a check payable to
Advance Capital I, Inc. to:
Advance Capital Group, Inc.
P.O. Box 3144
Southfield, Michigan 48037
Orders by mail are considered received the day the check is
received by Advance Capital Group.
Subsequent purchases by mail need only to include a check,
the investor's account number, and the amount of money to be
invested in each FUND.
PURCHASES BY WIRE: A completed and signed Application must
be on file with Advance Capital Group in order to purchase
shares by Federal Reserve wire. For instructions to initiate a
wire purchase, call Advance Capital Group on (248) 350-8543 or
(800) 345-4783. The order is considered received immediately.
The shares will be priced at the Net Asset Value as next
determined after the order is received. Payment by Federal
Funds must be received before the close of business on the next
business day following the order.
MINIMUM INVESTMENT REQUIRED: The minimum initial aggregate
investment in the COMPANY is $10,000 ($2,000 for IRA Accounts).
This investment may be distributed in any of the FUNDS as long
as a $1,000 minimum investment is maintained in each FUND
selected. An institutional investor's minimum investment will
be calculated by combining all accounts it maintains with the
COMPANY.
WHAT SHARES COST: Shares of each FUND are purchased or
sold at their net asset value, as next determined after an order
is received by Advance Capital Group. There are no sales
commissions or charges imposed by the COMPANY. Investors who
purchase or sell shares through a non-affiliated broker or bank
may be charged an additional service fee by that broker or bank.
The net asset value of each FUND is determined at the close
of business of the New York Stock Exchange (currently 4:00 PM
Eastern Time), Monday through Friday, on each day the New York
Stock Exchange is open for trading.
CERTIFICATES AND CONFIRMATIONS: As transfer agent for the
COMPANY, Advance Capital Group maintains a share account for
each shareholder of each FUND. Share certificates are not
issued.
Detailed confirmations of each purchase, exchange or
redemption are sent to each shareholder. Monthly confirmations
are sent to report dividends declared during that month to Bond
Fund, Balanced Fund and Retirement Income Fund shareholders.
Confirmations are sent to report dividends declared at year end
to Equity Growth Fund and Cornerstone Stock Fund shareholders.
DIVIDENDS: Bond Fund, Balanced Fund and Retirement Income
Fund dividends are declared daily, except on Saturdays, Sundays,
and holidays and are paid monthly on the last business day of the
month. Dividends are declared just prior to determining net asset
value. Dividends declared on Fridays and on days preceding holidays
are proportionally larger to adjust for the FUND's income for the
following Saturday and Sunday, or holiday.
Equity Growth Fund and Cornerstone Stock Fund dividends are
declared annually and paid on the last business day of the year.
Dividends for each FUND may be received in cash by
selecting the appropriate option on the Application for Purchase
of Shares when an account is opened. Otherwise, dividends of
all four FUNDS are automatically reinvested in additional shares
of the respective FUND unless cash distributions are requested
subsequently, in writing, to the transfer agent, Advance Capital
Group.
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<PAGE>
CAPITAL GAINS: Capital gains, if any, of each FUND will be
distributed annually and normally be paid on the last business
day of the COMPANY's fiscal year. Capital gains may be received
in cash by selecting the appropriate option on the Application for
Purchase of Shares when an account is opened. Otherwise,
capital gains are paid in the form of additional shares unless
cash distributions are requested subsequently, in writing, to
the transfer agent, Advance Capital Group.
TRANSFERRING SHARES
EXCHANGING SHARES AMONG FUNDS: An exchange of a FUND's
shares can be made for shares in any of the other three FUNDS of
the COMPANY. For tax purposes an exchange is treated as a
redemption and a purchase.
Exchanges by telephone or in writing, are subject to the
same authorizations and restrictions as redemptions (See
REDEEMING SHARES and TELEPHONE REQUESTS). All requests must
include; the shareholder's name and account number, the name of
the FUND being redeemed and the FUND being purchased and the
number of shares or dollar amount being exchanged. If share
certificates have been issued, they must be properly endorsed
and sent by registered or certified mail along with the written
request. The Company reserves the right to modify or terminate
these exchange procedures or required authorizations in the
future. Shareholders will be given at least 60 days notice
before any such changes or termination becomes effective.
REDEEMING SHARES
The COMPANY redeems shares at their net asset value next
determined after Advance Capital Group receives the redemption
request. There are no deferred sales charges or redemption
fees. Redemptions may be made on days on which the New York
Stock Exchange is open for business. The redemption request
must be received before 4:00 PM Eastern Time for same day
processing. Redemption requests must be received in proper form
and can be made by written request or by telephone request.
Redemption requests for IRA accounts require a signed IRA
Distribution Form.
WRITTEN REQUESTS: Shares may be redeemed by sending a
written request to:
Advance Capital Group, Inc.
P.O. Box 3144
Southfield, Michigan 48037
The request must provide the shareholder's name and account
number, the name of the FUND and the share or dollar amount of
the redemption. If share certificates have been issued, they
must be properly endorsed and should be sent by registered or
certified mail with the written request.
SIGNATURES: Signatures on redemption requests and share
certificates must be guaranteed by:
o a trust company or commercial bank that is a member of
the FDIC; or
o a member firm of the New York, American, Boston, Midwest,
or Pacific Stock Exchange.
The COMPANY does not accept signatures guaranteed by a
savings bank, savings and loan association or notary public.
TELEPHONE REQUESTS: Share amounts less than $25,000 may be
redeemed or exchanged by telephone if the Telephone Redemption
or Exchange Option was completed on the initial Application for
Purchase of Shares. For amounts over $25,000, or if the Telephone
Redemption or Exchange Option was not completed on the initial
application, a written redemption or exchange request must be made
with Advance Capital Group and must be signature guaranteed (See
REDEEMING SHARES and SIGNATURES). Redemption
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<PAGE>
requests for IRA accounts may not be made by telephone. Shares may
be redeemed by calling (248) 350-8543 or (800) 345-4783 any business
day between the hours 8:00 AM and 4:00 PM, Eastern Time.
By establishing the telephone redemption service you
authorize Advance Capital Group to: (1) act upon instruction of
any person by telephone to redeem or exchange shares from any
account for which such service has been authorized; and (2)
honor any written instructions pertaining to a redemption for an
amount $25,000 or less or for a change of address regardless of
whether such request was accompanied by a signature guarantee.
You also agree that neither the FUNDS nor Advance Capital Group,
Inc. will be liable for following instructions communicated by
telephone reasonably believed to be genuine and a loss to the
shareholder may result due to an unauthorized transaction. The
FUNDS and Advance Capital Group, Inc. will employ reasonable
procedures which may include one or more of the following:
verifying authorization and requiring some form of personal
identification prior to acting upon instructions, and sending a
statement each time a telephone exchange is made to confirm that
instructions communicated by telephone are genuine. The Transfer
Agent and the COMPANY reserve the right to change, modify, or
terminate these services at any time.
RECEIVING PAYMENT: Normally, a check for the proceeds of a
redemption is mailed within one business day, but in no event
more than seven days, after receipt of a proper redemption
request.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR: When shares
are purchased by check, those shares are not available for
redemption, except by letter, until the Custodian collects
payment for those shares. It is the COMPANY's policy to allow
up to 15 calendar days from the date those shares were purchased
for such collection.
ACCOUNTS WITH LOW BALANCES: Due to the high cost of
maintaining accounts with low balances, the COMPANY may redeem
shares in all FUNDS and pay the proceeds to the shareholder if
the total of the account balances in the four FUNDS falls below
a required minimum net asset value of $10,000 ($2,000 for IRA
accounts) or redeem shares of the specific FUND if that one FUND
falls below the $1,000 minimum. This requirement does not
apply, however, if the aggregate account balance falls below
$10,000 ($2,000 for IRA accounts) because of changes in the net
asset values of the FUNDS.
Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to
purchase additional shares to meet the minimum aggregate
requirement.
REDEMPTION IN KIND: Each FUND of the COMPANY is obligated
to redeem shares solely in cash up to $250,000 or 1% of the
FUND's net asset value, whichever is less, for any one
shareholder within a 90 day period.
Any redemption beyond this amount will also be cash unless
the Board of Directors of the COMPANY determine that further
cash payments will have a material adverse effect on remaining
shareholders. In such a case, the FUND will pay all or a
portion of the remainder of the redemption in portfolio
instruments, valued in the same way as the FUND's net asset
value is determined. The portfolio instruments will be selected
in a manner that the Board of Directors deems fair and
reasonable.
Redemption in kind is not as liquid as a cash redemption.
If redemption is made in kind, shareholders receiving their
securities and selling them could receive less than the
redemption value of their securities and could incur certain
transaction costs.
DISTRIBUTION PLAN
The COMPANY has adopted a Plan of Distribution under which
each FUND is permitted to spend up to .25% of its average daily
net assets for activities primarily intended to result in sales
of shares of any of the
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FUNDS that comprise the COMPANY, which activities include but
are not limited to, compensation of sales personnel; compensation
to and expenses, including the cost of equipment, telephones,
travel, seminars, stationary, and supplies, of employees of the
Distributor who engage in or support distribution of the FUNDS'
shares or who service shareholder accounts; development and
implementation of direct mail promotions and advertising; and
preparation, printing and distribution of company prospectuses
and reports for recipients other than existing shareholders.
The Plan does not permit non reimbursed expenses incurred in a
particular year to be carried over to or reimbursed in subsequent
years. The terms of the Plan are incorporated into the COMPANY's
distribution agreement with the Distributor. The Board of Directors
has suspended indefinitely the 12b-1 fees for the Bond Fund.
Shareholders of the Bond Fund will be notified 30 days prior to any
increase in the 12b-1 fees charged to this Fund.
During the fiscal year ended December 31, 1997, the COMPANY
paid or accrued distribution expenses of $118,253, $0, $220,704
and $460,525 for the Equity Growth, Bond, Balanced and Retirement
Income Funds respectively, to the COMPANY's distributor, Advance
Capital Services.
MANAGEMENT OF THE COMPANY
BOARD OF DIRECTORS: The COMPANY is managed by a Board of
Directors. The Directors are responsible for managing the
COMPANY's business affairs and for exercising all the COMPANY's
powers except those reserved for the shareholders.
INVESTMENT ADVISER: Advance Capital Management, Inc., a
wholly-owned subsidiary of Advance Capital Group, Inc., a
financial services and holding company, serves as the Investment
Adviser to the COMPANY. The principal business address of
Advance Capital Management, Inc. is in Southfield, Michigan.
Subject to the general supervision of the COMPANY's Directors
and in accordance with each FUND's investment objectives and
policies, the Investment Adviser continually conducts investment
research and furnishes an investment program for each of the
FUNDS of the COMPANY, is responsible for the purchase and sale
of each FUND's portfolio securities and maintains the COMPANY's
records relating to such purchases and sales.
SUB-ADVISER: T. Rowe Price Associates, Inc. (TRPA) serves
as the investment adviser for that portion of the portfolio
assets of the Equity Growth Fund and Balanced Fund which are
determined by the Investment Adviser to be invested in common
stocks. TRPA is a Maryland Corporation with its principal
business address in Baltimore, Maryland. Their primary business
is the investment management of assets for no-load mutual funds
and other large investment accounts. TRPA is one of the largest
100 percent no-load mutual fund managers in the nation.
ADVISORY FEES: For services provided and expenses assumed
pursuant to the Investment Advisory Agreement, the Investment
Adviser receives a fee, computed daily and paid monthly, at the
annual rate of .7% of the average daily net assets of the Equity
Growth Fund and the Balanced Fund, .4% of the average daily net
assets of the Bond Fund and Cornerstone Stock Fund and .5% of
the average daily net assets of the Retirement Income Fund.
The Sub-Advisory Agreements do not provide for any increase in
the level of fees payable by the Company. For its services, the
Sub-Adviser is paid a fee by the Investment Adviser, payable over
the same time periods and calculated in the same manner as the
investment advisory fee, of .2% percent annually of the average
daily net assets of the Equity Growth Fund and of that portion
of the Balanced Fund so designated by the Investment Adviser to
be invested in common stocks. From time to time, as it may deem
appropriate in its sole discretion, the Investment Adviser may
waive a portion or all of its advisory fee.
PORTFOLIO MANAGERS: John C. Shoemaker, President, Robert J.
Cappelli, Vice President, and Christopher M. Kostiz of Advance
Capital Management, Inc., have responsibility for the day-to-day
management of
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the Bond Fund, Retirement Income Fund, Cornerstone Stock Fund and
the fixed-income portion of the Balanced Fund. Mr. Shoemaker has
been the portfolio manager for all of the funds since inception
(August, 1987 for the Equity Growth, Bond and Balanced Funds and
October 6, 1992 for the Retirement Income Fund). Mr. Cappelli has
been a portfolio manager for the Bond Fund and the Balanced Fund
since 1991 and for the Retirement Income Fund and the Cornerstone
Stock Fund since inception. Prior to that, Mr. Cappelli had been
actively involved in the investment research and strategy for all
of the Advance Capital I Funds since inception. Mr. Kostiz has
been a portfolio manager of the Bond Fund, the fixed-income portion
of the Balanced Fund, the Retirement Income Fund since 1995 and the
Cornerstone Stock Fund since inception. Mr. Kostiz has also been
involved in the administration, research and investment of these
portfolios since 1993. Responsibility for the day-to-day management
of the common stock portions of the Equity Growth and Balanced Funds
rests with an Investment Advisory Committee with the following members:
Richard T. Whitney, Chairman, Donald J. Peters, and Kristen F. Culp. Mr.
Whitney oversees the activities of the Investment Advisory Committee,
is a Managing Director of T. Rowe Price Associates, Inc. and has been
with that firm since 1985. Mr. Peters who has primary responsibility
for selecting the Funds' investments, is a Vice President of T. Rowe
Price Associates, Inc., and has been with that firm managing
investments since 1993.
ADMINISTRATIVE SERVICES: Advance Capital Group, the
COMPANY's Transfer Agent, also provides the administrative
personnel and services necessary to handle the clerical,
accounting, and bookkeeping functions required to operate the
COMPANY. In its capacity as Transfer Agent, Advance Capital
Group arranges for the processing of share purchase and
redemption orders, maintains shareholder account records, and
serves as dividend disbursing agent. These combined
administrative and transfer agent services are provided to the
COMPANY at cost.
TRANSFER AGENT: Advance Capital Group is the transfer
agent and dividend disbursing agent for shares of the COMPANY.
EXPENSES OF THE COMPANY
Except as noted below, the Investment Adviser bears all
expenses in connection with the performance of its services.
The COMPANY bears the expenses incurred in its operations.
Expenses of the COMPANY include: taxes; fees, including fees
paid to its Directors, investment advisory fees, transfer agent
and dividend disbursing fees, Securities and Exchange Commission
fees, and state qualification fees; costs of preparing and
printing prospectuses for regulatory purposes and for
distribution to shareholders; charges of the Custodian; certain
insurance premiums; outside auditing and legal expenses; costs
of independent pricing services; costs of shareholder reports
and meetings; and extraordinary expenses. The COMPANY also pays
for brokerage fees and commissions in connection with portfolio
securities transactions.
Expenses of the COMPANY may also include
distribution-related expenses which the COMPANY is permitted to
bear under a Plan of Distribution complying with the provisions
of Rule 12b-1 under the Investment Company Act of 1940. Such
Plan was approved by the Board of Directors, including a
majority of the Directors who are not interested persons of the
COMPANY and who have no direct or indirect financial interest in
the operation of the Plan. Under the Plan, up to .25% of each
FUND's average daily net assets, for any fiscal year, may be
expended for preparation, reproduction and distribution of sales
literature and prospectuses used for sales purposes; public relations
and communications with investors and prospective investors; and
compensation of sales personnel.
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TAX INFORMATION
FEDERAL INCOME TAX: The COMPANY will distribute to
shareholders all capital gains and income earned. As such, the
COMPANY will pay no federal income tax because it expects to
meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax
treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay
federal income tax on any dividends and other distributions
received. This applies whether dividends are received in cash
or as additional shares. Information on the tax status of
dividends is provided annually.
The Internal Revenue Code of 1986 treats each FUND in a
series mutual fund as a separate corporation.
STATE AND LOCAL TAXES: Shareholders are urged to consult
their own tax advisers regarding the status of their accounts
under state and local tax laws.
DESCRIPTION OF CAPITAL STOCK
The COMPANY was organized as a Maryland Corporation on
March 6, 1987. The COMPANY is a series fund offering five
classes of shares, each representing shares in one of five
separate Funds. Class A common shares represent interests in the
Equity Growth Fund, Class B common shares represent interests in
the Bond Fund, Class C common shares represent interests in the
Balanced Fund, Class E common shares represent interests in the
Retirement Income Fund and Class F common shares represent interests
in the Cornerstone Stock Fund. Each share has a par value of $.001,
which represents an equal proportionate interest in the FUND with
other shares of the same class, and is entitled to such dividends
and distributions out of the income earned on the assets belonging
to such FUND as are declared in the discretion of the COMPANY's
Board of Directors. The COMPANY's Articles of Incorporation
authorizes the Board of Directors to classify or reclassify any
class of shares into one or more portfolios.
Shareholders are entitled to one vote for each full share held,
and fractional votes for fractional shares held, and will vote in
the aggregate and not by class, except as otherwise expressly required
by law, or when otherwise permitted by the Board of Directors acting
in its sole discretion. At such time shares of capital stock of the
COMPANY shall be voted by individual class and only shares of capital
stock of the respective class or classes affected by a matter shall be
entitled to vote on such a matter. The COMPANY holds an Annual Meeting
of Shareholders.
Certificates for shares will not be issued unless expressly
requested in writing to the COMPANY's Transfer Agent, Advance Capital
Group, Inc. and will not be issued for fractional shares or for IRA(s)
held by a Custodian.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing
the COMPANY's investment operations and annual financial statements
audited by independent accountants.
As used in this Prospectus, a "vote of the holders of a majority of
the outstanding shares" of the COMPANY or a particular FUND means the
affirmative vote of the lesser of (a) 50% of the outstanding shares of
the COMPANY or such FUND, or (b) 67% or more of the shares of the
COMPANY or such FUND present at a meeting if the holders of more than
50% of the outstanding shares of the COMPANY or such FUND are
represented at the meeting in person or by proxy.
Inquiries regarding the COMPANY or any of its FUNDS may be
directed to the address or telephone number listed on the cover
of this Prospectus.
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ADVANCE CAPITAL I, INC. ADVANCE CAPITAL I, INC.
AN INVESTMENT COMPANY WITH FIVE FUNDS
INVESTMENT ADVISER:
Advance Capital Management, Inc. Equity Growth Fund
One Towne Square, Suite 444 Bond Fund
Southfield, Michigan 48076 Balanced Fund
Retirement Income Fund
SUB-ADVISER: (Equity Growth and Balanced Funds) Cornerstone Stock Fund
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
DISTRIBUTOR:
Advance Capital Services, Inc.
P.O. Box 3144
Southfield, Michigan 48037
ADMINISTRATOR AND TRANSFER AGENT:
Advance Capital Group, Inc.
P.O. Box 3144
Southfield, Michigan 48037
INDEPENDENT ACCOUNTANTS:
PricewaterhouseCoopers LLP
2050 North Woodward Avenue
Suite 200
Bloomfield Hills, Michigan 48304-2260
OFFICERS:
John C. Shoemaker, President
Robert J. Cappelli, Vice President & Treasurer
Charles J. Cobb, Vice President
Kathy J. Harkleroad, Secretary
BOARD OF DIRECTORS:
Joseph A. Ahern
Richard W. Holtcamp
Harry Kalajian
John C. Shoemaker PROSPECTUS
Frank R. Zimmerman October 28, 1998
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