AN INVESTMENT COMPANY WITH FOUR FUNDS Semi-Annual Report June 30, 2015 Table of Contents 1 A Letter to Our Shareholders 3 Financial Highlights 11 Equity Growth Fund 14 Balanced Fund 20 Retirement Income Fund 24 Core Equity Fund 27 Statements of Assets and Liabilities 28 Statements of Operations 29 Statements of Changes in Net Assets 31 Notes to Financial Statements 37 Additional Information Advance Capital’s Pledge: We understand that investing in any mutual fund is a leap of faith. We recognize that trust, integrity and honesty are just a few of the attributes you should expect from any financial organization. Our commitment to you is to hold true to these standards by putting your interests first at all times. We will work hard each and every day to provide you with quality service as well as our best long-term investment advice. We pledge to maintain the highest standards of TRUST, INTEGRITY & HONESTY in all of our dealings with you. Sincerely, Advance Capital I, Inc. Board of Directors, Management and Staff Dear Shareholders, 2015 Six Month Review instability around the world. Consequently, world Through the first six months, several investment economies continue to grow, but at different rates. themes continued while a few new ones surfaced with the potential to either help or complicate the Domestically, economic data proved a bit perplex- landscape. An improving jobs picture, low interest ing to decipher during the first half of the year. rates and steady improvements in housing remain Employment gains continued and job creation the foundation for solid economic growth going remained solid, but household spending and retail forward. Conversely, the Federal Reserve’s decision sales fell short of estimates. Further, the recent to end their quantitative easing programs late last gains in manufacturing have stalled from the impact year and begin the process of raising interest rates, of the stronger dollar and cuts in the energy sector along with the dramatic rise in the U.S. dollar that haven’t fully worked through the system. Yet, versus world currencies, has led to an uptick in the recent Institute for Supply Management (ISM) investor anxiety. Further, problems with debt-laden factory index report showed a three-month high of countries in Europe and a general slowdown in 52.8 in May. A pickup in bookings, plus the stron- China’s growth rate have created a greater degree of gest reading for order backlogs since November, uncertainty. Almost seven years removed from one points to a rebound in production in the months of the most violent market and economic down- ahead. turns in history, we are still constantly reminded Many of the constraints on growth that were that returning to a more “normal” environment is prevalent in the aftermath of the credit crisis not easy or without obstacles. continue to dissipate. While not altogether gone, In the most recent world economic outlook, the the deleveraging cycle is much less of a drag on International Monetary Fund (IMF) materially growth than a few years back. Although the U.S. reduced its estimates of potential growth in both can now grow above trend, the potential trend rate developed and emerging economies from 3.1 of growth has been declining for several years due percent to 2.5 percent in 2015. The IMF cited to a lack of investment in both physical and human “significant uncertainties as to the future resilience capital. Combined with poor demographic trends, of economic growth” as the main issue. It also cut additional regulation and tighter credit standards, its 2016 forecast down slightly to 3.0 percent. the potential trend level of real growth is now While the IMF is concerned about mounting fears below 2 percent. surrounding the strength of the U.S. recovery after While signs point to a modestly improving weaker than expected growth in the first quarter, it economy with low interest rates and a healthy also sees improvements ahead. It projects growth employment picture, we view the current investing picking up later in the year as temporary negative environment with a bit of caution. This is based on factors, including bad weather and the West Coast current market valuations, which appear elevated, port strike, begin to fade. Still, the IMF remains along with the potential for higher interest rates in uneasy about the consequences for countries the quarters ahead. outside the U.S. Many of these countries have benefited from the flood of cheap money over the Capital Market Review past few years. An interest rate hike by the Federal Within this environment of lackluster growth and Reserve could lead to higher volatility and financial low interest rates, fixed-income markets were chal- 1 lenged while equities did reasonably well through shrinking backlog of delinquent mortgages and the the fi rst half of the year. Through June 30, the S&P declining number of home vacancy rates indicate 500 Index returned 1.23 percent while the Nasdaq gains in new home construction and fi rmer prices. Composite returned 5.99 percent. In the S&P 500 Lastly, the U.S. continues to be a hotbed of new Index, home entertainment, Internet and managed innovation, such as the shale oil and gas revolution health care turned in the best performance; coal, and Silicon Valley technologies. gaming and aluminum produced the worst. In fi xed income, the yield on the 10-year U.S. Treasury bond This stabilization of economic activity is somewhat increased about 0.70 percent and credit spreads rose mitigated by expectations that the Federal Reserve modestly higher. is on course to raise interest rates by the end of the year. While still historically low, rising interest rates For the same period, the Advance Capital I Equity should continue to strengthen the dollar versus Growth Fund underperformed its benchmark, other world currencies and bring capital fl ow back declining 1.72 percent compared to the Morningstar to the U.S. In an environment of higher interest rates Mid Value category, which returned 1.63 percent. and modest growth, investors are challenged with The Advance Capital I Balanced Fund, with a determining the appropriate valuations for both 60 percent stock and 40 percent bond mix, also stocks and bonds. This is especially so now that the underperformed with a decline of 1.70 percent current bull market is the fourth strongest in terms against the Lipper Balanced Index, which returned of gains over the last eight decades. 1.36 percent. The Advance Capital I Core Equity Fund decreased 3.21 percent, lagging the Russell We continue to expect slightly higher interest rates 1000 Value Index, which declined 0.62 percent. throughout the remainder of the year and into 2016, The Advance Capital I Retirement Income Fund much to the detriment of traditional fi xed-income increased 0.43 percent, outperforming the Morn- securities. While the bull market in equities may ingstar Intermediate-Term Bond category, which continue, we are growing concerned that valuations increased 0.01 percent. are stretched and earnings growth will underwhelm, leading us to a more cautious investment stance. Looking Forward For the remainder of the year, we expect stronger, al- beit tempered, growth in the U.S. After a disappoint- ing start to the year due to unfavorable weather, the West Coast port strike and fl awed government data Joseph R. Theisen adjustments, the second half should be highlighted President & CEO by improved consumer spending. While the dra- Advance Capital Group, Inc. matic decline in oil prices happened quickly, the benefi ts for consumers tend to accrue more slowly. As a result, these gains from higher real disposable incomes were generally saved over the past few quarters. The combination of growing employment, Christopher M. Kostiz fi rming wages, low infl ation and a rising stock mar- President ket should propel consumer spending over the last Advance Capital I, Inc. six months of the year. Other positive growth trends include a reduction in the personal and business deleveraging cycle and pent-up demand for business capital and infrastructure spending. Further, the 2 ADVANCE CAPITAL I - EQUITY GROWTH FUND (Retail Shares) FINANCIAL HIGHLIGHTS SELECTED PER-SHARE DATA AND RATIOS (For a Share Outstanding Throughout Each Period) (Unaudited) Six months ended June 30, Years ended December 31 2015 2014 2013 2012 2011 2010 Net asset value, beginning of year $20.93 $25.31 $25.76 $22.60 $23.60 $18.52 Income (Loss) from investment operationsa Net investment income (loss) 0.09 0.09 0.07 0.05 (0.04) 0.01 Net realized and unrealized gain (loss) on investments (0.45) 1.71 7.55 3.16 (0.96) 5.08 Total from investment operations (0.36) 1.80 7.62 3.21 (1.00) 5.09 Less distributions Net Investment Income 0.00 (0.14) (0.07) (0.05) 0.00 (0.01) Net realized gain on investments 0.00 (6.04) (8.00) 0.00 0.00 0.00 Total distributions 0.00 (6.18) (8.07) (0.05) 0.00 (0.01) Net asset value, end of period $20.57 $20.93 $25.31 $25.76 $22.60 $23.60 Total Return (1.72%)c 7.10% 29.59% 14.20% (4.24%) 27.49% Ratios and Supplemental Data Net assets, end of period (in thousands) $62,703 $76,313 $90,998 $82,114 $85,669 $108,290 Ratio of expenses to average net assets 1.13%b 1.11% 1.11% 1.09% 1.08% 1.07% Ratio of net investment income (loss) to average net assets 0.83%b 0.35% 0.25% 0.18% (0.16%) 0.05% Portfolio turnover rate 116%c 254% 118% 40% 107% 26% a Per share amounts presented are based on average shares outstanding.