Advance Capital Management

The EQUITY GROWTH FUND (Mid Cap Growth Fund) seeks to provide investors with long-term growth of capital by investing primarily in stocks of small and medium-sized companies.

Principal Investment Strategies: The Equity Growth Fund strives to reach its investment objective by investing primarily (at least 65% of assets) in a diversified group of small and medium-sized growth companies. Small companies are considered to have market capitalization less than $3.3 billion. Medium-sized companies are considered to have market capitalization in the range of companies comprising the S&P MidCap 400 Index or the Russell Midcap Growth Index at the time of purchase. This market capitalization range is between about $1 billion and $10 billion. The Fund has the flexibility to purchase some larger companies. The market capitalization of companies in the fund’s portfolio, the S&P MidCap 400 Index, and the Russell MidCap Growth Index will change over time, and the fund will not automatically sell or cease to purchase a stock of a company it already owns just because the company’s market capitalization grows or falls outside of the index ranges. The portfolio manager looks for companies that are early in their development, have new management, new products or recent structural changes. You may never have heard of many of these companies. They usually do not pay dividends. Instead, they typically reinvest all profits back into the business to help it grow. Any income earned in this Fund should be considered incidental.

Security Selection:  The Equity Growth Fund seeks long-term growth of capital by investing in small and medium-sized growth companies.   When choosing stocks, the portfolio manager uses a combination of top-down quantitative models and fundamental bottom-up research to select companies with the following characteristics:

• A demonstrated ability to consistently increase revenues, earnings, and cash flow;
• Capable management;
• Attractive business niches; and
• A sustainable competitive advantage.

Valuation measures, such as a company’s price/earnings (P/E) ratio relative to the market and its own growth rate are also considered. The Equity Growth Fund invests at least 80% of its total assets in common stocks with a focus on  small and medium-sized growth companies, not including stock index futures and options.   Although not principal to the Fund’s objectives, the Fund may also invest in other types of securities if they offer better returns with less risk than common stocks alone.  These securities include:  foreign securities, preferred stocks, obligations issued and guaranteed by the U.S. Government, stock index futures, money market instruments, repurchase agreements and convertible debt securities.  The Fund may also write covered call options and purchase put options on securities and financial indices.  If the Fund uses futures and options, it is exposed to additional volatility and potential losses.

In pursuing its investment objective, the Fund’s management has the discretion to purchase some securities that do not meet its normal investment criteria, as described above, when it perceives an unusual opportunity for gain.  These special situations might arise when the Fund’s management believes a security could increase in value for a variety of reasons, including a change in management, an extraordinary corporate event, or a temporary imbalance in the supply of or demand for the securities.

Principal Risks of Investing in the Fund

Market Risk – Changing stock market conditions will affect the Fund’s share price. Returns from stocks held in the Fund will rise and fall with changes in the broad market, a particular industry, or specific holdings. The market as a whole can decline for many reasons, including adverse political or economic developments here or abroad, changes in investor psychology, or heavy institutional selling. The prospects for an industry or company may deteriorate because of a variety of factors, including disappointing earnings or changes in the competitive environment.

Foreign Market Risk – To the extent the Fund invests in foreign stocks,  it is also subject to the special risks associated with such investments whether denominated in U.S. dollars or foreign currencies.  These risks include potentially adverse political and economic developments overseas, greater volatility, less liquidity, and the possibility that foreign currencies will decline against the dollar, lowering the value of securities denominated in those currencies.

Small and Medium-sized Companies – Small and medium-sized companies involve greater risks and may lack depth of management, may be unable to generate funds necessary for growth or potential development, or may be developing or marketing new products or services for which markets are not yet established and may never become established.  Small and medium-sized companies tend to trade less frequently and are more sensitive to market changes than the market in general.  In addition, these companies may become subject to intense competition from larger or more established companies. Finally, smaller growth stocks can have steep price declines if their earnings disappoint investors.  Since the Fund will be significantly invested in this market sector, investors will be exposed to its volatility.

Growth Stocks – Growth stocks can be volatile for several reasons.  Since growth stocks usually reinvest a high proportion of earnings in their own businesses, they may lack the dividends associated with value stocks that can cushion their decline in a falling market.  Also, since investors buy these stocks because of their expected superior earnings growth, earnings disappointments often result in sharp price declines. In general, stocks with growth characteristics can have relatively wide price swings as a result of the high valuations they may carry.