CENTURION T.A.A. FUND, INC.
1998 Semi Annual Report
For the six-month period ended 6/30/98, the Fund had a total return of 1.84% on
Class D shares and 0% on the Class C shares compared to the other two market
neutral funds who commenced business in 1998 and were up .50% and 1.50% for
the period. (Of course, past performance is not a guarantee of future
results.) Centurion T.A.A. Fund is a "market neutral fund" that attempts
not only to allocate its portfolio between stocks and options, bonds and
money market positions but also to sell securities short based on the status
of the market and economic conditions at any one time. The goal of the Fund
is to be short the most overvalued securities and long those that we feel are
undervalued in such a way as to neutralize the impact of the overall market.
It is our belief that over time this will produce returns of approximately 5%
to 6% greater than the short-term Treasury. While we are lagging that
measure for the first six months of the year by a small amount, we are
performing very much is line with our peer group, the other market neutral
funds.
Market Comments
The NASDAQ and the S&P 500 have posted gains for the year to date. However,
as you can see on Tables I and II, they have not been broad based. In
addition, the selloff since June 30, 1998 has exacerbated the difference.
We are currently in a market that is led by the "generals" (larger
capitalized stock), the new nifty fifyt; whereas, the troops (the broad
market) are not participating. Since the generals dominate the movements of
these indexes, they are not representative of the overall market movement.
It has been described as a stealth bear market which we feel is an apt
description.
The Asian crisis created negative sentiment about the direction of the U.S.
economy. Domestic economic growth continues to exceed its historical average
of 2% to 3%, yet we see no signs of infaltion which is very unusual in the
economists' eyes. Consumer and producer prices have remained stable and in
many cases have declined. Consumer confidence was at its highest level in more
than 27 years, until late July.
Portfolio Manager Comments
For the last couple of years, we have discussed the relative performance of the
market. I've run some numbers for the year-to-date that confirm the shallowness
of this advance. For the first six months of the year the S&P 500 was up 19.4%
but that tells only a small part of the story. The S&P 500 is a market
capitalization wighted index so that the larger the capitalization of the stock
the more it accounts for the performance. Table I below demonstrates the fact.
Table I
Companies by Year to Date Gains
Capitalization size: (Through July 17, 1998)
Largest 50 30%
51-100 +20%
101-200 +16%
201-300 +14%
301-400 +7%
401-500 Negative
As the NASDAQ Index jumped from 1000 to 2000 over the past threee years, the
bulk of the increase has been contributed by the 10 stocks listed below.
Microsoft was the big leader, adding $217 billion in market value and
contributing 30% of the gain in the top 100 stocks in NASDAQ. These top 100
stocks now account for about half of the NASDAQ's overall value.
TABLE II
Change in Market Impact on Cumulative
Company Value (millions) NASDAQ Impact
Microsoft $217,021 30.12% 30.12%
Cisco Systems 81,599 11.33% 41.45%
Intel 74,939 10.40% 51.85%
Dell 70,478 9.78% 61.63%
WorldCom 36,332 5.04% 66.67%
MCI 32,688 4.53% 71.21%
Sun Microsystems 13,928 1.93% 73.14%
Telecommunications, Inc. 12,746 1.77% 74.91%
Tellabs 10,920 1.52% 76.43%
Comcast 9,867 1.37% 77.80%
The S&P 500 eked an all-time high for the quarter; however, the broad market
did not participate. For the quarter, the Russell 2000 index was down 4.85%.
A more significant indicator of the quarter was the serious bloodletting is
secondary stocks that are not included in major indexes. For example, 43% of
all NASDAQ stocks were down 30% or more and almost tow thirds have lost 20%
or more of their value. The Morgan-Stanley International index lost 1.9% for
the quarter. The average equity fund lost 1.84% for the quarter, as
reported by Lipper.
The Japanese economy is declining for the second time this decade. The first
recession in the early 90s followed the government's attempt to deflate the
1980s financial trouble. This second recession is non-intentional. Instead,
the declining economies of East Asia and the lingering banking problems at
home are pulling the Japanese economy down. The Japanese economic
contraction means that the Asian economic crisis will probably be deeper and
last longer than it would otherwise. It also increases the chances for
continued deflation and slower U.S. economic growth. The currect Japanese
recession follows a chain of several developments. A little over a year ago,
the Japanese government raised consumption taxes to help stimulatve economic
policies and bank rescues. As is always the case, tax increases slowed the
economy. Then, as the Yen declined, the Dollar and many Asian currencies
tied to the Dollar rose to uncompetitive levels. This forced Indonesia,
Thailand, Malaysia, South Korea and the Philippines to devalue their
currencies.
The devaluations further exacerbated the Japanese banking problems which
further deepened the recession. The resulting recession in Asia has further
reduced the demand for Japanese goods. Investors have doubts whether the
Japanese government has the political strength to push their controversial
restructuring good bank, bad bank through Parliament. Strong Japanese banks
will be needed to restructure the current excess capacity in Asia, the key
to placing the other economies of Asia on a stronger footing.
The resolution of Japanese banking problems will probably signal a high in the
Dollar. From that point forward over the next several years, we believe the
Dollar will likely be under downward pressure. This would reflect slower
U.S. economic growth and a continued widening of the U.S. trade deficit.
The weaker Dollar will lead to a higher short-term U.S. interest rates.
Short-term rates have remained steady in the past year; the Federal Reserve
has done a good job balancing concerns about rising labor costs and
inflation with a desire to not drive the Yen lower. The Federal Reserve has
carefully avoided any action that would hurt the Yen. In fact, the Treasury
several weeks ago spent in excess of $2 billion supporting the Yen.
However, once the Japanese banking industry begins its restructing and the
Yen strengthened, a major restraint in raising U.S. rates would be lifted.
/s/
Jack K. Heilbron
Chief Investment Officer
CENTURION T.A.A. FUND, INC.
Statement of Investment Securities
June 30, 1998
Shares or % Value
Principal Net (Note 1) Value
Amount Description Notes Assets Security Sector
COMMON STOCK 47.0%
CONSUMER PRODUCTS
1,000 ALICO (b) 0.3% $20,500
1,000 BEATRICE (TLC) 0.7% 52,500
1,200 BEST FOODS (b) 0.9% 69,750
1,410 EASTMAN KODAK (b) 1.4% 103,018
80 HERSHEY CREAMERY 2.4% 180,000
5,000 US HOME & GARDEN 0.4% 32,188
1,200 VLASIC FOODS INTL 0.3% 24,375
6.6% $ 482,331
CONSUMER SERVICES
5,000 FOODMAKER (a) 1.1% 84,375
8,000 NEW YORK BAGEL 0.1% 8,750
6,000 RIGHT START INC. 0.1% 8,625
16,600ROCK BOTTOM 1.4% 105,825
2.8% 207,575
FINANCIAL/REGIONAL BANKING
700 BB & T CORP (a),(b) 0.6% 47,250
1,000 CAL FEDERAL LIGITATION WARRANT 0.3% 19,750
1,000 COINSTAR 0.1% 9,250
800 COMPASS BANCSHARES (b) 0.5% 36,100
220 FIRST CITIZENS BANCSHARES (b) 0.3% 22,014
176 FIRST NATL BANK OF ANCHORAGE (b) 3.2% 232,760
6,000 GOLDEN STATE LITIGATION WARRANT 0.4% 31,875
1,000 HANCOCK HOLDING (b) 0.7% 53,000
1,500 JOHN ALDEN FINANCIAL (b) 0.4% 33,000
3,800 NATIONAL BANCORP ALASKA (b) 1.6% 117,325
900 PIONEER GROUP (b) 0.3% 23,682
900 SOUTHTRUST (b) 0.5% 39,263
9.0% 665,269
HEALTH
3,000 CARDIAC PATHWAYS 0.3% 21,375
1,100 CHEMED (b) 0.5% 37,194
500 LILLY (ELI) (b) 0.4% 33,063
1,800 GELTEX PHARMACETICAL 0.5% 33,525
90 GENZYME TISSUE 0.0% 591
KERAVISION 0.2% 16,800
1,500 LIGAND PHARMACETICAL (a) 0.3% 19,313
5,000 LIPOSOME CO. (a) 0.4% 27,031
3,000 SCIOS INC 0.4% 26,625
2.9% 215,517
INDUSTRIAL PRODUCTS
5,000 ALDILA 0.5% 33,125
3,300 BETHLEHEM STEEL (a) 0.6% 41,456
75 BOSTON SAND & GRAVEL 0.3% 24,750
1,000 BRITISH STEEL PLC (a),(b) 0.3% 22,750
4,000 C3 INC 0.5% 35,000
408 FORT JAMES (a),(b) 0.2% 18,029
1,200 GLATFELTER (PH) (b) 0.3% 18,975
1,000 JEWETT CAMERON TRADING 0.1% 6,000
34,600NORWEST STEEL & WIRE 1.6% 121,100
9,000 SOUTHERN ENERGY HOMES 1.2% 87,750
5.6% 408,935
INDUSTRIAL SERVICES
2,000 CORRECTIONS CORP OF AMERICA (a) 0.6% 47,500
140 FARMER BROTHERS (b) 0.5% 33,460
2,200 HEARTLAND EXPRESS 0.6% 44,550
2,200 NS GROUP 0.3% 22,275
15,000TRANSCOASTAL MARINE 1.2% 90,469
3.2% 238,254
INDEXES
2,400 WEBS-SWITZERLAND 0.6% 45,300
0.6% 45,300
NATURAL RESOURCES
1,000 APEX SILVER MINES 0.1% 9,687
2,000 ASARCO (b) 0.6% 44,500
1,000 EURO NEVADA (CN) (b) 0.2% 13,780
2,000 FRANCO NEVADA (CN) (b) 0.5% 39,680
300 FREEPORT COP & GOLD (b) 0.1% 4,537
2,000 GULF CANADA RESOURCES 0.1% 9,875
2,000 KINROSS GOLD 0.1% 6,750
816 NEWMONT MINING (b) 0.3% 19,227
5,000 PAN AMERICAN SILVER 0.6% 45,625
1,100 PRIME RESOURCES GROUP (b) 0.1% 7,631
3,000 RIVER GOLD MINES (CN) 0.1% 6,540
2,400 ROYAL GOLD 0.2% 12,000
33,000SUNSHINE MINING 0.4% 30,938
3.4% 250,770
REAL ESTATE
3,000 BODDIE NOELL PROPERTIES (b) 0.5% 39,375
2,000 CCA PRISON REALTY (a),(b) 0.8% 61,250
2,800 ENTERTAINMENT PROP TRUST (b) 0.7% 51,800
1,000 GENERAL GROWTH PROPERTIES (b) 0.5% 37,312
185 HORIZON GROUP PROPERTIES (b) 0.0% 1,220
1,100 MERIDIAN INDUSTRIAL TRUST (b) 0.3% 25,300
1,800 MIDAMER APARTMENTS (b) 0.6% 47,362
3,700 PRIME RETAIL (b) 0.6% 44,169
3,200 STORAGE TRUST REALTY (b) 1.0% 74,800
3,600 UNITED DOMINION (b) 0.7% 49,725
10,000UNITED INVESTORS REIT (b) 1.3% 95,000
1,800 WASHINGTON REIT (b) 0.4% 31,387
1,200 WEEKS CORP (b) 0.5% 37,950
8.1% 596,650
TECHNOLOGY
1,500 AMERITECH (a),(b) 0.9% 66,469
700 ELECTRONIC DATA SYSTEM (a),(b) 0.4% 27,606
4,000 FILENET (a) 1.6% 115,000
2,500 GENERAL SCANNING (a) 0.3% 22,344
2,500 NCR CORP 1.1% 80,938
1,100 PEAK INTL 0.2% 15,125
2,000 SECURE COMPUTING 0.3% 19,750
4.7% 347,232
TOTAL COMMON STOCK 47.0% 3,457,833
PREFERRED STOCKS 2.1%
400 AMAX GOLD, 3.75% PREFERRED 0.2% 17,700
1,000 BROWNING FERRIS, 7.255 PREFERRED (b) 0.5% 35,250
1,000 HILTON, 8% CONVERTIBLE PREFERRED 0.4% 26,250
2,900 PATINA OIL & GAS, 7.1255 PREFERRED 1.0% 77,212
TOTAL PREFERRED STOCK 2.1% $ 156,412
OPTIONS AND WARRANTS 21.2%
CONSUMER PRODUCTS
3,000 COLGATE, NOV, 85, CALLS 0.3% 24,375
1,800 HITACHI, OCT, 70, PUTS 0.2% 12,825
3,000 LOEW'S, DEC, 90, PUTS 0.3% 19,688
2,000 MONDAVI, NOV, 40, PUTS 0.3% 23,750
3,000 PEPSI, OCT, 35, CALLS 0.3% 21,750
3,000 PETCO, SEP, 20, PUTS 0.1% 4,875
3,000 SEARS, AUG, 65, CALLS 0.1% 4,125
1,000 SPORTLINE USA, JUL, 30, PUTS 0.0% 438
3,000 VIACOM, NOV, 55, CALLS 0.3% 21,375
133,201
CONSUMER SERVICES
2,000 ABACUS, SEP, 55, PUTS 0.1% 11,000
3,000 APPLE SOUTH, DEC, 10, CALLS 0.1% 10,875
1,500 CARMIKE CINE, AUG, 35, PUTS 0.2% 12,188
1,500 CBS, JAN, 25, CALLS (a) 0.2% 15,094
2,000 DELTA AIRLINES, OCT, 120, PUTS 0.1% 9,750
1,000 H&R BLOCK, OCT, 40, CALLS 0.1% 4,188
3,000 LONESTAR STEAK, DEC, 15, CALLS 0.1% 3,750
3,000 MEDIAONE, OCT, 40, CALLS 0.2% 16,125
2,000 US WEB, OCT, 25, PUTS 0.1% 10,750
93,720
FINANCIAL
3,000 ASSOC FIRST, DEC, 70, CALLS (a) 0.4% 32,813
2,000 CITICORP, JAN, 130, PUTS 0.3% 19,500
3,000 ING GROUP, OCT,60, PUTS 0.1% 8,063
1,500 SCIENTIFIC GM, AUG,22.5,PUTS 0.0% 938
1,500 SYNOVUS FINANCIAL,AUG,22.375,PUTS 0.0% 1,313
62,627
HEALTH
1,000 ACCESS HEALTH,NOV,35,PUTS 0.1% 10,812
2,000 BIOCHEM PHARMECTICAL,JUL,25,PUTS 0.0% 1,000
2,500 CENTOCOR,JAN,25,CALLS (a) 0.6% 42,813
2,500 CHIRON,JAN,15,CALLS (a) 0.1% 10,313
3,000 FIRST HEALTH,AUG,27.5, PUTS 0.0% 2,625
3,000 HCR,AUG,35,CALLS 0.2% 15,750
2,500 MARINER HEALTH,NOV,12.5,CALLS (a) 0.2% 11,406
1,500 PATHOGENESIS,SEP,40,PUTS 0.2% 17,250
3,000 QUADRAMED,NOV,25,PUTS 0.1% 7,500
3,000 SCHRING PLH,JAN,60,CALLS (a) 1.6% 114,375
2,000 TEVA PHARMECTICAL,SEP,45,PUTS 0.3% 19,250
2,000 ZONAGEN,AUG,30,PUTS 0.2% 17,750
270,844
INDUSTRIAL PRODUCTS
3,000 TYCO,OCT,55,CALLS 0.4% 29,250
2,000 YORK INTL,NOV,45,PUTS 0.1% 8,875
2,000 GENRAD,AUG,22.5, PUTS 0.1% 6,375
3,200 CORNING GLASS,JAN,30,CALLS 0.3% 20,400
64,900
INDUSTRIAL SERVICES
2,000 BELL & HOWELL,NOV,30,PUTS 0.1% 8,625
2,200 HEARTLAND EXPRESS,SEP,25,PUTS 0.2% 11,138
1,500 SAVILLE SYSTEMS,AUG,50,PUTS 0.1% 5,625
1,500 SCHLUMBERGER,JAN,40,CALLS (a) 0.6% 47,438
2,000 WACKENHUT,OCT,30,PUTS 0.2% 13,375
86,201
INDEXES
900 AIRPLANE INDEX,SEP,760,PUTS (a) 0.2% 11,700
10,000DOW JONES INDEX,JUL,91,PUTS (a) 0.3% 20,625
5,000 DOW JONES INDEX,DEC,80,PUTS 0.4% 27,500
1,900 JAPAN INDEX,MAR,200,PUTS 0.9% 68,590
128,415
NATURAL RESOURCES
6,300 BARRICK GOLD,JAN,15,CALLS (a) 0.5% 39,375
10,000HOMESTAKE MINING,JAN,10,CALLS (a) 0.4% 27,500
26,900SUNSHINE MGN WARRANTS 0.1% 4,203
71,078
TECHNOLOGY
6,500 ACTION PERFORM,OCT,35,PUTS 0.4% 32,094
1,900 AIRTOUCH,JAN,50,CALLS 0.3% 20,900
3,000 BISYS GROUP,SEP,45,CALLS 0.0% 2,250
3,000 CISCO,JAN,50,CALLS (a) 3.0% 217,406
3,000 COMPAQ,JUL,30,PUTS 0.1% 6,000
1,000 DENRITE INTL,AUG,30,CALLS 0.1% 8,000
3,000 GARTNER GROUP,OCT,35,PUTS 0.1% 9,000
2,000 GATEWAY 3000,JUL,50,CALLS 0.1% 5,750
4,000 GLOBALSTAR,DEC,25,CALLS 0.3% 22,000
3,000 INTEL,JAN 2001,60, CALLS (a) 1.2% 87,375
3,000 LUCENT,JAN,60,CALLS (a) 1.3% 94,875
12,500MADGE NET, JAN 1999,5, CALLS (a) 0.2% 15,625
3,000 NEXTEL,JAN 2000,20,CALLS (a) 0.4% 27,375
3,000 PARAMETRIC,FEB,27.5,CALLS 0.2% 13,500
3,000 SEITEL INC,AUG,20,CALLS 0.0% 750
2,000 SMARTTALK,NOV,15,CALLS 0.3% 4,625
1,700 SPRINT,JAN,65,CALLS 0.3% 19,762
1,300 TELLABS,DEC,60,CALLS 0.3% 20,475
3,000 USCS INTL,OCT,15,CALLS 0.2% 18,375
2,000 WORLDCOM,JAN,40,CALLS 0.3% 21,250
647,387
TOTAL OPTIONS AND WARRANTS $1,558,373
FIXED INCOME 5.9%
CORPORATE BONDS
100 AGNICO,CONVERTIBLE,3.5%,DUE 1-27-04 0.9% 66,000
40 GOLDEN BOOK,7.65%,DUE 9-15-02 0.5% 39,464
50 NORTHWEST STEEL & WIRE,9.5%DUE 6-15-010.7% 50,275
100 NOVA,CONVERTIBLE, 5.5%,DUE 1-15-00 1.3% 95,250
1.1770MTN STS GTY MTG 1-G, 9.4%, 8-1-18 0.0% 1,202
100 TRANSMARITIME, 8.5%,DUE 10-27-00 1.3% 98,000
4.8% 350,191
U.S. GOVERNMENT AGENCY BONDS
30.7630FNMA 61G,7.0%,9-25-20 0.4% 30,802
26.7370FNMA G93-40 ZC,6.5%,12-25-23 0.4% 26,161
28.0000FNR 91-56M, 6.75%,6-25-21 0.4% 28,236
1.2% 85,199
TOTAL FIXED INCOME 5.9% $ 435,390
COMMERCIAL PAPER
450 FMCC, DUE 7-9-98 6.1% 449,443
450 GENERAL ELECTRIC CREDIT, DUE 7-13-98 6.1% 449,438
600 GENERAL ELECTRIC CREDIT,DUE 7-6-98 8.1% 599,251
450 GENERAL MOTORS ACCEPTANCE, DUE 7-2-98 6.1% 449,932
TOTAL COMMERCIAL PAPER 26.5% $1,948,064
Total Investment in Securities 102.7% $7,556,071
Covered Call Options Written - 1.7% ( 124,241)
Securities Sold Short - 0.7% ( 48,300)
Cash 3.4% $ 251,329
Other Assets less liabilities - 3.8% ( 278,577)
Total Net Assets 100.0% $7,356,282
NOTES:
(a) Call options have been written against this postion.
(b) Non-income producing securities.
(c) Total unrealized depreciation on investments consists of
gross unrealized gains of $492,379 and gross unrealized
losses of $773,801.
The accompnaying notes are an integral part of the financial statements.
CENTURION T.A.A. FUND, INC.
Statement of Covered Call Options Written
June 30, 1998
Shares or % Value
Principal Net (Note 1) Value
Amount Description Notes Assets Security Sector
CONSUMER SERVICES - 0.6%
(1500)CBS,JUL,30,CALLS ($3,000)
(5000)FOODMAKER,JUL,17.5,CALLS ( 1,563)
($4,563)
FINANCIAL - 0.5%
(300)ASSOC FIRST,JUL,80,CALLS (2,625)
(700)BB & T CORP,AUG,70,CALLS (919)
($3,544)
HEALTH - 0.15%
(2500)CENTOCOR,JUL,45,CALLS (313)
(2500)CHIRON,JUL,22.5,CALLS (156)
(1800)GELTEX PHARMACETICAL,AUG,22.5,CALLS (1,688)
(1500)LIGAND PHARMACETICAL,AUG,15,CALLS (656)
(5000)LIPOSOME CO,AUG,7.5,CALLS (938)
(2500)MARINER HEALTH,NOV,17.5,CALLS (3,438)
(3000)SCHRING PLH,JUL,95,CALLS (3,938)
($11,127)
INDUSTRIAL PRODUCTS - 0.03%
(3300)BETHLEHEM STEEL,JUL,12.5,CALLS (1,856)
(1000)BRITISH STTEL,OCT,30,CALLS (125)
(400) FORT JAMES,JUL,50,CALLS (50)
($2,031)
INDUSTRIAL SERVICES - 0.06%
(2000)CORRECTIONS CORP,JUL,22.5,CALLS (2,625)
(1500)SCHLUMBERGER,AUG,75,CALLS (2,156)
($4,781)
INDEXES - 0.04%
(900) AIRPLANE INDEX,JUL,750,PUTS (675)
(5000)DOW JONES INDEX,AUG,80,PUTS (2,188)
($2,863)
NATURAL RESOURCES - 0.13%
(1300)BARRICK GOLD,JUL,22.5,CALLS (81)
(2000)BARRICK GOLD,OCT,20,CALLS (2,875)
(3000)BARRICK GOLD,OCT,25,CALLS (1,125)
(2000)HOMESTAKE MINING,JAN,1999,15,CALLS (625)
(5700)HOMESTAKE MINING,JUL,12.5,CALLS (356)
(2300)HOMESTAKE MINING,OCT,12.5,CALLS (863)
(5000)PAN AMERICAN SILVER,SEP,10,CALLS (3,750)
($9,675)
REAL ESTATE - 0.05%
(2000)CCA PRISON REIT,AUG,30, CALLS (3,875)
($3,875)
TECHNOLOGY - 1.11%
(1500)AMERITECH,AUG,45,CALLS (2,063)
(4500)CICSO,JUL,85,CALLS (36,000)
(700) ELECTRONIC DATA SYSTEMS,SEP,40,CALLS (1,706)
(2000)FILENET,JUL,25,CALLS (8,375)
(2000)FILENET,JUL,,27.5,CALLS (4,125)
(1000)GENERAL SCANNING,JUL,12.5,CALLS (125)
(3000)INTEL,JUL,75,CALLS (6,750)
(2200)LUCENT,JUL,75,CALLS (18,700)
(8500)MADGE NET,AUG,7.5,CALLS (1,063)
(4000)MADGE NET,JUL,7.5,CALLS (250)
(3000)NEXTEL,JUL,25,CALLS (2,625)
($81,782)
TOTAL - 1.69% ($124,241)
The accompanying notes are an integral part of the financial statements.
CENTURION T.A.A. FUND, INC.
Statement of Securities Sold Short
June 30, 1998
Shares or % Value
Principal Net (Note 1) Value
Amount Description Notes Assets Security Sector
(2300)WEBS-UNITED KINGDOM -0.66% (48,300)
Total Securities Sold Short -0.66% ($48,300)
The accompanying notes are an integral part of the financial statements.
CENTURION T.A.A. FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
ASSETS
Investment in Securities, at value,
(indentified cost $7,823,164) $7,556,071
Cash 251,329
Receivables:
Dividends 10,611
Interest 9,100
Investment Securities Sold 143,865
Fund Shares Sold 650
Prepaid Expenses 3,969
TOTAL ASSETS $7,975,595
LIABILITIES
Covered Call Options Written, at market value,
(premiums received $105,317) 124,241
Securities Sold Short, at market value,
(sales proceeds received $43,704) 48,300
Payables:
Accounts Payable 51,012
Fund Shares Redeemed 7,683
Investment Securities Purchashed 388,076
TOTAL LIABILITIES 619,312
NET ASSETS $7,356,282
Class A:
Net asset value and offering price per share
($8,586 divided by 2,549 shares outstanding) $3.37
Class B:
Net asset value and offering price per share
($479 divided by 144 shares outstanding) $3.33
Class C:
Net asset value and offering price per share
($6,410,904 divided by 1,925,232 shares
outstanding) $3.33
Class D:
Net asset value and offering price per share
($936,314 divided by 277,402 shares outstanding) $3.38
The accompanying notes are an integral part of the financial statements.
CENTURION T.A.A. FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
INVESTMENT REVENUE
Dividends $33,555
Interest 97,487
Total Investment Revenue $131,042
EXPENSES
Investment advisory fees $40,130
Distribution expenses 35,292
Registration and filing fees 6,846
Fund accouting fees (Note 4) 11,190
Custodian fees and expenses 22,041
Audit fees and expenses 2,384
Directors fees and expenses 6,126
Transfer agent fees 1,800
Insurance 1,001
Other expenses 4,174
Total Expenses 130,983
Fees and Expenses Absorbed by Investment
Advisor 0
Net Expenses 130,983
Net Investment Income(Loss) 59
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain from Securities Transactions (162,030)
Unrealized Depreciation of Investmnents 211,812
Unrealized Appreciation of Call Options Written
Net Gain on Investments 49,783
Net Increase in Net Assets from Operations $49,842
The accompanying notes are an integral part of the financial statements.
CENTURION T.A.A. FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
THE YEAR ENDED DECEMBER 31, 1997
JUNE 30, DECEMBER 31,
1998 1997
OPERATIONS
Net investment income (loss) $59 $3,312
Net realized gain from securities
transactions (162,030) (60,487)
Net change in unrealized appreciation
(depreciation) of 211,812 (406,598)
Net change in unrealized appreciation of
securities sold 0 0
Net change in unrealized depreciation of
investments of covered call options written 0 0
Net increase in net assets resulting from
operations 49,842 (463,773)
Class D:
Distribution to shareholders
Ordinary income dividend (12,146) 0
CAPITAL SHARE TRANSACTIONS:(NOTE 5)
Increase from capital shares sold 260,948 1,783,727
Increase from capital shares reinvested 12,146 0
Decrease from capital shares repurchased(1,224,161) (2,744,423)
Net increase from capital shares
transactions (951,068) (960,696)
Total increase in net assets (913,372) (1,424,469)
NET ASSETS
Beginning of period 8,269,654 9,694,123
End of period (includes no undistributed
investment inc $7,356,282 $8,269,654
The accompanying notes are an integral part of the financial statements.
CENTURION T.A.A. FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund commenced operations in January 1982. At the shareholder
meeting on December 20, 1994, the shareholders voted to change the name of the
fund to Centurion T.A.A. Fund, Inc. ("Fund") from Excel Value Fund, Inc. The
Fund is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company. The objective of
the Fund is to achieve long-term investment return, including both capital
appreciation and current income, consistent with reasonable risk. At the
shareholder meeting on August 6, 1996, the shareholders approved the Fund
to offer Class A, Class B, Class C and Class D shares, each of which has
equal rights as to assets and voting privileges. Class A and Class B each
has exclusive voting rights with respect to its distribution plan.
Investment income, realized and unrealized capital gains and losses, and the
common expenses of the Fund are allocated on a pro rata basis to each class
based on the relative net assets of each class to the total net assets of
the Fund. Each class of shares differ in its respective service and
distribution expenses, and may differ in its transfer agent, registration,
and certain other class-specific fees and expenses.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Portfolio Valuation:
The Fund calculates its net asset value and completes orders to purchase,
exchange or repurchase its shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Investments in securities traded on major exchanges are valued at the last
quoted sales price on that exchange where such securities are primarily
traded. Securities traded in the over-the-counter market are valued at the
last sales price. Over-the-counter and listed securities that have not
been traded on a certain day are valued at the average between the last bid
and asked price. If market quotations or pricing service valuations are not
readily available, securities are valued at fair value as determined in good
faith by the Fund's Board of Directors. Debt securities are valued in
accordance with the procedures above. Short-term securities are stated at
amortized cost (which approximates market value) if maturity is 60 days or
less, or at market value if maturity is greater than 60 days.
Security Transactions and Related Investment Income:
Security transactions are accounted for on the trade date (date the
order to buy or sell is executed). The cost of securities sold is determined
on a first-in, first-out basis, unless otherwise specified. Dividends are
recorded on the ex-dividend date. Interest income, which may be comprised
of stated coupon rate, market discount and original issue discount, is
recorded on the accrual basis. Discounts on debt securities purchased are
amortized over the life of the respective security as adjustments to
interest income.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes:
It is the policy of the Fund to meet the requirements for qualification as a
regulated investment company under the Internal Revenue Code of 1986, as
amended ( Code ). It is also the intention of the Fund to make
distributions sufficient to avoid imposition of any excise tax under
Section 4982 of the Code. Therefore, no provision has been made for
Federal taxes on income, capital gains, or unrealized appreciation of
securities held, and excise tax on income and capital gains. The Fund
currently has capital loss carry forwards totaling $313,324 which begin to
expire in 2002.
Distributions to Shareholders:
Distributions to shareholders are recorded by the Fund on the ex-dividend
date. Income and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments of income and gains on various investment securities held by the
Fund and timing differences.
Restricted Securities:
The Fund is permitted to invest in privately placed restricted
securities. These securities may be resold in transactions exempt from
registration or to the public if the securities are registered. Disposal of
these securities may involve time-consuming negotiations and expense, and
prompt sale at an acceptable price may be difficult.
Cash Deposits:
At June 30, 1998 the Fund had cash on deposit at one financial institution of
$251,329. Thus, all cash amounts over the maximum Federal Deposit Insurance
Corporation coverage are not insured. From time to time, the Fund evaluates
the credit worthiness of the financial institution and considers alternatives.
Note 2. Net Assets
At June 30, 1998, net assets consisted of:
Net proceeds from capital stock $ 9,292,429
Unrealized depreciation of securities (526,237)
Unrealized appreciation of covered call options written 23,623
Excess distributions over accumulated net income (324,276)
Undistributed net realized loss from security transactions(195,885)
$ 8,269,654
Note 3. Covered Call Options Written
As of June 30, 1998, portfolio securities valued at $1,416,481 were
held by the custodian in connection with covered call options written by
the Fund.
Note 4. Payments to Related Parties
Centurion Counsel, Inc. ( Centurion ) is the Fund s investment manager.
The Fund pays investment management fees to Centurion at the annualized
rate of 1.00% on the first $200 million of average daily net assets of the
Fund, 0.85% on the next $200 million, 0.80% on the next $200 million, 0.75%
on the next $200 million, 0.60% on the next $200 million and 0.50% on amounts
over $1 billion. These fees are computed daily and paid quarterly and are
subject to reduction in any year to the extent that the Fund s expenses
(exclusive of brokerage commissions, taxes, interest, distribution-related
expenses and extraordinary expenses) exceed 3.625% based on the average
total net asset value of the Fund. During the six months ended June 30,
1998 Centurion received investment management fees of $40,130.
Centurion Institutional Services, Inc. ( CISI ), an affiliate of
Centurion, serves as the Fund s distributor. The Fund offers Class A,
Class B, Class C and Class D shares for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund s current
prospectus. CISI collects the sales charges imposed on the sale of Class A
shares, and re-allows a portion of such charges to dealers who sold the
shares. During the six months ended June 30, 1998, no shares of Class A
shares were sold. CISI also makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class A shares.
Class B shares are not subject to initial sales charges. When Class B
shares are sold, CISI from its own resources pays commissions to dealers who
sell these shares. Certain redemptions of Class B shares made within six
years of purchase are subject to contingent deferred sales charges ( CDSC )
upon redemption, in accordance with the Fund s current prospectus. During
the six months ended June 30, 1998, no shares were sold and there was no
redemptions of Class B shares, accordingly, CISI did not collect any CDSC
charges. In addition, CISI makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
Class D shares are not subject to initial sales charges, CDSC, service
fees or distribution fees. These shares are only available to Advisor
professionals and eligible employees of the Fund, Centurion and its affiliates
or service organizations.
Pursuant to Rule 12b-1 under the 1940 Act, the Company s Board of Directors
has adopted separate plans of distribution with respect to the Funds Class A
shares ( Class A Plan ), Class B shares ( Class B Plan ), and Class C shares
( Class C Plan ), pursuant to which the Fund reimburses CISI for a portion of
its shareholder servicing and distribution expenses. Under the Class A Plan,
the Fund may pay CISI a service fee at the annualized rate of up to 0.25% of
the average daily net assets of the Funds Class A shares for CISI s
expenditures incurred in servicing and maintaining shareholder accounts.
Pursuant to the Fund s Class B Plan, the Fund may pay CISI a service fee
at the annualized rate of up to 0.25% of the average daily net assets of the
Fund s Class B shares for CISI s expenditures incurred in servicing and
maintaining shareholder accounts, and may pay CISI a distribution fee at the
annualized rate of up to 0.75% of the average daily net assets of the Funds
Class B shares for CISI's expenditures incurred in providing services as
distributor. Expenses incurred under the Class B Plan in excess of 1.00%
annually may be carried forward for reimbursement in subsequent years as
long as that Plan continues in effect.
Pursuant to the Fund's Class C Plan, the Fund may pay CISI a service fee
at the annualized rate of up to 0.25% of the average daily net assets of the
Fund s Class C shares for CISI s expenditures incurred in servicing and
maintaining shareholder accounts, and may pay CISI a distribution fee at
the annualized rate of up to 0.75% of the average daily net assets of the
Fund s Class C shares for CISI's expenditures incurred in providing services
as distributor. Expenses incurred under the Class C Plan in excess of
1.00% annually may be carried forward for reimbursement in subsequent years
as long as that Plan continues in effect. During the six months ended
June 30, 1998, CISI received servicing and distribution fees from the Fund
of $35,279.
CISI also executes some of the Fund s portfolio transactions. During the
six months ended June 30, 1998, CISI received commissions of $36,553 from
the Fund for this service.
Centurion Group, Inc. ( CGI ), an affiliate of Centurion and CISI, is
the administrator and transfer agent of the Fund. CGI is paid an account
maintenance fee of $0.75 per account per month, a customer statement fee
of $50 per 1,000 statements and other miscellaneous charges and expenses.
During the six months ended June 30, 1998, CGI received transfer fees of
$1,800 from the Fund.
CGI is also the accounting agent for the Fund. The monthly fee for
these services paid to CGI is 0.15% of the Fund s average daily net assets
with a minimum fee of $18,000 per year. During the six months June 30, 1998,
CGI received accounting fees of $9,000 from the Fund.
The Fund pays each of its Directors who is not an employee, officer or
director of Centurion or any affiliate $200 annual retainer and $400 for
each meeting of the board or any committee thereof attended by the Director.
In addition the Fund pays each Director s expenses to attend the meetings.
Note 5. Capital Share Transactions
As of June 30, 1998, there were 100,000,000 shares of the Company s
common stock authorized, at $0.01 par value. Transactions in capital
stock of the Fund for the six months ended June 30, 1998 were as follows:
June 30, 1998 December 31, 1997
Shares Amount Shares Amount
Class A shares:
Shares sold 0 $0 2,563 $ 8,664
Shares issued in
reinvestment
of dividends 0 0 0 0
0 0 2,563 8,664
Share redeemed 0 0 14 0
Net increase 0 0 2,549 $ 8,664
Class B shares:
Shares sold 0 $0 144 $ 500
Shares issued in
reinvestment
of dividends 0 0 0 0
0 0 144 500
Shares redeemed 0 0 0 0
Net increase 0 $0 144 $ 500
June 30, December 31,
1998 1997
Shares Amount Shares Amount
Class C shares:
Shares sold 48,567 $ 168,098 385,499 $ 1,341,181
Shares issued in reinvestment
of dividends 0 0 0 0
48,567 $ 168,098 385,499 1,341,181
Shares redeemed 314,695 1,076,246 434,885 1,494,774
Net increase (decrease) (266,128)($908,148)(49,386) ($ 153,593)
Class D shares:
Shares sold 26,951 $92,850 123,388 $ 433,381
Shares issued in reinvestment
of dividends 3,520 12,146 - -
30,471 104,996 123,388 433,381
Shares redeemed 42,763 147,915 359,188 1,249,561
Net increase (decrease) (12,291)($42,919)(49,386) ($ 816,180)
December 31,
1996
Shares Amount
Class C shares:
Shares sold 1,800,452 $ 6,424,359
Shares issued in reinvestment
of dividends 983 3,597
1,801,435 6,427,956
Shares redeemed 344,840 1,212,546
Net increase (decrease) 1,456,595 $ 5,215,410
Class D shares:
Shares sold 1,800,452 $ 6,424,359
Shares issued in reinvestment
of dividends 983 3,597
1,801,435 6,427,956
Shares redeemed 344,840 1,212,546
Net increase (decrease) 1,456,595 $ 5,215,410
Note 6. Investment Transactions
Purchases and sales of investment securities (excluding short-term
securities) were $8,827,569 and $10,267,270, respectively. Net gain on
investments for the six months ended June 30, 1998 was $49,783. That amount
represents the net decrease in value of investments held during the year.
As of June 30, 1998, the unrealized appreciation on investments consists of
gross unrealized gains of $402,379 and gross unrealized losses of $773,801.
Note 7. Per Share Information
Selected data for each share of capital stock outstanding throughout the
period is as follows:
Six ended CLASS C Shares (a)
June 30, Years Ended December 31,
1998 1997 1996 1995 1994 1993
Per Share Operating Performance:
Net Asset Value, Beginning of Period $3.33 3.51 3.34 3.43 4.55 4.96
INCOME FROM INVESTMENT OPERATIONS
Net investment income (d) - -0.01-0.03 -0.05 -0.18 -0.21
Net gains (losses) on investments
(both realized and unrealized) (d) - -0.17 0.20 -0.04 -0.94 -0.20
Total from investment operations 0.00 -0.18 0.17 -0.09-1.12 -0.41
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income
Distributions from capital gains
Total distributions
Net Asset Value, at End of Period 3.33 3.33 3.51 3.34 3.43 4.55
TOTAL RETURN (f) 0.00%-5.13%5.16%-2.62% -28.01% -12.39%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
($000 Omitted) 6,411 7,288 7,855 4,370 452 757
Ratios to Net Assets:
Expenses, before waiver of fees 3.34% 3.14% 3.54% 4.82% 9.04% 6.19%
Expenses, after waiver of fees 3.34% 2.91% 3.54% 3.53% 6.00% 5.19%
Net investment income -0.06% -0.11% -0.43%0.17% -4.78% -4.50%
Portfolio Turnover Rate 172.0%234.67%129.20%57.20%148.21%143.11%
Average Commission Rate Paid (e) 0.02 0.02
Number of Shares Outstanding at End of Period
(000 Omitted) 1,952 2,191 2,241 1,309 132 166
(a) All capital shares issued and outstanding as of November 6, 1996 were
reclassified as Class C shares.
(b) For the period December 9, 1996 (effective date) to December 31, 1996.
(c) For the period January 7, 1997 (first sale date) to December 31, 1997.
(d) Allocated between Net Investment Income and Net Gains or (Losses) on
Securities based on monthly weighted average shares outstanding.
average shares outstanding.
(e) Relates to purchases and sales of equity securities. Prior to year end
1996 disclosure of average commission rate was not required.
(f) Total return measures the change in value of an investment over the
periods indicated. It is not annualized. It does not inclued the
maximum front end sales charge or contingent deferred sales charge.
(g) Annualized
Six Ended
June 30 CLASS D CLASS A CLASS B
1998 1997 1996 (b) 1997 (c) 1997 (c)
Per Share Operating Performance:
Net Asset Value, Beginning of Period 3.36 3.51 3.46 3.65 3.65
INCOME FROM INVESTMENT OPERATIONS
Net investment income (d) 0.00 0.01 0.00
Net gains (losses) on investments
(both realized and unrealized) (d) 0.01 -0.16 0.05 -0.30 -0.32
Total from investment operations 0.01 -0.15 0.05 -0.30 -0.32
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income 0.01
Distributions from capital gains
Total distributions 0.01
Net Asset Value, End of Period 3.38 3.36 3.51 3.35 3.33
TOTAL RETURN (f) 0.57% -4.27% 5.16% -0.04 0.05-0.08 -0.04
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period ($000 Omitted) 936 972 1,839 8 1
Ratios to Net Assets
Expenses, before waiver of fees 2.36% 2.20% 2.13% 2.38% 2.84%
Expenses, after waiver of fees 2.36% 1.97% 2.13% 2.15% 2.60%
Net investment income 0.44% 0.82% 0.64% 0.19%
Portfolio Turnover Rate 172.0%234.67%129.20% 234.67% 234.67%
Average Commission Rate Paid (e) 0.02 0.02
Number of Shares Outstanding at End of Period
(000 Omitted) 277 290 524 3 0
(a) All capital shares issued and outstanding as of November 6, 1996 were
reclassified as Class C shares.
(b) For the period December 9, 1996 (effective date) to December 31, 1996.
(c) For the period January 7, 1997 (first sale date) to December 31, 1997.
(d) Allocated between Net Investment Income and Net Gains or (Losses) on
Securities based on monthly weighted average shares outstanding.
average shares outstanding.
(e) Relates to purchases and sales of equity securities. Prior to year end
1996 disclosure of average commission rate was not required.
(f) Total return measures the change in value of an investment over the
periods indicated. It is not annualized. It does not inclued the
maximum front end sales charge or contingent deferred sales charge.
(g) Annualized
Six Ended Six Ended
June 30 CLASS A June 30 CLASS B
1998 1997 (c) 1998 1997 (c)
Per Share Operating Performance:
Net Asset Value, Beginning of Period 3.35 3.65 3.33 3.65
INCOME FROM INVESTMENT OPERATIONS
Net investment income (d) 0.01
Net gains (losses) on investments
(both realized and unrealized) (d) 0.01 -0.30 -0.32
Total from investment operations 0.02 -0.30 -0.32
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income 0.00
Distributions from capital gains
Total distributions 0.00
Net Asset Value, End of Period 3.37 3.35 3.33 3.33
TOTAL RETURN (f) 0.49% -8.47% 0.00% -4.39%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period ($000 Omitted) 8 8 1 1
Ratios to Net Assets
Expenses, before waiver of fees 2.60% 2.38% 3.20% 2.84%
Expenses, after waiver of fees 2.60% 2.15% 3.20% 2.60%
Net investment income 0.31% 0.64% 0.00% 0.19%
Portfolio Turnover Rate 172.0% 234.67% 172.0% 234.67%
Average Commission Rate Paid (e) 0.00
Number of Shares Outstanding at End of Period
(000 Omitted) 3 3 0 0
(a) All capital shares issued and outstanding as of November 6, 1996 were
reclassified as Class C shares.
(b) For the period December 9, 1996 (effective date) to December 31, 1996.
(c) For the period January 7, 1997 (first sale date) to December 31, 1997.
(d) Allocated between Net Investment Income and Net Gains or (Losses) on
Securities based on monthly weighted average shares outstanding.
average shares outstanding.
(e) Relates to purchases and sales of equity securities. Prior to year end
1996 disclosure of average commission rate was not required.
(f) Total return measures the change in value of an investment over the
periods indicated. It is not annualized. It does not inclued the
maximum front end sales charge or contingent deferred sales charge.
(g) Annualized
Investment Advisor Board of Directors
Centurion Counsel, Inc. Carol Ann Freeland
11545 W. Bernardo Ct.,#100 Richard E. Hall
San Diego, CA 92127 Jack K. Heilbron
Russell W. Ketron
Doug Werner
Distributor
Centurion Institutional Services, Inc.
11545 W. Bernardo Ct. #100 Officers
San Diego, CA 92127 Jack K.Heilbron
Chief Executive Officer
Chief Investment Officer
Shareholder
Servicing Agent Kenneth W. Elsberry
Centurion Group, Inc. President and Chief
11545 W. Bernardo Ct. #100 Financial Officer
San Diego, CA 92127
Mary R. Limoges
Secretary
Auditors
Squire & Co. Portfolio Manager
1205 Prospect St., Ste 400 Jack K. Heilbron
La Jolla, CA 92037
Legal Counsel
Bruce J. Rushall, Esq.
Rushall & McGeever
211 Palomar Airport Road #200
Carlsbad, CA 92009
**A prospectus may obtained by contacting a Financial Consultant at Centurion
Institutional Services, Inc. The prospectus containing more complete
information should be read carefully before making an investment in
Centurion T.A.A. Fund, Inc.
