As filed with the U.S. Securities and Exchange Commission
on November 27, 2000
Securities Act File No. 333 61973
Investment Company Act File No. 811 8977
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. 2
[X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940
[x]
Amendment No. 3
[x]
(Check appropriate box or boxes)
Centurion Funds, Inc.
.......................................
(Exact Name of Registrant as Specified in Charter)
2425 East Camelback Road, Suite 530
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.
2425 East Camelback Road, Suite 530
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
Continuous
(Approximate Date of Proposed Public Offering)
It is proposed that this fiing will become effective:
[ ] immediately upon fling pursuant to Paragraph (b) of Rule
485
[ ] on (date) pursuant to paragraph (b)
[XX] 60 days after filing pursuant to paragraph (a) (1)
[ ] on (date) pursuant to paragraph (a) (1)
PART A
<PAGE>
[LOGO OF CENTURION FUNDS APPEARS HERE]
CENTURION FUNDS, INC.
CENTURION U.S. EQUITY FUND
CENTURION INTERNATIONAL EQUITY FUND
CENTURION U.S. CONTRA FUND
CENTURION INTERNATIONAL CONTRA FUND
JANUARY 26, 2001
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.
P R O S P E C T U S
................................................................................
<PAGE>
Contents
<TABLE>
<S> <C>
Overview 1
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Risk/Return Summary 2
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Investor Expenses 10
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Centurion U.S. Equity Fund 11
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Centurion International Equity Fund 13
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Centurion U.S. Contra Fund 15
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Centurion International Contra Fund 16
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More About Risk 18
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Management 20
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Account Policies 23
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Shareholder Services 26
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Distribution Policies and Taxes 26
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Fund Details 27
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Financial Highlights 29
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For Additional Information Back Cover
-----------------------------------------------
</TABLE>
<PAGE>
Overview
Centurion Funds, Inc. (the "Company") is a no-load mutual fund complex with
four separate diversified 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 alloca-
tion investment strategy. The Funds are not designed to be stand-alone invest-
ment 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 cur-
rently eligible to buy shares of the Funds. Investment Professionals provide
investors asset allocation recommendations with respect to the Funds and other
mutual funds based on an evaluation of an investor's investment goals, risk
preferences and investment time horizons. The Funds were developed to afford
Investment Professionals ready access to certain strategies designed to facil-
itate their management of the risks inherent in allocating their clients'
assets among other available investment options. Fees paid to Investment Pro-
fessionals for their services are in addition to the operating expenses of the
Funds discussed in this Prospectus. Investors should consult their Investment
Professional if in doubt about their fees.
Centurion currently serves as custodial agent for investors who are eligible
to invest in the Funds. Centurion also serves as investment manager to each of
the four Funds that make up the Company. Centurion has engaged the following
sub-adviser(s) to manage all or a portion of a Fund's portfolio according to
its investment goal and strategies:
Centurion U.S. Equity Fund
. Trainer, Wortham & Company, Inc. ("Trainer")
. Credit Suisse Asset Management, LLC ("CSAM")
Centurion International Equity Fund
. Friends Ivory & Sime, Inc. ("FISI")
. CSAM
Centurion U.S. Contra Fund
. CSAM
Centurion International Contra Fund
. CSAM
Investment in the Funds involves special risks, some not traditionally asso-
ciated with mutual funds. Investors should carefully review and evaluate these
risks when considering an investment in the Funds. None of the Funds alone
constitutes a balanced investment plan.
1
<PAGE>
Risk/Return Summary
Investment Goals and Principal Strategies
Each Fund has adopted its own investment goal and employs certain strategies
that result in its own risk/reward profile. Because you can lose money by
investing in these Funds, be sure to read all risk disclosure carefully before
investing.
Fund / Risk Factors Investment Goal / Principal Strategies
--------------------------------------------------------------------------------
Centurion U.S. Equity Fund
Seeks to provide long-term growth consis-
. Market Risk tent with reasonable efforts to preserve
capital.
. Tracking Error Risk
. Trainer seeks to provide investment
returns that, over the long term, corre-
In order to achieve the Fund's spond to the performance of the S&P 500
investment goal, Centurion has Index (the "S&P Index").
selected two sub-advisers,
Trainer and CSAM, to conduct the
Fund's investment program. . Trainer invests primarily in common
stocks and other equity securities of
U.S. issuers with total market capital-
izations greater than $1 billion at the
time of purchase. [/R]
. CSAM uses certain hedging techniques
designed to protect against or otherwise
cushion price declines in the value of
the Fund's portfolio.
--------------------------------------------------------------------------------
Centurion Int'l Equity Fund Seeks to provide long-term growth consis-
tent with reasonable efforts to preserve
. Foreign Securities Risk capital.
. Market Risk . FISI seeks to provide investment returns
that, over the long term, correspond to
. Tracking Error Risk the performance of the Morgan Stanley
Capital International Europe, Australa-
In order to achieve the Fund's sia, Far East (EAFE(R)) Index (the "EAFE
investment goal, Centurion has Index").
selected two sub-advisers, FISI
and CSAM, to conduct the Fund's . FISI invests primarily in common stocks
investment program. and other equity securities of non-U.S.
issuers with total market capitaliza-
tions greater than $1 billion at the
time of purchase.
2
<PAGE>
Risk/Return Summary (continued)
Fund / Risk Factors Investment Goal / Principal Strategies
--------------------------------------------------------------------------------
. CSAM uses certain hedging techniques
designed to project against or otherwise
cushion price declines in the value of
the Fund's portfolio.
--------------------------------------------------------------------------------
Centurion U.S. Contra Fund Seeks to provide protection against
declines in the value of the U.S. equity
. Available Information Risk allocation of certain assets custodied
with Centurion (the "U.S. Equity Bench-
. Derivatives Risk mark").
. Exposure Risk . Centurion advises CSAM of the level and
nature of the downside protection
. Market Risk desired for the U.S. Equity Benchmark
and CSAM, using statistical and quanti-
. Portfolio Turnover Rate Risk tative analysis, selects the specific
investments designed to provide this
. Regulatory Risk protection.
. Trading Halt Risk
. Centurion and CSAM intend to pursue the
In order to achieve the Fund's Fund's investment goal regardless of
investment goal, Centurion has market conditions and will not invest
selected CSAM to assist it in the Fund's portfolio, in the aggregate,
conducting the Fund's investment in anticipation of rising U.S. equity
program. prices.
. CSAM trades primarily in (i) options on
securities and stock indexes, (ii) stock
index futures contracts, (iii) options
on stock index futures contracts and
(iv) Dow Jones Industrial Average Model
New Depositary Shares ("DIAMONDS") and
Standard & Poor's Depositary Receipts
("SPDRs").
--------------------------------------------------------------------------------
3
<PAGE>
Risk/Return Summary (continued)
Fund / Risk Factors Investment Goal / Principal Strategies
-------------------------------------------------------------------------------
Centurion Int'l Contra Fund Seeks to provide protection against
declines in the value of the non-U.S.
. Available Information Risk equity allocation of certain assets
custodied with Centurion (the "Interna-
. Derivatives Risk tional Equity Benchmark").
. Exposure Risk . Centurion advises CSAM of the level and
nature of the downside protection
. Foreign Securities Risk desired for the International Equity
Benchmark and CSAM, using statistical
. Market Risk and quantitative analysis, selects the
specific investments designed to provide
. Portfolio Turnover Rate Risk this protection.
. Regulatory Risk . Centurion and CSAM intend to pursue the
Fund's investment goal regardless of
. Trading Halt Risk market conditions and will not invest
the Fund's portfolio, in the aggregate,
In order to achieve the Fund's in anticipation of rising international
investment goal, Centurion has equity prices.
selected CSAM to assist it in
conducting the Fund's investment . CSAM engages in forward currency con-
program. tracts and trades primarily in (i)
options on securities, currencies and
stock indexes, (ii) stock index futures
contracts, (iii) options on stock index
futures contracts and (iv) World Equity
Benchmark Shares ("WEBS").
-------------------------------------------------------------------------------
The Russell Index is an unmanaged index composed of the 3000 largest U.S.
publicly traded stocks, as determined by market capitalization. The S&P Index
is an unmanaged index composed of 500 stocks chosen for market capitalization,
liquidity, and industry group representation. The EAFE Index is a broadly
diversified international index composed of the equity securities of approxi-
mately 1,000 companies located outside the United States. Please read "Fund
Details--Benchmark Information" for more information about these securities
indexes.
None of the Funds will invest 25% or more of its total assets in the securi-
ties of one or more issuers conducting their principal business activities in
the same industry, except that, to the extent the benchmarks of the Centurion
U.S. Equity Fund or the Centurion International Equity Fund are concentrated
in a particular industry, these Funds will be concentrated in that industry.
This limitation does not apply to investments or obligations of the U.S. Gov-
ernment or any of its agencies or instrumentalities.
4
<PAGE>
Risk/Return Summary (continued)
A Word About Risk
The principal risks of investing in the Funds are discussed below. Before
you invest, please make sure you understand the risks that apply to your Fund.
As with any mutual fund, there is no guarantee that you will make money over
any period of time and you could lose money by investing in a Fund. All
investments involve some level of risk. Simply defined, risk is the possibil-
ity that you may lose money and not make money.
Investments in the Funds are not bank deposits. They are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other govern-
ment agency.
Available Information Risk. Because the mutual funds held by Centurion's
clients are not required to report their securities holdings to Centurion,
Centurion may be unable to determine current market exposure of the U.S.
Equity Benchmark and the International Equity Benchmark, and thus may have
imperfect knowledge of the exact risks to be hedged.
Derivatives Risk. A Fund's use of options, futures and options on futures
("derivatives") involves additional risks and transaction costs, such as, (i)
adverse changes in the value of these instruments, (ii) imperfect correlation
between the price of derivatives and movements in the price of the underlying
securities, index or futures contracts, (iii) the fact that use of derivatives
requires different skills than those needed to select portfolio securities,
and (iv) the possible absence of a liquid secondary market for a particular
derivative at any moment in time.
Exposure Risk. Certain investments (such as options and futures) and certain
practices may have the effect of magnifying declines as well as increases in a
Fund's net asset value. Losses from buying and selling futures can be unlimit-
ed.
Foreign Securities Risk. Foreign securities markets generally have less
trading volume and less liquidity than U.S. markets. Investments in foreign
countries also involve a risk of local political, economic or social instabil-
ity. Additionally, fluctuations in the exchange rates between the U.S. dollar
and foreign currencies may negatively affect an investment. Adverse changes in
exchange rates may erode or reverse any gains produced by foreign currency-
denominated investments and may widen any losses.
Market Risk. The market value of a security may move up and down, sometimes
rapidly and unpredictably. Stock markets tend to move in cycles, with periods
of rising stock prices and periods of falling stock prices. These fluctuations
may cause a security to be worth less than the price originally paid for it,
or less than it was worth at an earlier time. Market risk may affect a single
issuer, industry, sector of the economy or the market as a whole. Market risk
is common to
5
<PAGE>
Risk/Return Summary (continued)
most investments, including stocks and bonds, and the mutual funds that invest
in them.
Portfolio Turnover Rate Risk. The Company anticipates that investors that
are part of a tactical or strategic asset allocation strategy may frequently
redeem or exchange shares of the Centurion U.S. Contra Fund and/or the Centu-
rion International Contra Fund, which will cause these Funds to experience
higher portfolio turnover. A higher portfolio turnover rate may result in the
Funds paying more brokerage commissions and generating greater tax liabilities
for shareholders. Additionally, high portfolio turnover may adversely affect
the ability of the Funds to meet their investment goals.
Regulatory Risk. Positions in futures and related options will be entered
into only to the extent they constitute permissible positions for a Fund
according to applicable rules of the Commodity Futures Trading Commission. At
times, a Fund may be constrained in its ability to use futures, options on
futures or other derivatives by an unanticipated inability to close positions
when it would be most advantageous to do so. Additionally, to the extent that
a Fund engages in futures and related options for other than "bona fide" hedg-
ing purposes, aggregate initial margin and premiums required to establish
these positions may not exceed 5% of the Fund's net asset value.
Tracking Error Risk. Factors such as Fund expenses, imperfect correlation
between a Fund's investments and those of its benchmark, rounding of share
prices, changes to the benchmark, and regulatory policies may affect the Cen-
turion U.S. Equity Fund and the Centurion International Equity Fund's ability
to provide investment returns that correspond to the performance of their
respective benchmarks. Additionally, because these Funds may at times sell
securities at a loss in order to reduce the Funds' capital gains distribu-
tions, these Funds should not be expected to achieve perfect correlation. The
magnitude of any tracking error may be affected by a higher portfolio turnover
rate.
Trading Halt Risk. Certain major exchanges on which options and futures con-
tracts are traded, such as the Chicago Mercantile Exchange, have established
limits on how much an option or futures contract may decline over various time
periods within a day. If an option or futures contract's price declines more
than the established limits, trading on the exchange is halted on that instru-
ment. If a trading halt occurs before the close of a trading day, a Fund may
not be able to purchase or sell options or futures contracts. In such an
event, the Fund also may be required to use a "fair-value" method to price its
outstanding contracts.
6
<PAGE>
Risk/Return Summary (continued)
Performance
Centurion U.S. Equity Fund
Risk return bar chart
This bar chart shows the performance of the fund's common shares since
inception through December 31, 2000. Past performance does not necessarily
indicate how the fund will perform in the future.
Total Return for Common Shares
99
------
11.80%
Quarterly returns:
Highest: % in quarter ; Lowest: % in quarter
Risk return table
This table compares the average annual total return of the Fund for the
periods shown with that of the S&P 500 Index and the Russell 3000(R) Index. On
January 13, 2000, the Board of Directors of Centurion Funds, Inc. approved
changing the Fund's performance benchmark to the S&P 500 Index from the Russell
3000 Index. The S&P 500 Index consists of 500 stocks chosen for market
capitalization, liquidity and industry group representation. The S&P 500 Index
is unmanaged and market-value-weighted, and is one of the most widely used
benchmarks of U.S. Equity performance. The Russell 3000(R) Index is a broad-
based unmanaged market capitalization-weighted measure of the 3000 largest U.S.
publicly traded stocks. This table assumes the redemption of shares at the end
of the period and the reinvestment of distributions and dividends.
7
<PAGE>
Risk/Return Summary (continued)
Average Annual Total Returns
Calendar Year Ended December 31, 2000
<TABLE>
<S> <C> <C> <C>
Inception Date 1 year Since Inception
U.S. Equity Fund 12/07/98
Russell 3000(R) Index 12/07/98
S&P 500 Index 12/07/98
</TABLE>
* Index Comparison begins on December 31, 1998
Centurion International Equity Fund
Risk return bar chart
This bar chart shows the performance of the fund's common shares since incep-
tion through December 31, 2000. Past performance does not necessarily indicate
how the fund will perform in the future.
Total Return for Common Shares
99
------
30.30%
Quarterly returns:
Highest: % in quarter ; Lowest: % in quarter
Risk return table
This table compares the average annual total return of the Fund for the peri-
ods shown with that of the EAFE(R) Index, a broad-based unmanaged market capi-
talization-weighted measure of the 1,000 companies located outside the United
States. This table assumes the redemption of shares at the end of the period
and the reinvestment of distributions and dividends.
8
<PAGE>
Risk/Return Summary (continued)
Average Annual Total Returns
Calendar Year Ended December 31, 2000
<TABLE>
<S> <C> <C> <C>
Inception Date 1 year Since Inception
International Equity Fund 12/07/98
EAFE(R) Index *
</TABLE>
* Index Comparison begins on December 7, 1998
Centurion U.S. Contra Fund
Risk return bar chart
This bar chart shows the performance of the fund's common shares since incep-
tion through December 31, 2000. Past performance does not necessarily indicate
how the fund will perform in the future.
Total Return for Common Shares
99
--------
(48.38%)
Quarterly returns:
Highest: % in quarter ; Lowest: % in quarter
Risk return table
This table compares the average annual total return of the Fund for the peri-
ods shown with that of the S&P 500 Index, a broad-based unmanaged market capi-
talization-weighted measure of the 500 widely held common stocks. This table
assumes the no sales load redemption of shares at the end of the period and the
reinvestment of distributions and dividends.
Average Annual Total Returns
Calendar Year Ended December 31, 2000
<TABLE>
<S> <C> <C> <C>
Inception Date 1 year Since Inception
U.S. Contra Fund 12/07/98
S&P 500 Index *
</TABLE>
* Index Comparison begins on December 7, 1998
9
<PAGE>
Risk/Return Summary (continued)
Centurion International Contra Fund
Performance Information and Financial Highlights are not available for this
Fund as there are no shares outstanding.
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. "Annual Fund Operating Expense"
figures are for the fiscal period ended September 30, 2000.
<TABLE>
<CAPTION>
Centurion
Centurion
Centurion U.S. International Centurion
U.S. International
Equity Fund Equity Fund Contra
Fund Contra Fund
--------------------------------------------------------------------------------
-----------------
Shareholder Fees
(paid directly from your investment)
<S> <C> <C> <C>
<C>
Sales charge (load) on
purchases None None None
None
Deferred sales charge
(load) None None None
None
Redemption fees None None None
None
--------------------------------------------------------------------------------
-----------------
<CAPTION>
Annual Fund Operating Expenses
(deducted from Fund assets)
<S> <C> <C> <C>
<C>
Management fee 0.75% 0.75% 1.20%
1.20%
Distribution and service
(12b-1) fees None None None
None
Other expenses* % % %
%
--------------------------------------------------------------------------------
-----------------
Total Annual Fund
Operating Expenses** % % %
%***
--------------------------------------------------------------------------------
-----------------
</TABLE>
* "Other expenses" are based on actual amounts for each Fund's first full
fiscal period.
** "Total annual fund operating expenses" do not reflect fee waivers and
expense reimbursements. Centurion has voluntarily agreed to reduce or
otherwise limit its "Management fee" for the Centurion U.S. Contra Fund as
described below until further notice. Centurion is under no obligation to
continue these waivers. Actual fees and expenses for the fiscal period
ended September 30, 2000 are shown below:
<TABLE>
<CAPTION>
Total Annual
Management Fees Fund Operating Expenses
--------------- -----------------------
<S> <C> <C>
Centurion U.S. Contra Fund % %
</TABLE>
*** Total annual fund operating expenses have been estimated based on expenses
incurred by the Centurion U.S. Contra Fund because no shares were
outstanding of the Centurion International Contra Fund for the fiscal
period ended September 30, 2000.
10
<PAGE>
Investor Expenses (continued)
Expense Examples
This example is intended to help you compare the cost of investing in the
Funds with the cost of investing in other mutual funds. The example, however,
is only hypothetical and your actual costs may be higher or lower.
The example assumes that you invest $10,000 in a Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year: 3 Years: 5 Years: 10 Years:
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Centurion U.S. Equity Fund $ $ $ $
Centurion International Equity Fund $ $ $ $
Centurion U.S. Contra Fund $ $ $ $
Centurion International Contra Fund* $ $ $ $
----------------------------------------------------------------------------
</TABLE>
* Total annual fund operating expenses have been estimated based on expenses
incurred by the Centurion U.S. Contra Fund because no shares were outstanding
of the Centurion International Contra Fund for the fiscal period ended
September 30, 2000.
Centurion U.S. Equity Fund
Goal and Strategies
The Fund seeks to provide long-term growth consistent with reasonable efforts
to preserve capital. The Fund is sub-advised by Trainer, which manages approxi-
mately 90% of the Fund's assets, and CSAM, which manages the remaining 10% of
the Fund's assets. This allocation of the Fund's assets between Trainer and
CSAM may vary from time to time. The Fund's investment goal may be changed by
the Board of Directors without shareholder approval.
Trainer seeks to provide investment returns that, over the long term, corre-
spond to the performance of the S&P Index. Trainer invests in domestic compa-
nies that it believes are undervalued and demonstrate long-term revenue and
earnings growth potential. In evaluating companies for purchase, Trainer uses a
proprietary quantitative model that ranks companies based on long-term price
appreciation potential through analysis of such factors as growth of sustain-
able earnings and dividend behavior.
Trainer employs a "bottom-up" stock fundamental analysis process which empha-
sizes companies with the following qualities: (i) large capitalization, high
quality, industry leaders; (ii) financially sound companies with solid, proven
management; (iii) consistent earnings growth rates above those of the market;
(iv) stock prices that have historically out performed the S&P Index; and (v) a
catalyst for further stock price appreciation.
11
<PAGE>
Centurion U.S. Equity Fund (continued)
CSAM uses certain hedging techniques designed to protect against or other-
wise cushion price declines in the value of the Fund's portfolio. Because of
the nature of the investments made by CSAM on behalf of the Fund, CSAM's trad-
ing could have an impact on Fund performance that is proportionately greater
than the portion of Fund assets it manages.
Portfolio Investments
To achieve its investment goal, the Fund intends to invest at least 80% of
its assets in common stocks and other equity securities of U.S. issuers with
total market capitalizations greater than $1 billion at the time of purchase.
Normally, the Fund invests substantially all of its assets in equity securi-
ties, including:
. common stocks;
. securities convertible into common stocks; and
. securities such as rights and warrants, whose values are based on common
stocks.
Additionally, in an attempt to provide downside protection for the Fund's
portfolio, CSAM 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 its assets in cash or
cash equivalents. The Fund may also invest in preferred stocks and non-con-
vertible debt securities such as bonds, debentures and notes, and engage, to a
limited extent, in other investment practices in order to achieve its invest-
ment goal.
Risk Factors
The Fund is subject to the following principal risk factors (discussed in
the Fund's "Risk/Return Summary"):
. Market Risk . Tracking Error Risk
The value of your investment in the Fund will tend to increase during times
when the value of the securities in the S&P Index is increasing. When the
value of the securities in the S&P Index decreases, however, the value of your
investment in the Fund should decrease as well. In both instances, the invest-
ment techniques employed by CSAM 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
12
<PAGE>
Centurion U.S. Equity Fund (continued)
securities, the Fund may be affected by additional risks as discussed in "More
About Risk." Please read "More About Risk" carefully before you invest in the
Fund.
Centurion International Equity Fund
Goal and Strategies
The Fund seeks to provide long-term growth consistent with reasonable efforts
to preserve capital. The Fund is sub-advised by FISI, which manages approxi-
mately 90% of the Fund's assets, and CSAM, which manages the remaining 10% of
the Fund's assets. This allocation of the Fund's assets between FISI and CSAM
may vary from time to time. The Fund's investment goal may be changed by the
Board of Directors without shareholder approval.
FISI seeks to provide investment returns that, over the long term, correspond
to the performance of the EAFE Index. FISI invests in companies located outside
the United States that it believes demonstrate long-term revenue and earnings
growth potential. In evaluating companies for purchase, FISI conducts extensive
financial screening and follows up with in-depth company analysis. FISI will
allocate the Fund's assets in countries that are broadly in line with the coun-
try allocation of the EAFE Index, but may at times adjust the Fund's country
allocation towards those countries that it believes will produce superior eco-
nomic growth.
CSAM 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 CSAM on behalf of the Fund, CSAM's trading
could have an impact on Fund performance that is proportionately greater than
the portion of Fund assets it manages.
13
<PAGE>
Centurion International Equity Fund (continued)
Portfolio Investments
To achieve its investment goal, the Fund intends to invest at least 80% of
its assets in common stocks and other equity securities of non-U.S. issuers
with total market capitalizations greater than $1 billion at the time of pur-
chase. Normally, the Fund invests substantially all of its assets in equity
securities, including:
. common stocks;
. securities convertible into common stocks; and
. securities such as rights and warrants, whose values are based on common
stocks.
Additionally, in an attempt to provide downside protection for the Fund's
portfolio, CSAM 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.
As a cash reserve, for liquidity purposes or as "cover" for positions it has
taken, the Fund may temporarily invest all or part of the Fund's assets in cash
or cash equivalents. The Fund may also invest in preferred stocks and non-con-
vertible debt securities such as bonds, debentures and notes, and engage, to a
limited extent, in other investment practices in order to achieve its invest-
ment goal.
Risk Factors
The Fund is subject to the following principal risk factors (discussed in the
Fund's "Risk/Return Summary"):
. Foreign Securities Risk . Market Risk
. Tracking Error 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 invest-
ment techniques employed by CSAM 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.
14
<PAGE>
Centurion U.S. Contra Fund
Goal and Strategies
The Fund seeks to provide protection against declines in the value of the
U.S. equity allocation of certain assets custodied with Centurion (the "U.S.
Equity Benchmark"). This investment goal may be changed by the Board of Direc-
tors without shareholder approval.
Centurion analyzes the various mutual funds held by certain of its clients
(the "Custodied Funds"), as well as the portfolio securities of these funds.
Centurion performs its analysis based on information provided by the Custodied
Funds and/or, because these funds are not required to report their securities
holdings to Centurion, by reviewing the historic securities holdings of the
Custodied Funds as described in public documents (which are required to be made
available at least semi-annually within 60 days after the close of the applica-
ble reporting period). Based on the information available, Centurion attempts
to determine the composition of the U.S. Equity Benchmark, including the rela-
tive proportion of the underlying assets maintained in various asset classes,
geographic locations and industries, in order to advise CSAM, 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. CSAM then 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 CSAM 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;
. options on stock index futures contracts; and
. DIAMONDS and SPDRs (securities issued by investment companies holding a
portfolio of securities that is intended to track the performance and
dividend yield of the Dow Jones Industrial Average and the S&P Index,
respectively).
To the extent that the Fund invests in DIAMONDS or SPDRs, the Fund will indi-
rectly bear its proportionate share of the expenses of the underlying invest-
ment vehicle issuing these instruments. The Fund's investments in securities of
other investment companies, such as DIAMONDS or SPDRs, are subject to limita-
tions under the Investment Company Act of 1940.
15
<PAGE>
Centurion U.S. Contra Fund (continued)
As a cash reserve, for liquidity purposes or as "cover" for positions it has
taken, the Fund may temporarily invest all or part of the Fund's assets in cash
or cash equivalents. The Fund may also engage, to a limited extent, in other
investment practices in order to achieve its investment goal.
Risk Factors
The Fund is subject to the following principal risk factors (discussed in the
Fund's "Risk/Return Summary"):
. Available Information Risk . Exposure Risk
. Trading Halt Risk
. Portfolio Turnover Rate Risk
. Market Risk
. Derivatives Risk
. Regulatory Risk
The value of your investment in the Fund is designed to increase during times
when the value of the U.S. Equity Benchmark is decreasing. Conversely, when the
value of the U.S. Equity Benchmark increases, the value of your investment in
the Fund should decrease. To the extent that the Fund invests in certain secu-
rities, the Fund may be affected by additional risks as discussed in "More
About Risk." Please read "More About Risk" carefully before you invest in the
Fund.
Centurion International Contra Fund
Goal and Strategies
The Fund seeks to provide protection against declines in the value of the
non-U.S. equity allocation of certain assets custodied with Centurion (the "In-
ternational Equity Benchmark"). This investment goal may be changed by the
Board of Directors without shareholder approval.
Centurion analyzes the various mutual funds held by certain of its clients
(the "Custodied Funds"), as well as the portfolio securities of these funds.
Centurion performs its analysis based on information provided by the Custodied
Funds and/or, because these funds are not required to report their securities
holdings to Centurion, by reviewing the historic securities holdings of the
Custodied Funds as described in public documents (which are required to be made
available at least semi-annually within 60 days after the close of the applica-
ble reporting period). Based on the information available, Centurion attempts
to determine the composition of the International Equity Benchmark, including
the relative proportion of the underlying assets maintained in various asset
classes, geographic locations and industries, in order to advise CSAM, the
Fund's sub-adviser, of the level and nature of the
16
<PAGE>
Centurion International Contra Fund (continued)
downside protection specifically desired for the International Equity Benchmark
at any moment in time. CSAM then uses statistical and quantitative analysis to
select investments designed to provide protection against declines in the per-
formance of the International Equity Benchmark.
Centurion and CSAM intend to pursue the Fund's investment goal regardless of
market conditions and will not invest the Fund's portfolio, in the aggregate,
in anticipation of rising international equity prices.
Portfolio Investments
To achieve its investment goal, the Fund intends to use the following
instruments:
. options on securities, currencies and stock indexes;
. stock index futures contracts;
. options on stock index futures contracts;
. WEBS (securities of an investment company designed to replicate the per-
formance of a particular foreign equity market index); and
. forward currency contracts.
To the extent that the Fund invests in WEBS, the Fund will indirectly bear
its proportionate share of the expenses of the underlying investment vehicle
issuing these instruments. The Fund's investments in securities of other
investment companies, such as WEBS, are subject to limitations under the
Investment Company Act of 1940.
As a cash reserve, for liquidity purposes or as "cover" for positions it has
taken, the Fund may temporarily invest all or part of the Fund's assets in cash
or cash equivalents. The Fund may also engage, to a limited extent, in other
investment practices in order to achieve its investment goal.
Risk Factors
The Fund is subject to the following principal risk factors (discussed in the
Fund's "Risk/Return Summary"):
. Available Information Risk . Market Risk
. Derivatives Risk . Portfolio Turnover Rate Risk
. Exposure Risk . Regulatory Risk
. Foreign Securities Risk . Trading Halt Risk
17
<PAGE>
Centurion International Contra Fund (continued)
The value of your investment in the Fund is designed to increase during
times when the value of the International Equity Benchmark is decreasing. Con-
versely, when the value of the International Equity Benchmark increases, the
value of your investment in the Fund should decrease. To the extent that the
Fund invests in certain securities, the Fund may be affected by additional
risks as discussed in "More About Risk." Please read "More About Risk" care-
fully before you invest in the Fund.
More About Risk
Generally
A Fund's risk profile is largely defined by the Fund's investment goal and
principal strategies. You will find a concise description of each Fund's risk
profile in "Risk/Return Summary." The Fund-by-Fund discussions contain more
detailed information about each Fund.
The Funds may use certain investment practices that have higher risks and
opportunities associated with them. However, each Fund has limitations and
policies designed to reduce these risks. To the extent a Fund utilizes these
securities or practices, its overall performance may be affected, either posi-
tively or negatively.
Types of Investment Risk
Correlation Risk. The risk that changes in the value of a hedging instrument
will not match those of the investment being hedged. Hedging is the use of one
investment to offset the effects of another. Incomplete correlation can result
in unanticipated risks.
Credit Risk. The risk that the issuer of a security, or the counterparty to
a contract, will default or otherwise become unable to honor a financial obli-
gation.
Early Closing Risk. The risk that unanticipated early closings of securities
exchanges will result in a Fund being unable to sell or buy securities on that
day. If an exchange closes early on a day when a Fund needs to execute a high
volume of securities trades late in a trading day, the Fund might incur sub-
stantial trading losses.
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.
18
<PAGE>
More About Risk (continued)
Liquidity Risk. The risk that certain securities may be difficult or impossi-
ble 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 invest-
ment 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, expro-
priation, 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.
19
<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 2425
East Camelback Road, Suite 530, Phoenix, AZ 85016-4200, to serve as investment
manager to the Funds. As investment manager to the Funds, Centurion is respon-
sible for:
. managing the day-to-day operations and business activities of the Funds;
. determining the level and nature of the downside protection desired for
the U.S. Contra Fund and the International Contra Fund;
. evaluating and selecting qualified investment sub-advisers to manage each
Fund's assets according to its investment goal and strategies;
. monitoring the activities of the Funds' sub-advisers; and
. providing office space and equipment.
Centurion, an independent trust company organized under the laws of the State
of Arizona in 1994, is exempt from registration under the Investment Advisers
Act of 1940. With more than $[ ] billion of assets under management and admin-
istration as of September 30, 2000, Centurion and its affiliates provide a full
range of custodial, investment and trust products and services to their custom-
ers.
The Sub-Advisers. Centurion has engaged the following sub-adviser(s) to man-
age all or a portion of a Fund's portfolio according to its investment goal and
strategies:
--------------------------------------------------------------------------------
Centurion U.S.
Equity Fund . Trainer, Wortham & Company Inc., located at 845 Third
Avenue, New York, New York 10022, is a wholly owned
subsidiary of First Republic Bank, a San Francisco-
based, NYSE-listed financial institution. As of Sep-
tember 30, 2000 accounts managed by Trainer had com-
bined assets of approximately $ billion. Trainer
commenced managing the Fund on March 15, 2000,
replacing Parametric Portfolio Associates.
. Credit Suisse Asset Management, LLC. located at
466 Lexington Avenue, New York, NY 10017, is a lim-
ited liability company that is wholly-owned by Credit
Suisse Group, the second largest Swiss bank. CSAM is
a diversified investment adviser managing global
equity, fixed income and derivative securities
accounts for
20
<PAGE>
Management (continued)
corporate pension and profit-sharing plans, state pen-
sion funds, union funds, endowments and other charita-
ble institutions. Together with its predecessor firms,
CSAM has been engaged in the investment advisory busi-
ness for over 60 years. As of September 30, 2000, CSAM
managed approximately $ billion in assets.
-------------------------------------------------------------------------------
Centurion Int'l
Equity Fund . Friends Ivory & Sime, Inc., located at One World
Trade Center, Suite 2101, New York, NY 10048-0080, is
an investment management firm organized in 1978. FISI
has entered into a sub-advisory arrangement with
Friends Ivory & Sime plc ("Friends"), its parent com-
pany, whereby Friends will perform certain investment
advisory and portfolio transaction services for the
Fund. Friends, located at 15 Old Bailey, London,
England EC4M7AP, is one of the leading independent
investment managers in the United Kingdom. As of Sep-
tember 30, 2000, FISI and its affiliates managed
approximately $ billion, including approximately $
billion of global equity and equity-related invest-
ments.
. CSAM. See above.
-------------------------------------------------------------------------------
Centurion U.S. . CSAM, See above.
Contra Fund
-------------------------------------------------------------------------------
Centurion Int'l . CSAM. See above.
Contra Fund
-------------------------------------------------------------------------------
Management Fees. During the fiscal year ended September 30, 2000 each Fund
paid Centurion the annual investment management fee described below (based on
a percentage of the Fund's average daily net assets):
Centurion U.S.
Equity Fund:
0.75% of the first $25 million of the average daily
net assets of the Fund and 0.70% of the amount in
excess of $25 million
Centurion Int'l
Equity Fund:
0.75% of the first $50 million of the average daily
net assets of the Fund, 0.725% of the next $50 million
and 0.70% of the amount in excess of $100 million
Centurion U.S.
Contra Fund:
1.20%
21
<PAGE>
Management (continued)
Centurion Int'l
Contra Fund:
1.20%
From this amount, Centurion pays each sub-adviser an annual sub-advisory fee
for its services to the Fund. None of the Funds are responsible for payment of
the annual sub-advisory fee.
SSB Citi Fund Management LLC ("SSB Citi") acts as the Funds' administrator
for which each Fund pays a fee at an annual rate of 0.20% of the respective
Funds' average daily net assets or a minimum of $50,000 for each portfolio
depending upon which amount is greater. SSB Citi also receives a fee for con-
sulting services at an annual rate of 0.05% of each Fund's average daily net
assets.
Meet the Managers
Each portfolio manager or advisory committee indicated below is primarily
responsible for the day-to-day management of the Fund.
-------------------------------------------------------------------------------
Centurion U.S.
Equity Fund . (Trainer) Robert J. Vile, Managing Director & Portfo-
lio Manager, has served as Portfolio Manager since
March 15, 2000, when Trainer Wortham began managing
the Fund. Mr. Vile joined Trainer Wortham in 1998.
Prior to Trainer Wortham, Mr. Vile was the Equity
Portfolio Manager at Harleysville Asset Management
from 1994 to 1998. From 1991 to 1994, he served as
Investment Research Officer at the Dai-ichi Kangyo
Bank. Prior to that, Mr. Vile had portfolio management
responsibilities at Doylestown Health Foundation and
Widmann, Siff & Co.
. (CSAM) CSAM utilizes a team of portfolio managers,
assistant portfolio managers and analysts acting
together to manage the Fund (the "CSAM Committee").
The CSAM Committee--which consists of Andrew Parker,
Director, Anthony Antonucci, Director, Nelson Louie,
Vice President, and Christian T. Lee, Vice President--
has served as portfolio manager since the Fund's
inception.
Andrew M. Parker, Director, is a portfolio manager in
the derivatives group, with additional responsibilities
in collateralized bond obligations and other
securitized products. He joined CSAM in 1995.
Anthony J. Antonucci, Director, is responsible for the
implementation, monitoring and execution of equity
derivative strategies. He joined CSAM in 1994.
22
<PAGE>
Management (continued)
Christian T. Lee is a Vice President of CSAM and
researches trading opportunities by designing and pro-
gramming analytical tools for currency and equity mar-
kets. He oversees operational and accounting issues. He
joined CSAM in 1996.
Nelson Louie is a Vice President of CSAM and is respon-
sible for all exchange-traded futures analysis and exe-
cution. He joined CSAM in 1993.
-------------------------------------------------------------------------------
Centurion Int'l . (FISI) Julie Dent, Director of Global Equities at
Equity Fund Friends, has served as portfolio manager since the
Fund's inception. Ms. Dent, who joined Friends in 1986,
has extensive experience in research and investing in
Asian markets, and has been involved in country asset
allocation for the past seven years.
. (CSAM) The CSAM Committee (discussed above under "U.S.
Equity Fund") has served as portfolio manager since the
Fund's inception.
-------------------------------------------------------------------------------
Centurion U.S. . (CSAM) The CSAM Committee (discussed above under "U.S.
Contra Fund Equity Fund") has served as portfolio manager since the
Fund's inception.
-------------------------------------------------------------------------------
Centurion Int'l . (CSAM) The CSAM Committee (discussed above under "U.S.
Contra Fund Equity Fund") has served as portfolio manager since the
Fund's inception.
-------------------------------------------------------------------------------
Account Policies
Pricing of Shares
You pay no sales charges on initial or subsequent investments in the Funds.
Your price for Fund shares is the Fund's net asset value ("NAV") per share,
which is generally calculated at the later of the close of regular trading on
the New York Stock Exchange (typically 4 p.m. Eastern time) or the time for
settlement of the Funds' options and futures contracts, if any (typically 4:15
p.m. Eastern time), each day the Exchange is open for business. Your purchase
order will be priced at the next NAV calculated after your order is accepted
by the Fund. Your redemption request will be priced at the next NAV calculated
after the Fund receives the request in proper form.
23
<PAGE>
Account Policies (continued)
Options and futures contracts purchased and held by a Fund are valued at the
close of the securities or commodities exchanges on which they are traded (typ-
ically 4:15 p.m. Eastern time). Stock index options will be valued at the last
price, but if that price does not fall within the bid and ask price for the
stock index option when the market closes at 4:15 p.m. Eastern Time, then the
stock index option will be valued at the mean between the bid and asked quota-
tions. 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 Profession-
als may charge fees for their services in addition to the expenses charged by
the Funds and may set different minimum investments or limitations on buying or
selling shares than those described below. Investors should consult their
Investment Professional if in doubt.
Minimum Initial Investment: $2,500
Minimum Subsequent Investment: $250
All investments must be in U.S. dollars. Third-party checks cannot be accept-
ed. You may be charged a fee for any check that does not clear. In its discre-
tion, subject to review by the Board, Centurion may waive the above minimum
investment requirements.
Selling Shares
When selling shares, your order will be processed promptly and you will gen-
erally receive the proceeds within a week. Before selling recently purchased
shares, 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 busi-
ness days.
24
<PAGE>
Account Policies (continued)
Some circumstances require written sell orders, along with signature guaran-
tees. These include:
. amounts of $100,000 or more;
. amounts of $1,000 or more on accounts whose address has been changed
within the last 30 days; or
. requests to send the proceeds to a different payee or address.
A signature guarantee helps protect against fraud. You can obtain one from
most banks or securities dealers, but not from a notary public. Please call us
to ensure that your signature guarantee will be processed correctly.
General Policies
If your account falls below $2,000, the Fund may ask you to increase your
balance. If it still remains below $2,000 after 60 days, the Fund may close
your account and send you the proceeds.
Unless you decline telephone privileges on your application, you may be
responsible for any fraudulent telephone order as long as the Fund takes rea-
sonable measures to verify the order.
Each Fund reserves the right to:
. refuse any purchase or exchange request that could adversely affect the
Fund or its operations, including those from any individual or group who,
in the Fund's view, is likely to engage in excessive trading;
. refuse any purchase or exchange request in excess of 1% of the Fund's
total assets;
. change or discontinue its exchange privilege, or temporarily suspend this
privilege during unusual market conditions;
. change its minimum investment amounts;
. delay sending out redemption proceeds for up to seven days if doing so
sooner would adversely affect the Fund (generally applies only in cases
of very large redemptions, excessive trading or during unusual market
conditions); and
. make a "redemption in kind" (payment in portfolio securities rather than
cash) if the amount you are redeeming is large enough to affect Fund
operations.
25
<PAGE>
Shareholder Services
Exchange Privilege
You can exchange $2,500 or more from one Fund into another (no minimum for
retirement accounts). You can request your exchange in writing or by phone. Be
sure to read the Fund description in this Prospectus for any Fund into which
you are exchanging. Any new account established through an exchange will have
the same privileges as your original account (as long as they are available).
No fee is currently charged on exchanges.
Telephone Privilege
To move money between your bank account and your Fund account with a phone
call, use the telephone privilege. You can set up this privilege on your
account by providing bank account information and following the instructions on
your application.
Account Statements
You will automatically receive regular account statements. You will also be
sent a yearly statement detailing the tax characteristics of any dividends and
distributions you have received.
Distribution Policies and Taxes
Distributions
As a Fund investor, you will receive distributions.
Each Fund earns dividends from stocks and interest from bond, money market
and other investments. These are passed along as dividend distributions. A Fund
realizes capital gains whenever it sells securities for a higher price than it
paid for them. These are passed along as capital gains distributions, a portion
of which may be taxable to you as ordinary income.
Each Fund declares and pays its net income and capital gains annually. A
Fund's capital gains are usually distributed in November or December.
When you open an account, specify on your account application how you want to
receive your distributions. Most investors have their distributions reinvested
in additional shares of the same Fund. Distributions will be automatically
reinvested unless you choose on your account application to have your distribu-
tions mailed to you by check or sent by electronic transfer.
For retirement accounts, all distributions are automatically reinvested. When
you are over 59 1/2 years old, you can receive distributions in cash.
26
<PAGE>
Distribution Policies and Taxes (continued)
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 long-term capital gains regardless of how
long you have held Fund shares; distributions from other sources are generally
taxed as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. If you buy shares shortly before or on the "record date"
(the date that establishes you as the person to receive the upcoming distribu-
tion) you will receive a portion of the money you just invested in the form of
a taxable distribution.
If you fail to provide your correct taxpayer identification number on your
application, or you have been notified by the IRS that you are subject to
backup withholding, the Funds may withhold 31% of all distributions to you for
federal taxes. In the case of an individual, your taxpayer identification num-
ber is your social security number.
The form 1099 that is mailed to you every January details your distributions
and their federal tax category, including the portion taxable as long-term cap-
ital gains.
Taxes on Transactions. Any time you sell or exchange shares, it is considered
a taxable event for you. Depending on the purchase price and the sale price of
the shares you sell or exchange, you may have a gain or loss on the transac-
tion. You are responsible for any tax liabilities generated by your transac-
tions.
Fund Details
About the Administrator and Consultant
SSB Citi serves as the administrator for the Company and is responsible for
overseeing all aspects of the Company's administration and operations. SSB Citi
provides investment management and administration services to investment compa-
nies that had aggregate assets under management, as of October 31, 2000, over
$[ ] billion.
27
<PAGE>
Fund Details (continued)
Salomon Smith Barney Inc. ("SSB"), an affiliate of SSB Citi, provides con-
sulting services to the Funds through its Consulting Group. As a consultant,
SSB furnishes statistical and other factual information to the Funds, as well
as advice regarding general economic factors and market trends.
Benchmark Information
None of the Funds is sponsored, endorsed, sold or promoted by Frank Russell
Company ("Frank Russell"), Standard & Poor's ("S&P") or Morgan Stanley, Dean
Witter & Co. ("Morgan Stanley"), which own service mark rights to the Russell
Index, S&P and EAFE Index, respectively. Frank Russell, S&P and Morgan Stanley
do not make any representation or warranty, implied or express, to investors in
the Funds, or any member of the public, regarding the advisability of investing
in the Funds or the ability of the Russell Index, the S&P Index or the EAFE
Index, respectively, to track general stock market performance.
28
<PAGE>
Financial Highlights
The financial highlights tables are intended to help you understand the per-
formance of each Fund since inception. Certain information reflects financial
results for a single share. Total return represents the rate that a share-
holder would have earned (or lost) on a fund share assuming reinvestment of
all dividends and distributions. The information in the following tables was
audited by KPMG LLP, independent accountants, whose report, along with each
Fund's financial statements, are included in the annual report (available upon
request). There is no information for Centurion International Contra Fund
because no shares were outstanding during the period shown.
<TABLE>
<CAPTION>
U.S. Equity Fund 2000 1999(/1/)(/2/)
--------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ $ 10.00
--------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.01)
Net realized and unrealized gain 0.41
--------------------------------------------------------------
Total Income From Operations 0.40
--------------------------------------------------------------
Less Distributions From:
Net investment income -- --
--------------------------------------------------------------
Total Distributions -- --
--------------------------------------------------------------
Net Asset Value, End of Period $ $ 10.40
--------------------------------------------------------------
Total Return % 4.00%(/3/)
--------------------------------------------------------------
Net Assets, End of Period (000s) $ $32,328
--------------------------------------------------------------
Ratios to Average Net Assets:
Expenses % 1.45%(/4/)
Net investment loss (0.14)(/4/)
--------------------------------------------------------------
Portfolio Turnover Rate % 89%
--------------------------------------------------------------
</TABLE>
(1) For the period from December 7, 1998 (inception date) to September 30,
1999.
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) Total return is not annualized, as it may not be representative of the
total return for the year.
(4) Annualized.
29
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
International Equity Fund 2000 1999(/1/)(/2/)
---------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ $ 10.00
---------------------------------------------------------------
Income From Operations:
Net investment income 0.04
Net realized and unrealized gain 0.69
---------------------------------------------------------------
Total Income From Operations 0.73
---------------------------------------------------------------
Less Distributions From:
Net investment income -- --
---------------------------------------------------------------
Total Distributions -- --
---------------------------------------------------------------
Net Asset Value, End of Period $ $ 10.73
---------------------------------------------------------------
Total Return % 7.30%(/3/)
---------------------------------------------------------------
Net Assets, End of Period (000s) $ $31,418
---------------------------------------------------------------
Ratios to Average Net Assets:
Expenses % 1.46%(/4/)
Net investment income 0.51(/4/)
---------------------------------------------------------------
Portfolio Turnover Rate % 102%
---------------------------------------------------------------
</TABLE>
(1) For the period from December 7, 1998 (inception date) to September 30,
1999.
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) Total return is not annualized, as it may not be representative of the
total return for the year.
(4) Annualized.
30
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
U.S. Contra Fund
2000 1999(/1/)(/2/)
----------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ $ 10.00
----------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.17(/3/)
Net realized and unrealized loss (2.62)
----------------------------------------------------------------------
Total Loss From Operations (2.45)
----------------------------------------------------------------------
Less Distributions From:
Net investment income -- --
----------------------------------------------------------------------
Total Distributions -- --
----------------------------------------------------------------------
Net Asset Value, End of Period $ $ 7.55
----------------------------------------------------------------------
Total Return % (24.50%)(/4/)
----------------------------------------------------------------------
Net Assets, End of Period (000s) $ $28,593
----------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses % 1.50%(/3/)(/5/)(/6/)
Net investment income (loss) 2.57(/3/)(/5/)(/6/)
----------------------------------------------------------------------
Portfolio Turnover Rate % 0%
----------------------------------------------------------------------
</TABLE>
(1) For the period from December 7, 1998 (inception date) to September 30,
2000.
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) The manager has waived a portion of its fees for the period ended September
30, 2000. If such fees were not waived, the per share effect on net
investment income and the expense ratio would have been as follows:
<TABLE>
<CAPTION>
Per Share Decrease Expense Ratio
in Net Investment Income Without Fee Waiver
------------------------ ------------------
<S> <C> <C>
U.S. Contra Fund $ %(5)(6)
</TABLE>
(4) Total return is not annualized, as it may not be representative of the
total return for the year.
(5) Annualized.
(6) As a result of a voluntary expense limitation, the expense ratio for the
U.S. Contra Fund will not exceed 1.50%.
31
<PAGE>
For Additional Information
More information about the Funds is available free upon request, including
the following:
Annual/Semiannual Report to Shareholders
These reports include financial statements, portfolio investments and
detailed performance information. The annual report also provides a discussion
of the market conditions and investment strategies that significantly affected
Fund performance during the last fiscal year and includes the independent
accountants' report.
Statement of Additional Information ("SAI")
The SAI provides more details about the Funds and their investments. A cur-
rent SAI has been filed with the SEC and is incorporated by reference (is
legally considered part of this Prospectus).
Please contact the Company to obtain more information about the Funds,
inquire about your account or request a free copy of the current annual/semi-
annual report or SAI:
. By telephone: 800-451-2010
. By mail: Centurion Funds, Inc.
2425 East Camelback Road, Suite 530
Phoenix, AZ 85016-4200
You can also obtain copies of the SAI and other information about the Funds
from your Investment Professional.
You may visit the SEC's Internet Website (www.sec.gov) to view the SAI, mate-
rial incorporated by reference and other information. You can also obtain cop-
ies of this information by sending your request and a duplicating fee to the
SEC's Public Reference Section, Washington, D.C. 20549-6009 or by sending your
request electronically at [email protected]. You may review and copy informa-
tion 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.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Manager: Sub-
advisers:
Centurion Trust Company Credit
Suisse Asset Management LLC
2425 E. Camelback Rd., Suite 530 466
Lexington Avenue
Phoenix, AZ 85016-4200 New
York, NY 10017
Administrator: Friends
Ivory & Sime Inc.
SSB Citi Fund Management LLC One
World Trade Center, Suite 2101
7 World Trade Center New
York, NY 10048-0080
New York, NY 10048
Trainer,
Wortham & Company Inc.
Transfer Agent: 845
Third Avenue
PFPC Global Fund Services New
York, NY 10022
P.O. Box 9699
Providence, RI 02940-9699
Independent Accountant:
KPMG LLP
Custodians: 757
Third Avenue
PFPC Trust Company New
York, NY 10017
8800 Tinicum Boulevard
Philadelphia, PA 19153 Counsel:
Willkie
Farr & Gallagher
The Chase Manhattan Bank Distributor: 787
Seventh Avenue
4 Chase MetroTech Center Salomon Smith Barney Inc. New
York, NY 10019-6099
Brooklyn, NY 11245 388 Greenwich Street
New York, NY 10013
</TABLE>
SEC File No. 811-8977
PART B
STATEMENT OF ADDITIONAL INFORMATION
January 26, 2001
CENTURION FUNDS, INC.
__________________________
Centurion U.S. Equity Fund
Centurion International Equity Fund
Centurion U.S. Contra Fund
Centurion International Contra Fund
__________________________
Contents
Page
Organization of the Company 2
Investment Goals and Policies 2
Management of the Funds 26
Additional Purchase and Redemption Information 32
Exchange Privilege 33
Additional Information Concerning Taxes 33
Performance Data 38
Other Information 41
Financial Statements 42
Appendix ? Description of Ratings A
This Statement of Additional Information is meant to be
read in conjunction with the Prospectus for Centurion Funds, Inc.
(the "Company") dated January 26, 2001, as amended or
supplemented from time to time (the "Prospectus"), and is
incorporated by reference in its entirety into the Prospectus.
The Company currently consists of four separately managed
portfolios: Centurion U.S. Equity Fund (the "U.S. Equity Fund"),
Centurion International Equity Fund (the "International Equity
Fund"), Centurion U.S. Contra Fund (the "U.S. Contra Fund") and
Centurion International Contra Fund (the "International Contra
Fund") (together, the "Funds," and each, a "Fund"). Because this
Statement of Additional Information is not itself a prospectus,
no investment in shares of a Fund should be made solely upon the
information contained herein. Copies of the Prospectus and
information regarding the Funds' current performance and the
status of shareholder accounts may be obtained by calling the
Company at (800) 451-2010 or by writing to the Company at 2425
East Camelback Road, Phoenix, Arizona 85016-4200.
ORGANIZATION OF THE COMPANY TC "Organization of the Company" \f
C \l "1"
The Company is a diversified open-end management investment
company that was organized as a corporation on August 20, 1998
under the laws of the State of Maryland. The Company's Charter
authorizes the Board of Directors (the "Board") to issue
500,000,000 full and fractional shares of capital stock, $.001
par value, of which 100,000,000 shares are designated a series
called the "Centurion U.S. Equity Fund," 100,000,000 shares are
designated a series called the "Centurion International Equity
Fund," 150,000,000 shares are designated a series called the
"Centurion U.S. Contra Fund," and 150,000,000 shares are
designated a series called the "Centurion International Contra
Fund."
INVESTMENT GOALS AND POLICIES TC "Investment Goals and
Policies" \f C \l "1"
As stated in the Prospectus, the investment goal of the
U.S. Equity Fund is to provide long-term growth consistent with
reasonable efforts to preserve capital. The investment goal of
the International Equity Fund (together with the U.S. Equity
Fund, the "Equity Funds") is to provide long-term growth
consistent with reasonable efforts to preserve capital. The
investment goal of the U.S. Contra Fund is to provide protection
against declines in the value of the U.S. equity allocation of
certain assets custodied with Centurion Trust Company
("Centurion"). The investment goal of the International Contra
Fund is to provide protection against declines in the value of
the non-U.S. equity allocation of certain assets custodied with
Centurion. The following information supplements the discussion
of each Fund's investment goal and policies in the Prospectus.
There are no assurances that a Fund will achieve its investment
goal.
Centurion serves as investment manager to each Fund.
Centurion has engaged Trainer, Wortham & Company Inc. ("Trainer")
and Credit Suisse Asset Management LLC ("CSAM") as sub-advisers
to the U.S. Equity Fund, Friends Ivory & Sime, Inc. ("FISI") and
CSAM as sub-advisers to the International Equity Fund, and CSAM
as sub-adviser to both the U.S. Contra Fund and the International
Contra Fund (together, the "Contra Funds"). The term "Adviser,"
as used in this Statement of Additional Information, shall refer
to Centurion, Trainer, FISI and/or CSAM, as applicable.
Options, Futures and Currency Exchange Transactions
Securities Options. Each Fund may write covered call
options on stock and debt securities and may purchase U.S.
exchanged-traded and over-the counter ("OTC") put and call
options.
A Fund realizes fees (referred to as "premiums") for
granting the rights evidenced by the options it has written. A
put option embodies the right of its purchaser to compel the
writer of the option to purchase from the option holder an
underlying security at a specified price for a specified time
period or at a specified time. In contrast, a call option
embodies the right of its purchaser to compel the writer of the
option to sell to the option holder an underlying security at a
specified price for a specified time period or at a specified
time.
The principal reason for writing covered options on a
security is to attempt to realize, through the receipt of
premiums, a greater return than would be realized on the securi-
ties 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.
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.
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.
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 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 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.
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
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 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 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 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.
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 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.
DIAMONDS, SPDRs and WEBS ("Equity Equivalents"). DIAMONDS
("Dow Jones Industrial Average Model New Depositary Shares") and
SPDRs ("Standard & Poor's Depositary Receipts") are exchange-
traded securities that represent ownership in long-term unit
investment trusts established to accumulate and hold a portfolio
of common stocks that is intended to track the price performance
and dividend yield of the Dow Jones Industrial Average and the
Standard & Poor's Composite Stock Price Index, respectively.
WEBS ("World Equity Benchmark Shares") are exchange-traded shares
of series of an investment company that are designed to replicate
the performance of a particular foreign equity market index.
Equity Equivalents may be used for several purposes,
including, to simulate full investment in the underlying index
while retaining a cash balance for fund management purposes, to
facilitate trading, to reduce transaction costs or to seek higher
investment returns where an Equity Equivalent is priced more
attractively than securities in the underlying index. Because
the expense associated with an investment in Equity Equivalents
may be substantially lower than the expense of small investments
directly in the securities comprising the indices they seek to
track, investments in Equity Equivalents may provide a cost-
effective means of diversifying a Fund's assets across a broad
range of equity securities.
To the extent a Fund invests in securities of other
investment companies, Fund shareholders would indirectly pay a
portion of the operating costs of such companies in addition to
the expenses of its own operation. These costs include
management, brokerage, shareholder servicing and other
operational expenses. Indirectly, then, shareholders of a Fund
that invests in Equity Equivalents may pay higher operational
costs than if they owned the underlying investment companies
directly. Additionally, a Fund's investments in such investment
companies are subject to limitations under the 1940 Act and
market availability.
The prices of Equity Equivalents are derived and based upon
the securities held by the particular investment company.
Accordingly, the level of risk involved in the purchase or sale
of an Equity Equivalent is similar to the risk involved in the
purchase or sale of traditional common stock, with the exception
that the pricing mechanism for such instruments is based on a
basket of stocks. The market prices of Equity Equivalents are
expected to fluctuate in accordance with both changes in the net
asset values of their underlying indices and the supply and
demand for the instruments on the exchanges on which they are
traded. Substantial market or other disruptions affecting an
Equity Equivalent could adversely affect the liquidity and value
of the shares of a Fund investing in such instruments.
Lending of Portfolio Securities. Each Fund may lend
portfolio securities to brokers, dealers and other financial
organizations that meet capital and other credit requirements or
other criteria established by the Board. These loans, if and
when made, may not exceed 33-1/3% of a Fund's total assets taken
at value. A Fund will not lend portfolio securities to
affiliates of the Adviser unless they have applied for and
received specific authority to do so from the SEC. Loans of
portfolio securities will be collateralized by cash, letters of
credit or U.S. Government Securities, which are maintained at all
times in an amount equal to at least 102% of the current market
value of the loaned securities. Any gain or loss in the market
price of the securities loaned that might occur during the term
of the loan would be for the account of the Fund. From time to
time, a Fund may return a part of the interest earned from the
investment of collateral received for securities loaned to the
borrower and/or a third party that is unaffiliated with the Fund
and that is acting as a "finder."
By lending its securities, a Fund can increase its income
by continuing to receive interest and any dividends on the loaned
securities as well as by either investing the collateral received
for securities loaned in short term instruments or obtaining
yield in the form of interest paid by the borrower when U.S.
Government Securities are used as collateral. Although the
generation of income is not the primary investment goal of the
Funds, income received could be used to pay a Fund's expenses and
would increase an investor's total return. Each Fund will adhere
to the following conditions whenever its portfolio securities are
loaned: (i) the Fund must receive at least 102% cash collateral
or equivalent securities of the type discussed in the preceding
paragraph from the borrower; (ii) the borrower must increase such
collateral whenever the market value of the securities rises
above the level of such collateral; (iii) the Fund must be able
to terminate the loan at any time; (iv) the Fund must receive
reasonable interest on the loan, as well as any dividends,
interest or other distributions on the loaned securities and any
increase in market value; (v) the Fund may pay only reasonable
custodian fees in connection with the loan; and (vi) voting
rights on the loaned securities may pass to the borrower,
provided, however, that if a material event adversely affecting
the investment occurs, the Board must terminate the loan and
regain the right to vote the securities. Loan agreements involve
certain risks in the event of default or insolvency of the other
party including possible delays or restrictions upon a Fund's
ability to recover the loaned securities or dispose of the
collateral for the loan.
When Issued Securities, Delayed-Delivery Transactions and
Forward Commitments. Each Fund may purchase securities on a
"when issued" basis, for delayed delivery (i.e., payment or
delivery occur beyond the normal settlement date at a stated
price and yield) or on a forward commitment basis. Each Fund
does not intend to engage in these transactions for speculative
purposes, but only in furtherance of its investment goal. These
transactions occur when securities are purchased or sold by a
Fund with payment and delivery taking place in the future to
secure what is considered an advantageous yield and price to a
Fund at the time of entering into the transaction. The payment
obligation and the interest rate that will be received on when
issued securities are fixed at the time the buyer enters into the
commitment. Due to fluctuations in the value of securities
purchased or sold on a when issued, delayed delivery basis or
forward commitment basis, the prices obtained on such securities
may be higher or lower than the prices available in the market on
the dates when the investments are actually delivered to the
buyers.
When a Fund agrees to purchase when issued, delayed-
delivery securities or securities on a forward commitment basis,
its custodian will set aside cash or liquid securities equal to
the amount of the commitment in a segregated account. Normally,
the custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case a Fund may be required
subsequently to place additional assets in the segregated account
in order to ensure that the value of the account remains equal to
the amount of the Fund's commitment. The assets contained in the
segregated account will be marked-to-market daily. It may be
expected that a Fund's net assets will fluctuate to a greater
degree when it sets aside portfolio securities to cover such
purchase commitments than when it sets aside cash. When a Fund
engages in when issued, delayed-delivery or forward commitment
transactions, it relies on the other party to consummate the
trade. Failure of the seller to do so may result in a Fund's
incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
Repurchase Agreements. Each Fund may agree to purchase
securities from a bank or recognized securities dealer and
simultaneously commit to resell the securities to the bank or
dealer at an agreed-upon date and price reflecting a market rate
of interest unrelated to the coupon rate or maturity of the
purchased securities ("repurchase agreements"). A Fund would
maintain custody of the underlying securities prior to their
repurchase; thus, the obligation of the bank or dealer to pay the
repurchase price on the date agreed to would be, in effect,
secured by such securities. If the value of such securities were
less than the repurchase price, plus interest, the other party to
the agreement would be required to provide additional collateral
so that at all times the collateral is at least 102% of the
repurchase price plus accrued interest. Default by or bankruptcy
of a seller would expose a Fund to possible loss because of
adverse market action, expenses and/or delays in connection with
the disposition of the underlying obligations. The financial
institutions with which a Fund may enter into repurchase
agreements will be banks and non-bank dealers of U.S. Government
securities that are listed on the Federal Reserve Bank of New
York's list of reporting dealers, if such banks and non-bank
dealers are deemed creditworthy by the Fund's Adviser. The
Adviser will continue to monitor creditworthiness of the seller
under a repurchase agreement, and will require the seller to
maintain during the term of the agreement the value of the
securities subject to the agreement to equal at least 102% of the
repurchase price (including accrued interest). In addition, the
Adviser will require that the value of this collateral, after
transaction costs (including loss of interest) reasonably
expected to be incurred on a default, be equal to 102% or greater
than the repurchase price (including accrued premium) provided in
the repurchase agreement or the daily amortization of the
difference between the purchase price and the repurchase price
specified in the repurchase agreement. The Adviser will mark-to-
market daily the value of the securities. Repurchase agreements
are considered to be loans by a Fund under the 1940 Act.
Reverse Repurchase Agreements and Dollar Rolls. Each Fund
may enter into reverse repurchase agreements with the same
parties with whom it may enter into repurchase agreements.
Reverse repurchase agreements involve the sale of securities held
by a Fund pursuant to its agreement to repurchase them at a
mutually agreed upon date, price and rate of interest. At the
time a Fund enters into a reverse repurchase agreement, it will
establish and maintain a segregated account with an approved
custodian containing cash or liquid securities having a value not
less than the repurchase price (including accrued interest). The
assets contained in the segregated account will be marked to
market daily and additional assets will be placed in such account
on any day in which the assets fall below the repurchase price
(plus accrued interest). A Fund's liquidity and ability to
manage its assets might be affected when it sets aside cash or
portfolio securities to cover such commitments. Reverse
repurchase agreements involve the risk that the market value of
the securities retained in lieu of sale may decline below the
price of the securities a Fund has sold but is obligated to
repurchase. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent,
such buyer or its trustee or receiver may receive an extension of
time to determine whether to enforce a Fund's obligation to
repurchase the securities, and the Fund's use of the proceeds of
the reverse repurchase agreement may effectively be restricted
pending such decision.
Each Fund also may enter into "dollar rolls," in which a
Fund sells fixed-income securities for delivery in the current
month and simultaneously contracts to repurchase similar but not
identical (same type, coupon and maturity) securities on a
specified future date. During the roll period, the Fund would
forego principal and interest paid on such securities. The Fund
would be compensated by the difference between the current sales
price and the forward price for the future purchase, as well as
by the interest earned on the cash proceeds of the initial sale.
At the time a Fund enters into a dollar roll transaction, it will
place in a segregated account maintained with an approved
custodian cash or liquid securities having a value not less than
the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure that its value is
maintained. Reverse repurchase agreements and dollar rolls that
are accounted for as financings are considered to be borrowings
under the 1940 Act.
Convertible Securities. Convertible securities in which a
Fund may invest, including both convertible debt and convertible
preferred stock, may be converted at either a stated price or
stated rate into underlying shares of common stock. Because of
this feature, convertible securities enable an investor to
benefit from increases in the market price of the underlying
common stock. Convertible securities provide higher yields than
the underlying equity securities, but generally offer lower
yields than non convertible securities of similar quality. Like
bonds, the value of convertible securities fluctuates in relation
to changes in interest rates and, in addition, also fluctuates in
relation to the underlying common stock.
Structured Notes. Each Fund may invest in structured
notes. The distinguishing feature of a structured note is that
the amount of interest and/or principal payable on the notes is
based on the performance of a benchmark asset or market other
than fixed-income securities or interest rates. Examples of a
benchmark include stock prices, currency exchange rates and
physical commodity prices. Investing in a structured note allows
a Fund to gain exposure to the benchmark asset or market, such as
investments in certain emerging markets that restrict investment
by foreigners. The structured note fixes the maximum loss that a
Fund may experience in the event that the market does not perform
as expected. The performance tie can be a straight relationship
or leveraged, although the Adviser generally will not use
leverage in its structured note strategies. Depending on the
terms of the note, a Fund may forego all or part of the interest
and principal that would be payable on a comparable conventional
note; a Fund's loss cannot exceed this foregone interest and/or
principal. An investment in a structured note involves risks
similar to those associated with a direct investment in the
benchmark asset. Structured notes will be treated as illiquid
securities for investment limitation purposes.
Non-Publicly Traded and Illiquid Securities. Each Fund may
not invest more than 15% of its net assets in non-publicly traded
and illiquid securities, including securities that are illiquid
by virtue of the absence of a readily available market,
repurchase agreements which have a maturity of longer than seven
days, certain Rule 144A Securities (as described below) and time
deposits maturing in more than seven days. Securities that have
legal or contractual restrictions on resale but have a readily
available market are not considered illiquid for purposes of this
limitation. Repurchase agreements subject to demand are deemed
to have a maturity equal to the notice period.
Under current guidelines of the staff of the SEC, illiquid
securities are considered to include, among other securities,
purchased OTC options, certain cover for OTC options, securities
subject to contractual or legal restrictions on resale because
they have not been registered under the Securities Act of 1933,
as amended (the "Securities Act"), securities which are otherwise
not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not
been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Limitations
on resale may have an adverse effect on the marketability of
portfolio securities and a mutual fund might be unable to dispose
of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days without borrowing. A
mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has
developed for certain securities that are not registered under
the Securities Act including repurchase agreements, commercial
paper, foreign securities, municipal securities and corporate
bonds and notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.
Rule 144A Securities. Rule 144A under the Securities Act
adopted by the SEC allows for a broader institutional trading
market for securities otherwise subject to restriction on resale
to the general public. Rule 144A establishes a "safe harbor"
from the registration requirements of the Securities Act for
resales of certain securities to qualified institutional buyers.
The Adviser anticipates that the market for certain restricted
securities such as institutional commercial paper will expand
further as a result of this regulation and use of automated
systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities
Dealers, Inc.
An investment in Rule 144A Securities will be considered
illiquid and therefore subject to the Fund's limit on the
purchase of illiquid securities unless the Board or its delegates
determines that the Rule 144A Securities are liquid. In reaching
liquidity decisions, the Board and its delegates may consider,
inter alia, the following factors: (i) the unregistered nature
of the security; (ii) the frequency of trades and quotes for the
security; (iii) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (iv)
dealer undertakings to make a market in the security and (v) the
nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
Emerging Growth and Smaller Capitalization Companies;
Unseasoned Issuers. Investments in securities of small- and
medium-sized, emerging growth companies and companies with
continuous operations of less than three years ("unseasoned
issuers") involve considerations that are not applicable to
investing in securities of established, larger-capitalization
issuers, including reduced and less reliable information about
issuers and markets, less stringent financial disclosure
requirements, illiquidity of securities and markets, higher
brokerage commissions and fees and greater market risk in
general. Securities of these companies may also involve greater
risks since these securities may have limited marketability and,
thus, may be more volatile. Because such companies normally have
fewer shares outstanding than larger, more established companies,
it may be more difficult for a Fund to buy or sell significant
amounts of such shares without an unfavorable impact on
prevailing prices. These companies may have limited product
lines, markets or financial resources and may lack management
depth. In addition, these companies are typically subject to a
greater degree of changes in earnings and business prospects than
are larger, more established companies. Although investing in
securities of these companies offers potential for above-average
returns if the companies are successful, the risk exists that the
companies will not succeed and the prices of the companies'
shares could significantly decline in value.
Rights Offerings and Purchase Warrants. Each Fund may
invest in rights and warrants to purchase newly created equity
securities consisting of common and preferred stock. The equity
security underlying a right or warrant is outstanding at the time
the right or warrant is issued or is issued together with the
right or warrant.
Investing in rights and warrants can provide a greater
potential for profit or loss than an equivalent investment in the
underlying security, and, thus, can be a speculative investment.
The value of a right or warrant may decline because of a decline
in the value of the underlying security, the passage of time,
changes in interest rates or in the dividend or other policies of
the company whose equity underlies the warrant or a change in the
perception as to the future price of the underlying security, or
any combination thereof. Rights and warrants generally pay no
dividends and confer no voting or other rights other than to
purchase the underlying security.
Borrowing. Each Fund may borrow up to 33-1/3% of its total
assets for temporary or emergency purposes, including to meet
portfolio redemption requests so as to permit the orderly
disposition of portfolio securities or to facilitate settlement
transactions on portfolio securities. Investments (including
roll-overs) will not be made when borrowings exceed 5% of a
Fund's net assets. Although the principal of such borrowings
will be fixed, a Fund's assets may change in value during the
time the borrowing is outstanding. Each Fund expects that some
of its borrowings may be made on a secured basis. In such
situations, either the custodian will segregate the pledged
assets for the benefit of the lender or arrangements will be made
with a suitable subcustodian, which may include the lender.
Other Investment Limitations
The investment limitations numbered 1 through 8 may not be
changed without the affirmative vote of the holders of a majority
of the Fund's outstanding shares. Such majority is defined as
the lesser of (i) 67% or more of the shares present at the
meeting, if the holders of more than 50% of the outstanding
shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the outstanding shares. Investment limitations
9 through 14 may be changed by a vote of the Board at any time.
Each Fund may not:
1. Borrow money except that a Fund may (a) borrow from
banks for temporary or emergency purposes and (b) enter into
reverse repurchase agreements; provided that reverse repurchase
agreements, dollar roll transactions that are accounted for as
financings and any other transactions constituting borrowing by
the Fund may not exceed 33-1/3% of the value of the Fund's total
assets at the time of such borrowing. For purposes of this
restriction, the entry into currency transactions, options,
futures contracts, options on futures contracts, forward
commitment transactions and dollar roll transactions that are not
accounted for as financings (and the segregation of assets in
connection with any of the foregoing) shall not constitute
borrowing.
2. Purchase any securities which would cause 25% or more
of the value of the Fund's total assets at the time of purchase
to be invested in the securities of issuers conducting their
principal business activities in the same industry; provided that
to the extent the benchmark of the Equity Funds is concentrated
in a particular industry, these Funds will be concentrated in
that industry. This limitation shall not apply to the purchase
of U.S. Government Securities.
3. Purchase the securities of any issuer if as a result
more than 5% of the value of the Fund's total assets would be
invested in the securities of such issuer, except that this 5%
limitation does not apply to U.S. Government Securities and
except that up to 25% of the value of the Fund's total assets may
be invested without regard to this 5% limitation.
4. Make loans, except that a Fund may purchase or hold
fixed income securities, including structured securities, lend
portfolio securities and enter into repurchase agreements.
5. Underwrite any securities issued by others except to
the extent that investment in restricted securities and the sale
of securities in accordance with the Fund's investment goal,
policies and limitations may be deemed to be underwriting.
6. Purchase or sell real estate or invest in oil, gas or
mineral exploration or development programs, except that a Fund
may invest in (a) securities secured by real estate, mortgages or
interests therein and (b) securities of companies that invest in
or sponsor oil, gas or mineral exploration or development
programs.
7. Invest in commodities, except that a Fund may
purchase and sell futures contracts, including those relating to
securities, currencies and indices, and options on futures
contracts, securities, currencies or indices, and purchase and
sell currencies on a forward commitment or delayed-delivery
basis.
8. Issue any senior security except as permitted in the
Fund's investment limitations.
9. Purchase securities on margin, except that a Fund may
obtain any short term credits necessary for the clearance of
purchases and sales of securities. For purposes of this
restriction, the deposit or payment of initial or variation
margin in connection with transactions in currencies, options,
futures contracts or related options will not be deemed to be a
purchase of securities on margin.
10. Purchase securities of other investment companies
except in connection with a merger, consolidation, acquisition,
reorganization or offer of exchange, or as otherwise permitted
under the 1940 Act.
11. Pledge, mortgage or hypothecate its assets, except to
the extent necessary to secure permitted borrowings and to the
extent related to the deposit of assets in escrow and in
connection with the writing of covered put and call options and
purchase of securities on a forward commitment or delayed-
delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options,
futures contracts, and options on futures contracts.
12. Invest more than 15% of the Fund's net assets in
securities which may be illiquid because of legal or contractual
restrictions on resale or securities for which there are no
readily available market quotations. For purposes of this
limitation, repurchase agreements with maturities greater than
seven days shall be considered illiquid securities.
13. Invest in rights and warrants (other than rights and
warrants acquired by the Fund as part of a unit or attached to
securities at the time of purchase) if, as a result, the
investments (valued at the lower of cost or market) would exceed
10% of the value of the Fund's net assets.
14. Make additional investments (including roll-overs) if
the Fund's borrowings exceed 5% of its net assets.
If a percentage restriction (other than the percentage
limitation set forth in No. 1 and No. 12) is adhered to at the
time of an investment, a later increase or decrease in the
percentage of assets resulting from a change in the values of
portfolio securities or in the amount of a Fund's assets will not
constitute a violation of such restriction.
Portfolio Valuation
The Prospectus discusses the time at which the net asset
value of each Fund is determined for purposes of sales and
redemptions. The following is a description of the procedures
used by each Fund in valuing its assets.
Securities listed on a U.S. securities exchange (including
securities traded through the NASDAQ National Market System) or
foreign securities exchange or traded in an over-the-counter
market will be valued at the most recent sale as of the time the
valuation is made or, in the absence of sales, at the mean
between the bid and asked quotations. If there are no such
quotations, the value of the securities will be taken to be the
highest bid quotation on the exchange or market. Options or
futures contracts will be valued similarly. Stock index options
will be valued at the last price, but if that price does not fall
within the bid and ask price for the stock index option when the
market closes at 4:15 p.m. Eastern Time, then the stock index
option will be valued at the mean between the bid and asked
quotations. 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, Inc. (the "NYSE") is open for trading). In addition,
securities trading in a particular country or countries may not
take place on all business days in New York. Furthermore,
trading takes place in various foreign markets on days which are
not business days in New York and days on which a Fund's net
asset value is not calculated. As a result, calculation of a
Fund's net asset value may not take place contemporaneously with
the determination of the prices of certain foreign portfolio
securities used in such calculation. Events affecting the values
of portfolio securities that occur between the time their prices
are determined and the close of regular trading on the NYSE will
not be reflected in a Fund's calculation of net asset value
unless the Board or its delegates deems that the particular event
would materially affect net asset value, in which case an
adjustment may be made. All assets and liabilities initially
expressed in foreign currency values will be converted into U.S.
dollar values at the prevailing rate as quoted by a Pricing
Service. If such quotations are not available, the rate of
exchange will be determined in good faith pursuant to
consistently applied procedures established by the Board.
Portfolio Transactions
Each Fund's Adviser is responsible for establishing,
reviewing and, where necessary, modifying the Fund's investment
program to achieve its investment goal. Purchases and sales of
newly issued portfolio securities are usually principal
transactions without brokerage commissions effected directly with
the issuer or with an underwriter acting as principal. Other
purchases and sales may be effected on a securities exchange or
over the counter, depending on where it appears that the best
price or execution will be obtained. The purchase price paid by
a Fund to underwriters of newly issued securities usually
includes a concession paid by the issuer to the underwriter, and
purchases of securities from dealers, acting as either principals
or agents in the after market, are normally executed at a price
between the bid and asked price, which includes a dealer's mark
up or mark down. Transactions on U.S. stock exchanges and some
foreign stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are
negotiated, the cost of transactions may vary among different
brokers. On most foreign exchanges, commissions are generally
fixed. There is generally no stated commission in the case of
securities traded in domestic or foreign over-the-counter
markets, but the price of securities traded in over the counter
markets includes an undisclosed commission or mark up. U.S.
Government Securities are generally purchased from underwriters
or dealers, although certain newly issued U.S. Government
Securities may be purchased directly from the U.S. Treasury or
from the issuing agency or instrumentality.
The Adviser will select specific portfolio investments
and effect transactions for a Fund and in doing so seeks to
obtain the overall best execution of portfolio transactions. In
evaluating prices and executions, the Adviser will consider the
factors it deems relevant, which may include the breadth of the
market in the security, the price of the security, the financial
condition and execution capability of a broker or dealer and the
reasonableness of the commission, if any, for the specific
transaction and on a continuing basis. The Adviser may, in its
discretion, effect transactions in portfolio securities with
dealers who provide brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act
of 1934) to a Fund and/or other accounts over which the Adviser
exercises investment discretion. The Adviser may place portfolio
transactions with a broker or dealer with whom it has negotiated
a commission that is in excess of the commission another broker
or dealer would have charged for effecting the transaction if the
Adviser determines in good faith that the amount of commission
was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer viewed in
terms of either that particular transaction or of the overall
responsibilities of the Adviser. Research and other services
received may be useful to the Adviser in serving both a Fund and
the Adviser's other clients and, conversely, research or other
services obtained by the placement of business of other clients
may be useful to the Adviser in carrying out its obligations to a
Fund. Research may include furnishing advice, either directly or
through publications or writings, as to the value of securities,
the advisability of purchasing or selling specific securities and
the availability of securities or purchasers or sellers of
securities; furnishing seminars, information, analyses and
reports concerning issuers, industries, securities, trading
markets and methods, legislative developments, changes in
accounting practices, economic factors and trends and portfolio
strategy; access to research analysts, corporate management
personnel, industry experts, economists and government officials;
comparative performance evaluation and technical measurement
services and quotation services; and products and other services
(such as third party publications, reports and analyses, and
computer and electronic access, equipment, software, information
and accessories that deliver, process or otherwise utilize
information, including the research described above) that assist
the Adviser in carrying out its responsibilities. Research
received from brokers or dealers is supplemental to the Adviser's
own research program. The fees payable to Centurion under its
advisory agreement with each Fund, and the fees payable to the
sub-advisers under their respective sub-advisory agreements with
Centurion, are not reduced by reason of the Adviser receiving any
brokerage and research services. For the fiscal period ended
September 30, 1999, Centurion US Equity Fund paid $[ ] to brokers
because of research services provided. For the fiscal period
ended September 30, 2000, the Centurion US Equity Fund directed
brokerage transactions totaling approximately $[ ] to brokers
because of research services provided.
Investment decisions for a Fund concerning specific port-
folio 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.
Each fund has paid the following in brokerage commissions for
portfolio transactions:
Fund
Fiscal
Period
Ended
9/30/00
Fiscal
Period
Ended
9/30/99
U.S. Equity Fund
$
$
International
Equity Fund
U.S. Contra Fund
International
Contra Fund*
N/A
N/A
*The International Contra Fund had no outstanding shares as of
September 30, 2000.
Portfolio Turnover
As discussed in the Prospectus, the Company anticipates
that investors in the Contra Funds, as part of a tactical or
strategic asset allocation strategy, may frequently redeem or
exchange shares of these Funds. The Contra Funds may have to
dispose of certain portfolio investments to maintain sufficient
liquid assets to meet such redemption and exchange requests,
thereby resulting in higher portfolio turnover. Because each
Contra Fund's portfolio turnover rate to a great extent will
depend on the purchase, redemption and exchange activity of the
Fund's investors, it is difficult to estimate what the Fund's
actual turnover rate will be in the future. Additionally,
because of the investment techniques employed by the
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 Contra Fund's
investments may have a remaining maturity of less than one year;
in which case, the portfolio turnover rate for that period would
be equal to zero.
The portfolio turnover rates are as follows:
Fund
Fiscal
Period
Ended
9/30/00
U.S. Equity Fund
%
International
Equity Fund
%
U.S. Contra Fund
0%
International
Contra Fund*
N/A
*The International Contra Fund had no outstanding shares as of
September 30, 2000
MANAGEMENT OF THE FUNDS TC "Management of the Funds" \f C \l "1"
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)
Charles P. Dickinson (62)
5219 N. Casa Blanca Dr. #54
Paradise Valley, AZ 85253
Director. President of The Dickinson Co., a
farming company, since 1972.
Gerard P. Dipoto, Jr.* (54)
2425 E. Camelback Rd, Suite 530
Phoenix, AZ 85016-4200
Chairman of the Board, President and Chief
Executive Officer. President of Centurion
since 1997; Executive Vice President of
Sales, Marketing and Relationship Management
at Investors Fiduciary Trust Company from
1987 to 1997.
Timothy E. Kloenne (56)
5730 E. Leith Lane
Scottsdale, AZ 85254
Director. President of Klontech Industrial
Sales, Inc., a quality control and
inspection equipment sales company, since
1971.
Joseph F. Smith (52)
9736 Legler St.
Lenexa, KS 66219
Director. Executive Vice President and
Chief Technology Officer of Gold Banc
Corporation, Inc., since 1999; Owner of
Compunet Engineering, a computer networking
company, from 1995-1999; Executive Vice
President and Director at Investors
Fiduciary Trust Company from 1993 to 1995.
Thomas M. Smith (57)
2525 E. Camelback Rd., Suite
150
Phoenix, AZ 85016
Director. Realtor at Coldwell Banker Success
Realty since 1990.
Ron A. Link (36)
2425 E. Camelback Rd, Suite 530
Phoenix, AZ 85016-4200
Treasurer. Information Systems Manager at
Centurion since March 1998; Senior Staff CPA
at Ferraro & McMurthy, P.C. from 1995 to
1998; Staff CPA at Zolondek, Blumenthal,
Green, Freed & Strossels, P.C. from 1993 to
1995.
Irving P. David (41)
125 Broad Street
New York, NY 10048
Controller. A Director of Salomon Smith
Barney Inc. ("SSB") and SSB Citi Fund
Management LLC ("SSB Citi") (successor to
SSBC Fund Management Inc.) since 1994;
Controller of several investment companies
associated with SSB Citi.
Paul A. Monroe (40)
2425 E. Camelback Rd, Suite 530
Phoenix, AZ 85016-4200
Vice President. Operations Manager at
Centurion since 1997; Project Manager at
Bank One, NA from 1996 to 1997; Assistant
Vice President and Manager at First
Interstate Bank of Arizona, NA/Wells Fargo
from February 1996 to September 1996;
Assistant Vice President and Manager at Bank
One, NA from 1977 to 1996.
Jennifer L. Stecker (32)
2425 E. Camelback Rd, Suite 530
Phoenix, AZ 85016-4200
Secretary. Finance Manager at Centurion
since March 1998; Financial Analyst at
MicroAge, Inc. from 1997 to 1998; Securities
Specialist at Centurion from 1994 to 1997;
Sales Assistant at Principal Financial Group
from 1993 to 1994.
No employee of Centurion or any of its affiliates receives
compensation from the Company for acting as an officer or
director of the Company. The Company pays each director who is
not an "affiliated person" (as defined in the 1940 Act) of the
Adviser, administrator or distributor an annual fee of $5,000 and
$1,250 for each meeting of the Board attended by him for his
services as director, and reimburses such director for expenses
incurred with his attendance at Board meetings.
Directors' Total Compensation:
Name of Director Total Compensation from
the Company
Charles P. Dickinson
$
Gerard P. Dipoto, Jr.
None*
Timothy E. Kloenne
$
Joseph F. Smith
$
Thomas M. Smith
$
* Mr. Dipoto receives compensation as an affiliate of
Centurion and, accordingly, receives no compensation from
the Company.
As of January 4, 2001, the directors and officers as a group
owned less than 1% of the outstanding common stock of the trust.
To the best knowledge of the trustees, as of January 4, 2001, the
following shareholders or "groups" (as such term is defined in
Section 13(d) of the Securities Exchange Act of 1934) owned
beneficially or of record more than 5% of the shares of the
following classes:
Shareholder
Percent Ownership
A. U.S. Equity Fund*
Centurion Trust Company
2425 East Camelback Road
Suite 530
Phoenix, AZ 85016-4270
Owned 2,777,409.552 shares
100%
B. International Equity Fund*
Centurion Trust Company
2425 East Camelback Road
Suite 530
Phoenix, AZ 85016-4270
Owned 2,765,213.339 shares
100%
C. U.S. Contra Fund*
Centurion Trust Company
2425 East Camelback Road
Suite 530
Phoenix, AZ 85016-4270
Owned 4,7774,806.261 shares
100%
The International Contra Fund had no outstanding shares as of
September 30, 2000
*Centurion may be deemed to control each Fund because it has
complete investment discretion and voting authority with respect
to the shares of the Fund held by its clients.
Investment Advisers
Centurion, located at 2425 East Camelback Road, Suite 530,
Phoenix, AZ 85016-4200, serves as investment manager to the
Funds. Centurion is a wholly-owned subsidiary of CCM Group Inc.,
a holding company organized under the laws of the State of
Arizona. For a description of the fees paid to Centurion for its
services as investment manager to each of the Funds, see the
Prospectus.
Trainer, located at 845 Third Avenue, New York, New York
10022 serves as co-sub-adviser to the U.S. Equity Fund. Trainer
is a wholly owned subsidiary of First Republic Bank, a San
Francisco-based, NYSE listed financial institution. For its
services as co-sub-adviser to the U.S. Equity Fund, Centurion
pays Trainer 0.30% of the first $25 million of the average daily
net assets of the Fund allocated to Trainer and 0.25% of the
amount in excess of $25 million.
FISI, located at One World Trade Center, Suite 2101, New
York, NY 10048-0080, effectively serves as co-sub-adviser to the
International Equity Fund. FISI is a wholly-owned subsidiary of
Friends Ivory & Sime plc ("Friends"), a global investment
management company, which in turn is majority-owned by Friends
Provident Life Office, a mutual life assurance company registered
in England. As discussed in the Prospectus, FISI has entered
into a sub-advisory arrangement with Friends whereby Friends will
perform certain investment advisory and portfolio transaction
services for the International Equity Fund, as may be agreed upon
from time to time by FISI and Friends. Currently, Friends is
responsible for the day-to-day management of the International
Equity Fund's assets allocated to FISI, and FISI reviews
investment performance, policies and guidelines, maintains
certain books and records, and facilitates communication between
Friends and Centurion. For its services as co-sub-adviser to the
International Equity Fund, Centurion pays FISI 0.30% of the first
$50 million of the average daily net assets of the Fund allocated
to FISI, 0.275% of the next $50 million and 0.25% of the amount
in excess of $100 million.
Credit Suisse Asset Management LLC ("CSAM"), located at 466
Lexington Avenue, New York, NY 10017, serves as sub-adviser to
the Contra Funds and co-sub-adviser to each of the Equity Funds.
CSAM is a limited liability company that is wholly-owned by
Credit Suisse Group, the second largest Swiss bank. For its
services as sub-adviser to the Contra Funds, Centurion pays CSAM
0.85% of the average daily net assets of each Contra Fund. For
its services as co-sub-adviser to the Equity Funds, Centurion
pays CSAM 0.10% of the average daily net assets of each Equity
Fund.
Centurion serves as investment manager to the Funds
pursuant to separate investment management agreements
("Management Agreements"). Centurion, in turn, has entered into
separate sub-advisory agreements ("Sub-Advisory Agreements") with
each sub-adviser selected to manage all or a portion of a
particular Fund's portfolio according to its investment goal and
strategies. Each Adviser bears all expenses in connection with
the performance of its services under the applicable Management
Agreement or Sub-Advisory Agreement. Each Fund pays Centurion a
fee for services provided under the Management Agreement that is
computed daily and paid monthly based on the value of the Fund's
average net assets. From this amount, Centurion pays the Fund's
sub-adviser(s) a fee for services provided under the Sub-Advisory
Agreement that is likewise computed daily and paid monthly based
on the value of the Fund's average net assets. Centurion and/or
each Fund's sub-adviser may voluntarily waive a portion of its
fees from time to time and temporarily limit the expenses to be
borne by a Fund.
The advisory fees paid by each fund to Centurion for the
fiscal years ended September 30, 1999 and September 30, 2000
were:
Fund
Fiscal
Year
Ended
9/30/0
0
Fiscal
Period
Ended
9/30/9
9
Fee Waiver and
Expense Reimbursement?
U.S. Equity Fund
$
$
N/A
International Equity
Fund
$
$
N/A
U.S. Contra Fund
$
$
$
International Contra
Fund??
N/A
N/A
N/A
?Effective November 17, 2000, for the U.S. Contra Trainer was
approved by shareholders on March 31, 2000 Fund, the voluntary cap
on annual operating expenses is 1.75%.
??The International Contra Fund had no outstanding shares as of
September 30, 2000.
Administrator
SSB Citi, located at 7 World Trade Center, New York, NY
10048, serves as administrator for the Company pursuant to an
administration agreement ("Administration Agreement"). As
administrator, SSB Citi generally oversees all aspects of the
Company's administration and operations. SSB Citi 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 SSB Citi a fee
for services provided under the Administration Agreement that is
computed daily and paid monthly at an annual rate of 0.20% of the
Fund's average daily net assets or $50,000, whichever amount is
greater. SSB Citi may voluntarily waive a portion of its fees
from time to time and temporarily limit the expenses to be borne
by a Fund.
The administration fees paid to SSB Citi for the fiscal
period ended September 30, 1999 and for the fiscal year ended
September 30, 2000 were:
Fund
Fiscal
Year
Ended
9/30/0
0
Fiscal
Period
Ended
9/30/99
U.S. Equity Fund
$
$
International Equity
Fund
$
$
U.S. Contra Fund
$
$
International Contra
Fund*
N/A
N/A
*The International Contra Fund had no outstanding shares as of
September 30, 1999 and September 30, 2000.
SSB Citi acting through its Consulting Group Division ("CGD")
provides limited consulting services to the funds. CGD provides
the Funds with (i) certain statistical and other factual
information and (ii) advice regarding economic factors and trends.
These functions do not make SSB Citi an "investment adviser" to the
Funds within the meaning of the 1940 Act.
The consultant fees paid to SSB Citi for the fiscal period
ended September 30, 1999 and for the fiscal year ended September
30, 2000 for each Fund were:
Fund
Fiscal
Period
Ended
9/30/9
9
Fiscal
Period
Ended
9/30/0
0
Fee Waiver and
Expense Reimbursement
U.S. Equity Fund
$
$
N/A
International Equity
Fund
$
$
N/A
U.S. Contra Fund
$0
$0
$
International Contra
Fund*
N/A
N/A
N/A
*The International Contra Fund had no outstanding shares as of
September 30, 1999 and .
Distributor
Effective June 5, 2000, the Board of Directors of the
Company approved a Distribution Agreement with Salomon Smith
Barney Inc. ("Salomon Smith Barney"), replacing the Distribution
Agreement with CFBDS, Inc. Salomon Smith Barney offers each
Fund's shares on a continuous basis. Salomon Smith Barney is
located at 388 Greenwich Street, New York, New York, 10013.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION TC "Additional
Purchase and Redemption Information" \f C \l "1"
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 TC "Exchange Privilege" \f C \l "1"
An exchange privilege among the Funds is available to
investors in each Fund. The exchange privilege enables
shareholders to acquire shares in a Fund with a different
investment goal when they believe that a shift between Funds is
an appropriate investment decision. This privilege is available
to shareholders residing in any state in which the shares being
acquired may legally be sold. Prior to any exchange,
shareholders should review a copy of the current prospectus of
each Fund into which an exchange is being considered.
Upon receipt of proper instructions and all necessary
supporting documents, shares submitted for exchange are redeemed
at the then current net asset value of the Fund and the proceeds
are invested on the same day, at a price as described above, in
shares of the Fund being acquired. The exchange privilege may be
modified or terminated at any time upon 30 days' notice to
shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES TC "Additional
Information Concerning Taxes" \f C \l "1"
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.
As a regulated investment company, each Fund will not be
subject to United States federal income tax on its investment
company taxable income (i.e., income other than any excess of its
net realized long-term capital gains over its short-term capital
gains ("capital gains") and on its net realized 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 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 the Fund does not distribute by the end of any
calendar year at least 98% of its net investment income and 98%
of the net amount of its capital gains (both long-and short-term)
for the one-year period ending, as a general rule, on October 31
of that year. For this purpose, however, any income or gain
retained by a Fund that is subject to corporate income tax will
be considered to have been distributed by year-end. In addition,
the minimum amounts that must be distributed in any year to avoid
the excise tax will be increased or decreased to reflect any
underdistribution or overdistribution, as the case may be, from
the previous year. Each Fund anticipates that it will pay such
dividends and will make such distributions as are necessary in
order to avoid the application of this tax.
With regard to a Fund's investments in foreign securities,
exchange control regulations may restrict repatriations of
investment income and capital or the proceeds of securities sales
by foreign investors such as a Fund and may limit a Fund's
ability to pay sufficient dividends and to make sufficient
distributions to satisfy the 90% and excise tax distribution
requirements.
If, in any taxable year, a Fund fails to qualify as a
regulated investment company under the Code or fails to meet the
distribution requirement, it would be taxed in the same manner as
an ordinary corporation and distributions to its shareholders
would not be deductible by the 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 the 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, the Fund may be required to recognize any
net built-in gains with respect to certain of its assets (the
excess of the aggregate gains, including items of income, over
aggregate losses that would have been realized if the Fund had
been liquidated) in order to qualify as a regulated investment
company in a subsequent year.
A Fund's transactions in foreign currencies, forward
contracts, options and futures contracts (including options and
futures contracts on foreign currencies) will be subject to
special provisions of the Code (including provisions relating to
"hedging transactions" and "straddles") that, among other things,
may affect the character of gains and losses realized by the Fund
(i.e., may affect whether gains or losses are ordinary or
capital), accelerate recognition of income to a Fund and defer
Fund losses. These rules could therefore affect the character,
amount and timing of distributions to shareholders. These
provisions also (a) will require a Fund to mark-to-market certain
types of the positions in its portfolio (i.e., treat them as if
they were closed out) and (b) may cause a Fund to recognize
income without receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the distribution
requirements for avoiding income and excise taxes. Each Fund
will monitor its transactions, will make the appropriate tax
elections and will make the appropriate entries in its books and
records when it acquires any foreign currency, forward contract,
option, futures contract or hedged investment in order to
mitigate the effect of these rules and prevent disqualification
of a Fund as a regulated investment company.
A Fund's investment in Section 1256 contracts, such as
regulated futures contracts, most forward currency forward
contracts traded in the interbank market and options on most
stock indices, are subject to special tax rules. All section
1256 contracts held by a Fund at the end of its taxable year are
required to be marked to their market value, and any unrealized
gain or loss on those positions will be included in the Fund's
income as if each position had been sold for its fair market
value at the end of the taxable year. The resulting gain or loss
will be combined with any gain or loss realized by the Fund from
positions in section 1256 contracts closed during the taxable
year. Provided such positions were held as capital assets and
were not part of a "hedging transaction" nor part of a
"straddle," 60% of the resulting net gain or loss will be treated
as long-term capital gain or loss, and 40% of such net gain or
loss will be treated as short-term capital gain or loss,
regardless of the period of time the positions were actually held
by the Fund.
As a result of entering into index swaps, a Fund may make
or receive periodic net payments. A Fund may also make or
receive a payment when a swap is terminated prior to maturity
through an assignment of the swap or other closing transaction.
Periodic net payments will contititute ordianary income or
deductions, while termination of a swap will result in capital
gain or loss (which will be a long-term capital gain or loss if a
Fund has been a party to the swap for more than one year).
Passive Foreign Investment Companies. If a Fund purchases
shares in certain foreign investment entities, called "passive
foreign investment companies" (a "PFIC"), it may be subject to
United States federal income tax on a portion of any "excess
distribution" or gain from the disposition of such shares even if
such income is distributed as a taxable dividend by a Fund to its
shareholders. Additional charges in the nature of interest may
be imposed on a Fund in respect of deferred taxes arising from
such distributions or gains. If a Fund were to invest in a PFIC
and elected to treat the PFIC as a "qualified electing fund"
under the Code, in lieu of the foregoing requirements, a Fund
might be required to include in income each year a portion of the
ordinary earnings and net capital gains of the qualified electing
fund, even if not distributed to the 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 PFICs in
which it invests, which may be difficult or not possible to
obtain.
Alternatively, a Fund may make a mark-to-market election
that would result in the 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 the 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 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 the
Fund not later than such December 31, provided that such dividend
is actually paid by the Fund during January of the following
calendar year. Each Fund intends to distribute annually to its
shareholders substantially all of its investment company taxable
income, and any net realized long-term capital gains in excess of
net realized short-term capital losses (including any capital
loss carryovers). Each Fund currently expects to distribute any
such 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 the Fund, and as a capital gain thereafter (if the
shareholder holds his shares of the 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 the Fund's gross income not as of
the date received but as of the later of (a) the date such stock
became ex-dividend with respect to such dividends (i.e., the date
on which a buyer of the stock would not be entitled to receive
the declared, but unpaid, dividends) or (b) the date a Fund
acquired such stock. Accordingly, in order to satisfy its income
distribution requirements, a Fund may be required to pay
dividends based on anticipated earnings, and shareholders may
receive dividends in an earlier year than would otherwise be the
case.
Sales of Shares. Upon the sale or exchange of his shares,
a shareholder will realize a taxable gain or loss equal to the
difference between the amount realized and his basis in his
shares. Such gain or loss will be treated as capital gain or
loss, if the shares are capital assets in the shareholder's
hands, and will be long-term capital gain or loss if the shares
are held for more than one year and short-term capital gain or
loss if the shares are held for one year or less. Any loss
realized on a sale or exchange will be disallowed to the extent
the shares disposed of are replaced, including replacement
through the reinvesting of dividends and capital gains
distributions in a Fund, within a 61-day period beginning 30 days
before and ending 30 days after the disposition of the shares.
In such a case, the basis of the shares acquired will be
increased to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of a Fund share held by the shareholder
for six months or less will be treated for United States federal
income tax purposes as a long-term capital loss to the extent of
any distributions or deemed distributions of long-term capital
gains received by the shareholder with respect to such share.
Foreign Taxes. A Fund may elect for U.S. income tax
purposes to treat foreign income taxes paid by it as paid by its
shareholders if: (i) the Fund qualifies as a regulated investment
company, (ii) certain asset and distribution requirements are
satisfied, and (iii) more than 50% of the Fund's total assets at
the close of its fiscal year consists of stock or securities of
foreign corporations. A Fund may qualify for and make this
election in some, but not necessarily all, of its taxable years.
If a Fund were to make an election, shareholders of the Fund
would be required to take into account an amount equal to their
pro rata portions of such foreign taxes in computing their
taxable income and then treat an amount equal to those foreign
taxes as a U.S. federal income tax deduction or as a foreign tax
credit against their U.S. federal income taxes. Shortly after
any year for which it makes such an election, a Fund will report
to its shareholders the amount per share of such foreign income
tax that must be included in each shareholder's gross income and
the amount which will be available for the deduction or credit.
No deduction for foreign taxes may be claimed by a shareholder
who does not itemize deductions. Certain limitations will be
imposed on the extent to which the credit (but not the deduction)
for foreign taxes may be claimed.
Backup Withholding. Each Fund may be required to withhold,
for United States federal income tax purposes, 31% of the
dividends and distributions payable to shareholders who fail to
provide a Fund with their correct taxpayer identification number
or to make required certifications, or who have been notified by
the IRS that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup
withholding is not an additional tax and any amount withheld may
be credited against a shareholder's United States federal income
tax liabilities.
Notices. Shareholders will be notified annually by a
Fund as to the United States federal income tax status of the
dividends, distributions and deemed distributions attributable to
undistributed capital gains (discussed above in "Dividends and
Distributions") made by the 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 the Fund to its
shareholders during the preceding taxable year.
Other Taxation
Distributions also may be subject to additional state,
local and foreign taxes depending on each shareholder's
particular situation.
The foregoing is only a summary of certain material tax
consequences affecting each 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.
PERFORMANCE DATA
From time to time, the Funds may quote their total return in
advertisements or in reports and other communications to
shareholders. The Funds may include comparative performance
information in advertising or other materials used to market
their shares. Such performance information may include the
following industry and financial publications: Barron's, Business
Week, CDA Investment Technologies, Inc., Changing Times, Forbes,
Fortune, Institutional Investor, Investor's Business Daily,
Money, Morningstar Mutual Fund Values, The New York Times, USA
Today and The Wall Street Journal.
Average Annual Total Return
A Fund's "average annual total return," as described below, is
computed according to a formula prescribed by the SEC. The
formula can be expressed as follows:
P(1 + T)n = ERV
Where: P = a hypothetical initial
payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a
hypothetical $1,000
investment made at the
beginning of a 1-, 5- or 10-
year period at the end of a
1-, 5- or 10-year period (or
fractional portion thereof),
assuming reinvestment of all
dividends and distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period. A Fund's net
investment income changes in response to fluctuations in interest
rates and the expenses of the Fund.
Aggregate Annual Total Return
Fund
1-Year
5-Year
10-
Year
Inceptio
n1
U.S. Equity Fund
[ ]
N/A
N/A
%
International Equity Fund
[ ]
N/A
N/A
%
U.S. Contra Fund
[ ]
N/A
N/A
%
International Contra Fund
[ ]
N/A
N/A
N/A
1 With the exception of the International Contra Fund, which
is not currently offered, each of the above Funds commenced
operations on December 7, 1998.
Aggregate Total Return
Each Fund's "aggregate total return," as described below,
represents the cumulative change in the value of an investment in
the Fund for the specified period and is computed by the
following formula:
ERV - P
P
Where: P = a hypothetical initial payment of
$10,000.
ERV = Ending Redeemable Value of a
hypothetical $10,000 investment
made at the beginning of the 1-, 5-
or 10-year period at the end of the
1-, 5- or 10-year period (or
fractional portion thereof),
assuming reinvestment of all
dividends and distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period.
Average Annual Total Return
Fund
1-Year
5-Year
10-
Year
Inceptio
n1
U.S. Equity Fund
[ ]
N/A
N/A
%
International Equity Fund
[ ]
N/A
N/A
%
U.S. Contra Fund
[ ]
N/A
N/A
%
International Contra Fund
[ ]
N/A
N/A
N/A
1 With the exception of the International Contra Fund, which
is not currently offered, each of the above Funds commenced
operations on December 7, 1998.
Performance will vary from time to time depending upon market
conditions, the composition of each Fund's portfolio and its
operating expenses. Consequently, any given performance
quotation should not be considered representative of a Fund's
performance for any specified period in the future. Because
performance will vary, it may not provide a basis for comparing
an investment in a Fund with certain bank deposits or other
investments that pay a fixed yield for a stated period of time.
Investors comparing a Fund's performance with that of other
mutual funds should give consideration to the quality and
maturity of the respective investment companies' portfolio
securities.
TC "Determination of Performance" \f C \l "1" OTHER
INFORMATION TC "Other Information" \f C \l "1"
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.
Code of Ethics
Pursuant to Rule 17j-1 of the 1940 Act, each fund, its
investment manager, each sub-adviser and principal underwriter
have adopted codes of ethics that permit personnel to invest in
securities for their own accounts, including securities that may
be purchased or held by the fund. All personnel must place the
interests of clients first and avoid activities, interests and
relationships that might interfere with the duty to make
decisions in the best interests of the clients. All personal
securities transactions by employees must adhere to the
requirements of the codes and must be conducted in such a manner
as to avoid any actual or potential conflict of interest, the
appearance of such a conflict, or the abuse of an employee's
position of trust and responsibility. A copy of the fund's Code
of Ethics is on file with the Securities and Exchange Commission.
Independent Accountant
KPMG LLP ("KPMG"), with principal offices located at 757
Third Avenue, New York, NY 10017, serves as the independent
accountant for the Company. The Statements of Assets and
Liabilities, as of September 30, 2000, and the Statements of
Operations, Statement of Changes in Net Assets and the financial
highlights for the period ended September 30, 2000, of each Fund
that are incorporated by reference in this Statement of
Additional Information have been audited by KPMG, and have been
included herein by reference 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, located at 787 Seventh Avenue,
New York, New York 10019, serves as counsel for the Company, as
well as counsel to Centurion.
Custodians and Transfer Agent
PFPC Trust Company ("PFPC"), successor by assignment from
PNC Bank, N.A., located at 8800 Tinicum Boulevard, Philadelphia,
PA 19153, 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, PFPC 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.
PFPC Global Fund Services, located at P.O. Box 9699,
Providence, RI 02940-9699, serves as the Company's transfer
agent.
FINANCIAL STATEMENTS
The fund's annual report for the fiscal year ended September 30,
2000 is incorporated herein by reference in its entirety. The
annual report was filed on January [ ], 2000, Accession Number
91155-01-000[ ]
.
TC "Financial Statements" \f C \l "1"
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 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. 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 invest-
ment 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.
cent/2000/secdocs/sai2000 33
SAI2000
A-4
PART C
OTHER INFORMATION
Item 23. Exhibits
Exhibit No. Description of Exhibit
(a) (1) Articles of Incorporation.*
(2) Articles of Amendment of Articles of
Incorporation #
(b) By laws.*
(c) Form of Stock Certificate #
(d) (1) Form of Investment Advisory Agreement with
Centurion Trust Company ("Centurion") for
the Centurion U.S. Equity Fund (the "U.S.
Equity Fund") #
(2) Form of Investment Advisory Agreement with
Centurion for the Centurion International
Equity Fund (the "International Equity
Fund") #
(3) Form of Investment Advisory Agreement with
Centurion for the Centurion U.S. Contra Fund
(the "U.S. Contra Fund") #
(4) Form of Investment Advisory Agreement with
Centurion for the Centurion International
Contra Fund (the "International Contra
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") (presently known as
Credit Suisse Asset Management ("CSAM") )
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. Contra Fund #
(10) Form of Sub-Advisory Agreement with BEA for
the International Contra Fund.
(e) Form of Distribution Agreement with CFBDS,
Inc. ("CFBDS") #
(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 Investor Services
Group Inc. #
(2)(a) Form of Administration Agreement with Mutual
Management Corp. #
(2)(b) Form of Administration Agreement with
SSB Citi Fund Management LLC dated September
21, 1999. +
(3) Form of Consulting Agreement with Salomon
Smith Barney Inc. #
(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 to be provided by
amendment.
(k) Not applicable.
(l) Purchase Agreement #
(m) Not applicable.
(n) Financial Data Schedules to be provided by
amendment.
(o) Not applicable.
_____________
* Incorporated by reference to Registrant's Registration
Statement on Form N-1A filed on August 21, 1998.
# Incorporated by reference to Pre-Effective Amendment No. 1
to Registrant's Registration Statement on
Form N-1A filed on November 30, 1998.
+ Incorporated by reference to Post-Effective Amendment No. 1
to Registrant's Registration Statement on
Form N-1A filed on January 28, 2000.
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.
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 Paragraph 4.1 of the form of Distribution Agreement filed
herewith. With respect to indemnification against liability
incurred by Registrant's investment manager and sub-advisers,
reference is made to Section 5 of each form of Investment
Advisory Agreement and to Section 9 of each form of Sub-Advisory
Agreement, respectively, which are incorporated by reference to
Pre-Effective Amendment No. 1 to Registrant's Registration
Statement on Form N-1A filed on November 30, 1998.
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.
CSAM serves as co-sub-adviser to each of the U.S.
Equity Fund and the International Equity Fund, as well as sub-
adviser to each of the U.S. Contra Fund and the International
Contra 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) CFBDS, Inc. the Registrant's Distributor, is also
the distributor for CitiFundsSM International Growth & Income
Portfolio,
CitiFundsSM International Equity Portfolio, CitiFundsSM Large Cap
Growth Portfolio, CitiFundsSM Intermediate Income Portfolio,
CitiFundsSM Short-Term U.S. Government Income Portfolio,
CitiFundsSM Emerging Asian Markets Equity Portfolio,
CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash Reserves,
CitiFundsSM Premium U.S. Treasury Reserves,
CitiFundsSM Premium Liquid Reserves, CitiFundsSM Institutional U.S.
Treasury Reserves, CitiFundsSM Institutional Liquid Reserves,
SM Institutional Cash Reserves, CitiFundsSM Tax Free Reserves,
CitiFundsSM Institutional Tax Free Reserves,
CitiFundsSM California Tax Free Reserves,
CitiFundsSM Connecticut Tax Free Reserves,
CitiFundsSM New York Tax Free Reserves, CitiFundsSM Balanced
Portfolio,
CitiFundsSM Small Cap Value Portfolio, CitiFundsSM Growth & Income
Portfolio,
CitiFundsSM Small Cap Growth Portfolio, CitiFundsSM National
Tax Free Income Portfolio, CitiFundsSM New York Tax Free Income
Portfolio,
CitiSelect VIP Folio 200, Citiselect VIP Folio 300,
CitiSelect (VIP Folio 400, CitiSelect (VIP Folio 500,
CitiFundsSM Small Cap Growth VIP Portfolio, CitiSelect (Folio 200,
CitiSelect (Folio 300, CitiSelect (Folio 400, and CitiSelect (Folio
500.
CFBDS is also the placement agent for Large Cap Value Portfolio,
International Portfolio, Foreign Bond Portfolio,
Intermediate Income Portfolio, Short-Term Portfolio,
Growth & Income Portfolio, Large Cap Growth Portfolio,
Small Cap Growth Portfolio, International Equity Portfolio,
Balanced Portfolio, Government Income Portfolio, Emerging
Asian Markets Equity Portfolio, Tax Free Reserves Portfolio,
Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio.
Salomon Smith Barney is the distributor for the following
Smith Barney Mutual Fund registrants:
Greenwich Street Series Fund
Smith Barney Adjustable Rate Government Income Fund
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 Equity Funds
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.
Smith Barney Income Funds
Smith Barney Institutional Cash Management Fund, Inc.
Smith Barney Investment Trust
Smith Barney Investment Funds Inc.
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 Money Market Fund, Inc.
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund Inc.
Smith Barney Principal Return Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust
Smith Barney Variable Account Funds
Smith Barney World Funds, Inc.
Travelers Series Fund Inc.
And various series of unit investment trusts.
CFBDS, Inc. is also the distributor for the following
Salomon Brothers funds;
Salomon Brothers Opportunity Fund Inc
Salomon Brothers Investors Fund Inc
Salomon Brothers Capital Fund Inc
Salomon Brothers Series Funds Inc
Salomon Brothers Institutional Series Funds Inc
Salomon Brothers Variable Series Funds Inc
Concert Investment Series
The information required by this Item 27 with respect
to each director, officer and partner of CFBDS, Inc.
is incorporated by reference to Schedule A of Form BD
filed by CFBDS, Inc. pursuant to the Securities
Exchange Act of 1934 (SEC File No. 8-32417).
(c) None.
Item 28. Location of Accounts and Records
(1) Centurion Trust Company
2425 East Camelback Road -- Suite 530
Phoenix, Arizona 85016-4228
(records relating to its functions as
investment adviser)
(2) Trainer, Wortham & Company, Inc.
845 Third Avenue
New York, New York 10022
(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) Credit Suisse Asset Management (formerly known
as BEA Associates)
466 Lexington Avenue
New York, New York 10017
(records relating to its functions as sub
adviser)
(5) SSB Citi Fund Management LLC (formerly known as
Mutual Management Corp.)
7 World Trade Center
New York, New York 10048
(records relating to its functions as
administrator; Fund's Articles of
Incorporation, By-laws and minute books)
(6) Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
(records relating to its functions as
distributor)
(7) PFPC Trust Company (successor by assignment
from PNC Bank, National Association
8800 Tinicum Boulevard
Philadelphia, Pennsylvania 19153
(records relating to its functions as co-
custodian)
(8) The Chase Manhattan Bank
4 Chase MetroTech Center
Brooklyn, New York 11245
(records relating to its functions as co-
custodian)
(9) PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
(records relating to its functions as transfer
agent)
Item 29. Management Services
Not applicable.
Item 30. Undertakings.
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended (the"1933 Act")and the Investment Company Act of
1940, as amended, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the 1933 Act and the Registrant has
duly caused this Post-Effective Amendment to its Registration
Statement to be signed on its behalf by the undersigned, this Post-
Effective Amendment, and where applicable, the true and lawful
attorney-in-fact, thereto duly authorized, in the City of Phoenix
and the State of Arizona, on this 27th day of November 2000.
CENTURION FUNDS, INC.
By:/s/ Gerard P. Dipoto, Jr.
Gerard P. Dipoto, Jr.
President & Chief Executive
Officer
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, Jr.
Gerard P. Dipoto, Jr.
Chairman of the Board,
President & Chief Executive
Officer
11/27/00
/s/ Ron A. Link
Ron A. Link
Treasurer
11/27/00
/s/ Irving P. David
Irving P. David
Controller
11/27/00
/s/ Paul A. Monroe
Paul A. Monroe
Vice President
11/27/00
/s/ Charles P. Dickinson
Charles P. Dickinson
Director
11/27/00
/s/ Timothy E. Kloenne
Timothy E. Kloenne
Director
11/27/00
/s/ Joseph F. Smith
Joseph F. Smith
Director
11/27/00
/s/ Thomas M. Smith
Thomas M. Smith
Director
11/27/00
INDEX TO EXHIBITS
Exhibit No.
Description of Exhibit
