CENTURION FUNDS INC, 497, 1998-12-10

CENTURION FUNDS INC
497, 1998-12-10

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<PAGE>
P R O S P E C T U S
................................................................................

[LOGO OF CENTURION FUNDS APPEARS HERE]
CENTURION FUNDS, INC.

CENTURION U.S. EQUITY FUND
CENTURION INTERNATIONAL EQUITY FUND
CENTURION U.S. CONTRA FUND
CENTURION INTERNATIONAL CONTRA FUND

DECEMBER 4, 1998

AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION ("SEC") DOES
NOT GUARANTEE THAT THE INFORMATION IN THIS PROSPECTUS IS ACCURATE OR COMPLETE,
NOR HAS IT JUDGED THE ABOVE FUNDS FOR INVESTMENT MERIT. IT IS A CRIMINAL
OFFENSE TO STATE OTHERWISE.

<PAGE>

CONTENTS

<TABLE>
<S> <C>
OVERVIEW 1
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RISK/RETURN SUMMARY 2
- -----------------------------------------------
INVESTOR EXPENSES 7
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CENTURION U.S. EQUITY FUND 8
- -----------------------------------------------
CENTURION INTERNATIONAL EQUITY FUND 10
- -----------------------------------------------
CENTURION U.S. CONTRA FUND 12
- -----------------------------------------------
CENTURION INTERNATIONAL CONTRA FUND 14
- -----------------------------------------------
MORE ABOUT RISK 15
- -----------------------------------------------
MANAGEMENT 17
- -----------------------------------------------
ACCOUNT POLICIES 20
- -----------------------------------------------
SHAREHOLDER SERVICES 23
- -----------------------------------------------
DISTRIBUTION POLICIES AND TAXES 23
- -----------------------------------------------
FUND DETAILS 24
- -----------------------------------------------
FOR ADDITIONAL INFORMATION BACK COVER
- -----------------------------------------------
</TABLE>
<PAGE>

OVERVIEW

Centurion Funds, Inc. (the "Company") is a newly organized no-load mutual
fund complex with four separate diversified investment portfolios (each a
"Fund"). The Funds are designed for professional money managers and knowledge-
able investors who intend to invest in the Funds as part of a strategic or
tactical asset allocation investment strategy. The Funds are not designed to
be stand-alone investment vehicles, but rather, are to be used with certain
other investments to provide a balance to the risks inherent in those invest-
ments.

Only investors who have entered into an investment management agreement with
certain registered investment advisers ("Investment Professionals") and have a
custodial relationship with Centurion Trust Company ("Centurion") are cur-
rently eligible to buy shares of the Funds. Investment Professionals provide
investors asset allocation recommendations with respect to the Funds and other
mutual funds based on an evaluation of an investor's investment goals, risk
preferences and investment time horizons. The Funds were developed to afford
Investment Professionals ready access to certain strategies designed to facil-
itate their management of the risks inherent in allocating their clients'
assets among other available investment options. Fees paid to Investment Pro-
fessionals for their services are in addition to the operating expenses of the
Funds discussed in this Prospectus. Investors should consult their Investment
Professional if in doubt about their fees.

Centurion currently serves as custodial agent for investors who are eligible
to invest in the Funds. Centurion also serves as investment manager to each of
the four Funds that make up the Company. Centurion has engaged the following
sub-adviser(s) to manage all or a portion of a Fund's portfolio according to
its investment goal and strategies:

CENTURION U.S. EQUITY FUND
. Parametric Portfolio Associates ("Parametric")
. BEA Associates ("BEA")

CENTURION INTERNATIONAL EQUITY FUND
. Friends Ivory & Sime, Inc. ("FISI")
. BEA

CENTURION U.S. CONTRA FUND
. BEA

CENTURION INTERNATIONAL CONTRA FUND
. BEA

INVESTMENT IN THE FUNDS INVOLVES SPECIAL RISKS, SOME NOT TRADITIONALLY ASSO-
CIATED WITH MUTUAL FUNDS. INVESTORS SHOULD CAREFULLY REVIEW AND EVALUATE THESE
RISKS WHEN CONSIDERING AN INVESTMENT IN THE FUNDS. NONE OF THE FUNDS ALONE
CONSTITUTES A BALANCED INVESTMENT PLAN.

1
<PAGE>

RISK/RETURN SUMMARY

INVESTMENT GOALS AND PRINCIPAL STRATEGIES

Each Fund has adopted its own investment goal and employs certain strategies
that result in its own risk/reward profile. Because you can lose money by
investing in these Funds, be sure to read all risk disclosure carefully before
investing.

FUND / RISK FACTORS INVESTMENT GOAL / PRINCIPAL STRATEGIES
- --------------------------------------------------------------------------------

CENTURION U.S. EQUITY FUND SEEKS TO PROVIDE LONG-TERM AFTER-TAX
GROWTH CONSISTENT WITH REASONABLE EFFORTS
. Market Risk TO PRESERVE CAPITAL.

. Tracking Error Risk . Parametric seeks to provide investment
returns that, over the long term, corre-
In order to achieve the Fund's spond to the performance of the Russell
investment goal, Centurion has 3000(R) Index (the "Russell Index").
selected two sub-advisers, Para-
metric and BEA, to conduct the . Parametric invests primarily in common
Fund's investment program. stocks and other equity securities of
U.S. issuers with total market capital-
izations greater than $1 billion at the
time of purchase.

. Parametric utilizes certain strategies
designed to minimize the impact of taxes
on investors' returns.

. BEA uses certain hedging techniques
designed to protect against or otherwise
cushion price declines in the value of
the Fund's portfolio.
- --------------------------------------------------------------------------------
CENTURION INT'L EQUITY FUND SEEKS TO PROVIDE LONG-TERM AFTER-TAX
GROWTH CONSISTENT WITH REASONABLE EFFORTS
. Foreign Securities Risk TO PRESERVE CAPITAL.

. Market Risk . FISI seeks to provide investment returns
that, over the long term, correspond to
. Tracking Error Risk the performance of the Morgan Stanley
Capital International Europe, Australa-
In order to achieve the Fund's sia, Far East (EAFE(R)) Index (the "EAFE
investment goal, Centurion has Index").
selected two sub-advisers, FISI
and BEA, to conduct the Fund's . FISI invests primarily in common stocks
investment program. and other equity securities of non-U.S.
issuers with total market capitaliza-
tions greater than $1 billion at the
time of purchase.

2
<PAGE>

RISK/RETURN SUMMARY (CONTINUED)

FUND / RISK FACTORS INVESTMENT GOAL / PRINCIPAL STRATEGIES
- --------------------------------------------------------------------------------

. FISI utilizes certain strategies
designed to minimize the impact of taxes
on investors' returns.

. BEA uses certain hedging techniques
designed to project against or otherwise
cushion price declines in the value of
the Fund's portfolio.
- --------------------------------------------------------------------------------
CENTURION U.S. CONTRA FUND SEEKS TO PROVIDE PROTECTION AGAINST
DECLINES IN THE VALUE OF THE U.S. EQUITY
. Available Information Risk ALLOCATION OF CERTAIN ASSETS CUSTODIED
WITH CENTURION (THE "U.S. EQUITY BENCH-
. Derivatives Risk MARK").

. Exposure Risk . Centurion advises BEA of the level and
nature of the downside protection
. Market Risk desired for the U.S. Equity Benchmark
and BEA, using statistical and quantita-
. Portfolio Turnover Rate Risk tive analysis, selects the specific
investments designed to provide this
. Regulatory Risk protection.

. Trading Halt Risk
. Centurion and BEA intend to pursue the
In order to achieve the Fund's Fund's investment goal regardless of
investment goal, Centurion has market conditions and will not invest
selected BEA to assist it in the Fund's portfolio, in the aggregate,
conducting the Fund's investment in anticipation of rising U.S. equity
program. prices.

. BEA trades primarily in (i) options on
securities and stock indexes, (ii) stock
index futures contracts, (iii) options
on stock index futures contracts and
(iv) Dow Jones Industrial Average Model
New Depositary Shares ("DIAMONDS") and
Standard & Poor's Depositary Receipts
("SPDRs").
- --------------------------------------------------------------------------------

3
<PAGE>

RISK/RETURN SUMMARY (CONTINUED)

FUND / RISK FACTORS INVESTMENT GOAL / PRINCIPAL STRATEGIES
- -------------------------------------------------------------------------------

CENTURION INT'L CONTRA FUND SEEKS TO PROVIDE PROTECTION AGAINST
DECLINES IN THE VALUE OF THE NON-U.S.
. Available Information Risk EQUITY ALLOCATION OF CERTAIN ASSETS
CUSTODIED WITH CENTURION (THE "INTERNA-
. Derivatives Risk TIONAL EQUITY BENCHMARK").

. Exposure Risk . Centurion advises BEA of the level and
nature of the downside protection
. Foreign Securities Risk desired for the International Equity
Benchmark and BEA, using statistical and
. Market Risk quantitative analysis, selects the spe-
cific investments designed to provide
. Portfolio Turnover Rate Risk this protection.

. Regulatory Risk . Centurion and BEA intend to pursue the
Fund's investment goal regardless of
. Trading Halt Risk market conditions and will not invest
the Fund's portfolio, in the aggregate,
In order to achieve the Fund's in anticipation of rising international
investment goal, Centurion has equity prices.
selected BEA to assist it in
conducting the Fund's investment . BEA engages in forward currency con-
program. tracts and trades primarily in (i)
options on securities, currencies and
stock indexes, (ii) stock index futures
contracts, (iii) options on stock index
futures contracts and (iv) World Equity
Benchmark Shares ("WEBS").
- -------------------------------------------------------------------------------

The Russell Index is an unmanaged index composed of the 3000 largest U.S.
publicly traded stocks, as determined by market capitalization. The EAFE Index
is a broadly diversified international index composed of the equity securities
of approximately 1,000 companies located outside the United States. Please
read "Fund Details--Benchmark Information" for more information about these
securities indexes.

None of the Funds will invest 25% or more of its total assets in the securi-
ties of one or more issuers conducting their principal business activities in
the same industry, except that, to the extent the benchmarks of the Centurion
U.S. Equity Fund or the Centurion International Equity Fund are concentrated
in a particular industry, these Funds will be concentrated in that industry.
This limitation does not apply to investments or obligations of the U.S. Gov-
ernment or any of its agencies or instrumentalities.

4
<PAGE>

RISK/RETURN SUMMARY (CONTINUED)

A WORD ABOUT RISK

The principal risks of investing in the Funds are discussed below. Before
you invest, please make sure you understand the risks that apply to your Fund.
As with any mutual fund, there is no guarantee that you will make money over
any period of time and you could lose money by investing in a Fund. All
investments involve some level of risk. Simply defined, risk is the possibil-
ity that you may lose money and not make money.

Investments in the Funds are not bank deposits. They are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other govern-
ment agency.

AVAILABLE INFORMATION RISK. Because the mutual funds held by Centurion's
clients are not required to report their securities holdings to Centurion,
Centurion may be unable to determine current market exposure of the U.S.
Equity Benchmark and the International Equity Benchmark, and thus may have
imperfect knowledge of the exact risks to be hedged.

DERIVATIVES RISK. A Fund's use of options, futures and options on futures
("derivatives") involves additional risks and transaction costs, such as, (i)
adverse changes in the value of these instruments, (ii) imperfect correlation
between the price of derivatives and movements in the price of the underlying
securities, index or futures contracts, (iii) the fact that use of derivatives
requires different skills than those needed to select portfolio securities,
and (iv) the possible absence of a liquid secondary market for a particular
derivative at any moment in time.

EXPOSURE RISK. Certain investments (such as options and futures) and certain
practices may have the effect of magnifying declines as well as increases in a
Fund's net asset value. Losses from buying and selling futures can be unlimit-
ed.

FOREIGN SECURITIES RISK. Foreign securities markets generally have less
trading volume and less liquidity than U.S. markets. Investments in foreign
countries also involve a risk of local political, economic or social instabil-
ity. Additionally, fluctuations in the exchange rates between the U.S. dollar
and foreign currencies may negatively affect an investment. Adverse changes in
exchange rates may erode or reverse any gains produced by foreign currency-
denominated investments and may widen any losses.

MARKET RISK. The market value of a security may move up and down, sometimes
rapidly and unpredictably. Stock markets tend to move in cycles, with periods
of rising stock prices and periods of falling stock prices. These fluctuations
may cause a security to be worth less than the price originally paid for it,
or less than it was worth at an earlier time. Market risk may affect a single
issuer, industry, sector of the economy or the market as a whole. Market risk
is common to

5
<PAGE>

RISK/RETURN SUMMARY (CONTINUED)

most investments, including stocks and bonds, and the mutual funds that invest
in them.

PORTFOLIO TURNOVER RATE RISK. The Company anticipates that investors that
are part of a tactical or strategic asset allocation strategy may frequently
redeem or exchange shares of the Centurion U.S. Contra Fund and/or the Centu-
rion International Contra Fund, which will cause these Funds to experience
higher portfolio turnover. A higher portfolio turnover rate may result in the
Funds paying more brokerage commissions and generating greater tax liabilities
for shareholders. Additionally, high portfolio turnover may adversely affect
the ability of the Funds to meet their investment goals.

REGULATORY RISK. Positions in futures and related options will be entered
into only to the extent they constitute permissible positions for a Fund
according to applicable rules of the Commodity Futures Trading Commission. At
times, a Fund may be constrained in its ability to use futures, options on
futures or other derivatives by an unanticipated inability to close positions
when it would be most advantageous to do so. Additionally, to the extent that
a Fund engages in futures and related options for other than "bona fide" hedg-
ing purposes, aggregate initial margin and premiums required to establish
these positions may not exceed 5% of the Fund's net asset value.

TRACKING ERROR RISK. Factors such as Fund expenses, imperfect correlation
between a Fund's investments and those of its benchmark, rounding of share
prices, changes to the benchmark, and regulatory policies may affect the Cen-
turion U.S. Equity Fund and the Centurion International Equity Fund's ability
to provide investment returns that correspond to the performance of their
respective benchmarks. Additionally, because these Funds may at times sell
securities at a loss in order to reduce the Funds' capital gains distribu-
tions, these Funds should not be expected to achieve perfect correlation. The
magnitude of any tracking error may be affected by a higher portfolio turnover
rate.

TRADING HALT RISK. Certain major exchanges on which options and futures con-
tracts are traded, such as the Chicago Mercantile Exchange, have established
limits on how much an option or futures contract may decline over various time
periods within a day. If an option or futures contract's price declines more
than the established limits, trading on the exchange is halted on that instru-
ment. If a trading halt occurs before the close of a trading day, a Fund may
not be able to purchase or sell options or futures contracts. In such an
event, the Fund also may be required to use a "fair-value" method to price its
outstanding contracts.

6
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INVESTOR EXPENSES

FEE TABLE

As an investor, you pay certain fees and expenses in connection with each
Fund, which are described in the table below. "Shareholder Fees" are paid from
your account. "Annual Fund Operating Expenses" are paid out of Fund assets, so
their effect is included in the share price.

<TABLE>
<CAPTION>
CENTURION CENTURION
CENTURION U.S. INTERNATIONAL CENTURION U.S. INTERNATIONAL
EQUITY FUND EQUITY FUND CONTRA FUND CONTRA FUND
- -------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
(PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C> <C> <C> <C>
Sales charge (load) on
purchases None None None None
Deferred sales charge
(load) None None None None
Redemption fees None None None None
- -------------------------------------------------------------------------------------------------
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(DEDUCTED FROM FUND ASSETS)
<S> <C> <C> <C> <C>
Management fees .75% .75% 1.20% 1.20%
Distribution and service
(12b-1) fees None None None None
Other expenses* .60% .65% .59% .64%
- -------------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES** 1.35% 1.40% 1.79% 1.84%
- -------------------------------------------------------------------------------------------------
</TABLE>
* "Other expenses" are based on estimated amounts for each Fund's first full
fiscal year since the Funds have recently commenced operations.
** "Total annual fund operating expenses" do not reflect fee waivers and
expense reimbursements. Centurion has voluntarily agreed to reduce or
otherwise limit its "Management fee" for each of the Centurion U.S. Contra
Fund and Centurion International Contra Fund as described below until
further notice. Centurion is under no obligation to continue these waivers.
<TABLE>
<CAPTION>
TOTAL ANNUAL
MANAGEMENT FEES FUND OPERATING EXPENSES
--------------- -----------------------
<S> <C> <C>
CENTURION U.S. CONTRA FUND .91% 1.50%
CENTURION INTERNATIONAL CONTRA FUND .86% 1.50%
</TABLE>

7
<PAGE>

INVESTOR EXPENSES (CONTINUED)

EXPENSE EXAMPLES

This example is intended to help you compare the cost of investing in the
Funds with the cost of investing in other mutual funds. The example, however,
is only hypothetical and your actual costs may be higher or lower.

The example assumes that you invest $10,000 in a Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 YEAR: 3 YEARS:
- --------------------------------------------------------
<S> <C> <C>
Centurion U.S. Equity Fund 137 428
Centurion International Equity Fund 143 443
Centurion U.S. Contra Fund 182 563
Centurion International Contra Fund 187 579
- --------------------------------------------------------
</TABLE>

CENTURION U.S. EQUITY FUND

GOAL AND STRATEGIES

The Fund seeks to provide long-term after-tax growth consistent with reason-
able efforts to preserve capital. The Fund is sub-advised by Parametric, which
manages approximately 90% of the Fund's assets, and BEA, which manages the
remaining 10% of the Fund's assets. This allocation of the Fund's assets
between Parametric and BEA may vary from time to time. The Fund's investment
goal may be changed by the Board of Directors without shareholder approval.

Parametric seeks to provide investment returns that, over the long term,
correspond to the performance of the Russell Index. Parametric invests in
domestic companies that it believes are undervalued and demonstrate long-term
revenue and earnings growth potential. In evaluating companies for purchase,
Parametric uses a proprietary quantitative model that ranks companies based on
long-term price appreciation potential through analysis of such factors as
growth of sustainable earnings and dividend behavior.

Parametric utilizes certain strategies designed to minimize the impact of
taxes on investors' returns. The Fund seeks to minimize portfolio turnover in
order to defer the realization, and minimize the distribution, of capital
gains. Parametric considers the negative tax impact of realizing capital gains
and the positive tax impact of realizing capital losses when deciding whether
to sell portfolio securities. Parametric may, when appropriate, sell securi-
ties in order to realize capital losses. Realized capital losses can be used
to offset realized capital gains and thus reduce the Fund's

8
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CENTURION U.S. EQUITY FUND (CONTINUED)

capital gains distributions. Additionally, Parametric will attempt to sell
shares on which it has the highest cost basis in order to minimize capital
gains distributions.

BEA uses certain hedging techniques designed to protect against or otherwise
cushion price declines in the value of the Fund's portfolio. Because of the
nature of the investments made by BEA on behalf of the Fund, BEA's trading
could have an impact on Fund performance that is proportionately greater than
the portion of Fund assets it manages.

PORTFOLIO INVESTMENTS

To achieve its investment goal, the Fund intends to invest at least 80% of
its assets in common stocks and other equity securities of U.S. issuers with
total market capitalizations greater than $1 billion at the time of purchase.
Normally, the Fund invests substantially all of its assets in equity securi-
ties, including:

. common stocks;
. securities convertible into common stocks; and
. securities such as rights and warrants, whose values are based on common
stocks.

Additionally, in an attempt to provide downside protection for the Fund's
portfolio, BEA will trade in:

. options on securities and stock indexes;
. stock index futures contracts; and
. options on stock index futures contracts.

As a cash reserve, for liquidity purposes or as "cover" for positions it has
taken, the Fund may temporarily invest all or part of the Fund's assets in cash
or cash equivalents. The Fund may also invest in preferred stocks and non-con-
vertible debt securities such as bonds, debentures and notes, and engage, to a
limited extent, in other investment practices in order to achieve its invest-
ment goal.

RISK FACTORS

The Fund is subject to the following principal risk factors (discussed in the
Fund's "Risk/Return Summary"):

. Market Risk . Tracking Error Risk

Because the Fund seeks to provide attractive after-tax returns it may not
provide as high a return before taxes as other funds with similar investment
strategies that do not consider these tax implications. As such, investors who
are not subject to

9
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CENTURION U.S. EQUITY FUND (CONTINUED)

current income tax should consider whether the Fund's investment strategies, in
view of its tax-sensitive policies, are appropriate for their needs.

The value of your investment in the Fund will tend to increase during times
when the value of the securities in the Russell Index is increasing. When the
value of the securities in the Russell Index decreases, however, the value of
your investment in the Fund should decrease as well. In both instances, the
investment techniques employed by BEA on behalf of the Fund are designed to
reduce the amount of these increases and decreases. To the extent that the Fund
invests in certain securities, the Fund may be affected by additional risks as
discussed in "More About Risk." Please read "More About Risk" carefully before
you invest in the Fund.

CENTURION INTERNATIONAL EQUITY FUND

GOAL AND STRATEGIES

The Fund seeks to provide long-term after-tax growth consistent with reason-
able efforts to preserve capital. The Fund is sub-advised by FISI, which man-
ages approximately 90% of the Fund's assets, and BEA, which manages the remain-
ing 10% of the Fund's assets. This allocation of the Fund's assets between FISI
and BEA may vary from time to time. The Fund's investment goal may be changed
by the Board of Directors without shareholder approval.

FISI seeks to provide investment returns that, over the long term, correspond
to the performance of the EAFE Index. FISI invests in companies located outside
the United States that it believes demonstrate long-term revenue and earnings
growth potential. In evaluating companies for purchase, FISI conducts extensive
financial screening and follows up with in-depth company analysis. FISI will
allocate the Fund's assets in countries that are broadly in line with the coun-
try allocation of the EAFE Index, but may at times adjust the Fund's country
allocation towards those countries that it believes will produce superior eco-
nomic growth.

FISI utilizes certain strategies designed to minimize the impact of taxes on
investors' returns. The Fund seeks to minimize portfolio turnover in order to
defer the realization, and minimize the distribution, of capital gains. FISI
considers the negative tax impact of realizing capital gains and the positive
tax impact of realizing capital losses when deciding whether to sell portfolio
securities. FISI may, when appropriate, sell securities in order to realize
capital losses. Realized capital losses can be used to offset realized capital
gains and thus reduce the Fund's capital gains distributions. Additionally,
FISI will attempt to sell shares on which it has the highest cost basis in
order to minimize capital gains distributions.

10
<PAGE>

CENTURION INTERNATIONAL EQUITY FUND (CONTINUED)

PORTFOLIO INVESTMENTS

To achieve its investment goal, the Fund intends to invest at least 80% of
its assets in common stocks and other equity securities of non-U.S. issuers
with total market capitalizations greater than $1 billion at the time of pur-
chase. Normally, the Fund invests substantially all of its assets in equity
securities, including:

. common stocks;
. securities convertible into common stocks; and
. securities such as rights and warrants, whose values are based on common
stocks.

Additionally, in an attempt to provide downside protection for the Fund's
portfolio, BEA will trade in:

. options on securities, currencies and stock indexes;
. stock index futures contracts; and
. options on stock index futures contracts; and engage in
. forward currency contracts.

RISK FACTORS

The Fund is subject to the following principal risk factors (discussed in the
Fund's "Risk/Return Summary"):

. Foreign Securities Risk . Market Risk
. Tracking Error Risk

11
<PAGE>

CENTURION INTERNATIONAL EQUITY FUND (CONTINUED)

current income tax should consider whether the Fund's investment strategies, in
view of its tax-sensitive policies, are appropriate for their needs.

The value of your investment in the Fund will tend to increase during times
when the value of the securities in the EAFE Index is increasing. When the
value of the securities in the EAFE Index decreases, however, the value of your
investment in the Fund should decrease as well. In both instances, the invest-
ment techniques employed by BEA on behalf of the Fund are designed to reduce
the amount of these increases and decreases. To the extent that the Fund
invests in certain securities, the Fund may be affected by additional risks as
discussed in "More About Risk." Please read "More About Risk" carefully before
you invest in the Fund.

CENTURION U.S. CONTRA FUND

GOAL AND STRATEGIES

The Fund seeks to provide protection against declines in the value of the
U.S. equity allocation of certain assets custodied with Centurion (the "U.S.
Equity Benchmark"). This investment goal may be changed by the Board of Direc-
tors without shareholder approval.

Centurion analyzes the various mutual funds held by certain of its clients
(the "Custodied Funds"), as well as the portfolio securities of these funds.
Centurion performs its analysis based on information provided by the Custodied
Funds and/or, because these funds are not required to report their securities
holdings to Centurion, by reviewing the historic securities holdings of the
Custodied Funds as described in public documents (which are required to be made
available at least semi-annually within 60 days after the close of the applica-
ble reporting period). Based on the information available, Centurion attempts
to determine the composition of the U.S. Equity Benchmark, including the rela-
tive proportion of the underlying assets maintained in various asset classes,
geographic locations and industries, in order to advise BEA, the Fund's sub-
adviser, of the level and nature of the downside protection specifically
desired for the U.S. Equity Benchmark at any moment in time. BEA then uses sta-
tistical and quantitative analysis to select investments designed to provide
protection against declines in the performance of the U.S. Equity Benchmark.

Centurion and BEA intend to pursue the Fund's investment goal regardless of
market conditions and will not invest the Fund's portfolio, in the aggregate,
in anticipation of rising U.S. equity prices.

12
<PAGE>

CENTURION U.S. CONTRA FUND (CONTINUED)

PORTFOLIO INVESTMENTS

To achieve its investment goal, the Fund intends to use the following
instruments:

. options on securities and stock indexes;
. stock index futures contracts;
. options on stock index futures contracts; and
. DIAMONDS and SPDRs (securities issued by investment companies holding a
portfolio of securities that is intended to track the performance and
dividend yield of the Dow Jones Industrial Average and the S&P 500 Index,
respectively).

To the extent that the Fund invests in DIAMONDS or SPDRs, the Fund will indi-
rectly bear its proportionate share of the expenses of the underlying invest-
ment vehicle issuing these instruments. The Fund's investments in securities of
other investment companies, such as DIAMONDS or SPDRs, are subject to limita-
tions under the Investment Company Act of 1940.

As a cash reserve, for liquidity purposes or as "cover" for positions it has
taken, the Fund may temporarily invest all or part of the Fund's assets in cash
or cash equivalents. The Fund may also engage, to a limited extent, in other
investment practices in order to achieve its investment goal.

RISK FACTORS

The Fund is subject to the following principal risk factors (discussed in the
Fund's "Risk/Return Summary"):

. Available Information Risk . Exposure Risk

. Portfolio Turnover Rate Risk . Trading Halt Risk

. Derivatives Risk . Market Risk

. Regulatory Risk

The value of your investment in the Fund is designed to increase during times
when the value of the U.S. Equity Benchmark is decreasing. Conversely, when the
value of the U.S. Equity Benchmark increases, the value of your investment in
the Fund should decrease. To the extent that the Fund invests in certain secu-
rities, the Fund may be affected by additional risks as discussed in "More
About Risk." Please read "More About Risk" carefully before you invest in the
Fund.

13
<PAGE>

CENTURION INTERNATIONAL CONTRA FUND

GOAL AND STRATEGIES

The Fund seeks to provide protection against declines in the value of the
non-U.S. equity allocation of certain assets custodied with Centurion (the "In-
ternational Equity Benchmark"). This investment goal may be changed by the
Board of Directors without shareholder approval.

Centurion analyzes the various mutual funds held by certain of its clients
(the "Custodied Funds"), as well as the portfolio securities of these funds.
Centurion performs its analysis based on information provided by the Custodied
Funds and/or, because these funds are not required to report their securities
holdings to Centurion, by reviewing the historic securities holdings of the
Custodied Funds as described in public documents (which are required to be made
available at least semi-annually within 60 days after the close of the applica-
ble reporting period). Based on the information available, Centurion attempts
to determine the composition of the International Equity Benchmark, including
the relative proportion of the underlying assets maintained in various asset
classes, geographic locations and industries, in order to advise BEA, the
Fund's sub-adviser, of the level and nature of the downside protection specifi-
cally desired for the International Equity Benchmark at any moment in time. BEA
then uses statistical and quantitative analysis to select investments designed
to provide protection against declines in the performance of the International
Equity Benchmark.

Centurion and BEA intend to pursue the Fund's investment goal regardless of
market conditions and will not invest the Fund's portfolio, in the aggregate,
in anticipation of rising international equity prices.

PORTFOLIO INVESTMENTS

To achieve its investment goal, the Fund intends to use the following
instruments:

. options on securities, currencies and stock indexes;
. stock index futures contracts;
. options on stock index futures contracts;
. WEBS (securities of an investment company designed to replicate the per-
formance of a particular foreign equity market index); and
. forward currency contracts.

To the extent that the Fund invests in WEBS, the Fund will indirectly bear
its proportionate share of the expenses of the underlying investment vehicle
issuing these instruments. The Fund's investments in securities of other
investment companies, such as WEBS, are subject to limitations under the
Investment Company Act of 1940.

14
<PAGE>

CENTURION INTERNATIONAL CONTRA FUND (CONTINUED)

As a cash reserve, for liquidity purposes or as "cover" for positions it has
taken, the Fund may temporarily invest all or part of the Fund's assets in
cash or cash equivalents. The Fund may also engage, to a limited extent, in
other investment practices in order to achieve its investment goal.

RISK FACTORS

The Fund is subject to the following principal risk factors (discussed in
the Fund's "Risk/Return Summary"):

. Available Information Risk . Market Risk
. Derivatives Risk . Portfolio Turnover Rate Risk
. Exposure Risk . Regulatory Risk
. Foreign Securities Risk . Trading Halt Risk

The value of your investment in the Fund is designed to increase during
times when the value of the International Equity Benchmark is decreasing. Con-
versely, when the value of the International Equity Benchmark increases, the
value of your investment in the Fund should decrease. To the extent that the
Fund invests in certain securities, the Fund may be affected by additional
risks as discussed in "More About Risk." Please read "More About Risk" care-
fully before you invest in the Fund.

MORE ABOUT RISK

GENERALLY

A Fund's risk profile is largely defined by the Fund's investment goal and
principal strategies. You will find a concise description of each Fund's risk
profile in "Risk/Return Summary." The Fund-by-Fund discussions contain more
detailed information about each Fund.

The Funds may use certain investment practices that have higher risks and
opportunities associated with them. However, each Fund has limitations and
policies designed to reduce these risks. To the extent a Fund utilizes these
securities or practices, its overall performance may be affected, either posi-
tively or negatively.

TYPES OF INVESTMENT RISK

CORRELATION RISK. The risk that changes in the value of a hedging instrument
will not match those of the investment being hedged. Hedging is the use of one
investment to offset the effects of another. Incomplete correlation can result
in unanticipated risks.

15
<PAGE>

MORE ABOUT RISK (CONTINUED)

CREDIT RISK. The risk that the issuer of a security, or the counterparty to
a contract, will default or otherwise become unable to honor a financial obli-
gation.

EARLY CLOSING RISK. The risk that unanticipated early closings of securities
exchanges will result in a Fund being unable to sell or buy securities on that
day. If an exchange closes early on a day when a Fund needs to execute a high
volume of securities trades late in a trading day, the Fund might incur sub-
stantial trading losses.

EURO CONVERSION RISK. The risk that the planned introduction of a single
European currency, the Euro, on January 1, 1999 for participating European
nations may result in complex conversion calculations and present other unique
uncertainties, including whether payment and operational systems of financial
institutions will be ready by the scheduled launch date and the creation of
suitable clearing and settlement payment systems for the new currency. Addi-
tional questions are raised by the fact that certain participating nations,
including the United Kingdom, will not officially implement the Euro on Janu-
ary 1, 1999. Centurion and the sub-advisers are working to address Euro-
related issues and understand that other key service providers are taking sim-
ilar steps.

INFORMATION RISK. The risk that key information about an issuer, security or
market is inaccurate or unavailable.

INTEREST RATE RISK. The risk of a decline in an investment's market value
attributable to changes in interest rates. With bonds and other fixed income
securities, a rise in interest rates typically causes a fall in values, while
a fall in interest rates typically causes a rise in values.

LIQUIDITY RISK. The risk that certain securities may be difficult or impos-
sible to sell at the time and the price that the seller would like. The seller
may have to lower the price, sell other securities instead or forego an
investment opportunity. Any of these could have a negative effect on Fund man-
agement or performance.

MANAGEMENT RISK. The risk that a strategy used by a Fund may fail to produce
the intended result. This risk is common to all mutual funds.

NATURAL EVENT RISK. The risk of losses attributable to natural disasters and
similar events.

OPPORTUNITY RISK. The risk of missing out on an investment opportunity
because the assets necessary to take advantage of it are tied up in other
investments.

POLITICAL RISK. The risk of losses attributable to government or political
instability, such as changes in tax or trade statutes, nationalization, expro-
priation, currency blockage or governmental collapse and war.

16
<PAGE>

MORE ABOUT RISK (CONTINUED)

VALUATION RISK. The risk that a Fund has valued certain of its securities at
a higher price that it can sell them for.

YEAR 2000 RISK. The risk that a Fund is adversely affected if the computer
systems used by the Fund's investment manager, sub-adviser(s) and other service
providers do not correctly handle the change from "99" to "00" on January 1,
2000. This problem may also adversely affect the issuers in which the Funds
invest. Centurion and the sub-advisers are working to avoid problems associated
with the Year 2000 and to obtain assurances from key service providers that
they are taking similar steps. There can be no assurance, however, that these
efforts will be sufficient.

MANAGEMENT

ABOUT THE BOARD OF DIRECTORS

The Board of Directors of the Company supervises each Fund's business
affairs. The Board approves all significant agreements between a Fund and the
Fund's service providers.

ABOUT THE INVESTMENT ADVISERS

THE INVESTMENT MANAGER. The Board has selected Centurion, located at 2425
East Camelback Road, Suite 530, Phoenix, AZ 85016-4200, to serve as investment
manager to the Funds. As investment manager to the Funds, Centurion is respon-
sible for:

. managing the day-to-day operations and business activities of the Funds;

. determining the level and nature of the downside protection desired for
the U.S. Contra Fund and the International Contra Fund;

. evaluating and selecting qualified investment sub-advisers to manage each
Fund's assets according to its investment goal and strategies;

. monitoring the activities of the Funds' sub-advisers; and

. providing office space and equipment.

Centurion, an independent trust company organized under the laws of the State
of Arizona in 1994, is exempt from registration under the Investment Advisers
Act of 1940. With more than $1.2 billion of assets under management and admin-
istration as of September 30, 1998, Centurion and its affiliates provide a full
range of custodial, investment and trust products and services to their custom-
ers.

17
<PAGE>

MANAGEMENT (CONTINUED)

THE SUB-ADVISERS. Centurion has engaged the following sub-adviser(s) to man-
age all or a portion of a Fund's portfolio according to its investment goal and
strategies:

- --------------------------------------------------------------------------------
CENTURION U.S. . PARAMETRIC PORTFOLIO ASSOCIATES, located at 7310
EQUITY FUND Columbia Center, 701 Fifth Avenue, Seattle, WA 98104-
7090, is an investment management firm organized as a
general partnership. PIMCO Advisors, L.P., a publicly
traded investment management organization, is
Parametric's supervisory partner and Parametric Man-
agement Inc. is the partnership's managing partner.
Parametric Portfolio Associates, Inc., the predeces-
sor company, commenced operations in 1987. Accounts
managed by Parametric had combined assets of approxi-
mately $3.1 billion as of September 30, 1998.

. BEA ASSOCIATES. See below.

- --------------------------------------------------------------------------------
CENTURION INT'L . FRIENDS IVORY & SIME, INC., located at One World
EQUITY FUND Trade Center, Suite 2101, New York, NY 10048-0080, is
an investment management firm organized in 1978. FISI
has entered into a sub-advisory arrangement with
Friends Ivory & Sime plc ("Friends"), its parent com-
pany, whereby Friends will perform certain investment
advisory and portfolio transaction services for the
Fund. Friends, located at 15 Old Bailey, London,
England EC4M7AP, is one of the leading independent
investment managers in the United Kingdom. As of Sep-
tember 30, 1998, FISI and its affiliates managed
approximately $37.7 billion, including approximately
$26.6 billion of global equity and equity-related
investments.

. BEA ASSOCIATES. See below.

- --------------------------------------------------------------------------------
CENTURION U.S. . BEA ASSOCIATES, located at One Citicorp Center, 153
CONTRA FUND East 53rd Street, New York, NY 10022, is a general
partnership organized in 1990 that is wholly-owned by
Credit Suisse Group, the second largest Swiss bank.
BEA is a diversified investment adviser managing
global equity, fixed income and derivative securities
accounts for corporate pension and profit-sharing
plans, state pension funds, union funds, endowments
and other charitable institu-

18
<PAGE>

MANAGEMENT (CONTINUED)

tions. Together with its predecessor firms, BEA has
been engaged in the investment advisory business for
over 60 years. As of September 30, 1998, BEA managed
approximately $35.2 billion in assets.

- -------------------------------------------------------------------------------
CENTURION INT'L . BEA ASSOCIATES. See above.
CONTRA FUND

- -------------------------------------------------------------------------------

MANAGEMENT FEES. For services provided to the Funds, each Fund pays Centu-
rion the annual investment management fee described below (based on a percent-
age of the Fund's average daily net assets):

CENTURION U.S. 0.75% of the first $25 million of the average daily
EQUITY FUND: net assets of the Fund and 0.70% of the amount in
excess of $25 million

CENTURION INT'L 0.75% of the first $50 million of the average daily
EQUITY FUND: net assets of the Fund, 0.725% of the next $50 million
and 0.70% of the amount in excess of $100 million

CENTURION U.S.
CONTRA FUND: 1.20%

CENTURION INT'L
CONTRA FUND: 1.20%

From this amount, Centurion pays each sub-adviser an annual sub-advisory fee
for its services to the Fund. None of the Funds are responsible for payment of
the annual sub-advisory fee.

MEET THE MANAGERS

Each portfolio manager or advisory committee indicated below is primarily
responsible for the day-to-day management of the Fund.

- -------------------------------------------------------------------------------
CENTURION U.S. . (Parametric) David Stein, Managing Director and Chief
EQUITY FUND Investment Officer, and Thomas Seto, Vice President,
have served as co-portfolio managers since the Fund's
inception. Prior to joining Parametric in 1996, Mr.
Stein was the Director of Investment Research at GTE
Investment Management from 1995 to 1996. Before then,
Mr. Stein served as the Director of Active Equity
Strategies at the Vanguard Group and the Director of
Quantitative Portfolio Management and Research at IBM
Retirement

19
<PAGE>

MANAGEMENT (CONTINUED)

Funds. Mr. Seto is responsible for management of
Parametric's active U.S. equity strategies. Prior to
joining Parametric in October 1998, Mr. Seto served as
the Head of U.S. Equity Index Investments at Barclays
Global Investors.

. (BEA) BEA utilizes a team of portfolio managers,
assistant portfolio managers and analysts acting
together to manage the Fund (the "BEA Committee"). The
BEA Committee--which consists of Jeffrey A. Geller,
Executive Director, Mario Montoyo, Senior Vice Presi-
dent, Julian Emanuel, Vice President, Waiman Leung,
Vice President, and Anthony Antonucci, Assistant Vice
President--has served as portfolio manager since the
Fund's inception.

- --------------------------------------------------------------------------------
CENTURION INT'L . (FISI) Julie Dent, Head of International Equities at
EQUITY FUND Friends, has served as portfolio manager since the
Fund's inception. Ms. Dent, who joined Friends in
1986, has extensive experience in research and invest-
ing in Asian markets, and has been involved in country
asset allocation for the past seven years.

. (BEA) The BEA Committee (discussed above under "U.S.
Equity Fund") has served as portfolio manager since
the Fund's inception.

- --------------------------------------------------------------------------------
CENTURION U.S. . (BEA) The BEA Committee (discussed above under "U.S.
CONTRA FUND Equity Fund") has served as portfolio manager since
the Fund's inception.

- --------------------------------------------------------------------------------
CENTURION INT'L . (BEA) The BEA Committee (discussed above under "U.S.
CONTRA FUND Equity Fund") has served as portfolio manager since
the Fund's inception.

- --------------------------------------------------------------------------------

ACCOUNT POLICIES

PRICING OF SHARES

You pay no sales charges on initial or subsequent investments in the Funds.
Your price for Fund shares is the Fund's net asset value ("NAV") per share,
which is generally calculated at the later of the close of regular trading on
the New

20
<PAGE>

ACCOUNT POLICIES (CONTINUED)

York Stock Exchange (typically 4 p.m. Eastern time) or the time for settlement
of the Funds' options and futures contracts, if any (typically 4:15 p.m. East-
ern time), each day the Exchange is open for business. Your purchase order will
be priced at the next NAV calculated after your order is accepted by the Fund.
Your redemption request will be priced at the next NAV calculated after the
Fund receives the request in proper form.

Options and futures contracts purchased and held by a Fund are valued at the
close of the securities or commodities exchanges on which they are traded (typ-
ically 4:15 p.m. Eastern time). These times are referred to as "Valuation
Times." Each Fund values its securities based on market value or, where market
quotations are not readily available or are believed not to reflect market
value at Valuation Times, based on fair value as determined in good faith using
consistently applied procedures established by the Fund's Board. Debt obliga-
tions that will mature in 60 days or less are valued on the basis of amortized
cost, unless the Board determines that using this method would not reflect the
investments' value.

Some Fund securities may be listed on foreign exchanges that are open on days
(such as Saturdays) when the Funds do not compute their prices. This could
cause the value of a Fund's portfolio investments to be affected by trading on
days when you cannot buy or sell shares.

BUYING SHARES

Currently, only investors who have entered into an investment management
agreement with an Investment Professional and have a custodial relationship
with Centurion are eligible to buy shares of the Funds. Investment Profession-
als may charge fees for their services in addition to the expenses charged by
the Funds and may set different minimum investments or limitations on buying or
selling shares than those described below. Investors should consult their
Investment Professional if in doubt.

MINIMUM INITIAL INVESTMENT: $2,500

MINIMUM SUBSEQUENT INVESTMENT: $250

All investments must be in U.S. dollars. Third-party checks cannot be accept-
ed. You may be charged a fee for any check that does not clear. In its discre-
tion, subject to review by the Board, Centurion may waive the above minimum
investment requirements.

SELLING SHARES

When selling shares, your order will be processed promptly and you will gen-
erally receive the proceeds within a week. Before selling recently purchased
shares,

21
<PAGE>

ACCOUNT POLICIES (CONTINUED)

please note that if the Fund has not yet collected payment for the shares you
are selling, it may delay sending the proceeds for up to eight business days.

Some circumstances require written sell orders, along with signature guaran-
tees. These include:

. amounts of $100,000 or more;

. amounts of $1,000 or more on accounts whose address has been changed
within the last 30 days; or

. requests to send the proceeds to a different payee or address.

A signature guarantee helps protect against fraud. You can obtain one from
most banks or securities dealers, but not from a notary public. Please call us
to ensure that your signature guarantee will be processed correctly.

GENERAL POLICIES

If your account falls below $2,000, the Fund may ask you to increase your
balance. If it still remains below $2,000 after 60 days, the Fund may close
your account and send you the proceeds.

Unless you decline telephone privileges on your application, you may be
responsible for any fraudulent telephone order as long as the Fund takes rea-
sonable measures to verify the order.

Each Fund reserves the right to:

. refuse any purchase or exchange request that could adversely affect the
Fund or its operations, including those from any individual or group who,
in the Fund's view, is likely to engage in excessive trading;

. refuse any purchase or exchange request in excess of 1% of the Fund's
total assets;

. change or discontinue its exchange privilege, or temporarily suspend this
privilege during unusual market conditions;

. change its minimum investment amounts;

. delay sending out redemption proceeds for up to seven days if doing so
sooner would adversely affect the Fund (generally applies only in cases
of very large redemptions, excessive trading or during unusual market
conditions); and

. make a "redemption in kind" (payment in portfolio securities rather than
cash) if the amount you are redeeming is large enough to affect Fund
operations.

22
<PAGE>

SHAREHOLDER SERVICES

EXCHANGE PRIVILEGE

You can exchange $2,500 or more from one Fund into another (no minimum for
retirement accounts). You can request your exchange in writing or by phone. Be
sure to read the Fund description in this Prospectus for any Fund into which
you are exchanging. Any new account established through an exchange will have
the same privileges as your original account (as long as they are available).
No fee is currently charged on exchanges.

TELEPHONE PRIVILEGE

To move money between your bank account and your Fund account with a phone
call, use the telephone privilege. You can set up this privilege on your
account by providing bank account information and following the instructions on
your application.

ACCOUNT STATEMENTS

You will automatically receive regular account statements. You will also be
sent a yearly statement detailing the tax characteristics of any dividends and
distributions you have received.

DISTRIBUTION POLICIES AND TAXES

DISTRIBUTIONS

As a Fund investor, you are entitled to your share of the Fund's net income
and gains on its investments. The Fund passes these earnings along to its
shareholders as distributions.

Each Fund earns dividends from stocks and interest from bond, money market
and other investments. These are passed along as dividend distributions. A Fund
realizes capital gains whenever it sells securities for a higher price than it
paid for them. These are passed along as capital gains distributions, a portion
of which may be taxable to you as ordinary income.

Each Fund declares and pays its net income and capital gains annually. A
Fund's capital gains are usually distributed in November or December.

When you open an account, specify on your account application how you want to
receive your distributions. Most investors have their distributions reinvested
in additional shares of the same Fund. Distributions will be automatically
reinvested unless you choose on your account application to have your distribu-
tions mailed to you by check or sent by electronic transfer.

23
<PAGE>

DISTRIBUTION POLICIES AND TAXES (CONTINUED)

For retirement accounts, all distributions are automatically reinvested. When
you are over 59 1/2 years old, you can receive distributions in cash.

TAXES

As with any investment, you should consider how your investment in a Fund
will be taxed. Unless your account is an IRA or other tax-advantaged account,
you should be aware of the potential tax implications. Please consult your tax
professional concerning your own tax situation.

Taxes on Distributions. As long as a Fund continues to meet the requirements
for being a tax-qualified regulated investment company, it pays no federal
income tax on the earnings it distributes to shareholders.

Consequently, distributions you receive from a Fund, whether reinvested or
taken in cash, are generally considered taxable. Distributions from a Fund's
long-term capital gains are taxed as capital gains; distributions from other
sources are generally taxed as ordinary income.

Some dividends paid in January may be taxable as if they had been paid the
previous December. If you buy shares shortly before or on the "record date"
(the date that establishes you as the person to receive the upcoming distribu-
tion) you will receive a portion of the money you just invested in the form of
a taxable distribution.

If you fail to provide your correct taxpayer identification number on your
application, or you have been notified by the IRS that you are subject to
backup withholding, the Funds may withhold 31% of all distributions to you for
federal taxes. In the case of an individual, your taxpayer identification num-
ber is your social security number.

The form 1099 that is mailed to you every January details your distributions
and their federal tax category.

Taxes on Transactions. Any time you sell or exchange shares, it is considered
a taxable event for you. Depending on the purchase price and the sale price of
the shares you sell or exchange, you may have a gain or loss on the transac-
tion. You are responsible for any tax liabilities generated by your transac-
tions.

FUND DETAILS

ABOUT THE DISTRIBUTOR

CFBDS, Inc. serves as the distributor for the Company and is responsible for
making shares of the Funds available to you. The distributor provides share-
holder and distribution services to Fund shareholders at no charge.

24
<PAGE>

FUND DETAILS (CONTINUED)

ABOUT THE ADMINISTRATOR AND CONSULTANT

Mutual Management Corp. ("MMC") serves as the administrator for the Company
and is responsible for overseeing all aspects of the Company's administration
and operations. MMC provides investment management and administration services
to investment companies that had aggregate assets under management, as of Sep-
tember 30, 1998, over $108 billion.

Salomon Smith Barney Inc. ("SSB"), an affiliate of MMC, provides consulting
services to the Funds through its Consulting Group. As a consultant, SSB fur-
nishes statistical and other factual information to the Funds, as well as
advice regarding general economic factors and market trends.

BENCHMARK INFORMATION

None of the Funds is sponsored, endorsed, sold or promoted by Frank Russell
Company ("Frank Russell") or Morgan Stanley, Dean Witter & Co. ("Morgan Stan-
ley"), which own service mark rights to the Russell Index and EAFE Index,
respectively. Neither Frank Russell nor Morgan Stanley make any representation
or warranty, implied or express, to investors in the Funds, or any member of
the public, regarding the advisability of investing in the Funds or the abil-
ity of the Russell Index or the EAFE Index, respectively, to track general
stock market performance.

25
<PAGE>

FOR ADDITIONAL INFORMATION

More information about the Funds is available free upon request, including
the following:

ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS

These reports include financial statements, portfolio investments and
detailed performance information. The annual report also provides a discussion
of the market conditions and investment strategies that significantly affected
Fund performance during the last fiscal year and includes the independent
accountants' report.

STATEMENT OF ADDITIONAL INFORMATION ("SAI")

The SAI provides more details about the Funds and their investments. A cur-
rent SAI has been filed with the SEC and is incorporated by reference (is
legally considered part of this Prospectus).

Please contact the Company to obtain more information about the Funds,
inquire about your account or request a free copy of the current annual/semi-
annual report or SAI:

. By telephone: 800-451-2010

. By mail: CENTURION FUNDS, INC.
2425 EAST CAMELBACK ROAD, SUITE 530
PHOENIX, AZ 85016-4200

You can also obtain copies of the SAI and other information about the Funds
from your Investment Professional.

You may visit the SEC's Internet Website (www.sec.gov) to view the SAI, mate-
rial incorporated by reference and other information. You can also obtain cop-
ies of this information by sending your request and a duplicating fee to the
SEC's Public Reference Section, Washington, D.C. 20549-6009. You may review and
copy information about the Funds, including the SAI, at the SEC's Public Refer-
ence Room in Washington, D.C. To find out more about the public reference room,
call the SEC at 1-800-SEC-0330.

- --------------------------------------------------------------------------------

INVESTMENT MANAGER: SUB-ADVISERS:
Centurion Trust Company BEA Associates
2425 E. Camelback Rd., Suite 530 One Citicorp Center, 153 E.
Phoenix, AZ 85016-4200 53rd St.
New York, NY 10022
ADMINISTRATOR:
Mutual Management Corp. Friends Ivory & Sime, Inc.
388 Greenwich St. One World Trade Center, Suite
New York, NY 10013 2101
New York, NY 10048-0080
TRANSFER AGENT:
First Data Investor Services Group, Inc. Parametric Portfolio Associates
Exchange Place 7310 Columbia Center
Boston, MA 02109 701 Fifth Avenue
Seattle, WA 98104-7090
CUSTODIANS:
PNC Bank, National Association INDEPENDENT ACCOUNTANT:
17th and Chestnut Streets KPMG Peat Marwick LLP
Philadelphia, PA 19103 345 Park Ave.
New York, NY 10154

DISTRIBUTOR: COUNSEL:
The Chase Manhattan Bank CFBDS, Inc. Willkie Farr & Gallagher
4 Chase MetroTech Center 21 Milk St., 5th 787 Seventh Ave.
Brooklyn, NY 11245 Flr. New York, NY 10019-6099
Boston, MA 02109

SEC File No. 811-8977
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

December 4, 1998
-----------------------

CENTURION FUNDS, INC.

__________________________
CENTURION U.S. EQUITY FUND
CENTURION INTERNATIONAL EQUITY FUND
CENTURION U.S. CONTRA FUND
CENTURION INTERNATIONAL CONTRA FUND
__________________________
CONTENTS
--------
PAGE
----

Organization of the Company............................................... 2
Investment Goals and Policies............................................. 2
Management of the Funds................................................... 27
Additional Purchase and Redemption Information............................ 30
Exchange Privilege........................................................ 31
Additional Information Concerning Taxes................................... 31
Determination of Performance.............................................. 38
Principal Stockholders.................................................... 39
Other Information......................................................... 39
Financial Statements...................................................... 40
Appendix Description of Ratings.......................................... A-1

This Statement of Additional Information is meant to be read in conjunction
with the Prospectus for Centurion Funds, Inc. (the "Company") dated December
4, 1998, as amended or supplemented from time to time (the "Prospectus"), and
is incorporated by reference in its entirety into the Prospectus. The Company
currently offers four separately managed portfolios: Centurion U.S. Equity Fund
(the "U.S. Equity Fund"), Centurion International Equity Fund (the
"International Equity Fund"), Centurion U.S. Contra Fund (the "U.S. Contra
Fund") and Centurion International Contra Fund (the "International Contra Fund")
(together, the "Funds," and each, a "Fund"). Because this Statement of
Additional Information is not itself a prospectus, no investment in shares of a
Fund should be made solely upon the information contained herein. Copies of the
Prospectus and information regarding the Funds' current performance, when
available, may be obtained by calling the Company at (800) 451-2010. Information
regarding the status of shareholder accounts may be obtained by calling the
Company at (800) 451-2010 or by writing to the Company at 2425 East Camelback
Road, Phoenix, Arizona 85016-4200.
<PAGE>

ORGANIZATION OF THE COMPANY

The Company is a diversified open-end management investment company that
was organized as a corporation on August 20, 1998 under the laws of the State of
Maryland. The Company's Charter authorizes the Board of Directors (the "Board")
to issue 500,000,000 full and fractional shares of capital stock, $.001 par
value, of which 100,000,000 shares are designated a series called the "Centurion
U.S. Equity Fund," 100,000,000 shares are designated a series called the
"Centurion International Equity Fund," 150,000,000 shares are designated a
series called the "Centurion U.S. Contra Fund," and 150,000,000 shares are
designated a series called the "Centurion International Contra Fund."

INVESTMENT GOALS AND POLICIES

As stated in the Prospectus, the investment goal of the U.S. Equity Fund
and the International Equity Fund (together, the "Equity Funds") is to provide
long-term after-tax growth consistent with reasonable efforts to preserve
capital. The investment goal of the U.S. Contra Fund is to provide protection
against declines in the value of the U.S. equity allocation of certain assets
custodied with Centurion Trust Company ("Centurion"). The investment goal of
the International Contra Fund is to provide protection against declines in the
value of the non-U.S. equity allocation of certain assets custodied with
Centurion. The following information supplements the discussion of each Fund's
investment goal and policies in the Prospectus. There are no assurances that a
Fund will achieve its investment goal.

Centurion serves as investment manager to each Fund. Centurion has engaged
Parametric Portfolio Associates ("Parametric") and BEA Associates ("BEA") as
sub-advisers to the U.S. Equity Fund, Friends Ivory & Sime, Inc. ("FISI") and
BEA as sub-advisers to the International Equity Fund, and BEA as sub-adviser to
both the U.S. Contra Fund and the International Contra Fund (together, the
"Contra Funds"). The term "Adviser," as used in this Statement of Additional
Information, shall refer to Centurion, Parametric, FISI and/or BEA, as
applicable.

Options, Futures and Currency Exchange Transactions
- ---------------------------------------------------

Securities Options. Each Fund may write covered call options on stock and
------------------
debt securities and may purchase U.S. exchanged-traded and over-the counter
("OTC") put and call options.

A Fund realizes fees (referred to as "premiums") for granting the rights
evidenced by the options it has written. A put option embodies the right of its
purchaser to compel the writer of the option to purchase from the option holder
an underlying security at a specified price for a specified time period or at a
specified time. In contrast, a call option embodies the right of its purchaser
to compel the writer of the option to sell to the option holder an underlying
security at a specified price for a specified time period or at a specified
time.

The principal reason for writing covered options on a security is to
attempt to realize, through the receipt of premiums, a greater return than would
be realized on the securities

2
<PAGE>

alone. In return for a premium, a Fund as the writer of a covered call option
forfeits the right to any appreciation in the value of the underlying security
above the strike price for the life of the option (or until a closing purchase
transaction can be effected). Nevertheless, a Fund as a call writer retains the
risk of a decline in the price of the underlying security. The size of the
premiums that a Fund may receive may be adversely affected as new or existing
institutions, including other investment companies, engage in or increase their
option-writing activities.

In the case of options written by a Fund that are deemed covered by virtue
of the Fund's holding convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange and obtain physical
delivery of the underlying common stock with respect to which the Fund has
written options may exceed the time within which the Fund must make delivery in
accordance with an exercise notice. In these instances, a Fund may purchase or
temporarily borrow the underlying securities for purposes of physical delivery.
By so doing, a Fund will not bear any market risk, since the Fund will have the
absolute right to receive from the issuer of the underlying security an equal
number of shares to replace the borrowed securities, but the Fund may incur
additional transaction costs or interest expenses in connection with any such
purchase or borrowing.

Additional risks exist with respect to certain of the securities for which
a Fund may write covered call options. For example, if a Fund writes covered
call options on mortgage-backed securities, the mortgage-backed securities that
it holds as cover may, because of scheduled amortization or unscheduled
prepayments, cease to be sufficient cover. If this occurs, a Fund will
compensate for the decline in the value of the cover by purchasing an
appropriate additional amount of mortgage-backed securities.

Options written by a Fund will normally have expiration dates between one
and twelve months from the date written. The exercise price of the options may
be below, equal to or above the market values of the underlying securities at
the times the options are written. In the case of call options, these exercise
prices are referred to as "in-the-money," "at-the-money" and "out-of-the-money,"
respectively. A Fund may write (i) in-the-money call options when the Adviser
expects that the price of the underlying security will remain flat or decline
moderately during the option period, (ii) at-the-money call options when the
Adviser expects that the price of the underlying security will remain flat or
advance moderately during the option period and (iii) out-of-the-money call
options when the Adviser expects that the premiums received from writing the
call option plus the appreciation in market price of the underlying security
up to the exercise price will be greater than the appreciation in the price of
the underlying security alone. In any of the preceding situations, if the market
price of the underlying security declines and the security is sold at this lower
price, the amount of any realized loss will be offset wholly or in part by the
premium received. To secure its obligation to deliver the underlying security
when it writes a call option, a Fund will be required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Options
Clearing Corporation (the "Clearing Corporation") and of the securities exchange
on which the option is written.

3
<PAGE>

Prior to their expirations, put and call options may be sold in closing
sale or purchase transactions (sales or purchases by a Fund prior to the
exercise of options that it has purchased or written, respectively, of options
of the same series) in which a Fund may realize a profit or loss from the sale.
An option position may be closed out only where there exists a secondary market
for an option of the same series on a recognized securities exchange or in the
over-the-counter market. When a Fund has purchased an option and engages in a
closing sale transaction, whether the Fund realizes a profit or loss will depend
upon whether the amount received in the closing sale transaction is more or less
than the premium the Fund initially paid for the original option plus the
related transaction costs. Similarly, in cases where a Fund has written an
option, it will realize a profit if the cost of the closing purchase transaction
is less than the premium received upon writing the original option and will
incur a loss if the cost of the closing purchase transaction exceeds the premium
received upon writing the original option. A Fund may engage in a closing
purchase transaction to realize a profit, to prevent an underlying security with
respect to which it has written an option from being called or put or, in the
case of a call option, to unfreeze an underlying security (thereby permitting
its sale or the writing of a new option on the security prior to the outstanding
option's expiration). The obligation of a Fund under an option it has written
would be terminated by a closing purchase transaction, but the Fund would not be
deemed to own an option as a result of the transaction. So long as the
obligation of a Fund as the writer of an option continues, the Fund may be
assigned an exercise notice by the broker-dealer through which the option was
sold, requiring the Fund to deliver the underlying security against payment of
the exercise price. This obligation terminates when the option expires or a
Fund effects a closing purchase transaction. A Fund can no longer effect a
closing purchase transaction with respect to an option once it has been assigned
an exercise notice.

There is no assurance that sufficient trading interest will exist to create
a liquid secondary market on a securities exchange for any particular option or
at any particular time, and for some options no such secondary market may exist.
A liquid secondary market in an option may cease to exist for a variety of
reasons. In the past, for example, higher than anticipated trading activity or
order flow or other unforeseen events have at times rendered certain of the
facilities of the Clearing Corporation and various securities exchanges
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. Moreover, a Fund's ability
to terminate options positions established in the over-the-counter market may be
more limited than for exchange-traded options and may also involve the risk that
securities dealers participating in over-the-counter transactions would fail to
meet their obligations to the Fund. Each Fund, however, intends to purchase
over-the-counter options only from dealers whose debt securities, as determined
by the Adviser, are considered to be investment grade. If, as a covered call
option writer, a Fund is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise. In either
case, a Fund would continue to be at market risk on the security and could face
higher transaction costs, including brokerage commissions.

4
<PAGE>

Securities exchanges generally have established limitations governing the
maximum number of calls and puts of each class which may be held or written, or
exercised within certain time periods by an investor or group of investors
acting in concert (regardless of whether the options are written on the same or
different securities exchanges or are held, written or exercised in one or more
accounts or through one or more brokers). It is possible that a Fund and other
clients of the Adviser and certain of its affiliates may be considered to be
such a group. A securities exchange may order the liquidation of positions
found to be in violation of these limits and it may impose certain other
sanctions. These limits may restrict the number of options a Fund will be able
to purchase on a particular security.

Stock Index Options. Each Fund may purchase and write exchange-listed and
-------------------
OTC put and call options on stock indexes. A stock index measures the movement
of a certain group of stocks by assigning relative values to the common stocks
included in the index, fluctuating with changes in the market values of the
stocks included in the index. Some stock index options are based on a broad
market index, such as the NYSE Composite Index, or a narrower market index such
as the Standard & Poor's 100. Indexes may also be based on a particular
industry or market segment.

Options on stock indexes are similar to options on stock except that (i)
the expiration cycles of stock index options are monthly, while those of stock
options are currently quarterly, and (ii) the delivery requirements are
different. Instead of giving the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (a) the amount, if any, by
which the fixed exercise price of the option exceeds (in the case of a put) or
is less than (in the case of a call) the closing value of the underlying index
on the date of exercise, multiplied by (b) a fixed "index multiplier." Receipt
of this cash amount will depend upon the closing level of the stock index upon
which the option is based being greater than, in the case of a call, or less
than, in the case of a put, the exercise price of the index and the exercise
price of the option times a specified multiple. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Stock index options may be offset by entering into closing transactions as
described above for securities options.

OTC Options. Each Fund may purchase OTC or dealer options or sell OTC
-----------
options. Unlike exchange-listed options where an intermediary or clearing
corporation, such as the Clearing Corporation, assures that all transactions in
such options are properly executed, the responsibility for performing all
transactions with respect to OTC options rests solely with the writer and the
holder of those options. A listed call option writer, for example, is obligated
to deliver the underlying stock to the clearing organization if the option is
exercised, and the clearing organization is then obligated to pay the writer the
exercise price of the option. If a Fund were to purchase a dealer option,
however, it would rely on the dealer from whom it purchased the option to
perform if the option were exercised. If the dealer fails to honor the exercise
of the option by a Fund, the Fund would lose the premium it paid for the option
and the expected benefit of the transaction.

5
<PAGE>

Listed options generally have a continuous liquid market while dealer
options have none. Consequently, a Fund will generally be able to realize the
value of a dealer option it has purchased only by exercising it or reselling it
to the dealer who issued it. Similarly, when a Fund writes a dealer option, it
generally will be able to close out the option prior to its expiration only by
entering into a closing purchase transaction with the dealer to which the Fund
originally wrote the option. Although a Fund will seek to enter into dealer
options only with dealers who will agree to and that are expected to be capable
of entering into closing transactions with the Fund, there can be no assurance
that the Fund will be able to liquidate a dealer option at a favorable price at
any time prior to expiration. The inability to enter into a closing transaction
may result in material losses to a Fund. Until a Fund, as a covered OTC call
option writer, is able to effect a closing purchase transaction, it will not be
able to liquidate securities (or other assets) used to cover the written option
until the option expires or is exercised. This requirement may impair a Fund's
ability to sell portfolio securities or, with respect to currency options,
currencies at a time when such sale might be advantageous. In the event of
insolvency of the other party, a Fund may be unable to liquidate a dealer
option.

Futures Activities. Each Fund may enter into foreign currency, interest
------------------
rate and stock index futures contracts and purchase and write (sell) related
options traded on exchanges designated by the Commodity Futures Trading
Commission (the "CFTC") or consistent with CFTC regulations on foreign
exchanges. These transactions may be entered into for "bona fide hedging"
purposes as defined in CFTC regulations and other permissible purposes including
hedging against changes in the value of portfolio securities due to anticipated
changes in currency values, interest rates and/or market conditions and
increasing return.

A Fund will not enter into futures contracts and related options for which
the aggregate initial margin and premiums (discussed below) required to
establish positions other than those considered to be "bona fide hedging" by the
CFTC exceed 5% of the Fund's net asset value after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. Each Fund reserves the right to engage in transactions involving futures
contracts and options on futures contracts to the extent allowed by CFTC
regulations in effect from time to time and in accordance with the Fund's
policies. There is no overall limit on the percentage of Fund assets that may
be at risk with respect to futures activities.

The over the counter market in forward foreign currency exchange contracts
offers less protection against defaults by the other party to such instruments
than is available for currency instruments traded on an exchange. Such
contracts are subject to the risk that the counterparty to the contract will
default on its obligations. Since these contracts are not guaranteed by an
exchange or clearinghouse, a default on the contract would deprive a Fund of
unrealized profits, transaction costs or the benefits of a currency hedge or
force the Fund to cover its purchase or sale commitments, if any, at the current
market price. Currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries, actual or perceived changes in interest rates and other
complex factors as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by intervention by U.S. or foreign
governments or central banks, or

6
<PAGE>

the failure to intervene, or by currency controls or political developments in
the U.S. or abroad.

Futures Contracts. A foreign currency futures contract provides for the
future sale by one party and the purchase by the other party of a certain amount
of a specified non-U.S. currency at a specified price, date, time and place. An
interest rate futures contract provides for the future sale by one party and the
purchase by the other party of a certain amount of a specific interest rate
sensitive financial instrument (debt security) at a specified price, date, time
and place. Stock indexes are capitalization weighted indexes which reflect the
market value of the stock listed on the indexes. A stock index futures contract
is an agreement to be settled by delivery of an amount of cash equal to a
specified multiplier times the difference between the value of the index at the
close of the last trading day on the contract and the price at which the
agreement is made.

No consideration is paid or received by a Fund upon entering into a futures
contract. Instead, a Fund is required to deposit in a segregated account with
its custodian an amount of cash or liquid securities acceptable to the broker,
equal to approximately 1% to 10% of the contract amount (this amount is subject
to change by the exchange on which the contract is traded, and brokers may
charge a higher amount). This amount is known as "initial margin" and is in the
nature of a performance bond or good faith deposit on the contract which is
returned to a Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. The broker will have access to
amounts in the margin account if a Fund fails to meet its contractual
obligations. Subsequent payments, known as "variation margin," to and from the
broker, will be made daily as the currency, financial instrument or stock index
underlying the futures contract fluctuates, making the long and short positions
in the futures contract more or less valuable, a process known as "marking-to-
market." A Fund will also incur brokerage costs in connection with entering
into futures transactions.

At any time prior to the expiration of a futures contract, a Fund may elect
to close the position by taking an opposite position, which will operate to
terminate the Fund's existing position in the contract. Positions in futures
contracts and options on futures contracts (described below) may be closed out
only on the exchange on which they were entered into (or through a linked
exchange). No secondary market for such contracts exists. Although each Fund
intends to enter into futures contracts only if there is an active market for
such contracts, there is no assurance that an active market will exist at any
particular time. Most futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no trades may be made
that day at a price beyond that limit or trading may be suspended for specified
periods during the day. It is possible that futures contract prices could move
to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions at an
advantageous price and subjecting a Fund to substantial losses. In such event,
and in the event of adverse price movements, a Fund would be required to make
daily cash payments of variation margin. In such situations, if a Fund had
insufficient cash, it might have to sell securities to meet daily variation
margin requirements at a time when it would be disadvantageous to do so. In
addition, if the transaction is entered into for

7
<PAGE>

hedging purposes, in such circumstances a Fund may realize a loss on a futures
contract or option that is not offset by an increase in the value of the hedged
position. Losses incurred in futures transactions and the costs of these
transactions will affect a Fund's performance.

Options on Futures Contracts. Each Fund may purchase and write put and
call options on foreign currency, interest rate and stock index futures
contracts and may enter into closing transactions with respect to such options
to terminate existing positions. There is no guarantee that such closing
transactions can be effected; the ability to establish and close out positions
on such options will be subject to the existence of a liquid market.

An option on a currency, interest rate or stock index futures contract, as
contrasted with the direct investment in such a contract, gives the purchaser
the right, in return for the premium paid, to assume a position in a futures
contract at a specified exercise price at any time prior to the expiration date
of the option. The writer of the option is required upon exercise to assume an
offsetting futures position (a short position if the option is a call and a long
position if the option is a put). Upon exercise of an option, the delivery of
the futures position by the writer of the option to the holder of the option
will be accompanied by delivery of the accumulated balance in the writer's
futures margin account, which represents the amount by which the market price of
the futures contract exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the futures contract. The
potential loss related to the purchase of an option on futures contracts is
limited to the premium paid for the option (plus transaction costs). Because
the value of the option is fixed at the point of sale, there are no daily cash
payments by the purchaser to reflect changes in the value of the underlying
contract; however, the value of the option does change daily and that change
would be reflected in the net asset value of the Fund.

Currency Exchange Transactions. The value in U.S. dollars of the assets of
------------------------------
a Fund that are invested in foreign securities may be affected favorably or
unfavorably by changes in exchange control regulations, and the Fund may incur
costs in connection with conversion between various currencies. Currency
exchange transactions may be from any non-U.S. currency into U.S. dollars or
into other appropriate currencies. A Fund will conduct its currrency exchange
transactions (i) on a spot (i.e., cash) basis at the rate prevailing in the
currency exchange market, (ii) through entering into futures contracts or
options on such contracts (as described above), (iii) through entering into
forward contracts to purchase or sell currency or (iv) by purchasing
exchange-traded currency options.

Forward Currency Contracts. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract as agreed upon by the
parties, at a price set at the time of the contract. These contracts are entered
into in the interbank market conducted directly between currency traders
(usually large commercial banks and brokers) and their customers. Forward
currency contracts are similar to currency futures contracts, except that
futures contracts are traded on commodities exchanges and are standardized as to
contract size and delivery date.

8
<PAGE>

At or before the maturity of a forward contract, a Fund may either sell a
portfolio security and make delivery of the currency, or retain the security and
fully or partially offset its contractual obligation to deliver the currency by
negotiating with its trading partner to purchase a second, offsetting contract.
If a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund, at the time of execution of the offsetting transaction,
will incur a gain or a loss to the extent that movement has occurred in forward
contract prices.

Currency Options. Each Fund may purchase exchange-traded put and call
options on foreign currencies. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option is exercised. Call options convey
the right to buy the underlying currency at a price which is expected to be
lower than the spot price of the currency at the time the option is exercised.

Currency Hedging. A Fund's currency hedging will be limited to hedging
involving either specific transactions or portfolio positions in the aggregate.
Transaction hedging is the purchase or sale of forward currency with respect to
specific receivables or payables of a Fund generally accruing in connection with
the purchase or sale of its portfolio securities. Position hedging is the sale
of forward currency with respect to portfolio security positions. A Fund may
not position hedge to an extent greater than the aggregate market value (at the
time of entering into the hedge) of the hedged securities.

A decline in the U.S. dollar value of a foreign currency in which a Fund's
securities are denominated will reduce the U.S. dollar value of the securities,
even if their value in the foreign currency remains constant. The use of
currency hedges does not eliminate fluctuations in the underlying prices of the
securities, but it does establish a rate of exchange that can be achieved in the
future. For example, in order to protect against diminutions in the U.S. dollar
value of securities it holds, a Fund may purchase currency put options. If the
value of the currency does decline, a Fund will have the right to sell the
currency for a fixed amount in dollars and will thereby offset, in whole or in
part, the adverse effect on the U.S. dollar value of its securities that
otherwise would have resulted. Conversely, if a rise in the U.S. dollar value
of a currency in which securities to be acquired are denominated is projected,
thereby potentially increasing the cost of the securities, a Fund may purchase
call options on the particular currency. The purchase of these options could
offset, at least partially, the effects of the adverse movements in exchange
rates. The benefit to a Fund derived from purchases of currency options, like
the benefit derived from other types of options, will be reduced by premiums and
other transaction costs. Because transactions in currency exchange are
generally conducted on a principal basis, no fees or commissions are generally
involved. Currency hedging involves some of the same risks and considerations
as other transactions with similar instruments. Although currency hedges limit
the risk of loss due to a decline in the value of a hedged currency, at the same
time, they also limit any potential gain that might result should the value of
the currency increase. If a devaluation is generally anticipated, a Fund may
not be able to contract to sell a currency at a price above the devaluation
level it anticipates.

While the values of currency futures and options on futures, forward
currency contracts and currency options may be expected to correlate with
exchange rates, they will not reflect

9
<PAGE>

other factors that may affect the value of a Fund's investments and a currency
hedge may not be entirely successful in mitigating changes in the value of the
Fund's investments denominated in that currency. A currency hedge, for example,
should protect a Yen-denominated bond against a decline in the Yen, but will not
protect a Fund against a price decline if the issuer's creditworthiness
deteriorates.

Swaps. Each Fund may enter into swaps relating to indexes, currencies and
-----
equity interests of foreign issuers. A swap transaction is an agreement between
a Fund and a counterparty to act in accordance with the terms of the swap
contract. Index swaps involve the exchange by a Fund with another party of the
respective amounts payable with respect to a notional principal amount related
to one or more indexes. Currency swaps involve the exchange of cash flows on a
notional amount of two or more currencies based on their relative future values.
An equity swap is an agreement to exchange streams of payments computed by
reference to a notional amount based on the performance of a basket of stocks or
a single stock. A Fund may enter into these transactions to preserve a return
or spread on a particular investment or portion of its assets, to protect
against currency fluctuations, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. A Fund may also use these transactions for speculative
purposes, such as to obtain the price performance of a security without actually
purchasing the security in circumstances, for example, the subject security is
illiquid, is unavailable for direct investment or available only on less
attractive terms. Swaps have risks associated with them including possible
default by the counterparty to the transaction, illiquidity and, where swaps are
used as hedges, the risk that the use of a swap could result in losses greater
than if the swap had not been employed.

A Fund will usually enter into swaps on a net basis (i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the agreement, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments). Swaps do not involve the delivery
of securities, other underlying assets or principal. Accordingly, the risk of
loss with respect to swaps is limited to the net amount of payments that a Fund
is contractually obligated to make. If the counterparty to a swap defaults, a
Fund's risk of loss consists of the net amount of payments that the Fund is
contractually entitled to receive. Where swaps are entered into for good faith
hedging purposes, the Adviser believes such obligations do not constitute senior
securities under the Investment Company Act of 1940, as amended (the "1940
Act"), and, accordingly, will not treat them as being subject to a Fund's
borrowing restrictions. Where swaps are entered into for other than hedging
purposes, a Fund will segregate an amount of cash or liquid securities having a
value equal to the accrued excess of its obligations over entitlements with
respect to each swap on a daily basis.

Hedging. In addition to entering into options, futures and currency
-------
exchange transactions for other purposes, including generating current income to
offset expenses or increase return, a Fund may enter into these transactions as
hedges to reduce investment risk, generally by making an investment expected to
move in the opposite direction of a portfolio position. A hedge is designed to
offset a loss in a portfolio position with a gain in the hedged

10
<PAGE>

position; at the same time, however, a properly correlated hedge will result in
a gain in the portfolio position being offset by a loss in the hedged position.
As a result, the use of options, futures, contracts and currency exchange
transactions for hedging purposes could limit any potential gain from an
increase in the value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. With respect to futures contracts, since the value of portfolio
securities will far exceed the value of the futures contracts sold by a Fund, an
increase in the value of the futures contracts could only mitigate, but not
totally offset, the decline in the value of the Fund's assets.

In hedging transactions based on an index, whether a Fund will realize a
gain or loss from the purchase or writing of options on an index depends upon
movements in the level of stock prices in the stock market generally or, in the
case of certain indexes, in an industry or market segment, rather than movements
in the price of a particular stock. The risk of imperfect correlation increases
as the composition of a Fund's portfolio varies from the composition of the
index. In an effort to compensate for imperfect correlation of relative
movements in the hedged position and the hedge, a Fund's hedge positions may be
in a greater or lesser dollar amount than the dollar amount of the hedged
position. Such "over hedging" or "under hedging" may adversely affect a Fund's
net investment results if market movements are not as anticipated when the hedge
is established. Stock index futures transactions may be subject to additional
correlation risks. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
stock index and futures markets. Secondly, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market also may cause temporary
price distortions. Because of the possibility of price distortions in the
futures market and the imperfect correlation between movements in the stock
index and movements in the price of stock index futures, a correct forecast of
general market trends by the Adviser still may not result in a successful
hedging transaction.

A Fund will engage in hedging transactions only when deemed advisable by
the Adviser, and successful use by a Fund of hedging transactions will be
subject to the Adviser's ability to predict trends in currency, interest rate or
securities markets, as the case may be, and to correctly predict movements in
the directions of the hedge and the hedged position and the correlation between
them, which predictions could prove to be inaccurate. This requires different
skills and techniques than predicting changes in the price of individual
securities, and there can be no assurance that the use of these strategies will
be successful. Even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or trends. Losses incurred in hedging
transactions and the costs of these transactions will affect a Fund's
performance.

Asset Coverage for Forward Contracts, Options, Futures and Options on
---------------------------------------------------------------------
Futures. Each Fund will comply with guidelines established by the U.S.
- -------
Securities and Exchange Commission (the "SEC") with respect to coverage of
forward currency contracts; options

11
<PAGE>

written by a Fund on securities and indexes; and currency, interest rate and
index futures contracts and options on these futures contracts. These guidelines
may, in certain instances, require segregation by a Fund of cash or liquid
securities.

For example, a call option written by a Fund on securities may require the
Fund to hold the securities subject to the call (or securities convertible into
the securities without additional consideration) or to segregate assets (as
described above) sufficient to purchase and deliver the securities if the call
is exercised. A call option written by a Fund on an index may require the Fund
to own portfolio securities that correlate with the index or to segregate assets
(as described above) equal to the excess of the index value over the exercise
price on a current basis. A Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. If a Fund holds a futures or forward contract, the Fund could
purchase a put option on the same futures or forward contract with a strike
price as high or higher than the price of the contract held. A Fund may enter
into fully or partially offsetting transactions so that its net position,
coupled with any segregated assets (equal to any remaining obligation), equals
its net obligation. Asset coverage may be achieved by other means when
consistent with applicable regulatory policies.

Additional Information on Other Investment Practices
- ----------------------------------------------------

Foreign Investments. Investors should recognize that investing in foreign
-------------------
companies involves certain risks, including those discussed below, which are not
typically associated with investing in U.S. issuers.

Foreign Currency Exchange. Since a Fund may invest in securities
denominated in currencies other than the U.S. dollar, and since a Fund may
temporarily hold funds in bank deposits or other money market investments
denominated in foreign currencies, a Fund may be affected favorably or
unfavorably by exchange control regulations or changes in the exchange rate
between such currencies and the dollar. A change in the value of a foreign
currency relative to the U.S. dollar will result in a corresponding change in
the dollar value of Fund assets denominated in that foreign currency. Changes
in foreign currency exchange rates may also affect the value of dividends and
interest earned, gains and losses realized on the sale of securities and net
investment income and gains, if any, to be distributed to shareholders by a
Fund. The rate of exchange between the U.S. dollar and other currencies is
determined by the forces of supply and demand in the foreign exchange markets.
Changes in the exchange rate may result over time from the interaction of many
factors directly or indirectly affecting economic and political conditions in
the United States and a particular foreign country, including economic and
political developments in other countries. Of particular importance are rates
of inflation, interest rate levels, the balance of payments and the extent of
government surpluses or deficits in the United States and the particular foreign
country, all of which are in turn sensitive to the monetary, fiscal and trade
policies pursued by the governments of the United States and foreign countries
important to international trade and finance. Governmental intervention may
also play a significant role. National governments rarely voluntarily allow
their currencies to float freely in response to economic forces. Sovereign
governments use a variety of techniques, such as intervention by a country's
central

12
<PAGE>

bank or imposition of regulatory controls or taxes, to affect the exchange rates
of their currencies. A Fund may use hedging techniques with the objective of
protecting against loss through the fluctuation of the value of the yen against
the U.S. dollar, particularly the forward market in foreign exchange, currency
options and currency futures. See "Currency Exchange Transactions" and "Futures
Activities" above.

Euro Conversion. The planned introduction of a single European currency,
the Euro, on January 1, 1999 for participating European nations in the Economic
and Monetary Union may present unique risks and uncertainties for investors in
those countries, including (i) whether the payment and operational systems of
banks and other financial institutions will be ready by the scheduled launch
date; (ii) the creation of suitable clearing and settlement payment schemes for
the Euro; (iii) the legal treatment of outstanding financial contracts after
January 1, 1999 that refer to existing currencies rather than the Euro; (iv) the
fluctuation of the Euro relative to non-Euro currencies during the transition
period from January 1, 1999 to December 31, 2000 and beyond; and (v) whether the
interest rate, tax and labor regimes of the European countries participating in
the Euro will converge over time. Further, the conversion of the currencies of
other Economic and Monetary Union countries, such as the United Kingdom, and the
admission of other countries, including Central and Eastern European countries,
to the Economic and Monetary Union could adversely affect the Euro. These or
other factors may cause market disruptions before or after the introduction of
the Euro and could adversely affect the value of foreign securities and
currencies held by the Funds. The Euro conversion also raises tax issues such
as whether the conversion of a non-Euro currency to the Euro creates a
"realization event" for a financial instrument denominated in the non-Euro
currency and the appropriate time to recognize any gain or loss. Depending on
how the tax authorities rule on these issues, the Euro conversion may result in
taxable gain or loss on non-Euro denominated instruments that have not been sold
by the Funds at the time of conversion.

Information. There may be less publicly available information about
foreign securities and about the foreign company or government issuing them than
is available about a domestic company or government entity. Foreign companies
are generally not subject to uniform financial reporting standards, practices
and requirements comparable to those applicable to U.S. companies.

Political Instability. With respect to some foreign countries, there is
the possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets of a Fund, political or social instability, or
domestic developments which could affect U.S. investments in those and
neighboring countries.

Delays. Securities of some foreign companies are less liquid and their
prices are more volatile than securities of comparable U.S. companies. Certain
foreign countries are known to experience long delays between the trade and
settlement dates of securities purchased or sold.

13
<PAGE>

Foreign Debt Securities. The returns on foreign debt securities reflect
interest rates and other market conditions prevailing in those countries and the
effect of gains and losses in the denominated currencies against the U.S.
dollar, which have had a substantial impact on investment in foreign fixed-
income securities. The relative performance of various countries' fixed-income
markets historically has reflected wide variations relating to the unique
characteristics of each country's economy. Year-to-year fluctuations in certain
markets have been significant, and negative returns have been experienced in
various markets from time to time.

The foreign government securities in which a Fund may invest generally
consist of obligations issued or backed by national, state or provincial
governments or similar political subdivisions or central banks in foreign
countries. Foreign government securities also include debt obligations of
supranational entities, which include international organizations designated or
backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development (the
"World Bank"), the European Coal and Steel Community, the Asian Development Bank
and the InterAmerican Development Bank.

Foreign government securities also include debt securities of "quasi-
governmental agencies" and debt securities denominated in multinational currency
units of an issuer (including supranational issuers). Debt securities of quasi-
governmental agencies are issued by entities owned by either a national, state
or equivalent government or are obligations of a political unit that is not
backed by the national government's full faith and credit and general taxing
powers. An example of a multinational currency unit is the European Currency
Unit ("ECU"). An ECU represents specified amounts of the currencies of certain
member states of the European Economic Community. The specific amounts of
currencies comprising the ECU may be adjusted by the Council of Ministers of the
European Community to reflect changes in relative values of the underlying
currencies.

General. Individual foreign economies may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross national product, rate
of inflation, capital reinvestment, resource self-sufficiency, and balance of
payments positions. A Fund may invest in securities of foreign governments (or
agencies or instrumentalities thereof), and many, if not all, of the foregoing
considerations apply to such investments as well.

Depositary Receipts. The assets of a Fund may be invested in the
-------------------
securities of foreign issuers in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") and International Depositary
Receipts ("IDRs"). These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. ADRs are
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs, which
are sometimes referred to as Continental Depositary Receipts, are receipts
issued in Europe, and IDRs, which are sometimes referred to as Global Depositary
Receipts, are issued outside the United States. EDRs and IDRs are typically
issued by non-U.S. banks and trust companies

14
<PAGE>

and evidence ownership of either foreign or domestic securities. Generally, ADRs
in registered form are designed for use in U.S. securities markets and EDRs and
IDRs in bearer form are designed for use in European and non-U.S. securities
markets, respectively.

U.S. Government Securities. Each Fund may invest in debt obligations of
--------------------------
varying maturities issued or guaranteed by the United States government, its
agencies or instrumentalities ("U.S. Government Securities"). Direct
obligations of the U.S. Treasury include a variety of securities that differ in
their interest rates, maturities and dates of issuance. U.S. Government
Securities also include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Loan Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association ("GNMA"), General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit Banks, Federal
Land Banks, Federal National Mortgage Association ("FNMA"), Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board
and Student Loan Marketing Association. A Fund may also invest in instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality.
Because the U.S. government is not obligated by law to provide support to an
instrumentality it sponsors, a Fund will invest in obligations issued by such an
instrumentality only if the Adviser determines that the credit risk with respect
to the instrumentality does not make its securities unsuitable for investment by
the Fund.

Below Investment Grade Securities. The market values of below investment
---------------------------------
grade securities and unrated securities of comparable quality tend to react less
to fluctuations in interest rate levels than do those of investment grade
securities and the market values of certain of these securities also tend to be
more sensitive to individual corporate developments and changes in economic
conditions than below investment grade securities. In addition, these
securities generally present a higher degree of credit risk. Issuers of these
securities are often highly leveraged and may not have more traditional methods
of financing available to them so that their ability to service their
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such issuers
is significantly greater because below investment grade securities generally are
unsecured and frequently are subordinated to prior payment of senior
indebtedness.

A Fund may have difficulty disposing of certain of these securities because
there may be a thin trading market. Because there is no established retail
secondary market for many of these securities, the Funds anticipate that these
securities could be sold only to a limited number of dealers or institutional
investors. To the extent a secondary trading market for these securities does
exist, it generally is not as liquid as the secondary market for investment
grade securities. The lack of a liquid secondary market, as well as adverse
publicity and investor perception with respect to these securities, may have an
adverse impact on market price and a Fund's ability to dispose of particular
issues when necessary to meet liquidity needs or in response to a specific
economic event such as a deterioration in the creditworthiness of the issuer.
The lack of a liquid secondary market for certain securities also

15
<PAGE>

may make it more difficult for a Fund to obtain accurate market quotations for
purposes of valuing the Fund and calculating net asset value.

The market value of securities rated below investment grade is more
volatile than that of investment grade securities. Factors adversely impacting
the market value of these securities will adversely impact a Fund's net asset
value. A Fund will rely on the judgment, analysis and experience of the Adviser
in evaluating the creditworthiness of an issuer. In this evaluation, the
Adviser will take into consideration, among other things, the issuer's financial
resources, its sensitivity to economic conditions and trends, its operating
history, the quality of the issuer's management and regulatory matters.
Normally, below investment grade securities and comparable unrated securities
are not intended for short-term investment. A Fund may incur additional
expenses to the extent it is required to seek recovery upon a default in the
payment of principal or interest on its portfolio holdings of such securities.

Securities of Other Investment Companies. Each Fund may invest in
----------------------------------------
securities of other investment companies to the extent permitted under the 1940
Act. Presently, under the 1940 Act, a Fund may hold securities of another
investment company in amounts which (i) do not exceed 3% of the total
outstanding voting stock of such company, (ii) do not exceed 5% of the value of
the Fund's total assets and (iii) when added to all other investment company
securities held by the Fund, do not exceed 10% of the value of the Fund's total
assets.

DIAMONDS, SPDRs and WEBS ("Equity Equivalents"). DIAMONDS ("Dow Jones
-----------------------------------------------
Industrial Average Model New Depositary Shares") and SPDRs ("Standard & Poor's
Depositary Receipts") are exchange-traded securities that represent ownership in
long-term unit investment trusts established to accumulate and hold a portfolio
of common stocks that is intended to track the price performance and dividend
yield of the Dow Jones Industrial Average and the Standard & Poor's Composite
Stock Price Index, respectively. WEBS ("World Equity Benchmark Shares") are
exchange-traded shares of series of an investment company that are designed to
replicate the performance of a particular foreign equity market index.

Equity Equivalents may be used for several purposes, including, to simulate
full investment in the underlying index while retaining a cash balance for fund
management purposes, to facilitate trading, to reduce transaction costs or to
seek higher investment returns where an Equity Equivalent is priced more
attractively than securities in the underlying index. Because the expense
associated with an investment in Equity Equivalents may be substantially lower
than the expense of small investments directly in the securities comprising the
indices they seek to track, investments in Equity Equivalents may provide a
cost-effective means of diversifying a Fund's assets across a broad range of
equity securities.

To the extent a Fund invests in securities of other investment companies,
Fund shareholders would indirectly pay a portion of the operating costs of such
companies in addition to the expenses of its own operation. These costs include
management, brokerage, shareholder servicing and other operational expenses.
Indirectly, then, shareholders of a Fund that invests in Equity Equivalents may
pay higher operational costs than if they owned the underlying investment
companies directly. Additionally, a Fund's investments in such investment
companies are subject to limitations under the 1940 Act and market availability.

The prices of Equity Equivalents are derived and based upon the securities
held by the particular investment company. Accordingly, the level of risk
involved in the purchase or sale of an Equity Equivalent is similar to the risk
involved in the purchase or sale of traditional common stock, with the exception
that the pricing mechanism for such instruments is based on a basket of stocks.
The market prices of Equity Equivalents are expected to fluctuate in accordance
with both changes in the net asset values of their underlying indices and the
supply and demand for the instruments on the exchanges on which they are traded.
Substantial market or other disruptions affecting an Equity Equivalent could
adversely affect the liquidity and value of the shares of a Fund investing in
such instruments.

Lending of Portfolio Securities. Each Fund may lend portfolio securities
-------------------------------
to brokers, dealers and other financial organizations that meet capital and
other credit requirements or other criteria established by the Board. These
loans, if and when made, may not exceed 33-1/3% of a Fund's total assets taken
at value. A Fund will not lend portfolio securities to affiliates of the
Adviser unless they have applied for and received specific authority to do so
from the SEC. Loans of portfolio securities will be collateralized by cash,
letters of credit or U.S. Government Securities, which are maintained at all
times in an amount equal to at least 102% of the current market value of the
loaned securities. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the account of
the Fund. From time to time, a Fund may return a part of the interest earned
from the investment of collateral received for securities loaned to the borrower
and/or a third party that is unaffiliated with the Fund and that is acting as a
"finder."

By lending its securities, a Fund can increase its income by continuing to
receive interest and any dividends on the loaned securities as well as by either
investing the collateral received for securities loaned in short-term
instruments or obtaining yield in the form of interest paid by the borrower when
U.S. Government Securities are used as collateral. Although the generation of
income is not the primary investment goal of the Funds, income received could be
used to pay a Fund's expenses and would increase an investor's total return.
Each Fund will adhere to the following conditions whenever its portfolio
securities are loaned: (i) the Fund must receive at least 102% cash collateral
or equivalent securities of the type discussed in the preceding paragraph from
the borrower; (ii) the borrower must increase such collateral whenever the
market value of the securities rises above the level of such collateral; (iii)
the Fund must be able to terminate the loan at any time; (iv) the Fund must
receive

16
<PAGE>

reasonable interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities and any increase in market value; (v) the
Fund may pay only reasonable custodian fees in connection with the loan; and
(vi) voting rights on the loaned securities may pass to the borrower, provided,
however, that if a material event adversely affecting the investment occurs, the
Board must terminate the loan and regain the right to vote the securities. Loan
agreements involve certain risks in the event of default or insolvency of the
other party including possible delays or restrictions upon a Fund's ability to
recover the loaned securities or dispose of the collateral for the loan.

When-Issued Securities, Delayed-Delivery Transactions and Forward
-----------------------------------------------------------------
Commitments. Each Fund may purchase securities on a "when-issued" basis, for
- -----------
delayed delivery (i.e., payment or delivery occur beyond the normal settlement
date at a stated price and yield) or on a forward commitment basis. Each Fund
does not intend to engage in these transactions for speculative purposes, but
only in furtherance of its investment goal. These transactions occur when
securities are purchased or sold by a Fund with payment and delivery taking
place in the future to secure what is considered an advantageous yield and price
to a Fund at the time of entering into the transaction. The payment obligation
and the interest rate that will be received on when-issued securities are fixed
at the time the buyer enters into the commitment. Due to fluctuations in the
value of securities purchased or sold on a when-issued, delayed-delivery basis
or forward commitment basis, the prices obtained on such securities may be
higher or lower than the prices available in the market on the dates when the
investments are actually delivered to the buyers.

When a Fund agrees to purchase when-issued, delayed-delivery securities or
securities on a forward commitment basis, its custodian will set aside cash or
liquid securities equal to the amount of the commitment in a segregated account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case a Fund may be required subsequently to
place additional assets in the segregated account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment. The
assets contained in the segregated account will be marked-to-market daily. It
may be expected that a Fund's net assets will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash. When a Fund engages in when-issued, delayed-delivery or
forward commitment transactions, it relies on the other party to consummate the
trade. Failure of the seller to do so may result in a Fund's incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.

Repurchase Agreements. Each Fund may agree to purchase securities from a
---------------------
bank or recognized securities dealer and simultaneously commit to resell the
securities to the bank or dealer at an agreed-upon date and price reflecting a
market rate of interest unrelated to the coupon rate or maturity of the
purchased securities ("repurchase agreements"). A Fund would maintain custody
of the underlying securities prior to their repurchase; thus, the obligation of
the bank or dealer to pay the repurchase price on the date agreed to would be,
in effect, secured by such securities. If the value of such securities were
less than the repurchase price, plus interest, the other party to the agreement
would be required to provide additional collateral so that at all times the
collateral is at least 102% of the repurchase price plus accrued

17
<PAGE>

interest. Default by or bankruptcy of a seller would expose a Fund to possible
loss because of adverse market action, expenses and/or delays in connection with
the disposition of the underlying obligations. The financial institutions with
which a Fund may enter into repurchase agreements will be banks and non-bank
dealers of U.S. Government securities that are listed on the Federal Reserve
Bank of New York's list of reporting dealers, if such banks and non-bank dealers
are deemed creditworthy by the Fund's Adviser. The Adviser will continue to
monitor creditworthiness of the seller under a repurchase agreement, and will
require the seller to maintain during the term of the agreement the value of the
securities subject to the agreement to equal at least 102% of the repurchase
price (including accrued interest). In addition, the Adviser will require that
the value of this collateral, after transaction costs (including loss of
interest) reasonably expected to be incurred on a default, be equal to 102% or
greater than the repurchase price (including accrued premium) provided in the
repurchase agreement or the daily amortization of the difference between the
purchase price and the repurchase price specified in the repurchase agreement.
The Adviser will mark-to-market daily the value of the securities. Repurchase
agreements are considered to be loans by a Fund under the 1940 Act.

Reverse Repurchase Agreements and Dollar Rolls. Each Fund may enter into
----------------------------------------------
reverse repurchase agreements with the same parties with whom it may enter into
repurchase agreements. Reverse repurchase agreements involve the sale of
securities held by a Fund pursuant to its agreement to repurchase them at a
mutually agreed upon date, price and rate of interest. At the time a Fund
enters into a reverse repurchase agreement, it will establish and maintain a
segregated account with an approved custodian containing cash or liquid
securities having a value not less than the repurchase price (including accrued
interest). The assets contained in the segregated account will be marked-to-
market daily and additional assets will be placed in such account on any day in
which the assets fall below the repurchase price (plus accrued interest). A
Fund's liquidity and ability to manage its assets might be affected when it sets
aside cash or portfolio securities to cover such commitments. Reverse
repurchase agreements involve the risk that the market value of the securities
retained in lieu of sale may decline below the price of the securities a Fund
has sold but is obligated to repurchase. In the event the buyer of securities
under a reverse repurchase agreement files for bankruptcy or becomes insolvent,
such buyer or its trustee or receiver may receive an extension of time to
determine whether to enforce a Fund's obligation to repurchase the securities,
and the Fund's use of the proceeds of the reverse repurchase agreement may
effectively be restricted pending such decision.

Each Fund also may enter into "dollar rolls," in which a Fund sells fixed-
income securities for delivery in the current month and simultaneously contracts
to repurchase similar but not identical (same type, coupon and maturity)
securities on a specified future date. During the roll period, the Fund would
forego principal and interest paid on such securities. The Fund would be
compensated by the difference between the current sales price and the forward
price for the future purchase, as well as by the interest earned on the cash
proceeds of the initial sale. At the time a Fund enters into a dollar roll
transaction, it will place in a segregated account maintained with an approved
custodian cash or liquid securities having a value not less than the repurchase
price (including accrued interest) and will subsequently

18
<PAGE>

monitor the account to ensure that its value is maintained. Reverse repurchase
agreements and dollar rolls that are accounted for as financings are considered
to be borrowings under the 1940 Act.

Convertible Securities. Convertible securities in which a Fund may invest,
----------------------
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an
investor to benefit from increases in the market price of the underlying common
stock. Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. Like bonds, the value of convertible securities fluctuates in
relation to changes in interest rates and, in addition, also fluctuates in
relation to the underlying common stock.

Structured Notes. Each Fund may invest in structured notes. The
----------------
distinguishing feature of a structured note is that the amount of interest
and/or principal payable on the notes is based on the performance of a benchmark
asset or market other than fixed-income securities or interest rates. Examples
of a benchmark include stock prices, currency exchange rates and physical
commodity prices. Investing in a structured note allows a Fund to gain exposure
to the benchmark asset or market, such as investments in certain emerging
markets that restrict investment by foreigners. The structured note fixes the
maximum loss that a Fund may experience in the event that the market does not
perform as expected. The performance tie can be a straight relationship or
leveraged, although the Adviser generally will not use leverage in its
structured note strategies. Depending on the terms of the note, a Fund may
forego all or part of the interest and principal that would be payable on a
comparable conventional note; a Fund's loss cannot exceed this foregone interest
and/or principal. An investment in a structured note involves risks similar to
those associated with a direct investment in the benchmark asset. Structured
notes will be treated as illiquid securities for investment limitation purposes.

Non-Publicly Traded and Illiquid Securities. Each Fund may not invest more
-------------------------------------------
than 15% of its net assets in non-publicly traded and illiquid securities,
including securities that are illiquid by virtue of the absence of a readily
available market, repurchase agreements which have a maturity of longer than
seven days, certain Rule 144A Securities (as described below) and time deposits
maturing in more than seven days. Securities that have legal or contractual
restrictions on resale but have a readily available market are not considered
illiquid for purposes of this limitation. Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period.

Under current guidelines of the staff of the SEC, illiquid securities are
considered to include, among other securities, purchased OTC options, certain
cover for OTC options, securities subject to contractual or legal restrictions
on resale because they have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), securities which are otherwise not
readily marketable and repurchase agreements having a maturity of longer than
seven days. Securities which have not been registered under the Securities Act
are referred to as private placements or restricted securities and are purchased
directly from the

19
<PAGE>

issuer or in the secondary market. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and a mutual fund might be
unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying redemptions
within seven days without borrowing. A mutual fund might also have to register
such restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.

In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.

Rule 144A Securities. Rule 144A under the Securities Act adopted by the
SEC allows for a broader institutional trading market for securities otherwise
subject to restriction on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the Securities Act for
resales of certain securities to qualified institutional buyers. The Adviser
anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.

An investment in Rule 144A Securities will be considered illiquid and
therefore subject to the Fund's limit on the purchase of illiquid securities
unless the Board or its delegates determines that the Rule 144A Securities are
liquid. In reaching liquidity decisions, the Board and its delegates may
consider, inter alia, the following factors: (i) the unregistered nature of the
security; (ii) the frequency of trades and quotes for the security; (iii) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (iv) dealer undertakings to make a market in the
security and (v) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).

Emerging Growth and Smaller Capitalization Companies; Unseasoned Issuers.
------------------------------------------------------------------------
Investments in securities of small- and medium-sized, emerging growth companies
and companies with continuous operations of less than three years ("unseasoned
issuers") involve considerations that are not applicable to investing in
securities of established, larger-capitalization issuers, including reduced and
less reliable information about issuers and markets, less stringent financial
disclosure requirements, illiquidity of securities and markets, higher brokerage
commissions and fees and greater market risk in general. Securities of these
companies may also involve greater risks since these securities may have limited
marketability and, thus, may be more volatile. Because such companies normally
have fewer shares

20
<PAGE>

outstanding than larger, more established companies, it may be more difficult
for a Fund to buy or sell significant amounts of such shares without an
unfavorable impact on prevailing prices. These companies may have limited
product lines, markets or financial resources and may lack management depth. In
addition, these companies are typically subject to a greater degree of changes
in earnings and business prospects than are larger, more established companies.
Although investing in securities of these companies offers potential for above-
average returns if the companies are successful, the risk exists that the
companies will not succeed and the prices of the companies' shares could
significantly decline in value.

Rights Offerings and Purchase Warrants. Each Fund may invest in rights and
--------------------------------------
warrants to purchase newly created equity securities consisting of common and
preferred stock. The equity security underlying a right or warrant is
outstanding at the time the right or warrant is issued or is issued together
with the right or warrant.

Investing in rights and warrants can provide a greater potential for profit
or loss than an equivalent investment in the underlying security, and, thus, can
be a speculative investment. The value of a right or warrant may decline
because of a decline in the value of the underlying security, the passage of
time, changes in interest rates or in the dividend or other policies of the
company whose equity underlies the warrant or a change in the perception as to
the future price of the underlying security, or any combination thereof. Rights
and warrants generally pay no dividends and confer no voting or other rights
other than to purchase the underlying security.

Borrowing. Each Fund may borrow up to 33-1/3% of its total assets for
---------
temporary or emergency purposes, including to meet portfolio redemption requests
so as to permit the orderly disposition of portfolio securities or to facilitate
settlement transactions on portfolio securities. Investments (including roll-
overs) will not be made when borrowings exceed 5% of a Fund's net assets.
Although the principal of such borrowings will be fixed, a Fund's assets may
change in value during the time the borrowing is outstanding. Each Fund expects
that some of its borrowings may be made on a secured basis. In such situations,
either the custodian will segregate the pledged assets for the benefit of the
lender or arrangements will be made with a suitable subcustodian, which may
include the lender.

Other Investment Limitations
- ----------------------------

The investment limitations numbered 1 through 8 may not be changed without
the affirmative vote of the holders of a majority of the Fund's outstanding
shares. Such majority is defined as the lesser of (i) 67% or more of the shares
present at the meeting, if the holders of more than 50% of the outstanding
shares of the Fund are present or represented by proxy, or (ii) more than 50% of
the outstanding shares. Investment limitations 9 through 14 may be changed by a
vote of the Board at any time.

Each Fund may not:

1. Borrow money except that a Fund may (a) borrow from banks for temporary or
emergency purposes and (b) enter into reverse repurchase agreements; provided
that reverse

21
<PAGE>

repurchase agreements, dollar roll transactions that are accounted for as
financings and any other transactions constituting borrowing by the Fund may not
exceed 33-1/3% of the value of the Fund's total assets at the time of such
borrowing. For purposes of this restriction, the entry into currency
transactions, options, futures contracts, options on futures contracts, forward
commitment transactions and dollar roll transactions that are not accounted for
as financings (and the segregation of assets in connection with any of the
foregoing) shall not constitute borrowing.

2. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of purchase to be invested in the securities of
issuers conducting their principal business activities in the same industry;
provided that to the extent the benchmark of the Equity Funds is concentrated in
a particular industry, these Funds will be concentrated in that industry. This
limitation shall not apply to the purchase of U.S. Government Securities.

3. Purchase the securities of any issuer if as a result more than 5% of the
value of the Fund's total assets would be invested in the securities of such
issuer, except that this 5% limitation does not apply to U.S. Government
Securities and except that up to 25% of the value of the Fund's total assets may
be invested without regard to this 5% limitation.

4. Make loans, except that a Fund may purchase or hold fixed-income securities,
including structured securities, lend portfolio securities and enter into
repurchase agreements.

5. Underwrite any securities issued by others except to the extent that
investment in restricted securities and the sale of securities in accordance
with the Fund's investment goal, policies and limitations may be deemed to be
underwriting.

6. Purchase or sell real estate or invest in oil, gas or mineral exploration or
development programs, except that a Fund may invest in (a) securities secured by
real estate, mortgages or interests therein and (b) securities of companies that
invest in or sponsor oil, gas or mineral exploration or development programs.

7. Invest in commodities, except that a Fund may purchase and sell futures
contracts, including those relating to securities, currencies and indices, and
options on futures contracts, securities, currencies or indices, and purchase
and sell currencies on a forward commitment or delayed-delivery basis.

8. Issue any senior security except as permitted in the Fund's investment
limitations.

9. Purchase securities on margin, except that a Fund may obtain any short-term
credits necessary for the clearance of purchases and sales of securities. For
purposes of this restriction, the deposit or payment of initial or variation
margin in connection with transactions in currencies, options, futures contracts
or related options will not be deemed to be a purchase of securities on margin.

22
<PAGE>

10. Purchase securities of other investment companies except in connection with
a merger, consolidation, acquisition, reorganization or offer of exchange, or as
otherwise permitted under the 1940 Act.

11. Pledge, mortgage or hypothecate its assets, except to the extent necessary
to secure permitted borrowings and to the extent related to the deposit of
assets in escrow and in connection with the writing of covered put and call
options and purchase of securities on a forward commitment or delayed-delivery
basis and collateral and initial or variation margin arrangements with respect
to currency transactions, options, futures contracts, and options on futures
contracts.

12. Invest more than 15% of the Fund's net assets in securities which may be
illiquid because of legal or contractual restrictions on resale or securities
for which there are no readily available market quotations. For purposes of
this limitation, repurchase agreements with maturities greater than seven days
shall be considered illiquid securities.

13. Invest in rights and warrants (other than rights and warrants acquired by
the Fund as part of a unit or attached to securities at the time of purchase)
if, as a result, the investments (valued at the lower of cost or market) would
exceed 10% of the value of the Fund's net assets.

14. Make additional investments (including roll-overs) if the Fund's borrowings
exceed 5% of its net assets.

If a percentage restriction (other than the percentage limitation set forth
in No. 1 and No. 12) is adhered to at the time of an investment, a later
increase or decrease in the percentage of assets resulting from a change in the
values of portfolio securities or in the amount of a Fund's assets will not
constitute a violation of such restriction.

Portfolio Valuation
- -------------------

The Prospectus discusses the time at which the net asset value of each Fund
is determined for purposes of sales and redemptions. The following is a
description of the procedures used by each Fund in valuing its assets.

Securities listed on a U.S. securities exchange (including securities
traded through the NASDAQ National Market System) or foreign securities exchange
or traded in an over-the-counter market will be valued at the most recent sale
as of the time the valuation is made or, in the absence of sales, at the mean
between the bid and asked quotations. If there are no such quotations, the
value of the securities will be taken to be the highest bid quotation on the
exchange or market. Options or futures contracts will be valued similarly. A
security which is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for such security.
Short-term obligations with maturities of 60 days or less are valued at
amortized cost, which constitutes fair value as determined by the Board.
Amortized cost involves valuing a portfolio instrument at its initial cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless

23
<PAGE>

of the impact of fluctuating interest rates on the market value of the
instrument. The amortized cost method of valuation may also be used with respect
to other debt obligations with 60 days or less remaining to maturity.
Notwithstanding the foregoing, in determining the market value of portfolio
investments, a Fund may employ outside organizations (a "Price Service") which
may use a matrix, formula or other objective method that takes into
consideration market indexes, matrices, yield curves and other specific
adjustments. The procedures of Pricing Services are reviewed periodically by the
officers of a Fund under the general supervision and responsibility of the
Board, which may replace a Pricing Service at any time. Securities, options and
futures contracts for which market quotations are not available and certain
other assets of a Fund will be valued at their fair value as determined in good
faith pursuant to consistently applied procedures established by the Board. In
addition, the Board or its delegates may value a security at fair value if it
determines that such security's value determined by the methodology set forth
above does not reflect its fair value.

Trading in securities in certain foreign countries is completed at various
times prior to the close of business on each business day in New York (i.e., a
day on which the New York Stock Exchange (the "NYSE") is open for trading). In
addition, securities trading in a particular country or countries may not take
place on all business days in New York. Furthermore, trading takes place in
various foreign markets on days which are not business days in New York and
days on which a Fund's net asset value is not calculated. As a result,
calculation of a Fund's net asset value may not take place contemporaneously
with the determination of the prices of certain foreign portfolio securities
used in such calculation. Events affecting the values of portfolio securities
that occur between the time their prices are determined and the close of regular
trading on the NYSE will not be reflected in a Fund's calculation of net asset
value unless the Board or its delegates deems that the particular event would
materially affect net asset value, in which case an adjustment may be made. All
assets and liabilities initially expressed in foreign currency values will be
converted into U.S. dollar values at the prevailing rate as quoted by a Pricing
Service. If such quotations are not available, the rate of exchange will be
determined in good faith pursuant to consistently applied procedures established
by the Board.

Portfolio Transactions
- ----------------------

Each Fund's Adviser is responsible for establishing, reviewing and, where
necessary, modifying the Fund's investment program to achieve its investment
goal. Purchases and sales of newly issued portfolio securities are usually
principal transactions without brokerage commissions effected directly with the
issuer or with an underwriter acting as principal. Other purchases and sales
may be effected on a securities exchange or over-the-counter, depending on where
it appears that the best price or execution will be obtained. The purchase
price paid by a Fund to underwriters of newly issued securities usually includes
a concession paid by the issuer to the underwriter, and purchases of securities
from dealers, acting as either principals or agents in the after market, are
normally executed at a price between the bid and asked price, which includes a
dealer's mark-up or mark-down. Transactions on U.S. stock exchanges and some
foreign stock exchanges involve the payment of negotiated brokerage commissions.
On exchanges on which commissions are negotiated, the cost of transactions may
vary among

24
<PAGE>

different brokers. On most foreign exchanges, commissions are generally fixed.
There is generally no stated commission in the case of securities traded in
domestic or foreign over-the-counter markets, but the price of securities traded
in over-the-counter markets includes an undisclosed commission or mark-up. U.S.
Government Securities are generally purchased from underwriters or dealers,
although certain newly issued U.S. Government Securities may be purchased
directly from the U.S. Treasury or from the issuing agency or instrumentality.

The Adviser will select specific portfolio investments and effect
transactions for a Fund and in doing so seeks to obtain the overall best
execution of portfolio transactions. In evaluating prices and executions, the
Adviser will consider the factors it deems relevant, which may include the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of a broker or dealer and the reasonableness
of the commission, if any, for the specific transaction and on a continuing
basis. The Adviser may, in its discretion, effect transactions in portfolio
securities with dealers who provide brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of 1934) to a
Fund and/or other accounts over which the Adviser exercises investment
discretion. The Adviser may place portfolio transactions with a broker or
dealer with whom it has negotiated a commission that is in excess of the
commission another broker or dealer would have charged for effecting the
transaction if the Adviser determines in good faith that the amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer viewed in terms of either that
particular transaction or of the overall responsibilities of the Adviser.
Research and other services received may be useful to the Adviser in serving
both a Fund and the Adviser's other clients and, conversely, research or other
services obtained by the placement of business of other clients may be useful to
the Adviser in carrying out its obligations to a Fund. Research may include
furnishing advice, either directly or through publications or writings, as to
the value of securities, the advisability of purchasing or selling specific
securities and the availability of securities or purchasers or sellers of
securities; furnishing seminars, information, analyses and reports concerning
issuers, industries, securities, trading markets and methods, legislative
developments, changes in accounting practices, economic factors and trends and
portfolio strategy; access to research analysts, corporate management personnel,
industry experts, economists and government officials; comparative performance
evaluation and technical measurement services and quotation services; and
products and other services (such as third party publications, reports and
analyses, and computer and electronic access, equipment, software, information
and accessories that deliver, process or otherwise utilize information,
including the research described above) that assist the Adviser in carrying out
its responsibilities. Research received from brokers or dealers is supplemental
to the Adviser's own research program. The fees payable to Centurion under its
advisory agreement with each Fund, and the fees payable to the sub-advisers
under their respective sub-advisory agreements with Centurion, are not reduced
by reason of the Adviser receiving any brokerage and research services.

Investment decisions for a Fund concerning specific portfolio securities
are made independently from those for other clients advised by the Adviser.
Such other investment clients may invest in the same securities as the
applicable Fund. When purchases or sales of

25
<PAGE>

the same security are made at substantially the same time on behalf of such
other clients, transactions are averaged as to price and available investments
allocated as to amount, in a manner which the Adviser believes to be equitable
to each client, including the applicable Fund. In some instances, this
investment procedure may adversely affect the price paid or received by the Fund
or the size of the position obtained or sold for the Fund. To the extent
permitted by law, the Adviser may aggregate the securities to be sold or
purchased for a Fund with those to be sold or purchased for such other
investment clients in order to obtain best execution. In no instance will
portfolio securities be purchased from or sold to the Adviser or its affiliates.

Transactions for a Fund may be effected on foreign securities exchanges.
In transactions for securities not actively traded on a foreign securities
exchange, each Fund will deal directly with the dealers who make a market in the
securities involved, except in those circumstances where better prices and
execution are available elsewhere. Such dealers usually are acting as principal
for their own account. On occasion, securities may be purchased directly from
the issuer. Such portfolio securities are generally traded on a net basis and
do not normally involve brokerage commissions. Securities firms may receive
brokerage commissions on certain portfolio transactions, including options,
futures and options on futures transactions and the purchase and sale of
underlying securities upon exercise of options.

Each Fund may participate, if and when practicable, in bidding for the
purchase of securities for its portfolio directly from an issuer in order to
take advantage of the lower purchase price available to members of such a group.
A Fund will engage in this practice, however, only when the Adviser, in its sole
discretion, believes such practice to be otherwise in the Fund's interest.

Portfolio Turnover
------------------

As discussed in the Prospectus, the Company anticipates that investors in
the Contra Funds, as part of a tactical or strategic asset allocation strategy,
may frequently redeem or exchange shares of these Funds. The Contra Funds may
have to dispose of certain portfolio investments to maintain sufficient liquid
assets to meet such redemption and exchange requests, thereby resulting in
higher portfolio turnover. Because each Contra Fund's portfolio turnover rate
to a great extent will depend on the purchase, redemption and exchange activity
of the Fund's investors, it is difficult to estimate what the Fund's actual
turnover rate will be in the future. Additionally, because of the investment
techniques employed by the U.S. Equity Fund and the International Equity Fund to
reduce the realization of capital gains, it is anticipated that the annual
portfolio turnover rate for the these Funds will not exceed 50% and 100%,
respectively, under normal market conditions.

A Fund's portfolio turnover rate is calculated by the value of the
securities purchased or sold, excluding all securities whose maturities at the
time of acquisition were one year or less, divided by the average monthly value
of such securities owned during the year. Based on this calculation,
instruments, including options and futures contracts, with remaining maturities
of less than one year are excluded from the portfolio turnover rate. In any
given period, all of

26
<PAGE>

a Contra Fund's investments may have a remaining maturity of less than one year;
in which case, the portfolio turnover rate for that period would be equal to
zero.

MANAGEMENT OF THE FUNDS

Officers and Board of Directors
- -------------------------------

The business and affairs of each Fund is managed by the Company's Board in
accordance with the laws of the State of Maryland. The Board elects officers
who are responsible for the day-to-day operations of the Funds and who execute
policies formulated by the Board. Under the Company's Charter, the Board may
classify or reclassify any unissued shares of the Company into one or more
additional classes by setting or changing in any one or more respects their
relative rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption. The Board may similarly
classify or reclassify any class of the Company's shares into one or more series
and, without shareholder approval, may increase the number of authorized shares
of the Company.

The names (and ages) of the Company's directors and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below. An asterisk appears after the
name of each director who is an "interested person" of the Company, as defined
in the 1940 Act.

<TABLE>
<CAPTION>
Name (Age) and Address Position and Principal Occupation(s)
- ---------------------- -----------------------------------
<S> <C>
Charles P. Dickinson (60) Director. President of The Dickinson Co., a
5219 N. Casa Blanca Dr. #54 farming company, since 1972.
Paradise Valley, AZ 85253

Gerard P. Dipoto, Jr.* (52) Chairman of the Board, President and Chief Executive Officer.
2425 E. Camelback Rd, Suite 530 President of Centurion since 1997; Executive Vice President of
Phoenix, AZ 85016-4200 Sales, Marketing and Relationship Management at Investors
Fiduciary Trust Company from 1987 to 1997.

Timothy E. Kloenne (53) Director. President of Klontech Industrial Sales, Inc., a
5730 E. Leith Ln. quality control and inspection equipment sales company, since 1971.
Scottsdale, AZ 85254

Joseph F. Smith (50) Director. Owner of Compunet Engineering, a computer networking
9736 Legler St. company, since 1995; Executive Vice President and Director at
Lenexa, KS 66212 Investors Fiduciary Trust Company from 1993 to 1995.

Thomas M. Smith (55) Director. Realtor at Coldwell Banker Success Realty since 1990.
2525 E. Camelback Rd., Suite 150
</TABLE>

27
<PAGE>

<TABLE>
<CAPTION>
<S> <C>
Phoenix, AZ 85016

Ron A. Link (34) Treasurer. Information Systems Manager at Centurion since March
2425 E. Camelback Rd, Suite 530 1998; Senior Staff CPA at Ferraro & McMurthy, P.C. from 1995 to
Phoenix, AZ 85016-4200 1998; Staff CPA at Zolondek, Blumenthal, Green, Freed &
Strossels, P.C. from 1993 to 1995.

Irving P. David (37) Controller. Director of Salomon Smith Barney Inc. and Mutual
388 Greenwich Street Management Corp. since 1994; Controller of several investment
New York, NY 10013 companies associated with Salomon Smith Barney Inc.; Assistant
Treasurer at First Investment Management Company from 1988 to
1994.

Paul A. Monroe (38) Vice President. Operations Manager at Centurion since 1997;
2425 E. Camelback Rd, Suite 530 Project Manager at Bank One, NA from 1996 to 1997; Assistant Vice
Phoenix, AZ 85016-4200 President and Manager at First Interstate Bank of Arizona,
NA/Wells Fargo from February 1996 to September 1996; Assistant
Vice President and Manager at Bank One, NA from 1977 to 1996.

Jennifer L. Stecker (30) Secretary. Finance Manager at Centurion since March 1998;
2425 E. Camelback Rd, Suite 530 Financial Analyst at MicroAge, Inc. from 1997 to 1998; Securities
Phoenix, AZ 85016-4200 Specialist at Centurion from 1994 to 1997; Sales Assistant at
Principal Financial Group from 1993 to 1994.

</TABLE>

No employee of Centurion or any of its affiliates receives compensation
from the Company for acting as an officer or director of the Company. The
Company pays each director who is not an "affiliated person" (as defined in the
1940 Act) of the Adviser, administrator or distributor an annual fee of $5,000
and $1,250 for each meeting of the Board attended by him for his services as
director, and reimburses such director for expenses incurred with his attendance
at Board meetings.

Directors' Total Compensation:
- -----------------------------
<TABLE>
NAME OF DIRECTOR TOTAL COMPENSATION FROM THE COMPANY+

<S> <C>
Charles P. Dickinson $ 8,750
- ------------------------------------------------------------------------------------------------------------------
Gerard P. Dipoto, Jr. None*
- ------------------------------------------------------------------------------------------------------------------
Timothy E. Kloenne $ 8,750
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

28
<PAGE>

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Joseph F. Smith $ 8,750
- ------------------------------------------------------------------------------------------------------------------
Thomas M. Smith $ 8,750
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Amounts shown are estimates of payments to be made, pursuant to existing
arrangements, for the remaining period of the Company's fiscal year ending
September 30, 1999.
* Mr. Dipoto receives compensation as an affiliate of Centurion and,
accordingly, receives no compensation from the Company.

As of the date of this Statement of Additional Information, the
directors and officers of the Company as a group owned less than 1% of the
outstanding shares of each Fund.

Investment Advisers
- -------------------

Centurion, located at 2425 East Camelback Road, Suite 530, Phoenix, AZ
85016-4200, serves as investment manager to the Funds. Centurion is a wholly-
owned subsidiary of CCM Group Inc., a holding company organized under the laws
of the State of Arizona. For a description of the fees paid to Centurion for
its services as investment manager to each of the Funds, see the
Prospectus.

Parametric, located at 7310 Columbia Center, 710 Fifth Avenue, Seattle,
Washington 98104-7090, serves as co-sub-adviser to the U.S. Equity Fund. PIMCO
Advisors, L.P., a publicly traded investment management organization, is
Parametric's supervisory partner and Parametric Management Inc. is the
partnership's managing partner. For its services as co-sub-adviser to the U.S.
Equity Fund, Centurion pays Parametric 0.30% of the first $25 million of the
average daily net assets of the Fund allocated to Parametric and 0.25% of the
amount in excess of $25 million.

FISI, located at One World Trade Center, Suite 2101, New York, NY 10048-
0080, effectively serves as co-sub-adviser to the International Equity Fund.
FISI is a wholly-owned subsidiary of Friends Ivory & Sime plc ("Friends"), a
global investment management company, which in turn is majority-owned by Friends
Provident Life Office, a mutual life assurance company registered in England. As
discussed in the Prospectus, FISI has entered into a sub-advisory arrangement
with Friends whereby Friends will perform certain investment advisory and
portfolio transaction services for the International Equity Fund, as may be
agreed upon from time to time by FISI and Friends. Currently, Friends is
responsible for the day-to-day management of the International Equity Fund's
assets allocated to FISI, and FISI reviews investment performance, policies and
guidelines, maintains certain books and records, and facilitates communication
between Friends and Centurion. For its services as co-sub-adviser to the
International Equity Fund, Centurion pays FISI 0.30% of the first $50 million of
the average daily net assets of the Fund allocated to FISI, 0.275% of the next
$50 million and 0.25% of the amount in excess of $100 million.

BEA Associates, located at One Citicorp Center, 153 East 53rd Street, New
York, NY 10022, serves as sub-adviser to the Contra Funds and co-sub-adviser to
each of the Equity Funds. BEA is a general partnership that is wholly-owned by
Credit Suisse Group, the second largest Swiss bank. For its services as sub-
adviser to the Contra Funds, Centurion pays BEA 0.85% of the average daily net
assets of each Contra Fund. For its services as co-sub-adviser to the Equity
Funds, Centurion pays BEA 0.10% of the average daily net assets of each Equity
Fund.
29
<PAGE>

Centurion serves as investment manager to the Funds pursuant to separate
investment management agreements ("Management Agreements"). Centurion, in turn,
has entered into separate sub-advisory agreements ("Sub-Advisory Agreements")
with each sub-adviser selected to manage all or a portion of a particular
Fund's portfolio according to its investment goal and strategies. Each Adviser
bears all expenses in connection with the performance of its services under the
applicable Management Agreement or Sub-Advisory Agreement. Each Fund pays
Centurion a fee for services provided under the Management Agreement that is
computed daily and paid monthly based on the value of the Fund's average net
assets. From this amount, Centurion pays the Fund's sub-adviser(s) a fee for
services provided under the Sub-Advisory Agreement that is likewise computed
daily and paid monthly based on the value of the Fund's average net assets.
Centurion and/or each Fund's sub-adviser may voluntarily waive a portion of its
fees from time to time and temporarily limit the expenses to be borne by a
Fund.

Administrator
- -------------

Mutual Management Corp. ("MMC"), located at 388 Greenwich Street, New York,
NY 10013, serves as administrator for the Company pursuant to an administration
agreement ("Administration Agreement"). As administrator, MMC generally
oversees all aspects of the Company's administration and operations. MMC
furnishes the Company with statistical and research data, clerical help,
accounting, data processing, bookkeeping, internal auditing and legal services
and certain other services required by the Company; prepares tax returns and
reports to the Company's shareholders; and prepares reports to and filings with
the SEC and state blue sky authorities. Each Fund pays MMC a fee for services
provided under the Administration Agreement that is computed daily and paid
monthly at an annual rate of 0.20% of the Fund's average daily net assets or
$50,000, whichever amount is greater. MMC may voluntarily waive a portion of its
fees from time to time and temporarily limit the expenses to be borne by a
Fund.

Distributor
- -----------

CFBDS, Inc., located at 21 Milk Street, 5th Floor, Boston, MA 02109, serves
as the distributor for the Company and is responsible for making shares of the
Funds available to investors. The distributor provides shareholder and
distribution services to the Funds at no charge.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

The offering price of each Fund's shares is equal to the Fund's per share
net asset value. Information on how to purchase and redeem Fund shares and how
such shares are priced is included in the Prospectus.

Under the 1940 Act, each Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed, other than customary weekend and holiday closings, or during
which trading on the NYSE is restricted, or during which (as determined by the
SEC) an emergency exists as a result of which disposal or fair valuation of
portfolio securities is not reasonably practicable, or for such other periods

30
<PAGE>

as the SEC may permit. (Each Fund may also suspend or postpone the recordation
of an exchange of its shares upon the occurrence of any of the foregoing
conditions.)

If the Board determines that conditions exist which make payment of
redemption proceeds wholly in cash unwise or undesirable, a Fund may make
payment wholly or partly in securities or other investment instruments which may
not constitute securities as such term is defined in the applicable securities
laws. If a redemption is paid wholly or partly in securities or other property,
a shareholder would incur transaction costs in disposing of the redemption
proceeds. Each Fund intends to comply with Rule 18f-1 promulgated under the
1940 Act with respect to redemptions in kind.

EXCHANGE PRIVILEGE

An exchange privilege among the Funds is available to investors in each
Fund. The exchange privilege enables shareholders to acquire shares in a Fund
with a different investment goal when they believe that a shift between Funds is
an appropriate investment decision. This privilege is available to shareholders
residing in any state in which the shares being acquired may legally be sold.
Prior to any exchange, shareholders should review a copy of the current
prospectus of each Fund into which an exchange is being considered.

Upon receipt of proper instructions and all necessary supporting documents,
shares submitted for exchange are redeemed at the then-current net asset value
of the Fund and the proceeds are invested on the same day, at a price as
described above, in shares of the Fund being acquired. The exchange privilege
may be modified or terminated at any time upon 30 days' notice to shareholders.

ADDITIONAL INFORMATION CONCERNING TAXES

The following is a summary of the material United States federal income tax
considerations regarding the purchase, ownership and disposition of shares of a
Fund. Each prospective shareholder is urged to consult his own tax adviser with
respect to the specific federal, state, local and foreign tax consequences of
investing in a Fund. The summary is based on the laws in effect on the date of
this Statement of Additional Information, which are subject to change.

The Funds and Their Investments
- -------------------------------

Each Fund intends to qualify to be treated as a regulated investment
company each taxable year under the Internal Revenue Code of 1986, as amended
(the "Code"). To so qualify, a Fund must, among other things: (a) derive at
least 90% of its gross income in each taxable year from dividends, interest,
payments with respect to securities, loans and gains from the sale or other
disposition of stock or securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each quarter of a Fund's taxable year, (i) at least 50% of the market value of a
Fund's assets is represented by cash, securities of other regulated investment

31
<PAGE>

companies, United States government securities and other securities, with such
other securities limited, in respect of any one issuer, to an amount not greater
than 5% of a Fund's assets and not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25% of the value of its assets
is invested in the securities (other than United States government securities or
securities of other regulated investment companies) of any one issuer or any two
or more issuers that a Fund controls and are determined to be engaged in the
same or similar trades or businesses or related trades or businesses. Each Fund
expects that all of its foreign currency gains will be directly related to its
principal business of investing in stocks and securities.

As a regulated investment company, each Fund will not be subject to United
States federal income tax on its net investment income (i.e., income other than
its net realized long- and short-term capital gains) and its net realized long-
and short-term capital gains, if any, that it distributes to its shareholders,
provided that an amount equal to at least 90% of the sum of its investment
company taxable income (i.e., 90% of its taxable income minus the excess, if
any, of its net realized long-term capital gains over its net realized short-
term capital losses (including any capital loss carryovers), plus or minus
certain other adjustments as specified in the Code) and its net tax-exempt
income for the taxable year is distributed, but will be subject to tax at
regular corporate rates on any taxable income or gains that it does not
distribute. Furthermore, each Fund will be subject to a United States corporate
income tax with respect to such distributed amounts in any year that it fails to
qualify as a regulated investment company or fails to meet this distribution
requirement.

The Code imposes a 4% nondeductible excise tax on each Fund to the extent a
Fund does not distribute by the end of any calendar year at least 98% of its net
investment income for that year and 98% of the net amount of its capital gains
(both long-and short-term) for the one-year period ending, as a general rule, on
October 31 of that year. For this purpose, however, any income or gain retained
by a Fund that is subject to corporate income tax will be considered to have
been distributed by year-end. In addition, the minimum amounts that must be
distributed in any year to avoid the excise tax will be increased or decreased
to reflect any underdistribution or overdistribution, as the case may be, from
the previous year. Each Fund anticipates that it will pay such dividends and
will make such distributions as are necessary in order to avoid the application
of this tax.

With regard to a Fund's investments in foreign securities, exchange control
regulations may restrict repatriations of investment income and capital or the
proceeds of securities sales by foreign investors such as a Fund and may limit a
Fund's ability to pay sufficient dividends and to make sufficient distributions
to satisfy the 90% and excise tax distribution requirements.

If, in any taxable year, a Fund fails to qualify as a regulated investment
company under the Code or fails to meet the distribution requirement, it would
be taxed in the same manner as an ordinary corporation and distributions to its
shareholders would not be deductible by a Fund in computing its taxable income.
In addition, in the event of a failure to qualify, a Fund's distributions, to
the extent derived from a Fund's current or accumulated earnings and profits
would constitute dividends (eligible for the corporate dividends-received
deduction)

32
<PAGE>

which are taxable to shareholders as ordinary income, even though those
distributions might otherwise (at least in part) have been treated in the
shareholders' hands as long-term capital gains. If a Fund fails to qualify as a
regulated investment company in any year, it must pay out its earnings and
profits accumulated in that year in order to qualify again as a regulated
investment company. In addition, if a Fund failed to qualify as a regulated
investment company for a period greater than one taxable year, a Fund may be
required to recognize any net built-in gains (the excess of the aggregate gains,
including items of income, over aggregate losses that would have been realized
if it had been liquidated) in order to qualify as a regulated investment company
in a subsequent year.

A Fund's transactions in foreign currencies, forward contracts, options and
futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code (including
provisions relating to "hedging transactions" and "straddles") that, among other
things, may affect the character of gains and losses realized by a Fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to a Fund and defer Fund losses. These rules could
therefore affect the character, amount and timing of distributions to
shareholders. These provisions also (a) will require a Fund to mark-to-market
certain types of the positions in its portfolio (i.e., treat them as if they
were closed out) and (b) may cause a Fund to recognize income without receiving
cash with which to pay dividends or make distributions in amounts necessary to
satisfy the distribution requirements for avoiding income and excise taxes.
Each Fund will monitor its transactions, will make the appropriate tax elections
and will make the appropriate entries in its books and records when it acquires
any foreign currency, forward contract, option, futures contract or hedged
investment in order to mitigate the effect of these rules and prevent
disqualification of a Fund as a regulated investment company.

A Fund's investment in Section 1256 contracts, such as regulated futures
contracts, most forward currency forward contracts traded in the interbank
market and options on most stock indices, are subject to special tax rules. All
section 1256 contracts held by a Fund at the end of its taxable year are
required to be marked to their market value, and any unrealized gain or loss on
those positions will be included in the Fund's income as if each position had
been sold for its fair market value at the end of the taxable year. The
resulting gain or loss will be combined with any gain or loss realized by the
Fund from positions in section 1256 contracts closed during the taxable year.
Provided such positions were held as capital assets and were not part of a
"hedging transaction" nor part of a "straddle," 60% of the resulting net gain or
loss will be treated as long-term capital gain or loss, and 40% of such net gain
or loss will be treated as short-term capital gain or loss, regardless of the
period of time the positions were actually held by the Fund.

Passive Foreign Investment Companies. If a Fund purchases shares in
certain foreign investment entities, called "passive foreign investment
companies" (a "PFIC"), it may be subject to United States federal income tax on
a portion of any "excess distribution" or gain from the disposition of such
shares even if such income is distributed as a taxable dividend by a Fund to its
shareholders. Additional charges in the nature of interest may be imposed on a
Fund in respect of deferred taxes arising from such distributions or gains. If
a Fund were to invest in a PFIC and elected to treat the PFIC as a "qualified
electing fund" under the Code, in lieu of the foregoing requirements, a Fund
might be required to include in income each year a portion of the ordinary
earnings and net capital gains of the qualified electing fund, even if not
distributed to a Fund, and such amounts would be subject to the 90% and excise
tax distribution requirements described above. In order to make this election,
a Fund would be required to obtain certain annual information from the passive
foreign investment companies in which it invests, which may be difficult or not
possible to obtain.

Recently, legislation was enacted that provides a mark-to-market election
for regulated investment companies effective for taxable years beginning after
December 31, 1997. This election would result in a Fund being treated as if it
had sold and repurchased all of the PFIC stock at the end of each year. In this
case, a Fund would report gains as ordinary income and would deduct losses as
ordinary losses to the extent of previously recognized gains. The election,
once made, would be effective for all subsequent taxable years of a Fund, unless

33
<PAGE>

revoked with the consent of the IRS. By making the election, a Fund could
potentially ameliorate the adverse tax consequences with respect to its
ownership of shares in a PFIC, but in any particular year may be required to
recognize income in excess of the distributions it receives from PFICs and its
proceeds from dispositions of PFIC company stock. A Fund may have to distribute
this "phantom" income and gain to satisfy its distribution requirement and to
avoid imposition of the 4% excise tax. Each Fund will make the appropriate tax
elections, if possible, and take any additional steps that are necessary to
mitigate the effect of these rules.

Taxation of United States Shareholders
- --------------------------------------

Dividends and Distributions. Any dividend declared by a Fund in October,
November or December of any calendar year and payable to shareholders of record
on a specified date in such a month shall be deemed to have been received by
each shareholder on December 31 of such calendar year and to have been paid by a
Fund not later than such December 31, provided that such dividend is actually
paid by a Fund during January of the following calendar year. Each Fund intends
to distribute annually to its shareholders substantially all of its investment
company taxable income, and any net realized long-term capital gains in excess
of net realized short-term capital losses (including any capital loss
carryovers). Each Fund currently expects to distribute any excess annually to
its shareholders. However, if a Fund retains for investment an amount equal to
all or a portion of its net long-term capital gains in excess of its net short-
term capital losses and capital loss carryovers, it will be subject to a
corporate tax (currently at a rate of 35%) on the amount retained. In that
event, a Fund will designate such retained amounts as undistributed capital
gains in a notice to its shareholders who (a) will be required to include in
income for United Stares federal income tax purposes, as long-term capital
gains, their proportionate shares of the undistributed amount, (b) will be
entitled to credit their proportionate shares of the 35% tax paid by the Fund on
the undistributed amount against their United States federal income tax
liabilities, if any, and to claim refunds to the extent their credits exceed
their liabilities, if any, and (c) will be entitled to increase their tax basis,
for United States federal income tax purposes, in their shares by an amount
equal to 65% of the amount of undistributed capital gains included in the
shareholder's income. Organizations or persons not subject to federal income
tax on such capital gains will be entitled to a refund of their pro rata share
of such taxes paid by a Fund upon filing appropriate returns or claims for
refund with the Internal Revenue Service (the "IRS").

Dividends of net investment income and distributions of net realized short-
term capital gains are taxable to a United States shareholder as ordinary
income, whether paid in cash or in shares. Distributions of net-long-term
capital gains, if any, that a Fund designates as capital gains dividends are
taxable as long-term capital gains, whether paid in cash or in shares and
regardless of how long a shareholder has held shares of a Fund. Dividends and
distributions paid by a Fund (except for the portion thereof, if any,
attributable to dividends on stock of U.S. corporations received by a Fund) will
not qualify for the deduction for dividends received by corporations.
Distributions in excess of a Fund's current and accumulated earnings and profits
will, as to each shareholder, be treated as a tax-free return of capital, to the
extent of a shareholder's basis in his shares of a Fund, and as a capital gain
thereafter (if the shareholder holds his shares of a Fund as capital assets).

34
<PAGE>

Shareholders receiving dividends or distributions in the form of additional
shares should be treated for United States federal income tax purposes as
receiving a distribution in the amount equal to the amount of money that the
shareholders receiving cash dividends or distributions will receive, and should
have a cost basis in the shares received equal to such amount.

Investors considering buying shares just prior to a dividend or capital
gain distribution should be aware that, although the price of shares just
purchased at that time may reflect the amount of the forthcoming distribution,
such dividend or distribution may nevertheless be taxable to them.

If a Fund is the holder of record of any stock on the record date for any
dividends payable with respect to such stock, such dividends are included in a
Fund's gross income not as of the date received but as of the later of (a) the
date such stock became ex-dividend with respect to such dividends (i.e., the
date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date a Fund acquired such stock.
Accordingly, in order to satisfy its income distribution requirements, a Fund
may be required to pay dividends based on anticipated earnings, and shareholders
may receive dividends in an earlier year than would otherwise be the case.

Sales of Shares. Upon the sale or exchange of his shares, a shareholder
will realize a taxable gain or loss equal to the difference between the amount
realized and his basis in his shares. Such gain or loss will be treated as
capital gain or loss, if the shares are capital assets in the shareholder's
hands, and will be long-term capital gain or loss if the shares are held for
more than one year and short-term capital gain or loss if the shares are held
for one year or less. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced, including
replacement through the reinvesting of dividends and capital gains distributions
in a Fund, within a 61-day period beginning 30 days before and ending 30 days
after the disposition of the shares. In such a case, the basis of the shares
acquired will be increased to reflect the disallowed loss. Any loss realized by
a shareholder on the sale of a Fund share held by the shareholder for six months
or less will be treated for United States federal income tax purposes as a long-
term capital loss to the extent of any distributions or deemed distributions of
long-term capital gains received by the shareholder with respect to such share.

Foreign Taxes. A Fund may elect for U.S. income tax purposes to treat
foreign income taxes paid by it as paid by its shareholders if: (i) the Fund
qualifies as a regulated investment company, (ii) certain asset and distribution
requirements are satisfied, and (iii) more than 50% of the Fund's total assets
at the close of its fiscal year consists of stock or securities of foreign
corporations. A Fund may qualify for and make this election in some, but not
necessarily all, of its taxable years. If a Fund were to make an election,
shareholders of the Fund would be required to take into account an amount equal
to their pro rata portions of such foreign taxes in computing their taxable
income and then treat an amount equal to those foreign taxes as a U.S. federal
income tax deduction or as a foreign tax credit against their U.S. federal
income taxes. Shortly after any year for which it makes such an election, a Fund
will report to its shareholders the amount per share of such foreign income tax
that must be included in each shareholder's gross income and the amount which
will be available for the deduction or credit. No deduction for foreign taxes
may be claimed by a shareholder who does not itemize deductions. Certain
limitations will be imposed on the extent to which the credit (but not the
deduction) for foreign taxes may be claimed.

Backup Withholding. Each Fund may be required to withhold, for United
States federal income tax purposes, 31% of the dividends and distributions
payable to shareholders who fail to provide a Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup withholding is not an
additional tax and any amount withheld may be credited against a shareholder's
United States federal income tax liabilities.

Notices. Shareholders will be notified annually by a Fund as to the United
States federal income tax status of the dividends, distributions and deemed
distributions attributable

35
<PAGE>

to undistributed capital gains (discussed above in "Dividends and
Distributions") made by a Fund to its shareholders. Furthermore, shareholders
will also receive, if appropriate, various written notices after the close of a
Fund's taxable year regarding the United States federal income tax status of
certain dividends, distributions and deemed distributions that were paid (or
that are treated as having been paid) by a Fund to its shareholders during the
preceding taxable year.

Other Taxation
- --------------

Distributions also may be subject to additional state, local and foreign
taxes depending on each shareholder's particular situation.

THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES AFFECTING
THE FUND AND ITS SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN
TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF AN
INVESTMENT IN THE FUNDS.

DETERMINATION OF PERFORMANCE

From time to time, a Fund may quote the total return of its shares in
advertisements or in reports and other communications to shareholders. These
figures are calculated by finding the average annual compounded rates of return
for the one-, five- and ten- (or such shorter period as the shares have been
offered) year periods that would equate the initial amount invested to the
ending redeemable value according to the following formula: P (1 + T)n = ERV.
For purposes of this formula, "P" is a hypothetical investment of $1,000; "T" is
average annual total return; "n" is number of years; and "ERV" is the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
one-, five- or ten-year periods (or fractional portion thereof). Total return
or "T" is computed by finding the average annual change in the value of an
initial $1,000 investment over the period and assumes that all dividends and
distributions are reinvested during the period.

A Fund may advertise, from time to time, comparisons of the performance of
its shares with that of one or more other mutual funds with similar investment
goals. A Fund may advertise average annual calendar year-to-date and calendar
quarter returns, which are calculated according to the formula set forth in the
preceding paragraph, except that the relevant measuring period would be the
number of months that have elapsed in the current calendar year or most recent
three months, as the case may be. Investors should note that this performance
may not be representative of a Fund's total return in longer market cycles.

The performance of Fund shares will vary from time to time depending upon
market conditions, the composition of a Fund's portfolio and operating expenses
allocable to it. As described above, total return is based on historical
earnings and is not intended to indicate future performance. Consequently, any
given performance quotation should not be considered as representative of
performance for any specified period in the future. Performance information may
be useful as a basis for comparison with other investment alternatives.
However, a Fund's performance will fluctuate, unlike certain bank deposits or
other investments which pay a fixed yield for a stated period of time. Any fees
charged by

36
<PAGE>

investment professionals or other financial intermediaries directly to their
customers in connection with investments in Fund shares are not reflected in a
Fund's total return, and such fees, if charged, will reduce the actual return
received by customers on their investments.

PRINCIPAL STOCKHOLDERS

As of the date of this Statement of Additional Information, Centurion owned
100% of the outstanding shares of each Fund. The shares were issued to
Centurion for providing the initial seed capital to the Company. So long as
Centurion owns more than 25% of the outstanding voting securities of a Fund, it
may be deemed to control the Fund.

OTHER INFORMATION

Capital Stock
- -------------

Investors in a Fund are entitled to one vote for each full share held and
fractional votes for fractional shares held. Shareholders of a Fund will vote
in the aggregate except where otherwise required by law. There will normally be
no meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any director of the Company may be removed from
office upon the vote of shareholders holding at least a majority of the
Company's outstanding shares, at a meeting called for that purpose. A meeting
will be called for the purpose of voting on the removal of a Board member at the
written request of holders of 10% of the outstanding shares of the Company.

All shareholders of a Fund, upon liquidation, will participate ratably in
the Fund's net assets. Shares do not have cumulative voting rights, which means
that holders of more than 50% of the shares voting for the election of directors
can elect all directors. Shares are transferable but have no preemptive,
conversion or subscription rights.

Independent Accountant
- ----------------------

KPMG Peat Marwick LLP ("KPMG"), with principal offices located at 345 Park
Avenue, New York, NY 10154, serves as the independent accountant for the
Company. The Statements of Assets and Liabilities, as of November 19, 1998, and
the Statements of Operations, for the period ended November 19, 1998, of each
Fund that appear in this Statement of Additional Information have been audited
by KPMG, whose report thereon appears elsewhere herein and has been included
herein in reliance upon the report of such firm of independent accountants given
upon their authority as experts in accounting and auditing.

Counsel
- -------

Willkie Farr & Gallagher serves as counsel for the Company, as well as
counsel to Centurion.

Custodians and Transfer Agent
- -----------------------------

37
<PAGE>

PNC Bank, National Association ("PNC"), located at 17th and Chestnut
Streets, Philadelphia, PA 19103, and The Chase Manhattan Bank ("Chase"), located
at 4 Chase MetroTech Center, Brooklyn, NY 11245, serve as co-custodians of each
Fund's assets. Under their respective custody agreements with the Company, PNC
and Chase are authorized to establish separate accounts for foreign securities
owned by the Funds to be held with foreign branches of U.S. banks as well as
certain foreign banks and securities depositories as sub-custodians of assets
owned by the Funds.

First Data Investor Services Group, Inc., located at Exchange Place,
Boston, MA 02109, serves as the Company's transfer agent.

FINANCIAL STATEMENTS

The Company's financial statement follows the Report of Independent
Accountants.

38
<PAGE>

APPENDIX

DESCRIPTION OF RATINGS

Commercial Paper Ratings
- ------------------------

Commercial paper rated A-1 by Standard and Poor's Ratings Services ("S&P")
indicates that the degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety characteristics are denoted
with a plus sign designation. Capacity for timely payment on commercial paper
rated A-2 is satisfactory, but the relative degree of safety is not as high as
for issues designated A-1.

The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.

Corporate Bond Ratings
- ----------------------

The following summarizes the ratings used by S&P for corporate bonds:

AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.

AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.

A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.

BBB - This is the lowest investment grade. Debt rated BBB is regarded as
having an adequate capacity to pay interest and repay principal. Although it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds in higher
rated categories.

BB, B and CCC - Debt rated BB and B are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB represents a lower
degree of speculation than B, and CCC the highest degree of speculation. While
such bonds will likely have some quality and protective
<PAGE>

characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions, which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.

B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.

CCC - Debt rated CCC has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.

CC - This rating is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.

C - This rating is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.

Additionally, the rating CI is reserved for income bonds on which no
interest is being paid. Such debt is rated between debt rated C and debt rated
D.

To provide more detailed indications of credit quality, the ratings may be
modified by the addition of a plus or minus sign to show relative standing
within this major rating category.

D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

The following summarizes the ratings used by Moody's for corporate bonds:

Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or exceptionally
stable margin and principal is secure.

A-2
<PAGE>

While the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong position of
such issues.

Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.

A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.

Baa - Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B - Bonds which are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Moody's applies numerical modifiers (1, 2 and 3) with respect to the bonds
rated "Aa" through "B." The modifier 1 indicates that the bond being rated
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the bond ranks in the
lower end of its generic rating category.

Caa - Bonds that are rated Caa are of poor standing. These issues may be
in default or present elements of danger may exist with respect to principal or
interest.

Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.

C - Bonds which are rated C comprise the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

A-3
<PAGE>

Centurion U.S. Equity Fund
Statement of Assets and Liabilities
November 19, 1998

Assets:
Cash $ 99,970
Receivable from Advisor 37,000
--------
Total Assets 136,970

Liabilities:
Accrued Organization Expenses (Note 4) 37,000
------

Net Assets (9,997 shares of $.001 par value shares of common stock
issued and outstanding; 100,000,000 shares authorized) $ 99,970
======

Net Asset Value per share $ 10.00
=====

The accompanying notes are an integral part of these financial statements.
<PAGE>

Centurion U.S. Equity Fund
Statement of Operations
For the period ended November 19, 1998

Investment Income $ -

Expenses:

Legal 34,000
Audit 3,000
-------

Total Expenses 37,000

Reimbursement from Advisor (37,000)
--------

Net Investment Income $ -
======

The accompanying notes are an integral part of these financial statements.
<PAGE>

Centurion U.S. Equity Fund
Notes to Statement of Assets and Liabilities
November 19, 1998

NOTE 1

The Centurion U.S. Equity Fund (the "Fund") is one of four portfolios of
Centurion Funds, Inc. (the "Company"). The Company was incorporated in Maryland
on August 20, 1998 and is registered under the Investment Company Act of 1940,
as amended, as a open-end diversified management investment company.

The only transactions of the Fund have been the initial sale of 9,997
shares of the Fund to Centurion Trust Company ("Centurion").

NOTE 2

The Fund intends to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute each year
substantially all of the investment company taxable income to the shareholders
of the Fund. Accordingly, no federal tax provisions are required.

NOTE 3

The Fund has entered into an investment management and administrative
agreement (the "Advisory Agreement") with Centurion (the "Advisor"). Pursuant
to the terms of the Advisory Agreement, the Advisor will manage the investments
and make investment decisions for the Fund. For these services, the Advisor is
entitled to a monthly fee calculated at the annual rate of 0.75% on the first
$25 million of the Fund's average daily net assets and 0.70% on the Fund's
average daily net assets in excess of $25 million.

The Fund has entered into an administration agreement with Mutual
Management Corporation ("the "Administrator") to provide administrative services
to the Fund. For these services, the Administrator is entitled to a monthly fee
calculated at the annual rate of 0.20% of the Fund's average daily net assets.

NOTE 4

The Advisor has set an expense cap of 1.50% of the Fund's average weekly
net assets. Accordingly, the Advisor has agreed to reimburse the Fund for
organizational expenses to the extent such expenses exceed the expense cap.
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Shareholder and Board of Directors of
Centurion Funds, Inc.

We have audited the accompanying statement of assets and liabilities of
Centurion U.S. Equity Fund as of November 19, 1998, and the related statement of
operations for the period then ended. These financial statements are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of assets and liabilities. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above presents fairly, in
all material respects, the financial position of Centurion U.S. Equity Fund as
of November 19, 1998, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

New York, New York
November 19, 1998
<PAGE>

Centurion International Equity Fund
Statement of Assets and Liabilities
November 19, 1998

Assets:
Cash $ 10
Receivable from Advisor 36,000
-------
Total Assets 36,010

Liabilities:
Accrued Organization Expenses (Note 4) 36,000
------

Net Assets (1 share of $.001 par value share of common stock
issued and outstanding; 100,000,000 shares authorized) $ 10
==

Net Asset Value per share $ 10.00
=====

The accompanying notes are an integral part of these financial statements.
<PAGE>

Centurion International Equity Fund
Statement of Operations
For the period ended November 19, 1998

Investment Income $ -

Expenses:

Legal 33,000
Audit 3,000
-------

Total Expenses 36,000

Reimbursement from Advisor (36,000)
--------

Net Investment Income $ -
=======

The accompanying notes are an integral part of these financial statements.
<PAGE>

Centurion International Equity Fund
Notes to Statement of Assets and Liabilities
November 19, 1998

NOTE 1

The Centurion International Equity Fund (the "Fund") is one of four
portfolios of Centurion Funds, Inc. (the "Company"). The Company was
incorporated in Maryland on August 20, 1998 and is registered under the
Investment Company Act of 1940, as amended, as a open-end diversified management
investment company.

The only transactions of the Fund have been the initial sale of one share
of the Fund to Centurion Trust Company ("Centurion").

NOTE 2

NOTE 3

The Fund has entered into an investment management and administrative
agreement (the "Advisory Agreement") with Centurion (the "Advisor"). Pursuant
to the terms of the Advisory Agreement, the Advisor will manage the investments
and make investment decisions for the Fund. For these services, the Advisor is
entitled to a monthly fee calculated at the annual rate of 0.750% on the first
$50 million of the Fund's average daily net assets, 0.725% of the next $50
million of the Fund's average daily net assets, and 0.700% on the Fund's average
daily net assets in excess of $100 million.

NOTE 4

INDEPENDENT AUDITORS' REPORT

The Shareholder and Board of Directors of
Centurion Funds, Inc.

We have audited the accompanying statement of assets and liabilities of
Centurion International Equity Fund as of November 19, 1998, and the related
statement of operations for the period then ended. These financial statements
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of assets and liabilities. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above presents fairly, in
all material respects, the financial position of Centurion International Equity
Fund as of November 19, 1998, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

New York, New York
November 19, 1998
<PAGE>

Centurion U.S. Contra Fund
Statement of Assets and Liabilities
November 19, 1998

Assets:
Cash $ 10
Receivable from Advisor 36,000
-------
Total Assets 36,010

Liabilities:
Accrued Organization Expenses (Note 4) 36,000
------

Net Assets (1 share of $.001 par value share of common stock
issued and outstanding; 150,000,000 shares authorized) $ 10
==

Net Asset Value per share $ 10.00
=====

The accompanying notes are an integral part of these financial statements.
<PAGE>

Centurion U.S. Contra Fund
Statement of Operations
For the period ended November 19, 1998

Investment Income $ -

Expenses:

Legal 33,000
Audit 3,000
-------

Total Expenses 36,000

Reimbursement from Advisor (36,000)
-------

Net Investment Income $ -
=======

The accompanying notes are an integral part of these financial statements.
<PAGE>

Centurion U.S. Contra Fund
Notes to Statement of Assets and Liabilities
November 19, 1998

NOTE 1

The Centurion U.S. Contra Fund (the "Fund") is one of four portfolios of
Centurion Funds, Inc. (the "Company"). The Company was incorporated in Maryland
on August 20, 1998 and is registered under the Investment Company Act of 1940,
as amended, as a open-end diversified management investment company.

The only transactions of the Fund have been the initial sale of one share
of the Fund to Centurion Trust Company ("Centurion").

NOTE 2

NOTE 3

NOTE 4

INDEPENDENT AUDITORS' REPORT

The Shareholder and Board of Directors of
Centurion Funds, Inc.

We have audited the accompanying statement of assets and liabilities of
Centurion U.S. Contra Fund as of November 19, 1998, and the related statement of
operations for the period then ended. These financial statements are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above presents fairly, in
all material respects, the financial position of Centurion U.S. Contra Fund as
of November 19, 1998, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

New York, New York
November 19, 1998
<PAGE>

Centurion International Contra Fund
Statement of Assets and Liabilities
November 19, 1998

Assets:
Cash $ 10
Receivable from Advisor 36,000
-------
Total Assets 36,010

Liabilities:
Accrued Organization Expenses (Note 4) 36,000
------

Net Assets (1 share of $.001 par value share of common stock
issued and outstanding; 150,000,000 shares authorized) $ 10
==

Net Asset Value per share $ 10.00
=====

The accompanying notes are an integral part of these financial statements.
<PAGE>

Centurion International Contra Fund
Statement of Operations
For the period ended November 19, 1998

Investment Income $ -

Expenses:

Legal 33,000
Audit 3,000
-------

Total Expenses 36,000

Reimbursement from Advisor (36,000)
-------

Net Investment Income $ -
=======

The accompanying notes are an integral part of these financial statements.
<PAGE>

Centurion International Contra Fund
Notes to Statement of Assets and Liabilities
November 19, 1998

NOTE 1

The Centurion International Contra Fund (the "Fund") is one of four
portfolios of Centurion Funds, Inc. (the "Company"). The Company was
incorporated in Maryland on August 20, 1998 and is registered under the
Investment Company Act of 1940, as amended, as a open-end diversified management
investment company.

The only transactions of the Fund have been the initial sale of one share
of the Fund to Centurion Trust Company ("Centurion").

NOTE 2

NOTE 3

NOTE 4

INDEPENDENT AUDITORS' REPORT

The Shareholder and Board of Directors of
Centurion Funds, Inc.

We have audited the accompanying statement of assets and liabilities of
Centurion International Contra Fund as of November 19, 1998, and the related
statement of operations for the period then ended. These financial statements
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above presents fairly, in
all material respects, the financial position of Centurion International Contra
Fund as of November 19, 1998, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

New York, New York
November 19, 1998