CENTURION FUNDS INC, N-1A, 1998-08-21

CENTURION FUNDS INC
N-1A, 1998-08-21

Previous: MUNIHOLDINGS NEW JERSEY INSURED FUND II INC, N-2, 1998-08-21

Next: CENTURION FUNDS INC, N-8A, 1998-08-21

<PAGE>

As filed with the U.S. Securities and Exchange Commission
on August 21, 1998

Securities Act File No. 333-
Investment Company Act File No. 811-

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]

Pre-Effective Amendment No. ___ [_]

Post-Effective Amendment No. ___ [_]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [x]

Amendment No.____ [_]
(Check appropriate box or boxes)

Centurion Funds, Inc.
.......................................
(Exact Name of Registrant as Specified in Charter)

2525 East Camelback Road, Suite 640
Phoenix, Arizona 85016-4228
......................................................................
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (602) 957-9789

Gerard P. Dipoto, Jr.
Centurion Funds, Inc.
2525 East Camelback Road, Suite 640
Phoenix, Arizona 85016-4228
......................................
(Name and Address of Agent for Service)

Copy to:

Burton M. Leibert, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099

Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended (the "1933 Act"), or until the Registration
Statement shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
<PAGE>

CENTURION FUNDS, INC.

FORM N-1A

CROSS REFERENCE SHEET
---------------------

Part A
Item No. Prospectus Heading
- -------- ------------------

1. Front and Back Cover Page............ Front Cover Page; Back
Cover Page

2. Risk/Return Summary:
Investments, Risks,
and Performance..................... Overview; Risk/Return Summary --
"Investment Goals and Principal
Strategies" and "A Word About Risk"

3. Risk/Return Summary:
Fee Table........................... Investor Expenses -- "Fee Table" and
"Expense Examples"

4. Investment Objectives,
Principal Investment Strategies,
and Related Risks................... Overview; Risk/Return Summary;
Centurion Tax-Managed U.S. Equity
Fund; Centurion Tax-Managed
International Equity Fund; Centurion
U.S. Protection Fund; Centurion
International Protection Fund; More
About Risk

5. Management's Discussion of
Fund Performance.................... Not Applicable

6. Management, Organization, and
Capital Structure................... Overview; Management

7. Shareholder Information.............. Account Policies; Shareholder
Services; Distribution Policies and
Taxes

8. Distribution Arrangements............ Not Applicable

9. Financial Highlights Information..... Not Applicable
<PAGE>

Part B
Item No.
- ----------

10. Front Cover Page and
Table of Contents................... Cover Page

11. Fund History......................... Organization of the Company

12. Description of the Fund and its
Investments and Risks............... Organization of the Company;
Investment Goals and Policies; See
Prospectus -- "Overview,"
"Risk/Return Summary," "Centurion
Tax-Managed U.S. Equity Fund,"
"Centurion Tax-Managed International
Equity Fund," "Centurion U.S.
Protection Fund," "Centurion
International Protection Fund" and
"More About Risk"

13. Management of the Fund............... Management of the Funds

14. Control Persons and Principal
Holders of Securities............... Principal Stockholders; Management of
the Funds

15. Investment Advisory and
Other Services...................... Management of the Funds; See
Prospectus - "Overview" and
"Management"

16. Brokerage Allocation
and Other Practices................. Investment Goals and Policies --
"Portfolio Transactions"
17. Capital Stock and Other
Securities.......................... Organization of the Company; Other
Information
<PAGE>

18. Purchase, Redemption and Pricing
of Shares........................... Investment Goals and Policies --
"Portfolio Valuation"; Additional
Purchase and Redemption Information;
Exchange Privilege; See Prospectus --
"Account Policies" and "Shareholder
Services"

19. Taxation of the Fund................. Additional Information Concerning
Taxes

20. Underwriters......................... Management of the Funds; See
Prospectus - "Fund Details"

21. Calculation of Performance Data...... Determination of Performance

22. Financial Statements................. Financial Statements; Report of KPMG
Peat Marwick LLP

Part C
- ------

Information required to be included in Part C is set forth after the appropriate
item, so numbered, in Part C to this Registration Statement.
<PAGE>

CENTURION FUNDS, INC.

PROSPECTUS

[INSERT], 1998

CENTURION TAX-MANAGED U.S. EQUITY FUND

CENTURION TAX-MANAGED INTERNATIONAL EQUITY FUND

CENTURION U.S. PROTECTION FUND

CENTURION INTERNATIONAL PROTECTION FUND

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.

The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
<PAGE>

CONTENTS

Overview.............................................................. 1

Risk/Return Summary................................................... 2

Investor Expenses..................................................... 5

Centurion Tax-Managed U.S. Equity Fund................................ 6

Centurion Tax-Managed International Equity Fund....................... 7

Centurion U.S. Protection Fund........................................ 8

Centurion International Protection Fund............................... 9

More About Risk....................................................... 11

Management............................................................ 13

Account Policies...................................................... 15

Shareholder Services.................................................. 16

Distribution Policies and Taxes....................................... 17

Fund Details.......................................................... 18

For Additional Information.....................................Back Cover
<PAGE>

OVERVIEW

Centurion Funds, Inc. (the "Company") is a newly organized no-load mutual fund
complex with four separate investment portfolios (each a "Fund"). The Funds are
designed for professional money managers and knowledgeable 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 investments.

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 currently
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 facilitate their
management of the risks inherent in allocating their clients' assets among other
available investment options. Fees paid to Investment Professionals 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:

<TABLE>
- --------------------------------------------------------------------------------------------------
<S> <C>
TAX-MANAGED U.S. EQUITY FUND . PARAMETRIC PORTFOLIO ASSOCIATES ("PARAMETRIC")
. BEA ASSOCIATES ("BEA")
- --------------------------------------------------------------------------------------------------
TAX-MANAGED INTERNATIONAL EQUITY FUND . FRIENDS IVORY & SIME, INC. ("FISI")
. BEA
- --------------------------------------------------------------------------------------------------
U.S. PROTECTION FUND . BEA
- --------------------------------------------------------------------------------------------------
INTERNATIONAL PROTECTION FUND . BEA
- --------------------------------------------------------------------------------------------------
</TABLE>

INVESTMENT IN THE FUNDS INVOLVES SPECIAL RISKS, SOME NOT TRADITIONALLY
ASSOCIATED 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.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
FUND / RISK FACTORS Investment Goal / Principal Strategies
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
TAX-MANAGED U.S. EQUITY FUND SEEKS TO PROVIDE LONG-TERM AFTER-TAX GROWTH CONSISTENT WITH REASONABLE
EFFORTS TO PRESERVE CAPITAL.
. Market Risk . Parametric seeks to provide investment returns that, over the long
. Tracking Error Risk term, correspond to the performance of the Russell 3000(R) Index (the
"Russell Index").
In order to achieve the Fund's . Parametric invests primarily in common stocks and other equity
investment goal, Centurion has securities of U.S. issuers with total market capitalizations greater
selected two sub-advisers, than $1 billion at the time of purchase.
Parametric and BEA, to conduct the . Parametric utilizes certain strategies designed to minimize the
Fund's investment program. 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.
- ---------------------------------------------------------------------------------------------------------------
TAX-MANAGED INTERNATIONAL EQUITY Seeks to provide long-term after-tax growth consistent with reasonable
FUND efforts to preserve capital.
. FISI seeks to provide investment returns that, over the long term,
. Foreign Securities Risk correspond to the performance of the Morgan Stanley Capital
. Market Risk International Europe, Australasia, Far East (EAFE) Index (the "EAFE
. Tracking Error Risk Index").
. FISI invests primarily in common stocks and other equity securities
In order to achieve the Fund's of non-U.S. issuers with total market capitalizations greater than $1
investment goal, Centurion has billion at the time of purchase.
selected two sub-advisers, FISI . FISI utilizes certain strategies designed to minimize the impact of
and BEA, to conduct the Fund's taxes on investors' returns.
investment program. . BEA uses certain hedging techniques designed to protect against or
otherwise cushion price declines in the value of the Fund's portfolio.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>

-2-
<PAGE>

- ---------------------------------------------------------------------------------------------------------------
INTERNATIONAL PROTECTION FUND Seeks to provide protection against declines in the value of the
non-U.S. equity allocation of certain assets custodied with Centurion
. Available Information Risk (the "International Equity Benchmark").
. Exposure Risk . Centurion advises BEA of the level and nature of the downside
. Foreign Securities Risk protection desired for the International Equity Benchmark and BEA, using
. Market Risk statistical and quantitative analysis, selects the specific investments
. Portfolio Turnover Rate Risk designed to provide this protection.
. Regulatory Risk . Centurion and BEA intend to pursue the Fund's investment goal
. Trading Halt Risk regardless of market conditions and will not invest the Fund's
portfolio, in the aggregate, in anticipation of rising international
In order to achieve the Fund's equity prices.
investment goal, Centurion has . BEA trades primarily in (i) options on securities, currencies and
selected BEA to assist it in stock indexes, (ii) stock index futures contracts and (iii) options on
conducting the Fund's investment stock index futures contracts, and engages in forward currency contracts.
program.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>

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 securities
of one or more issuers conducting their principal business activities in the
same industry, except that, to the extent a Fund's benchmark is concentrated in
a particular industry, the Fund will be concentrated in that industry. This
limitation does not apply to investments or obligations of the U.S. Government
or any of its agencies or instrumentalities.

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 possibility that you
may lose money and not make money.

-3-
<PAGE>

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

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
unlimited.

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 instability.
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 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 U.S. Protection Fund and/or the International
Protection 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 options on futures 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.

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 Tax-
Managed U.S. Equity Fund and the Tax-Managed 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 distributions,
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
contracts 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
instrument. 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.

-4-
<PAGE>

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>
- -----------------------------------------------------------------------------------------------------
TAX-MANAGED TAX-MANAGED U.S. INTERNATIONAL
SHAREHOLDER FEES U.S. EQUITY INTERNATIONAL PROTECTION PROTECTION
(paid directly from your investment) FUND EQUITY FUND FUND FUND
- -----------------------------------------------------------------------------------------------------
<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
- -----------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(deducted from Fund assets)
- -----------------------------------------------------------------------------------------------------
Management fees* ___% ___% ___% ___%
- -----------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees None None None None
- -----------------------------------------------------------------------------------------------------
Other expenses** ___% ___% ___% ___%
- -----------------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES*** ___% ___% ___% ___%
- -----------------------------------------------------------------------------------------------------
</TABLE>
* "Management fees" include both the investment management fee and the
administration fee. Please read "Management" for more information.

** "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 "other expenses" for the Funds up until [INSERT] as
described below. Centurion is under no obligation to continue these waivers
and/or expense reimbursements after [INSERT].

<TABLE>
<CAPTION>
TOTAL ANNUAL FUND OPERATING
OTHER EXPENSES EXPENSES
-------------- ----------------------------
<S> <C> <C>
Tax Managed U.S. Equity Fund ____% ____%
Tax Managed International Equity Fund ____% ____%
U.S. Protection Fund ____% ____%
International Protection Fund ____% ____%

</TABLE>

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>
TAX-MANAGED U.S. EQUITY FUND
- --------------------------------------------------------------------------------------------------
TAX-MANAGED INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------------------------
U.S. PROTECTION FUND
- --------------------------------------------------------------------------------------------------
INTERNATIONAL PROTECTION FUND
- --------------------------------------------------------------------------------------------------
</TABLE>

-5-
<PAGE>

CENTURION TAX-MANAGED U.S. EQUITY FUND

GOAL AND STRATEGIES

The Fund seeks to provide long-term after-tax growth consistent with reasonable
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 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,
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 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 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-
convertible debt securities such as bonds, debentures and notes, and 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"):

. Market Risk . Tracking Error Risk

-6-
<PAGE>

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 TAX-MANAGED INTERNATIONAL EQUITY FUND

GOAL AND STRATEGIES

The Fund seeks to provide long-term after-tax growth consistent with reasonable
efforts to preserve capital. The Fund is sub-advised by FISI, 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 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
country allocation of the EAFE Index, but may at times adjust the Fund's country
allocation towards those countries that it believes will produce superior
economic 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
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.

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 purchase.
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.

-7-
<PAGE>

convertible debt securities such as bonds, debentures and notes, and 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"):

. Foreign Securities Risk . Tracking Error Risk
. Market Risk

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
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 U.S. PROTECTION 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 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 to the
extent possible based on information provided by the Custodied Funds. Because
the Custodied Funds are not required to report their securities holdings to
Centurion, Centurion may perform its analysis 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 applicable reporting period). Based on its analysis,
Centurion advises 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 uses statistical 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.

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; 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 engage, to a limited extent, in other
investment practices in order to achieve its investment goal.

-8-
<PAGE>

RISK FACTORS

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

. Available Information Risk . Portfolio Turnover Rate Risk
. Exposure Risk . Regulatory Risk
. Market Risk . Trading Halt 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
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 PROTECTION 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
"International 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 to the
extent possible based on information provided by the Custodied Funds. Because
the Custodied Funds are not required to report their securities holdings to
Centurion, Centurion may perform its analysis 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 applicable reporting period). Based on its analysis,
Centurion advises BEA, the Fund's sub-adviser, of the level and nature of the
downside protection specifically desired for the International Equity Benchmark
at any moment in time. BEA 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; and
. forward currency 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 engage, to a limited extent, in other
investment practices in order to achieve its investment goal.

-9-
<PAGE>

RISK FACTORS

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

. Available Information Risk . Portfolio Turnover Rate Risk
. Exposure Risk . Regulatory Risk
. Foreign Securities Risk . Trading Halt Risk
. Market 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. Conversely,
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" carefully before
you invest in the Fund.

-10-
<PAGE>

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
positively 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.

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
obligation.

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
substantial 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 other unique
uncertainties that could cause market disruptions before or after the
introduction. Centurion and the sub-advisers are working to address Euro-
related issues and understand that other key service providers are taking
similar 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 impossible
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 management 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,
expropriation, currency blockage or governmental collapse and war.

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

-11-
<PAGE>

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.

-12-
<PAGE>

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 2525 East
Camelback Road, Suite 640, Phoenix, AZ 85016-4228, to serve as investment
manager to the Funds. As investment manager to the Funds, Centurion is
responsible 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. Protection Fund and the International Protection 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, as amended. With more than $1.2 billion of assets under management and
administration as of June 30, 1998, Centurion and its affiliates provide a full
range of custodial, investment and trust products and services to their
customers.

THE SUB-ADVISERS. 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:

<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
TAX-MANAGED U.S. . PARAMETRIC PORTFOLIO ASSOCIATES, located at 7310 Columbia Center, 701 Fifth Avenue,
EQUITY FUND 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 Management Inc. is the partnership's
managing partner. Parametric Portfolio Associates, Inc., the predecessor company,
commenced operations in 1987. Accounts managed by Parametric had combined assets of
approximately $3.1 billion as of June 30, 1998.
. BEA ASSOCIATES. See below.
- ------------------------------------------------------------------------------------------------------------------
TAX-MANAGED . FRIENDS IVORY & SIME, INC., located at One World Trade Center, Suite 2101, New York,
INTERNATIONAL NY 10048-0080, is a global investment management firm founded in 1895. FISI is one of
EQUITY FUND the leading independent investment managers in the United Kingdom. As of June 30, 1998,
FISI and its affiliates managed approximately $41.2 billion, including approximately
$26.2 billion of global equity and equity-related investments.
. BEA ASSOCIATES. See below.
- ------------------------------------------------------------------------------------------------------------------
U.S. PROTECTION FUND . BEA ASSOCIATES, located at One Citicorp Center, 153 East 53rd Street, New York, NY
10022, is a general partnership organized under the laws of the State of New York in
1990. 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 institutions.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

-13-
<PAGE>

<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Together with its predecessor firms, BEA has been engaged in the investment advisory
business for over 60 years. As of June 30, 1998, BEA managed approximately $35
billion in assets.
- ------------------------------------------------------------------------------------------------------------------
INTERNATIONAL . BEA ASSOCIATES. See above.
PROTECTION FUND
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

Management Fees. For services provided to the Funds, each Fund pays Centurion
the annual investment management fee described below (based on a percentage of
the Fund's average daily net assets):

<TABLE>
<S> <C> <C> <C>
Tax-Managed U.S. Equity TAX-MANAGED INTERNATIONAL
Fund EQUITY FUND U.S. Protection Fund International Protection Fund
- ----------------------- ------------------------- -------------------- -----------------------------
___% ___% ___% ___%
</TABLE>

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.

<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------
TAX-MANAGED U.S. . (PARAMETRIC) David Stein, Managing Director and Chief Investment Officer,
EQUITY FUND and Linda Mauzy, 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 Funds. Ms. Mauzy, a Chartered Financial Analyst who
joined Parametric in 1988, is responsible for management of Parametric's
domestic active equity strategies.
. (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 President, Julian Emanuel, Vice President, Waiman
Leung, Vice President, and Anthony Antonucci, Assistant Vice President -- has
served as portfolio manager since the Fund's inception.
- -----------------------------------------------------------------------------------------------------------------------
TAX-MANAGED INTERNATIONAL . (FISI) Julie Dent, Head of International Equities, has served as portfolio
EQUITY FUND manager since the Fund's inception. Ms. Dent, who joined FISI in 1986, has
extensive experience in research and investing in Asian markets, and has been
involved in country asset allocation for the past seven years.
. (BEA) The BEA Committee (discussed above under "Tax-Managed U.S. Equity
Fund") has served as portfolio manager since the Fund's inception.
- -----------------------------------------------------------------------------------------------------------------------

U.S. PROTECTION FUND . (BEA) The BEA Committee (discussed above under "Tax-Managed U.S. Equity
Fund") has served as portfolio manager since the Fund's inception.
- -----------------------------------------------------------------------------------------------------------------------
INTERNATIONAL PROTECTION FUND . (BEA) The BEA Committee (discussed above under "Tax-Managed U.S. Equity
Fund") has served as portfolio manager since the Fund's inception.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

-14-
<PAGE>

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 close of regular trading on the New York
Stock Exchange (typically 4 p.m. Eastern time) each day the Exchange is open for
business. Your purchase or redemption order will be priced at the next NAV
calculated after your order is accepted by the Fund.

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
(typically 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
obligations 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 Professionals 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 accepted.
You may be charged a fee for any check that does not clear. In its discretion,
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
generally receive the proceeds within a week. Before selling recently purchased
shares, 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 guarantees.
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.

-15-
<PAGE>

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
reasonable 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.

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.

-16-
<PAGE>

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 distributes its net income annually. All of the Funds distribute
capital gains annually, usually in November or December.

DISTRIBUTION OPTIONS

When you open an account, specify on your application how you want to receive
your distributions. Each Fund offers the following options:

. REINVESTMENT OPTION. Your dividend and capital gains distributions will be
automatically reinvested in additional shares of the Fund. You will be
assigned this option unless you indicate a different choice.

. INCOME-EARNED OPTION. Your capital gains distributions will be automatically
reinvested, but you will receive dividend distributions by check or
electronic transfer.

. CAPITAL GAINS OPTION. Your dividend distributions will be automatically
reinvested, but you will receive capital gains distributions by check or
electronic transfer.

. CASH OPTION. You will receive your dividend and capital gains distributions
by check or electronic transfer.

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
distribution) you will receive a portion of the money you just invested in the
form of a taxable distribution.

-17-
<PAGE>

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 number 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 transaction.
You are responsible for any tax liabilities generated by your transactions.

FUND DETAILS

ABOUT THE ADMINISTRATOR

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 June 30,
1998, over [INSERT].

ABOUT THE DISTRIBUTOR

Smith Barney Inc. serves as the distributor for the Company and is responsible
for making shares of the Funds available to you. The distributor provides
shareholder and distribution services to fund shareholders at no charge.

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
Stanley"), which own service mark rights to the Russell Index and EAFE Index,
respectively. Neither Frank Russell nor Morgan Stanley make any representations
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 ability of
the Russell Index or the EAFE Index, respectively, to track general stock market
performance.

-18-
<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, detailed
performance information and the independent accountants' report. The annual
report also provides a discussion of the market conditions and investment
strategies that significantly affected Fund performance during the last fiscal
year.

STATEMENT OF ADDITIONAL INFORMATION ("SAI")

The SAI provides more details about the Funds and their investments. A current
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-[INSERT]
. By mail: [INSERT]
. By e-mail: [INSERT]
. By overnight or courier service: [INSERT]

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, material
incorporated by reference and other information. You can also obtain copies 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 Reference
Room in Washington, D.C. To find out more about the public reference room, call
the SEC at 1-800-SEC-0330.

SEC File No. 811-[INSERT]

<PAGE>

The information in this Statement of Additional Information is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
Statement of Additional Information is not a prospectus.

STATEMENT OF ADDITIONAL INFORMATION

[INSERT], 1998

______________

CENTURION FUNDS, INC.

___________________________

CENTURION TAX-MANAGED U.S. EQUITY FUND
CENTURION TAX-MANAGED INTERNATIONAL EQUITY FUND
CENTURION U.S. PROTECTION FUND
CENTURION INTERNATIONAL PROTECTION FUND

Contents
--------
Page
----

Organization of the Company............................................ 3
Investment Goals and Policies.......................................... 3
Management of the Funds................................................ 27
Additional Purchase and Redemption Information......................... 29
Exchange Privilege..................................................... 29
Additional Information Concerning Taxes................................ 30
Determination of Performance........................................... 35
Principal Stockholders................................................. 35
Other Information...................................................... 35
Financial Statements................................................... 36
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 [INSERT],
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 Tax-Managed U.S.
Equity Fund (the "U.S. Equity Fund"), Centurion Tax-Managed International Equity
Fund (the "International Equity Fund"), Centurion U.S. Protection Fund (the
"U.S. Protection Fund") and Centurion International Protection Fund (the
"International Protection 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
<PAGE>

and information regarding the Funds' current performance, when available, may be
obtained by calling the Company at (800) [INSERT]. Information regarding the
status of shareholder accounts may be obtained by calling the Company at (800)
[INSERT] or by writing to the Company at [INSERT].

2
<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 Tax-Managed U.S. Equity Fund," 100,000,000 shares are designated a
series called the "Centurion Tax-Managed International Equity Fund," 150,000,000
shares are designated a series called the "Centurion U.S. Protection Fund," and
150,000,000 shares are designated a series called the "Centurion International
Protection 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 "Tax-Managed Funds") is to
provide long-term after-tax growth consistent with reasonable efforts to
preserve capital. The investment goal of the U.S. Protection 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 Protection 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. Protection Fund and the International Protection Fund (together,
the "Protection 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.

3
<PAGE>

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 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.

4
<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.

5
<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.

6
<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

7
<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

8
<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 currency 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.

9
<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

10
<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

11
<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

12
<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

13
<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.

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.

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

14
<PAGE>

("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 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

15
<PAGE>

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 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.

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

16
<PAGE>

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 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

17
<PAGE>

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 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

18
<PAGE>

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 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

19
<PAGE>

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 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.

20
<PAGE>

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 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

21
<PAGE>

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 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 Fund's benchmark is concentrated in a particular
industry, the Fund 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.

22
<PAGE>

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.

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

23
<PAGE>

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 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

24
<PAGE>

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 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

25
<PAGE>

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 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.

26
<PAGE>

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

As discussed in the Prospectus, the Company anticipates that investors in
the Protection Funds, as part of a tactical or strategic asset allocation
strategy, may frequently redeem or exchange shares of these Funds. The
Protection 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 Protection 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 a Protection 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.

Name (Age) and Address Position and Principal Occupation(s)
- ---------------------- ------------------------------------
[INSERT] [INSERT]

27
<PAGE>

[INSERT] [INSERT]

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 Funds
pay each director who is not an "affiliated person" (as defined in the 1940 Act)
of the Adviser, administrator or distributor an annual fee of [INSERT] and
[INSERT] 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:
- -----------------------------

NAME OF DIRECTOR TOTAL COMPENSATION FROM THE COMPANY+
- -------------------------------------------------------------------------
[INSERT] None*
- -------------------------------------------------------------------------
[INSERT] None*
- -------------------------------------------------------------------------
[INSERT] [INSERT]
- -------------------------------------------------------------------------
[INSERT] [INSERT]
- -------------------------------------------------------------------------
[INSERT] [INSERT]
- -------------------------------------------------------------------------

+ Amounts shown are estimates of payments to be made, pursuant to existing
arrangements, for the remaining period of the Company's fiscal year ending
[INSERT].
* Mr. [INSERT] and Mr. [INSERT] receive compensation as affiliates of Centurion
and, accordingly, receive 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 2525 East Camelback Road, Suite 640, Phoenix, AZ 85016-
4228, 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.

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.

FISI, located at One World Trade Center, Suite 2101, New York, NY 10048-0080,
serves as co-sub-adviser to the International Equity Fund. FISI is a wholly-
owned subsidiary of Friends Ivory & Sime plc, a global investment management
company, which in turn is majority-owned by Friends Provident Life Office, an
insurance company.

BEA Associates, located at One Citicorp Center, 153 East 53rd Street, New
York, NY 10022, serves as sub-adviser to the Protection Funds and co-sub-adviser
to each of the Tax-Managed Funds. BEA is a general partnership that is wholly-
owned by Credit Suisse Group, the second largest Swiss bank.

28
<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 for a particular Fund. 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 the
annual rate of [INSERT]% of the Fund's average daily net assets. 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
- -----------

Smith Barney, Inc., located at 388 Greenwich Street, New York, NY 10013,
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 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

29
<PAGE>

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
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

30
<PAGE>

(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, 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) 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 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.,

31
<PAGE>

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.

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. Any
tax paid by a Fund as a result of its ownership of shares in a PFIC will not
give rise to a credit to any shareholder. 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
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.

32
<PAGE>

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).

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

33
<PAGE>

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.

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 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.

34
<PAGE>

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 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

35
<PAGE>

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 of each Fund, as of [INSERT],
1998, 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
- -----------------------------

PNC Bank National Association ("PNC"), located at 17th and Chestnutt
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 Investors 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.

36
<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>

PART C

OTHER INFORMATION
-----------------

Item 23. Exhibits
--------

Exhibit No. Description of Exhibit
- ----------- ----------------------

(a) Articles of Incorporation.

(b) By-laws.

(d) (1) Form of Investment Advisory Agreement with Centurion Trust Company
("Centurion") for the Centurion Tax-Managed U.S. Equity Fund (the
"U.S. Equity Fund").*

(2) Form of Investment Advisory Agreement with Centurion for the
Centurion Tax-Managed International Equity Fund (the "International
Equity Fund").*

(3) Form of Investment Advisory Agreement with Centurion for the
Centurion U.S. Protection Fund (the "U.S. Protection Fund").*

(4) Form of Investment Advisory Agreement with Centurion for the
Centurion International Protection Fund (the "International
Protection Fund").*

(5) Form of Sub-Advisory Agreement with Parametric Portfolio
Associates ("Parametric") for the U.S. Equity Fund.*

(6) Form of Sub-Advisory Agreement with BEA Associates ("BEA") for
the U.S. Equity Fund.*

(7) Form of Sub-Advisory Agreement with Friends Ivory & Sime, Inc.
("FISI") for the International Equity Fund.*

(8) Form of Sub-Advisory Agreement with BEA for the International
Equity Fund.*

(9) Form of Sub-Advisory Agreement with BEA for the U.S.
Protection Fund.*

C-1
<PAGE>

(10) Form of Sub-Advisory Agreement with BEA for the International
Protection Fund.*

(e) Form of Distribution Agreement with Smith Barney, Inc. ("Smith
Barney")*

(f) Not applicable.

(g) (1) Form of Custodian Agreement with PNC Bank National Association.*

(2) Form of Custodian Agreement with The Chase Manhattan Bank.*

(h) (1) Form of Transfer Agency and Service Agreement with First Data
Investors Services Group Inc.*

(2) Form of Administration Agreement with Mutual Management Corp.*

(i) (1) Opinion and Consent of Willkie Farr & Gallagher, counsel to
Registrant.*

(2) Opinion and Consent of Venable, Baetjer and Howard, LLP, Maryland
counsel to Registrant.*

(j) Consent of KPMG Peat Marwick LLP, Independent Accountants.*

(k) Not applicable.

(l) Purchase Agreement.*

(m) Not applicable.

(n) Not applicable.

(o) Not applicable.

_____________

* To be filed by amendment.

Item 24. Persons Controlled by or Under Common Control
with Registrant
---------------

All of the outstanding shares of common stock of Registrant on the
date Registrant's Registration Statement becomes effective will be owned by
Centurion, which will have contributed Registrant's initial seed capital.

C-2
<PAGE>

Item 25. Indemnification
---------------

Under Article VIII of the Articles of Incorporation (the "Articles"),
the Directors and officers of Registrant shall not have any liability to
Registrant or its stockholders for money damages, to the fullest extent
permitted by Maryland law. This limitation on liability applies to events
occurring at the time a person serves as a Director or officer of Registrant
whether or not such person is a Director or officer at the time of any
proceeding in which liability is asserted. No provision of Article VIII shall
protect or purport to protect any Director or officer of Registrant against any
liability to Registrant or its stockholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Registrant shall indemnify and advance expenses to its currently acting and its
former Director to the fullest extent that indemnification of Directors and
advancement of expenses to Directors is permitted by the Maryland General
Corporation Law.

Registrant shall indemnify and advance expenses to its officers to the
same extent as its Directors and to such further extent as is consistent with
such law. The Board of Directors may, through a by-law, resolution or
agreement, make further provisions for indemnification of directors, officers,
employees and agents to the fullest extent permitted by the Maryland General
Corporation Law.

Article V of the By-laws further limits the liability of the Directors
by providing that any person who was or is a party or is threatened to be made a
party in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is a current or former director or officer of Registrant, or is
or was serving while a director or officer of Registrant at the request of
Registrant as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust, enterprise
or employee benefit plan, shall be indemnified by Registrant against judgments,
penalties, fines, excise taxes, settlements and reasonable expenses (including
attorneys' fees)actually incurred by such person in connection with such action,
suit or proceeding to the full extent permissible under the Maryland General
Corporation Law, the 1993 Act and the 1940 Act, as such statutes are now or
hereafter in force, except that such indemnity shall not protect any such person
against any liability to Registrant or any stockholder thereof to which such
person would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
this office.

Additionally, with respect to indemnification against liability
incurred by Registrant's distributor, reference is made to [INSERT] of the form
of Distribution Agreement filed herewith.

C-3
<PAGE>

With respect to indemnification against liability incurred by Registrant's
investment manager and sub-advisers, reference is made to [INSERT] of each form
of Investment Advisory Agreement and to [INSERT] of each form of Sub-Advisory
Agreement, respectively, filed herewith.

Item 26. Business and Other Connections of Investment Adviser
----------------------------------------------------

Centurion, an independent trust company organized under the laws of
the State of Arizona, serves as investment manager to each of Registrant's
Funds. Centurion also serves as a custodian to financial service companies and
their clients. Gerard P. Dipoto, Jr. serves as President of Centurion, and
Robert W. Doede, Werner E. Keller, Frank C. Meyer and Marcy C. Leonard serve on
Centurion's board of directors. Mr. Dipoto has been President of Centurion since
February 1997, before which he served as Executive Vice President of Investors
Fiduciary Trust Company. In addition to serving as a Director of Centurion, Mr.
Doede has been (i) Chairman of Centurion Capital Corporation, an affiliate of
Centurion, since 1985; (ii) a Director of FundMinder Inc., an affiliate of
Centurion, since 1991; (iii) Chairman of CCM Group Inc., an affiliate of
Centurion, since 1997; and (iv) a representative of Managing Member of
Schabacker/FundMinder Investment Advisors, LLC, an affiliate of Centurion, from
1995 to 1996. In addition to serving as a Director of Centurion, Mr. Keller has
been (i) a Director of CCM Group Inc. since 1997; (ii) Chairman of FundMinder
Inc. since June 1998; (iii) President of FundMinder Inc. from 1984 to June 1998;
and (iv) a representative of Managing Member of Schabacker/FundMinder Investment
Advisors, LLC from 1995 to 1996. In addition to serving as a Director of
Centurion, Mr. Meyer is also President of Glenwood Investment Corp. Lastly, in
addition to serving as a Director of Centurion, Ms. Leonard is also President of
Compliance Dynamics.

Parametric serves as co-sub-adviser to the U.S. Equity Fund. The list
required by this Item 26 of officers and directors of Parametric, together with
information as to their other businesses, professions, vocations or employment
of a substantial nature during the past two years, is incorporated by reference
to Schedules A and D of Form ADV filed by Parametric (SEC File No. 801-48184)
pursuant to the Investment Advisers Act of 1940, as amended (the "Advisers
Act").

FISI serves as co-sub-adviser to the International Equity Fund. The
list required by this Item 26 of officers and directors of FISI, together with
information as to their other businesses, professions, vocations or employment
of a substantial nature during the past two years, is incorporated by reference
to Schedules A and D of Form ADV filed by FISI (SEC File No. 801-13750) pursuant
to the Advisers Act.

BEA serves as co-sub-adviser to each of the U.S. Equity Fund and the
International Equity Fund, as well as sub-adviser to

C-4
<PAGE>

each of the U.S. Protection Fund and the International Protection Fund. The list
required by this Item 26 of officers and directors of BEA, together with
information as to their other businesses, professions, vocations or employment
of a substantial nature during the past two years, is incorporated by reference
to Schedules A and D of Form ADV filed by BEA (SEC File No. 801-37170) pursuant
to the Advisers Act.

Item 27. Principal Underwriter
---------------------

(a) Smith Barney serves as distributor for Registrant, as well as for
Consulting Group Capital Markets Funds; Global Horizons Investment Series
(Cayman Islands); Puerto Rico Daily Liquidity Fund Inc.; Smith Barney Adjustable
Rate Government Income Fund; Smith Barney Aggressive Growth Fund Inc.; Smith
Barney Appreciation Fund Inc.; Smith Barney Arizona Municipals Fund Inc.; Smith
Barney California Municipals Fund Inc.; Smith Barney Concert Allocation Series
Inc.; Smith Barney Small Cap Blend Fund, Inc.; Smith Barney Equity Funds; Smith
Barney Fundamental Value Fund Inc.; Smith Barney Funds, Inc.; Smith Barney
Income Funds; Smith Barney Income Trust; Smith Barney Institutional Cash
Management Fund, Inc.; Smith Barney Intermediate Municipal Fund, Inc.; Smith
Barney Investment Funds Inc.; Smith Barney Investment Trust; Smith Barney
Managed Governments Fund Inc.; Smith Barney Managed Municipals Fund Inc.; Smith
Barney Massachusetts Municipals Fund; Smith Barney Money Funds, Inc.; Smith
Barney Muni Funds; Smith Barney Municipal Fund, Inc.; Smith Barney Municipal
Money Market Fund, Inc.; Smith Barney Natural Resources Fund Inc.; Smith Barney
New Jersey Municipals Fund Inc.; Smith Barney Oregon Municipals Fund; Smith
Barney Principal Return Fund; Greenwich Street Series Fund; Smith Barney
Telecommunications Trust; Smith Barney Variable Account Funds; Smith Barney
World Funds, Inc.; Smith Barney Worldwide Special Fund N.V. (Netherlands
Antilles); Travelers Series Fund Inc.; The USA High Yield Fund N.V.; Worldwide
Securities Limited (Bermuda); Zenix Income Fund Inc.; and various series of unit
investment trusts.

(b) The information required by this Item 27 relating to each
director, officer or partner of Smith Barney is incorporated by reference to
Schedule A of Form BD filed by Smith Barney (SEC File No. 812-8510) pursuant to
the Securities Exchange Act of 1934.

C-5
<PAGE>

Item 28. Location of Accounts and Records
--------------------------------

(1) Centurion Trust Company
2525 East Camelback Road -- Suite 640
Phoenix, Arizona 85016-4228
(records relating to its functions as
investment adviser)

(2) Parametric Portfolio Associates
7310 Columbia Center
701 Fifth Avenue
Seattle, Washington 98104-7090
(records relating to its functions as sub-adviser)

(3) Friends Ivory & Sime, Inc.
One World Trade Center -- Suite 2101
New York, New York 10048-0080
(records relating to its functions as sub-adviser)

(4) BEA Associates
One Citicorp Center
153 East 53rd Street
New York, New York 10022
(records relating to its functions as sub-adviser)

(5) Mutual Management Corp.
388 Greenwich Street
New York, New York 10013
(records relating to its functions as
administrator; Fund's Articles of Incorporation, By-laws and
minute books)

(6) Smith Barney, Inc.
388 Greenwich Street
New York, New York 10013
(records relating to its functions as distributor)

(7) PNC Bank National Association
17th and Chestnutt Streets
Philadelphia, Pennsylvania 19103
(records relating to its functions as co-custodian)

C-6
<PAGE>

(8) The Chase Manhattan Bank
4 Chase MetroTech Center
Brooklyn, New York 11245
(records relating to its functions as co-custodian)

(9) First Data Investors Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
(records relating to its functions as transfer agent)

Item 29. Management Services
-------------------

Not applicable.

Item 30. Undertakings.
------------

Not applicable.

C-7
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix and the State of
Arizona, on this 20th day of August, 1998.

CENTURION FUNDS, INC.

By:/s/ Gerard P. Dipoto
--------------------
Gerard P. Dipoto, Jr.
President

Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the date indicated:

Signature Title Date
- --------- ----- ----

/s/ Gerard P. Dipoto President & Director 08/20/98
- ------------------------------------- --------
Gerard P. Dipoto, Jr.

/s/ Irving P. David Chief Financial Officer & 08/20/98
- ------------------------------------- Director --------
Irving P. David
<PAGE>

INDEX TO EXHIBITS
-----------------

EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------

(a) ARTICLES OF INCORPORATION

(b) BY-LAWS

<PAGE>

Exhibit 99.A

ARTICLES OF INCORPORATION

CENTURION FUNDS, INC.

_________________________

ARTICLE I.

INCORPORATOR
------------

The undersigned, Yvette M. Garcia, whose post office address is c/o
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019-6099,
being at least 18 years of age, does hereby act as an incorporator and forms a
corporation under the Maryland General Corporation Law.

ARTICLE II.

NAME
----

The name of the corporation is Centurion Funds, Inc. (the
"Corporation").

ARTICLE III.

PURPOSES AND POWERS
-------------------

The Corporation is formed for the following purposes:

(1) To conduct and carry on the business of an investment company.

(2) To hold, invest and reinvest its assets in securities and other
investments or to hold part or all of its assets in cash.

(3) To issue and sell shares of its capital stock in such amounts, on such
terms and conditions, for such purposes and for such amount or kind of
consideration as may now or hereafter be permitted by law.

(4) To redeem, purchase or acquire in any other manner, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or consent
of the stockholders of the Corporation) shares of its capital stock,
in any manner and to the extent now or hereafter permitted by law and
by this Charter.

(5) To do any and all additional acts and to exercise any and all
additional powers or rights as may be necessary, incidental,
appropriate or desirable for the accomplishment of all or any of the
foregoing purposes.
<PAGE>

(6) The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or conferred upon,
corporations by the Maryland General Corporation Law now or hereafter
in force, and the enumeration of the foregoing shall not be deemed to
exclude any powers, rights or privileges so granted or conferred.

ARTICLE IV.

PRINCIPAL OFFICE AND RESIDENT AGENT
-----------------------------------

The post office address of the principal office of the Corporation in
the State of Maryland is c/o The Corporation Trust Company Incorporated, 300
East Lombard Street, Baltimore, Maryland 21202. The name and address of the
resident agent of the Corporation in the State of Maryland is The Corporation
Trust Company Incorporated, a Maryland corporation, 300 East Lombard Street,
Baltimore, Maryland 21202.

ARTICLE V.

CAPITAL STOCK
-------------

(1) The total number of shares of capital stock that the Corporation shall
have authority to issue is 500,000,000 shares of Common Stock,
of the par value of one-thousandth of one cent ($.001) per share and
of the aggregate par value of five hundred thousand dollars
($500,000).

(2) The Board of Directors of the Corporation is authorized, from time to
time, to classify or to reclassify, as the case may be, any unissued
shares of the Corporation, whether now or hereafter authorized, in
separate series and classes, or otherwise. The shares of said series
and classes of stock shall have such preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption as shall be
fixed and determined from time to time by the Board of Directors. The
Board of Directors is authorized to increase or decrease the number of
shares of any series or class, but the number of shares of any series
or class shall not be decreased by the Board of Directors below the
number of shares thereof then outstanding. The Corporation may hold
as treasury shares, reissue for such consideration and on such terms
as the Board of Directors may determine, or cancel, at their
discretion from time to time, any shares reacquired by the
Corporation.

(3) The Board of Directors, through such charter document filings as may
be required by Maryland Law, may

-2-
<PAGE>

redesignate a class or series of shares of capital stock whether or
not shares of such class or series are issued and outstanding,
provided that such redesignation does not in itself affect the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of
redemption of such shares of stock.

(4) There is hereby established and classified (a) a Series of Stock
comprised of 100,000,000 shares to be known as "Centurion Tax Managed
U.S. Equity Fund," (b) a Series of Stock comprised of 100,000,000
shares to be known as "Centurion Tax Managed International Equity
Fund," (c) a Series of Stock comprised of 150,000,000 shares to be
known as "Centurion U.S. Protection Fund," and (d) a Series of Stock
comprised of 150,000,000 shares to be known as "Centurion
International Protection Fund." Without limiting the authority of the
Board of Directors set forth herein to establish and designate any
further series, and to classify and reclassify any unissued shares,
and subject to such authority, shares of each series, now authorized
and hereafter authorized, shall be subject to the following
provisions:

(a) The assets attributable to each class or series may be invested
in a common investment portfolio. As more fully set forth
hereafter, the assets and liabilities and the income and expenses
of each series shall be determined separately and, accordingly,
the net asset value, the dividends payable to holders, and the
amounts distributable in the event of dissolution of the
Corporation to holders of shares of the Corporation's stock may
vary from series to series. Except for these differences and
certain other differences hereafter set forth, each series shall
have the same preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of and rights to require redemption.

(b) All consideration received by the Corporation for the issue or
sale of shares of a particular series, together with all assets
in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof, including all
proceeds derived from the sale, exchange or liquidation thereof,
and any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall irrevocably
belong to that series for all purposes, subject only to the
rights of creditors

-3-
<PAGE>

and shall be referred to as "assets belonging to" that series.
The assets belonging to a particular series shall be so recorded
upon the books of the Corporation.

(c) The assets belonging to each particular series shall be charged
with the liabilities of the Corporation with respect to that
series, all expenses, costs, charges and reserves attributable to
that series and that series' share of the liabilities, expenses,
costs, charges or reserves of the Corporation not attributable to
any particular series, in the latter case in the proportion that
the net asset value of that series (determined without regard to
such liabilities) bears to the net asset value of all series
(determined without regard to such liabilities), or in such other
manner as may be determined by the Board of Directors in
accordance with law. The determination of the Board of Directors
shall be conclusive as to the allocation of liabilities,
including accrued expenses and reserves, and assets to a
particular series or series.

(d) Shares of each series shall be entitled to such dividends and
distributions, in shares or in cash or both, as may be declared
from time to time by the Board of Directors, acting in its sole
discretion, with respect to such series, provided that dividends
and distributions shall be paid on shares of a series only out of
lawfully available assets belonging to that series. Dividends
may be declared daily or otherwise pursuant to a standing
resolution or resolutions adopted only once or with such
frequency as the Board of Directors may determine. Any such
dividend or distribution paid in shares will be paid at the
current net asset value thereof.

(e) The Board of Directors shall have the power, in its sole
discretion, to distribute in any fiscal year as dividends
(including dividends designated in whole or in part as capital
gain distributions) an amount sufficient, in the opinion of the
Board of Directors, to enable each series of the Corporation to
qualify as a regulated investment company under the Internal
Revenue Code of 1986, as from time to time amended, or any
successor or comparable statute thereto, and regulations
promulgated thereunder, and to avoid liability of each series of
the Corporation for federal income and excise taxes in respect of
that year. However, nothing in the foregoing shall limit the
authority of the Board of Directors to make

-4-
<PAGE>

distributions greater than or less than the amount necessary to
qualify as a regulated investment company and to avoid liability
of any series of the Corporation for such taxes.

(f) In the event of the liquidation or dissolution of the
Corporation, the stockholders of a series shall be entitled to
receive, as a single class, out of the assets of the Corporation
available for distribution to stockholders, the assets belonging
to that series. The assets so distributable to the stockholders
of a series shall be distributed among such stockholders in
proportion to the number of shares of that series held by them
and recorded on the books of the Corporation or, in the event
that the series is divided into classes, in the manner determined
by the Board of Directors in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act"). In the event
that there are any assets available for distribution that are not
attributable to any particular series, such assets shall be
allocated to all series in proportion to the net assets of the
respective series, or in such other manner as may be determined
by the Board of Directors in accordance with law, and then
distributed to the holders of stock of each series as aforesaid.

(5) The Corporation may issue shares in fractional denominations to the
same extent as its whole shares. Any fractional share shall carry
proportionately the rights of a whole share including, without
limitation, the right to vote, the right to receive dividends and
distributions and the right to participate upon liquidation of the
Corporation. A fractional share shall not, however, have the right to
receive a certificate evidencing it.

(6) All persons who shall acquire stock in the Corporation shall acquire
the same subject to the provisions of this Charter and the By-Laws of
the Corporation, as from time to time amended.

(7) No holder of stock of the Corporation by virtue of being such a holder
shall have any right to purchase, subscribe for or otherwise acquire
any shares of the Corporation or any other security that the
Corporation may issue or sell (whether out of the number of shares
authorized by this Charter or out of any shares of the Corporation's
capital stock that the Corporation may acquire) other than a right
that the Board of Directors in its discretion may determine to grant.

-5-
<PAGE>

(8) All holders of shares of stock shall vote as a single class except (i)
with respect to any matter which affects only one or more classes or
series of stock, in which case only the holders of shares of the
classes or series affected shall be entitled to vote, or (ii) as
otherwise may be required by the 1940 Act.

(9) Notwithstanding any provision of law requiring any action to be taken
or authorized by the affirmative vote of a greater proportion of the
votes of all classes or series, or of any class or any series, of
stock of the Corporation, such action shall be effective and valid if
taken or authorized by the affirmative vote of a majority of the total
number of votes entitled to be cast thereon, except as otherwise
provided in this Charter.

(10) The presence in person or by proxy of the holders of one-third of the
shares of stock of the Corporation entitled to vote (without regard to
series or class) shall constitute a quorum at any meeting of the
stockholders, except with respect to any matter which, under
applicable statutes or regulatory requirements, requires approval by a
separate vote of one or more series or classes of stock, in which case
the presence in person or by proxy of the holders of one-third of the
shares of stock of each series or class required to vote as a series
or class on the matter shall constitute a quorum.

ARTICLE VI.

REDEMPTION
----------

Each holder of shares of the Corporation's capital stock shall be
entitled to require the Corporation to redeem all or any part of the shares of
capital stock of the Corporation standing in the name of the holder on the books
of the Corporation, and all shares of capital stock issued by the Corporation
shall be subject to redemption by the Corporation, at the redemption price of
the shares as in effect from time to time as may be determined by or pursuant to
the direction of the Board of Directors of the Corporation in accordance with
the provisions of Article VII, subject to the right of the Board of Directors of
the Corporation to suspend the right of redemption or postpone the date of
payment of the redemption price in accordance with provisions of applicable law.

Without limiting the generality of the foregoing, the Corporation
shall, to the extent permitted by applicable law, have the right at any time to
redeem the shares owned by any holder of capital stock of the Corporation (i) if
the redemption is, in the opinion of the Board of Directors of the Corporation,
desirable in order to prevent the Corporation from being deemed a

-6-
<PAGE>

"personal holding company" within the meaning of the Internal Revenue Code of
1986, as amended, or (ii) if the value of the shares in the account maintained
by the Corporation or its transfer agent for any class of stock for the
stockholder is below an amount determined from time to time by the Board of
Directors of the Corporation (the "Minimum Account Balance") and the stockholder
has been given notice of the redemption and has failed to make additional
purchases of shares in an amount sufficient to bring the value in his account to
at least the Minimum Account Balance before the redemption is effected by the
Corporation. The Corporation, at its option, also may cause the redemption of
outstanding shares of capital stock of any series or class if the Board of
Directors has determined that it is in the best interest of the Corporation and
its stockholders to discontinue issuance of shares of stock of such series or
class.

Payment of the redemption price shall be made in cash by the
Corporation at the time and in the manner as may be determined from time to time
by the Board of Directors of the Corporation unless, in the opinion of the Board
of Directors, which shall be conclusive, conditions exist that make payment
wholly in cash unwise or undesirable; in such event the Corporation may make
payment wholly or partly by securities or other property included in the assets
belonging or allocable to the class of the shares for which redemption is being
sought, the value of which shall be determined as provided herein. The Board of
Directors may establish procedures for redemption of shares.

ARTICLE VII.

BOARD OF DIRECTORS
------------------

(1) The number of directors constituting the Board of Directors shall be
one or such other number as may be set forth in the By-Laws or
determined by the Board of Directors pursuant to the By-Laws. The
number of Directors shall at no time be less than the minimum number
required under the Maryland General Corporation Law. Gerard P.
Dipoto, Jr. and Irving P. David have been appointed directors of the
Corporation to hold office until the first annual meeting of
stockholders or until their successors are elected and qualified.

(2) In furtherance, and not in limitation, of the powers conferred by the
Maryland General Corporation Law, the Board of Directors is expressly
authorized:

(i) To make, alter or repeal the By-Laws of the Corporation, except
where such power is reserved by the By-Laws to the stockholders,
and except as otherwise required by the 1940 Act.

-7-
<PAGE>

(ii) From time to time to determine whether and to what extent and at
what times and places and under what conditions and regulations
the books and accounts of the Corporation, or any of them other
than the stock ledger, shall be open to the inspection of the
stockholders. No stockholder shall have any right to inspect any
account or book or document of the Corporation, except as
conferred by law or authorized by resolution of the Board of
Directors or of the stockholders.

(iii) Without the assent or vote of the stockholders, to authorize the
issuance from time to time of shares of the stock of any class
or series of the Corporation, whether now or hereafter
authorized, and securities convertible into shares of stock of
the Corporation of any class or classes or series, whether now
or hereafter authorized, for such consideration as the Board of
Directors may deem advisable.

(iv) Without the assent or vote of the stockholders, to authorize and
issue obligations of the Corporation, secured and unsecured, as
the Board of Directors may determine, and to authorize and cause
to be executed mortgages and liens upon the real or personal
property of the Corporation.

(v) Notwithstanding anything in this Charter to the contrary, to
establish in its absolute discretion the basis or method for
determining the value of the assets belonging to any class or
series, the value of the liabilities belonging to any class or
series and the net asset value of each share of any class or
series of the Corporation's stock.

(vi) To determine in accordance with generally accepted accounting
principles and practices what constitutes net profits, earnings,
surplus or net assets in excess of capital, and to determine
what accounting periods shall be used by the Corporation for any
purpose; to set apart out of any funds of the Corporation
reserves for such purposes as it shall determine and to abolish
the same; to declare and pay any dividends and distributions in
cash, securities or other property from surplus or any other
funds legally available therefor, at such intervals as it shall
determine; to declare dividends or distributions by means of a
formula or other method of determination, at

-8-
<PAGE>

meetings held less frequently than the frequency of the
effectiveness of such declarations; and to establish payment
dates for dividends or any other distributions on any basis,
including dates occurring less frequently than the effectiveness
of declarations thereof.

(vii) In addition to the powers and authorities granted herein and by
statute expressly conferred upon it, the Board of Directors is
authorized to exercise all powers and do all acts that may be
exercised or done by the Corporation pursuant to the provisions
of the laws of the State of Maryland, this Charter and the By-
Laws of the Corporation.

(3) Any determination made in good faith, and in accordance with
applicable law and generally accepted accounting principles and
practices, if applicable, by or pursuant to the direction of the Board
of Directors, with respect to the amount of assets, obligations or
liabilities of the Corporation, as to the amount of net income of the
Corporation from dividends and interest for any period or amounts at
any time legally available for the payment of dividends, as to the
amount of any reserves or charges set up and the propriety thereof, as
to the time of or purpose for creating reserves or as to the use,
alteration or cancellation of any reserves or charges (whether or not
any obligation or liability for which the reserves or charges have
been created has been paid or discharged or is then or thereafter
required to be paid or discharged), as to the value of any security
owned by the Corporation, the determination of the net asset value of
shares of any class or series of the Corporation's capital stock, or
as to any other matters relating to the issuance, sale or other
acquisition or disposition of securities or shares of capital stock of
the Corporation, and any reasonable determination made in good faith
by the Board of Directors regarding whether any transaction
constitutes a purchase of securities on "margin," a sale of securities
"short," or an underwriting of the sale of, or a participation in any
underwriting or selling group in connection with the public
distribution of, any securities, shall be final and conclusive, and
shall be binding upon the Corporation and all holders of its capital
stock, past, present and future, and shares of the capital stock of
the Corporation are issued and sold on the condition and
understanding, evidenced by the purchase of shares of capital stock or
acceptance of share certificates, that any and all such determinations
shall be binding as aforesaid. No provision of this Charter shall be

-9-
<PAGE>

effective to (i) require a waiver of compliance with any provision of
the Securities Act of 1933, as amended, or the 1940 Act, or of any
valid rule, regulation or order of the Securities and Exchange
Commission under those Acts or (ii) protect or purport to protect any
director or officer of the Corporation against any liability to the
Corporation or its security holders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his
office.

ARTICLE VIII.

INDEMNIFICATION AND LIMITATION OF LIABILITY
-------------------------------------------

(1) To the fullest extent that limitations on the liability of directors
and officers are permitted by the Maryland General Corporation Law, no
director or officer of the Corporation shall have any liability to the
Corporation or its stockholders for money damages. This limitation on
liability applies to events occurring at the time a person serves as a
director or officer of the Corporation whether or not such person is a
director or officer at the time of any proceeding in which liability
is asserted.

(2) The Corporation shall indemnify and advance expenses to its currently
acting and its former directors to the fullest extent that
indemnification of directors and advancement of expenses to directors
is permitted by the Maryland General Corporation Law. The Corporation
shall indemnify and advance expenses to its officers to the same
extent as its directors and to such further extent as is consistent
with such law. The Board of Directors may, through a by-law,
resolution or agreement, make further provisions for indemnification
of directors, officers, employees and agents to the fullest extent
permitted by the Maryland General Corporation Law.

(3) No provision of this Article VIII shall be effective to protect or
purport to protect any director or officer of the Corporation against
any liability to the Corporation or its stockholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office.

(4) References to the Maryland General Corporation Law in this Article
VIII are to the law as from time to time amended. No amendment to
this Charter shall affect any right of any person under this Article
VIII based on any event, omission or proceeding prior to such

-10-
<PAGE>

amendment. The term "Charter" as used herein shall have the meaning
set forth in the Maryland General Corporation Law and includes these
Articles of Incorporation and all amendments thereto.

ARTICLE IX.

AMENDMENTS
----------

The Corporation reserves the right from time to time to make any
amendment to its Charter, now or hereafter authorized by law, including any
amendment that alters the contract rights, as expressly set forth in this
Charter, of any outstanding stock, and all rights at any time conferred upon the
stockholders of the Corporation by its Charter are granted subject to the
provisions of this Article and the reservation of the right to amend the Charter
herein contained.

IN WITNESS WHEREOF, I have adopted and signed these Articles of
Incorporation and do hereby acknowledge that the adoption and signing are my
act.

_______________________

Yvette M. Garcia
Incorporator

Dated the 20th day of August, 1998

-11-

<PAGE>

Exhibit 99.B

BY-LAWS

CENTURION FUNDS, INC.

A Maryland Corporation

ARTICLE I
---------

STOCKHOLDERS
------------

SECTION 1. Annual Meetings. No annual meeting of the stockholders of
---------------
Centurion Funds, Inc.(the "Corporation") shall be held in any year in which the
election of directors is not required to be acted upon under the Investment
Company Act of 1940, as amended (the "1940 Act"), unless otherwise determined by
the Board of Directors. An annual meeting may be held at any place within the
United States as may be determined by the Board of Directors and as shall be
designated in the notice of the meeting, at the time specified by the Board of
Directors. Any business of the Corporation may be transacted at an annual
meeting without being specifically designated in the notice unless otherwise
provided by statute, the Corporation's Charter or these By-Laws.

SECTION 2. Special Meetings. Special meetings of the stockholders
----------------
for any purpose or purposes, unless otherwise prescribed by statute or by the
Corporation's Charter, may be held at any place within the United States, and
may be called at any time by the Board of Directors or by the President, and
shall be called by the President or Secretary at the request in writing of a
majority of the Board of Directors or at the request in writing of stockholders
entitled to cast at least 10% (ten percent) of the votes entitled to be cast at
the meeting upon payment by such stockholders to the Corporation of the
reasonably estimated cost of preparing and mailing a notice of the meeting
(which estimated cost shall be provided to such stockholders by the Secretary of
the Corporation). Notwithstanding the foregoing, unless requested by
stockholders entitled to cast a majority of the votes entitled to be cast at the
meeting, a special meeting of the stockholders need not be called at the request
of stockholders to consider any matter which is substantially the same as a
matter voted on at any special meeting of the stockholders held during the
preceding 12 (twelve) months. A written request shall state the purpose or
purposes of the proposed meeting.

SECTION 3. Notice of Meetings. Written or printed notice of the
------------------
purpose or purposes and of the time and place of
<PAGE>

every meeting of the stockholders shall be given by the Secretary of the
Corporation to each stockholder of record entitled to vote at the meeting, by
placing the notice in the mail at least 10 (ten) days, but not more than 90
(ninety) days, prior to the date designated for the meeting addressed to each
stockholder at his address appearing on the books of the Corporation or supplied
by the stockholder to the Corporation for the purpose of notice. The notice of
any meeting of stockholders may be accompanied by a form of proxy approved by
the Board of Directors in favor of the actions or the election of persons as the
Board of Directors may select. Notice of any meeting of stockholders shall be
deemed waived by any stockholder who attends the meeting in person or by proxy,
or who before or after the meeting submits a signed waiver of notice that is
filed with the records of the meeting.

SECTION 4. Quorum. Except as otherwise provided by statute or by the
------
Corporation's Charter, the presence in person or by proxy of stockholders of the
Corporation entitled to cast at least one-third of the votes to be cast shall
constitute a quorum at each meeting of the stockholders, except that where any
provision of law or the Charter permit or require that stockholders of any
series or classes of capital stock of the Corporation shall vote as a series or
class, one-third of the votes to be cast by said series or class shall
constitute a quorum at such meeting and all questions shall be decided by
majority of the votes cast (except with respect to the election of directors,
which shall be by a plurality of votes cast). In the absence of a quorum, the
stockholders present in person or by proxy, by majority vote and without notice
other than by announcement, may adjourn the meeting from time to time as
provided in Section 5 of this Article I until a quorum shall attend. The
stockholders present at any duly organized meeting may continue to do business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum. The absence from any meeting in person or by proxy of
holders of the number of shares of stock of the Corporation in excess of a
majority that may be required by Maryland law, the 1940 Act, or any other
applicable statute, the Corporation's Charter or these By-Laws, for action upon
any given matter shall not prevent action at the meeting on any other matter or
matters that may properly come before the meeting, so long as there are present,
in person or by proxy, holders of the number of shares of stock of the
Corporation required for action upon such other matter or matters.

SECTION 5. Adjournment. Any meeting of the stockholders may be
-----------
adjourned from time to time, without notice other than by announcement at the
meeting at which the adjournment is taken. At any adjourned meeting at which a
quorum shall be present, any action may be taken that could have been taken at
the meeting originally called. A meeting of the stockholders may not be
adjourned without further notice to a date more than 120 (one hundred twenty)
days after the original record date determined pursuant to Section 9 of this
Article I.

-2-
<PAGE>

SECTION 6. Organization. At every meeting of the stockholders, the
------------
Chairman of the Board, or in his absence or inability to act (or if there is
none), the President, or in his absence or inability to act, a Vice President,
or in the absence or inability to act of the Chairman of the Board, the
President and all the Vice Presidents, a chairman chosen by the stockholders
shall act as chairman of the meeting. The Secretary, or in his absence or
inability to act, a person appointed by the chairman of the meeting, shall act
as secretary of the meeting and keep the minutes of the meeting.

SECTION 7. Order of Business. The order of business at all meetings
-----------------
of the stockholders shall be as determined by the chairman of the meeting.

SECTION 8. Voting. Except as otherwise provided by statute or the
------
Corporation's Charter, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of stock standing in his name on the
records of the Corporation as of the record date determined pursuant to Section
9 of this Article I; provided, however, that when required by the 1940 Act or
the laws of the State of Maryland or when the Board of Directors has determined
that the matter affects only the interest of one series of stock, matters may be
submitted only to a vote of the stockholders of that particular series or class,
and each stockholder thereof shall be entitled to votes equal to the shares of
stock of that series or class registered in the stockholder's name on the books
of the Corporation.

Each stockholder entitled to vote at any meeting of stockholders may
authorize another person to act as proxy for the stockholder by, (a) signing a
writing authorizing another person to act as proxy, or (b) any other means
permitted by law. Signing may be accomplished by the stockholder or the
stockholder's authorized agent signing the writing or causing the stockholder's
signature to be affixed to the writing by any reasonable means, including
facsimile signature.

If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, and shall state the number of
shares voted.

SECTION 9. Fixing of Record Date. The Board of Directors may set a
---------------------
record date for the purpose of determining stockholders entitled to vote at any
meeting of the stockholders. The record date for a particular meeting shall be
not more than 90 (ninety) nor fewer than 10 (ten) days before the date of the
meeting. All persons who were holders of record of shares as of

-3-
<PAGE>

the record date of a meeting, and no others, shall be entitled to vote at such
meeting and any adjournment thereof.

SECTION 10. Inspectors. The Board of Directors may, in advance of
----------
any meeting of stockholders, appoint one or more inspectors to act at the
meeting or at any adjournment of the meeting. If the inspectors shall not be so
appointed or if any of them shall fail to appear or act, the chairman of the
meeting may, and on the request of any stockholder entitled to vote at the
meeting shall, appoint inspectors. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath to execute faithfully the
duties of inspector at the meeting with strict impartiality and according to the
best of his ability. The inspectors shall determine the number of shares
outstanding and the voting power of each share, the number of shares represented
at the meeting, the existence of a quorum and the validity and effect of
proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result, and do those acts
as are proper to conduct the election or vote with fairness to all stockholders.
On request of the chairman of the meeting or any stockholder entitled to vote at
the meeting, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any fact
found by them. No director or candidate for the office of director shall act as
inspector of an election of directors. Inspectors need not be stockholders of
the Corporation.

SECTION 11. Consent of Stockholders in Lieu of Meeting. Except as
------------------------------------------
otherwise provided by statute or the Corporation's Charter, any action required
to be taken at any meeting of stockholders, or any action that may be taken at
any meeting of the stockholders, may be taken without a meeting, without prior
notice and without a vote, if the following are filed with the records of
stockholders' meetings: (a) a unanimous written consent that sets forth the
action and is signed by each stockholder entitled to vote on the matter; and (b)
a written waiver of notice and any right to dissent signed by each stockholder
entitled to notice of the meeting but not entitled to vote at the meeting.

SECTION 12. Notice of Stockholder Business. At any annual or special
------------------------------
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual or special meeting business must be, (i), (A) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (B) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (C) subject to the provisions of Section
13 of this Article I, otherwise properly brought before the meeting by a
stockholder,

-4-
<PAGE>

and (ii) a proper subject under applicable law for stockholder action.

For business to be properly brought before an annual or special
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, any such notice
must be delivered to or mailed and received at the principal executive offices
of the Corporation not later than 60 (sixty) days prior to the date of the
meeting; provided, however, that if less than 70 (seventy) days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
any such notice by a stockholder to be timely must be so received not later than
the close of business on the tenth day following the day on which notice of the
date of the annual or special meeting was given or such public disclosure was
made.

Any such notice by a stockholder shall set forth as to each matter the
stockholder proposes to bring before the annual or special meeting, (i) a brief
description of the business desired to be brought before the annual or special
meeting and the reasons for conducting such business at the annual or special
meeting, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
of the capital stock of the Corporation which are beneficially owned by the
stockholder, and (iv) any material interest of the stockholder in such business.

Notwithstanding anything in the By-Laws to the contrary, no business
shall be conducted at any annual or special meeting except in accordance with
the procedures set forth in this Section 12. The chairman of the annual or
special meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 12, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be considered or transacted.

SECTION 13. Stockholder Business not Eligible for Consideration.
---------------------------------------------------
Notwithstanding anything in these By-Laws to the contrary, any proposal that is
otherwise properly brought before an annual or special meeting by a stockholder
will not be eligible for consideration by the stockholders at such annual or
special meeting if such proposal is substantially the same as a matter properly
brought before such annual or special meeting by or at the direction of the
Board of Directors of the Corporation. The chairman of such annual or special
meeting shall, if the facts warrant, determine and declare that a stockholder
proposal is substantially the same as a matter properly brought before the
meeting by or at the direction of the Board of Directors, and, if he should so
determine, he shall so declare to the meeting and any such stockholder proposal
shall not be considered at the meeting.

-5-
<PAGE>

This Section 13 shall not be construed or applied to make ineligible
for consideration by the stockholders at any annual or special meeting any
stockholder proposal required to be included in the Corporation's proxy
statement relating to such meeting pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934 (the "Exchange Act"), or any successor rule thereto.

ARTICLE II
----------

BOARD OF DIRECTORS
------------------

SECTION 1. General Powers. Except as otherwise provided in the
--------------
Corporation's Charter, the business and affairs of the Corporation shall be
managed under the direction of its Board of Directors. All powers of the
Corporation may be exercised by or under authority of the Board of Directors
except as conferred on or reserved to the stockholders by law, by the
Corporation's Charter or by these By-Laws.

SECTION 2. Number of Directors. The number of directors shall be
-------------------
fixed from time to time by resolution of the Board of Directors adopted by a
majority of the entire Board of Directors; provided, however, that the number of
directors shall in no event be fewer than one nor more than fifteen. Any
vacancy created by an increase in directors may be filled in accordance with
Section 7 of this Article II. No reduction in the number of directors shall
have the effect of removing any director from office prior to the expiration of
his term unless the director is specifically removed pursuant to Section 6 of
this Article II at the time of the decrease. A director need not be a
stockholder of the Corporation, a citizen of the United States or a resident of
the State of Maryland.

SECTION 3. Election and Term of Directors. The term of office of
------------------------------
each director shall be from the time of his election and qualification until his
successor shall have been elected and shall have qualified, or until his death,
or until his resignation or removal as provided in these By-Laws, or as
otherwise provided by statute or the Corporation's Charter.

SECTION 4. Director Nominations. Only persons who are nominated in
--------------------
accordance with the procedures set forth in this Section 4 shall be eligible for
election or re-election as directors. Nominations of persons for election or
re-election to the Board of Directors of the Corporation may be made at a
meeting of stockholders by or at the direction of the Board of Directors or by
any stockholder of the Corporation who is entitled to vote for the election of
such nominee at the meeting and who complies with the notice procedures set
forth in this Section 4.

Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made pursuant to timely notice delivered in writing
to the Secretary of the

-6-
<PAGE>

Corporation. To be timely, any such notice by a stockholder must be delivered to
or mailed and received at the principal executive offices of the Corporation not
later than 60 (sixty) days prior to the meeting; provided, however, that if less
than 70 (seventy) days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, any such notice by a stockholder to be
timely must be so received not later than the close of business on the tenth day
following the day on which notice of the date of the meeting was given or such
public disclosure was made.

Any such notice by a stockholder shall set forth, (i) as to each
person whom the stockholder proposes to nominate for election or re-election as
a director, (A) the name, age, business address and residence address of such
person, (B) the principal occupation or employment of such person, (C) the class
and number of shares of the capital stock of the Corporation which are
beneficially owned by such person, and (D) any other information relating to
such person that is required to be disclosed in solicitations of proxies for the
election of directors pursuant to Regulation 14A under the Exchange Act or any
successor regulation thereto (including without limitation such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected and whether any person intends to seek reimbursement from
the Corporation of the expenses of any solicitation of proxies should such
person be elected a director of the Corporation); and (ii) as to the stockholder
giving the notice, (A) the name and address, as they appear on the Corporation's
books, of such stockholder, and (B) the class and number of shares of the
capital stock of the Corporation which are beneficially owned by such
stockholder. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a director shall furnish to the Secretary
of the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee.

If a notice by a stockholder is required to be given pursuant to this
Section 4, no person shall be entitled to receive reimbursement from the
Corporation of the expenses of a solicitation of proxies for the election as a
director of a person named in such notice unless such notice states that such
reimbursement will be sought from the Corporation. No person shall be eligible
for election as a director of the Corporation unless nominated in accordance
with the procedures set forth in this Section 4. The chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by the By-
Laws, and if he should so determine, he shall so declare to the meeting and the
defective nomination shall be disregarded for all purposes.

SECTION 5. Resignation. A director of the Corporation may resign at
-----------
any time by giving written notice of his

-7-
<PAGE>

resignation to the Board of Directors or the Chairman of the Board or to the
President or the Secretary of the Corporation. Any resignation shall take effect
at the time specified in it or, should the time when it is to become effective
not be specified in it, immediately upon its receipt. Acceptance of a
resignation shall not be necessary to make it effective unless the resignation
states otherwise.

SECTION 6. Removal of Directors. Any director of the Corporation may
--------------------
be removed by the stockholders with or without cause at any time by a vote of a
majority of the votes entitled to be cast for the election of directors.

SECTION 7. Vacancies. Subject to the provisions of the 1940 Act, any
---------
vacancies in the Board of Directors, whether arising from death, resignation,
removal or any other cause except an increase in the number of directors, shall
be filled by a vote of the majority of the Board of Directors then in office
even though that majority is less than a quorum, provided that no vacancy or
vacancies shall be filled by action of the remaining directors if, after the
filling of the vacancy or vacancies, fewer than two-thirds of the directors then
holding office shall have been elected by the stockholders of the Corporation.
A majority of the entire Board as calculated prior to Board expansion may fill a
vacancy which results from an increase in the number of directors. In the event
that at any time a vacancy exists in any office of a director that may not be
filled by the remaining directors, a special meeting of the stockholders shall
be held as promptly as possible and in any event within 60 (sixty) days, for the
purpose of filling the vacancy or vacancies. Any director elected or appointed
to fill a vacancy shall hold office until a successor has been chosen and
qualifies or until his earlier death, resignation or removal.

SECTION 8. Place of Meetings. Meetings of the Board may be held at
-----------------
any place that the Board of Directors may from time to time determine or that is
specified in the notice of the meeting.

SECTION 9. Regular Meetings. Regular meetings of the Board of
----------------
Directors may be held without notice at the time and place determined by the
Board of Directors.

SECTION 10. Special Meetings. Special meetings of the Board of
----------------
Directors may be called by two or more directors of the Corporation or by the
Chairman of the Board or the President.

SECTION 11. Notice of Special Meetings. Notice of each special
--------------------------
meeting of the Board of Directors shall be given by the Secretary as hereinafter
provided. Each notice shall state the time and place of the meeting and shall
be delivered to each director, either personally or by telephone, facsimile
transmission or other standard form of telecommunication, at least 24 (twenty-
four) hours before the time at which the meeting

-8-
<PAGE>

is to be held, or by first-class mail, postage prepaid, addressed to the
director at his residence or usual place of business, and mailed at least 3
(three) days before the day on which the meeting is to be held.

SECTION 12. Waiver of Notice of Meetings. Notice of any special
----------------------------
meeting need not be given to any director who shall, either before or after the
meeting, sign a written waiver of notice that is filed with the records of the
meeting or who shall attend the meeting.

SECTION 13. Quorum and Voting. One-third (but not fewer than two
-----------------
unless there be only one director) of the members of the entire Board of
Directors shall be present in person at any meeting of the Board in order to
constitute a quorum for the transaction of business at the meeting, and except
as otherwise expressly required by statute, the Corporation's Charter, these By-
Laws, the 1940 Act, or any other applicable statute, the act of a majority of
the directors present at any meeting at which a quorum is present shall be the
act of the Board. In the absence of a quorum at any meeting of the Board, a
majority of the directors present may adjourn the meeting to another time and
place until a quorum shall be present. Notice of the time and place of any
adjourned meeting shall be given to the directors who were not present at the
time of the adjournment and, unless the time and place were announced at the
meeting at which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
that might have been transacted at the meeting as originally called.

SECTION 14. Organization. The Board of Directors may, by resolution
------------
adopted by a majority of the entire Board, designate a Chairman of the Board,
who shall preside at each meeting of the Board. In the absence or inability of
the Chairman of the Board to act or if there is none, the President, or, in his
absence or inability to act, another director chosen by a majority of the
directors present, shall act as chairman of the meeting and preside at the
meeting. The Secretary, or, in his absence or inability to act, any person
appointed by the chairman, shall act as secretary of the meeting and keep the
minutes thereof.

SECTION 15. Committees. The Board of Directors may designate one or
----------
more committees of the Board of Directors, consisting of 1 (one) or more
directors. To the extent provided in the resolution, and permitted by law, the
committee or committees shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Corporation and
may authorize the seal of the Corporation to be affixed to all papers that may
require it. Any committee or committees shall have the name or names determined
from time to time by resolution adopted by the Board of Directors. Each
committee shall keep regular minutes of its meetings and report

-9-
<PAGE>

the same to the Board of Directors when required. The members of a committee
present at any meeting, whether or not they constitute a quorum, may appoint a
director to act in the place of an absent member.

SECTION 16. Written Consent of Directors in Lieu of a Meeting.
-------------------------------------------------
Subject to the provisions of the 1940 Act, any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee of the
Board may be taken without a meeting if all members of the Board or committee,
as the case may be, consent thereto in writing, and the writing or writings are
filed with the records of the Board's or such committee's meetings.

SECTION 17. Telephone Conference. Members of the Board of Directors
--------------------
or any committee of the Board may participate in any Board or committee meeting
by means of a conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other at the
same time. Participation by such means shall constitute presence in person at
the meeting.

SECTION 18. Compensation. Each director shall be entitled to receive
------------
compensation, if any, as may from time to time be fixed by the Board of
Directors, including a fee for each meeting of the Board or any committee
thereof, regular or special, he attends. Directors may also be reimbursed by
the Corporation for all reasonable expenses incurred in traveling to and from
the place of a Board or committee meeting.

ARTICLE III
-----------

OFFICERS, AGENTS AND EMPLOYEES
------------------------------

SECTION 1. Number and Qualifications. The officers of the
-------------------------
Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and may also appoint any other officers,
agents and employees it deems necessary or proper. Any two or more offices may
be held by the same person, except the offices of President and Vice President,
but no officer shall execute, acknowledge or verify any instrument in more than
one capacity. Officers shall be elected by the Board of Directors, each to hold
office until his successor shall have been duly elected and shall have
qualified, or until his death, or until his resignation or removal as provided
in these By-Laws. The Board of Directors may from time to time elect, or
designate to the President the power to appoint, such officers (including one or
more Assistant Vice Presidents, one or more Assistant Treasurers and one or more
Assistant Secretaries) and such agents as may be necessary or desirable for the
business of the Corporation. Such other officers and agents shall have such
duties and shall hold their

-10-
<PAGE>

offices for such terms as may be prescribed by the Board or by the appointing
authority.

SECTION 2. Resignations. Any officer of the Corporation may resign
------------
at any time by giving written notice of his resignation to the Board of
Directors, the Chairman of the Board, the President or the Secretary. Any
resignation shall take effect at the time specified therein or, if the time when
it shall become effective is not specified therein, immediately upon its
receipt. Acceptance of a resignation shall not be necessary to make it
effective unless the resignation states otherwise.

SECTION 3. Removal of Officer, Agent or Employee. Any officer, agent
-------------------------------------
or employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate the power of removal as to
agents and employees not elected or appointed by the Board of Directors.
Removal shall be without prejudice to the person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.

SECTION 4. Vacancies. A vacancy in any office whether arising from
---------
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office that shall be vacant, in the manner prescribed
in these By-Laws for the regular election or appointment to the office.

SECTION 5. Compensation. The compensation of the officers of the
------------
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer with respect to other officers under his control.

SECTION 6. Bonds or Other Security. If required by the Board, any
-----------------------
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in an amount and with any
surety or sureties as the Board may require.

SECTION 7. President. The President shall be the chief executive
---------
officer of the Corporation. In the absence or inability of the Chairman of the
Board to act (or if there is none), the President shall preside at all meetings
of the stockholders and of the Board of Directors. The President shall have,
subject to the control of the Board of Directors, general charge of the business
and affairs of the Corporation, and may employ and discharge employees and
agents of the Corporation, except those elected or appointed by the Board, and
he may delegate these powers.

SECTION 8. Vice President. Each Vice President shall have the powers
--------------
and perform the duties that the Board of Directors or the President may from
time to time prescribe.

-11-
<PAGE>

SECTION 9. Treasurer. Subject to the provisions of any contract that
---------
may be entered into with any custodian pursuant to authority granted by the
Board of Directors, the Treasurer shall have charge of all receipts and
disbursements of the Corporation and shall have or provide for the custody of
the Corporation's funds and securities; he shall have full authority to receive
and give receipts for all money due and payable to the Corporation, and to
endorse checks, drafts and warrants, in its name and on its behalf and to give
full discharge for the same; he shall deposit all funds of the Corporation,
except those that may be required for current use, in such banks or other places
of deposit as the Board of Directors may from time to time designate; and, in
general, he shall perform all duties incident to the office of Treasurer and
such other duties as may from time to time be assigned to him by the Board of
Directors or the President.

SECTION 10. Secretary. The Secretary shall:
---------

(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, the committees
of the Board and the stockholders;

(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;

(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;

(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and

(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board of Directors or the President.

SECTION 11. Delegation of Duties. In case of the absence of any
--------------------
officer of the Corporation, or for any other reason that the Board of Directors
may deem sufficient, the Board may confer for the time being the powers or
duties, or any of them, of such officer upon any other officer or upon any
director.

ARTICLE IV
----------

STOCK
-----

-12-
<PAGE>

SECTION 1. Stock Certificates. Each holder of stock of the
------------------
Corporation shall be entitled upon specific written request to such person as
may be designated by the Corporation to have a certificate or certificates, in a
form approved by the Board, representing the number of shares of the particular
series of stock of the Corporation owned by him; provided, however, that
certificates for fractional shares will not be delivered in any case. The
certificates representing shares of stock shall be signed by or in the name of
the Corporation by the Chairman of the Board, President or a Vice President and
by the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer and sealed with the seal of the Corporation. Any or all of the
signatures or the seal on the certificate may be facsimiles. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate shall be issued, it may be
issued by the Corporation with the same effect as if such officer, transfer
agent or registrar were still in office at the date of issue.

SECTION 2. Books of Account and Record of Stockholders. There shall
-------------------------------------------
be kept at the principal executive office of the Corporation correct and
complete books and records of account of all the business and transactions of
the Corporation. There shall be made available upon request of any stockholder,
in accordance with Maryland law, a record containing the number of shares of
stock issued during a specified period not to exceed 12 (twelve) months and the
consideration received by the Corporation for each such share.

SECTION 3. Transfers of Shares. Transfers of shares of stock of the
-------------------
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and on surrender of the certificate or certificates, if issued,
for the shares properly endorsed or accompanied by a duly executed stock
transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of the share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions and
to vote as the owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.

SECTION 4. Regulations. The Board of Directors may make any
-----------
additional rules and regulations, not inconsistent with these By-Laws, as it may
deem expedient concerning the issue, transfer and registration of certificates
for shares of stock of the Corporation. It may appoint, or authorize any officer
or officers to appoint, one or more transfer agents or one or more

-13-
<PAGE>

transfer clerks and one or more registrars and may require all certificates for
shares of stock to bear the signature or signatures of any of them.

SECTION 5. Stolen, Lost, Destroyed or Mutilated Certificates. The
-------------------------------------------------
holder of any certificate representing shares of stock of the Corporation shall
immediately notify the Corporation of its theft, loss, destruction or mutilation
and the Corporation may issue a new certificate of stock in the place of any
certificate issued by it that has been alleged to have been stolen, lost or
destroyed or that shall have been mutilated. The Board may, in its discretion,
require the owner (or his legal representative) of a stolen, lost, destroyed or
mutilated certificate to give to the Corporation a bond in a sum, limited or
unlimited, and in a form and with any surety or sureties, as the Board in its
absolute discretion shall determine or to indemnify the Corporation against any
claim that may be made against it on account of the alleged theft, loss,
destruction or the mutilation of any such certificate, or issuance of a new
certificate. Anything herein to the contrary notwithstanding, the Board of
Directors, in its absolute discretion, may refuse to issue any such new
certificate, except pursuant to legal proceedings under the Maryland General
Corporation Law.

SECTION 6. Fixing of Record Date for Dividends, Distributions, etc.
--------------------------------------------------------
The Board may fix, in advance, a date not more than 90 (ninety) days preceding
the date fixed for the payment of any dividend or the making of any distribution
or the allotment of rights to subscribe for securities of the Corporation, or
for the delivery of evidences of rights or evidences of interests arising out of
any change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, and in such case
only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.

SECTION 7. Information to Stockholders and Others. Any stockholder
--------------------------------------
of the Corporation or his agent may inspect and copy during the Corporation's
usual business hours the Corporation's By-Laws, minutes of the proceedings of
its stockholders, annual statements of its affairs and voting trust agreements
on file at its principal office.

ARTICLE V
---------

INDEMNIFICATION AND INSURANCE
-----------------------------

SECTION 1. Indemnification of Directors and Officers. Any person who
-----------------------------------------
was or is a party or is threatened to be made a party in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is a

-14-
<PAGE>

current or former director or officer of the Corporation, or is or was serving
while a director or officer of the Corporation at the request of the Corporation
as a director, officer, partner, trustee, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust, enterprise or employee
benefit plan, shall be indemnified by the Corporation against judgments,
penalties, fines, excise taxes, settlements and reasonable expenses (including
attorneys' fees) actually incurred by such person in connection with such
action, suit or proceeding to the full extent permissible under the Maryland
General Corporation Law, the Securities Act of 1933, as amended (the "Securities
Act"), and the 1940 Act, as such statutes are now or hereafter in force, except
that such indemnity shall not protect any such person against any liability to
the Corporation or any stockholder thereof to which such person would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office
("disabling conduct").

SECTION 2. Advances. Any current or former director or officer of
--------
the Corporation claiming indemnification within the scope of this Article V
shall be entitled to advances from the Corporation for payment of the reasonable
expenses incurred by him in connection with proceedings to which he is a party
in the manner and to the full extent permissible under the Maryland General
Corporation Law, the Securities Act and the 1940 Act, as such statutes are now
or hereafter in force; provided however, that the person seeking indemnification
shall provide to the Corporation a written affirmation of his good faith belief
that the standard of conduct necessary for indemnification by the Corporation
has been met and a written undertaking to repay any such advance unless it is
ultimately determined that he is entitled to indemnification, and provided
further that at least one of the following additional conditions is met: (a) the
person seeking indemnification shall provide a security in form and amount
acceptable to the Corporation for his undertaking; (b) the Corporation is
insured against losses arising by reason of the advance; or (c) a majority of a
quorum of directors of the Corporation who are neither "interested persons" as
defined in Section 2(a)(19) of the 1940 Act, nor parties to the proceeding
("disinterested non-party directors"), or independent legal counsel, in a
written opinion, shall determine, based on a review of facts readily available
to the Corporation at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.

SECTION 3. Procedure. At the request of any current or former
---------
director or officer, or any employee or agent whom the Corporation proposes to
indemnify, the Board of Directors shall determine, or cause to be determined, in
a manner consistent with the Maryland General Corporation Law, the Securities
Act and the 1940 Act, as such statutes are now or hereafter in force, whether
the standards required by this Article V have been met; provided,

-15-
<PAGE>

however, that indemnification shall be made only following: (a) a final decision
on the merits by a court or other body before whom the proceeding was brought
that the person to be indemnified was not liable by reason of disabling conduct;
or (b) in the absence of such a decision, a reasonable determination, based upon
a review of the facts, that the person to be indemnified was not liable by
reason of disabling conduct by, (i) the vote of a majority of a quorum of
disinterested non-party directors, or (ii) an independent legal counsel in a
written opinion.

SECTION 4. Indemnification of Employees and Agents. Employees and
---------------------------------------
agents who are not officers or directors of the Corporation may be indemnified,
and reasonable expenses may be advanced to such employees or agents, in
accordance with the procedures set forth in this Article V to the extent
permissible under the 1940 Act, the Securities Act and Maryland General
Corporation Law, as such statutes are now or hereafter in force, to the extent,
consistent with the foregoing, as may be provided by action of the Board of
Directors or by contract.

SECTION 5. Other Rights. The indemnification provided by this
------------
Article V shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of stockholders or
disinterested directors or otherwise, both as to action by a director or officer
of the Corporation in his official capacity and as to action by such person in
another capacity while holding such office or position, and shall continue as to
a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.

SECTION 6. Insurance. The Corporation shall have the power to
---------
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or who, while a
director, officer, employee or agent of the Corporation, is or was serving at
the request of the Corporation as a director, officer, partner, trustee,
employee, agent or fiduciary of another corporation, partnership, joint venture,
trust, enterprise or employee benefit plan, against any liability asserted
against and incurred by him in any such capacity, or arising out of his status
as such, provided that no insurance may be obtained by the Corporation for
liabilities against which it would not have the power to indemnify him under
this Article V or applicable law.

SECTION 7. Constituent, Resulting or Surviving Corporations. For the
------------------------------------------------
purposes of this Article V, references to the "Corporation" shall include all
constituent corporations absorbed in a consolidation or merger as well the
resulting or surviving corporation so that any person who is or was a director,
officer, employee or agent of a constituent corporation or is or was serving at
the request of a constituent corporation as a director, officer, employee or
agent of another corporation,

-16-
<PAGE>

partnership, joint venture, trust or other enterprise shall stand in the same
position under this Article V with respect to the resulting or surviving
corporation as he would if he had served the resulting or surviving corporation
in the same capacity.

ARTICLE VI
----------

SEAL
----

The seal of the Corporation shall be circular in form and shall bear
the name of the Corporation, the year of its incorporation, the words "Corporate
Seal" and "Maryland" and any emblem or device approved by the Board of
Directors. The seal may be used by causing it or a facsimile to be impressed or
affixed or in any other manner reproduced, or by placing the word "(seal)"
adjacent to the signature of the authorized officer of the Corporation.

ARTICLE VII
-----------

FISCAL YEAR
-----------

The Corporation's fiscal year shall be fixed by the Board of
Directors.

ARTICLE VIII
------------

AMENDMENTS
----------

These By-Laws may be amended or repealed by the affirmative vote of a
majority of the Board of Directors at any regular or special meeting of the
Board of Directors, subject to the requirements of the 1940 Act.

As adopted, August 20, 1998

-17-