As filed with the Securities and Exchange Commission on February 17, 2000
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PROSPECTUS
CENTURION COUNSEL FUNDS, INC.
The Centurion Counsel Stock Funds provide a spectrum of investment
alternatives to investors seeking capital growth or high total return.
Prospectus and Application for:
* Centurion Counsel Market Neutral Fund, which seeks long-term returns
with modest volatility and minimal downside risk to capital by
allocating its investments between long positions in securities the
Fund's Advisor identifies as undervalued and short positions it
identifies as overvalued (including investments in micro-and small-cap
companies and high risk bonds).
* Centurion Counsel Growth Fund, which seeks total long-term growth with
a view towards income by allocating its investments in long-positions
in equities securities of companies which pay or stated that they will
pay dividends (including small-cap companies).
* Centurion Counsel Real Estate Fund, which seeks total growth of capital
and income through investments in real estate investment trusts (REITs)
and other real estate industry companies.
The SEC has not approved or disapproved these shares or passed upon the
accuracy or adequacy of this prospectus. Any representation to the
contrary is a criminal offense.
February 17, 2000
Table of Contents
Page
RISK/RETURN SUMMARY -3-
Principal Investment Objective and Strategies -3-
Market Neutral Fund -3-
Growth Fund -4-
Real Estate Fund -4-
Summary of Principal Risks of the Funds -4-
Performance Information -6-
Growth Fund -8-
Real Estate Fund -10-
FEES AND EXPENSES -10-
DESCRIPTION OF THE FUNDS -14-
Investment Objectives and Policies -14-
Description of Fund Practices and Related Risks -20-
MANAGEMENT -27-
DISTRIBUTIONS AND TAXES -27-
INFORMATION ABOUT YOUR ACCOUNT -28-
Share Classes, Sales Charges and Distribution Arrangements -28-
Buying Shares -31-
Investor Services -32-
Selling Shares -33-
Account Policies -34-
FINANCIAL HIGHLIGHTS -36-
Centurion Counsel Market Neutral Fund -36-
STATEMENT OF ADDITIONAL INFORMATION (SAI) -39-
No dealer, sales representative or other person has been authorized to
give any information or to make any representations other than those
contained in this Prospectus (and/or in the Statement of Additional
Information referred to on the cover page of this Prospectus), and, if
given or made, such information or representations must not be relied
upon as having been authorized by the Fund or Centurion Institutional
Services, Inc. This Prospectus does not constitute an offer or
solicitation by anyone in the state in which such offer or solicitation
is not authorized, or in which the person making such offer or solicitation
is not qualified to do so, or to any person to whom it is unlawful to
make such offer or solicitation.
The Fund is an open-end, diversified management investment company that
only issues shares of common stock. The Funds' investment advisor, or
Advisor, is Centurion Counsel, Inc., a registered investment adviser
providing diversified services to institutions and individuals.
RISK/RETURN SUMMARY
This Risk/Return Summary describes each Fund's objectives, principal
investment strategies, principal risks and fees. Please be sure to
read this additional information BEFORE you invest. You will find
additional information about the Funds, including a detailed description
of the risks of an investment in the Funds, after this Summary.
You should consider an investment in the Funds as a long-term investment.
The Fund's returns will fluctuate over long and short periods.
Principal Investment Objective and Strategies
Market Neutral Fund
Principal Investment Objective. The Fund's principal investment objective
is to obtain long-term returns while minimizing the impact of overall
movements in the securities markets. There is no assurance that the Fund
will achieve its goal.
Principal Investment Strategies. The Fund's principal investment strategies
involve risks and you could lose your money. The Advisor seeks to minimize
the Fund's exposure to overall movements in the securities markets by
allocating the Fund's portfolio between long positions in securities the
Advisor identifies as undervalued and short positions in securities it
identifies as over-valued. The Fund seeks to make money in any type of
market as long as its long positions perform better than the securities
it sells short. The Fund's success depends on the Advisor's ability to
choose under-performing and over-performing investments.
The Advisor employs special investment techniques, including short sales,
investments in put and call options, options on securities, indices and
other derivative securities. The Fund will invest in equity securities
(including those of micro-cap and small-cap companies) and from time to time
debt securities in order to balance the influene of anticipated interest rate
changes.
Growth Fund
Principal Investment Objective. The Fund's investment objective is growth
of capital with a view towards current income.
Principal Investment Strategies. The Fund invests primarily in securities
of U.S. companies that are financially sound and have or stated they will
pay dividends. Under this strategy, the Fund may invest in any company
which pays dividends in any industry, including micro-cap and small-cap
companies. The Fund may invest in any type of security which the Advisor
deems to have potential for capital appreciation, including rights or
options to purchase such stock and securities convertible into such stock.
The Fund may invest in established companies or in new or unseasoned
companies. It may also invest in debt securities and up to 10% of its
total assets in foreign securities. The Fund will not purchase securities
on margin.
Real Estate Fund
Principal Investment Objective. The Funds' investment objective is total
return from long-term growth of capital and income principally through
investing in securities of REITs and other real estate industry companies.
Principal Investment Strategies. The Fund invests primarily in equity
securities of real estate investment trusts or "REITs" and other real
estate industry companies, including micro-cap and small-cap companies.
The Fund invests in real estate companies that Centurion Counsel believes
have strong property fundamentals and management teams. The Fund seeks to
invest in real estate companies whose underlying portfolios are diversified
geographically and by property type. The Fund may invest up to 20% of its
total assets in mortgage-backed securities, which are securities that
directly or indirectly represent participations in, or are collateralized
by and payable from, mortgage loans secured by real property.
Because the Fund invests a substantial portion of its assets in the real
estate market, it has many of the same risks as direct ownership of real
estate, including the risk that the value of real estate could decline due
to a variety of factors affecting the real estate market. In addition,
REITs are dependent on the capability of their managers, may have limited
diversification, and could be significantly affected by changes in tax
laws. The Fund's investments in mortgage-backed securities have prepayment
risk, which is the risk that mortgage loans will be prepaid when interest
rates decline and the Fund will have to reinvest in securities with lower
interest rates. This risk causes mortgage-backed securities to have
significantly greater price and yield volatility than traditional
fixed-income securities.
Summary of Principal Risks of the Funds
The value of your investment in a Fund will change with changes in the
values of that Fund's investments. Many factors can affect those values.
Set forth below are the principal risks that may affect a Fund's portfolio
as a whole. This Prospectus has additional descriptions of the principal
types of investments that the Fund makes under "Description of the Fund -
Fund Practices," which includes more information about the Fund, its
investments, and related risks.
* Market Neutral Fund Investment Techniques. The investment techniques
of the Market Neutral Fund include short sales, short-term investments
in put and call options and index options are highly technical and
increases in the price of the underlying security before the Fund terminates
its position would generally result in losses to the Fund.
* Dependence on Advisor. In each Fund, you must rely on the Advisor's
ability to correctly choose Fund investments and, in the case of the
Market Neutral Fund, to neutralize market fluctuations.
* Short Sales. The Market Neutral Fund will, and to a lesser extent the
Real Estate Fund may, make short sales by borrowing the same security
from a broker or other institution and selling the security. Short
sales will expose these Funds to the risk that the price of the
borrowed security will increase between the date of the short sale and
the date on which the Fund replaces the borrowed security.
* High Portfolio Turnover. Because of its principal investment
objectives and the strategies employed by the Advisor, you can expect
to experience an annual portfolio turnover rate of up to 500% in the
Market Neutral Fund, which is very high, and 50% and 75% for the Growth
Fund and the Real Estate Fund, respectively. Higher turnover rates
result in higher costs and expenses to the Fund and generally result
in increased federal income tax.
* Convertible Securities. Each of the Funds may invest in unrated
convertible bonds and other convertible securities, any yields on which
would be lower than comparable unconvertible securities and the value
of which will fluctuate with the value of the underlying security.
* Investments in Debt Securities. The Market Neutral Fund and the Real
Estate Fund may invest in secured or unsecured debt securities. The
Market Neutral Fund may invest more than 5% of its net assets in debt
securities which are below investment grade.
including debt securities which are below investment grade or, in the
case of the Market Neutral Fund, junk bonds.
* Securities of Foreign Issuers. Each of the Market Neutral Fund and the
Growth Fund may invest in securities of foreign issuers, including
securities issued or guaranteed by foreign corporations or governments,
the values of which are affected by changes in currency rates and
exchange control regulations, the application of foreign tax laws,
changes in governmental administration, economic or monetary policy,
and may result in additional transactional costs and/or costs of
ownership.
* Rights, Put and Call Options. The Market Neutral Fund and to a lesser
extent, the Growth Fund and the Real Estate Fund, may purchase rights
and write or purchase call or put options, thereby incurring the risk
that the security would become worthless in the event the market price
of the underlying security did not increase above (or in the case of
a put option, decreased below) the exercise price of the option.
* Fund Size. Because each Fund is small in size and has limited
investment portfolio size, market fluctuations may have a greater
impact on the Fund than on larger more diversified funds.
* Fund Expenses. Because each Fund is small in size, gross levels of the
Fund's expenses (i.e., expenses before waiver of expense reimbursements
and fees by the Advisor) will be greater in proportion to its assets.
* Market Risk. The value of each Fund's investments will fluctuate as
the overall stock or bond markets fluctuate and that prices overall
will decline over short or longer-term periods.
* Real Estate Industry Risks. The Real Estate Fund, while not a direct
investor in real estate, will be exposed to real estate investment
risk, including dilution in real estate values, changing conditions in
local and regional economic and financial markets, availability of
mortgage financing, overbuilding, extended tenant vacancies and
competition.
* Capitalization Risk. A Fund's investments in smaller capitalization
stocks may have additional risks because these companies often have
limited product lines, markets or financial resources. Also, a risk
that investments in mid-cap companies may be more volatile than
investments in large-cap companies and investments in micro-to-small-
cap companies tend to be more volatile than investments in large-cap
or mid-cap companies.
* Interest Rate Risk. To the extent each of the Fund's invest in fixed
income securities, including debt, increases in interest rates
generally will cause the value of the Fund's investments to decline and
this decrease in value may not be offset by the higher interest rate
income.
* Credit Risk. The risk that the issuer of a security or the other party
to an over-the-counter transaction will be unable or unwilling to make
timely payments of interest or principal, or to otherwise honor its
obligations. The degree of risk for a particular security may be
reflected in its credit rating. Credit risk is applicable to each Fund
to the extent it invests in fixed-income securities and is greater
where a Fund invests a substantial portion of its assets in lower-rated
securities.
* Sector Risk. Market and/or economic factors affecting a particular
industry sector could have a major effect on the value of a Fund's
investments.
* Currency Risk. To the extent the Market Neutral Fund or the Growth
Fund invest in securities of foreign issuers, there is a risk that
fluctuations in the exchange rate between the US dollar and foreign
currencies may negatively affect such investments.
You should consider an investment in the Fund as a long-term investment.
The Fund's returns will fluctuate over long and short periods.
Performance Information
Market Neutral Fund
Performance Data. The following performance data includes a bar chart
showing its annual returns and a table for the Fund showing its average
annual returns.
* The table shows how the Fund's average annual return for four years
compare to those of a broad based securities market index; and
* The bar chart shows changes in the Fund's performance from year
to year over four years.
The Fund's past performance, of course, does not necessarily indicate how
it will perform in the future. You should also consider that:
* You may lose all or most of your money by investing in the Fund.
* An investment in the Fund is not a deposit in a bank and is not
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Bar Chart. This bar chart and table show the volatility of the Fund's
returns. The bar chart shows changes in the Fund's returns from year
to year over the past four calendar years which covers the period
during which the current Advisor has provided advisory services to
the Fund under its current fundamental investment ovjectives and policies.
Of course, past performance cannot predict or guarantee future results.
[GRAPHIC OMITTED]
[The following table is depicted as a bar chart in the printed Prospectus]
95 96 97 98
Annual Return on Class C Shares(1) 2.6% 5.1% -5.1% -10.2%
(1) The Class C Shares are shown as they have been outstanding the longest
outstanding class o shares.
The Fund's Best Quarter was up 5.5%, 3rd quarter, 1997; and Worst Quarter
was down -5.7%, 4th quarter, 1998.
Performance Table. The following table provides an indication of the
historical risk of an investment in the Fund. The table shows how the
Fund's average annual total returns compare to those of the 90-day T-bill
rate. The Advisor has chosen a 90-day T-bill as an appropriate
benchmark because the Advisor's stock selection techniques are not
based on systematic market or economy-wide factors and the 90-day
T-bill rate represents the best short-term rate of return which
is nearly independent of systematic market influences.
Average Annual Total Returns(1)
Since Most Recent of January 1,1995
Share Class(2) 1 Year orInception of Class(3)
Class A -13.19% -9.02%(3)
Class B -13.51% -9.48%(3)
Class C -10.2% -3.04%
Class D -8.09% -2.77%(4)
Index(6) 4.9% 5.6%
(1) The average annual total returns in the performance table for the
periods ended December 31, 1998. Performance data for the Class A
Shares and Class B Shares reflect imposition of the maximum front-end
or contingent deferred sales charges, respectively. The Class C and
Class D Shares do not have front end or contingent deferred sales
charges. All Fund performance assumes reinvestment of dividends and
capital gains.
(2) The Fund has operated under its current fundamental investment
objective and policies since January 1, 1995. Prior to that time,
the Fund had different fundamental investment policies. At
January 1, 1995, the Fund had only Class C Shares outstanding.
(3) Since first sale of this class on January 7, 1997.
(4) Since first sale of this class on December 6, 1996.
(5) 90-day T-bill rate.
Growth Fund
Performance Data for 401(k) Plan. The Growth Fund is newly formed
and has no operating history.
Real Estate Fund
Performance Data. The Fund is newly organized and did not exist prior to
July 1, 1999.
An investment in the Funds is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
FEES AND EXPENSES
Market Neutral Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Class A Class B Class C Class D
Shares Shares Shares Shares
Shareholder Fees (fees
paid directly from your
investment)
Miximum sales charge (Load)
imposed on purchase as a
percentage of offering price 4.75% None None None
Maximum Deferred Sales Charge
(Load) as a percentage of
original price or redemption
proceeds, whichever is lower. None 4% during None None
1st and 2nd
year, 3% during
3rd year, decreasing
0.5% annually to
0% after the 5th year.
Exchange Fee(2) $7.50 $7.50 $7.50 $7.50
Annual Fund Operating Expenses (expenses deducted from fund assets)
Class A Class B Class C Class D
Annual Fees and Expenses
Management Fees 1.0% 1.0% 1.0% 1.0%
Rule 12b-1 Fees 0.25% 1.0% 1.0% None
Other Expenses (gross)(1) 1.42% 1.42% 1.42% 1.42%
Transaction Fees
(1) See "Investor Services - Exchange Privilege" below.
(2) Pursuant to the Advisory Agreement, the Advisor has agreed to, at
least through December 31, 1999, waive reimbursement of its expenses by
the Fund to the extent such reimbursements would cause the Fund's
expenses, including advisory fees, but excluding 12b-1 fees, interest
expense, taxes, brokerage fees and commissions, to exceed 2.625% the
Fund's average daily net assets on an annual basis. During the year
ended December 31, 1998, the Advisor did not waive reimbursement of its
expenses since the Fund's expenses did not exceed 2.625%. During 1998,
the Fund did not pay dividends on short sales which would have been
included in the Other Expenses (gross) if any had been paid.
Please see "Information About Your Account, Share Classes, Sales
Charges and Distribution Arrangements" below for an explanation of how
and when these sales charges apply.
Example. This example can help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The example assumes you invest $10,000 for the periods shown and then
sell all of your shares at the end of those periods. The example also
assumes your investment has a 5% return each year and 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:
Class A Class B Class C Class D
After 1 Year $742 $759 $359 $254
After 3 Years $1,294 $1,393 $1,093 $781
After 5 Years $1,870 $1,997 $1,847 $1,335
After 10 Years $3,425 $3,827 $3,827 $2,841
Growth Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
Annual Fund Operating Expenses (expenses deducted from fund assets)
Class A Class B Class C Class D
Shares Shares Shares Shares
Shareholder Fees (fees
paid directly from your
investment)
Miximum sales charge (Load)
imposed on purchase as a
percentage of offering price 4.75% None None None
Maximum Deferred Sales Charge
(Load) as a percentage of
original price or redemption
proceeds, whichever is lower. None 4% during None None
1st and 2nd
year, 3% during
3rd year, decreasing
0.5% annually to
0% after the 5th year.
Exchange Fee(2) $7.50 $7.50 $7.50 $7.50
Annual Fund Operating Expenses (expenses deducted from fund assets)
Class A Class B Class C Class D
Annual Fees and Expenses
Management Fees 1.0% 1.0% 1.0% 1.0%
Rule 12b-1 Fees 0.25% 1.0% 1.0% None
Other Expenses (gross)(1) 1.50% 1.50% 1.50% 1.50%
Transaction Fees
Exchange Fee(2) $7.50 $7.50 $7.50 $7.50
(1) See "Investor Services - Exchange Privilege" below.
(2) For the purposes of the table, "Other Expenses" are estimated by the
Advisor. Under the Advisory Agreement, the Advisor has agreed, at least
through December 31, 1999, to waive reimbursement of its expenses by the
Fund to the extent such reimbursements would cause the Fund's expenses,
including advisory fees, but excluding 12b-1 fees, interest expense, taxes,
brokerage fees and commissions, to exceed 2.50% the Fund's average daily
net assets on an annual basis.
Example. This example can help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The example assumes you invest $10,000 for the periods shown and then
sell all of your shares at the end of those periods. The example also
assumes your investment has a 5% return each year and 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:
Class A Class B Class C Class D
After 1 Year $750 $768 $368 $262
After 3 Years $1,318 $1,417 $1,117 $806
After 5 Years $1,920 $2,034 $1,887 $1,376
After 10 Years $3,502 $3,090 $3,902 $2,924
Real Estate Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Class A Class B Class C Class D
Shares Shares Shares Shares
Shareholder Fees (fees
paid directly from your
investment)
Miximum sales charge (Load)
imposed on purchase as a
percentage of offering price 4.75% None None None
Maximum Deferred Sales Charge
(Load) as a percentage of
original price or redemption
proceeds, whichever is lower. None 4% during None None
1st and 2nd
year, 3% during
3rd year, decreasing
0.5% annually to
0% after the 5th year.
Exchange Fee(2) $7.50 $7.50 $7.50 $7.50
Annual Fund Operating Expenses (expenses deducted from fund assets)
Class A Class B Class C Class D
Annual Fees and Expenses
Management Fees 1.0% 1.0% 1.0% 1.0%
Rule 12b-1 Fees 0.25% 1.0% 1.0% None
Other Expenses (gross)(1) 1.50% 1.50% 1.50% 1.50%
Transaction Fees
Exchange Fee(2) $7.50 $7.50 $7.50 $7.50
(1) See "Investor Services - Exchange Privilege" below.
(2) For the purposes of the table, "Other Expenses" are estimated by the
Advisor. Under the Advisory Agreement, the Advisor has agreed, at least
through December 31, 1999, to waive reimbursement of its expenses by the
Fund to the extent such reimbursements would cause the Fund's expenses,
including advisory fees, but excluding 12b-1 fees, interest expense, taxes,
brokerage fees and commissions, to exceed 2.50% the Fund's average daily
net assets on an annual basis.
Example. This example can help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The example assumes you invest $10,000 for the periods shown and then
sell all of your shares at the end of those periods. The example also
assumes your investment has a 5% return each year and 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:
Class A Class B Class C Class D
After 1 Year $750 $768 $368 $262
After 3 Years $1,318 $1,417 $1,117 $806
After 5 Years $1,920 $2,034 $1,887 $1,376
After 10 Years $3,502 $3,090 $3,902 $2,924
DESCRIPTION OF THE FUNDS
This section of the Prospectus provides a more complete description of
each Fund's investment objectives, principal strategies and risks. Of
course, there can be no assurance that a Fund will achieve its investment
objective.
Please note that:
* Additional discussion of each Fund's investments, including the risks
of the investments, can be found in the discussion under "Description
of Fund Practices" following this section.
* The description of the principal risks for the Funds may include risks
described in the "Summary of Principal Risks" above. Additional
information about the risks of investing in the Fund can be found in
the discussion under "Description of Fund Practices" below.
* Additional descriptions of each Fund's strategies, investments and
risks can be found in the Fund's Statement of Additional Information
or SAI.
Investment Objectives and Policies
The investment objectives and policies of each Fund are described below.
A Fund's investment objective is "fundamental" and cannot be changed
without a shareholder vote. Unless otherwise stated, a Fund's investment
policies are not fundamental and can be changed in the Board's discretion
without a shareholder vote.
Irrespective of a Fund's investment objective, it may establish a defensive
position during any period of stock market weakness or of uncertain market
or economic conditions as determined by the Advisor. In a defensive
position, the Advisor would seek to preserve the Fund's capital by
temporarily having all or a part of its assets invested in short-term,
fixed-income securities or retained in cash or cash equivalents. These
investments would include U.S. government securities, bank certificates
of deposit, bankers' acceptances and high-quality commercial paper issued
by domestic corporations. These investments would be inconsistent with
the Fund's fundamental objective and such defensive positioning may prevent
a Fund from achieving its fundamental objective.
Centurion Counsel Market Neutral Fund
The Fund's fundamental investment objective is long-term return with modest
volatility and minimal downside risk to capital. The Advisor follows a
strategy of investing in securities and engaging in transactions to minimize
the impact of movements in the securities markets by dividing the Fund's
investments between long positions in securities of companies the Advisor
deems undervalued and short sales of securities of companies it deems to
be overvalued. The Fund's policies include investments in put and call
options, rights, warrants, options on securities indexes. Generally,
the Fund will principally invest in securities which are traded in the
United States markets. The Fund's long and short positions, however,
may involve equity securities of foreign issuers that are principally
traded in the markets of the United States. As a fundamental policy,
under normal market conditions, at least 65% of the Fund's portfolio
is invested in long and short positions in such securities or derivative
securities which are indexed to the value of such securities.
By taking long and short positions in different securities, the Advisor
attempts to cancel out the effect of general stock market movements on
the Fund's performance. In general, the Advisor expects the Fund to
achieve a positive return if the Fund's long portfolio outperforms the
Fund's short portfolio. By this strategy, the Advisor may make money
in any type of market as long as the Fund's long positions perform better
than the stocks the Fund has sold short. The Fund is therefore subject
to the risk of poor securities selection by the Advisor if it is
unsuccessful in executing its strategy in identifying underperforming
and overperforming investments in the equity and debt markets.
Under normal circumstances, the Advisor's investment selections are
likely to result in the Fund being overweighted in both its long and
short positions. Also, the Fund may take long positions in a sector of
the market that are not offset by short positions in that sector and visa
versa, consequently the Fund may have net exposures to different asset
classes and/or different industries or sectors of the market. This
overexposure increases the risk to the Fund and the opportunity for
loss should its investments in a particular asset class, or industry
sector not perform as the Advisor predicts. The Advisor determines the
size of each long and short position by analyzing the tradeoff between
the attractiveness of each position and its impact on the risk
characteristics of the Fund's overall portfolio.
The Advisor constantly reviews the Fund's portfolio to restore dynamic
balance as the markets change. The Advisor sells or options long
positions it identifies as overvalued and closes short positions it
identifies as undervalued. It restores balance by reinvesting in
undervalued long positions and overvalued short positions in the
appropriate ratio. The Advisor has developed computer program models
and related analytical procedures which allow the Adviser to analyze
extensive financial data from numerous public and private sources, and,
based on such data, the Advisor identifies overvalued and undervalued
securities. The Advisor developed its computer model over more than a
decade based on its experience in managing individual, small business
and institutional investment portfolios. The principal financial data
used in connection with the computer model currently are: (i) Consensus
estimates of the earnings, dividends, free cash flow and payout ratios
on a broad cross-section of common stocks as reported by independent
financial reporting services that survey over 1,000 Wall Street
analysts; (ii) the estimated current yield to maturity on long-term
corporate bonds rated "AA" by Standard & Poors Corporation ("S&P");
(iii) the present yield on money market instruments; (iv) historical
standards deviation and investment return for each class of assets;
(v) historical standard statistical correlation of investment return
among the various asset classes; and (vi) technical factors in the
market including overbought and oversold conditions, market momentum
and market volume.
The Market Neutral Fund makes no guarantees because any investment
involves risks. In addition, although it will attempt to spread
the overall risk of its investments by investing in companies in a
number of different industries, such strategy will not eliminate
the risk. The Fund cannot predict stock price changes from day to
day, and it cannot guarantee against losses or that it will meet
its investment objectives.
Centurion Counsel Growth Fund
The Growth Fund's investment objective is capital growth with a view
towards income. As a fundamental policy, under normal market
conditions at least 65% of the Fund's portfolio will be invested
in the securities of companies (i) that have consistently paid
dividends in the past and/or (ii) whose management have publically
announced a current policy of consistently paying dividends.
Preservation of capital, while not an objective, is also an
important consideration. Of course, there is no assurance that
the Fund's objective will be achieved.
The Fund seeks to achieve its investment objective by investing in
financially sound companies that pay or announced a policy to pay
dividends based on the Advisor's investment philosophy that the
securities of such companies, because of their dividend record,
have a strong potential to increase in value. Normally, the Fund's
investments are in common stock, securities convertible into
common stock, or rights or warrants to subscribe for or purchase
common stock.
The Advisor focuses on companies which consistently pay dividends
will help the Fund attain its objective of long-term growth with
a view towards income. The Advisor will favor stocks of companies
that have shown a consistent growth in dividend rates. In addition,
because capital preservation is an important consideration, the
Advisor also reviews a company's stability and the strength
of its balance sheet in selecting among eligible growth companies
generally. The Advisor also considers other factors, such as
return on shareholder's equity, rate of earnings growth and
anticipated price/earnings ratios, in selecting investments for
the Fund.
Following these policies, the Fund will invest predominantly in
equity securities issued by U.S. companies. These may include
Large-cap, Mid-cap, Small-cap and/or Micro-cap companies.
Large-cap companies are those which have a market capitalization
of $5 billion or more; Mid-cap companies generally have a market
capitalization of $1 billion up to $5 billion; Small-cap companies
generally have a market capitalization of up to $1 billion; and
Micro-cap companies generally have a market capitalization of
less than $200 million. Investments in smaller capitalization
companies will subject the Fund to greater risks.
The Growth Fund may invest in foreign securities, generally by
purchasing sponsored or unsponsored American Depositary Receipts
("ADRs"), Global Depositary Receipts ("GDRs") and European
Depositary Receipts ("EDRs"). ADRs evidence ownership of, and
represent the right to receive, securities of a foreign issuer
deposited in a U.S. bank or a correspondent bank, while GDRs and
EDRs are typically issued by foreign banks or trust companies and
evidence ownership of underlying securities issued by either a
foreign or a U.S. corporation. The Fund may also purchase the
securities of foreign issuers directly in foreign markets.
The Fund intends to limit its investments in securities of foreign
issuers to 10% of its net assets. Foreign securities have risks
that U.S. securities do not have. For more information about
foreign securities and their risks, please see Description of
Fund Practices and Related Risks."
The Real Estate Fund also may:
* invest up to 20% of its assets in options contracts;
* write covered call and put options;
* purchase and sell put and call options;
* make loans of portfolio securities of up to 5% of its total
assets; and
* invest up to 5% of its assets in illiquid securities.
Except with respect to an investment in illiquid securities, if a
percentage restriction noted above is adhered to at the time of
investment, a later increase or decrease in the percentage resulting
from a change in the value of portfolio securities or the amount
of net assets will not be considered a violation of any of the
foregoing policies. The Fund will promptly act to correct excess
investments in illiquid securities.
The Growth Fund has a number of additional investment restrictions
that limit its activities to some extent. Some of these restrictions
may only be changed with shareholder approval. For a list of these
restrictions and more information about the Fund's investment policies,
please see "Investment Restrictions" in the SAI.
In determining to purchase or sell an investment, the Advisor purchases
securities which it has determined to be over-valued, based on its
fundamental analysis of the issuer and technical analysis of the market
for the security. The Advisor sells a security when it determines it to
be over-valued by the market or determines the business prospectus of the
issuer have changed. The Fund purchases securities primarily for
investment rather than for short-term profits. If the Advisor feels
it is wise to sell a position in a security, it will not hesitate even
if it has had the security just a short time. Turnover of the Fund's
assets will affect brokerage costs and may affect the taxes you pay.
The Fund calculates its portfolio turnover as the ratio of the lesser
of annual purchases or sales of portfolio securities to average monthly
portfolio value (not including short-term securities, if any). The
Advisor expects the Fund to have a turnover rate of less than 50%.
If the Fund had a 100% turnover rate, it would mean that the Fund
replaced all of its portfolio securities within a year. As a result
of the portfolio turnover rate, the Fund will generally incur greater
brokerage commissions which could also affect federal and state income
taxes. Shorter term investment strategies will also increase the
likelihood that the Fund will incur short-term capital gains and losses.
The Growth Fund makes no guarantees because any investment involves risks.
In addition, although it will attempt to spread the overall risk of its
investments by investing in companies in a number of different industries,
such strategy will not eliminate the risk. The Fund cannot predict stock
price changes from day to day, and it cannot guarantee against losses or
that it will meet its investment objectives.
The Advisor provides the data
below to summarize the performance history of a 401(k) retirement plan
advisory account (the "401(k) Plan") which has had since its inception
an investment objective and investment policies and strategies identical
to those of the Growth Fund. The 401(k) Plan has been exclusively managed
since its inception by Mr. Jack K. Heilbron, Chairman of Centurion Counsel
and portfolio manager to the Fund. The 401(k) Plan is the only account
of the Advisor which is substantially similar to the Growth Fund. The
following Summary includes a bar chart showing the 401(k) Plan's annual
returns and a table showing the 401(k) Plan's average annual returns.
* The table shows how the 401(k) Plan's average annual returns for one,
five, and eight years compare to those of a broad based securities market
index; and
* The bar chart shows changes in the 401(k) Plan's performance from year
to year over eight years.
The 401(k) Plan's past performance represents the historical performance
of a similarly managed account and is not the Fund's performance or
indicative of the Fund's performance. You should also consider that:
* The 401(k) Plan is not subject to certain investment limitations,
diversification requirements and other restrictions imposed by the 1940
Act and the Internal Revenue Service, which, if applicable, may have
adversely affected the performance result.
* You may lose all or most of your money by investing in the Fund.
* An investment in the Fund is not a deposit in a bank and is not
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Bar Chart for the 401(k) Plan. This bar chart and table show the
volatility of the 401(k) Plan's returns, which can be used as one
indicator of the risks of investing in the Fund. The bar chart shows
changes in the 401(k) Plan's returns from year to year over the past
eight calendar years which covers the 401(k) Plan's performance since
its first full quarter of operation commenccing on January 1, 1991.
The table shows how the 401(k) Plan's average annual total returns
compare to those of the S&P 500, a broad-based securities market
index. Of course, past performance cannot predict or guarantee future
results for the Fund.
[The following table is depicted as a bar chart in the printed Prospectus]
401(k) Plan Performance
91 92 93 94 95 96 97 98
Annual Return(1) 9.86% -5.68% 12.72% -6.67% 38.05% 8.04% 16.18% 5.20%
(1) Annual Return reflects the estimated expenses of the Growth Fund set
forth under "Fees and Expenses-Growth Fund" below instead of the 401(k)
Plan's actual expenses, which were greater.
The 401(k) Plan's Best Quarter was up 10.87%, 2nd quarter, 1991; and Worst
Quarter was down -10.27%, 1st quarter, 1991.
Performance Table for the 401(k) Plan. The following table provides
an indication of the historical risk of the 401(k) Plan. The information
in the table has been audited by Boros & Farrington, Certified Public
Accountants. For presentation in the table, the 401(k) Plan's actual
net income during the periods presented has been adjusted during each
period to reflect maximum expenses which would have been incurred had
the 401(k) Plan paid the advisory fees and other expenses under the
arrangements of the Fund for such services and expenses.
THE RESULTS PRESENTED IN THE TABLE ARE NOT THOSE OF THE FUND AND SHOULD
NOT BE CONSIDERED INDICATIVE OF THE FUTURE OPERATING RESULTS OF
THE FUND.
401(k) Plan
Average Annual Total Returns(1)
Share Class(2) 1 Year 5 Years 8 Years(3)
Class A 4.94% 13.61% 11.86%
Class B 4.17% 12.41% 10.47%
Class C 4.17% 12.41% 10.47%
Class D 5.20% 14.03% 12.34%
S&P 500 Index(4) 28.76% 23.63% 18.63%
(1) The average annual total returns in the performance table for the
periods ended December 31, 1998. The 401(k) Plan performance assumes
reinvestment of dividends and capital gains.
(2) The prior performance of the 401(k) Plan is adjusted to reflect the
maximum fees and expenses listed in the Growth Fund's Annual Fund Operating
Expenses under "Fees And Expenses" below.
(3) The 401(k) Plan was established in 1991 and Mr. Heilbron has served as
its portfolio manager since the 401(k) Plan's inception.
(4) Advisor believes that the Standard & Poors 500 Index ("S&P 500") is
appropriate measure of Growth Fund performance because it is comprised of
common stock of companies with a broad sampling of industry segments and
reflects overall market risks and influences. The S&P 500 index used assumed
reinvestment of dividends and does not include expenses.
Centurion Counsel Real Estate Fund
The Real Estate Fund seeks a total return from long-term growth of capital
and from income principally through investing in a portfolio of equity
securities of issuers that are primarily engaged in or related to the real
estate industry. As a fundamental policy, under normal market conditions,
at least 65% of the Fund's total assets will be invested in equity
securities of real estate investment trusts, or REITs, and other real
estate industry companies. A "real estate industry company" is a company
that derives at least 50% of its gross revenues or net profits from the
ownership, development, construction, financing, management, or sale of
commercial, industrial, or residential real estate or interests in these
properties. The Fund invests in equity securities of real estate industry
companies including common stock, shares of beneficial interest of REITs,
and securities with common stock characteristics, such as preferred stock
or convertible securities ("real estate equity securities").
The Fund may invest up to 35% of its total assets in (a) securities that
directly or indirectly represent participations in, or are collateralized
by and payable from, mortgage loans secured by real property (mortgage-
backed securities), such as mortgage pass-through certificates, real
estate mortgage investment conduit certificates ("REMICs") and
collateralized mortgage obligations ("CMOs") and (b) short-term
investments. These securities are described below.
In selecting Real estate equity securities, the Advisor's analysis will
focus on determining the degree to which the company involved can achieve
sustainable growth in cash flow and dividend paying capability. The
Advisor believes that the primary determinant of this capability is the
economic viability of property markets in which the company operates and
that the secondary determinant of this capability is the ability of
management to add value through operating experience and expertise. The
Fund will purchase real estate equity securities when, in the Advisor's
judgment, their market price does not adequately reflect this potential.
In making this determination, the Advisor will take into account
fundamental trends in underlying property markets as determined by
proprietary models, site visits conducted by individuals knowledgeable
in local real estate markets. The Advisor will also strongly consider
an issuer's historical and projected growth in funds from operations (as
defined for real estate companies) as its history and prospectus for
dividends and overall yield.
The Real Estate Fund may invest without limitation in shares of REITs.
REITs are pooled investment vehicles that invest primarily in income
producing real estate or real estate related loans or interests. REITs
are generally classified as equity REITs, mortgage REITs, or a combination
of equity and mortgage REITs. Equity REITs invest the majority of their
assets directly in real property and derive income primarily from the
collection of rents. Equity REITs can also realize capital gains by
selling properties that have appreciated in value. Mortgage REITs invest
the majority of their assets in real estate mortgages and derive income
from the collection of interest payments. Similar to investment companies
such as the Fund, REITs are not taxed on income distributed to
shareholders provided they comply with several requirements of the
Code. The Fund will indirectly bear its proportionate share of expenses
incurred by REITs in which the Fund invests in addition to the expenses
incurred directly by the Fund.
The Fund's investment strategy with respect to Real estate equity securities
is based on the premise that property market fundamentals are the primary
determinant of growth underlying the performance of the securities. Value
and management further distinguishes the most attractive investments.
The Advisor's research and investment process is designed to identify
those companies with strong property fundamentals and strong management
teams. This process is comprised of real estate market research, specific
property inspection, and securities analysis. The Advisor believes that
this process will result in a portfolio that will consist of real estate
equity securities of companies that own assets in the most desirable
markets across the country. The Advisor will seek to maintain investments
which are diversified geographically and by property type, either by
investments in individual diversified companies or groups of non-
diversified companies whose combined portfolios are so diversified.
To implement the Real Estate Fund's research and investment process,
the Advisor will use publicly available and proprietary databases and
algorithms to analyze local market rent, expenses, occupancy trends,
market specific transaction pricing, demographic and economic trends,
and leading indicators of real estate supply such as building permits.
The Advisor further screens the universe of real estate industry
companies by using rigorous financial models and by engaging in regular
contact with management of targeted companies. Each management's
strategic plan and ability to execute the plan are determined and
analyzed. The Advisor makes extensive use of industry analysis in
order to assess trends in tenant industries. This information is then
used to further evaluate management's strategic plans. Financial ratio
analysis is used to isolate those companies with the ability to make
value-added acquisitions. This information is combined with property
market trends and used to project future earnings potential.
The Fund's investments in mortgage-backed securities involve the risk
that the loans will be prepaid when interest rates decline and the
Fund will have to reinvest in securities with then prevailing lower
interest rates. This prepayment risk results in mortgage-backed
securities generally having a significantly greater price and yield
volatility than traditional fixed-income securities. The Fund may
invest in debt securities rated BBB or higher by S&P or Baa or higher
by Moody's or, if not rated, of equivalent credit quality as determined
by Centurion Counsel. The Fund expects that it will not retain a debt
security that is downgraded below BBB or Baa or, if unrated, determined
by the Advisor to have undergone similar credit quality deterioration,
subsequent to purchase by the Fund.
The Real Estate Fund also may:
* invest up to 15% of its net assets in convertible securities;
* make short sales of securities or maintain a short position but
only if at all times when a short position is open not more than
25% of the Fund's net assets is held as collateral for such sales.
* invest up to 10% of its net assets in rights or warrants;
* make loans of portfolio securities of up to 25% of its total
assets; and
Because the Fund invests a substantial portion of its assets in the real
estate market, it is subject to many of the same risks involved in direct
ownership of real estate. For example, the value of real estate could
decline due to a variety of factors affecting the real estate market
generally, such as overbuilding, increases in interest rates, or
declines in rental rates. In addition, REITs are dependent on the
capability of their managers, and a REIT may have limited diversification
of property types and/or geographical location, and could be significantly
affected by changes in tax laws.
The Fund's investments in mortgage-backed securities have prepayment risk,
which is the risk that mortgage loans will be prepaid when interest rates
decline and the Fund will have to reinvest in securities with lower interest
rates. This risk causes mortgage-backed securities to have significantly
greater price and yield volatility than traditional fixed-income securities.
The Fund's investments in REMICs, CMOs and other types of mortgage-backed
securities may be subject to special risks that are described under
"Description of Investment Practices."
The Fund is not intended to see short-term profits, but may do so from
time to time if the Advisor deems that such a strategy is appropriate
under prevailing market conditions. If the Advisor feels it is wise to
sell a position in a security, it will not hesitate even if it has had
the security just a short time. Turnover of the Fund's assets will affect
brokerage costs and may affect the taxes you pay. The Fund calculates
its portfolio turnover as the ratio of the lesser of annual purchases or
sales of portfolio securities to average monthly portfolio value (not
including short-term securities, if any). The Advisor expects the Fund
to have a turnover rate of less than 75%. If the Fund had a 100% turnover
rate, it would mean that the Fund replaced all of its portfolio securities
within a year. As a result of the portfolio turnover rate, the Fund will
generally incur greater brokerage commissions which could also affect
federal and state income taxes. Shorter term investment strategies will
also increase the likelihood that the Fund will incur short-term capital
gains and losses.
The Real Estate Fund makes no guarantees because any investment involves
risks. In addition, although it will attempt to spread the overall risk
of its investments by investing in companies in a number of different
industries, such strategy will not eliminate the risk. The Fund cannot
predict stock price changes from day to day, and it cannot guarantee
against losses or that it will meet its investment objectives.
Description of Fund Practices and Related Risks
This section describes each Fund's investment practices and related risks.
Unless otherwise stated, a Fund's use of these practices was described in
the previous section.
Dependence on Advisor. The Funds depend on the Advisor's ability to among
other things, accurately and timely identify undervalued and overvalued
securities. In the Market Neutral Fund in particular, the Advisor may fail
to purchase and sell short different stocks such that the long positions
outperform the short positions. Also, the Advisor may fail to construct a
portfolio that has limited exposure to general equity market risk or that
has limited exposure to specific industries, specific capitalization ranges
and certain other risk factors.
Investment Techniques. The value of Fund shares may increase or decrease
depending on external conditions affecting the Fund's portfolio. These
conditions depend upon market, economic, political, regulatory and other
factors. Investment in shares of the Fund is more volatile and risky than
some other forms of investment. In the Market neutral Fund in particular,
the Fund's long positions may decline in value at the same time that the
market value of securities sold short increases, thereby increasing the
magnitude of the loss that you may suffer on your investment as compared
to other stock mutual funds. Although the Market Neutral Fund's investment
strategy seeks to minimize the risk associated with investing in the equity
market, an investment in the Market Neutral Fund will be subject to various
risks, including the risk of poor stock selection by the Advisor.
An investment in the Market Neutral Fund and the other Funds is different
from an investment in 3-month U.S. Treasury Bills because, among other
differences, Treasury Bills are backed by the full faith and credit of
the U.S. Government, Treasury Bills have a fixed rate of return, investors
in Treasury Bills do not risk losing their investment, and an investment
in the Fund is more volatile than an investment in Treasury Bills.
Investments in Common Stock. Each Fund invests in common stocks which
are individually selected after considering a number of factors, including
price earning ratios, historical stock price movements and perceived under
valuation or over valuation. None of the Funds' goal is necessarily to
achieve a portfolio of publicly traded common stocks which is representative
of any index or industry wide sampling. Thus, the Fund does not seek to
make representative or pro rata investments in the stocks of any single
index such as the S&P index on a capitalized weighted basis or otherwise.
Risks of Short Sales. The Centurion Market Neutral Fund routinely makes
short sales of securities. A short sale is effected by selling a security
that a Fund does not own, or, if the Fund does own such security, it is not
to be delivered upon consummation of the sale. The Fund would borrow the
security it sells short from a third party and sell it at its current market
price. A short sale is "against the box" to the extent that the Fund
contemporaneously owns or has the right to obtain securities identical to
those sold short without payment.
The Advisor would sell a security short it if believes that the security is
overvalued. The Fund will incur a loss if the price of the borrowed
security increases between when the Fund sells it and when the Fund
replaces it the Fund may gain if the price of the borrowed security
decreases during that period of time. The Fund cannot guarantee that it
will be able to replace a security at any particular time or at an
acceptable price. This risk is particularly applicable to the Market
Neutral Fund.
During the time a Fund is short a security, it is always subject to the
risk that the security's lender will terminate the loan at a time when
the Fund is unable to borrow the same security from another lender. If
this happens, the Fund must buy the replacement share immediately at
its then market value or "buy in" by paying the lender an amount equal
to the price required to purchase the' security to close out the short
position. A Fund's gain on a short sale is limited by the price at which
it sold the borrowed security. By contrast, its loss on a short sale is
limited only by the maximum attainable price of the security less the
price at which it was sold.
Short sales also involve other costs. A Fund must repay to the lender
any dividends or interest that accrue while it is holding a security
sold short To borrow the security, the Fund also may be required to
pay a premium. A Fund also will incur transaction costs in effecting
short sales. The amount of any ultimate gain for a Fund resulting
from a short sale will be decreased, and the amount of any ultimate
loss for the Fund will be increased, by the amount of premiums,
dividends, interest or expenses the Fund may be required to pay in
connection with a short sale.
Until a Fund replaces a borrowed security, it will maintain daily a
segregated account with its Custodian containing cash, U.S. Government
securities, or other liquid securities. The amount deposited in the
segregated account plus any amount deposited as collateral with the
broker who loans the security will at least equal the current market
value of the security sold short. Depending on the arrangements made
with such broker, the Fund might not receive any payments (including
interest) on collateral deposited with the broker. A Fund will not
make a short sale if after giving effect to the sale the market value
of all securities sold short would exceed 100% of the value of the
Fund's net assets.
Options on Securities. An option gives the purchaser of the option,
upon payment of a premium, the right to deliver to (in the case of
a put) or receive from (in the case of a call) the writer a specified
amount of a security on or before a fixed date at a predetermined
price. A call option written by a Fund is "covered" if the Fund owns
the underlying security, has an absolute and immediate right to
acquire that security upon conversion or exchange of another
security it holds, or holds a call option on the underlying security
with an exercise price equal to or less than that of the call option
it has written. A put option written by the Fund is covered if a
Fund is short the underlying security or holds a put option on the
underlying securities with an exercise price equal to or greater
than that of the put option it has written.
A call option is used for cross-hedging purposes if a Fund does not
own the underlying security, and is designed to provide a hedge
against a decline in value in another security which the Fund owns or
has the right to acquire. A Fund would write a call option for cross-
hedging purposes, instead of writing a covered call option, when the
premium to be received from the cross-hedge transaction would exceed
that which would be received from writing a covered call option,
while at the same time achieving the desired hedge.
In purchasing an option, a Fund would be in a position to realize a
gain if, during the option period, the price of the underlying security
increased (in the case of a call) or decreased (in the case of a put)
by an amount in excess of the premium paid; otherwise the Fund would
experience a loss equal to the premium paid for the option.
If an option written by the Fund were exercised by the holder of the
option, the Fund would be obligated to purchase (in the case of a put)
or sell (in the case of a call) the underlying security at the exercise
price. The risk involved in writing an option is that, if the option
were exercised, the underlying security could then be purchased or sold
by the Fund at a disadvantageous price. Entering into a closing
transaction (i.e., by disposing of the option prior to its exercise)
could reduce these risks. A Fund retains the premium received from
writing a put or call option whether or not the option is exercised.
The writing of covered call options could result in increases in a
Fund's portfolio turnover rate, especially during periods when market
prices of the underlying securities appreciate.
Options on Securities Indices. An option on a securities index is similar
to an option on a security except that, rather than the right to take or
make delivery of a security at a specified price, an option on a securities
index gives the holder the right to receive, upon exercise of the option,
an amount of cash if the closing level of the chosen index is greater
than (in the case of a call) or less than (in the case of a put) the
exercise price of the option.
Rights and Warrants. A Fund will invest in rights or warrants only if the
Advisor deems the underlying equity securities themselves appropriate for
inclusion in the Fund's portfolio. Rights and warrants entitle the holder
to buy equity securities at a specific price for a specific period of time.
Rights are similar to warrants except that they have a substantially shorter
duration. Rights and warrants may be considered more speculative than certain
other types of investments in that they do not entitle a holder to dividends
or voting rights with respect to the underlying securities, nor do they
represent any rights in the assets of the issuing company. The value of a
right or warrant does not necessarily change with the value of the
underlying security, although the value of a right or warrant may decline
because of a decrease in the value of the underlying security, the passage
of time or a change in perception as to the potential of the underlying
security, or any combination of these factors. If the market price of the
underlying security is below the exercise price of the warrant on the
expiration date, the warrant will expire worthless. Moreover, a right
or warrant ceases to have value if it is not exercised prior to the
expiration date.
Convertible Securities. Each of the Funds, to some extent, invests in
convertible securities. Prior to conversion, convertible securities
have the same general characteristics as non-convertible debt securities,
which generally provide a stable stream of income with yields that are
generally higher than those of equity securities of the same or similar
issuers. The price of a convertible security will normally vary with
changes in the price of the underlying equity security, although the
higher yield tends to make the convertible security less volatile than
the underlying equity security. As with debt securities, the market value
of convertible securities tends to decrease as interest rates rise and
increase as interest rates decline. While convertible securities generally
offer lower interest or dividend yields than non-convertible debt
securities of similar quality, they offer investors the potential to
benefit from increases in the market price of the underlying common
stock. Convertible debt securities that are rated Baa or lower by Moody's
or BBB or lower by S&P, Duff & Phelps or Fitch and comparable unrated
securities may share some or all of the risks of non-convertible debt
securities with those ratings.
Investments in Debt and Fixed-Income Securities. From time to time each
Fund may have substantial amounts of its assets invested in debt
securities issued by governments and/or private entities such as
corporations and trusts. Each Fund may from time to time invest a
substantial portion of its assets in debt securities of less than
investment grade; provided each Fund must invest less than 35% of its
net assets in junk bonds. Junk bonds are bonds not rated in one of the
four highest rating categories by a NRSRO. Thus junk bonds would include
bonds rated lower than BBB by Standard & Poors Corporation (the "S&P"),
or rated Baa or lower by Moody's Investors Service, Inc. ("Moody's").
Investments in junk bonds would generally expose the Fund to greater
risks of loss by reason of default on these bonds. Although having
greater risk, junk bonds or lower rated debt securities generally sell
at substantially greater yields than investment quality debt securities
and generally offer greater potential returns.
Changes in interest rates will specifically affect the value of the Fund's
long positions in income-producing, fixed-income (i.e., debt) securities.
Increases in interest rates generally will cause the value of a Fund's
investments to decline and this decrease in value may not be offset by the
higher interest rate income.
The value of the Fund's shares will fluctuate with the value of its
investments. The value of the Fund's investments in fixed-income securities
will change as the general level of interest rates fluctuates. During
periods of falling interest rates, the values of fixed-income securities
generally rise. Conversely, during periods of rising interest rates, the
values of fixed-income securities generally decline.
Under normal market conditions, the average dollar-weighted maturity of the
Fund's portfolio of debt or other fixed-income securities is expected to
vary between one and 30 years. In periods of increasing interest
rates, the Fund may, to the extent it holds mortgage-backed securities,
be subject to the risk that the average dollar-weighted maturity of the
Fund's portfolio of debt or other fixed-income securities may be extended
as a result of lower than anticipated prepayment rates.
Investments in Micro and Small-cap Companies. Each Fund will invest in
micro-to-small-cap companies which tend to be more volatile than
investments in large-cap or mid-cap companies because smaller capitalization
stocks typically have additional risks because these often have limited
product lines, markets or financial resources.
Portfolio Turnover Rate. The portfolio turnover rate for each Fund is
included in the Financial Highlights section of the Fund's SAI. A
higher rate of portfolio turnover increases brokerage and other
expenses, which must be borne by the Fund and its shareholders. High
portfolio turnover also may result in the realization of substantial
net short-term capital gains, which, when distributed, are taxable to
shareholders. During its year ended, December 31, 1998, the turnover rate
for the Centurion Counsel Market Neutral Fund was 522%. Under its current
strategies, the Market Neutral Fund, the Growth Fund and the Real Estate
Fund expect their turnover rate to not be more than 500%, 50% and 75%,
respectively. As a result of the portfolio turnover rate the Fund will
generally incur greater brokerage commissions which could also affect
federal and state income taxes. Shorter term investment strategies will
also increase the likelihood that the Fund will incur short-term capital
gains and losses.
Mortgage-Backed Securities and Associated Risks. Investing in
Mortgage-Backed Securities involves certain unique risks in addition to
those risks associated with investment in the real estate industry in
general. Interest and principal payments (including prepayments) on
the mortgages underlying mortgage-backed securities are passed through to
the holders of the securities. As a result of the pass-through of
prepayments of principal on the underlying securities, mortgage-backed
securities are often subject to more rapid prepayment of principal than
their stated maturity would indicate. Prepayments occur when the mortgagor
on a mortgage prepays the remaining principal before the mortgage's
scheduled maturity date. Because the prepayment characteristics of
the underlying mortgages vary, it is impossible to predict accurately
the realized yield or average life of a particular issue of pass-through
certificates. Prepayments are important because of their effect on the
yield and price of the mortgage-backed securities. During periods of
declining interest rates, prepayments can be expected to accelerate and
a Fund that invests in these securities would be required to reinvest
the proceeds at the lower interest rates then available. Conversely,
during periods of rising interest rates, a reduction in prepayments
may increase the effective maturity of the securities, subjecting
them to a greater risk of decline in market value in response to
rising interest rates. In addition, prepayments of mortgages underlying
securities purchased at a premium could result in capital losses.
Mortgage-Backed Securities include mortgage pass-through certificates
and multiple-class pass-through securities, such as REMIC pass-through
certificates, CMOs and stripped mortgage-backed securities ("SMBS"),
and other types of Mortgage-Backed Securities that may be available in
the future.
Guaranteed Mortgage Pass-Through Securities. Centurion Counsel Real
Estate Fund may invest in guaranteed mortgage pass-through securities
which represent participation interests in pools of residential mortgage
loans and are issued by U.S. governmental or private lenders and
guaranteed by the U.S. Government or one of its agencies or
instrumentalities, including but not limited to the Government National
Mortgage Association ("Ginnie Mae"), the Federal National Mortgage
Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation
("Freddie Mac"). Ginnie Mae certificates are guaranteed by the full faith
and credit of the United States Government for timely payment of principal
and interest on the certificates. Fannie Mae certificates are guaranteed
by Fannie Mae, a federally chartered and privately-owned corporation, for
full and timely payment of principal and interest on the certificates.
Freddie Mac certificates are guaranteed by Freddie Mac, a corporate
instrumentality of the United States Government, for timely payment of
interest and the ultimate collection of all principal of the related
mortgage loans.
Multiple-Class Pass-Through Securities and Collateralized Mortgage
Obligations. Mortgage- Backed Securities also include CMOs and REMIC
pass-through or participation certificates that may be issued by, among
others, U.S. Government agencies and instrumentalities as well as private
lenders. CMOs and REMIC certificates are issued in multiple classes and the
principal of and interest on the mortgage assets may be allocated among the
several classes of CMOs or REMIC certificates in various ways. Each class
of CMOs or REMIC certificates, often referred to as a "tranche," is issued
at a specific adjustable or fixed interest rate and must be fully retired no
later than its final distribution date. Generally, interest is paid or
accrues on all classes of CMOs or REMIC certificates on a monthly basis.
Centurion Counsel Real Estate Fund will not invest in the lowest tranche
of CMOs and REMIC certificates.
Typically, CMOs are collateralized by Ginnie Mae or Freddie Mac certificates
but also may be collateralized by other mortgage assets such as whole loans
or private mortgage pass-through securities. Debt service on CMOs is
provided from payments of principal and interest on collateral of mortgaged
assets and any reinvestment income.
A REMIC is a CMO that qualifies for special tax treatment under the Code
and invests in certain mortgages primarily secured by interests in real
property and other permitted investments. Investors may purchase "regular"
and "residual" interest shares of beneficial interest in REMIC trusts,
although Centurion Counsel Real Estate Fund does not intend to invest in
residual interests.
The Real Estate Industry. Although Centurion Counsel Real Estate Fund
does not invest directly in real estate, it invests primarily in Real
estate equity securities and has a policy of concentration of its
investments in the real estate industry. Therefore, an investment in
the Fund is subject to certain risks associated with the direct ownership
of real estate and with the real estate industry in general. These risks
include, among others: possible declines in the value of real estate;
risks related to general and local economic conditions; possible lack of
availability of mortgage funds; overbuilding; extended vacancies of
properties; increases in competition, property taxes and operating
expenses; changes in zoning laws; costs resulting from the clean-up of,
and liability to third parties for damages resulting from, environmental
problems; casualty or condemnation losses; uninsured damages from floods,
earthquakes or other natural disasters; limitations on and variations in
rents; and changes in interest rates. To the extent that assets underlying
the Fund's investments are concentrated geographically, by property type
or in certain other respects, the Fund may be subject to certain of the
foregoing risks to a greater extent.
In addition, if Centurion Counsel Real Estate Fund receives rental income
or income from the disposition of real property acquired as a result of a
default on securities the Fund owns, the receipt of such income may
adversely affect the Fund's ability to retain its tax status as a regulated
investment company. Investments by the Fund in securities of companies
providing mortgage servicing will be subject to the risks associated with
refinancings and their impact on servicing rights.
REITs. Investing in REITs involves certain unique risks in addition to
those risks associated with investing in the real estate industry in
general. Equity REITs may be affected by changes in the value of the
underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of any credit extended. REITs are dependent
upon management skills, are not diversified, and are subject to heavy
cash flow dependency, default by borrowers and self-liquidation. REITs
are also subject to the possibilities of failing to qualify for tax-free
pass-through of income under the Code and failing to maintain their
exemptions from registration under the 1940 Act.
REITs (especially mortgage REITs) also are subject to interest rate
risks. When interest rates decline, the value of a REIT's investment
in fixed rate obligations can be expected to rise. Conversely, when
interest rates rise, the value of a REIT's investment in fixed rate
obligations can be expected to decline. In contrast, as interest rates
on adjustable rate mortgage loans are reset periodically, yields on a
REIT's investments in such loans will gradually align themselves to
reflect changes in market interest rates, causing the value of such
investments to fluctuate less dramatically in response to interest
rate fluctuations than would investments in fixed rate obligations.
Investing in REITs involves risks similar to those associated with
investing in small capitalization companies. REITs may have limited
financial resources, may trade less frequently and in a limited volume
and may be subject to more abrupt or erratic price movements than
larger company securities. Historically, small capitalization stocks,
such as REITs, have been more volatile in price than the larger
capitalization stocks included in the S&P 500 Index.
Currency Considerations. From time to time, 10% or more of the
investments of the Market Neutral Fund or the Growth Fund may be
invested in securities of foreign issuers and/or securities
guaranteed by foreign companies or governments. As a consequence,
the dollar equivalent of the net assets, distributions and income
of these foreign companies will be adversely affected by reductions
in the value of certain foreign currencies relative to the US dollar.
If the value of these foreign currencies falls relative to the US dollar,
the price and/or return on the Fund's investments in foreign issuers may
be adversely affected.
Short-term Investments. A Fund may invest in short-term investments
including: corporate commercial paper and other short-term commercial
obligations, in each case rated or issued by companies with similar
securities outstanding that are rated Prime-1, Aa or better by Moody's
or A-1, AA or better by S&P; obligations (including certificates of deposit,
time deposits, demand deposits and bankers' acceptances) of banks with
securities outstanding that are rated Prime-1, Aa or better by Moody's or
A-1, AA or better by S&P; and obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities with remaining maturities
not exceeding 18 months.
Future Developments. Each Fund may, following written notice to its
shareholders, take advantage of other investment practices that are not
currently contemplated for use by the Fund, or are not available but may
yet be developed, to the extent such investment practices are consistent
with the Fund's investment objective and legally permissible for the Fund.
Such investment practices, if they arise, may involve risks that exceed
those involved in the activities described above.
Year 2000. Many computer systems and applications in use today process
transactions using two-digit date fields for the year of the transaction,
rather than the full four digits. If these systems are not modified or
replaced, transactions occurring after 1999 could be processed as year
"1900," which could result in processing inaccuracies and computer system
failures. This is commonly known as the Year 2000 problem. Should any of
the computer systems employed by a Fund's major service providers fail to
process Year 2000 related information properly, that could have a
significant negative impact on the Funds' operations and the services
that are provided to the Fund's shareholders. In addition, to the extent
that the operations of issuers of securities held by a Fund are impaired
by the Year 2000 problem, or prices of securities held by the Fund decline
as a result of real or perceived problems relating to the Year 2000, the
value of the Fund's shares may be materially affected.
With respect to the Year 2000, the Fund has been informed that the Advisor,
the Distributor, Centurion Institutional Services, Inc. ("CISI"), Centurion
Group, Inc., the Fund's registrar and transfer agent, and Firstar Bank, the
Fund's custodian, began to address the Year 2000 issue several years ago in
connection with the replacement or upgrading of certain computer systems and
applications. During 1997, the Advisor began a formal Year 2000 initiative,
which established a structured and coordinated process to deal with the
Year 2000 issue.
General. The successful use of the investment practices described above
draws upon the Advisor's special skills and experience and usually depends
on the Advisor's ability to forecast price movements, interest rates, or
currency exchange rate movements correctly. Should interest rates, prices
or exchange rates move unexpectedly, a Fund may not achieve the anticipated
benefits of the transactions or may realize losses and thus be in a worse
position than if such strategies had not been used. There are no
daily price fluctuation limits for certain options, and adverse market
movements could therefore continue to an unlimited extent over a period
of time. In addition, the correlation between movements in the prices of
options and movements in the prices of the securities hedged or used
for cover the optuon investment will not be perfect and could produce
unanticipated losses.
A Fund's ability to dispose of its position in futures contracts,
options, and forward contracts depends on the availability of liquid
markets in such instruments. Markets in options and futures with respect
to a number of types of securities and currencies are relatively new and
still developing, and there is no public market for forward contracts.
It is impossible to predict the amount of trading interest that may exist
in various types of futures contracts, options, and forward contracts.
If a secondary market does not exist for an option purchased or written
by a Fund, it might not be possible to effect a closing transaction in the
option (i.e., dispose of the option), with the result that (i) an option
purchased by the Fund would have to be exercised in order for the Fund to
realize any profit and (ii) the Fund may not be able to sell currencies or
portfolio securities covering an option written by the Fund until the option
expires or it delivers the underlying security, futures contract or currency
upon exercise. Therefore, no assurance can be given that the Fund will be
able to utilize these instruments effectively. In addition, a Fund's ability
to engage in options and futures transactions may be limited by tax
considerations and the use of certain hedging techniques may adversely
impact the characterization of income to the Fund for U.S. federal income tax
purposes.
MANAGEMENT
The Advisor, Centurion Counsel, has served as the Company's advisor since
January 1, 1995. The Advisor's address is 11545 West Bernardo Court,
Suite 100, San Diego, CA 92127. The Advisor has operated as an investment
advisor since its organization in 1986. Its business consists primarily of
managing the investment portfolios for individuals, corporations and
retirement plans. The Fund pays the Advisor a fee for managing the Fund's
assets and making its investment decisions. Under the Fund's agreement with
the Advisor, this fee equals 1% per annum of the Fund's first $200 million
of average daily net assets and declines thereafter at a percentage of
average daily net assets if the size of the Fund should be greater. For
the year ended December 31, 1998, the Market Neutral Fund paid an
annualized rate of 1.0% of its average daily assets to the Advisor.
Mr. Jack K. Heilbron has served as portfolio manager for the Fund since
1992. Mr. Heilbron is Chairman, Chief Executive Officer and Chief
Investment officer of the Advisor. Mr. Heilbron also serves as Chairman
and/or Chief Executive Officer for the Advisor's Affiliates, including the
Fund's Distributor, CISI. The Advisor compensates Mr. Heilbron for his
services to the Fund.
DISTRIBUTIONS AND TAXES
Income and Capital Gains Distributions. The Funds intend to pay dividends
at least annually representing its net investment income. Capital gains,
if any, may be distributed annually. The amount of these distributions
will vary and there is no guarantee a Fund will pay dividends.
To receive a distribution, you must be a shareholder on the record date.
The record dates for the Fund's distributions will vary. Remember that
if you invest in the Fund shortly before the record date of a distribution,
any distribution will lower the value of the Fund's shares by the amount
of the distribution and you will receive some of your investment back in
the form of a taxable distribution. If you would like information on
upcoming record dates for the Fund's distributions, please call Centurion
Counsel at 1-800-878-8536.
Tax Considerations. In general, Fund distributions are taxable to you as
either ordinary income or capital gains. This is true whether you reinvest
your distributions in additional shares of the Fund or receive them in
cash. Any capital gains the Fund distributes are taxable to you as
long-term capital gains no matter how long you have owned your shares.
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared
in December but paid in January are taxable as if they were paid in
December.
When you sell your shares of the Fund, you may have a capital gain or loss.
For tax purposes, an exchange of your Fund shares for shares of a different
Centurion Counsel Fund is the same as a sale. The individual tax rate on
any gain from the sale or exchange of your shares depends on how long you
have held your shares.
The Fund must, by law, withhold 31% of your taxable distributions and
proceeds if you do not provide your correct taxpayer identification number
(TIN) or certify that your TIN is correct, or if the IRS instructs the Fund
to do so.
Fund distributions and gains from the sale or exchange of your shares will
generally be subject to state and local income tax. Non-U.S. investors may
be subject to U.S. withholding and estate tax. You should consult your tax
advisor about federal, state, local or foreign tax consequences of your
investment in the Fund.
INFORMATION ABOUT YOUR ACCOUNT
Share Classes, Sales Charges and Distribution Arrangements
Share Classes: Each Fund offers four classes of Shares. Each class has its
own sales charges and distribution arrangement.
Class A Shares--Initial Sales Charge Alternative
You can purchase Class A shares at NAV (net asset value per share) with an
initial sales charge as follows:
Initial Sales Charge
As % of Net As % of Commission to Dealer/Agent
Amount Invested Offering Price as % of Offering Price
4.99% 4.75% 4.00%
Class B Shares--Deferred Sales Charge Alternative
You can purchase Class B Shares at NAV without an initial sales charge.
A Fund will thus receive the full amount of your purchase. Your
investment, however, will be subject to a conditional deferred sales
charge or CDSC if you redeem shares within 5 years of purchase. The
CDSC varies depending on the number of years you hold the shares.
The CDSC amounts are:
Years Since Purchase CDSC
First 4.0%
Second 4.0%
Third 3.0%
Fourth 2.5%
Fifth 1.5%
Sixth None
Class B shares will automatically convert to Class A shares eight years
after the end of the calendar month in which the shareholder's order to
purchase was accepted.
In determining whether a contingent deferred sales charge is applicable
to a redemption, the calculation is determined in the manner that results
in the lowest possible rate being charged. Therefore, it is assumed that
the redemption is first of any shares in the shareholder's Fund account
that are not subject to a contingent deferred sales charge, second, of
shares held for over five years or shares acquired pursuant to reinvestment
of dividends or distributions and third, of shares held longest during the
five-year period.
Class C Shares--Asset-based Sales Charge Alternative
You can purchase shares at NAV without an initial sales charge or CDSC.
Class C shares will be subject to Rule 12b-1 fees. A Fund will thus receive
the full amount of your purchase.
Class D Shares--No Sales Charges
Class D shares are sold at net asset value only to persons who qualify as
an Advisor Professional, Eligible Employee, or Eligible Account, as defined
below. No front-end charge, deferred sales charge, service fees or
distribution fees will be paid by the Fund with respect to the Class D
shares. Class D shares are offered at net asset value to such persons
because of anticipated economies in sales efforts and sales-related
expenses.
"Advisor Professionals" are investment advisors, trust companies and bank
trust departments exercising discretionary investment authority with respect
to the money to be invested in the Fund. Eligible Employees are (a) current
or retired directors of the Funds, current or retired employees of the
Advisor or its affiliated companies, including spouses, minor children and
grandchildren of these persons or their parents; or (b) employees or
registered representatives of the Fund's dealers' selling group agreements
with the Distributor, employees of financial institutions that have
arrangements having selling group agreements with the Distributor, and
spouses and minor children of such persons; or (c) any trust, pension,
profit sharing or other benefit plan for such persons. "Eligible Accounts"
are accounts opened for shareholders by dealers where the amounts invested
represent the redemption proceeds from investment companies distributed
by an entity other than the Distributor if such redemption has occurred no
more than 15 days prior to the purchase of shares of the Fund and the
shareholder paid an initial sales charge and was not subject to a deferred
sales charge on the redeemed account.
Asset-based Sales Charge or Rule 12b-1 Fees. Each Fund has adopted a plan
under Rule 12b-1 that allows the Fund to pay asset-based sales charges or
distribution and service fees for the distribution and sale of its shares.
The amount of these fees for each class of the Fund's shares is:
Rule 12b-1 Fee (As a Percentage of Aggregate
Average Daily Net Assets)
Class A 0.25%
Class B 1.00%
Class C 1.00%
Class D None
The fee under the Rule 12b-1 Plan for the Class A shares is 0.25% of the
aggregate average daily net assets. Because these fees are paid out of
the Fund's assets on an on-going basis, over time these fees will increase
the cost of your investment and may cost you more than paying other types
of sales fees. Class B and Class C shares are subject to higher distribution
fees than Class A shares (Class B shares are subject to these higher fees
for a period of eight years, after which they convert to Class A shares).
The higher fees mean a higher expense ratio, so Class B and Class C shares
pay correspondingly lower dividends and may have a lower net asset value
than Class A shares.
Choosing a Class of Shares. The decision as to which class of shares is
more beneficial to you depends primarily on the intended length of your
investment. If you plan to keep your shares for 5 years or longer, you
might consider purchasing Class A shares because of their one-time front
end charge and lower 12b-1 fees of 0.25% per year. If your investment
will be for a shorter term, you might consider purchasing Class B shares
because 100% of your purchase is invested immediately. Also, while your
12b-1 fee expenses will be 1.0% per year they should, when added to the
CDSD charged on your Class B Shares, be less than the total of the front
end sales charge and 12b-1 fees on Class A Shares held for the same period.
If you are unsure of the length of your investment, you might consider
Class C shares because there is no initial sales charge and no CDSC as
long as the shares are held for one year or more. Dealers and agents may
receive differing compensation for selling Class A, Class B, or Class C
shares. There is no size limit on purchases of any class of shares.
You should consult your financial agent to assist in choosing a class of
Fund shares.
Other Charges. A transaction, service, administrative or other similar
fee may be charged by your broker-dealer, agent, financial intermediary,
or other financial representative with respect to the purchase, sale, or
exchange of Class A, Class B, or Class C shares made through your financial
representative. The financial intermediaries also may impose requirements
on the purchase, sale, or exchange of shares that are different from, or
in addition to, those imposed by a Fund, including requirements as to the
minimum initial and subsequent investment amounts.
In addition to the discount or commission paid to dealers or agents, the
Distributor from time to time may pay additional cash or other incentives
to dealers or agents for the sale of shares of the Fund. These additional
amounts may be utilized, in whole or in part, in some cases together with
other revenues of such dealers or agents, to provide additional compensation
to registered representatives who sell shares of the Fund. On some occasions,
the cash or other incentives will be conditioned upon the sale of a specified
minimum dollar amount of the shares of the Fund and/or other Centurion Counsel
Funds during a specific period of time. The incentives may take the form of
payment for attendance at seminars, meals, sporting events or theater
performances, or payment for travel, lodging and entertainment incurred in
connection with travel by persons associated with a dealer or agent to urban
or resort locations within or outside the U.S. The dealer or agent may elect
to receive cash incentives of equivalent amount in lieu of such payments.
Buying Shares
You can start your investment in the Fund with as little as a $500 purchase.
You can make additional purchases of $25 or more. Your new Fund shares
will be priced based on the Share's NAV next determined after your order is
received. The Fund may waive these minimum purchase amounts to groups of
investors with a single agent. All Shares are offered to the public except
the Class D Shares, which are offered only to Advisor Professionals, Eligible
Employees or Eligible Accounts.
How to Buy Shares
Through your investment
representative
Contact your investment representative
By Mail
Complete New Account Application and state the
Fund in which you want to invest. Make your
check payable to Centurion Counsel Funds, Inc.
Mail your New Account Application and check to
Centurion Institutional Services, Inc.
By Exchange
Call Centurion Institutional Services, Inc. at
the number below or send signed written
instructions.
(Please see information below on exchanges.)
Centurion Institutional Services, Inc.
11545 West Bernardo Court, Suite 100
San Diego, CA 92127
Telephone 1-800-878-8536
(Monday through Friday 8:00 a.m. to 5:00 p.m., Pacific time)
Investor Services
Periodic Payment Plan. This plan offers a convenient way for you to
invest in the Fund by automatically transferring money from your
checking or savings account each month to buy shares. To sign up,
complete the appropriate section of your account application.
Distribution Options. You may reinvest distributions you receive
from the Fund in an existing account in the same share class of the
Fund or another Centurion Counsel Fund. Initial or contingent sales
charges will not apply if you reinvest your distributions under this
option.
Please indicate on your application the distribution option you have
chosen, otherwise we will reinvest your distributions in the Fund.
Telephone Privileges. You will automatically receive telephone
privileges when you open your account, allowing you and your investment
representative to sell or exchange your shares and make certain other
changes to your account by phone.
For accounts with more than one registered owner, telephone privileges
also allow the Fund to accept written instructions signed by only one
owner for transactions and account changes that could otherwise be made
by phone. For all other transactions and changes, all registered owners
must sign the instructions.
As long as we take reasonable measures to verify telephone requests,
we will not be responsible for any losses that may occur from unauthorized
requests. Of course, you can decline telephone exchange or redemption
privileges on your account application.
Exchange Privilege. Subject to the following limitations, you may exchange
some or all of your shares of the Fund for shares of Cash Equivalent Fund -
Money Market Portfolio (a money market fund) ("CEF"). CEF is managed by
Kemper Financial Services, Inc. and is offered through Centurion
Institutional Services, Inc. If a shareholder wishes to exchange shares
of the Fund for shares of CEF, the shareholder should first contact CIS
and obtain and read the prospectus of CEF.
The Fund may elect a three business day settlement period for all
exchanges before shares may be re-exchanged. Such exchange is considered
a taxable transaction, and you must recognize the gain or loss. The
Fund's transfer agent charges a nominal fee of $7.50 per exchange for
this service. The exchange must satisfy the minimum dollar amount
necessary for new purchases. You need not pay any front-end sales charge
for the exchange.
This exchange privilege is available only in states where shares of the
Fund being acquired may legally be offered and sold and may be modified
or terminated at any time by the Fund. Broker-dealers which have sales
agreements with CIS may charge a fee for processing exchange orders on
behalf of their customers.
Generally, exchanges may only be made between identically registered
accounts, unless you send written instructions with a signature
guarantee. Any CDSC will continue to be calculated from the date of
your initial investment and will not be charged at the time of the
exchange. The purchase price for determining a CDSC on exchanges
shares will be the price you paid for the original shares. If you
exchange shares subject to a CDSC into the Centurion Counsel money
market fund, a money market fund administered by Kemper Financial
Services, Inc., the time your shares are held in the money market
fund will not count towards the CDSC holding period.
An exchange is really two transactions: a sale of one fund and the
purchase of another. In general, the same policies that apply to
purchases and sales apply to exchanges, including minimum investment
amounts. Exchanges also have the same tax consequences as ordinary
sales and purchases.
Frequent exchanges can interfere with fund management or operations
and drive up costs for all shareholders. To protect shareholders,
there may be limits on the number and amount of exchanges you may
make.
Payout Plan. This plan allows you to automatically sell your shares
and receive regular payments from your account of $150 or more.
If applicable, a CEC will apply to withdrawals. Certain terms and
minimums apply. To sign up, complete the appropriate section of
your application.
Selling Shares
You can sell your shares at any time at their NAV next determined after
your request is received, less any CDSC in the case of the Class B
Shares. Please keep in mind that even if you sell all the shares in
your account, your account will not be closed. You will still be able
to buy additional Fund shares. The Fund will be closed on legal
holidays and you will not be able to buy or sell shares on those
days. Selling Shares in Writing. Requests to sell shares can
generally be made over the phone or with a simple letter. Sometimes,
however, to protect you and the Fund we will need written instructions
signed by all registered owners, with a signature guarantee for each
owner if you want to send your proceeds somewhere other than the
address of record, or preauthorized bank or brokerage firm account.
We may also require a signature guarantee on instructions we receive
from an agent, not the registered owners, or when we believe it would
protect the Fund against potential claims based on the instructions
received.
A signature guarantee helps protect your account against fraud. You
can obtain a signature guarantee at most banks and securities dealers.
A notary public CANNOT provide a signature guarantee.
Selling Recently Purchased Shares. If you sell shares recently
purchased with a check or draft, we may delay sending you the proceeds
for 15 days or until your check or draft has cleared, whichever occurs
first. A certified or cashier's check may clear in less time.
Redemption Proceeds. Your redemption check will be sent within seven
(7) days after we receive your request in proper form. We are not
able to receive or pay out cash in the form of currency. Redemption
proceeds may be delayed if we have not yet received your signed account
application.
Selling Shares
To sell some or all of your shares
Through your investment
representative Contact your investment representative
By Mail Send written instructions and endorsed
share certificates (if you hold share
certificates) to Centurion Institutional
Services. Corporate, Partnership or
trust accounts may need to send additional
documents.
Specify the fund, the account number and
the dollar value or number of shares you
wish to sell. Be sure to include all
necessary signatures and any additional
documents, as well as signature guarantees,
if required.
A check will be mailed to the name(s) and
address on the account, or otherwise
according to your written instructions.
By Phone As long as you do not hold share
certificates and you have not changed
your address by phone within the last
15 days, you can sell your shares by
phone.
Telephone (858) 673-8536
A check will be mailed to the name(s)
and address on the account. Written
instructions, with a signature guarantee,
are required to send the check to another
address or to make it payable to another
person.
By Exchange Obtain a current prospectus for the fund
you are considering.
Call Shareholder Services at the number
below or send signed written instructions.
See the policies above for selling shares
by mail or phone.
Centurion Institutional Services, Inc.
11545 West Bernardo Court, Suite 100
San Diego, CA 92127
Telephone 1-800-878-8536
Account Policies
Calculating Share Price. The Fund calculates the net asset value per
share ("NAV") each business day at the close of trading on the New York
Stock Exchange (normally 1:00 p.m. Pacific time). Each Fund's NAV is
calculated by dividing its net assets attributable to the share class by
the number of shares of that class outstanding.
When you buy shares, you pay the offering price. The offering price is the
NAV plus any applicable sales charge.
When you sell shares, you receive the NAV minus any applicable contingent
deferred sales charge (CDSC).
The Fund's assets are generally valued at their market value. If market
prices are unavailable, or if an event occurs after the close of the
trading market that materially affects the values, assets may be valued
at their fair value. If the Fund holds securities listed primarily on a
foreign exchange that trades on days when the Fund is not open for business,
the value of your shares may change on days that you cannot buy or sell
shares.
Requests to buy and sell shares are processed at the NAV next calculated
after we receive your request in proper form.
Statements and Reports. You will receive confirmations and account
statements that show our account transactions. You will also receive the
Fund's financial reports every six months. To reduce Fund expenses, we
try to identify related shareholders on a household and send only one copy
of the financial reports. If you need additional copies, please call
1-800-878-8536.
If there is a dealer or other investment representative of record on your
account, he or she will also receive confirmations, account statements and
other information about your account directly from the Fund.
Street or Nominee Accounts. You may transfer your shares from the
street or nominee name account of one dealer to another, as long as both
dealers have an agreement with CISI. We will process the transfer after
we receive authorization in proper form from your delivering securities
dealer.
Joint Accounts. Unless you specify a different registration, accounts
with two or more owners are registered as "joint tenants with rights of
survivorship." To make any ownership changes to a joint account, all
owners must agree in writing, regardless of the law in your state.
Market Timers. Each Fund allows investments by market timers.
Additional Policies. Please note that the Fund maintains additional
policies and reserves certain rights, including:
* The Fund may refuse any order to buy shares, including any purchase
under the exchange privilege.
* At any time, the Fund may change its investment minimums or waive or
lower its minimums for certain purchases.
* The Fund may modify or discontinue the exchange privilege on 60 days'
notice.
* You may only buy shares of a fund eligible for sale in your state or
jurisdiction.
* In unusual circumstances, as determined by the Securities and Exchange
Commission, we may temporarily suspend redemptions, or postpone the
payment of proceeds, as allowed by federal securities laws.
* For redemptions over a certain amount, the Fund reserves the right to
make payments in securities or other assets of the Fund, in the case
of an emergency or if the payment by check or wire would be harmful to
existing shareholders.
* To permit investors to obtain the current price, dealers are
responsible for transmitting all orders to the Fund promptly.
Dealer Compensation. Qualifying dealers who sell the Class A, Class B
or Class C Shares may receive sales commissions and other payments.
These are paid by the Fund's Distributor, CISI, from sales charges,
distribution and service (12b-1) fees and its other resources.
Share Class Maximum
Reallowance
Class A 4.0%
Class B up to 4.0%
CDSC
Class C None
Class D None
FINANCIAL HIGHLIGHTS
Centurion Counsel Market Neutral Fund
The financial highlights table is intended to help you understand
the Fund's financial performance for the past 5 years. Certain
information reflects financial results for a single share of the
Fund. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This
information has been audited by Squire & Co., the independent
accountants for the Fund, whose reports, along with the Fund's
financial statements, are included in the Fund's SAI, which is available upon
request.
The auditor's report, along with the Fund's financial statements,
are included in the SAI, which is available upon request.
Selected data for each share of capital stock outstanding
throughout the period is as follows:
Class A Class B
Shares Shares
Per Share Operating Performance: 1998 1997 (c) 1998 1997 (c)
"Net asset value, beginning of period" $3.35 $3.65 $ 3.33 $3.65
INCOME FROM INVESTMENT OPERATIONS
Net investment income (d) 0.02 - -0.01 -
Net gains (losses) on investments
(both realized and unrealized) (d) -0.33 -0.30 -0.32 -0.32
Total From Investment Operation -0.31 -0.30 -0.33 -0.32
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income - - - -
Distributions from capital gains - - - -
al Distributions - - - -
Net asset value, end of period $3.04 $3.35 $3.00 $3.33
TOTAL RETURN (e) -8.28% -8.47% -9.91% -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 2.67% 2.38% 3.42% 2.84%
Expenses, after waiver of fees 2.67% 2.15% 3.42% 2.60%
Net investment income 0.67% 0.64% -3.60% 0.19%
Portfolio Turnover Rate 522.88% 234.67% 522.88% 234.67%
Number of Shares Outstanding
at End of Period (000 Omitted) 3 3 0 0
Class C Shares (a)
For the years ended December 31,
Per Share Operating Performance: 1998 1997 1996 1995 1994
"Net asset value, beginning of period" $3.33 $3.51 $3.34 $3.43 $4.55
INCOME FROM INVESTMENT OPERATIONS
Net investment income (d) -0.01 -0.01 -0.03 -0.05 -0.18
Net gains (losses) on investments
(both realized and unrealized) (d) -0.33 -0.17 0.20 -0.04 -0.94
Total From Investment Operation -0.34 -0.18 0.17 -0.09 -1.12
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income - - - - -
Distributions from capital gains - - - - -
Total Distributions - - - - -
"Net asset value, end of period $2.99 $3.33 $3.51 $3.34 $3.43
TOTAL RETURN (e) -10.25% -5.13% 5.16% -2.62% -28.01%
RATIOS AND SUPPLEMENTAL DATA
"Net Assets, End of Period
($000 Omitted) $4,166 $7,288 $7,855 $4,370 $ 452
Ratios to net assets
Expenses, before waiver of fees 3.42% 3.14% 3.54% 4.82% 9.04%
Expenses, after waiver of fees 3.42% 2.91% 3.54% 3.53% 6.00%
Net investment income -3.60% -0.11% -0.43% 0.17% -4.78%
Portfolio Turnover Rate 522.88% 234.67% 129.20% 57.20% 148.21%
Number of Shares Outstanding
At End of Period (000 Omitted) 1,392 2,191 2,241 1,309 132
Class D
Shares
Per Share Operating Performance: 1998 1997 1996 (b)
Net asset value, beginning of period $3.36 $3.51 $3.46
INCOME FROM INVESTMENT OPERATIONS
Net investment income (d) 0.02 0.01 -
Net gains (losses) on investments
(both realized and unrealized) (d) (0.33) (0.16) 0.05
Total From Investment Operation (0.31) (0.15) 0.05
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income - - -
Distributions from capital gains - - -
Total Distributions - - -
Net asset value, end of period $3.05 $ 3.36 $3.51
TOTAL RETURN (e) -8.09% -4.27% -5.16%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period ($000 Omitted) $760 $972 $1,839
Ratios to net assets
Expenses, before waiver of fees 2.42% 2.20% 2.13%
Expenses, after waiver of fees 2.42% 1.97% 2.13%
Net investment income -2.60% 0.82% 0.00%
Portfolio Turnover Rate 522.38% 234.67% 129.20%
Number of Shares Outstanding
at End of Period (000 Omitted) 249 290 524
Notes:
(1) All capital shares issued and outstanding as of November 6, 1996
were reclassified as Class C Shares.
(5) For the period December 9, 1996 (effective date) to
December 31, 1996.
(6) For the period January 7, 1997 (first sale date) to
December 31, 1997.
(7) Allocated between Net Investment Income and Net Gains or
(Losses) on Securities based on monthly weighted average
shares outstanding.
(8) Total return measures the change in value of an investment
over the periods indicated. It is not annualized. It does
not include the maximum front end sales charge or contingent
deferred sales charge.
Centurion Counsel Growth Fund
This Fund is newly organized and did not exist prior to
July 1, 1999.
Centurion Counsel Real Estate Fund
This Fund is newly organized and did not exist prior to July 1,
1999.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Each Fund has an SAI, which contains more detailed information about
the Fund, including its operations and investment policies. The Funds'
SAIs are incorporated by reference into (and are legally part of) this
prospectus.
You may request a free copy of the current annual/semi-annual report or
the SAI, by contacting your broker or other financial intermediary, or
by contacting Centurion Institutional Services, Inc.:
By Mail: c/o Centurion Institutional Services, Inc.
11545 West Bernardo Court, Suite 100
San Diego, California 92127
By Phone: For Information: 1-800-878-8536
Or you may view or obtain these documents from the Commission:
In Person: At the Commission's Public Reference Room in
Washington, D.C.
By Phone: 1-800-SEC-0330
By Mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-6009
(duplicating fee required)
On the Internet: www.sec.gov
Each Fund's Statement of
Additional Information ("SAI") dated
February 17, 2000 contains additional
information about the Fund. It is
incorporated by reference into this
Prospectus, which means that it is
part of this Prospectus for legal
purposes. Additional information about
the Fund's investments is available in
a Fund's annual and semi-annual
reports to Shareholders. You may
obtain free copies of the SAI and the
annual and semi-annual reports for a
Fund, or request other information
about a Fund, or make shareholder
inquiries by writing to CISI Fund at
the address below or by telephoning
(858) 673-8536.
CENTURION COUNSEL FUNDS, INC.
11545 West Bernardo Court, Suite 100
San Diego, CA 92127
(858) 673-8536
The SAI for each Fund has been
filed with the Commission. You may
review and copy information about a
Fund, including the SAI, at the
Commission's Public Reference Room in
Washington, D.C. You may call the
Commission at 1-800-SEC-0330 for
information about the operation of the
Public Reference Room. The Commission
maintains a World Wide Website at
http://www.sec.gov, which contains
reports and other information about a
Fund. You may also obtain copies of
these materials, upon payment of a
duplicating fee. By writing the Public
Reference Section of the Commission,
Washington, D.C. 20549-6009.
Prospectus and Application
February 17, 2000
CENTURION COUNSEL FUNDS, INC.
The Fund's SEC File Number is 811-3257
Centurion Counsel Funds, Inc.
CENTURION COUNSEL FUNDS, INC.
GROWTH FUND
Statement of Additional Information
This Statement of Additional Information ("SAI") is not a
prospectus, but should be read in conjunction with the Prospectus of
Centurion Counsel Funds, Inc.-Growth Fund (the "Fund") dated
February 16, 2000 (the "Prospectus"). A copy of the Prospectus may
be obtained by contacting the Fund's principal underwriter, Centurion
Institutional Services, Inc. ("CISI"), at 11545 W. Bernardo Court,
Suite 100, San Diego, California 92127 (Telephone: (858) 673-8536).
TABLE OF CONTENTS
Page
FUND HISTORY 2
FUND INVESTMENTS AND RISKS 2
FUND MANAGEMENT 4
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES 7
INVESTMENT ADVISORY AND OTHER SERVICES 7
UNDERWRITING ARRANGEMENTS 10
BROKERAGE ALLOCATIONS AND OTHER PRACTICES 15
CAPITAL STOCK AND OTHER SECURITIES 16
RETIREMENT ACCOUNTS 21
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION 21
TAXATION OF THE FUND 22
CALCULATION OF PERFORMANCE DATA 23
LIMITATION OF DIRECTOR LIABILITY 24
ADDITIONAL INFORMATION 25
FINANCIAL STATEMENTS 26
Dated February 17, 2000
FUND HISTORY
The Fund is a multi-class series of common stock of Centurion
Counsel Funds, Inc. (the "Company"). The assets and liabilities,
income and expenses of the Company attributable to the Fund are
maintained in a separate investment portfolio and determined separately
for the Fund. The Company was incorporated on August 27, 1981 under
the laws of Minnesota. IRI Asset Management, Inc., a Minneapolis based
investment adviser, served as the adviser to the Company from its
inception until March 1988. At that time, the Company's Board of
Directors ("Board") approved Excel Advisors, Inc. as its adviser and
the offices of the Company were moved to San Diego, California. In
December 1994, the Company?s shareholders approved Centurion Counsel,
Inc. as the Company's Adviser and on January 15, 1999, the shareholders
and Board of the Company approved establishment of the Fund and the
Board approved the Fund's fundamental investment objective and policies.
FUND INVESTMENTS AND RISKS
Classification. The Fund is a series of shares in an open-end,
diversified management investment company that only issues shares of
common stock. By purchasing shares in the Fund, investors are pooling
their money to acquire a diversified portfolio of securities and other
assets.
Investment Strategies and Risks. The Fund's principal investment
strategies are discussed in the Prospectus. The Fund's nnon-principal
investment strategies are set forth below.
Illiquid Securities. While not a principal investment policy, each of
the Funds will limit its investments in illiquid securities to no more
than 5% of their net asssets. Illiquid securities generally include
(i) direct placements or other securities that are subject to legal
or contractual restrictions on resale or for which there is no readily
available market (e.g., when trading in the security is suspended or,
in the case of unlisted securities, when market makers do not exist or
will not entertain bids or offers), including many individually negotiated
currency swaps and any assets used to cover currency swaps and most
privately negotiated investments in state enterprises that have not
yet conducted an initial equity offering, (ii) over-the-counter options
and assets used to cover over-the-counter options, and (iii) repurchase
agreements not terminable within seven days.
Because of the absence of a trading market for illiquid securities, a
Fund may not be able to realize its full value upon sale. The Adviser
will monitor the liquidity of each Fund's investments in illiquid
securities. Rule 144A securities will not be treated as "illiquid"
for purposes of this limit on investments.
The Fund may not be able to readily sell securities for which there
is no ready market. Such securities are unlike securities that are
traded in the open market and can be expected to be sold immediately
if the market is adequate. The sale price of illiquid securities
may be lower or higher than the Adviser's most recent estimate of
their fair value. Generally, less public information is available
about the issuers of such securities than about companies whose
securitiese are traded on an exchange. To the extent that these
securities are foreign securities, there is no law in many of the
countries in which the Fund may invest similar to the Securities
Act requiring an issuer to register the sale of securities with
governmental agency or imposing legal restrictions on resales
of securities, either as to length of time the securities may
be held or manner of resale. However, there may be contractual
restrictions on resales of non-publicly traded foreign securities.
U.S. and Foreign Taxes. A Fund's investment in foreign securities
may be subject to taxes withheld at the source on dividend or
interest payments. Foreign taxes paid by a Fund may be creditable
or deductible by U.S. shareholders for U.S. income tax purposes.
No assurance can be given that applicable tax laws and
interpretations will not change in the future. Moreover, non-
U.S. investors may not be able to credit or deduct such foreign
taxes.
Money Market Instrument Investments. From time to time a Fund may
have substantial amounts of its assets invested in money market
instruments. In general, these investmnets are in one or a
combination of two of the following that have remaining maturities
no exceeding one year: (i) obligations issued and guaranteed by
the U.S. Government, its agencies or instrumentalities; (ii)
negotiable certificates of deposit, bankers' acceptances and
fixed time deposits and other obligations of domestic banks
(including foreign branches) that have more than $1-billion in
total assets at the time of investment and are members of the
Federal Reserve System or are examined by the Comptroller of the
Currency or whose deposits are insured by the Federal Deposit
Insurance Corporation; (iii) commercial paper rated at the date
of purchase "P-1" by Moody's Investors Services, Inc. ("Moody's)
or an "A-1 or "A-1+" by S&P; (iv) certain repurchase agreements;
and (v) high-quality municipal obligations, the income from which
may or may not be exempt from federal income taxes. The Fund may
also invest in short-term U.S. dollar-dominated obligations of
foreign banks (including U.S. branches) that at the time of
investment: (i) have more than $10 billion, or the equivalent
in other currencies, in total assets; (ii) are among the 75 largest
foreign banks in the world as determined on the basis of assets;
and (iii) have branches or agencies in the United States. The
value of the money market instruments in which the Fund may
invest will vary adversely with changes in market interest rates.
Fund Policies. The Fund has the investment restrictions set forth
below which cannot be changed without approval by holders of a majority of
the outstanding voting shares of the Fund. As defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), this means the lesser of
the vote of (a) 67% of the shares of the Fund at a meeting where more than
50% of the outstanding shares of the Fund are present in person or by proxy
or (b) more than 50% of the outstanding shares of the Fund.
To lower investment risks, the Fund will observe the following
fundamental policies.
(1) The Fund will not invest more than 5% of its net assets
(taken at the lower of cost or value) in securities of any one issuer.
The Fund will also limit its investment in a single issuer to not more
than 10% of that issuer's outstanding voting securities. Further, the
Fund will not invest more than 25% of its total assets in securities
issued by companies in any single industry.
(2) The Fund will not invest in another investment company
except as a part of a plan of merger, acquisition or consolidation.
(3) The Fund will not buy or sell real estate, commodities or
commodity contracts, except the Fund may invest up to 20% of its net assets
in index futures contracts and options thereupon.
(4) The Fund will not buy securities on margin.
(5) The Fund will not pledge or mortgage its assets, except to the
extent that writing covered call options or future contracts or options
may be deemed to be pledging or mortgaging assets.
(6) The Fund will not borrow money or property (for example,
securities), except that as a temporary measure for extraordinary purposes
or emergencies, the Fund may borrow from banks up to 5% of the value of its
total assets.
(7) The Fund will not make cash loans. However, the Fund may
purchase bonds or other debt securities sold publicly, including short-term
securities which may be acquired under agreements by the sellers to
repurchase; provided that not more than 10% of the Fund's net assets will,
at any time, be subject to repurchase agreements which mature in more than
seven days. The Fund does not consider these debt securities and other
short-term investments to be loans.
(8) The Fund may not invest more than 5% of its net assets in
illiquid investments. For the purposes of this restriction, "Illiquid
investments" are Restricted Securities or securities which cannot be disposed
of within seven (7) days in the normal course of the Fund's business at
approximately the amount at which the Fund has valued such securities.
(9) The Fund will not act as an underwriter.
(10) The Fund will not buy any securities of a company if it
knows that the officers or directors of the Fund, who own ? of 1% or more
of the company's securities, together own more than 5% of the company's
securities.
(11) The Fund will not invest in exploration or development
programs, such as oil or gas programs.
(12) The Fund will not buy or sell foreign exchange, which means the Fund
will not invest in currency contracts or options thereon or foreign securities
traded only on a foreign exchange.
Except for illiquid investments, if a percentage limitation described above
is adhered to at the time of the investment by the Fund, a later increase
or decrease in the percentage resulting from any change in the value of
the Fund's net assets will not constitute a violation of the restriction.
The Fund will promptly act to correct an illiquid investment in excess of
the permitted amount.
FUND MANAGEMENT
Officers and Directors. The names, addresses and principal
occupations of directors and executive officers of the Company for the past
five years are given below:
<TABLE>
FUND MANAGEMENT
<CAPTION>
Positions with the Fund and Principal
Name and (Age) Occupations During Past 5 Years Business Address
<S> <C> <C>
Carol Ann Freeland (61)<F1> Has served as a director of the Fund since 4015 Beltline Road, #200
December 20, 1994. Since 1992, Dallas, TX 75244
Executive Vice President, Collateral Equity
Management, of Dallas, Texas, a purchasers
of auto and consumer credit accounts
receivables. From 1987 to 1992, Executive
Vice President, Financial Services Exchange,
Irving, Texas, a broker-dealer industry
membership organization; from 1985 to 1986,
Vice President, Marketing, Property Co. of
America, Dallas, Texas, a real estate program
sponsor. She has served as a registered
representative of World Invest Corporation, a
licensed broker-dealer since 1994.
Richard E. Hall (73) Has served as a director of the Fund since 10 Carson Drive
December 20, 1994. Since 1989, a retired Grant's Pass, OR 97526
financial planner and securities salesman.
Served as registered representative and
director of PIM Financial Services, Inc.
("PIM"), an affiliate of Centurion Counsel,
Inc., from 1983 to 1989. Until July, 1994,
Mr. Hall owned approximately 3% of the
shares of CI Holding Group, Inc.,
Centurion Counsel, Inc.'s parent
corporation. At that time he sold his
shares for fair value to an Affiliate of
Centurion Counsel, Inc. There is no
agreement or understanding between Mr.
Hall and Centurion Counsel, Inc. or its
Affiliates regarding his service as a director
of the Fund.
Jack K. Heilbron (48)<F2> Has served as a director of the Fund since 11545 W. Bernardo Court, #100
December 20, 1994. Also served as a San Diego, CA 92127
Director of the Fund from 1989 to 1990.
He has served as portfolio manager for the
Fund since 1990. Since 1984 he has served
as Chairman and Chief Executive Officer
of C I Holding Group, Inc. and PIM.
Since 1989, he served Chairman and Chief
Investment Officer of Centurion Counsel,
Inc. For the period 1988 until 1989, he
served as an officer and director of Excel
Interfinancial Corporation, the parent of
Excel Advisors, Inc.
Russell W. Ketron (55)<F2> Has served as a director of the Fund since 1701 Novato Blvd., # 204
December 20, 1994. A Certified Financial Novato, CA 94947
Planner since 1977. Since 1979 has been a
registered principal with Protected
Investors of America, a national broker-
dealer firm. Has been an instructor at
Sierra Nevada College since 1985 and at
the College of Marin since 1991.
Douglas Werner (48) Has served as a director of the Fund since 140 Brightwood Ave.
December 20, 1994. Since 1993 has been Chula Vista, CA 92010
President of Tracks Publishing, a printing
firm located in Chula Vista, California.
Since 1980, has served as President and
owner of Werner Graphics, a graphic
design firm located in San Diego, California.
<FN>
(F1) Although this Director may be an "affiliated person" of a broker/
dealer registered under the Securities and Exchange Act of 1934, as
defined under the Investment Company Act of 1940, the Company has
determined that this person is not an "interested person" of the Fund,
Centurion Counsel, Inc. or its Affiliates, as defined under the Investment
Company Act of 1940 by reason of Rule 2a19-1 promulgated thereunder.
(F2) This Director is an "interested person" of Centurion Counsel, Inc.,
the Company, or a registered broker/dealer, as defined under the Investment
Company Act of 1940, as amended.
</FN>
</TABLE>
Fund Executive and Director Compensation
The following Table sets forth information for each of the directors of the
Fund, all members of any advisory board of the Fund, and for each of the three
highest paid executive officers or any affiliated person of the Fund whose
aggregate compensation from the Fund for the Fund's year ended
December 31, 1998.
COMPENSATION TABLE
<TABLE>
COMPENSATION TABLE
<CAPTION>
(1) (2) (3) (4) (5)
Total
Pension or Compensation
Retirement Estimated From
Aggregate Benefits Annual Registrant
Name of Compensation Accrued As Benefits and Fund
Person, From Part of Fund Upon Complex Paid
Position Registrant Expenses Retirement to Directors
<S> <C> <C> <C> <C>
Jack K. Heilbron, -0-** -0- -0- -0-
Chairman of the
Board
Carol Ann Freeland, $1800* -0- -0- $1800*
Director
Richard E. Hall, $1800* -0- -0- $1800*
Director
Russell W. Ketron, $1800* -0- -0- $1800*
Director
Douglas Werner, $1400* -0- -0- $1400*
Director
* Directors are paid $400 per meeting. There were four scheduled
quarterly meetings for 1998.
** Mr. Heilbron receives no compensation, including no director fees,
for his service to the Fund either directly or indirectly from the Fund
or any other investment company in a Fund Complex which includes the Fund,
the Centurion Counsel Market Neutral Fund and the Centurion Counsel Real
Estate Fund.
The Company's Board does not have a standing audit or nominating
committee or committees performing similar functions. The Company pays
no compensation to any of its officers and directors, except for a $200 per
year retainer and a fee of $400 for each meeting attended (other than
telephonically) by each director not affiliated with Centurion Counsel and
reimburses such nonaffiliated directors for their travel expenses to attend
directors' meetings. The Board held a total of four (4) regular meetings
during its last fiscal year.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of the date of this SAI, the Fund had outstanding 10 shares of
each Class, all of which were owned by the Adviser.
As of March 9, 1999, to the knowledge of management, no one
person or persons could control the Company through the exercise of voting
rights. As of March 9, 1999, to the knowledge of management, no person
owned beneficially more than 5% of the Company?s outstanding shares. The
following directors or nominees for the position of director or officers,
as of March 9, 1999, beneficially owned shares of the Company.
Number % of Total
of Shares Outstanding Shares*
Richard E. Hall 22,980 1.72%
Jack K. Heilbron 3,005 .22%
Russell W. Ketron 6,626 .49%
Doug Werner 521 .04%
* All classes on a combined basis.
INVESTMENT ADVISORY AND OTHER SERVICES
General
Centurion Counsel, Inc. ("Centurion Counsel") is the Fund's Adviser.
Centurion Counsel was incorporated in the State of California in 1984 and
has since that time been an SEC-registered investment adviser. Centurion
Counsel has acted as the Company's investment adviser for its Market Neutral
Fund since January 1, 1995 and investment adviser to the Fund since its
inception. In addition to its services to the Company, Centurion Counsel's
primary business activities include investment consulting to individuals,
corporations and institutions and the providing of investment banking services
and other activities related to the investment and securities industries.
Centurion Group, Inc. ("CGI") was incorporated in the State of
California in 1984. CGI has acted as the Company's accounting services
agent, transfer agent, dividend disbursing agent and administrative services
agent for its Market Neutral Fund since January 1, 1995.
Centurion Institutional Services, Inc. ("CISI") was incorporated in the
State of California in 1991. CISI has served as the Company's principal
underwriter for its Market Neutral Fund shares (Distributor) since
January 1, 1995. CISI has been an SEC-registered broker-dealer since
July 1991. Since then, CISI has been engaged primarily in the business
of clearing securities trades for its corporate and institutional clients.
Centurion Counsel, CGI and CISI are wholly owned subsidiaries of
C I Holding Group, Inc. ("C I Holding"), a California corporation that is
engaged through its subsidiaries in various aspects of the financial services
industry. Approximately 40% of C I Holding's common shares, on a fully
diluted basis, are owned by officers and directors of C I Holding.
Investment Advisory Agreement
The Company has contracted with its Adviser, Centurion Counsel, to
provide investment advice and management services to the Fund pursuant to
the Investment Advisory Agreement (the "Adviser Agreement"). The Adviser
Agreement continues from year to year only if approved by the Board
(including a majority of disinterested directors as described above). The
Adviser Agreement may be terminated by either the Company or Centurion
Counsel on 60 days' written notice to the other, and terminates automatically
in certain situations. The Adviser Agreement was approved by the
Company?s shareholders on December 20, 1994 and was last approved by the
Board (including a majority of the directors who are not parties to the
agreement, or interested persons of any such party, other than as directors of
the Company) on February 5, 1999. On June 30, 1999 Centurion Counsel, as
the only shareholder of each class of the Fund's shares, approved
an amendment to the Adviser Agreement expressly pursuant to which the
Fund adopted and became a party to the Adviser Agreement.
Under the Adviser Agreement, Centurion Counsel has the sole and
exclusive responsibility for the management of the Fund's portfolio and the
making and execution of all investment decisions for the Fund subject to the
objectives and investment restrictions of the Fund and subject to the
supervision of the Board. Under the Adviser Agreement, Centurion Counsel
also furnishes, at its own expense, office facilities, equipment and personnel
for servicing the investments of the Fund. Centurion Counsel has agreed to
arrange for the Company's officers or employees to serve without
compensation from the Fund if duly elected to such positions by the
shareholders or directors of the Fund.
As compensation for its services, Centurion Counsel is entitled to a
fee, payable within five days after the end of each fiscal quarter based on the
Fund's average daily net assets as follows:
1.00% of the first $200-million of the Fund's average daily net assets
0.85% of average daily net assets between $200-million and $400-
million
0.80% of average daily net assets between $400-million and $600-
million
0.75% of average daily net assets between $600-million and $800-
million
0.60% of average daily net assets between $800-million and $1-
billion
0.50% of average daily net assets over $1-billion.
The percentage fee is calculated on the daily value of the Fund's net
assets at the close of each business day. The foregoing fees are higher than
fees paid by most other investment companies.
The Fund bears costs and expenses of its operation, other than those
specifically required to be paid by Centurion Counsel under the Adviser
Agreement. These expenses include, among others, interest, taxes, brokerage
fees and commissions, fees of the directors who are not full-time employees
of Centurion Counsel, CGI, CISI or any of their affiliates, expenses of
directors' and shareholders' meetings, including the cost of printing and
mailing proxies, expenses of insurance premiums for fidelity and other
coverage, expenses of repurchase and redemption of shares, expenses of issue
and sale of shares (to the extent not borne by CISI under its Distribution
Agreement with the Fund), expenses of printing and mailing stock certificates
representing shares of the Fund, association membership dues, charges of
custodians, transfer agents, dividend disbursing agents and accounting
services agents, and bookkeeping, auditing and legal expenses. The Fund also
pays the fees and bears the expense of registering and maintaining the
registration of the Fund and its shares with the Securities and Exchange
Commission, the expense of registering or qualifying its shares under state or
other securities laws and the expense of preparing and mailing prospectuses
and reports to existing Fund shareholders.
Under the Adviser Agreement, Centurion Counsel must reimburse
the Fund, in an amount not in excess of the adviser fee otherwise payable by
the Fund to the Adviser for such period, if and to the extent that the
aggregate operating expenses of the Fund (including such fee but excluding
interest expense, Rule 12b-1 Plan of Distribution fees, taxes, and brokerage
fees and commissions) are in excess of 2.50% of the first $10 million of
average net assets of the Fund, plus 1-1/2% of the next $20 million of
average net assets, plus 1-1/4% of average net assets above $30 million.
Centurion Counsel has agreed to waive such reimbursements for any fiscal
year of the Fund in which this Adviser Agreement is last effective, subject
to its right to end this obligation at the end of any Fund fiscal year.
The Fund did not pay advisory fees to Centurion Counsel before
1999.
Accounting Services Agreement
CGI acts as the Fund's accounting services agent pursuant to the
Accounting Services Agreement (the "Accounting Agreement"). The
Accounting Agreement was approved by the Board (including a majority of
the directors who are not parties to the Agreement, or interested persons of
any such party, other than as directors of the Company), and the shareholders
of the Company approved such Agreement on December 20, 1994. On
June 30, 1999 Centurion Counsel, as the only shareholder of each class
of the Fund?s shares, approved an amendment to the Accounting Agreement
expressly pursuant to which the Fund adopted and became a party to the
Accounting Agreement. The Accounting Agreement continues from year to
year only if the Board approves it in the same manner they approve the
Adviser Agreement. The Accounting Services Agreement may be terminated
by either the Company or CGI on 60 days' written notice to the other, and the
Agreement terminates automatically in certain situations.
Under the Accounting Agreement, the Fund pays CGI a monthly fee
equal on a annual basis to 0.15% of average net assets, provided that the Fund
has agreed to pay an annual minimum accounting services fee of $18,000.
The Fund did not pay CGI for accounting service fees before 1999. CGI
maintains the books, accounts, records, journals and other records of original
entry relating to the business of the Fund and performs certain daily functions
in connection therewith.
Administration Agreement
CGI acts as transfer agent, dividend disbursing agent and
administrative services agent for the Company pursuant to the Administration
Agreement effective January 1, 1995. Pursuant to this agreement, CGI will
maintain the Fund's stock registers, process requested account registration
changes, issue stock certificates, record redemptions and administer the
payments of dividends by the Fund.
For its services under this agreement, the Fund will pay CGI a
separate fee per service provided as follows: $0.75 per account maintenance
per month; $7.50 per dealer confirmation; $10.00 per wire transfer; and
$50.00 per 1,000 customer statements per month. In addition, all out of
pocket expenses incurred by CGI in connection with the rendering of services
pursuant to the Administration Agreement will be reimbursed to CGI by the
Fund. Such expenses will include, without limitation, postage, stationery,
telephone service and any other expense involved in the handling of
correspondence. These fees are in addition to the fees paid by the Fund to
Centurion Counsel pursuant to the Adviser Agreement. The Fund did not pay
CGI for administrative services before 1999.
The Administration Agreement was approved by the Board
(including a majority of the directors who are not parties to the agreement, or
interested persons of any such party, other than as directors of the Fund) and
by the shareholders of the Company on December 20, 1994. On
June 30, 1999 Centurion Counsel, as the only shareholder of each class
of the Fund's shares, approved an amendment to the Adviser Agreement
expressly pursuant to which the Fund adopted and became a party to the
Adviser Agreement. The agreement continues from year to year only if the
Company's directors approve them in the same manner as they approve the
Investment Advisory Agreement. The Administration Agreement may be
terminated by either the Company or by CGI on 60 days' written notice to the
other, and the Agreement terminates automatically in certain situations.
UNDERWRITING ARRANGEMENTS
CISI, as the Fund's Distributor or principal underwriter, sells the
Fund's shares under the Distribution Agreement with the Company, as
amended, dated January 1, 1995 and effective November 6, 1996. Under the
Distribution Agreement, CISI bears the costs of all advertising and promotion
expenses in connection with the distribution of the Fund's shares (except
those expenses assumed by the Fund's investment adviser). The Distribution
Agreement was last approved by the Board (including a majority of the
directors who are not parties to the agreement, or interested persons of any
such party, other than as directors of the Company) on February 5, 1999. The
Distribution Agreement may be terminated by either CISI or the Fund on 60
days' written notice to the other, and terminates automatically in certain
situations. No sales commissions were received by the Fund's principal
underwriter for sales of the Fund's shares before January 1999.
Under the Distribution Agreement, CISI agrees to indemnify the
Fund against all costs of litigation and other legal proceedings and against
any liability incurred by or imposed on the Fund in any way arising out of
or in connection with the sale or distribution of the Fund's shares, except
to the extent that such liability is the result of information which was
obtainable by CISI only from persons affiliated with the Fund but not with CISI.
As compensation for its services, CISI receives a front-end
commission in the case of Class A shares, a contingent deferred sales charge
("CDSC") in the case of Class B shares and 12b-1 fees in the case of Class A
shares, Class B shares and Class C shares as described below.
Class A Shares
The Distributor receives a sales charge equal to 4.75% of the gross
price of Class A shares it places which it may reallow to dealers through
whom purchases are made in an amount equal to 4.0% of the amount
invested. Dealers which are reallowed ninety percent (90%) or more of the
sales charges may be deemed to be underwriters for purposes of the Securities
Act of 1933. The Distributor may also pay broker-dealers, registered
investment advisers, financial institutions (which may include banks) and
other financial industry professionals that provide services to facilitate
transactions in shares of the Fund for their clients a transaction fee up to
the level of such reallowance to dealers. Such financial institutions, other
industry professionals and dealers are referred to as "Service Organizations."
In addition, the Distributor may, from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other
compensation, to dealers that sell shares of the Fund.
Banks are currently prohibited under the Glass-Steagall Act from
providing certain underwriting or distribution services. If banking firms were
further prohibited from acting in any capacity or providing any of the
described services, the Distributor would consider what action, if any, would
be appropriate. The Distributor does not believe that termination of a
relationship with a bank would result in any material adverse consequences
to the Fund. State securities laws regarding registration of banks and other
financial institutions may differ from the interpretations of federal law
expressed herein, and banks and other financial institutions may be required
to register as dealers pursuant to certain state laws.
Class B Shares
Class B shares which are redeemed within five years of purchase are
subject to a CDSC at the rates set forth in the following table.
Contingent Deferred Sales Charge Table
Contingent Deferred Sales Charge
as a Percentage of
Year Since Purchase Dollar Amount Subject to Charge
First 4%
Second 4%
Third 3%
Fourth 2.5%
Fifth 1.5%
Sixth None
The CDSC is assessed on an amount equal to the lesser of the then
current market value or the cost of the shares being redeemed. No CDSC is
imposed on increases in net asset value above the initial purchase price
or on Class B shares derived from reinvestment of dividends on capital
gains distributions, other than Rule 12b-1 fees. The amount of the CDSC,
if any, varies depending on the number of years from the time of payment
for the purchase of Class B shares until the time of redemption of such
shares. Solely for purposes of determining the number of years from the
time of any payment for the purchase of shares, all payments during a
month are aggregated and deemed to have been made on the last day of the
month.
In determining whether a CDSC is applicable to a redemption, the
calculation is determined in the manner that results in the lowest possible
rate being charged. Therefore, it is assumed that the redemption is first
of any shares in the shareholder's Fund account that are not subject to a
CDSC, second, of shares held for over five years or shares acquired pursuant to
reinvestment of dividends or distributions and third, of shares held longest
during the five-year period. As an example, assume an investor purchased
100 shares at $10 per share (at a cost of $1,000) and in the second year
after purchase, the net asset value per share is $12 and, during such time,
the investor has acquired 10 additional shares through reinvestment of
dividends. If at such time the investor makes his or her first redemption
of 50 shares (proceeds of $600), 10 shares will not be subject to charge
because of dividend reinvestment. With respect to the remaining 40 shares,
the charge is applied only to the original cost of $10 per share and not
to the increase in net asset value of $2 per share. Therefore, $400 of
the $600 redemption proceeds is subject to a deferred sales charge at a
rate of 4% (the applicable rate in the second year after purchase).
The CDSC is waived on redemptions of Class B shares (i) following
the death or disability (as defined in the Code) of a shareholder, (ii) in
connection with certain distributions from an IRA or other retirement plan,
(iii) pursuant to the Fund's systematic withdrawal plan but limited to 12%
annually of the initial value of the account, and (iv) effected pursuant
to the right of the Fund to liquidate a shareholder's account as described
herein under "Redemption of Shares".
A commission or transaction fee of 4% of the purchase amount will
be paid by the Distributor to broker-dealers and other Service Organizations
at the time of purchase. Additionally, the Distributor may, from time to
time, pay additional promotional incentives in the form of cash or other
compensation, to Service Organizations that sell Class B shares of the Fund.
Class C Shares
Class C shares are offered at the next determined net asset value.
Other than Rule 12b-1 fees, no front-end, deferred, or other sales charge is
charged with respect to Class C shares.
Class D Shares
The Class D shares are sold at net asset value only to persons who
are Adviser Professionals or Eligible Employees, as defined under "CAPITAL
STOCK AND OTHER SECURITIES" below. No front-end, deferred or other
sales charge or Rule 12b-1 fees will be charged by the Fund with respect to
the Class D shares.
12b-1 Fees
The Fund has adopted a Plan of Distribution pursuant to Rule l2b-1
under the Investment Company Act of 1940. The Plan of Distribution was
adopted by the Fund on June 30, 1999 upon the approval of Centurion
Counsel, the only shareholder of each Class of the Fund?s shares. The Plan
of Distribution authorizes the Fund to pay Rule 12b-1 fees. As compensation
for share distribution-related services it performs under its Distribution
Agreement with the Fund, CISI receives a fee from the Fund equal to 0.75 of
1% per year of the Fund's average daily net assets attributable to the Class B
and Class C shares. In addition, CISI will receive as compensation for
shareholder services it performs under its Shareholder Services Agent
Agreement with the Fund a fee from the Fund equal to 0.25 of 1% of the
Fund's average daily net assets attributable to the Class A, Class B and
Class C shares. These services include receiving and responding to
shareholder inquires and requests for information regarding the Fund.
CISI may, at its own expense, may provide additional compensation to
dealers in connection with sales of Fund shares and servicing of Fund
shareholders. CISI may reallow all or a portion of its 12b-1 fees to
its representatives or to other broker-dealers who contract to provide
shareholder services to their customers holding shares of the respective
class.
These 12b-1 fees are to compensate CISI and the participating
dealers for their sales of the Fund's shares, based on a percentage of the
net assets of the Fund relating to the respective class for which such
broker-dealers or registered representatives are responsible by reason of
their sale of shares of the respective class, and to pay other advertising
and promotional expenses in connection with the distribution of the shares
of the respective class. CISI, at its expense, may also provide additional
compensation to dealers in connection with sales of such shares of the Fund.
Such compensation may include financial assistance to dealers in connection
with conferences, sales or training programs for their employees, seminars
for the public, advertising campaigns regarding the Fund and/or dealer-
sponsored special events. In some instances, these incentives may be made
available only to certain dealers whose representatives have sold or are
expected to sell significant amounts of such shares. Such compensation
may include payment for travel expenses, including lodging, incurred in
connection with trips taken by invited registered representatives and
members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Dealers may not use
sales of the Fund's shares to qualify for the incentives to the extent such
may be prohibited by the laws of any state or any self-regulatory agency,
such as the National Association of Securities Dealers, Inc.
The Fund's Plans of Distribution provide for the indirect payment of
distribution expenses by the Fund only as described above. The advertising
and/or promotional expenses that may be paid for pursuant to the Fund's Plan
of Distribution include, by way of example but not limitation, the costs of
printing the prospectus, statement of additional information and shareholder
reports provided to prospective investors; the preparation and distribution of
sales literature; advertising of any type; allocated overhead and other
expenses of the principal underwriter related to the distribution of the
Fund's shares; and payments to and expenses of, officers, employees or
representatives of the principal underwriter, of other broker-dealers, banks
or other financial institutions, and of any other persons who provide
support services in connection with the distribution of the Fund's shares,
including travel, entertainment, and telephone expenses.
Indirect or reimbursable expenses under the Plan do not include
interest paid on amounts borrowed by Centurion Counsel to make the
payments for which reimbursement is made. Also, there is no provision in the
Plan of Distribution limiting payments to the amounts of actual distribution
expenses or actual shareholder servicing expenses expended by CISI. If the
Plan of Distribution were terminated or not continued, the Fund would not be
contractually obligated to pay CISI for any expenses not previously
reimbursed by the Fund. However, in the sole discretion of the Board, the
Fund could determine to reimburse all or a portion of any such amounts.
Each of the Fund's Plans of Distribution contains, among other
things, provisions complying with the requirements of Rule l2b-1. Rule
l2b-1(b) provides that any payments made by the Fund in connection with the
distribution of its shares may only be made pursuant to a written plan
describing all material aspects of the proposed financing of distribution and
also requires that all agreements with any person relating to implementation
of the plan must be in writing. In addition, Rule l2b-1(b)(1) requires that
such plan be approved by a vote of at least a majority of the Fund's
outstanding shares, and Rule l2b-1(b)(2) requires that such plan, together
with any related agreements, be approved by a vote of the board of directors
of the Fund and of the directors of the Fund who are not interested persons of
the Fund and have no direct or indirect financial interest in the operation of
the plan or in any agreements related to the plan, cast in person at a meeting
called for the purpose of voting on such plan or agreements. Rule l2b-1(b)(3)
requires that the plan or agreement provide, in substance: (1) that it shall
continue in effect for a period of more than one year from the date of its
execution or adoption only so long as such continuance is specifically
approved at least annually in the manner described in paragraph (b)(2) of Rule
l2b-1; (2) that any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to the plan or any related agreement shall
provide to the Board, and the Board shall review, at least quarterly, a written
report of the amounts so expended and the purposes for which such
expenditures were made; and (3) in the case of a plan, that it may be
terminated at any time by vote of a majority of the members of the directors
who are not interested persons of the Fund and have no direct or indirect
financial interest in the operation of the plan or in any agreements related to
the plan or by vote of a majority of the outstanding shares of the Company.
Rule l2b-1(b)(4) requires that such plans may not be amended to increase
materially the amount to be spent for distribution without shareholder
approval and that all material amendments of the plan must be approved in
the manner described in paragraph (b)(2) of Rule l2b-1. Rule l2b-1(c)
provides that the Fund may rely upon Rule l2b-1(b) only if selection and
nomination of the Company's disinterested directors are committed to the
discretion of such disinterested directors. Rule l2b-1(e) provides that the
Fund may implement or continue a plan pursuant to Rule l2b-1(b) only if the
directors who vote to approve such implementation or continuation conclude,
in the exercise of reasonable business judgment and in light of their fiduciary
duties under state law, and under Sections 36(a) and (b) of the 1940 Act, that
there is a reasonable likelihood that the plan will benefit the Fund and its
shareholders.
CISI did not receive any distribution services fees in connection with
its sale of the Fund?s shares before 1999.
Custodian; General Counsel; Auditors
Firstar Bank, NA, 425 Walnut Street, Cincinnati, Ohio, 45202-1118
acts as custodian of the Fund's assets. The custodian may, in conformity with
applicable rules of the Securities and Exchange Commission, enter into sub-
custodial arrangements with eligible foreign sub-custodians for the custody
of any foreign securities held by the Fund.
Squire & Company acts as the Fund's independent public
accountants.
Rushall & McGeever acts as the general counsel for the Fund.
BROKERAGE ALLOCATIONS AND OTHER PRACTICES
In effecting securities and commodities transactions, the Fund's
investment adviser seeks to obtain the best price and execution of orders.
Commission rates, being a component of price, are considered together with
other relevant factors.
The Fund expects to use affiliates of Centurion Counsel, including
CISI, as brokers of the Fund's portfolio securities but only if the provisions
of Section 17(e) of the 1940 Act (and the rules thereunder) are complied with
and only when, in the judgment of Centurion Counsel, the firm will be able
to obtain a price and execution at least as favorable as other qualified
brokers, and the transactions effected by the firm, including the frequency
thereof, the receipt of commissions payable in connection therewith and the
selection of the firm, are not unfair or unreasonable to the shareholders
of the Fund.
In determining the commissions to be paid to an affiliated
broker-dealer, it is the policy of the Fund that such commissions will, in the
judgment of the Fund's investment adviser, be both at least as favorable as
those which would be charged by other qualified brokers having comparable
execution capability and at least as favorable as commissions
contemporaneously charged by such broker-dealer on comparable transactions
for its most favored unaffiliated customers, except for any customers of such
broker-dealer considered by a majority of the disinterested directors (as
described above) not to be comparable to the Fund. While the Fund does not
deem it practicable and in its best interest to solicit competitive bids for
commission rates on the transaction, consideration will regularly be given to
posted commission rates as well as to other information concerning the level
of commissions charged on comparable transactions by other qualified
brokers.
When selecting brokers, business may be placed with broker-dealers
who furnish investment research services to Centurion Counsel or its
affiliates. Such research services include advice, both directly and in
writing, as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities, as well as analyses and reports
concerning issues, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts. This allows these
persons to supplement their own investment research activities and enables
them to obtain the views and information of individuals and research staffs
of many different securities research firms prior to making investment
decisions for the Fund. To the extent such commissions are directed to
these other broker-dealers who furnish research services, Centurion Counsel
receives a benefit, not capable of evaluation in dollar amounts, without
providing any direct monetary benefit to the Fund from these commissions.
Centurion Counsel has not entered into any formal or informal agreements
with any broker-dealers (except as noted above), and it does not maintain
any "formula" which must be followed in connection with the placement of
the Fund's portfolio transactions in exchange for research services, except
as noted below. However, Centurion Counsel may maintain an informal list of
broker-dealers which it may use as a general guide in the placement of the
Fund's business, in order to encourage certain broker-dealers to provide it
with research services which it anticipates will be useful to it. Because
the list, if any, is merely a general guide which is to be used only after
the primary criteria for the selection of broker-dealers (discussed above) have
been met, substantial deviations from the list are permissible and may be
expected to occur. Centurion Counsel will authorize the Fund to pay an
amount of commission for effecting a securities transaction in excess of the
amount of commission another broker-dealer would have charged only if it
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by the
broker-dealer viewed in terms of either that particular transaction or its
overall responsibilities with respect to the accounts as to which it exercises
investment discretion. Generally, the Fund pays higher than the lowest
commission rates available.
Subject to the policies set forth in the preceding paragraph and such
other policies as the Fund's directors may determine, Centurion Counsel may
consider sales of shares of the Fund and of other funds it may advise as a
factor in the selection of broker-dealers to execute the Fund's portfolio
transactions.
As the Fund was established in 1999, CISI or its affiliated brokers
did not receive compensation in connection with Fund activities prior to 1999.
CAPITAL STOCK AND OTHER SECURITIES
General
The Articles of Incorporation of the Fund authorize the Fund to issue
Class A, Class B, Class C and Class D shares pursuant to the Fund's Multiple
Class Share Plan (this "Plan"), which was last amended by the Board and
approved by a majority vote of the Company's shareholders on January 15,
1999.
Under the Plan, the Fund is authorized to issue the Class A shares,
the Class B. shares, the Class C Shares, and the Class D Shares in accordance
with the following. The Fund's Multiple Pricing System permits an investor
to choose the method of purchasing shares. This is most beneficial for that
investor's circumstances, including the amount to be purchased and the length
of time the investor expects to hold the shares.
Class A Shares
Class A shares are sold at net asset value per share plus a maximum
initial sales charge ("front-end sales charge") set from time to time by the
Board. Initially, the front-end charge on the Class A Shares shall be 4.75%
of the offering price of the Class A Shares. Class A shares are subject to an
ongoing service fee ("shareholder services fee") at an annual rate of up to
0.25% of the Fund's aggregate average daily net assets attributable to the
Class A shares.
Class B Shares
Class B shares are sold at net asset value per share and are subject to
a maximum contingent deferred sales charge if they are redeemed within five
years of purchase. Initially, the maximum deferred sales charge shall be 4%
of the redemption proceeds during the first year and second year, declining
each year thereafter to 0% after the fifth year. Class B shares are subject to
an ongoing service fee at an annual rate of up to 0.25% of the Fund's
aggregate average daily net assets attributable to the Class B shares and an
ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class B shares. Class B
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by
Class B shares will cause such shares to have a higher expense ratio and to pay
lower dividends than those related to Class A shares. Class B shares will
automatically convert to Class A shares eight years after the end of the
calendar month in which the shareholder's order to purchase was accepted.
Class C Shares
Class C shares are sold at net asset value per share and are not
subject to a front-end or a deferred sales charge. Class C shares are subject
to an ongoing service fee at an annual rate of up to 0.25% of the Fund's
aggregate average daily net assets attributable to the Class C shares and an
ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class C shares. Class C
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by
Class C shares will cause such shares to have a higher expense ratio and to pay
lower dividends than those related to Class A shares.
Class D Shares
Class D shares are sold at net asset value only to persons who qualify
as an Adviser Professional, Eligible Employee, or Eligible Account. No front-
end charge, deferred sales charge, service fees or distribution fees will be
paid by the Fund with respect to the Class D shares. The Adviser Professionals
shall mean investment advisers, trust companies and bank trust departments
exercising discretionary investment authority with respect to the money to be
invested in the Fund. Eligible Employees shall mean (a) current or retired
directors of the Funds, current or retired employees of the Fund's adviser,
and any of its affiliated companies, spouses, minor children and
grandchildren of the above persons, and parents of employees and parents of
spouses of employees of the Fund's adviser and any of its affiliated
companies; (b) employees and registered representatives of Adviser
professionals, banks and other financial institutions with selling group
agreements with the Fund's principal underwriter, employees of such persons,
and spouses and minor children of any such persons and (c) any trust,
pension, profit sharing or other benefit plan for such persons. Shares are
also offered at net asset value to Eligible Accounts. Eligible Accounts
are accounts opened for shareholders by dealers where the amounts invested
represent the redemption proceeds from investment companies distributed by
an entity other than the Fund's principal underwriter if such redemption
has occurred no more than 15 days prior to the purchase of the Class D
Shares, and the shareholder paid an initial sales charge and was not subject
to a deferred sales charge on the redeemed account. Class D shares are
offered at net asset value to such persons because of anticipated economies
in sales efforts and sales-related expenses.
Conversion Feature
Class B shares will automatically convert to Class A shares eight
years after the end of the calendar month in which they were purchased and,
a Class A share, will no longer be subject to the distribution fee. Such
conversion will be on the basis of the relative net asset value per share,
without the imposition of any sales load, fee or other charge. The purpose of
the conversion feature is to relieve the holders of Class B shares that have
been outstanding for a period of time sufficient for the Distributor to have
been substantially compensated for distribution expenses related to the Class
B shares from most of the burden of the ongoing distribution fee.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of an opinion of counsel to the effect that (i) the
assessment of the distribution fee and any higher transfer agency costs with
respect to Class B shares does not result in the Fund's dividends or
distributions constituting "preferential dividends" under the Internal Revenue
Code of 1986, as amended (the "Code"), and (ii) the conversion of shares does
not constitute a taxable event under federal income tax law. The conversions
of Class B shares may be suspended if such an opinion is no longer available.
In that event, no further conversions of Class B shares would occur, and such
Class B shares might continue to be subject to the distribution fee for an
indefinite period which may extend beyond the period ending eight years after
the end of the calendar month in which the shareholder's order to purchase
was accepted.
Dividends
Dividends paid by the Fund with respect to Class A, Class B, Class
C and Class D shares will be calculated in the same manner at the same time
on the same day, except that the ongoing service fees, distribution fees and/or
any incremental transfer agency costs relating to Class A, Class B or Class C
shares will be borne by the respective class. Shares of the Fund may be
exchanged, subject to certain limitations, for shares of the same class or
other mutual funds advised by the Adviser. See "Shareholder Services/
Transfers - Exchange Privilege."
For the purpose of conversion to Class A, Class B shares purchased
through the reinvestment of dividends and distributions paid on Class B
shares in a shareholder's Fund account will be considered to be held in a
separate sub-account. Each time any Class B shares in the shareholder's Fund
account (other than those in the sub-account) convert to Class A, an equal pro
rata portion of the Class B shares in the sub-account will also convert to
Class A.
Income and Expenses
The income and expenses of the Fund must be allocated among each
class of shares as follow:
Separate Distribution Expenses. Each class at all times maintains
a separate arrangement for shareholder services or the distribution services or
both, and pays all of the expenses of that arrangement ("distribution
expenses").
Allocation of Income, Realized and Unrealized Capital Gains and
Losses, and Expenses. Each class is allocated its pro-rata share of the Fund's
income, realized and unrealized capital gains and losses, and expenses not
allocated to a particular class on the basis of the net asset value of that
class in relation to the net asset value of the Company. In the future, the
Board may require one or more classes to pay a different share of expenses
(other than advisory or custodial fees or other expenses related to the
management of the Fund's assets) if such expenses are actually incurred in
a different amount by a class, or if a class receives services of a different
kind or to a different degree than other classes, provided any payments made
pursuant to the foregoing shall be made pursuant to a written plan setting
forth the separate arrangement and expense allocation of each class, and any
related conversion features or exchange privileges.
Advisory Fees. Each class of shares pays the same advisory fee.
Waiver of Expenses. Expenses may be waived or reimbursed by the
Adviser, Distributor, or any other provider of services to the Fund.
Income, Capital Gains and Losses. Income, realized and unrealized
capital gains and losses, and expenses of the Fund not allocated to a
particular class pursuant to the foregoing:
(i) Except as permitted in paragraph (ii)
below, shall be allocated to each class on the basis of the net
asset value of that class in relation to the net asset value of
the Fund;
(ii) If the Fund operates pursuant to Rule ?
270.2a-7 under the 1940 Act (including the provision
allowing the calculation of net assets on an amortized cost
basis), or declares distributions of net investment income
daily and maintains the same net asset value per share in
each class, may be allocated:
(aa) To each Share without regard to
class, provided that the Fund has received
undertakings from its adviser, principal underwriter
or any other provider of services to the Fund,
agreeing to waive or reimburse the Fund for
payments to such service provider by one or more
classes, as allocated under paragraph (i) above, to
the extent necessary to assure that all classes of the
Fund maintain the same net asset value per share;
or
(bb) On the basis of relative net assets
(settled shares). For purposes of this subsection (e),
"relative net assets (settled shares)" are net assets
valued in accordance with generally accepted
accounting principles but excluding the value of
subscriptions receivable, in relation to the net assets
of the Fund.
Voting Rights
All of the Company's shares have one vote. All shares vote as a
single class for directors and other matters, except on any matter which
affects only a specific Fund or as otherwise may be required by the 1940 Act.
Each class has exclusive voting rights on any matter submitted to
shareholders that relates solely to that class. Each class has separate
voting rights on any matter submitted to shareholders in which the interests
of one class differ from the interests of any other class. Except as
described above, each class has in all other aspects the same rights and
obligations as each other class.
Under the Company's Articles of Incorporation, the Board may
authorize one or more additional classes with any of the following rights or
provisions.
(a) An exchange privilege providing that shares of a
class may be exchanged for certain securities of another company.
(b) Authorize and effect a conversion whereby the
shares of one class (the "purchase class") will be exchanged
automatically for shares of another class (the "target class") after
a specified period of time, provided that:
(i) The conversion is effected on the basis of
the relative net asset values of the two classes without the
imposition of any sales load, fee, or other charge;
(ii) The expenses, including payments
authorized under a plan adopted pursuant to 270.12b-1
("Rule 12b-1 plan"), for the target class are not higher than
the expenses, including payments authorized under a Rule
12b-1 plan, for the purchase class; and
(iii) If the amount of expenses, including
payments authorized under a Rule 12b-1 plan, for the target
class is increased materially without approval of the
shareholders of the purchase class, the Fund will establish a
new target class for the purchase class on the same terms as
applied to the target class before that increase.
Currently, only the Class B shares have such a conversion
right.
(c) A conversion feature providing that shares of a class
in which an investor is no longer eligible to participate may be
converted to shares of a class in which that investor is eligible
to participate, provided that:
(i) The shareholder is given prior notice of the
proposed conversion; and
(ii) The conversion is effected on the basis of
the relative net asset values of the two classes without the
imposition of any sales load, fee, or other charge.
The Plan is intended to meet the requirements of Rule 270.18f-3
promulgated under the 1940 Act.
Factors for Consideration
In deciding which class of shares to purchase investors should take
into consideration their investment goals, amounts of present and
anticipated investments and their individual investment time horizon
and temperaments. Investors should consider whether, during the anticipated
life of their investment in the Fund the accumulated distribution fees and
contingent deferred sales charges on Class B shares prior to conversion
would be less than the initial sales charge on Class A shares purchased at
the same time and to what extent such differential would be offset by the
higher dividends per share on Class A shares. To assist investors in making
this determination, the table under the caption "Expense Synopsis" sets forth
examples of the charges applicable to each class of shares.
Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase, investors
in Class A shares do not have all their funds invested initially and,
therefore, initially own fewer shares. Other investors might determine that
it is more advantageous to purchase either Class B shares or Class C shares
and have all their funds invested initially, although remaining subject to
ongoing distribution fees and, for a five year period, being subject to a
contingent deferred sales charge. Ongoing distribution fees on Class B shares
and Class C shares will be offset to the extent of the additional funds
originally invested (resulting from the non-payment of an initial sales
charge) and any return realized on those funds. However, there can be no
assurance as to the return, if any, which will be realized on such additional
funds. For investments held for ten years or more, the relative value upon
liquidation of the three classes tends to favor Class A or Class B shares,
rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay
the sales charge up front, wish to maximize their current income from the
start, prefer not to pay redemption charges and/or have a longer-term
investment horizon. Class C shares may be appropriate for investors who
wish to avoid a front-end sales charge, put 100% of their investment dollars
to work immediately, and have a shorter-term investment horizon.
Under most circumstances, investments originally made in Class C
shares will tend to have a slightly higher value upon liquidation than
investments originally made in either Class A or Class B Shares, if liquidated
within the first six (6) years after the date of the original investment due
to the front-end sales charge on Class A Shares and the contingent deferred
sales charges on Class B Shares. Under most circumstances, investment
originally made in Class A Shares will tend to have a slightly higher value
upon liquidation than investments originally made in Class C Shares, if held
for and liquidated, after approximately seven (7) years after the date of
original investment because of higher Rule 12b-1 expenses charged to Class C
Shares. This would also tend to be true for investments originally made in
Class B Shares which are liquidated after eight years when they convert to
Class A Shares. However, this will not be true in all cases and in the
event the Fund experiences inconsistently negative widely fluctuating total
returns, may differ.
The distribution expenses incurred by the Distributor in connection
with the sale of the shares will be reimbursed, in the case of Class A shares,
from the proceeds of the initial sales charge and, in the case of Class B
shares from the proceeds of the ongoing distribution fee and any contingent
deferred sales charge incurred upon redemption within five years of purchase.
In the case of Class C shares, such distribution expenses will be reimbursed
from the proceeds of the ongoing distribution fee. Sales personnel of
broker-dealers distributing the Fund's shares and other persons entitled to
receive compensation for selling such shares may receive differing
compensation for selling Class A, Class B or Class C shares. Investors
should understand that the purpose and function of the contingent deferred
sales charge and ongoing distribution fee with respect to Class B shares and
the ongoing distribution fee with respect to Class C shares are the same as
those of the initial sales charge with respect to Class A shares. Class D
shares will be more beneficial to the investor who qualifies for the purchase
thereof.
The Directors of the Fund have determined that currently no conflict
of interest exists between the classes of shares. On an ongoing basis, the
Directors of the Fund, pursuant to their fiduciary duties under the 1940 Act
and state laws, will seek to ensure that no such conflict arises.
RETIREMENT ACCOUNTS
The objectives of the Fund may make the shares of the Fund an
appropriate investment for Tax-Sheltered Retirement Plans, including
Individual Retirement Accounts ("IRAs"), Keogh (HR-10) Plans (for
self-employed individuals), qualified corporate pension or profit sharing plans
(for employees) and Tax-Deferred Investment Plans (for employees of public
school systems and certain types of charitable organizations).
IRAs are available from the Fund. Persons desiring information
about the available IRAs or about any other of the plans referred to above
should communicate with a CISI representative. All tax-sheltered retirement
plans referred to above involve a long-term commitment of assets and are
subject to various legal requirements and restrictions. The legal and tax
implications may vary according to the circumstances of the individual
investor. Therefore, the investor is urged to consult with an attorney or tax
adviser prior to the establishment of such a plan.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
As disclosed in the Prospectus, during certain emergencies, the board
of directors of the Fund can suspend the computation of net asset value of the
Fund, stop accepting payments for purchase of the Fund's shares or suspend
the duty of the Fund to redeem its shares. There are only a few such
emergency situations:
* The New York Stock Exchange closes for reasons other than
the usual weekend and holiday closings, or trading on the
Exchange is restricted as defined by the Securities and
Exchange Commission.
* The Securities and Exchange Commission decides that for
a certain period of time, disposal of the Fund's securities is
not practical, or that it is not practical for the Fund to fairly
value its net assets.
* Other emergency periods declared by the Securities and
Exchange Commission under the provisions of the
Investment Company Act of 1940.
The Fund will pay in cash all redemption requests by any shareholder
of record, limited in amount during any 90-day period to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of such
period. When redemption requests exceed such amount, however, the Fund
reserves the right to make part or all of the payment in the form of securities
or other assets of the Fund. An example of when this might be done is in case
of emergency, such as in those situations enumerated above, or at any time a
cash distribution would impair the liquidity of the Fund to the detriment of
existing shareholders. Any securities being so distributed would be valued in
the same manner as the portfolio of the Fund is valued. If the recipient sold
such securities, he or she probably would incur brokerage charges. The Fund
has filed with the Securities and Exchange Commission a notification of
election pursuant to Rule 18f-1 under the Investment Company Act of 1940
in order to make such redemptions in kind.
TAXATION OF THE FUND
Since its inception the Fund has met, and the Fund intends to
continue to meet, the requirements for regulated investment companies under
Subchapter M of the Code, and, if it meets these requirements, the Fund will
not be liable for federal income taxes to the extent the Fund distributes its
taxable income to its shareholders. To qualify as a regulated investment
company, the Fund must meet certain tests of diversification of assets, source
of income and other requirements of the Code. However, the Fund's
management reserves the right to depart from this policy whenever, in its sole
judgment, it is deemed in the best interest of the Fund and its shareholders to
do so. If the Fund fails to meet any of the Code requirements, the Fund will
be subject to tax on its income as a regular corporation whether or not its
income is distributed to its shareholders, and any such distributions will be
taxable to the Fund's shareholders as ordinary dividends to the extent of its
current and accumulated earnings and profits, regardless of whether such
distributions were derived from the Fund's net long-term capital gains.
Under the Code, the Fund will be subject to a non-deductible excise
tax equal to 4% of the excess, if any, of the amount required to be distributed
pursuant to the Act for the calendar year over the amount actually distributed.
Any undistributed amounts subject to corporate-level income tax, however,
will not be subject to the excise tax. In order to avoid the imposition of the
excise tax, the Fund must generally declare dividends by the end of the
calendar year representing 98% of the Fund's ordinary income for the calendar
year and 98% of its capital gain net income (both long-term and short-term
capital gains) for the twelve-month period ending October 31 of the calendar
year.
Currently, individual shareholders are not able to exclude
distributions by the Fund which are attributable to dividends earned by the
Fund, and corporate shareholders are allowed to deduct 70% of such dividend
distributions. Such a deduction by a corporate shareholder is limited to the
portion of the Fund's gross income which is derived from dividends received
from domestic corporations. Since it is anticipated that a portion of the
Fund's net investment income may be derived from sources other than dividends
from domestic corporations, a portion of its dividends may not qualify for this
exclusion. Distributions designated as long-term capital gain distributions
will be taxable as long-term capital gains, regardless of how long shares have
been held, and will not be eligible for the dividends received deduction for
corporate shareholders referred to above.
For federal tax purposes, an exchange of the shares for the shares of
another Centurion Counsel Fund will be considered a taxable sale of the
first-purchased shares. Furthermore, if a shareholder uses the exchange
privilege within ninety days of the purchase of the first-purchased shares, any
sales charge incurred on the purchase of those shares cannot be taken into
account for determining the shareholder's gain or loss on the sale of those
shares to the extent any sales charge on the purchase of the later-acquired
shares is reduced because of the exchange privilege. However, the amount of
any sales charge that may not be taken into account in determining the
shareholder's gain or loss on the sale of the first-purchased shares may be
taken into account in determining his gain or loss on the eventual sale or
exchange of the later-acquired shares.
The foregoing discussion of Federal income tax consequences is
based on tax laws and regulations in effect on the date of this Prospectus, and
is subject to change by legislative or administrative action. Further, in
those states that have income tax laws, the tax treatment of the Fund and of
shareholders in respect to distributions by the Fund may differ from Federal
tax treatment. Prospective investors are advised to consult with their tax
advisers concerning the application of state and local taxes to distributions
by and investments in the Fund which may differ from the Federal income tax
consequences described above.
CALCULATION OF PERFORMANCE DATA
Total Return Calculations
The Fund computes its average annual total return by determining the
average annual compounded rates of return during specified periods that
would equate the initial amount invested in a particular share class to the
ending redeemable value of such investment in the class, according to the
following formula:
Where: P(I + T) TO THE POWER OF n = ERV
Where:
T = Average annual total return
ERV = Ending redeemable value of a hypothetical $1,000 payment
made at the beginning of a period at the end of such period.
P = A hypothetical initial payment of $1,000.
n = Number of years.
The calculation of average annual total return assumes that any
dividends and distributions are reinvested immediately, rather than paid to the
investor in cash. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment and the deduction of all nonrecurring charges at the end of the
period covered by the computations. Unlike 'bank deposits or other
investments that pay a fixed yield or return for a stated period of time, the
return for the Fund will fluctuate from time to time and does not provide a
basis for determining future returns. Average annual total return is affected
by many factors, including the performance of the Fund?s individual securities
investments, changing market conditions, the composition of the Fund's
portfolio and the Fund's operating expenses.
Performance Comparisons
Investors may compare the performance of the Fund by comparing it
to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices such
as those prepared by Dow Jones & Co., Inc'. and Standard & Poor's
Corporation and to data prepared by Lipper Analytical Services, Inc., a
widely-recognized independent service which monitors the performance of
mutual funds. Comparisons may also be made to indices or data published in
certain periodicals, including BARRON'S, BUSINESS WEEK,
CDA/WIESENBERGER, FORBES, IBBOTSON ASSOCIATES,
INSTITUTIONAL INVESTOR, MONEY MAGAZINE, MORNINGSTAR,
INC., THE NEW YORK TIMES, THE WALL STREET JOURNAL and
U.S.A. TODAY. In addition to performance information, general
information about the Fund that appears in such publications may be included
in advertisements, sales literature and reports to shareholders. The Fund may
also include in advertisements and reports to shareholders information
discussing the performance of the Adviser in comparison to other investment
advisers and to other institutions.
From time to time, the Company may include the following types of
information in advertisements, supplemental sales literature and reports to
shareholders: (1) discussions of general economic or financial principles (such
as the effects of inflation, the power of compounding and the benefits of
dollar cost averaging); (2) discussions of general economic trends; (3)
presentations of statistical data to supplement such discussions; (4)
descriptions of past or anticipated portfolio holdings for the Fund; (5)
descriptions of investment strategies for the Fund; (6) descriptions or
comparisons of various investment products, which may or may not include
the Fund; (7) comparisons of investment products (including the Fund) with
relevant market or industry indices or other appropriate benchmarks; (8)
discussions of fund rankings or ratings by recognized rating organizations;
and (9) testimonials describing the experience of persons that have invested
in the Fund. The Company may also include calculations, such as hypothetical
compounding examples, which describe hypothetical investment results in
such communications. Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of the
Fund.
LIMITATION OF DIRECTOR LIABILITY
Under Minnesota law, the director of the Fund owes certain fiduciary
duties to the Fund and to its shareholders. Minnesota law provides that a
director "shall discharge the duties of the position of director in good faith,
in a manner the director reasonably believes to be in the best interest of the
corporation, and with the care an ordinarily prudent person in a like position
would exercise under similar circumstances." Fiduciary duties of a director
of a Minnesota corporation include, therefore, both a duty of "loyalty" (to act
in good faith and act in a manner reasonably believed to be in the best
interests of the corporation) and a duty of "care" (to act with the care an
ordinarily prudent person in a like position would exercise under similar
circumstances). In February, 1987, Minnesota enacted legislation which
authorizes corporations to eliminate or limit the personal liability of a
director to the corporation or its shareholders for monetary damages for
breach of the fiduciary duty of "care." Minnesota law does not, however,
permit a corporation to eliminate or limit the liability of a director
(i) for any breach of the directors' duty of "loyalty" to the corporation or
its shareholders, (ii) for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, (iii) for
authorizing a dividend, stock repurchase or redemption or other distribution
in violation of Minnesota law or for violation of certain provisions of
Minnesota securities laws, or (iv) for any transaction from which the
director derived an improper personal benefit. The Articles of
Incorporation of the Fund were amended on April 28, 1988, to limit the
liability of directors to the fullest extent permitted by Minnesota statutes,
except to the extent that such liability cannot be limited as provided
in the 1940 Act (which Act prohibits any provisions which purport to limit
the liability of directors arising from such directors' willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in
the conduct of their role as directors).
Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Minnesota law, further, does not permit elimination
or limitation of liability of "officers" to the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers). Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or recessionary relief. Further, Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act
of 1933 or the Securities Exchange Act of 1934, and it is uncertain whether
and to what extent the elimination of monetary liability would extend to
violations of duties imposed on directors by the 1940 Act and the rules and
regulations adopted under such Act.
ADDITIONAL INFORMATION
The Company was originally incorporated under the name "IRI Stock
Fund, Inc." The shareholders of the Fund, at a meeting held on May 10, 1989,
approved an amendment to the Articles of Incorporation (the "Articles") of the
Fund providing that the name "IRI Stock Fund, Inc." be changed to "Excel
Value Fund, Inc." The shareholders of the Fund, at a meeting held on
December 20, 1994, approved an amendment to the Articles providing that
the name "Excel Value Fund, Inc." be changed to "Centurion T.A.A. Fund,
Inc." On January 15, 1999, the shareholders of the Fund approved an
amendment to the Article providing that the name "Centurion T.A.A. Fund,
Inc." be changed to "Centurion Counsel Funds, Inc.," all outstanding shares
of the Fund be reclassified as the "Centurion Counsel Market Neutral Fund"
series and the "Centurion Counsel Growth Fund" series and the "Centurion
Counsel Real Estate Fund" series of shares were authorized.
The Fund is not required under Minnesota law to hold annual or
periodically scheduled regular meetings of shareholders. Regular and special
shareholder meetings are held only at such times and with such frequency as
required by law. Minnesota corporation law provides for the Board of
Directors to convene shareholder meetings when it deems appropriate. In
addition, if a regular meeting of shareholders has not been held during the
immediately preceding 15 months, a shareholder or shareholders holding 3%
or more of the voting shares of the Fund may demand a regular meeting of
shareholders of the Fund by written notice of demand given to the chief
executive officer or the chief financial officer of the Fund. Within 90 days
after receipt of the demand, a regular meeting of shareholders must be held at
the expense of the Fund. The Fund will provide to shareholders who so request
a regular meeting of shareholders, access to the information and the assisstance
described in Section 16(c) of the 1940 Act. Additionally, the 1940 Act requires
shareholder votes for all amendments to fundamental investment policies and
restrictions and for all investment advisory contracts and amendments thereto.
The Fund has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement under the Securities Act
of 1933 and the 1940 Act, with respect to the common stock offered hereby.
This Statement of Additional Information does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with rules and regulations of the Commission. The
Registration Statement may be inspected at the principal office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies
thereof may be obtained from the Commission at prescribed rates.
FINANCIAL STATEMENTS
The Fund is newly formed and has no historical Financial Statements
for periods ending prior to January 1, 1999.
CENTURION COUNSEL FUNDS, INC.
MARKET NEUTRAL FUND
Statement of Additional Information
This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the Prospectus of Centurion Counsel
Funds, Inc.--Market Neutral Fund (the "Fund") dated December 2, 1999
(the "Prospectus"). A copy of the Prospectus may be obtained by contacting
the Fund's principal underwriter, Centurion Institutional Services, Inc.
("CISI"), at 11545 W. Bernardo Court, Suite 100, San Diego, California
92127 (Telephone: (858) 673-8536).
TABLE OF CONTENTS
Page
FUND HISTORY 2
FUND INVESTMENTS AND RISKS 2
FUND MANAGEMENT 4
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES 7
INVESTMENT ADVISORY AND OTHER SERVICES 7
UNDERWRITING ARRANGEMENTS 10
BROKERAGE ALLOCATIONS AND OTHER PRACTICES 14
CAPITAL STOCK AND OTHER SECURITIES 16
RETIREMENT ACCOUNTS 21
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION 22
TAXATION OF THE FUND 22
CALCULATION OF PERFORMANCE DATA 23
LIMITATION OF DIRECTOR LIABILITY 25
ADDITIONAL INFORMATION 26
FINANCIAL STATEMENTS 26
Dated February 17, 2000
FUND HISTORY
The Fund is a multi-class series of common stock of Centurion
Counsel Funds, Inc. (the "Company"). The assets and liabilities,
income and expenses of the Company attributable to the Fund are
maintained in a separate investment portfolio and determined
separately for the Fund. The Company was incorporated on
August 27, 1981 under the laws of Minnesota. IRI Asset
Management, Inc., a Minneapolis based investment adviser, served
as the adviser to the Company from its inception until March 1988.
At that time, the Company's Board of Directors ("Board") approved
Excel Advisors, Inc. as its adviser and the offices of the Company
were moved to San Diego, California. In December 1994, the Company's
shareholders approved Centurion Counsel, Inc. as the Company's Adviser
and the shareholders and the Board approved the Fund's current fundamental
investment objectives and policies. On January 15, 1999, the shareholders
approved the redesignation of the Fund series as the Centurion Counsel
Market Neutral Fund.
FUND INVESTMENTS AND RISKS
Classification. The Fund is an open-end, diversified management
investment company that only issues shares of common stock. By
purchasing shares in the Fund, investors are pooling their money
to acquire a diversified portfolio of securities and other assets.
Investment Strategies and Risks. The Fund's principal investment
strategies are discussed in the Prospectus. The Fund's non-principal
investment strategies are set forth below.
Illiquid Securities. While not a principal investment policy,
each of the Funds will limit its investments in illiquid
securities to no more than 5% of their net assets. Illiquid
securities generally include (i) direct placements or other
securities that are subject to legal or contractual restrictions
on resale or for which there is no readily available market
(e.g., when trading in the security is suspended or, in
the case of unlised securities, when market makers do not
exist or will not entertain bids or offers), including
many individually negotiated currency swaps and any assets
used to cover currency swaps and most privately negotiated
investments in state enterprises that have not yet
conducted an initial equity offering, (ii) over-the-counter
options and assets used to cover over-the-counter options,
and (iii) repurchase agreements not terminable within seven
days.
Because of the absence of a trading market for illiquid
securities, a Fund may not be able to realize its full
value upon sale. The Adviser will monitor the liquidity
of each Fund's investments in illiquid securities. Rule
144A securities will not be treated as "illiquid" for
purposes of this limit on investments.
The Fund may not be able to readily sell securities for which
there is no ready market. Such securities are unlike securities
that are traded in the open market and can be expected to be sold
immediately if the market is adequate. The sale price of illiquid
securities may be lower or higher than the Adviser's most recent
estimate of their fair value. Generally, less public information
is available about the issuers of such securities than about
companies whose securities are traded on an exchange. To the
extent that these securities are foreign securities, there is no
law in many of the countries in which the Fund may invest similar
to the Securities Act requiring an issuer to register the sale
of securities with a governmental agency or imposing legal
restrictions on resales of securities, either as to length
of time the securities may be held or manner of resale.
However, there may be contractual restrictions on resales
of non-publicly traded foreign securities.
U.S. and Foreign Taxes. A Fund's investment in foreign
securities may be subject to taxes withheld at the source
on dividend or interest payments. Foreign taxes paid
by a Fund may be creditable or deductible by U.S. shareholders
for U.S. income tax purposes.
No assurance can be given that applicable tax laws and
interpreatationswill not change in the future. Moreover,
non-U.S. investors may notbe able to credit or deduct such foreign
taxes.
Money Market Instrument Investments. From time to time a Fund
may have substantial amounts of its assets invested in money
market instruments. In general, these investments are in one
or a combination of two of the following that have remaining
maturities not exceeding one year: (i) obligations issued and
guaranteed by the U.S. Government, its agencies or instrumentalities;
(ii) negotiable certificates of deposit, bankers' acceptances
and fixed time deposits and other obligations of domestic banks
(including foreign branches) that have more than $1-billion in
total assets at the time of investment and are members of the
Federal Reserve System or are examined by the Comptroller of
the Currency or whose deposits are insured by the Federal
Deposit Insurance Corporation; (iii) commercial paper rated at
the date of purchase "P-1" by Moody's Investors Services, Inc.
("Moody's") or an "A-1" or "A-1+" by S&P; (iv) certain repurchase
agreements; and (v) high-quality municipal obligations, the
income from which may or may not be exempt from federal income
taxes. The Fund may also invest in short-term U.S. dollar-dominated
obligations of foreign banks (including U.S. branches) that at the
time of investment: (i) have more than $10 billion, or the
equivalent in other currencies, in total assets; (ii) are among
the 75 largest foreign banks in the world as determined on the
basis of assets; and (iii) have branches or agencies in the
United States. The value of the money market instruments in
which the Fund may invest wll vary adversely with changes in market
interest rates.
Fund Policies. The Fund has the investment restrictions set forth
below which cannot be changed without approval by holders of a majority
of the outstanding voting shares of the Fund. As defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), this means the lesser
of the vote of (a) 67% of the shares of the Fund at a meeting where more
than 50% of the outstanding shares of the Fund are present in person or by
proxy or (b) more than 50% of the outstanding shares of the Fund. These
investment restrictions are set forth below:
(1) The Fund will not invest more than 5% of its net assets
(taken at the lower of cost or value) in securities of any one company.
The Fund will also limit its investment in a single company to not more
than 10% of that company's outstanding voting securities. Further, the
Fund will not invest more than 25% of its total assets in securities
issued by companies in any single industry.
(2) The Fund will not invest more than 5% of its total assets in
securities of companies, including any predecessors, less than three years
old.
(3) The Fund will not invest in another investment company
except as a part of a plan of merger, acquisition or consolidation.
(4) The Fund will not buy or sell real estate, commodities or
commodity contracts, except the Fund may invest up to 50% of its net
assets in index futures contracts and options thereupon.
(5) The Fund will not buy on margin.
(6) The Fund will not pledge or mortgage its assets, except to
the extent that writing covered call options or future contracts or
options may be deemed to be pledging or mortgaging assets.
(7) The Fund will not borrow money or property (for example,
securities), except that as a temporary measure for extraordinary
purposes or emergencies, the Fund may borrow from banks up to 5% of
the value of its total assets.
(8) The Fund will not make cash loans. However, the Fund
may purchase bonds or other debt securities sold publicly, including
short-term securities which may be acquired under agreements by the
sellers to repurchase; provided that not more than 10% of the Fund's
net assets will, at any time, be subject to repurchase agreements
which mature in more than seven days. The Fund does not consider
these debt securities and other short-term investments to be loans.
(9) The Fund may not invest more than 5% of its net assets in
illiquid investments. For the purposes of this restriction, "Illiquid
investments" are Restricted Securities or securities which cannot be
disposed of within seven (7) days in the normal course of the Fund's
business at approximately the amount at which the Fund has valued such
securities.
(10) The Fund will not act as an underwriter.
(11) The Fund will not buy any securities of a company if it
knows that the officers or directors of the Fund, who own 1/2 of 1% or more
of the company's securities, together own more than 5% of the company's
securities.
(12) The Fund will not invest in exploration or development
programs, such as oil or gas programs.
(13) The Fund will not invest 35% or more of its net assets in
debt obligations of corporations and other issuers which are not rated in one
of the four highest rating categories by a nationally recognized statistical
rating organization.
(14) The Fund will not buy or sell foreign currency exchange, which means
the Fund will not invest in currency contracts or options thereon or foreign
securities traded only on a foreign exchange.
(15) The Fund will not invest more than 50% of its net assets in
options contracts, including put options and/or call options to purchase or
sell equity securities.
Except for illiquid investments, if a percentage limitation described above
is adhered to at the time of the investment by the Fund, a later increase
or decrease in the percentage resulting from any change in the value of the
Fund's net assets will not constitute a violation of the restriction. The
Fund will promptly act to correct an illiquid investment in excess of the
permitted amount.
FUND MANAGEMENT
Officers and Directors. The names, addresses and principal
occupations of directors and executive officers of the Fund for the past five
years are given below:
</TABLE>
<TABLE>
FUND MANAGEMENT
<CAPTION>
Positions with the Fund and Principal
Name and (Age) Occupations During Past 5 Years Business Address
<S> <C> <C>
Carol Ann Freeland (61)<F1> Has served as a director of the Fund since 4015 Beltline Road, #200
December 20, 1994. Since 1992, Dallas, TX 75244
Executive Vice President, Collateral Equity
Management, of Dallas, Texas, a purchaser of
auto and consumer credit account receivables.
From 1987 to 1992, Executive Vice President,
Financial Services Exchange, Irving, Texas,
a broker-dealer industry membership organiation;
from 1985 to 1986, Vice President,
Marketing, Property Co. of America,
Dallas, Texas, a real estate program sponsor.
She has served as a registered representative
of World Invest Corporation, a licensed broker-
dealer since 1994.
Richard E. Hall (73) Has served as a director of the Fund since 10 Carson Drive
December 20, 1994. Since 1989, a retired Grant's Pass, OR 97526
financial planner and securities salesman.
Served as registered representative and
director of PIM Financial Services, Inc.
("PIM"), an affiliate of Centurion Counsel,
Inc., from 1983 to 1989. Until July, 1994,
Mr. Hall owned approximately 3% of the
shares of CI Holding Group, Inc.,
Centurion Counsel, Inc.'s parent
corporation. At that time he sold his
shares for fair value to an Affiliate of
Centurion Counsel, Inc. There is no
agreement or understanding between Mr.
Hall and Centurion Counsel, Inc. or its
Affiliates regarding his service as a director
of the Fund.
Jack K. Heilbron (48)<F2> Has served as a director of the Fund since 11545 W. Bernardo Court, #100
December 20, 1994. Also served as a San Diego, CA 92127
Director of the Fund from 1989 to 1990.
He has served as portfolio manager for the
Fund since 1990. Since 1984 he has served
as Chairman and Chief Executive Officer
of C I Holding Group, Inc. and PIM.
Since 1989, he served Chairman and Chief
Investment Officer of Centurion Counsel,
Inc. For the period 1988 until 1989, he
served as an officer and director of Excel
Interfinancial Corporation, the parent of
Excel Advisors, Inc.
Russell W. Ketron (55)<F2> Has served as a director of the Fund since 1701 Novato Blvd., # 204
December 20, 1994. A Certified Financial Novato, CA 94947
Planner since 1977. Since 1979 has been a
registered principal with Protected
Investors of America, a national broker-
dealer firm. Has been an instructor at
Sierra Nevada College since 1985 and at
the College of Marin since 1991.
Douglas Werner (48) Has served as a director of the Fund since 140 Brightwood Ave.
December 20, 1994. Since 1993 has been Chula Vista, CA 92010
President of Tracks Publishing, a printing
firm located in Chula Vista, California.
Since 1980, has served as President and
owner of Werner Graphics, a graphic
design firm located in San Diego, California.
<FN>
(F1) Although this Director may be an "affiliated person" of a broker/
dealer registered under the Securities and Exchange Act of 1934, as
defined under the Investment Company Act of 1940, the Company has
determined that this person is not an "interested person" of the Fund,
Centurion Counsel, Inc. or its Affiliates, as defined under the Investment
Company Act of 1940 by reason of Rule 2a19-1 promulgated thereunder.
(F2) This Director is an "interested person" of Centurion Counsel, Inc.,
the Company, or a registered broker/dealer, as defined under the Investment
Company Act of 1940, as amended.
</FN>
</TABLE>
Fund Executive and Director Compensation
The following Table sets forth information for each of the directors of the
Fund, all members of any advisory board of the Fund, and for each of the three
highest paid executive officers or any affiliated person of the Fund whose
aggregate compensation from the Fund for the Fund's year ended
December 31, 1998.
<TABLE>
COMPENSATION TABLE
<CAPTION>
(1) (2) (3) (4) (5)
Total
Pension or Compensation
Retirement Estimated From
Aggregate Benefits Annual Registrant
Name of Compensation Accrued As Benefits and Fund
Person, From Part of Fund Upon Complex Paid
Position Registrant Expenses Retirement to Directors
<S> <C> <C> <C> <C>
Jack K. Heilbron, -0-** -0- -0- -0-
Chairman of the
Board
Carol Ann Freeland, $1800* -0- -0- $1800*
Director
Richard E. Hall, $1800* -0- -0- $1800*
Director
Russell W. Ketron, $1800* -0- -0- $1800*
Director
Douglas Werner, $1400* -0- -0- $1400*
Director
* Directors are paid $400 per meeting. There were four scheduled
quarterly meetings for 1998.
** Mr. Heilbron receives no compensation, including no director fees,
for his service to the Fund either directly or indirectly from the Fund
or any other investment company in a Fund Complex which includes the Fund,
the Centurion Counsel Market Neutral Fund and the Centurion Counsel Real
Estate Fund.
The Fund does not have a standing audit or nominating committee
of its board of directors, or committees performing similar functions. The
Fund pays no compensation to any of its officers and directors, except for
a $200 per year retainer and a fee of $400 for each meeting attended (other
than telephonically) by each director not affiliated with Centurion Counsel
and reimburses such nonaffiliated directors for their travel expenses to attend
directors' meetings. The board of directors held a total of four (4) regular
meetings during its last fiscal year.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of March 9, 1999, to the knowledge of management, no one
person or persons could control the Fund through the exercise of voting
rights. As of March 9, 1999, to the knowledge of management, no person
owned beneficially more than 5% of the outstanding shares of the Fund.
The following directors or nominees for the position of director or officers,
as of March 9, 1999, beneficially owned shares of the Fund.
Number % of Total
of Shares Outstanding Shares*
Richard E. Hall 22,980 1.72%
Jack K. Heilbron 3,005 .22%
Russell W. Ketron 6,626 .49%
Doug Werner 521 .04%
* All classes on a combined basis.
INVESTMENT ADVISORY AND OTHER SERVICES
General
Centurion Counsel, Inc. ("Centurion Counsel") is the Fund's
Adviser. Centurion Counsel was incorporated in the State of California in
1984 and has since that time been an SEC-registered investment adviser.
Centurion Counsel has acted as the Fund's investment adviser since January
1, 1995. In addition to its services to the Fund, Centurion Counsel's
primary business activities include investment consulting to individuals,
corporations and institutions and the providing of investment banking
services and other activities related to the investment and securities
industries.
Centurion Group, Inc. ("CGI") was incorporated in the State of
California in 1984. CGI has acted as the Fund's accounting services agent,
transfer agent, dividend disbursing agent and administrative services agent
since January 1, 1995.
Centurion Institutional Services, Inc. was incorporated in the State
of California in 1991. CISI has served as the Fund's principal underwriter
(Distributor) since January 1, 1995. CISI has been an SEC-registered
broker-dealer since July 1991. Since then, CISI has been engaged primarily
in the business of clearing securities trades for its corporate and institutional
clients.
Centurion Counsel, CGI and CISI are wholly owned subsidiaries of
C I Holding Group, Inc. ("C I Holding"), a California corporation that is
engaged through its subsidiaries in various aspects of the financial services
industry. Approximately 40% of C I Holding's common shares, on a fully
diluted basis, are owned by officers and directors of C I Holding.
Investment Advisory Agreement
The Fund has contracted with its Adviser, Centurion Counsel, for
investment advice and management services pursuant to the Investment
Advisory Agreement (the "Adviser Agreement"). The Fund's Adviser
Agreement continues from year to year only if a majority of the Fund's
directors (including a majority of disinterested directors as described above)
approve. The Adviser Agreement may be terminated by either the Fund or
Centurion Counsel on 60 days' written notice to the other, and terminates
automatically in certain situations. The Adviser Agreement was approved
by the shareholders of the Fund on December 20, 1994 and was last
approved by the Fund's board of directors (including a majority of the
directors who are not parties to the agreement, or interested persons of any
such party, other than as directors of the Fund) on February 5, 1999.
Under the Adviser Agreement, Centurion Counsel has the sole and
exclusive responsibility for the management of the Fund's portfolio and the
making and execution of all investment decisions for the Fund subject to the
objectives and investment restrictions of the Fund and subject to the
supervision of the Fund's board of directors. Under the Fund's Adviser
Agreement, Centurion Counsel also furnishes, at its own expense, office
facilities, equipment and personnel for servicing the investments of the Fund.
Centurion Counsel has agreed to arrange for the Fund's officers or
employees to serve without compensation from the Fund if duly elected to
such positions by the shareholders or directors of the Fund.
As compensation for its services, Centurion Counsel is entitled to
a fee, payable within five days after the end of each fiscal quarter based on
the Fund's average daily net assets as follows:
1.00% of the first $200-million of the Fund's average daily net
assets
0.85% of average daily net assets between $200-million and $400-
million
0.80% of average daily net assets between $400-million and $600-
million
0.75% of average daily net assets between $600-million and $800-
million
0.60% of average daily net assets between $800-million and $1-
billion
0.50% of average daily net assets over $1-billion.
The percentage fee is calculated on the daily value of the Fund's net
assets at the close of each business day. The foregoing fees are higher than
fees paid by most other investment companies.
The Fund bears costs and expenses of its operation, other than those
specifically required to be paid by Centurion Counsel under the Adviser
Agreement. These expenses include, among others, interest, taxes,
brokerage fees and commissions, fees of the directors who are not full-time
employees of Centurion Counsel, CGI, CISI or any of their affiliates,
expenses of directors' and shareholders' meetings, including the cost of
printing and mailing proxies, expenses of insurance premiums for fidelity
and other coverage, expenses of repurchase and redemption of shares,
expenses of issue and sale of shares (to the extent not borne by CISI under
its Distribution Agreement with the Fund), expenses of printing and mailing
stock certificates representing shares of the Fund, association membership
dues, charges of custodians, transfer agents, dividend disbursing agents and
accounting services agents, and bookkeeping, auditing and legal expenses.
The Fund also pays the fees and bears the expense of registering and
maintaining the registration of the Fund and its shares with the Securities and
Exchange Commission, the expense of registering or qualifying its shares
under state or other securities laws and the expense of preparing and mailing
prospectuses and reports to existing Fund shareholders.
Under the Adviser Agreement, Centurion Counsel must reimburse
the Fund, in an amount not in excess of the adviser fee otherwise payable by
the Fund to the Adviser for such period, if and to the extent that the
aggregate operating expenses of the Fund (including such fee but excluding
interest expense, Rule 12b-1 Plan of Distribution fees, taxes, and brokerage
fees and commissions) are in excess of 2.625% of the first $10 million of
average net assets of the Fund, plus 1-1/2% of the next $20 million of
average net assets, plus 1-1/4% of average net assets above $30 million.
Centurion Counsel has agreed to waive such reimbursements for any fiscal
year of the Fund in which this Adviser Agreement is last effective, subject
to its right to end this obligation at the end of any Fund fiscal year.
For the year ended December 31, 1996, 1997, and 1998, Centurion
Counsel earned $60,766, $92,281, and $72,126 respectively, in advisory
fees from the Fund. For the year ended December 31, 1997, Centurion
Counsel voluntarily waived $16,716 of the advisory fee even though
expenses were not in excess of the expense limitation.
Accounting Services Agreement
CGI acts as the Fund's accounting services agent pursuant to the
Accounting Services Agreement (the "Accounting Agreement"). The
Accounting Agreement was approved by the Fund's board of directors
(including a majority of the directors of the Fund who are not parties to the
Agreement, or interested persons of any such party, other than as directors
of the Fund), and the shareholders of the Fund approved such Agreement on
December 20, 1994. The Accounting Agreement continues from year to
year only if the Fund's directors approve it in the same way they approve the
Adviser Agreement. The Accounting Services Agreement may be
terminated by either the Fund or CGI on 60 days' written notice to the other,
and the Agreement terminates automatically in certain situations.
Under the Accounting Agreement, the Fund pays CGI a monthly fee
equal on a annual basis to 0.15% of average net assets, provided that the
Fund has agreed to pay an annual minimum accounting services fee of
$18,000. The Fund paid CGI accounting service fees of $18,000 for the
years ended December 31, 1996, 1997 and 1998. This fee is in addition to
the fee payable by the Fund to Centurion Counsel pursuant to the Fund's
Investment Advisory Agreement. CGI maintains the books, accounts,
records, journals and other records of original entry relating to the business
of the Fund and performs certain daily functions in connection therewith.
Administration Agreement
CGI acts as transfer agent, dividend disbursing agent and
administrative services agent for the Fund pursuant to the Administration
Agreement effective January 1, 1995. Pursuant to this agreement, CGI will
maintain the Fund's stock registers, process requested account registration
changes, issue stock certificates, record redemptions and administer the
payments of dividends by the Fund.
For its services under this agreement, the Fund will pay CGI a
separate fee per service provided as follows: $0.75 per account maintenance
per month; $7.50 per dealer confirmation; $10.00 per wire transfer; and
$50.00 per 1,000 customer statements per month. In addition, all out of
pocket expenses incurred by CGI in connection with the rendering of
services pursuant to the Administration Agreement will be reimbursed to
CGI by the Fund. Such expenses will include, without limitation, postage,
stationery, telephone service and any other expense involved in the handling
of correspondence. These fees are in addition to the fees paid by the Fund
to Centurion Counsel pursuant to the Adviser Agreement. For the years
ended December 31, 1996, 1997 and 1998, the Fund paid CGI, its
administrative services agent, a fee of $3,417, $3,232, and $2,830
respectively.
The Administration Agreement was approved by the Fund's Board
of Directors (including a majority of the directors of the Fund who are not
parties to the agreement, or interested persons of any such party, other than
as directors of the Fund) and by the shareholders of the Fund on December
20, 1994. The agreement continues from year to year only if the Fund's
directors approve them in the same way they approve the Fund's Investment
Advisory Agreement. The Administration Agreement may be terminated by
either the Fund or by CGI on 60 days' written notice to the other, and the
Agreement terminates automatically in certain situations.
UNDERWRITING ARRANGEMENTS
CISI, as the Fund's Distributor or principal underwriter, sells the
Fund's shares under the Distribution Agreement, as amended, dated January
1, 1995 and effective November 6, 1996. Under the Distribution
Agreement, CISI bears the costs of all advertising and promotion expenses
in connection with the distribution of the Fund's shares (except those
expenses assumed by the Fund's investment adviser). The Distribution
Agreement was last approved by the board of directors of the Fund
(including a majority of the directors who are not parties to the agreement,
or interested persons of any such party, other than as directors of the Fund)
on February 5, 1999. The Fund's Distribution Agreement may be
terminated by either CISI or the Fund on 60 days' written notice to the
other, and terminates automatically in certain situations. No front-end sales
charges were paid in connection with the sales of the Fund's shares during
the years ended December 31, 1996 and 1998. For the year ended
December 31, 1997, the Fund paid CISI, as its principal underwriter, front-
end sales charges of $412. No sales commissions were received by the
Fund's principal underwriter for sales of the Fund's shares in 1996 or 1998.
Under the Distribution Agreement, CISI agrees to indemnify the
Fund against all costs of litigation and other legal proceedings and against
any liability incurred by or imposed on the Fund in any way arising out of
or in connection with the sale or distribution of the Fund's shares, except to
the extent that such liability is the result of information which was obtainable
by CISI only from persons affiliated with the Fund but not with CISI.
As compensation for its services, CISI receives a front-end
commission in the case of Class A shares, a contingent deferred sales charge
("CDSC") in the case of Class B shares and 12b-1 fees in the case of Class
A shares, Class B shares and Class C shares as described below.
Class A Shares
The Distributor receives a sales charge equal to 4.75% of the gross
price of Class A shares it places which it may reallow to dealers through
whom purchases are made in an amount equal to 4.0% of the amount
invested. Dealers which are reallowed ninety percent (90%) or more of the
sales charges may be deemed to be underwriters for purposes of the
Securities Act of 1933. The Distributor may also pay broker-dealers,
registered investment advisers, financial institutions (which may include
banks) and other financial industry professionals that provide services to
facilitate transactions in shares of the Fund for their clients a transaction
fee up to the level of such reallowance to dealers. Such financial
institutions, other industry professionals and dealers are referred to as
"Service Organizations." In addition, the Distributor may, from time to
time, pay or allow additional reallowances or promotional incentives, in the
form of cash or other compensation, to dealers that sell shares of the Fund.
Banks are currently prohibited under the Glass-Steagall Act from
providing certain underwriting or distribution services. If banking firms
were further prohibited from acting in any capacity or providing any of the
described services, the Distributor would consider what action, if any, would
be appropriate. The Distributor does not believe that termination of a
relationship with a bank would result in any material adverse consequences
to the Fund. State securities laws regarding registration of banks and other
financial institutions may differ from the interpretations of federal law
expressed herein, and banks and other financial institutions may be required
to register as dealers pursuant to certain state laws.
Class B Shares
Class B shares which are redeemed within five years of purchase
are subject to a CDSC at the rates set forth in the following table.
Contingent Deferred Sales Charge Table
Contingent Deferred Sales Charge
as a Percentage of
Year Since Purchase Dollar Amount Subject to Charge
First 4%
Second 4%
Third 3%
Fourth 2.5%
Fifth 1.5%
Sixth None
The CDSC is assessed on an amount equal to the lesser of the then
current market value or the cost of the shares being redeemed. No CDSC
is imposed on increases in net asset value above the initial purchase price or
on Class B shares derived from reinvestment of dividends on capital gains
distributions, other than Rule 12b-1 fees. The amount of the CDSC, if any,
varies depending on the number of years from the time of payment for the
purchase of Class B shares until the time of redemption of such shares.
Solely for purposes of determining the number of years from the time of any
payment for the purchase of shares, all payments during a month are
aggregated and deemed to have been made on the last day of the month.
In determining whether a CDSC is applicable to a redemption, the
calculation is determined in the manner that results in the lowest possible
rate being charged. Therefore, it is assumed that the redemption is first of
any shares in the shareholder's Fund account that are not subject to a CDSC,
second, of shares held for over five years or shares acquired pursuant to
reinvestment of dividends or distributions and third, of shares held longest
during the five-year period. As an example, assume an investor purchased
100 shares at $10 per share (at a cost of $1,000) and in the second year after
purchase, the net asset value per share is $12 and, during such time, the
investor has acquired 10 additional shares upon divided reinvestment. If at
such time the investor makes his or her first redemption of 50 shares
(proceeds of $600), 10 shares will not be subject to charge because of
dividend reinvestment. With respect to the remaining 40 shares, the charge
is applied only to the original cost of $10 per share and not to the increase
in net asset value of $2 per share. Therefore, $400 of the $600 redemption
proceeds is subject to a deferred sales charge at a rate of 4% (the applicable
rate in the second year after purchase).
The CDSC is waived on redemptions of Class B shares (i) following
the death or disability (as defined in the Code) of a shareholder, (ii) in
connection with certain distributions from an IRA or other retirement plan,
(iii) pursuant to the Fund's systematic withdrawal plan but limited to 12%
annually of the initial value of the account, and (iv) effected pursuant to the
right of the Fund to liquidate a shareholder's account as described herein
under "Redemption of Shares".
A commission or transaction fee of 4% of the purchase amount will
be paid by the Distributor to broker-dealers and other Service Organizations
at the time of purchase. Additionally, the Distributor may, from time to
time, pay additional promotional incentives in the form of cash or other
compensation, to Service Organizations that sell Class B shares of the Fund.
Class C Shares
Class C shares are offered at the next determined net asset value.
Other than Rule 12b-1 fees, no front-end, deferred, or other sales charge
is charged with respect to Class C shares.
Class D Shares
The Class D shares are sold at net asset value only to persons who
are Adviser Professionals or Eligible Employees, as defined under
"CAPITAL STOCK AND OTHER SECURITIES" below. No front-end,
deferred or other sales charge or Rule 12b-1 fees will be charged by the
Fund with respect to the Class D shares.
12b-1 Fees
For each class of its shares, the Fund has adopted a Plan of
Distribution pursuant to Rule l2b-1 under the Investment Company Act of
1940. The Plan of Distribution authorizes the Fund to pay Rule 12b-1 fees.
As compensation for share distribution-related services it performs under
its Distribution Agreement with the Fund, CISI receives a fee from the Fund
equal to 0.75 of 1% per year of the Fund's average daily net assets
attributable to the Class B and Class C shares. In addition, CISI will receive
as compensation for shareholder services it performs under its Shareholder
Services Agent Agreement with the Fund a fee from the Fund equal to 0.25
of 1% of the Fund's average daily net assets attributable to the Class A,
Class B and Class C shares. These services include receiving and
responding to shareholder inquires and requests for information regarding
the Fund. CISI may, at its own expense, may provide additional
compensation to dealers in connection with sales of Fund shares and
servicing of Fund shareholders.
The Plan of Distribution for the Class C Shares was entered into on
January 1, 1995 and for each of the Class A shares and Class B shares was
entered into on November 6, 1996, the first date on which the Fund offered
Class A and Class B shares. CISI may reallow all or a portion of its 12b-1
fees to its representatives or to other broker-dealers who contract to provide
shareholder services to their customers holding shares of the respective
class.
These 12b-1 fees are to compensate CISI and the participating
dealers for their sales of the Fund's shares, based on a percentage of the net
assets of the Fund relating to the respective class for which such
broker-dealers or registered representatives are responsible by reason of
their sale of shares of the respective class, and to pay other advertising and
promotional expenses in connection with the distribution of the shares of the
respective class. CISI, at its expense, may also provide additional
compensation to dealers in connection with sales of such shares of the Fund.
Such compensation may include financial assistance to dealers in connection
with conferences, sales or training programs for their employees, seminars
for the public, advertising campaigns regarding the Fund and/or
dealer-sponsored special events. In some instances, these incentives may be
made available only to certain dealers whose representatives have sold or are
expected to sell significant amounts of such shares. Such compensation may
include payment for travel expenses, including lodging, incurred in
connection with trips taken by invited registered representatives and
members of their families to locations within or outside of the United States
for meetings or seminars of a business nature. Dealers may not use sales of
the Fund's shares to qualify for the incentives to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc.
The Fund's Plans of Distribution provide for the indirect payment
of distribution expenses by the Fund only as described above. The
advertising and/or promotional expenses that may be paid for pursuant to the
Fund's Plan of Distribution include, by way of example but not limitation,
the costs of printing the prospectus, statement of additional information and
shareholder reports provided to prospective investors; the preparation and
distribution of sales literature; advertising of any type; allocated overhead
and other expenses of the principal underwriter related to the distribution of
the Fund's shares; and payments to and expenses of, officers, employees or
representatives of the principal underwriter, of other broker-dealers, banks
or other financial institutions, and of any other persons who provide support
services in connection with the distribution of the Fund's shares, including
travel, entertainment, and telephone expenses.
Indirect or reimbursable expenses under the Plan do not include
interest paid on amounts borrowed by Centurion Counsel to make the
payments for which reimbursement is made. Also, there is no provision in
the Plan of Distribution limiting payments to the amounts of actual
distribution expenses or actual shareholder servicing expenses expended by
CISI. If the Plan of Distribution were terminated or not continued, the Fund
would not be contractually obligated to pay CISI for any expenses not
previously reimbursed by the Fund. However, the Fund could, in the sole
discretion of its Board of Directors, determine to reimburse all or a portion
of any such amounts.
Each of the Fund's Plans of Distribution contains, among other
things, provisions complying with the requirements of Rule l2b-1. Rule
l2b-1(b) provides that any payments made by the Fund in connection with the
distribution of its shares may only be made pursuant to a written plan
describing all material aspects of the proposed financing of distribution and
also requires that all agreements with any person relating to implementation
of the plan must be in writing. In addition, Rule l2b-1(b)(1) requires that
such plan be approved by a vote of at least a majority of the Fund's
outstanding shares, and Rule l2b-1(b)(2) requires that such plan, together
with any related agreements, be approved by a vote of the board of directors
of the Fund and of the directors of the Fund who are not interested persons
of the Fund and have no direct or indirect financial interest in the operation
of the plan or in any agreements related to the plan, cast in person at a
meeting called for the purpose of voting on such plan or agreements. Rule
l2b-1(b)(3) requires that the plan or agreement provide, in substance: (1)
that it shall continue in effect for a period of more than one year from the
date of its execution or adoption only so long as such continuance is
specifically approved at least annually in the manner described in paragraph
(b)(2) of Rule l2b-1; (2) that any person authorized to direct the disposition
of monies paid or payable by the Fund pursuant to the plan or any related
agreement shall provide to the Fund's board of directors, and the directors
shall review, at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made; and (3) in the case
of a plan, that it may be terminated at any time by vote of a majority of the
members of the board of directors of the Fund who are not interested
persons of the Fund and have no direct or indirect financial interest in the
operation of the plan or in any agreements related to the plan or by vote of
a majority of the outstanding voting securities of the Fund. Rule l2b-1(b)(4)
requires that such plans may not be amended to increase materially the
amount to be spent for distribution without shareholder approval and that all
material amendments of the plan must be approved in the manner described
in paragraph (b)(2) of Rule l2b-1. Rule l2b-1(c) provides that the Fund may
rely upon Rule l2b-1(b) only if selection and nomination of the Fund's
disinterested directors are committed to the discretion of such disinterested
directors. Rule l2b-1(e) provides that the Fund may implement or continue
a plan pursuant to Rule l2b-1(b) only if the directors who vote to approve
such implementation or continuation conclude, in the exercise of reasonable
business judgment and in light of their fiduciary duties under state law, and
under Sections 36(a) and (b) of the 1940 Act, that there is a reasonable
likelihood that the plan will benefit the Fund and its shareholders.
For the years ended December 31, 1996, 1997, and 1998, CISI, the
Fund's principal underwriter, received $49,449, $72,691, and $62,985 in
distribution service fees, pursuant to the Fund's Class C Plan of Distribution,
the only Plan of Distribution in effect prior to 1996. During the year ended
December 31, 1997, the Fund's principal underwriter received $10.90 and
$3.08 from the Fund pursuant to the Fund's Class A and B share Plan of
Distribution, respectively.
Custodian; General Counsel; Auditors
Firstar Bank, NA, 425 Walnut Street, Cincinnati, Ohio, 45202-1118
acts as custodian of the Fund's assets. The custodian may, in conformity
with applicable rules of the Securities and Exchange Commission, enter into
sub-custodial arrangements with eligible foreign sub-custodians for the
custody of any foreign securities held by the Fund.
Squire & Company acts as the Fund's independent public
accountants.
Rushall & McGeever acts as the general counsel for the Fund.
BROKERAGE ALLOCATIONS AND OTHER PRACTICES
In effecting securities and commodities transactions, the Fund's
investment adviser seeks to obtain the best price and execution of orders.
Commission rates, being a component of price, are considered together with
other relevant factors.
The Fund expects to use affiliates of Centurion Counsel, including
CISI, as brokers of the Fund's portfolio securities but only if the provisions
of Section 17(e) of the 1940 Act (and the rules thereunder) are complied
with and only when, in the judgment of Centurion Counsel, the firm will be
able to obtain a price and execution at least as favorable as other qualified
brokers, and the transactions effected by the firm, including the frequency
thereof, the receipt of commissions payable in connection therewith and the
selection of the firm, are not unfair or unreasonable to the shareholders of
the Fund.
In determining the commissions to be paid to an affiliated
broker-dealer, it is the policy of the Fund that such commissions will, in the
judgment of the Fund's investment adviser, be both at least as favorable as
those which would be charged by other qualified brokers having comparable
execution capability and at least as favorable as commissions
contemporaneously charged by such broker-dealer on comparable
transactions for its most favored unaffiliated customers, except for any
customers of such broker-dealer considered by a majority of the disinterested
directors (as described above) not to be comparable to the Fund. While the
Fund does not deem it practicable and in its best interest to solicit
competitive bids for commission rates on the transaction, consideration will
regularly be given to posted commission rates as well as to other information
concerning the level of commissions charged on comparable transactions by
other qualified brokers.
When selecting brokers, business may be placed with broker-dealers
who furnish investment research services to Centurion Counsel or its
affiliates. Such research services include advice, both directly and in
writing, as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities, as well as analyses and reports concerning
issues, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts. This allows these persons to supplement
their own investment research activities and enables them to obtain the views
and information of individuals and research staffs of many different
securities research firms prior to making investment decisions for the Fund.
To the extent such commissions are directed to these other broker-dealers
who furnish research services, Centurion Counsel receives a benefit, not
capable of evaluation in dollar amounts, without providing any direct
monetary benefit to the Fund from these commissions. Centurion Counsel
has not entered into any formal or informal agreements with any
broker-dealers (except as noted above), and it does not maintain any
"formula" which must be followed in connection with the placement of the
Fund's portfolio transactions in exchange for research services, except as
noted below. However, Centurion Counsel may maintain an informal list
of broker-dealers which it may use as a general guide in the placement of the
Fund's business, in order to encourage certain broker-dealers to provide it
with research services which it anticipates will be useful to it. Because the
list, if any, is merely a general guide which is to be used only after the
primary criteria for the selection of broker-dealers (discussed above) have
been met, substantial deviations from the list are permissible and may be
expected to occur. Centurion Counsel will authorize the Fund to pay an
amount of commission for effecting a securities transaction in excess of the
amount of commission another broker-dealer would have charged only if it
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by the
broker-dealer viewed in terms of either that particular transaction or its
overall responsibilities with respect to the accounts as to which it exercises
investment discretion. Generally, the Fund pays higher than the lowest
commission rates available.
Subject to the policies set forth in the preceding paragraph and such
other policies as the Fund's directors may determine, Centurion Counsel
may consider sales of shares of the Fund and of other funds it may advise as
a factor in the selection of broker-dealers to execute the Fund's portfolio
transactions.
During the years ended December 31, 1996, 1997, and 1998,
$1,810,232, $2,670,128, and $1,258,091 respectively, of the Fund's
portfolio securities were purchased and sold through brokers or banks acting
on a principal basis for which no commissions were charged, all of which
were effected through brokers or banks unaffiliated with the Fund. During
the years ended December 31, 1996, 1997 and 1998, the Fund paid a total
of $34,994, $83,956, and $115,426 respectively, in brokerage commissions
in connection with agency transactions; during 1996, 1997 and 1998,
$9,051, $27,075, and $15,426 respectively, were paid to broker dealers
who furnished investment research to the Fund's investment adviser. During
1996, 1997, and 1998, CISI and its affiliate, PIM, together, effected 75%,
82%, and 92% respectively, of the total dollar volume of transactions in
which commissions were paid and received 74%, 66%, and 87%
respectively, of such commissions.
CAPITAL STOCK AND OTHER SECURITIES
General
The Articles of Incorporation of the Fund authorize the Fund to
issue Class A, Class B, Class C and Class D shares pursuant to the Fund's
Multiple Class Share Plan (this "Plan"). The Plan was adopted by the
Fund's Board of Directors and approved by a majority vote of the Fund's
shareholders on August 6, 1996.
Under the Plan, the Fund is authorized to issue the Class A shares,
the Class B. shares, the Class C Shares, and the Class D Shares in
accordance with the following. The Fund's Multiple Pricing System permits
an investor to choose the method of purchasing shares. This is most
beneficial for that investor's circumstances, including the amount to be
purchased and the length of time the investor expects to hold the shares.
Class A Shares
Class A shares are sold at net asset value per share plus a maximum
initial sales charge ("front-end sales charge") set from time to time by the
Board of Directors of the Fund (the "Board"). Initially, the front-end charge
on the Class A Shares shall be 4.75% of the offering price of the Class A
Shares. Class A shares are subject to an ongoing service fee ("shareholder
services fee") at an annual rate of up to 0.25% of the Fund's aggregate
average daily net assets attributable to the Class A shares. See "Purchase
of Shares--Class A Shares".
Class B Shares
Class B shares are sold at net asset value per share and are subject
to a maximum contingent deferred sales charge if they are redeemed within
five years of purchase. Initially, the maximum deferred sales charge shall
be 4% of the redemption proceeds during the first and second year,
declining each year thereafter to 0% after the fifth year. Class B shares are
subject to an ongoing service fee at an annual rate of up to 0.25% of the
Fund's aggregate average daily net assets attributable to the Class B shares
and an ongoing distribution fee at an annual rate of up to 0.75% of the
Fund's aggregate average daily net assets attributable to the Class B shares.
Class B shares enjoy the benefit of permitting all of the investor's dollars
to work from the time the investment is made. The ongoing distribution fee
paid by Class B shares will cause such shares to have a higher expense ratio
and to pay lower dividends than those related to Class A shares. See
"Purchase of Shares--Class B Shares." Class B shares will automatically
convert to Class A shares eight years after the end of the calendar month in
which the shareholder's order to purchase was accepted. See "Conversion
Feature" below for discussion on applicability of the conversion feature to
Class B shares.
Class C Shares
Class C shares are sold at net asset value per share and are not
subject to a front-end or a deferred sales charge. Class C shares are subject
to an ongoing service fee at an annual rate of up to 0.25% of the Fund's
aggregate average daily net assets attributable to the Class C shares and an
ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class C shares. Class
C shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by
Class C shares will cause such shares to have a higher expense ratio and to
pay lower dividends than those related to Class A shares. See "Purchase of
Shares--Class C Shares."
Class D Shares
Class D shares are sold at net asset value only to persons who
qualify as an Adviser Professional, Eligible Employee, or Eligible Account.
No front-end charge, deferred sales charge, service fees or distribution fees
will be paid by the Fund with respect to the Class D shares. The Adviser
Professionals shall mean investment advisers, trust companies and bank trust
departments exercising discretionary investment authority with respect to the
money to be invested in the Fund. Eligible Employees shall mean (a)
current or retired directors of the Funds, current or retired employees of the
Fund's adviser, and any of its affiliated companies, spouses, minor children
and grandchildren of the above persons, and parents of employees and
parents of spouses of employees of the Fund's adviser and any of its
affiliated companies; (b) employees and registered representatives of Adviser
professionals, banks and other financial institutions with selling group
agreements with the Fund's principal underwriter, employees of such
persons, and spouses and minor children of any such persons and (c) any
trust, pension, profit sharing or other benefit plan for such persons. Shares
are also offered at net asset value to Eligible Accounts. Eligible Accounts
are accounts opened for shareholders by dealers where the amounts invested
represent the redemption proceeds from investment companies distributed
by an entity other than the Fund's principal underwriter if such redemption
has occurred no more than 15 days prior to the purchase of the Class D
Shares, and the shareholder paid an initial sales charge and was not subject
to a deferred sales charge on the redeemed account. Class D shares are
offered at net asset value to such persons because of anticipated economies
in sales efforts and sales-related expenses.
Conversion Feature
Class B shares will automatically convert to Class A shares eight
years after the end of the calendar month in which they were purchased and,
a Class A share, will no longer be subject to the distribution fee. Such
conversion will be on the basis of the relative net asset value per share,
without the imposition of any sales load, fee or other charge. The purpose
of the conversion feature is to relieve the holders of Class B shares that have
been outstanding for a period of time sufficient for the Distributor to have
been substantially compensated for distribution expenses related to the Class
B shares from most of the burden of the ongoing distribution fee.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of an opinion of counsel to the effect that (i) the
assessment of the distribution fee and any higher transfer agency costs with
respect to Class B shares does not result in the Fund's dividends or
distributions constituting "preferential dividends" under the Internal Revenue
Code, as amended (the "Code"), and (ii) the conversion of shares does not
constitute a taxable event under federal income tax law. The conversions of
Class B shares may be suspended if such an opinion is no longer available.
In that event, no further conversions of Class B shares would occur, and
such Class B shares might continue to be subject to the distribution fee for
an indefinite period which may extend beyond the period ending eight years
after the end of the calendar month in which the shareholder's order to
purchase was accepted.
Dividends
Dividends paid by the Fund with respect to Class A, Class B, Class
C and Class D shares will be calculated in the same manner at the same time
on the same day, except that the ongoing service fees, distribution fees
and/or any incremental transfer agency costs relating to Class A, Class B or
Class C shares will be borne by the respective class. Shares of the Fund
may be exchanged, subject to certain limitations, for shares of the same class
or other mutual funds advised by the Adviser. See "Shareholder
Services/Transfers - Exchange Privilege."
For the purpose of conversion to Class A, Class B shares purchased
through the reinvestment of dividends and distributions paid on Class B
shares in a shareholder's Fund account will be considered to be held in a
separate sub-account. Each time any Class B shares in the shareholder's
Fund account (other than those in the sub-account) convert to Class A, an
equal pro rata portion of the Class B shares in the sub-account will also
convert to Class A.
Income and Expenses
The income and expenses of the Fund must be allocated among each
class of shares as follow:
Separate Distribution Expenses. Each class of shares must, at all
times, maintain a separate arrangement for shareholder services or the
distribution services or both, and shall pay all of the expenses of that
arrangement ("distribution expenses").
Allocation of Income, Realized and Unrealized Capital Gains and
Losses, and Expenses. Each class of shares must be allocated its pro-rata
share of the Fund's income, realized and unrealized capital gains and losses,
and expenses not allocated to a particular class on the basis of the net asset
value of that class in relation to the net asset value of the Company. In the
future, the Fund's Board of Directors may require one or more classes of
Shares to pay a different share of expenses (other than advisory or custodial
fees or other expenses related to the management of the Fund's assets) if
such expenses are actually incurred in a different amount by a class, or if a
class receives services of a different kind or to a different degree than other
classes, provided any payments made pursuant to the foregoing shall be
made pursuant to a written plan setting forth the separate arrangement and
expense allocation of each class, and any related conversion features or
exchange privileges.
Advisory Fees. Each class of shares shall pay the same advisory
fee.
Waiver of Expenses. Expenses may be waived or reimbursed by
the Fund's adviser, underwriter, or any other provider of services to the
Fund.
Income, Capital Gains and Losses. Income, realized and
unrealized capital gains and losses, and expenses of the Fund not allocated
to a particular class pursuant to the foregoing:
(i) Except as permitted in paragraph (ii)
below, shall be allocated to each class on the basis of the
net asset value of that class in relation to the net asset value
of the Fund;
(ii) If the Fund operates pursuant to Rule
270.2a-7 under the 1940 Act (including the provision
allowing the calculation of net assets on an amortized cost
basis), or declares distributions of net investment income
daily and maintains the same net asset value per share in
each class, may be allocated:
(aa) To each Share without regard to
class, provided that the Fund has received
undertakings from its adviser, principal
underwriter or any other provider of services to
the Fund, agreeing to waive or reimburse the Fund
for payments to such service provider by one or
more classes, as allocated under paragraph (i)
above, to the extent necessary to assure that all
classes of the Fund maintain the same net asset
value per share; or
(bb) On the basis of relative net assets
(settled shares). For purposes of this subsection
(e), "relative net assets (settled shares)" are net
assets valued in accordance with generally
accepted accounting principles but excluding the
value of subscriptions receivable, in relation to the
net assets of the Fund.
Voting Rights
All of the Company's shares have one vote. All shares vote as a
single class for directors and other matters, except on any matter which
affects only a specific Fund or as otherwise may be required by the 1940
Act. Each class has exclusive voting rights on any matter submitted to
shareholders that relates solely to that class. Each class has separate voting
rights on any matter submitted to shareholders in which the interests of one
class differ from the interests of any other class. Except as described above,
each class has in all other aspects the same rights and obligations as each
other class.
Under the Fund's Articles of Incorporation, the Fund's Board of
Directors may authorize one or more additional classes with any of the
following rights or provisions.
(a) An exchange privilege providing that shares of a
class may be exchanged for certain securities of another company.
(b) Authorize and effect a conversion whereby the
shares of one class (the "purchase class") will be exchanged automatically
for shares of another class (the "target class") after a specified period of
time, provided that:
(i) The conversion is effected on the basis of
the relative net asset values of the two classes without the
imposition of any sales load, fee, or other charge;
(ii) The expenses, including payments
authorized under a plan adopted pursuant to 270.12b-1
("Rule 12b-1 plan"), for the target class are not higher than
the expenses, including payments authorized under a Rule
12b-1 plan, for the purchase class; and
(iii) If the amount of expenses, including
payments authorized under a Rule 12b-1 plan, for the target
class is increased materially without approval of the
shareholders of the purchase class, the Fund will establish
a new target class for the purchase class on the same terms
as applied to the target class before that increase.
Currently, only the Class B shares have such a conversion
right.
(c) A conversion feature providing that shares of a
class in which an investor is no longer eligible to participate may be
converted to shares of a class in which that investor is eligible to
participate, provided that:
(i) The shareholder is given prior notice of
the proposed conversion; and
(ii) The conversion is effected on the basis of
the relative net asset values of the two classes without the
imposition of any sales load, fee, or other charge.
The Plan is intended to meet the requirements of Rule 270.18f-3
promulgated under the 1940 Act.
Factors for Consideration
In deciding which class of shares to purchase investors should take
into consideration their investment goals, amounts of present and anticipated
investments and their individual investment time horizon and temperaments.
Investors should consider whether, during the anticipated life of their
investment in the Fund the accumulated distribution fees and contingent
deferred sales charges on Class B shares prior to conversion would be less
than the initial sales charge on Class A shares purchased at the same time
and to what extent such differential would be offset by the higher dividends
per share on Class A shares. To assist investors in making this
determination, the table under the caption "Expense Synopsis" sets forth
examples of the charges applicable to each class of shares.
Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase, investors
in Class A shares do not have all their funds invested initially and,
therefore, initially own fewer shares. Other investors might determine that
it is more advantageous to purchase either Class B shares or Class C shares
and have all their funds invested initially, although remaining subject to
ongoing distribution fees and, for a five year period, being subject to a
contingent deferred sales charge. Ongoing distribution fees on Class B
shares and Class C shares will be offset to the extent of the additional
funds originally invested (resulting from the non-payment of an initial sales
charge) and any return realized on those funds. However, there can be no
assurance as to the return, if any, which will be realized on such additional
funds. For investments held for ten years or more, the relative value upon
liquidation of the three classes tends to favor Class A or Class B shares,
rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay
the sales charge up front, wish to maximize their current income from the
start, prefer not to pay redemption charges and/or have a longer-term
investment horizon. Class C shares may be appropriate for investors who
wish to avoid a front-end sales charge, put 100% of their investment dollars
to work immediately, and have a shorter-term investment horizon.
Under most circumstances, investments originally made in Class C
shares will tend to have a slightly higher value upon liquidation than
investments originally made in either Class A or Class B Shares, if
liquidated within the first six (6) years after the date of the original
investment due to the front-end sales charge on Class A Shares and the
contingent deferred sales charges on Class B Shares. Under most
circumstances, investment originally made in Class A Shares will tend to
have a slightly higher value upon liquidation than investments originally
made in Class C Shares, if held for and liquidated, after approximately
seven (7) years after the date of original investment because of higher Rule
12b-1 expenses charged to Class C Shares. This would also tend to be true
for investments originally made in Class B Shares which are liquidated after
eight years when they convert to Class A Shares. However, this will not be
true in all cases and in the event the Fund experiences inconsistently negative
widely fluctuating total returns, may differ.
The distribution expenses incurred by the Distributor in connection
with the sale of the shares will be reimbursed, in the case of Class A shares,
from the proceeds of the initial sales charge and, in the case of Class B
shares from the proceeds of the ongoing distribution fee and any contingent
deferred sales charge incurred upon redemption within five years of
purchase. In the case of Class C shares, such distribution expenses will be
reimbursed from the proceeds of the ongoing distribution fee. Sales
personnel of broker-dealers distributing the Fund's shares and other persons
entitled to receive compensation for selling such shares may receive differing
compensation for selling Class A, Class B or Class C shares. Investors
should understand that the purpose and function of the contingent
deferred sales charge and ongoing distribution fee with respect to Class
B shares and the ongoing distribution fee with respect to Class C shares
are the same as those of the initial sales charge with respect to Class A
shares. See "Distribution Plans". Class D shares will be more beneficial
to the investor who qualifies for the purchase thereof.
The Directors of the Fund have determined that currently no
conflict of interest exists between the classes of shares. On an ongoing
basis, the Directors of the Fund, pursuant to their fiduciary duties under the
Investment Company Act of 1940 (the "1940 Act") and state laws, will seek
to ensure that no such conflict arises.
RETIREMENT ACCOUNTS
The objectives of the Fund may make the shares of the Fund an
appropriate investment for Tax-Sheltered Retirement Plans, including
Individual Retirement Accounts ("IRAs"), Keogh (HR-10) Plans (for
self-employed individuals), qualified corporate pension or profit sharing
plans (for employees) and Tax-Deferred Investment Plans (for employees of
public school systems and certain types of charitable organizations).
IRAs are available from the Fund. Persons desiring information
about the available IRAs or about any other of the plans referred to above
should communicate with a CISI representative. All tax-sheltered retirement
plans referred to above involve a long-term commitment of assets and are
subject to various legal requirements and restrictions. The legal and tax
implications may vary according to the circumstances of the individual
investor. Therefore, the investor is urged to consult with an attorney or tax
adviser prior to the establishment of such a plan.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
As disclosed in the Prospectus, during certain emergencies, the
board of directors of the Fund can suspend the computation of net asset value
of the Fund, stop accepting payments for purchase of the Fund's shares or
suspend the duty of the Fund to redeem its shares. There are only a few
such emergency situations:
* The New York Stock Exchange closes for reasons other
than the usual weekend and holiday closings, or trading on
the Exchange is restricted as defined by the Securities and
Exchange Commission.
* The Securities and Exchange Commission decides that for
a certain period of time, disposal of the Fund's securities is
not practical, or that it is not practical for the Fund to fairly
value its net assets.
* Other emergency periods declared by the Securities and
Exchange Commission under the provisions of the
Investment Company Act of 1940.
The Fund will pay in cash all redemption requests by any
shareholder of record, limited in amount during any 90-day period to the
lesser of $250,000 or 1% of the net asset value of the Fund at the beginning
of such period. When redemption requests exceed such amount, however,
the Fund reserves the right to make part or all of the payment in the form of
securities or other assets of the Fund. An example of when this might be
done is in case of emergency, such as in those situations enumerated above,
or at any time a cash distribution would impair the liquidity of the Fund to
the detriment of existing shareholders. Any securities being so distributed
would be valued in the same manner as the portfolio of the Fund is valued.
If the recipient sold such securities, he or she probably would incur
brokerage charges. The Fund has filed with the Securities and Exchange
Commission a notification of election pursuant to Rule 18f-1 under the
Investment Company Act of 1940 in order to make such redemptions in
kind.
TAXATION OF THE FUND
Since its inception the Fund has met, and the Fund intends to
continue to meet, the requirements for regulated investment companies under
Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and, if it meets these requirements, the Fund will not be liable for
federal income taxes to the extent the Fund distributes its taxable income to
its shareholders. To qualify as a regulated investment company, the Fund
must meet certain tests of diversification of assets, source of income and
other requirements of the Code. However, the Fund's management reserves
the right to depart from this policy whenever, in its sole judgment, it is
deemed in the best interest of the Fund and its shareholders to do so. If the
Fund fails to meet any of the Code requirements, the Fund will be subject
to tax on its income as a regular corporation whether or not its income is
distributed to its shareholders, and any such distributions will be taxable to
the Fund's shareholders as ordinary dividends to the extent of its current and
accumulated earnings and profits, regardless of whether such distributions
were derived from the Fund's net long-term capital gains.
Under the Code, the Fund will be subject to a non-deductible excise
tax equal to 4% of the excess, if any, of the amount required to be
distributed pursuant to the Act for the calendar year over the amount actually
distributed. Any undistributed amounts subject to corporate-level income
tax, however, will not be subject to the excise tax. In order to avoid the
imposition of the excise tax, the Fund must generally declare dividends by
the end of the calendar year representing 98% of the Fund's ordinary
income for the calendar year and 98% of its capital gain net income (both
long-term and short-term capital gains) for the twelve-month period ending
October 31 of the calendar year.
Currently, individual shareholders are not able to exclude
distributions by the Fund which are attributable to dividends earned by the
Fund, and corporate shareholders are allowed to deduct 70% of such
dividend distributions. Such a deduction by a corporate shareholder is
limited to the portion of the Fund's gross income which is derived from
dividends received from domestic corporations. Since it is anticipated that
a portion of the Fund's net investment income may be derived from sources
other than dividends from domestic corporations, a portion of its dividends
may not qualify for this exclusion. Distributions designated as long-term
capital gain distributions will be taxable as long-term capital gains,
regardless of how long shares have been held, and will not be eligible for the
dividends received deduction for corporate shareholders referred to above.
For federal tax purposes, if a shareholder transfers shares of the
Fund for shares of Cash Equivalent Fund-Money Market Portfolio, such
transfer will be considered a taxable sale of the first-purchased shares.
Furthermore, if a shareholder uses the exchange privilege within ninety days
of the purchase of the first-purchased shares, any sales charge incurred on
the purchase of those shares cannot be taken into account for determining the
shareholder's gain or loss on the sale of those shares to the extent any sales
charge on the purchase of the later-acquired shares is reduced because of the
exchange privilege. However, the amount of any sales charge that may not
be taken into account in determining the shareholder's gain or loss on the
sale of the first-purchased shares may be taken into account in determining
his gain or loss on the eventual sale or exchange of the later-acquired shares.
The foregoing discussion of Federal income tax consequences is
based on tax laws and regulations in effect on the date of this Prospectus,
and is subject to change by legislative or administrative action. Further, in
those states that have income tax laws, the tax treatment of the Fund and of
shareholders in respect to distributions by the Fund may differ from Federal
tax treatment. Prospective investors are advised to consult with their tax
advisers concerning the application of state and local taxes to distributions
by and investments in the Fund which may differ from the Federal income
tax consequences described above.
CALCULATION OF PERFORMANCE DATA
Total Return Calculations
The following table sets forth the average annual total return for the
Fund for the periods ended December 31, 1998, as set forth below:
PERIODS ENDED DECEMBER 31, 1998
One Year Five Years Ten Years Since Inception
Class C (10.21%) (8.89%) (4.91%) Jan. 18, 1982
3.07%
Class A (8.28%) --- --- Jan. 7, 1997
(9.02%)
Class B (9.91%) --- --- Jan. 7, 1997
(7.54%)
Class D (8.09%) --- --- Dec. 6, 1996
(2.77%)
Total Return Calculations
The Fund computes its average annual total return by determining
the average annual compounded rates of return during specified periods that
would equate the initial amount invested in a particular share class to the
ending redeemable value of such investment in the class, according to the
following formula:
Where: P(I + T) TO THE POWER OF n = ERV
Where:
T = Average annual total return
ERV = Ending redeemable value of a hypothetical $1,000 payment
made at the beginning of a period at the end of such period.
P = A hypothetical initial payment of $1,000.
n = Number of years.
The calculation of average annual total return assumes that any
dividends and distributions are reinvested immediately, rather than paid to
the investor in cash. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment and the deduction of all nonrecurring charges at the end of the
period covered by the computations. Unlike bank deposits or other
investments that pay a fixed yield or return for a stated period of time, the
return for the Fund will fluctuate from time to time and does not provide a
basis for determining future returns. Average annual total return is affected
by many factors, including the performance of the Fund's individual
securities investments, changing market conditions, the composition of the
Fund's portfolio and the Fund's operating expenses.
Performance Comparisons
Investors may compare the performance of the Fund by comparing
it to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices such
as those prepared by Dow Jones & Co., Inc'. and Standard & Poor's
Corporation and to data prepared by Lipper Analytical Services, Inc., a
widely-recognized independent service which monitors the performance of
mutual funds. Comparisons may also be made to indices or data published
in certain periodicals, including BARRON'S, BUSINESS WEEK,
CDA/WIESENBERGER, FORBES, IBBOTSON ASSOCIATES,
INSTITUTIONAL INVESTOR, MONEY MAGAZINE,
MORNINGSTAR, INC., THE NEW YORK TIMES, THE WALL
STREET JOURNAL and U.S.A. TODAY. In addition to performance
information, general information about the Fund that appears in such
publications may be included in advertisements, sales literature and reports
to shareholders. The Fund may also include in advertisements and reports
to shareholders information discussing the performance of the Adviser in
comparison to other investment advisers and to other institutions.
From time to time, the Company may include the following types
of information in advertisements, supplemental sales literature and reports
to shareholders: (1) discussions of general economic or financial principles
(such as the effects of inflation, the power of compounding and the benefits
of dollar cost averaging); (2) discussions of general economic trends; (3)
presentations of statistical data to supplement such discussions; (4)
descriptions of past or anticipated portfolio holdings for the Fund; (5)
descriptions of investment strategies for the Fund; (6) descriptions or
comparisons of various investment products, which may or may not include
the Fund; (7) comparisons of investment products (including the Fund) with
relevant market or industry indices or other appropriate benchmarks; (8)
discussions of fund rankings or ratings by recognized rating organizations;
and (9) testimonials describing the experience of persons that have invested
in the Fund. The Company may also include calculations, such as
hypothetical compounding examples, which describe hypothetical investment
results in such communications. Such performance examples will be based
on an express set of assumptions and are not indicative of the performance
of the Fund.
LIMITATION OF DIRECTOR LIABILITY
Under Minnesota law, the director of the Fund owes certain
fiduciary duties to the Fund and to its shareholders. Minnesota law provides
that a director "shall discharge the duties of the position of director in good
faith, in a manner the director reasonably believes to be in the best interest
of the corporation, and with the care an ordinarily prudent person in a like
position would exercise under similar circumstances." Fiduciary duties of
a director of a Minnesota corporation include, therefore, both a duty of
"loyalty" (to act in good faith and act in a manner reasonably believed to be
in the best interests of the corporation) and a duty of "care" (to act with the
care an ordinarily prudent person in a like position would exercise under
similar circumstances). In February, 1987, Minnesota enacted legislation
which authorizes corporations to eliminate or limit the personal liability of
a director to the corporation or its shareholders for monetary damages for
breach of the fiduciary duty of "care." Minnesota law does not, however,
permit a corporation to eliminate or limit the liability of a director (i)
for any breach of the directors' duty of "loyalty" to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for authorizing a
dividend, stock repurchase or redemption or other distribution in violation
of Minnesota law or for violation of certain provisions of Minnesota
securities laws, or (iv) for any transaction from which the director derived
an improper personal benefit. The Articles of Incorporation of the Fund
were amended on April 28, 1988, to limit the liability of directors to the
fullest extent permitted by Minnesota statutes, except to the extent that such
liability cannot be limited as provided in the 1940 Act (which Act prohibits
any provisions which purport to limit the liability of directors arising from
such directors' willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their role as directors).
Minnesota law does not eliminate the duty of "care" imposed upon
a director. It only authorizes a corporation to eliminate monetary liability
for violations of that duty. Minnesota law, further, does not permit
elimination or limitation of liability of "officers" to the corporation for
breach of their duties as officers (including the liability of directors who
serve as officers for breach of their duties as officers). Minnesota law does
not permit elimination or limitation of the availability of equitable relief,
such as injunctive or recessionary relief. Further, Minnesota law does not
permit elimination or limitation of a director's liability under the Securities
Act of 1933 or the Securities Exchange Act of 1934, and it is uncertain
whether and to what extent the elimination of monetary liability would
extend to violations of duties imposed on directors by the 1940 Act and the
rules and regulations adopted under such Act.
ADDITIONAL INFORMATION
The Fund was originally incorporated under the name "IRI Stock
Fund, Inc." The shareholders of the Fund, at a meeting held on May 10,
1989, approved an amendment to the Articles of Incorporation (the
"Articles") of the Fund providing that the name "IRI Stock Fund, Inc." be
changed to "Excel Value Fund, Inc." The shareholders of the Fund, at a
meeting held on December 20, 1994, approved an amendment to the Articles
providing that the name "Excel Value Fund, Inc." be changed to "Centurion
T.A.A. Fund, Inc." On January 15, 1999, the shareholders of the Fund
approved an amendment to the Article providing that the name "Centurion
T.A.A. Fund, Inc." be changed to "Centurion Counsel Funds, Inc." and that
all outstanding shares of the Fund be reclassified as the "Centurion Counsel
Market Neutral Fund" series.
The Fund is not required under Minnesota law to hold annual or
periodically scheduled regular meetings of shareholders. Regular and
special shareholder meetings are held only at such times and with such
frequency as required by law. Minnesota corporation law provides for the
Board of Directors to convene shareholder meetings when it deems
appropriate. In addition, if a regular meeting of shareholders has not been
held during the immediately preceding 15 months, a shareholder or
shareholders holding 3% or more of the voting shares of the Fund may
demand a regular meeting of shareholders of the Fund by written notice of
demand given to the chief executive officer or the chief financial officer of
the Fund. Within 90 days after receipt of the demand, a regular meeting of
shareholders must be held at the expense of the Fund. The Fund will provide
to shareholders who so request a regular meeting of shareholders, access to
the information and the assistance described in Secion 16 (c) of the 1940 Act.
Additionally, the 1940 Act requires shareholder votes for all amendments to
fundamental investment policies and restrictions and for all investment
advisory contracts and amendments thereto.
The Fund has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement under the Securities Act
of 1933 and the 1940 Act, with respect to the common stock offered hereby.
This Statement of Additional Information does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with rules and regulations of the Commission. The
Registration Statement may be inspected at the principal office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies thereof may be obtained from the Commission at prescribed rates.
FINANCIAL STATEMENTS
The Fund's Financial Statements for the six months ended June 30, 1999 and
for the year ended December 31, 1998 are set forth below.
CENTURION T.A.A. FUND, INC.
Portfolio Review
as of December 31, 1998
Fund Highlights Top Ten Holdings
12/31/97 12/31/98 Hershey Creamery 4.1%
Net Assets: $8,268,736 $4,935,360 Cisco Systems 2.3%
Novacare Conv. 5.5% 2.0%
NAV Per Share: United Investors REIT 2.0%
Dow Jones Index Dec 00,90,P 1.9%
Class A: $3.35 $3.04 Transmaritime, 8.5%, 2000 1.8%
Class B: $3.33 $3.00 Rock Bottom Restuarant 1.8%
Class C: $3.33 $2.99 Intel 1.8%
Class D: $3.36 $3.05 Southern Energy Homes 1.6%
United Dominion REIT 1.6%
Share Outstanding: 2,484,106 1,643,245
Portfolio Allocation by Sector
as of December 31, 1998
Graph Top Ten Sectors
Real Estate Investment Trust 13.1%
Cash and Commerial Paper 11.8%
Health 5.6%
Industrial Services 4.7%
Technology 4.7%
Consumer Products 4.5%
Natural Resources 3.7%
Indexes 3.4%
Industrial Products 3.3%
Financial Services 1.4%
TOTAL RETURN
Through December 31, 1998
(Since new management and investment objectives--January 1995)
Last Since Date of
Quarter Twelve Changeor First
Months FirstSales Sale
Class A:(1) -5.04% -8.89% -9.02% 1/07/97
Class B: -5.36% -9.91% -7.54% 1/07/97
Class C: -5.68% -10.21% -3.04% 12/31/94
Class D: -5.28% -8.09% -2.77% 12/06/96
(1) Does not include commission load of 4.75% when purchased
TOTAL RETURN
Through December 31, 1998
(Since inception--January 1982)
Last
Quarter Twelve Five Ten Since
Months Year Year Inception
Class A:(1) -5.04% - 8.89% * * -9.02%
Class B: -5.36% - 9.91% * * -7.54%
Class C: -5.68% -10.21% -8.89% -5.13% 2.07%
Class D: -5.28% - 8.09% * * -2.77%
*Shares of this Class not available for the total period
(1) Does not include commission load of 4.75% when purchased
CENTURION T.A.A. FUND, INC.
1999 Annual Report
Influences on Markets
NASDAQ value is soaring. As of February 2, 1999, the NASDAQ
stock market has traded more than a billion shares for 9 of the
last 21 sessions. Previoulsy, there had never been more than two
straight days with a billion plus shares. Moreover, there were
only nine trading days with over a billion shares traded on the
NASDAQ in all of 1998. What concerns us is that the size of the
average trade is only 1200 shares, down significantly in size
from a year ago. This means that more and more amateurs are
trading and, obviously, they are trading more often. A lot of
this can be chalked up to "net mania" (tulip.com).
The shrinking memories of investors seems almost fantasy-like.
It was only last fall that President Clinton gave warning of the
worst financial crisis World War II when talking about the Asian
meltdown, Russian default and Brazil's problems (of course, it was
an election year). The Asian economic crisis feels like it happened
last century. It seems as though the vastly accelerated pace of
internet time is operating through our collective memories, quickly
pushing bad memories to the distant corners of our mind. Generally,
collective amnesia proves fatal to those who have engaged in it.
What really has changed in a mere four months time? Russis is still
a mess; Brazil blew $41 billion of the IMF's money, and is still a
mess; the fourth largest oil company is Russia defaulted this past
month and less than two years ago, Brisith Petroleum paid over $500
million for 10% ownership of the company; Japan is still reeling with
bad news on a daily basis; one of China's largest corporations defaulted
on its debt. We are concerned with the blind faith of investors who
think the stock market is without risk. As a money manager, I feel
we are watching a disaster in the making. One can just feel that
massive sums of money will be lost.
Two-Tier Market
While there can be no denying that the market index averages
showed that 1998 was an up year, only approximately 40% of the
stocks on the New York Stock Exchange were up, which means 60%
were either unchanged or down. The S&P was up 28% in 1998. It
should be noted though that the average performance of the top
50 stocks in the S&P 500 was up in excess of 55%. At year end
the S&P top 50 was selling at 38 times estimated 1999 earnings
while the small cap index is selling at only 17 times earnings.
While your Fund has performed in line with other "market neutral
funds," it trailed the S&P 500 again in 1998.
Market Volatility
In addition to the two tier market described above, market
volatility returned to the markets in a big way last year. The
decrease in equities in August 1998 was the largest decrease since
October 1987. We anticipate that 1999 will be more of the same
market volatility; however, we believe that "value stocks" will
bring the greatest rewards.
Adapting Investment Strategy to Current Markets
Since the sell off in the third quarter, we have positioned
the Fund around core holding of value oriented equities selling
at reasonable price earning ratios and paying substantial
dividends. A large part of this holding is in real estate
investment trusts. We are also take advantage of the "tulip.com
mania" by shorting those selected stocks that are really nothing
more than an announcement by promoters of some "get rich quick"
scheme. This strategy has led us to outperform the S&P 500 for
the two months ended February 28, 1999. While two months do not
make a year, we feel that tremendous advantage can be gained by
keeping a cool head and looking at the market realistically.
Over the long run, value wins out.
Sincerely,
CENTURION T.A.A. FUND, INC.
Jack K. Heilbron
Chief Investment Officer
TABLE OF CONTENTS
INDEPENDENTS AUDITOR'S REPORT
FINANCAIL STATEMENTS:
Statement of Assets and Liabilities
Statement of Investment Securities
Statement of Covered Call Options Written
Statement of Securities Sold Short
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Centurion T.A.A. Fund, Inc.
(formerly Excel Value Fund, Inc.)
We have audited the accompanying statement of assets and liabilities of
Centurion T.A.A. Fund, Inc., including the statements of investment
securities, covered call options written, and securities sold short as
of December 31, 1998, and the related statement of operations for the
year ended, the statements of changes in net assets for each of the
two years in the period then ended, and the selected per share data and
ratios for the five years then ended. These financial statements and
per share data and ratios are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and per share data and ratios based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and per share data and ratios are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our precedures
included confirmation of securities owned as of December 31, 1998, by
correspondence with custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and selected per share data and
ratios referred to above present fairly, in all material respects, the
financial position of Centurion T.A.A. Fund, Inc., as of December 31, 1998,
and the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and
the selected per share data and ratios for the five years then ended in
conformity with generally accepted accounting principles.
Squire & Co.
/s/
February 5, 1999
Poway, California
CENTURION T.A.A. FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
ASSETS
Investments in Securities, at value,
(identified cost $4,703,475)" $ 4,218,170
Cash and Deposits 308,854
Receivables:
Dividends 7,350
Interest 14,574
Investment securities sold 235,801
Margin Deposit for Securities Sold Short 1,872,161
TOTAL ASSETS 6,656,910
LIABILITIES
Covered Call Options Written, at market value,
(premiums received $107,602) 191,200
Securities Sold Short, at market value,
(sales proceeds received $1,130,461) 1,162,849
Payables:
Accounts payable 46,695
Investment securities purchased 51,739
Fund shares redeemed 270,067
TOTAL LIABILITIES 1,722,550
NET ASSETS $4,934,360
Class A:
Net asset value and offering price per share
($7,757 divided by 2,549 shares outstanding) $ 3.04
Class B:
Net asset value and offering price per share
($431 divided by 144 shares outstanding) $ 3.00
Class C:
Net asset value and offering price per share
($4,166,397 divided by 1,391,770 shares outstanding) $ 2.99
Class D:
Net asset value and offering price per share
($759,775 divided by 248,782 shares outstanding) $ 3.05
The accompanying notes are an integral part of the financial statements.
CENTURION T.A.A. FUND, INC.
STATEMENT OF INVESTMENT SECURITIES
December 31, 1998
Shares or % of Value
Principal Net (Note 1)
Amount Description Notes Assets Security Sector
COMMON STOCKS 46.3%
CONSUMER PRODUCTS 6.0%
1,000 BEATRICE (TLC) (b) $52,000
80 HERSHEY CREAMERY 200,000
2,000 SUNGLASS HUT (a) (b) 14,000
1,200 VLASIC FOODS INTL (b) 28,500
$294,500
CONSUMER SERVICES 1.8%
16,500ROCK BOTTOM (b) 89,718
89,718
FINANCIAL SERVICES 3.4%
2,600 CAL FED LITIGATION WARRANTS (b) 32,175
12,000GOLDEN STATE LITIGATION WARRANTS (b) 54,750
2,500 COAST FEDERAL LITIGATION WARRANTS (b) 16,562
1,000 HANCOCK HOLDING 45,500
900 PIONEER GROUP (b) 17,775
166,762
HEALTH 4.5%
2,000 CARDIAC PATHWAYS (b) 8,500
4,500 CYPROS (b) 13,219
2,000 GELTEX (a),(b) 45,250
4,000 GENZYME TISSUE (b) 9,000
1,500 LIGAND PHARMACTICAL (b) 17,437
5,000 LIPOSOME CO. (a),(b) 77,187
2,500 PERRIGO (b) 22,031
3,000 SCIOS, INC (b) 31,125
223,749
INDUSTRIAL PRODUCTS 3.4%
3,300 BETHLEHEM STEEL (b) 27,637
75 BOSTON SAND & GRAVEL (b) 24,375
1,200 GLATFELTER (PH) (b) 14,775
1,000 JEWETT CAMERON TRADING (b) 5,062
27,600NORTHWEST STEEL & WIRE (b) 17,250
13,200SOUTHERN ENERGY HOMES (b) 80,850
169,949
INDUSTRIAL SERVICES 5.6%
1,000 BAKER HUGHES 17,687
300 BOUYGUES OFFSHORE 3,187
1,100 CHEMED 36,850
2,000 CORRECTIONS CORP (b) 35,000
2,000 EAGLE GEOPHYSICAL (b) 7,750
140 FARMER BROTHERS (b) 29,960
40 GREY ADVERTISING 14,560
2,140 OCTEL (b)29,692
1,500 R&B FALCON (b) 11,437
21,150TRANSCOASTAL MARINE (b) 62,789
2,500UNIFAB INTL (b) 20,000
1,000WORKFLOW MANAGEMENT (b) 6,625
275,537
INTERNATIONAL 1.8%
5,000 EMERGING MEXICO (b) $29,062
11,000LATIN AMERICA SMALLER CO 61,875
$90,937
NATURAL RESOURCES 2.6%
1,000 EURO NEVADA(CN) 16,190
1,220 FRANCO NEVADA(CN) 23,278
300 FREEPORT COPPER & GOLD 3,131
2,000 GULF CANADA RESOURCES (b) 5,875
1,110 HOMESTAKE MINING 10,129
816 NEWMONT MINING 14,739
5,000 PAN AMERICAN SILVER (b) 25,000
58,000SUNSHINE MINING (b) 29,000
127,342
REAL ESTATE 13.5%
1,000 ALICO 18,000
3,000 BODDIE NOELL PROPERTIES 31,313
5,250 CCA PRISON REALTY 71,750
2,800 ENTERTAINMENT PROP TRUST 47,600
2,600 ESSEX PROPERTY TRUST 77,350
185 HORIZON GROUP PROPERTIES 717
1,100 MERIDIAN INDUSTRIAL TRUST 25,575
1,800 MIDAMERICA APARTMENTS 40,838
3,700 PRIME RETAIL 36,306
3,100 STORAGE TRUST REALTY 72,462
7,600 UNITED DOMINION 78,375
14,400UNITED INVESTORS REIT 97,200
1,800 WASHINGTON REIT 33,413
1,200 WEEKS CORP 33,825
664,723
TECHNOLOGY 3.7%
1,500 ADVANCED MICRO DEVICES (b) 43,406
1,000 BRIGHTPOINT (b) 13,750
1,000 EXCITE (a), (b) 42,063
3,300 INTERGRAPH (a), (b) 18,975
2,100 ROGUE WAVE SOFTWARE (b) 18,375
1,600 SYSTEMS & COMPUTERS (b) 22,000
5,000 WESTELL (b) 24,375
182,944
TOTAL COMMON STOCKS (COST $2,688,330) 2,286,160
PREFERRED STOCKS 1.3%
2,900 PATINA OIL & GAS, 7.125% 51,838
400 AMAX GOLD, 3.75% 14,400
TOTAL PREFERRED STOCKS (COST $99,966) 66,238
OPTIONS AND WARRANTS 24.9%
CONSUMER PRODUCTS 3.1%
4,000 CHS ELECT, JAN, 17 1/2, PUTS 5,250
2,800 HON INDUSTRIES, FEB, 30, PUTS 18,900
15,000PIER ONE, MAR, 5, CALLS (a) 67,500
4,000 ROSS STORES, FEB, 35, PUTS 3,750
4,000 TELSAVE, JAN, 15, PUTS 4,500
1,600 UNILEVER, JAN, 50, CALLS (a) 53,200
2,000 ZALE CORP, FEB, 25, PUTS 500
153,600
CONSUMER SERVICES 0.2%
4,000 CBS, JAN, 25, PUTS 250
1,000 FAMILY GOLF, FEB, 20, PUTS 2,625
4,000 KLM, MAR, 30, PUTS 7,000
9,875
FINANCIAL SERVICES 0.9%
4,000 CITIGROUP, JAN (01), 40, PUTS(a) 23,750
4,000 ING, JAN, 55, PUTS 2,250
10,000LEHMAN BROS, APR, 25, PUTS 3,750
2,000 TCF FINANCIAL, JAN, 25, CALLS(a) 1,000
4,000 TORCHMARK, FEB, 45, PUTS 13,750
44,500
HEALTH 3.8%
3,000 BECT DICSON, MAR, 35, CALLS 25,125
2,000 BIOTIME, MAR, 10, PUTS 2,000
3,000 BMC SOFTWARE, FEB, 40, CALLS 21,562
2,500 CENTOCOR, JAN(00), 25, CALLS (a) 57,812
3,000 SCHRING PLH, JAN 00, 30, CALLS(a) 78,750
185,249
INDUSTRIAL PRODUCTS 1.2%
1,100 CORNING GLASS, JAN, 30, CALLS 16,637
2,000 AVNET, FEB, 55, PUTS 3,250
3,000 BOEING, JAN (01), 25, CALLS 37,875
57,762
INDUSTRIAL SERVICES 1.3%
4,000 BURLNGTN NORTH, JAN, 35, PUTS 5,750
4,500 SCHLMBERGER, JAN(00), 40, CALLS(a) 56,250
4,000 WASTE MANAGEMENT, JAN, 45, PUTS 3,750
65,750
INTERNATIONAL 1.0%
2,800 TEL ARGEN, JAN, 37 1/2, PUTS 26,950
2,800 TELCON ARGEN, JAN, 35, PUTS 21,350
48,300
INDEXES 2.7%
5,000 DOW JONES, DEC (00), 80, PUTS 35,625
10,000DOW JONES INDEX, DEC 00, 90, PUTS 95,625
131,250
NATURAL RESOURCES 1.2%
5,000 BARRICK GOLD, JAN(00), 15, CALLS (a) 32,811
10,000HOMESTAKE MINING, JAN(00), 10, CALLS(a) 27,500
26,900SUNSHINE MINING WARRANTS 420
60,731
TECHNOLOGY 9.6%
900 ALLIANT TECH, FEB, 60, CALLS 20,362
2,000 CISCO, JAN (01), 45, CALLS (a) 112,500
2,700 CYPRESS SEMICONDUCTOR, MAR, 10, CALLS 1,181
2,000 HEWLETT PACKARD, JAN(01), 45, CALLS(a) 59,500
2,000 INTEL, JAN (01), 60, CALLS (a) 133,500
1,800 LUCENT, JAN (00), 60, CALLS (a) 98,325
700 RAMBUS, FEB, 55, CALLS (a) 29,531
600 SPRINT, JAN, 65, CALLS 18,225
473,124
TOTAL OPTIONS AND WARRANTS (COST $1,190,428) 1,230,141
FIXED INCOME 7.3%
CORPORATE BONDS 6.0%
100 AGNICO, CONVERTIBLE, 3.5%, DUE 1-27-04 60,000
40 GOLDEN BOOK, 7.65%, DUE 9-15-02 11,800
50 NORTHWEST STEEL & WIRE, 9.5%, DUE 6-15-01 31,500
125 NOVA, CONVERTIBLE, 5.5%, DUE 1-15-00 101,093
1.006 MOUNTAIN STATES GTY MTG, 1-G, 9.4%,DUE 8-1-18 1,000
100 TRANSMARITIME, 8.5%, DUE 10-27-00 91,000
296,393
U.S. GOVERNMENT AGENCY BONDS 1.3%
23.75 FNMA G93-40 ZC, 6.5%, 12-25-23 23,631
25.954FNR 91-56M, 6.75%, 6-25-21 26,270
14.497FNMA 61G, 7.0%, 9-25-20 14,474
64,375
TOTAL FIXED INCOME (COST $449,888) 360,768
COMMERCIAL PAPERS 5.6%
275 GMAC COMMERCIAL PAPER, DUE 1-4-99 274,863
TOTAL COMMERCIAL PAPER (COST $274,863) 274,863
TOTAL INVESTEMENT IN SECURITIES 85.5% 4,218,170
COVERED CALL OPTION SECURITES -3.9% -191,200
SECURITIES SOLD SHORT -23.6% -1,162,849
NET INVESTMENT IN SECURITIES 58.0% 2,864,121
CASH 6.3% 308,854
MARGIN DEPOSIT ON SECURITIES SOLD SHORT 37.9% 1,872,161
OTHER ASSETS LESS LIABILITIES -2.2% -110,776
NET ASSETS 100.0% $4,934,360
(a) Call options have been written against this position.
(b) Non-income producing securities.
(c) Total unrealized depreciation on investments consists of gross
unrealized gains of $582,450 and gross unrealized losses of
$1,186,866.
"CENTURION T.A.A. FUND, INC."
STATEMENT OF COVERED CALL OPTIONS WRITTEN
December 31, 1998
Shares or % of Value
Principal Net (Note 1)
Amount Description Assets Security Sector
CONSUMER PRODUCTS -0.65%
- -10,000PIER ONE, JAN, 10, CALLS $ -4,375
- -5,000 PIER ONE, MAR, 7 1/2, CALLS -13,125
- -2,000 SUNGLASS HUT, JAN, 7 1/2, CALLS -1,125
- -1,600 UNILEVER, JAN, 75, CALLS -13,400
$-32,025
FINANCIAL SERVICES -0.02%
- -4,000 CITIGROUP, JAN, 40, PUTS -750
-750
HEALTH -1.26%
- -2,500 CENTOCOR, JAN, 40, CALLS -13,125
- -2,000 GELTEX, JAN, 17 1/2, CALLS -10,375
- -5,000 LIPOSOME, JAN 7 1/5, CALLS -38,750
-62,250
INDUSTRIAL SERVICES -0.07%
- -1,500 SCHLUMBERGER, MAY, 55, CALLS -3,375
-3,375
NATURAL RESOURCES -0.08%
- -3,000 BARRICK GOLD, JAN, 25, CALLS -188
- -4,000 HOMESTAKE, APR, 12 1/2, CALLS -2,500
- -4,000 HOMESTAKE, JAN(99), 10, CALLS -1,000
- -2,000 HOMESTAKE, JAN(99), 15, CALLS -125
-3,813
TECHNOLOGY -1.80%
- -500 CISCO, JAN (00), 100, CALLS -8,562
- -500 CISCO, JAN (00), 95, CALLS -9,500
- -1,000EXCITE, JAN, 55, CALLS -625
- -500 HEWLETT PACKARD, JAN, 70, CALLS -719
- -1,200INTEL, JAN, 80, CALLS -47,100
- -3,300INTERGRAPH, JAN, 7 1/2, CALLS -412
- -1,000LUCENT, JAN, 90, CALLS -20,625
- -700 RAMBUS, JAN, 105, CALLS -1,444
-88,987
TOTAL -3.87% $-191,200
"CENTURION T.A.A. FUND, INC."
STATEMENT OF SECURITIES SOLD SHORT
December 31, 1998
Shares or % of Value
Principal Net (Note 1)
Amount Description Assets Security Sector
CONSUMER PRODUCTS -4.29%
- -2,000 EXIDE, JAN, 15, PUTS $-1,125
- -5,000 EXIDE -81,250
- -2,100 JOSTENS -54,862
- -4,300 SEATTLE FILM WORKS -19,887
- -4,300 SEATTLE FILM, JAN, 5, PUTS -2,687
- -4,000 BOOKS A MILLION -52,000
$-211,811
CONSUMER SERVICES -3.66%
- -2,000 DATA TRANS NETWORK, FEB 25, PUTS -2,625
- -2,000 DATA TRANS NETWORK, JAN, 25, PUTS -875
- -4,000 DATA TRANSMISSION NETWORK -115,500
- -2,000 SYLVAN -61,000
- -2,000 SYLVAN, JAN, 25, PUTS -500
-180,500
FINANCIAL SERVICES -2.83%
- -2,000 ASTORIA FINANCIAL -91,500
- -2,000 TCF FINANCIAL -48,375
-139,875
HEALTH -1.03%
- -1,500 CURATIVE -50,250
- -3,000 SCHERING PLOUG JAN 60 C -750
-51,000
INDUSTRIAL PRODUCTS -1.49%
- -1,800YORK INTERNATIONAL -73,463
-73,463
INDEXES -1.08%
- -10,000DOW JONES INDEX, JAN, 85, PUTS -1,875
- -5,000 WEBS - MEXICO -51,250
- -5,000 DOW JONES INDEX, JAN, 80, PUTS -313
-53,438
INDUSTRIAL SERVICES -1.97%
- -2,400 INTERNATIONAL SPEEDWAY -97,200
-97,200
TECHNOLOGY -7.21%
- -3,000 APPLE COMPUTER, JAN, 32 1/2, PUTS -750
- -3,000 APPLE COMPUTER -122,813
- -4,800 CYBERIAN OUTPOST -132,000
- -2,000 CYBERCASH, JAN 15, PUTS -3,250
- -4,100 CYBERCASH -61,500
- -2,000 MULTIPLE ZONE -35,250
-355,563
TOTAL -23.57% $-1,162,849
CENTURION T.A.A. FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
INVESTMENT INCOME
Dividends $ 75,042
Interest 149,089
Total investment income 224,131
EXPENSES
Investment advisory fees $ 72,126
Distribution expenses 62,985
Registration and filing fees 9,806
Fund accounting fees 23,982
Custodian fees and expenses 40,441
Audit fees and expenses 5,400
Directors' fees and expenses 12,014
Transfer agent fees 2,830
Insurance 1,953
Other expenses 5,693
Total expenses 237,230
Fees and Expenses Absorbed by Investment Advisor -
Net expenses 237,230
Net investment income (loss) -13,099
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net realized loss on investments -538,729
Change in unrealized depreciation of investments for the year-101,802
Net loss on investments -640,531
Net Decrease in Net Assets Resulting from Operations $ -653,630
The accompanying notes are an integral part of the financial statements.
CENTURION T.A.A. FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income (loss) $-13,099 $3,312
Net realized gain (loss) on investments -538,729 -60,487
Net change in unrealized depreciation of investments -101,802 -406,598
Net increase (decrease) in net assets resulting
from operations -653,630 -463,773
Class C:
Distribution to shareholders:
Net investment income -12,145 -
CAPITAL SHARE TRANSACTIONS: (NOTE 5)
Increase from capital shares sold 365,679 1,783,727
Increase from capital shares reinvested 12,145 -
Decrease from capital shares repurchased -3,047,343 -2,744,423
Net increase (decrease) from capital share
transactions -2,669,519 -960,696
Total increase (decrease) in net assets -3,335,294 -1,424,469
NET ASSETS
Beginning of period 8,269,654 9,694,123
End of period (includes no undistributed investment
income) $4,934,360 $8,269,654
The accompanying notes are an integral part of the 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.
At the shareholder meeting on January 15, 1999, the shareholders
voted to change the name of the fund to Centurion Counsel Funds, Inc.
from Centurion T.A.A. Fund, Inc. Also, shareholders approved to
reclassify each of the Fund's outstanding Class A shares, Class B shares,
Class C shares, and Class D shares as the series entitled Centurion
Market Neutral Fund Class A shares, Class B shares, Class C shares, and
Class D shares, respectively.
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 a capital loss
carryforwards 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 December 31, 1998 the Fund had cash on deposit at one financial institution
of $308,854. 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 December 31, 1998, net assets consisted of:
Net proceeds from capital stock $ 6,622,910
Unrealized depreciation of securities (520,818)
Unrealized depreciation of covered call options written (83,598)
Excess distributions over accumulated net income (349,520)
Undistributed net realized loss from security transactions (734,614)
$ 4,934,360
NOTE 3. COVERED CALL OPTIONS WRITTEN
As of December 31, 1998, portfolio securities valued at $1,162,849 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 year
ended December 31, 1998 Centurion received investment management fees
of $72,126.
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 year ended December 31, 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
year ended December 31, 1998, no shares were sold and there were 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 Fund's
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 Fund's 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
Fund's 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 year ended
December 31, 1998, CISI received servicing and distribution fees from the
Fund of $62,985.
CISI also executes some of the Fund's portfolio transactions. During the
year ended December 31, 1998, CISI received commissions of $100,811 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 year ended December 31, 1998, CGI received transfer fees of
$2,830 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 year ended December 31, 1998,
CGI received accounting fees of $18,000 from the Fund.
The Fund pays each of its Directors who is not an employee, officer or
director of Centurion or any affiliate a $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. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities)
were $23,041,000 and $25,885,000, respectively. Net loss on investments for
the year ended December 31, 1998 was $640,531. That amount represents the net
decrease in value of investments held during the year. The components are
as follows:
Realized Unrealized Net
Long Position $ (84,887) $ 37,806 $ (47,081)
Covered Calls Written (448,500) (107,220) (552,720)
Short Position (5,342) (32,388) (37,730)
$ (538,729) $ (101,802) $ (640,531)
As of December 31, 1998, the unrealized depreciation on investments
consists of gross unrealized gains of $582,450 and gross unrealized losses
of $1,186,866.
As of December 31, 1998, securities sold short (at market value) totaled
$1,162,849. The Fund has established a segregated margin deposit to account
for cash greater or equal in value to the securities sold short. The margin
deposit is held be the Fund's custodian and totals $1,872,161 at
December 31, 1998.
NOTE 6. CAPITAL SHARE TRANSACTIONS
As of December 31, 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 years ended December 31, 1998 and 1997 were
as follows:
December 31, 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 8,864
Shares redeemed 0 0 (14) (88)
Net increase 0 $ 0 2,549 $ 8,576
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
Class C shares:
Shares sold 55,157 $188,539 385,499 $ 1,341,181
Shares issued in
reinvestment
of dividends 0 0 0 0
55,157 188,539 385,499 1,341,181
Shares redeemed (854,747) (2,722,413) (434,885) (1,494,774)
Net decrease (799,590)$(2,533,874) (49,386) $(153,593)
Class D shares:
Shares sold 54,073 $177,140 123,388 $433,381
Shares issued in
reinvestment
of dividends 3,520 12,145 0 0
57,593 189,285 123,388 433,381
Shares redeemed (98,505) (324,929) (359,188) (1,249,561)
Net decrease (40,912) $(135,644) (235,800) ($816,180)
NOTE 7. PER SHARE INFORMATION
Selected data for each share of capital stock outstanding throughout
the period is as follows:
Class A Class B
Shares Shares
Per Share Operating Performance: 1998 1997 (c) 1998 1997 (c)
"Net asset value, beginning of period" $3.35 $3.65 $ 3.33 $3.65
INCOME FROM INVESTMENT OPERATIONS
Net investment income (d) 0.02 - -0.01 -
Net gains (losses) on investments
(both realized and unrealized) (d) -0.33 -0.30 -0.32 -0.32
Total From Investment Operation -0.31 -0.30 -0.33 -0.32
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income - - - -
Distributions from capital gains - - - -
al Distributions - - - -
Net asset value, end of period $3.04 $3.35 $3.00 $3.33
TOTAL RETURN (e) -8.28% -8.47% -9.91% -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 2.67% 2.38% 3.42% 2.84%
Expenses, after waiver of fees 2.67% 2.15% 3.42% 2.60%
Net investment income -2.85% 0.64% -3.60% 0.19%
Portfolio Turnover Rate 522.88% 234.67% 522.88% 234.67%
Number of Shares Outstanding
at End of Period (000 Omitted) 3 3 0 0
Class C Shares (a)
For the years ended December 31,
Per Share Operating Performance: 1998 1997 1996 1995 1994
"Net asset value, beginning of period" $3.33 $3.51 $3.34 $3.43 $4.55
INCOME FROM INVESTMENT OPERATIONS
Net investment income (d) -0.01 -0.01 -0.03 -0.05 -0.18
Net gains (losses) on investments
(both realized and unrealized) (d) -0.33 -0.17 0.20 -0.04 -0.94
Total From Investment Operation -0.34 -0.18 0.17 -0.09 -1.12
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income - - - - -
Distributions from capital gains - - - - -
Total Distributions - - - - -
"Net asset value, end of period $2.99 $3.33 $3.51 $3.34 $3.43
TOTAL RETURN (e) -10.25% -5.13% 5.16% -2.62% -28.01%
RATIOS AND SUPPLEMENTAL DATA
"Net Assets, End of Period
($000 Omitted) $4,166 $7,288 $7,855 $4,370 $ 452
Ratios to net assets
Expenses, before waiver of fees 3.42% 3.14% 3.54% 4.82% 9.04%
Expenses, after waiver of fees 3.42% 2.91% 3.54% 3.53% 6.00%
Net investment income -3.60% -0.11% -0.43% 0.17% -4.78%
Portfolio Turnover Rate 522.88% 234.67% 129.20% 57.20% 148.21%
Number of Shares Outstanding
At End of Period (000 Omitted) 1,392 2,191 2,241 1,309 132
Class D
Shares
Per Share Operating Performance: 1998 1997 1996 (b)
Net asset value, beginning of period $3.36 $3.51 $3.46
INCOME FROM INVESTMENT OPERATIONS
Net investment income (d) 0.02 0.01 -
Net gains (losses) on investments
(both realized and unrealized) (d) (0.33) (0.16) 0.05
Total From Investment Operation (0.31) (0.15) 0.05
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income - - -
Distributions from capital gains - - -
Total Distributions - - -
Net asset value, end of period $3.05 $ 3.36 $3.51
TOTAL RETURN (e) -8.09% -4.27% -5.16%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period ($000 Omitted) $760 $972 $1,839
Ratios to net assets
Expenses, before waiver of fees 2.42% 2.20% 2.13%
Expenses, after waiver of fees 2.42% 1.97% 2.13%
Net investment income -2.60% 0.82% 0.00%
Portfolio Turnover Rate 522.38% 234.67% 129.20%
Number of Shares Outstanding
at End of Period (000 Omitted) 249 290 524
(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.
(e) Total return measures the change in value of an investment over the
periods indicated. It is not annualized. It does not include the
maximum front end sales charge or contingent deferred sales charge.
CENTURION COUNSEL FUNDS, INC.
REAL ESTATE FUND
Statement of Additional Information
This Statement of Additional Information ("SAI") is not a
prospectus, but should be read in conjunction with the Prospectus of
Centurion Counsel Funds, Inc.-Real Estate Fund (the "Fund") dated
December 2, 1999 (the "Prospectus"). A copy of the Prospectus may be
obtained by contacting the Fund's principal underwriter, Centurion
Institutional Services, Inc. ("CISI"), at 11545 W. Bernardo Court, Suite
100, San Diego, California 92127 (Telephone: (858) 673-8536).
TABLE OF CONTENTS
Page
FUND HISTORY 2
FUND INVESTMENTS AND RISKS 2
FUND MANAGEMENT 4
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES 6
INVESTMENT ADVISORY AND OTHER SERVICES 7
UNDERWRITING ARRANGEMENTS 10
BROKERAGE ALLOCATIONS AND OTHER PRACTICES 14
CAPITAL STOCK AND OTHER SECURITIES 15
RETIREMENT ACCOUNTS 21
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION 21
TAXATION OF THE FUND 22
CALCULATION OF PERFORMANCE DATA 23
LIMITATION OF DIRECTOR LIABILITY 24
ADDITIONAL INFORMATION 25
FINANCIAL STATEMENTS 25
Dated February 16, 2000
FUND HISTORY
The Fund is a multi-class series of common stock of Centurion
Counsel Funds, Inc. (the "Company"). The assets and liabilities, income
and expenses of the Company attributable to the Fund are maintained in a
separate investment portfolio and determined separately for the Fund. The
Company was incorporated on August 27, 1981 under the laws of
Minnesota. IRI Asset Management, Inc., a Minneapolis based investment
adviser, served as the adviser to the Company from its inception until
March 1988. At that time, the Company's Board of Directors ("Board")
approved Excel Advisors, Inc. as its adviser and the offices of the Company
were moved to San Diego, California. In December 1994, the Company's
shareholders approved Centurion Counsel, Inc. as the Company's Adviser
and on January 15, 1999, the shareholders and Board of the Company
approved establishment of the Fund and the Board approved the Fund's
fundamental investment objective and policies.
FUND INVESTMENTS AND RISKS
Classification. The Fund is a series of shares in an open-end,
diversified management investment company that only issues shares of
common stock. By purchasing shares in the Fund, investors are pooling
their money to acquire a diversified portfolio of securities and other assets.
Investment Strategies and Risks. The Fund's principal investment
strategies are discussed in the Prospectus. The Fund's non-
principal investment strategies are set forth below.
Illiquid Securities. While not a principal investment policy,
each of the Funds will limit its investments in illiquid
securities to no more than 5% of their net assets. Illiquid
securities generally include (i) direct placements or other
securities that are subject to legal or contractual restrictions
on resale or for which there is no readily available market
(e.g., when trading in the security is suspended or, in
the case of unlised securities, when market makers do not
exist or will not entertain bids or offers), including
many individually negotiated currency swaps and any assets
used to cover currency swaps and most privately negotiated
investments in state enterprises that have not yet
conducted an initial equity offering, (ii) over-the-counter
options and assets used to cover over-the-counter options,
and (iii) repurchase agreements not terminable within seven
days.
Because of the absence of a trading market for illiquid
securities, a Fund may not be able to realize its full
value upon sale. The Adviser will monitor the liquidity
of each Fund's investments in illiquid securities. Rule
144A securities will not be treated as "illiquid" for
purposes of this limit on investments.
The Fund may not be able to readily sell securities for which
there is no ready market. Such securities are unlike securities
that are traded in the open market and can be expected to be sold
immediately if the market is adequate. The sale price of illiquid
securities may be lower or higher than the Adviser's most recent
estimate of their fair value. Generally, less public information
is available about the issuers of such securities than about
companies whose securities are traded on an exchange. To the
extent that these securities are foreign securities, there is no
law in many of the countries in which the Fund may invest similar
to the Securities Act requiring an issuer to register the sale
of securities with a governmental agency or imposing legal
restrictions on resales of securities, either as to length
of time the securities may be held or manner of resale.
However, there may be contractual restrictions on resales
of non-publicly traded foreign securities.
Money Market Instrument Investments. From time to time a Fund may
have substantial amounts of its assets invested in money market
instruments. In general, these investmnets are in one or a
combination of two of the following that have remaining maturities
no exceeding one year: (i) obligations issued and guaranteed by
the U.S. Government, its agencies or instrumentalities; (ii)
negotiable certificates of deposit, bankers' acceptances and
fixed time deposits and other obligations of domestic banks
(including foreign branches) that have more than $1-billion in
total assets at the time of investment and are members of the
Federal Reserve System or are examined by the Comptroller of the
Currency or whose deposits are insured by the Federal Deposit
Insurance Corporation; (iii) commercial paper rated at the date
of purchase "P-1" by Moody's Investors Services, Inc. ("Moody's)
or an "A-1 or "A-1+" by S&P; (iv) certain repurchase agreements;
and (v) high-quality municipal obligations, the income from which
may or may not be exempt from federal income taxes. The Fund may
also invest in short-term U.S. dollar-dominated obligations of
foreign banks (including U.S. branches) that at the time of
investment: (i) have more than $10 billion, or the equivalent
in other currencies, in total assets; (ii) are among the 75 largest
foreign banks in the world as determined on the basis of assets;
and (iii) have branches or agencies in the United States. The
value of the money market instruments in which the Fund may
invest will vary adversely with changes in market interest rates.
Fund Policies. The Fund has the investment restrictions set forth
below which cannot be changed without approval by holders of a majority
of the outstanding voting shares of the Fund. As defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), this means the lesser
of the vote of (a) 67% of the shares of the Fund at a meeting where more
than 50% of the outstanding shares of the Fund are present in person or by
proxy or (b) more than 50% of the outstanding shares of the Fund.
To lower investment risks, the Fund, as a fundamental policy, will:
(1) have at least 75% of its total assets represented by
other than: (a) cash and cash items, (b) U.S. Government
securities, or (c) securities of any one issuer (other than the
U.S. Government and its agencies or instrumentalities)
having a value greater than 5% of the Fund's total assets
representing more than 10% of the outstanding voting
securities of such issuer;
(2) not purchase the securities of any one issuer, other
than the U.S. Government and its agencies or
instrumentalities, if as a result (a) the value of the holdings
of the Fund in the securities of such issuer exceeds 25% of
its total assets, or (b) the Fund owns more than 25% of the
outstanding securities of any one class of securities of such
issuer;
(3) not invest 25% or more of its total assets in the
securities of issuers conducting their principal business
activities in any one industry, other than the real estate
industry in which the Fund will invest at least 65% or more
of its total assets, except that this restriction does not apply
to U.S. Government securities;
(4) not purchase or sell real estate, except that it may
purchase and sell securities of companies which deal in real
estate or interests therein, including Real Estate Equity
Securities;
(5) not borrow money except for temporary or
emergency purposes or to meet redemption requests, in an
amount not exceeding 5% of the value of its total assets at
the time the borrowing is made;
(6) not pledge, hypothecate, mortgage or otherwise
encumber its assets, except to secure permitted borrowings;
(7) not make loans except through (a) the purchase of
debt obligations in accordance with its investment objectives
and policies; (b) the lending of portfolio securities; or
(c) the use of repurchase agreements;
(8) participate on a joint or joint and several basis in
any securities trading account;
(9) invest in companies for the purpose of exercising
control;
If a percentage limitation described above is adhered to at the time
of the investment by the Fund, a later increase or decrease in the percentage
resulting from any change in the value of the Fund's net assets will not
constitute a violation of the restriction.
FUND MANAGEMENT
Officers and Directors. The names, addresses and principal
occupations of directors and executive officers of the Company for the past
five years are given below:
</TABLE>
<TABLE>
FUND MANAGEMENT
<CAPTION>
Positions with the Fund and Principal
Name and (Age) Occupations During Past 5 Years Business Address
<S> <C> <C>
Carol Ann Freeland (61)<F1> Has served as a director of the Fund since 4015 Beltline Road, #200
December 20, 1994. Since 1992, Dallas, TX 75244
Executive Vice President, Collateral Equity
Management, of Dallas, Texas, a purchaser of
auto and consumer credit accounts receivables.
From 1987 to 1992, Executive Vice President,
Financial Services Exchange, Irving,
Texas, a broker-dealer industry membership
organization; from 1985 to 1986, Vice President,
Marketing, Property Co. of America,
Dallas, Texas, a real estate program sponsor.
She has served as a registered representative
of World Invest Corporation, a licensed broker-
dealer since 1994.
Richard E. Hall (73) Has served as a director of the Fund since 10 Carson Drive
December 20, 1994. Since 1989, a retired Grant's Pass, OR 97526
financial planner and securities salesman.
Served as registered representative and
director of PIM Financial Services, Inc.
("PIM"), an affiliate of Centurion Counsel,
Inc., from 1983 to 1989. Until July, 1994,
Mr. Hall owned approximately 3% of the
shares of CI Holding Group, Inc.,
Centurion Counsel, Inc.'s parent
corporation. At that time he sold his
shares for fair value to an Affiliate of
Centurion Counsel, Inc. There is no
agreement or understanding between Mr.
Hall and Centurion Counsel, Inc. or its
Affiliates regarding his service as a director
of the Fund.
Jack K. Heilbron (48)<F2> Has served as a director of the Fund since 11545 W. Bernardo Court, #100
December 20, 1994. Also served as a San Diego, CA 92127
Director of the Fund from 1989 to 1990.
He has served as portfolio manager for the
Fund since 1990. Since 1984 he has served
as Chairman and Chief Executive Officer
of C I Holding Group, Inc. and PIM.
Since 1989, he served Chairman and Chief
Investment Officer of Centurion Counsel,
Inc. For the period 1988 until 1989, he
served as an officer and director of Excel
Interfinancial Corporation, the parent of
Excel Advisors, Inc.
Russell W. Ketron (55)<F2> Has served as a director of the Fund since 1701 Novato Blvd., # 204
December 20, 1994. A Certified Financial Novato, CA 94947
Planner since 1977. Since 1979 has been a
registered principal with Protected
Investors of America, a national broker-
dealer firm. Has been an instructor at
Sierra Nevada College since 1985 and at
the College of Marin since 1991.
Douglas Werner (48) Has served as a director of the Fund since 140 Brightwood Ave.
December 20, 1994. Since 1993 has been Chula Vista, CA 92010
President of Tracks Publishing, a printing
firm located in Chula Vista, California.
Since 1980, has served as President and
owner of Werner Graphics, a graphic
design firm located in San Diego, California.
<FN>
(F1) Although this Director may be an "affiliated person" of a broker/
dealer registered under the Securities and Exchange Act of 1934, as
defined under the Investment Company Act of 1940, the Company has
determined that this person is not an "interested person" of the Fund,
Centurion Counsel, Inc. or its Affiliates, as defined under the Investment
Company Act of 1940 by reason of Rule 2a19-1 promulgated thereunder.
(F2) This Director is an "interested person" of Centurion Counsel, Inc.,
the Company, or a registered broker/dealer, as defined under the Investment
Company Act of 1940, as amended.
</FN>
</TABLE>
Fund Executive and Director Compensation
The following Table sets forth information for each of the directors of the
Fund, all members of any advisory board of the Fund, and for each of the three
highest paid executive officers or any affiliated person of the Fund whose
aggregate compensation from the Fund for the Fund's year ended
December 31, 1998.
COMPENSATION TABLE
<TABLE>
COMPENSATION TABLE
<CAPTION>
(1) (2) (3) (4) (5)
Total
Pension or Compensation
Retirement Estimated From
Aggregate Benefits Annual Registrant
Name of Compensation Accrued As Benefits and Fund
Person, From Part of Fund Upon Complex Paid
Position Registrant Expenses Retirement to Directors
<S> <C> <C> <C> <C>
Jack K. Heilbron, -0-** -0- -0- -0-
Chairman of the
Board
Carol Ann Freeland, $1800* -0- -0- $1800*
Director
Richard E. Hall, $1800* -0- -0- $1800*
Director
Russell W. Ketron, $1800* -0- -0- $1800*
Director
Douglas Werner, $1400* -0- -0- $1400*
Director
* Directors are paid $400 per meeting. There were four scheduled
quarterly meetings for 1998.
** Mr. Heilbron receives no compensation, including no director fees,
for his service to the Fund either directly or indirectly from the Fund
or any other investment company in a Fund Complex which includes the Fund,
the Centurion Counsel Market Neutral Fund and the Centurion Counsel Real
Estate Fund.
The Company's Board does not have a standing audit or nominating
committee or committees performing similar functions. The Company pays
no compensation to any of its officers and directors, except for a $200 per
year retainer and a fee of $400 for each meeting attended (other than
telephonically) by each director not affiliated with Centurion Counsel and
reimburses such nonaffiliated directors for their travel expenses to attend
directors' meetings. The Board held a total of four (4) regular meetings
during its last fiscal year.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of the date of this SAI, the Fund had outstanding 10 shares of
each Class of shares, all of which were owned by the Adviser.
As of March 9, 1999, to the knowledge of management, no one
person or persons could control the Company through the exercise of voting
rights. As of March 9, 1999, to the knowledge of management, no person
owned beneficially more than 5% of the Company's outstanding shares. The
following directors or nominees for the position of director or officers, as
of March 9, 1999, beneficially owned shares of the Company.
Number % of Total
of Shares Outstanding Shares*
Richard E. Hall 22,980 1.72%
Jack K. Heilbron 3,005 .22%
Russell W. Ketron 6,626 .49%
Doug Werner 521 .04%
* All classes on a combined basis.
INVESTMENT ADVISORY AND OTHER SERVICES
General
Centurion Counsel, Inc. ("Centurion Counsel") is the Fund's
Adviser. Centurion Counsel was incorporated in the State of California in
1984 and has since that time been an SEC-registered investment adviser.
Centurion Counsel has acted as the Company's investment adviser since
January 1, 1995 and investment adviser to the Fund since its inception. In
addition to its services to the Company, Centurion Counsel's primary
business activities include investment consulting to individuals, corporations
and institutions and the providing of investment banking services and other
activities related to the investment and securities industries.
Centurion Group, Inc. ("CGI") was incorporated in the State of
California in 1984. CGI has acted as the Company's accounting services
agent, transfer agent, dividend disbursing agent and administrative services
agent for its Market Neutral Fund since January 1, 1995.
Centurion Institutional Services, Inc. ("CISI") was incorporated in
the State of California in 1991. CISI has served as the Company's principal
underwriter for its Market Neutral Fund shares (Distributor) since January
1, 1995. CISI has been an SEC-registered broker-dealer since July 1991.
Since then, CISI has been engaged primarily in the business of clearing
securities trades for its corporate and institutional clients.
Centurion Counsel, CGI and CISI are wholly owned subsidiaries of
C I Holding Group, Inc. ("C I Holding"), a California corporation that is
engaged through its subsidiaries in various aspects of the financial services
industry. Approximately 40% of C I Holding's common shares, on a fully
diluted basis, are owned by officers and directors of C I Holding.
Investment Advisory Agreement
The Company has contracted with its Adviser, Centurion Counsel,
to provide investment advice and management services to the Fund pursuant
to the Investment Advisory Agreement (the "Adviser Agreement"). The
Adviser Agreement continues from year to year only if approved by the
Board (including a majority of disinterested directors as described above).
The Adviser Agreement may be terminated by either the Company or
Centurion Counsel on 60 days' written notice to the other, and terminates
automatically in certain situations. The Adviser Agreement was approved
by the Company's shareholders on December 20, 1994 and was last
approved by the Board (including a majority of the directors who are not
parties to the agreement, or interested persons of any such party, other than
as directors of the Company) on February 5, 1999. On June 30, 1999
Centurion Counsel, as the only shareholder of each class of the Fund's
shares, approved the Adviser Agreement.
Under the Adviser Agreement, Centurion Counsel has the sole and
exclusive responsibility for the management of the Fund's portfolio and the
making and execution of all investment decisions for the Fund subject to the
objectives and investment restrictions of the Fund and subject to the
supervision of the Board. Under the Adviser Agreement, Centurion
Counsel also furnishes, at its own expense, office facilities, equipment and
personnel for servicing the investments of the Fund. Centurion Counsel has
agreed to arrange for the Company's officers or employees to serve without
compensation from the Fund if duly elected to such positions by the
shareholders or directors of the Fund.
As compensation for its services, Centurion Counsel is entitled to
a fee, payable within five days after the end of each fiscal quarter based on
the Fund's average daily net assets as follows:
1.00% of the first $200-million of the Fund's average daily net
assets
0.85% of average daily net assets between $200-million and $400-
million
0.80% of average daily net assets between $400-million and $600-
million
0.75% of average daily net assets between $600-million and $800-
million
0.60% of average daily net assets between $800-million and $1-
billion
0.50% of average daily net assets over $1-billion.
The percentage fee is calculated on the daily value of the Fund's net
assets at the close of each business day. The foregoing fees are higher than
fees paid by most other investment companies.
The Fund bears costs and expenses of its operation, other than those
specifically required to be paid by Centurion Counsel under the Adviser
Agreement. These expenses include, among others, interest, taxes,
brokerage fees and commissions, fees of the directors who are not full-time
employees of Centurion Counsel, CGI, CISI or any of their affiliates,
expenses of directors' and shareholders' meetings, including the cost of
printing and mailing proxies, expenses of insurance premiums for fidelity
and other coverage, expenses of repurchase and redemption of shares,
expenses of issue and sale of shares (to the extent not borne by CISI under
its Distribution Agreement with the Fund), expenses of printing and mailing
stock certificates representing shares of the Fund, association membership
dues, charges of custodians, transfer agents, dividend disbursing agents and
accounting services agents, and bookkeeping, auditing and legal expenses.
The Fund also pays the fees and bears the expense of registering and
maintaining the registration of the Fund and its shares with the Securities and
Exchange Commission, the expense of registering or qualifying its shares
under state or other securities laws and the expense of preparing and mailing
prospectuses and reports to existing Fund shareholders.
Under the Adviser Agreement, Centurion Counsel must reimburse
the Fund, in an amount not in excess of the adviser fee otherwise payable by
the Fund to the Adviser for such period, if and to the extent that the
aggregate operating expenses of the Fund (including such fee but excluding
interest expense, Rule 12b-1 Plan of Distribution fees, taxes, and brokerage
fees and commissions) are in excess of 2.625% of the first $10 million of
average net assets of the Fund, plus 1-1/2% of the next $20 million of
average net assets, plus 1-1/4% of average net assets above $30 million.
Centurion Counsel has agreed to waive such reimbursements for any fiscal
year of the Fund in which this Adviser Agreement is last effective, subject
to its right to end this obligation at the end of any Fund fiscal year.
The Fund did not pay advisory fees to Centurion Counsel before
1999.
Accounting Services Agreement
CGI acts as the Fund's accounting services agent pursuant to the
Accounting Services Agreement (the "Accounting Agreement"). The
Accounting Agreement was approved by the Board (including a majority of
the directors who are not parties to the Agreement, or interested persons of
any such party, other than as directors of the Company), and the
shareholders of the Company approved such Agreement on December 20,
1994. On June 30, 1999 Centurion Counsel, as the only shareholder
of each class of the Fund's shares, approved the Accounting Agreement.
The Accounting Agreement continues from year to year only if the Board
approves it in the same manner they approve the Adviser Agreement. The
Accounting Services Agreement may be terminated by either the Company
or CGI on 60 days' written notice to the other, and the Agreement
terminates automatically in certain situations.
Under the Accounting Agreement, the Fund pays CGI a monthly fee
equal on a annual basis to 0.15% of average net assets, provided that the
Fund has agreed to pay an annual minimum accounting services fee of
$18,000. The Fund did not pay CGI for accounting service fees before
1999. CGI maintains the books, accounts, records, journals and other
records of original entry relating to the business of the Fund and performs
certain daily functions in connection therewith.
Administration Agreement
CGI acts as transfer agent, dividend disbursing agent and
administrative services agent for the Company pursuant to the
Administration Agreement effective January 1, 1995. Pursuant to this
agreement, CGI will maintain the Fund's stock registers, process requested
account registration changes, issue stock certificates, record redemptions and
administer the payments of dividends by the Fund.
For its services under this agreement, the Fund will pay CGI a
separate fee per service provided as follows: $0.75 per account maintenance
per month; $7.50 per dealer confirmation; $10.00 per wire transfer; and
$50.00 per 1,000 customer statements per month. In addition, all out of
pocket expenses incurred by CGI in connection with the rendering of
services pursuant to the Administration Agreement will be reimbursed to
CGI by the Fund. Such expenses will include, without limitation, postage,
stationery, telephone service and any other expense involved in the handling
of correspondence. These fees are in addition to the fees paid by the Fund
to Centurion Counsel pursuant to the Adviser Agreement. The Fund did not
pay CGI for administrative services before 1999.
The Administration Agreement was approved by the Board
(including a majority of the directors who are not parties to the agreement,
or interested persons of any such party, other than as directors of the Fund)
and by the shareholders of the Company on December 20, 1994. On
June 30, 1999 Centurion Counsel, as the only shareholder of each
class of the Fund's shares, approved the Adviser Agreement. The
agreement continues from year to year only if the Company's directors
approve them in the same manner as they approve the Investment Advisory
Agreement. The Administration Agreement may be terminated by either the
Company or by CGI on 60 days' written notice to the other, and the
Agreement terminates automatically in certain situations.
UNDERWRITING ARRANGEMENTS
CISI, as the Fund's Distributor or principal underwriter, sells the
Fund's shares under the Distribution Agreement with the Company, as
amended, dated January 1, 1995 and effective November 6, 1996. Under
the Distribution Agreement, CISI bears the costs of all advertising and
promotion expenses in connection with the distribution of the Fund's shares
(except those expenses assumed by the Fund's investment adviser). The
Distribution Agreement was last approved by the Board (including a
majority of the directors who are not parties to the agreement, or interested
persons of any such party, other than as directors of the Company) on
February 5, 1999. The Distribution Agreement may be terminated by either
CISI or the Fund on 60 days' written notice to the other, and terminates
automatically in certain situations. No sales commissions were received by
the Fund's principal underwriter for sales of the Fund's shares before
January 1999.
Under the Distribution Agreement, CISI agrees to indemnify the
Fund against all costs of litigation and other legal proceedings and against
any liability incurred by or imposed on the Fund in any way arising out of
or in connection with the sale or distribution of the Fund's shares, except to
the extent that such liability is the result of information which was
obtainable by CISI only from persons affiliated with the Fund but not with CISI.
As compensation for its services, CISI receives a front-end
commission in the case of Class A shares, a contingent deferred sales charge
("CDSC") in the case of Class B shares and 12b-1 fees in the case of Class
A shares, Class B shares and Class C shares as described below.
Class A Shares
The Distributor receives a sales charge equal to 4.75% of the gross
price of Class A shares it places which it may reallow to dealers through
whom purchases are made in an amount equal to 4.0% of the amount
invested. Dealers which are reallowed ninety percent (90%) or more of the
sales charges may be deemed to be underwriters for purposes of the
Securities Act of 1933. The Distributor may also pay broker-dealers,
registered investment advisers, financial institutions (which may include
banks) and other financial industry professionals that provide services to
facilitate transactions in shares of the Fund for their clients a transaction
fee up to the level of such reallowance to dealers. Such financial
institutions, other industry professionals and dealers are referred to as
"Service Organizations." In addition, the Distributor may, from time to
time, pay or allow additional reallowances or promotional incentives, in the
form of cash or other compensation, to dealers that sell shares of the Fund.
Banks are currently prohibited under the Glass-Steagall Act from
providing certain underwriting or distribution services. If banking firms
were further prohibited from acting in any capacity or providing any of the
described services, the Distributor would consider what action, if any, would
be appropriate. The Distributor does not believe that termination of a
relationship with a bank would result in any material adverse consequences
to the Fund. State securities laws regarding registration of banks and other
financial institutions may differ from the interpretations of federal law
expressed herein, and banks and other financial institutions may be required
to register as dealers pursuant to certain state laws.
Class B Shares
Class B shares which are redeemed within five years of purchase
are subject to a CDSC at the rates set forth in the following table.
Contingent Deferred Sales Charge Table
Contingent Deferred Sales Charge
as a Percentage of
Year Since Purchase Dollar Amount Subject to Charge
First 4%
Second 4%
Third 3%
Fourth 2.5%
Fifth 1.5%
Sixth None
The CDSC is assessed on an amount equal to the lesser of the then
current market value or the cost of the shares being redeemed. No CDSC
is imposed on increases in net asset value above the initial purchase price or
on Class B shares derived from reinvestment of dividends on capital gains
distributions, other than Rule 12b-1 fees. The amount of the CDSC, if any,
varies depending on the number of years from the time of payment for the
purchase of Class B shares until the time of redemption of such shares.
Solely for purposes of determining the number of years from the time of any
payment for the purchase of shares, all payments during a month are
aggregated and deemed to have been made on the last day of the month.
In determining whether a CDSC is applicable to a redemption, the
calculation is determined in the manner that results in the lowest possible
rate being charged. Therefore, it is assumed that the redemption is first of
any shares in the shareholder's Fund account that are not subject to a CDSC,
second, of shares held for over five years or shares acquired pursuant to
reinvestment of dividends or distributions and third, of shares held longest
during the five-year period. As an example, assume an investor purchased
100 shares at $10 per share (at a cost of $1,000) and in the second year after
purchase, the net asset value per share is $12 and, during such time, the
investor has acquired 10 additional shares through reinvestment of dividends.
If at such time the investor makes his or her first redemption of 50 shares
(proceeds of $600), 10 shares will not be subject to charge because of
dividend reinvestment. With respect to the remaining 40 shares, the charge
is applied only to the original cost of $10 per share and not to the increase
in net asset value of $2 per share. Therefore, $400 of the $600 redemption
proceeds is subject to a deferred sales charge at a rate of 4% (the applicable
rate in the second year after purchase).
The CDSC is waived on redemptions of Class B shares (i) following
the death or disability (as defined in the Code) of a shareholder, (ii) in
connection with certain distributions from an IRA or other retirement plan,
(iii) pursuant to the Fund's systematic withdrawal plan but limited to 12%
annually of the initial value of the account, and (iv) effected pursuant to the
right of the Fund to liquidate a shareholder's account as described herein
under "Redemption of Shares".
A commission or transaction fee of 4% of the purchase amount will
be paid by the Distributor to broker-dealers and other Service Organizations
at the time of purchase. Additionally, the Distributor may, from time to
time, pay additional promotional incentives in the form of cash or other
compensation, to Service Organizations that sell Class B shares of the Fund.
Class C Shares
Class C shares are offered at the next determined net asset value.
Other than Rule 12b-1 fees, no front-end, deferred, or other sales charge
is charged with respect to Class C shares.
Class D Shares
The Class D shares are sold at net asset value only to persons who
are Adviser Professionals or Eligible Employees, as defined under
"CAPITAL STOCK AND OTHER SECURITIES" below. No front-end,
deferred or other sales charge or Rule 12b-1 fees will be charged by the
Fund with respect to the Class D shares.
12b-1 Fees
For each class of its shares, the Fund has adopted a Plan of
Distribution pursuant to Rule l2b-1 under the Investment Company Act of
1940. The Plan of Distribution was adopted by the Fund on June 30,
1999 upon the approval of Centurion Counsel, the only shareholder of each
Class of the Fund's shares. The Plan of Distribution authorizes the Fund to
pay Rule 12b-1 fees. As compensation for share distribution-related services
it performs under its Distribution Agreement with the Fund, CISI receives
a fee from the Fund equal to 0.75 of 1% per year of the Fund's average
daily net assets attributable to the Class B and Class C shares. In addition,
CISI will receive as compensation for shareholder services it performs under
its Shareholder Services Agent Agreement with the Fund a fee from the
Fund equal to 0.25 of 1% of the Fund's average daily net assets attributable
to the Class A, Class B and Class C shares. These services include
receiving and responding to shareholder inquires and requests for
information regarding the Fund. CISI may, at its own expense, may provide
additional compensation to dealers in connection with sales of Fund shares
and servicing of Fund shareholders.
These 12b-1 fees are to compensate CISI and the participating
dealers for their sales of the Fund's shares, based on a percentage of the net
assets of the Fund relating to the respective class for which such
broker-dealers or registered representatives are responsible by reason of
their sale of shares of the respective class, and to pay other advertising and
promotional expenses in connection with the distribution of the shares of the
respective class. CISI, at its expense, may also provide additional
compensation to dealers in connection with sales of such shares of the Fund.
Such compensation may include financial assistance to dealers in connection
with conferences, sales or training programs for their employees, seminars
for the public, advertising campaigns regarding the Fund and/or
dealer-sponsored special events. In some instances, these incentives may be
made available only to certain dealers whose representatives have sold or are
expected to sell significant amounts of such shares. Such compensation may
include payment for travel expenses, including lodging, incurred in
connection with trips taken by invited registered representatives and
members of their families to locations within or outside of the United States
for meetings or seminars of a business nature. Dealers may not use sales of
the Fund's shares to qualify for the incentives to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc.
The Fund's Plans of Distribution provide for the indirect payment
of distribution expenses by the Fund only as described above. The
advertising and/or promotional expenses that may be paid for pursuant to the
Fund's Plan of Distribution include, by way of example but not limitation,
the costs of printing the prospectus, statement of additional information and
shareholder reports provided to prospective investors; the preparation and
distribution of sales literature; advertising of any type; allocated overhead
and other expenses of the principal underwriter related to the distribution of
the Fund's shares; and payments to and expenses of, officers, employees or
representatives of the principal underwriter, of other broker-dealers, banks
or other financial institutions, and of any other persons who provide support
services in connection with the distribution of the Fund's shares, including
travel, entertainment, and telephone expenses.
Indirect or reimbursable expenses under the Plan do not include
interest paid on amounts borrowed by Centurion Counsel to make the
payments for which reimbursement is made. Also, there is no provision in
the Plan of Distribution limiting payments to the amounts of actual
distribution expenses or actual shareholder servicing expenses expended by
CISI. If the Plan of Distribution were terminated or not continued, the Fund
would not be contractually obligated to pay CISI for any expenses not
previously reimbursed by the Fund. However, in the sole discretion of the
Board, the Fund could determine to reimburse all or a portion of any such
amounts.
Each of the Fund's Plans of Distribution contains, among other
things, provisions complying with the requirements of Rule l2b-1. Rule
l2b-1(b) provides that any payments made by the Fund in connection with the
distribution of its shares may only be made pursuant to a written plan
describing all material aspects of the proposed financing of distribution and
also requires that all agreements with any person relating to implementation
of the plan must be in writing. In addition, Rule l2b-1(b)(1) requires that
such plan be approved by a vote of at least a majority of the Fund's
outstanding shares, and Rule l2b-1(b)(2) requires that such plan, together
with any related agreements, be approved by a vote of the board of directors
of the Fund and of the directors of the Fund who are not interested persons
of the Fund and have no direct or indirect financial interest in the operation
of the plan or in any agreements related to the plan, cast in person at a
meeting called for the purpose of voting on such plan or agreements. Rule
l2b-1(b)(3) requires that the plan or agreement provide, in substance: (1)
that it shall continue in effect for a period of more than one year from the
date of its execution or adoption only so long as such continuance is
specifically approved at least annually in the manner described in paragraph
(b)(2) of Rule l2b-1; (2) that any person authorized to direct the disposition
of monies paid or payable by the Fund pursuant to the plan or any related
agreement shall provide to the Board, and the Board shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made; and (3) in the case of a plan, that it
may be terminated at any time by vote of a majority of the members of the
directors who are not interested persons of the Fund and have no direct or
indirect financial interest in the operation of the plan or in any agreements
related to the plan or by vote of a majority of the outstanding shares of the
Company. Rule l2b-1(b)(4) requires that such plans may not be amended to
increase materially the amount to be spent for distribution without
shareholder approval and that all material amendments of the plan must be
approved in the manner described in paragraph (b)(2) of Rule l2b-1. Rule
l2b-1(c) provides that the Fund may rely upon Rule l2b-1(b) only if selection
and nomination of the Company's disinterested directors are committed to
the discretion of such disinterested directors. Rule l2b-1(e) provides that
the Fund may implement or continue a plan pursuant to Rule l2b-1(b) only if the
directors who vote to approve such implementation or continuation conclude,
in the exercise of reasonable business judgment and in light of their fiduciary
duties under state law, and under Sections 36(a) and (b) of the 1940 Act, that
there is a reasonable likelihood that the plan will benefit the Fund and its
shareholders.
CISI did not receive any distribution services fees in connection
with its sale of the Fund's shares before 1999.
Custodian; General Counsel; Auditors
Firstar Bank, NA, 425 Walnut Street, Cincinnati, Ohio, 45202-1118
acts as custodian of the Fund's assets. The custodian may, in conformity
with applicable rules of the Securities and Exchange Commission, enter into
sub-custodial arrangements with eligible foreign sub-custodians for the
custody of any foreign securities held by the Fund.
Squire & Company acts as the Fund's independent public
accountants.
Rushall & McGeever acts as the general counsel for the Fund.
BROKERAGE ALLOCATIONS AND OTHER PRACTICES
In effecting securities and commodities transactions, the Fund's
investment adviser seeks to obtain the best price and execution of orders.
Commission rates, being a component of price, are considered together with
other relevant factors.
The Fund expects to use affiliates of Centurion Counsel, including
CISI, as brokers of the Fund's portfolio securities but only if the provisions
of Section 17(e) of the 1940 Act (and the rules thereunder) are complied
with and only when, in the judgment of Centurion Counsel, the firm will be
able to obtain a price and execution at least as favorable as other qualified
brokers, and the transactions effected by the firm, including the frequency
thereof, the receipt of commissions payable in connection therewith and the
selection of the firm, are not unfair or unreasonable to the shareholders of
the Fund.
In determining the commissions to be paid to an affiliated
broker-dealer, it is the policy of the Fund that such commissions will, in the
judgment of the Fund's investment adviser, be both at least as favorable as
those which would be charged by other qualified brokers having comparable
execution capability and at least as favorable as commissions
contemporaneously charged by such broker-dealer on comparable
transactions for its most favored unaffiliated customers, except for any
customers of such broker-dealer considered by a majority of the disinterested
directors (as described above) not to be comparable to the Fund. While the
Fund does not deem it practicable and in its best interest to solicit
competitive bids for commission rates on the transaction, consideration will
regularly be given to posted commission rates as well as to other information
concerning the level of commissions charged on comparable transactions by
other qualified brokers.
When selecting brokers, business may be placed with broker-dealers
who furnish investment research services to Centurion Counsel or its
affiliates. Such research services include advice, both directly and in
writing, as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities, as well as analyses and reports concerning
issues, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts. This allows these persons to supplement
their own investment research activities and enables them to obtain the views
and information of individuals and research staffs of many different
securities research firms prior to making investment decisions for the Fund.
To the extent such commissions are directed to these other broker-dealers
who furnish research services, Centurion Counsel receives a benefit, not
capable of evaluation in dollar amounts, without providing any direct
monetary benefit to the Fund from these commissions. Centurion Counsel
has not entered into any formal or informal agreements with any
broker-dealers (except as noted above), and it does not maintain any
"formula" which must be followed in connection with the placement of the
Fund's portfolio transactions in exchange for research services, except as
noted below. However, Centurion Counsel may maintain an informal list
of broker-dealers which it may use as a general guide in the placement of the
Fund's business, in order to encourage certain broker-dealers to provide it
with research services which it anticipates will be useful to it. Because the
list, if any, is merely a general guide which is to be used only after the
primary criteria for the selection of broker-dealers (discussed above) have
been met, substantial deviations from the list are permissible and may be
expected to occur. Centurion Counsel will authorize the Fund to pay an
amount of commission for effecting a securities transaction in excess of the
amount of commission another broker-dealer would have charged only if it
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by the
broker-dealer viewed in terms of either that particular transaction or its
overall responsibilities with respect to the accounts as to which it exercises
investment discretion. Generally, the Fund pays higher than the lowest
commission rates available.
Subject to the policies set forth in the preceding paragraph and such
other policies as the Fund's directors may determine, Centurion Counsel
may consider sales of shares of the Fund and of other funds it may advise as
a factor in the selection of broker-dealers to execute the Fund's portfolio
transactions.
As the Fund was established in 1999, CISI or its affiliated brokers
did not receive compensation in connection with Fund activities prior to
1999.
CAPITAL STOCK AND OTHER SECURITIES
General
The Articles of Incorporation of the Fund authorize the Fund to
issue Class A, Class B, Class C and Class D shares pursuant to the Fund's
Multiple Class Share Plan (this "Plan"), which was last amended by the
Board and approved by a majority vote of the Company's shareholders on
January 15, 1999.
Under the Plan, the Fund is authorized to issue the Class A shares,
the Class B. shares, the Class C Shares, and the Class D Shares in
accordance with the following. The Fund's Multiple Pricing System permits
an investor to choose the method of purchasing shares. This is most
beneficial for that investor's circumstances, including the amount to be
purchased and the length of time the investor expects to hold the shares.
Class A Shares
Class A shares are sold at net asset value per share plus a maximum
initial sales charge ("front-end sales charge") set from time to time by the
Board. Initially, the front-end charge on the Class A Shares shall be 4.75%
of the offering price of the Class A Shares. Class A shares are subject to an
ongoing service fee ("shareholder services fee") at an annual rate of up to
0.25% of the Fund's aggregate average daily net assets attributable to the
Class A shares.
Class B Shares
Class B shares are sold at net asset value per share and are subject
to a maximum contingent deferred sales charge if they are redeemed within
five years of purchase. Initially, the maximum deferred sales charge shall
be 4% of the redemption proceeds during the first year and second year,
declining each year thereafter to 0% after the fifth year. Class B shares are
subject to an ongoing service fee at an annual rate of up to 0.25% of the
Fund's aggregate average daily net assets attributable to the Class B shares
and an ongoing distribution fee at an annual rate of up to 0.75% of the
Fund's aggregate average daily net assets attributable to the Class B shares.
Class B shares enjoy the benefit of permitting all of the investor's dollars
to work from the time the investment is made. The ongoing distribution fee
paid by Class B shares will cause such shares to have a higher expense ratio
and to pay lower dividends than those related to Class A shares. Class B
shares will automatically convert to Class A shares eight years after the end
of the calendar month in which the shareholder's order to purchase was
accepted.
Class C Shares
Class C shares are sold at net asset value per share and are not
subject to a front-end or a deferred sales charge. Class C shares are subject
to an ongoing service fee at an annual rate of up to 0.25% of the Fund's
aggregate average daily net assets attributable to the Class C shares and an
ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class C shares. Class
C shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by
Class C shares will cause such shares to have a higher expense ratio and to
pay lower dividends than those related to Class A shares.
Class D Shares
Class D shares are sold at net asset value only to persons who
qualify as an Adviser Professional, Eligible Employee, or Eligible Account.
No front-end charge, deferred sales charge, service fees or distribution fees
will be paid by the Fund with respect to the Class D shares. The Adviser
Professionals shall mean investment advisers, trust companies and bank trust
departments exercising discretionary investment authority with respect to the
money to be invested in the Fund. Eligible Employees shall mean (a)
current or retired directors of the Funds, current or retired employees of the
Fund's adviser, and any of its affiliated companies, spouses, minor children
and grandchildren of the above persons, and parents of employees and
parents of spouses of employees of the Fund's adviser and any of its
affiliated companies; (b) employees and registered representatives of Adviser
professionals, banks and other financial institutions with selling group
agreements with the Fund's principal underwriter, employees of such
persons, and spouses and minor children of any such persons and (c) any
trust, pension, profit sharing or other benefit plan for such persons. Shares
are also offered at net asset value to Eligible Accounts. Eligible Accounts
are accounts opened for shareholders by dealers where the amounts invested
represent the redemption proceeds from investment companies distributed
by an entity other than the Fund's principal underwriter if such redemption
has occurred no more than 15 days prior to the purchase of the Class D
Shares, and the shareholder paid an initial sales charge and was not subject
to a deferred sales charge on the redeemed account. Class D shares are
offered at net asset value to such persons because of anticipated economies
in sales efforts and sales-related expenses.
Conversion Feature
Class B shares will automatically convert to Class A shares eight
years after the end of the calendar month in which they were purchased and,
a Class A share, will no longer be subject to the distribution fee. Such
conversion will be on the basis of the relative net asset value per share,
without the imposition of any sales load, fee or other charge. The purpose
of the conversion feature is to relieve the holders of Class B shares that have
been outstanding for a period of time sufficient for the Distributor to have
been substantially compensated for distribution expenses related to the Class
B shares from most of the burden of the ongoing distribution fee.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of an opinion of counsel to the effect that (i) the
assessment of the distribution fee and any higher transfer agency costs with
respect to Class B shares does not result in the Fund's dividends or
distributions constituting "preferential dividends" under the Internal Revenue
Code of 1986, as amended (the "Code"), and (ii) the conversion of shares
does not constitute a taxable event under federal income tax law. The
conversions of Class B shares may be suspended if such an opinion is no
longer available. In that event, no further conversions of Class B shares
would occur, and such Class B shares might continue to be subject to the
distribution fee for an indefinite period which may extend beyond the period
ending eight years after the end of the calendar month in which the
shareholder's order to purchase was accepted.
Dividends
Dividends paid by the Fund with respect to Class A, Class B, Class
C and Class D shares will be calculated in the same manner at the same time
on the same day, except that the ongoing service fees, distribution fees
and/or any incremental transfer agency costs relating to Class A, Class B or
Class C shares will be borne by the respective class. Shares of the Fund
may be exchanged, subject to certain limitations, for shares of the same class
or other mutual funds advised by the Adviser. See "Shareholder
Services/Transfers - Exchange Privilege."
For the purpose of conversion to Class A, Class B shares purchased
through the reinvestment of dividends and distributions paid on Class B
shares in a shareholder's Fund account will be considered to be held in a
separate sub-account. Each time any Class B shares in the shareholder's
Fund account (other than those in the sub-account) convert to Class A, an
equal pro rata portion of the Class B shares in the sub-account will also
convert to Class A.
Income and Expenses
The income and expenses of the Fund must be allocated among each
class of shares as follow:
Separate Distribution Expenses. Each class at all times maintains
a separate arrangement for shareholder services or the distribution services
or both, and pays all of the expenses of that arrangement ("distribution
expenses").
Allocation of Income, Realized and Unrealized Capital Gains and
Losses, and Expenses. Each class is allocated its pro-rata share of the
Fund's income, realized and unrealized capital gains and losses, and
expenses not allocated to a particular class on the basis of the net asset
value of that class in relation to the net asset value of the Company. In
the future, the Board may require one or more classes to pay a different
share of expenses (other than advisory or custodial fees or other expenses
related to the management of the Fund's assets) if such expenses are actually
incurred in a different amount by a class, or if a class receives services of
a different kind or to a different degree than other classes, provided any
payments made pursuant to the foregoing shall be made pursuant to a written
plan setting forth the separate arrangement and expense allocation of each
class, and any related conversion features or exchange privileges.
Advisory Fees. Each class of shares pays the same advisory fee.
Waiver of Expenses. Expenses may be waived or reimbursed by
the Adviser, Distributor, or any other provider of services to the Fund.
Income, Capital Gains and Losses. Income, realized and
unrealized capital gains and losses, and expenses of the Fund not allocated
to a particular class pursuant to the foregoing:
(1) Except as permitted in paragraph (ii)
below, shall be allocated to each class on the basis of the
net asset value of that class in relation to the net asset value
of the Fund;
(2) If the Fund operates pursuant to Rule 270.2a-7 under
the 1940 Act (including the provision allowing the calculation
of net assets on an amortized cost basis), or declares
distributions of net investment income daily and maintains
the same net asset value per share in each class, may be
allocated:
(aa) To each Share without regard to
class, provided that the Fund has received
undertakings from its adviser, principal
underwriter or any other provider of services to
the Fund, agreeing to waive or reimburse the Fund
for payments to such service provider by one or
more classes, as allocated under paragraph (i)
above, to the extent necessary to assure that all
classes of the Fund maintain the same net asset
value per share; or
(bb) On the basis of relative net assets
(settled shares). For purposes of this subsection
(e), "relative net assets (settled shares)" are net
assets valued in accordance with generally
accepted accounting principles but excluding the
value of subscriptions receivable, in relation to the
net assets of the Fund.
Voting Rights
All of the Company's shares have one vote. All shares vote as a
single class for directors and other matters, except on any matter which
affects only a specific Fund or as otherwise may be required by the 1940
Act. Each class has exclusive voting rights on any matter submitted to
shareholders that relates solely to that class. Each class has separate voting
rights on any matter submitted to shareholders in which the interests of one
class differ from the interests of any other class. Except as described above,
each class has in all other aspects the same rights and obligations as each
other class.
Under the Company's Articles of Incorporation, the Board may
authorize one or more additional classes with any of the following rights or
provisions.
(a) An exchange privilege providing that shares of a
class may be exchanged for certain securities of another company.
(b) Authorize and effect a conversion whereby the
shares of one class (the "purchase class") will be exchanged automatically
for shares of another class (the "target class") after a specified period of
time, provided that:
(i) The conversion is effected on the basis of
the relative net asset values of the two classes without the
imposition of any sales load, fee, or other charge;
(ii) The expenses, including payments
authorized under a plan adopted pursuant to 270.12b-1
("Rule 12b-1 plan"), for the target class are not higher than
the expenses, including payments authorized under a Rule
12b-1 plan, for the purchase class; and
(iii) If the amount of expenses, including
payments authorized under a Rule 12b-1 plan, for the target
class is increased materially without approval of the
shareholders of the purchase class, the Fund will establish
a new target class for the purchase class on the same terms
as applied to the target class before that increase.
Currently, only the Class B shares have such a conversion
right.
(c) A conversion feature providing that shares of a
class in which an investor is no longer eligible to participate may be
converted to shares of a class in which that investor is eligible to
participate, provided that:
(i) The shareholder is given prior notice of
the proposed conversion; and
(ii) The conversion is effected on the basis of
the relative net asset values of the two classes without the
imposition of any sales load, fee, or other charge.
The Plan is intended to meet the requirements of Rule 270.18f-3
promulgated under the 1940 Act.
Factors for Consideration
In deciding which class of shares to purchase investors should take
into consideration their investment goals, amounts of present and anticipated
investments and their individual investment time horizon and temperaments.
Investors should consider whether, during the anticipated life of their
investment in the Fund the accumulated distribution fees and contingent
deferred sales charges on Class B shares prior to conversion would be less
than the initial sales charge on Class A shares purchased at the same time
and to what extent such differential would be offset by the higher dividends
per share on Class A shares. To assist investors in making this
determination, the table under the caption "Expense Synopsis" sets forth
examples of the charges applicable to each class of shares.
Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase, investors
in Class A shares do not have all their funds invested initially and,
therefore, initially own fewer shares. Other investors might determine that
it is more advantageous to purchase either Class B shares or Class C shares
and have all their funds invested initially, although remaining subject to
ongoing distribution fees and, for a five year period, being subject to a
contingent deferred sales charge. Ongoing distribution fees on Class B
shares and Class C shares will be offset to the extent of the additional
funds originally invested (resulting from the non-payment of an initial sales
charge) and any return realized on those funds. However, there can be no
assurance as to the return, if any, which will be realized on such additional
funds. For investments held for ten years or more, the relative value upon
liquidation of the three classes tends to favor Class A or Class B shares,
rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay
the sales charge up front, wish to maximize their current income from the
start, prefer not to pay redemption charges and/or have a longer-term
investment horizon. Class C shares may be appropriate for investors who
wish to avoid a front-end sales charge, put 100% of their investment dollars
to work immediately, and have a shorter-term investment horizon.
Under most circumstances, investments originally made in Class C
shares will tend to have a slightly higher value upon liquidation than
investments originally made in either Class A or Class B Shares, if
liquidated within the first six (6) years after the date of the original
investment due to the front-end sales charge on Class A Shares and the
contingent deferred sales charges on Class B Shares. Under most
circumstances, investment originally made in Class A Shares will tend to
have a slightly higher value upon liquidation than investments originally
made in Class C Shares, if held for and liquidated, after approximately
seven (7) years after the date of original investment because of higher Rule
12b-1 expenses charged to Class C Shares. This would also tend to be true
for investments originally made in Class B Shares which are liquidated after
eight years when they convert to Class A Shares. However, this will not be
true in all cases and in the event the Fund experiences inconsistently negative
widely fluctuating total returns, may differ.
The distribution expenses incurred by the Distributor in connection
with the sale of the shares will be reimbursed, in the case of Class A shares,
from the proceeds of the initial sales charge and, in the case of Class B
shares from the proceeds of the ongoing distribution fee and any contingent
deferred sales charge incurred upon redemption within five years of
purchase. In the case of Class C shares, such distribution expenses will be
reimbursed from the proceeds of the ongoing distribution fee. Sales
personnel of broker-dealers distributing the Fund's shares and other persons
entitled to receive compensation for selling such shares may receive differing
compensation for selling Class A, Class B or Class C shares. Investors
should understand that the purpose and function of the contingent
deferred sales charge and ongoing distribution fee with respect to Class
B shares and the ongoing distribution fee with respect to Class C shares
are the same as those of the initial sales charge with respect to Class A
shares. Class D shares will be more beneficial to the investor who qualifies
for the purchase thereof.
The Directors of the Fund have determined that currently no
conflict of interest exists between the classes of shares. On an ongoing
basis, the Directors of the Fund, pursuant to their fiduciary duties under the
1940 Act and state laws, will seek to ensure that no such conflict arises.
RETIREMENT ACCOUNTS
The objectives of the Fund may make the shares of the Fund an
appropriate investment for Tax-Sheltered Retirement Plans, including
Individual Retirement Accounts ("IRAs"), Keogh (HR-10) Plans (for
self-employed individuals), qualified corporate pension or profit sharing
plans (for employees) and Tax-Deferred Investment Plans (for employees of
public school systems and certain types of charitable organizations).
IRAs are available from the Fund. Persons desiring information
about the available IRAs or about any other of the plans referred to above
should communicate with a CISI representative. All tax-sheltered retirement
plans referred to above involve a long-term commitment of assets and are
subject to various legal requirements and restrictions. The legal and tax
implications may vary according to the circumstances of the individual
investor. Therefore, the investor is urged to consult with an attorney or tax
adviser prior to the establishment of such a plan.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
As disclosed in the Prospectus, during certain emergencies, the
board of directors of the Fund can suspend the computation of net asset value
of the Fund, stop accepting payments for purchase of the Fund's shares or
suspend the duty of the Fund to redeem its shares. There are only a few
such emergency situations:
* The New York Stock Exchange closes for reasons other
than the usual weekend and holiday closings, or trading on
the Exchange is restricted as defined by the Securities and
Exchange Commission.
* The Securities and Exchange Commission decides that for
a certain period of time, disposal of the Fund's securities is
not practical, or that it is not practical for the Fund to fairly
value its net assets.
* Other emergency periods declared by the Securities and
Exchange Commission under the provisions of the
Investment Company Act of 1940.
The Fund will pay in cash all redemption requests by any
shareholder of record, limited in amount during any 90-day period to the
lesser of $250,000 or 1% of the net asset value of the Fund at the beginning
of such period. When redemption requests exceed such amount, however,
the Fund reserves the right to make part or all of the payment in the form of
securities or other assets of the Fund. An example of when this might be
done is in case of emergency, such as in those situations enumerated above,
or at any time a cash distribution would impair the liquidity of the Fund to
the detriment of existing shareholders. Any securities being so distributed
would be valued in the same manner as the portfolio of the Fund is valued.
If the recipient sold such securities, he or she probably would incur
brokerage charges. The Fund has filed with the Securities and Exchange
Commission a notification of election pursuant to Rule 18f-1 under the
Investment Company Act of 1940 in order to make such redemptions in
kind.
TAXATION OF THE FUND
Since its inception the Fund has met, and the Fund intends to
continue to meet, the requirements for regulated investment companies under
Subchapter M of the Code, and, if it meets these requirements, the Fund will
not be liable for federal income taxes to the extent the Fund distributes its
taxable income to its shareholders. To qualify as a regulated investment
company, the Fund must meet certain tests of diversification of assets,
source of income and other requirements of the Code. However, the Fund's
management reserves the right to depart from this policy whenever, in its
sole judgment, it is deemed in the best interest of the Fund and its
shareholders to do so. If the Fund fails to meet any of the Code
requirements, the Fund will be subject to tax on its income as a regular
corporation whether or not its income is distributed to its shareholders, and
any such distributions will be taxable to the Fund's shareholders as ordinary
dividends to the extent of its current and accumulated earnings and profits,
regardless of whether such distributions were derived from the Fund's net
long-term capital gains.
Under the Code, the Fund will be subject to a non-deductible excise
tax equal to 4% of the excess, if any, of the amount required to be
distributed pursuant to the Act for the calendar year over the amount actually
distributed. Any undistributed amounts subject to corporate-level income
tax, however, will not be subject to the excise tax. In order to avoid the
imposition of the excise tax, the Fund must generally declare dividends by
the end of the calendar year representing 98% of the Fund's ordinary
income for the calendar year and 98% of its capital gain net income (both
long-term and short-term capital gains) for the twelve-month period ending
October 31 of the calendar year.
Currently, individual shareholders are not able to exclude
distributions by the Fund which are attributable to dividends earned by the
Fund, and corporate shareholders are allowed to deduct 70% of such
dividend distributions. Such a deduction by a corporate shareholder is
limited to the portion of the Fund's gross income which is derived from
dividends received from domestic corporations. Since it is anticipated that
a portion of the Fund's net investment income may be derived from sources
other than dividends from domestic corporations, a portion of its dividends
may not qualify for this exclusion. Distributions designated as long-term
capital gain distributions will be taxable as long-term capital gains,
regardless of how long shares have been held, and will not be eligible for the
dividends received deduction for corporate shareholders referred to above.
For federal tax purposes, an exchange of the shares for the shares
of another Centurion Counsel Fund will be considered a taxable sale of the
first-purchased shares. Furthermore, if a shareholder uses the exchange
privilege within ninety days of the purchase of the first-purchased shares,
any sales charge incurred on the purchase of those shares cannot be taken
into account for determining the shareholder's gain or loss on the sale of
those shares to the extent any sales charge on the purchase of the
later-acquired shares is reduced because of the exchange privilege.
However, the amount of any sales charge that may not be taken into account
in determining the shareholder's gain or loss on the sale of the
first-purchased shares may be taken into account in determining his gain or
loss on the eventual sale or exchange of the later-acquired shares.
The foregoing discussion of Federal income tax consequences is
based on tax laws and regulations in effect on the date of this Prospectus,
and is subject to change by legislative or administrative action. Further, in
those states that have income tax laws, the tax treatment of the Fund and of
shareholders in respect to distributions by the Fund may differ from Federal
tax treatment. Prospective investors are advised to consult with their tax
advisers concerning the application of state and local taxes to distributions
by and investments in the Fund which may differ from the Federal income
tax consequences described above.
CALCULATION OF PERFORMANCE DATA
Total Return Calculations
The Fund computes its average annual total return by determining
the average annual compounded rates of return during specified periods that
would equate the initial amount invested in a particular share class to the
ending redeemable value of such investment in the class, according to the
following formula:
Where: P(I + T) TO THE POWER OF n = ERV
Where:
T = Average annual total return
ERV = Ending redeemable value of a hypothetical $1,000 payment
made at the beginning of a period at the end of such period.
P = A hypothetical initial payment of $1,000.
n = Number of years.
The calculation of average annual total return assumes that any
dividends and distributions are reinvested immediately, rather than paid to
the investor in cash. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment and the deduction of all nonrecurring charges at the end of the
period covered by the computations. Unlike 'bank deposits or other
investments that pay a fixed yield or return for a stated period of time, the
return for the Fund will fluctuate from time to time and does not provide a
basis for determining future returns. Average annual total return is affected
by many factors, including the performance of the Fund's individual
securities investments, changing market conditions, the composition of the
Fund's portfolio and the Fund's operating expenses.
Performance Comparisons
Investors may compare the performance of the Fund by comparing
it to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices such
as those prepared by Dow Jones & Co., Inc'. and Standard & Poor's
Corporation and to data prepared by Lipper Analytical Services, Inc., a
widely-recognized independent service which monitors the performance of
mutual funds. Comparisons may also be made to indices or data published
in certain periodicals, including BARRON'S, BUSINESS WEEK,
CDA/WIESENBERGER, FORBES, IBBOTSON ASSOCIATES,
INSTITUTIONAL INVESTOR, MONEY MAGAZINE,
MORNINGSTAR, INC., THE NEW YORK TIMES, THE WALL
STREET JOURNAL and U.S.A. TODAY. In addition to performance
information, general information about the Fund that appears in such
publications may be included in advertisements, sales literature and reports
to shareholders. The Fund may also include in advertisements and reports
to shareholders information discussing the performance of the Adviser in
comparison to other investment advisers and to other institutions.
From time to time, the Company may include the following types
of information in advertisements, supplemental sales literature and reports
to shareholders: (1) discussions of general economic or financial principles
(such as the effects of inflation, the power of compounding and the benefits
of dollar cost averaging); (2) discussions of general economic trends; (3)
presentations of statistical data to supplement such discussions; (4)
descriptions of past or anticipated portfolio holdings for the Fund; (5)
descriptions of investment strategies for the Fund; (6) descriptions or
comparisons of various investment products, which may or may not include
the Fund; (7) comparisons of investment products (including the Fund) with
relevant market or industry indices or other appropriate benchmarks; (8)
discussions of fund rankings or ratings by recognized rating organizations;
and (9) testimonials describing the experience of persons that have invested
in the Fund. The Company may also include calculations, such as
hypothetical compounding examples, which describe hypothetical investment
results in such communications. Such performance examples will be based
on an express set of assumptions and are not indicative of the performance
of the Fund.
LIMITATION OF DIRECTOR LIABILITY
Under Minnesota law, the director of the Fund owes certain
fiduciary duties to the Fund and to its shareholders. Minnesota law provides
that a director "shall discharge the duties of the position of director in good
faith, in a manner the director reasonably believes to be in the best interest
of the corporation, and with the care an ordinarily prudent person in a like
position would exercise under similar circumstances." Fiduciary duties of
a director of a Minnesota corporation include, therefore, both a duty of
"loyalty" (to act in good faith and act in a manner reasonably believed to be
in the best interests of the corporation) and a duty of "care" (to act with the
care an ordinarily prudent person in a like position would exercise under
similar circumstances). In February, 1987, Minnesota enacted legislation
which authorizes corporations to eliminate or limit the personal liability of
a director to the corporation or its shareholders for monetary damages for
breach of the fiduciary duty of "care." Minnesota law does not, however,
permit a corporation to eliminate or limit the liability of a director (i)
for any breach of the directors' duty of "loyalty" to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for authorizing a
dividend, stock repurchase or redemption or other distribution in violation
of Minnesota law or for violation of certain provisions of Minnesota
securities laws, or (iv) for any transaction from which the director derived
an improper personal benefit. The Articles of Incorporation of the Fund
were amended on April 28, 1988, to limit the liability of directors to the
fullest extent permitted by Minnesota statutes, except to the extent that such
liability cannot be limited as provided in the 1940 Act (which Act prohibits
any provisions which purport to limit the liability of directors arising from
such directors' willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their role as directors).
Minnesota law does not eliminate the duty of "care" imposed upon
a director. It only authorizes a corporation to eliminate monetary liability
for violations of that duty. Minnesota law, further, does not permit
elimination or limitation of liability of "officers" to the corporation for
breach of their duties as officers (including the liability of directors who
serve as officers for breach of their duties as officers). Minnesota law does
not permit elimination or limitation of the availability of equitable relief,
such as injunctive or recessionary relief. Further, Minnesota law does not
permit elimination or limitation of a director's liability under the Securities
Act of 1933 or the Securities Exchange Act of 1934, and it is uncertain
whether and to what extent the elimination of monetary liability would
extend to violations of duties imposed on directors by the 1940 Act and the
rules and regulations adopted under such Act.
ADDITIONAL INFORMATION
The Company was originally incorporated under the name "IRI
Stock Fund, Inc." The shareholders of the Fund, at a meeting held on May
10, 1989, approved an amendment to the Articles of Incorporation (the
"Articles") of the Fund providing that the name "IRI Stock Fund, Inc." be
changed to "Excel Value Fund, Inc." The shareholders of the Fund, at a
meeting held on December 20, 1994, approved an amendment to the Articles
providing that the name "Excel Value Fund, Inc." be changed to "Centurion
T.A.A. Fund, Inc." On January 15, 1999, the shareholders of the Fund
approved an amendment to the Article providing that the name "Centurion
T.A.A. Fund, Inc." be changed to "Centurion Counsel Funds, Inc.," all
outstanding shares of the Fund be reclassified as the "Centurion Counsel
Market Neutral Fund" series and the "Centurion Counsel Growth Fund"
series and the "Centurion Counsel Real Estate Fund" series of shares were
authorized.
The Fund is not required under Minnesota law to hold annual or
periodically scheduled regular meetings of shareholders. Regular and
special shareholder meetings are held only at such times and with such
frequency as required by law. Minnesota corporation law provides for the
Board of Directors to convene shareholder meetings when it deems
appropriate. In addition, if a regular meeting of shareholders has not been
held during the immediately preceding 15 months, a shareholder or
shareholders holding 3% or more of the voting shares of the Fund may
demand a regular meeting of shareholders of the Fund by written notice of
demand given to the chief executive officer or the chief financial officer of
the Fund. Within 90 days after receipt of the demand, a regular meeting of
shareholders must be held at the expense of the Fund. Additionally, the
1940 Act requires shareholder votes for all amendments to fundamental
investment policies and restrictions and for all investment advisory contracts
and amendments thereto.
The Fund has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement under the Securities Act
of 1933 and the 1940 Act, with respect to the common stock offered hereby.
This Statement of Additional Information does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with rules and regulations of the Commission. The
Registration Statement may be inspected at the principal office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies thereof may be obtained from the Commission at prescribed rates.
FINANCIAL STATEMENTS
The Fund is newly formed and has no Financial Statements.
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