Registration Nos. 33-75926
811-8384
As filed with the Securities and Exchange Commission on June __,
1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 4 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 6 X
(Check appropriate box or boxes)
CENTURA FUNDS, INC.
(Exact name of Registrant as specified in charter)
237 Park Avenue
New York, New York 10017
_________________________________________________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 808-
3901
________________________________________
John J. Pileggi
230 Park Avenue
New York, New York 10169
______________________________________
(Name and Address of Agent for Service)
with a copy to:
Jeffrey L. Steele, Esq. Joan V. Fiore, Esq.
Dechert Price & Rhoads Furman Selz LLC
1500 K Street, N.W. 230 Park Avenue
Washington, D.C. 20005 New York, New York 10169
It is proposed that this filing will become effective:
(check appropriate box)
immediately upon filing pursuant to paragraph (b) on
(date) pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1) on
(date) pursuant to paragraph (a)(1)
X 75 days after filing pursuant to paragraph (a)(2) on
(date) pursuant to paragraph (a)(2) of rule 485
Registrant has registered an indefinite number of shares of
its Common Stock under the Securities Act of 1933 pursuant to the
<PAGE>
provisions of Rule 24f-2 under the Investment Company Act of
1940. Registrant intends to file a Rule 24f-2 Notice for its
fiscal year ended April 30, 1996 with the Securities and Exchange
Commission on or about June 14, 1996.
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CENTURA FUNDS, INC.
CROSS REFERENCE SHEET
Pursuant to Rule 495
under the Securities Act of 1933
N-lA Item No. Location
- ------------- -----------
Part A Prospectus Caption
Item 1. Cover Page
Item 2. Highlights
Item 3. N/A
Item 4. The Funds; Description of
Securities and Investment
Practices; Investment Restrictions
Item 5. Management of the Funds; Portfolio
Transactions
Item 5A N/A
Item 6. Other Information; Dividends,
Distributions and Federal Income
Taxation
Item 7. Fund Share Valuation; Purchase of
Fund Shares; Management of the
Funds
Item 8. Redemption of Fund Shares
Item 9. N/A
Heading in Statement of
Part B Additional Information
- ------ -----------------------
Item 10. Cover Page
Item 11. Table of Contents
Item 12. N/A
Item 13. Investment Policies
Item 14. Management
Item 15. Other Information
Item 16. Management
Item 17. Portfolio Transactions
Item 18. Other Information
Item 19. Purchase of Fund Shares;
Redemption of Fund Shares
Item 20. Taxation
Item 21. Management
Item 22. Other Information
Item 23. Financial Statements
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CENTURA FUNDS, INC.
Class A Shares and Class B Shares
237 Park Avenue
New York, New York 10017
General and Account Information:
(800) 442-3688
CENTURA BANK - Adviser
FURMAN SELZ LLC - Administrator and Sponsor
CENTURA FUNDS DISTRIBUTOR, INC. - Distributor
This Prospectus describes the four Funds (the "Funds")
comprising Centura Funds, Inc. (the "Company"), a registered
open-end management investment company advised by Centura Bank
(the "Adviser"). Each Fund is a separate portfolio of the
Company. The Funds described in this Prospectus are:
Centura Equity Growth Fund
Centura Equity Income Fund
Centura Federal Securities Income Fund
Centura North Carolina Tax-Free Bond Fund
This Prospectus relates to Class A shares and Class B shares
which are sold to the public as an investment vehicle for
individuals, institutions, corporations and fiduciaries. Class C
shares, available only to certain institutional investors, are
not offered hereby. (See "Other Information - Capitalization").
Class A shares and Class B shares each bear certain expenses
related to their distribution, calculated at an annual rate and
based on a percentage of the average daily net assets of the
class.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND FUND SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENTS IN
MUTUAL FUNDS, SUCH AS THE FUNDS, INVOLVE RISK, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
This Prospectus sets forth concisely the information a
prospective investor should know before investing in any of the
Funds and should be read and retained for information about each
Fund.
A Statement of Additional Information (the "SAI"), dated
August __, 1996, containing additional and more detailed
information about the Funds, has been filed with the Securities
and Exchange Commission ("SEC") and is hereby incorporated by
reference into the Prospectus. It is available without charge
and can be obtained by writing or calling the Funds at the
address and information numbers printed above.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Date of this Prospectus is August __, 1996
2
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TABLE OF CONTENTS
HIGHLIGHTS................................................................. 4
FUND EXPENSES.............................................................. 7
FINANCIAL HIGHLIGHTS....................................................... 12
THE FUNDS.................................................................. 15
DESCRIPTION OF SECURITIES AND INVESTMENT PRACTICES......................... 19
INVESTMENT RESTRICTIONS.................................................... 28
RISKS OF INVESTING IN THE FUNDS............................................ 30
MANAGEMENT OF THE FUNDS.................................................... 35
PRICING OF FUND SHARES..................................................... 41
MINIMUM PURCHASE REQUIREMENTS.............................................. 46
PURCHASE OF FUND SHARES.................................................... 46
RETIREMENT PLAN ACCOUNTS................................................... 48
EXCHANGE OF FUND SHARES.................................................... 49
REDEMPTION OF FUND SHARES.................................................. 50
PORTFOLIO TRANSACTIONS..................................................... 55
FUND SHARE VALUATION....................................................... 56
DIVIDENDS, DISTRIBUTIONS, AND FEDERAL INCOME TAXATION...................... 56
OTHER INFORMATION.......................................................... 60
APPENDIX................................................................... 65
3
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HIGHLIGHTS
The Funds
This prospectus describes the four Funds comprising Centura
Funds, Inc. (the "Company"). Each Fund has a distinct investment
objective and policies, as described below. The investment
objective of each Fund is a fundamental policy of that Fund and
may not be changed without approval of the Fund's shareholders.
See "The Funds." The Funds and their investment objectives and
policies are as follows:
- Centura Equity Growth Fund - This Fund's objective is
long-term capital appreciation. It invests in a
diversified portfolio comprised mainly of publicly
traded common and preferred stocks and securities
convertible into or exchangeable for common stock.
Although its investments will be principally in
securities of U.S.-based companies, it may also invest
in securities of foreign issuers, generally in the form
of American Depositary Receipts ("ADRs").
- Centura Equity Income Fund - This Fund's objective is
to provide long-term capital appreciation and income.
The Fund invests primarily in dividend-paying common
stocks, convertible preferred stocks, and convertible
bonds, notes and debentures. It may also invest in
securities believed to offer special capital
appreciation opportunities. The Fund will invest
primarily in securities of U.S. based companies, but it
may also invest in securities of non-U.S. issuers,
generally through ADRs.
- Centura Federal Securities Fund - This Fund seeks to
provide relatively high current income consistent with
relative stability of principal and safety. The Fund
invests primarily in securities issued by the U.S.
Government, its agencies and instrumentalities. The
maximum maturity of any such security will be 10 years.
Generally, at least 70% of the Fund's portfolio will
consist of direct obligations of the U.S. Treasury,
with no more than 30% in securities of U.S. Government
agencies and instrumentalities.
- Centura North Carolina Tax-Free Bond Fund - This Fund
seeks to provide relatively high current income that is
free of both Federal and North Carolina personal income
tax, together with relative safety of principal. It
invests primarily in a portfolio of high quality
municipal securities with a maximum maturity of 15
years and an average portfolio maturity of 5 to 10
years.
4
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Risks of Investing in the Funds
Investment in each of the Funds involves certain risks.
There can, of course, be no assurance that a Fund will achieve
its investment objective or be successful in preventing or
minimizing the risk of loss that is inherent in certain types of
investments. Fund investments in securities of foreign issuers
involve special risks not usually associated with investing in
U.S. companies. Concentration of Centura North Carolina Tax-Free
Bond Fund in securities of a single state makes the Fund
particularly vulnerable to events affecting that state. The
Funds have authority, which they presently do not intend to use,
to invest in various types of derivative instruments, which would
entail special risks. Investors should be aware that the value
of each Fund's shares will fluctuate, which may cause a loss in
the principal value of the investment. See "Risks of Investing
in the Funds."
The Adviser
Management of the Funds is provided by Centura Bank (the
"Adviser"), headquartered in Rocky Mount, North Carolina. For
its advisory services, the Adviser, receives from each Fund a fee
at an annual rate based on the Fund's average daily net assets.
This fee is at an annual rate of 0.70% for Centura Equity Growth
Fund, 0.70% for Centura Equity Income Fund, 0.30% for Centura
Federal Securities Income Fund, and 0.35% for Centura North
Carolina Tax-Free Bond Fund.
The Distributor, Administrator and Sponsor
Centura Funds Distributor, Inc. (the "Distributor")
distributes the Funds' shares and may be reimbursed for certain
of its distribution-related expenses. Furman Selz LLC ("Furman
Selz") acts as Sponsor and Administrator to the Funds. For its
services as Administrator, each Fund pays Furman Selz a fee at
the annual rate of 0.15% of its average daily net assets. Furman
Selz also acts as transfer agent and fund accounting agent for
the Funds, for which it receives additional fees. See
"Management of the Funds - The Administrator and Sponsor."
Classes of Shares
Class A shares and Class B shares differ principally with
respect to sales charges and the rate of expenses to which they
are subject. Investors may select the class that best suits
their investment needs. Class A shares are offered with a
maximum front-end sales charge of 4.50% for Centura Equity Growth
Fund and Centura Equity Income Fund, and 2.75% for Centura
Federal Securities Income Fund and Centura North Carolina Tax-
Free Bond Fund. The initial sales charge for each Fund may be
reduced or waived in certain cases. See "Purchase of Fund
5
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Shares." Class B shares are offered at net asset value, with no
front-end sales charge. Shares of each class are also subject to
service and distribution fees calculated as a percentage of the
net asset value of each class which may not exceed the following
annual rates: 0.25% for Class A shares of each of the Funds
(pursuant to a voluntary limit set by the Distributor for the
current fiscal year; the maximum fee for Class A shares would,
without this limit, be 0.50%); 1.00% for Class B shares of
Centura Equity Growth Fund and Centura Equity Income Fund, and
0.75% for Class B shares of Centura Federal Securities Income
Fund and Centura North Carolina Tax-Free Bond Fund (pursuant to a
voluntary limit set by the Adviser for the current fiscal year;
the maximum fee for Class B shares of the last two funds would,
without this limit, be 1.00%). Shareholders who redeem Class B
shares within five years from the date of purchase will be
assessed a contingent deferred sales charge ("CDSC") declining
from a maximum in the first year after purchase of 5.00% for
Centura Equity Growth Fund and Centura Equity Income Fund, and
3.00% for each of the other Funds to a minimum in the fifth year
after purchase of 1.00% for each of the Funds. The CDSC may be
waived in certain cases. On the seventh anniversary of their
purchase date, Class B shares convert automatically to Class A
shares, which bear a lower Service and Distribution Fee. See
"Management of The Funds - The Distributor." Class C shares of
the Funds, not offered by this Prospectus, are available only to
certain institutional investors. See "Other Information -
Capitalization."
A prospective investor in Class A or Class B shares, in
selecting between these classes, should consider the respective
impact of the sales charge or CDSC together with the cumulative
effect of the Service and Distribution Fees for each class over
the anticipated period of investment, as well as the effect of
any sales charge or CDSC waivers to which the investor may be
entitled. For purchasers (other than those eligible to invest in
Class C shares) contemplating an investment of at least $250,000,
the Funds believe it is preferable to purchase Class A shares.
Investors should be aware that other expenses attributable to
each class may differ slightly due to the allocation to each
class of certain "class specific" expenses, including
distribution and mailing expenses and federal and state
securities registration fees. Finally, investors should be aware
that persons selling shares of the Funds may receive different
levels of compensation for sales of Class A and Class B shares.
Guide to Investing in Centura Funds, Inc.
Purchase orders for the Funds received by your broker or
Service Organization in proper order prior to 4:15 p.m., Eastern
time, and transmitted to the Funds prior to 5:00 p.m. Eastern
time will become effective that day.
6
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- Minimum Initial Investment................ $1,000
- Minimum Initial Investment for IRAs
and other qualified retirement plans...... $ 250
- Minimum Subsequent Investment..............$ 250
(except for IRA and other qualified retirement plans)
- Minimum Investment per pay period for
Payroll Deduction Plan.....................$ 50
(No investment is required to initiate this
plan.)
- Minimum Amount Per Investment Under Automatic
Investment Plan............................$ 50
(No investment is required to initiate this
plan.)
Shareholders may exchange shares of a particular class
in one Fund for shares of the same class in another
Fund by telephone or mail.
- Minimum exchange........................... NONE
(However, an investor must satisfy the $1,000
minimum investment for each Fund into which
he or she exchanges.)
Shareholders may redeem shares by telephone, mail or
wire.
The Funds reserve the right to redeem upon not less
than 30 days' notice all shares in a Fund's account
which have an aggregate value of less than $1,000.
All dividends and distributions will be automatically
reinvested at net asset value in additional shares of
the same class of the applicable Fund unless cash
payment is requested. Each of the Funds pays dividends
from income, if any, monthly.
See "Purchase of Fund Shares," "Redemption of Fund
Shares" and "Dividends, Distributions and Federal
Income Taxation" for more information.
FUND EXPENSES
The following expense tables indicate costs and expenses
that an investor in Class A shares or Class B shares should
anticipate incurring either directly or indirectly as a
shareholder in the Funds.
7
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FEE TABLES*
Centura Equity Centura Equity
Growth Fund Income Fund
Class A Class B Class A Class B
Shareholder Transaction
Expenses
Maximum Sales Charge
Imposed on Purchases
(as a percentage of
offering price) 4.5 -- 4.5 --
Maximum Sales Charge
Imposed on Reinvested
Dividends (as a
percentage of offering
price) -- -- -- --
Deferred Sales Charge
(as a percentage of
redemption proceeds)** -- 5.00 -- 5.00
Exchange Fees -- -- -- --
Annual Fund Operating
Expenses (as a
percentage of average
new assets annualized)
Management Fees** 0.70 0.70 0.36 0.36
12b-1 Fees**** 0.25 1.00 0.25 1.00
(pursuant to voluntary
cap)
Other Expenses*** 0.31 0.31 0.39 0.39
Total Portfolio
Operating Expenses***** 1.26 2.01 1.00 1.75
_______________
8
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Centura Federal Centura North
Securities Carolina Tax-
Income Fund Free Bond Fund
Class A Class B Class A Class B
Shareholder
Transaction Expenses
Maximum Sales Charge
Imposed on Purchases
(as a percentage of
offering price) 2.75 -- 2.75 --
Maximum Sales Charge
Imposed on Reinvested
Dividends (as a
percentage of offering -- -- -- --
price)
Deferred Sales Charge
(as a percentage of
redemption proceeds)** -- 3.00 -- 3.00
Exchange Fees -- -- -- --
Annual Fund Operating
Expenses (as a
percentage of average
new assets annualized)
Management Fees*** 0.30 0.30 0.10 0.10
12b-1 Fees**** 0.25 0.75 0.25 0.75
(pursuant to voluntary
cap)
Other Expenses*** 0.30 0.30 0.33 0.33
Total Portfolio
Operating
Expenses***** 0.85 1.35 0.68 1.18
_______________
* The information in the Fee Table relates only to Class A
shares and Class B shares. Class C shares pay no Sales
Charge. Deferred Sales Charge or 12b-1 fees. (See "Other
Information - Capitalization.")
9
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** Shareholders who redeem shares by wire may be charged a
fee by the banks receiving the wire payments on their
behalf. (See "Redemption of Fund Shares.")
*** Amounts shown for "Management Fees" and "Other Expenses"
for the Equity Income Fund and the North Carolina Tax-Free
Bond Fund reflect reductions of fees payable to the
Adviser and fees payable for administrative and transfer
agent services pursuant to agreements to limit fund
expenses. Without these reductions, "Management Fees" for
the Equity Income Fund and the North Carolina Tax-Free
Bond Fund, respectively, would be 0.70% and 0.35% and
"Other Expenses" would be 0.46% and 0.44%. "Other
Expenses" for Centura Equity Income Fund are based on
amounts estimated for the current fiscal year.
**** Under rules of the National Association of Securities
Dealers, Inc. (the "NASD"), a 12b-1 fee may be treated as
a sales charge for certain purposes under those rules.
Because the 12b-1 fee is an annual fee charge against the
assets of a Fund, long-term shareholders may pay more
initial sales charges than the economic equivalent of the
maximum front-end sales charge permitted by rules of the
NASD. The 12b-1 fees in the above Fee Table represent
fees anticipated to be paid by the Funds. Class A shares
of each Fund are permitted to pay 12b-1 fees up to 0.50%,
and Class B shares are permitted to pay 12b-1 fees up to
1.00%. However, the Distributor has undertaken to limit
12b-1 fees to 0.25% for Class A shares and 0.75% for Class
B shares of Centura Federal Securities Income Fund and
Centura North Carolina Tax-Free Bond Fund for the current
fiscal year. See "Management of the Funds - The
Distributor."
***** Absent the reductions of management, administrative, and
transfer agent fees, and the limitation applicable to 12b-
1 fees, "Total Portfolio Operating Expenses" for Class A
shares would be 1.51% for the Equity Growth Fund, 1.66%
for the Equity Income Fund, 1.10% for the Federal
Securities Income Fund and 1.29% for the North Carolina
Tax-Free Bond Fund, and "Total Portfolio Operating
Expenses" for Class B shares of the Equity Growth Fund,
the Equity Income Fund, the Federal Securities Income Fund
and the North Carolina Tax-Free Bond Fund, respectively,
would be 2.01%, 2.16%, 1.60%, and 1.79%.
Example*
An investor would pay the following expenses on a
$1,000 investment, assuming 5% annual return:
Centura Equity Centura Income
Growth Fund Equity Fund
Class A Class B Class A Class B
Assuming complete
redemption at the
end of each time
period:
1 year 57 70 55 68
3 years 83 93 75 85
5 years 111 118 98 105
10 years 190 234 162 206
Class B Shares
assuming no
redemption:
1 year 20 18
3 years 63 55
5 years 108 95
10 years 234 206
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Centura Federal Centura North
Securities Income Carolina Tax-Free
Fund Bond Fund
Class A Class B Class A Class B
Assuming complete
redemption at the
end of each time
period:
1 year 36 44 34 42
3 years 54 73 49 67
5 years 73 84 64 75
10 years 130 162 110 143
Class B Shares
assuming no
redemption:
1 year 14 12
3 years 43 37
5 years 74 65
10 years 162 143
_______________
* This example should not be considered a representation of
future expenses which may be more or less than those shown.
The assumed 5% annual return is hypothetical and should not
be considered a representation of past or future annual
return. Actual return may be greater or less than the
assumed amount.
FINANCIAL HIGHLIGHTS [TO BE UPDATED BY AMENDMENT]
The table below sets forth certain information for the
Funds' fiscal period June 1, 1994 (commencement of operations)
through April 30, 1995. (No information is shown for Centura
Equity Income Fund, which was formed on June __, 1996.) The
information set forth in this table has been audited by McGladrey
& Pullen LLP, the Funds' independent accountant whose report on
the financial statements is included in the Funds' Annual Report,
which may be obtained without charge, and is also contained in
the Statement of Additional Information, which is available
without charge upon request. The Annual Report also includes
Management's Discussion of Fund Performance. This information
should be read in conjunction with the financial statements.
11
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Centura Federal Securities
Centura Equity Growth Fund Income Fund
Class A Class B Class C Class A Class B Class C
Net Asset Value, Beginning of Period $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
Income from Investment Operations:
Net Investment Income............ 0.06 0.03 0.07 0.52 0.45 0.54
Net Realized and Unrealized Gain/(Loss)
on Securities................... 0.70 0.69 0.70 (0.03) (0.03) (0.03)
Total from Investment Operations. 0.76 0.72 0.77 0.49 0.42 0.51
Less Distributions:
Dividends from Net Investment Income(0.06) (0.03) (0.07) (0.52) (0.45) (0.54)
Net Asset Value, End of Period..... $10.70 $10.69 $10.70 $ 9.97 $ 9.97 $ 9.97
Total Return (not reflecting sales load7.64% 7.23% 7.71% 5.02% 4.32% 5.28%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $ 968 $ 1,362 $84,004 $ 247 $ 118 $93,807
Ratio of Expenses to Average Net 1.29% 2.03% 1.04% 0.86% 1.61% 0.63%
Assets*, **
Ratio of Net Investment Income to
Average Net Assets*................ 0.63% 0.00% 0.79% 5.58% 4.86% 5.97%
Portfolio Turnover Rate............ 44% 44% 44% 42% 42% 42%
</TABLE>
_______________
* Annualized
** Ratios before effect of waivers were 1.32%, 2.06%, 1.07%,
0.89%, 1.64%, 0.66%, 0.92%, 1.49%, and 0.91%, respectively.
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Centura North Carolina
Tax-Free Bond Fund
Class A Class B Class C
Net Asset Value, Beginning of Period $10.00 $10.00 $10.00
Income from Investment Operations:
Net Investment Income.................. 0.39 0.32 0.41
Net Realized and Unrealized Loss on
Securities........................... (0.02) (0.02) (0.02)
Total from Investment Operations....... 0.37 0.30 0.39
Less Distributions:
Dividends from Net Investment Income... (0.39) (0.32) (0.41)
Net Asset Value, End of Period........... $ 9.98 $ 9.98 $ 9.98
Total Return (not reflecting sales load). 3.77% 3.09% 4.08%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)...... $ 429 $ 275 $34,885
Ratio of Expenses to Average Net
Assets*, ** ........................ 0.42% 0.99% 0.41%
Ratio of Net Investment Income to Average Net
Assets*.............................. 4.46% 3.89% 4.64%
Portfolio Turnover Rate.................. 121% 121% 121%
_______________
* Annualized
** Ratios before effect of waivers were 1.32%, 2.06%, 1.07%,
0.89%, 1.64%, 0.66%, 0.92%, 1.49%, and 0.91%, respectively.
13
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THE FUNDS
Each Fund is a separate diversified investment fund or
portfolio, commonly known as a mutual fund. The Funds are
portfolios of the Company, which was organized under the laws of
the State of Maryland on March 1, 1994 as an open-end, management
investment company. Centura Equity Income Fund was established
as a new portfolio of the Company on June __, 1996. The
Company's Board of Directors oversees the overall management of
the Funds and elects the Funds' officers.
Centura Equity Growth Fund. Investors seeking long-term
growth of capital and for whom current income is not an objective
should consider investing in Centura Equity Growth Fund.
The investment objective of Centura Equity Growth Fund is
long-term capital appreciation. The Fund invests primarily in a
diversified portfolio of publicly traded common and preferred
stocks and securities convertible into or exchangeable for common
stock. The Adviser uses fundamental analysis to select stocks
for the Fund's portfolio and the Fund will invest primarily in
stocks of companies that exhibit unusually strong gains in
earnings per share. However, the Adviser may also select stocks
of companies that it believes offer special opportunities for
appreciation because they are undervalued relative to the market.
The Fund expects to invest primarily in securities of U.S.-based
companies, but may also invest in securities of foreign companies
- -- primarily in the form of American Depositary Receipts
("ADRs"). Under normal circumstances, at least 65% of the Fund's
assets will be invested in equity securities believed by the
Adviser to have potential for capital appreciation, and the
Fund's portfolio will normally consist primarily of equity
securities. However, the Fund may invest without limit in debt
instruments for temporary defensive purposes when the Adviser has
determined that abnormal market or economic conditions so
warrant. These debt obligations may include U.S. Government
securities; certificates of deposit, bankers' acceptances and
other short-term debt obligations of banks with total assets of
at least $1,000,000,000; debt obligations of corporations
(corporate bonds, debentures, notes and other similar corporate
debt instruments); commercial paper; and repurchase agreements
with respect to securities in which the Fund is authorized to
invest. Although the Fund's investments in such debt securities
and in convertible and preferred stock will generally be rated A,
A-1, or better by Standard & Poor's Corporation ("S&P") or A,
Prime-1 or better by Moody's Investors Service, Inc. ("Moody's"),
or deemed of comparable quality by the Adviser, the Fund is
authorized to invest up to 15% of its assets in securities rated
as low as BBB by S&P or Baa by Moody's, or deemed of comparable
quality by the Adviser. Securities rated BBB or Baa, or deemed
equivalent to such securities, may have speculative
characteristics. See "Risks of Investing in the Funds." If any
14
<PAGE>
security held by the Fund is downgraded below BBB/Baa (or so
deemed by the Adviser), the securities will generally be sold
unless it is determined that such sale is not in the best
interest of the Fund. The Fund will invest in no securities
rated below BBB or Baa.
Centura Equity Income Fund. Investors seeking long-term
growth and income should consider an investment in Centura Equity
Income Fund.
The investment objective of Centura Equity Income Fund is to
provide long-term capital appreciation and income. This Fund
invests primarily in dividend-paying common stocks, convertible
preferred stocks, and convertible bonds, notes and debentures.
In managing this Fund, the Adviser uses fundamental analysis to
select stocks for the Fund's portfolio. The Fund will invest
primarily in the stocks of established companies with above
average dividend yields and/or prospects for increasing
dividends. However, the Adviser may also select stocks (or
convertible securities) of companies that it believes offer
special appreciation opportunities because they are undervalued
in the marketplace based on such factors as price/earnings ratios
or the ratio of stock price to the company's inherent asset
value, book value, cash flow or underlying franchise value. The
Fund expects to invest primarily in securities of U.S. based
companies, but it may also invest in securities of non-U.S.
companies, generally through ADRs. Under normal circumstances,
at least 65% of the Fund's assets will be invested in equity
securities and convertible securities. However, for temporary
defensive purposes when the Adviser has determined that abnormal
market or economic conditions so warrant, the Fund may invest
without limit in debt instruments of the same types, and subject
to the same conditions, as Centura Equity Growth Fund under such
circumstances.
Centura Federal Securities Income Fund. Investors seeking
high current income from a portfolio of U.S. Government
securities should consider investing in Centura Federal
Securities Income Fund.
The investment objective of Centura Federal Securities
Income Fund is to provide high current income consistent with
relative stability of principal and safety. It pursues this
objective by investing primarily in securities issued by the U.S.
Government, its agencies and instrumentalities with maximum
maturities of 10 years. These securities typically display
greater price stability and safety than debt securities of longer
duration and lower quality, although the latter generally offer
higher income. In addition to limiting the maturity of its
portfolio securities, the Fund attempts to moderate principal
fluctuations by generally investing at least 70% of its portfolio
in direct obligations of the U.S. Treasury, with no more than 30%
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in securities of U.S. Government agencies and instrumentalities,
and by using a modified "laddering" approach to structuring the
Fund's portfolio -- i.e., by investing in securities with
different maturities and adjusting their relative proportions, as
well as the maximum and average maturity of its portfolio
securities, to adapt to various market conditions. Using this
approach, the Fund hopes both to capture a high proportion of the
currently available return on fixed income securities and to
limit volatility.
To permit desirable flexibility, the Fund has authority to
invest in corporate debt securities rated A or better by S&P or
Moody's (or deemed of comparable quality by the Adviser) and high
quality money market instruments including commercial paper rated
A-1 or better by S&P or Prime-1 or better by Moody's (or deemed
by the Adviser to be of comparable quality); certificates of
deposit, bankers' acceptances and other short-term debt
obligations of banks with total assets of at least
$1,000,000,000; and repurchase agreements with respect to
securities in which the Fund is authorized to invest.
Centura North Carolina Tax-Free Bond Fund. Investors
seeking dividend income that is generally free of regular federal
and North Carolina personal income taxes should consider
investing in the Centura North Carolina Tax-Free Bond Fund.
The investment objective of Centura North Carolina Tax-Free
Bond Fund is relatively high current income that is free of both
regular federal and North Carolina personal income tax, together
with relative safety of principal. This Fund invests primarily
in a portfolio of obligations issued by the state of North
Carolina, its political subdivisions, and their agencies and
instrumentalities, the income from which, in the opinion of the
issuer's bond counsel, is exempt from regular federal and North
Carolina personal income taxes ("North Carolina Municipal
Obligations"). By limiting the Fund's average portfolio maturity
to between 5 and 10 years, with a maximum maturity for any
portfolio security of 15 years, the Fund seeks to capture a high
proportion of the currently available return on North Carolina
Municipal Obligations while providing greater safety of principal
than would be available from longer term municipal securities.
It also seeks to moderate price fluctuations by diversifying its
investments among different municipal issuers and by limiting its
investments to securities of high quality.
The Fund seeks to provide income that is fully free from
regular federal and North Carolina personal income taxes, as well
as from the federal alternative minimum tax. To provide the
flexibility to deal with a variety of market circumstances,
however, the Fund has limited authority (a) to invest in
municipal obligations of other states ("Municipal Obligations"),
the income from which would not be free from North Carolina
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personal income tax, (b) to invest up to 10% of its assets in
Municipal Obligations subject to the federal alternative minimum
tax ("AMT Obligations"), and (c) to invest up to 20% of its
assets in AMT Obligations plus cash reserves and other
obligations producing taxable income, including obligations of
the U.S. Government, its agencies and instrumentalities;
certificates of deposit, bankers' acceptances and other short-
term debt obligations of U.S banks with total assets of at least
$1,000,000,000; commercial paper rated A-1 or better by S&P or
Prime- 1 or better by Moody's (or deemed by the Adviser to be of
comparable quality); and repurchase agreements relating to
underlying securities in which the Fund is authorized to invest.
For temporary defensive purposes when the Adviser has determined
that abnormal market and economic conditions so warrant the Fund
may invest up to 50% of its assets in investments producing
taxable income and AMT Obligations. Any distributions by the
Fund of capital gains and other income that are not distributions
designated by the Fund as "exempt-interest dividends" will
normally be subject to federal, state and, in some cases, local
tax. As a fundamental policy, during periods of normal market
conditions, at least 80% of the Fund's net assets will be
invested in securities the interest income from which is exempt
from the regular federal income tax. Additionally, under normal
circumstances, (a) at least 65% of the value of the Fund's total
assets will be invested in "bonds" - i.e., debt obligations with
a duration of at least one year from the date of issue, and (b)
at least 65% of the value of the Fund's total assets will be
invested in bonds that are North Carolina Municipal Obligations.
Tax advisers should be consulted regarding tax effects for
particular investors.
The Fund's quality criteria require that the Fund purchase
Municipal Obligations rated A, SP-1 or better by S&P or A, MIG-1
or better by Moody's; commercial paper rated A-1 or better by S&P
or Prime-1 or better by Moody's; corporate debt securities rated
A or better by S&P or Moody's (or debt securities given
equivalent ratings by at least two other nationally recognized
statistical rating organizations ("NRSROs")) or, if any of such
securities are not rated, that they be of comparable quality in
the Adviser's opinion. For more information on Municipal
Obligations and North Carolina Municipal Obligations, see
"Description of Securities and Investment Practices" and "Risks
of Investing in the Funds."
In determining to invest in a particular Municipal
Obligation, the Adviser will rely on the opinion of bond counsel
for the issuer as to the validity of the security and the
exemption of interest on such security from federal and relevant
state income taxes, and the Adviser will not make an independent
investigation of the basis for any such opinion.
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Other Investment Policies of the Funds
Each of the Funds may also invest up to 5% of its total
assets in another investment company, not to exceed 10% of the
value of its total assets in the securities of other investment
companies. Taxable distributions earned from other investment
companies will, likewise, represent taxable income to a Fund. A
Fund will incur additional expenses due to the duplication of
expenses as a result of investing in mutual funds other than the
Funds. Each of the Funds has authority, which it does not
presently intend to exercise, to invest in futures and options
contracts and to lend its portfolio securities. For information
concerning these practices, see "Investment Policies" in the SAI.
DESCRIPTION OF SECURITIES AND INVESTMENT PRACTICES
U.S. Government Securities (All Funds). U.S. Government
securities are obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. U.S. Treasury
bills, which have a maturity of up to one year, are direct
obligations of the United States and are the most frequently
issued marketable U.S. Government security. The U.S. Treasury
also issues securities with longer maturities in the form of
notes and bonds.
U.S. Government agency and instrumentality obligations are
debt securities issued by U.S. Government-sponsored enterprises
and federal agencies. Some obligations of agencies are supported
by the full faith and credit of the United States or by U.S.
Treasury guarantees, such as mortgage-backed certificates issued
by the Government National Mortgage Association; others, such as
obligations of the Federal Home Loan Banks, Federal Farm Credit
Bank, Bank for Cooperatives, Federal Intermediate Credit Banks
and the Federal Land Bank, are guaranteed by the right of the
issuer to borrow from the U.S. Treasury; others, such as
obligations of the Federal National Mortgage Association, are
supported by discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality;
and others, such as obligations of the Student Loan Marketing
Association and the Tennessee Valley Authority, are backed only
by the credit of the agency or instrumentality issuing the
obligation. In the case of obligations not backed by the full
faith and credit of the United States, the investor must look
principally to the agency issuing or guaranteeing the obligation
for ultimate repayment.
Bank Obligations (All Funds). These obligations include
negotiable certificates of deposit and bankers' acceptances. The
Funds limit their bank investments to dollar-denominated
obligations of U.S. or foreign banks which have more than $1
billion in total assets at the time of investment and, in the
case of U.S. banks, are members of the Federal Reserve System or
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are examined by the Comptroller of the Currency, or whose
deposits are insured by the Federal Deposit Insurance
Corporation.
Commercial Paper (All Funds). Commercial paper includes
short-term unsecured promissory notes, variable rate demand notes
and variable rate master demand notes issued by domestic and
foreign bank holding companies, corporations and financial
institutions, as well as similar instruments issued by government
agencies and instrumentalities.
Corporate Debt Securities (All Funds). A Fund's investments
in corporate debt securities are limited to corporate debt
securities (corporate bonds, debentures, notes and other similar
corporate debt instruments) which meet the previously disclosed
minimum ratings and maturity criteria established for the Fund
under the direction of the Board of Directors and the Fund's
Adviser or, if unrated, are in the Adviser's opinion comparable
in quality to corporate debt securities in which the Fund may
invest. See "The Funds."
Repurchase Agreements (All Funds). Securities held by the
Funds may be subject to repurchase agreements. A repurchase
agreement is a transaction in which the seller of a security
commits itself at the time of the sale to repurchase that
security from the buyer at a mutually agreed-upon time and price.
These agreements permit the Funds to earn income for periods as
short as overnight. Repurchase agreements may be considered to
be loans by the purchaser collateralized by the underlying
securities. These agreements will be fully collateralized and
the collateral will be marked-to-market daily. The Funds will
enter into repurchase agreements only with dealers, domestic
banks or recognized financial institutions which, in the opinion
of the Adviser, present minimal credit risks in accordance with
guidelines adopted by the Board of Directors. In the event of
default by the seller under the repurchase agreement, a Fund may
have problems in exercising its rights to the underlying
securities and may experience time delays in connection with the
disposition of such securities.
Loans of Portfolio Securities (All Funds). To increase
current income each Fund may lend its portfolio securities worth
up to 5% of that Fund's total assets to brokers, dealers and
financial institutions, provided certain conditions are met,
including the condition that each loan is secured continuously by
collateral maintained on a daily mark-to-market basis in an
amount at least equal to the current market value of the
securities loaned. For further information, see the SAI.
Variable and Floating Rate Demand and Master Demand Notes
(All Funds). The Funds may, from time to time, buy variable or
floating rate demand notes issued by corporations, bank holding
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companies and financial institutions and similar instruments
issued by government agencies and instrumentalities. These
securities will typically have a maturity over one year but carry
with them the right of the holder to put the securities to a
remarketing agent or other entity at designated time intervals
and on specified notice. The obligation of the issuer of the put
to repurchase the securities may be backed by a letter of credit
or other obligation issued by a financial institution. The
repurchase price is ordinarily par plus accrued and unpaid
interest. Generally, the remarketing agent will adjust the
interest rate every seven days (or at other specified intervals)
in order to maintain the interest rate at the prevailing rate for
securities with a seven-day or other designated maturity. A
Fund's investment in demand instruments which provide that the
Fund will not receive the principal note amount within seven
days' notice, in combination with the Fund's other investments in
illiquid instruments, will be limited to an aggregate total of
15% of that Fund's net assets.
The Funds may also buy variable rate master demand notes.
The terms of these obligations permit a Fund to invest
fluctuating amounts at varying rates of interest pursuant to
direct arrangements between the Fund, as lender, and the
borrower. These instruments permit weekly and, in some
instances, daily changes in the amounts borrowed. The Funds have
the right to increase the amount under the note at any time up to
the full amount provided by the note agreement, or to decrease
the amount, and the borrower may repay up to the full amount of
the note without penalty. The notes may or may not be backed by
bank letters of credit. Because the notes are direct lending
arrangements between the Fund and borrower, it is not generally
contemplated that they will be traded, and there is no secondary
market for them, although they are redeemable (and, thus,
immediately repayable by the borrower) at principal amount, plus
accrued interest, at any time. In connection with any such
purchase and on an ongoing basis, the Adviser will consider the
earning power, cash flow and other liquidity ratios of the
issuer, and its ability to pay principal and interest on demand,
including a situation in which all holders of such notes make
demand simultaneously. While master demand notes, as such, are
not typically rated by credit rating agencies, a Fund may, under
its minimum rating standards, invest in them only if, at the time
of an investment, the issuer meets the criteria set forth in this
Prospectus for commercial paper obligations.
Forward Commitments and When-Issued Securities (Centura
Equity Income Fund, Centura Federal Securities Income Fund and
Centura North Carolina Tax-Free Bond Fund). A Fund may purchase
when-issued securities and make contracts to purchase securities
for a fixed price at a future date beyond customary settlement
time if the Fund holds, and maintains until the settlement date
in a segregated account cash, U.S. Government securities or high-
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grade debt obligations in an amount sufficient to meet the
purchase price, or if the Fund enters into offsetting contracts
for the forward sale of other securities it owns. Purchasing
securities on a when-issued basis and forward commitments
involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in
addition to the risk of decline in value of a Fund's other
assets. No income accrues on securities purchased on a when-
issued basis prior to the time delivery of the securities is
made, although a Fund may earn interest on securities it has
deposited in the segregated account because it does not pay for
the when-issued securities until they are delivered. Investing
in when-issued securities has the effect of (but is not the same
as) leveraging the Fund's assets. Although a Fund would
generally purchase securities on a when-issued basis or enter
into forward commitments with the intention of actually acquiring
securities, that Fund may dispose of a when-issued security or
forward commitment prior to settlement if the Adviser deems it
appropriate to do so. A Fund may realize short-term profits or
losses upon such sales.
Mortgage-Related Securities (Centura Equity Income Fund,
Centura Federal Securities Income Fund and Centura North Carolina
Tax-Free Bond Fund). Mortgage pass-through securities are
securities representing interests in "pools" of mortgages in
which payments of both interest and principal on the securities
are made monthly, in effect "passing through" monthly payments
made by the individual borrowers on the residential mortgage
loans which underlie the securities (net of fees paid to the
issuer or guarantor of the securities). Centura North Carolina
Tax-Free Bond Fund may invest only in those mortgage pass-through
securities whose payments are tax-exempt. Early repayment of
principal on mortgage pass-through securities (arising from
prepayments of principal due to sale of the underlying property,
refinancing, or foreclosure, net of fees and costs which may be
incurred) may expose a Fund to a lower rate of return upon
reinvestment of principal. Also, if a security subject to
prepayment has been purchased at a premium, in the event of
prepayment the value of the premium would be lost. Like other
fixed-income securities, when interest rates rise, the value of a
mortgage-related security generally will decline; however, when
interest rates decline, the value of mortgage-related securities
with prepayment features may not increase as much as other fixed-
income securities. In recognition of this prepayment risk to
investors, the Public Securities Association (the "PSA") has
standardized the method of measuring the rate of mortgage loan
principal prepayments. The PSA formula, the Constant Prepayment
Rate (the "CPR"), or other similar models that are standard in
the industry will be used by a Fund in calculating maturity for
purposes of its investment in mortgage-related securities.
Upward trends in interest rates tend to lengthen the average life
of mortgage-related securities and also cause the value of
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outstanding securities to drop. Thus, during periods of rising
interest rates, the value of these securities held by a Fund
would tend to drop and the portfolio-weighted average life of
such securities held by a Fund may tend to lengthen due to this
effect. Under these circumstances, a Manager may, but is not
required to, sell securities in part in order to maintain an
appropriate portfolio-weighted average life.
Payment of principal and interest on some mortgage pass-
through securities (but not the market value of the securities
themselves) may be guaranteed by the full faith and credit of the
U.S. Government (such as securities guaranteed by the Government
National Mortgage Association ("GNMA")); or guaranteed by
agencies or instrumentalities of the U.S. Government (such as
securities guaranteed by the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage
Corporation ("FHLMC"), which are supported only by the
discretionary authority of the U.S. Government to purchase the
agency's obligations. Mortgage pass-through securities created
by nongovernmental issuers (such as commercial banks, savings and
loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers) may be supported by
various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance, and letters of credit,
which may be issued by governmental entities, private insurers or
the mortgage poolers.
A Fund may also invest in investment grade Collateralized
Mortgage Obligations ("CMOs") which are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-
through securities. Similar to a bond, interest and prepaid
principal on a CMO are paid, in most cases, semiannually. CMOs
may be collateralized by whole mortgage loans but are more
typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC or FNMA. CMOs are
structured into multiple classes, with each class bearing a
different stated maturity. Monthly payments of principal,
including prepayments, are first returned to investors holding
the shortest maturity class; investors holding longer maturity
classes receive principal only after the first class has been
retired. CMOs may be issued by government and nongovernmental
entities. Some CMOs are debt obligations of FHLMC issued in
multiple classes with different maturity dates secured by the
pledge of a pool of conventional mortgages purchased by FHLMC.
Other types of CMOs are issued by corporate issuers in several
series, with the proceeds used to purchase mortgages or mortgage
pass-through certificates. With some CMOs, the issuer serves as
a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan
portfolios. To the extent a particular CMO is issued by an
investment company, a Fund's ability to invest in such CMOs will
be limited. See "Investment Restrictions" in the SAI.
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Assumptions generally accepted by the industry concerning
the probability of early payment may be used in the calculation
of maturities for debt securities that contain put or call
provisions, sometimes resulting in a calculated maturity
different from the stated maturity of the security.
It is anticipated that governmental, government-related or
private entities may create mortgage loan pools and other
mortgage-related securities offering mortgage pass-through and
mortgage-collateralized investments in addition to those
described above. As new types of mortgage-related securities are
developed and offered to investors, the Adviser will, consistent
with a Fund's investment objectives, policies and quality
standards, consider making investments in such new types of
mortgage-related securities, but no investments will be made in
such securities until the Fund's prospectus and/or SAI have been
revised to reflect such securities.
Other Asset-Backed Securities (Centura Equity Income Fund,
Centura Federal Securities Income Fund and Centura North Carolina
Tax-Free Bond Fund). Other asset-backed securities (unrelated to
mortgage loans) are developed from time to time and may be
purchased by a Fund to the extent consistent with its investment
objective and policies, but only after disclosure reflecting such
securities has been added to the Fund's prospectus and/or SAI.
Foreign Securities (Centura Equity Growth Fund and Centura
Equity Income Fund). These Funds may invest in securities
represented by American Depositary Receipts ("ADRs"). ADRs are
dollar-denominated receipts generally issued by domestic banks,
which represent the deposit with the bank of a security of a
foreign issuer, and which are publicly traded on exchanges or
over-the-counter in the United States. There are certain risks
associated with investments in unsponsored ADR programs. Because
the non-U.S. company does not actively participate in the
creation of the ADR program, the underlying agreement for service
and payment will be between the depositary and the shareholders.
The company issuing the stock underlying the ADRs pays nothing to
establish the unsponsored facility, as fees for ADR issuance and
cancellation are paid by brokers. Investors directly bear the
expenses associated with certificate transfer, custody and
dividend payment. In addition, in an unsponsored ADR program,
there may be several depositories with no defined legal
obligations to the non-U.S. company. The duplicate depositories
may lead to marketplace confusion because there would be no
central source of information to buyers, sellers and
intermediaries. The efficiency of centralization gained in a
sponsored program can greatly reduce the delays in delivery of
dividends and annual reports. For more information, see "Risks
of Investing in the Funds."
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Forward Foreign Currency Transactions (Centura Equity Growth
Fund and Centura Equity Income Fund). These Funds may enter into
forward foreign currency exchange contracts in order to protect
against uncertainty in the level of future foreign exchange
rates. These contracts, which involve costs, permit a Fund to
purchase or sell a specific amount of a particular currency at a
specified price on a specified future date. A Fund will realize
a benefit from this type of contract only to the extent that the
relevant currencies move as anticipated. If the currencies do
not move as anticipated, the contracts may cause greater loss to
a Fund than if they had not been used. See the SAI for further
information concerning forward foreign currency transactions.
Futures Contracts and Options (All Funds). The Funds may
purchase and sell futures contracts on securities, currencies,
and indices of securities, and write and sell put and call
options on securities, currencies and indices of securities as a
hedge against changes in interest rates, stock prices, currency
fluctuations and other market developments, provided that not
more than 5% of a Fund's net assets are committed to margin
deposits on futures contracts and premiums for options. See the
SAI for further information about futures and options. See
"Risks of Investing in the Funds" for a discussion of risks
related to investing in futures and options.
Municipal Obligations (Centura North Carolina Tax-Free Bond
Fund). The Fund may invest in securities issued by states, their
political subdivisions and agencies and instrumentalities of the
foregoing, the income from which, in the opinion of bond counsel
for the issuer, is exempt from regular income taxes by the
federal government and state of the issuing entity ("Municipal
Obligations"). Such Municipal Obligations include municipal
bonds, floating rate and variable rate Municipal Obligations,
participation interests in municipal bonds, tax-exempt asset-
backed certificates, tax-exempt commercial paper, short-term
municipal notes, and stand-by commitments. It may be anticipated
that governmental, government-related or private entities will
create other tax-exempt investments in addition to those
described above. As new types of tax-exempt vehicles are
developed, the Adviser will, consistent with the Fund's
investment objectives, policies and quality standards, consider
making investments in such types of Municipal Obligations, but
will not make such investments until they are reflected in the
Fund's prospectus and/or SAI. The Fund will purchase only
Municipal Obligations rated A, SP-1 or better by S&P or A, MIG-1
or better by Moody's (or given equivalent ratings by another
NRSRO) or, if the securities are not rated, are of comparable
quality in the Adviser's opinion. Municipal Obligations in which
the Fund may invest include "general obligation" and "revenue"
securities. General obligation securities are backed by the
issuer's full faith, credit and taxing power for the payment of
principal and interest. The taxes that can be levied for the
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payment of debt service may be limited or unlimited in terms of
rate or amount or special assessments. Revenue securities are
secured primarily by net revenues generated by a particular
facility or group of facilities, or by the proceeds of a special
excise or other specific revenue source. Additional security may
be provided by a debt service reserve fund. Municipal bonds
include industrial development bonds ("IDBs"), moral obligation
bonds, put bonds and private activity bonds ("PABs"). PABs
generally relate to the financing of a facility used by a private
entity or entities. The credit quality of such bonds is usually
directly related to that of the users of the facilities. The
interest on most PABs is an item of tax preference for purposes
of the federal alternative minimum tax and Fund distributions
attributable to such interest likewise, constitute an item of tax
preference. For information on the risks related to the Fund's
concentration in North Carolina Municipal Obligations, see "Risks
of Investing in the Funds."
Municipal Lease Obligations (Centura North Carolina Tax-Free
Bond Fund). The Fund may invest in municipal lease obligations
including certificates of participation ("COPs"), which finance a
variety of public projects. Because of the way these instruments
are structured, they may carry a greater risk than other types of
Municipal Obligations. The Fund may invest in lease obligations
only when they are rated by a rating agency or, if unrated, are
deemed by the Adviser, to be of a quality comparable to the
Fund's quality standards. With respect to any such unrated
municipal lease obligations in which the Fund invests, the
Company's Board of Directors will be responsible for determining
their credit quality, on an ongoing basis, including assessing
the likelihood that the lease will not be canceled. Prior to
purchasing a municipal lease obligation and on a regular basis
thereafter, the Adviser will evaluate the credit quality and,
pursuant to guidelines adopted by the Directors, the liquidity of
the security. In making its evaluation, the Adviser will
consider various credit factors, such as the necessity of the
project the municipality's credit quality, future borrowing
plans, and sources of revenue pledged for lease repayment,
general economic conditions in the region where the security is
issued, and liquidity factors, such as dealer activity. For
further discussion regarding municipal lease obligations, see
"Risks of Investing in the Funds" in this Prospectus and
"Investment Policies" in the SAI.
Stand-by Commitments (Centura North Carolina Tax-Free Bond
Fund). The Fund may acquire "stand-by commitments," which will
enable it to improve its portfolio liquidity by making available
same-day settlements on sales of its securities. A stand-by
commitment gives the Fund, when it purchases a Municipal
Obligation from a broker, dealer or other financial institution
("seller"), the right to sell up to the same principal amount of
such securities back to the seller, at the Fund's option, at a
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specified price. Stand-by commitments are also known as "puts."
The Fund may acquire stand-by commitments solely to facilitate
portfolio liquidity and not to protect against changes in the
market price of the Fund's portfolio securities. The exercise by
the Fund of a stand-by commitment is subject to the ability of
the other party to fulfill its contractual commitment.
The Fund expects that stand-by commitments generally will be
available without the payment of any direct or indirect
consideration. However, if necessary or advisable, the Fund will
pay for stand-by commitments, either separately in cash or by
paying a higher price for portfolio securities which are acquired
subject to the commitments.
It is difficult to evaluate the likelihood of use or the
potential benefit of a stand-by commitment. Therefore, it is
expected that the Directors will determine that stand-by
commitments ordinarily have a "fair value" of zero, regardless of
whether any direct or indirect consideration was paid. However,
if the market price of the security subject to the stand-by
commitment is less than the exercise price of the stand-by
commitment, such security will ordinarily be valued at such
exercise price. Where the Fund has paid for a stand-by
commitment, its cost will be reflected as unrealized depreciation
for the period during which the commitment is held.
There is no assurance that stand-by commitments will be
available to the Fund nor does the Fund assume that such
commitments would continue to be available under all market
conditions.
Third Party Puts (Centura North Carolina Tax-Free Bond
Fund). The Fund may also purchase long-term fixed rate bonds
that have been coupled with an option granted by a third party
financial institution allowing the Fund at specified intervals to
tender (or "put") the bonds to the institution and receive the
face value thereof (plus accrued interest). These third party
puts are available in several different forms, may be represented
by custodial receipts or trust certificates and may be combined
with other features such as interest rate swaps. The Fund
receives a short-term rate of interest (which is periodically
reset), and the interest rate differential between that rate and
the fixed rate on the bond is retained by the financial
institution. The financial institution granting the option does
not provide credit enhancement. In the event that there is a
default in the payment of principal or interest, or downgrading
of a bond to below investment grade, or a loss of the bond's tax-
exempt status, the put option will terminate automatically. The
risk to the Fund in this case will be that of holding a long-term
bond which would tend to lengthen the weighted average maturity
of the Fund's portfolio.
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These bonds coupled with puts may present tax issues also
associated with stand-by commitments. As with any stand-by
commitments acquired by the Fund, the Fund intends to take the
position that it is the owner of any Municipal Obligation
acquired subject to a third-party put, and that tax-exempt
interest earned with respect to such Municipal Obligations will
be tax-exempt in its hands. There is no assurance that the
Internal Revenue Service will agree with such position in any
particular case. Additionally, the federal income tax treatment
of certain other aspects of these investments, including the
treatment of tender fees and swap payments, in relation to
various regulated investment company tax provisions is unclear.
However, the Adviser intends to manage the Fund's portfolio in a
manner designed to minimize any adverse impact from these
investments.
Participation Interests (Centura North Carolina Tax-Free
Bond Fund). The Fund may purchase from banks participation
interests in all or part of specific holdings of Municipal
Obligations. Each participation is backed by an irrevocable
letter of credit or guarantee of the selling bank that the Fund's
Adviser has determined meets the prescribed quality standards of
the Fund. Thus either the credit of the issuer of the Municipal
Obligation or the selling bank, or both, will meet the quality
standards of the Fund. The Fund has the right to sell the
participation back to the bank after seven days' notice for the
full principal amount of the Fund's interest in the Municipal
Obligation plus accrued interest, but only (a) as required to
provide liquidity to the Fund, (b) to maintain a high quality
investment portfolio or (c) upon a default under the terms of the
Municipal Obligation. The selling bank will receive a fee from
the Fund in connection with the arrangement. The Fund will not
purchase participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service satisfactory
to the Adviser that interest earned by the Fund on Municipal
Obligations on which it holds participation interests is exempt
from federal income tax.
INVESTMENT RESTRICTIONS
The following restrictions are applicable to each of the
Funds, except as otherwise indicated.
(1) No Fund may, with respect to 75% of its total assets,
purchase more than 10% of the voting securities of any one issuer
or invest more than 5% of the value of such assets in the
securities or instruments of any one issuer, except securities or
instruments issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
(2) No Fund may purchase securities or instruments which
would cause 25% or more of the market value of its total assets
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at the time of such purchase to be invested in securities or
instruments of one or more issuers having their principal
business activities in the same industry, provided that there is
no limit with respect to investments in the U.S. Government, its
agencies and instrumentalities.
(3) No Fund may borrow money, except that a Fund may
borrow from banks up to 10% of the current value of its total net
assets for temporary or emergency purposes. A Fund will make no
purchases if its outstanding borrowings exceed 5% of its total
assets.
(4) No Fund may make loans, except that a Fund may (a)
lend its portfolio securities, (b) enter into repurchase
agreements with respect to its portfolio securities, and (c)
purchase the types of debt instruments described in this
Prospectus or the SAI.
For purposes of investment restriction number (1), Centura
North Carolina Tax-Free Bond Fund considers a Municipal
Obligation to be issued by the government entity (or entities)
whose assets and revenues back the Municipal Obligation. For a
Municipal Obligation backed only by the assets and revenues of a
nongovernmental user, such user is deemed to be the issuer; such
issuers to the extent their principal business activities are in
the same industry, are also subject to investment restriction
(2). For purposes of investment restriction (2), public
utilities are not deemed to be a single industry but are
separated by industrial categories, such as telephone or gas
utilities.
The foregoing investment restrictions and those described in
the SAI as fundamental are policies of each Fund which may be
changed with respect to that Fund only when permitted by law and
approved by the holders of a majority of the applicable Fund's
outstanding voting securities as described under "Other
Information-Voting."
Additionally, as a non-fundamental policy, no Fund may
invest more than 15% of the aggregate value of its net assets in
investments which are illiquid, or not readily marketable
(including repurchase agreements having maturities of more than
seven calendar days and variable and floating rate demand and
master demand notes not requiring receipt of the principal note
amount within seven days' notice).
If a percentage restriction on investment policies or the
investment or use of assets set forth in this Prospectus are
adhered to at the time a transaction is effected, later changes
in percentage resulting from changing values will not be
considered a violation.
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RISKS OF INVESTING IN THE FUNDS
The price per share of each of the Funds will fluctuate with
changes in the value of the investments held by the Fund.
Shareholders of a Fund should expect the value of their shares to
fluctuate with changes in the value of the securities owned by
that Fund. There is, of course, no assurance that a Fund will
achieve its investment objective or be successful in preventing
or minimizing the risk of loss that is inherent in investing in
particular types of investment products. In order to attempt to
minimize that risk, the Adviser monitors developments in the
economy, the securities markets, and with each particular issuer.
Also, as noted earlier, each Fund is managed within certain
limitations that restrict the amount of a Fund's investment in
any single issuer.
Foreign Securities (Centura Equity Growth Fund and Centura
Equity Income Fund). Investing in the securities of issuers in
any foreign country, including ADRs, involves special risks and
considerations not typically associated with investing in
securities of U.S. issuers. These include differences in
accounting, auditing and financial reporting standards; generally
higher commission rates on foreign portfolio transactions; the
possibility of nationalization, expropriation or confiscatory
taxation; adverse changes in investment or exchange control
regulations (which may include suspension of the ability to
transfer currency from a country); and political instability
which could affect U.S. investments in foreign countries.
Additionally, foreign securities and dividends and interest
payable on those securities may be subject to foreign taxes,
including taxes withheld from payments on those securities.
Foreign securities often trade with less frequency and volume
than domestic securities and, therefore, may exhibit greater
price volatility. Additional costs associated with an investment
in foreign securities may include higher custodial fees than
apply to domestic custodial arrangements and transaction costs of
foreign currency conversions. Changes in foreign exchange rates
also will affect the value of securities denominated or quoted in
currencies other than the U.S. dollar. A Fund's objective may be
affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different
nations, by exchange control regulations and by indigenous
economic and political developments. A decline in the value of
any particular currency against the U.S. dollar will cause a
decline in the U.S. dollar value of a Fund's holdings of
securities denominated in such currency and, therefore, will
cause an overall decline in the Fund's net asset value and any
net investment income and capital gains to be distributed in U.S.
dollars to shareholders of the Fund. The rate of exchange
between the U.S. dollar and other currencies is determined by
several factors including the supply and demand for particular
currencies, central bank efforts to support particular
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currencies, the movement of interest rates, the pace of business
activity in certain other countries and the United States, and
other economic and financial conditions affecting the world
economy. Although a Fund may engage in forward foreign currency
transactions and foreign currency options to protect its
portfolio against fluctuations in currency exchange rates in
relation to the U.S. dollar, there is no assurance that these
techniques will be successful. See "Description of Securities
and Investment Practices" and below for additional information
about these kinds of transactions.
Although the Funds value their assets daily in terms of U.S.
dollars, the Funds do not intend to convert their holdings of
foreign currencies into U.S. dollars on a daily basis. The Funds
will do so from time to time, and investors should be aware of
the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a
profit based on the difference ("spread") between the prices at
which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to a Fund at one
rate, while offering a lesser rate of exchange should the Fund
desire to sell that currency to the dealer.
Through the Funds' flexible policies, the Adviser endeavors
to avoid unfavorable consequences and to take advantage of
favorable developments in particular nations where, from time to
time, it may place the Funds' investments. See the SAI for
information about foreign securities.
Zero Coupon and Pay-in-Kind Securities (Centura Equity
Income Fund, Centura Federal Securities Income Fund and Centura
North Carolina Tax-Free Bond Fund). Zero coupon bonds (which do
not pay interest until maturity) and pay-in-kind securities
(which pay interest in the form of additional securities) may be
more speculative and may fluctuate more in value than securities
which pay income periodically and in cash. In addition, although
a Fund receives no periodic cash payments from such investments,
applicable tax rules require the Fund to accrue and pay out its
income from such securities annually as income dividends and
require stockholders to pay tax on such dividends (except if such
dividends qualify as exempt-interest dividends).
North Carolina Municipal Obligations (Centura North Carolina
Tax-Free Bond Fund). Because this Fund will concentrate its
investments in North Carolina Municipal Obligations, it may be
affected by political, economic or regulatory factors that may
impair the ability of North Carolina issuers to pay interest on
or to repay the principal of their debt obligations. Thus, the
net asset value of the shares may be particularly impacted by the
general economic situation within North Carolina. The
concentration of the Fund's investments in a single state may
involve greater risk than if the Fund invested in Municipal
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Obligations throughout the country, due to the possibility of an
economic or political development which could uniquely affect the
ability of issuers to meet the debt obligations of the
securities.
The economy of North Carolina is supported by industry,
agricultural products, and tourism, with the largest segment of
its work force employed in manufacturing. From 1980 to 1993, the
state's per capita income grew 133.8%, from $7,999 to $18,702.
The state has the nation's tenth highest population, and its
unemployment rate in March, 1995 was 3.9% of the labor force
(versus a national rate of 5.5%). The state's labor force grew
26.4% between 1980 and 1994, while its complexion shifted from
agriculture to the production of goods and services. In 1993,
North Carolina nevertheless ranked tenth in the nation in gross
agricultural income. Although 20% of its agricultural income
comes from tobacco, 34% comes from a diversified poultry industry
and the remainder from a relatively large variety of other
agricultural plant and animal products. North Carolina is the
third most diversified state in the country in terms of its
agriculture.
Obligations of issuers of North Carolina Municipal
Obligations are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bank Reform Act of 1978. In
addition, the obligations of such issuers may become subject to
the laws enacted in the future by Congress or the North Carolina
legislature or by referenda extending the time for payment of
principal and/or interest, or imposing other constraints upon
enforcement of such obligations or upon municipalities to levy
taxes. There is also the possibility that, as a result of
legislation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its
North Carolina Municipal Obligations may be materially affected.
Additional considerations relating to the risks of investing in
North Carolina Municipal Obligations are presented in the SAI.
Municipal Lease Obligations (Centura North Carolina Tax-Free
Bond Fund). Municipal lease obligations have special risks not
normally associated with municipal bonds. These obligations
frequently contain "non-appropriation" clauses that provide that
the governmental issuer of the obligation has no obligation to
make future payments under the lease or contract unless money is
appropriated for such purposes by the legislative body on a
yearly or other periodic basis. For more information on risks of
municipal lease investments, see the SAI.
Risks of Options Transactions (All Funds). The purchase and
writing of options involves certain risks. During the option
period, the covered call writer has, in return for the premium on
the option, given up the opportunity to profit from a price
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increase in the underlying securities above the exercise price,
but, as long as its obligation as a writer continues, has
retained the risk of loss should the price of the underlying
security decline. The writer of an option has no control over
the time when it may be required to fulfill its obligation as a
writer of the option. Once an option writer has received an
exercise notice, it cannot effect a closing purchase transaction
in order to terminate its obligation under the option and must
deliver the underlying securities at the exercise price. If a
put or call option purchased by a Fund is not sold when it has
remaining value, and if the market price of the underlying
security, in the case of a put, remains equal to or greater than
the exercise price, or in the case of a call, remains less than
or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a
particular security is purchased to hedge against price movements
in a related security, the price of the put or call option may
move more or less than the price of the related security. There
can be no assurance that a liquid market will exist when a Fund
seeks to close out an option position. Furthermore, if trading
restrictions or suspensions are imposed on the options market, a
Fund may be unable to close out a position. If a Fund cannot
effect a closing transaction, it will not be able to sell the
underlying security while the previously written option remains
outstanding, even if it might otherwise be advantageous to do so.
Foreign Currency Options (Centura Equity Growth Fund and
Centura Equity Income Fund). Currency options traded on U.S. or
other exchanges may be subject to position limits which may limit
the ability of a Fund to reduce foreign currency risk using such
options. Over-the-counter options differ from exchange-traded
options in that they are two-party contracts with price and other
terms negotiated between buyer and seller and generally do not
have as much market liquidity as exchange-traded options.
Employing hedging strategies with options on currencies does not
eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline.
Furthermore, such hedging transactions reduce or preclude the
opportunity for gain if the value of the hedged currency should
change relative to the U.S. dollar. The Funds will not speculate
in options on foreign currencies.
There is no assurance that a liquid secondary market will
exist for any particular foreign currency option, or at any
particular time. In the event no liquid secondary market exists.
it might not be possible to effect closing transactions in
particular options. If a Fund cannot close out an option which
it holds, it would have to exercise its option in order to
realize any profit and would incur transactional costs on the
sale of the underlying assets.
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Risks of Futures and Related Options Transactions (All
Funds). There are several risks associated with the use of
futures contracts and options on futures contracts. While a
Fund's use of futures contracts and related options for hedging
may protect a Fund against adverse movements in the general level
of interest rates or securities prices, such transactions could
also preclude the opportunity to benefit from favorable movements
in the level of interest rates or securities prices. There can
be no guarantee that the Adviser's forecasts about market value,
interest rates and other applicable factors will be correct or
that there will be a correlation between price movements in the
hedging vehicle and in the securities being hedged. The skills
required to invest successfully in futures and options may differ
from the skills required to manage other assets in a Fund's
portfolio. An incorrect forecast or imperfect correlation could
result in a loss on both the hedged securities in a Fund and the
hedging vehicle so that the Fund's return might have been better
had hedging not been attempted.
There can be no assurance that a liquid market will exist at
a time when a Fund seeks to close out a futures contract or
futures option position. Most futures exchanges and boards of
trade limit the amount of fluctuation permitted in futures
contract prices during a single day; once the daily limit has
been reached on a particular contract, no trades may be made that
day at a price beyond that limit. In addition, certain of these
instruments are relatively new and without a significant trading
history. As a result, there is no assurance that an active
secondary market will develop or continue to exist. Lack of a
liquid market for any reason may prevent the Fund from
liquidating an unfavorable position and the Fund would remain
obligated to meet margin requirements until the position is
closed. The potential risk of loss to a Fund from a futures
transaction is unlimited. Therefore, although the Funds have
authority to engage in futures transactions, they have no present
intention to do so and will engage in such transactions only when
disclosure to that effect has been added to the Prospectus.
A Fund will only enter into futures contracts or futures
options which are standardized and traded on a U.S. or foreign
exchange or board of trade, or similar entity, or are quoted on
an automated quotation system. A Fund will not enter into a
futures contract if immediately thereafter the initial margin
deposits for futures contracts held by the Fund plus premiums
paid by it for open futures options positions, less the amount by
which any such positions are "in-the-money," would exceed 5% of
the Fund's total assets.
The Funds may trade futures contracts and options on futures
contracts on U.S. domestic markets and, for Centura Equity Growth
Fund and Centura Equity Income Fund, also on exchanges located
outside of the United States. Foreign markets may offer
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<PAGE>
advantages such as trading in indices that are not currently
traded in the United States. Foreign markets, however, may have
greater risk potential than domestic markets. Unlike trading on
domestic commodity exchanges, trading on foreign commodity
exchanges is not regulated by the Commodity Futures Trading
Commission and may be subject to greater risk than trading on
domestic exchanges. For example, some foreign exchanges are
principal markets so that no common clearing facility exists and
a trader may look only to the broker for performance of the
contract. In addition, any profits that the Fund might realize
in trading could be eliminated by adverse changes in the exchange
rate of the currency in which the transaction is denominated, or
the Fund could incur losses as a result of changes in the
exchange rate. Transactions on foreign exchanges may include
both commodities that are traded on domestic exchanges or boards
of trade and those that are not.
Risks of Forward Foreign Currency Contracts (Centura Equity
Growth Fund and Centura Equity Income Fund). The precise
matching of forward contracts and the value of the securities
involved will not generally be possible since the future value of
the securities in foreign currencies will change as a consequence
of market movements in the value of those securities between the
date the forward contract is entered into and the date it
matures. Projection of short-term currency market movements is
extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. There can be no assurance
that new forward contracts or offsets will always be available to
the Funds.
MANAGEMENT OF THE FUNDS
The business and affairs of each Fund are managed under the
direction of the Board of Directors. The Directors are Leslie H.
Garner, Jr., James H. Speed, Jr., Frederick E. Turnage, Lucy
Hancock Bode and J. Franklin Martin. Additional information
about the Directors, as well as the Company's executive officers,
may be found in the SAI under the heading "Management - Directors
and Officers."
The Adviser: Centura Bank
Centura Bank, 131 North Church Street, Rocky Mount, North
Carolina 27802, is a member bank of the Federal Reserve System.
Centura Bank and its parent, Centura Banks, Inc., were formed in
1990 through a merger of two other Rocky Mount, North Carolina
bank holding companies and their subsidiary banks.
For the advisory services it provides the Funds, the Adviser
receives from each Fund fees, payable monthly based on average
daily net assets, at an annual rate based on the Fund's average
net assets. Fees are 0.70% for Centura Equity Growth Fund, 0.70%
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for Centura Equity Income Fund, 0.30% for Centura Federal
Securities Income Fund and 0.35% for Centura North Carolina Tax--
Free Bond Fund. The Adviser also serves as Custodian for the
Funds' assets, for which it receives additional fees. For the
fiscal period ended April 30, 1995, the Adviser received $458,424
in Advisory fees from the Equity Growth Fund and $236,139 from
the Federal Securities Income Fund. The advisory fees for the
North Carolina Tax-Free Bond Fund amounted to $98,015, however,
the Adviser waived $83,311.
Carlisle Whitlock has primary responsibility for the overall
management of the Funds and for portfolio management of Centura
Equity Growth Fund. Mr. Whitlock joined the Adviser in 1991. He
is presently Senior Vice President-Trust Investments. Mr.
Whitlock began his investment career in 1975 with the Robinson
Humphrey Co. From 1981 to 1988, he continued his investment work
at C & S Bank, leaving his position as Vice President and
Investment Officer to become Senior Trust Investment Officer at
Planters National Bank and Trust Company ("Planters"). When
Planters merged with two bank subsidiaries of Peoples
Bancorporation in 1991 to form Centura Bank, Mr. Whitlock assumed
his present position and title.
Frank Jolley has primary responsibility for management of
Centura Equity Income Fund. Mr. Jolley has over 16 years
experience in investments and financial analysis. He graduated
from the University of North Carolina at Chapel Hill with a
Bachelor of Science in business administration. Mr. Jolley began
his investment career with Dean Witter Reynolds in retail sales
and later served as a branch manager for a regional securities
firm. Primary duties at Centura include the management of common
trust funds along with personal and pension fund investment
responsibilities. Mr. Jolley is a Chartered Financial Analyst
and a member of the North Carolina Society of Financial Analysis.
Robert D. Marsh has primary responsibility for the
management of Centura North Carolina Tax-Free Bond Fund. Mr.
Marsh has over 34 years' experience in Trust investments,
portfolio management, and administration. He graduated from Ball
State University with a Bachelor of Science degree in accounting.
Mr. Marsh began his Trust career at American National Bank and
Trust Company in Indiana where he was responsible for management
of the equity and fixed income functions. Mr. Marsh's other
duties at Centura include the management of common trust funds
and personal and pension fund investment responsibilities. Mr.
Marsh is a member of the North Carolina Society of Financial
Analysts.
Lawrence R. Allen serves as portfolio manager for Centura
Federal Securities Income Fund. Mr. Allen has 3 years experience
in investments and portfolio management. He graduated from
Campbell University with a Bachelor in Business Administration
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and a Trust Management certificate. Mr. Allen began his
investment career with United Carolina Bank in Trust Investments.
Mr. Allen's other duties at Centura include the management of
taxable fixed income common trust funds.
The Distributor
Centura Funds Distributor, Inc., 230 Park Avenue, New York,
New York 10169, acts as the Funds' Distributor. The Distributor
is an affiliate of the Funds' Administrator, Furman Selz LLC
("Furman Selz"), and was formed specifically to distribute the
Funds. (See "The Administrator.")
Each of the Funds has adopted a service and distribution
plan ("Plan") with respect to its Class A and Class B shares.
The Plans provide that each class of shares will pay the
Distributor a fee calculated as a percentage of the value of
average daily net assets of that class as reimbursement for its
costs incurred in financing certain distribution and shareholder
service activities related to that class.
Class A Plans. The Class A Plans provide for payments by each
Fund to the Distributor at an annual rate not to exceed 0.50% of
the Fund's average net assets attributable to its Class A shares.
Such fee may include a Service Fee totalling up to 0.25% of the
average annual net assets attributable to a Fund's Class A
shares. Service Fees are paid to securities dealers and other
financial institutions for maintaining shareholder accounts and
providing related services to shareholders. The Distributor may
also retain portions of the sales charges paid on Class A shares.
During the first year of the Funds' operations the Adviser
limited 12b-1 fees for Class A shares to 0.25% and will continue
to do so for its current fiscal year. For the period ended April
30, 1995, the Distributor received $1,106, $422 and $1,018 for
the Equity Growth Fund, the Federal Securities Income Fund and
the North Carolina Tax-Free Bond Fund, respectively, pursuant to
Class A Plans.
Class B Plans. The Class B Plans provide for payments by each
Fund to the Distributor at an annual rate not to exceed 1.00% of
the Fund's average net assets attributable to its Class B shares.
For the current fiscal year, the Distributor has agreed to limit
fees for Class B shares of Centura Federal Securities Income Fund
and Centura North Carolina Tax-Free Bond Fund to 0.75%. Such
fees may include a Service Fee totalling up to 0.25% of the
average annual net assets attributable to a Fund's Class B
shares. The Distributor also receives the proceeds of any CDSC
imposed on redemptions of Class B shares.
Although Class B shares are sold without an initial sales
charge, the Distributor pays a sales commission equal to 4.00% of
the amounts invested in Centura Equity Growth Fund and Centura
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Equity Income Fund and 2.50% of the amounts invested in each of
the other Funds to securities dealers and other financial
institutions who sell Class B shares. The Distributor may, at
times, pay sales commissions higher than the above on sales of
Class B shares. These commissions are not paid on exchanges from
other Funds and sales to investors for whom the CDSC is waived.
For the period ended April 30, 1995, the Distributor received
$4,705, $412 and $2,322 for the Equity Growth Fund, the Federal
Securities Income Fund and the North Carolina Tax-Free Bond Fund,
respectively, pursuant to Class B Plans.
Under each Plan, each Fund pays the Distributor and other
securities dealers and other financial institutions and
organizations for certain shareholder service or distribution
activities. Subject to overall limits applicable to each class,
selling dealers may be paid amounts totalling up to 0.50% of the
value of average daily net assets of Fund shares annually.
Amounts received by the Distributor may, additionally, subject to
the Plan maximums, be used to cover certain other costs and
expenses related to the distribution of Fund shares and provision
of service to Fund shareholders, including: (a) advertising by
radio, television, newspapers, magazines, brochures, sales
literature, direct mail or any other form of advertising; (b)
expenses of sales employees or agents of the Distributor,
including salary, commissions, travel and related expenses; (c)
costs of printing prospectuses and other materials to be given or
sent to prospective investors; and (d) such other similar
services as the Directors determine to be reasonably calculated
to result in the sale of shares of the Funds. Each Fund will pay
all costs and expenses in connection with the preparation,
printing and distribution of the Prospectus to current
shareholders and the operation of its Plan(s), including related
legal and accounting fees. A Fund will not be liable for
distribution expenditures made by the Distributor in any given
year in excess of the maximum amount payable under a Plan for
that Fund in that year.
Service Organizations
Payments may be made by the Funds or by the Adviser to
various banks, trust companies, broker-dealers or other financial
organizations (collectively, "Service Organizations") for
providing administrative services for the Funds and their
shareholders, such as maintaining shareholder records, answering
shareholder inquiries and forwarding materials and information to
shareholders. The Funds may pay fees to Service Organizations
(which vary depending upon the services provided) in amounts up
to an annual rate of 0.25% of the daily net asset value of the
shares of either class owned by shareholders with whom the
Service Organization has a servicing relationship.
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Some Service Organizations may impose additional or
different conditions on their clients, such as requiring clients
to invest more than a Fund's minimum initial or subsequent
investments or charging a direct fee for servicing. If imposed,
these fees would be in addition to any amounts which might be
paid to the Service Organization by the Funds. Each Service
Organization has agreed to transmit to its clients a schedule of
any such fees. Shareholders using Service Organizations are
urged to consult with them regarding any such fees or conditions.
The Glass-Steagall Act and other applicable laws provide
that among other things, banks may not engage in the business of
underwriting, selling or distributing securities. There is
currently no precedent prohibiting banks from performing
administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or
interpretations of such laws, as well as changes in either
federal or state regulations relating to the possible activities
of banks and their subsidiaries or affiliates, could prevent a
bank Service Organization from continuing to perform all or a
part of its servicing activities. If a bank were prohibited from
so acting, its shareholder clients would be permitted to remain
shareholders of the Funds and alternative means for continuing
the servicing of such shareholders would be sought. It is not
expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences.
The Administrator and Sponsor
Furman Selz LLC, 230 Park Avenue, New York, New York 10169,
acts as Sponsor and Administrator of the Funds. Furman Selz is
primarily an institutional brokerage firm with membership on the
New York, American, Boston, Midwest, Pacific and Philadelphia
Stock Exchanges. Furman Selz also serves as sponsor,
administrator and distributor of other mutual funds. Pursuant to
an Administrative Services Contract with the Company, Furman Selz
provides certain management and administrative services necessary
for the Funds' operations including: (a) general supervision of
the operation of the Funds including coordination of the services
performed by the Funds' Adviser, custodian, independent
accountants and legal counsel; (b) regulatory compliance,
including the compilation of information for documents such as
reports to, and filings with, the SEC and state securities
commissions, and preparation of proxy statements and shareholder
reports for the Funds; (c) general supervision relative to the
compilation of data required for the preparation of periodic
reports distributed to the Funds' officers and Board of
Directors; and (d) furnishing office space and certain facilities
required for conducting the business of the Funds. For these
services, Furman Selz receives from each Fund a fee, payable
monthly, at the annual rate of 0.15% of each Fund's average daily
net assets. For the fiscal period ended April 30, 1995, the
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Administrator received $86,276, $94,101 and $5,048 in
administrative services fees and waived $19,669, $23,780 and
$40,371 in administrative services fees from the Equity Growth
Fund, the Federal Securities Income Fund and the North Carolina
Tax-Free Bond Fund, respectively. Under separate agreements with
the Company, Furman Selz also acts as the Funds' transfer and
dividend disbursing agent (for which it receives a fee of $15 per
account per year, plus out-of-pocket expenses) and provides
assistance in calculating the Funds' net asset values and
provides other accounting services for the Funds (for an annual
fee of $30,000 per Fund plus out-of-pocket expenses). For the
fiscal period ended April 30, 1995, Furman Selz earned $9,897,
$5,034 and $4,275 in transfer agent fees for the Equity Growth
Fund, the Federal Securities Income Fund and the North Carolina
Tax-Free Bond Fund, respectively. Furman Selz also earned
$29,727, $32,231 and $34,948 in fund accounting fees for the
Equity Growth Fund, the Federal Securities Income Fund and the
North Carolina Tax-Free Bond Fund, respectively, for the same
period.
Other Expenses
Each Fund bears all costs of its operations other than
expenses specifically the responsibility of the Administrator,
the Adviser or other service providers. In addition to service
providers described above, the costs borne by the Funds, some of
which may vary among the classes, as noted above, include: legal
and accounting expenses; Directors' fees and expenses; insurance
premiums; custodian and transfer agent fees and expenses;
expenses incurred in acquiring or disposing of the Funds'
portfolio securities; expenses of registering and qualifying the
Funds' shares for sale with the SEC and with various state
securities commissions; expenses of maintaining the Funds' legal
existence and of shareholders' meetings; and expenses of
preparing and distributing reports, proxy statements and
prospectuses to existing shareholders. Each Fund bears its own
expenses associated with its establishment as a portfolio of the
Company; these expenses are amortized over a five-year period
from the commencement of a Fund's operations. Company expenses
directly attributable to a Fund or class are charged to that Fund
or class; other expenses are allocated proportionately among all
of the Funds and classes in the Company in relation to the net
assets of each Fund and class.
39
<PAGE>
PRICING OF FUND SHARES
Class A Shares
Orders for the purchase of Class A shares will be executed
at the net asset value per share of that class next determined
after an order has been received, plus any applicable sales
charge (the "public offering price"). The sales charge on
purchases of Class A shares of the Funds is as follows:
40
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Amount of
Sales
Charge
Reallowed
to Dealers
as a
Sales Charge as a Percentage
Percentage of of Public
Offering
Price*
Public Net
Offering Amount
Price Invested
Class A Shares - Centura Equity
Growth Fund and Centura Equity
Income Fund
Amount of Investment
Less than $50,000 4.50% 4.71% 4.50%
$50,000 but less than $100,000 4.00% 4.17% 4.00%
$100,000 but less than $250,000 3.50% 3.63% 3.50%
$250,000 but less than $500,000 2.50% 2.56% 2.50%
$500,000 but less than $1,000,000 1.50% 1.52% 1.50%
$1,000,000 and over 0.00%** 0.00%** (See
below)
Class A - Shares - Centura Federal
Securities Income Fund and Centura
North Carolina Municipal Bond Fund
Amount of Investment
Less than $50,000 2.75% 2.83% 2.75%
$50,000 but less than $100,000 2.50% 2.56% 2.50%
$100,000 but less than $250,000 2.25% 2.30% 2.50%
$250,000 but less than $500,000 1.75% 1.78% 1.75%
$500,000 but less than $1,000,000 1.00% 1.01% 1.00%
$1,000,000 and over 0.00%*** 0.00%*** (See
below)
</TABLE>
41
<PAGE>
* The staff of the Securities and Exchange Commission has
indicated that dealers who receive more than 90% of the
sales charge may be considered underwriters.
** A 1.00% CDSC will be assessed on shares redeemed within 18
months of purchase (excluding shares purchased with
reinvested dividends and/or distributions).
*** A 0.75% CDSC will be assessed on shares redeemed within 18
months of purchase (excluding shares purchased with
reinvested dividends and/or distributions).
Although no sales charge is applied to purchases of
$1,000,000 or more, Centura Funds Distributor, Inc. may pay the
following dealer concessions for such purchases: for Centura
Equity Growth Fund and Centura Equity Income Fund, up to 1.00% on
purchases of $1,000,000 to $1,999,999, plus an additional 0.75%
on amounts from $2,000,000 to $2,999,999, plus an additional
0.50% on amounts from $3,000,000 to 9,999,999, plus an additional
0.25% for amounts of $10,000,000 or more; for Centura Federal
Securities Income Fund and Centura North Carolina Tax-Free Bond
Fund, up to 0.75% on purchases of $1,000,000 to $1,999,999, plus
an additional 0.50% on amounts from $2,000,000 to $4,999,999,
plus an additional 0.25% on amounts of $5,000,000 or more.
The sales charge will not apply to purchases of Class A
shares by: (a) trust, investment management and other fiduciary
accounts managed by the Adviser pursuant to a written agreement;
(b) any person purchasing shares with the proceeds of a
distribution from a trust investment management or other
fiduciary account managed by the Adviser pursuant to a written
agreement; (c) Furman Selz or any of its affiliates; (d)
Directors or officers of the Funds; (e) directors or officers of
Furman Selz or the Adviser, or affiliates or bona fide full-time
employees of any of the foregoing who have acted as such for not
less than 90 days (including members of their immediate families
and their retirement plans or accounts); or (f) retirement
accounts or plans (or monies from retirement accounts or plans)
for which there is a written service agreement between the
Company and the plan sponsor, so long as such shares are
purchased through the Funds; or (g) any person purchasing shares
within an approved asset allocation program sponsored by a
financial services organization. The sales charge also does not
apply to shares sold to representatives of selling brokers and
members of their immediate families. In addition, the sales
charge does not apply to sales to bank trust departments, acting
on behalf of one or more clients, of shares having an aggregate
value equal to or exceeding $200,000.
For purchases of $250,000 or more, the Funds believe that it
is preferable for an investor (other than an institutional
investor eligible to purchase Class C shares) to purchase Class A
42
<PAGE>
rather than Class B shares. This belief is based on an
assessment of the relative costs of the two classes, including
applicable sales charge or CDSC and Service and Distribution
Fees. Accordingly, the Funds have adopted guidelines directing
authorized brokers, investment advisers and Service Organizations
that purchases of $250,000 or more by their non-institutional
clients should be of Class A shares. The Funds reserve the right
to vary these guidelines at any time.
Class B Shares
The Funds offer their Class B shares at their net asset
value next determined after a purchase order has been received.
No sales charge is imposed at the time of purchase. A CDSC is,
however, imposed on certain redemptions of Class B shares. See
"Redemption of Fund Shares" for more information on the CDSC. On
the seventh anniversary of their purchase date, Class B shares
automatically convert to Class A shares. See "Management of the
Funds - the Distributor."
See "Dividends, Distributions and Federal Income Taxation,"
for an explanation of circumstances in which a sales charge paid
to acquire shares of a mutual fund may not be taken into account
in determining gain or loss on the disposition of those shares.
Quantity Discounts in the Sales Charges
Right of Accumulation
The Funds permit sales charges on Class A shares to be
reduced through rights of accumulation. For Class A shares, the
schedule of reduced sales charges will be applicable once the
accumulated value of the account has reached $50,000. For this
purpose, the dollar amount of the qualifying concurrent or
subsequent purchase is added to the net asset value of any other
Class A shares of those Funds in the Company owned at the time by
the investor. The sales charge imposed on the Class A shares
being purchased will then be at the rate applicable to the
aggregate of Class A shares purchased. For example, if the
investor held Class A shares of these Funds valued at $100,000
and purchased an additional $20,000 of shares of these Funds
(totalling an investment of $120,000), the sales charge for the
$20,000 purchase would be at the next lower sales charge on the
schedule (i.e., the sales charge for purchases over $100,000 but
less than $250,000). There can be no assurance that investors
will receive the cumulative discounts to which they may be
entitled unless, at the time of placing their purchase order, the
investors, their dealers, or Service Organizations make a written
request for the discount. The cumulative discount program may be
amended or terminated at any time. This particular privilege
does not entitle the investor to any adjustment in the sales
charge paid previously on purchases of shares of the Funds. If
43
<PAGE>
the investor knows that he will be making additional purchases of
shares in the future, he may wish to consider executing a Letter
of Intent.
Letter of Intent
The schedule of reduced sales charges is also available to
Class A investors who enter into a written Letter of Intent
providing for the purchase, within a 13-month period, of Class A
shares of a particular Fund. Shares of such Fund previously
purchased during a 90-day period prior to the date of receipt by
the Fund of the Letter of Intent which are still owned by the
shareholder may also be included in determining the applicable
reduction, provided the shareholder, dealer, or Service
Organization notifies the Fund of such prior purchases.
A Letter of Intent permits an investor in Class A shares to
establish a total investment goal to be achieved by any number of
investments over a 13-month period. Each investment made during
the period will receive the reduced sales commission applicable
to the amount represented by the goal as if it were a single
investment. A number of shares totalling 5% of the dollar amount
of the Letter of Intent will be held in escrow by the Fund in the
name of the shareholder. The initial purchase under a Letter of
Intent must be equal to at least 5% of the stated investment
goal.
The Letter of Intent does not obligate the investor to
purchase, or a Fund to sell, the indicated amount. In the event
the Letter of Intent goal is not achieved within the 13-month
period, the investor is required to pay the difference between
the sales charge otherwise applicable to the purchases made
during this period and sales charges actually paid. The Fund is
authorized by the shareholder to liquidate a sufficient number of
escrowed shares to obtain such difference. If the goal is
exceeded and purchases pass the next sales charge level, the
sales charge on the entire amount of the purchase that results in
passing that level and on subsequent purchases will be subject to
further reduced sales charges in the same manner as set forth
under "Right of Accumulation," but there will be no retroactive
reduction of sales charges on previous purchases. At any time
while a Letter of Intent is in effect, a shareholder may, by
written notice to the Fund, increase the amount of the stated
goal. In that event, shares purchased during the previous 90-day
period and still owned by the shareholder will be included in
determining the applicable sales charge reduction. The 5% escrow
and minimum purchase requirements will be applicable to the new
stated goal. Investors electing to purchase Fund shares pursuant
to a Letter of Intent should carefully read the application for
Letter of Intent which is available from the Fund.
44
<PAGE>
MINIMUM PURCHASE REQUIREMENTS
The minimum initial investment in each of the Funds is
$1,000, except that the minimum investment required for an IRA or
other qualified retirement plan is $250. Any subsequent
investments must be at least $250, except for an IRA or qualified
retirement plan investment. All initial investments should be
accompanied by a completed Purchase Application unless otherwise
agreed upon when purchases are made through an authorized
securities dealer or financial institution. A Purchase
Application accompanies this Prospectus. However, a separate
application is required for IRA and other qualified retirement
plan investments. Centura North Carolina Tax-Free Bond Fund is
not a recommended investment for an IRA or other qualified
retirement plan. The Funds reserve the right to reject purchase
orders.
PURCHASE OF FUND SHARES
All consideration received by the Funds for the purchase of
shares is invested in full and fractional shares of the indicated
class of the appropriate Fund. Certificates for shares are not
issued. Furman Selz maintains records of each shareholder's
holdings of Fund shares, and each shareholder receives a monthly
statement of transactions, holdings and dividends.
An investment may be made using any of the following
methods:
Through an Authorized Broker, Investment Adviser or Service
Organization. Shares are available to new and existing
shareholders through authorized brokers, investment advisers and
Service Organizations. To make an investment using this method,
a Purchase Application must have been completed and the customer
must notify the broker, investment adviser or Service
Organization of the amount to be invested. The broker will then
contact the Funds to place the order.
Orders received by the broker or Service Organization in
proper order prior to the determination of net asset value and
transmitted to the Funds prior to the close of its business day
(which is currently 5:00 p.m., Eastern time), will become
effective that day. Brokers who receive orders are obligated to
transmit them promptly. Written confirmation of an order should
be received a few days after the broker has placed the order.
Through the Funds. Orders may be placed directly with the
Funds. For an initial investment, the investor should submit a
completed Purchase Application together with a check or other
negotiable bank draft for at least $1,000 (or any lower
applicable minimum required for an initial investment) to:
45
<PAGE>
Centura Funds
Grand Central Station
P.O. Box 4490
New York, New York 10163-4490
Subsequent investments may be made by sending a check or
other negotiable bank draft for at least $250 (or any lower
applicable minimum for a subsequent investment) to the same
address. The investor's letter of instruction should include:
(a) the name of the Fund and class of shares to be purchased; and
(b) the account number.
If orders placed through the Fund's Distributor are paid for
by check, the order becomes effective on the day on which funds
are made available with respect to the check, which will
generally be the Business Day following receipt of the check if
the check is received by 2:00 p.m., Eastern time. A customer who
purchases Fund shares through the Distributor by personal check
will be permitted to redeem those shares only after the purchase
check has been collected, which may take up to 15 days or more.
Customers who anticipate the need for more immediate access to
their investment should purchase shares with federal funds. A
customer purchasing Fund shares through a Shareholder Servicing
Agent should contact his or her Shareholder Servicing Agent with
respect to the ability to purchase shares by check and the
related procedures.
By Wire. Investments may be made directly through the use
of wire transfers of Federal funds. An investor's bank may wire
Federal funds to the applicable Fund. In most cases, the bank
will either be a member of the Federal Reserve Banking System or
have a relationship with a bank that is. The bank will normally
charge a fee for handling the transaction. To purchase shares by
a Federal funds wire, investors should first contact the Funds'
Client Services Wire Desk which will establish a record of
information for the wire to insure the correct processing of
funds. The Wire Desk may be called at 1-800-44CENTURA (442-
3688).
The investor's bank should wire funds using the following
instructions:
Investors Fiduciary Trust Company
Kansas City, MO 64105
ABA#1010-0362-1
Account #751-300-3
Attn: Centura
Further Credit to: your account name and account
number
46
<PAGE>
Investors who have read the Prospectus may establish a new
regular account through the Wire Desk; IRAs and other qualified
retirement plan accounts may not be opened in this way. When new
accounts are established by wire, the distribution options will
be set to reinvest all dividends and the social security or tax
identification number ("TIN") will not be certified until a
signed application is received. Completed applications should be
forwarded immediately to the Funds. By using the Purchase
Application, an investor may specify other distribution options
and may add any special features offered by a Fund. Should any
dividend distributions or redemptions be paid before the TIN is
certified, they will be subject to 31% federal tax withholding.
Institutional Accounts. Bank trust departments and other
institutional accounts, not subject to sales charges, may place
orders directly with the Funds by telephone at 1-800-44CENTURA
(442-3688).
Automatic Investment Program. An eligible shareholder may
also participate in the Centura Automatic Investment Program, an
investment plan that automatically debits money from the
shareholder's bank account and invests it in one or more of the
Funds through the use of electronic funds transfers or automatic
bank drafts. No investment is required to initiate this Program.
Shareholders may elect to make investments by transfers of a
minimum of $50 on either the fifth or twentieth day of each month
or calendar quarter into their established Fund account. Contact
the Funds for more information about the Centura Automatic
Investment Program.
By Payroll Direct Deposits. Investors may set up a payroll
direct deposit arrangement for amounts to be automatically
invested in any of the Funds. Participants in the Payroll Direct
Deposit Program may make periodic investments of at least $50 per
pay period. Contact the Funds for more information about Payroll
Direct Deposits.
RETIREMENT PLAN ACCOUNTS
Each of the Funds may be used as a funding medium for IRAs
and other qualified retirement plans ("Retirement Plans"), except
that Centura North Carolina Tax-Free Bond Fund is not recommended
for IRA or Retirement Plan investments. The minimum initial
investment for an IRA or a Retirement Plan is $250, with no mini-
mum for subsequent investments. An IRA may be established
through a custodial account with Investors Fiduciary Trust
Company. Completion of a special application is required in
order to create such an account. A $5.00 establishment fee and
an annual $12.00 maintenance and custody fee is payable with
respect to each IRA; in addition there will be charged a $10.00
termination fee when the account is closed. Fund shares may also
be purchased for IRAs and Retirement Plans established with other
47
<PAGE>
authorized custodians. Contributions to IRAs are subject to
prevailing amount limits set by the Internal Revenue Service.
For more information about IRAs and other Retirement Plan
accounts, call the Funds at 1-800-44CENTURA (442-3688).
EXCHANGE OF FUND SHARES
The Funds offer two convenient ways to exchange shares in
one Fund for shares of another Fund in the Company. Shares of a
particular class of a Fund may be exchanged only for shares of
that same class in another Fund. Before engaging in an exchange
transaction, a shareholder should read carefully the information
in the Prospectus describing the Fund into which the exchange
will occur. A shareholder may not exchange shares of a class of
one Fund for shares of the same class of another Fund that is not
qualified for sale in the state of the shareholder's residence.
There is no minimum for exchanges, provided the investor has
satisfied the $1,000 minimum investment requirement for the Fund
into which he or she is exchanging, and no service fee is imposed
for an exchange. The Company may terminate or amend the terms of
the exchange privilege at any time upon 60 days notice to
shareholders.
A new account opened by exchange must be established with
the same name(s), address and social security number as the
existing account. All exchanges will be made based on the
respective net asset values next determined following receipt of
the request by a Fund in good order.
An exchange is taxable as a sale of a security on which a
gain or loss may be recognized. Shareholders should receive
written confirmation of the exchange within a few days of the
completion of the transaction.
In the case of transactions subject to a sales charge, the
sales charge will be assessed on an exchange of shares, equal to
the excess of the sales load applicable to the shares to be
acquired, over the amount of any sales load previously paid on
the shares to be exchanged. No sales charge is assessed on an
exchange of shares that have been held for more than two years.
No service fee is imposed on any exchange. See "Dividends,
Distributions and Federal Income Taxation" for an explanation of
circumstances in which a sales charge paid to acquire shares of
the Funds may not be taken into account in determining gain or
loss on the disposition of those shares.
Exchange by Mail. To exchange Fund shares by mail,
shareholders should simply send a letter of instruction to the
Funds. The letter of instruction must include: (a) the
investor's account number; (b) the class of shares to be
exchanged; (c) the Fund from and the Fund into which the exchange
is to be made; (d) the dollar or share amount to be exchanged;
48
<PAGE>
and (e) the signatures of all registered owners or authorized
parties. All signatures must be guaranteed by an eligible
guarantor institution including members of national securities
exchanges, commercial banks or trust companies, broker-dealers,
credit unions and savings associations.
Exchange by Telephone. To exchange Fund shares by telephone
or to ask any questions, shareholders may call the Fund at 1-800-
44CENTURA (442-3688). Please be prepared to give the telephone
representative the following information: (a) the account number,
social security number and account registration; (b) the class of
shares to be exchanged; (c) the name of the Fund from which and
the Fund into which the exchange is to be made; and (d) the
dollar or share amount to be exchanged. Telephone exchanges are
provided automatically to each shareholder unless otherwise
specifically indicated on the Purchase Application. The Funds
employ procedures, including recording telephone calls, testing
caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that
instructions communicated by telephone are genuine, and to
discourage fraud. To the extent that a Fund does not follow such
procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. A Fund will not be liable for
acting upon instructions communicated by telephone that it
reasonably believes to be genuine. The Funds reserve the right
to suspend or terminate the privilege of exchanging by mail or by
telephone at any time.
REDEMPTION OF FUND SHARES
Shareholders may redeem their shares, in whole or in part on
any business day. If a shareholder holds shares in more than one
class of a Fund, any request for redemption must specify the
class from which shares are to be redeemed. In the event a
shareholder fails to make such a specification or if there are
insufficient shares of the specified class to satisfy the
redemption order, the redemption order will be delayed until the
Fund's transfer agent receives further instructions from the
shareholder.
Class A and Class B shares will be redeemed at the net asset
value next determined after a redemption request in good order
has been received by the applicable Fund, provided that for Class
B shares, redemption proceeds will be reduced by any applicable
CDSC. A CDSC payable to the Distributor is imposed on any
redemption of Class B shares that causes the current value of a
Class B shareholder's account to fall below the dollar amount of
all payments by the shareholder for the purchase of Class B
shares ("purchase payments") during the preceding five years. No
charge is imposed to the extent the net asset value of the Class
B shares to be redeemed does not exceed (a) the current net asset
value of the Class B shares purchased through the reinvestment of
49
<PAGE>
dividends or capital gains distributions, plus (b) increases in
the net asset value of the shareholder's Class B shares above the
purchase payments made during the preceding five years.
In circumstances in which the CDSC is imposed, the amount of
the charge will depend on the number of years since the
shareholder made the purchase payment from which the amount is
being redeemed. With respect to Class B share redemptions only,
the purchase payment from which a redemption is made is assumed
to be the earliest purchase payment from which a full redemption
has not already been effected. Solely for purposes of
determining the number of years since a purchase payment, all
purchase payments during a month will be aggregated and deemed to
have been made on the last day of the preceding month. The
following table sets forth the rates of the charge for
redemptions of Class B shares of each Fund.
Years Since Purchase Contingent Deferred Sales Charge
Centura Federal Securities
Centura Equity Income Fund and Centura North
Growth Fund Carolina Tax-Free Bond Fund
1 5.0% 3.0%
2 4.0% 3.0%
3 3.0% 3.0%
4 2.0% 2.0%
5 1.0% 1.0%
6 0% 0%
Following the seventh anniversary of their purchase date,
Class B shares will convert automatically to Class A shares and
thereafter will be subject to the lower service and distribution
plan fees applicable to Class A shares. See "Management of the
Funds - The Distributor."
Waivers of CDSC. The Class B CDSC will be waived on (a)
involuntary redemptions; and (b) redemptions of shares in
connection with a combination of any investment company with the
Company or a Fund by merger, acquisition of assets or otherwise.
The CDSC will also be waived for the classes of investors for
which the initial sales charge is waived on purchases of Class A
shares. (See "Pricing of Fund Shares - Class A Shares.")
Where the shares of any class to be redeemed have been
purchased by check, the redemption request will be held until the
purchasing check has cleared, which may take up to 15 days.
Shareholders may avoid this delay by investing through wire
transfers of Federal funds. During the period prior to the time
the shares are redeemed, dividends on the shares will continue to
50
<PAGE>
accrue and be payable and the shareholder will be entitled to
exercise all other beneficial rights of ownership.
Once the shares are redeemed, a Fund will ordinarily send
the proceeds by check to the shareholder at the address of record
on the next business day. The Fund may, however, take up to
seven days to make payment, although this will not be the
customary practice. Also, if the New York Stock Exchange is
closed (or when trading is restricted) for any reason other than
the customary weekend or holiday closing or if an emergency
condition as determined by the SEC merits such action, the Funds
may suspend redemptions or postpone payment dates. A redemption
may be a taxable transaction on which gain or loss may be
recognized.
Redemption Methods. To ensure acceptance of a redemption
request, it is important that shareholders follow the procedures
described below. Although the Funds have no present intention to
do so, the Funds reserve the right to refuse or to limit the
frequency of any telephone or wire redemptions. Of course, it
may be difficult to place orders by telephone during periods of
severe market or economic change, and a shareholder should
consider alternative methods of communications, such as couriers.
The Funds' services and their provisions may be modified or
terminated at any time by the Funds. If the Funds terminate any
particular service, they will do so only after giving written
notice to shareholders. Redemption by mail will always be
available to shareholders.
A shareholder may redeem shares using any of the following
methods:
Through an Authorized Broker, Investment Adviser or Service
Organization. The shareholder should contact his or her broker,
investment adviser or Service Organization and provide
instructions to redeem shares. Such organizations are
responsible for prompt transmission of orders. The broker will
contact the Funds and place a redemption trade. The broker may
charge a fee for this service.
By Mail. Shareholders may redeem shares by sending a letter
directly to the Funds. To be accepted, a letter requesting
redemption must include: (a) the Fund name, class of shares and
account registration from which shares are being redeemed; (b)
the account number; (c) the amount to be redeemed; (d) the
signatures of all registered owners; and (e) a signature
guarantee by any eligible guarantor institution including members
of national securities exchanges, commercial banks or trust
companies, broker-dealers, credit unions and savings
associations. Corporations, partnerships, trusts or other legal
entities will be required to submit additional documentation.
51
<PAGE>
By Telephone. Shareholders may redeem shares by calling the
Funds toll free at 1-800-44CENTURA (442-3688). Be prepared to
give the telephone representative the following information: (a)
the account number, social security number and account
registration; (b) the name of the class and the Fund from which
shares are being redeemed; and (c) the amount to be redeemed.
Telephone redemptions are available unless otherwise indicated on
the Purchase Application or on the Optional Services Form. The
Funds employ procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of
telephone transactions, designed to give reasonable assurance
that instructions communicated by telephone are genuine, and to
discourage fraud. To the extent that a Fund does not follow such
procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. A Fund will not be liable for
acting upon instructions communicated by telephone that it
reasonably believes to be genuine.
By Wire. Shareholders may redeem shares by contacting the
Funds by mail or telephone and instructing the Funds to send a
wire transmission to the shareholder's bank.
The shareholder's instructions should include: (a) the
account number, social security number and account registration;
(b) the name of the class and the Fund from which shares are
being redeemed; and (c) the amount to be redeemed. Wire
redemptions can be made unless otherwise indicated on the
shareholder's Purchase Application, and a copy is attached of a
void check on an account where proceeds are to be wired. The
bank may charge a fee for receiving a wire payment on behalf of
its customer.
Systematic Withdrawal Plan. An owner of $12,000 or more of
shares of a Fund may elect to have periodic redemptions made from
his account to be paid on a monthly, quarterly, semiannual or
annual basis. No CDSC will be imposed on redemptions of Class B
shares pursuant to a systematic withdrawal plan. The maximum
withdrawal per year is 12% of the account value at the time of
the election. A sufficient number of shares to make the
scheduled redemption will normally be redeemed on the date
selected by the shareholder. Depending on the size of the
payment requested and fluctuation in the net asset value, if any,
of the shares redeemed, redemptions for the purpose of making
such payments may reduce or even exhaust the account. A
shareholder may request that these payments be sent to a
predesignated bank or other designated party. Capital gains and
dividend distributions paid to the account will automatically be
reinvested at net asset value on the distribution payment date.
Reinstatement Privilege. A shareholder who has redeemed
Class A shares on which a sales charge was paid may reinvest,
without a sales charge, up to the full amount of such redemption
52
<PAGE>
at the net asset value determined at the time of the reinvestment
within 30 days of the original redemption. This privilege is not
applicable with respect to any CDSC imposed on redemptions of
Class B shares. The shareholder must reinvest in the same Fund,
same class, and the same account from which the shares were
redeemed. A redemption is a taxable transaction and gain may be
recognized for federal income tax purposes even if the
reinstatement privilege is exercised. Any loss realized upon the
redemption will not be recognized as to the number of shares
acquired by reinstatement, except through an adjustment in the
tax basis of the shares so acquired. See "Dividends,
Distributions and Federal Income Taxation" for an explanation of
circumstances in which a sales charge paid to acquire shares of a
Fund may not be taken into account in determining gain or loss on
the disposition of those shares.
Redemption of Small Accounts. Due to the disproportionately
higher cost of servicing small accounts, the Funds reserve the
right to redeem on not less than 30 days' notice, an account in a
Fund that has been reduced by a shareholder (not by market
action) to $1,000 or less. No CDSC will be imposed on Class B
shares so redeemed. Moreover, if during the 30-day notice period
the shareholder purchases sufficient shares to bring the value of
the account above $ 1,000, the account will not be redeemed.
Redemption in Kind. All redemptions of shares of the Funds
shall be made in cash, except that the commitment to redeem
shares in cash extends only to redemption requests made by each
shareholder of a Fund during any 90-day period of up to the
lesser of $250,000 or 1% of the net asset value of the Fund at
the beginning of such period. This commitment is irrevocable
without the prior approval of the SEC. In the case of redemption
requests by shareholders in excess of such amounts, the Board of
Directors reserves the right to have a Fund make payment, in
whole or in part, in securities or other assets, in case of an
emergency or any time a cash distribution would impair the
liquidity of the Fund to the detriment of the existing
shareholders. In this event, the securities would be valued
generally in the same manner as the securities of that Fund are
valued generally. The value of securities payable in kind for a
redemption of Class B shares would reflect the deduction of any
applicable CDSC. If the recipient were to sell such securities.
he or she would incur brokerage charges.
Signature Guarantees. To protect shareholder accounts, the
Funds and the Administrator from fraud, signature guarantees are
required to enable the Funds to verify the identity of the person
who has authorized a redemption from an account. Signature
guarantees are required for (1) redemptions where the proceeds
are to be sent to someone other than the registered
shareholder(s) and the registered address, (2) a redemption of
$25,000 or more, and (3) share transfer requests. Signature
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guarantees may be obtained from certain eligible financial
institutions, including but not limited to, the following:
banks, trust companies, credit unions, securities brokers and
dealers, savings and loan associations and participants in the
Securities and Transfer Association Medallion Program ("STAMP"),
the Stock Exchange Medallion Program ("SEMP") or the New York
Stock Exchange Medallion Signature Program ("MSP"). Shareholders
may contact the Funds at 1-800-442-3688 for further details.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement the Adviser
places orders for the purchase and sale of portfolio investments
for the Funds' accounts with brokers or dealers it selects in its
discretion.
In effecting purchases and sales of portfolio securities for
the account of a Fund, the Adviser will seek the best execution
of the Fund's orders. Purchases and sales of portfolio debt
securities for the Funds are generally placed by the Adviser with
primary market makers for these securities on a net basis,
without any brokerage commission being paid by the Funds.
Trading does, however, involve transaction costs. Transactions
with dealers serving as primary market makers reflect the spread
between the bid and asked prices. The Funds may purchase
securities during an underwriting, which will include an
underwriting fee paid to the underwriter. Purchases and sales of
common stocks are generally placed by the Adviser with broker-
dealers which, in the judgment of the Adviser, provide prompt and
reliable execution at favorable security prices and reasonable
commission rates. Broker-dealers are selected on the basis of a
variety of factors such as reputation, capital strength, size and
difficulty of order, sale of Fund shares and research provided to
the Adviser. The Adviser may cause a Fund to pay commissions
higher than another broker-dealer would have charged if the
Adviser believes the commission paid is reasonable in relation to
the value of the brokerage and research services received by the
Adviser.
Each of the Funds may buy and sell securities to take
advantage of investment opportunities when such transactions are
consistent with a Fund's investment objectives and policies and
when the Adviser believes such transactions may improve a Fund's
overall investment return. These transactions involve costs in
the form of spreads or brokerage commissions. The Funds are not
normally expected to have portfolio turnover rates in excess of
50%.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and subject to seeking
the most favorable price and execution available and such other
policies as the Directors may determine, the Adviser may consider
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sales of shares of the Funds as a factor in the selection of
broker-dealers to execute portfolio transactions for the Funds.
FUND SHARE VALUATION
The net asset value per share for each class of shares of
each Fund is calculated at 4:15 pm. (Eastern time), Monday
through Friday, on each day the New York Stock Exchange is open
for trading, which excludes the following business holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. The net asset value per share of each
class of shares of the Funds is computed by dividing the value of
net assets of each class (i.e., the value of the assets less the
liabilities) by the total number of such class's outstanding
shares. All expenses, including fees paid to the Adviser and
Administrator, are accrued daily and taken into account for the
purpose of determining the net asset value.
Securities listed on an exchange are valued on the basis of
the last sale prior to the time the valuation is made. If there
has been no sale since the immediately previous valuation, then
the current bid price is used. Quotations are taken for the
exchange where the security is primarily traded. Portfolio
securities which are primarily traded on foreign exchanges may be
valued with the assistance of a pricing service and are generally
valued at the preceding closing values of such securities on
their respective exchanges, except that when an occurrence
subsequent to the time a foreign security is valued is likely to
have changed such value, then the fair value of those securities
will be determined by consideration of other factors by or under
the direction of the Board of Directors. Over-the-counter
securities are valued on the basis of the bid price at the close
of business on each business day. Securities for which market
quotations are not readily available are valued at fair value as
determined in good faith by or at the direction of the Board of
Directors. Notwithstanding the above, bonds and other fixed-
income securities are valued by using market quotations and may
be valued on the basis of prices provided by a pricing service
approved by the Board of Directors. All assets and liabilities
initially expressed in foreign currencies will be converted into
U.S. dollars at the mean between the bid and asked prices of such
currencies against U.S. dollars as last quoted by any major bank.
DIVIDENDS, DISTRIBUTIONS, AND FEDERAL INCOME TAXATION
Each Fund intends to qualify annually to elect to be treated
as a regulated investment company pursuant to the provisions of
Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). To qualify, each Fund must meet certain income,
distribution and diversification requirements. In any year in
which a Fund qualifies as a regulated investment company and
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timely distributes all of its taxable income and substantially
all of its net tax-exempt interest income, the Fund generally
will not pay any U.S. federal income or excise tax.
Each Fund intends to distribute to its shareholders
substantially all of its investment company taxable income (which
includes, among other items, dividends and interest and the
excess, if any, of net short-term capital gains over net long-
term capital losses). Investment company taxable income (other
than the capital gain component thereof) will be declared and
paid monthly by Centura Equity Growth Fund and Centura Equity
Income Fund. Centura Federal Securities Income Fund and Centura
North Carolina Tax-Free Bond Fund will declare dividends daily
and pay them out monthly. Each Fund intends to distribute, at
least annually, substantially all net realized long- and short-
term capital gain. In determining amounts of capital gains to be
distributed, any capital loss carryovers from prior years will be
applied against capital gains.
In the case of Centura Federal Securities Income Fund and
Centura North Carolina Tax-Free Bond Fund, the amount declared
each day as a dividend may be based on projections of estimated
monthly net investment income and may differ from the actual
investment income determined in accordance with generally
accepted accounting principles. An adjustment will be made to
the dividend each month to account for any difference between the
projected and actual monthly investment income.
Distributions will be paid in additional Fund shares of the
relevant class based on the net asset value of shares of that
class at the close of business of the payment date of the
distribution, unless the shareholder elects in writing, not less
than five full business days prior to the record date, to receive
such distributions in cash. Dividends declared in, and
attributable to, the preceding month will be paid within five
business days after the end of each month. In the case of the
Funds that declare daily dividends, shares purchased will begin
earning dividends on the day after the purchase order is
executed, and shares redeemed will earn dividends through the day
the redemption is executed. Investors who redeem all or a
portion of their Fund shares prior to a dividend payment date
will be entitled on the next payment date to all dividends
declared but unpaid on those shares at the time of their
redemption.
Any dividend or other distribution paid by a Fund has the
effect of reducing the net asset value per share on the record
date by the amount thereof. Therefore, in the case of Centura
Equity Growth Fund, which does not declare dividends daily, a
dividend or other distribution paid shortly after a purchase of
shares would represent, in substance, a return of capital to the
shareholder (to the extent it is paid on the shares so
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<PAGE>
purchased), even though subject to income taxes, as discussed
below.
Dividends distributed by Centura North Carolina Tax-Free
Bond Fund that are derived from interest income exempt from
federal income tax and are designated by the Fund as "exempt-
interest dividends" will be exempt from the regular federal
income tax. Capital gains distributions and any other
distributions of Fund earnings not designated by the Fund as
exempt-interest dividends will, however, generally be subject to
federal, state and local tax. The Fund's investment policies
permit it to earn income which cannot be designated as exempt-
interest dividends.
Distributions of investment company taxable income
(regardless of whether derived from dividends, interest or short-
term capital gains) will be taxable to shareholders as ordinary
income. If a portion of the income of Centura Equity Growth Fund
or Centura Equity Income Fund consists of dividends paid by U.S.
corporations, a portion of the dividends paid by that Fund may
qualify for the deduction for dividends received by corporations.
No portion of the dividends paid by Centura Federal Securities
Income Fund or Centura North Carolina Tax-Free Bond Fund is
expected to so qualify. Distributions of net long-term capital
gains designated by a Fund as capital gain dividends will be
taxable as long-term capital gains, regardless of how long a
shareholder has held his Fund shares. Distributions are taxable
in the same manner whether received in additional shares or in
cash.
A distribution, including an "exempt-interest dividend,"
will be treated as paid on December 31 of the calendar year if it
is declared by a Fund during October, November, or December of
that year to shareholders of record in such a month and paid by
the Fund during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar
year in which the distributions are declared, rather than the
calendar year in which the distributions are received.
Any gain or loss realized by a shareholder upon the sale or
other disposition of shares of a Fund, or upon receipt of a
distribution in complete liquidation of a Fund, generally will be
a capital gain or loss which will be long-term or short-term
generally depending upon the shareholder's holding period for the
shares.
The timing of a shareholder's investment could have
undesirable tax consequences. If a shareholder opens a new
account or buys more shares for his or her current account just
before the day a capital gain distribution is reflected in the
Fund's share price, the shareholder would receive a portion of
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his or her investment back as a taxable capital gain
distribution.
Shareholders should also be aware that redeeming shares of
Centura North Carolina Tax-Free Bond Fund after tax-exempt
interest income has been accrued by the Fund but before that
income has been distributed as a dividend may be disadvantageous.
This is because the gain, if any, on the redemption will be
taxable, even though such gain may be attributable in part to the
accrued tax-exempt interest, which, if distributed to the
shareholder as a dividend rather than as redemption proceeds,
might have qualified as an exempt-interest dividend.
Under certain circumstances, the sales charge incurred in
acquiring Class A shares of a Fund may not be taken into account
in determining the gain or loss on the disposition of those
shares. This rule applies when Class A shares of a Fund are
exchanged within 90 days after the date they were purchased and
new Class A shares of a Fund are acquired without a sales charge
or at a reduced sales charge. In that case, the gain or loss
recognized on the exchange will be determined by excluding from
the tax basis of the Class A shares exchanged all or a portion of
the sales charge incurred in acquiring those shares. This
exclusion applies to the extent that the otherwise applicable
sales charge with respect to the newly acquired Class A shares is
reduced as a result of having incurred a sales charge initially.
The portion of the sales charge affected by this rule will be
treated as a sales charge paid for the new Class A shares.
The Funds may be required to withhold federal income tax of
31% ("backup withholding") of the distributions and the proceeds
of redemptions payable to shareholders who fail to provide a
correct taxpayer identification number or to make required
certifications, or where a Fund or shareholder has been notified
by the Internal Revenue Service that the shareholder is subject
to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code are exempt from backup
withholding. Backup withholding is not an additional tax. Any
amounts withheld may be credited against the shareholder's U.S.
federal income tax liability.
Further information relating to tax consequences is
contained in the SAI.
Shareholders will be notified annually by the Company as to
the federal tax status of distributions made by the Fund(s) in
which they invest. Depending on the residence of the shareholder
for tax purposes, distributions also may be subject to state and
local taxes, including withholding taxes. Foreign shareholders
may also be subject to special withholding requirements. Special
tax treatment including a penalty on certain pre-retirement
distributions, is accorded to accounts maintained as IRAs. With
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respect to Centura North Carolina Tax-Free Bond Fund, North
Carolina law exempts from income taxation dividends received from
a regulated investment company in proportion to the income of the
regulated investment company that is attributable to interest on
bonds or securities of the U.S. government or any agency or
instrumentality thereof or on bonds of the State of North
Carolina or any county, municipality or political subdivision
thereof. Shareholders should consult their own tax advisers as
to the federal, state and local tax consequences of ownership of
shares of the Funds in their particular circumstances.
OTHER INFORMATION
Capitalization
Centura Funds, Inc. was organized as a Maryland corporation
on March 1, 1994 and currently consists of four separately
managed portfolios. The Board of Directors may establish
additional portfolios in the future. The capitalization of the
Company consists solely of six hundred million (600,000,000)
shares of common stock with a par value of $0.001 per share.
When issued, shares of the Funds are fully paid, non-assessable
and freely transferable.
This Prospectus relates to Class A shares and Class B shares
of the Funds. Each Fund also offers Class C shares which are
offered at net asset value with no sales charge or CDSC only to
accounts managed by the Adviser's Trust Department. Because
Class C shares are not subject to service and distribution fees,
their performance will typically differ from that of Class A or
Class B shares. Information about Class C shares may be obtained
from your sales representative or the Funds by calling (800) 442-
3688.
Voting
Shareholders have the right to vote in the election of
Directors and on any and all matters on which, by law or under
the provisions of the Company's Articles of Incorporation, they
may be entitled to vote. The Company is not required to hold
regular annual meetings of the Funds' shareholders and does not
intend to do so. Each Fund's shareholders vote separately on
items affecting only that Fund, and shareholders of each class
within a Fund vote separately on matters affecting only that
class, such as the service and distribution plan for that class.
The Articles of Incorporation provide that the holders of
not less than two-thirds of the outstanding shares of the Company
may remove a person serving as a Director either by a declaration
in writing or at a meeting called for such purpose. The
Directors are required to call a meeting for the purpose of
considering the removal of a person serving as Director if
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requested in writing to do so by the holders of not less than 10%
of the outstanding shares of the Company. See "Other
Information-Voting Rights" in the SAI.
Shares entitle their holders to one vote per share (with
proportionate voting for fractional shares). As used in this
Prospectus, the phrase "vote of a majority of the outstanding
shares" of a Fund, a class or the Company, as applicable, means
the vote of the lesser of: (1) 67% of the shares of the Fund (a
class or the Company) present at a meeting if the holders of more
than 50% of the outstanding shares are present in person or by
proxy; or (2) more than 50% of the outstanding shares of the Fund
(a class or the Company).
Performance Information
When performance records are developed by the Funds, they
may, from time to time, include the yield and total return for
shares (including each class, as applicable) in advertisements or
reports to shareholders or prospective investors. The methods
used to calculate the yield and total return of the Funds are
mandated by the SEC. In general, the performance of the classes
of each Fund will differ due to (a) differences in the level of
class specific expenses, including service and distribution fees
and (b) the fact that total return figures for Class A shares
will reflect the deduction of the maximum front-end sales charge
applicable for each Fund while the total return figures for Class
B shares will reflect the maximum CDSC for each Fund.
Performance figures for Class C shares will reflect the absence
of any service and distribution fee, front-end sales charge or
CDSC. Due to these differences in fees and/or expenses borne by
Class A, Class B and Class C shares, yield and total return on
Class A and Class B shares can be expected to be lower than the
yield and total return on Class C shares for the same period.
Quotations of "yield" will be based on the investment income
per share during a particular 30-day (or one month) period
(including dividends and interest), less expenses accrued during
the period ("net investment income"), and will be computed by
dividing net investment income by the maximum public offering
price per share (for each class, as applicable) on the last day
of the period.
Quotations of yield reflect a Fund's (and its classes')
performance only during the particular period on which the
calculations are based. Yields will vary based on changes in
market conditions, the level of interest rates and the level of
the Fund's expenses, including class-specific expenses, and no
reported performance figure should be considered an indication of
performance which may be expected in the future. Quotations of
average annual total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical
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investment in shares of a Fund (or class) over periods of 1, 5
and 10 years (up to the life of the Fund), reflect the deduction
of a proportional share of Fund and class-specific expenses, as
applicable, on an annual basis, and assume that all dividends and
distributions are reinvested when paid.
Centura North Carolina Tax-Free Bond Fund may also advertise
its "taxable equivalent yield." Taxable equivalent yield is the
yield that an investment, subject to regular federal and North
Carolina personal income taxes, would need to earn in order to
equal, on an after-tax basis, the yield on an investment exempt
from such taxes. A taxable equivalent yield quotation for the
Fund will be higher than the yield quotations for the Fund.
The following table shows how to translate the yield of an
investment that is exempt from regular federal and North Carolina
personal income taxes into a taxable equivalent yield for the
1996 taxable year. The last five columns of the table show
approximately how much a taxable investment would have to yield
in order to generate an after-tax (regular federal and North
Carolina personal income taxes) yield of 4%, 5%, 6%, 7% or 8%.
For example, the table shows that a married taxpayer filing a
joint return with taxable income of $80,000 would have to earn a
yield of approximately 10.45% before regular federal and North
Carolina personal income taxes in order to earn a yield after
such taxes of 7%.
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 Taxable Year
Taxable Equivalent Yield Table1-Federal and North Carolina personal income taxes
To Equal Hypothetical Tax-Free Yield of
4%, 5%, 6%, 7% or 8%, A Taxable Investment
Taxable Income2 Would Have to Yield Approximately
Single Return Joint Return Combined
Marginal
Rate 4% 5% 6% 7% 8%
up to $12,750 up to $21,250 20.10% 5.01% 6.26% 7.51% 8.76% 10.01%
$12,751-$24,000 $21,251-$40,100 20.95% 5.06% 6.33% 7.59% 8.86% 10.12%
$24,001-$58,150 $40,101-$96,900 33.04% 5.97% 7.47% 8.96% 10.45% 11.95%
$58,151-$60,000 $96,901-$100,000 35.83% 6.23% 7.79% 9.35% 10.91% 12.47%
$60,001-$121,300 $100,001-$147,700 36.35% 6.28% 7.86% 9.43% 11.00% 12.57%
$121,301-$263,750 $147,701-$263,750 40.96% 6.78% 8.47% 10.16% 11.86% 13.55%
$263,751 and over $263,751 and over 44.28% 7.18% 8.98% 10.77% 12.57% 14.36%
</TABLE>
________________
1. The chart is presented for information purposes only. Tax
equivalent yields are a useful tool in determining the
desirability of a tax exempt investment; tax equivalent
yields should not be regarded as determinative of the
desirability of such an investment. In addition, this chart
is based on a number of assumptions which may not apply in
your case. You should, therefore, consult a competent tax
adviser regarding tax equivalent yields in your situation.
2. Assuming the federal alternative minimum tax is not
applicable.
3. The combined marginal rates were calculated using federal
and North Carolina tax rate tables for the 1996 taxable
year. The federal tax rate tables are indexed each year to
reflect changes in the Consumer Price Index. The combined
federal and North Carolina personal income tax marginal
rates assume the North Carolina personal income taxes are
fully deductible for federal income tax purposes as an
itemized deduction. However, the ability to deduct itemized
deductions (including state income taxes) for federal income
tax purposes is limited for those taxpayers whose federal
adjusted gross income for 1996 exceeds $117,950 ($58,975 in
the case of a married individual filing a separate return).
In addition, for federal income tax purposes that tax
benefit of personal exemptions is phased out for taxpayers
whose adjusted gross incomes exceed specified thresholds
(for 1996, $117,950 in the case of single individuals and
$176,950 in the case of married individuals filing a joint
return).
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Performance information for the Funds may be compared to
various unmanaged indices, such as the Standard & Poor's 500
Stock Index, the Dow Jones Industrial Average, indices prepared
by Lipper Analytical Services, and other entities or
organizations which track the performance of investment
companies. Any performance information should be considered in
light of each Fund's investment objectives and policies,
characteristics and quality of the Fund and the market conditions
during the time period indicated, and should not be considered to
be representative of what may be achieved in the future. For a
description of the methods used to determine yield and total
return for the Funds, see the SAI.
Account Services
All transactions in shares of the Funds will be reflected in
a statement for each shareholder. In those cases where a Service
Organization or its nominee is shareholder of record of shares
purchased for its customer, the Funds have been advised that the
statement may be transmitted to the customer at the discretion of
the Service Organization.
Furman Selz provides fund accounting functions for the
Funds, and provides personnel and facilities to perform
shareholder servicing and transfer agency-related services for
the Company.
Shareholder Inquiries
All shareholder inquiries should be directed to Centura
Funds, Grand Central Station, P.O. Box 4490, New York, New York
10163-4490.
General and Account Information: (800) 44CENTURA (442-3688).
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APPENDIX
DESCRIPTION OF BOND RATINGS
Description of Moody's bond ratings:
Excerpts from Moody's description of its bond ratings are
listed as follows: Aaa - judged to be the best quality and they
carry the smallest degree of investment risk; Aa - judged to be
of high quality by all standards - together with the Aaa group,
they comprise what are generally known as high grade bonds; A -
possess many favorable investment attributes and are to be
considered as "upper medium grade obligations;" Baa - considered
to be medium grade obligations, i.e., they are neither highly
protected nor poorly secured - interest payments and principal
security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable
over any great length of time; Ba -judged to have speculative
elements, their future cannot be considered as well assured; B -
generally lack characteristics of the desirable investment; Caa -
are of poor standing - such issues may be in default or there may
be present elements of danger with respect to principal or
interest; Ca - speculative in a high degree, often in default; C
- - lowest rated class of bonds, regarded as having extremely poor
prospects.
Moody's also supplies numerical indicators 1, 2 and 3 to
rating categories. The modifier 1 indicates that the security is
in the higher end of its rating category; the modifier 2
indicates a mid-range ranking; and modifier 3 indicates a ranking
toward the lower end of the category.
Description of S&P's bond ratings:
Excerpts from S&P's description of its bond ratings are
listed as follows: AAA - highest grade obligations, in which
capacity to pay interest and repay principal is extremely strong:
AA - has a very strong capacity to pay interest and repay
principal, and differs from AAA issues only in a small degree; A
- - has a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories; BBB - regarded as having an
adequate capacity to pay interest and repay principal; whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories. This
group is the lowest which qualifies for commercial bank
investment. BB, B, CCC, CC, C - predominantly speculative with
respect to capacity to pay interest and repay principal in
accordance with terms of the obligations; BB indicates the
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highest grade and C the lowest within the speculative rating
categories. D - interest or principal payments are in default.
S&P applies indicators "+," no character, and "-" to its
rating categories. The indicators show relative standing within
the major rating categories.
Description of Moody's ratings of short-term municipal
obligations:
Moody's ratings for state and municipal short-term
obligations will be designated Moody's Investment Grade or MIG.
Such ratings recognize the differences between short-term credit
and long-term risk. Short-term ratings on issues with demand
features (variable rate demand obligations) are differentiated by
the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and
payments relying on external liquidity. Ratings categories for
securities in these groups are as follows: MIG 1/VMIG 1 - denotes
best quality, there is present strong protection by established
cash flows, superior liquidity support or demonstrated broad-
based access to the market for refinancing; MIG 2/VMIG 2 -
denotes high quality, margins of protection are ample although
not as large as in the preceding group; MIG 3/VMIG 3 - denotes
high quality, all security elements are accounted for but there
is lacking the undeniable strength of the preceding grades; MIG
4/VMIG 4 - denotes adequate quality, protection commonly regarded
as required of an investment security is present, but there is
specific risk; SQ - denotes speculative quality, instruments in
this category lack margins of protection.
Description of Moody's commercial paper ratings:
Excerpts from Moody's commercial paper ratings are listed as
follows: Prime - 1 - issuers (or supporting institutions) have a
superior ability for repayment of senior short-term promissory
obligations; Prime - 2 - issuers (or supporting institutions)
have a strong ability for repayment of senior short-term
promissory obligations; Prime - 3 - issuers (or supporting
institutions) have an acceptable ability for repayment of senior
short-term promissory obligations; Not Prime - issuers do not
fall within any of the Prime categories.
Description of S&P's ratings for corporate and municipal bonds:
Investment grade ratings: AAA - the highest rating assigned
by S&P, capacity to pay interest and repay principal is extremely
strong; AA - has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a
small degree; A - has strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
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debt in higher rated categories; BBB - regarded as having an
adequate capacity to pay interest and repay principal - whereas
it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
Speculative grade ratings: BB, B, CCC, CC, C - debt
rated in these categories is regarded as having predominantly
speculative characteristics with respect to capacity to pay
interest and repay principal - while such debt will likely have
some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse
conditions; CI - reserved for income bonds on which no interest
is being paid; D - in default, and payment of interest and/or
repayment of principal is in arrears. Plus (+) or Minus (-) -
the ratings from "AA" to "CCC" may be modified by the addition of
a plus or minus sign to show relative standing within the major
rating categories.
Description of S&P's rating for municipal notes and short-term
municipal demand obligations:
Rating categories arc as follows: SP-1 - has a very strong
or strong capacity to pay principal and interest - those issues
determined to possess overwhelming safety characteristics will be
given a plus (+) designation; SP-2 - has a satisfactory capacity
to pay principal and interest; SP-3 - issues carrying this
designation have a speculative capacity to pay principal and
interest.
Description of S&P's ratings for short-term corporate demand
obligations and commercial paper:
An S&P commercial paper rating is a current assessment of
the likelihood of timely repayment of debt having an original
maturity of no more than 365 days. Excerpts from S&P's
description of its commercial paper ratings are listed as
follows: A-1 - the degree of safety regarding timely payment is
strong - those issues determined to possess extremely strong
safety characteristics will be denoted with a plus (+)
designation; A-2 - capacity for timely payment is satisfactory -
however, the relative degree of safety is not as high as for
issues designated "A-1;" A-3 - has adequate capacity for timely
payment - however, is more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations; B - regarded as having only speculative capacity
for timely payment; C - a doubtful capacity for payment; D - in
payment default - the "D" rating category is used when interest
payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P
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believes that such payments will be made during such grace
period.
67
<PAGE>
Address for:
General Shareholder Inquiries
Centura Funds, Inc.
P.O. Box 4490
Grand Central Station
New York, New York 10163-4490
Investment Adviser and Custodian
Centura Bank
131 North Church Street
Rocky Mount, North Carolina 27802
Administrator and Sponsor
Furman Selz LLC
230 Park Avenue
New York, New York 10169
Distributor
Centura Funds Distributor, Inc.
230 Park Avenue
New York, New York 10169
Counsel
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
Independent Accountants
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, NY 10017
68
<PAGE>
CENTURA FUNDS, INC.
Class C Shares
237 Park Avenue
New York, New York 10017
General and Account Information:
(800) 442-3688
CENTURA BANK - Adviser
FURMAN SELZ LLC - Administrator and Sponsor
CENTURA FUNDS DISTRIBUTOR, INC - Distributor
This Prospectus describes the four Funds (the "Funds")
comprising Centura Funds, Inc. (the "Company"), a registered open-
end management investment company advised by Centura Bank (the
"Adviser"). Each Fund is a separate portfolio of the Company. The
Funds described in this Prospectus are:
Centura Equity Growth Fund
Centura Equity Income Fund
Centura Federal Securities Income Fund
Centura North Carolina Tax-Free Bond Fund
This Prospectus relates to Class C shares which only certain
investors are eligible to purchase. Each Fund also has Class A
shares and Class B shares. (See ""Other Information -
Capitalization.")
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND FUND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENTS IN MUTUAL FUNDS, SUCH AS THE FUNDS, INVOLVE RISK, INCLUDING POSSIBLE
LOSS OF PRINCIPLE.
This Prospectus sets forth concisely the information a prospective
investor should know before investing in any of the Funds and should be read and
retained for information about each Fund.
A Statement of Additional Information (the "SAI"), dated August __, 1996,
containing additional and more detailed information about the Funds, has been
filed with the Securities and Exchange Commission ("SEC") and is hereby
incorporated by reference into the Prospectus. It is available without charge
and can be obtained by writing or calling the Funds at the address and
information numbers printed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
The Date of this Prospectus is August __, 1996.
2
<PAGE>
TABLE OF CONTENTS
Page
HIGHLIGHTS................................................................. 4
FUND EXPENSES.............................................................. 6
FINANCIAL HIGHLIGHTS....................................................... 9
THE FUNDS.................................................................. 11
DESCRIPTION OF SECURITIES AND INVESTMENT PRACTICES......................... 16
INVESTMENT RESTRICTIONS.................................................... 25
RISKS OF INVESTING IN THE FUNDS............................................ 26
MANAGEMENT OF THE FUNDS.................................................... 31
MINIMUM PURCHASE REQUIREMENTS.............................................. 35
PRICING AND PURCHASE OF FUND SHARES........................................ 35
EXCHANGE OF FUND SHARES.................................................... 36
REDEMPTION OF FUND SHARES.................................................. 37
PORTFOLIO TRANSACTIONS..................................................... 40
FUND SHARE VALUATION....................................................... 41
DIVIDENDS, DISTRIBUTIONS, AND FEDERAL INCOME TAXATION...................... 42
OTHER INFORMATION.......................................................... 45
APPENDIX................................................................... 49
3
<PAGE>
HIGHLIGHTS
The Funds
This prospectus describes the four funds comprising Centura Funds, Inc.
(the "Company"). Each Fund has a distinct investment objective and policies, as
described below. The investment objective of each Fund is a fundamental policy
of the Fund and may not be changed without approval of the Fund's shareholders.
See "The Funds." The Funds and their investment objectives and policies are as
follows:
- Centura Equity Growth Fund - This Fund's objective is long-term
capital appreciation. It invests in a diversified portfolio
comprised mainly of publicly traded common and preferred stocks and
securities convertible into or exchangeable for common stock.
Although its investments will be principally in securities of U.S.-
based companies; it may also invest in securities of foreign
issuers, generally in the form of American Depositary Receipts
("ADRs").
- Centura Equity Income Fund -- This Fund's objective is to provide
long-term capital appreciation and income. The Fund invests
primarily in dividend-paying common stocks, convertible preferred
stocks, and convertible bonds, notes and debentures. It may also
invest in securities believed to offer special capital appreciation
opportunities. The Fund will invest primarily in securities of U.S.
based companies, but it may also invest in securities of non-U.S.
issuers, generally through ADRs.
- Centura Federal Securities Income Fund - This Fund seeks to provide
relatively high current income consistent with relative stability of
principal. The Fund invests primarily in securities issued by the
U.S. Government, its agencies and instrumentalities. The maximum
maturity of any such security will be 10 years. Generally, at least
70% of the Fund's portfolio will consist of direct obligations of
the U.S. Treasury, with no more than 30% in securities of U.S.
Government agencies and instrumentalities.
- Centura North Carolina Tax-Free Bond Fund - This Fund seeks to
provide relatively high current income that is free of both Federal
and North Carolina personal income tax, together with relative
safety of principal. It invests primarily in a portfolio of high
quality municipal securities with a maximum maturity of 15 years and
an average portfolio maturity of 5 to 10 years.
4
<PAGE>
Risks of Investing in the Funds
Investment in each of the Funds involves certain risks. There can, of
course, be no assurance that a Fund will achieve its investment objective or be
successful in preventing or minimizing the risk of loss that is inherent in
certain types of investments. Fund investments in securities of foreign issuers
involves special risks not usually associated with investing in U.S. companies.
Concentration of Centura North Carolina Tax-Free Bond Fund in securities of a
single state makes the Fund particularly vulnerable to events affecting that
state. The Funds have authority, which they do not presently intend to use, to
invest in various types of derivative instruments, which would entail special
risks. Investors should be aware that the value of each Fund's shares will
fluctuate, which may cause a loss in the principal value of the investment. See
"Risks of Investing in the Funds."
The Adviser
Management of the Funds is provided by Centura Bank (the "Adviser"),
headquartered in Rocky Mount, North Carolina. For its advisory services, the
Adviser, receives from each Fund a fee at an annual rate based on the Fund's
average daily net assets. This fee is at an annual rate of 0.70% for Centura
Equity Growth Fund, 0.70% for Centura Equity Income Fund, 0.30% for Centura
Federal Securities Income Fund, and 0.35% for Centura North Carolina Tax- Free
Bond Fund.
The Distributor, Administrator and Sponsor
Centura Funds Distributor, Inc. (the "Distributor")
distributes the Funds' shares. Furman Selz LLC ("Furman Selz")
acts as Sponsor and Administrator to the Funds. For its services
as Administrator, each Fund pays Furman Selz a fee at the annual
rate of 0.15% of its average daily net assets. Furman Selz also
acts as transfer agent and fund accounting agent for the Funds, for
which it receives additional fees. See "Management of the Funds -
The Administrator and Sponsor."
Classes of Shares
Class C shares are offered at net asset value with no sales charge, and no
contingent deferred sales charge ("CDSC") is imposed on redemptions. Class C
shares are available only to accounts managed by the Adviser's Trust Department.
See "Pricing and Purchase of Fund Shares" and "Redemption of Fund Shares." Each
of the Funds also offers Class A shares (subject to a front-end sales charge,
unless waived) and Class B shares (subject to a CDSC, unless waived). See "Other
Information - Capitalization."
5
<PAGE>
The Funds reserve the right to redeem upon not less than 30 days' notice
all shares in a Fund's account which have an aggregate value of $1,000 or less.
All dividends and distributions will be automatically reinvested at net
asset value in additional shares of the same class of the applicable Fund unless
cash payment is requested. Each of the Funds pays dividends from income, if any,
monthly.
See "Pricing and Purchase of Fund Shares," "Redemption of Fund
Shares" and "Dividends, Distributions and Federal Income Taxation"
for more information.
FUND EXPENSES
The following expense table indicates costs and expenses that an investor
in Class C shares should anticipate incurring either
directly or indirectly as a shareholder in the Funds.
6
<PAGE>
Centura Centura Centura Centura
Equity Equity- Federal North
Growth Income Securities Carolina
Fund Fund Income Tax-Free
Fund Bond Fund
Class C Class C Class C Class C
Shareholder
Transaction
Expenses
Maximum Sales
Charge Imposed on
Purchases (as a
percentage of
offering price) None None None None
Maximum Sales
Charge Imposed on
Reinvested
Dividends (as a
percentage of
offering price) None None None None
Deferred Sales
Charge (as a
percentage of
redemption
proceeds)** None None None None
Exchange Fees None None None None
Annual Fund
Operating Expenses
(as a percentage
of average new
assets annualized)
Management Fees*** 0.70 0.36 0.30 0.10
12b-1 Fees****
(pursuant to
voluntary cap)
Other Expenses*** 0.31 0.39 0.30 0.33
---- ---- ---- ----
Total Portfolio
Operating
Expenses***** 1.01 0.75 0.60 0.43
==== ==== ==== ====
7
<PAGE>
- ---------------
* Class A shares of each Fund are subject to a maximum 12b-1 fee
of 0.50% and a maximum front-end load of 4.50% for Centura
Equity Growth Fund and Centura Equity Income Fund, and 2.75%
for each of the other Funds (unless waived). Class B shares
of each Fund are subject to a 12b-1 fee of 1.00%, and a
maximum contingent deferred sales charge ("CDSC") of 5.00% for
Centura Equity Growth Fund and Centura Equity Income Fund, and
3.00% for each of the other Funds (unless waived) for
redemptions within five years of purchase.
** Shareholders who redeem shares by wire may be charged a fee by
the banks receiving the wire payments on their behalf. (See
"Redemption of Fund Shares.")
*** Amounts shown for "Management Fees," "Other Expenses" and
"Total Portfolio Operating Expenses" for the Equity Income
Fund and the North Carolina Tax-Free Bond Fund reflect
reductions of fees payable by those Funds to the Adviser and
for administrative and transfer agent services pursuant to
agreements to limit fund expenses. Without these reductions,
"Management Fees" for the Equity Income Fund and North
Carolina Tax-Free Bond Fund, respectively, would be 0.70% and
0.35%, "Other Expenses" would be 0.46% and 0.44%, and "Total
Portfolio Operating Expenses" would be 1.16% and 0.79%.
Example:*
An investor would pay the following expenses on a $ 1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Centura
Centura Centura Centura North
Equity Equity Federal Carolina
Growth Fund Income Fund Securities Tax-Free
Fund Fund
Class C Class C Class C Class C
1 Year 10 8 6 4
3 Years 32 24 19 14
5 years 56 42 33 24
10 Years 124 93 75 54
</TABLE>
* This example should not be considered a representation of
future expenses which may be more or less than those shown.
The assumed 5% annual return is hypothetical and should not be
8
<PAGE>
considered a representation of past or future annual return.
Actual return may be greater or less than the assumed amount.
FINANCIAL HIGHLIGHTS [TO BE UPDATED BY AMENDMENT]
The table below sets forth certain information for the Funds' fiscal
period June 1, 1994 (commencement of operations) through April 30, 1995. (No
information is shown for Centura Equity Income Fund, which was formed on June
__, 1996.) The information set forth in this table has been audited by McGladrey
& Pullen LLP, the Funds' independent accountant whose report on the financial
statements is included in the Funds' Annual Report, which may be obtained
without charge, and is also contained in the Statement of Additional
Information, which is available without charge upon request. The Annual Report
also includes Management's Discussion of Fund Performance. This information
should be read in conjunction with the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Centura Federal Securities
Centura Equity Growth Fund Income Fund
Class A Class B Class C Class A Class B Class C
Net Asset Value, Beginning of Period $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
Income from Investment Operations:
Net Investment Income............ 0.06 0.03 0.07 0.52 0.45 0.54
Net Realized and Unrealized Gain/(Loss)
on Securities................... 0.70 0.69 0.70 (0.03) (0.03) (0.03)
Total from Investment Operations. 0.76 0.72 0.77 0.49 0.42 0.51
Less Distributions:
Dividends from Net Investment Income(0.06) (0.03) (0.07) (0.52) (0.45) (0.54)
Net Asset Value, End of Period..... $10.70 $10.69 $10.70 $ 9.97 $ 9.97 $ 9.97
Total Return (not reflecting sales load7.64% 7.23% 7.71% 5.02% 4.32% 5.28%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $ 968 $ 1,362 $84,004 $ 247 $ 118 $93,807
Ratio of Expenses to Average Net
Asset*,**....................... 29% 2.03% 1.04% 0.86% 1.61% 0.63%
Ratio of Net Investment Income to
Average Net Assets*................ 0.63% 0.00% 0.79% 5.58% 4.86% 5.97%
Portfolio Turnover Rate............ 44% 44% 44% 42% 42% 42%
</TABLE>
- ---------------
* Annualized
** Ratios before effect of waivers were 1.32%, 2.06%, 1.07%, 0.89%, 1.64%,
0.66%, 0.92%, 1.49%, and 0.91%, respectively.
10
<PAGE>
Centura North Carolina
Tax-Free Bond Fund
Class A Class B Class C
Net Asset Value, Beginning of Period $10.00 $10.00 $10.00
Income from Investment Operations:
Net Investment Income.................. 0.39 0.32 0.41
Net Realized and Unrealized Loss on
Securities........................... (0.02) (0.02) (0.02)
Total from Investment Operations....... 0.37 0.30 0.39
Less Distributions:
Dividends from Net Investment Income... (0.39) (0.32) (0.41)
Net Asset Value, End of Period........... $ 9.98 $ 9.98 $ 9.98
Total Return (not reflecting sales load). 3.77% 3.09% 4.08%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)...... $ 429 $ 275 $34,885
Ratio of Expenses to Average Net Assets*,** 0.42% 0.99% 0.41%
Ratio of Net Investment Income to Average Net
Assets*.............................. 4.46% 3.89% 4.64%
Portfolio Turnover Rate.................. 121% 121% 121%
- ---------------
* Annualized
** Ratios before effect of waivers were 1.32%, 2.06%, 1.07%, 0.89%, 1.64%,
0.66%, 0.92%, 1.49%, and 0.91%, respectively.
THE FUNDS
Each Fund is a separate diversified investment fund or portfolio, commonly
known as a mutual fund. The Funds are portfolios of the Company, which was
organized under the laws of the State of Maryland on March 1, 1994 as an
open-end, management investment company. Centura Equity Income Fund was
established as
11
<PAGE>
a new portfolio of the Company on June __, 1996. The Company's Board of
Directors oversees the overall management of the Funds and elects the Funds'
officers.
Centura Equity Growth Fund. Investors seeking long-term growth of capital
and for whom current income is not an objective should consider investing in
Centura Equity Growth Fund.
The investment objective of Centura Equity Growth Fund is long-term
capital appreciation. The Fund invests primarily in a diversified portfolio of
publicly traded common and preferred stocks and securities convertible into or
exchangeable for common stock. The Adviser uses fundamental analysis to select
stocks for the Fund's portfolio and the Fund will invest primarily in stocks of
companies that exhibit unusually strong gains in earnings per share. However,
the Adviser may also select stocks of companies that it believes offer special
opportunities for appreciation because they are undervalued relative to the
market. The Fund expects to invest primarily in securities of U.S.-based
companies, but may also invest in securities of foreign companies, primarily in
the form of American Depositary Receipts ("ADRs"). Under normal circumstances,
at least 65% of the Fund's assets will be invested in equity securities believed
by the Adviser to have potential for capital appreciation, and the Fund's
portfolio will normally consist primarily of equity securities. However, the
Fund may invest without limit in debt instruments for temporary defensive
purposes when the Adviser has determined that abnormal market or economic
conditions so warrant. These debt obligations may include U.S. Government
securities; certificates of deposit, bankers' acceptances and other short-term
debt obligations of banks with total assets of at least $1,000,000,000; debt
obligations of corporations (corporate bonds, debentures, notes and other
similar corporate debt instruments); commercial paper; and repurchase agreements
with respect to securities in which the Fund is authorized to invest. Although
the Fund's investments in such debt securities and in convertible and preferred
stock will generally be rated A, A-1, or better by Standard & Poor's Corporation
("S&P") or A, Prime-1 or better by Moody's Investors Service, Inc. ("Moody's"),
or deemed of comparable quality by the Adviser, the Fund is authorized to invest
up to 15% of its assets in securities rated as low as BBB by S&P or Baa by
Moody's, or deemed of comparable quality by the Adviser. Securities rated BBB or
Baa or deemed equivalent may have speculative characteristics. See "Risks of
Investing in the Funds." If any security held by the Fund is downgraded below
BBB/Baa (or so deemed by the Adviser), the securities will generally be sold
unless it is determined that such sale is not in the best interest of the Fund.
The Fund will invest in no securities rated below BBB or Baa.
Centura Equity Income Fund. Investors seeking long-term
growth and income should consider an investment in Centura Equity
Income Fund.
12
<PAGE>
The investment objective of Centura Equity Income Fund is to provide
long-term capital appreciation and income. This Fund invests primarily in
dividend-paying common stocks, convertible preferred stocks, and convertible
bonds, notes and debentures. In managing this Fund, the Adviser uses fundamental
analysis to select stocks for the Fund's portfolio. The Fund will invest
primarily in the stocks of established companies with above average dividend
yields and/or prospects for increasing dividends. however, the Adviser may also
select stocks (or convertible securities) of companies that it believes offer
special appreciation opportunities because they are undervalued in the
marketplace based on such factors as price/earnings ratios or the ratio of stock
price to the company's inherent asset value, book value, cash flow or underlying
franchise value. The Fund expects to invest primarily in securities of U.S.
based companies, but it may also invest in securities of non-U.S. companies,
generally through ADRs. Under normal circumstances, at least 65% of the Fund's
assets will be invested in equity securities and convertible securities.
However, for temporary defensive purposes when the Adviser has determined that
abnormal market or economic conditions so warrant, the Fund may invest without
limit in debt instruments of the same types, and subject to the same conditions,
as Centura Equity Growth Fund under such circumstances.
Centura Federal Securities Income Fund. Investors seeking high
current income from a portfolio of U.S. Government securities
should consider investing in Centura Federal Securities Income
Fund.
The investment objective of Centura Federal Securities Income Fund is to
provide high current income consistent with relative stability of principal and
safety. It pursues this objective by investing primarily in securities issued by
the U.S. Government, its agencies and instrumentalities with maximum maturities
of ten years. These securities typically display greater price stability and
safety than debt securities of longer duration and lower quality, although the
latter generally offer higher income. In addition to limiting the maturity of
its portfolio securities, the Fund attempts to moderate principal fluctuations
by investing at least 70% of its portfolio in direct obligations of the U.S.
Treasury, with no more than 30% in securities of U.S. Government agencies and
instrumentalities, and by using a modified "laddering" approach to structuring
the Fund's portfolio - i.e., by investing in securities with different
maturities and adjusting their relative proportions, as well as the maximum and
average maturity of its portfolio securities, to adapt to various market
conditions. Using this approach, the Fund hopes both to capture a high
proportion of the currently available yield on fixed income securities and to
limit volatility.
To permit desirable flexibility, the Fund has authority to invest in
corporate debt securities rated A or better by S&P or
13
<PAGE>
Moody's (or deemed of comparable quality by the Adviser) and high quality money
market instruments including commercial paper rated A-1 or better by S&P or
Prime-1 or better by Moody's (or deemed by the Adviser to be of comparable
quality); certificates of deposit, bankers' acceptances and other short-term
debt obligations of banks with total assets of at least $1,000,000,000; and
repurchase agreements with respect to securities in which the Fund is authorized
to invest.
Centura North Carolina Tax-Free Bond Fund. Investors seeking dividend
income that is generally free of regular federal and North Carolina personal
income taxes should consider investing in the Centura North Carolina Tax-Free
Bond Fund.
The investment objective of Centura North Carolina Tax-Free Bond Fund is
relatively high current income that is free of both regular federal and North
Carolina income tax, together with relative safety of principal. This Fund
invests primarily in a portfolio of obligations issued by the state of North
Carolina, its political subdivisions, and their agencies and instrumentalities,
the income from which, in the opinion of the issuer's bond counsel, is exempt
from regular federal and North Carolina personal income taxes ("North Carolina
Municipal Obligations"). By limiting the Fund's average portfolio maturity to
between 5 and 10 years, with a maximum maturity for any portfolio security of 15
years, the Fund seeks to capture a high proportion of the currently available
return on North Carolina Municipal Obligations while providing greater safety of
principal than would be available from longer term municipal securities. It also
seeks to moderate price fluctuations by diversifying its investments among
different municipal issuers and by limiting its investments to securities of
high quality.
The Fund seeks to provide income that is fully free from regular federal
and North Carolina personal income taxes, as well as from the federal
alternative minimum tax. To provide the flexibility to deal with a variety of
market circumstances, however, the Fund has limited authority (a) to invest in
municipal obligations of other states ("Municipal Obligations"), the income from
which would not be free from North Carolina income tax, (b) to invest up to 10%
of its assets in municipal obligations subject to the federal alternative
minimum tax ("AMT Obligations"), and (c) to invest up to 20% of its assets in
AMT Obligations plus cash reserves and obligations producing taxable income,
including obligations of the U.S. Government, its agencies and
instrumentalities; certificates of deposit, bankers' acceptances and other
short-term debt obligations of U.S banks with total assets of at least
$1,000,000,000; commercial paper rated A-1 or better by S&P or Prime-1 or better
by Moody's (or deemed by the Adviser to be of comparable quality); and
repurchase agreements relating to underlying securities in which the Fund is
authorized to invest. For temporary defensive purposes when the Adviser has
14
<PAGE>
determined that abnormal market and economic conditions so warrant, the Fund may
invest up to 50% of its assets in investments producing taxable income and AMT
Obligations. Any distributions by the Fund of capital gains and other income
that are not designated by the Fund as "exempt-interest dividend's will normally
be subject to federal, state and, in some cases, local tax. As a fundamental
policy, during periods of normal market conditions, at least 80% of the Fund's
net assets will be invested in securities the interest income from which is
exempt from the regular federal income tax. Additionally, under normal
circumstances, (a) at least 65% of the Funds total assists will be invested in
"bonds" - i.e. debt obligations with a duration of at least one year from the
date of issue, and (b) at least 65% of the value of the Fund's total assets will
be invested in bonds that are North Carolina Municipal Obligations. Tax advisers
should be consulted regarding tax effects for particular investors.
The Fund's quality criteria require that ft Fund purchase Municipal
Obligations rated A, SP-1 or better by S&P or A, MIG-1 or better by Moody's;
commercial paper rated A-1 or better by S&P or Prime-1 or better by Moody's;
corporate debt securities rated A or better by S&P or Moody's (or debt
securities given equivalent ratings by at least two other nationally recognized
statistical rating organizations ("NRSROs")) or, if any of such securities are
not rated, that they be of comparable quality in the Adviser's opinion. For more
information on Municipal Obligations and North Carolina Municipal Obligations,
see "Description of Securities and Investment Practices" and "Risks of Investing
in the Funds."
In determining to invest in a particular Municipal Obligation, the Adviser
will rely on the opinion of bond counsel for the issuer as to the validity of
the security and the exemption of interest on such security from federal and
relevant state income taxes, and the Adviser will not make an independent
investigation of the basis for any such opinion.
Other Investment Policies of the Funds
Each of the Funds may also invest up to 5% of its total assets in another
investment company, not to exceed 10% of the value of its total assets in the
securities of other investment companies. Taxable distributions earned from
other investment companies will, likewise, represent taxable income to a Fund. A
Fund will incur additional expenses due to the duplication of expenses as a
result of investing in new funds other than the Funds. Each of the Funds has
authority, which it does not presently intend to exercise, to invest in futures
and options contracts and to lend its portfolio securities. For information
concerning these practices, see "Investment Policies" in the SAI.
15
<PAGE>
DESCRIPTION OF SECURITIES AND INVESTMENT PRACTICES
U.S. Government Securities (All Funds). U.S. Government
securities are obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. U.S. Treasury
bills, which have a maturity of up to one year, are direct
obligations of the United States and are the most frequently issued
marketable U.S. Government security. The U.S. Treasury also issues
securities with longer maturities in the form of notes and bonds.
U.S. Government agency and instrumentality obligations are debt securities
issued by U.S. Government-sponsored enterprises and Federal agencies. Some
obligations of agencies are supported by the full faith and credit of the United
States or by U.S. Treasury guarantees, such as mortgage-backed certificates
issued by the Government National Mortgage Association; others, such as
obligations of the Federal Home Loan Banks, Federal Farm Credit Bank, Bank for
Cooperatives, Federal Intermediate Credit Banks and the Federal Land Bank, are
guaranteed by the right of the issuer to borrow from the U.S. Treasury; others,
such as obligations of the Federal National Mortgage Association, are supported
by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others, such as obligations of
the Student Loan Marketing Association and the Tennessee Valley Authority, are
backed only by the credit of the agency or instrumentality issuing the
obligation. In the case of obligations not backed by the full faith and credit
of the United States, the investor must look principally to the agency issuing
or guaranteeing the obligation for ultimate repayment.
Bank Obligations (All Funds). These obligations include negotiable
certificates of deposit and bankers' acceptances. The Funds limit their bank
investments to dollar-denominated obligations of U.S. or foreign banks which
have more than $1 billion in total assets at the time of investment and, in the
case of U.S. banks, 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.
Commercial Paper (All Funds). Commercial paper includes short-term
unsecured promissory notes, variable rate demand notes and variable rate master
demand notes issued by domestic and foreign bank holding companies, corporations
and financial institutions, as well as similar instruments issued by government
agencies and instrumentalities.
Corporate Debt Securities (All Funds). A Fund's investments in corporate
debt securities are limited to corporate debt securities (corporate bonds,
debentures, notes and other similar corporate debt instruments) which meet the
previously disclosed minimum ratings and maturity criteria established for the
Fund under the direction of the Board of Directors and the Fund's
16
<PAGE>
Adviser or, if unrated, are in the Adviser's opinion comparable in quality to
corporate debt securities in which the Fund may invest.
See "The Funds."
Repurchase Agreements (All Funds). Securities held by the Funds may be
subject to repurchase agreements. A repurchase agreement is a transaction in
which the seller of a security commits itself at the time of the sale to
repurchase that security from the buyer at a mutually agreed-upon time and
price. These agreements permit the Funds to earn income for periods as short as
overnight. Repurchase agreements may be considered to be loans by the purchaser
collateralized by the underlying securities. These agreements will be fully
collateralized and the collateral will be marked-to-market daily. The Funds will
enter into repurchase agreements only with dealers, domestic banks or recognized
financial institutions which in the opinion of the Adviser, present minimal
credit risks in accordance with guidelines adopted by the Board of Directors. In
the event of default by the seller under the repurchase agreement a Fund may
have problems in exercising its rights to the underlying securities and may
experience time delays in connection with the disposition of such securities.
Loans of Portfolio Securities (All Funds). To increase current income each
Fund may lend its portfolio securities worth up to 5% of that Fund's total
assets to brokers, dealers and financial institutions, provided certain
conditions are met, including the condition that each loan is secured
continuously by collateral maintained on a daily mark-to-market basis in an
amount at least equal to the current market value of the securities loaned. For
further information, see the SAI.
Variable and Floating Rate Demand and Master Demand Notes (All Funds). The
Funds may, from time to time, buy variable or floating rate demand notes issued
by corporations, bank holding companies and financial institutions and similar
instruments issued by government agencies and instrumentalities. These
securities will typically have a maturity over one year but carry with them the
right of the holder to put the securities to a remarketing agent or other entity
at designated time intervals and on specified notice. The obligation of the
issuer of the put to repurchase the securities may be backed by a letter of
credit or other obligation issued by a financial institution. The repurchase
price is ordinarily par plus accrued and unpaid interest. Generally, the
remarketing agent will adjust the interest rate every seven days (or at other
specified intervals) in order to maintain the interest rate at the prevailing
rate for securities with a seven-day or other designated maturity. A Fund's
investment in demand instruments which provide that the Fund will not receive
the principal note amount within seven days' notice, in combination with the
Fund's other investments in illiquid instruments, will be limited to an
aggregate total of 15% of that Fund's net assets.
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The Funds may also buy variable rate master demand notes. The terms of few
obligations permit a Fund to invest fluctuating amounts at varying rates of
interest pursuant to direct arrangements between the Fund, as lender, and the
borrower. These instruments permit weekly and, in some instances, daily changes
in the amounts borrowed. The Funds have the right to increase the amount under
the note at any time up to the full amount provided by the note agreement, or to
decrease the amount, and the borrower may repay up to the full amount of the
note without penalty. The notes may or may not be backed by bank letters of
credit. Because the notes are direct lending arrangements between the Fund and
borrower, it is not generally contemplated that they will be traded, and there
is no secondary market for them, although they are redeemable (and, thus,
immediately repayable by the borrower) at principal amount, plus accrued
interest, at any time. In connection with any such purchase and on an ongoing
basis, the Adviser will consider the earning power, cash flow and other
liquidity ratios of the issuer, and its ability to pay principal and interest on
demand, including a situation in which all holders of such notes make demand
simultaneously. While master demand notes, as such, are not typically rated by
credit rating agencies, a Fund may, under its minimum rating standards, invest
in them only if, at the time of an investment, the issuer meets the criteria set
forth in this Prospectus for commercial paper obligations.
Forward Commitments and When-Issued Securities (Centura Equity Income
Fund, Centura Federal Securities Income Fund and Centura North Carolina Tax-Free
Bond Fund). A Fund may purchase when- issued securities and make contracts to
purchase securities for a fixed price at a future date beyond customary
settlement time if the Fund holds, and maintains until the settlement date in a
segregated account cash, U.S. Government securities or high-grade debt
obligations in an amount sufficient to meet the purchase price, or if the Fund
enters into offsetting contracts for the forward sale of other securities it
owns. Purchasing securities on a when-issued basis and forward commitments
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date, which risk is in addition to the risk of decline
in value of a Fund's other assets. No income accrues on securities purchased on
a when-issued basis prior to the time delivery of the securities is made,
although a Fund may earn interest on securities it has deposited in the
segregated account because it does not pay for the when-issued securities until
they are delivered. Investing in when-issued securities has the effect of (but
is not the same as) leveraging the Fund's assets. Although a Fund would
generally purchase securities on a when-issued basis or enter into forward
commitments with the intention of actually acquiring securities, that Fund May
dispose of a when-issued security or forward commitment prior to settlement if
the Adviser deems it appropriate to do so. A Fund may realize short-term profits
or losses upon such sales.
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Mortgage-Related Securities (Centura Equity Income Fund, Centura Federal
Securities Income Fund and Centura North Carolina Tax-Free Bond Fund). Mortgage
pass-through securities are securities representing interests in "pools" of
mortgages in which payments of both interest and principal on the securities are
made monthly, in effect "passing through" monthly payments made by the
individual borrowers on the residential mortgage loans which underlie the
securities (net of fees paid to the issuer or guarantor of the securities).
Centura North Carolina Tax-Free Bond Fund may invest only in those mortgage
pass-through securities whose payments are tax-exempt. Early repayment of
principal on mortgage pass-through securities (arising from prepayments of
principal due to sale of the underlying property, refinancing, or foreclosure,
net of fees and costs which may be incurred) may expose a Fund to a lower rate
of return upon reinvestment of principal. Also, if a security subject to
prepayment has been purchased at a premium, in the event of prepayment the value
of the premium would be lost. Like other fixed-income securities, when interest
rates rise, the value of a mortgage-related security generally will decline;
however, when interest rates decline, the value of mortgage-related securities
with prepayment features may not increase as much as other fixed-income
securities. In recognition of this prepayment risk to investors, the Public
Securities Association (the "PSA") has standardized the method of measuring the
rate of mortgage loan principal prepayments. The PSA formula, the Constant
Prepayment Rate (the "CPW"), or other similar models that are standard in the
industry will be used by a Fund in calculating maturity for purposes of its
investment in mortgage-related securities. Upward trends in interest rates tend
to lengthen the average life of mortgage-related activities and also cause the
value of outstanding securities to drop. Thus, during periods of rising interest
rates, the value of these securities held by a Fund would tend to drop and the
portfolio-weighted average life of the securities held by a Fund may tend to
lengthen due to this effect. Under these circumstances, a Manager may, but is
not required to, sell securities in part in order to maintain an appropriate
portfolio-weighted average life.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (such as securities guaranteed by
the Government National Mortgage Association ("GNMA"); or guaranteed by agencies
or instrumentalities of the U.S. Government (such as securities guaranteed by
the Federal National Mortgage Association ("FNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC"), which are supported only by the discretionary
authority of the U.S. Government to purchase the agency's obligations). Mortgage
pass-through securities created by nongovernmental issuers (such as commercial
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers and other secondary market issuers) may be supported by various
forms of insurance or
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guarantees, including individual loan, title, pool and hazard insurance, and
letters of credit, which may be issued by governmental entities, private
insurers or the mortgage poolers.
A Fund may also invest in investment grade Collateralized Mortgage
Obligations ("CMOs") which are hybrid instruments with characteristics of both
mortgage-backed bonds and mortgage pass-through securities. Similar to a bond,
interest and prepaid principal on a CMO are paid, in most cases, semi-annually.
CMOs may be collateralized by whole mortgage loans but are more typically
collateralized by portfolios of mortgage pass-through securities guaranteed by
GNMA, FHLMC or FNMA. CMOs are structured into multiple classes, with each class
bearing a different stated maturity. Monthly payments of principal, including
prepayments, are first returned to investors holding the shortest maturity
class; investors holding longer maturity classes receive principal only after
the first class has been retired. CMOs may be issued by government and
non-governmental entities. Some CMOs are debt obligations of FHLMC issued in
multiple classes with different maturity dates secured by the pledge of a pool
of conventional mortgages purchased by FHLMC. Other types of CMOs are issued by
corporate issuers in several series, with the proceeds used to purchase
mortgages or mortgage pass-through certificates. With some CMOs, the issuer
serves as a conduit to allow loan originators (primarily builders or savings and
loan associations) to borrow against their loan portfolios. To the extent a
particular CMO is issued by an investment company, a Fund's ability to invest in
such CMOs will be limited. See "The Funds - Other Investment Policies of the
Funds."
Assumptions generally accepted by the industry concerning the probability
of early payment may be used in the calculation of maturities for debt
securities that contain put or call provisions, sometimes resulting in a
calculated maturity different from the stated maturity of the security.
It is anticipated that governmental, government-related or private
entities may create mortgage loan pools and other mortgage-related securities
offering mortgage pass-through and mortgage- collateralized investments in
addition to those described above. As new types of mortgage-related securities
are developed and offered to investors, the Adviser will, consistent with a
Fund's investment objectives, policies and quality standards, consider making
investments in such new types of mortgage-related securities, but no investments
will be made in such securities until the Fund's prospectus and/or SAI have been
revised to reflect such securities.
Other Asset-Backed Securities (Centura Equity Income Fund, Centura Federal
Securities Income Fund and Centura North Carolina Tax-Free Bond Fund). Other
asset-backed securities (unrelated to mortgage loans) are developed from time to
time and may be
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purchased by a Fund to the extent consistent with its investment objective and
policies, but only after disclosure reflecting such securities has been added to
the Fund's prospectus and/or SAI.
Foreign Securities (Centura Equity Growth Fund and Centura Equity Income
Fund). The Funds may invest in securities represented by American Depositary
Receipts ("ADRs"). ADRs are dollar-denominated receipts generally issued by
domestic banks, which represent the deposit with the bank of a security of a
foreign issuer, and which are publicly traded on exchanges or over-the-counter
in the United States. There are certain risks associated with investments in
unsponsored ADR programs. Because the non-U.S. company does not actively
participate in the creation of the ADR program, the underlying agreement for
service and payment will be between the depositary and the shareholders. The
company issuing the stock underlying the ADRs pays nothing to establish the
unsponsored facility, as fees for ADR issuance and cancellation are paid by
brokers. Investors directly bear the expenses associated with certificate
transfer, custody and dividend payment. In addition, in an unsponsored ADR
program, there may be several depositories with no defined legal obligations to
the non- U.S. company. The duplicate depositories may lead to marketplace
confusion because there would be no central source of information to buyers,
sellers and intermediaries. The efficiency of centralization gained in a
sponsored program can greatly reduce the delays in delivery of dividends and
annual reports. For more information, see "Risks of Investing in the Funds."
Forward Foreign Currency Transactions (Centura Equity Growth Fund and
Centura Equity Income Fund). These Funds may enter into forward foreign currency
exchange contracts in order to protect against uncertainty in the level of
future foreign exchange rates. These contracts, which involve costs, permit a
Fund to purchase or sell a specific amount of a particular currency at a
specified price on a specified future date. A Fund will realize a benefit from
this type of contract only to the extent that the relevant currencies move as
anticipated. If the currencies do not move as anticipated, the contracts may
cause greater loss to a Fund than if they had not been used. See the SAI for
further information concerning forward foreign currency transactions.
Futures Contracts and Options (All Funds). The Funds may purchase and sell
futures contracts on securities, currencies, and indices of securities, and
write and sell put and call options on securities, currencies and indices of
securities as a hedge against changes in interest rates, stock prices, currency
fluctuations and other market developments, provided that not more than 5% of a
Fund's net assets are committed to margin deposits on futures contracts and
premiums for options. See the SAI for information about futures and options. See
"Risks of Investing in the Funds" for a discussion of risks related to investing
in futures and options.
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Municipal Obligations (Centura North Carolina Tax-Free Bond Fund). The
Fund may invest in securities issued by states, their political subdivisions and
agencies and instrumentalities of the foregoing, the income from which, in the
opinion of bond counsel for the issuer, is exempt from regular income taxes by
the federal government and state of the issuing entity ("Municipal
Obligations"). Such Municipal Obligations include municipal bonds, floating rate
and variable rate Municipal Obligations, participation interests in municipal
bonds, tax-exempt asset-backed certificates, tax-exempt commercial paper,
short-term municipal notes, and stand-by commitments. It may be anticipated that
governmental, government-related or private entities will create other
tax-exempt investments in addition to those described above. As new types of
tax-exempt vehicles are developed, the Adviser will, consistent with the Fund's
investment objectives, policies and quality standards, consider making
investments in such types of Municipal Obligations, but will not make such
investments until they are reflected in the Fund's prospectus and/or SAI. The
Fund will purchase only Municipal Obligations rated A, SP-1 or better by S&P or
A, MIG-1 or better by Moody's (or given equivalent ratings by another NRSRO) or,
if the securities are not rated, are of comparable quality in the Adviser's
opinion. Municipal Obligations in which the Fund may invest include "general
obligation" and "revenue" securities. General obligation securities are backed
by the issuer's full faith, credit and taxing power for the payment of principal
and interest. The taxes that can be levied for the payment of debt service may
be limited or unlimited in terms of rate or amount or special assessments.
Revenue securities are secured primarily by net revenues generated by a
particular facility or group of facilities, or by the proceeds of a special
excise or other specific revenue source. Additional security may be provided by
a debt service reserve fund. Municipal bonds include industrial development
bonds ("IDBs"), moral obligation bonds, put bonds and private activity bonds
("PABs"). PABs generally relate to the financing of a facility used by a private
entity or entities. The credit quality of such bonds is usually directly related
to that of the users of the facilities. The interest on most PABs is an item of
tax preference for purposes of the Federal alternative minimum tax and Fund
distributions attributable to such interest likewise, constitute an item of tax
preference. For information on the risks related to the Fund's concentration in
North Carolina Municipal Obligations, see "Risks of Investing in the Funds."
Municipal Lease Obligations (Centura North Carolina Tax-Free Bond Fund).
The Fund may invest in municipal lease obligations including certificates of
participation ("COPs"), which finance a variety of public projects. Because of
the way these instruments are structured, they may carry a greater risk than
other types of Municipal Obligations. The Fund may invest in lease obligations
only when they are rated by a rating agency or, if unrated, are deemed by the
Adviser, to be of a quality comparable to the Fund's
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quality standards. With respect to any such unrated municipal lease obligations
in which the Fund invests, the Company's Board of Directors will be responsible
for determining their credit quality, on an ongoing basis, including assessing
the likelihood that the lease will not be cancelled. Prior to purchasing a
municipal lease obligation and on a regular basis thereafter, the Adviser will
evaluate the credit quality and, pursuant to guidelines adopted by the
Directors, the liquidity of the security. In making its evaluation, the Adviser
will consider various credit factors, such as the necessity of the project, the
municipality's credit quality, future borrowing plans, and sources of revenue
pledged for lease repayment, general economic conditions in the region where the
security is issued, and liquidity factors, such as dealer activity. For
discussion regarding municipal lease obligations, see "Risks of Investing in the
Funds" in this Prospectus and "Investment Policies" in the SAI.
Stand by Commitments (Centura North Carolina Tax-Free Bond Fund). The Fund
may acquire "stand-by commitments," which will enable it to improve its
portfolio liquidity by making available same-day settlements on sales of its
securities. A stand-by commitment gives the Fund, when it purchases a Municipal
Obligation from a broker, dealer or other financial institution ("seller"), the
right to sell up to the same principal amount of such securities back to the
seller, at the Fund's option, at a specified price. Stand-by commitments are
also known as "puts." The Fund may acquire stand-by commitments solely to
facilitate portfolio liquidity and not to protect against changes in the market
price of the Fund's portfolio securities. The exercise by the Fund of a stand-by
commitment is subject to the ability of the other party to fulfill its
contractual commitment.
The Fund expects that stand-by commitments generally will be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Fund will pay for stand-by commitments either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitments.
It is difficult to evaluate the likelihood of use or the potential benefit
of a stand-by commitment. Therefore, it is expected that the Directors will
determine that stand-by continents ordinarily have a "fair value" of zero,
regardless of whether any direct or indirect consideration was paid. However, if
the market price of the security subject to the stand-by commitment is less than
the exercise price of the stand-by commitment, such security win ordinarily be
valued at such exercise price. Where the Fund has paid for a stand-by
commitment, its cost will be reflected as unrealized depreciation for the period
during which the commitment is held.
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There is no assurance that stand-by commitments will be available to the
Fund nor does the Fund assume that such commitments would continue to be
available under all market conditions.
Third Party Puts (Centura North Carolina Tax-Free Bond Fund). The Fund may
also purchase long-term fixed rate bonds that have been coupled with an option
granted by a third party financial institution allowing the Fund at specified
intervals to tender (or "put") the bonds to the institution and receive the face
value thereof (plus accrued interest). These third party puts are available in
several different forms, may be represented by custodial receipts or trust
certificates and may be combined with other features such as interest rate
swaps. The Fund receives a short-term rate of interest (which is periodically
reset), and the interest rate differential between that rate and the fixed rate
on the bond is retained by the financial institution. The financial institution
granting the option does not provide credit enhancement. In the event that there
is a default in the payment of principal or interest, or downgrading of a bond
to below investment grade, or a loss of the bond's tax-exempt status, the put
option will terminate automatically. The risk to the Fund in this case will be
that of holding a long-term bond which would tend to lengthen the weighted
average maturity of the Fund's portfolio.
These bonds coupled with puts may present tax issues also associated with
stand-by commitments. As with any stand-by commitments acquired by the Fund, the
Fund intends to take the position that it is the owner of any Municipal
Obligation acquired subject to a third-party put, and that tax-exempt interest
earned with respect to such Municipal Obligations will be tax-exempt in its
hands. There is no assurance that the Internal Revenue Service will agree with
such position in any particular case. Additionally, the federal income tax
treatment of certain other aspects of these investments, including the treatment
of tender fees and swap payments, in relation to various regulated investment
company tax provisions is unclear. However, the Adviser intends to manage the
Fund's portfolio in a manner designed to minimize any adverse impact from these
investments.
Participation Interests (Centura North Carolina Tax-Free Bond Fund). The
Fund may purchase from banks participation interests in all or part of specific
holdings of Municipal Obligations. Each participation is backed by an
irrevocable letter of credit or guarantee of the selling bank that the Fund's
Adviser has determined meets the prescribed quality standards of theft Fund.
Thus either the credit of the issuer of the Municipal Obligation or the selling
bank, or both, will meet the quality standards of the Fund. The Fund has the
right to sell the participation back to the bank after seven days' notice for
the full principal amount of the Fund's interest in the Municipal Obligation
plus accrued interest, but only (a) as required to provide liquidity to the
Fund, (b) to
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maintain a high quality investment portfolio or (c) upon a default under the
terms of the Municipal Obligation. The selling bank will receive a fee from the
Fund in connection with the arrangement. The Fund will not purchase
participation interests unless it receives an opinion of counsel or a ruling of
the Internal Revenue Service satisfactory to the Adviser that interest earned by
the Fund on Municipal Obligations on which it holds participation interests is
exempt from federal income tax.
INVESTMENT RESTRICTIONS
The following restrictions are applicable to each of the Funds, except as
otherwise indicated.
(1) No Fund may, with respect to 75% of its total assets, purchase more
than 10% of the voting securities of any one issuer or invest more than 5% of
the value of such assets in the securities or instruments of any one issuer,
except securities or instruments issued or guaranteed by the U.S. Government,
its agencies or instrumentalities.
(2) No Fund may purchase securities or instruments which would cause 25%
or more of the market value of its total assets at the time of such purchase to
be invested in securities or instruments of one or more issuers having their
principal business activities in the same industry, provided that there is no
limit with respect to investments in the U.S. Government, its agencies and
instrumentalities.
(3) No Fund may borrow money, except that a Fund may borrow from banks up
to 10% of the current value of its total net assets for temporary or emergency
purposes. A Fund will make no purchase if its outstanding borrowings exceed 5%
of its total assets.
(4) No Fund may make loans, except that a Fund may (a) lend its portfolio
securities, (b) enter into repurchase agreements with respect to its portfolio
securities, and (c) purchase the types of debt instruments described in this
Prospectus or the SAI.
For purposes of investment restriction number (1), Centura North Carolina
Tax-Free Bond Fund considers a Municipal Obligation to be issued by the
governmental entity (or entities) whose assets and revenues back the Municipal
Obligation. For a Municipal Obligation backed only by the assets and revenues of
a nongovernmental user, such user is deemed to be the issuer; such issuers, to
the extent their principal business activities are in the same industry, are
also subject to investment restriction (2). For purposes of investment
restriction (2), public utilities are not deemed to be a single industry but are
separated by industrial categories, such as telephone or gas utilities.
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The foregoing investment restrictions and those described in the SAI as
fundamental are policies of each Fund which may be changed with respect to that
Fund only when permitted by law and approved by the holders of a majority of the
applicable Fund's outstanding voting securities as described under "Other
Information-Voting."
Additionally, as a non-fundamental policy, no Fund may invest more than
15% of the aggregate value of its net assets in investments which are illiquid,
or not readily marketable (including repurchase agreements having maturities of
more than seven calendar days and variable and floating rate demand and master
demand notes not requiring receipt of the principal note amount within seven
days' notice).
If a percentage restriction on investment policies or the investment or
use of assets set forth in this Prospectus are adhered to at the time a
transaction is effected, later changes in percentage resulting from changing
values will not be considered a violation.
RISKS OF INVESTING IN THE FUNDS
The price per share of each of the Funds will fluctuate with changes in
the value of the investments held by the Fund. Shareholders of a Fund should
expect the value of their shares to fluctuate with changes in the value of the
securities owned by that Fund. There is, of course, no assurance that a Fund
will achieve its investment objective or be successful in preventing or
minimizing the risk of loss that is inherent in investing in particular types of
investment products. In order to attempt to minimize that risk, the Adviser
monitors developments in the economy, the securities markets, and with each
particular issuer. Also, as noted earlier, each Fund is managed within certain
limitations that restrict the amount of a Fund's investment in any single
issuer.
Foreign Securities (Centura Equity Growth Fund and Centura Equity Income
Fund). Investing in the securities of issuers in any foreign country, including
ADRS, involves special risks and considerations not typically associated with
investing in securities of U.S. issuers. These include differences in
accounting, auditing and financial reporting standards; generally higher
commission rates on foreign portfolio transactions; the possibility of
nationalization, expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations (which may include suspension of the
ability to transfer currency from a country); and political instability which
could affect U.S. investments in foreign countries. Additionally, foreign
securities and dividends and interest payable on those securities may be subject
to foreign taxes, including taxes withheld from payments on those securities.
Foreign securities
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often trade with less frequency and volume than domestic securities and,
therefore, may exhibit greater price volatility. Additional costs associated
with an investment in foreign securities may include higher custodial fees than
apply to domestic custodial arrangements and transaction costs of foreign
currency conversions. Changes in foreign exchange rates also will affect the
value of securities denominated or quoted in currencies other than the U.S.
dollar. A Fund's objective may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous economic
and political developments. A decline in the value of any particular currency
against the U.S. dollar will cause a decline in the U.S. dollar value of a
Fund's holdings of securities denominated in such currency and, therefore, will
cause an overall decline in a Fund's net asset value and any net investment
income and capital gains to be distributed in U.S. dollars to shareholders of
the Fund. The rate of exchange between the U.S. dollar and other currencies is
determined by several factors including the supply and demand for particular
currencies, central bank efforts to support particular currencies, the movement
of interest rates, the pace of business activity in certain other countries and
the United States, and other economic and financial conditions affecting the
world economy. Although the Fund may engage in forward foreign currency
transactions and foreign currency options to protect its portfolio against
fluctuations in currency exchange rates in relation to the U.S. dollar, there is
no assurance that these techniques will be successful. See "Description of
Securities and Investment Practices" and below for additional information about
these kinds of transactions.
Although the Funds value their assets daily in terms of U.S. dollars, the
Funds do not intend to convert their holdings of foreign currencies into U.S.
dollars on a daily basis. The Funds will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference ("spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to a Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to sell that currency to the dealer.
Through the Funds' flexible policies, the Adviser endeavors to avoid
unfavorable consequences and to take advantage of favorable developments in
particular nations where, from time to time, it may place the Funds'
investments. See the SAI for further information about foreign securities.
Zero Coupon and Pay-in-Kind Securities (Centura Equity Income Fund,
Centura Federal Securities Income Fund and Centura North Carolina Tax-Free Bond
Fund). Zero coupon bonds (which do not pay interest until maturity) and
pay-in-kind securities (which pay
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interest in the form of additional securities) may be more speculative and may
fluctuate more in value than securities which pay income periodically and in
cash. In addition, although a Fund receives no periodic cash payments from such
investments, applicable tax rules require the Fund to accrue and pay out its
income from such securities annually as income dividends and require
stockholders to pay tax on such dividends (except if such dividends qualify as
exempt-interest dividends).
North Carolina Municipal Obligations (Centura North Carolina Tax-Free Bond
Fund). Because this Fund will concentrate its investments in North Carolina
Municipal Obligations, it may be affected by political, economic or regulatory
factors that may impair the ability of North Carolina issuers to pay interest on
or to repay the principal of their debt obligations. Thus, the net asset value
of the shares may be particularly impacted by the general economic situation
within North Carolina. The concentration of the Fund's investments in a single
state may involve greater risk than if the Fund invested in Municipal
Obligations throughout the country, due to the possibility of an economic or
political development which could uniquely affect the ability of issuers to meet
the debt obligations of the securities.
The economy of North Carolina is supported by industry, agricultural
products, and tourism, with the largest segment of its work force employed in
manufacturing. From 1980 to 1993, the state's per capita income grew 133.8%,
from $7,999 to $18,702. The state has the nation's tenth highest population, and
its unemployment rate in March 1995 was 3.9% of the labor force (versus a
national rate of 5.5%). The state's labor force grew 26.4% between 1980 and
1994, while its complexion shifted from agriculture to the production of goods
and services. In 1993, North Carolina nevertheless ranked tenth in the nation in
gross agricultural income. Although 20% of its agricultural income comes from
tobacco, 34% comes from a diversified poultry industry and the remainder from a
relatively large variety of other agricultural plant and animal products. North
Carolina is the third most diversified state in the country in terms of its
agriculture.
Obligations of issuers of North Carolina Municipal Obligations are subject
to the provisions of bankruptcy, insolvency and other laws affecting the rights
and remedies of creditors, such as the Federal Bank Reform Act of 1978. In
addition, the obligations of such issuers may become subject to the laws enacted
in the future by Congress or the North Carolina legislature or by referenda
extending the time for payment of principal and/or interest, or imposing other
constraints upon enforcement of such obligations or upon municipalities to levy
taxes. There is also the possibility that, as a result of legislation or other
conditions, the power or ability of any issuer to pay, when due, the principal
of and interest on its North Carolina Municipal Obligations may be materially
affected. Additional considerations relating to the
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risks of investing in North Carolina Municipal Obligations are
presented in the SAI.
Municipal Lease Obligations (Centura North Carolina Tax-Free Bond Fund).
Municipal lease obligations have special risks not normally associated with
municipal bonds. These obligations frequently contain "non-appropriation"
clauses that provide that the governmental issuer of the obligation has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purposes by the legislative body on a yearly or other
periodic basis. For more information on risks of municipal lease investments,
see the SAI.
Risks of Options Transactions (All Funds). The purchase and writing of
options involves certain risks. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity to
profit from a price increase in the underlying securities above the exercise
price, but, as long as its obligation as a writer continues, has retained the
risk of loss should the price of the underlying security decline. The writer of
an option has no control over the time when it may be required to fulfill its
obligation as a writer of the option. Once an option writer has received an
exercise notice, it cannot effect a closing purchase transaction in order to
terminate its obligation under the option and must deliver the underlying
securities at the exercise price. If a put or call option purchased by a Fund is
not sold when it has remaining value, and if the market price of the underlying
security, in the case of a put, remains equal to or greater than the exercise
price, or in the case of a call, remains less than or equal to the exercise
price, the Fund will lose its entire investment in the option. Also, where a put
or call option on a particular security is purchased to hedge against price
movements in a related security, the price of the put or call option may move
more or less than the price of the related security. There can be no assurance
that a liquid market will exist when a Fund seeks to close out an option
position. Furthermore, if trading restrictions or suspensions are imposed on the
options market, a Fund may be unable to close out a position. If a Fund cannot
effect a closing transaction, it will not be able to sell the underlying
security while the previously written option remains outstanding, even if it
might otherwise be advantageous to do so.
Foreign Currency Options (Centura Equity Growth Fund and Centura Equity
Income Fund). Currency options traded on U.S. or other exchanges may be subject
to position limits which may limit the ability of a Fund to reduce foreign
currency risk using such options. Over-the-counter options differ from
exchange-traded options in that they are two-party contracts with price and
other terms negotiated between buyer and seller and generally do not have as
much market liquidity as exchange-traded options. Employing hedging strategies
with options on currencies does not eliminate
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fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Furthermore, such hedging transactions reduce
or preclude the opportunity for gain if the value of the hedged currency should
change relative to the U.S dollar. A Fund will not speculate in options on
foreign currencies.
There is no assurance that a liquid secondary market will exist for any
particular foreign currency option, or at any particular time. In the event no
liquid secondary market exists, it might not be possible to effect closing
transactions in particular options. If a Fund cannot close out an option which
it holds, it would have to exercise its option in order to realize any profit
and would incur transactional costs on the sale of the underlying assets.
Risks of Futures and Related Options Transactions (All Funds). There are
several risks associated with the use of futures contracts and options on
futures contracts. While a Fund's use of futures contracts and related options
for hedging may protect a Fund against adverse movements in the general level of
interest rates or securities prices, such transactions could also preclude the
opportunity to benefit from favorable movements in the level of interest rates
or securities prices. There can be no guarantee that the Adviser's forecasts
about market value interest rates and other applicable factors will be correct
or that there will be a correlation between price movements in the hedging
vehicle and in the securities being hedged. The skills required to invest
successfully in futures and options may differ from the skills required to
manage other assets in a Fund's portfolio. An incorrect forecast or imperfect
correlation could result in a loss on both the hedged securities in a Fund and
the hedging vehicle so that the Fund's return might have been better had hedging
not been attempted.
There can be no assurance that a liquid market will exist at a time when a
Fund seeks to close out a futures contract or futures option position. Most
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single day; once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain of these instruments are relatively new
and without a significant trading history. As a result, there is no assurance
that an active secondary market will develop or continue to exist. Lack of a
liquid market for any reason may prevent the Fund from liquidating an
unfavorable position and the Fund would remain obligated to meet margin
requirements until the position is closed. The potential risk to a Fund from a
futures transaction is unlimited. Therefore, although the Funds have authority
to engage in futures transactions, they have no present intention to do so and
will
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engage in such transactions only when disclosure to that affect has been added
to the Prospectus.
A Fund will only enter into futures contracts or futures options which are
standardized and traded on a U.S. or foreign exchange or board of trade, or
similar entity, or are quoted on an automated quotation system. A Fund will not
enter into a futures contract if immediately thereafter the initial margin
deposits for futures contracts held by the Fund plus premiums paid by it for
open futures options positions, less the amount by which any such positions are
"in-the-money," would exceed 5% of the Fund's total assets.
The Funds may trade futures contracts and options on futures contracts on
U.S. domestic markets and, except for Centura North Carolina Tax-Free Bond Fund,
also on exchanges located outside of the United States. Foreign markets,
however, may have greater risk potential than domestic markets. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the Commodity Futures Trading Commission and may be subject to
greater risk than trading on domestic exchanges. For example, some foreign
exchanges are principal markets so that no common clearing facility exists and a
trader may look only to the broker for performance of the contract. In addition,
any profits that a Fund might realize in trading could be eliminated by adverse
changes in the exchange rate of the currency in which the transaction is
denominated, or the Fund could incur losses as a result of changes in the
exchange rate. Transactions on foreign exchanges may include both commodities
that are traded on domestic exchanges or boards of trade and those that are not.
Risks of Forward Foreign Currency Contracts (Centura Equity Growth Fund
and Centura Equity Income Fund). The precise matching of forward contracts and
the value of the securities involved will not generally be possible since the
future value of the securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. Projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain. There can be no
assurance that new forward contracts or offsets will always be available to a
Fund.
MANAGEMENT OF THE FUNDS
The business and affairs of each Fund are managed under the
direction of the Board of Directors. The Directors are Leslie H.
Garner, Jr., James H. Speed, Jr., Frederick E. Turnage, Lucy
Hancock Bode and J. Franklin Martin. Additional information about
the Directors, as well as the Company's executive officers, may be
found in the SAI under the heading "Management - Directors and
Officers."
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The Adviser: Centura Bank
Centura Bank, 131 North Church Street, Rocky Mount, North Carolina 27802,
is a member bank of the Federal Reserve System. Centura Bank and its parent,
Centura Banks, Inc., were formed in 1990 through a merger of two other Rocky
Mount, North Carolina bank holding companies and their subsidiary banks.
For the advisory services it provides the Funds, the Adviser receives from
each Fund fees, payable monthly based on the average daily net assets, at an
annual rate based on the Fund's average net assets. Fees are 0.70% for Centura
Equity Growth Fund, 0.70% for Centura Equity Income Fund, 0.30% for Centura
Federal Securities Income Fund and 0.35% for Centura North Carolina Tax-Free
Bond Fund. The Adviser also serves as Custodian for the Funds' assets, for which
it receives additional fees. For the period ended April 30, 1995, the Adviser
received $458,424 in Advisory fees from the Equity Growth Fund and $236,139 from
the Federal Securities Income Fund. The advisory fees for the North Carolina
Tax-Free Bond Fund amounted to $98,015, however, the Adviser waived $83,311.
Carlisle Whitlock has primary responsibility for the overall management of
the Funds and for portfolio management of Centura Equity Growth Fund. Mr.
Whitlock joined the Adviser in 1991. He is presently Senior Vice President-Trust
Investments. Mr. Whitlock began his investment career in 1975 with the Robinson
Humphrey Co. From 1981 to 1988, he continued his investment work at C & S Bank,
leaving his position as Vice President and Investment Officer to become Senior
Trust Investment Officer at Planters National Bank and Trust Company
("Planters"). When Planters merged with two bank subsidiaries of Peoples
Bancorporation in 1991 to form Centura Bank, Mr. Whitlock assumed his present
position and title.
Frank Jolley has primary responsibility for the management of Centura
Equity Income Fund. Mr. Jolley has over 16 years experience in investments and
financial analysis. He graduated from the University of North Carolina at Chapel
Hill with a Bachelor of Science in business administration. Mr. Jolley began his
investment career with Dean Witter Reynolds in retail sales and later served as
a branch manager for a regional securities firm. Primary duties at Centura
include the management of common trust funds along with personal and pension
fund investment responsibilities. Mr. Jolley is a Chartered Financial Analyst
and a member of the North Carolina Society of Financial Analysts.
Robert D. Marsh has primary responsibility for the management
of Centura North Carolina Tax-Free Bond Fund. Mr. Marsh has over
34 years' experience in Trust investments, portfolio management,
and administration. He graduated from Ball State University with
a Bachelor of Science degree in accounting. Mr. Marsh began his
Trust career at American National Bank and Trust Company in Indiana
where he was responsible for management of the equity and fixed
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income functions. Mr. Marsh's other duties at Centura include the
management of common trust funds and personal and pension fund
investment responsibilities. Mr. Marsh is a member of the North
Carolina Society of Financial Analysts.
Lawrence R. Allen serves as portfolio manager for Centura
Federal Securities Income Fund. Mr. Allen has 3 years experience
in investments and portfolio management. He graduated from
Campbell University with a Bachelor in Business Administration and
a Trust Management certificate. Mr. Allen began his investment
career with United Carolina Bank in Trust Investments. Mr. Allen's
primary duties at Centura include the management of taxable fixed
income common trust funds.
The Distributor
Centura Funds Distributor, Inc., 230 Park Avenue, New York,
New York 10169, acts as the Funds' Distributor. The Distributor is
an affiliate of the Funds' Administrator, Furman Selz LLC ("Furman
Selz"), and was formed specifically to distribute the Funds. (See
"The Administrator.")
Service Organizations
Payments may be made by the Funds or by the Adviser to various banks,
trust companies, broker-dealers or other financial organizations (collectively,
"Service Organizations") for providing administrative services for the Funds and
their shareholders, such as maintaining shareholder records, answering
shareholder inquiries and forwarding materials and information to shareholders.
The Funds may pay fees to Service Organizations (which vary depending upon the
services provided) in amounts up to an annual rate of 0.25% of the daily net
asset value of the shares of either class owned by shareholders with whom the
Service Organization has a servicing relationship.
Some Service Organizations may impose additional or different conditions
on their clients, such as requiring their clients to invest more than a Fund's
minimum initial or subsequent investments or charging a direct fee for
servicing. If imposed, these fees would be in addition to any amounts which
might be paid to the Service Organization by the Funds. Each Service
Organization has agreed to transmit to its clients a schedule of any such fees.
Shareholders using Service Organizations are urged to consult with them
regarding any such fees or conditions.
The Glass-Steagall Act and other applicable laws provide that, among other
things, banks may not engage in the business of underwriting, selling or
distributing securities. There is currently no precedent prohibiting banks from
performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or
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interpretations of such laws, as well as changes in either federal or state
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, could prevent a bank Service Organization from
continuing to perform all or a part of its servicing activities. If a bank were
prohibited from so acting, its shareholder clients would be permitted to remain
shareholders of the Funds and alternative means for continuing the servicing of
such shareholders would be sought. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these
occurrences.
The Administrator and Sponsor
Furman Selz LLC, 230 Park Avenue, New York, New York 10169, acts as
Sponsor and Administrator of the Funds. Furman Selz is primarily an
institutional brokerage firm with membership on the New York, American, Boston,
Midwest, Pacific and Philadelphia Stock Exchanges. Furman Selz also serves as
sponsor, administrator and distributor of other mutual funds. Pursuant to an
Administrative Services Contract with the Company, Furman Selz provides certain
management and administrative services necessary for the Funds' operations
including: (a) general supervision of the operation of the Funds including
coordination of the services performed by the Funds' Adviser, custodian,
independent accountants and legal counsel; (b) regulatory compliance, including
the compilation of information for documents such as reports to, and filings
with, the SEC and state securities commissions, and preparation of proxy
statements and shareholder reports for the Funds; (c) general supervision
relative to the compilation of data required for the preparation of periodic
reports distributed to the Funds' officers and Board of Directors; and (d)
furnishing office space and certain facilities required for conducting the
business of the Funds. For these services, Furman Selz receives from each Fund a
fee, payable monthly, at the annual rate of 0.15% of each Fund's average daily
net assets. For the fiscal period ended April 30, 1995, the Administrator
received $86,276, $94,101 and $5,048 in administrative services fees and waived
$19,669, $23,780 and $40,371 in administrative services fees from the Equity
Growth Fund, the Federal Securities Income Fund and the North Carolina Tax-Free
Bond Fund, respectively. Under separate agreements with the Company, Furman Selz
also acts as the Funds' transfer and dividend disbursing agent (for which it
receives a fee of $15 per account per year, plus out-of-pocket expenses) and
provides assistance in calculating the Funds' net asset values and provides
other accounting services for the Funds (for an annual fee of $30,000 per Fund
plus out-of-pocket expenses). For the fiscal period ended April 30, 1995, Furman
Selz earned $9,897, $5,034 and $4,275 in transfer agent fees for the Equity
Growth Fund, the Federal Securities Income Fund and the North Carolina Tax-Free
Bond Fund, respectively. Furman Selz also earned $29,727, $32,231 and $34,948 in
fund accounting fees for the Equity Growth Fund, the
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Federal Securities Income Fund and the North Carolina Tax-Free Bond Fund,
respectively, for the same period.
Other Expenses
Each Fund bears all costs of its operations other than expenses
specifically the responsibility of the Administrator, the Adviser or other
service providers. In addition to fees paid to service providers described
above, the costs borne by the Funds, some of which may vary among the classes,
as noted above, include: legal and accounting expenses; Directors' fees and
expenses; insurance premiums; custodian and transfer agent fees and expenses;
expenses incurred in acquiring or disposing of the Funds' portfolio securities;
expenses of registering and qualifying the Funds' shares for sale with the SEC
and with various state securities commissions; expenses of maintaining the
Funds' legal existence and of shareholders' meetings; and expenses of preparing
and distributing reports, proxy statements and prospectuses to existing
shareholders. Each Fund bears its own expenses associated with its establishment
as a portfolio of the Company; these expenses are amortized over a five-year
period from the commencement of a Fund's operations. Company expenses directly
attributable to a Fund or class are charged to that Fund or class; other
expenses are allocated proportionately among all of the Funds and classes in the
Company in relation to the net assets of each Fund and class.
MINIMUM PURCHASE REQUIREMENTS
The minimum initial investment in each of the Funds is $1,000, except that
the minimum investment requirement for an IRA or other qualified retirement plan
is $250. Any subsequent investments must be at least $250, except for an IRA or
qualified retirement plan investment. All initial investments should be
accompanied by a completed Purchase Application. A Purchase Application may be
obtained by calling Fund Services at 1-800-44CENTURA (442-3688). However, a
separate application is required for IRA and other qualified retirement plan
investments. Centura North Carolina Tax- Free Bond Fund is not a recommended
investment for an ERA or other qualified retirement plan. The Funds reserve the
right to reject purchase orders.
PRICING AND PURCHASE OF FUND SHARES
Each Fund offers its Class C shares at their net asset value next
determined after a purchase order has been received. All consideration received
by the Funds for the purchase of Class C shares is invested in full and
fractional Class C shares of the appropriate Fund. Certificates for shares are
not issued. Furman Selz maintains records of each shareholder's holdings of Fund
shares, and each shareholder receives a monthly statement of transactions,
holdings and dividends. The Funds reserve the right to reject any purchase.
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EXCHANGE OF FUND SHARES
The Funds offer two convenient ways to exchange Class C shares in one Fund
for Class C shares of another Fund in the Company. Before engaging in an
exchange transaction, a shareholder should read carefully the information in the
Prospectus describing the Fund into which the exchange will occur. A Class C
shareholder may not exchange shares of one Fund for Class C shares of another
Fund unless the latter Fund's Class C shares are qualified for sale in the state
of the shareholder's residence. There is no minimum amount required for
exchanges, provided the investor has satisfied the $1,000 minimum investment
requirement for the Fund into which he or she is exchanging, and no service fee
is imposed for an exchange. The Company may terminate or amend the terms of the
exchange privilege at any time upon 60 days notice to shareholders.
A new account opened by exchange must be established with the same
name(s), address and social security number as the existing account. All
exchanges will be made based on the respective net asset values next determined
following receipt of the request by a Fund in good order.
An exchange is taxable as a sale of a security on which a gain or loss may
be recognized. Shareholders should receive written confirmation of the exchange
within a few days of the completion of the transaction. See "Dividends,
Distributions and Federal Income Taxation" for an explanation of circumstances
in which a sales charge paid to acquire shares of the Funds may not be taken
into account in determining gain or loss on the disposition of those shares.
Exchange by Mail. To exchange Fund shares by mail, shareholders should
simply send a letter of instruction to the Funds. The letter of instruction must
include: (a) the investor's account number; (b) the class of shares to be
exchanged; (c) the Fund from and the Fund into which the exchange is to be made;
(d) the dollar or share amount to be exchanged; and (e) the signatures of all
registered owners or authorized parties. All signatures must be guaranteed by an
eligible guarantor institution including members of national securities
exchanges, commercial banks or trust companies, broker-dealers, credit unions
and savings associations.
Exchange by Telephone. To exchange Fund shares by telephone
or to ask any questions, shareholders may call the Fund at 1-800-
44CENTURA (442-3688). Please be prepared to give the telephone
representative the following information: (a) the account number,
social security number and account registration; (b) the class of
shares to be exchanged; (c) the name of the Fund from which and the
Fund into which the exchange is to be made; and (d) the dollar or
share amount to be exchanged. Telephone exchanges are provided
automatically to each shareholder unless otherwise specifically
indicated on the Purchase Application. The Funds employ
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procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that a Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. A Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine. The Funds
reserve the right to suspend or terminate the privilege of exchanging by mail or
by telephone at any time.
REDEMPTION OF FUND SHARES
Shareholders may redeem their shares, in whole or in part, on any business
day. If a shareholder holds shares in more than one class of a Fund, any request
for redemption must specify the class from which shares are to be redeemed. In
the event a shareholder fails to make such a specification or if there are
insufficient shares of the specified class to satisfy the redemption order, the
redemption order will be delayed until the Fund's transfer agent receives
further instructions from the shareholder.
Class C shares will be redeemed at the net asset value next
determined after a redemption request in good order has been
received by the applicable Fund. See "Pricing and Purchase of Fund
Shares."
Where the shares have been purchased by check, the redemption request will
be held until the purchasing check has cleared, which may take up to 15 days.
Shareholders may avoid this delay by investing through wire transfers of Federal
funds. During the period prior to the time the shares are redeemed, dividends on
the shares will continue to accrue and be payable and the shareholder will be
entitled to exercise all other beneficial rights of ownership.
Once the shares are redeemed, a Fund will ordinarily send the proceeds by
check to the shareholder at the address of record on the next business day. The
Fund my, however, take up to seven days to make payment although this will not
be the customary practice. Also, if the New York Stock Exchange is closed (or
when trading is restricted) for any reason other than the customary weekend or
holiday closing or if an emergency condition as determined by the SEC merits
such action, the Funds may suspend redemptions or postpone payment dates. A
redemption may be a taxable transaction on which gain or loss may be recognized.
Redemption Methods. To ensure acceptance of a redemption
request, it is important that shareholders follow the procedures
described below. Although the Funds have no present intention to
do so, the Funds reserve the right to refuse or to limit the
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frequency of any telephone or wire redemptions. Of course, it may be difficult
to place orders by telephone during periods of severe market or economic change,
and a shareholder should consider alternative methods of communications, such as
couriers. The Funds' services and their provisions may be modified or terminated
at any time by the Funds. If the Funds terminate any particular service, they
will do so only after giving written notice to shareholders. Redemption by mail
will always be available to shareholders.
A shareholder may redeem shares using any of the following methods:
Through an Authorized Broker, Investment Adviser or Service Organization.
The shareholder should contact his or her broker, investment adviser or Service
Organization and provide instructions to redeem shares. Such organizations are
responsible for prompt transmission of orders. The broker will contact the Funds
and place a redemption trade. The broker may charge a fee for this service.
By Mail. Shareholders may redeem shares by sending a letter directly to
the Funds. To be accepted, a letter requesting redemption must include: (a) the
Fund name, class of shares and account registration from which shares are being
redeemed; (b) the account number; (c) the amount to be redeemed; (d) the
signatures of all registered owners; and (e) a signature guarantee by any
eligible guarantor institution including members of national securities
exchanges, commercial banks or trust companies, broker-dealers, credit unions
and savings associations. Corporations, partnerships, trusts or other legal
entities will be required to submit additional documentation.
By Telephone. Shareholders may redeem shares by calling the Funds toll
free at 1-800-44CENTURA (442-3688). Be prepared to give the telephone
representative the following information: (a) the account number, social
security number and account registration; (b) the name of the class (if
applicable) and the Fund from which shares are being redeemed; and (c) the
amount to be redeemed. Telephone redemptions are available unless otherwise
indicated on the Purchase Application or on the Optional Services Form. The
Funds employ procedures, including recording telephone calls, testing a caller's
identity, and sending written confirmation of telephone transactions, designed
to give reasonable assurance that instructions communicated by telephone are
genuine, and to discourage fraud. To the extent that a Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. A Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine.
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By Wire. Shareholders may redeem shares by contacting the
Funds by mail or telephone and instructing the Funds to send a wire
transmission to the shareholder's bank.
The shareholder's instructions should include: (a) the account number,
social security number and account registration; (b) the name of the class and
the Fund from which shares are being redeemed; and (c) the amount to be
redeemed. Wire redemptions can be made unless otherwise indicated on the
shareholder's Purchase Application, and a copy is attached of a void check on an
account where proceeds are to be wired. The bank may charge a fee for receiving
a wire payment on behalf of its customer.
Systematic Withdrawal Plan. An owner of $12,000 or more of shares of a
Fund may elect to have periodic redemptions made from this account to be paid on
a monthly, quarterly, semiannual or annual basis. The maximum withdrawal per
year is 12% of the account value at the time of the election. A sufficient
number of shares to make the scheduled redemption will normally be redeemed on
the date selected by the shareholder. Depending on the size of the payment
requested and fluctuation in the net asset value, if any, of the shares
redeemed, redemptions for the purpose of making such payments may reduce or even
exhaust the account. A shareholder may request that these payments be sent to a
predesignated bank or other designated party. Capital gains and dividend
distributions paid to the account will automatically be reinvested at net asset
value on the distribution payment date.
Redemption of Small Accounts. Due to the disproportionately higher cost of
servicing small accounts, the Funds reserve the right to redeem, on not less
than 30 days' notice, an account in a Fund that has been reduced by a
shareholder (not by market action) below $1,000. If during the 30-day notice
period the shareholder purchases sufficient shares to bring the value of the
account to $1,000, the account will not be redeemed.
Redemption in Kind. All redemptions of shares of the Funds shall be made
in cash, except that the commitment to redeem shares in cash extends only to
redemption requests made by each shareholder of a Fund during any 90-day period
of up to the lesser of $250,000 or 1% of the net asset value of the Fund at the
beginning of such period. This commitment is irrevocable without the prior
approval of the SEC. In the case of redemption requests by shareholders in
excess of such amounts, the Board of Directors reserves the right to have a Fund
make payment, in whole or in part, in securities or other assets, in case of an
emergency or any time a cash distribution would impair the liquidity of the Fund
to the detriment of the existing shareholders. In this event, the securities
would be valued generally in the same manner as the securities of that Fund are
valued generally. If the recipient were to sell such securities, he or she would
incur brokerage charges.
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Signature Guarantees. To protect shareholder accounts, the Funds and the
Administrator from fraud, signature guarantees are required to enable the Funds
to verify the identity of the person who has authorized a redemption from an
account. Signature guarantees are required for (1) redemptions where the
proceeds are to be sent to someone other than the registered shareholder(s) and
the registered address, (2) a redemption of $25,000 or more, and (3) share
transfer requests. Signature guarantees may be obtained from certain eligible
financial institutions, including but not limited to, the following: banks,
trust companies, credit unions, securities brokers and dealers, savings and loan
associations and participants in the Securities and Transfer Association
Medallion Program ("STAMP"), the Stock Exchange Medallion Program ("SEMP") or
the New York Stock Exchange Medallion Signature Program ("MSP"). Shareholders
may contact the Funds at 1-800-442-3688 for further details.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, the Adviser places orders
for the purchase and sale of portfolio investments for the Funds' accounts with
brokers or dealers it selects in its discretion.
In effecting purchases and sales of portfolio securities for the account
of a Fund, the Adviser will seek the best execution of the Fund's orders.
Purchases and sales of portfolio debt securities for the Funds are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Funds. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. The Funds may
purchase securities during an underwriting, which will include an underwriting
fee paid to the underwriter. Purchases and sales of common stocks are generally
placed by the Adviser with broker-dealers which, in the judgment of the Adviser,
provide prompt and reliable execution at favorable security prices and
reasonable commission rates. Broker-dealers are selected on the basis of a
variety of factors such as reputation, capital strength, size and difficulty of
order, sale of Fund shares and research provided to the Adviser. The Adviser may
cause a Fund to pay commissions higher than another broker-dealer would have
charged if the Adviser believes the commission paid is reasonable in relation to
the value of the brokerage and research services received by the Adviser.
Each of the Funds may buy and sell securities to take advantage of
investment opportunities when such transactions are consistent with a Fund's
investment objective and when the Adviser believes such transactions may improve
a Fund's overall investment return. These transactions involve costs in the form
of spreads or
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brokerage commissions. The Funds are not normally expected to have
portfolio turnover rates in excess of 50%.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Directors may determine, the
Adviser may consider sales of shares of the Funds as a factor in the selection
of broker-dealers to execute portfolio transactions for the Funds.
FUND SHARE VALUATION
The net asset value per share for each class of shares of each Fund is
calculated at 4:15 p.m. (Eastern time), Monday through Friday, on each day the
New York Stock Exchange is open for trading, which excludes the following
business holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The net asset value per share of each class of shares of the
Funds is computed by dividing the value of net assets of each class (i.e., the
value of the assets less the liabilities) by the total number of such class'
outstanding shares. All expenses, including fees paid to the Adviser and
Administrator, are accrued daily and taken into account for the purpose of
determining the net asset value.
Securities listed on an exchange are valued on the basis of the last sale
prior to the time the valuation is made. If there has been no sale since the
immediately previous valuation, then the current bid price is used. Quotations
are taken for the exchange where the security is primarily traded. Portfolio
securities which are primarily traded on foreign exchanges may be valued with
the assistance of a pricing service and are generally valued at the preceding
closing values of such securities on their respective exchanges, except that
when an occurrence subsequent to the time a foreign security is valued is likely
to have changed such value, then the fair value of those securities will be
determined by consideration of other factors by or under the direction of the
Board of Directors. Over-the-counter securities are valued on the basis of the
bid price at the close of business on each business day. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by or at the direction of the Board of Directors.
Notwithstanding the above, bonds and other fixed-income securities are valued by
using market quotations and may be valued on the basis of prices provided by a
pricing service approved by the Board of Directors. All assets and liabilities
initially expressed in foreign currencies will be converted into U.S. dollars at
the mean between the bid and asked prices of such currencies against U.S.
dollars as last quoted by any major bank.
41
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DIVIDENDS, DISTRIBUTIONS, AND FEDERAL INCOME TAXATION
Each Fund intends to qualify annually to elect to be treated as a
regulated investment company pursuant to the provisions of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). To qualify, each Fund
must meet certain income, distribution and diversification requirements. In any
year in which a Fund qualifies as a regulated investment company and timely
distributes all of its taxable income and substantially all of its net
tax-exempt interest income, the Fund generally will not pay any U.S. federal
income or excise tax.
Each Fund intends to distribute to its shareholders substantially all of
its investment company taxable income (which includes, among other items,
dividends and interest and the excess, if any, of net short-term capital gains
over net long-term capital losses). Investment company taxable income (other
than the capital gain component thereof) will be declared and paid monthly by
Centura Equity Growth Fund and Centura Equity Income Fund. Centura Federal
Securities Income Fund and Centura North Carolina Tax-Free Bond Fund will
declare dividends daily and pay them out monthly. Each Fund intends to
distribute, at least annually, substantially all net realized long- and
short-term capital gain. In determining amounts of capital gains to be
distributed, any capital loss carryovers from prior years will be applied
against capital gains.
In the case of Centura Federal Securities Income Fund and Centura North
Carolina Tax-Free Bond Fund, the amount declared each day as a dividend may be
based on projections of estimated monthly net investment income and may differ
from the actual investment income determined in accordance with generally
accepted accounting principles. An adjustment will be made to the dividend each
month to account for any difference between the projected and actual monthly
investment income.
Distributions will be paid in additional Fund shares of the relevant class
based on the net asset value of shares of that class at the close of business of
the payment date of the distribution, unless the shareholder elects in writing,
not less than five full business days prior to the record date, to receive such
distributions in cash. Dividends declared in, and attributable to, the preceding
month will be paid within five business days after the end of each month. In the
case of the Funds that declare daily dividends, shares purchased will begin
earning dividends on the day after the purchase order is executed, and shares
redeemed will earn dividends through the day the redemption is executed.
Investors who redeem all or a portion of their Fund shares prior to a dividend
payment date will be entitled on the next payment date to all dividends declared
but unpaid on those shares at the time of their redemption.
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<PAGE>
Any dividend or other distribution paid by a Fund has the effect of
reducing the net asset value per share on the record date by the amount thereof.
Therefore, in the case of Centura Equity Growth Fund, which does not declare
dividends daily, a dividend or other distribution paid shortly after a purchase
of shares would represent, in substance, a return of capital to the shareholder
(to the extent it is paid on the shares so purchased), even though subject to
income taxes, as discussed below.
Dividends distributed by Centura North Carolina Tax-Free Bond Fund that
are derived from interest income exempt from federal income tax and are
designated by the Fund as "exempt-interest dividends" will be exempt from the
regular federal income tax. Capital gains distributions and any other
distributions of Fund earnings not designated by the Fund as exempt-interest
dividends will, however, generally be subject to federal, state and local tax.
The Fund's investment policies permit it to earn income which cannot be
designated as exempt-interest dividends.
Distributions of investment company taxable income (regardless of whether
derived from dividends, interest or short-term capital gains) will be taxable to
shareholders as ordinary income. If a portion of the income of Centura Equity
Growth Fund or Centura Equity Income Fund consists of dividends paid by U.S.
corporations, a portion of the dividends paid by that Fund may qualify for the
deduction for dividends received by corporations. No portion of the dividends
paid by Centura Federal Securities Income Fund or Centura North Carolina
Tax-Free Bond Fund is expected to so qualify. Distributions of net long-term
capital gains designated by a Fund as capital gain dividends will be taxable as
long-term capital gains, regardless of how long a shareholder has held the Fund
shares. Distributions are taxable in the same manner whether received in
additional shares or in cash.
A distribution, including an "exempt-interest dividend," will be treated
as paid on December 31 of the calendar year if it is declared by a Fund during
October, November, or December of that year to shareholders of record in such a
month and paid by the Fund during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received.
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of a Fund, or upon receipt of a distribution in complete
liquidation of a Fund, generally will be a capital gain or loss which will be
long-term or short-term generally depending upon the shareholder's holding
period for the shares.
The timing of a shareholder's investment could have
undesirable tax consequences. If a shareholder opened a new
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<PAGE>
account or bought more shares for his or her current account just before the day
a capital gain distribution was reflected in the Fund's share price, the
shareholder would receive a portion of his or her investment back as a taxable
capital gain distribution.
Shareholders should also be aware that redeeming shares of a Fund after
tax-exempt interest income has been accrued by the Fund but before that income
has been distributed as a dividend may not be advantageous. This is because the
gain, if any, on the redemption will be taxable, even though such gain may be
attributable in part to the accrued tax-exempt interest, which, if distributed
to the shareholder as a dividend rather than as redemption proceeds, might have
qualified as an exempt-interest dividend.
The Funds may be required to withhold federal income tax of 31% ("backup
withholding") of the distributions and the proceeds of redemptions payable to
shareholders who fail to provide a correct taxpayer identification number or to
make required certifications, or where a Fund or shareholder has been notified
by the Internal Revenue Service that the shareholder is subject to backup
withholding. Corporate shareholders and certain other shareholders specified in
the Code are exempt from backup withholding. Backup withholding is not an
additional tax. Any amounts withheld may be credited against the shareholder's
U.S. federal income tax liability.
Further information relating to tax consequences is contained in the SAI.
Shareholders will be notified annually by the Company as to the federal
tax status of distributions made by the Fund(s) in which they invest. Depending
on the residence of the shareholder for tax purposes, distributions also may be
subject to state and local taxes, including withholding taxes. Foreign
shareholders may also be subject to special withholding requirements. Special
tax treatment, including a penalty on certain pre-retirement distributions, is
accorded to accounts maintained as IRAs. With respect to Centura North Carolina
Tax-Free Bond Fund, North Carolina law exempts from income taxation dividends
received from a regulated investment company in proportion to the income of the
regulated investment company that is attributable to interest on bonds or
securities of the U.S. government or any agency or instrumentality thereof or on
bonds of the State of North Carolina or any county, municipality or political
subdivision thereof. Shareholders should consult their own tax advisers as to
the federal, state and local tax consequences of ownership of shares of the
Funds in their particular circumstances.
44
<PAGE>
OTHER INFORMATION
Capitalization
Centura Funds, Inc. was organized as a Maryland corporation on March 1,
1994 and currently consists of four separately managed portfolios. The Board of
Directors may establish additional portfolios in the future. The capitalization
of the Company consists solely of six hundred million (600,000,000) shares of
common stock with a par value of $0.001 per share. When issued, shares of the
Funds are fully paid, non-assessable and freely transferable.
This Prospectus relates to Class C shares of the Funds. Each Fund also
offers Class A and Class B shares. Class A shares are offered with a front-end
sales charge (unless waived), and a contingent deferred sales charge is imposed
(unless waived) on redemptions of Class B shares within five years of purchase.
Because of differences in expenses, the performance of each class will typically
be different. Information about Class A and Class B shares may be obtained from
your sales representative or by calling the Funds at (800) 442-3688.
Voting
Shareholders have the right to vote in the election of Directors and on
any and all matters on which, by law or under the provisions of the Articles of
Incorporation, they may be entitled to vote. The Company is not required to hold
regular annual meetings of the Funds' shareholders and does not intend to do so.
Each Fund's shareholders vote separately on items affecting only that Fund, and
shareholders of each class within a Fund vote separately on matters affecting
only that class.
The Articles of Incorporation provide that the holders of not less than
two-thirds of the outstanding shares of the Company may remove a person serving
as Director either by declaration in writing or at a meeting called for such
purpose. The Directors are required to call a meeting for the purpose of
considering the removal of a person serving as Director if requested in writing
to do so by the holders of not less than 10% of the outstanding shares of the
Company. See "Other Information-Voting Rights" in the SAI.
Shares entitle their holders to one vote per share (with proportionate
voting for fractional shares). As used in this Prospectus, the phrase "vote of a
majority of the outstanding shares" of a Fund, a class or the Company, as
applicable, means the vote of the lesser of: (1) 67% of the shares of the Fund
(a class or the Company) present at a meeting if the holders of more than 50% of
the outstanding shares are present in person or by proxy; or (2) more than 50%
of the outstanding shares of the Fund (a class or the Company).
45
<PAGE>
Performance Information
When performance records are developed by the Funds, they may, from time
to time, include the yield and total return for shares (including each class, as
applicable) in advertisements or reports to shareholders or prospective
investors. The methods used to calculate the yield and total return of the Funds
are mandated by the SEC. In general, the performance of the classes of each Fund
will differ due to (a) differences in the level of class specific expenses,
including service and distribution fees and (b) the fact that total return
figures for Class A shares will reflect the deduction of the maximum front-end
sales charge applicable for each Fund while the total return figures for Class B
shares will reflect the maximum CDSC for the particular Fund. Performance
figures for Class C shares will reflect the absence of any service and
distribution fee, front-end sales charge or CDSC. Due to these differences in
fees and/or expenses borne by Class A, Class B and Class C shares, yield and
total return on Class A and Class B shares can be expected to be lower than the
yield and total return on Class C shares for the same period.
Quotations of "yield" will be based on the investment income per share
during a particular 30-day (or one month) period (including dividends and
interest), less expenses accrued during the period ("net investment income"),
and will be computed by dividing net investment income by the maximum public
offering price per share (for each class, as applicable) on the last day of the
period.
Quotations of yield reflect a Fund's (and its classes') performance only
during the particular period on which the calculations are based. Yields will
vary based on changes in market conditions, the level of interest rates and the
level of the particular Fund's expenses, including class-specific expenses, and
no reported performance figure should be considered an indication of performance
which may be expected in the future. Quotations of average annual total return
will be expressed in terms of the average annual compounded rate of return of a
hypothetical investment in shares of a Fund (or class) over periods of 1, 5 and
10 years (up to the life of the Fund), reflect the deduction of a proportional
share of Fund and class-specific expenses, as applicable, on an annual basis,
and assume that all dividends and distributions are reinvested when paid.
Centura North Carolina Tax-Free Bond Fund may also advertise its "taxable
equivalent yield." Taxable equivalent yield is the yield that an investment,
subject to regular federal and North Carolina personal income taxes, would need
to earn in order to equal. on an after-tax basis, the yield on an investment
exempt from such taxes (normally calculated assuming the maximum combined
federal and North Carolina marginal tax rate). A taxable
46
<PAGE>
equivalent yield quotation for the Fund will be higher than the yield quotations
for the Fund.
The following table shows how to translate the yield of an investment that
is exempt from regular federal and North Carolina personal income taxes into a
taxable equivalent yield for the 1996 taxable year. The last five columns of the
table show approximately how much a taxable investment would have to yield in
order to generate an after-tax (regular federal and North Carolina personal
income taxes) yield of 4%, 5%, 6%, 7% or 8%. For example, the table shows that a
married taxpayer filing a joint return with taxable income of $80,000 would have
to earn a yield of approximately 10.45% before regular federal and North
Carolina personal income taxes in order to earn a yield after such taxes of 7%.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1996 Taxable Year
Taxable Equivalent Yield Table1--Federal and North Carolina personal income taxes
Taxable Income2 To Equal Hypothetical Tax-Free Yield of 4%, 5%, 6% 7% or 8%, A
Taxable Investment Would Have to Yield Approximately
Combined
Marginal
Single Return Joint Return Tax Rate3 4% 5% 6% 7% 8%
-- -- -- -- --
Up to $12,750 up to $21,250 20.10% 5.01% 6.26% 7.51% 8.76% 10.01%
$12,751-$24,000 $21,251-$40,100 20.95% 5.06% 6.33% 7.59% 8.86% 10.12%
$24,001-$58,150 $40,101-$96,900 33.04% 5.97% 7.47% 8.96% 10.45% 11.95%
$58,151-$60,000 $96,901-$100,000 35.83% 6.23% 7.79% 9.35% 10.91% 12.47%
$60,001-$121,300 $100,001-$147,700 36.35% 6.28% 7.86% 9.43% 11.00% 12.57%
$121,301-$263,750 $147,701-$263,750 40.96% 6.78% 8.47% 10.16% 11.86% 13.55%
$263,751 and over $263,751 and over 44.28% 7.18% 8.98% 10.77% 12.57% 14.36%
</TABLE>
1 This chart is presented for general information purposes only. Tax
equivalent yields are a useful tool in determining the desirability of a
tax-exempt investment; tax equivalent yields should not be regarded as
determinative of the of such an investment. In addition, this chart is
based on a number of assumptions which may not apply in your case. You
should, therefore, consult a competent tax advisor regarding tax-
equivalent yields in your situation.
2 Assuming the federal alternative minimum tax is not
applicable.
3 The combined marginal rates were calculated using federal and North
Carolina tax rate tables for the 1996 taxable year. The federal tax rate
tables are indexed each year to reflect changes in the Consumer Price
Index. The combined federal and
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North Carolina income tax marginal rates assume that North Carolina
personal income taxes are fully deductible for federal income tax purposes
as an itemized deduction. However. the ability to deduct itemized
deductions (including state income taxes) for federal income tax purposes
is limited for those taxpayers whose federal adjusted gross income for
1996 exceeds $117,950 ($58,975 in the case of a married individual filing
a separate return). In addition, for federal income tax purposes the tax
benefit of personal exemptions is phased out for taxpayers whose adjusted
gross incomes exceed specified thresholds (for 1996, $117,950 in the case
of single individuals and $176,950 in the case of married individuals
filing a joint return).
Performance information for the Funds may be compared to various unmanaged
indices, such as the Standard & Poor's 500 Stock Index, the Dow Jones Industrial
Average, indices prepared by Lipper Analytical Services, and other entities or
organizations which track the performance of investment companies. Any
performance information should be considered in light of each Fund's investment
objectives and policies, characteristics and quality of the Fund and the market
conditions during the time period indicated, and should not be considered to be
representative of what may be achieved in the future. For a description of the
methods used to determine yield and total return for the Funds, see the SAI.
Account Services
All transactions in shares of the Funds will be reflected in a statement
for each shareholder. In those cases where a Service Organization or its nominee
is shareholder of record of shares purchased for its customer, the Funds have
been advised that the statement may be transmitted to the customer at the
discretion of the Service Organization.
Furman Selz provides fund accounting functions for the Funds, and provides
personnel and facilities to perform shareholder servicing and transfer
agency-related services for the Company.
Shareholder Inquiries
All shareholder inquiries should be directed to Centura Funds,
Grand Central Station, P.O. Box 4490, New York, New York 10163-
4490.
General and Account Information: (800) 44CENTURA (442-3688).
48
<PAGE>
APPENDIX
DESCRIPTION OF BOND RATINGS
Description of Moody's bond ratings:
Excerpts from Moody's description of its bond ratings are listed as
follows: Aaa - judged to be the best quality and they carry the smallest degree
of investment risk; Aa - judged to be of high quality by all standards -
together with the Aaa group, they comprise what are generally known as high
grade bonds; A possess many favorable investment attributes and are to be
considered as "upper medium grade obligations"; Baa - considered to be medium
grade obligations, i.e., they are neither highly protected nor poorly secured -
interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time; Ba - judged to have speculative
elements, their future cannot be considered as well assured; B generally lack
characteristics of the desirable investment; Caa are of poor standing - such
issues may be in default or there may be present elements of danger with respect
to principal or interest; Ca - speculative in a high degree, often in default; C
lowest rated class of bonds, regarded as having extremely poor prospects.
Moody's also supplies numerical indicators 1, 2 and 3 to rating
categories. The modifier 1 indicates that the security is in the higher end of
its rating category; the modifier 2 indicates a mid-range ranking; and modifier
3 indicates a ranking toward the lower end of the category.
Description of S&P's bond ratings:
Excerpts from S&P's description of its bond ratings are listed as follows:
AAA - highest grade obligations, in which capacity to pay interest and repay
principal is extremely strong; AA - has a very strong capacity to pay interest
and repay principal, and differs from AAA issues only in a small degree; A - has
a strong capacity to pay interest and repay principal, although they are
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions the debt in higher rated categories; BBB - regarded as
having an adequate capacity to pay interest and repay principal; whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories. This group is the lowest which qualifies for commercial bank
investment. BB, B, CCC, CC, C - predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with terms of the
obligations; BB indicates the
49
<PAGE>
highest grade and C the lowest within the speculative rating categories. D -
interest or principal payments are in default.
S&P applies indicators "+," no character, and "-" to its rating
categories. The indicators show relative standing within the major rating
categories.
Description of Moody's ratings of short-term municipal obligations:
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or NHG. Such ratings recognize the
differences between short-term credit and long-term risk. Short-term ratings on
issues with demand features (variable rate demand obligations) are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payments
relying on external liquidity. Ratings categories for securities in these groups
are as follows: MIG 1/VMIG 1 - denotes best quality, there is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing; MIG 2/VMIG 2 denotes high
quality, margins of protection are ample although not as large as in the
preceding group; MIG 3/VMIG 3 - denotes high quality, all security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades; MIG 4/VMIG 4 - denotes adequate quality, protection commonly regarded as
required of an investment security is present, but there is specific risk; SQ -
denotes speculative quality, instruments in this category lack margins of
protection.
Description of Moody's commercial paper ratings:
Excerpts from Moody's commercial paper ratings are listed as follows:
Prime - 1 - issuers (or supporting institutions) have a superior ability for
repayment of senior short-term promissory obligations; Prime - 2 - issuers (or
supporting institutions) have a strong ability for repayment of senior
short-term promissory obligations; Prime - 3 - issuers (or supporting
institutions) have an acceptable ability for repayment of senior short-term
promissory obligations; Not Prime - issuers do not fall within any of the Prime
categories.
Description of S&P's ratings for corporate and municipal bonds:
Investment grade ratings: AAA - the highest rating assigned by S&P,
capacity to pay interest and repay principal is extremely strong; AA - has a
very strong capacity to pay interest and repay principal and differs from the
highest rated issues only in a small degree; A - has strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
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<PAGE>
debt in higher rated categories; BBB - regarded as having an adequate capacity
to pay interest and repay principal - whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
Speculative grade ratings: BB, B, CCC, CC, C - debt rated in these
categories is regarded as having predominantly speculative characteristics with
respect to capacity to pay interest and repay principal - while such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions; CI reserved
for income bonds on which no interest is being paid; D in default, and payment
of interest and/or repayment of principal is in arrears. Plus (+) or Minus (-) -
the ratings from "AA" to "CCC' may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
Description of S&P's rating for municipal notes and short-term municipal demand
obligations:
Rating categories are as follows: SP-1 - has a very strong or strong
capacity to pay principal and interest those issues determined to possess
overwhelming safety characteristics will be given a plus (+) designation; SP-2 -
has a satisfactory capacity to pay principal and interest; SP-3 - issues
carrying this designation have a speculative capacity to pay principal and
interest.
Description of S&P's ratings for short-term corporate demand obligations and
commercial paper:
An S&P commercial paper rating is a current assessment of the likelihood
of timely repayment of debt having an original maturity of no more than 365
days. Excerpts from S&P's description of its commercial paper ratings are listed
as follows: A-1 - the degree of safety regarding timely payment is strong -
those issues determined to possess extremely strong safety characteristics will
be denoted with a plus (+) designation; A-2 - capacity for timely payment is
satisfactory however, the relative degree of safety is not as high as for issues
designated "A-1;" A-3 - has adequate capacity for timely payment - however, is
more vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designations; B - regarded as having only
speculative capacity for timely payment; C - a doubtful capacity for payment; D
- - in payment default - the "D" rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will be made
during such grace period.
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<PAGE>
Address for:
General Shareholder Inquiries
Centura Funds, Inc.
P.O. Box 4490
Grand Central Station
New York, New York 10163-4490
Investment Adviser and Custodian
Centura Bank
131 North Church Street
Rocky Mount, North Carolina 27802
Administrator and Sponsor
Furman Selz LLC
230 Park Avenue
New York, New York 10169
Distributor
Centura Funds Distributor, Inc.
230 Park Avenue
New York, New York 10169
Counsel
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
Independent Accountants
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, NY 10017
52
<PAGE>
CENTURA FUNDS, INC.
(the "Company")
237 Park Avenue
New York, New York 10017
General and Account Information: (800) 442-3688
---------------------------------------------------------------
Centura Bank
Investment Adviser
Furman Selz LLC -
Administrator and Sponsor
Centura Funds Distributor, Inc. -
Distributor
STATEMENT OF ADDITIONAL INFORMATION
Class A Shares and Class B Shares
This Statement of Additional Information ("SAI") describes the four funds
(the "Funds") advised by Centura Bank (the "Adviser"). The Funds are:
- Centura Equity Growth Fund
- Centura Equity Income Fund
- Centura Federal Securities Income Fund
- Centura North Carolina Tax-Free Bond Fund
Each Fund has distinct investment objectives and policies. Shares of the
Funds are sold to the public by the Distributor as an investment vehicle for
individuals, institutions, corporations and fiduciaries, including customers of
the Adviser or its affiliates.
The Company is offering an indefinite number of shares of each class of
each Fund. In addition to Class A shares and Class B shares, each Fund also
offers Class C shares, available only to accounts managed by the Adviser's Trust
Department, and non-profit institutions with a minimum investment in the Funds
of at least $100,000. Class C shares have no front-end sales charge or
contingent deferred sales charge. See "Other Information Capitalization" in the
prospectus.
This SAI is not a prospectus and is authorized for distribution only when
preceded or accompanied by the prospectus for the Funds dated August , 1996 (the
"Prospectus"). This SAI contains additional and more detailed information than
that set forth in the Prospectus and should be read in conjunction with the
Prospectus. The Prospectus may be obtained without charge by writing or calling
the Funds at the address and information numbers printed above.
August , 1996
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT POLICIES.................................................. 1
Bank Obligations (All Funds)................................... 1
Commercial Paper (All Funds)................................... 1
Convertible Securities ........................................ 1
Corporate Debt Securities...................................... 1
Repurchase Agreements.......................................... 2
Variable and Floating Rate Demand and Master Demand
Notes.......................................................... 2
Loans of Portfolio Securities.................................. 3
Foreign Securities............................................. 3
Forward Foreign Currency Exchange Contracts.................... 4
Interest Rate Futures Contracts................................ 4
Stock Index Futures Contracts.................................. 5
Option Writing and Purchasing.................................. 6
Options on Futures Contracts................................... 8
Risks of Futures and Options Investments (All Funds)........... 9
Limitations on Futures Contracts and Options on Futures
Contracts (All Funds).......................................... 9
North Carolina Municipal Obligations........................... 9
Municipal Lease Obligations.................................... 10
Securities of Other Investment Companies....................... 10
INVESTMENT RESTRICTIONS.............................................. 11
MANAGEMENT........................................................... 15
Directors and Officers......................................... 15
Distribution of Fund Shares.................................... 20
Administrative Services........................................ 22
Service Organizations.......................................... 23
DETERMINATION OF NET ASSET VALUE..................................... 24
PORTFOLIO TRANSACTIONS............................................... 24
Portfolio Turnover............................................. 26
TAXATION............................................................. 26
Centura North Carolina Tax-Free Bond Fund...................... 33
OTHER INFORMATION.................................................... 35
Capitalization................................................. 35
Voting Rights.................................................. 36
Custodian, Transfer Agent and Dividend Disbursing
Agent.......................................................... 36
Independent Accountants........................................ 40
Counsel........................................................ 40
Registration Statement......................................... 40
- i -
<PAGE>
INVESTMENT POLICIES
The Prospectus discusses the investment objectives of the Funds and the
policies to be employed to achieve those objectives. This section contains
supplemental information concerning certain types of securities and other
instruments in which the Funds may invest, the investment policies and portfolio
strategies that the Funds may utilize, and certain risks attendant to such
investments, policies and strategies.
Bank Obligations (All Funds). These obligations include negotiable
certificates of deposit and bankers' acceptances. A description of the banks the
obligations of which the Funds may purchase are set forth in the Prospectus. A
certificate of deposit is a short-term, interest-bearing negotiable certificate
issued by a commercial bank against funds deposited in the bank. A bankers'
acceptance is a short-term draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction. The borrower
is liable for payment as is the bank, which unconditionally guarantees to pay
the draft at its face amount on the maturity date.
Commercial Paper (All Funds). Commercial paper includes short-term
unsecured promissory notes, variable rate demand notes and variable rate master
demand notes issued by domestic and foreign bank holding companies, corporations
and financial institutions and similar taxable instruments issued by government
agencies and instrumentalities. All commercial paper purchased by a Fund must
meet the minimum rating criteria for that Fund.
Convertible Securities (Centura Equity Growth Fund and Centura Equity
Income Fund). Convertible securities give the holder the right to exchange the
security for a specific number of shares of common stock. Convertible securities
include convertible preferred stocks, convertible bonds, notes and debentures,
and other securities. Convertible securities typically involve less credit risk
than common stock of the same issuer because convertible securities are "senior"
to common stock -- i.e., they have a prior claim against the issuer's assets.
Convertible securities generally pay lower dividends or interest than
non-convertible securities of similar quality. They may also reflect changes in
the value of the underlying common stock.
Corporate Debt Securities (All Funds). Fund investments in these
securities are limited to corporate debt securities (corporate bonds,
debentures, notes and similar corporate debt instruments) which meet the rating
criteria established for each Fund.
After purchase by a Fund, a security may cease to be rated or its rating
may be reduced below the minimum required for purchase by the Fund. Neither
event will require a sale of such security by the Fund. However, the Adviser
will consider such
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event in its determination of whether the Fund should continue to hold the
security. To the extent the ratings given by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("S&P") or another rating agency may
change as a result of changes in such organizations or their rating systems, the
Funds will attempt to use comparable ratings as standards for investments in
accordance with the investment policies contained in the Prospectus and in this
SAI.
Repurchase Agreements (All Funds). The Funds may invest in securities
subject to repurchase agreements with U.S. banks or broker-dealers. Such
agreements may be considered to be loans by the Funds for purposes of the
Investment Company Act of 1940, as amended (the "1940 Act"). A repurchase
agreement is a transaction in which the seller of a security commits itself at
the time of the sale to repurchase that security from the buyer at a mutually
agreed-upon time and price. The repurchase price exceeds the sale price,
reflecting an agreed-upon interest rate effective for the period the buyer owns
the security subject to repurchase. The agreed-upon rate is unrelated to the
interest rate on that security. The Adviser will monitor the value of the
underlying security at the time the transaction is entered into and at all times
during the term of the repurchase agreement to insure that the value of the
security always equals or exceeds the repurchase price. In the event of default
by the seller under the repurchase agreement, the Funds may have problems in
exercising their rights to the underlying securities and may incur costs and
experience time delays in connection with the disposition of such securities.
Variable and Floating Rate Demand and Master Demand Notes (All Funds). The
Funds may, from time to time, buy variable rate demand notes issued by
corporations, bank holding companies and financial institutions and similar
taxable and tax-exempt instruments issued by government agencies and
instrumentalities. These securities will typically have a maturity in the 5 to
20 year range but carry with them the right of the holder to put the securities
to a remarketing agent or other entity on short notice, typically seven days or
less. The obligation of the issuer of the put to repurchase the securities is
backed up by a letter of credit or other obligation issued by a financial
institution. The purchase price is ordinarily par plus accrued and unpaid
interest. Ordinarily, the remarketing agent will adjust the interest rate every
seven days (or at other intervals corresponding to the notice period for the
put), in order to maintain the interest rate at the prevailing rate for
securities with a seven-day maturity.
The Funds may also buy variable rate master demand notes.
The terms of these obligations permit the investment of
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fluctuating amounts by the Funds at varying rates of interest pursuant to direct
arrangements between a Fund, as lender, and the borrower. They permit weekly,
and in some instances, daily, changes in the amounts borrowed. The Funds have
the right to increase the amount under the note at any time up to the full
amount provided by the note agreement, or to decrease the amount, and the
borrower may prepay up to the full amount of the note without penalty. The notes
may or may not be backed by bank letters of credit. Because the notes are direct
lending arrangements between the lender and the borrower, it is not generally
contemplated that they will be traded, and there is no secondary market for
them, although they are redeemable (and thus, immediately repayable by the
borrower) at principal amount, plus accrued interest, at any time. The Funds
have no limitations on the type of issuer from whom the notes will be purchased.
However, in connection with such purchase and on an ongoing basis, the Adviser
will consider the earning power, cash flow and other liquidity ratios of the
issuer, and its ability to pay principal and interest on demand, including a
situation in which all holders of such notes make demand simultaneously. While
master demand notes, as such, are not typically rated by credit rating agencies,
if not so rated, the Funds may, under their minimum rating standards, invest in
them only if at the time of an investment the issuer meets the criteria set
forth in the Prospectus for other comparable debt obligations.
Loans of Portfolio Securities (All Funds). The Funds may lend their
portfolio securities to brokers, dealers and financial institutions, provided:
(1) the loan is secured continuously by collateral consisting of U.S. Government
securities or cash or letters of credit maintained on a daily mark-to-market
basis in an amount at least equal to the current market value of the securities
loaned; (2) the Funds may at any time call the loan and obtain the return of the
securities loaned within five business days; (3) the Funds will receive any
interest or dividends paid on the loaned securities; and (4) the aggregate
market value of securities loaned will not at any time exceed 5% of the total
assets of a particular Fund.
The Funds will earn income for lending their securities because cash
collateral pursuant to these loans will be invested in short-term money market
instruments. In connection with lending securities, the Funds may pay reasonable
finders, administrative and custodial fees. Loans of securities involve a risk
that the borrower may fail to return the securities or may fail to provide
additional collateral.
Foreign Securities (Centura Equity Growth Fund and Centura
Equity Income Fund). As described in the Prospectus, changes in
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foreign exchange rates will affect the value of securities
denominated or quoted in currencies other than the U.S. dollar.
Since Centura Equity Growth Fund and Centura Equity Income Fund may invest
in securities denominated in currencies other than the U.S. dollar, and since
those Funds may temporarily hold funds in bank deposits or other money market
investments denominated in foreign currencies, the Funds may be affected
favorably or unfavorably by exchange control regulations or changes in the
exchange rate between such currencies and the dollar. Changes in foreign
currency exchange rates will influence values of securities in the Funds'
portfolios, from the perspective of U.S. investors. Changes in foreign currency
exchange rates may also affect the value of dividends and interest earned, gains
and losses realized on the sale of securities, and net investment income and
gains, if any, to be distributed to shareholders by the Funds. The rate of
exchange between the U.S. dollar and other currencies is determined by the
forces of supply and demand in the foreign exchange markets. These forces are
affected by the international balance of payments and other economic and
financial conditions, government intervention, speculation and other factors.
Forward Foreign Currency Exchange Contracts (Centura Equity Growth Fund
and Centura Equity Income Fund). Centura Equity Growth Fund and Centura Equity
Income Fund may enter into forward foreign currency exchange contracts in order
to protect against uncertainty in the level of future foreign exchange rates. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are entered into in the interbank market
conducted between currency traders (usually large commercial banks) and their
customers. Forward foreign currency exchange contracts may be bought or sold to
protect the Funds against a possible loss resulting from an adverse change in
the relationship between foreign currencies and the U.S. dollar, or between
foreign currencies. Although such contracts are intended to minimize the risk of
loss due to a decline in the value of the hedged currency, at the same time,
they tend to limit any potential gain which might result should the value of
such currency increase.
Interest Rate Futures Contracts (Centura Equity Income Fund, Centura
Federal Securities Income Fund and Centura North Carolina Tax-Free Bond Fund).
These Funds may purchase and sell interest rate futures contracts ("futures
contracts") as a hedge against changes in interest rates. A futures contract is
an agreement between two parties to buy and sell a security for a set price on
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a future date. Futures contracts are traded on designated "contracts markets"
which, through their clearing corporations, guarantee performance of the
contracts. Currently, there are futures contracts based on securities such as
long-term U.S. Treasury bonds, U.S. Treasury notes, GNMA Certificates and
three-month U.S. Treasury bills. For municipal securities, there is the Bond
Buyer Municipal Bond Index.
Generally, if market interest rates increase, the value of outstanding
debt securities declines (and vice versa). Entering into a futures contract for
the sale of securities has an effect similar to the actual sale of securities,
although sale of the futures contract might be accomplished more easily and
quickly. For example, if a Fund holds long-term U.S. Government securities and
the Adviser anticipates a rise in long-term interest rates, the Fund could, in
lieu of disposing of its portfolio securities, enter into futures contracts for
the sale of similar long-term securities. If rates increased and the value of
the Fund's portfolio securities declined, the value of the Fund's futures
contracts would increase, thereby protecting the Fund by preventing net asset
value from declining as much as it otherwise would have. Similarly, entering
into futures contracts for the purchase of securities has an effect similar to
actual purchase of the underlying securities, but permits the continued holding
of securities other than the underlying securities. For example, if the Adviser
expects long-term interest rates to decline, the Fund might enter into futures
contracts for the purchase of long-term securities, so that it could gain rapid
market exposure that may offset anticipated increases in the cost of securities
it intends to purchase, while continuing to hold higher-yielding short-term
securities or waiting for the long-term market to stabilize.
Stock Index Futures Contracts (Centura Equity Growth Fund and Centura
Equity Income Fund). These Funds may enter into stock index futures contracts in
order to protect the value of their common stock investments. A stock index
futures contract is an agreement in which one party agrees to deliver to the
other an amount of cash equal to a specific dollar amount times the difference
between the value of a specific stock index at the close of the last trading day
of the contract and the price at which the agreement is made. As the aggregate
market value of the stocks in the index changes, the value of the index also
will change. In the event that the index level rises above the level at which
the stock index futures contract was sold, the seller of the stock index futures
contract will realize a loss determined by the difference between the purchase
level and the index level at the time of expiration of the stock index futures
contract, and the purchaser will realize a gain in that amount. In the event the
index level falls below the level at which the stock
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index futures contract was sold, the seller will recognize a gain determined by
the difference between the two index levels at the expiration of the stock index
futures contract, and the purchaser will realize a loss. Stock index futures
contracts expire on a fixed date, currently one to seven months from the date of
the contract, and are settled upon expiration of the contract.
Centura Equity Growth Fund and Centura Equity Income Fund will utilize
stock index futures contracts only for the purpose of attempting to protect the
value of their common stock portfolios in the event of a decline in stock prices
and, therefore, usually will be sellers of stock index futures contracts. This
risk management strategy is an alternative to selling securities in the
portfolio and investing in money market instruments. Also, stock index futures
contracts may be purchased to protect a Fund against an increase in prices of
stocks which that Fund intends to purchase. If the Fund is unable to invest its
cash (or cash equivalents) in stock in an orderly fashion, the Fund could
purchase a stock index futures contract which may be used to offset any increase
in the price of the stock. However, it is possible that the market may decline
instead, resulting in a loss on the stock index futures contract. If the Fund
then concludes not to invest in stock at that time, or if the price of the
securities to be purchased remains constant or increases, the Fund will realize
a loss on the stock index futures contract that is not offset by a reduction in
the price of securities purchased. These Funds also may buy or sell stock index
futures contracts to close out existing futures positions.
Option Writing and Purchasing (All Funds). A Fund may write (or sell) put
and call options on the securities that the Fund is authorized to buy or already
holds in its portfolio. These option contracts may be listed for trading on a
national securities exchange or traded over-the-counter. A Fund may also
purchase put and call options. A Fund will not write covered calls on more than
25% of its portfolio, and a Fund will not write covered calls with strike prices
lower than the underlying securities' cost basis on more than 25% of its total
portfolio. A Fund may not invest more than 5% of its total assets in option
purchases.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security at the agreed upon exercise (or
"strike") price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying security at
the strike price during the option period. Purchasers of options pay an amount,
known as a premium, to the option writer in exchange for the right under the
option contract.
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A Fund may sell "covered" put and call options as a means of hedging the
price risk of securities in the Fund's portfolio. The sale of a call option
against an amount of cash equal to the put's potential liability constitutes a
"covered put." When a Fund sells an option, if the underlying securities do not
increase (in the case of a call option) or decrease (in the case of a put
option) to a price level that would make the exercise of the option profitable
to the holder of the option, the option will generally expire without being
exercised and the Fund will realize as profit the premium paid for such option.
When a call option of which a Fund is the writer is exercised, the option holder
purchases the underlying security at the strike price and the Fund does not
participate in any increase in the price of such securities above the strike
price. When a put option of which a Fund is the writer is exercised, the Fund
will be required to purchase the underlying securities at the strike price,
which may be in excess of the market value of such securities. At the time a
Fund writes a put option or a call option on a security it does not hold in its
portfolio in the amount required under the option, it will establish and
maintain a segregated account with its custodian consisting solely of cash, U.S.
Government securities and other liquid high grade debt obligations equal to its
liability under the option.
Over-the-counter options ("OTC options") differ from exchange-traded
options in several respects. They are transacted directly with dealers and not
with a clearing corporation, and there is a risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than exchange-traded
options. Because OTC options are not traded on an exchange, pricing is normally
done by reference to information from a market marker. This information is
carefully monitored by the Adviser and verified in appropriate cases. OTC
options transactions will be made by a Fund only with recognized U.S. Government
securities dealers. OTC options are subject to the Funds' 15% limit on
investments in securities which are illiquid or not readily marketable (see
"Investment Restrictions"), provided that OTC option transactions by a Fund with
a primary U.S. Government securities dealer which has given the Fund an absolute
right to repurchase according to a "repurchase formula" will not be subject to
such 15% limit.
It may be a Fund's policy, in order to avoid the exercise of an option
sold by it, to cancel its obligation under the option by entering into a closing
purchase transaction, if available, unless it is determined to be in the Fund's
interest to sell (in the case of a call option) or to purchase (in the case of a
put option) the underlying securities. A closing purchase transaction consists
of a Fund purchasing an option having the
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same terms as the option sold by the Fund and has the effect of cancelling the
Fund's position as a seller. The premium which a Fund will pay in executing a
closing purchase transaction may be higher than the premium received when the
option was sold, depending in large part upon the relative price of the
underlying security at the time of each transaction. To the extent options sold
by a Fund are exercised and the Fund either delivers portfolio securities to the
holder of a call option or liquidates securities in its portfolio as a source of
funds to purchase securities put to the Fund, the Fund's portfolio turnover rate
may increase, resulting in a possible increase in short-term capital gains and a
possible decrease in long-term capital gains.
Options on Futures Contracts (All Funds). A Fund may purchase and write
put and call options on futures contracts that are traded on a U.S. exchange or
board of trade and enter into related closing transactions to attempt to gain
additional protection against the effects of interest rate, currency or equity
market fluctuations. There can be no assurance that such closing transactions
will be available at all times. In return for the premium paid, such an option
gives the purchaser the right to assume a position in a futures contract at any
time during the option period for a specified exercise price.
A Fund may purchase put options on futures contracts in lieu of, and for
the same purpose as, the sale of a futures contract. It also may purchase such
put options in order to hedge a long position in the underlying futures
contract.
The purchase of call options on futures contracts is intended to serve the
same purpose as the actual purchase of the futures contracts. A Fund may
purchase call options on futures contracts in anticipation of a market advance
when it is not fully invested.
A Fund may write a call option on a futures contract in order to hedge
against a decline in the prices of the index or debt securities underlying the
futures contracts. If the price of the futures contract at expiration is below
the exercise price, the Fund would retain the option premium, which would
offset, in part, any decline in the value of its portfolio securities.
The writing of a put option on a futures contract is similar to the
purchase of the futures contracts, except that, if market price declines, a Fund
would pay more than the market price for the underlying securities or index
units. The net cost to that Fund would be reduced, however, by the premium
received on the sale of the put, less any transactions costs.
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Risks of Futures and Options Investments (All Funds). A Fund will incur
brokerage fees in connection with its futures and options transactions, and it
will be required to segregate funds for the benefit of brokers as margin to
guarantee performance of its futures and options contracts. In addition, while
such contracts will be entered into to reduce certain risks, trading in these
contracts entails certain other risks. Thus, while a Fund may benefit from the
use of futures contracts and related options, unanticipated changes in interest
rates may result in a poorer overall performance for that Fund than if it had
not entered into any such contracts. Additionally, the skills required to invest
successfully in futures and options may differ from skills required for managing
other assets in the Fund's portfolio.
Limitations on Futures Contracts and Options on Futures Contracts (All
Funds). Each Fund will use financial futures contracts and related options only
for "bona fide hedging" purposes, as such term is defined in applicable
regulations of the CFTC, or, with respect to positions in financial futures and
related options that do not qualify as "bona fide hedging" positions, will enter
such non-hedging positions only to the extent that aggregate initial margin
deposits plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would not exceed 5% of
the Fund's total assets. Futures contracts and related put options written by a
Fund will be offset by assets held in a segregated custodial account sufficient
to satisfy the Fund's obligations under such contracts and options.
North Carolina Municipal Obligations (Centura North Carolina Tax-Free Bond
Fund). The ability of this Fund to achieve its investment objective depends on
the ability of issuers of North Carolina Municipal Obligations to meet their
continuing obligations for the payment of principal and interest.
North Carolina Municipal Obligations are debt securities issued by the
state of North Carolina, its political subdivisions, and the districts,
authorities, agencies and instrumentalities of the state and its political
subdivisions, the interest on which is exempt from regular federal and North
Carolina income taxes.
North Carolina municipal bonds are issued for various public purposes,
including the construction of housing, pollution abatement facilities, health
care and prison facilities, and educational facilities.
Unlike other types of investments, municipal securities have traditionally
not been subject to registration with, or other
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regulation by, the Securities and Exchange Commission ("SEC"). However, there
have been proposals which could lead to future regulations of these securities
by the SEC.
Municipal Lease Obligations (Centura North Carolina Tax-Free Bond Fund).
Municipal lease obligations are municipal securities that may be supported by a
lease or an installment purchase contract issued by state and local government
authorities to acquire funds to obtain the use of a wide variety of equipment
and facilities such as fire and sanitation vehicles, computer equipment and
other capital assets. These obligations, which may be secured or unsecured, are
not general obligations and have evolved to make it possible for state and local
government authorities to obtain the use of property and equipment without
meeting constitutional and statutory requirements for the issuance of debt.
Thus, municipal lease obligations have special risks not normally associated
with municipal bonds. These obligations frequently contain "non-appropriation"
clauses that provide that the governmental issuer of the obligation has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purposes by the legislative body on a yearly or other
periodic basis. In addition to the "non-appropriation" risk, many municipal
lease obligations have not yet developed the depth of marketability associated
with municipal bonds; moreover, although the obligations may be secured by the
leased equipment, the disposition of the equipment in the event of foreclosure
might prove difficult. In order to limit certain of these risks, the Fund will
limit its investments in municipal lease obligations that are illiquid, together
with all other illiquid securities in its portfolio, to not more than 15% of its
assets. The liquidity of municipal lease obligations purchased by the Fund will
be determined pursuant to guidelines approved by the Board of Directors. Factors
considered in making such determinations may include; the frequency of trades
and quotes for the obligation; the number of dealers willing to purchase or sell
the security and the number of other potential buyers; the willingness of
dealers to undertake to make a market; the obligation's rating; and, if the
security is unrated, the factors generally considered by a rating agency.
Securities of Other Investment Companies (All Funds). Each Fund may invest
in securities issued by the other investment companies. Each of these Funds
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of investment companies as a group; (c) not more than 3%
of the outstanding voting stock of any one investment company will be owned by
any
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of the Funds; and (d) not more than 10% of the outstanding voting stock of any
one investment company will be owned in the aggregate by the Funds. As a
shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of that company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that the Fund bears directly in connection with its own operations.
Investment companies in which a Fund may invest may also impose a sales or
distribution charge in connection with the purchase or redemption of their
shares and other types of commissions or charges. Such charges will be payable
by the Funds and, therefore, will be borne indirectly by Shareholders.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies of each Fund, and
except as otherwise indicated, may not be changed with respect to a Fund without
the approval of a majority of the outstanding voting securities of that Fund
which, as defined in the Investment Company Act of 1940 ("1940 Act"), means the
lesser of (1) 67% of the shares of such Fund present at a meeting if the holders
of more than 50% of the outstanding shares of such Fund are present in person or
by proxy, or (2) more than 50% of the outstanding voting shares of such Fund.
Each Fund, except as indicated, may not:
(1) with respect to 75% of its total assets, purchase more than 10%
of the voting securities of any one issuer or invest more than 5% of the
value of such assets in the securities or instruments of any one issuer,
except securities or instruments issued or guaranteed by the U.S.
Government, its agencies or instrumentalities;
(2) Borrow money except that a Fund may borrow from banks up to 10%
of the current value of its total net assets for temporary or emergency
purposes; a Fund will make no purchases if its outstanding borrowings
exceed 5% of its total assets;
(3) Invest in real estate, provided that a Fund may invest in
readily marketable securities (except limited partnership interests) of
issuers that deal in real estate and securities secured by real estate or
interests therein and a Fund may hold and sell real estate (a) used
principally for its own office space or (b) acquired as a result of a
Fund's ownership of securities;
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(4) Engage in the business of underwriting securities of other
issuers, except to the extent that the purchase of securities directly
from the issuer (either alone or as one of a group of bidders) or the
disposal of an investment position may technically cause it to be
considered an underwriter as that term is defined under the Securities Act
of 1933;
(5) Make loans, except that a Fund may (a) lend its portfolio
securities, (b) enter into repurchase agreements and (c) purchase the
types of debt instruments described in the Prospectus or the SAI;
(6) Purchase securities or instruments which would cause 25% or more
of the market value of the Fund's total assets at the time of such
purchase to be invested in securities or instruments of one or more
issuers having their principal business activities in the same industry,
provided that there is no limit with respect to investments in the U.S.
Government, its agencies and instrumentalities;
(7) Issue any senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and provided that collateral
arrangements with respect to forward contracts, futures contracts or
options, including deposits of initial and variation margin, are not
considered to be the issuance of a senior security for purposes of this
restriction; or
(8) Purchase or sell commodity contracts, except that the Fund may
invest in futures contracts and in options related to such contracts (for
purposes of this restriction, forward foreign currency exchange contracts
are not deemed to be commodities).
For restriction number 1, above, with respect to Centura North Carolina
Tax-Free Bond Fund, the state of North Carolina and each of its political
subdivisions, as well as each district, authority, agency or instrumentality of
North Carolina or of its political subdivisions will be deemed to be a separate
issuer, and all indebtedness of any issuer will be deemed to be a single class
of securities. Securities backed only by the assets of a non-governmental user
will be deemed to be issued by that user. Restriction number 6, above, will
prevent Centura North Carolina Tax-Free Bond Fund from investing 25% or more of
its total assets in industrial building revenue bonds issued to finance
facilities for non-governmental issuers in any one industry, but this
restriction does not apply to any other tax-free Municipal Obligations. For
purposes of investment restriction number 6,
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public utilities are not deemed to be a single industry but are separated by
industrial categories, such as telephone or gas utilities. For purposes of
restriction number 7, with respect to its futures transactions and writing of
options (other than fully covered call options), a Fund will maintain a
segregated account for the period of its obligation under such contract or
option consisting of cash, U.S. Government securities and other liquid high
grade debt obligations in an amount equal to its obligations under such
contracts or options.
The following policies of the Funds are non-fundamental and may be changed
by the Board of Directors without shareholder approval. These policies provide
that a Fund, except as otherwise specified, may not:
(a) Invest in companies for the purpose of exercising
control or management;
(b) Knowingly purchase securities of other investment companies,
except (i) in connection with a merger, consolidation, acquisition, or
reorganization; and (ii) the equity and fixed income funds may invest up
to 10% of their net assets in shares of other investment companies;
(c) Purchase securities on margin, except that a Fund may obtain
such short-term credits as may be necessary for the clearance of purchases
and sales of securities;
(d) Mortgage, pledge, or hypothecate any of its assets, except that
a Fund may pledge not more than 15% of the current value of the Fund's
total net assets;
(e) Purchase or retain the securities of any issuer, if those
individual officers and Directors of the Company, the Adviser, the
Administrator, or the Distributor, each owning beneficially more than 1/2
of 1% of the securities of such issuer, together own more than 5% of the
securities of such issuer;
(f) Invest more than 5% of its net assets in warrants which are
unattached to securities; included within that amount, no more than 2% of
the value of the Fund's net assets, may be warrants which are not listed
on the New York or American Stock Exchanges;
(g) Write, purchase or sell puts, calls or
combinations thereof, except as described in the Prospectus
or SAI;
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(h) Invest more than 5% of the current value of its total assets in
the securities of companies which, including predecessors, have a record
of less than three years' continuous operation;
(i) Invest more than 15% of the value of its net assets in
investments which are illiquid or not readily marketable (including
repurchase agreements having maturities of more than seven calendar days
and variable and floating rate demand and master demand notes not
requiring receipt of the principal note amount within seven days' notice);
or
(j) Invest in oil, gas or other mineral exploration or development
programs, although it may invest in issuers that own or invest in such
programs.
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MANAGEMENT
Directors and Officers
The principal occupations of the Directors and executive officers of the
Company for the past five years are listed below. The address of each, unless
otherwise indicated, is 237 Park Avenue, New York, New York 10017. Directors
deemed to be "interested persons" of the Company for purposes of the 1940 Act
are indicated by an asterisk.
Position with Principal
Name, Address and Age Company Occupation
Leslie H. Garner, Jr. Director President,
Cornell College Cornell College
600 First Street West
Mount Vernon, IA 52314-
1098
Age: 45
James H. Speed, Jr. Director Hardee's Food Systems,
1233 Hardee's Blvd. Inc. - Vice President
Rocky Mount, NC 27802 Controller (1991-
Age: 43 present); Deloitte &
Touche - Senior Audit
Manager (1979-1991)
Frederick E. Turnage Director Attorney
149 North Franklin St.
Rocky Mount, NC 27804
Age: 60
*Lucy Hancock Bode Director Lobbyist
P.O. Box 6338
Raleigh, NC 27628
Age: 44
*J. Franklin Martin Director President of
LandCraft Properties LandCraft Properties
227 W. Trade Street (1978 - President)
Suite 2730
Charlotte, NC 28202
Age: 51
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<PAGE>
John J. Pileggi President, Furman Selz LLC -
Age: 37 Treasurer, Director (1984-
and Chief present)
Executive
Officer
Joan V. Fiore Secretary Furman Selz LLC -
Age: 40 Managing Director and
Counsel (1991-present);
Securities and Exchange
Commission - Staff
Attorney (1986-1991)
Sheryl Hirschfeld Assistant Furman Selz LLC -
Age: 35 Secretary Director, Corporate
Secretary Services
(since 1994); The Dreyfus
Corporation - Assistant
to the Corporate
Secretary and General
Counsel (1982-1994)
Gordon M. Forrester Assistant Furman Selz LLC -
Age: 35 Treasurer Managing Director, Mutual
Funds Division (1987-
present)
Directors of the Company who are not directors, officers or employees of
the Adviser or the Administrator receive from the Company an annual retainer of
$2000 and a fee of $500 for each Board of Directors and Board committee meeting
of the Company attended and are reimbursed for all out-of-pocket expenses
relating to attendance at such meetings. Directors who are directors, officers
or employees of the Adviser or the Administrator do not receive compensation
from the Company. The table below sets forth the compensation received by each
Director from the Company for the fiscal year ended April 30, 1996.
- 16 -
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Pension or Total
Aggregate Retirement Compensation
Name of Compensa- Benefits Accrued Estimated Annual From Registrant
Person, tion As Part of Fund Benefits Upon and Fund Complex
Position Registrant Expenses Retirement Paid to Directors
Leslie H. Garner, Jr. $ -0- -0- $
James H. Speed, Jr. $ -0- -0- $
Frederick E. Turnage $ -0- -0- $
Lucy Hancock Bode $ -0- -0- $
J. Franklin Martin $ -0- -0- $
</TABLE>
As of June 3, 1996, the Officers and Directors of the Company, as a group,
own less than 1% of the outstanding shares of the Funds.
As of June 3, 1996, the following individuals owned 5% or more of the
Class A and Class B shares of the Funds:
CENTURA EQUITY GROWTH FUND
Class A SHARES OWNED PERCENTAGE OWNED
Stephens Inc for the Exclusive 314,760 73.7%
Benefit of our Customers
111 Center Street
Little Rock, AR 72201-4402
CENTURA FEDERAL SECURITIES INCOME FUND
CLASS A SHARES OWNED PERCENTAGE OWNED
Stephens Inc for the Exclusive 44,481 80.9%
Benefit of our Customers
111 Center Street
Little Rock, AR 72201-4402
CLASS B SHARES OWNED PERCENTAGE OWNED
Furman Selz Inc 1,226 6.4%
Attn: Sergio Lupetin
230 Park Ave 12th Fl
New York, NY 10169-0005
- 17 -
<PAGE>
Stephens Inc FBO 975 5.1%
ACCT 83360137
P.O. Box 34127
Little Rock, AR 72203-4127
Stephens Inc FBO 1,460 7.6%
ACCT 83216300
P.O. Box 34127
Little Rock, AR 72203-4127
Stephens Inc FBO 2,802 14.7%
ACCT 83278411
P.O. Box 34127
Little Rock, AR 72203-4127
Stephens Inc FBO 964 5.1%
A/C 83254735
P.O. Box 34127
Little Rock, AR 72203-4127
Stephens Inc FBO 2,394 12.5%
A/C 83310595
P.O. Box 34127
Little Rock, AR 72203-4127
Stephens Inc FBO 2,167 11.3%
A/C 83329707
P.O. Box 34127
Little Rock, AR 72203-4127
Stephens Inc FBO 1,183 6.2%
A/C 83339985
P.O. Box 34127
Little Rock, AR 72203-4127
Stephens Inc FBO 2,101 11.0%
A/C 83378482
P.O. Box 34127
Little Rock, AR 72203-4127
Stephens Inc FBO 1,114 5.8%
A/C 83327930
P.O. Box 34127
Little Rock, AR 72203-4127
CENTURA NORTH CAROLINA TAX-FREE BOND FUND
CLASS A SHARES OWNED PERCENTAGE OWNED
Stephens Inc for Exclusive 372,144 96.6%
Benefit of our Customers
111 Center Street
Little Rock, AR 72201-4402
- 18 -
<PAGE>
CLASS B SHARES OWNED PERCENTAGE OWNED
Stephens Inc FBO 4,880 12.4%
ACCT 83283728
P.O. Box 34127
Little Rock, AR 72203-4127
Stephens Inc FBO 9,152 23.3%
A/C 83318544
P.O. Box 34127
Little Rock, AR 72203-4127
Stephens Inc FBO 3,259 8.3%
A/C 83338132
P.O. Box 34127
Little Rock, AR 72203-4127
Stephens Inc FBO 5,393 13.8%
A/C 83351331
P.O. Box 34127
Little Rock, AR 72203-4127
Stephens Inc FBO 5,512 14.1%
A/C 83351449
P.O. Box 34127
Little Rock, AR 72203-4127
Stephens Inc FBO 3,638 9.3%
A/C 83366040
P.O. Box 34127
Little Rock, AR 72203-4127
Investment Adviser
Centura Bank (the "Adviser") 131 North Church Street, Rocky Mountain,
North Carolina 27802, serves as investment adviser to the Funds. For these
services, the Adviser receives from each Fund a fee at an annual rate based on
each Fund's average daily net assets. The rates for each Fund are 0.70% for
Centura Equity Growth Fund, 0.70% for Centura Equity Income Fund, 0.30% for
Centura Federal Securities Income Fund and 0.35% for Centura North Carolina
Tax-Free Bond Fund.
Under the terms of the Investment Advisory Agreement for the Funds between
the Company and the Adviser ("Agreement"), the investment advisory services of
the Adviser to the Funds are not exclusive. The Adviser is free to, and does,
render investment advisory services to others.
- 19 -
<PAGE>
The Agreement will continue in effect with respect to each Fund for a
period more than two years from the date of its execution, only as long as such
continuance is approved at least annually (i) by vote of the holders of a
majority of the outstanding voting securities of each Fund or by the Board of
Directors and (ii) by a majority of the Directors who are not parties to the
Agreement or "interested persons" (as defined in the 1940 Act) of any such
party. With respect to all the Funds other than Centura Equity Income Fund, the
Agreement was approved by the Board of Directors, including a majority of the
Directors who are not parties to the Agreement or interested persons of any such
parties, at a meeting called for the purpose of voting on the Agreement, held on
April 26, 1994, and by the sole shareholder of the Funds on April 26, 1994. The
Agreement was recently re-approved with respect to those Funds at the April 23,
1996 Board of Directors Meeting. With respect to Centura Equity Income Fund,
which was organized on [same date as PEA filing], 1996, the Agreement was
approved by the Board of Directors, including a majority of the Directors who
are not parties to the Agreement or interested persons of any such parties, at
its meeting called for such purpose held on , 1996, and by the sole shareholder
of that Fund on , 1996. The Agreement may be terminated at any time without
penalty by vote of the Directors (with respect to the Company or a Fund) or,
with respect to any Fund, by vote of the Directors or the shareholders of that
Fund, or by the Adviser, on 60 days written notice by either party to the
Agreement and will terminate automatically if assigned.
For the fiscal year ended April 30, 1996, the Adviser received the
following in advisory fees: $________ from the Equity Growth Fund, $_______ from
the Federal Securities Income Fund and $_____ from the North Carolina Tax-Free
Bond Fund. For the period June 1, 1994 (commencement of operations) through
April 30, 1995, the Adviser received the following in advisory fees: $458,424
from the Equity Growth Fund, $236,139 from the Federal Securities Income Fund
and the Adviser was entitled to $98,015 from the North Carolina Tax-Free Bond
Fund but waived $83,311.
Distribution of Fund Shares
Centura Funds Distributor, Inc. (the "Distributor") serves as principal
underwriter for the shares of the Funds pursuant to a Distribution Contract. The
Distribution Contract provides that the Distributor will use its best efforts to
maintain a broad distribution of the Funds' shares among bona fide investors and
may enter into selling group agreements with responsible dealers and dealer
managers as well as sell the Funds' shares to individual investors. The
Distributor is not obligated to sell any specific amount of shares.
- 20 -
<PAGE>
Service and distribution plans (the "Plans") have been adopted by each of
the Funds. The Plan for each Fund provides for different rates of fee payment
with respect to Class A shares and Class B shares, as described in the
Prospectus. No Plan has been adopted for Class C shares. Pursuant to the Plans,
the Funds may pay directly or reimburse the Distributor monthly in amounts
described in the Prospectus for costs and expenses of marketing the shares, or
classes of shares, of the Funds. The Board of Directors has concluded that there
is a reasonable likelihood that the Plans will benefit the Funds and their
shareholders.
Each Plan provides that it may not be amended to increase materially the
costs which the Funds or a class of shares may bear pursuant to the Plan without
shareholder approval and that other material amendments of the Plans must be
approved by the Board of Directors, and by the Directors who are neither
"interested persons" (as defined in the 1940 Act) of the Company nor have any
direct or indirect financial interest in the operation of the particular Plan or
any related agreement, by vote cast in person at a meeting called for the
purpose of considering such amendments. The selection and nomination of the
Directors of the Company have been committed to the discretion of the Directors
who are not "interested persons" of the Company. The Plans with respect to each
of the Funds except Centura Equity Income Fund were approved by the Board of
Directors and by the Directors who are neither "interested persons" nor have any
direct or indirect financial interest in the operation of any Plan ("Plan
Director"), by vote cast in person at a April 26, 1994 meeting called for the
purpose of voting on the Plans, and by the sole shareholder of each class of
shares of each of the Funds on April 26, 1994. The Plan with respect to Centura
Equity Income Fund was approved by the Board of Directors and by the Plan
Directors by vote cast in person at a meeting held , 1996 called for the purpose
of voting on that Plan, and by the sole shareholder of each class of shares of
that Fund on
, 1996. The continuance of the Plans is subject to similar annual approval by
the Directors and the Plan Directors. The Plans were recently re-approved at the
April 23, 1996 Board of Directors Meeting. Each Plan is terminable with respect
to a class of shares of a Fund at any time by a vote of a majority of the Plan
Directors or by vote of the holders of a majority of the shares of the class.
For the fiscal year ended April 30, 1996 the following fees with respect
to Class A shares were received by the Distributor: $_____ for the Equity Growth
Fund, $____ for the Federal Securities Income Fund and $_____ for the North
Carolina Tax-Free Bond Fund. For the same fiscal year, with respect to Class B
shares, the Distributor received $_____ for the Equity Growth Fund, $_____ for
the Federal Securities Income Fund and $_____ for the North Carolina Tax-Free
Bond Fund. All expenditures were
- 21 -
<PAGE>
for compensation to the Distributor for its services as
Underwriter of the Funds.
For the period ended April 30, 1995, the Distributor received the
following fees with respect to Class A shares: $1,106 for the Equity Growth
Fund, $422 for the Federal Securities Income Fund and $1,018 for the North
Carolina Tax-Free Bond Fund. For the period ended April 30, 1995, the
Distributor received the following fees with respect to Class B shares: $4,705
for the Equity Growth Fund, $412 for the Federal Securities Income Fund and
$2,322 for the North Carolina Tax-Free Bond Fund. All expenditures were for
compensation to the Distributor for its services as Underwriter of the Funds.
Administrative Services
Furman Selz LLC (the "Administrator") provides administrative services
necessary for the operation of the Funds, including among other things, (i)
preparation of shareholder reports and communications, (ii) regulatory
compliance, such as reports to and filings with the Securities and Exchange
Commission ("SEC") and state securities commissions and (iii) general
supervision of the operation of the Funds, including coordination of the
services performed by the Funds' Adviser, Distributor, custodians, independent
accountants, legal counsel and others. In addition, Furman Selz furnishes office
space and facilities required for conducting the business of the Funds and pays
the compensation of the Funds' officers, employees and Directors affiliated with
Furman Selz. For these services, Furman Selz receives from each Fund a fee,
payable monthly, at the annual rate of 0.15% of each Fund's average daily net
assets.
For the fiscal year ended April 30, 1996, the Administrator was entitled
to the following administrative services fees:
Furman Selz Furman Selz
Entitled Waived
Centura Equity Growth Fund
Centura Federal Securities Income Fund
Centura North Carolina Tax-Free Bond Fund
For the period ended April 30, 1995, the Administrator was entitled to the
following administrative services fees:
Furman Selz Furman Selz
Entitled Waived
Centura Equity Growth Fund $105,945 $19,669
Centura Federal Securities Income Fund 117,881 23,780
Centura North Carolina Tax-Free Bond Fund 45,419 40,371
- 22 -
<PAGE>
For each of the Funds except Centura Equity Income Fund, the
Administrative Services Contract was approved by the Board of Directors,
including a majority of the Directors who are not parties to the Contract or
interested persons of such parties, at its meeting held on April 26, 1994 and by
the sole shareholder of each of the Funds on April 26, 1994 and was recently
re-approved at the April 23, 1996 Board of Directors Meeting. The Administrative
Services Contract with respect to Centura Equity Income Fund was approved by the
Board of Directors, including a majority of the Directors who are not parties to
the Contract or interested persons of such parties, at a meeting held _________,
1996 and by the sole shareholder of that Fund on __________ , 1996. The
Administrative Services Contract is terminable with respect to a Fund or the
Company without penalty, at any time, by vote of a majority of the Directors
or, with respect to a Fund, by vote of the holders of a majority of
the shares of the Fund, each upon not more than 60 days written notice to the
Administrator, and upon 60 days notice, by the Administrator.
Service Organizations
The Company may also contract with banks, trust companies, broker-dealers
(other than Furman Selz) or other financial organizations ("Service
Organizations") to provide certain administrative services for the Funds.
Services provided by Service Organizations may include among other things:
providing necessary personnel and facilities to establish and maintain certain
shareholder accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with client orders to purchase or redeem shares;
verifying and guaranteeing client signatures in connection with redemption
orders, transfers among and changes in client-designating accounts; providing
periodic statements showing a client's account balance and, to the extent
practicable, integrating such information with other client transactions;
furnishing periodic and annual statements and confirmations of all purchases and
redemptions of shares in a client's account; transmitting proxy statements,
annual reports, and updating prospectuses and other communications from the
Funds to clients; and providing such other services as the Funds or a client
reasonably may request, to the extent permitted by applicable statute, rule or
regulation. Neither Furman Selz nor the Adviser will be a Service Organization
or receive fees for servicing.
Some Service Organizations may impose additional or different conditions
on their clients, such as requiring their clients to invest more than the
minimum initial or subsequent investments specified by the Funds or charging a
direct fee for servicing. If imposed, these fees would be in addition to any
amounts that might be paid to the Service Organization by the Funds. Each
Service Organization has agreed to transmit to its
- 23 -
<PAGE>
clients a schedule of any such fees. Shareholders using Service Organizations
are urged to consult them regarding any such fees or conditions.
The Glass-Steagall Act and other applicable laws, among other things,
prohibit banks from engaging in the business of underwriting, selling or
distributing securities. There currently is no precedent prohibiting banks from
performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or interpretations
of such laws, as well as changes in either Federal or state statutes or
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, could prevent a bank from continuing to perform all
or a part of its servicing activities. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed herein
and banks and financial institutions may be required to register as dealers
pursuant to state law. If a bank were prohibited from so acting, its shareholder
clients would be permitted to remain shareholders of the Funds and alternative
means for continuing the servicing of such shareholders would be sought. In that
event, changes in the operation of the Funds might occur and a shareholder
serviced by such a bank might no longer be able to avail itself of any services
then being provided by the bank. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these
occurrences.
DETERMINATION OF NET ASSET VALUE
The Funds value their portfolio securities in accordance with the
procedures described in the Prospectus.
PORTFOLIO TRANSACTIONS
Investment decisions for the Funds and for the other investment advisory
clients of the Adviser are made with a view to achieving their respective
investment objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved. Thus, a
particular security may be bought or sold for certain clients even though it
could have been bought or sold for other clients at the same time. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling the security. In some instances, one client may sell a
particular security to another client. It also sometimes happens that two or
more clients simultaneously purchase or sell the same security, in which event
each day's transactions in such security are, insofar as possible, averaged as
to price and allocated between such clients in a manner which in the Adviser's
opinion is equitable to each and in accordance with the amount being purchased
or sold by each. There may be circumstances when
- 24 -
<PAGE>
purchases or sales of portfolio securities for one or more clients will have an
adverse effect on other clients.
The Funds have no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities. Subject to policies
established by the Company's Board of Directors, the Adviser is primarily
responsible for portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Funds to obtain the best results
taking into account the broker-dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities. While the Adviser generally seeks
reasonably competitive spreads or commissions, the Funds will not necessarily be
paying the lowest spread or commission available.
Purchases and sales of securities will often be principal transactions in
the case of debt securities and equity securities traded otherwise than on an
exchange. The purchase or sale of equity securities will frequently involve the
payment of a commission to a broker-dealer who effects the transaction on behalf
of a Fund. Debt securities normally will be purchased or sold from or to issuers
directly or to dealers serving as market makers for the securities at a net
price. Generally, money market securities are traded on a net basis and do not
involve brokerage commissions. Under the 1940 Act, persons affiliated with the
Funds, the Adviser or Furman Selz are prohibited from dealing with the Funds as
a principal in the purchase and sale of securities unless a permissive order
allowing such transactions is obtained from the SEC.
The Adviser may, in circumstances in which two or more broker-dealers are
in a position to offer comparable results, give preference to a dealer that has
provided statistical or other research services to the Adviser. By allocating
transactions in this manner, the Adviser is able to supplement its research and
analysis with the views and information of securities firms. These items, which
in some cases may also be purchased for cash, include such matters as general
economic and securities market reviews, industry and company reviews,
evaluations of securities and recommendations as to the purchase and sale of
securities. Some of these services are of value to the Adviser in advising
various of its clients (including the Funds), although not all of these services
are necessarily useful and of value in managing the Funds. The advisory fees
paid by the Funds are not reduced because the Adviser and its affiliates receive
such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934 (the
"Act"), the Adviser may cause a Fund to pay a broker-dealer that provides
"brokerage and research services" (as defined in the Act) to the Adviser an
amount of disclosed
- 25 -
<PAGE>
commission for effecting a securities transaction for the Fund in excess of the
commission which another broker-dealer would have charged for effecting that
transaction.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Directors may determine, the
Adviser may consider sales of shares of the Funds as a factor in the selection
of broker-dealers to execute portfolio transactions for the Funds.
[For the fiscal year ended April 30, 1996, _______ was paid in brokerage
commissions by the ________ Fund. Of this amount, none was paid to any
affiliated brokers.] For the period ended April 30, 1995, only the Equity Growth
Fund paid brokerage commissions, in the amount of $115,342. Of this amount, none
was paid to any affiliated brokers.
Portfolio Turnover
Changes may be made in the portfolio consistent with the investment
objectives and policies of the Funds whenever such changes are believed to be in
the best interests of the Funds and their shareholders. It is anticipated that
the annual portfolio turnover rate for a Fund normally will not exceed the
amount stated in the Funds' Prospectus. The portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of portfolio securities
by the average monthly value of the Fund's portfolio securities. For purposes of
this calculation, portfolio securities exclude all securities having a maturity
when purchased of one year or less. The portfolio turnover rate for the fiscal
year ended April 30, 1996 was %, %, and % for the Equity Growth Fund, the
Federal Securities Income Fund and the North Carolina Tax-Free Bond Fund,
respectively. The portfolio turnover rate for the fiscal period ended April 30,
1995 was 44%, 42%, and 121% for the Equity Growth Fund, the Federal Securities
Income Fund and the North Carolina Tax-Free Bond Fund, respectively.
TAXATION
The Funds intend to qualify and elect annually to be treated as regulated
investment companies under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). To qualify as a regulated investment company, a Fund must
for each taxable year (a) distribute to shareholders at least 90% of its
investment company taxable income (which includes, among other items, dividends,
taxable interest and the excess of net short-term capital gains over net
long-term capital losses); (b) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign currencies
- 26 -
<PAGE>
or other income derived with respect to its business of investing in such stock,
securities or currencies; (c) derive less than 30% of its gross income from the
sale or other disposition of certain assets (namely, in the case of a Fund, (i)
stock or securities; (ii) options, futures, and forward contracts (other than
those on foreign currencies), and (iii) foreign currencies (including options,
futures, and forward contracts on such currencies) not directly related to the
Fund's principal business of investing in stock or securities (or options and
futures with respect to stocks or securities)) held less than 3 months; and (d)
diversify its holdings so that, at the end of each quarter of the taxable year,
(i) at least 50% of the market value of the Fund's assets is represented by cash
and cash items (including receivables), U.S. Government securities, the
securities of other regulated investment companies and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets and not greater than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any one issuer (other than U.S. Government securities or
the securities of other regulated investment companies, or of any two or more
issuers which the Fund controls and which are engaged in the same or similar or
related trades or businesses). In addition, a Fund earning tax-exempt interest
must, in each year, distribute at least 90% of its net tax-exempt income. By
meeting these requirements, a Fund generally will not be subject to Federal
income tax on its investment company taxable income and net capital gains which
are distributed to shareholders. If the Funds do not meet all of these Code
requirements, they will be taxed as ordinary corporations and their
distributions will be taxed to shareholders as ordinary income.
Amounts, other than tax-exempt interest, not distributed on a timely basis
in accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To prevent imposition of the excise tax, each Fund
must distribute for each calendar year an amount equal to the sum of (1) at
least 98% of its ordinary income (excluding any capital gains or losses) for the
calendar year, (2) at least 98% of the excess of its capital gains over capital
losses (adjusted for certain ordinary losses) for the one-year period ending
October 31 of such year, and (3) all ordinary income and capital gain net income
(adjusted for certain ordinary losses) for previous years that were not
distributed during such years. A distribution, including an "exempt-interest
dividend," will be treated as paid on December 31 of a calendar year if it is
declared by a Fund during October, November or December of that year to
shareholders of record on a date in such a month and paid by the Fund during
January of the following year. Such distributions will be reportable by
shareholders in the calendar year in which the
- 27 -
<PAGE>
distributions are declared, rather than the calendar year in
which the distributions are received.
Distributions of investment company taxable income generally are taxable
to shareholders as ordinary income. Distributions from certain of the Funds may
be eligible for the dividends-received deduction available to corporations.
Distributions of net capital gains, if any, designated by the Funds as capital
gain dividends are taxable to shareholders as long-term capital gain, regardless
of the length of time the Funds' shares have been held by a shareholder. All
distributions are taxable to the shareholder in the same manner whether
reinvested in additional shares or received in cash. Shareholders will be
notified annually as to the Federal tax status of distributions.
Distributions by a Fund reduce the net asset value of the Fund's shares.
Should a distribution reduce the net asset value below a stockholder's cost
basis, such distribution, nevertheless, would be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution by the Funds. The price of shares
purchased at that time includes the amount of the forthcoming distribution.
Those purchasing just prior to a distribution will receive a distribution which
will nevertheless generally be taxable to them.
Upon the taxable disposition (including a sale or redemption) of shares of
a Fund, a shareholder may realize a gain or loss depending upon his basis in his
shares. Such gain or loss generally will be treated as capital gain or loss if
the shares are capital assets in the shareholder's hands. Such gain or loss will
be long-term or short-term, generally depending upon the shareholder's holding
period for the shares. However, a loss realized by a shareholder on the
disposition of Fund shares with respect to which capital gain dividends have
been paid will, to the extent of such capital gain dividends, be treated as
long-term capital loss if such shares have been held by the shareholder for six
months or less. A loss realized on the redemption, sale or exchange of Fund
shares will be disallowed to the extent an exempt-interest dividend was received
with respect to those shares if the shares have been held by the shareholder for
six months or less. Further, a loss realized on a disposition will be disallowed
to the extent the shares disposed of are replaced (whether by reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
Shareholders receiving distributions in the form of additional shares will have
a cost
- 28 -
<PAGE>
basis for Federal income tax purposes in each share received equal to the net
asset value of a share of the Funds on the reinvestment date.
Under certain circumstances, the sales charge incurred in acquiring shares
of a Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rule applies where shares of a Fund are
exchanged within 90 days after the date they were purchased and new shares of a
Fund are acquired without a sales charge or at a reduced sales charge. In that
case, the gain or loss recognized on the exchange will be determined by
excluding from the tax basis of the shares exchanged all or a portion of the
sales charge incurred in acquiring those shares. This exclusion applies to the
extent that the otherwise applicable sales charge with respect to the newly
acquired shares is reduced as a result of having incurred the sales charge
initially. Instead, the portion of the sales charge affected by this rule will
be treated as a sales charge paid for the new shares.
The taxation of equity options is governed by the Code section 1234.
Pursuant to Code section 1234, the premium received by a Fund for selling a put
or call option is not included in income at the time of receipt. If the option
expires, the premium is short-term capital gain to the Fund. If the Fund enters
into a closing transaction, the difference between the amount paid to close out
its position and the premium received is short-term capital gain or loss. If a
call option written by a Fund is exercised, thereby requiring the Fund to sell
the underlying security, the premium will increase the amount realized upon the
sale of such security and any resulting gain or loss will be a capital gain or
loss, and will be long-term or short-term depending upon the holding period of
the security. With respect to a put or call option that is purchased by a Fund,
if the option is sold, any resulting gain or loss will be a capital gain or
loss, and will be long-term or short-term, depending upon the holding period of
the option. If the option expires, the resulting loss is a capital loss and is
long-term or short-term, depending upon the holding period of the option. If the
option is exercised, the cost of the option, in the case of a call option, is
added to the basis of the purchased security and, in the case of a put option,
reduces the amount realized on the underlying security in determining gain or
loss.
Certain of the options, futures contracts, and forward foreign currency
exchange contracts that several of the Funds may invest in are so-called
"section 1256 contracts." With certain exceptions, gains or losses on section
1256 contracts generally are considered 60% long-term and 40% short-term capital
gains or losses ("60/40"). Also, section 1256 contracts held by a Fund at the
end of each taxable year (and, generally, for purposes of the 4% excise tax, on
October 31 of each year) are "marked-to-market"
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<PAGE>
with the result that unrealized gains or losses are treated as though they were
realized and the resulting gain or loss is treated as 60/40 gain or loss.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for Federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by a Fund. In addition, losses realized
by a Fund on a position that is part of a straddle may be deferred under the
straddle rules, rather than being taken into account in calculating the taxable
income for the taxable year in which such losses are realized. Because only a
few regulations implementing the straddle rules have been promulgated, the tax
consequences to a Fund of hedging transactions are not entirely clear. Hedging
transactions may increase the amount of short-term capital gain realized by a
Fund which is taxed as ordinary income when distributed to stockholders.
A Fund may make one or more of the elections available under the Code
which are applicable to straddles. If a Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not engage in such hedging transactions.
Certain requirements that must be met under the Code in order for a Fund
to qualify as a regulated investment company may limit the extent to which a
Fund will be able to engage in transactions in options, futures, forward
contracts and similar instruments.
Certain of the debt securities acquired by a Fund may be treated as debt
securities that were originally issued at a discount. Original issue discount
can generally be defined as the difference between the price at which a security
was issued and its stated redemption price at maturity. Although no cash income
is actually received by the Fund, original issue discount on a taxable debt
security earned in a given year generally is treated for Federal income tax
purposes as interest and, therefore, such income would be subject to the
distribution requirements of the Code. Original issue discount on an
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<PAGE>
obligation, the interest from which is exempt from Federal income tax, generally
will constitute tax-exempt interest income.
Some of the debt securities may be purchased by a Fund at a discount which
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for Federal income tax purposes.
The gain realized on the disposition of any debt security, including a
tax-exempt debt security, having market discount will be treated as ordinary
income to the extent it does not exceed the accrued market discount on such debt
security. Generally, market discount accrues on a daily basis for each day the
debt security is held by the Fund at a constant rate over the time remaining to
the debt security's maturity or, at the election of the Fund, at a constant
yield to maturity which takes into account the semi-annual compounding of
interest.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues income or other receivables or
accrues expenses or other liabilities denominated in a foreign currency, and the
time the Fund actually collects such receivables or pays such liabilities,
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and on
disposition of certain options and forward and futures contracts, gains or
losses attributable to fluctuations in the value of foreign currency between the
date of acquisition of the security or contract and the date of disposition also
are treated as ordinary gain or loss. These gains or losses, referred to under
the Code as "section 988" gains or losses, may increase, decrease, or eliminate
the amount of a Fund's investment company taxable income to be distributed to
its shareholders as ordinary income.
Some Funds may invest in stocks of foreign companies that are classified
under the Code as passive foreign investment companies ("PFICs"). In general, a
foreign company is classified as a PFIC under the Code if at least one-half of
its assets constitute investment-type assets or 75% or more of its gross income
is investment-type income. Under the PFIC rules, an "excess distribution"
received with respect to PFIC stock is treated as having been realized ratably
over the period during which the Fund held the PFIC stock. A Fund itself will be
subject to tax on the portion, if any, of the excess distribution that is
allocated to the Fund's holding period in prior taxable years (and an interest
factor will be added to the tax, as if the tax had actually been payable in such
prior taxable years) even though the Fund distributes the corresponding income
to stockholders. Excess distributions include any gain from the sale of PFIC
stock as well as certain distributions from a PFIC. All excess distributions are
taxable as ordinary income.
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<PAGE>
A Fund may be able to elect alternative tax treatment with respect to PFIC
stock. Under an election that currently may be available, a Fund generally would
be required to include in its gross income its share of the earnings of a PFIC
on a current basis, regardless of whether any distributions are received from
the PFIC. If this election is made, the special rules, discussed above, relating
to the taxation of excess distributions, would not apply. In addition, another
election may be available that would involve marking to market the Fund's PFIC
shares at the end of each taxable year (and on certain other dates prescribed in
the Code), with the result that unrealized gains are treated as though they were
realized. If this election were made, tax at the Fund level under the PFIC rules
would generally be eliminated, but the Fund could, in limited circumstances,
incur nondeductible interest charges. Each Fund's intention to qualify annually
as a regulated investment company may limit its elections with respect to PFIC
stock.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other similar income taxes imposed by the foreign
country. If more than 50% of the value of a Fund's total assets at the close of
its taxable year consists of securities of foreign governments and corporations,
the Fund will be eligible and intends to elect to "pass-through" to its
shareholders the amount of such foreign taxes paid by the Fund. Pursuant to this
election, a shareholder would be required to include in gross income (in
addition to taxable dividends actually received) his pro rata share of the
foreign taxes paid by a Fund, and would be entitled either to deduct (as an
itemized deduction) his pro rata share of foreign taxes in computing his taxable
income or to use it as a foreign tax credit against his U.S. Federal income tax
liability, subject to limitations. No deduction for foreign taxes may be claimed
by a shareholder who does not itemize deductions, but such a shareholder may be
eligible to claim the foreign tax credit (see below). Each shareholder will be
notified within 60 days after the close of a Fund's taxable year whether the
foreign taxes paid by a Fund will "pass-through" for that year and, if so, such
notification will designate (a) the shareholder's portion of the foreign taxes
paid to each such country and (b) the portion of the dividend which represents
income derived from foreign sources.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to his total foreign
source taxable income. For this purpose, if a Fund makes the election described
in the preceding paragraph, the source of the Fund's income flows through to its
shareholders. With respect to a Fund, gains from the sale of securities will be
treated as derived from U.S. sources and certain currency fluctuations gains,
including fluctuation gains from foreign currency-denominated debt securities,
receivables and payables, will be treated as ordinary
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<PAGE>
income derived from U.S. sources. The limitation on the foreign tax credit is
applied separately to foreign source passive income (as defined for purposes of
the foreign tax credit) including foreign source passive income of a Fund. The
foreign tax credit may offset only 90% of the alternative minimum tax imposed on
corporations and individuals, and foreign taxes generally may not be deducted in
computing alternative minimum taxable income.
The Funds are required to report to the Internal Revenue Service ("IRS")
all distributions except in the case of certain exempt shareholders. All such
distributions generally are subject to withholding of Federal income tax at a
rate of 31% ("backup withholding") in the case of non-exempt shareholders if (1)
the shareholder fails to furnish the Funds with and to certify the shareholder's
correct taxpayer identification number or social security number, (2) the IRS
notifies the Funds or a shareholder that the shareholder has failed to report
properly certain interest and dividend income to the IRS and to respond to
notices to that effect, or (3) when required to do so, the shareholder fails to
certify that he is not subject to backup withholding. If the withholding
provisions are applicable, any such distributions, whether reinvested in
additional shares or taken in cash, will be reduced by the amounts required to
be withheld. Backup withholding is not an additional tax. Any amount withheld
may be credited against the shareholder's U.S. Federal income tax liability.
Investors may wish to consult their tax advisors about the applicability of the
backup withholding provisions.
The foregoing discussion relates only to Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
corporations, partnerships, trusts and estates). Distributions by the Funds also
may be subject to state and local taxes and their treatment under state and
local income tax laws may differ from the Federal income tax treatment.
Distributions of a Fund which are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities may be exempt
from state and local taxes in certain states. Shareholders should consult their
tax advisors with respect to particular questions of Federal, state and local
taxation. Shareholders who are not U.S. persons should consult their tax
advisors regarding U.S. and foreign tax consequences of ownership of shares of
the Funds including the likelihood that distributions to them would be subject
to withholding of U.S. tax at a rate of 30% (or at a lower rate under a tax
treaty).
Centura North Carolina Tax-Free Bond Fund. The Fund intends to manage its
portfolio so that it will be eligible to pay "exempt-interest dividends" to
shareholders. The Fund will so qualify if, at the close of each quarter of its
taxable year, at least 50% of the value of its total assets consists of state,
municipal, and certain other securities, the interest on which is
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<PAGE>
exempt from the regular Federal income tax. To the extent that the Fund's
dividends distributed to shareholders are derived from such interest income and
are designated as exempt-interest dividends by the Fund, they will be excludable
from a shareholder's gross income for Federal income tax purposes.
Exempt-interest dividends, however, must be taken into account by shareholders
in determining whether their total incomes are large enough to result in
taxation of up to one-half (85% for taxable years beginning after 1993) of their
social security benefits and certain railroad retirement benefits. The Fund will
inform shareholders annually as to the portion of the distributions from the
Fund which constitute exempt-interest dividends. In addition, for corporate
shareholders of the Fund, exempt-interest dividends may comprise part or all of
an adjustment to alternative minimum taxable income for purposes of the
alternative minimum tax and the environmental tax under sections 55 and 59A.
Exempt-interest dividends that are attributable to certain private activity
bonds, while not subject to the regular Federal income tax, may constitute an
item of tax preference for purposes of the alternative minimum tax.
To the extent that the Fund's dividends are derived from its investment
company taxable income (which includes interest on its temporary taxable
investments and the excess of net short-term capital gain over net long-term
capital loss), they are considered ordinary (taxable) income for Federal income
tax purposes. Such dividends will not qualify for the dividends-received
deduction for corporations. Distributions, if any, of net capital gains (the
excess of net long-term capital gain over net short-term capital loss)
designated by a Fund as capital gain dividends are taxable to shareholders as
long-term capital gain regardless of the length of time the shareholder has
owned shares of the Fund.
Upon redemption, sale or exchange of shares of the Fund, a shareholder
will realize a taxable gain or loss, depending on whether the gross proceeds are
more or less than the shareholder's tax basis for the shares. The discussion
above provides additional detail about the income tax consequences of disposing
of Fund shares.
Deductions for interest expense incurred to acquire or carry shares of the
Fund may be subject to limitations that reduce, defer, or eliminate such
deductions. This includes limitations on deducting interest on indebtedness
properly allocable to investment property (which may include shares of the
Fund). In addition, a shareholder may not deduct a portion of interest on
indebtedness incurred or continued to purchase or carry shares of an investment
company (such as this Fund) paying exempt-interest dividends. Such disallowance
would be in an amount which bears the same ratio to the total of such interest
as the exempt- interest dividends bear to the total dividends, excluding net
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<PAGE>
capital gain dividends received by the shareholder. Under rules issued by the
IRS for determining when borrowed funds are considered used for the purposes of
purchasing or carrying particular assets, the purchase of shares may be
considered to have been made with borrowed funds even though the borrowed funds
are not directly traceable to the purchase of shares.
North Carolina law exempts from income taxation dividends received from a
regulated investment company in proportion to the income of the regulated
investment company that is attributable to interest on bonds or securities of
the U.S. government or any agency or instrumentality thereof or on bonds of the
State of North Carolina or any county, municipality or political subdivision
thereof, including any agency, board, authority or commission of any of the
above.
Opinions relating to the validity of municipal securities and the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the issuers. The Fund, the Adviser and their affiliates, and the
Fund's counsel make no review of proceedings relating to the issuance of state
or municipal securities or the bases of such opinions.
Persons who may be "substantial users" (or "related persons" of
substantial users) of facilities financed by private activity bonds should
consult their tax advisers before purchasing shares of Centura North Carolina
Tax-Free Bond Fund since the acquisition of shares of the Fund may result in
adverse tax consequences to them. In addition, all shareholders of the Fund
should consult their tax advisers about the tax consequences to them of their
investments in the Fund.
Changes in the tax law, including provisions relating to tax-exempt
income, frequently come under consideration. If such changes are enacted, the
tax consequences arising from an investment in Centura North Carolina Tax-Free
Bond Fund may be affected. Since the Funds do not undertake to furnish tax
advice, it is important for shareholders to consult their tax advisers regularly
about the tax consequences to them of investing in one or more of the Funds.
OTHER INFORMATION
Capitalization
The Company is a Maryland corporation established under Articles of
Incorporation dated March 1, 1994 and currently consists of four separately
managed portfolios, each of which offers three classes of shares. The
capitalization of the Company consists solely of six hundred million
(600,000,000) shares of common stock with a par value of $0.001 per share. The
Board of Directors may establish additional Funds (with different
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<PAGE>
investment objectives and fundamental policies), or additional classes of
shares, at any time in the future. Establishment and offering of additional
Funds or classes will not alter the rights of the Company's shareholders. When
issued, shares are fully paid, non-assessable, redeemable and freely
transferable. Shares do not have preemptive rights or subscription rights. In
any liquidation of a Fund or class, each shareholder is entitled to receive his
pro rata share of the net assets of that Fund or class.
Expenses incurred in connection with each Fund's organization and the
public offering of its shares have been deferred and are being amortized on a
straight-line basis over a period of not less than five years. For the fiscal
period ended April 30, 1995, these expenses totalled $36,856 for the Equity
Growth Fund, $48,751 for the Federal Securities Income Fund and $16,251 for the
North Carolina Tax Free Bond Fund. Expenses of organizing Centura Equity Income
Fund will be treated in a similar manner.
Voting Rights
Under the Articles of Incorporation, the Company is not required to hold
annual meetings of each Fund's shareholders to elect Directors or for other
purposes. It is not anticipated that the Company will hold shareholders'
meetings unless required by law or the Articles of Incorporation. In this
regard, the Company will be required to hold a meeting to elect Directors to
fill any existing vacancies on the Board if, at any time, fewer than a majority
of the Directors have been elected by the shareholders of the Company. In
addition, the Articles of Incorporation provide that the holders of not less
than a majority of the outstanding shares of the Company may remove persons
serving as Director.
Each Fund may vote separately on matters affecting only that Fund, and
each class of shares of each Fund may vote separately on matters affecting only
that class or affecting that class differently from other classes.
The Company's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board of
Directors, in which case the holders of the remaining shares would not be able
to elect any Directors.
Custodian, Transfer Agent and Dividend Disbursing Agent
Centura Bank, 131 North Church Street, Rocky Mount, North Carolina 27802,
acts as custodian of the Company's assets. For the period ended April 30, 1995,
the custodian earned fees of $17,188, $19,585 and $10,192 for the Equity Growth
Fund, the
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<PAGE>
Federal Securities Income Fund and the North Carolina Tax-Free
Bond Fund, respectively.
Furman Selz serves as the Company's transfer agent pursuant to a Service
Agreement. For the fiscal year ended April 30, 1996, Furman Selz earned transfer
agent fees of $ _____ the Equity Growth Fund, $_____ for the Federal Securities
Income Fund and $_____ for the North Carolina Tax-Free Bond Fund. For the period
ended April 30, 1995, Furman Selz earned transfer agent fees of $9,897 for the
Equity Growth Fund, $5,034 for the Federal Securities Income Fund and $4,275 for
the North Carolina Tax-Free Bond Fund. Pursuant to a Fund Accounting Agreement,
each Fund compensates Furman Selz $2,500 per month for providing fund accounting
services for the Funds. For the fiscal year ended April 30, 1996, Furman Selz
earned the following fees for their fund accounting services: $______ for the
Equity Growth Fund, $______ for the Federal Securities Income Fund and $______
for the North Carolina Tax-Free Bond Fund.For the period ended April 30, 1995,
Furman Selz earned the following fees for their fund accounting services:
$29,727 for the Equity Growth Fund, $32,231 for the Federal Securities Income
Fund and $34,948 for the North Carolina Tax-Free Bond Fund.
Yield and Performance Information
The Funds may, from time to time, include their yield, effective yield,
tax equivalent yield and average annual total return in advertisements or
reports to shareholders or prospective investors.
Quotations of yield for each class of shares of the Funds will be based on
the investment income per share earned during a particular 30-day period, less
expenses accrued with respect to that class during a period ("net investment
income"), and will be computed by dividing net investment income for the class
by the maximum offering price per share of that class on the last day of the
period, according to the following formula:
YIELD = 2[(a-b + 1)superscript 6-1]
---
cd
where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of any reimbursements), c = the average daily number of
shares of the class outstanding during the period that were entitled to receive
dividends, and d = the maximum offering price per share of the class on the last
day of the period.
The 30-day yield for the period ended April 30, 1996 was as
follows: % and % for the Class A shares of the Federal
Securities Income Fund and the North Carolina Tax-Free Bond Fund,
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<PAGE>
respectively, and % and % for the Class B shares of the
Federal Securities Income Fund and the North Carolina Tax-Free
Bond Fund, respectively.
Quotations of tax-equivalent yield for each class of shares of Centura
North Carolina Tax-Free Bond Fund will be calculated according to the following
formula:
TAX EQUIVALENT YIELD = ( E )
-----
l-p
E = tax-exempt yield
p = stated income tax rate
Quotations of average annual total return will be expressed in terms of
the average annual compounded rate of return of a hypothetical investment in
each class of shares of a Fund over periods of 1, 5 and 10 years (up to the life
of the Fund), calculated pursuant to the following formula:
P (1 + T)superscript n = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return for the class, n = the number of years, and ERV = the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
period). All total return figures will reflect the deduction of the maximum
sales charge and a proportional share of Fund and class-specific expenses (net
of certain reimbursed expenses) on an annual basis, and will assume that all
dividends and distributions are reinvested when paid.
Quotations of yield and total return will reflect only the performance of
a hypothetical investment in a class of shares of the Funds during the
particular time period shown. Yield and total return for the Funds will vary
based on changes in the market conditions and the level of the Fund's (and
classes') expenses, and no reported performance figure should be considered an
indication of performance which may be expected in the future.
For the fiscal year ended April 30, 1996, the average annual total returns
for Class A shares were as follows: % for the Equity Growth Fund, % for the
Federal Securities Income Fund and % for the North Carolina Tax-Free Bond Fund.
The average annual total returns for the same period for the Class B shares were
as follows: ____ % for the Equity Growth Fund, ____% for the Federal Securities
Income Fund and ____% for the North Carolina Tax-Free Bond Fund.
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<PAGE>
For the period June 1, 1994 (commencement of operations) through April 30,
1996, the average annual total returns for Class A shares were as follows: ____%
for the Equity Growth Fund, ____% for the Federal Securities Income Fund and
____% for the North Carolina Tax-Free Bond Fund. For the period June 1, 1994
(commencement of operations) through April 30, 1996, the average annual total
returns for Class B shares were as follows: ____% for the Equity Growth Fund,
____% for the Federal Securities Income Fund and ____% for the North Carolina
Tax-Free Bond Fund.
In connection with communicating its yields or total return to current or
prospective unit holders, the Funds also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
other unmanaged indexes which may assume reinvestment of dividends but generally
do not reflect deductions for administrative and management costs.
Performance information for the Funds may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index, Dow Jones
Industrial Average, or other unmanaged indices so that investors may compare the
Funds' results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons who rank mutual funds on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment in a Fund.
Investors who purchase and redeem shares of the Funds through a customer
account maintained at a Service Organization may be charged one or more of the
following types of fees as agreed upon by the Service Organization and the
investor, with respect to the customer services provided by the Service
Organization: account fees (a fixed amount per month or per year); transaction
fees (a fixed amount per transaction processed); compensating balance
requirements (a minimum dollar amount a customer must maintain in order to
obtain the services offered); or account maintenance fees (a periodic charge
based upon a percentage of the assets in the account or of the dividends paid on
those assets). Such fees will have the effect of reducing the yield and average
annual total return of the Funds for those investors.
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<PAGE>
Independent Accountants
McGladrey & Pullen LLP serves as the independent accountants for the
Company. McGladrey & Pullen LLP provides audit services, tax return preparation
and assistance and consultation in connection with review of SEC filings.
Counsel
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C., 20005,
passes upon certain legal matters in connection with the shares offered by the
Company and also acts as Counsel to the Company.
Registration Statement
This SAI and the Prospectus do not contain all the information included in
the Company's Registration Statement filed with the SEC under the Securities Act
of 1933 with respect to the securities offered hereby, certain portions of which
have been omitted pursuant to the rules and regulations of the SEC. The
Registration Statement, including the exhibits filed therewith, may be examined
at the office of the SEC in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of
any contract or other documents referred to are not necessarily complete, and,
in each instance, reference is made to the copy of such contract or other
documents filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
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<PAGE>
CENTURA FUNDS, INC.
(the "Company")
237 Park Avenue
New York, New York 10017
General and Account Information: (800) 442-3688
--------------------------------------------------------------
Centura Bank
Investment Adviser
Furman Selz LLC -
Administrator and Sponsor
Centura Funds Distributor, Inc. -
Distributor
STATEMENT OF ADDITIONAL INFORMATION
Class C Shares
This Statement of Additional Information ("SAI") describes Class C shares
of the four funds (the "Funds") advised by Centura Bank (the "Adviser"). The
Funds are:
- Centura Equity Growth Fund
- Centura Equity Income Fund
- Centura Federal Securities Income Fund
- Centura North Carolina Tax-Free Bond Fund
Each Fund has distinct investment objectives and policies. Shares of the
Funds are sold to the public by the Distributor as an investment vehicle for
individuals, institutions, corporations and fiduciaries, including customers of
the Adviser or its affiliates.
The Company is offering an indefinite number of shares of each class of
each Fund. In addition to Class C shares, each Fund also offers Class A and
Class B shares, subject to a front-end sales charge (unless waived) and Class B
shares subject to a contingent deferred sales charge (unless waived) on
redemptions within five years of purchase. See "Other Information
Capitalization" in the prospectus.
This SAI is not a prospectus and is authorized for distribution only when
preceded or accompanied by the prospectus for the Funds dated August , 1996 (the
"Prospectus"). This SAI contains additional and more detailed information than
that set forth in the Prospectus and should be read in conjunction with the
Prospectus. The Prospectus may be obtained without charge by writing or calling
the Funds at the address and information numbers printed above.
August , 1996
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT POLICIES.................................................. 1
Bank Obligations............................................... 1
Commercial Paper............................................... 1
Convertible Securities......................................... 1
Corporate Debt Securities...................................... 1
Repurchase Agreements.......................................... 2
Variable and Floating Rate Demand and Master Demand
Notes.......................................................... 2
Loans of Portfolio Securities.................................. 3
Foreign Securities............................................. 3
Forward Foreign Currency Exchange Contracts.................... 4
Interest Rate Futures Contracts................................ 4
Stock Index Futures Contracts.................................. 5
Option Writing and Purchasing.................................. 6
Options on Futures Contracts................................... 7
Risks of Futures and Options Investments....................... 8
Limitations on Futures Contracts and Options on Futures
Contracts...................................................... 8
North Carolina Municipal Obligations........................... 9
Municipal Lease Obligations.................................... 9
Securities of Other Investment Companies....................... 10
INVESTMENT RESTRICTIONS............................................... 10
MANAGEMENT............................................................ 13
Directors and Officers......................................... 13
Investment Adviser............................................. 16
Distribution of Fund Shares.................................... 17
Administrative Services........................................ 18
Service Organizations.......................................... 19
DETERMINATION OF NET ASSET VALUE..................................... 20
PORTFOLIO TRANSACTIONS............................................... 20
Portfolio Turnover............................................. 21
TAXATION............................................................. 22
Centura North Carolina Tax-Free Bond Fund...................... 28
OTHER INFORMATION.................................................... 30
Capitalization................................................. 30
Voting Rights.................................................. 30
Custodian, Transfer Agent and Dividend Disbursing
Agent.......................................................... 31
Yield and Performance Information.............................. 31
Independent Accountants........................................ 33
Counsel........................................................ 34
Registration Statement......................................... 34
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<PAGE>
INVESTMENT POLICIES
The Prospectus discusses the investment objectives of the Funds and the
policies to be employed to achieve those objectives. This section contains
supplemental information concerning certain types of securities and other
instruments in which the Funds may invest, the investment policies and portfolio
strategies that the Funds may utilize, and certain risks attendant to such
investments, policies and strategies.
Bank Obligations (All Funds). These obligations include negotiable
certificates of deposit and bankers' acceptances. A description of the banks the
obligations of which the Funds may purchase are set forth in the Prospectus. A
certificate of deposit is a short-term, interest-bearing negotiable certificate
issued by a commercial bank against funds deposited in the bank. A bankers'
acceptance is a short-term draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction. The borrower
is liable for payment as is the bank, which unconditionally guarantees to pay
the draft at its face amount on the maturity date.
Commercial Paper (All Funds). Commercial paper includes short-term
unsecured promissory notes, variable rate demand notes and variable rate master
demand notes issued by domestic and foreign bank holding companies, corporations
and financial institutions and similar taxable instruments issued by government
agencies and instrumentalities. All commercial paper purchased by a Fund must
meet the minimum rating criteria for that Fund.
Convertible Securities (Centura Equity Growth Fund and Centura Equity
Income Fund). Convertible securities give the holder the right to exchange the
security for a specific number of shares of common stock. Convertible securities
include convertible preferred stocks, convertible bonds, notes and debentures,
and other securities. Convertible securities typically involve less credit risk
than common stock of the same issuer because convertible securities are "senior"
to common stock -- i.e., they have a prior claim against the issuer's assets.
Convertible securities generally pay lower dividends or interest than
non-convertible securities of similar quality. They may also reflect changes in
the value of the underlying common stock.
Corporate Debt Securities (All Funds). Fund investments in these
securities are limited to corporate debt securities (corporate bonds,
debentures, notes and similar corporate debt instruments) which meet the rating
criteria established for each Fund.
After purchase by a Fund, a security may cease to be rated or its rating
may be reduced below the minimum required for purchase by the Fund. Neither
event will require a sale of such
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security by the Fund. However, the Adviser will consider such event in its
determination of whether the Fund should continue to hold the security. To the
extent the ratings given by Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Corporation ("S&P") or another rating agency may change as a
result of changes in such organizations or their rating systems, the Funds will
attempt to use comparable ratings as standards for investments in accordance
with the investment policies contained in the Prospectus and in this SAI.
Repurchase Agreements (All Funds). The Funds may invest in securities
subject to repurchase agreements with U.S. banks or broker-dealers. Such
agreements may be considered to be loans by the Funds for purposes of the
Investment Company Act of 1940, as amended (the "1940 Act"). A repurchase
agreement is a transaction in which the seller of a security commits itself at
the time of the sale to repurchase that security from the buyer at a mutually
agreed-upon time and price. The repurchase price exceeds the sale price,
reflecting an agreed-upon interest rate effective for the period the buyer owns
the security subject to repurchase. The agreed-upon rate is unrelated to the
interest rate on that security. The Adviser will monitor the value of the
underlying security at the time the transaction is entered into and at all times
during the term of the repurchase agreement to insure that the value of the
security always equals or exceeds the repurchase price. In the event of default
by the seller under the repurchase agreement, the Funds may have problems in
exercising their rights to the underlying securities and may incur costs and
experience time delays in connection with the disposition of such securities.
Variable and Floating Rate Demand and Master Demand Notes (All Funds). The
Funds may, from time to time, buy variable rate demand notes issued by
corporations, bank holding companies and financial institutions and similar
taxable and tax-exempt instruments issued by government agencies and
instrumentalities. These securities will typically have a maturity in the 5 to
20 year range but carry with them the right of the holder to put the securities
to a remarketing agent or other entity on short notice, typically seven days or
less. The obligation of the issuer of the put to repurchase the securities is
backed up by a letter of credit or other obligation issued by a financial
institution. The purchase price is ordinarily par plus accrued and unpaid
interest. Ordinarily, the remarketing agent will adjust the interest rate every
seven days (or at other intervals corresponding to the notice period for the
put), in order to maintain the interest rate at the prevailing rate for
securities with a seven-day maturity.
The Funds may also buy variable rate master demand notes. The terms of
these obligations permit the investment of fluctuating amounts by the Funds at
varying rates of interest pursuant to direct arrangements between a Fund, as
lender, and
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the borrower. They permit weekly, and in some instances, daily, changes in the
amounts borrowed. The Funds have the right to increase the amount under the note
at any time up to the full amount provided by the note agreement, or to decrease
the amount, and the borrower may prepay up to the full amount of the note
without penalty. The notes may or may not be backed by bank letters of credit.
Because the notes are direct lending arrangements between the lender and the
borrower, it is not generally contemplated that they will be traded, and there
is no secondary market for them, although they are redeemable (and thus,
immediately repayable by the borrower) at principal amount, plus accrued
interest, at any time. The Funds have no limitations on the type of issuer from
whom the notes will be purchased. However, in connection with such purchase and
on an ongoing basis, the Adviser will consider the earning power, cash flow and
other liquidity ratios of the issuer, and its ability to pay principal and
interest on demand, including a situation in which all holders of such notes
make demand simultaneously. While master demand notes, as such, are not
typically rated by credit rating agencies, if not so rated, the Funds may, under
their minimum rating standards, invest in them only if at the time of an
investment the issuer meets the criteria set forth in the Prospectus for other
comparable debt obligations.
Loans of Portfolio Securities (All Funds). The Funds may lend their
portfolio securities to brokers, dealers and financial institutions, provided:
(1) the loan is secured continuously by collateral consisting of U.S. Government
securities or cash or letters of credit maintained on a daily mark-to-market
basis in an amount at least equal to the current market value of the securities
loaned; (2) the Funds may at any time call the loan and obtain the return of the
securities loaned within five business days; (3) the Funds will receive any
interest or dividends paid on the loaned securities; and (4) the aggregate
market value of securities loaned will not at any time exceed 5% of the total
assets of a particular Fund.
The Funds will earn income for lending their securities because cash
collateral pursuant to these loans will be invested in short-term money market
instruments. In connection with lending securities, the Funds may pay reasonable
finders, administrative and custodial fees. Loans of securities involve a risk
that the borrower may fail to return the securities or may fail to provide
additional collateral.
Foreign Securities (Centura Equity Growth Fund and Centura Equity Income
Fund). As described in the Prospectus, changes in foreign exchange rates will
affect the value of securities denominated or quoted in currencies other than
the U.S. dollar.
Since Centura Equity Growth Fund and Centura Equity Income Fund may invest
in securities denominated in currencies other than the U.S. dollar, and since
those Funds may temporarily hold
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funds in bank deposits or other money market investments denominated in foreign
currencies, the Funds may be affected favorably or unfavorably by exchange
control regulations or changes in the exchange rate between such currencies and
the dollar. Changes in foreign currency exchange rates will influence values of
securities in the Funds' portfolios, from the perspective of U.S. investors.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities, and net investment income and gains, if any, to be distributed to
shareholders by the Funds. The rate of exchange between the U.S. dollar and
other currencies is determined by the forces of supply and demand in the foreign
exchange markets. These forces are affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors.
Forward Foreign Currency Exchange Contracts (Centura Equity Growth Fund
and Centura Equity Income Fund). Centura Equity Growth Fund and Centura Equity
Income Fund may enter into forward foreign currency exchange contracts in order
to protect against uncertainty in the level of future foreign exchange rates. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are entered into in the interbank market
conducted between currency traders (usually large commercial banks) and their
customers. Forward foreign currency exchange contracts may be bought or sold to
protect the Funds against a possible loss resulting from an adverse change in
the relationship between foreign currencies and the U.S. dollar, or between
foreign currencies. Although such contracts are intended to minimize the risk of
loss due to a decline in the value of the hedged currency, at the same time,
they tend to limit any potential gain which might result should the value of
such currency increase.
Interest Rate Futures Contracts (Centura Equity Income Fund, Centura
Federal Securities Income Fund and Centura North Carolina Tax-Free Bond Fund).
These Funds may purchase and sell interest rate futures contracts ("futures
contracts") as a hedge against changes in interest rates. A futures contract is
an agreement between two parties to buy and sell a security for a set price on a
future date. Futures contracts are traded on designated "contracts markets"
which, through their clearing corporations, guarantee performance of the
contracts. Currently, there are futures contracts based on securities such as
long-term U.S. Treasury bonds, U.S. Treasury notes, GNMA Certificates and
three-month U.S. Treasury bills. For municipal securities, there is the Bond
Buyer Municipal Bond Index.
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Generally, if market interest rates increase, the value of outstanding
debt securities declines (and vice versa). Entering into a futures contract for
the sale of securities has an effect similar to the actual sale of securities,
although sale of the futures contract might be accomplished more easily and
quickly. For example, if a Fund holds long-term U.S. Government securities and
the Adviser anticipates a rise in long-term interest rates, the Fund could, in
lieu of disposing of its portfolio securities, enter into futures contracts for
the sale of similar long-term securities. If rates increased and the value of
the Fund's portfolio securities declined, the value of the Fund's futures
contracts would increase, thereby protecting the Fund by preventing net asset
value from declining as much as it otherwise would have. Similarly, entering
into futures contracts for the purchase of securities has an effect similar to
actual purchase of the underlying securities, but permits the continued holding
of securities other than the underlying securities. For example, if the Adviser
expects long-term interest rates to decline, the Fund might enter into futures
contracts for the purchase of long-term securities, so that it could gain rapid
market exposure that may offset anticipated increases in the cost of securities
it intends to purchase, while continuing to hold higher-yielding short-term
securities or waiting for the long-term market to stabilize.
Stock Index Futures Contracts (Centura Equity Growth Fund and Centura
Equity Income Fund). These Funds may enter into stock index futures contracts in
order to protect the value of their common stock investments. A stock index
futures contract is an agreement in which one party agrees to deliver to the
other an amount of cash equal to a specific dollar amount times the difference
between the value of a specific stock index at the close of the last trading day
of the contract and the price at which the agreement is made. As the aggregate
market value of the stocks in the index changes, the value of the index also
will change. In the event that the index level rises above the level at which
the stock index futures contract was sold, the seller of the stock index futures
contract will realize a loss determined by the difference between the purchase
level and the index level at the time of expiration of the stock index futures
contract, and the purchaser will realize a gain in that amount. In the event the
index level falls below the level at which the stock index futures contract was
sold, the seller will recognize a gain determined by the difference between the
two index levels at the expiration of the stock index futures contract, and the
purchaser will realize a loss. Stock index futures contracts expire on a fixed
date, currently one to seven months from the date of the contract, and are
settled upon expiration of the contract.
Centura Equity Growth Fund and Centura Equity Income Fund will utilize
stock index futures contracts only for the purpose of attempting to protect the
value of their common stock portfolios in the event of a decline in stock prices
and,
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therefore, usually will be sellers of stock index futures contracts. This risk
management strategy is an alternative to selling securities in the portfolio and
investing in money market instruments. Also, stock index futures contracts may
be purchased to protect a Fund against an increase in prices of stocks which
that Fund intends to purchase. If the Fund is unable to invest its cash (or cash
equivalents) in stock in an orderly fashion, the Fund could purchase a stock
index futures contract which may be used to offset any increase in the price of
the stock. However, it is possible that the market may decline instead,
resulting in a loss on the stock index futures contract. If the Fund then
concludes not to invest in stock at that time, or if the price of the securities
to be purchased remains constant or increases, the Fund will realize a loss on
the stock index futures contract that is not offset by a reduction in the price
of securities purchased. These Funds also may buy or sell stock index futures
contracts to close out existing futures positions.
Option Writing and Purchasing (All Funds). A Fund may write (or sell) put
and call options on the securities that the Fund is authorized to buy or already
holds in its portfolio. These option contracts may be listed for trading on a
national securities exchange or traded over-the-counter. A Fund may also
purchase put and call options. A Fund will not write covered calls on more than
25% of its portfolio, and a Fund will not write covered calls with strike prices
lower than the underlying securities' cost basis on more than 25% of its total
portfolio. A Fund may not invest more than 5% of its total assets in option
purchases.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security at the agreed upon exercise (or
"strike") price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying security at
the strike price during the option period. Purchasers of options pay an amount,
known as a premium, to the option writer in exchange for the right under the
option contract.
A Fund may sell "covered" put and call options as a means of hedging the
price risk of securities in the Fund's portfolio. The sale of a call option
against an amount of cash equal to the put's potential liability constitutes a
"covered put." When a Fund sells an option, if the underlying securities do not
increase (in the case of a call option) or decrease (in the case of a put
option) to a price level that would make the exercise of the option profitable
to the holder of the option, the option will generally expire without being
exercised and the Fund will realize as profit the premium paid for such option.
When a call option of which a Fund is the writer is exercised, the option holder
purchases the underlying security at the strike price and the Fund does not
participate in any increase in the price of
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such securities above the strike price. When a put option of which a Fund is the
writer is exercised, the Fund will be required to purchase the underlying
securities at the strike price, which may be in excess of the market value of
such securities. At the time a Fund writes a put option or a call option on a
security it does not hold in its portfolio in the amount required under the
option, it will establish and maintain a segregated account with its custodian
consisting solely of cash, U.S. Government securities and other liquid high
grade debt obligations equal to its liability under the option.
Over-the-counter options ("OTC options") differ from exchange-traded
options in several respects. They are transacted directly with dealers and not
with a clearing corporation, and there is a risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than exchange-traded
options. Because OTC options are not traded on an exchange, pricing is normally
done by reference to information from a market marker. This information is
carefully monitored by the Adviser and verified in appropriate cases. OTC
options transactions will be made by a Fund only with recognized U.S. Government
securities dealers. OTC options are subject to the Funds' 15% limit on
investments in securities which are illiquid or not readily marketable (see
"Investment Restrictions"), provided that OTC option transactions by a Fund with
a primary U.S. Government securities dealer which has given the Fund an absolute
right to repurchase according to a "repurchase formula" will not be subject to
such 15% limit.
It may be a Fund's policy, in order to avoid the exercise of an option
sold by it, to cancel its obligation under the option by entering into a closing
purchase transaction, if available, unless it is determined to be in the Fund's
interest to sell (in the case of a call option) or to purchase (in the case of a
put option) the underlying securities. A closing purchase transaction consists
of a Fund purchasing an option having the same terms as the option sold by the
Fund and has the effect of cancelling the Fund's position as a seller. The
premium which a Fund will pay in executing a closing purchase transaction may be
higher than the premium received when the option was sold, depending in large
part upon the relative price of the underlying security at the time of each
transaction. To the extent options sold by a Fund are exercised and the Fund
either delivers portfolio securities to the holder of a call option or
liquidates securities in its portfolio as a source of funds to purchase
securities put to the Fund, the Fund's portfolio turnover rate may increase,
resulting in a possible increase in short-term capital gains and a possible
decrease in long-term capital gains.
Options on Futures Contracts (All Funds). A Fund may
purchase and write put and call options on futures contracts that
are traded on a U.S. exchange or board of trade and enter into
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related closing transactions to attempt to gain additional protection against
the effects of interest rate, currency or equity market fluctuations. There can
be no assurance that such closing transactions will be available at all times.
In return for the premium paid, such an option gives the purchaser the right to
assume a position in a futures contract at any time during the option period for
a specified exercise price.
A Fund may purchase put options on futures contracts in lieu of, and for
the same purpose as, the sale of a futures contract. It also may purchase such
put options in order to hedge a long position in the underlying futures
contract.
The purchase of call options on futures contracts is intended to serve the
same purpose as the actual purchase of the futures contracts. A Fund may
purchase call options on futures contracts in anticipation of a market advance
when it is not fully invested.
A Fund may write a call option on a futures contract in order to hedge
against a decline in the prices of the index or debt securities underlying the
futures contracts. If the price of the futures contract at expiration is below
the exercise price, the Fund would retain the option premium, which would
offset, in part, any decline in the value of its portfolio securities.
The writing of a put option on a futures contract is similar to the
purchase of the futures contracts, except that, if market price declines, a Fund
would pay more than the market price for the underlying securities or index
units. The net cost to that Fund would be reduced, however, by the premium
received on the sale of the put, less any transactions costs.
Risks of Futures and Options Investments (All Funds). A Fund will incur
brokerage fees in connection with its futures and options transactions, and it
will be required to segregate funds for the benefit of brokers as margin to
guarantee performance of its futures and options contracts. In addition, while
such contracts will be entered into to reduce certain risks, trading in these
contracts entails certain other risks. Thus, while a Fund may benefit from the
use of futures contracts and related options, unanticipated changes in interest
rates may result in a poorer overall performance for that Fund than if it had
not entered into any such contracts. Additionally, the skills required to invest
successfully in futures and options may differ from skills required for managing
other assets in the Fund's portfolio.
Limitations on Futures Contracts and Options on Futures Contracts (All
Funds). Each Fund will use financial futures contracts and related options only
for "bona fide hedging" purposes, as such term is defined in applicable
regulations of
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the CFTC, or, with respect to positions in financial futures and related options
that do not qualify as "bona fide hedging" positions, will enter such
non-hedging positions only to the extent that aggregate initial margin deposits
plus premiums paid by it for open futures option positions, less the amount by
which any such positions are "in-the-money," would not exceed 5% of the Fund's
total assets. Futures contracts and related put options written by a Fund will
be offset by assets held in a segregated custodial account sufficient to satisfy
the Fund's obligations under such contracts and options.
North Carolina Municipal Obligations (Centura North Carolina Tax-Free Bond
Fund). The ability of this Fund to achieve its investment objective depends on
the ability of issuers of North Carolina Municipal Obligations to meet their
continuing obligations for the payment of principal and interest.
North Carolina Municipal Obligations are debt securities issued by the
state of North Carolina, its political subdivisions, and the districts,
authorities, agencies and instrumentalities of the state and its political
subdivisions, the interest on which is exempt from regular federal and North
Carolina income taxes.
North Carolina municipal bonds are issued for various public purposes,
including the construction of housing, pollution abatement facilities, health
care and prison facilities, and educational facilities.
Unlike other types of investments, municipal securities have traditionally
not been subject to registration with, or other regulation by, the Securities
and Exchange Commission ("SEC"). However, there have been proposals which could
lead to future regulations of these securities by the SEC.
Municipal Lease Obligations (Centura North Carolina Tax-Free Bond Fund).
Municipal lease obligations are municipal securities that may be supported by a
lease or an installment purchase contract issued by state and local government
authorities to acquire funds to obtain the use of a wide variety of equipment
and facilities such as fire and sanitation vehicles, computer equipment and
other capital assets. These obligations, which may be secured or unsecured, are
not general obligations and have evolved to make it possible for state and local
government authorities to obtain the use of property and equipment without
meeting constitutional and statutory requirements for the issuance of debt.
Thus, municipal lease obligations have special risks not normally associated
with municipal bonds. These obligations frequently contain "non-appropriation"
clauses that provide that the governmental issuer of the obligation has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purposes by the legislative body on a yearly or other
periodic basis. In addition to the
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"non-appropriation" risk, many municipal lease obligations have not yet
developed the depth of marketability associated with municipal bonds; moreover,
although the obligations may be secured by the leased equipment, the disposition
of the equipment in the event of foreclosure might prove difficult. In order to
limit certain of these risks, the Fund will limit its investments in municipal
lease obligations that are illiquid, together with all other illiquid securities
in its portfolio, to not more than 15% of its assets. The liquidity of municipal
lease obligations purchased by the Fund will be determined pursuant to
guidelines approved by the Board of Directors. Factors considered in making such
determinations may include; the frequency of trades and quotes for the
obligation; the number of dealers willing to purchase or sell the security and
the number of other potential buyers; the willingness of dealers to undertake to
make a market; the obligation's rating; and, if the security is unrated, the
factors generally considered by a rating agency.
Securities of Other Investment Companies (All Funds). Each Fund may invest
in securities issued by the other investment companies. Each of these Funds
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of investment companies as a group; (c) not more than 3%
of the outstanding voting stock of any one investment company will be owned by
any of the Funds; and (d) not more than 10% of the outstanding voting stock of
any one investment company will be owned in the aggregate by the Funds. As a
shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of that company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that the Fund bears directly in connection with its own operations.
Investment companies in which a Fund may invest may also impose a sales or
distribution charge in connection with the purchase or redemption of their
shares and other types of commissions or charges. Such charges will be payable
by the Funds and, therefore, will be borne indirectly by Shareholders.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies of each Fund, and
except as otherwise indicated, may not be changed with respect to a Fund without
the approval of a majority of the outstanding voting securities of that Fund
which, as defined in the Investment Company Act of 1940 ("1940 Act"), means the
lesser of (1) 67% of the shares of such Fund present at a meeting if the holders
of more than 50% of the outstanding shares of such Fund are present in person or
by proxy, or (2) more than 50% of the outstanding voting shares of such Fund.
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Each Fund, except as indicated, may not:
(1) with respect to 75% of its total assets, purchase more than 10%
of the voting securities of any one issuer or invest more than 5% of the
value of such assets in the securities or instruments of any one issuer,
except securities or instruments issued or guaranteed by the U.S.
Government, its agencies or instrumentalities;
(2) Borrow money except that a Fund may borrow from banks up to 10%
of the current value of its total net assets for temporary or emergency
purposes; a Fund will make no purchase if its outstanding borrowings
exceed 5% of its total assets;
(3) Invest in real estate, provided that a Fund may invest in
readily marketable securities (except limited partnership interests) of
issuers that deal in real estate and securities secured by real estate or
interests therein and a Fund may hold and sell real estate (a) used
principally for its own office space or (b) acquired as a result of a
Fund's ownership of securities;
(4) Engage in the business of underwriting securities of other
issuers, except to the extent that the purchase of securities directly
from the issuer (either alone or as one of a group of bidders) or the
disposal of an investment position may technically cause it to be
considered an underwriter as that term is defined under the Securities Act
of 1933;
(5) Make loans, except that a Fund may (a) lend its portfolio
securities, (b) enter into repurchase agreements and (c) purchase the
types of debt instruments described in the Prospectus or the SAI;
(6) Purchase securities or instruments which would cause 25% or more
of the market value of the Fund's total assets at the time of such
purchase to be invested in securities or instruments of one or more
issuers having their principal business activities in the same industry,
provided that there is no limit with respect to investments in the U.S.
Government, its agencies and instrumentalities;
(7) Issue any senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and provided that collateral
arrangements with respect to forward contracts, futures contracts or
options, including deposits of initial and variation margin, are not
considered to be the issuance of a senior security for purposes of this
restriction; or
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(8) Purchase or sell commodity contracts, except that the Fund may
invest in futures contracts and in options related to such contracts (for
purposes of this restriction, forward foreign currency exchange contracts
are not deemed to be commodities).
For restriction number 1, above, with respect to Centura North Carolina
Tax-Free Bond Fund, the state of North Carolina and each of its political
subdivisions, as well as each district, authority, agency or instrumentality of
North Carolina or of its political subdivisions will be deemed to be a separate
issuer, and all indebtedness of any issuer will be deemed to be a single class
of securities. Securities backed only by the assets of a non-governmental user
will be deemed to be issued by that user. Restriction number 6, above, will
prevent Centura North Carolina Tax-Free Bond Fund from investing 25% or more of
its total assets in industrial building revenue bonds issued to finance
facilities for non-governmental issuers in any one industry, but this
restriction does not apply to any other tax-free Municipal Obligations. For
purposes of investment restriction number 6, public utilities are not deemed to
be a single industry but are separated by industrial categories, such as
telephone or gas utilities. For purposes of restriction number 7, with respect
to its futures transactions and writing of options (other than fully covered
call options), a Fund will maintain a segregated account for the period of its
obligation under such contract or option consisting of cash, U.S. Government
securities and other liquid high grade debt obligations in an amount equal to
its obligations under such contracts or options.
The following policies of the Funds are non-fundamental and may be changed
by the Board of Directors without shareholder approval. These policies provide
that a Fund, except as otherwise specified, may not:
(a) Invest in companies for the purpose of exercising
control or management;
(b) Knowingly purchase securities of other investment companies,
except (i) in connection with a merger, consolidation, acquisition, or
reorganization; and (ii) the equity and fixed income funds may invest up
to 10% of their net assets in shares of other investment companies;
(c) Purchase securities on margin, except that a Fund may obtain
such short-term credits as may be necessary for the clearance of purchases
and sales of securities;
(d) Mortgage, pledge, or hypothecate any of its assets, except that
a Fund may pledge not more than 15% of the current value of the Fund's
total net assets;
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<PAGE>
(e) Purchase or retain the securities of any issuer, if those
individual officers and Directors of the Company, the Adviser, the
Administrator, or the Distributor, each owning beneficially more than 1/2
of 1% of the securities of such issuer, together own more than 5% of the
securities of such issuer;
(f) Invest more than 5% of its net assets in warrants which are
unattached to securities; included within that amount, no more than 2% of
the value of the Fund's net assets, may be warrants which are not listed
on the New York or American Stock Exchanges;
(g) Write, purchase or sell puts, calls or
combinations thereof, except as described in the Prospectus
or SAI;
(h) Invest more than 5% of the current value of its total assets in
the securities of companies which, including predecessors, have a record
of less than three years' continuous operation;
(i) Invest more than 15% of the value of its net assets in
investments which are illiquid or not readily marketable (including
repurchase agreements having maturities of more than seven calendar days
and variable and floating rate demand and master demand notes not
requiring receipt of the principal note amount within seven days' notice);
or
(j) Invest in oil, gas or other mineral exploration or development
programs, although it may invest in issuers that own or invest in such
programs.
MANAGEMENT
Directors and Officers
The principal occupations of the Directors and executive officers of the
Company for the past five years are listed below. The address of each, unless
otherwise indicated, is 237 Park Avenue, New York, New York 10017. Directors
deemed to be "interested persons" of the Company for purposes of the 1940 Act
are indicated by an asterisk.
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<PAGE>
POSITION WITH PRINCIPAL
NAME, ADDRESS AND AGE COMPANY OCCUPATION
Leslie H. Garner, Jr. Director President, Cornell
Cornell College College
600 First Street West
Mount Vernon, IA 52314-
1098
Age: 45
James H. Speed, Jr. Director Hardee's Food Systems,
1233 Hardee's Blvd. Inc. - Vice President
Rocky Mount, NC 27802 Controller (1991-
Age: 43 present); Deloitte &
Touche - Senior Audit
Manager (1979-1991)
Frederick E. Turnage Director Attorney
149 North Franklin St.
Rocky Mount, NC 27804
Age: 60
*Lucy Hancock Bode Director Lobbyist
P.O. Box 6338
Raleigh, NC 27628
Age: 44
*J. Franklin Martin Director President of
LandCraft Properties LandCraft Properties
227 W. Trade Street (1978 - President)
Suite 2730
Charlotte, NC 28202
Age: 51
John J. Pileggi President, Furman Selz LLC -
Age: 37 Treasurer, Director (1994-present)
and Chief
Executive
Officer
Joan V. Fiore Secretary Furman Selz LLC -
Age: 40 Managing Director and
Counsel (1991-present);
Securities and Exchange
Commission - Staff
Attorney (1986-1991)
- 14 -
<PAGE>
Sheryl Hirschfeld Assistant Furman Selz LLC -
Age: 35 Secretary Director, Corporate
Secretary Services
(1994); The Dreyfus
Corporation - Assistant
to the Corporate
Secretary and General
Counsel (1982-1994)
Gordon M. Forrester Assistant Furman Selz LLC -
Age: 35 Treasurer Managing Director, Mutual
Funds Division (1987-
present)
Directors of the Company who are not directors, officers or employees of
the Adviser or the Administrator receive from the Company an annual retainer of
$2000 and a fee of $500 for each Board of Directors and Board committee meeting
of the Company attended and are reimbursed for all out-of-pocket expenses
relating to attendance at such meetings. Directors who are directors, officers
or employees of the Adviser or the Administrator do not receive compensation
from the Company. The table below sets forth the compensation received by each
Director from the Company for the fiscal year ended April 30, 1996.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Pension or Total
Aggregate Retirement Compensation
Name of Compensa- Benefits Accrued Estimated From Registrant
Person, tion From As Part of Fund Benefits Upon and Fund
Complex Position Registrant Expenses Retirement Paid to
Directors
Leslie H. Garner, Jr. $ -0- -0- $
James H. Speed, Jr. $ -0- -0- $
Frederick E. Turnage $ -0- -0- $
Lucy Hancock Bode $ -0- -0- $
J. Franklin Martin $ -0- -0- $
</TABLE>
As of June 3, 1996, the Officers and Directors of the Company, as a group,
own less than 1% of the outstanding shares of the Funds.
As of June 3, 1996, the following individuals owned 5% or more of the
Class C shares of the Funds:
- 15 -
<PAGE>
CENTURA EQUITY GROWTH FUND
SHARES OWNED PERCENTAGE OWNED
Centura Bank 2,648,128 28.0%
Cash Account
Attn Trust Operations
P.O. Box 1220
Rocky Mount, N.C. 27802-1220
Centura Bank 6,629,430 70.0%
Reinvest Account
Attn Trust Operations
P.O. Box 1220
Rocky Mount, NC 27802-1220
CENTURA FEDERAL SECURITIES INCOME FUND
SHARES OWNED PERCENTAGE OWNED
Centura Bank 4,203,447 36.9%
Cash Account
Attn Trust Operations
P.O. Box 1220
Rocky Mount, NC 27802-1220
Centura Bank 7,134,318 62.5%
Reinvest Account
Attn Trust Operations
P.O. Box 1220
Rocky Mount, NC 27802-1220
CENTURA NORTH CAROLINA TAX-FREE BOND FUND
SHARES OWNED PERCENTAGE OWNED
Centura Bank 3,547,402 95.8%
Cash Account
Attn Trust Operations
P.O. Box 1220
Rocky Mount, NC 27802-1220
Investment Adviser
Centura Bank (the "Adviser") 131 North Church Street, Rocky Mountain,
North Carolina 27802, serves as investment adviser to the Funds. For these
services, the Adviser receives from each Fund a fee at an annual rate based on
each Fund's average daily net assets. The rates for each Fund are 0.70% for
Centura Equity Growth Fund, 0.70% for Centura Equity Income Fund, 0.30% for
Centura Federal Securities Income Fund and 0.35% for Centura North Carolina
Tax-Free Bond Fund.
Under the terms of the Investment Advisory Agreement for the Funds between
the Company and the Adviser ("Agreement"), the investment advisory services of
the Adviser to the Funds are not
- 16 -
<PAGE>
exclusive. The Adviser is free to, and does, render investment
advisory services to others.
The Agreement will continue in effect with respect to each Fund for a
period more than two years from the date of its execution, only as long as such
continuance is approved at least annually (i) by vote of the holders of a
majority of the outstanding voting securities of each Fund or by the Board of
Directors and (ii) by a majority of the Directors who are not parties to the
Agreement or "interested persons" (as defined in the 1940 Act) of any such
party. With respect to all the Funds other than Centura Equity Income Fund, the
Agreement was approved by the Board of Directors, including a majority of the
Directors who are not parties to the Agreement or interested persons of any such
parties, at a meeting called for the purpose of voting on the Agreement, held on
April 26, 1994, and by the sole shareholder of the Funds on April 26, 1994. The
Agreement was recently re-approved with respect to those Funds at the April 23,
1996 Board of Directors Meeting. With respect to Centura Equity Income Fund,
which was organized on [same date as PEA filing], 1996, the Agreement was
approved by the Board of Directors, including a majority of the Directors who
are not parties to the Agreement or interested persons of any such parties, at
its meeting called for such purpose held on _____________, 1996, and by the sole
shareholder of that Fund on _______________, 1996. The Agreement may be
terminated at any time without penalty by vote of the Directors (with respect to
the Company or a Fund) or, with respect to any Fund, by vote of the Directors or
the shareholders of that Fund, or by the Adviser, on 60 days written notice by
either party to the Agreement and will terminate automatically if assigned.
For the fiscal year ended April 30, 1996, the Adviser received the
following in advisory fees: $_______ from the Equity Growth Fund, $_______ from
the Federal Securities Income Fund and the Adviser was entitled to $______ for
the North Carolina Tax-Free Bond Fund but waived $______. For the period June 1,
1994 (commencement of operations) through April 30, 1995, the Adviser received
the following in advisory fees: $458,424 from the Equity Growth Fund, $236,139
from the Federal Securities Income Fund and the Adviser was entitled to $98,015
for the North Carolina Tax-Free Bond Fund but waived $83,311.
Distribution of Fund Shares
Centura Funds Distributor, Inc. (the "Distributor") serves as principal
underwriter for the shares of the Funds pursuant to a Distribution Contract. The
Distribution Contract provides that the Distributor will use its best efforts to
maintain a broad distribution of the Funds' shares among bona fide investors and
may enter into selling group agreements with responsible dealers and dealer
managers as well as sell the Funds' shares to individual investors. The
Distributor is not obligated to sell any specific amount of shares.
Service and distribution plans (the "Plans") have been adopted by each of
the Funds for Class A shares and Class B shares providing for
- 17 -
<PAGE>
different rates of fee payment with respect to each of those classes of shares,
as described in the Prospectus. No Plan has been adopted for Class C shares.
Administrative Services
Furman Selz LLC (the "Administrator") provides administrative
services necessary for the operation of the Funds, including among other
things, (i) preparation of shareholder reports and communications,
(ii) regulatory compliance, such as reports to and filings with the
Securities and Exchange Commission ("SEC") and state securities commissions and
(iii) general supervision of the operation of the Funds, including coordination
of the services performed by the Funds' Adviser, Distributor, custodians,
independent accountants, legal counsel and others. In addition, Furman Selz
furnishes office space and facilities required for conducting the business of
the Funds and pays the compensation of the Funds' officers, employees and
Directors affiliated with Furman Selz. For these services, Furman Selz
receives from each Fund a fee, payable monthly, at the annual rate of 0.15%
of each Fund's average daily net assets.
For the period ended April 30, 1996, the Administrator was entitled to the
following administrative services fees:
FURMAN SELZ FURMAN SELZ
ENTITLED WAIVED
Centura Equity Growth Fund
Centura Federal Securities Income Fund
Centura North Carolina Tax-Free Bond Fund
For the period ended April 30, 1995, the Administrator was entitled to the
following administrative services fees:
FURMAN SELZ FURMAN SELZ
ENTITLED WAIVED
Centura Equity Growth Fund $105,945 $19,669
Centura Federal Securities Income Fund 117,881 23,780
Centura North Carolina Tax-Free Bond Fund 45,419 40,371
For each of the Funds except Centura Equity Income Fund, the
Administrative Services Contract was approved by the Board of Directors,
including a majority of the Directors who are not parties to the Contract or
interested persons of such parties, at its meeting held on April 26, 1994 and by
the sole shareholder of each of the Funds on April 26, 1994 and was recently
re-approved at the April 23, 1996 Board of Directors Meeting. The Administrative
Services Contract with respect to Centura Equity Income Fund was approved by the
Board of Directors, including a majority of the Directors who are not parties to
the Contract or interested persons of such parties, at a meeting held
__________, 1996 and by the sole shareholder of that Fund on _______________,
1996. The Administrative Services Contract is
- 18 -
<PAGE>
terminable with respect to a Fund or the Company without penalty, at any time,
by vote of a majority of the Directors or, with respect to a Fund, by vote of
the holders of a majority of the shares of the Fund, each upon not more than 60
days written notice to the Administrator, and upon 60 days notice, by the
Administrator.
Service Organizations
The Company may also contract with banks, trust companies, broker-dealers
(other than Furman Selz) or other financial organizations ("Service
Organizations") to provide certain administrative services for the Funds.
Services provided by Service Organizations may include among other things:
providing necessary personnel and facilities to establish and maintain certain
shareholder accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with client orders to purchase or redeem shares;
verifying and guaranteeing client signatures in connection with redemption
orders, transfers among and changes in client- designating accounts; providing
periodic statements showing a client's account balance and, to the extent
practicable, integrating such information with other client transactions;
furnishing periodic and annual statements and confirmations of all purchases and
redemptions of shares in a client's account; transmitting proxy statements,
annual reports, and updating prospectuses and other communications from the
Funds to clients; and providing such other services as the Funds or a client
reasonably may request, to the extent permitted by applicable statute, rule or
regulation. Neither Furman Selz nor the Adviser will be a Service Organization
or receive fees for servicing.
Some Service Organizations may impose additional or different conditions
on their clients, such as requiring their clients to invest more than the
minimum initial or subsequent investments specified by the Funds or charging a
direct fee for servicing. If imposed, these fees would be in addition to any
amounts that might be paid to the Service Organization by the Funds. Each
Service Organization has agreed to transmit to its clients a schedule of any
such fees. Shareholders using Service Organizations are urged to consult them
regarding any such fees or conditions.
The Glass-Steagall Act and other applicable laws, among other things,
prohibit banks from engaging in the business of underwriting, selling or
distributing securities. There currently is no precedent prohibiting banks from
performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or interpretations
of such laws, as well as changes in either Federal or state statutes or
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, could prevent a bank from continuing to perform all
or a part of its servicing activities. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed herein
and banks and financial institutions may be required to register as dealers
pursuant to state law. If a bank were
- 19 -
<PAGE>
prohibited from so acting, its shareholder clients would be permitted to remain
shareholders of the Funds and alternative means for continuing the servicing of
such shareholders would be sought. In that event, changes in the operation of
the Funds might occur and a shareholder serviced by such a bank might no longer
be able to avail itself of any services then being provided by the bank. It is
not expected that shareholders would suffer any adverse financial consequences
as a result of any of these occurrences.
DETERMINATION OF NET ASSET VALUE
The Funds value their portfolio securities in accordance with the
procedures described in the Prospectus.
PORTFOLIO TRANSACTIONS
Investment decisions for the Funds and for the other investment advisory
clients of the Adviser are made with a view to achieving their respective
investment objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved. Thus, a
particular security may be bought or sold for certain clients even though it
could have been bought or sold for other clients at the same time. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling the security. In some instances, one client may sell a
particular security to another client. It also sometimes happens that two or
more clients simultaneously purchase or sell the same security, in which event
each day's transactions in such security are, insofar as possible, averaged as
to price and allocated between such clients in a manner which in the Adviser's
opinion is equitable to each and in accordance with the amount being purchased
or sold by each. There may be circumstances when purchases or sales of portfolio
securities for one or more clients will have an adverse effect on other clients.
The Funds have no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities. Subject to policies
established by the Company's Board of Directors, the Adviser is primarily
responsible for portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Funds to obtain the best results
taking into account the broker-dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities. While the Adviser generally seeks
reasonably competitive spreads or commissions, the Funds will not necessarily be
paying the lowest spread or commission available.
Purchases and sales of securities will often be principal transactions in
the case of debt securities and equity securities traded otherwise than on an
exchange. The purchase or sale of equity securities will frequently involve the
payment of a commission to a broker-dealer who effects the transaction on behalf
of a Fund. Debt securities normally will be purchased or sold from or to issuers
- 20 -
<PAGE>
directly or to dealers serving as market makers for the securities at a net
price. Generally, money market securities are traded on a net basis and do not
involve brokerage commissions. Under the 1940 Act, persons affiliated with the
Funds, the Adviser or Furman Selz are prohibited from dealing with the Funds as
a principal in the purchase and sale of securities unless a permissive order
allowing such transactions is obtained from the SEC.
The Adviser may, in circumstances in which two or more broker-dealers are
in a position to offer comparable results, give preference to a dealer that has
provided statistical or other research services to the Adviser. By allocating
transactions in this manner, the Adviser is able to supplement its research and
analysis with the views and information of securities firms. These items, which
in some cases may also be purchased for cash, include such matters as general
economic and securities market reviews, industry and company reviews,
evaluations of securities and recommendations as to the purchase and sale of
securities. Some of these services are of value to the Adviser in advising
various of its clients (including the Funds), although not all of these services
are necessarily useful and of value in managing the Funds. The advisory fees
paid by the Funds are not reduced because the Adviser and its affiliates receive
such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934 (the
"Act"), the Adviser may cause a Fund to pay a broker-dealer that provides
"brokerage and research services" (as defined in the Act) to the Adviser an
amount of disclosed commission for effecting a securities transaction for the
Fund in excess of the commission which another broker-dealer would have charged
for effecting that transaction.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Directors may determine, the
Adviser may consider sales of shares of the Funds as a factor in the selection
of broker-dealers to execute portfolio transactions for the Funds. For the
period ended April 30, 1996, the _____________ Fund paid brokerage commissions
in the amount of $_______. Of this amount, none was paid to any affiliated
brokers. For the period ended April 30, 1995, only the Equity Growth Fund paid
brokerage commissions, in the amount of $115,342. Of this amount, none was paid
to any affiliated brokers.
Portfolio Turnover
Changes may be made in the portfolio consistent with the investment
objectives and policies of the Funds whenever such changes are believed to be in
the best interests of the Funds and their shareholders. It is anticipated that
the annual portfolio turnover rate for a Fund normally will not exceed the
amount stated in the Funds' Prospectus. The portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of portfolio securities
by the average monthly value of the Fund's portfolio securities. For
- 21 -
<PAGE>
purposes of this calculation, portfolio securities exclude all securities having
a maturity when purchased of one year or less. The portfolio turnover rate for
the fiscal period ended April 30, 1996 was ____%, ____%, and ____% for the
Equity Growth Fund, the Federal Securities Income Fund and the North Carolina
Tax-Free Bond Fund, respectively. The portfolio turnover rate for the fiscal
period ended April 30, 1995 was 44%, 42%, and 121% for the Equity Growth Fund,
the Federal Securities Income Fund and the North Carolina Tax-Free Bond Fund,
respectively.
TAXATION
The Funds intend to qualify and elect annually to be treated as regulated
investment companies under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). To qualify as a regulated investment company, a Fund must
for each taxable year (a) distribute to shareholders at least 90% of its
investment company taxable income (which includes, among other items, dividends,
taxable interest and the excess of net short-term capital gains over net
long-term capital losses); (b) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (c) derive less than 30% of its gross income from the
sale or other disposition of certain assets (namely, in the case of a Fund, (i)
stock or securities; (ii) options, futures, and forward contracts (other than
those on foreign currencies), and (iii) foreign currencies (including options,
futures, and forward contracts on such currencies) not directly related to the
Fund's principal business of investing in stock or securities (or options and
futures with respect to stocks or securities)) held less than 3 months; and (d)
diversify its holdings so that, at the end of each quarter of the taxable year,
(i) at least 50% of the market value of the Fund's assets is represented by cash
and cash items (including receivables), U.S. Government securities, the
securities of other regulated investment companies and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets and not greater than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any one issuer (other than U.S. Government securities or
the securities of other regulated investment companies), or of two or more
issuers which the Fund controls and which are engaged in the same or similar or
related trades or businesses. In addition, a Fund earning tax-exempt interest
must, in each year, distribute at least 90% of its net tax-exempt income. By
meeting these requirements, a Fund generally will not be subject to Federal
income tax on its investment company taxable income and net capital gains which
are distributed to shareholders. If the Funds do not meet all of these Code
requirements, they will be taxed as ordinary corporations and their
distributions will be taxed to shareholders as ordinary income.
- 22 -
<PAGE>
Amounts, other than tax-exempt interest, not distributed on a timely basis
in accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To prevent imposition of the excise tax, each Fund
must distribute for each calendar year an amount equal to the sum of (1) at
least 98% of its ordinary income (excluding any capital gains or losses) for the
calendar year, (2) at least 98% of the excess of its capital gains over capital
losses (adjusted for certain ordinary losses) for the one-year period ending
October 31 of such year, and (3) all ordinary income and capital gain net income
(adjusted for certain ordinary losses) for previous years that were not
distributed during such years. A distribution, including an "exempt-interest
dividend," will be treated as paid on December 31 of a calendar year if it is
declared by a Fund during October, November or December of that year to
shareholders of record on a date in such a month and paid by the Fund during
January of the following year. Such distributions will be reportable by
shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received.
Distributions of investment company taxable income generally are taxable
to shareholders as ordinary income. Distributions from certain of the Funds may
be eligible for the dividends-received deduction available to corporations.
Distributions of net capital gains, if any, designated by the Funds as capital
gain dividends are taxable to shareholders as long-term capital gain, regardless
of the length of time the Funds' shares have been held by a shareholder. All
distributions are taxable to the shareholder in the same manner whether
reinvested in additional shares or received in cash. Shareholders will be
notified annually as to the Federal tax status of distributions.
Distributions by a Fund reduce the net asset value of the Fund's shares.
Should a distribution reduce the net asset value below a stockholder's cost
basis, such distribution, nevertheless, would be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution by the Funds. The price of shares
purchased at that time includes the amount of the forthcoming distribution.
Those purchasing just prior to a distribution will receive a distribution which
will nevertheless generally be taxable to them.
Upon the taxable disposition (including a sale or redemption) of shares of
a Fund, a shareholder may realize a gain or loss depending upon his basis in his
shares. Such gain or loss generally will be treated as capital gain or loss if
the shares are capital assets in the shareholder's hands. Such gain or loss will
be long-term or short-term, generally depending upon the shareholder's holding
period for the shares. However, a loss realized by a shareholder on the
disposition of Fund shares with respect to which capital gain
- 23 -
<PAGE>
dividends have been paid will, to the extent of such capital gain dividends, be
treated as long-term capital loss if such shares have been held by the
shareholder for six months or less. A loss realized on the redemption, sale or
exchange of Fund shares will be disallowed to the extent an exempt-interest
dividend was received with respect to those shares if the shares have been held
by the shareholder for six months or less. Further, a loss realized on a
disposition will be disallowed to the extent the shares disposed of are replaced
(whether by reinvestment of distributions or otherwise) within a period of 61
days beginning 30 days before and ending 30 days after the shares are disposed
of. In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss. In some circumstances, basis adjustments are required in
computing gains or loss on dispositions of Fund shares within 90 days after
their acquisition where new shares of a regulated investment company are then
acquired with a reduced sales load. Shareholders receiving distributions in the
form of additional shares will have a cost basis for Federal income tax purposes
in each share received equal to the net asset value of a share of the Funds on
the reinvestment date.
The taxation of equity options is governed by the Code section 1234.
Pursuant to Code section 1234, the premium received by a Fund for selling a put
or call option is not included in income at the time of receipt. If the option
expires, the premium is short-term capital gain to the Fund. If the Fund enters
into a closing transaction, the difference between the amount paid to close out
its position and the premium received is short-term capital gain or loss. If a
call option written by a Fund is exercised, thereby requiring the Fund to sell
the underlying security, the premium will increase the amount realized upon the
sale of such security and any resulting gain or loss will be a capital gain or
loss, and will be long-term or short-term depending upon the holding period of
the security. With respect to a put or call option that is purchased by a Fund,
if the option is sold, any resulting gain or loss will be a capital gain or
loss, and will be long-term or short-term, depending upon the holding period of
the option. If the option expires, the resulting loss is a capital loss and is
long-term or short-term, depending upon the holding period of the option. If the
option is exercised, the cost of the option, in the case of a call option, is
added to the basis of the purchased security and, in the case of a put option,
reduces the amount realized on the underlying security in determining gain or
loss.
Certain of the options, futures contracts, and forward foreign currency
exchange contracts that several of the Funds may invest in are so-called
"section 1256 contracts." With certain exceptions, gains or losses on section
1256 contracts generally are considered 60% long-term and 40% short-term capital
gains or losses ("60/40"). Also, section 1256 contracts held by a Fund at the
end of each taxable year (and, generally, for purposes of the 4% excise tax, on
October 31 of each year) are "marked-to-market" with the result that unrealized
gains or losses are treated as though they were realized and the resulting gain
or loss is treated as 60/40 gain or loss.
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<PAGE>
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for Federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by a Fund. In addition, losses realized
by a Fund on a position that is part of a straddle may be deferred under the
straddle rules, rather than being taken into account in calculating the taxable
income for the taxable year in which such losses are realized. Because only a
few regulations implementing the straddle rules have been promulgated, the tax
consequences to a Fund of hedging transactions are not entirely clear. Hedging
transactions may increase the amount of short-term capital gain realized by a
Fund which is taxed as ordinary income when distributed to stockholders.
A Fund may make one or more of the elections available under the Code
which are applicable to straddles. If a Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not engage in such hedging transactions.
Certain requirements that must be met under the Code in order for a Fund
to qualify as a regulated investment company may limit the extent to which a
Fund will be able to engage in transactions in options, futures, forward
contracts and similar instruments.
Certain of the debt securities acquired by a Fund may be treated as debt
securities that were originally issued at a discount. Original issue discount
can generally be defined as the difference between the price at which a security
was issued and its stated redemption price at maturity. Although no cash income
is actually received by the Fund, original issue discount on a taxable debt
security earned in a given year generally is treated for Federal income tax
purposes as interest and, therefore, such income would be subject to the
distribution requirements of the Code. Original issue discount on an obligation,
the interest from which is exempt from Federal income tax, generally will
constitute tax-exempt interest income.
Some of the debt securities may be purchased by a Fund at a discount which
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for Federal income tax purposes.
The gain realized on the disposition of any debt security, including a
tax-exempt debt
- 25 -
<PAGE>
security, having market discount will be treated as taxable income to the extent
it does not exceed the accrued market discount on such debt security. Generally,
market discount accrues on a daily basis for each day the debt security is held
by the Fund at a constant rate over the time remaining to the debt security's
maturity or, at the election of the Fund, at a constant yield to maturity which
takes into account the semi-annual compounding of interest.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues income or other receivables or
accrues expenses or other liabilities denominated in a foreign currency, and the
time the Fund actually collects such receivables or pays such liabilities,
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and on
disposition of certain options and forward and futures contracts, gains or
losses attributable to fluctuations in the value of foreign currency between the
date of acquisition of the security or contract and the date of disposition also
are treated as ordinary gain or loss. These gains or losses, referred to under
the Code as "section 988" gains or losses, may increase, decrease, or eliminate
the amount of a Fund's investment company taxable income to be distributed to
its shareholders as ordinary income.
Some Funds may invest in stocks of foreign companies that are classified
under the Code as passive foreign investment companies ("PFICs"). In general, a
foreign company is classified as a PFIC under the Code if at least one-half of
its assets constitute investment-type assets or 75% or more of its gross income
is investment-type income. Under the PFIC rules, an "excess distribution"
received with respect to PFIC stock is treated as having been realized ratably
over the period during which the Fund held the PFIC stock. A Fund itself will be
subject to tax on the portion, if any, of the excess distribution that is
allocated to the Fund's holding period in prior taxable years (and an interest
factor will be added to the tax, as if the tax had actually been payable in such
prior taxable years) even though the Fund distributes the corresponding income
to stockholders. Excess distributions include any gain from the sale of PFIC
stock as well as certain distributions from a PFIC. All excess distributions are
taxable as ordinary income.
A Fund may be able to elect alternative tax treatment with respect to PFIC
stock. Under an election that currently may be available, a Fund generally would
be required to include in its gross income its share of the earnings of a PFIC
on a current basis, regardless of whether any distributions are received from
the PFIC. If this election is made, the special rules, discussed above, relating
to the taxation of excess distributions, would not apply. In addition, another
election may be available that would involve marking to market the Funds' PFIC
shares at the end of each taxable year (and on certain other dates prescribed in
the Code), with the result that unrealized gains are treated as though they were
realized. If this election were made, tax at the Fund level under the PFIC rules
would
- 26 -
<PAGE>
generally be eliminated, but the Fund could, in limited circumstances, incur
nondeductible interest charges. Each Fund's intention to qualify annually as a
regulated investment company may limit its elections with respect to PFIC stock.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other similar income taxes imposed by the foreign
country. If more than 50% of the value of a Fund's total assets at the close of
its taxable year consists of securities of foreign governments and corporations,
the Fund will be eligible and intends to elect to "pass-through" to its
shareholders the amount of such foreign taxes paid by the Fund. Pursuant to this
election, a shareholder would be required to include in gross income (in
addition to taxable dividends actually received) his pro rata share of the
foreign taxes paid by a Fund, and would be entitled either to deduct (as an
itemized deduction) his pro rata share of foreign taxes in computing his taxable
income or to use it as a foreign tax credit against his U.S. Federal income tax
liability, subject to limitations. No deduction for foreign taxes may be claimed
by a shareholder who does not itemize deductions, but such a shareholder may be
eligible to claim the foreign tax credit (see below). Each shareholder will be
notified within 60 days after the close of a Fund's taxable year whether the
foreign taxes paid by a Fund will "pass-through" for that year and, if so, such
notification will designate (a) the shareholder's portion of the foreign taxes
paid to each such country and (b) the portion of the dividend which represents
income derived from foreign sources.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to his total foreign
source taxable income. For this purpose, if a Fund makes the election described
in the preceding paragraph, the source of the Fund's income flows through to its
shareholders. With respect to a Fund, gains from the sale of securities will be
treated as derived from U.S. sources and certain currency fluctuations gains,
including fluctuation gains from foreign currency-denominated debt securities,
receivables and payables, will be treated as ordinary income derived from U.S.
sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income (as defined for purposes of the foreign tax
credit) including foreign source passive income of a Fund. The foreign tax
credit may offset only 90% of the alternative minimum tax imposed on
corporations and individuals, and foreign taxes generally may not be deducted in
computing alternative minimum taxable income.
The Funds are required to report to the Internal Revenue Service ("IRS")
all distributions except in the case of certain exempt shareholders. All such
distributions generally are subject to withholding of Federal income tax at a
rate of 31% ("backup withholding") in the case of non-exempt shareholders if (1)
the shareholder fails to furnish the Funds with and to certify the shareholder's
correct taxpayer identification number or social security number, (2) the IRS
notifies the Funds or a shareholder that
- 27 -
<PAGE>
the shareholder has failed to report properly certain interest and dividend
income to the IRS and to respond to notices to that effect, or (3) when required
to do so, the shareholder fails to certify that he is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions, whether reinvested in additional shares or taken in cash, will be
reduced by the amounts required to be withheld. Backup withholding is not an
additional tax. Any amount withheld may be credited against the shareholder's
U.S. Federal income tax liability. Investors may wish to consult their tax
advisors about the applicability of the backup withholding provisions.
The foregoing discussion relates only to Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
corporations, partnerships, trusts and estates). Distributions by the Funds also
may be subject to state and local taxes and their treatment under state and
local income tax laws may differ from the Federal income tax treatment.
Distributions of a Fund which are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities may be exempt
from state and local taxes in certain states. Shareholders should consult their
tax advisors with respect to particular questions of Federal, state and local
taxation. Shareholders who are not U.S. persons should consult their tax
advisors regarding U.S. and foreign tax consequences of ownership of shares of
the Funds including the likelihood that distributions to them would be subject
to withholding of U.S. tax at a rate of 30% (or at a lower rate under a tax
treaty).
Centura North Carolina Tax-Free Bond Fund. The Fund intends to manage its
portfolio so that it will be eligible to pay "exempt- interest dividends" to
shareholders. The Fund will so qualify if, at the close of each quarter of its
taxable year, at least 50% of the value of its total assets consists of state,
municipal, and certain other securities, the interest on which is exempt from
the regular Federal income tax. To the extent that the Fund's dividends
distributed to shareholders are derived from such interest income and are
designated as exempt-interest dividends by the Fund, they will be excludable
from a shareholder's gross income for Federal income tax purposes.
Exempt-interest dividends, however, must be taken into account by shareholders
in determining whether their total incomes are large enough to result in
taxation of up to one-half (85% for taxable years beginning after 1993) of their
social security benefits and certain railroad retirement benefits. The Fund will
inform shareholders annually as to the portion of the distributions from the
Fund which constitute exempt-interest dividends. In addition, for corporate
shareholders of the Fund, exempt-interest dividends may comprise part or all of
an adjustment to alternative minimum taxable income for purposes of the
alternative minimum tax and the environmental tax under sections 55 and 59A.
Exempt-interest dividends that are attributable to certain private activity
bonds, while not subject to the regular Federal income tax, may constitute an
item of tax preference for purposes of the alternative minimum tax.
- 28 -
<PAGE>
To the extent that the Fund's dividends are derived from its investment
company taxable income (which includes interest on its temporary taxable
investments and the excess of net short-term capital gain over net long-term
capital loss), they are considered ordinary (taxable) income for Federal income
tax purposes. Such dividends will not qualify for the dividends-received
deduction for corporations. Distributions, if any, of net capital gains (the
excess of net long-term capital gain over net short-term capital loss)
designated by a Fund as capital gain dividends are taxable to shareholders as
long-term capital gain regardless of the length of time the shareholder has
owned shares of the Fund.
Upon redemption, sale or exchange of shares of the Fund, a shareholder
will realize a taxable gain or loss, depending on whether the gross proceeds are
more or less than the shareholder's tax basis for the shares. The discussion
above provides additional detail about the income tax consequences of disposing
of Fund shares.
Deductions for interest expense incurred to acquire or carry shares of the
Fund may be subject to limitations that reduce, defer, or eliminate such
deductions. This includes limitations on deducting interest on indebtedness
properly allocable to investment property (which may include shares of the
Fund). In addition, a shareholder may not deduct a portion of interest on
indebtedness incurred or continued to purchase or carry shares of an investment
company (such as this Fund) paying exempt-interest dividends. Such disallowance
would be in an amount which bears the same ratio to the total of such interest
as the exempt-interest dividends bear to the total dividends, excluding net
capital gain dividends received by the shareholder. Under rules issued by the
IRS for determining when borrowed funds are considered used for the purposes of
purchasing or carrying particular assets, the purchase of shares may be
considered to have been made with borrowed funds even though the borrowed funds
are not directly traceable to the purchase of shares.
North Carolina law exempts from income taxation dividends received from a
regulated investment company in proportion to the income of the regulated
investment company that is attributable to interest on bonds or securities of
the U.S. government or any agency or instrumentality thereof or on bonds of the
State of North Carolina or any county, municipality or political subdivision
thereof, including any agency, board, authority or commission of any of the
above.
Opinions relating to the validity of municipal securities and the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the issuers. The Fund, the Adviser and their affiliates, and the
Fund's counsel make no review of proceedings relating to the issuance of state
or municipal securities or the bases of such opinions.
Persons who may be "substantial users" (or "related persons" of
substantial users) of facilities financed by private activity bonds
- 29 -
<PAGE>
should consult their tax advisers before purchasing shares of Centura North
Carolina Tax-Free Bond Fund since the acquisition of shares of the Fund may
result in adverse tax consequences to them. In addition, all shareholders of the
Fund should consult their tax advisers about the tax consequences to them of
their investments in the Fund.
Changes in the tax law, including provisions relating to tax-exempt
income, frequently come under consideration. If such changes are enacted, the
tax consequences arising from an investment in Centura North Carolina Tax-Free
Bond Fund may be affected. Since the Funds do not undertake to furnish tax
advice, it is important for shareholders to consult their tax advisers regularly
about the tax consequences to them of investing in one or more of the Funds.
OTHER INFORMATION
Capitalization
The Company is a Maryland corporation established under Articles of
Incorporation dated March 1, 1994 and currently consists of four separately
managed portfolios, each of which offers three classes of shares. The
capitalization of the Company consists solely of six hundred million
(600,000,000) shares of common stock with a par value of $0.001 per share. The
Board of Directors may establish additional Funds (with different investment
objectives and fundamental policies), or additional classes of shares, at any
time in the future. Establishment and offering of additional Funds or classes
will not alter the rights of the Company's shareholders. When issued, shares are
fully paid, non-assessable, redeemable and freely transferable. Shares do not
have preemptive rights or subscription rights. In any liquidation of a Fund or
class, each shareholder is entitled to receive his pro rata share of the net
assets of that Fund or class.
Expenses incurred in connection with each Fund's organization and the
public offering of its shares have been deferred and are being amortized on a
straight-line basis over a period of not less than five years. For the fiscal
period ended April 30, 1995, these expenses totalled $36,856 for the Equity
Growth Fund, $48,751 for the Federal Securities Income Fund and $16,251 for the
North Carolina Tax Free Bond Fund. Expenses of organizing Centura Equity Income
Fund will be treated in a similar manner.
Voting Rights
Under the Articles of Incorporation, the Company is not required to hold
annual meetings of each Fund's shareholders to elect Directors or for other
purposes. It is not anticipated that the Company will hold shareholders'
meetings unless required by law or the Articles of Incorporation. In this
regard, the Company will be required to hold a meeting to elect Directors to
fill any existing vacancies on the Board if, at any time, fewer than a majority
of the Directors have been elected by the shareholders of the Company. In
addition, the Articles of Incorporation provide that the holders of not less
than a majority
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<PAGE>
of the outstanding shares of the Company may remove persons serving as
Director.
Each Fund may vote separately on items affecting only that Fund, and each
class of shares of each Fund may vote separately on matters affecting only that
class or affecting that class differently from other classes.
The Company's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board of
Directors, in which case the holders of the remaining shares would not be able
to elect any Directors.
Custodian, Transfer Agent and Dividend Disbursing Agent
Centura Bank, 131 North Church Street, Rocky Mount, North Carolina 27802,
acts as custodian of the Company's assets. For the fiscal year ended April 30,
1996 the custodian earned fees of $_____, $______ and $______ for the Equity
Growth Fund, the Federal Securities Income Fund and the North Carolina Tax-Free
Bond Fund, respectively. For the period ended April 30, 1995, the custodian
earned fees of $17,188, $19,585 and $10,192 for the Equity Growth Fund, the
Federal Securities Income Fund and the North Carolina Tax-Free Bond Fund,
respectively.
Furman Selz serves as the Company's transfer agent pursuant to a Service
Agreement. For the fiscal year ended April 30, 1996, Furman Selz earned transfer
agent fees of $_____ for the Equity Growth Fund, $_____ for the Federal
Securities Income Fund and $_____ for the North Carolina Tax-Free Bond Fund. For
the period ended April 30, 1995, Furman Selz earned transfer agent fees of
$9,897 for the Equity Growth Fund, $5,034 for the Federal Securities Income Fund
and $4,275 for the North Carolina Tax-Free Bond Fund. Pursuant to a Fund
Accounting Agreement, each Fund compensates Furman Selz $2,500 per month for
providing fund accounting services for the Funds. For the fiscal year ended
April 30, 1996, Furman Selz earned the following fees for their fund accounting
services: $______ for the Equity Growth Fund, $______ for the Federal Securities
Income Fund and $______ for the North Carolina Tax-Free Bond Fund. For the
period ended April 30, 1995, Furman Selz earned the following fees for their
fund accounting services: $29,727 for the Equity Growth Fund, $32,231 for the
Federal Securities Income Fund and $34,948 for the North Carolina Tax-Free Bond
Fund.
Yield and Performance Information
The Funds may, from time to time, include their yield, effective yield,
tax equivalent yield and average annual total return in advertisements or
reports to shareholders or prospective investors.
Quotations of yield for each class of shares of the Funds will be based on
the investment income per share earned during a particular 30-day period, less
expenses accrued with respect to that class during
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<PAGE>
a period ("net investment income"), and will be computed by dividing net
investment income for the class by the maximum offering price per share of that
class on the last day of the period, according to the following formula:
YIELD = 2[(a-b + 1)superscript 6-1]
---
cd
where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of any reimbursements), c = the average daily number of
shares of the class outstanding during the period that were entitled to receive
dividends, and d = the maximum offering price per share of the class on the last
day of the period.
The 30-day yield for Class C shares for the period ended April 30, 1996
was as follows: _____% for the Federal Securities Income Fund and ____% for the
North Carolina Tax Free Bond Fund.
Quotations of tax-equivalent yield for each class of shares of Centura
North Carolina Tax-Free Bond Fund will be calculated according to the following
formula:
TAX EQUIVALENT YIELD = ( E )
-----
l-p
E = tax-exempt yield
p = stated income tax rate
Quotations of average annual total return will be expressed in terms of
the average annual compounded rate of return of a hypothetical investment in
each class of shares of a Fund over periods of 1, 5 and 10 years (up to the life
of the Fund), calculated pursuant to the following formula:
P (1 + T)superscript n = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return for the class, n = the number of years, and ERV = the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
period). All total return figures will reflect the deduction of the maximum
sales charge and a proportional share of Fund and class-specific expenses (net
of certain reimbursed expenses) on an annual basis, and will assume that all
dividends and distributions are reinvested when paid.
Quotations of yield and total return will reflect only the performance of
a hypothetical investment in a class of shares of the Funds during the
particular time period shown. Yield and total return for the Funds will vary
based on changes in the market conditions and the level of the Fund's (and
classes') expenses, and no reported
- 32 -
<PAGE>
performance figure should be considered an indication of performance
which may be expected in the future.
In connection with communicating its yields or total return to current or
prospective unit holders, the Funds also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
other unmanaged indexes which may assume reinvestment of dividends but generally
do not reflect deductions for administrative and management costs.
The average annual total return for Class C shares for the fiscal year
ended April 30, 1996 was ____% for the Equity Growth Fund, ____% for the Federal
Securities Income Fund and ____% for the North Carolina Tax-Free Bond Fund. The
average annual total return for Class C shares for the period June 1, 1994
(commencement of operations) through April 30, 1996 was ____% for the Equity
Growth Fund, ____% for the Federal Securities Income Fund and ____% for the
North Carolina Tax-Free Bond Fund.
Performance information for the Funds may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index, Dow Jones
Industrial Average, or other unmanaged indices so that investors may compare the
Funds' results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons who rank mutual funds on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment in a Fund.
Investors who purchase and redeem shares of the Funds through a customer
account maintained at a Service Organization may be charged one or more of the
following types of fees as agreed upon by the Service Organization and the
investor, with respect to the customer services provided by the Service
Organization: account fees (a fixed amount per month or per year); transaction
fees (a fixed amount per transaction processed); compensating balance
requirements (a minimum dollar amount a customer must maintain in order to
obtain the services offered); or account maintenance fees (a periodic charge
based upon a percentage of the assets in the account or of the dividends paid on
those assets). Such fees will have the effect of reducing the yield and average
annual total return of the Funds for those investors.
Independent Accountants
McGladrey & Pullen LLP serves as the independent accountants for the
Company. McGladrey & Pullen LLP provides audit services, tax return preparation
and assistance and consultation in connection with review of SEC filings.
- 33 -
<PAGE>
Counsel
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C., 20005,
passes upon certain legal matters in connection with the shares offered by the
Company and also acts as Counsel to the Company.
Registration Statement
This SAI and the Prospectus do not contain all the information included in
the Company's Registration Statement filed with the SEC under the Securities Act
of 1933 with respect to the securities offered hereby, certain portions of which
have been omitted pursuant to the rules and regulations of the SEC. The
Registration Statement, including the exhibits filed therewith, may be examined
at the office of the SEC in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of
any contract or other documents referred to are not necessarily complete, and,
in each instance, reference is made to the copy of such contract or other
documents filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
- 34 -
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in the Prospectus:
Financial Highlights for the period ended April 30, 1995.
(b) Exhibits:
Exhibit
Number Description
1(a) -- Articles of Incorporation of Registrant (1) -
filed electronically herewith
1(b) -- Articles Supplementary - filed herewith
2 -- By-Laws of Registrant (1)
3 -- Not applicable
4 -- Specimen certificates of shares of common stock of
Registrant - (4)
5(a) -- Form of Master Investment Advisory Contract (2)
5(b) -- Form of Investment Advisory Contract Supplement
(2)
6(a) -- Form of Master Distribution Contract (2)
6(b) -- Form of Distribution Contract Supplement (2)
6(c) -- Form of Dealer and Selling Group Agreement (2)
7 -- Not applicable
8 -- Form of Custody Agreement (2)
9(a) -- Form of Master Administrative Services Contract
(2)
9(b) -- Forms of Administrative Services Contract
Supplement (2)
9(c) -- Form of Transfer Agency Agreement (2)
9(d) -- Form of Sub-Transfer Agency Agreement (2)
9(e) -- Form of Accounting Agent Contract (2)
9(f) -- Form of Services Agreement (2)
10 -- Opinion of Counsel (2)
<PAGE>
11(a)-- Consent of Independent Auditors - filed herewith
11(b)-- Powers of Attorney (3)
12 -- Not Applicable
13 -- Purchase Agreement - (4)
14 -- Not Applicable
15(a)-- Form of Master Distribution Plan (2)
15(b)-- Form of Distribution Plan Supplement (2)
16 -- To be filed by amendment
17 -- To be filed by amendment
18 -- Plan Pursuant to Rule 18f-3 (5)
(1) Filed as part of Registrant's initial Registration Statement on March 1,
1994.
(2) Filed as part of Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on April 15, 1994.
(3) Filed as part of Post-Effective No. 1 to Registrant's
Registration Statement on November 30, 1994.
(4) Filed as part of Post-Effective No. 2 to Registrant's
Registration Statement on June 30, 1995.
(5) Filed as part of Post-Effective No. 3 to Registrant's
Registration Statement on August 29, 1996.
Item 25. Persons Controlled by or Under Common Control with
Registrant
None
Item 26. Number of Holders of Securities
Number of Record
Holders at
Title of Class June 3, 1996
Shares of Centura Equity Class A: 626
Growth Fund par value Class B: 746
$.001 per share Class C: 33
Shares of Centura Federal Class A: 27
Securities Fund, par value Class B: 19
C-2
<PAGE>
$.001 per share Class C: 17
Shares of Centura North Class A: 15
Carolina Tax Free Bond Class B: 17
Fund, par value $.001 Class C: 16
per share
Item 27. Indemnification
Reference is made to Article VII of Registrant's Articles of
Incorporation.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the Articles of Incorporation or otherwise, the
Registrant is aware that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Investment Company Act of 1940 and, therefore, is unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by directors, officers or
controlling persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such directors, officers or
controlling persons in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Investment Company Act of 1940 and will be governed by the
final adjudication of such issues.
Item 28. Business and Other Connections of Investment Adviser
Centura Bank, the investment adviser to Centura Funds, Inc., is a
registered investment adviser and a member of the Federal Reserve System. The
names of Centura Bank's directors and officers and their business and other
connections for at least the past two years are as follows: (1)
Business and
Name Title Other Connections
Richard H. Barnhardt Director Director, Centura
Bank; President,
Properties, Inc.
C. Wood Beasley Director Director, Centura
Bank; President,
Wood Beasley Farms,
Inc.
C-3
<PAGE>
Thomas A. Betts, Jr. Director Director, Centura
Bank; Partner,
Betts and Company.
H. Tate Bowers Director Director, Centura
Bank; Chief
Executive Officer,
Bowers Fibers, Inc.
Ernest L. Evans Director Director, Centura
Bank; President,
ELE, Inc.
J. Richard Futrell, Jr. Chairman, Director, Centura
Executive Bank; Chairman,
Committee and Executive Committee
Director and Director,
Centura Banks, Inc.
John H. High Director Director, Centura
Bank; President,
John H. High & Co.,
Inc.
William D. Hoover Executive Vice Executive Vice
President President and
Director, Centura
Bank.
Robert L. Hubbard Director Director, Centura
Bank; Vice
Chairman, Americal
Corp.
William H. Kincheloe Director Director, Centura
Bank; President
Bullock Furniture
Co., Inc.
Charles T. Lane Director Director, Centura
Bank; Partner,
Poyner & Spruill, L.L.P.
Robert R. Mauldin Chairman, Chief Director, Centura
Executive Officer Bank; Chairman and
and Director Chief Executive
Officer, and
Director, Centura
Banks, Inc.
C-4
<PAGE>
Jack A. Moody Director Director, Centura
Bank.
Clifton H. Moore Director Director, Centura
Bank; President and
Chairman, Griggs
Lumber and Produce.
Joseph H. Nelson Director Director, Centura
Bank; President,
Davenport Motor
Company.
O. Tracy Parks III Director Director, Centura
Bank; Partner,
Brown & Robbins, L.L.P.
Frank L. Pattillo Group Executive Director, Centura
Officer, Chief Bank; Group
Financial Officer Executive
and Director Officer and Chief
Financial Officer,
Centura Bank.
William H. Redding, Jr. Director Director, Centura
Bank; President,
Acme-McCrary
Corporation.
Charles M. Reeves III Director Director, Centura
Bank; President,
Reeves Properties,
Inc.
Cecil W. Sewell, Jr. President, Chief President, Chief
Operating Officer, Operating Officer,
and Director and Director,
Centura Bank.
George T. Stronach III Director Director, Centura
Bank; Real Estate
Developer.
Alexander P. Thorpe III Director Director, Centura
Bank; President,
Thorpe & Co., Inc.
Joseph L. Wallace, Jr. Director Director, Centura
Bank.
C-5
<PAGE>
William H. Wilkerson Group Executive Group Executive
Officer and Officer and
Director Director, Centura
Banks.
Charles P. Wilkins Director Director, Centura
Bank; Attorney,
Broughton, Wilkins
& Webb, P.A.
(1) The above Directors and Officers of Centura Bank can be
reached at 131 North Church Street, Rocky Mount, North Carolina
27802.
Item 29. Principal Underwriters
(a) Not applicable.
Positions and
Name and Principal Positions and Offices Offices with
Business Address (1) with Underwriter Registrant
Robert Hering President None
Michael C. Petrycki Vice President and None
Director
Gordon Forrester Vice President None
Steven D. Blecher Vice President, Secretary None
and Treasurer
Lawrence Wagner Vice President, Chief None
Financial Officer
Elizabeth Q. Solazzo Assistant Secretary None
Thalia M. Cody Assistant Secretary None
(1) The address of all director and officers is 230 Park Avenue, New York, New
York 10169.
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the
C-6
<PAGE>
Investment Company Act of 1940, and the Rules thereunder will be maintained at
the offices of Furman Selz LLC, 230 Park Avenue, New York, New York 10169.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) If requested to do so by holders of at least 10% of Registrant's
outstanding shares, a meeting of shareholders will be called for the purpose of
voting upon the question of removal of a director or directors and to assist in
communications with other shareholders as required by Section 16(c) of the
Investment Company Act of 1940.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant has
duly caused this Amendment to the Registration statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of New York and
State of New York on the 13th day of June, 1996.
CENTURA FUNDS, INC.
By /s/ John J. Pileggi
John J. Pileggi
President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following persons in
the capacities and on the 13th day of June, 1996.
SIGNATURE TITLE
/s/ John J. Pileggi
John J. Pileggi President and
Treasurer
* Director and Chairman of
Leslie H. Garner, Jr. Board of Directors
*
James H. Speed, Jr. Director
*
Frederick E. Turnage Director
*
Lucy Hancock Bode Director
By: /s/ Joan V. Fiore
Joan V. Fiore
Attorney-in-fact
C-8
<PAGE>
CENTURA FUNDS, INC.
INDEX TO EXHIBITS
Exhibit Sequentially
Number Description of Exhibit Numbered Page
1(a) Articles of Incorporation
1(b) Articles Supplementary
11 Consent of Independent Accountants
C-9
<PAGE>
ARTICLES OF INCORPORATION
OF
CENTURA FUNDS, INC.
ARTICLE I
INCORPORATOR
THE UNDERSIGNED, Olivia P. Adler, whose post office address is 1500 K Street,
N.W., Washington, D.C. 20005, being at least eighteen (18) years of age, does
hereby act as incorporator to form a corporation under and by virtue of the
Maryland General Corporation Law.
ARTICLE II
NAME
2.1 Name. The name of the corporation is Centura Funds, Inc.
(the "Corporation").
2.2 Name Reservation. The Corporation acknowledges that it uses the term
"Centura" in its corporate name and in the name of any series designated
pursuant to Article V hereof only with the permission of Centura Banks, Inc., a
bank holding company headquartered in Rocky Mount, North Carolina, ("CBI"),
(parent of the investment adviser to the Corporation), and agrees that CBI shall
control the use of the term "Centura" by the Corporation. The Corporation
further agrees that if CBI's subsidiary, Centura Bank, its successors or assigns
should at any time cease to be investment adviser to the Corporation, the
Corporation shall, at the written request of CBI or its successors or assigns
eliminate the term "Centura" from its corporate name and any materials or
documents referring to the Corporation, and will not henceforth use the term
"Centura" in the conduct of the Corporation's business, except to any extent
specifically agreed to by CBI. The Corporation further acknowledges that CBI
reserves the right to grant the non-exclusive right to use the term "Centura" to
any other persons or entities, including other investment companies, whether now
in existence or hereafter created. The provisions of this paragraph are binding
on the Corporation, its successors and assigns and on its directors, officers,
stockholders, creditors and all other persons claiming under or through it.
ARTICLE III
CORPORATE PURPOSES AND POWERS
The purpose or purposes for which the Corporation is formed is to act as an
investment company under the federal Investment Company Act of 1940, and to
exercise and enjoy all the powers, rights and privileges granted to, or
conferred upon, corporations by the
<PAGE>
General Laws of the State of Maryland. The Corporation shall exercise and enjoy
all such powers, rights and privileges to the extent not inconsistent with these
Articles of Incorporation.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation in the State
of Maryland is c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202. The name of the Corporation's resident agent in the
State of Maryland is The Corporation Trust Incorporated, a corporation of the
State of Maryland, and the post office address of the resident agent is 32 South
Street, Baltimore, Maryland 21202.
ARTICLE V
CAPITAL STOCK
5.1 Authorized Shares. The total number of shares of capital stock which the
Corporation shall have authority to issue is four hundred fifty million
(450,000,000) shares of the par value of one tenth of one cent ($0.001) per
share and of the aggregate par value of four hundred fifty thousand dollars
($450,000), all of which shares are designated Common Stock.
5.2 Authorization of Stock Issuance. The Board of Directors may authorize the
issuance and sale of capital stock of the Corporation, including stock of any
class or series, from time to time in such amounts and on such terms and
conditions, for such purposes and for such amount or kind of consideration as
the Board of Directors shall determine, subject to any limits required by then
applicable law. All shares shall be issued on a fully paid and non-assessable
basis.
5.3 Fractional Shares. The Corporation may issue fractional shares. Any
fractional share shall carry proportionately the rights of a whole share,
excepting the right to receive a certificate evidencing such fractional share,
but including, without limitation, the right to vote and the right to receive
dividends.
5.4 Power to Classify. The Board of Directors of the Corporation may classify
and reclassify any unissued shares of capital stock into one or more additional
or other classes or series as may be established from time to time by setting or
changing in any one or more respects the designations,
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preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms of such shares of stock and
pursuant to such classification or reclassification to increase or decrease the
number of authorized shares of stock, or shares of any existing class or series
of stock. Except as otherwise provided herein, all references herein to capital
stock shall apply without discrimination to the shares of each class or series
of stock. Pursuant to such power, the Board of Directors has initially
designated 450,000,000 shares of its capital stock into three series of shares
of capital stock of the Corporation, each such series to have three classes of
shares to be designated Class A, Class B and Class C. The names of each series
and the number of shares allocated to each, and to each class therein, are as
follows:
Number of Shares Initially
Name of Series Allocated
Class A Class B Class C
Centura Equity Growth Fund 50,000,000 50,000,000 50,000,000
Centura Federal Securities 50,000,000 50,000,000 50,000,000
Income Fund
Centura North Carolina 50,000,000 50,000,000 50,000,000
Tax-Free Bond fund
5.5 Classes and Series - General. The relative preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of each class or series
of stock of the Corporation shall be as follows, unless otherwise provided in
Articles Supplementary hereto:
(a) Assets Belonging to Series. All consideration received by the
Corporation for the issue or sale of stock of a particular series
(including all classes of such series), together with all assets in which
such consideration is invested or reinvested, all income, earnings,
profits and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same
may be, shall irrevocably belong to that series for all purposes, subject
only to the rights of creditors and to the terms and conditions of each
class (if any) of that series, and shall be so recorded on the books of
account of the Corporation. Any assets, income, earnings, profits or
proceeds thereof, funds or payments which are not readily attributable to
a particular series
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shall be allocated to and among any one or more series in such manner and
on such basis as the Board of Directors, in its sole discretion, shall
deem fair and equitable, and items so allocated to a particular series
shall belong to that series. Each such allocation shall be conclusive and
binding upon the stockholders of all series for all purposes.
(b) Liabilities Belonging to Class or Series. The assets belonging to each
series shall be charged with the liabilities of the Corporation in respect
of that series and with all expenses, costs, charges and reserves
attributable to that series and shall be so recorded on the books of
account of the Corporation; provided, however, that identified costs,
expenses, charges, reserves and liabilities properly allocable to a
particular class of a series shall be charged to and borne solely by such
class. Any general liabilities, expenses, costs, charges or reserves of
the Corporation which are not readily identifiable as belonging to any
particular class or series shall be allocated and charged to and among any
one or more of the classes or series in such manner and on such basis as
the Board of Directors in its sole discretion deems fair and equitable,
and any items so allocated to a particular class or series shall be
charged to, and shall be a liability belonging to, that class or series.
Each such allocation shall be conclusive and binding upon the stockholders
of all classes and series for all purposes.
(c) Income. The Board of Directors shall have full discretion, to the
extent not inconsistent with the General Laws of the State of Maryland and
the Investment Company Act of 1940, to determine which items shall be
treated as income and which items shall be treated as capital. Each such
determination shall be conclusive and binding.
(d) Dividends and Distributions. The holders of each class or series of
capital stock of record as of a date determined by the Board of Directors
from time to time shall be entitled, from funds or other assets legally
available therefor, to dividends and distributions, including
distributions of capital gains, in such amounts and at such times as may
be determined by the Board of Directors. The Board of Directors may
determine that no dividend or distribution shall be payable on shares as
to which the purchase order, payment, or both have not been received by a
specified date. Any such dividends or distributions may be declared
payable in cash, property or shares of the class or series, as determined
by the Board of Directors or pursuant to a standing resolution or program
adopted or approved by
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the Board of Directors. Dividends and distributions may be declared with
such frequency, including daily, as the Board of Directors may determine
and in any reasonable manner, including by standing resolution, by
resolutions adopted only once or with such frequency as the Board of
Directors may determine, or by formula or other similar method of
determination, whether or not the amount of the dividend or distribution
so declared can be calculated at the time of such declaration. The Board
of Directors may establish payment dates for such dividends and
distributions on any basis, including payment that is less frequent than
the effectiveness of such declarations. The Board of Directors shall have
the discretion to designate for such dividends and distributions amounts
sufficient to enable the Corporation or any class or series thereof to
qualify as a "regulated investment company" under the Internal Revenue
Code of 1986 or any successor or comparable statute, and regulations
promulgated thereunder (collectively, the "IRC"), and to avoid liability
of the Corporation or any class or series for Federal income tax in
respect of a given year and to make other appropriate adjustments in
connection therewith. Nothing in the foregoing sentence shall limit the
authority of the Board of Directors to designate greater or lesser amounts
for such dividends or distributions. The amounts of dividends and
distributions declared and paid with respect to the various classes or
series of capital stock and the timing of declaration and payment of such
dividends and distributions may vary among such classes and series.
(e) Tax Elections. The Board of Directors shall have the power, in its
discretion, to make such elections as to the tax status of the Corporation
or any series or class of the Corporation as may be permitted or required
by the IRC without the vote of stockholders of the Corporation or any
series or class.
(f) Liquidation. At any time there are no shares outstanding for a
particular class or series, the Board of Directors may liquidate such
class or series in accordance with applicable law. In the event of the
liquidation or dissolution of the Corporation, or of a class or series
thereof when there are shares outstanding of the Corporation or of such
class or series, as applicable, the stockholders of such, or of each,
class or series, as applicable, shall be entitled to receive, when and as
declared by the Board of Directors, the excess of the assets attributable
to that class or series over the liabilities of that class or series,
determined as provided herein and including assets and liabilities
allocated pursuant to sections (a) and (b)
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of this Article 5.5. Any such excess amounts will be distributed to each
stockholder of the applicable class or series in proportion to the number
of outstanding shares of that class or series held by that stockholder and
recorded on the books of the Corporation. Subject to the requirements of
applicable law, dissolution of a class or series may be accomplished by
distribution of assets to stockholders of that class or series as provided
herein, by the transfer of assets attributable to that class or series to
another class or series of the Corporation, by the exchange of shares of
that class or series for shares of another class or series of the
Corporation, or in any other legal manner.
(g) Voting Rights. On each matter submitted to a vote of stockholders,
each holder of a share of capital stock of the Corporation shall be
entitled to one vote for each full share, and a fractional vote for each
fractional share of stock standing in such holder's name on the books of
the Corporation, irrespective of the class or series thereof, and all
shares of all classes and series shall vote together as a single class,
provided that (a) when the Maryland General Corporation Law or the
Investment Company Act of 1940 requires that a class or series vote
separately with respect to a given matter, the separate voting
requirements of the applicable law shall govern with respect to the
affected class(es) and/or series and other classes and series shall vote
as a single class and (b) unless otherwise required by those laws, no
class or series shall vote on any matter which does not affect the
interest of that class or series.
(h) Quorum. The presence in person or by proxy of the holders of one-third
of the shares of stock of the Corporation entitled to vote thereat,
without regard to class or series, shall constitute a quorum at any
meeting of the stockholders, except with respect to any matter which,
under applicable statutes or regulatory requirements, requires approval by
a separate vote of one or more classes or series of stock, in which case
the presence in person or by proxy of the holders of one-third of the
shares of stock of each class or series required to vote as a class on the
matter shall constitute a quorum. If at any meeting of the stockholders
there shall be less than a quorum present, the stockholders present at
such meeting may, without further notice, adjourn the same from time to
time until a quorum shall be present.
5.6 Authorizing Vote. Notwithstanding any provision of the
General Laws of the State of Maryland requiring for any purpose a
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proportion greater than a majority of all votes entitled to be cast, the
affirmative vote of the holders of a majority of the total number of shares of
the Corporation, or of a class or series of the Corporation, as applicable,
outstanding and entitled to vote under such circumstances pursuant to these
Articles of Incorporation and the By-Laws of the Corporation shall be effective
for such purpose, except to the extent otherwise required by the Investment
Company Act of 1940 and rules thereunder; provided that, to the extent
consistent with the General Laws of the State of Maryland and other applicable
law, the By-Laws may provide for authorization to be by the vote of a proportion
less than a majority of the votes of the Corporation, or of a class or series.
5.7 Preemptive Rights. No stockholder of the Corporation shall be entitled as of
right to subscribe for, purchase, or otherwise acquire any shares of any classes
or series, or any other securities of the Corporation which the Corporation
proposes to issue or sell; and any or all of such shares or securities of the
Corporation, whether now or hereafter authorized or created, may be issued, or
may be reissued or transferred if the same have been reacquired, and sold to
such persons, firms, corporations and associations, and for such lawful
consideration, and on such terms as the Board of Directors in its discretion may
determine, without first offering the same, or any thereof, to any said
stockholder.
5.8 Redemption.
(a) The Board of Directors shall authorize the Corporation, to the extent
it has funds or other property legally available therefor and subject to
such reasonable conditions as the directors may determine, to permit each
holder of shares of capital stock of the Corporation, or of any class or
series, to require the Corporation to redeem all or any part of the shares
standing in the name of such holder on the books of the Corporation, at
the applicable redemption price of such shares (which may reflect the
deduction of such fees and charges as the Board of Directors may establish
from time to time) determined in accordance with procedures established by
the Board of Directors of the Corporation from time to time in accordance
with applicable law.
(b) Without limiting the generality of the foregoing, the Board of
Directors may authorize the Corporation, at its option and to the extent
permitted by and in accordance with the conditions of applicable law, to
redeem stock of the Corporation, or of any class or series, owned by any
stockholder under circumstances deemed appropriate by the
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<PAGE>
Board of Directors in its sole discretion from time to time, such
circumstances including but not limited to (1) failure to provide the
Corporation with a tax identification number and (2) failure to maintain
ownership of a specified minimum number or value of shares of any class or
series of stock of the Corporation, such redemption to be effected at such
price, at such time and subject to such conditions as may be required or
permitted by applicable law.
(c) Payment for redeemed stock shall be made in cash unless, in the
opinion of the Board of Directors, which shall be conclusive, conditions
exist which make it advisable for the Corporation to make payment wholly
or partially in securities or other property or assets of the class or
series of the shares being redeemed. Payment made wholly or partially in
securities or other property or assets may be delayed to such reasonable
extent, not inconsistent with applicable law, as is reasonably necessary
under the circumstances. No stockholder shall have the right, except as
determined by the Board of Directors, to have his shares redeemed in such
securities, property or other assets.
(d) All rights of a stockholder with respect to a share redeemed,
including the right to receive dividends and distributions with respect to
such share, shall cease and determine as of the time as of which the
redemption price to be paid for such shares shall be fixed, in accordance
with applicable law, except the right of such stockholder to receive
payment for such shares as provided herein.
(e) Notwithstanding any other provision of this Article 5.8, the Board of
Directors may suspend the right of stockholders of any or all classes or
series of shares to require the Corporation to redeem shares held by them
for such periods and to the extent permitted by, or in accordance with,
the Investment Company Act of 1940. The Board of Directors may, in the
absence of a ruling by a responsible regulatory official, terminate such
suspension at such time as the Board of Directors, in its discretion,
shall deem reasonable, such determination to be conclusive.
(f) Shares of any class or series which have been redeemed shall
constitute authorized but unissued shares subject to classification and
reclassification as provided in these Articles of Incorporation.
5.9 Repurchase of Shares. The Board of Directors may by resolution from time to
time authorize the Corporation to purchase or otherwise acquire, directly or
through an agent, shares of any class or series of its outstanding stock upon
such
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terms and conditions and for such consideration as permitted by applicable law
and determined to be reasonable by the Board of Directors and to take all other
steps deemed necessary in connection therewith. Shares so purchased or acquired
shall have the status of authorized but unissued shares.
5.10 Valuation. Subject to the requirements of applicable law, the Board of
Directors may, in its absolute discretion, establish the basis or method, timing
and frequency for determining the value of assets belonging to each class or
series and for determining the net asset value of each share of each class or
series for purposes of sales, redemptions, repurchases or otherwise. Without
limiting the foregoing, the Board of Directors may determine that the net asset
value per share of any class or series should be maintained at a designated
constant value and may establish procedures, not inconsistent with applicable
law, to accomplish that result. Such procedures may include a requirement, in
the event of a net loss with respect to the particular class or series from time
to time, for automatic pro rata capital contributions from each stockholder of
that class or series in amounts sufficient to maintain the designated constant
share value.
5.11 Certificates. Subject to the requirements of the Maryland General
Corporation Law, the Board of Directors may authorize the issuance of some or
all of the shares of any or all classes or series without certificates and may
establish such conditions as it may determine in connection with the issuance of
certificates.
5.12 Shares Subject to Articles and Bylaws. All persons who shall acquire shares
of capital stock in the Corporation shall acquire the same subject to the
provisions of these Articles of Incorporation and the By-Laws of the
Corporation, as each may be amended, supplemented and/or restated from time to
time.
ARTICLE VI
BOARD OF DIRECTORS
6.1 Number of Directors. Prior to the issuance of stock, the
number of directors of the Corporation shall be at least one and
after the issuance of stock shall be as provided in the By-Laws,
provided that the By-Laws may, subject to the limitations of the
Maryland General Corporation Law, fix a different number of
directors and may authorize a majority of the directors to
increase or decrease the number of directors set by these
Articles or the By-Laws within limits set by the By-Laws and to
fill vacancies created by an increase in the number of directors.
Unless otherwise provided by the By-Laws, the directors of the
Corporation need not be stockholders of the Corporation. The
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name of the director who will serve until the first annual meeting and until his
successor is elected and qualifies is:
John J. Pileggi
6.2 Removal of Directors. Subject to the limits of the Investment Company Act of
1940 and unless otherwise provided by the By-Laws, a director may be removed,
with or without cause, by the affirmative vote of a majority of (a) the Board of
Directors, (b) a committee of the Board of Directors appointed for such purpose,
or (c) the stockholders by vote of a majority of the outstanding shares of the
Corporation.
6.3 Liability of Directors and Officers.
(a) To the fullest extent permitted by the Maryland General Corporation
Law and the Investment Company Act of 1940, no director or officer of the
Corporation shall be liable to the Corporation or to its stockholders for
money damages. No amendment to these Articles of Incorporation or repeal
of any of its provisions shall limit or eliminate the benefits provided to
directors and officers under this provision with respect to any act or
omission which occurred prior to such amendment or repeal.
(b) In performance of his duties, a director is entitled to rely on any
information, opinion, report, or statement, including any financial
statement or other financial data, prepared by others, to the extent not
inconsistent with the General Laws of the State of Maryland. A person who
performs his duties in accordance with the standards of Article 2-405.1 of
the Maryland General Corporation Law or otherwise in accordance with
applicable law shall have no liability by reason of being or having been a
director of the Corporation.
6.4 Powers of Directors. In addition to any powers conferred herein or in the
By-Laws, the Board of Directors may, subject to any express limitations
contained in these Articles of Incorporation or in the By-Laws, exercise the
full extent of powers conferred by the General Laws of the State of Maryland or
other applicable law upon corporations or directors thereof and the enumeration
and definition of particular powers herein or in the By-Laws shall in no way be
deemed to restrict or otherwise limit those lawfully conferred powers. In
furtherance and without limitation of the foregoing, the Board of Directors
shall have power:
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(a) to make, alter, amend or repeal from time to time the
By-Laws of the Corporation except as otherwise provided by
the By-Laws;
(b) subject to requirements of the Investment Company Act of 1940 and the
General Laws of the State of Maryland, to authorize the Corporation to
enter into contracts with any person, including any firm, corporation,
trust or association in which a director, officer, employee or stockholder
of the Corporation may be interested. Such contracts may be for any lawful
purpose, whether or not such purpose involves delegating functions
normally performed by the board of directors or officers of a corporation,
including, but not limited to, the provision of investment management for
the Corporation's investment portfolio, the distribution of securities
issued by the Corporation, the administration of the Corporation's
affairs, the provision of transfer agent services with respect to the
Corporation's shares of capital stock, and the custody of the
Corporation's assets. Any person (including its affiliates) may be
retained in multiple capacities pursuant to one or more contracts and may
also perform services, including similar or identical services, for
others, including other investment companies. Subject to the requirements
of applicable law, such contracts may provide for compensation to be paid
by the Corporation in such amounts, including payments of multiple amounts
for persons (including their affiliates) acting in multiple capacities, as
the Board of Directors shall determine in its discretion to be proper and
reasonable.
(c) to authorize from time to time the payment of compensation to the
Directors for services to the Corporation, including fees for attendance
at meetings of the Board of Directors and committees thereof.
6.5 Determinations by Board of Directors. Any determination made by or pursuant
to the direction of the Board of Directors and in accordance with the standards
set by the General Laws of the State of Maryland shall be final and conclusive
and shall be binding upon the Corporation and upon all stockholders, past,
present and future, of each class and series.
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ARTICLE VII
PROVISIONS FOR DEFINING, LIMITING AND REGULATING
THE POWERS OF THE CORPORATION AND THE DIRECTORS
AND STOCKHOLDERS
7.1 Location of Meetings, Offices and Books. Both directors and stockholders may
hold meetings within or without the State of Maryland and abroad, and the
Corporation may have one or more offices and may keep its books within or
without the State of Maryland and abroad at such places as the directors shall
determine.
7.2 Meetings of Shareholders. Except as otherwise provided in the By-Laws, in
accordance with applicable law, the Corporation shall not be required to hold an
annual meeting of shareholders in any year unless required by applicable law.
Election of directors, whether by the directors or by stockholders, need not be
by ballot unless the By-Laws so provide.
7.3 Inspection of Records. Stockholders of the Corporation shall have only such
rights to inspect and copy the records, documents, accounts and books of the
Corporation and to request statements regarding its affairs as are provided by
the Maryland General Corporation Law, subject to such reasonable regulations,
not contrary to the General Laws of the State of Maryland, as the Board of
Directors may from time to time adopt regarding the conditions and limits of
such rights.
7.4 Indemnification. The Corporation, including its successors and assigns,
shall indemnify its directors and officers and make advance payment of related
expenses to the fullest extent permitted, and in accordance with the procedures
required, by the General Laws of the State of Maryland and the Investment
Company Act of 1940. The By-Laws may provide that the Corporation shall
indemnify its employees and/or agents in any manner and within such limits as
permitted by applicable law. Such indemnification shall be in addition to any
other right or claim to which any director, officer, employee or agent may
otherwise be entitled. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise or
employee benefit plan, against any liability (including, with respect to
employee benefit plans, excise taxes) asserted against and incurred by such
person in any such capacity or arising out of such person's position, whether or
not the Corporation would have had the power to indemnify against such
liability. The rights provided to any
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person by this Article 7.4 shall be enforceable against the Corporation by such
person who shall be presumed to have relied upon such rights in serving or
continuing to serve in the capacities indicated herein. No amendment of these
Articles of Incorporation shall impair the rights of any person arising at any
time with respect to events occurring prior to such amendment.
7.5 Wholly-Owned Subsidiaries. The Corporation may own all or any portion of the
securities of, make loans to, or contribute to the costs or other financial
requirements of any company which is wholly owned by the Corporation or by the
Corporation and by one or more other investment companies and is primarily
engaged in the business of providing, at cost, management, administrative or
related services to the Corporation or to the Corporation and other investment
companies.
7.6 Amendments. The Corporation reserves the right to amend, alter, change or
repeal any provision of these Articles of Incorporation, and all rights
conferred upon stockholders herein are granted subject to this reservation.
7.7 References to Statutes, Articles and By-Laws. All references herein to
statutes, to these Articles of Incorporation or to the By-Laws shall be deemed
to refer to those statutes, Articles or By-Laws as they are amended and in
effect from time to time.
IN WITNESS WHEREOF, the undersigned incorporator of Centura Funds, Inc. hereby
executes the foregoing Articles of Incorporation and acknowledges the same to be
her act.
Dated this 1st day of March, 1994.
/s/ Olivia P. Adler
Olivia P. Adler
65570.58
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CENTURA FUNDS, INC.
ARTICLES SUPPLEMENTARY
CENTURA FUNDS, INC., a Maryland corporation registered as an open-end
investment company under the Investment Company Act of 1940 and having its
principal office in the State of Maryland in Baltimore City, Maryland
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland that:
FIRST: The Board of Directors of the Corporation, at a meeting duly
convened and held on April 23, 1996, adopted a resolution to increase the
Corporation's authorized capital of Common Shares and to classify such
additional Common Shares as a new series of Common Shares having three classes,
as described in Article THIRD, below.
SECOND: As of immediately prior to such increase in authorized capital of
the Corporation, the total number of shares of all classes that the Corporation
was authorized to issue was four hundred fifty million (450,000,000) Common
Shares of the par value of $0.001 per share and having an aggregate par value of
four hundred fifty thousand dollars ($450,000), classified as follows:
Name of Series Number of Shares Allocated
Class A Class B Class C
Centura Equity Growth Fund 50,000,000 50,000,000 50,000,000
Centura Federal Securities
Income Fund 50,000,000 50,000,000 50,000,000
Centura North Carolina
Tax-Free Bond Fund 50,000,000 50,000,000 50,000,000
THIRD: As increased by these Articles Supplementary, the total number of
shares of all classes that the Corporation is authorized to issue is six hundred
million (600,000,000) shares of common stock, par value $0.001 per share and
having an aggregate par value of six hundred thousand dollars ($600,000),
classified as follows:
Name of Series Number of Shares Allocated
Class A Class B Class C
Centura Equity Growth Fund 50,000,000 50,000,000 50,000,000
Centura Income-Equity Fund 50,000,000 50,000,000 50,000,000
Centura Federal Securities
Income Fund 50,000,000 50,000,000 50,000,000
Centura North Carolina
Tax-Free Bond Fund 50,000,000 50,000,000 50,000,000
<PAGE>
FOURTH: The shares of the Corporation authorized and classified pursuant
to these Articles Supplementary have been so authorized and classified by the
Board of Directors under the authority contained in the charter of the
Corporation. The number of Shares of capital stock of the various classes that
the Corporation has authority to issue has been increased by the Board of
Directors in accordance with Section 2-105(c) of the Maryland General
Corporation Law. The Corporation is registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act").
FIFTH: The preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of the series and classes of Common Shares described in
Article THIRD hereof shall be as set forth in the Corporation's charter and
shall be subject to all provisions of the charter relating to shares of the
Corporation generally, including those set forth in Article 5.5 of such charter.
IN WITNESS WHEREOF, Centura Funds, Inc. has caused these Articles
Supplementary to be signed in its name on its behalf by its authorized officers
who acknowledge that these Articles Supplementary are the act of the
Corporation, that to the best of their knowledge, information and belief, all
matters and facts set forth herein relating to the authorization and approval of
these Articles Supplementary are true in all material respects and that this
statement is made under the penalties of perjury.
Date: June 14, 1996 CENTURA FUNDS, INC.
By: /s/ John J. Pileggi
John J. Pileggi
President
ATTEST: /s/ Joan V. Fiore
Joan V. Fiore
Secretary
65570.56
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MCGLADREY & PULLEN,LLP
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated June 9, 1995 on the
financial statements of Centura Equity Growth Fund, Centura Federal Securities
Income Fund and Centura North Carolina Tax-Free Bond Fund, series of Centura
Funds, Inc, referred to therein in Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A File No. 33-75926 as filed with the
Securities and Exchange Commission.
We also consent to the reference to our firm in each Statement of
Additional Information under the caption "Independent Accountants" and in each
Prospectus under the caption "Financial Highlights."
New York, New York
June 12, 1996
