<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 2000
REGISTRATION NOS. 33-75926
INVESTMENT COMPANY ACT FILE NO. 811-8384
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. 20 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 22 [X]
(CHECK APPROPRIATE BOX OR BOXES)
CENTURA FUNDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
3435 STELZER ROAD
COLUMBUS, OHIO 43219
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES WITH ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 442-3688
GEORGE L. STEVENS, ESQ.
BISYS FUND SERVICES
3435 STELZER ROAD
COLUMBUS, OHIO 43219
(NAME AND ADDRESS OF AGENT FOR SERVICE)
WITH A COPY TO:
JOSEPH R. FLEMING, ESQ. OLIVIA ADLER, ESQ.
DECHERT PRICE & RHOADS DECHERT PRICE & RHOADS
1775 EYE STREET, N.W. 1775 EYE STREET, N.W.
WASHINGTON, D.C. 20006 WASHINGTON, D.C. 20006
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:
IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b)
75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(2)
ON (DATE) PURSUANT TO ---- PARAGRAPH (a)(2) OF RULE 485
[X] 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(1)
ON (DATE) PURSUANT TO PARAGRAPH (b)
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR A
---- PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT
<PAGE> 2
CENTURA LOGO
CENTURA LARGE CAP EQUITY FUND
CENTURA MID CAP EQUITY FUND
CENTURA SMALL CAP EQUITY FUND
CENTURA GOVERNMENT INCOME FUND
CENTURA QUALITY INCOME FUND
CENTURA NORTH CAROLINA TAX-FREE BOND FUND
INVESTMENT ADVISER
AND CUSTODIAN
CENTURA BANK
131 North Church Street
Rocky Mount, NC 27802
QUESTIONS?
Call 1-800-442-3688
or Your Investment Representative.
PROSPECTUS
AUGUST 30, 2000
CLASS A AND CLASS B
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these Fund Shares or determined whether this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES
Carefully review this important 3 Overview
section, which summarizes each fund's
investments, risks, past performance,
and fees.
EQUITY FUNDS
4 Investment Objectives, Principal Investment Strategies
and Performance Information
7 Principal Risks
8 Fees and Expenses
BOND FUNDS
9 Investment Objectives, Principal Investment Strategies
and Performance Information
12 Principal Risks
13 Fees and Expenses
ADDITIONAL INFORMATION
14 Investing for Defensive Purposes
CENTURA FUND MANAGEMENT
Review this section for 15 Investment Adviser
details on the people and 15 Centura Portfolio Managers
the Funds. 16 Distributor and Administrator
SHAREHOLDER INFORMATION
Review this section for 17 Pricing of Fund Shares
details on how shares are 17 Purchasing and Adding to Your Shares
valued, how to purchase, 19 Selling Your Shares
sell and exchange shares, 21 General Policies on Selling Shares
related charges and payments 23 Distribution Arrangements/Sales Charges
of dividends and distributions. 25 Distribution and Service (12b-1) Fees
26 Exchanging Your Shares
27 Dividends, Distributions and Taxes
FINANCIAL HIGHLIGHTS
28
BACK COVER
Where To Learn More About The Funds
</TABLE>
2
<PAGE> 4
RISK/RETURN SUMMARY AND FUND EXPENSES
OVERVIEW
This prospectus describes the following
funds offered by the Centura Funds (the "Funds").
EQUITY FUNDS
Large Cap Equity Fund
Mid Cap Equity Fund
Small Cap Equity Fund
BOND FUNDS
Government Income Fund
Quality Income Fund
North Carolina Tax-Free Bond Fund
On the following pages, you will find important
information about each Fund, including:
- the investment objective
- principal investment strategy
- performance information
- principal risks associated with each Fund, and
- fees and expenses.
The Funds are managed by Centura Bank
("Centura" or the "Adviser").
RISK PROFILE OF MUTUAL FUNDS
[GRAPHIC]
PRINCIPAL RISKS OF THE FUNDS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
FOREIGN
MARKET SELECTION INVESTMENT INTEREST CREDIT PREPAYMENT HEDGING
RISK RISK RISK RATE RISK RISK RISK RISK
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Large Cap Equity Fund X X X X
----------------------------------------------------------------------------------------------------------------------
Mid Cap Equity Fund X X X X
----------------------------------------------------------------------------------------------------------------------
Small Cap Equity Fund X X X X
----------------------------------------------------------------------------------------------------------------------
Government Income Fund X X X X X
----------------------------------------------------------------------------------------------------------------------
Quality Income Fund X X X X X
----------------------------------------------------------------------------------------------------------------------
North Carolina Tax-Free Bond Fund X X X X
----------------------------------------------------------------------------------------------------------------------
</TABLE>
A complete description of these and other risks can be found in the sections
"Equity Funds -- Principal Risks," and "Bond Funds -- Principal Risks".
3
<PAGE> 5
RISK/RETURN SUMMARY AND FUND EXPENSES EQUITY FUNDS
CENTURA LARGE CAP EQUITY FUND
INVESTMENT OBJECTIVE. Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 65% of
its total assets in equity securities of large U.S. companies each having $3
billion or more in market capitalization at the time of purchase by the Fund.
Investments are primarily in common stocks, but may also include convertible
preferred stocks and convertible bonds, notes and debentures. The Adviser
uses quantitative and qualitative analysis to select stocks for the Fund's
portfolio that the Adviser believes offer attractive growth opportunities and
are selling at reasonable prices. The Fund pursues this strategy by first
considering fundamental factors such as book value, cash flow, earnings, and
sales. The Adviser's quantitative analysis also includes in-depth analysis of
a company's financial statements. Once a company passes this quantitative
screening process, the Adviser utilizes a more traditional qualitative
approach. This analysis considers factors such as liquidity, use of leverage,
management strength, and the company's ability to execute its business plan.
A portion of the Fund's assets may be invested in securities of non-U.S.
companies, generally through American Depository Receipts ("ADRs"). The
Adviser will consider selling those securities which no longer meet the
Fund's criteria for investing. The Fund has authority to invest up to 100% of
its total assets in a variety of short-term debt securities for temporary
defensive purposes under unusual market conditions. While the Fund is
invested in these instruments, it will not be pursuing its investment
objective.
MARKET CAPITALIZATION is a common measure of the size of a company. It is
the market price of a share of the company's stock multiplied by the
number of shares that are outstanding.
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment
in the Fund by showing its performance from year to year and as compared to a
broad-based securities index. The Standard and Poor's 500 Composite Stock
Price Index (the "S&P 500(R)") in the table below is an unmanaged index of
500 selected common stocks, most of which are listed on the New York Stock
Exchange ("NYSE"). The returns for Class B Shares may be lower than the Class
A Shares' returns shown in the bar chart because expenses of the classes
differ. Past performance does not indicate how the Fund will perform in the
future.
PERFORMANCE BAR CHART AND TABLE*
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES(1)
(BOTH THE CHART AND THE TABLE ASSUME REINVESTMENT OF DIVIDENDS AND
DISTRIBUTIONS.)
PERFORMANCE CHART
<TABLE>
<S> <C>
1991 18.22
92 9.98
93 12.42
94 -2.88
95 31.38
96 20.02
97 27.80
98 15.46
99 24.58
</TABLE>
<TABLE>
<S> <C>
Best quarter: Q4 1998 23.37%(1)
Worst quarter: Q3 1998 -9.56%(1)
</TABLE>
For the period January 1, 2000 through June 30, 2000, the aggregate
(non-annualized) total return of the Fund was %.(1)
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIOD ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
SINCE
PAST PAST 5 INCEPTION
YEAR YEARS 12/31/90
<S> <C> <C> <C>
Class A Shares (with 4.5% sales charge) 18.96% 22.59% 16.35%
Class B Shares (with applicable CDSC) 18.62% 22.79% 16.25%
S&P 500 Index(R) 21.04% 28.55% 20.85%
</TABLE>
(1) Excludes sales charges which, if included, would cause return(s) to be
lower.
* The quoted performance of the Fund includes the performance of a common
trust fund ("Commingled") account advised by Centura and managed the same
as the Fund in all material respects, for periods dating back to December
31, 1990, and prior to the Fund's commencement of operations on October 1,
1996, as adjusted to reflect the full contractual rate of expenses
associated with the Fund at its inception. The Commingled account was not
registered with the Securities and Exchange Commission ("SEC") under the
Investment Company Act of 1940 ("1940 Act") and therefore was not subject
to the investment restrictions imposed by law on registered mutual funds.
If the Commingled account had been registered, the Commingled account's
performance may have been adversely affected. Fund performance reflects
applicable fee waivers/expense reimbursements (which, if excluded, would
cause performance to be lower).
4
<PAGE> 6
RISK/RETURN SUMMARY AND FUND EXPENSES EQUITY FUNDS
CENTURY MID CAP EQUITY FUND
INVESTMENT OBJECTIVE. Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 65% of
its total assets in equity securities of mid-sized companies that fall within
the range of companies in the Standard and Poor's Mid Cap 400 Composite Stock
Price Index (the "S&P MidCap 400 Index") at the time of purchase by the Fund.
Investments are primarily in common stocks but also may include convertible
preferred stocks and convertible bonds, notes and debentures. The Adviser
uses quantitative and qualitative analysis to select stocks for the Fund's
portfolio that the Adviser believes offer attractive growth opportunities and
are selling at reasonable prices. The Adviser pursues this strategy by first
considering fundamental factors such as book value, cash flow, earnings, and
sales. The Adviser's quantitative analysis also includes in-depth analysis of
a company's financial statements. Once a company passes this quantitative
screening process, the Adviser utilizes a more traditional qualitative
approach. This analysis considers factors such as liquidity, use of leverage,
management strength, and the company's ability to execute its business plan.
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. As of June 30, 2000, the range of market capitalization of companies
within the S&P Mid Cap 400 Index was million to billion. The Adviser will
consider selling those securities which no longer meet the Fund's criteria
for investing. The Fund has authority to invest up to 100% of its total
assets in a variety of short-term debt securities for temporary defensive
purposes under unusual market conditions. While the Fund is invested in these
instruments, it will not be pursuing its investment objective.
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment
in the Fund by showing its performance from year to year and as compared to a
broad-based securities index. S&P Mid Cap 400 Index in the table below is an
unmanaged index of 400 selected common stocks of mid-sized companies. The
returns for Class B Shares may be lower than the Class A Shares' returns
shown in the bar chart because expenses of the classes differ. Past
performance does not indicate how the Fund will perform in the future.
PERFORMANCE BAR CHART AND TABLE*
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES(1)
(BOTH THE CHART AND THE TABLE ASSUME REINVESTMENT OF DIVIDENDS AND
DISTRIBUTIONS.)
[PERFORMANCE BAR CHART AND TABLE]
<TABLE>
<S> <C>
1991 30.32
92 15.56
93 17.65
94 -8.40
95 34.91
96 23.99
97 26.29
98 21.19
99 10.68
</TABLE>
<TABLE>
<S> <C>
Best quarter: Q4 1998 28.96%(1)
Worst quarter: Q3 1998 -12.76%(1)
</TABLE>
For the period January 1, 2000 through June 30, 2000, the aggregate
(non-annualized) total return of the Fund was %.(1)
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIOD ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
SINCE
PAST PAST 5 INCEPTION
YEAR YEARS 12/31/90
<S> <C> <C> <C>
Class A Shares (with 4.5% sales charge) 5.72% 22.02% 17.84%
Class B Shares (with applicable CDSC) 5.72% 22.18% 17.73%
S&P Mid Cap 400 Index 14.72% 23.05% 20.21%
</TABLE>
(1) Excludes sales charges, which, if included, would cause return(s) to be
lower.
* The quoted performance of the Fund includes the performance of a common
trust fund ("Commingled") account advised by Centura and managed the same
as the Fund in all material respects, for periods dating back to December
31, 1990 and prior to the Fund's commencement of operations on June 1,
1994, as adjusted to reflect the full contractual rate of expenses
associated with the Fund at its inception. The Commingled account was not
registered with the SEC under the 1940 Act and therefore was not subject to
the investment restrictions imposed by law on registered mutual funds. If
the Commingled account had been registered, the Commingled account's
performance may have been adversely affected. Fund performance reflects
applicable fee waivers/expense reimbursements (which, if excluded, would
cause performance to be lower).
5
<PAGE> 7
RISK/RETURN SUMMARY AND FUND EXPENSES EQUITY FUNDS
CENTURA SMALL CAP EQUITY FUND
INVESTMENT OBJECTIVE. Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 65% of
its total assets in the equity securities of small companies. These equity
securities are primarily common stocks but also include preferred stocks and
securities convertible into stock. Small companies are defined as those with
market capitalizations that fall within the range of the companies in the S&P
600 Small Cap Index at the time of purchase by the Fund. As of June 30, 2000,
the range of market capitalization of companies in the S&P 600 Small Cap
Index was million to billion. The Adviser uses quantitative and
qualitative analysis to select stocks of issuers the Adviser believes offer
attractive growth opportunities and are selling at reasonable prices. The
Adviser pursues this strategy by first considering fundamental factors such
as book value, cash flow, earnings, and sales. The Adviser's quantitative
analysis also includes in-depth analysis of a company's financial statements.
Once a company passes this quantitative screening process, the Adviser
utilizes a more traditional qualitative approach. This analysis considers
factors such as liquidity, use of leverage, management strength, and the
company's ability to execute its business plan. The Fund may also invest a
portion of its assets in equity and debt securities of non-U.S. issuers,
generally in the form of ADRs. The Adviser may elect to exclude an eligible
company from the Fund's portfolio if it believes the company is in financial
difficulty or if it believes that the company's stock is too illiquid. The
Adviser will consider selling investments if the issuer's market
capitalization increases to the point that it is ranked in the top half of
all NYSE companies. The Fund has authority to invest up to 100% of its total
assets in a variety of short-term debt securities for temporary defensive
purposes under unusual market conditions. While the Fund is invested in these
instruments, it will not be pursuing its investment objective.
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment
in the Fund by showing its performance from year to year and as compared to a
broad-based securities index. The S&P 600 Small Cap Index, in the table
below, is an unmanaged index of selected small capitalization stocks
representative of the small company sector of the equity market. The returns
for Class B Shares may be lower than the Class A Shares' returns shown in the
bar chart because expenses of the classes differ. Past performance does not
indicate how the Fund will perform in the future.
PERFORMANCE BAR CHART AND TABLE*
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES(1)
(BOTH THE CHART AND THE TABLE ASSUME REINVESTMENT OF DIVIDENDS AND
DISTRIBUTIONS.)
<TABLE>
<S> <C>
1996 22.74
97 31.66
98 8.90
99 10.41
</TABLE>
<TABLE>
<S> <C>
Best quarter: Q4 1998 23.93%(1)
Worst quarter: Q3 1998 -17.99%(1)
</TABLE>
For the period January 1, 2000 through June 30, 2000, the aggregate
(non-annualized) total return of the Fund was %.(1)
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIOD ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
PAST SINCE
INCEPTION YEAR INCEPTION
<S> <C> <C> <C>
Class A Shares (with 4.5% sales charge) 1/01/95 5.45% 17.40%
Class B Shares (with applicable CDSC) 1/01/95 5.12% 17.65%
S&P 600 Small Cap Index 12/31/94 12.40% 17.05%
</TABLE>
(1) Excludes sales charges, which, if included, would cause return(s) to be
lower.
* The quoted performance of the Fund includes the performance of a common
trust fund ("Commingled") account advised by Centura and managed the same
as the Fund in all material respects, for periods dating back to January 1,
1995, and prior to the Fund's commencement of operations on May 2, 1997, as
adjusted to reflect the full contractual rate of expenses associated with
the Fund at its inception. The Commingled account was not registered with
the SEC under the 1940 Act and therefore was not subject to the investment
restrictions imposed by law on registered mutual funds. If the Commingled
account had been registered, the Commingled account's performance may have
been adversely affected. Fund performance reflects applicable fee
waivers/expense reimbursements (which, if included, would cause performance
to be lower).
6
<PAGE> 8
RISK/RETURN SUMMARY AND FUND EXPENSES EQUITY FUNDS
PRINCIPAL RISKS
ALL EQUITY FUNDS. Investing in the Equity Funds involves risks common to any
investment in securities. By itself, no Fund constitutes a balanced
investment program.
An investment in an Equity Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
There is no guarantee that the Funds will meet their goals. When you sell
your shares in the Funds, they may be worth more or less than what you paid
for them. It is possible to lose money by investing in the Funds.
Two principal risks of equity investing are market risk and selection risk.
Market risk means that the stock market in general has ups and downs, which
may affect the performance of any individual stock. Selection risk means that
the particular stocks that are selected for a Fund may underperform the
market or other funds with similar objectives.
ADDITIONAL PRINCIPAL RISKS
CAPITALIZATION RISK. Stocks of smaller companies carry higher risks than
those of larger companies. They may trade infrequently or in lower volumes,
making it difficult for a Fund to sell its shares at the price it wants.
Smaller companies may be more sensitive to changes in the economy overall.
Historically, small company stocks have been more volatile than those of
larger companies. As a result, the Small Cap Equity Fund's net asset value
may be subject to rapid and substantial changes. The Mid Cap Equity Fund is
also subject to the same risk.
FOREIGN INVESTMENT RISK. Each of the Equity Funds may invest a portion of its
assets in foreign securities. Overseas investing carries potential risks not
associated with domestic investments. Such risks include, but are not limited
to: (1) currency exchange rate fluctuations, (2) political and financial
instability, (3) less liquidity and greater volatility of foreign
investments, (4) lack of uniform accounting, auditing and financial reporting
standards, (5) less government regulation and supervision of foreign stock
exchanges, brokers and listed companies, (6) increased price volatility, (7)
delays in transaction settlement in some foreign markets.
HEDGING RISK. The Funds' hedging activities, although they are designed to
help offset negative movements in the markets for a Fund's investments, will
not always be successful. They can cause a Fund to lose money or to fail to
get the benefit of a gain. Such negative effects may occur, for example, if
the market moves in a direction that the Adviser does not anticipate or if a
Fund is not able to close out its position in a hedging instrument or
transaction.
A full discussion of all permissible investments can be found in the
Statement of Additional Information ("SAI").
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN AN EQUITY FUND IF YOU ARE:
- Pursuing a long-term goal such as retirement
- Seeking to add a growth component to your portfolio
- Willing to accept the higher risks of investing in the stock market
THE EQUITY FUNDS WILL NOT BE APPROPRIATE FOR ANYONE:
- Seeking monthly income
- Pursuing a short-term goal or investing emergency reserves
- Seeking safety of principal
7
<PAGE> 9
RISK/RETURN SUMMARY AND FUND EXPENSES EQUITY FUNDS
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Equity Funds.
FEE TABLE
<TABLE>
<CAPTION>
LARGE CAP MID CAP SMALL CAP
EQUITY FUND EQUITY FUND EQUITY FUND
A SHARES B SHARES A SHARES B SHARES A SHARES B SHARES
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on
Purchases(1) (as a % of offering price) 4.50% None 4.50% None 4.50% None
Maximum Deferred Sales Charge (Load)(2) (as
a % of offering or sales price, whichever
is less) None 5.00% None 5.00% None 5.00%
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund
assets)
Management fees 0.70% 0.70% 0.70% 0.70% 0.70% 0.70%
Distribution (12b-1) fees(3) 0.50% 1.00% 0.50% 1.00% 0.50% 1.00%
Other expenses 0.30% 0.30% 0.36% 0.36% 0.51% 0.51%
---- ---- ---- ---- ---- ----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.50% 2.00% 1.56% 2.06% 1.71% 2.21%
---- ---- ---- ---- ---- ----
</TABLE>
(1) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a contingent deferred sales charge
("CDSC") is applicable to redemptions within 18 months of purchase. See
"Distribution Arrangements."
(2) A CDSC on Class B shares declines over five years starting with year one
and ending in year six as follows: 5%, 4%, 3%, 2%, 1%, 0%.
(3) 12b-1 fees can cause a long-term shareholder to pay more than the
permitted initial sales charge.
EXAMPLE: THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING
IN THE FUNDS WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE
ASSUMES:
- $10,000 INVESTMENT
- 5% ANNUAL RETURN AND REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
- REDEMPTION AT THE END OF EACH PERIOD
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE
ASSUMPTIONS, YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
LARGE CAP MID CAP
EQUITY FUND EQUITY FUND
B SHARES B SHARES
A B WITHOUT A B WITHOUT
SHARES SHARES CDSC SHARES SHARES CDSC
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ONE YEAR AFTER PURCHASE $ 596 $ 703 $ 203 $ 602 $ 709 $ 209
THREE YEARS AFTER PURCHASE $ 903 $ 927 $ 627 $ 920 $ 946 $ 646
FIVE YEARS AFTER PURCHASE $1,232 $1,178 $1,078 $1,262 $1,208 $1,108
TEN YEARS AFTER PURCHASE $2,160 $2,139 $2,139 $2,223 $2,202 $2,202
<CAPTION>
SMALL CAP
EQUITY FUND
B SHARES
A B WITHOUT
SHARES SHARES CDSC
-------------------------------- ------------------------------------
<S> <C> <C> <C> <C>
ONE YEAR AFTER PURCHASE $ 616 $ 724 $ 224
THREE YEARS AFTER PURCHASE $ 965 $ 991 $ 691
FIVE YEARS AFTER PURCHASE $1,336 $1,285 $1,185
TEN YEARS AFTER PURCHASE $2,379 $2,359 $2,359
</TABLE>
8
<PAGE> 10
RISK/RETURN SUMMARY AND FUND EXPENSES BOND FUNDS
CENTURA GOVERNMENT INCOME FUND
INVESTMENT OBJECTIVES. Relatively high current income consistent with
relative stability of principal and safety.
PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 65% of
its total assets in U.S. Government obligations (those that are issued or
guaranteed by the U.S. Government or its agencies or instrumentalities). The
Fund's investments in securities guaranteed by U.S. government agencies are
primarily mortgage backed securities. In general, its investments will have
maximum maturities of ten years. By limiting the maturity of its portfolio
securities, the Fund seeks to moderate principal fluctuations. In addition,
the Fund's Adviser seeks to increase total return by actively managing
portfolio maturity and security selection by considering economic and market
conditions. While short-term interest rate bets are avoided, the Adviser
constantly monitors economic conditions and adjusts portfolio maturity, where
appropriate, to capitalize on interest rate trends. Security selection is
managed considering factors such as credit risk and relative interest rate
yields available among fixed income market sectors.
To permit desirable flexibility, the Fund has authority to invest a portion
of its assets in corporate debt securities rated A or better by Standard and
Poor's ("S&P") or Moody's Investor Services ("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 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.
While the Fund will not normally engage in frequent trading of portfolio
securities, it will make changes in its investment portfolio from time to
time as economic conditions and market prices dictate based on the Fund's
investment objective. The Fund may also sell a security if it falls below the
minimum credit quality required for purchase. If the Fund does buy and sell
securities frequently, there will be increased transaction costs, which can
negatively impact Fund performance, and cause additional taxable gains to
shareholders. The Fund has authority to invest up to 100% of its total assets
in a variety of short-term debt securities for temporary defensive purposes
under unusual market conditions. While the Fund is invested in these
instruments, it will not be pursuing its investment objective.
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment
in the Fund by showing its performance from year to year and as compared to a
broad-based securities index. The Lehman Brothers Intermediate Government
Index in the table below is an unmanaged index comprised of U.S. Treasury
issues, debt of U.S. Government agencies and corporate debt guaranteed by the
U.S. Government. The returns for Class B Shares may be lower than the Class A
Shares' returns shown in the bar chart because expenses of the classes
differ. Past performance does not indicate how the Fund will perform in the
future.
PERFORMANCE BAR CHART AND TABLE*
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES(1)
(BOTH THE CHART AND THE TABLE ASSUME REINVESTMENT OF DIVIDENDS AND
DISTRIBUTIONS.)
<TABLE>
<S> <C>
1991 11.11
92 5.49
93 6.46
94 1.91
95 13.23
96 2.50
97 7.07
98 7.20
99 0.64
</TABLE>
<TABLE>
<S> <C>
Best quarter: Q2 1995 4.09%(1)
Worst quarter: Q1 1994 -1.47%(1)
</TABLE>
For the period January 1, 2000 through June 30, 2000, the aggregate
(non-annualized) total return of the Fund was %.(1)
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIOD ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
SINCE
PAST PAST 5 INCEPTION
YEAR YEARS 12/31/90
<S> <C> <C> <C>
Class A Shares (with 2.75% sales charge) -2.15% 5.55% 5.33%
Class B Shares (with applicable CDSC) -2.72% 5.34% 5.07%
Lehman Brothers
Intermediate Government
Index 0.50% 6.93% 6.84%
</TABLE>
(1) Excludes sales charges, which, if included, would cause return(s) to be
lower.
* The quoted performance of the Fund includes the performance of a common
trust fund ("Commingled") account advised by Centura and managed the same
as the Fund in all material respects, for periods dating back to December
31, 1990, and prior to the Fund's commencement of operations on June 1,
1994, as adjusted to reflect the full contractual rate of expenses
associated with the Fund at its inception. The Commingled account was not
registered with the SEC under the 1940 Act and therefore was not subject to
the investment restrictions imposed by law on registered mutual funds. If
the Commingled account had been registered, the Commingled account's
performance may have been adversely affected. Fund performance reflects
applicable fee waivers/expense reimbursements (which, if excluded, would
cause performance to be lower).
9
<PAGE> 11
RISK/RETURN SUMMARY AND FUND EXPENSES BOND FUNDS
CENTURA QUALITY INCOME FUND
INVESTMENT OBJECTIVES. Current income and capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 65% of
its total assets in U.S. Government obligations (those that are issued or
guaranteed by the U.S. Government or its agencies or instrumentalities) and
corporate debt obligations as well as other fixed income securities such as
asset backed securities, mortgage backed securities and bank obligations. At
least 70% of the Fund's fixed income securities will be rated in one of the
three highest categories by nationally recognized statistical rating
organizations ("Rating Agencies") (or unrated securities determined to be
comparable in quality). The Fund primarily focuses on maximizing current
income. However, the Fund also may purchase fixed income securities that the
Adviser believes have potential for capital appreciation in an attempt to
achieve a high level of total return. The Fund also seeks to increase its
total return by shortening the average maturity of its portfolio when it
expects interest rates to increase and lengthening the average maturity to
take advantage of expected interest rate declines. The Fund expects to
maintain a dollar-weighted average portfolio maturity between five and
fifteen years. The Adviser diversifies the Fund's holdings among sectors it
considers favorable and reallocates assets in response to actual and expected
market and economic changes.
In selecting individual securities, the Adviser considers various factors,
including outlook for the economy and anticipated changes in interest rates
and inflation, securities that appear to be inexpensive relative to other
comparable securities, and securities that have the potential for an upgrade
of their credit rating. A rating upgrade typically would increase the value
of the security.
Up to 30% of the total assets may be invested in securities rated BBB by S&P
or Baa by Moody's (or, if unrated, deemed of comparable quality by the
Adviser), preferred stocks, zero coupon obligations and convertible
securities. The Fund may use covered options or interest-rate futures
contracts to lengthen or shorten the Fund's average portfolio maturity.
The Fund may sell a security if it falls below the minimum credit quality
required for purchase, but it is not required to do so. The Fund has
authority to invest up to 100% of its total assets in a variety of short-term
debt securities for temporary defensive purposes under unusual market
conditions. While the Fund is invested in these instruments, it will not be
pursuing its investment objective.
No performance information is shown for the Quality Income Fund which, as of
the date of this prospectus, has not completed a full calendar year of
operations. The net asset value of the Fund's shares will fluctuate with
market conditions.
10
<PAGE> 12
RISK/RETURN SUMMARY AND FUND EXPENSES BOND FUNDS
CENTURA NORTH CAROLINA TAX - FREE BOND FUND
INVESTMENT OBJECTIVES. High current income that is free from both federal
income tax and North Carolina personal income tax, together with relative
safety of principal.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests primarily in 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. The Fund will attempt to provide income that is fully
free from regular federal and North Carolina personal income tax as well as
from federal alternative minimum tax ("AMT"). However, its policies provide
it with some flexibility. The Fund must normally invest at least 80% of its
net assets in securities producing income that is not subject to regular
federal income tax. The Fund must, under normal market conditions, have at
least 65% of the Fund's total assets invested in municipal obligations issued
by the State of North Carolina or its political subdivisions and at least 65%
of its total assets invested in bonds, although it expects generally to have
higher portions invested in those instruments. The Fund maintains a
dollar-weighted average portfolio maturity between five and ten years. No
security in the Fund will have a remaining maturity of more than fifteen
years.
The Fund will purchase securities rated at least A or SP-1 by S&P or A or
MIG-1 by Moody's or other rated or unrated securities of comparable quality.
The Fund may invest up to 20% of its total assets in AMT obligations (10%
maximum); U.S. Government securities; bank obligations; commercial paper;
other taxable debt obligations and cash reserves; and repurchase agreements.
The Fund may temporarily invest up to 50% in taxable and AMT investments
under unusual market conditions.
The Adviser varies the average portfolio maturity and reallocates its
investments from time to time in response to actual and expected interest
rate movements as well as other market and economic conditions.
The Fund may also sell a security if it falls below the minimum credit
quality required for purchase.
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment
in the Fund by showing its performance from year to year and as compared to a
broad-based securities index. The Lehman Brothers Five-Year General
Obligation Municipal Bond Index ("Lehman 5 yr. G.O. Muni Index") is an
unmanaged index of debt obligations issued by municipalities. The returns for
Class B Shares may be lower than the Class A Shares' returns shown in the bar
chart because expenses of the classes differ. Past performance does not
indicate how the Fund will perform in the future.
PERFORMANCE BAR CHART AND TABLE*
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES(1)
(BOTH THE CHART AND THE TABLE ASSUME REINVESTMENT OF DIVIDENDS AND
DISTRIBUTIONS.)
<TABLE>
<S> <C>
1991 2.81
92 5.03
93 7.70
94 -4.22
95 12.27
96 2.52
97 8.03
98 5.59
99 -1.60
</TABLE>
<TABLE>
<S> <C>
Best quarter: Q1 1995 4.61%(1)
Worst quarter: Q1 1994 -3.58%(1)
</TABLE>
For the period January 1, 2000 through June 30, 2000, the aggregate
(non-annualized) total return of the Fund was %.(1)
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIOD ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
SINCE
PAST PAST 5 INCEPTION
YEAR YEARS 1/31/91
<S> <C> <C> <C>
Class A Shares (with 2.75% sales charge) -4.33% 4.75% 4.19%
Class B Shares (with applicable CDSC) -4.92% 4.56% 3.97%
Lehman 5 yr. G.O. Muni Index 0.74% 5.71% 5.96%
</TABLE>
(1) Excludes sales charges, which, if included, would cause return(s) to be
lower.
* The quoted performance of the Fund includes the performance of a common
trust fund ("Commingled") account advised by Centura and managed the same
as the Fund in all material respects, for periods dating back to January
31, 1991, and prior to the Fund's commencement of operations on June 1,
1994, as adjusted to reflect the full contractual rate of expenses
associated with the Fund at its inception. The Commingled account was not
registered with the SEC under the 1940 Act and therefore was not subject to
the investment restrictions imposed by law on registered mutual funds. If
the Commingled account had been registered, the Commingled account's
performance may have been adversely affected. Fund performance reflects
applicable fee waivers/expense reimbursements (which, if excluded, would
cause performance to be lower).
11
<PAGE> 13
RISK/RETURN SUMMARY AND FUND EXPENSES BOND FUNDS
PRINCIPAL RISKS
ALL BOND FUNDS. Investing in the Bond Funds involves risks common to any
investment in securities. By itself, no Fund constitutes a balanced
investment program.
There is no guarantee that the Funds will meet their goals. When you sell
your shares in the Funds, they may be worth more or less than you paid for
them. It is possible to lose money by investing in the Funds. An investment
in a Bond Fund is not a bank deposit and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INTEREST RATE RISK. All bonds fluctuate in value as interest rates fluctuate.
Generally, as interest rates rise, the value of a Fund's bond investments,
and of its shares, will decline. In general, the longer the maturity of a
bond, the higher the risk of price fluctuation.
CREDIT RISK. Bonds are subject to the risk that the issuer may not make
timely payments of principal and interest, or may default. The lower the
credit rating of an instrument or its issuer, the higher the level of credit
risk. Centura Quality Income Fund can acquire bonds that carry investment
grade credit ratings, which are bonds rated by a Rating Agency in the four
highest rating categories. Obligations rated in the fourth highest rating
category are considered to have speculative characteristics. If an issuer of
fixed income securities defaults on its obligations to pay interest and repay
principal, or a bond's credit rating is downgraded, a Fund could lose money.
Two other principal risks of fixed income (bond) investing are market risk
and selection risk. Market risk means that the bond market in general has ups
and downs, which may affect the performance of any individual fixed income
security. Selection risk means that the particular bonds that are selected
for a Fund may underperform the market or other funds with similar
objectives.
A full discussion of all permissible investments can be found in the SAI.
ADDITIONAL PRINCIPAL RISKS
PREPAYMENT RISK. The Government Income Fund's and Quality Income Fund's
investments in mortgage-related securities are subject to the risk that the
principal amount of the underlying mortgage may be repaid prior to the bond's
maturity date. Such prepayments are common when interest rates decline. When
such a prepayment occurs, no additional interest will be paid on the amount
of principal prepaid. Prepayment exposes a Fund to lower than anticipated
return on its investment and to potentially lower return upon subsequent
reinvestment of the principal.
STATE SPECIFIC RISK. State specific risk is the chance that the North
Carolina Tax-Free Bond Fund, because it invests primarily in securities
issued by North Carolina and its municipalities, is more vulnerable to
unfavorable developments in North Carolina than funds that invest in
municipal bonds of many different states.
CALL RISK. Call risk is the chance that during periods of falling interest
rates, a bond issuer will "call" -- or repay -- a high-yielding bond before
its maturity date. Forced to reinvest the unanticipated proceeds at lower
interest rates, each Bond Fund would experience a decline in income and the
potential for taxable capital gains. Call risk is generally higher for
longer-term bonds.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN A BOND FUND IF YOU ARE:
- Seeking to add a monthly income component to your portfolio
- Willing to accept the risks of price and dividend fluctuations
- (In the case of the North Carolina Tax-Free Bond Fund) seeking current
income exempt from federal income taxes and North Carolina state
personal income taxes
THE BOND FUNDS WILL NOT BE APPROPRIATE FOR ANYONE SEEKING SAFETY OF
PRINCIPAL.
THE NORTH CAROLINA TAX-FREE BOND FUND WILL NOT BE APPROPRIATE FOR:
- Tax-exempt institutions and certain retirement plans that are unable to
benefit from the receipt of tax-exempt dividends
- Residents of states other than North Carolina that are unable to benefit
from the receipt of dividends exempt from North Carolina personal income
taxes
12
<PAGE> 14
RISK/RETURN SUMMARY AND FUND EXPENSES BOND FUNDS
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Bond Funds.
FEE TABLE
<TABLE>
<CAPTION>
GOVERNMENT QUALITY NORTH CAROLINA
INCOME FUND INCOME FUND TAX-FREE BOND FUND
A SHARES B SHARES A SHARES B SHARES A SHARES B SHARES
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on
Purchases(1)(as a % of offering price) 2.75% None 2.75% None 2.75% None
Maximum Deferred Sales Charge (Load)(2) None 3.00% None 3.00% None 3.00%
(as a % of offering or sales price,
whichever is less)
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund
assets)
Management fees 0.30% 0.30% 0.60% 0.60% 0.35% 0.35%
Distribution (12b-1) fees(3) 0.50% 1.00% 0.50% 1.00% 0.50% 1.00%
Other expenses 0.33% 0.33% 0.49% 0.49% 0.41% 0.41%
---- ---- ---- ---- ---- ----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.13% 1.63% 1.59% 2.09% 1.26% 1.76%
---- ---- ---- ---- ---- ---- ----
</TABLE>
(1) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a contingent deferred sales charge
("CDSC") is applicable to redemptions within 18 months of purchase. See
"Distribution Arrangements."
(2) A CDSC on Class B shares declines over five years starting with year one
and ending in year six as follows: 3%, 3%, 3%, 2%, 1%, 0%.
(3) 12b-1 fees can cause a long-term shareholder to pay more than the
permitted initial sales charge.
EXAMPLE: THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING
IN THE FUNDS WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE
ASSUMES:
- $10,000 INVESTMENT
- 5% ANNUAL RETURN AND REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
- REDEMPTION AT THE END OF EACH PERIOD
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE
ASSUMPTIONS, YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
GOVERNMENT QUALITY NORTH CAROLINA
INCOME FUND INCOME FUND TAX-FREE BOND FUND
B SHARES B SHARES B SHARES
A B WITHOUT A B WITHOUT A B WITHOUT
SHARES SHARES CDSC SHARES SHARES CDSC SHARES SHARES CDSC
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ONE YEAR AFTER PURCHASE $ 387 $ 466 $ 166 $ 432 $ 512 $ 212 $ 400 $ 479 $ 179
THREE YEARS AFTER
PURCHASE $ 624 $ 814 $ 514 $ 763 $ 955 $ 655 $ 664 $ 854 $ 554
FIVE YEARS AFTER PURCHASE $ 880 $ 987 $ 887 $1,117 $1,224 $1,124 $ 948 $1,054 $ 954
TEN YEARS AFTER PURCHASE $1,612 $1,737 $1,737 $2,112 $2,234 $2,234 $1,756 $1,880 $1,880
</TABLE>
13
<PAGE> 15
DESCRIPTION OF THE FUNDS ADDITIONAL INFORMATION
INVESTING FOR DEFENSIVE PURPOSES
When Centura Bank determines that market conditions are appropriate, each of
the Equity and Bond Funds may, for temporary defensive purposes, hold
investments that are not part of its main investment strategy to try to avoid
losses during unfavorable market conditions. These investments may include
cash (which will not earn any income). Each of the Equity and Bond Funds may
invest up to 100% of its assets in money market instruments including
short-term U.S. government securities, bank obligations and commercial paper.
The Mid Cap, Large Cap and Small Cap Equity Funds' defensive investments may
include instruments rated in the top three rating categories but up to 15% of
a Fund's assets may be invested in securities rated BBB or Baa by S&P or
Moody's. These instruments may have speculative characteristics. Each of the
Bond Funds may also shorten its dollar-weighted average maturity below its
normal range if such action is deemed appropriate by Centura for temporary
defensive purposes. In addition, the North Carolina Tax-Free Bond Fund may
invest up to 50% of its total assets for temporary defensive purposes in
investments producing taxable income and in AMT obligations. The Equity Funds
may invest in equity securities which in the Adviser's opinion are more
conservative than the types of securities that the Funds typically invest in.
If a Fund is investing defensively, it will not be pursuing its investment
objective.
14
<PAGE> 16
MANAGEMENT OF THE FUNDS FUND MANAGEMENT
INVESTMENT ADVISER
The Funds are advised by Centura Bank, a wholly owned subsidiary of Centura
Banks, Inc. Centura Bank maintains offices at 131 North Church Street, Rocky
Mount, North Carolina 27802. Centura Bank is a member of the Federal Reserve
System and manages the financial assets of individual and institutional
investors. Centura Bank employs an experienced staff of professional
investment analysts, portfolio managers and traders, and uses several
proprietary computer-based systems in conjunction with fundamental analysis
to identify investment opportunities.
For these advisory services, the Funds paid fees as follows during the fiscal
year ended April 30, 2000:
<TABLE>
<CAPTION>
AS A PERCENTAGE OF
AVERAGE NET ASSETS
AS OF 4/30/2000
<S> <C>
Large Cap Equity Fund 0.70%
Mid Cap Equity Fund 0.70%
Small Cap Equity Fund 0.70%
Government Income Fund 0.30%
Quality Income Fund 0.59%*
North Carolina Tax-Free Bond Fund 0.35%
</TABLE>
* Centura Bank waived a portion of its contractual fees for this Fund for
the most recent fiscal year. Contractual fees (without waivers) are 0.60%
for the Quality Income Fund.
CENTURA PORTFOLIO MANAGERS
Centura Bank has several portfolio managers committed to the day-to-day
management of the Funds:
TED PONKO has primary responsibility for management of the Centura Large Cap
Equity Fund as well as co-management responsibility for the Centura Small Cap
Equity Fund. Mr. Ponko has been a portfolio manager with Centura Bank since
August 1998. From March 1993 to July 1998, Mr. Ponko was a trust officer with
Centura Bank. Mr. Ponko has over 12 years of experience in trust sales,
administration, and investment. In 1978 he received a Bachelor of Arts degree
with Honors in Philosophy from the College of William and Mary. He
subsequently received his Master of Arts and Ph.D. from the University of
North Carolina at Chapel Hill. Mr. Ponko is a Chartered Financial Consultant
(ChFC) and a Certified Employee Benefits Specialist (CEBS). He is presently a
Level I candidate in the Chartered Financial Analyst program.
FORBES WATSON has primary responsibility for management of the Centura Mid
Cap Equity Fund as well as co-management responsibility for the Centura Small
Cap Equity Fund with Mr. Ponko. Mr. Watson has been a portfolio manager with
Centura Bank since August 1998. Mr. Watson has over 18 years experience in
the investment industry. He graduated from the University of North Texas with
a Bachelor of Arts degree in Finance and from Millsaps College with a Masters
in Business Administration and a Beta Gamma Sigma honorary. Mr. Watson began
his career with May Financial Corporation in Dallas, Texas. He is a Level III
candidate in the Chartered Financial Analyst program, a member of both the
North Carolina Society for Financial Analysts and the Association for
Investment Management and Research.
15
<PAGE> 17
CENTURA PORTFOLIO MANAGERS FUND MANAGEMENT CONTINUED
C. NATHANIEL SIEWERS serves as portfolio manager of Centura North Carolina
Tax-Free Bond Fund and Centura Government Income Fund and co-manager of the
Quality Income Fund. Mr. Siewers has over 13 years experience managing fixed
income securities. He graduated from Wake Forest University with a Bachelor
of Arts degree in Economics. He earned a Masters degree in Business
Administration from East Carolina University. Mr. Siewers managed the fixed
income portfolio for Centura Bank from 1985 to 1997. Prior to that, he was
the Chief Financial Officer for State Bank of Raleigh from 1980-1985. Mr.
Siewers is a Certified Public Accountant and a Fellow in the North Carolina
Association of Certified Public Accountants. Mr. Siewers has been on the
faculty of the North Carolina School of Banking since 1987. He is the Dean of
the School for the 1998 and 1999 sessions. Mr. Siewers is a Level II
Candidate in the Chartered Financial Analyst Program, a member of the
Association for Investment Management and Research, and the North Carolina
Society of Financial Analysts.
TERRY WALL serves as co-manager of the Quality Income Fund. Mrs. Wall also
serves as portfolio manager of the Centura Money Market Fund. Mrs. Wall has
over thirteen years experience in the trust investment area of Centura Bank.
She graduated from East Carolina University in Greenville with a Bachelor of
Science in Business Administration. Mrs. Wall began her career with Centura
Bank (then Planters Bank) in the trust investment division in 1985. She is a
Certified Public Accountant and a member of the North Carolina Association of
Certified Public Accountants and the American Institute of Certified Public
Accountants. Mrs. Wall's other duties include serving as administrative
liaison for the Investment Management Department, equity and fixed income
trading, and performance evaluation.
DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services ("BISYS") provides management and administrative services
to the Funds, including providing office space, equipment and clerical
personnel to the Funds and supervising custodial, auditing, valuation,
bookkeeping and legal services. BISYS Fund Services, Inc., an affiliate of
BISYS, acts as the fund accountant, transfer agent and dividend paying agent
of the Funds. BISYS and BISYS Fund Services, Inc. are each located at 3435
Stelzer Road, Columbus, Ohio 43219.
Centura Funds Distributor, Inc., 90 Park Avenue, New York, N.Y. 10036, acts
as the Funds' distributor. The Distributor is an affiliate of BISYS and was
formed specifically to distribute the Funds.
16
<PAGE> 18
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
HOW NAV IS CALCULATED
The NAV is calculated by adding the total value of the Fund's investments and
other assets, subtracting its liabilities and then dividing that figure by
the number of outstanding shares of the Fund:
NAV =
Total Assets - Liabilities
----------------------------
Number of Shares
Outstanding
---------------------------------------------------------
1. NAV is calculated separately for Class A and the Class B shares.
2. You can find most Funds' NAV daily in The Wall Street Journal and in other
newspapers.
The per share NAV for each Fund is determined and its shares are priced at
the close of regular trading on the New York Stock Exchange, normally at 4:00
p.m. Eastern time, on days the Exchange is open.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after your order is received in good order by the Fund on any day
that both the New York Stock Exchange and the Funds' custodian are open for
business. For example: If you place a purchase order to buy shares of the
Government Income Fund, it must be received by 4:00 p.m. Eastern time in
order to receive the NAV calculated at 4:00 p.m. If your order is received
after 4:00 p.m. Eastern time, you will receive the NAV calculated on the next
day at 4:00 p.m. Eastern time.
The Funds' securities, other than short-term debt obligations, are generally
valued at current market prices unless market quotations are not available,
in which case securities will be valued by a method that the Board of
Directors believes accurately reflects fair value. Debt obligations with
remaining maturities of 60 days or less are valued at amortized cost or based
on their acquisition cost.
PURCHASING AND ADDING TO YOUR SHARES
You may purchase shares of the Funds through the Centura Funds Distributor or
through banks, brokers and other investment representatives, which may charge
additional fees and may require higher minimum investments or impose other
limitations on buying and selling shares. If you purchase shares through an
investment representative, that party is responsible for transmitting orders
by close of business and may have an earlier cut-off time for purchase and
sale requests. Consult your investment representative or institution for
specific information.
<TABLE>
<CAPTION>
MINIMUM MINIMUM
INITIAL SUBSEQUENT
ACCOUNT TYPE INVESTMENT INVESTMENT
<S> <C> <C>
CLASS A OR B
Regular (non-retirement) $1,000 $250
Retirement (IRA) $ 250 $ 0
Automatic Investment Plan $ 50 $ 50
</TABLE>
All purchases must be in U.S. dollars. A fee will be charged for any checks
that do not clear. Third-party checks are not accepted.
A Fund may waive its minimum purchase requirement and the Distributor may
reject a purchase order if it considers it in the best interest of the Fund
and its shareholders.
AVOID 31% TAX WITHHOLDING
Each Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with
IRS rules. To avoid this, make sure you provide your correct Tax
Identification Number (Social Security Number for most investors) on your
account application.
17
<PAGE> 19
SHAREHOLDER INFORMATION
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
If purchasing through your financial advisor or brokerage account, simply
tell your advisor or broker that you wish to purchase shares of the Funds and
he or she will take care of the necessary documentation. For all other
purchases, follow the instructions below.
All investments made by regular mail or express delivery, whether initial or
subsequent, should be sent:
<TABLE>
<S> <C> <C>
BY MAIL BY REGULAR MAIL BY EXPRESS MAIL
Centura Funds Centura Funds
P.O. Box 182485 3435 Stelzer Road
Columbus, OH 43218-2485 Columbus, OH 43219
For Initial Investment:
1. Carefully read and complete the application. Establishing your account privileges now saves you
the inconvenience of having to add them later.
2. Make check, bank draft or money order payable to "Centura Funds" and include the name of the
appropriate Fund(s) on the check.
3. Mail or deliver application and payment to address above.
For Subsequent Investment:
1. Use the investment slip attached to your account statement. Or, if unavailable, provide the
following information:
- Fund name
- Share class
- Amount invested
- Account name and account number
2. Make check, bank draft or money order payable to "Centura Funds" and include your account
number on the check.
3. Mail or deliver investment slip and payment to the address above.
ELECTRONIC PURCHASES Your bank must participate in the Automated
Clearing House (ACH) and must be a U. S. Bank.
Your bank or broker may charge for this service.
Establish the electronic purchase option on your
account application or call 1-800-442-3688. Your
account can generally be set up for electronic
purchases within 15 days.
Call 1-800-442-3688 to arrange a transfer from
your bank account.
BY WIRE TRANSFER Call 1-800-442-3688 to obtain a new account number and instructions for sending your application,
and for instructing your bank to wire transfer your investment.
NOTE: YOUR BANK MAY CHARGE A WIRE TRANSFER FEE.
</TABLE>
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow financial institutions to send funds to each other, almost
instantaneously. With an electronic purchase or sale, the transaction is made
through the Automated Clearing House (ACH) and may take up to eight days to
clear. There is generally no fee for ACH transactions.
QUESTIONS?
Call 1-800-442-3688 or your investment representative.
18
<PAGE> 20
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
You can add to your account by using the convenient options described below.
The Fund reserves the right to change or eliminate these privileges at any
time with 60 days notice.
AUTOMATIC INVESTMENT PROGRAM
You can make automatic investments in the Funds from your bank account,
through payroll deductions or from your federal employment, Social Security
or other regular government checks. Automatic investments can be as little as
$50; no investment is required to establish an automatic investment account.
To invest regularly from your bank account:
- Complete the Automatic Investment Plan portion on your Account
Application.
Make sure you note:
- Your bank name, address and account number
- The amount you wish to invest automatically (minimum $50)
- How often you want to invest (every month or 4 times a year)
- Attach a voided personal check.
To invest regularly from your paycheck or government check, call
1-800-442-3688 for an enrollment form.
DIRECTED DIVIDEND OPTION
By selecting the appropriate box in the Account Application, you can elect to
receive your distributions in cash (check) or have distributions (capital
gains and dividends) reinvested in another Centura Fund without a sales
charge. You must maintain the minimum balance in each Fund into which you
plan to reinvest dividends or the reinvestment will be suspended and your
dividends paid to you. The Fund may modify or terminate this reinvestment
option without notice. You can change or terminate your participation in the
reinvestment option at any time.
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested distributions.
Dividends are higher for Class A shares than for Class B shares, because
Class A shares have lower distribution expenses. Capital gains are
distributed at least annually.
DISTRIBUTIONS ARE MADE ON A PER SHARE BASIS REGARDLESS OF HOW LONG YOU'VE
OWNED YOUR SHARES. THEREFORE, IF YOU INVEST SHORTLY BEFORE THE DISTRIBUTION
DATE, SOME OF YOUR INVESTMENT WILL BE RETURNED TO YOU IN THE FORM OF A
DISTRIBUTION WHICH MAY BE TAXABLE. (SEE "SHAREHOLDER INFORMATION --
DIVIDENDS, DISTRIBUTIONS AND TAXES")
SELLING YOUR SHARES
You may sell your shares at any time. Your sales price will be the next NAV
after your sell order is received in good order by the Fund, its transfer
agent, or your investment representative. Normally you will receive your
proceeds within a week after your request is received. See section on
"General Policies on Selling Shares" below.
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is also known as redeeming shares or a
redemption of shares.
CONTINGENT DEFERRED SALES CHARGE (CDSC)
When you sell Class B shares, you will be charged a fee for any shares that
have not been held for a sufficient length of time. These fees will be
deducted from the money paid to you. See the section on "Distribution
Arrangements/ Sales Charges" below for details.
19
<PAGE> 21
SHAREHOLDER INFORMATION
SELLING YOUR SHARES -- CONTINUED
INSTRUCTIONS FOR SELLING SHARES
If selling your shares through your financial adviser or broker, ask him or
her for redemption procedures. Your adviser and/or broker may have
transaction minimums and/or transaction times which will affect your
redemption. For all other sales transactions, follow the instructions below.
<TABLE>
<S> <C>
BY TELEPHONE 1. Call 1-800-442-3688 with instructions as to how you wish
(unless you have declined telephone to receive your funds (mail, wire, electronic transfer).
sales privileges) (See "General Policies on Selling Shares -- Verifying
Telephone Redemptions" below)
BY MAIL 1. Call 1-800-442-3688 to request redemption forms or write
(See "Selling Your Shares -- a letter of instruction indicating:
Redemptions in Writing Required") - your Fund and account number
- amount you wish to redeem
- address where your check should be sent
- account owner signature
2. Mail to: Centura Funds
P.O. Box 182485
Columbus, OH 43218-2485
BY OVERNIGHT SERVICE See instruction 1 above.
(See "General Policies on Selling 2. Send to Centura Funds
Shares -- Redemptions in Writing c/o BISYS Fund Services
Required" below) Attn: Shareholder Services
3435 Stelzer Road
Columbus, OH 43219
WIRE TRANSFER Call 1-800-442-3688 to request a wire transfer.
You must indicate this option on If you call by 4 p.m. Eastern time, your payment will
your application. normally be wired to your bank on the next business day.
Note: Your financial institution may
charge a fee.
ELECTRONIC REDEMPTIONS Call 1-800-442-3688 to request an electronic redemption.
Your bank must participate in the If you call by 4 p.m. Eastern time, the NAV of your shares
Automated Clearing House (ACH) and will normally be determined on the same day and the proceeds
must be a U.S. bank. credited within 8 days.
Your bank may charge for this
service.
</TABLE>
QUESTIONS?
Call 1-800-442-3688
20
<PAGE> 22
SHAREHOLDER INFORMATION
SELLING YOUR SHARES -- CONTINUED
SYSTEMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The maximum withdrawal per year is 12% of the
account value at the time of election. To activate this feature:
- Make sure you've checked the appropriate box on the Account Application.
Or call 1-800-442-3688.
- Include a voided personal check.
- Your account must have a value of $12,000 or more to start withdrawals.
- If the value of your account falls below $1,000, you may be asked to add
sufficient funds to bring the account back to $1,000, or the Fund may
close your account and mail the proceeds to you.
GENERAL POLICIES ON SELLING SHARES
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following situations:
1. Redemptions from Individual Retirement Accounts ("IRAs").
2. Redemption requests requiring a signature guarantee, which include each of
the following:
- Redemptions over $25,000
- Your account registration or the name(s) in your account has changed
within the last 15 days
- The check is not being mailed to the address on your account
- The check is not being made payable to the owner of the account
- The redemption proceeds are being transferred to another Fund account
with a different registration.
A signature guarantee can be obtained from a financial institution, such as a
bank, broker-dealer, or credit union, or from members of the STAMP
(Securities Transfer Agents Medallion Program), MSP (New York Stock Exchange
Medallion Signature Program) or SEMP (Stock Exchanges Medallion Program).
Members are subject to dollar limitations which must be considered when
requesting their guarantee. The Transfer Agent may reject any signature
guarantee if it believes the transaction would otherwise be improper.
TELEPHONE REDEMPTIONS
The Funds make every effort to ensure that telephone redemptions are only
made by authorized shareholders. All telephone calls are recorded for your
protection and you will be asked for information to verify your identity.
Given these precautions, unless you have specifically indicated on your
application that you do not want the telephone redemption feature, you may be
responsible for any fraudulent telephone orders. If appropriate precautions
have not been taken, the Transfer Agent may be liable for losses due to
unauthorized transactions.
At times of peak activity it may be difficult to place requests by phone.
During those times, consider sending your request in writing.
21
<PAGE> 23
SHAREHOLDER INFORMATION
SELLING YOUR SHARES -- CONTINUED
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, your redemption proceeds
will not be mailed until the Transfer Agent is satisfied that the check has
cleared (which may require up to 15 business days). You can avoid this delay
by purchasing shares with a certified check or federal funds wire.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission in order to protect
remaining shareholders. If you experience difficulty making a telephone
redemption during periods of drastic economic or market change, you can send
the Funds your request by regular mail or express mail.
REDEMPTION IN KIND
Each Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind" for amounts redeemed by a shareholder, in any
90-day period, in excess of $250,000 or 1% of Fund net assets, whichever is
less. If the Fund deems it advisable for the benefit of all shareholders,
redemption in kind will consist of securities equal in market value to your
shares. When you convert these securities to cash, you will pay brokerage
charges.
CLOSING OF SMALL ACCOUNTS
If your account falls below $1,000 (not as a result of market action), the
Fund may ask you to increase your balance. If it is still below $1,000 after
30 days, the Fund may close your account and send you the proceeds at the
current NAV.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash: If
distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that
remain uncashed for six months will be canceled and the money reinvested in
the appropriate Fund.
22
<PAGE> 24
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
This section describes the sales charges and fees you will pay as an investor
in different share classes offered by the Funds and ways to qualify for
reduced sales charges.
<TABLE>
<CAPTION>
CLASS A CLASS B
<S> <C> <C>
Sales Charge (Load) Front-end sales charge; reduced sales No front-end sales charge. A contingent
charges available. deferred sales charge (CDSC) may be imposed
on shares redeemed within six years after
purchase; shares automatically convert to
Class A Shares after 7 years. Maximum
investment is $250,000.
Distribution and Subject to annual distribution and Subject to annual distribution and
Service (12b-1) Fee shareholder servicing fees of up to 0.50% shareholder servicing fees of up to 1.00%
of the Fund's assets. of the Fund's assets
Fund Expenses Lower annual expenses than Class B shares. Higher annual expenses than Class A shares
</TABLE>
There is also a Class C open to certain institutional investors. Class C
shares are offered through another prospectus.
CALCULATION OF SALES CHARGES
CLASS A SHARES
Class A shares are sold at their public offering price. This price
includes the initial sales charge. Therefore, part of the money you invest
will be used to pay the sales charge. The remainder is invested in Fund
shares. The sales charge decreases with larger purchases. There is no
sales charge on reinvested dividends and distributions.
The current sales charge rates are as follows:
FOR THE EQUITY FUNDS (LARGE CAP EQUITY FUND, MID CAP EQUITY FUND AND SMALL
CAP EQUITY FUND)
<TABLE>
<CAPTION>
SALES CHARGE AS A % SALES CHARGE AS A %
YOUR INVESTMENT OF OFFERING PRICE(1) OF YOUR INVESTMENT
<S> <C> <C>
Up to $49,999 4.50% 4.71%
$50,000 up to $99,999 4.00% 4.17%
$100,000 up to $249,999 3.50% 3.63%
$250,000 up to $499,999 2.50% 2.56%
$500,000 up to $999,999 1.50% 1.52%
$1,000,000 and above(1) 0.00% 0.00%
</TABLE>
FOR THE BOND FUNDS (GOVERNMENT INCOME FUND, QUALITY INCOME FUND, NORTH
CAROLINA TAX-FREE BOND FUND)
<TABLE>
<CAPTION>
SALES CHARGE AS A % SALES CHARGE AS A %
YOUR INVESTMENT OF OFFERING PRICE(1) OF YOUR INVESTMENT
<S> <C> <C>
Up to $49,999 2.75% 2.83%
$50,000 up to $99,999 2.50% 2.56%
$100,000 up to $249,999 2.25% 2.30%
$250,000 up to $499,999 1.75% 1.78%
$500,000 up to $999,999 1.00% 1.01%
$1,000,000 and above(1) 0.00% 0.00%
</TABLE>
(1) There is no initial sales charge on purchases of $1 million or more.
However, a contingent deferred sales charge (CDSC) of up to 1.00% of the
purchase price will be charged to the shareholder if shares are redeemed
in the first 18 months after purchase of shares of Equity Funds, or up to
0.75% if redeemed in the first 18 months after purchase of shares of the
Bond Funds. This charge will be based on the lower of your cost for the
shares or their NAV at the time of redemption. There will be no CDSC on
reinvested distributions.
23
<PAGE> 25
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES -- CONTINUED
CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
GOVERNMENT INCOME FUND,
MID CAP EQUITY FUND, QUALITY INCOME FUND,
LARGE CAP EQUITY FUND AND
AND NORTH CAROLINA
YEARS SINCE PURCHASE SMALL CAP EQUITY FUND TAX-FREE BOND FUND
<S> <C> <C>
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%
</TABLE>
CLASS B --
Class B shares are offered at NAV, without any up-front sales charge.
Therefore, all the money you invest is used to purchase Fund shares. However,
if you sell your Class B shares of a Fund before the sixth anniversary, you
will have to pay a contingent deferred sales charge at the time of
redemption. The CDSC will be based upon the lower of the NAV at the time of
purchase or the NAV at the time of redemption according to the schedule
below. There is no CDSC on reinvested dividends or distributions.
If you sell some but not all of your Class B shares, certain shares not
subject to the CDSC (i.e., shares purchased with reinvested dividends) will
be redeemed first, followed by shares subject to the lowest CDSC (typically
shares held for the longest time).
CONVERSION FEATURE -- CLASS B SHARES
- Class B shares automatically convert to Class A shares of the same Fund
after seven years from the end of the month of purchase.
- After conversion, your shares will be subject to the lower distribution and
shareholder servicing fees charged on Class A shares which will increase
your investment return compared to the Class B shares.
- You will not pay any sales charge or fees when your shares convert, nor
will the transaction be subject to any tax.
- If you purchased Class B shares of one Fund which you exchanged for Class B
shares of another Fund, your holding period will be calculated from the
time of your original purchase of Class B shares. The dollar value of Class
A shares you receive will equal the dollar value of the Class B shares
converted.
SALES CHARGE REDUCTIONS
Reduced sales charges for Class A shares are available to shareholders with
investments of $50,000 or more. In addition, you may qualify for reduced
sales charges under the following circumstances.
- LETTER OF INTENT. You inform the Fund in writing that you intend to
purchase enough shares over a 13-month period to qualify for a reduced
sales charge. You must include a minimum of 5% of the total amount you
intend to purchase with your letter of intent.
- RIGHTS OF ACCUMULATION. When the value of shares you already own plus the
amount you intend to invest reaches the amount needed to qualify for
reduced sales charges, your added investment will qualify for the reduced
sales charge.
- COMBINATION PRIVILEGE. Combine accounts of multiple Funds or accounts of
immediate family household members (spouse and children under 21) to
achieve reduced sales charges.
24
<PAGE> 26
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES -- CONTINUED
SALES CHARGE WAIVERS -- CLASS A SHARES
The following qualify for waivers of sales charges:
- Shares purchased by any person within an approved asset allocation
program sponsored by a financial services organization.
- Proceeds from redemptions from another mutual fund complex within 90 days
after redemption, if you paid a front end sales charge for those shares.
- Reinvestment of distributions from a deferred compensation plan, agency,
trust, or custody account that was maintained by the Adviser or its
affiliates or invested in any Centura Fund.
- Shares purchased for trust or other advisory accounts established with
the Adviser or its affiliates.
- Shares purchased by Directors or Officers of the Funds.
- Shares purchased by directors, trustees, employees, and family members of
the Adviser, the Administrator and their affiliates and dealers who have
an agreement with the Distributor and members of their immediate
families; and any trade organization to which the Adviser or the
Administrator belongs.
- Shares equal to or exceeding $250,000 purchased by bank trust departments
on behalf of their clients.
- Shares purchased by retirement accounts or plans for which there is a
written service agreement between the Funds and the plan sponsor.
REINSTATEMENT PRIVILEGE
If you have sold Class A shares and decide to reinvest in the Fund within a
90-day period, you will not be charged the applicable sales load on amounts
up to the value of the shares you sold. You must provide a written
reinstatement request and payment within 90 days of the date your
instructions to sell were processed.
CLASS B SHARES -- CDSC WAIVERS
The CDSC will be waived under certain circumstances, including the following:
- Redemptions from accounts other than retirement accounts following the
death or disability of the shareholder.
- Returns of excess contributions to retirement plans.
- Distributions of less than 12% of the annual account value under a
Systematic Withdrawal Plan.
- Shares issued in a plan of reorganization sponsored by the Adviser, or
shares redeemed involuntarily in a similar situation.
DISTRIBUTION AND SERVICE (12b-1) FEES
12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and
distribution of the Fund's shares and/or for providing shareholder services.
Because 12b-1 fees are paid from Fund assets on an ongoing basis, they will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
- The 12b-1 fees vary by share class as follows:
- Class A shares may pay a 12b-1 fee of up to .50% of the average daily
net assets of a Fund. .25% of this fee may be used for shareholder
servicing. The Distributor currently limits Class A plan fees to 0.25%
for the Funds.
- Class B shares pay a 12b-1 fee of up to 1.00% of the average daily net
assets of the applicable Fund. The Distributor currently limits Class B
plan fees of each Bond Fund to .75%. The higher Class B plan fees will
cause expenses for Class B shares to be higher and dividends to be
lower than for Class A shares.
- The higher 12b-1 fee on Class B shares, together with the CDSC, help the
Distributor sell Class B shares without an "up-front" sales charge. In
particular, these fees help to defray the Distributor's costs of
advancing brokerage commissions to investment representatives.
- The Distributor may use up to .25% of the 12b-1 fee for shareholder
servicing and the remainder for distribution.
Over time, shareholders will pay more than the equivalent of the maximum
permitted front-end sales charge because 12b-1 distribution and service fees
are paid out of the Fund's assets on an on-going basis.
25
<PAGE> 27
SHAREHOLDER INFORMATION EXCHANGING YOUR SHARES
You can exchange your shares in one Fund for shares of the same class of
another Centura Fund, usually without paying additional sales charges (see
"Notes" below). No transaction fees are charged for exchanges.
You must meet the minimum investment requirements for the Fund into which you
are exchanging. Exchanges from one Fund to another are taxable.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to Centura Funds, P.O. Box
182485, Columbus OH 43218-2485, or by calling 1-800-442-3688. Please provide
the following information:
- Your name and telephone number
- The exact name on your account and account number
- Taxpayer identification number (usually your Social Security number)
- Dollar value or number of shares to be exchanged
- The name of the Fund from which the exchange is to be made
- The name of the Fund into which the exchange is being made
See "Selling your Shares" for important information about telephone
transactions.
To prevent disruption in the management of the Funds, due to market timing
strategies, exchange activity may be limited to five exchanges within a one
year period or three exchanges in a calendar quarter.
NOTES ON EXCHANGES
When exchanging from a Fund that has no sales charge or a lower sales charge
to a Fund with a higher sales charge, you will pay the difference. However,
no sales charge is imposed on exchanges of Class A shares that have been held
for more than two years.
The registration and tax identification numbers of the two accounts must be
identical.
The Exchange Privilege (including automatic exchanges) may be changed or
eliminated at any time upon a 60-day notice to shareholders.
Be sure to read carefully the Prospectus of any Fund into which you wish to
exchange shares.
QUESTIONS?
Call 1-800-442-3688
26
<PAGE> 28
SHAREHOLDER INFORMATION DIVIDENDS, DISTRIBUTIONS AND TAXES
Any income a Fund receives is paid out, less expenses, in the form of
dividends to its shareholders. Income dividends on each Equity Fund are
declared and paid monthly. Dividends on all other Funds are declared daily
and paid monthly. Capital gains for all Funds are distributed at least
annually.
An exchange of shares is considered a sale, and any related gains may be
subject to applicable taxes.
North Carolina law exempts from income taxation dividends received from a
mutual fund in proportion to the income of the mutual fund that is
attributable to interest on U.S. Government securities or bonds of the State
of North Carolina or any of its counties, municipalities or political
subdivisions.
Dividends are taxable as ordinary income as are dividends paid by the North
Carolina Tax-Free Bond Fund that are derived from taxable investments. Taxes
on capital gains by the Funds will vary with the length of time the Fund has
held the security -- not how long you have invested in the Fund.
During normal market conditions, the North Carolina Tax-Free Bond Fund
expects that substantially all of its dividends will be excluded from gross
income for federal income tax purposes. However, distributions, if any,
derived from net capital gains will generally be taxable to you as capital
gains for federal, state or local tax purposes. The Fund may invest in
certain securities with interest that may be a preference item for the
purposes of the alternative minimum tax or a factor in determining whether
Social Security benefits are taxable. In such event, a portion of the Fund's
dividends would not be exempt from federal income taxes.
Some dividends may be taxable in the year in which they are declared, even if
they are paid or appear on your account statement the following year.
Dividends and distributions are treated in the same manner for federal income
tax purposes whether you receive them in cash or in additional shares.
You will be notified in January each year about the federal tax status of
distributions made by the Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
Foreign shareholders may be subject to special withholding requirements.
There is a penalty on certain pre-retirement distributions from retirement
accounts. Consult your tax adviser about the federal, state and local tax
consequences in your particular circumstances.
27
<PAGE> 29
FINANCIAL HIGHLIGHTS EQUITY FUNDS
The Financial Highlights Table is intended to help you understand each Fund's
financial performance for the past 5 years or, if shorter, the period of the
Fund's operations. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in a Fund (assuming
reinvestment of all dividends and distributions). The information for the
year ended April 30, 2000 has been audited by [ ], whose report, along with
the Funds' financial statements, are included in the annual report, which is
available upon request. The information for earlier periods has been audited
by other auditors.
LARGE CAP EQUITY FUND
CLASS A
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30, FOR THE
------------------------------ PERIOD ENDED
2000 1999 1988 APRIL 30, 1997(a)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ $12.60 $10.91 $10.00
---------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.10 0.26 0.14
Net realized and unrealized gains from investments 2.19 2.90 0.93
---------------------------------------------------------------------------------------------------------
Total from investment activities 2.29 3.16 1.07
---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.10) (0.26) (0.14)
Net realized gains (0.98) (1.21) (0.02)
---------------------------------------------------------------------------------------------------------
Total distributions (1.08) (1.47) (0.16)
---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ $13.81 $12.60 $10.91
---------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) % 19.58% 30.36% 10.69%(c)
---------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000) $ $2,335 $1,490 $ 338
Ratio of expenses to average net assets % 1.14% 0.90% 0.99%(b)
Ratio of net investment income to average net
assets % 0.72% 2.05% 2.15%(b)
Ratio of expenses to average net assets* % 1.51% 1.55% 1.65%(b)
Portfolio turnover rate** % 114% 39% 24%
</TABLE>
CLASS B
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30, FOR THE
------------------------------ PERIOD ENDED
2000 1999 1998 APRIL 30, 1997(a)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ $12.55 $10.88 $10.00
---------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income (loss) (0.01) 0.17 0.11
Net realized and unrealized gains from investments 2.20 2.88 0.90
---------------------------------------------------------------------------------------------------------
Total from investment activities 2.19 3.05 1.01
---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.06) (0.17) (0.11)
Net realized gains (0.98) (1.21) (0.02)
---------------------------------------------------------------------------------------------------------
Total distributions (1.04) (1.38) (0.13)
---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ $13.70 $12.55 $10.88
---------------------------------------------------------------------------------------------------------
Total return (excludes redemption charge) % 18.76% 29.39% 10.15%(c)
---------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000) $ $4,138 $2,182 $ 427
Ratio of expenses to average net assets % 1.90% 1.64% 1.71%(b)
Ratio of net investment income (loss) to average
net assets % (0.09%) 1.30% 1.52%(b)
Ratio of expenses to average net assets* % 2.01% 2.05% 2.12%(b)
Portfolio turnover rate** % 114% 39% 24%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) For the period from October 1, 1996 (commencement of operations) to April
30, 1997.
(b) Annualized.
(c) Not annualized.
28
<PAGE> 30
FINANCIAL HIGHLIGHTS EQUITY FUNDS
MID CAP EQUITY FUND
CLASS A
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30,
-----------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ $ 16.14 $ 15.33 $ 14.31 $ 10.70
---------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.03 0.05 0.06 0.03
Net realized and unrealized gains from
investments 1.15 4.92 1.58 3.67
---------------------------------------------------------------------------------------------------------
Total from investment activities 1.18 4.97 1.64 3.70
---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.04) (0.05) (0.06) (0.05)
Net realized gains (1.95) (4.11) (0.56) (0.04)
---------------------------------------------------------------------------------------------------------
Total distributions (1.99) (4.16) (0.62) (0.09)
---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ $ 15.33 $ 16.14 $ 15.33 $ 14.31
---------------------------------------------------------------------------------------------------------
Total return (excludes sales charge) % 8.59% 36.55% 11.55% 34.72%
---------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000) $ $14,034 $13,935 $ 8,501 $ 5,740
Ratio of expenses to average net assets % 1.28% 1.23% 1.30% 1.26%
Ratio of net investment income to average
net assets % 0.20% 0.31% 0.42% 0.27%
Ratio of expenses to average net assets* % 1.53% 1.48% 1.55% (b)
Portfolio turnover rate** % 142% 49% 67% 46%
</TABLE>
CLASS B
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30,
-----------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ $ 15.88 $ 15.20 $ 14.24 $ 10.69
---------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income (loss) (0.07) (0.05) (0.04) (0.06)
Net realized and unrealized gains from
investments 1.12 4.84 1.57 3.65
---------------------------------------------------------------------------------------------------------
Total from investment activities 1.05 4.79 1.53 3.59
---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.01) -- (0.01) --
Net realized gains (1.95) (4.11) (0.56) (0.04)
---------------------------------------------------------------------------------------------------------
Total distributions (1.96) (4.11) (0.57) (0.04)
---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ $ 14.97 $ 15.88 $ 15.20 $ 14.24
---------------------------------------------------------------------------------------------------------
Total return (excludes redemption charge) % 7.83% 35.55% 10.78% 33.73%
---------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000) $ $19,269 $18,225 $ 9,761 $ 6,194
Ratio of expenses to average net assets % 2.04% 1.98% 2.05% 2.02%
Ratio of net investment income (loss) to
average net assets % (0.55%) (0.43%) (0.33%) (0.48%)
Ratio of expenses to average net assets* (b) (b) (b) (b)
Portfolio turnover rate** % 142% 49% 67% 46%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
** Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(a) For the period from June 1, 1994 (commencement of operations) to April
30, 1995.
(b) There were no waivers or reimbursements during the period.
(c) Annualized.
(d) Not annualized.
29
<PAGE> 31
FINANCIAL HIGHLIGHTS SMALL CAP EQUITY FUND
SMALL CAP EQUITY FUND
<TABLE>
<CAPTION>
CLASS A FOR THE
FOR THE YEAR ENDED APRIL 30, PERIOD ENDED
2000 1999 APRIL 30, 1998(a)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ $14.99 $10.00
-------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income (loss) (0.06) 0.03
Net realized and unrealized gains (losses) from
investments (1.20) 5.87
-------------------------------------------------------------------------------------------------------------
Total from investment activities (1.26) 5.90
-------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income -- (0.03)
In excess of net investment income -- (0.01)
Net realized gains (1.04) (0.87)
-------------------------------------------------------------------------------------------------------------
Total distributions (1.04) (0.91)
-------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ $12.69 $14.99
-------------------------------------------------------------------------------------------------------------
Total return (excludes sales charge) (8.05%) 60.75%(c)
-------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000) $ $3,046 $3,000
Ratio of expenses to average net assets % 1.48% 1.46%(b)
Ratio of net investment income (loss) to average net
assets % (0.43%) 0.09%(b)
Ratio of expenses to average net assets* % 1.73% 1.82%(b)
Portfolio turnover rate** % 130% 71%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
** Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(a) For the period from May 2, 1997 (commencement of operations) to April 30,
1998.
(b) There were no waivers or reimbursements during the period.
(c) Annualized.
(d) Not annualized.
<TABLE>
<CAPTION>
CLASS B FOR THE
FOR THE YEAR ENDED APRIL 30, PERIOD ENDED
2000 1999 APRIL 30, 1998(a)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ $14.90 $10.00
-------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income (loss) (0.14) (0.03)
Net realized and unrealized gains (losses) from
investments (1.22) 5.82
-------------------------------------------------------------------------------------------------------------
Total from investment activities (1.36) 5.79
-------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income -- --
In excess of net investment income -- (0.02)
Net realized gains (1.04) (0.87)
-------------------------------------------------------------------------------------------------------------
Total distributions $ (1.04) (0.89)
-------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.50 $14.90
-------------------------------------------------------------------------------------------------------------
Total return (excludes sales charge) $ (8.79%) 59.50%(d)
-------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000) % $5,108 $4,938
Ratio of expenses to average net assets % 2.23% 2.21%(c)
Ratio of net investment income (loss) to average net
assets % (1.19%) (0.66%)(c)
Ratio of expenses to average net assets* % (b) 2.32%(c)
Portfolio turnover rate** % 130% 71%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
** Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(a) For the period from May 2, 1997 (commencement of operations) to April 30,
1998.
(b) There were no waivers or reimbursements during the period.
(c) Annualized.
(d) Not annualized.
30
<PAGE> 32
FINANCIAL HIGHLIGHTS BOND FUNDS
GOVERNMENT INCOME FUND
CLASS A
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30,
------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ $10.19 $ 9.94 $10.01 $ 9.97
-----------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.50 0.55 0.56 0.57
Net realized and unrealized gains (losses)
from investments 0.04 0.25 (0.07) 0.04
-----------------------------------------------------------------------------------------
Total from investment activities 0.54 0.80 0.49 0.61
-----------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.50) (0.55) (0.56) (0.57)
Net realized gains (0.20) -- -- --
-----------------------------------------------------------------------------------------
Total distributions (0.70) (0.55) (0.56) (0.57)
-----------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ $10.03 $10.19 $ 9.94 $10.01
-----------------------------------------------------------------------------------------
Total return (excludes sales charge) % 5.38% 8.21% 5.07% 6.20%
-----------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000) $ $ 678 $ 531 $ 481 $ 526
Ratio of expenses to average net assets % 0.84% 0.84% 0.82% 0.85%
Ratio of net investment income to average
net assets % 4.85% 5.42% 5.63% 5.61%
Ratio of expenses to average net assets* % 1.09% 1.09% 1.07% (b)
Portfolio turnover rate** % 104% 121% 26% 34%
</TABLE>
CLASS B
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30,
------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ $10.18 $ 9.94 $10.01 $ 9.97
-----------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.45 0.50 0.50 0.50
Net realized and unrealized gains (losses)
from investments 0.05 0.24 (0.07) 0.04
-----------------------------------------------------------------------------------------
Total from investment activities 0.50 0.74 0.43 0.54
-----------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.45) (0.50) (0.50) (0.50)
Net realized gains (0.20) -- -- --
-----------------------------------------------------------------------------------------
Total distributions (0.65) (0.50) (0.50) (0.50)
-----------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ $10.03 $10.18 $ 9.94 $10.01
-----------------------------------------------------------------------------------------
Total return (excludes redemption charge) % 4.96% 7.58% 4.46% 5.40%
-----------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000) $ $ 195 $ 131 $ 194 $ 176
Ratio of expenses to average net assets % 1.35% 1.36% 1.40% 1.61%
Ratio of net investment income to average
net assets % 4.32% 4.93% 5.04% 4.84%
Ratio of expenses to average net assets* % 1.60% 1.61% 1.65% (b)
Portfolio turnover rate** % 104% 121% 26% 34%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
** Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(a) For the period from June 1, 1994 (commencement of operations) to April
30, 1995.
(b) There were no waivers or reimbursements during the period.
(c) Annualized.
(d) Not annualized.
31
<PAGE> 33
FINANCIAL HIGHLIGHTS BOND FUNDS
NORTH CAROLINA TAX-FREE BOND FUND
CLASS A
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30,
---------------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ $10.30 $ 9.98 $10.04 $ 9.98
--------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.41 0.43 0.43 0.42
Net realized and unrealized gains (losses)
from investments 0.20 0.32 0.03 0.13
--------------------------------------------------------------------------------------------------------
Total from investment activities 0.61 0.75 0.46 0.55
--------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.41) (0.43) (0.43) (0.42)
Net realized gains (0.05) -- (0.09) (0.07)
--------------------------------------------------------------------------------------------------------
Total distributions (0.46) (0.43) (0.52) (0.49)
--------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ $10.45 $10.30 $ 9.98 $10.04
--------------------------------------------------------------------------------------------------------
Total return (excludes sales charge) % 5.96% 7.61% 4.71% 5.50%
--------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000) $ $4,870 $4,664 $3,823 $3,927
Ratio of expenses to average net assets % 0.82% 0.69% 0.69% 0.68%
Ratio of net investment income to average
net assets % 3.89% 4.19% 4.31% 3.98%
Ratio of expenses to average net assets* % 1.26% 1.29% 1.30% 1.04%
Portfolio turnover rate** % 11% 29% 34% 80%
</TABLE>
CLASS B
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30,
---------------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ $10.30 $ 9.98 $10.04 $ 9.98
INVESTMENT ACTIVITIES
Net investment income 0.36 0.38 0.37 0.34
Net realized and unrealized gains (losses)
from investments 0.21 0.32 0.03 0.13
--------------------------------------------------------------------------------------------------------
Total from investment activities 0.57 0.70 0.40 0.47
--------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.36) (0.38) (0.37) (0.34)
Net realized gains (0.05) -- (0.09) (0.07)
--------------------------------------------------------------------------------------------------------
Total distributions (0.41) (0.38) (0.46) (0.41)
--------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ $10.46 $10.30 $ 9.98 $10.04
--------------------------------------------------------------------------------------------------------
Total return (excludes sales charge) % 5.53% 7.09% 4.11% 4.72%
--------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000) $ $ 570 $ 511 $ 430 $ 393
Ratio of expenses to average net assets % 1.32% 1.18% 1.27% 1.44%
Ratio of net investment income to average
net assets % 3.38% 3.70% 3.73% 3.30%
Ratio of expenses to average net assets* % 1.76% 1.78% 1.88% 1.80%
Portfolio turnover rate** % 11% 29% 34% 80%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
** Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(a) For the period from June 1, 1994 (commencement of operations) to April
30, 1995.
(b) Annualized.
(c) Not annualized.
32
<PAGE> 34
For more information about the Funds, the following documents are available free
upon request:
ANNUAL/SEMIANNUAL REPORTS (REPORTS):
The Funds' annual and semi-annual reports to shareholders contain additional
information on the Funds' investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Funds, including its
operations and investment policies. It is incorporated by reference and is
legally considered a part of this prospectus.
You can get free copies of reports and the SAI, or request other
information and discuss your questions about the funds by contacting a
broker or bank that sells the fund. Or contact the fund at:
Centura Funds
P.O. BOX 182485
Columbus, Ohio 43218-2485
Telephone: 1-800-442-3688
INFORMATION FROM THE SECURITIES AND EXCHANGE COMMISSION:
You can obtain copies of Fund documents from the SEC as follows:
IN PERSON:
Public Reference Room in Washington, D.C. (For their hours of operation, call
1-202-942-8090.)
BY MAIL:
Securities and Exchange Commission
Public Reference Section
Washington, D.C. 20549-0102
(The SEC charges a fee to copy any documents.)
ON THE EDGAR DATABASE VIA THE INTERNET:
www.sec.gov
BY ELECTRONIC REQUEST:
[email protected]
Investment Company Act File No. 811-8384.
<PAGE> 35
CENTURA LOGO
CENTURA MONEY MARKET FUND
INVESTMENT ADVISER
AND CUSTODIAN
CENTURA BANK
131 North Church Street
Rocky Mount, NC 27802
QUESTIONS?
Call 1-800-442-3688
or Your Investment Representative.
PROSPECTUS
AUGUST 30, 2000
CLASS A AND CLASS C
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these Fund Shares or determined whether this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
<PAGE> 36
TABLE OF
CONTENTS
<TABLE>
<S> <C> <C> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
Carefully review this important 3 Investment Objective, Principal Investment Strategies
section, which summarizes each fund's 4 Principal Risks and Performance Information
investments, risks, and fees.
FUND MANAGEMENT
LOGO
Review this section for details on 6 Investment Adviser
the organizations who oversee the 6 Distributor and Administrator
Fund.
SHAREHOLDER INFORMATION
LOGO
Review this section for details 7 Pricing of Fund Shares
on how shares are valued, how to 9 Purchasing and Adding to Your Shares
purchase, sell and exchange shares, 9 Selling Your Shares
related charges, and payments of 13 Exchanging Your Shares
dividends. 14 Dividends, Distributions and Taxes
FINANCIAL HIGHLIGHTS
LOGO
15
BACK COVER
LOGO
Where To Learn More About The Funds
</TABLE>
2
<PAGE> 37
RISK/RETURN SUMMARY AND FUND EXPENSES
-
CENTURA MONEY MARKET FUND (THE "FUND")
INVESTMENT OBJECTIVES. As high a level of current income as is consistent
with preservation of capital and liquidity.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests in a broad range of high
quality, short-term, money market instruments that have remaining maturities
not exceeding 397 days. The Fund is required to maintain a dollar-weighted
average portfolio maturity no greater than 90 days. The Fund's investments
may include any investments permitted under federal rules governing money
market funds, including: U.S. Government securities, bank obligations,
commercial paper, corporate debt securities, variable rate demand notes and
repurchase agreements and other high quality short-term securities, as well
as other investment companies.
The Adviser selects only those U.S. dollar-denominated debt instruments that
meet the high quality and minimal credit risk standards established by the
Board of Directors and consistent with Federal requirements applicable to
money market funds. In accordance with such requirements, the Fund will
purchase securities that are rated within the top two rating categories by at
least two nationally recognized statistical rating organizations ("NRSROs")
or, if only one NRSRO has rated the security, by that NRSRO, or if not rated,
the securities are deemed of comparable quality pursuant to standards adopted
by the Board of Directors. The Fund's investments in securities with the
second-highest rating (or deemed of comparable quality) may not exceed 5% of
its total assets, and all of the Fund's commercial paper investments must be
in the highest rating category (or deemed of comparable quality). Investments
in other investment companies may not exceed 10% of the Fund's total assets,
with no more than 5% of such assets in a single such company. Investments in
other investment companies cause the Fund to bear expenses which duplicate
those already borne by the Fund.
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment
in the Fund by showing its performance from year to year. (Both the chart and
the table assume reinvestment of dividends and distributions and reflect
voluntary fee reductions. Without voluntary fee reductions, the Fund's
performance would have been lower.)
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS FOR CLASS C SHARES*
1999 5.06%
Best quarter: 4th Qtr. 1999 1.36%
Worst quarter: 2nd Qtr. 1999 1.17%
Past performance does not indicate how the Fund will perform in the future.
Average Annual Total Returns
for the period ending December 31, 1999
Inception Past Since
Date Year Inception
Class A Shares 6/1/99 4.38% 4.45%
Class C Shares 6/1/98 5.06% 5.16%
*For the period January 1, 2000 through June 30, 2000, the aggregate
(non-annualized) total return of the Fund's Class C Shares was ____%.
As of June 30, 2000 the 7-day current yield of the Fund's Institutional
shares was ____%. For current yield information on the Fund, call
1-800-442-3688. The Money Market Fund's yield appears in the Wall Street
Journal each Thursday.
3
<PAGE> 38
RISK/RETURN SUMMARY AND FUND EXPENSES MONEY MARKET FUND
PRINCIPAL RISKS
Investing in the Money Market Fund involves risks common to any investment in
securities. By itself, no Fund constitutes a balanced investment program.
An investment in the Money Market Fund is not a bank deposit of Centura Bank
or any other bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
The Money Market Fund expects to maintain a net asset value of $1.00 per
share, but there is no assurance that it will be able to do so on a
continuous basis. It is possible to lose money in the Fund.
There can be no assurance that the investment objective of the Money Market
Fund will be achieved.
Generally, securities in which the Fund may invest will not earn as high a
yield as securities with longer maturities or of lower quality.
SELECTION RISK Like all investment funds, the Money Market Fund is subject to
the chance that poor security selection will cause the Fund to underperform
other funds with similar objectives.
INTEREST RATE RISK Interest rate risk is the chance that the value of the
instruments held by the Fund will decline due to rising interest rates. When
interest rates rise, the price of most debt instruments goes down. The price
of a debt instrument is also affected by its maturity. Debt instruments with
shorter maturities, such as those permitted for money market funds, tend to
be less sensitive to changes in interest rates than instruments with longer
maturities.
CREDIT RISK Credit risk is the chance that the issuer of a debt instrument
will fail to repay interest and principal in a timely manner or may be unable
to fulfill an obligation to repurchase securities from the Fund, reducing the
Fund's return. Credit risk is minimized by the Fund's policy of adequate
diversification among issuers and industries and minimum credit risk
requirements for money market funds under applicable law.
INCOME RISK Income risk is the chance that falling interest rates will cause
the Fund's income to decline. Income risk is generally higher for short-term
debt instruments.
WHO MAY WANT TO INVEST?
Consider investing in the Money Market Fund if you:
- Are seeking preservation of capital
- Have a low risk tolerance
- Are willing to accept lower potential returns in exchange for a higher
degree of safety
- Are investing short-term reserves
The Money Market Fund will not be appropriate for anyone:
- Seeking high total returns
- Pursuing a long-term goal or investing for retirement
4
<PAGE> 39
RISK/RETURN SUMMARY AND FUND EXPENSES MONEY MARKET FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
FEE TABLE
<TABLE>
<CAPTION>
MONEY MARKET FUND
A SHARES C SHARES
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER FEES
(fees paid directly from your investment) None None
ANNUAL FUND OPERATING EXPENSES(1)
(expenses that are deducted from fund assets)
Management fees 0.30% 0.30%
Distribution (12b-1) fees 0.50% None
Other expenses 0.53% 0.31%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.53% 0.61%
</TABLE>
EXAMPLE: THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING
IN THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE
ASSUMES:
- $10,000 INVESTMENT
- 5% ANNUAL RETURN AND REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
- REDEMPTION AT THE END OF EACH PERIOD
- NO CHANGES IN THE FUND'S OPERATING EXPENSES, EXCEPT FOR THE EXPIRATION OF
THE CURRENT CONTRACTUAL FEE WAIVERS/EXPENSE REIMBURSEMENTS ON APRIL 30,
2000
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE
ASSUMPTIONS, YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
MONEY MARKET FUND
A SHARES C SHARES
-----------------------------------------------------------------------------------------
<S> <C> <C>
ONE YEAR AFTER PURCHASE $ 135 $ 62
THREE YEARS AFTER PURCHASE $ 421 $195
FIVE YEARS AFTER PURCHASE $ 729 $340
TEN YEARS AFTER PURCHASE $1,601 $762
</TABLE>
5
<PAGE> 40
FUND MANAGEMENT
INVESTMENT ADVISER
The Fund is advised by Centura Bank, a wholly owned subsidiary of Centura
Banks, Inc. Centura Bank maintains offices at 131 North Church Street, Rocky
Mount, North Carolina 27802. Centura Bank is a member of the Federal Reserve
System and manages the financial assets of individual and institutional
investors. Centura Bank employs an experienced staff of professional
investment analysts, portfolio managers and traders, and uses several
proprietary computer-based systems in conjunction with fundamental analysis
to identify investment opportunities.
For these advisory services, the Fund paid a fee of .10% of average net
assets during the fiscal year ended April 30, 2000. Centura Bank waived a
portion of its contractual fees for the Fund for the most recent fiscal year.
Contractual fees (without waivers) are 0.30% for the Money Market Fund.
DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services ("BISYS") provides management and administrative services
to the Fund, including providing office space, equipment and clerical
personnel to the Fund and supervising custodial, auditing, valuation,
bookkeeping and legal services. BISYS Fund Services, Inc., an affiliate of
BISYS, acts as the fund accountant, transfer agent and dividend paying agent
of the Fund. BISYS and BISYS Fund Services, Inc. are each located at 3435
Stelzer Road, Columbus, Ohio 43219.
Centura Funds Distributor, Inc., 90 Park Avenue, New York, N.Y. 10036, acts
as the Fund's distributor. The Distributor is an affiliate of BISYS and was
formed specifically to distribute the Funds.
6
<PAGE> 41
SHAREHOLDER INFORMATION
-
PRICING OF FUND SHARES
HOW NAV IS CALCULATED
The NAV is calculated by adding the total value of the Fund's investments and
other assets, subtracting its liabilities and then dividing that figure by
the number of outstanding shares of the Fund:
NAV =
Total Assets - Liabilities
-------------------------
Number of Shares
Outstanding
The Fund's net asset value, or NAV, is expected to be constant at $1.00 per
share, although its value is not guaranteed. The NAV is determined at 4:00
p.m. Eastern time on days the New York Stock Exchange is open. The Fund
values its securities at their amortized cost. The amortized cost method
involves valuing a portfolio security initially at its cost on the date of
the purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and initial cost.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after your order is received in good order by the Fund on any day
that both the New York Stock Exchange and the Fund's custodian are open for
business. For example: If you place a purchase order to buy shares of the
Fund, it must be received by 4:00 p.m. Eastern time in order to receive the
NAV calculated at 4:00 p.m. If your order is received after 4:00 p.m. Eastern
time, you will receive the NAV calculated on the next day at 4:00 p.m.
Eastern time.
PURCHASING AND SELLING YOUR SHARES
You may purchase shares of the Fund through the Centura Funds Distributor or
through banks, brokers and other investment representatives, which may charge
additional fees and may require higher minimum investments or impose other
limitations on buying and selling shares. If you purchase shares through an
investment representative, that party is responsible for transmitting orders
by close of business and may have an earlier cut-off time for purchase and
sale requests. Consult your investment representative or institution for
specific information.
<TABLE>
<CAPTION>
MINIMUM MINIMUM
CLASS A SHARES INITIAL SUBSEQUENT
ACCOUNT TYPE INVESTMENT INVESTMENT
<S> <C> <C>
Regular (non-retirement) $1,000 $250
Retirement (IRA) $ 250 $ 50
Automatic Investment Plan $ 50 $ 50
</TABLE>
CLASS C SHARES
While no minimum initial or subsequent
purchase amount is required, Class C shares
are available only to certain trust or
institutional clients of the Adviser and
Sub-Adviser, as well as clients investing
through a qualified wrap account through an
approved broker-dealer.
All purchases must be in U.S. dollars. A fee will be charged for any checks
that do not clear. Third-party checks are not accepted.
The Distributor may reject a purchase order if it considers it in the best
interest of the Fund and its shareholders.
AVOID 31% TAX WITHHOLDING
Each Fund is required to withhold 31% of taxable dividends, capital
gains distributions and redemptions paid to shareholders who have not
provided the Fund with their certified taxpayer identification number
in compliance with IRS rules. To avoid this, make sure you provide your
correct Tax Identification Number (Social Security Number for most
investors) on your account application.
7
<PAGE> 42
SHAREHOLDER INFORMATION
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
If purchasing through your financial advisor or brokerage account, simply
tell your advisor or broker that you wish to purchase shares of the Fund and
he or she will take care of the necessary documentation. For all other
purchases, follow the instructions below.
<TABLE>
<S> <C> <C>
BY MAIL All investments made by regular mail or express delivery, whether initial or
subsequent, should be sent:
BY REGULAR MAIL BY EXPRESS MAIL
Centura Funds Centura Funds
P.O. Box 182485 3435 Stelzer Road
Columbus, OH 43218-2485 Columbus, OH 43219
For Initial Investment:
1. Carefully read and complete the application. Establishing your account privileges
now saves you the inconvenience of having to add them later.
2. Make check, bank draft or money order payable to "Centura Funds" and include the
name of the appropriate Fund(s) on the check.
3. Mail or deliver application and payment to address above.
For Subsequent Investment:
1. Use the investment slip attached to your account statement. Or, if unavailable,
provide the following information:
- Fund name
- Share class
- Amount invested
- Account name and account number
2. Make check, bank draft or money order payable to "Centura Funds" and include your
account number on the check.
3. Mail or deliver investment slip and payment to the address above.
ELECTRONIC PURCHASES Your bank must participate in the Automated Clearing
House (ACH) and must be a U. S. Bank. Your bank or
broker may charge for this service.
Establish the electronic purchase option on your
account application or call 1-800-442-3688. Your
account can generally be set up for electronic
purchases within 15 days.
Call 1-800-442-3688 to arrange a transfer from your
bank account.
BY WIRE TRANSFER Call 1-800-442-3688 to obtain a new account number
and instructions for sending your application, and
for instructing your bank to wire transfer your
investment. In order for a wire purchase to be
effective on the same day it is received, both the
trading instructions and the wire must be received
before 4 p.m. Eastern time.
NOTE: YOUR BANK MAY CHARGE A WIRE TRANSFER FEE.
</TABLE>
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow
financial institutions to
send funds to each other,
almost instantaneously. With
an electronic purchase or
sale, the transaction is
made through the Automated
Clearing House (ACH) and may
take up to eight days to
clear. There is generally no
fee for ACH transactions.
QUESTIONS?
Call 1-800-442-3688
8
<PAGE> 43
SHAREHOLDER INFORMATION
-
PURCHASING AND ADDING TO YOUR SHARES
You can add to your account by using the convenient options described below.
The Fund reserves the right to change or eliminate these privileges at any
time with 60 days notice.
AUTOMATIC INVESTMENT PROGRAM
You can make automatic investments in the Fund from your bank account,
through payroll deductions or from your federal employment, Social Security
or other regular government checks. Automatic investments can be as little as
$50; no investment is required to establish an automatic investment account.
To invest regularly from your bank account:
- Complete the Automatic Investment Plan portion on your Account
Application.
Make sure you note:
- Your bank name, address and account number
- The amount you wish to invest automatically (minimum $50)
- How often you want to invest (every month or 4 times a year)
- Attach a voided personal check.
To invest regularly from your paycheck or government check, call
1-800-442-3688 for an enrollment form.
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested distributions.
Dividends are higher for Class A shares than for Class C shares, because
Class A shares have higher distribution expenses. Capital gains are
distributed at least annually.
SELLING YOUR SHARES
You may sell your shares at
any time. Your sales price
will be the next NAV after
your sell order is received
in good order by the Fund,
its transfer agent, or your
investment representative.
Normally you will receive
your proceeds within a week
after your request is
received. See section on
"General Policies on Selling
Shares" below.
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is
also known as redeeming shares or a
redemption of shares.
9
<PAGE> 44
SHAREHOLDER INFORMATION
SELLING YOUR SHARES -- CONTINUED
INSTRUCTIONS FOR SELLING SHARES
If selling your shares through your financial adviser or broker, ask him or
her for redemption procedures. Your adviser and/or broker may have
transaction minimums and/or transaction times which will affect your
redemption. For all other sales transactions, follow the instructions below.
<TABLE>
<S> <C>
BY TELEPHONE 1. Call 1-800-442-3688 with instructions as to how you wish
(unless you have declined telephone to receive your funds (mail, wire, electronic transfer).
sales privileges) (See "General Policies on Selling Shares -- Verifying
Telephone Redemptions" below)
BY MAIL 1. Call 1-800-442-3688 to request redemption forms or write
(See "Selling Your Shares -- a letter of instruction indicating:
Redemptions in Writing Required")
- your Fund and account number
- amount you wish to redeem
- address where your check should be sent
- account owner signature
2. Mail to: Centura Funds
P.O. Box 182485
Columbus, OH 43218-2485
BY OVERNIGHT SERVICE See instruction 1 above.
(See "General Policies on Selling 2. Send to Centura Funds
Shares -- Redemptions in Writing c/o BISYS Fund Services
Required" below) Attn: Shareholder Services
3435 Stelzer Road
Columbus, OH 43219
WIRE TRANSFER Call 1-800-442-3688 to request a wire transfer.
You must indicate this option on
your application. If you call by 4 p.m. Eastern time, your payment will
normally be wired to your bank on the next business day.
Note: Your financial institution may
charge a fee.
ELECTRONIC REDEMPTIONS If you call by 4 p.m. Eastern time, the NAV of your shares
Your bank must participate in the will normally be determined on the same day and the proceeds
Automated Clearing House (ACH) and credited within 8 days.
must be a U.S. bank.
Your bank may charge for this
service.
</TABLE>
QUESTIONS?
Call 1-800-442-3688
10
<PAGE> 45
SHAREHOLDER INFORMATION
SELLING YOUR SHARES -- CONTINUED
SYSTEMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The maximum withdrawal per year is 12% of the
account value at the time of election. To activate this feature:
- Make sure you've checked the appropriate box on the Account Application.
Or call 1-800-442-3688.
- Include a voided personal check.
- Your account must have a value of $12,000 or more to start withdrawals.
- If the value of your account falls below $1,000, you may be asked to add
sufficient funds to bring the account back to $1,000, or the Fund may
close your account and mail the proceeds to you.
REDEMPTION BY CHECK WRITING -- THE MONEY MARKET FUND
You may write checks in amounts of $100 or more on your account in the Money
Market Fund. To obtain checks, complete the signature card section of the
Account Application or contact the Fund to obtain a signature card. Dividends
and distributions will continue to be paid up to the day the check is
presented for payment. You must maintain the minimum required account balance
of $1,000 and you may not close your Fund account by writing a check.
GENERAL POLICIES ON SELLING SHARES
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following situations:
1. Redemptions from Individual Retirement Accounts ("IRAs").
2. Redemption requests requiring a signature guarantee, which include each of
the following:
- Redemptions over $25,000
- Your account registration or the name(s) in your account has changed
within the last 15 days
- The check is not being mailed to the address on your account
- The check is not being made payable to the owner of the account
- The redemption proceeds are being transferred to another Fund account
with a different registration.
A signature guarantee can be obtained from a financial institution, such as a
bank, broker-dealer, or credit union, or from members of the STAMP
(Securities Transfer Agents Medallion Program), MSP (New York Stock Exchange
Medallion Signature Program) or SEMP (Stock Exchanges Medallion Program).
Members are subject to dollar limitations which must be considered when
requesting their guarantee. The Transfer Agent may reject any signature
guarantee if it believes the transaction would otherwise be improper.
11
<PAGE> 46
SHAREHOLDER INFORMATION
SELLING YOUR SHARES -- CONTINUED
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to ensure that telephone redemptions are only
made by authorized shareholders. All telephone calls are recorded for your
protection and you will be asked for information to verify your identity.
Given these precautions, unless you have specifically indicated on your
application that you do not want the telephone redemption feature, you may be
responsible for any fraudulent telephone orders. If appropriate precautions
have not been taken, the Transfer Agent may be liable for losses due to
unauthorized transactions.
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, your redemption proceeds
will not be mailed until the Transfer Agent is satisfied that the check has
cleared (which may require up to 15 business days). You can avoid this delay
by purchasing shares with a certified check or federal funds wire.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission in order to protect
remaining shareholders. If you experience difficulty making a telephone
redemption during periods of drastic economic or market change, you can send
the Fund your request by regular mail or express mail.
REDEMPTION IN KIND
The Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind" for amounts redeemed by a shareholder, in any
90-day period, in excess of $250,000 or 1% of Fund net assets, whichever is
less. If the Fund deems it advisable for the benefit of all shareholders,
redemption in kind will consist of securities equal in market value to your
shares. When you convert these securities to cash, you will pay brokerage
charges.
CLOSING OF SMALL ACCOUNTS
If your account falls below $1,000, the Fund may ask you to increase your
balance. If it is still below $1,000 after 30 days, the Fund may close your
account and send you the proceeds at the current NAV.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash: If
distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that
remain uncashed for six months will be canceled and the money reinvested in
the Fund.
12
<PAGE> 47
SHAREHOLDER INFORMATION EXCHANGING YOUR SHARES
You can exchange your shares in the Fund for shares of the same class of
another Centura Fund. No transaction fees are charged for exchanges (see
"Notes" below).
Exchanges from one Fund to another are taxable.
AUTOMATIC EXCHANGES
You can use the Fund's Automatic Exchange feature to purchase shares of other
Centura Funds at regular intervals ($100 minimum per transaction) through
regular, automatic redemptions from the Money Market Fund. To participate in
the Automatic Exchange:
- Complete the appropriate section of the Account Application.
- Keep a minimum of $10,000 in the Money Market Fund and $1,000 in the
Centura Fund whose shares you are buying.
To change the Automatic Exchange instructions or to discontinue the feature,
you must send a written request to Centura Funds, P.O. Box 182485, Columbus,
Ohio 43218-2485.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to Centura Funds, P.O. Box
182485, Columbus OH 43218-2485, or by calling 1-800-442-3688. Please provide
the following information:
- Your name and telephone number
- The exact name on your account and account number
- Taxpayer identification number (usually your Social Security number)
- Dollar value or number of shares to be exchanged
- The name of the Fund from which the exchange is to be made
- The name of the Fund into which the exchange is being made.
See "Selling your Shares" for important information about telephone
transactions.
To prevent disruption in the management of the Funds, due to market timing
strategies, exchange activity may be limited to five exchanges within a one
year period or three exchanges in a calendar quarter.
NOTES ON EXCHANGES
The registration and tax identification numbers of the two accounts must be
identical.
The Exchange Privilege (including automatic exchanges) may be changed or
eliminated at any time upon a 60-day notice to shareholders.
Be sure to read carefully the Prospectus of any other Centura Fund into which
you wish to exchange shares.
QUESTIONS?
Call 1-800-442-3688
13
<PAGE> 48
SHAREHOLDER INFORMATION
-
DIVIDENDS, DISTRIBUTIONS AND TAXES
Any income the Fund receives is paid out, less expenses, in the form of
dividends to its shareholders. Dividends are declared daily and paid monthly.
Capital gains for the Fund are distributed at least annually.
An exchange of shares is considered a sale, and any related gains may be
subject to applicable taxes.
Dividends are taxable as ordinary income. Taxes on capital gains by the Fund
will vary with the length of time the Fund has held the security -- not how
long you have invested in the Fund.
Some dividends may be taxable in the year in which they are declared, even if
they are paid or appear on your account statement the following year.
Dividends and distributions are treated in the same manner for federal income
tax purposes whether you receive them in cash or in additional shares.
You will be notified in January each year about the federal tax status of
distributions made by the Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
Foreign shareholders may be subject to special withholding requirements.
There is a penalty on certain pre-retirement distributions from retirement
accounts. Consult your tax adviser about the federal, state and local tax
consequences in your particular circumstances.
DISTRIBUTION AND SERVICE (12B-1) FEES -- CLASS A SHARES
12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and
distribution of the Fund's shares and/or for providing shareholder services.
Because 12b-1 fees are paid from Fund assets on an ongoing basis, they will
increase the cost of your investment and may cost you more than paying other
types of sales charges. Class A shares may pay a 12b-1 fee of up to .50% of
the average daily net assets of the Fund. .25% of this fee may be used for
shareholder servicing. The Distributor currently limits Class A plan fees to
0.30%.
SERVICE ORGANIZATIONS
Various banks, trust companies, broker-dealers (other than the Distributor)
and other financial organizations ("Service Organization(s)") may provide
certain administrative services for its customers who invest in the Money
Market Fund through accounts maintained at that Service Organization. The
Fund, under servicing agreements with the Service Organization, will pay the
Service Organization an annual rate up to .25% of the Fund's average daily
net assets for these services, which include:
- assisting in processing shareholder purchase and redemption orders
- performing the accounting for customers' sub-accounts
- maintaining retirement plan accounts
- answering questions and handling correspondence for customer accounts
- acting as the sole shareholder of record for customer accounts
- issuing shareholder reports and transaction confirmations
- performing daily "sweep" functions
Investors who purchase, sell or exchange shares of the Fund through a
customer account maintained at a Service Organization may be charged extra
for other services which are not specified in the servicing agreement with
the Fund but are covered under separate fee schedules provided by the Service
Organization to their customers. Customers with accounts at Service
Organizations should consult their Service Organization for information
concerning their sub-accounts. The Adviser or Administrator also may pay
Service Organizations for rendering services to customers' sub-accounts.
14
<PAGE> 49
FINANCIAL HIGHLIGHTS
The Financial Highlights Table is intended to help you understand the Fund's
financial performance for the period of the Fund's operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned on
an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information for the year ended April 30, 2000 has been
audited by [ ], whose report, along with the Fund's financial
statements, are included in the annual report, which is available upon
request.
MONEY MARKET FUND
<TABLE>
<CAPTION>
CLASS A CLASS C
------------------------------- --------------------------------
For the For the For the For the
Year Ended Period Ended Year Ended Period Ended
April 30, April 30, April 30, April 30,
2000 1999(a) 2000 1999(a)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ $ 1.00 $ $ 1.00
-------------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.046 0.046
-------------------------------------------------------------------------------------------------------------------------------
Total from investment activities 0.046 0.046
-------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.046) (0.046)
-------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.046) (0.046)
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ $ 1.00 $ $ 1.00
----------------------------------------------------------------------------------------------------------------------------
Total return % 4.70%(c) % 4.70%(c)
----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000) $ $64,184 $ $64,184
Ratio of expenses to average net assets % 0.20%(b) % 0.20%(b)
Ratio of net investment income to average
net assets % 5.00%(b) % 5.00%(b)
Ratio of expenses to average net assets* % 0.72%(b) % 0.72%(b)
</TABLE>
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratio would have been as indicated.
(a) For the period from June 1, 1998 (commencement of operations) to April
30, 1999.
(b) Annualized.
(c) Not annualized.
15
<PAGE> 50
For more information about the Funds, the following documents are available free
upon request:
ANNUAL/SEMIANNUAL REPORTS (REPORTS):
The Fund's annual and semi-annual reports to shareholders contain additional
information on the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Fund, including its
operations and investment policies. It is incorporated by reference and is
legally considered a part of this prospectus.
You can get free copies of reports and the SAI, or request other
information and discuss your questions about the funds by contacting a
broker or bank that sells the fund. Or contact the fund at:
Centura Funds
P.O. BOX 182485
Columbus, Ohio 43218-2485
Telephone: 1-800-442-3688
INFORMATION FROM THE SECURITIES AND EXCHANGE COMMISSION
You can obtain copies of Fund documents from the SEC as follows:
IN PERSON:
Public Reference Room in Washington, D.C. (For their hours of operation, call
1-202-942-8090.)
BY MAIL:
Securities and Exchange Commission
Public Reference Section
Washington, D.C. 20549-0102
(The SEC charges a fee to copy any documents.)
ON THE EDGAR DATABASE VIA THE INTERNET:
www.sec.gov
BY ELECTRONIC REQUEST:
[email protected]
Investment Company Act File No. 811-8384.
<PAGE> 51
CENTURA FUNDS, INC.
3435 STELZER ROAD
COLUMBUS, OHIO 43219
GENERAL AND ACCOUNT INFORMATION
(800) 442-3688
STATEMENT OF ADDITIONAL INFORMATION
CLASS A SHARES AND CLASS B SHARES
This Statement of Additional Information ("SAI") describes the seven funds (the
"Funds") advised by Centura Bank (the "Adviser"). The Funds are:
-- Centura Mid Cap Equity Fund
-- Centura Large Cap Equity Fund
-- Centura Small Cap Equity Fund
-- Centura Government Income Fund
-- Centura North Carolina Tax-Free Bond Fund
-- Centura Money Market Fund
-- Centura Quality Income 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. The Money Market Fund offers Class A shares but does not offer Class B
shares. Each Fund, including the Money Market 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 30, 2000
(collectively, 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 financial statements and related report of
the independent accountants in the Funds' Annual Report for the fiscal year
ended April 30, 2000 are incorporated by reference into this SAI. Copies of the
Annual Report and the Prospectus are available, without charge, and may be
obtained by writing or calling the Funds at the address and information numbers
printed above.
August 30, 2000
<PAGE> 52
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INVESTMENT POLICIES............................................................................ 3
The Funds Description of Securities and Investment Practices................................... 6
U.S. Government Securities..................................................................... 6
Bank Obligations............................................................................... 6
Commercial Paper............................................................................... 7
Convertible Securities......................................................................... 7
Corporate Debt Securities...................................................................... 7
Repurchase Agreements.......................................................................... 7
Variable and Floating Rate Demand and Master Demand Notes...................................... 7
Forward Commitments and When-Issued Securities................................................. 8
Mortgage Related Securities.................................................................... 8
Loans of Portfolio Securities.................................................................. 9
Zero Coupon and Pay-in-Kind Securities......................................................... 9
Foreign Securities............................................................................. 10
Forward Foreign Currency Exchange Contracts.................................................... 10
Interest Rate Futures Contracts................................................................ 11
Stock Index Futures Contracts.................................................................. 11
Option Writing and Purchasing.................................................................. 12
Options on Futures Contracts................................................................... 13
Risks of Futures and Options Investments....................................................... 13
Limitations on Futures Contracts and Options on Futures Contracts.............................. 14
North Carolina Municipal Obligations........................................................... 15
Stand-By Commitments........................................................................... 17
Third Party Puts............................................................................... 18
Participation Interests........................................................................ 18
Municipal Lease Obligations.................................................................... 18
Investment Companies........................................................................... 19
Real Estate Investment Trusts.................................................................. 19
INVESTMENT RESTRICTIONS........................................................................ 19
MANAGEMENT..................................................................................... 25
Directors and Officers......................................................................... 25
Distribution of Fund Shares.................................................................... 31
Administrative Services........................................................................ 33
Service Organizations.......................................................................... 34
DETERMINATION OF NET ASSET VALUE............................................................... 35
PORTFOLIO TRANSACTIONS......................................................................... 36
Portfolio Turnover............................................................................. 38
TAXATION....................................................................................... 38
Centura North Carolina Tax-Free Bond Fund...................................................... 42
OTHER INFORMATION.............................................................................. 43
Capitalization................................................................................. 43
Voting Rights.................................................................................. 43
Custodian, Transfer Agent and Fund Accounting Agent............................................ 43
Independent Accountants........................................................................ 50
Counsel........................................................................................ 50
Registration Statement......................................................................... 51
Financial Statements........................................................................... 51
</TABLE>
2
<PAGE> 53
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. The investment objective of each Fund is a fundamental
policy of the Fund and may not be changed without the approval of the Fund's
shareholders.
THE FUNDS
CENTURA MID CAP EQUITY FUND. Centura Mid Cap Equity Fund pursues its objective
of long-term capital appreciation by investing primarily in a diversified
portfolio of publicly traded common and preferred stocks and securities
convertible into or exchangeable for common stock (see "Convertible
Securities"). 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 American Depository Receipts ("ADRs").(See "Foreign Securities"). Under
normal circumstances, at least 65% of the Fund's total assets will be invested
in equity securities of mid-sized companies. Mid-sized companies are defined as
those with market capitalizations that fall within the range of companies in the
S&P 400 Mid Cap Index at the time of investment. The S&P 400 Mid Cap Index is an
unmanaged index that is designed to track the performance of medium sized
companies. The index is updated quarterly, and the companies included in the
index, as well as their capitalization ranges, change from time to time. A
company that was within the range of the index at the time its stock was
purchased by the Fund will continue to be considered mid-sized for purposes of
the 65% test even if its capitalization subsequently falls outside the range of
the index. 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); variable and floating rate
demand and master demand notes; commercial paper; and repurchase agreements with
respect to securities in which the Fund is authorized to invest. (See "Bank
Obligations", "Commercial Paper", "Corporate Debt Securities, " "Repurchase
Agreements" and "Variable and Floating Rate Demand and Master Demand Notes").
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. 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. In addition,
the Fund may enter into stock index future contracts, options on securities and
options on future contracts to a limited extent (see "Stock Index Future
Contracts", "Option Writing and Purchasing", and "Options on Future Contracts").
The Fund may also invest in investment companies and real estate investment
trusts (REITS) and lend portfolio securities (See "Investment Companies", and
"Real Estate Investment Trusts").
CENTURA LARGE CAP EQUITY FUND. Centura Large Cap Equity Fund pursues its
objective of long-term capital appreciation by investing primarily in common
stocks, convertible preferred stocks, and convertible bonds, notes and
debentures. In addition, the Fund may enter into stock index futures contracts,
options on securities, options on futures contracts and forward foreign currency
exchange contracts to a limited extent (see "Stock Index Futures Contracts",
"Options Writing and Purchasing", "Options on Futures Contracts" and "Forward
Foreign Currency Exchange Contracts"). 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 (see "Foreign Securities"). Under
normal circumstances, at least 65% of the Fund's total assets will be invested
in equity securities of large U.S. companies. Large companies are defined as
those with market capitalization in excess of $3 billion at the time of
purchase. Companies that satisfy this test at the time of purchase will continue
to be considered "large" for purposes of the 65% test even if they subsequently
fall below this range. For temporary defensive purposes when the Adviser has
determined that abnormal market or economic conditions
3
<PAGE> 54
so warrant, the Fund may invest without limit in debt instruments of the same
types, and subject to the same conditions, as Centura Mid Cap Equity Fund under
such circumstances.
CENTURA SMALL CAP EQUITY FUND. Centura Small Cap Equity Fund pursues its
objective of long-term capital appreciation by investing primarily in a
diversified portfolio of common and preferred stocks and securities convertible
into common stock of small companies as described in the prospectus (see
"Convertible Securities").
Its investments in non-U.S. issuers will generally be in the form of American
Depository Receipts ("ADRs") (see "Foreign Securities"). In addition, the Fund
may enter into stock index futures contracts, options on securities, options on
futures contracts and forward foreign currency exchange contracts to a limited
extent (see "Stock Index Futures Contracts", "Options Writing and Purchasing",
"Options on Futures Contracts" and "Forward Foreign Currency Exchange
Contracts"). The Fund may also invest in investment companies and REITS and lend
its portfolio securities (see "Investment Companies", "Real Estate Investment
Trusts", and "Loans of Portfolio Securities"). For temporary defensive purposes
during abnormal market or economic conditions, the Fund may invest without limit
in debt instruments of the same type, and subject to the same conditions, as
Centura Mid Cap Equity Fund under such circumstances.
CENTURA GOVERNMENT INCOME FUND. Centura Government Income Fund pursues its
objective of relatively high current income consistent with relative stability
of principal and safety by investing primarily in securities issued by the U.S.
Government, its agencies and instrumentalities with maximum maturities of 10
years (see "U.S. Government Securities" and "Mortgage Related Securities").
These securities may also include zero coupon and pay-in-kind securities (see
"Zero Coupon and Pay-in-kind Securities").
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 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; variable and floating rate demand and master
demand notes; and repurchase agreements with respect to securities in which the
Fund is authorized to invest (see "Bank Obligations", "Commercial Paper",
"Corporate Debt Securities", "Repurchase Agreements", and "Variable and Floating
Rate Demand and Master Demand Notes"). In addition, the Fund may enter into
interest rate futures contracts, options on securities and options on futures
contracts to a limited extent (see "Interest Rate Futures Contracts", "Option
Writing and Purchasing" and "Options on Futures Contracts"). The Fund may also
invest in investment companies, REITS, securities on a when-issued basis or
forward commitment basis and lend its portfolio securities (see "Investment
Companies", "Real Estate Investment Trusts", "Forward Commitments and
When-Issued Securities" and "Loans of Portfolio Securities").
CENTURA NORTH CAROLINA TAX-FREE BOND FUND. Centura North Carolina Tax-Free Bond
Fund pursues its objective of relatively high current income that is free of
both regular federal and North Carolina personal income tax, together with
relative safety of principal by investing 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. (See "North Carolina Municipal
Obligations"). The Fund may also invest in municipal leases, participation
interests, stand-by commitments and third party puts (see "Municipal Lease
Obligations", "Participation Interests", "Stand-By Commitments" and "Third Party
Puts"). The Fund 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 personal income tax, (b) to invest
up to 10% of its assets in Municipal Obligations subject to the federal
alternative minimum tax ("AMT
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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.
(see "Bank Obligations", "Commercial Paper", "Corporate Debt Securities", "U.S.
Government Securities", "Repurchase Agreements", and "Mortgage-Related
Securities"). 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 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. The Fund's
investments in Municipal Obligations may also include zero coupon and
pay-in-kind securities, variable and floating rate demand and master demand
notes, and when-issued securities (see "Zero Coupon and Pay-in-Kind Securities",
"Variable and Floating Rate Demand and Master Demand Notes" and "Forward
Commitments and When-Issued Securities").
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. In addition, the Fund may enter
into interest rate futures contracts, options on securities and options on
futures contracts to a limited extent (see "Interest Rate Futures Contracts",
"Option Writing and Purchasing" and "Options on Futures Contracts"). The Fund
may also invest in investment company securities and lend its portfolio
securities (see "Investment Companies" and "Loans of Portfolio Securities").
CENTURA QUALITY INCOME FUND. Centura Quality Income Fund pursues its objective
of current income and capital appreciation by investing in a diversified
portfolio consisting primarily of investment grade debt obligations, including
U.S. government securities. Under normal market conditions, at least 65% of the
Fund's total assets will be invested in: obligations of the U.S. government, its
agencies and instrumentalities; corporate bonds of U.S. issuers; and
mortgage-backed securities issued by U.S. government agencies (see "U.S.
Government Securities", "Mortgage Related Securities" and "Corporate Debt
Securities"). These debt obligations may pay either fixed or variable rates of
interest (see "Variable and Floating Rate Demand and Master Demand Notes").
The Fund also has authority to invest in other types of securities, including
preferred stocks, securities convertible into common stock, dollar-denominated
obligations of non-U.S. issuers, various types of asset-backed securities,
taxable municipal obligations and money market instrument (see "Convertible
Securities", "Foreign Securities", and "Municipal Obligations). The Fund may
also invest in income-producing securities issued by real estate investment
trusts ("REITs") (see "Real Estate Investment Trusts"). The Fund may engage in
transactions in covered options and interest-rate futures contracts in order to
lengthen or shorten the average maturity of its portfolio. (see "Interest Rate
Futures Contracts", "Option Writing and Purchasing", and "Options on Futures
Contracts"). The Fund expects to maintain a dollar-weighted average portfolio
maturity of between 5 and 15 years.
Debt obligations acquired by the Fund will be rated at least investment grade
BBB or better by S & P or Baa by Moody's or deemed of comparable quality by the
Adviser. At least 70% of the Fund's portfolio securities will be rated A or
better by Moody's or S&P or, if unrated, deemed of comparable quality by the
Adviser. If the rating of a security held by the Fund is reduced, the Adviser is
not required to sell the security but will do so if and when the Adviser
believes the sale is in the best interests of the Fund. Up to 30% of the Fund's
assets may
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be invested in securities rated BBB by S&P or Baa by Moody's (or, if unrated,
deemed of comparable quality by the Adviser) at the time of purchase by the
Fund, in preferred stocks, zero coupon obligations and in convertible
securities. (see "Zero Coupon and Pay-in-Kind Securities"). The Fund may invest
in defensive investments as described for Government Income Fund. The Fund may
also invest in other investment companies; forward commitments and when-issued
securities, municipal lease obligations, stand-by commitments; participation
interests and third party puts. (see "Investment Companies", "Forward
Commitments and When-Issued Securities", "Forward Foreign Currency Exchange
Contracts", "Municipal Lease Obligations", "Stand-by Commitments",
"Participation Interests", and "Third Party Puts"). The Fund has authority to
lend its portfolio securities (see "Loans of Portfolio Securities").
CENTURA MONEY MARKET FUND. The Fund pursues its objective to provide investors
with as high a level of current income as is consistent with preservation of
capital and liquidity by investing in a broad range of high quality, short-term,
money market instruments that have remaining maturities not exceeding 397 days.
The Fund is required to maintain a dollar-weighted average portfolio maturity no
greater than 90 days. The Fund's investments may include any investments
permitted under federal rules governing money market funds, including: U.S.
Government securities; bank obligations; commercial paper, corporate debt
securities, variable rate demand notes and repurchase agreements and other high
quality short-term securities (see "U.S. Government Securities", "Bank
Obligations", "Commercial Paper", "Corporate Debt Securities", "Repurchase
Agreements", and "Variable and Floating Rate Demand ", and "Master Demand
Notes").
The Adviser selects only those U.S. dollar-denominated debt instruments that
meet the high quality and credit risk standards established by the Board of
Directors and consistent with Federal requirements applicable to money market
funds. In accordance with such requirements, the Fund will purchase securities
that are rated within the top two rating categories by at least two nationally
recognized statistical rating organizations ("NRSROs") or, if only one NRSRO has
rated the security, by that NRSRO, or if not rated, the securities are deemed of
comparable quality pursuant to standards adopted by the Board of Directors. The
Fund will purchase commercial paper only if, at the time of the investment, the
paper is rated within the top rating category or deemed of comparable quality
pursuant to standards adopted by the Board of Directors. The Fund will invest no
more than 5% of its total assets in securities rated below the highest rating
category or, if unrated, deemed of comparable quality.
The Fund 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 (see "Investment Companies"). The Fund may also
invest in forward commitments and lend its portfolio securities (see "Forward
Commitments and When Issued Securities" and "Loans of Portfolio Securities").
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 Banks, 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
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<PAGE> 57
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. 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 MID CAP EQUITY FUND, CENTURA LARGE CAP EQUITY
FUND, CENTURA SMALL CAP EQUITY FUND AND CENTURA QUALITY 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.
SHORT SALES AGAINST THE BOX. (Centura Large Cap Equity Fund, Centura Mid Cap
Equity Fund and Centura Small Cap Equity Fund) Each of the Small Cap Equity, Mid
Cap Equity and Large Cap Equity Funds may engage in short sales against the box.
In a short sale, the Fund sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The seller does not
immediately deliver the securities sold and is said to have a short position in
those securities until delivery occurs. A Fund may engage in a short sale if at
the time of the short sale the Fund owns or has the right to obtain without
additional cost an equal amount of the security being sold short. This
investment technique is known as a short sale "against the box." It may be
entered into by a Fund to, for example, lock in a sale price for a security the
Fund does not wish to sell immediately. If a Fund engages in a short sale, the
proceeds of the short sale are retained by the broker pursuant to applicable
margin rules. Additionally, the collateral for the short position will be
segregated in an account with the Fund's custodian or qualified sub-custodian.
The segregated assets are pledged to the selling broker pursuant to applicable
margin rules. If the broker were to become bankrupt, a Fund could experience
losses or delays in recovering gains on short sales. To minimize this risk, a
Fund will enter into short sales against the box only with brokers deemed by the
Adviser to be creditworthy. No more than [10%] of the Funds net assets (taken at
current value) may be held as collateral for short sales against the box at any
one time.
The Fund may make a short sale as a hedge, when it believes that the price of a
security may decline, causing a decline in the value of a security owned by the
Fund (or a security convertible or exchangeable for such security). In such
case, any future losses in the Fund's long position should be offset by a gain
in the short position and, conversely, any gain in the long position should be
reduced by a loss in the short position. The extent to which such gains or
losses are reduced will depend upon the amount of the security sold short
relative to the amount the Fund owns. There will be certain additional
transaction costs associated with short sales against the box, but the Fund will
endeavor to offset these costs with the income from the investment of the cash
proceeds of short sales.
If the Fund effects a short sale of securities at a time when it has an
unrealized gain on the securities, it may be required to recognize that gain as
if it had actually sold the securities (as a "constructive sale") on the date it
effects the short sale. However, such constructive sale treatment may not apply
if the Fund closes out the short sale with securities other than the appreciated
securities held at the time of the short sale and if certain other conditions
are satisfied. Uncertainty regarding the tax consequences of effecting short
sales may limit the extent to which the Fund may effect short sales.
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, or if unrated, are in the Advisor's opinion comparable in quality
to corporate debt securities in which the Fund may invest.
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 event in its determination of whether the Fund should continue to hold the
security. To the extent the ratings given by Moody's 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. 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 at all times 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. 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
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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 or other
designated 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
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.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES (ALL FUNDS). 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.
MORTGAGE-RELATED SECURITIES (CENTURA GOVERNMENT INCOME FUND, CENTURA QUALITY
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 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. Longer-term securities tend to experience more
price volatility. 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.
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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 in 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".
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 GOVERNMENT INCOME FUND, CENTURA QUALITY
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.
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.
ZERO COUPON AND PAY-IN-KIND SECURITIES (CENTURA GOVERNMENT INCOME FUND, CENTURA
QUALITY INCOME FUND, AND CENTURA NORTH CAROLINA TAX-FREE BOND FUND). Zero coupon
bonds (which do not pay interest until
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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).
FOREIGN SECURITIES (CENTURA MID CAP EQUITY FUND, CENTURA LARGE CAP EQUITY FUND
CENTURA SMALL CAP EQUITY FUND AND CENTURA QUALITY 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 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.
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.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS (CENTURA MID CAP EQUITY FUND,
CENTURA LARGE CAP EQUITY FUND AND CENTURA SMALL CAP EQUITY FUND). Centura Mid
Cap Equity Fund, Centura Large Cap Equity Fund and Centura Small Cap Equity 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.
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RISKS OF FORWARD FOREIGN CURRENCY CONTRACTS (CENTURA MID CAP EQUITY FUND,
CENTURA LARGE CAP EQUITY FUND AND CENTURA SMALL CAP EQUITY FUND). The precise
matching of the value of forward contracts and the value of the securities
involved will not generally be possible since the future value of the securities
in 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 movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
uncertain. There can be no assurance that new forward contracts or offsets will
always be available to the Funds.
INTEREST RATE FUTURES CONTRACTS (CENTURA GOVERNMENT INCOME FUND, CENTURA NORTH
CAROLINA TAX FREE BOND FUND AND CENTURA QUALITY INCOME 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.
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 MID CAP EQUITY FUND, CENTURA LARGE CAP
EQUITY FUND AND CENTURA SMALL CAP EQUITY 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 Mid Cap Equity Fund, Centura Large Cap Equity Fund and Centura Small Cap
Equity 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.
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OPTION WRITING AND PURCHASING (ALL FUNDS EXCEPT CENTURA MONEY MARKET FUND). 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 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 canceling 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.
RISKS OF OPTIONS TRANSACTIONS (ALL FUNDS EXCEPT CENTURA MONEY MARKET FUND). 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
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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.
RISK OF FOREIGN CURRENCY OPTIONS (CENTURA MID CAP EQUITY FUND, CENTURA LARGE CAP
EQUITY FUND AND CENTURA SMALL CAP EQUITY 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 underlying assets.
OPTIONS ON FUTURES CONTRACTS (ALL FUNDS EXCEPT CENTURA MONEY MARKET FUND). 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 transaction costs.
RISKS OF FUTURES AND RELATED OPTIONS INVESTMENTS (ALL FUNDS EXCEPT CENTURA MONEY
MARKET FUND). There are several risks associated with the use of futures
contracts and options on futures contracts. While the 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
movement 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
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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 the
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 for Centura Mid Cap Equity Fund, Centura Large Cap Equity Fund
and Centura Small Cap Equity Fund also on exchanges located outside of the
United States. Foreign markets may offer 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 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 a Fund could incur losses as a result of changes in the exchange
rate. Transactions for foreign exchanges may include both commodities that are
traded on domestic exchanges or boards of trade and those that are not.
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
EXCEPT CENTURA MONEY MARKET FUND). 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.
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
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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 North Carolina Municipal 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 ("North
Carolina Municipal Obligations").
NORTH CAROLINA MUNICIPAL OBLIGATIONS (CENTURA NORTH CAROLINA TAX-FREE BOND
FUND). 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.
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 North Carolina Constitution requires that total state expenditures for any
fiscal period not exceed the total receipts during that fiscal period plus any
surplus remaining in the State Treasury from previous fiscal periods. The State
operates on a fiscal year ending June 30th. The ending fund balance for the
State's General Fund at June 30, 1998 was $1,662.0 million. The budget being
considered by the North Carolina General Assembly for the fiscal year ending
June 30, 2000, projects an ending fund balance of approximately $1,043 million.
However, no funds have been appropriated or reserved for intangible tax refunds,
which could be as much as $465 million. These funds may need to be paid as a
result of the Smith-Shaver cases (as described below).
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The State of North Carolina is the tenth most populous state in the United
States. Its economy is a combination of manufacturing, agriculture, services and
tourism. The State's seasonally adjusted unemployment rate in April 1999 was
2.6%. The state's labor force grew 26.4% between 1980 and 1994. In recent years,
the State has moved from an agricultural economy to a service and goods
producing economy. From 1980 to 1995, the state's per capita income grew 133.8%
from $7,999 to $20,604. The State leads the nation in the production of
textiles, tobacco products, furniture and fiber optic cable and is among the
largest producers of pharmaceuticals, electronics and telecommunications
equipment. The principal agricultural products are poultry, pork and tobacco.
North Carolina is the third most diversified state in the country in terms of
its agriculture. Charlotte is now the second largest financial center in the
nation, based on the assets of banks headquartered there.
There are several cases pending in which the State faces the risk of either a
loss of revenue or an unanticipated expenditure. In the Opinion of the
Department of the State Treasurer, however, any such loss of revenue or
expenditure would not materially adversely affect the State's ability to meet
its financial obligations. The cases in which the State faces the risk of either
a loss of revenue or an unanticipated expenditure are the following:
(1) In the case of Leandro, et al. v. State of North Carolina and
State Board of Education, students and boards of education in
five counties filed suit on May 25, 1994. They are requesting
a declaration that the public education system of North
Carolina violates the State Constitution by failing to provide
adequate or substantially equal education opportunities, and
that the educational system also denies due process under the
law. The defendants' motion to dismiss was denied. However,
the North Carolina Supreme Court upheld the present funding
system and remanded the case for trial to be based on the
premise that the constitution guarantees every child the
opportunity to obtain a sound basic education. Five other
counties intervened and now also allege claims for relief on
behalf of their students' rights to a sound basic education on
the basis of the high proportion of at-risk students in their
counties' systems.
(2) The San Francisco case was filed on August 10, 1994. This
case, a class action lawsuit, was filed against the
Superintendent of Public Instruction and the State Board of
Education on behalf of a class of parents and their children
who are characterized as being limited in their English
proficiency. The complaint alleges that the State has failed
to provide funding for the education of these students and has
failed to supervise local school systems which administer
programs for these children. The complaint asks the Court to
order defendants to fund a comprehensive program to ensure
equal educational opportunities for limited English proficient
children.
(3) The Bailey-Emory-Patton cases are a group of cases where state
and local government retirees filed a class action suit in
1990 challenging the repeal of the income tax exemptions of
State and local government retirement benefits. Additional
lawsuits were filed reserving refund claims for future years
and Federal retirees filed a class action suit in 1995 seeking
monetary relief for taxes paid on federal government
retirement benefits. In 1998, the North Carolina Supreme Court
ruled that it was unconstitutional for the State of North
Carolina to collect taxes on the pensions of retired Federal,
State and local government employees. The required refunds
were estimated to be $1.1 billion. However, a settlement has
been reached and a Consent Order approved in which the State
will pay a total of $799 million with $400 million to be paid
in 1998 and the balance due by July 1999. The balance is
reserved in the State's budget for the year ending June 30,
1999.
(4) The Smith-Shaver cases are a group of class action intangible
tax refund lawsuits relating to prior litigation in which the
United States Supreme Court in 1996 ruled unconstitutional the
intangibles tax previously collected by the State on shares of
stock. Refunds have been made with interest to those taxpayers
who complied with the applicable State tax refund statutes.
The North Carolina Supreme Court held in 1998 that the
taxpayers who paid the intangibles tax, but did not comply
with the State tax refund statute, were nonetheless entitled
to intangibles tax refunds which are estimated at
approximately $360 million. Because a dispute continues as to
the timing of the payment of these intangibles tax refunds,
the General Assembly of North Carolina has made no
appropriations for their payment, and consequently, they are
not included in the budget being considered by the North
Carolina General Assembly for the fiscal year ending June 30,
2000. Additional class action lawsuits claim approximately
$105 million for intangibles taxes paid for
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1990. While the State believes that this claim is barred by
the statute of limitations, this defense has been dismissed by
the Superior Court.
(5) The Faulkenbury v. Teachers' and State Employees' Retirement
System, Peele v. Teachers' and State Employees' Retirement
System, and Woodard v. Local Governmental Employees'
Retirement System cases, are a group of class action lawsuits
where disability retirees brought class actions in state court
challenging changes in the formula for payment of disability
retirement benefits. They are claiming impairment of
contractual rights, breach of fiduciary duties, violation of
other federal constitutional rights, and the violation of
state constitutional and statutory rights. The North Carolina
Court of Appeals and the North Carolina Supreme Court
dismissed the fiduciary claims and certain of the
constitutional claims. The primary claim for relief due to the
unconstitutional impairment of contract was tried in Superior
Court in 1995, and the court issued an order in favor of the
plaintiffs. In 1997, the North Carolina Supreme Court upheld
the trial court's ruling. A determination of the actual amount
of liability and the payment process is being made by the
parties. The plaintiffs have submitted documentation to the
court asserting that the costs, damages, and higher
prospective benefit payments to the plaintiffs and class
members would amount to $407 million. Calculations and
payments so far indicate that retroactive benefits will be
significantly less than estimated. Payments have been made of
approximately $73 million and the State estimates that the
remaining liability will not exceed $42 million. All
retroactive and future benefit payments are payable from the
State's retirement system funds.
(6) The N.C. School Boards Association case was filed in December
1998 by certain plaintiffs which include the school boards of
six North Carolina counties. They are requesting a declaration
that certain payments to State administrative agencies must be
distributed to the public schools on the theory that such
amounts are fines which under the North Carolina Constitution
must be paid to the public schools. The plaintiffs allege that
they are due approximately $84 million. The State believes
that sound legal arguments support the State's position that
these amounts may be retained by State administrative
agencies.
The Adviser believes that the information summarized above describes some of the
more significant matters relating to the North Carolina Tax-Free Bond Fund. The
information was derived from publicly available documents. The Adviser has not
independently verified any of the information contained in the publicly
available documents.
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.
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 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
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<PAGE> 68
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.
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.
MUNICIPAL LEASE OBLIGATIONS (CENTURA NORTH CAROLINA TAX-FREE BOND FUND AND
CENTURA QUALITY INCOME 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. 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
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<PAGE> 69
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, a 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 a 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.
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.
REAL ESTATE INVESTMENT TRUSTS (ALL FUNDS EXCEPT CENTURA NORTH CAROLINA TAX-FREE
BOND FUND AND CENTURA MONEY MARKET FUND). A Fund may invest to a limited extent
in equity or debt real estate investment trusts ("REITs"). Equity REITs are
trusts that sell shares to investors and use the proceeds to invest in real
estate or interests in real estate. Debt REITs invest in obligations secured by
mortgages on real property or interest in real property. A REIT may focus on
particular types of projects, such as apartment complexes or shopping centers,
or on particular geographic regions, or both. An investment in a REIT may be
subject to certain risks similar to those associated with direct ownership of
real estate, including: declines in the value of real estate; risks related to
general and local economic conditions, overbuilding and competition; increases
in property taxes and operating expenses; and variations in rental income. Also,
REITs may not be diversified. A REIT may fail to qualify for pass-through tax
treatment of its income under the Internal Revenue Code and may also fail to
maintain its exemption from registration under the Investment Company Act of
1940. Also, REITs (particularly equity REITs) may be dependent upon management
skill and face risks of failing to obtain adequate financing on favorable terms.
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 (other than Centura Money Market 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;
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(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;
(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 (1), the Centura Quality Income 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 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.
With respect to Centura Money Market Fund, only:
(1) The Fund has elected to be qualified as a diversified series of an
open-end investment company.
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(2) The Fund may not 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 (including
repurchase agreements with respect to such investments) and provided
also that the Fund may invest more than 25% of its assets in
instruments issued by domestic banks.
(3) The Fund may not borrow money, except as permitted under the
Investment Company Act to 1940, as amended, and as interpreted from
time to time by regulatory authority having jurisdiction, from time to
time.
(4) The Fund may not make loans to other persons, except (i) loans of
portfolio securities, and (ii) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(5) The Fund may not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(6) The Fund may not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(7) The Fund may not purchase or sell real estate, which term does not
include securities of companies that deal in real estate or mortgages
or investment secured by real estate or interests therein, except that
the Fund reserves freedom of action to hold and to sell real estate
acquired as a result of the Fund's ownership of securities.
(8) The Fund may not purchase physical commodities or contracts
relating to physical commodities.
The following policies apply to each of the Funds other than Centura Money
Market Fund and Centura Quality Income Fund. These 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;
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(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.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each of the classes of shares of the Company's Funds is sold on a continuous
basis by the Company's distributor, Centura Funds Distributor (the
"Distributor"), and the Distributor has agreed to use appropriate efforts to
solicit all purchase orders. The Company's Funds offer one or more of the
following classes of shares: Class A Shares, Class B Shares and Class C Shares.
(Information concerning Class C Shares is contained in a separate prospectus and
Statement of Additional Information, each dated August 30, 2000.)
CLASS A SHARES
As stated in the Prospectus, the public offering price of Class A Shares of the
Money Market Fund is their net asset value per share which they will seek to
maintain at $1.00. The public offering price of Class A Shares of each of the
other Funds is their net asset value per share next computed after the sale plus
a sales charge which varies based upon the quantity purchased. The public
offering price of such Class A Shares of each Fund is calculated by dividing net
asset value by the difference (expressed as a decimal) between 100% and the
sales charge percentage of offering price applicable to the purchase.
The offering price is rounded to two decimal places each time a computation is
made. The sales charge scale set forth below applies to purchases of Class A
Shares of a Fund.
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<TABLE>
<CAPTION>
AMOUNT OF SALES
SALES CHARGE AS A CHARGE REALLOWED
PERCENTAGE OF TO DEALERS
------------- AS A PERCENTAGE
PUBLIC NET AMOUNT OF PUBLIC
OFFERING PRICE INVESTED OFFERING PRICE*
-------- ----- ---------
CLASS A SHARES -- Centura Mid Cap Equity
Fund, Centura Large Cap Equity Fund
and Centura Small Cap Equity Fund
AMOUNT OF INVESTMENT
<S> <C> <C> <C>
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 Government Income Fund,
Centura North Carolina Tax-Free Bond Fund and Centura
Quality Income 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>
* 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.
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 Mid Cap Equity Fund, Centura Large Cap Equity Fund
and Centura Small Cap Equity 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 Government
Income Fund, Centura North Carolina Tax-Free Bond Fund and Centura Quality
Income 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.
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 (totaling 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
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paid previously on purchases of shares of the Funds. If 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 totaling 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.
CLASS B SHARES
The public offering price of Class B Shares of each Fund is their net asset
value per share. Class B shares redeemed prior to six years from the date of
purchase may be subject to a contingent deferred sales charge of 1.00% to 5.00%
for the Equity Funds and 1.00% to 3.00% for the Bond Funds. Class B Shares are
not offered by Centura Money Market Fund.
The Group may suspend the right of redemption or postpone the date of payment
for shares during any period when: (a) trading on the NYSE is restricted by
applicable rules and regulations of the SEC; (b) the NYSE is closed for other
than customary weekend and holiday closings; (c) the SEC has by order permitted
such suspension; or (d) an emergency exists as a result of which: (i) disposal
by the Company of securities owned by it is not reasonably practicable, or (ii)
it is not reasonably practicable for the Company to determine the fair market
value of its net assets.
Each Fund may redeem shares involuntarily if redemption appears appropriate in
light of the Company's responsibilities under the 1940 Act.
EXCHANGE OF FUND SHARES
As described in the Prospectus, the Funds offer two convenient ways to exchange
shares of a Fund for shares of another Fund in the Company. Shares of a
particular class of the Fund may be exchanged only for shares of that same class
in another Fund. However, in the case of the Money Market Fund, Class B Shares
of the Funds may be exchanged for Class A Shares of the Money Market Fund
without imposition of the CDSC. Periods during which such acquired Money Market
Shares are held will not count for purposes of determining any CDSC applicable
upon redemption of such shares or Class B shares acquired in a subsequent
exchange.m Before engaging in an exchange transaction, a shareholder should
obtain and read carefully the Prospectus describing the Fund into which the
exchange will occur. A shareholder may not exchange shares of a class of the
Fund for shares of the same class of another Fund that has not satisfied
applicable requirements 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.
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MANAGEMENT DIRECTORS AND OFFICERS
The business and affairs of each Fund are managed under the direction of the
Board of Directors. The principal occupations of the Directors and executive
officers of the Company for the past five years are listed below. Directors
deemed to be "interested persons" of the Company for purposes of the 1940 Act
are indicated by an asterisk.
<TABLE>
<CAPTION>
POSITION WITH
NAME, ADDRESS AND AGE COMPANY PRINCIPAL OCCUPATION
<S> <C> <C>
Leslie H. Garner, Jr. Cornell College Director President, Cornell College.
600 First Street West
Mount Vernon, IA 52314-1098
Age: 46
James H. Speed, Jr. Director Hardee's Food Systems, Inc.
1233 Hardee's Blvd Vice President
Rocky Mount, NC 27802 Controller (1991-present);
Age: 44 Deloitte & Touche -- Senior
Audit Manager (1979-1991).
R. William Shauman Director Banking Consultant;
3131 Woodham Ave President, First of America
Portage, MI 49002 Insurance Co. (1997-1998);
Age: 62 Executive Vice President, First
of America Bank Corp. (1993-1997)
*Lucy Hancock Bode Director Lobbyist.
P.O. Box 6338
Raleigh, NC 27628
Age: 45
*J. Franklin Martin Director President of LandCraft
LandCraft Properties Properties (1978-present).
227 W. Trade Street
Suite 2730
Charlotte, NC 28202
Age: 52
Walter B. Grimm(1) President BISYS -- Senior Vice
Age: 55 President and Client Services
Executive of Client
Services (1992-present).
John Quillin(1) Vice President BISYS -- Vice President,
Age: 40 Client Services (1990-present)
Nadeem Yonsaf(1) Assistant Treasurer and BISYS -- Director (1999-present);
Age: 33 Principal Financial previously, Director, Investors
Officer Bank and Trust
Curtis Barnes(1) Secretary BISYS -- Legal Administrative
Officer (1995 - present); John
</TABLE>
25
<PAGE> 76
<TABLE>
<CAPTION>
<S> <C> <C>
Hancock Advisors, Sr. Legal
Analyst (1984-1995)
</TABLE>
(1) Address is 3435 Stelzer Road, Columbus, Ohio 43219.
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
$3000 (plus $750 for serving on the Board's Audit Committee) and a fee of $750
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, 2000.
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM FUND AND
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FUND COMPLEX (7
NAME OF PERSON, COMPENSATION AS A PART OF FUND BENEFITS UPON FUNDS) PAID TO
POSITION FROM FUND EXPENSES RETIREMENT DIRECTORS
--------------------- ------------ ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Leslie H. Garner, Jr $7,500 -0- -0- $7,500
James H. Speed, Jr. $7,500 -0- -0- $7,500
Frederick E. Turnage $2,250 -0- -0- $2,250
Lucy Hancock Bode $6,750 -0- -0- $6,750
J. Franklin Martin $6,000 -0- -0- $6,000
</TABLE>
As of August __, 2000 , the Officers and Directors of the Company, as a group,
own less than 1% of the outstanding shares of the Funds.
As of August __, 2000, the following individuals owned 5% or more of the Class A
and Class B shares of the Funds:
CENTURA MID CAP EQUITY FUND
CLASS A OWNED SHARES OWNED PERCENTAGE OWNED
BISYS Brokerage Services _________ ____%*
PO Box 4054
Concord, CA 94524
CLASS B OWNED SHARES OWNED PERCENTAGE OWNED
None
CENTURA SMALL CAP EQUITY FUND
CLASS A OWNED SHARES OWNED PERCENTAGE OWNED
BISYS Brokerage Services _______ ____%*
House Account
PO Box 4054
Concord, CA 94524
CLASS B OWNED SHARES OWNED PERCENTAGE OWNED
None
*Disclaims beneficial ownership.
26
<PAGE> 77
CENTURA GOVERNMENT INCOME FUND
CLASS A OWNED SHARES OWNED PERCENTAGE OWNED
Centura Bank _______ ____%*
131 N. Church Street
Rocky Mount, NC 27801
BISYS Brokerage Services _______ ____%*
House Account
PO Box 4054
Concord, CA 94524
CLASS B OWNED SHARES OWNED PERCENTAGE OWNED
Donaldson Lufkin Jenrette _____ ___%*
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-9998
Donaldson Lufkin Jenrette _____ ____%*
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-9998
Donaldson Lufkin Jenrette _____ ___%*
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-9998
Stephen W. Parrish _____ ___%
2638 N Holifax Road
Rocky Mount, NC 27804
*Disclaims beneficial ownership.
27
<PAGE> 78
CENTURA QUALITY INCOME FUND
CLASS A OWNED SHARES OWNED PERCENTAGE OWNED
BISYS Broker Services _____ ____%
PO Box 4054
Concord, CA 94524
CLASS B OWNED SHARES OWNED PERCENTAGE OWNED
BISYS Fund Services, Inc. __ ___%
3435 Stelzer Rd
Columbus, OH 43219
CENTURA NORTH CAROLINA TAX-FREE BOND FUND
CLASS A OWNED SHARES OWNED PERCENTAGE OWNED
Donaldson Lufkin Jenrette ______ ____%*
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
Donaldson Lufkin Jenrette ______ ___%*
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
*Disclaims beneficial ownership.
28
<PAGE> 79
Donaldson Lufkin Jenrette _______ ____%*
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
CLASS B OWNED SHARES OWNED PERCENTAGE OWNED
Donaldson Lufkin Jenrette _____ ___%*
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
Donaldson Lufkin Jenrette _____ ____%*
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
Donaldson Lufkin Jenrette ______ ____%*
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
Donaldson Lufkin Jenrette _____ ___%*
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
Donaldson Lufkin Jenrette _____ ___%*
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
Donaldson Lufkin Jenrette _____ ____%*
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
Donaldson Lufkin Jenrette _____ ___%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
CENTURA LARGE CAP EQUITY FUND
CLASS A OWNED SHARES OWNED PERCENTAGE OWNED
Centura Bank ______ ___%*
131 N Church Street
Rocky Mount, NC 27801
29
<PAGE> 80
BISYS Brokerage Services _______ ____%*
House Account
PO Box 4054
Concord, CA 94524
*Disclaims beneficial ownership.
CLASS B OWNED SHARES OWNED PERCENTAGE OWNED
Donaldson Lufkin Jenrette ______ ___%*
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
CENTURA MONEY MARKET FUND
CLASS A OWNED SHARES OWNED PERCENTAGE OWNED
BISYS Brokerage Services _________ ____%*
House Account
PO Box 4054
Concord, CA 94524
*Disclaims beneficial ownership.
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 Mid Cap
Equity Fund, 0.70% for Centura Large Cap Equity Fund, 0.30% for Centura
Government Income Fund, 0.35% for Centura North Carolina Tax-Free Bond Fund,
0.70% for Centura Small Cap Equity Fund, 0.60% for Centura Quality Income Fund
and 0.30% for Centura Money Market 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.
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 Large Cap Equity Fund,
Centura Small Cap Equity Fund, Centura Quality Income Fund and Centura Money
Market 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.
30
<PAGE> 81
With respect to Centura Large Cap Equity Fund, Centura Small Cap Equity Fund,
Centura Quality Income Fund and Centura Money Market Fund, respectively, 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 meetings called for such purpose held on July 24, 1996 (for Large
Cap Equity Fund), January 29, 1997 (for Small Cap Equity Fund), January 27, 1999
(for Centura Quality Income Fund) and April 27, 1998 (for Centura Money Market
Fund) and by the sole shareholder of each such Fund on July 24, 1996 (for Large
Cap Equity Fund), January 29, 1997 (for Small Cap Equity Fund), January 27, 1999
(for Centura Quality Income Fund) and June 1, 1998 (for Centura Money Market
Fund). This Agreement, as it relates to all Centura Funds (except Centura
Quality Income Fund), was re-approved at the February 23, 2000 Board of
Directors Meeting. 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, 2000, the Adviser earned the following
advisory fees: $244,052 from the Small Cap Equity Fund, $966,319 from the Mid
Cap Equity Fund, $1,335,602 from the Large Cap Equity Fund, $312,754 from the
Money Market Fund, $247,841 from the Government Income Fund, $141,519 from the
North Carolina Tax-Free Bond Fund and for the period May 11, 1999 through April
30, 2000, $246,461 for the Quality Income Fund in advisory fees. For the
fiscal year ended April 30, 2000, the Adviser waived advisory fees of $5,361,
$204,281 and $5,854 for each of the North Carolina Tax-Free Bond Fund, Money
Market Fund and Quality Income Fund, respectively.
For the fiscal year ended April 30, 1999, the Adviser earned the following in
advisory fees: $259,395 from the Small Cap Equity Fund, $1,308,830 from the Mid
Cap Equity Fund, $634,643 from the Large Cap Equity Fund, $155,707 from the
Money Market Fund, $389,332 from the Government Income Fund and $155,132 from
the North Carolina Tax-Free Bond Fund. For the fiscal year ended April 30, 1999,
the Adviser waived the following in advisory fees: $75,833 from the Large Cap
Equity Fund, $145,325 from the Money Market Fund and $62,334 from the North
Carolina Tax-Free Bond Fund.
For the fiscal year ended April 30, 1998, the Adviser received Advisory fees in
the amount of $1,362,369, $442,170, $191,290, $382,159 and $140,332 from the Mid
Cap Equity Fund, Large Cap Equity Fund, Small Cap Equity Fund, Government Income
Fund and the North Carolina Tax-Free Bond Fund, respectively. For the year ended
April 30, 1998, the Advisor waived fees in the amount of $214,769, $25,157 and
$100,237 for the Large Cap Equity Fund, Small Cap Equity Fund and the North
Carolina Tax-Free Bond Fund, respectively. (As of the fiscal year ended April
30, 1998, the Quality Bond Fund and Money Market Fund had not yet commenced
operations.)
For the period May 11, 1999 through April 30, 2000, Sovereign Advisers served as
Sub-Adviser to the Centura Quality Income Fund and received $100,199 in
sub-advisory fees from the Adviser.
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. 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 of any Fund, and the Plan applies only
to Class A shares of Centura Money Market Fund. Pursuant to the Plans, the Funds
may pay directly or reimburse the Distributor
31
<PAGE> 82
monthly in amounts described in the Prospectus for costs and expenses of
marketing the shares, or classes of shares, of the Funds.
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 Government
Income Fund and Centura North Carolina Tax-Free Bond Fund to 0.75%. Such fees
may include a Service Fee totaling 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 Mid Cap Equity Fund, Centura Large Cap Equity Fund and Centura Small Cap
Equity 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. 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 totaling 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.
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 Large Cap Equity Fund and Centura Small Cap Equity
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 Plans for these Funds were recently re-approved at the February 23, 2000
Board of Directors Meeting. The Plan with respect to Centura Large Cap Equity
Fund, Centura Small Cap Equity Fund and Centura Money Market Fund, respectively,
was approved by the Board of Directors and by the Plan Directors by vote cast in
person at meetings held July 24, 1996, January 29, 1997 and April 27, 1998
called for the purpose of voting on that Plan, and by the sole shareholder of
each class of shares of Centura Large Cap Equity Fund and Centura Small Cap
Equity Fund on July 24, 1996 and January 29, 1997. The Plan with respect to
Centura Quality Income Fund was approved by the Board of Directors and the Plan
Directors by vote cast in person at a meeting held January 27, 1999.
(Shareholder approval was not required for Centura Quality Income Fund or
Centura Money Market Fund.) The continuance of the Plans is subject to similar
annual approval by the Directors and the Plan Directors. 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. The Board of Directors has concluded that there is a reasonable
likelihood that the Plans will benefit the Funds and their shareholders.
For the fiscal year ended April 30, 2000 the following 12b-1 fees with respect
to Class A Shares were paid by the Funds: $35,650 for the Large Cap Equity Fund,
$71,734 for the Mid Cap Equity Fund, $15,223 for the Small Cap Equity Fund,
$13,848 for the Government Income Fund, $11,808 for the North Carolina Tax-Free
Bond Fund, $127,215 for the Money Market Fund and for the period May 11, 1999
through April 30, 2000, $365 for the Quality Income Fund. All of the foregoing
amounts were paid as compensation to service organizations and broker/dealers.
For the fiscal year ended April 30, 2000, the following 12b-1 fees with respect
to Class B Shares were paid by the Funds: $57,721 for the Large Cap Equity Fund,
$177,981 for the Mid Cap Equity Fund, $48,410 for the Small Cap Equity Fund,
$1,680 for the Government Income Fund and $3,988 for the North Carolina Tax-Free
Income Fund.
For the fiscal year ended April 30, 1999 the following 12b-1 fees with respect
to Class A shares were paid by the Funds: $4,317 for the Large Cap Equity Fund,
$33,611 for the Mid Cap Equity Fund, $7,883 for the Small Cap Equity Fund,
$1,333 for the Government Income Fund, $12,376 for the
32
<PAGE> 83
North Carolina Tax-Free Bond Fund and $59 for the Money Market Fund. Of these
amounts, the following were paid as compensation to service organizations and
broker/dealers and the remainder retained by the Distributor: $3,379 for Large
Cap Equity Fund, $25,604 for the Mid Cap Equity Fund, $5,963 for the Small Cap
Equity Fund, $1,001 for the Government Income Fund, $9,349 for the North
Carolina Tax-Free Bond Fund, and $29 for the Money Market Fund. For the fiscal
year ended April 30, 1999 the following 12b-1 fees with respect to Class B
shares were paid by the Funds: $179,498 for the Mid Cap Equity Fund, $27,563 for
the Large Cap Equity Fund, $49,928 for the Small Cap Equity Fund, $1,228 for the
Government Income Fund and $4,183 for the North Carolina Tax-Free Bond Fund. Of
these amounts, $142,742, $22,069, $42,007, $938, and $3,135 were paid by Mid
Cap Equity Fund, Large Cap Equity Fund, Small Cap Equity Fund, Government
Income Fund and North Carolina Tax-Free Bond Fund, respectively for
compensation to the Distributor for its services as Underwriter of the Funds
and the remainders were paid as service fees to broker-dealers and service
organizations. (As of April 30, 1999, Quality Income Fund had not yet
commenced operations).
For the fiscal year ended April 30, 1998, the Distributor received $56,167,
$4,374, $7,065, $2,534 and $21,661 from the Mid Cap Equity Fund, Large Cap
Equity Fund, Small Cap Equity Fund, Government Income Fund and the North
Carolina Tax-Free Bond Fund, respectively pursuant to Class A Plans. However,
the Distributor waived fees of $28,084, $2,187, $3,533, $1,267 and $10,831 for
the Mid Cap Equity Fund, Large Cap Equity Fund, Small Cap Equity Fund,
Government Income Fund and the North Carolina Tax-Free Bond Fund, respectively.
The Distributor retained no portion of these payments all of which were paid as
compensation to service organizations and broker/dealers for shareholder service
and distribution activities. For the fiscal year ended April 30, 1998, the
Distributor received $137,815, $12,538, $22,936, $1,532 and $4,088 from the Mid
Cap Equity Fund, Large Cap Equity Fund, Small Cap Equity Fund, Government Income
Fund and the North Carolina Tax-Free Bond Fund, respectively pursuant to Class B
Plans. However, the Distributor waived fees of $383 and $1,022 for the
Government Income Fund and the North Carolina Tax-Free Bond Fund, respectively.
(As of the fiscal year ended April 30, 1998, the Quality Bond Fund and Money
Market Fund had not yet commenced operations.) All expenditures for Class B
Shares were for compensation to the Distributor for its services as Underwriter
of the Funds.
ADMINISTRATIVE SERVICES
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS") is
the Sponsor and Administrator of the Funds and 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, Sub-Adviser, Distributor, custodians,
independent accountants, legal counsel and others. In addition, BISYS 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 BISYS. For these services, BISYS receives from each Fund a fee,
payable monthly, at the annual rate of 0.15% of each Fund's average daily net
assets.
BISYS is a subsidiary of BISYS Group, Inc, which is headquartered in Little
Falls, New Jersey and supports more than 5,000 financial institutions and
corporate clients through two strategic business units. BISYS Information
Services Group provides image and data processing outsourcing, and pricing
analysis to more than 600 banks nationwide. BISYS Investment Services Group
designs, administers and distributes over 30 families of proprietary mutual
funds consisting of more than 365 portfolios, and provides 401(k) marketing
support, administration, and recordkeeping services in partnership with banking
institutions and investment management companies. At a meeting held on July 24,
1996, the Directors reviewed and approved an Administration Agreement with
BISYS, a
33
<PAGE> 84
Transfer Agency Agreement and a Fund Accounting Agreement with BISYS Fund
Services, Inc. Both BISYS companies have their principal place of business at
3435 Stelzer Road, Columbus, Ohio 43219.
For the fiscal year ended April 30, 2000, BISYS received administration fees of
$207,073, $286,202, $52,297, $123,921, $60,706, $157,461 and, for the period May
11, 1999 through April 30, 2000, $62,094 for each of the Mid Cap Equity Fund,
the Large Cap Equity Fund, the Small Cap Equity Fund, the Government Income
Fund, the North Carolina Tax-Free Bond Fund, the Money Market Fund and the
Quality Income Fund, respectively. For the same period, BISYS waived fees of
$7,423 and $124,631 for the North Carolina Tax-Free Bond Fund and Money Market
Fund, respectively.
For the fiscal year ended April 30, 1999, BISYS, earned administrative services
fees of $280,464, $135,995, $55,585, $194,666, $66,486 and $77,853 for the Mid
Cap Equity Fund, the Large Cap Equity Fund, the Small Cap Equity Fund, the
Government Income Fund, the North Carolina Tax-Free Bond Fund and the Money
Market Fund, respectively. For the same period, BISYS waived fees of $0,
$12,696, $0, $0, $25,980 and $70,228 for the Mid Cap Equity Fund, the Large Cap
Equity Fund, the Small Cap Equity Fund, the Government Income Fund, the North
Carolina Tax-Free Bond Fund and the Money Market Fund, respectively.
For fiscal year ended April 30, 1998, BISYS received administration fees of
$291,936, $94,751, $40,991, $191,079 and $60,117 for the Mid Cap Equity Fund,
the Large Cap Equity Fund, the Small Cap Equity Fund, the Government Income Fund
and the North Carolina Tax-Free Bond Fund, respectively. For the same period,
BISYS waived fees of $40,456, $5,391 and $42,883 for the Large Cap Equity Fund,
the Small Cap Equity Fund and the North Carolina Tax-Free Bond Fund,
respectively. (As of the fiscal year ended April 30, 1998, the Quality Income
Fund and the Money Market Fund had not yet commenced operations.)
The Administration Agreement for each was approved by the Board of Directors,
including a majority of the Directors who are not parties to the Agreement or
interested persons of such parties, at meetings held July 24, 1996 and January
29, 1997 and April 27, 1998. The Administration Agreement 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 90 days written
notice to the Administrator, and upon 90 days notice, by the Administrator.
SERVICE ORGANIZATIONS
The Money Market Fund has adopted a Shareholder Services Plan (the "Plan") which
provides that the Fund will make payments equal to 0.25% (on an annual basis) of
the average daily value of the net assets of the Fund's Class A shares
attributable to or held in the name of banks, trust companies, broker-dealers
(other than BISYS) or other financial organizations ("Service Organizations") to
provide certain administrative services. The Company will enter into agreements
("Shareholder Services Agreements") with Service Organizations that purchase
Class A shares on behalf of their clients. The Shareholder Services Agreements
will provide for compensation to the Service Organizations in an amount up to
0.25% (on an annual basis) of the average daily net assets of class A shares
attributable to or held in the name of the Service Organizations for its
clients. 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
34
<PAGE> 85
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 Money Market Fund to clients; and providing such
other services as the Fund or a client reasonably may request, to the extent
permitted by applicable statute, rule or regulation. Neither BISYS 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 Fund 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 Fund. 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 Directors of the Company, including a majority of the Directors who are not
interested persons of the Company and who have no direct or indirect financial
interest in the operation of the Plan or the related Shareholder Services
Agreement, voted to adopt the Plan and Shareholder Services Agreement at a
meeting called for the purpose of voting on such Plan and Shareholder Services
Agreement on October, 1998. The Plan and Shareholder Services Agreement will
remain in effect for a period of one year and will continue in effect thereafter
only if such continuance is specifically approved annually by a vote of the
Directors in the manner described above. All material amendments of the Plan
must also be approved by the Directors in the manner described above. The Plan
may be terminated at any time by a majority of the Directors as described above
or by vote of a majority of the outstanding class of shares of the Fund. The
Shareholder Services Agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Directors as described above or by a
vote of a majority of the outstanding class of shares of the Fund on not more
than 60 days' written notice to any other party to the Shareholder Services
Agreement. The Shareholder Services Agreement shall terminate automatically if
assigned. The Directors have determined that, in their judgment, there is a
reasonable likelihood that the Plan will benefit the Money Market Fund. In the
Directors' quarterly review of the Plan and Shareholder Services Agreement, they
will consider their continued appropriateness and the level of compensation
provided therein.
DETERMINATION OF NET ASSET VALUE
The net asset value per share for each class of shares of each Fund is
calculated at 4:00 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'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.
Valuation of the Money Market Fund
The Money Market Fund has elected to use the amortized cost method of valuation
pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an instrument at
its cost initially and thereafter assuming a constant amortization to
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maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. This method may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price the Fund would receive if it sold the instrument. The value of
securities in the Money Market Fund can be expected to vary inversely with
changes in prevailing interest rates.
Pursuant to Rule 2a-7, the Money Market Fund will maintain a dollar-weighted
average maturity appropriate to the Fund's objective of maintaining a stable net
asset value per share, provided that the Fund will not purchase any security
with a remaining maturity of more than 397 days (thirteen months) (securities
subject to repurchase agreements may bear longer maturities) nor will it
maintain a dollar-weighted average maturity which exceeds 90 days. The Company's
Board of Directors has also undertaken to establish procedures reasonably
designed, taking into account current market conditions and the investment
objective of the Fund, to stabilize the net asset value per share of the Fund
for purposes of sales and redemptions at $1.00. These procedures include review
by the Directors, at such intervals as they deem appropriate, to determine the
extent, if any, to which the net asset value per share of the Fund calculated by
using available market quotations deviates from $1.00 per share. In the event
such deviation exceeds 0.5%, Rule 2a-7 requires that the Board of Directors
promptly consider what action, if any, should be initiated. If the Directors
believe that the extent of any deviation from the Fund's $1.00 amortized cost
price per share may result in material dilution or other unfair results to new
or existing investors, they will take such steps as they consider appropriate to
eliminate or reduce, to the extent reasonably practicable, any such dilution or
unfair results. These steps may include selling portfolio instruments prior to
maturity, shortening the dollar-weighted average maturity, withholding or
reducing dividends, reducing the number of the Fund's outstanding shares without
monetary consideration, or utilizing a net asset value per share determined by
using available market quotations. As permitted by Rule 2a-7 and the procedures
adopted by the Board, certain of the Board's responsibilities under the Rule may
be delegated to the Adviser.
Valuation of the Non-Money Market Funds.
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 from 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.
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
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<PAGE> 87
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.
A Fund 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.
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.
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
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 BISYS 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 can 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 their affiliates
receive such services.
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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 or Sub-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, 2000, $378,462, $219,825 and $302,736 were
paid in brokerage commissions by the Mid Cap Equity Fund, Large Cap Equity Fund
and Small Cap Equity Fund. Of this amount, none was paid to any affiliated
brokers. None of the other Funds paid any brokerage commissions for such
periods.
For the fiscal year ended April 30, 1999, $796,306, $262,893, and $153,178 were
paid in brokerage commissions by the Mid Cap Equity Fund, Large Cap Equity Fund
and Small Cap Equity Fund. Of this amount, none was paid to any affiliated
brokers. None of the other Funds paid any brokerage commissions for such
periods.
For the fiscal year ended April 30, 1998, the Mid Cap Equity Fund and the Large
Cap Equity Fund paid brokerage commissions of $388,152 and $94,016,
respectively. Of these amounts, none were 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 100%. 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 rates for the fiscal year ended April 30, 2000 were 258%, 61%, 63%, 60%
and 14% for the Small Cap Equity Fund, the Mid Cap Equity Fund, the Large Cap
Equity Fund, the Government Income Fund and the North Carolina Tax-Free Bond
Fund, respectively. For the year ended April 30, 1999, the turnover rates for
the Small Cap Equity Fund, the Large Cap Equity Fund, the Mid Cap Equity Fund,
the Government Income Fund and the North Carolina Tax-Free Bond Fund, were 130%,
114%, 142%, 104% and 11%. 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; and (c) 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
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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 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 (the excess of net long-term capital gains
over short-term capital losses), if any, designated by a Fund as capital gain
dividends will generally be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held Fund shares. 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 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.
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
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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.
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.
Recently enacted rules may affect the timing and character of gain if a Fund
engages in transactions that reduce or eliminate its risk of loss with respect
to appreciated financial positions. If a Fund enters into certain transactions
in property while holding substantially identical property, the Fund would be
treated as if it had sold and immediately repurchased the property and would be
taxed on any gain (but not loss) from the constructive sale. The character of
gain from a constructive sale would depend upon the Fund's holding period in the
property. Loss from a constructive sale would be recognized when the property
was subsequently disposed of, and its character would depend on the Fund's
holding period and the application of various loss deferral provisions of the
Code.
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 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
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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 Fund's PFIC
shares at the end of each taxable year, with the result that unrealized gains
are treated as though they were realized and reported as ordinary income. Any
mark-to-market losses and any loss from an actual disposition of PFIC shares
would be deductible as ordinary losses to the extent of any net mark-to-market
gains included in income in prior years. 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 ability to claim foreign tax
credits also is subject to holding period requirements.
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
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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.
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
42
<PAGE> 93
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 seven separately
managed portfolios, each of which offers three classes of shares, except that
Centura Money Market Fund offers only two classes of shares. The capitalization
of the Company consists solely of one billion fifty million (1,050,000,000)
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.
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. 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.
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 FUND ACCOUNTING 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, 2000,
the custodian earned fees of $34,503, $47,698, $20,649, $10,246,
$27,314,$8,714, and, for the period May 11, 1999 through April 30, 2000,
$10,354 for the Mid Cap Equity Fund, Large Cap Equity Fund, Government Income
Fund, North Carolina Tax-Free Bond Fund, Money Market Fund, Small Cap Equity
Fund and Quality Income Fund, respectively. For the fiscal year ended April 30,
1999 the custodian earned fees of $46,734, $22,665, $32,446, $11,084, $12,975
and $9,448 for the Mid Cap Equity Fund, Large Cap Equity Fund, Government
Income Fund, North Carolina Tax-Free Bond Fund, Money Market Fund and Small Cap
Equity Fund, respectively. (the Quality Income
43
<PAGE> 94
Fund had not commenced operations as such fiscal year).For the fiscal year ended
April 30, 1998, Centura Bank earned custodian fees and out-of-pocket expenses of
$44,842, $15,560, $26,313 and $11,932 for the Mid Cap Equity Fund, Large Cap
Equity Fund, Government Income Fund and North Carolina Tax-Free Bond Fund,
respectively. For the period from May 2, 1997 (commencement of operations) to
April 30, 1998, custodian expenses incurred by the Small Cap Equity Fund were
$12,766. (As of the fiscal year ended April 30, 1998, the Quality Income Fund
and the Money Market Fund had not yet commenced operations.)
BISYS Fund Services, Inc. ("BFSI") serves as the Company's transfer agent
pursuant to a Transfer Agency Agreement.
Pursuant to a Fund Accounting Agreement, each Fund compensates BFSI $2,500 per
month for providing fund accounting services for the Funds. For the fiscal year
ended April 30, 2000 BFSI earned the following fund accounting service fees:
$48,881 for the Mid Cap Equity Fund, $63,225 for the Large Cap Equity Fund,
$36,540 for the Small Cap Equity Fund, $34,991 for the Government Income Fund,
$37,439 for the North Carolina Tax-Free Bond Fund, $38,185 for the Money Market
Fund and, for the period May 11, 1999 through April 30, 2000, $36,153 for the
Quality Income Fund. For the fiscal year ended April 30, 1999, BFSI earned the
following fund accounting service fees: $33,860 for the Mid Cap Equity Fund,
$34,565 for the Government Income Fund, $34,471 for the Large Cap Equity Fund,
$33,360 for the Small Cap Equity Fund, $28,614 for the Money Market Fund and
$36,694 for the North Carolina Tax-Free Bond Fund. For the fiscal year ended
April 30, 1998 BFSI received fees for fund accounting services of $32,519,
$31,269, $38,031 and $35,374 for the Mid Cap Equity Fund, the Large Cap Equity
Fund, the Government Income Fund and the North Carolina Tax-Free Bond Fund,
respectively. For the period from May 2, 1997 (commencement of operations) to
April 30, 1998, BFSI received fees for fund accounting services of $34,581 for
the Small Cap Equity Fund. (As of the fiscal year ended April 30, 1998, the
Quality Bond Fund and the Money Market Fund had not yet commenced operations.)
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.
CENTURA MONEY MARKET FUND
The current yield is the net annualized yield based on a specific 7
calendar-days calculated at simple interest rates. Current yield is calculated
by determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period and dividing such change by the value of the account at the
beginning of the base period to obtain the base-period return. The base-period
return is then annualized by multiplying it by 365/7; the resultant product
equals net annualized current yield. The current yield figure is stated to the
nearest hundredth of one percent.
The effective yield is the net annualized yield for a specified 7 calendar-days
assuming a reinvestment in Fund shares of all dividends during the period, i.e.,
compounding. Effective yield is calculated by using the same base-period return
used in the calculation of current yield except that the base-period return is
compounded by adding 1, raising the sum to a power equal to 365 divided by 7,
and subtracting 1 from the result according to the following formula:
Effective Yield -- [(Base Period Return + 1)365/7] -- 1.
As described above, current yield and effective yield are based on historical
earnings, show the performance of a hypothetical investment and are not intended
to indicate future performance. Current yield and effective yield will vary
based on changes in market conditions and the level of Fund expenses. Current
yield and effective yield for the 7 day period ending April 30, 2000 for the
Centura Money Market Fund, (Class A Shares) were 5.21% and 5.34%, respectively.
44
<PAGE> 95
OTHER CENTURA FUNDS
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)#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 # indicates that the following single character is an
exponent.
The 30-day yield for the period ended April 30, 2000 was as follows: 5.54%,
4.04% and 5.83% for the Class A shares of the Government Income Fund, the North
Carolina Tax-Free Bond Fund and Quality Income Fund, respectively, and 5.20%,
3.64% and 7.47% for the Class B shares of the Government Income Fund, the North
Carolina Tax-Free Bond Fund and Quality Income 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)#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; the # indicates that the
following single character is an exponent. 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.
PERFORMANCE INFORMATION
TOTAL RETURN SUMMARY
THE CENTURA FUNDS (A CLASS)
PERIOD ENDED APRIL 30, 2000
NO LOAD TOTAL RETURN
AVERAGE ANNUAL RETURNS
<TABLE>
<CAPTION>
INCEPTION
FUND DATE 1 YR 3 YR 5 YR SINCE INCEPTION
---- --------- ---- ---- ---- ---------------
<S> <C> <C> <C> <C> <C>
Centura Mid Cap Equity Fund ...........12/31/90 21.15% 21.56% 21.97% 18.70%
Centura Large Cap Equity Fund..........12/31/90 14.63% 21.35% 20.89% 16.32%
</TABLE>
45
<PAGE> 96
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Centura Small Cap Equity Fund.........01/01/95 19.97% 21.20% 18.19% 18.66%
Centura Government Income Fund.........12/31/90 1.73% 5.08% 5.30% 5.58%
Centura North Carolina Tax-Free Fund...01/31/91 -1.15% 4.07% 4.48% 4.45%
Centura Quality Income Fund............05/10/99 n/a n/a n/a 0.03%
</TABLE>
SUBJECT TO SALES LOAD
AVERAGE ANNUAL RETURNS
<TABLE>
<CAPTION>
INCEPTION
FUND DATE 1 YR 3 YR 5 YR SINCE INCEPTION
---- --------- ---- ---- ---- ---------------
<S> <C> <C> <C> <C> <C>
Centura Mid Cap Equity Fund........... 12/31/90 15.72% 19.71% 20.86% 18.11%
Centura Large Cap Equity Fund ........ 12/31/90 9.48% 19.52% 19.79% 15.74%
Centura Small Cap Equity Fund........ 01/01/95 14.55% 19.35% 17.11% 17.62%
Centura Government Income Fund ...... 12/31/90 -1.03% 4.11% 4.71% 5.27%
Centura North Carolina Tax-Free Fund.. 01/31/91 -3.91% 3.12% 3.90% 4.14%
Centura Quality Income Fund........... 05/10/99 n/a n/a n/a -2.69%
</TABLE>
SALES LOAD
The Centura Mid Cap Equity Fund..................................4.50%
The Centura Large Cap Equity Fund................................4.50%
The Centura Small Cap Equity Fund...............................4.50%
The Centura Government Income Fund...............................2.75%
The Centura North Carolina Tax-Free Fund.........................2.75%
The performance data quoted represents past performance and is not an indication
of future results as yields fluctuate daily.
Centura Funds Distributor, Inc. is the Distributor for The Centura Group of
Funds.
TOTAL RETURN SUMMARY
THE CENTURA FUNDS (B CLASS)
PERIOD ENDED APRIL 30, 2000
NO CDSC TOTAL RETURN
AVERAGE ANNUAL RETURNS
<TABLE>
<CAPTION>
INCEPTION
FUND DATE 1 YR 3 YR 5 YR SINCE INCEPTION
---- --------- ---- ---- ---- ---------------
<S> <C> <C> <C> <C> <C>
Centura Mid Cap Equity Fund .......... 12/31/90 20.31% 20.70% 21.11% 17.99%
Centura Large Cap Equity Fund......... 12/31/90 13.72% 20.45% 20.05% 15.62%
Centura Small Cap Equity Fund......... 01/01/95 19.09% 20.26% 17.39% 17.89%
Centura Government Income Fund........ 12/31/90 1.23% 4.56% 4.71% 5.00%
Centura North Carolina Tax-Free Fund.. 01/31/91 -1.64% 3.59% 3.92% 3.91%
Centura Quality Income Fund........... 05/10/99 n/a n/a n/a 1.80%
</TABLE>
CDSC TOTAL RETURN
AVERAGE ANNUAL RETURNS
<TABLE>
<CAPTION>
INCEPTION
FUND DATE 1 YR 3 YR 5 YR SINCE INCEPTION
---- --------- ---- ---- ---- ---------------
<S> <C> <C> <C> <C> <C>
Centura Mid Cap Equity Fund.......... 12/31/90 15.81% 20.09% 21.01% 17.99%
Centura Large Cap Equity Fund........ 12/31/90 8.72% 19.76% 19.95% 15.62%
Centura Small Cap Equity Fund........ 01/01/95 14.22% 19.57% 17.29% 17.89%
Centura Government Income Fund....... 12/31/90 -1.66% 3.66% 4.54% 5.00%
Centura North Carolina Tax-Free Fund. 01/31/91 -4.49% 2.65% 3.74% 3.91%
Centura Quality Income Fund.......... 05/10/99 n/a n/a n/a -1.05%
</TABLE>
46
<PAGE> 97
CONTINGENT DEFERRED SALES CHARGE:
Shares redeemed within 5 years of purchase are subject to a CDSC equal to a
percentage of the lesser of the purchase NAV or the redemption NAV. The
contingent deferred sales charge will not be imposed on increases above the
beginning NAV or shares purchased through the reinvestment of dividends or
capital gains.
CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
MID CAP EQUITY FUND GOVERNMENT INCOME SECURITIES INCOME FUND
LARGE CAP EQUITY FUND NORTH CAROLINA TAX-FREE FUND
YEARS SINCE PURCHASE SMALL CAP EQUITY FUND CENTURA QUALITY INCOME FUND
-------------------- --------------------- ----------------------------------------
<S> <C> <C>
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%
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results as yields fluctuate daily.
Centura Funds Distributor, Inc. is the Distributor for Centura Funds.
NOTES ABOUT THE PERFORMANCE INFORMATION
(a) BACKGROUND OF THE FUNDS
From 12/31/90 to 5/31/94 (conversion date), Centura Mid Cap Equity Fund and
Centura Government Income Fund were bank collective trust funds maintained and
managed by Centura Bank, and from 1/31/91 to 5/31/94 (conversion date), Centura
North Carolina Tax-Free Bond Fund was a common trust fund maintained and managed
by Centura Bank. From 12/31/90 to 9/30/96 (conversion date), Centura Large Cap
Equity Fund was a common trust fund maintained and managed by Centura Bank. From
1/1/95 to 5/1/97 (conversion date), Centura Small Cap Equity Fund was a bank
common trust fund maintained and managed by Centura Bank. Bank collective and
common trust funds are not required to register as investment companies under
the Investment Company Act of 1940. Accordingly, performance achieved by a
Fund's predecessor collective or common trust fund reflects performance prior to
the Fund's commencement of operations as a series of a registered investment
company. The investment objectives, strategies and policies of each of these
Funds prior to its conversion from the bank common or collective fund
predecessor to a registered mutual fund were in all material respects equivalent
to those of its successor registered mutual fund.
(b) HOW THE PERFORMANCE INFORMATION WAS CALCULATED
Investment performance for the Funds during their maintenance as common or
collective trust funds has been calculated on a monthly basis utilizing the Bank
Administration Institute's recommended time-weighted rate of return method to
compute the investment performance reflected in the above Schedule.
The performance figures assume the maximum sales load, reinvestment of dividends
and interest and include the cost of brokerage commissions. The investment
performance excludes taxes an investor might have incurred as a result of
taxable ordinary income and capital gains realized by the accounts. Bank common
and collective trust funds are not subject to certain expenses normally incurred
by a mutual fund, such as advisory, administrative, transfer and fund accounting
agent and 12b-1 fees. Thus, the performance figures, for periods prior to
conversion to
47
<PAGE> 98
registered funds have been adjusted, on a monthly basis, to reflect the impact
of the higher contractual expense ratios for the registered funds at the time of
the conversion. Where performance information for the period since conversion
reflects deduction of sales charges, pre-conversion figures have been similarly
adjusted to reflect sales charges applicable to the registered funds.
It should be noted, however, that the bank-maintained common and collective
trust funds are not subject to the same tax and regulatory requirements,
including certain investment restrictions, applicable to registered mutual
funds. These regulatory and tax requirements could have adversely affected the
performance of the Funds' collective and common trust fund predecessors.
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 or transaction
costs.
Performance information for the Funds may be compared, in reports and
promotional literature, to: (i) , 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, Inc. 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.
Other Indexes to which the Funds' performance may be compared may include:
- Standard & Poor's 500 Composite Stock Price Index -- an index of market
activity based on the aggregate performance of a selected portfolio of
publicly traded common stocks, including monthly adjustments to reflect the
reinvestment of dividends. The Index thus reflects the total return of its
portfolio, including changes in market prices as well as accrued income
interest;
- The Russell 2000 Index -- an index comprised of the smallest 2000
companies in the Russell 3000 Index, representing approximately 11% of the
Russell 3000 total market capitalization. The Index was developed with the
base value of 135.00 as of December 31, 1986;
- Merrill Lynch Government, U.S. Treasury Short-Term Index -- this index
shows total return for all outstanding U.S. Treasury securities maturing in
from one to 2.99 years. Price, coupon and total return are reported using
market weighted value including accrued interest; and
- Lehman Brothers Municipal Bond Index -- a total return performance index
of approximately 21,000 municipal bonds that meet certain criteria. Price,
coupon, and total return are reported using market weighted value including
accrued interest.
48
<PAGE> 99
In addition to those indexes listed above, the following indexes to which the
Funds' performance may be compared may include:
- Lehman Brothers Intermediate Government Index
- Lipper Short U.S. Treasury Funds Index
- Lipper Growth Index
- Lipper Equity Income Index
- S&P Mid-Cap 400 Index
- Valueline Index
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. Due to and the lower rate of
distribution fees applicable to Class A shares, yield and total return on Class
B shares can be expected to be lower than the yield and total return on Class A
shares for the same period.
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.
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 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 1998 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.
49
<PAGE> 100
2000 TAXABLE YEAR
TAXABLE EQUIVALENT YIELD TABLE (1) -- FEDERAL AND
NORTH CAROLINA PERSONAL INCOME TAXES
(to be updated)
<TABLE>
<CAPTION>
TO EQUAL HYPOTHETICAL TAX-FREE YIELD OF
4%, 5%, 6%, 7% OR 8%, A TAXABLE
INVESTMENT WOULD HAVE TO YIELD
TAXABLE INCOME ( 2) COMBINED APPROXIMATELY
MARGINAL
SINGLE RETURN JOINT RETURN RATE 4% 5% 6% 7% 8%
------------- ------------ -------- ----- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
up to $12,750up to up to $21,250up to 20.10% 5.01% 6.26% 7.51% 8.76% 10.07%
$12,750 $21,250
$12,751-$25,750 $21,251-$43,050 20.95% 5.06% 6.33% 7.59% 8.86% 10.12%
$25,751-$60,000 $43,051-$100,000 33.04% 5.97% 7.47% 8.96% 10.45% 11.95%
$60,001-$62,450 $100,001-$104,050 33.58% 6.02% 7.53% 9.03% 10.54% 12.04%
$62,451-$130,250 $104,051-$158,550 36.35% 6.28% 7.86% 9.43% 11.00% 12.57%
$130,251-$283,150 $158,551-$283,150 40.96% 6.78% 8.47% 10.16% 11.86% 13.55%
$283,151 and over $283,151 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;
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 1999 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 1999 exceeds
$126,600 ($63,300 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 1999, $126,600 in the case of single individuals and
$189,950 in the case of married individuals filing a joint return).
INDEPENDENT ACCOUNTANTS
[ ], 2 Nationwide Plaza, Columbus, Ohio 43215 serves as the independent
accountants for the Company for the fiscal year ending April 30, 2000. [ ]
provides audit services, tax return preparation and assistance and consultation
in connection with review of certain SEC filings.
COUNSEL
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C., 20006, passes
upon certain legal matters in connection with the shares offered by the Company
and also acts as Counsel to the Company.
50
<PAGE> 101
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.
FINANCIAL STATEMENTS
The Report of Independent Accountants and financial statements of the Funds
included in their Annual Report for the period ended April 30, 2000 (the "Annual
Report") are incorporated herein by reference to such Report. Copies of such
Annual Report are available without charge upon request by writing to Centura
Funds, Inc., 3435 Stelzer Road, Columbus, Ohio 43219-8006 or telephoning (800)
442-3688.
The financial statements for the period ended April 30, 2000 in the Annual
Report incorporated by reference into this Statement of Additional Information
have been audited by [ ], independent accountants, and have been so
included and incorporated by reference in reliance upon the report of said firm,
which report is given upon their authority as experts in auditing and
accounting.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS, OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS SAI OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR PRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUNDS. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE AN
OFFERING BY THE FUNDS IN ANY JURISDICTION IN WHICH SUCH AN OFFERING MAY NOT
LAWFULLY BE MADE.
51
<PAGE> 102
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 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 debt obligations; PRIME-2 -- issuers (or
52
<PAGE> 103
supporting institutions) have a strong ability for repayment of senior
short-term debt obligations; PRIME-3 -- issuers (or supporting institutions)
have an acceptable ability for repayment of senior short-term debt 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 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
53
<PAGE> 104
[CENTURA LOGO]
CENTURA LARGE CAP EQUITY FUND
CENTURA MID CAP EQUITY FUND
CENTURA SMALL CAP EQUITY FUND
CENTURA GOVERNMENT INCOME FUND
CENTURA QUALITY INCOME FUND
CENTURA NORTH CAROLINA TAX-FREE BOND FUND
INVESTMENT ADVISER
AND CUSTODIAN
CENTURA BANK
131 North Church Street
Rocky Mount, NC 27802
QUESTIONS?
Call 1-800-442-3688
or Your Investment Representative.
PROSPECTUS
AUGUST 30, 2000
CLASS C
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these Fund Shares described in this prospectus or
determined whether this prospectus is truthful or complete. Any representation
to the contrary is a criminal offense.
<PAGE> 105
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES
Carefully review this important 3 Overview
section, which summarizes each fund's
investments, risks, past performance,
and fees.
EQUITY FUNDS
4 Investment Objectives, Principal Investment Strategies
and Performance Information
7 Principal Risks
8 Fees And Expenses
BOND FUNDS
9 Investment Objectives, Principal Investment Strategies
and Performance Information
12 Principal Risks
13 Fees And Expenses
ADDITIONAL INFORMATION
14 Investing for Defensive Purposes
FUND MANAGEMENT
Review this section for details on 15 Investment Adviser
the
people and organizations who oversee 15 Centura Portfolio Managers
the Funds. 16 Distributor and Administrator
SHAREHOLDER INFORMATION
Review this section for details on 17 Pricing of Fund Shares
how shares are valued, how to 19 Purchasing and Adding to Your Shares
purchase, sell and exchange shares, 19 Selling Your Shares
related charges and payments of 21 General Policies on Selling Shares
dividends and distributions. 23 Exchanging Your Shares
24 Dividends, Distributions and Taxes
FINANCIAL HIGHLIGHTS
25
BACK COVER
Where To Learn More About The Funds
</TABLE>
2
<PAGE> 106
RISK/RETURN SUMMARY AND FUND EXPENSES
OVERVIEW
This prospectus describes the following
funds offered by the Centura Funds (the "Funds").
EQUITY FUNDS
Large Cap Equity Fund
Mid Cap Equity Fund
Small Cap Equity Fund
BOND FUNDS
Government Income Fund
Quality Income Fund
North Carolina Tax-Free Bond Fund
On the following pages, you will find important
information about each Fund, including:
- the investment objective
- principal investment strategy
- performance information
- principal risks associated with each Fund, and
- fees and expenses.
The Funds are managed by Centura Bank
("Centura" or the "Adviser").
RISK PROFILE OF MUTUAL FUNDS
[GRAPHIC]
PRINCIPAL RISKS OF THE FUNDS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
FOREIGN
MARKET SELECTION INVESTMENT INTEREST CREDIT PREPAYMENT HEDGING
RISK RISK RISK RATE RISK RISK RISK RISK
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Large Cap Equity Fund X X X X
----------------------------------------------------------------------------------------------------------------------
Mid Cap Equity Fund X X X X
----------------------------------------------------------------------------------------------------------------------
Small Cap Equity Fund X X X X
----------------------------------------------------------------------------------------------------------------------
Government Income Fund X X X X X
----------------------------------------------------------------------------------------------------------------------
Quality Income Fund X X X X X
----------------------------------------------------------------------------------------------------------------------
North Carolina Tax-Free Bond Fund X X X X
----------------------------------------------------------------------------------------------------------------------
</TABLE>
A complete description of these and other risks can be found in the sections
"Equity Funds -- Principal Risks," and "Bond Funds -- Principal Risks."
3
<PAGE> 107
RISK/RETURN SUMMARY AND FUND EXPENSES EQUITY FUNDS
CENTURA LARGE CAP EQUITY FUND
INVESTMENT OBJECTIVES. Long-term capital
appreciation.
PRINCIPAL INVESTMENT STRATEGIES. The Fund
normally invests at least 65% of its total
assets in equity securities of large U.S.
companies each having $3 billion or more
in market capitalization at the time of
purchase by the Fund. Investments are
primarily in common stocks, but may also
include convertible preferred stocks and convertible bonds, notes and
debentures. The Adviser uses quantitative and qualitative analysis to select
stocks for the Fund's portfolio that the Adviser believes offer attractive
growth opportunities and are selling at reasonable prices. The Adviser
pursues this strategy by first considering fundamental factors such as book
value, cash flow, earnings, and sales. The Adviser's quantitative analysis
also includes in-depth analysis of a company's financial statements. Once a
company passes this quantitative screening process, the Adviser utilizes a
more traditional qualitative approach. This analysis considers factors such
as liquidity, use of leverage, management strength, and the company's ability
to execute its business plan. A portion of the Fund's assets may be invested
in securities of non-U.S. companies, generally through American Depository
Receipts ("ADRs"). The Adviser will consider selling those securities which
no longer meet the Fund's criteria for investing.
MARKET CAPITALIZATION is a common
measure of the size of a company.
It is the market price of a share
of the company's stock multiplied
by the number of shares that are
outstanding.
The Fund has authority to invest up to 100% of its total assets in a variety
of short-term debt securities for temporary defensive purposes under unusual
market conditions. While the Fund is invested in these instruments, it will
not be pursuing its investment objective.
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment
in the Fund by showing its performance from year to year and as compared to a
broad-based securities index. The Standard and Poor's 500 Composite Stock
Price Index (the "S&P 500(R)") in the table below is an unmanaged index of
500 selected common stocks, most of which are listed on the New York Stock
Exchange. Past performance does not indicate how the Fund will perform in the
future.
PERFORMANCE BAR CHART AND TABLE*
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31
FOR CLASS C SHARES
(BOTH THE CHART AND THE TABLE ASSUME
REINVESTMENT OF DIVIDENDS AND
DISTRIBUTIONS.)
[PERFORMANCE BAR CHART]
<TABLE>
<S> <C>
1991 18.98
92 10.39
93 13.15
94 -2.61
95 31.95
96 20.53
97 28.01
98 15.77
99 24.92
</TABLE>
* The quoted performance of the Fund includes the performance of a common
trust fund ("Commingled") account advised by Centura and managed the same
as the Fund in all material respects, for periods dating back to December
31, 1990, and prior to the Fund's commencement of operations on October 1,
1996, as adjusted to reflect the full contractual rate of expenses
associated with the Fund at its inception. The Commingled account was not
registered with the Securities and Exchange Commission ("SEC") under the
Investment Company Act of 1940 (the "1940 Act") and therefore was not
subject to the investment restrictions imposed by law on registered mutual
funds. If the Commingled account had been registered, the Commingled
account's performance may have been adversely affected. Fund performance
reflects applicable fee waivers/expense reimbursements (which, if
excluded, would cause performance to be lower.)
For the period January 1, 2000 through June 30, 2000, the aggregate
(non-annualized) total return of the
Fund was %.
<TABLE>
<S> <C>
Best quarter: Q4 1998 23.38%
Worst quarter: Q3 1998 -9.44%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
INCEPTION PAST PAST 5 SINCE
DATE YEAR YEARS INCEPTION
<S> <C> <C> <C> <C>
Class C Shares 12/31/90 24.92% 24.11% 17.42%
S&P 500 Index 12/31/90 21.04% 28.55% 20.85%
</TABLE>
4
<PAGE> 108
RISK/RETURN SUMMARY AND FUND EXPENSES EQUITY FUNDS
CENTURA MID CAP EQUITY FUND
INVESTMENT OBJECTIVE. Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 65% of
its total assets in equity securities of mid-sized companies that fall within
the range of companies in the Standard and Poor's Mid Cap 400 Composite Stock
Price Index (the "S&P Mid Cap 400 Index") at the time of purchase by the
Fund. Investments are primarily in common stocks, but also may include
convertible preferred stocks and convertible bonds, notes and debentures. The
Adviser uses quantitative and qualitative analysis to select stocks for the
Fund's portfolio that the Adviser believes offer attractive growth
opportunities and are selling at reasonable prices. The Adviser pursues this
strategy by first considering fundamental factors such as book value, cash
flow, earnings, and sales. The Adviser's quantitative analysis also includes
in-depth analysis of a company's financial statements. Once a company passes
this quantitative screening process, the Adviser utilizes a more traditional
qualitative approach. This analysis considers factors such as liquidity, use
of leverage, management strength, and the company's ability to execute its
business plan. 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. As of June 30, 2000, the range of market
capitalization of companies within the S&P Mid Cap 400 Index was million to
billion. The Adviser will consider selling those securities which no longer
meet the Fund's criteria for investing.
The Fund has authority to invest up to 100% of its total assets in a variety
of short-term debt securities for temporary defensive purposes under unusual
market conditions. While the Fund is invested in these instruments it will
not be pursuing its investment objective.
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment
in the Fund by showing its performance from year to year and as compared to a
broad-based securities index. The S&P Mid Cap 400 Index in the table below is
an unmanaged index of 400 selected common stocks of mid-sized companies. Past
performance does not indicate how the Fund will perform in the future.
PERFORMANCE BAR CHART AND TABLE*
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31
FOR CLASS C SHARES
(BOTH THE CHART AND THE TABLE ASSUME
REINVESTMENT OF DIVIDENDS AND
DISTRIBUTIONS.)
[PERFORMANCE BAR CHART]
<TABLE>
<S> <C>
1991 31.02
92 16.14
93 18.22
94 -8.26
95 35
96 24.35
97 26.64
98 21.53
99 11.07
</TABLE>
* The quoted performance of the Fund includes the performance of a common
trust fund ("Commingled") account advised by Centura and managed the same
as the Fund in all material respects, for periods dating back to December
31, 1990 and prior to the Fund's commencement of operations on June 1,
1994, as adjusted to reflect the full contractual rate of expenses
associated with the Fund at its inception. The Commingled account was not
registered with the SEC under the 1940 Act and therefore was not subject
to the investment restrictions imposed by law on registered mutual funds.
If the Commingled account had been registered, the Commingled account's
performance may have been adversely affected. Fund performance reflects
applicable fee waivers/expense reimbursements (which, if excluded, would
cause performance to be lower.)
For the period January 1, 2000 through June 30, 2000, the aggregate
(non-annualized) total return of the
Fund was %.
<TABLE>
<S> <C>
Best quarter: Q4 1998 29.04%
Worst quarter: Q3 1998 -12.71%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
INCEPTION PAST PAST 5 SINCE
DATE YEAR YEARS INCEPTION
<S> <C> <C> <C> <C>
Class C Shares 12/31/90 11.07% 23.47% 18.85%
S&P Mid Cap 400 Index 12/31/90 14.72% 23.05% 20.21%
</TABLE>
5
<PAGE> 109
RISK/RETURN SUMMARY AND FUND EXPENSES EQUITY FUNDS
CENTURA SMALL CAP EQUITY FUND
INVESTMENT OBJECTIVE. Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 65% of
its total assets in the equity securities of small companies. These equity
securities are primarily common stocks but also include preferred stocks and
securities convertible into stock. Small companies are defined as those with
market capitalizations that fall within the range of the companies in the S&P
600 Small Cap Index at the time of purchase by the Fund. As of December 31,
1999, the range of market capitalization of companies in the S&P 600 Small
Cap Index was million to billion. The Adviser uses quantitative and
qualitative analysis to select stocks of issuers the Adviser believes offer
attractive growth opportunities and are selling at reasonable prices. The
Adviser pursues this strategy by first considering fundamental factors such
as book value, cash flow, earnings, and sales. The Adviser's quantitative
analysis also includes in-depth analysis of a company's financial statements.
Once a company passes this quantitative screening process, the Adviser
utilizes a more traditional qualitative approach. This analysis considers
factors such as liquidity, use of leverage, management strength, and the
company's ability to execute its business plan. The Fund may also invest a
portion of its assets in equity and debt securities of non-U.S. issuers,
generally in the form of ADRs. The Adviser may elect to exclude an eligible
company from the Fund's portfolio if it believes the company is in financial
difficulty or if it believes that the company's stock is too illiquid. The
Adviser will consider selling investments if the issuer's market
capitalization increases to the point that it is ranked in the top half of
all NYSE companies.
The Fund has authority to invest up to 100% of its total assets in a variety
of short-term debt securities for temporary defensive purposes under unusual
market conditions. While the Fund is invested in these instruments, it will
not be pursuing its investment objective.
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment
in the Fund by showing its performance from year to year and as compared to a
broad-based securities index. The S&P 600 Small Cap Index, in the table
below, is an unmanaged index of selected small capitalization stocks
representative of the small company sector of the equity market. Past
performance does not indicate how the Fund will perform in the future.
PERFORMANCE BAR CHART AND TABLE*
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31
FOR CLASS C SHARES
(BOTH THE CHART AND THE TABLE ASSUME
REINVESTMENT OF DIVIDENDS AND
DISTRIBUTIONS.)
[PERFORMANCE BAR CHART]
<TABLE>
<S> <C>
1996 23.09
97 31.97
98 9.16
99 10.7
</TABLE>
* The quoted performance of the Fund includes the performance of a common
trust fund ("Commingled") account advised by Centura and managed the same
as the Fund in all material respects, for periods dating back to January
1, 1995, and prior to the Fund's commencement of operations on May 2,
1997, as adjusted to reflect the full contractual rate of expenses
associated with the Fund at its inception. The Commingled account was not
registered with the SEC under the 1940 Act and therefore was not subject
to the investment restrictions imposed by law on registered mutual funds.
If the Commingled account had been registered, the Commingled account's
performance may have been adversely affected. Fund performance reflects
applicable fee waivers/expense reimbursements (which, if excluded, would
cause performance to be lower.)
For the period January 1, 2000 through June 30, 2000, the aggregate
(non-annualized) total return of the
Fund was %.
<TABLE>
<S> <C>
Best quarter: Q4 1998 23.99%
Worst quarter: Q3 1998 -17.98%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
INCEPTION PAST SINCE
DATE YEAR INCEPTION
<S> <C> <C> <C>
Class C Shares 1/01/95 10.70% 18.90%
S&P 600 Small Cap Index 12/31/94 12.40% 17.05%
</TABLE>
6
<PAGE> 110
RISK/RETURN SUMMARY AND FUND EXPENSES EQUITY FUNDS
PRINCIPAL RISKS
ALL EQUITY FUNDS. Investing in the Equity Funds involves risks common to any
investment in securities. By itself, no Fund constitutes a balanced
investment program.
An investment in an Equity Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
There is no guarantee that the Funds will meet their goals. When you sell
your shares in the Funds, they may be worth more or less than what you paid
for them. It is possible to lose money by investing in the Funds.
Two principal risks of equity investing are market risk and selection risk.
Market risk means that the stock market in general has ups and downs, which
may affect the performance of any individual stock. Selection risk means that
the particular stocks that are selected for a Fund may underperform the
market or other funds with similar objectives.
ADDITIONAL PRINCIPAL RISKS
CAPITALIZATION RISK. Stocks of smaller companies carry higher risks than
those of larger companies. They may trade infrequently or in lower volumes,
making it difficult for a Fund to sell its shares at the price it wants.
Smaller companies may be more sensitive to changes in the economy overall.
Historically, small company stocks have been more volatile than those of
larger companies. As a result, the Small Cap Equity Fund's net asset value
may be subject to rapid and substantial changes. The Mid Cap Equity Fund is
also subject to the same risk.
FOREIGN INVESTMENT RISK. Each of the Equity Funds may invest a portion of its
assets in foreign securities. Overseas investing carries potential risks not
associated with domestic investments. Such risks include, but are not limited
to: (1) currency exchange rate fluctuations, (2) political and financial
instability, (3) less liquidity and greater volatility of foreign
investments, (4) lack of uniform accounting, auditing and financial reporting
standards, (5) less government regulation and supervision of foreign stock
exchanges, brokers and listed companies, (6) increased price volatility, and
(7) delays in transaction settlement in some foreign markets.
HEDGING RISK. The Funds' hedging activities, although they are designed to
help offset negative movements in the markets for a Fund's investments, will
not always be successful. They can cause a Fund to lose money or to fail to
get the benefit of a gain. Such negative effects may occur, for example, if
the market moves in a direction that the Adviser does not anticipate or if a
Fund is not able to close out its position in a hedging instrument or
transaction.
A full discussion of all permissible investments can be found in the
Statement of Additional Information ("SAI").
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN AN EQUITY FUND IF YOU ARE:
- Pursuing a long-term goal such as retirement
- Seeking to add a growth component to your portfolio
- Willing to accept the higher risks of investing in the stock market
THE EQUITY FUNDS WILL NOT BE APPROPRIATE FOR ANYONE:
- Seeking monthly income
- Pursuing a short-term goal or investing emergency reserves
- Seeking safety of principal
7
<PAGE> 111
RISK/RETURN SUMMARY AND FUND EXPENSES EQUITY FUNDS
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold Class C shares of the Equity Funds.
FEE TABLE
<TABLE>
<CAPTION>
LARGE CAP MID CAP SMALL CAP
EQUITY FUND EQUITY FUND EQUITY FUND
C SHARES C SHARES C SHARES
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a % of offering price) None None None
Maximum Deferred Sales Charge (Load)
(as a % of offering or sales price, whichever is less) None None None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets)
Management fees 0.70% 0.70% 0.70%
Distribution (12b-1) fees None None None
Other expenses 0.30% 0.36% 0.51%
---- ---- ----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.00% 1.06% 1.21%
---- ---- ----
</TABLE>
EXAMPLE: THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING
IN THE FUNDS WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE
ASSUMES:
- $10,000 INVESTMENT
- 5% ANNUAL RETURN AND REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
- REDEMPTION AT THE END OF EACH PERIOD
- NO CHANGES IN THE FUND'S OPERATING EXPENSES
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE
ASSUMPTIONS, YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
LARGE CAP MID CAP SMALL CAP
EQUITY FUND EQUITY FUND EQUITY FUND
C SHARES C SHARES C SHARES
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ONE YEAR AFTER PURCHASE $ 102 $ 108 $ 123
THREE YEARS AFTER PURCHASE $ 318 $ 337 $ 384
FIVE YEARS AFTER PURCHASE $ 552 $ 585 $ 665
TEN YEARS AFTER PURCHASE $1,225 $1,294 $1,466
</TABLE>
8
<PAGE> 112
RISK/RETURN SUMMARY AND FUND EXPENSES BOND FUNDS
CENTURA GOVERNMENT INCOME FUND
INVESTMENT OBJECTIVES. Relatively high current income consistent with
relative stability of principal and safety.
PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 65% of
its total assets in U.S. Government obligations (those that are issued or
guaranteed by the U.S. Government or its agencies or instrumentalities). The
Fund's investments in securities guaranteed by U.S. Government agencies are
primarily mortgage backed securities. In general, its investments will have
maximum maturities of ten years. By limiting the maturity of its portfolio
securities the Fund seeks to moderate principal fluctuations. In addition,
the Fund's Adviser seeks to increase total return by actively managing
portfolio maturity and security selection by considering economic and market
conditions. While short-term interest rate bets are avoided, the Adviser
constantly monitors economic conditions and adjusts portfolio maturity, where
appropriate, to capitalize on interest rate trends. Security selection is
managed considering factors such as credit risk and relative interest rate
yields available among fixed income market sectors.
To permit desirable flexibility, the Fund has authority to invest a portion
of its assets in corporate debt securities rated A or better by Standard and
Poor's ("S&P") or Moody's Investor Services ("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 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.
While the Fund will not normally engage in frequent trading of portfolio
securities, it will make changes in its investment portfolio from time to
time as economic conditions and market prices dictate based on the Fund's
investment objective. The Fund may also sell a security if it falls below the
minimum credit quality required for purchase. If the Fund does buy and sell
securities frequently, there will be increased transaction costs, which can
negatively impact Fund performance, and cause additional taxable gains to
shareholders.
The Fund has authority to invest up to 100% of its total assets in a variety
of short-term debt securities for temporary defensive purposes under unusual
market conditions. While the Fund is invested in these instruments, it will
not be pursuing its investment objective.
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment
in the Fund by showing its performance from year to year and as compared to a
broad-based securities index. The Lehman Brothers Intermediate Government
Index in the table below is an unmanaged index comprised of U.S. Treasury
issues, debt of U.S. Government agencies and corporate debt guaranteed by the
U.S. Government. Past performance does not indicate how the Fund will perform
in the future.
PERFORMANCE BAR CHART AND TABLE*
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31
FOR CLASS C SHARES
(BOTH THE CHART AND THE TABLE ASSUME
REINVESTMENT OF DIVIDENDS AND
DISTRIBUTIONS.)
[PERFORMANCE BAR CHART]
<TABLE>
<S> <C>
1991 11.54
92 6.12
93 6.92
94 -1.56
95 13.52
96 2.86
97 7.23
98 7.57
99 0.89
</TABLE>
* The quoted performance of the Fund includes the performance of a common
trust fund ("Commingled") account advised by Centura and managed the same
as the Fund in all material respects, for periods dating back to December
31, 1990, and prior to the Fund's commencement of operations on June 1,
1994, as adjusted to reflect the full contractual rate of expenses
associated with the Fund at its inception. The Commingled account was not
registered with the SEC under the 1940 Act and therefore was not subject
to the investment restrictions imposed by law on registered mutual funds.
If the Commingled account had been registered, the Commingled account's
performance may have been adversely affected. Fund performance reflects
applicable fee waivers/expense reimbursements (which, if excluded, would
cause performance to be lower.)
For the period January 1, 2000 through June 30, 2000, the aggregate
(non-annualized) total return of the
Fund was %.
<TABLE>
<S> <C>
Best quarter: Q2 1995 4.16%
Worst quarter: Q1 1994 -1.37%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
INCEPTION PAST PAST 5 SINCE
DATE YEAR YEARS INCEPTION
<S> <C> <C> <C> <C>
Class C Shares 12/31/90 0.89% 6.42% 6.02%
Lehman Brothers
Intermediate
Government Index 12/31/90 0.50% 6.93% 6.84%
</TABLE>
9
<PAGE> 113
RISK/RETURN SUMMARY AND FUND EXPENSES BOND FUNDS
CENTURA QUALITY INCOME FUND
INVESTMENT OBJECTIVES. Current income and capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 65% of
its total assets in U.S. Government obligations (those that are issued or
guaranteed by the U.S. Government or its agencies or instrumentalities) and
corporate debt obligations as well as other fixed income securities such as
asset backed securities, mortgage backed securities and bank obligations. At
least 70% of the Fund's fixed income securities will be rated in one of the
three highest categories by nationally recognized statistical rating
organizations ("Rating Agencies") (or unrated securities of comparable
quality). The Fund primarily focuses on maximizing current income. However,
the Fund also may purchase fixed income securities that the Adviser believes
have potential for capital appreciation in an attempt to achieve a high level
of total return. The Fund also seeks to increase its total return by
shortening the average maturity of its portfolio when it expects interest
rates to increase and lengthening the average maturity to take advantage of
expected interest rate declines. The Fund expects to maintain a
dollar-weighted average portfolio maturity between five and fifteen years.
The Adviser diversifies the Fund's holdings among sectors it considers
favorable and reallocates assets in response to actual and expected market
and economic changes.
In selecting individual securities, the Adviser considers various factors,
including: outlook for the economy and anticipated changes in interest rates
and inflation; securities that appear to be inexpensive relative to other
comparable securities; and securities that have the potential for an upgrade
of their credit rating. A rating upgrade typically would increase the value
of the security.
Up to 30% of the Fund's total assets may be invested in securities rated BBB
by S&P or Baa by Moody's (or, if unrated, deemed of comparable quality by the
Adviser), preferred stocks, zero coupon obligations and convertible
securities. The Fund may use covered options or interest-rate futures
contracts to lengthen or shorten the Fund's average portfolio maturity.
The Fund may sell a security if it falls below the minimum credit quality
required for purchase, but it is not required to do so. The Fund has
authority to invest up to 100% of its total assets in a variety of short-term
debt securities for temporary defensive purposes under unusual market
conditions. While the Fund is invested in these instruments it will not be
pursuing its investment objective.
No performance information is shown for the Quality Income Fund which as of
the date of this prospectus has not completed a full calendar year of
operations. The net asset value of the Fund's shares will fluctuate with
market conditions.
10
<PAGE> 114
RISK/RETURN SUMMARY AND FUND EXPENSES BOND FUNDS
CENTURA NORTH CAROLINA TAX-FREE BOND FUND
INVESTMENT OBJECTIVES. High current income that is free from both federal
income tax and North Carolina personal income tax, together with relative
safety of principal.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests primarily in 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. The Fund will attempt to provide income that is fully
free from regular federal and North Carolina personal income tax as well as
from federal alternative minimum tax ("AMT"). However, its policies provide
it with some flexibility. The Fund must normally invest at least 80% of its
net assets in securities producing income that is not subject to regular
federal income tax. The Fund must, under normal market conditions, have at
least 65% of the its total assets invested in municipal obligations issued by
the State of North Carolina or its political subdivisions and at least 65% of
its total assets although it expects generally to have higher portions
invested in those instruments. The Fund maintains a dollar-weighted average
portfolio maturity between five and ten years. No security in the Fund will
have a remaining maturity of more than fifteen years.
The Fund will purchase securities rated at least A or SP-1 by S&P or A or
MIG-1 by Moody's or other rated or unrated securities of comparable quality.
The Fund may invest up to 20% of its total assets in AMT obligations (10%
maximum); U.S. Government securities; bank obligations; commercial paper;
other taxable debt obligations and cash reserves; and repurchase agreements.
The Fund may temporarily invest up to 50% in taxable and AMT investments
under unusual market conditions.
The Adviser varies the average portfolio maturity and reallocates its
investments from time to time in response to actual and expected interest
rate movements as well as other market and economic conditions.
The Fund may also sell a security if it falls below the minimum credit
quality required for purchase.
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment
in the Fund by showing its performance from year to year and as compared to a
broad-based securities index. The Lehman Brothers Five-Year General
Obligation Municipal Bond Index is an unmanaged index of debt obligations
issued by municipalities. Past performance does not indicate how the Fund
will perform in the future.
PERFORMANCE BAR CHART AND TABLE*
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31
FOR CLASS C SHARES
(BOTH THE CHART AND THE TABLE ASSUME
REINVESTMENT OF DIVIDENDS AND
DISTRIBUTIONS.)
[PERFORMANCE BAR CHART]
<TABLE>
<S> <C>
1992 5.53
93 8.28
94 -3.85
95 12.55
96 2.78
97 8.3
98 5.85
99 -1.35
</TABLE>
* The quoted performance of the Fund includes the performance of a common
trust fund ("Commingled") account advised by Centura and managed the same
as the Fund in all material respects, for periods dating back to January
31, 1991, and prior to the Fund's commencement of operations on June 1,
1994, as adjusted to reflect the full contractual rate of expenses
associated with the Fund at its inception. The Commingled account was not
registered with the SEC under the 1940 Act and therefore was not subject
to the investment restrictions imposed by law on registered mutual funds.
If the Commingled account had been registered, the Commingled account's
performance may have been adversely affected. Fund performance reflects
applicable fee waivers/expense reimbursements (which, if excluded, would
cause performance to be lower.)
For the period January 1, 2000 through June 30, 2000, the aggregate
(non-annualized) total return of the
Fund was %.
<TABLE>
<S> <C>
Best quarter: Q1 1995 4.67%
Worst quarter: Q1 1994 -3.49%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
INCEPTION PAST PAST 5 SINCE
DATE YEAR YEARS INCEPTION
<S> <C> <C> <C> <C>
Class C Shares 01/31/91 -1.35% 5.60% 4.87%
Lehman Brothers
Five-Year General
Obligation Municipal
Bond Index 01/31/91 0.74% 5.71% 5.96%
</TABLE>
11
<PAGE> 115
RISK/RETURN SUMMARY AND FUND EXPENSES BOND FUNDS
PRINCIPAL RISKS
ALL BOND FUNDS. Investing in the Bond Funds involves risks common to any
investment in securities. By itself, no Fund constitutes a balanced
investment program.
There is no guarantee that the Funds will meet their goals. When you sell
your shares in the Funds, they may be worth more or less than you paid for
them. It is possible to lose money by investing in the Funds. An investment
in a Bond Fund is not a bank deposit and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INTEREST RATE RISK. All bonds fluctuate in value as interest rates fluctuate.
Generally, as interest rates rise, the value of a Fund's bond investments,
and of its shares, will decline. In general, the longer the maturity of a
bond, the higher the risk of price fluctuation.
CREDIT RISK. Bonds are subject to the risk that the issuer may not make
timely payments of principal and interest, or may default. The lower the
credit rating of an instrument or issuer, the higher the level of credit
risk. Centura Quality Income Fund can acquire bonds that carry investment
grade credit ratings, which are bonds rated by a Rating Agency in the four
highest rating categories. Obligations rated in the fourth highest rating
category are considered to have speculative characteristics. If an issuer of
fixed income securities defaults on its obligations to pay interest or repay
principal, or a bond's credit rating is downgraded, a Fund could lose money.
Two other principal risks of fixed income (bond) investing are market risk
and selection risk. Market risk means that the bond market in general has ups
and downs, which may affect the performance of any individual fixed income
security. Selection risk means that the particular bonds that are selected
for a Fund may underperform the market or other funds with similar
objectives.
A full discussion of all permissible investments can be found in the SAI.
ADDITIONAL PRINCIPAL INVESTMENT RISKS
PREPAYMENT RISK. The Government Income Fund's and Quality Income Fund's
investments in mortgage-related securities are subject to the risk that the
principal amount of the underlying mortgage may be repaid prior to the bond's
maturity date. Such prepayments are common when interest rates decline. When
such a prepayment occurs, no additional interest will be paid on the amount
of principal prepaid. Prepayment exposes a Fund to lower than anticipated
return on its investment and to potentially lower return upon subsequent
reinvestment of the principal.
STATE SPECIFIC RISK. State specific risk is the chance that the North
Carolina Tax-Free Bond Fund, because it invests primarily in securities
issued by North Carolina and its municipalities, is more vulnerable to
unfavorable developments in North Carolina than funds that invest in
municipal bonds of many different states.
CALL RISK. Call risk is the chance that during periods of falling interest
rates, a bond issuer will "call" -- or repay -- a high-yielding bond before
its maturity date. Forced to reinvest the unanticipated proceeds at lower
interest rates, each Bond Fund would experience a decline in income and the
potential for taxable capital gains. Call risk is generally higher for
longer-term bonds.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN A BOND FUND IF YOU ARE:
- Seeking to add a monthly income component to your portfolio
- Willing to accept the risks of price and dividend fluctuations
- (In the case of the North Carolina Tax-Free Bond Fund) seeking current
income exempt from federal income taxes and North Carolina state personal
income taxes
THE BOND FUNDS WILL NOT BE APPROPRIATE FOR ANYONE SEEKING SAFETY OF
PRINCIPAL.
THE NORTH CAROLINA TAX-FREE BOND FUND WILL NOT BE APPROPRIATE FOR:
- Tax-exempt institutions and certain retirement plans that are unable to
benefit from the receipt of tax-exempt dividends
- Residents of states other than North Carolina that are unable to benefit
from the receipt of dividends exempt from North Carolina personal income
taxes
12
<PAGE> 116
RISK/RETURN SUMMARY AND FUND EXPENSES BOND FUNDS
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold Class C shares of the Bond Funds.
FEE TABLE
<TABLE>
<CAPTION>
GOVERNMENT QUALITY NORTH CAROLINA
INCOME FUND INCOME FUND TAX-FREE BOND FUND
C SHARES C SHARES C SHARES
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a %
of offering price) None None None
Maximum Deferred Sales Charge (Load)
(as a % of offering or sales price, whichever is less) None None None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets)
Management fees 0.30% 0.60% 0.35%
Distribution (12b-1) fees None None None
Other expenses 0.33% 0.51% 0.41%
---- ---- ----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.63% 1.11% 0.76%
---- ---- ----
</TABLE>
(1) Based on estimated expenses for the current fiscal year
EXAMPLE: THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING
IN THE FUNDS WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE
ASSUMES:
- $10,000 INVESTMENT
- 5% ANNUAL RETURN AND REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
- REDEMPTION AT THE END OF EACH PERIOD
- NO CHANGES IN THE FUND'S OPERATING EXPENSES.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE
ASSUMPTIONS, YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
GOVERNMENT QUALITY NORTH CAROLINA
INCOME FUND INCOME FUND TAX-FREE BOND FUND
C SHARES C SHARES C SHARES
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ONE YEAR AFTER PURCHASE $ 64 $ 113 $ 78
THREE YEARS AFTER PURCHASE $202 $ 353 $243
FIVE YEARS AFTER PURCHASE $351 $ 612 $422
TEN YEARS AFTER PURCHASE $786 $1,352 $942
</TABLE>
13
<PAGE> 117
DESCRIPTION OF THE FUNDS ADDITIONAL INFORMATION
INVESTING FOR DEFENSIVE PURPOSES
When Centura Bank determines that market conditions are appropriate, each of
the Equity and Bond Funds may, for temporary defensive purposes, hold
investments that are not part of its main investment strategy to try to avoid
losses during unfavorable market conditions. These investments may include
cash (which will not earn any income). Each of the Equity and Bond Funds may
invest up to 100% of its assets in money market instruments including
short-term U.S. government securities, bank obligations and commercial paper.
The Mid Cap, Large Cap and Small Cap Equity Funds' defensive investments may
include instruments rated in the top three rating categories, but up to 15%
of a Fund's assets may be invested in securities rated BBB or Baa by S&P or
Moody's. These instruments may have speculative characteristics. Each of the
Bond Funds may also shorten its dollar-weighted average maturity below its
normal range if such action is deemed appropriate by Centura for temporary
defensive purposes. In addition, the North Carolina Tax-Free Bond Fund may
invest up to 50% of its total assets for temporary defensive purposes in
investments producing taxable income and AMT obligations. The Equity Funds
may invest in equity securities which in the Adviser's opinion are more
conservative than the types of securities that the Funds typically invest in.
If a Fund is investing defensively, it will not be pursuing its investment
objective.
14
<PAGE> 118
MANAGEMENT OF THE FUNDS FUND MANAGEMENT
INVESTMENT ADVISER
The Funds are advised by Centura Bank, a wholly owned subsidiary of Centura
Banks, Inc. Centura Bank maintains offices at 131 North Church Street, Rocky
Mount, North Carolina 27802. Centura Bank is a member of the Federal Reserve
System and manages the financial assets of individual and institutional
investors. Centura Bank employs an experienced staff of professional
investment analysts, portfolio managers and traders, and uses several
proprietary computer-based systems in conjunction with fundamental analysis
to identify investment opportunities.
For these advisory services, the Funds paid fees as follows during the fiscal
year ended April 30, 2000:
<TABLE>
<CAPTION>
AS A PERCENTAGE OF
AVERAGE NET ASSETS
AS OF 4/30/2000
<S> <C>
Large Cap Equity Fund 0.70%
Mid Cap Equity Fund 0.70%
Small Cap Equity Fund 0.70%
Government Income Fund 0.30%
Quality Income Fund 0.59%
North Carolina Tax-Free Bond Fund 0.35%
</TABLE>
* Centura Bank waived a portion of its contractual fees for this Fund for
the most recent fiscal year. Contractual fees (without waivers) are: 0.60%
for the Quality Income Fund.
CENTURA PORTFOLIO MANAGERS
Centura Bank has several portfolio managers committed to the day-to-day
management of the Funds:
TED PONKO has primary responsibility for management of the Centura Large Cap
Equity Fund as well as co-management responsibility for the Centura Small Cap
Equity Fund. Mr. Ponko has been a portfolio manager with Centura Bank since
August, 1998. From March 1993 to July 1998, Mr. Ponko was a trust officer
with Centura Bank. Mr. Ponko has over 12 years of experience in trust sales,
administration, and investment. In 1978 he received a Bachelor of Arts degree
with Honors in Philosophy from the College of William and Mary. He
subsequently received his Master of Arts and Ph.D. from the University of
North Carolina at Chapel Hill. Mr. Ponko is a Chartered Financial Consultant
(ChFC) and a Certified Employee Benefits Specialist (CEBS). He is presently a
Level I candidate in the Chartered Financial Analyst program.
FORBES WATSON has primary responsibility for management of the Centura Mid
Cap Equity Fund as well as co-management responsibility for the Centura Small
Cap Equity Fund with Mr. Ponko. Mr. Watson has been a portfolio manager with
Centura Bank since August, 1998. Mr. Watson has over 18 years experience in
the investment industry. He graduated from the University of North Texas with
a Bachelor of Arts degree in Finance and from Millsaps College with a Masters
in Business Administration and a Beta Gamma Sigma honorary. Mr. Watson began
his career with May Financial Corporation in Dallas, Texas. He is a Level III
candidate in the Chartered Financial Analyst program, a member of both the
North Carolina Society for Financial Analysts and the Association for
Investment Management and Research.
15
<PAGE> 119
CENTURA PORTFOLIO MANAGERS FUND MANAGEMENT CONTINUED
C. NATHANIEL SIEWERS serves as portfolio manager of Centura North Carolina
Tax-Free Bond Fund and Centura Government Income Fund and co-manager of the
Quality Income Fund. Mr. Siewers has over 13 years experience managing fixed
income securities. He graduated from Wake Forest University with a Bachelor
of Arts degree in Economics. He earned a Masters degree in Business
Administration from East Carolina University. Mr. Siewers managed the fixed
income portfolio for Centura Bank from 1985 to 1997. Prior to that, he was
the Chief Financial Officer for State Bank of Raleigh from 1980-1985. Mr.
Siewers is a Certified Public Accountant and a Fellow in the North Carolina
Association of Certified Public Accountants. Mr. Siewers has been on the
faculty of the North Carolina School of Banking since 1987. He is the Dean of
the School for the 1998 and 1999 sessions. Mr. Siewers is a Level II
Candidate in the Chartered Financial Analyst Program, a member of the
Association for Investment Management and Research, and the North Carolina
Society of Financial Analysts.
TERRY WALL serves as co-manager of the Quality Income Fund. Mrs. Wall also
serves as portfolio manager of the Centura Money Market Fund. Mrs. Wall has
over thirteen years experience in the trust investment area of Centura Bank.
She graduated from East Carolina University in Greenville with a Bachelor of
Science in Business Administration. Mrs. Wall began her career with Centura
Bank (then Planters Bank) in the trust investment division in 1985. She is a
Certified Public Accountant and a member of the North Carolina Association of
Certified Public Accountants and the American Institute of Certified Public
Accountants. Mrs. Wall's other duties include serving as administrative
liaison for the Investment Management Department, equity and fixed income
trading, and performance evaluation.
DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services ("BISYS") provides management and administrative services
to the Funds, including providing office space, equipment and clerical
personnel to the Funds and supervising custodial, auditing, valuation,
bookkeeping and legal services. BISYS Fund Services, Inc., an affiliate of
BISYS, acts as the fund accountant, transfer agent and dividend paying agent
of the Funds. BISYS and BISYS Fund Services, Inc. are each located at 3435
Stelzer Road, Columbus, Ohio 43219.
Centura Funds Distributor, Inc., 90 Park Avenue, New York, NY 10036, acts as
the Funds' distributor. The Distributor is an affiliate of BISYS and was
formed specifically to distribute the Funds.
16
<PAGE> 120
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
HOW NAV IS CALCULATED
The NAV is calculated by adding
the total value of the Fund's
investments and other assets,
subtracting its liabilities and
then dividing that figure by the
number of outstanding shares of
the Fund:
NAV =
Total Assets - Liabilities
-----------------------------------------------------------------------
Number of Shares
Outstanding
--------------------------------
You can find most Funds' NAV daily in the Wall Street Journal and in other
newspapers.
The per share NAV for each Fund is determined and its shares are priced at
the close of regular trading on the New York Stock Exchange, normally at 4:00
p.m. Eastern time, on days the Exchange is open.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after your order is received in good order by the Fund on any day
that both the New York Stock Exchange and the Funds' custodian are open for
business. For example: If you place a purchase order to buy shares of the
Government Income Fund, it must be received by 4:00 p.m. Eastern time in
order to receive the NAV calculated at 4:00 p.m. If your order is received
after 4:00 p.m. Eastern time, you will receive the NAV calculated on the next
day at 4:00 p.m. Eastern time.
The Funds' securities, other than short-term debt obligations, are generally
valued at current market prices unless market quotations are not available,
in which case securities will be valued by a method that the Board of
Directors believes accurately reflects fair value. Debt obligations with
remaining maturities of 60 days or less are valued at amortized cost or based
on their acquisition cost.
PURCHASING AND SELLING YOUR SHARES
You may purchase shares of the Funds through banks, brokers and other
investment representatives, which may charge additional fees and may require
higher minimum investments or impose other limitations on buying and selling
shares. If you purchase shares through an investment representative, that
party is responsible for transmitting orders by close of business and may
have an earlier cut-off time for purchase and sale requests. Consult your
investment representative or institution for specific information.
PURCHASING AND ADDING TO YOUR CLASS C SHARES
While no minimum initial or subsequent purchase amount is required, Class C
shares are available only to certain trust or institutional clients of the
Adviser, as well as clients investing through a qualified wrap account
through an approved broker-dealer.
All purchases must be in U.S. dollars. A fee will be charged for any checks
that do not clear. Third-party checks are not accepted.
The Distributor may reject a purchase order if it considers it in the best
interest of a Fund and its shareholders.
AVOID 31% TAX WITHHOLDING
Each Fund is required to withhold 31% of taxable dividends, capital
gains distributions and redemptions paid to shareholders who have not
provided the Fund with their certified taxpayer identification number
in compliance with IRS rules. To avoid this, make sure you provide your
correct Tax Identification Number (Social Security Number for most
investors) on your account application.
17
<PAGE> 121
SHAREHOLDER INFORMATION
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
If purchasing through your financial advisor or brokerage account, simply
tell your advisor or broker that you wish to purchase shares of the Funds and
he or she will take care of the necessary documentation. For all other
purchases, follow the instructions below.
<TABLE>
<S> <C> <C>
BY MAIL All investments made by regular mail or express delivery, whether initial or subsequent, should be
sent:
BY REGULAR MAIL BY EXPRESS MAIL
Centura Funds Centura Funds
P.O. Box 182485 3435 Stelzer Road
Columbus, OH 43218-2485 Columbus, OH 43219
For Initial Investment:
1. Carefully read and complete the application. Establishing your account privileges now saves you
the inconvenience of having to add them later.
2. Make check, bank draft or money order payable to "Centura Funds" and include the name of the
appropriate Fund(s) on the check.
3. Mail or deliver application and payment to address above.
For Subsequent Investment:
1. Use the investment slip attached to your account statement. Or, if unavailable, provide the
following information:
- Fund name
- Share class
- Amount invested
- Account name and account number
2. Make check, bank draft or money order payable to "Centura Funds" and include your account
number on the check.
3. Mail or deliver investment slip and payment to the address above.
ELECTRONIC PURCHASES Your bank must participate in the Automated
Clearing House (ACH) and must be a U.S. Bank.
Your bank or broker may charge for this service.
Establish the electronic purchase option on your
account application or call 1-800-442-3688. Your
account can generally be set up for electronic
purchases within 15 days.
Call 1-800-442-3688 to arrange a transfer from
your bank account.
BY WIRE TRANSFER Call 1-800-442-3688 to obtain a new account number and instructions for sending your application,
and for instructing your bank to wire transfer your investment.
NOTE: YOUR BANK MAY CHARGE A WIRE TRANSFER FEE.
</TABLE>
ELECTRONIC VS. WIRE
TRANSFER
Wire transfers allow financial institutions to send funds to each other, almost
instantaneously. With an
electronic purchase or
sale, the transaction is
made through the Automated
Clearing House (ACH) and
may take up to eight days
to clear. There is
generally no fee for ACH
transactions.
QUESTIONS?
Call 1-800-442-3688
18
<PAGE> 122
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
You can add to your account by using the convenient options described below.
The Fund reserves the right to change or eliminate these privileges at any
time with 60 days notice.
AUTOMATIC INVESTMENT PROGRAM
You can make automatic investments in the Funds from your bank account,
through payroll deductions or from your federal employment, Social Security
or other regular government checks. Automatic investments can be as little as
$50; no investment is required to establish an automatic investment account.
To invest regularly from your bank account:
- Complete the Automatic Investment Plan portion on your Account
Application.
Make sure you note:
- Your bank name, address and account number
- The amount you wish to invest automatically (minimum $50)
- How often you want to invest (every month or 4 times a year)
- Attach a voided personal check.
To invest regularly from your paycheck or government check, call
1-800-442-3688 for an enrollment form.
DIRECTED DIVIDEND OPTION
By selecting the appropriate box in the Account Application, you can elect to
receive your distributions in cash (check) or have distributions (capital
gains and dividends) reinvested in another Centura Fund without a sales
charge. You must maintain the minimum balance in each Fund into which you
plan to reinvest dividends or the reinvestment will be suspended and your
dividends paid to you. The Fund may modify or terminate this reinvestment
option without notice. You can change or terminate your participation in the
reinvestment option at any time.
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested distributions.
Capital gains are distributed at least annually.
DISTRIBUTIONS ARE MADE ON A PER SHARE BASIS REGARDLESS OF HOW LONG YOU'VE
OWNED YOUR SHARES. THEREFORE, IF YOU INVEST SHORTLY BEFORE THE DISTRIBUTION
DATE, SOME OF YOUR INVESTMENT WILL BE RETURNED TO YOU IN THE FORM OF A
DISTRIBUTION WHICH MAY BE TAXABLE. (SEE "SHAREHOLDER
INFORMATION -- DIVIDENDS, DISTRIBUTIONS AND TAXES")
SELLING YOUR SHARES
You may sell your shares at any
time. Your sales price will be
the next NAV after your sell
order is received in good order
by the Fund, its transfer agent,
or your investment
representative. Normally you will
receive your proceeds within a
week after your request is
received. See section on "General
Policies on Selling Shares"
below.
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is
also known as redeeming shares or a
redemption of shares.
19
<PAGE> 123
SHAREHOLDER INFORMATION
SELLING YOUR SHARES -- CONTINUED
INSTRUCTIONS FOR SELLING SHARES
If selling your shares through your financial adviser or broker, ask him or
her for redemption procedures. Your adviser and/or broker may have
transaction minimums and/or transaction times which will affect your
redemption. For all other sales transactions, follow the instructions below.
<TABLE>
<S> <C>
BY TELEPHONE 1. Call 1-800-442-3688 with instructions as to how you wish
(unless you have declined telephone to receive your funds (mail, wire, electronic transfer).
sales privileges) (See "General Policies on Selling Shares -- Verifying
Telephone Redemptions" below)
BY MAIL 1. Call 1-800-442-3688 to request redemption forms or write
(See "Selling Your Shares -- a letter of instruction indicating:
Redemptions in Writing Required") - your Fund and account number
- amount you wish to redeem
- address where your check should be sent
- account owner signature
2. Mail to: Centura Funds
P.O. Box 182485
Columbus, OH 43218-2485
BY OVERNIGHT SERVICE See instruction 1 above.
(See "General Policies on Selling 2. Send to: Centura Funds
Shares -- Redemptions in Writing c/o BISYS Fund Services
Required" below) Attn: Shareholder Services
3435 Stelzer Road
Columbus, OH 43219
WIRE TRANSFER Call 1-800-442-3688 to request a wire transfer.
You must indicate this option on If you call by 4 p.m. Eastern time, your payment will
your application. normally be wired to your bank on the next business day.
Note: Your financial institution may
charge a fee.
ELECTRONIC REDEMPTIONS Call 1-800-442-3688 to request an electronic redemption.
Your bank must participate in the If you call by 4 p.m. Eastern time, the NAV of your shares
Automated Clearing House (ACH) and will normally be determined on the same day and the proceeds
must be a U.S. bank. credited within 8 days.
Your bank may charge for this
service.
</TABLE>
QUESTIONS?
Call 1-800-442-3688
20
<PAGE> 124
SHAREHOLDER INFORMATION
SELLING YOUR SHARES -- CONTINUED
SYSTEMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The maximum withdrawal per year is 12% of the
account value at the time of election. To activate this feature:
- Make sure you've checked the appropriate box on the Account Application.
Or call 1-800-442-3688.
- Include a voided personal check.
- Your account must have a value of $12,000 or more to start withdrawals.
- If the value of your account falls below $1,000, you may be asked to add
sufficient funds to bring the account back to $1,000, or the Fund may
close your account and mail the proceeds to you.
GENERAL POLICIES ON SELLING SHARES
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following situations:
1. Redemptions from Individual Retirement Accounts ("IRAs").
2. Redemption requests requiring a signature guarantee, which include each of
the following:
- Redemptions over $25,000
- Your account registration or the name(s) in your account has changed
within the last 15 days
- The check is not being mailed to the address on your account
- The check is not being made payable to the owner of the account
- The redemption proceeds are being transferred to another Fund account
with a different registration.
A signature guarantee can be obtained from a financial institution, such as a
bank, broker-dealer, or credit union, or from members of the STAMP
(Securities Transfer Agents Medallion Program), MSP (New York Stock Exchange
Medallion Signature Program) or SEMP (Stock Exchanges Medallion Program).
Members are subject to dollar limitations which must be considered when
requesting their guarantee. The Transfer Agent may reject any signature
guarantee if it believes the transaction would otherwise be improper.
TELEPHONE REDEMPTIONS
The Funds make every effort to ensure that telephone redemptions are only
made by authorized shareholders. All telephone calls are recorded for your
protection and you will be asked for information to verify your identity.
Given these precautions, unless you have specifically indicated on your
application that you do not want the telephone redemption feature, you may be
responsible for any fraudulent telephone orders. If appropriate precautions
have not been taken, the Transfer Agent may be liable for losses due to
unauthorized transactions. At times of peak activity it may be difficult to
place requests by phone. During those times, consider sending your request in
writing.
21
<PAGE> 125
SHAREHOLDER INFORMATION
SELLING YOUR SHARES -- CONTINUED
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, your redemption proceeds
will not be mailed until the Transfer Agent is satisfied that the check has
cleared (which may require up to 15 business days). You can avoid this delay
by purchasing shares with a certified check or federal funds wire.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission in order to protect
remaining shareholders. If you experience difficulty making a telephone
redemption during periods of drastic economic or market change, you can send
the Funds your request by regular mail or express mail.
REDEMPTION IN KIND
Each Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind" for amounts redeemed by a shareholder, in any
90-day period, in excess of $250,000 or 1% of Fund net assets, whichever is
less. If the Fund deems it advisable for the benefit of all shareholders,
redemption in kind will consist of securities equal in market value to your
shares. When you convert these securities to cash, you will pay brokerage
charges.
CLOSING OF SMALL ACCOUNTS
If your account falls below $1,000 (not as a result of market action), the
Fund may ask you to increase your balance. If it is still below $1,000 after
30 days, the Fund may close your account and send you the proceeds at the
current NAV.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash: If
distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that
remain uncashed for six months will be canceled and the money reinvested in
the appropriate Fund.
22
<PAGE> 126
SHAREHOLDER INFORMATION EXCHANGING YOUR SHARES
You can exchange your shares in one Fund for shares of the same class of
another Centura Fund. No transaction fees are charged for exchanges (see
"Notes" below).
Exchanges from one Fund to another are taxable.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to Centura Funds, P.O. Box
182485, Columbus OH 43218-2485, or by calling 1-800-442-3688. Please provide
the following information:
- Your name and telephone number
- The exact name on your account and account number
- Taxpayer identification number (usually your Social Security number)
- Dollar value or number of shares to be exchanged
- The name of the Fund from which the exchange is to be made
- The name of the Fund into which the exchange is being made.
See "Selling your Shares" for important information about telephone
transactions.
To prevent disruption in the management of the Funds, due to market timing
strategies, exchange activity may be limited to five exchanges within a one
year period or three exchanges in a calendar quarter.
NOTES ON EXCHANGES
The registration and tax identification numbers of the two accounts must be
identical.
The Exchange Privilege (including automatic exchanges) may be changed or
eliminated at any time upon a 60-day notice to shareholders.
Be sure to read carefully the Prospectus of any Fund into which you wish to
exchange shares.
QUESTIONS?
Call 1-800-442-3688
23
<PAGE> 127
SHAREHOLDER INFORMATION DIVIDENDS, DISTRIBUTIONS AND TAXES
Any income a Fund receives is paid out, less expenses, in the form of
dividends to its shareholders. Income dividends on each Equity Fund are
declared and paid monthly. Dividends on all other Funds are declared daily
and paid monthly. Capital gains for all Funds are distributed at least
annually.
An exchange of shares is considered a sale, and any related gains may be
subject to applicable taxes.
North Carolina law exempts from income taxation dividends received from a
mutual fund in proportion to the income of the mutual fund that is
attributable to interest on U.S. Government securities or bonds of the State
of North Carolina or any of its counties, municipalities or political
subdivisions.
Dividends are taxable as ordinary income as are dividends paid by the North
Carolina Tax-Free Bond Fund that are derived from taxable investments. Taxes
on capital gains by the Funds will vary with the length of time the Fund has
held the security not how long you have invested in the Fund.
During normal market conditions, the North Carolina Tax-Free Bond Fund
expects that substantially all of its dividends will be excluded from gross
income for federal income tax purposes. However, distributions, if any,
derived from net capital gains will generally be taxable to you as capital
gains for federal, state or local tax purposes. The Fund may invest in
certain securities with interest that may be a preference item for the
purposes of the alternative minimum tax or a factor in determining whether
Social Security benefits are taxable. In such event, a portion of the Fund's
dividends would not be exempt from federal income taxes.
Some dividends may be taxable in the year in which they are declared, even if
they are paid or appear on your account statement the following year.
Dividends and distributions are treated in the same manner for federal income
tax purposes whether you receive them in cash or in additional shares.
You will be notified in January each year about the federal tax status of
distributions made by the Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
Foreign shareholders may be subject to special withholding requirements.
There is a penalty on certain pre-retirement distributions from retirement
accounts. Consult your tax adviser about the federal, state and local tax
consequences in your particular circumstances.
24
<PAGE> 128
FINANCIAL HIGHLIGHTS
The Financial Highlights Table is intended to help you understand the Funds'
financial performance for the past 5 years or, if shorter, the period of the
Funds' operations. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in a Fund (assuming
reinvestment of all dividends and distributions). The information for the
year ended April 30, 2000 has been audited by [ ],
whose report, along with the Funds' financial statements, are included in the
annual report, which is available upon request. The information for earlier
periods has been audited by other auditors.
LARGE CAP EQUITY FUND
CLASS C
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30, FOR THE
----------------------------- PERIOD ENDED
2000 1999 1998 APRIL 30, 1997(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ $ 12.58 $ 10.89 $ 10.00
--------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.12 0.29 0.15
Net realized and unrealized gains from investments 2.21 2.89 0.91
--------------------------------------------------------------------------------------------------------
Total from investment activities 2.33 3.18 1.06
--------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.13) (0.28) (0.15)
Net realized gains (0.98) (1.21) (0.02)
--------------------------------------------------------------------------------------------------------
Total distributions (1.11) (1.49) (0.17)
--------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ $ 13.80 $ 12.58 $ 10.89
--------------------------------------------------------------------------------------------------------
Total return % 19.94% 30.72% 10.65%(c)
--------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000) $ $139,857 $65,053 $52,486
Ratio of expenses to average net assets % 0.92% 0.67% 0.75%(b)
Ratio of net investment income to average net
assets % 0.82% 2.37% 2.45%(b)
Ratio of expenses to average net assets* % 1.02% 1.08% 1.17%(b)
Portfolio turnover rate** % 114% 39% 24%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
(a) For the period from October 1, 1996 (commencement of operations) to April
30, 1997.
(b) Annualized.
(c) Not annualized.
MID CAP EQUITY FUND
CLASS C
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30,
----------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ $ 16.16 $ 15.33 $ 14.31 $ 10.70
-----------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.07 0.09 0.09 0.07
Net realized and unrealized gains from investments 1.15 4.94 1.58 3.65
-----------------------------------------------------------------------------------------------------------
Total from investment activities 1.22 5.03 1.67 3.72
-----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.06) (0.09) (0.09) (0.07)
Net realized gains (1.95) (4.11) (0.56) (0.04)
-----------------------------------------------------------------------------------------------------------
Total distributions (2.01) (4.20) (0.65) (0.11)
-----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ $ 15.37 $ 16.16 $ 15.33 $ 14.31
-----------------------------------------------------------------------------------------------------------
Total return % 8.93% 36.89% 11.82% 34.97%
-----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000) $ $138,897 $179,859 $147,213 $133,714
Ratio of expenses to average net assets % 1.03% 1.00% 1.05% 1.04%
Ratio of net investment income to average net
assets % 0.46% 0.56% 0.67% 0.55%
Ratio of expenses to average net assets* (b) (b) (b) (b)
Portfolio turnover rate** % 142% 49% 67% 46%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
(a) For the period from June 1, 1994 (commencement of operations) to April
30, 1995.
(b) There were no waivers or reimbursements during the period.
(c) Annualized.
(d) Not annualized.
25
<PAGE> 129
FINANCIAL HIGHLIGHTS
SMALL CAP EQUITY FUND
CLASS C
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
APRIL 30, FOR THE
------------------- PERIOD ENDED
2000 1999 APRIL 30, 1998(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ $ 14.99 $ 10.00
-------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income (loss) (0.02) 0.06
Net realized and unrealized gains (losses) from
investments (1.21) 5.86
-------------------------------------------------------------------------------------------------
Total from investment activities (1.23) 5.92
-------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income -- (0.06)
Net realized gains (1.04) (0.87)
-------------------------------------------------------------------------------------------------
Total distributions (1.04) (0.93)
-------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ $ 12.72 $ 14.99
-------------------------------------------------------------------------------------------------
Total return % (7.84%) 60.98%(d)
-------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000) $ $30,057 $31,583
Ratio of expenses to average net assets % 1.23% 1.16%(c)
Ratio of net investment income (loss) to average net
assets % (0.19%) 0.46%(c)
Ratio of expenses to average net assets* (b) 1.27%(c)
Portfolio turnover rate** % 130% 71%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
(a) For the period from May 2, 1997 (commencement of operations) to April 30,
1998.
(b) There were no waivers or reimbursements during the period.
(c) Annualized.
(d) Not annualized.
26
<PAGE> 130
FINANCIAL HIGHLIGHTS
GOVERNMENT INCOME FUND
CLASS C
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30,
---------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ $ 10.19 $ 9.94 $ 10.01 $ 9.97
----------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.52 0.57 0.59 0.60
Net realized and unrealized gains (losses) from
investments 0.04 0.25 (0.07) 0.04
----------------------------------------------------------------------------------------------------------
Total from investment activities 0.56 0.82 0.52 0.64
----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.52) (0.57) (0.59) (0.60)
Net realized gains (0.20) -- -- --
----------------------------------------------------------------------------------------------------------
Total distributions (0.72) (0.57) (0.59) (0.60)
----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ $ 10.03 $ 10.19 $ 9.94 $ 10.01
----------------------------------------------------------------------------------------------------------
Total return % 5.64% 8.48% 5.33% 6.47%
----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000) $ $118,640 $131,068 $119,434 $109,775
Ratio of expenses to average net assets % 0.59% 0.59% 0.58% 0.61%
Ratio of net investment income to average net
assets % 5.11% 5.68% 5.88% 5.88%
Ratio of expenses to average net assets* (b) (b) (b) (b)
Portfolio turnover rate** % 104% 121% 26% 34%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
(a) For the period from June 1, 1994 (commencement of operations) to April
30, 1995.
(b) There were no waivers or reimbursements during the period.
(c) Annualized.
(d) Not Annualized.
NORTH CAROLINA TAX-FREE BOND FUND
CLASS C
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30,
---------------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ $ 10.30 $ 9.98 $ 10.04 $ 9.98
----------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.43 0.46 0.46 0.44
Net realized and unrealized gains (losses) from
investments 0.20 0.32 0.03 0.13
----------------------------------------------------------------------------------------------------------------
Total from investment activities 0.63 0.78 0.49 0.57
----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.43) (0.46) (0.46) (0.44)
Net realized gains (0.05) -- (0.09) (0.07)
----------------------------------------------------------------------------------------------------------------
Total distributions (0.48) (0.46) (0.55) (0.51)
----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ $ 10.45 $ 10.30 $ 9.98 $ 10.04
----------------------------------------------------------------------------------------------------------------
Total return % 6.22% 7.89% 4.97% 5.78%
----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000) $ $39,519 $37,456 $32,159 $37,009
Ratio of expenses to average net assets % 0.56% 0.44% 0.44% 0.44%
Ratio of net investment income to average net
assets % 4.15% 4.44% 4.56% 4.32%
Ratio of expenses to average net assets* % 0.76% 0.79% 0.80% 0.80%
Portfolio turnover rate** % 11% 29% 34% 80%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
(a) For the period from June 1, 1994 (commencement of operations) to April
30, 1995.
(b) Annualized.
(c) Not annualized.
27
<PAGE> 131
For more information about the Funds, the following documents are available free
upon request:
ANNUAL/SEMIANNUAL REPORTS (REPORTS):
The Funds' annual and semi-annual reports to shareholders contain additional
information on the Funds' investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Funds, including its
operations and investment policies. It is incorporated by reference and is
legally considered a part of this prospectus.
You can get free copies of reports and the SAI, or request other
information and discuss your questions about the funds by contacting a
broker or bank that sells the fund. Or contact the fund at:
Centura Funds
P.O. BOX 182485
Columbus, Ohio 43218-2485
Telephone: 1-800-442-3688
INFORMATION FROM THE SECURITIES AND EXCHANGE COMMISSION:
You can obtain copies of Fund documents from the SEC as follows:
IN PERSON:
Public Reference Room in Washington, D.C. (For their hours of operation, call
1-202-942-8090.)
BY MAIL:
Securities and Exchange Commission
Public Reference Section
Washington, D.C. 20549-0102
(The SEC charges a fee to copy any documents.)
ON THE EDGAR DATABASE VIA THE INTERNET:
www.sec.gov
BY ELECTRONIC REQUEST:
[email protected]
Investment Company Act File No. 811-8384.
<PAGE> 132
CENTURA FUNDS, INC.
3435 STELZER ROAD
COLUMBUS, OHIO 43219
GENERAL AND ACCOUNT INFORMATION
(800) 442-3688
STATEMENT OF ADDITIONAL INFORMATION
CLASS C SHARES
This Statement of Additional Information ("SAI") describes the seven funds (the
"Funds") advised by Centura Bank (the "Adviser"). The Funds are:
-- Centura Mid Cap Equity Fund
-- Centura Large Cap Equity Fund
-- Centura Small Cap Equity Fund
-- Centura Government Income Fund
-- Centura North Carolina Tax-Free Bond Fund
-- Centura Money Market Fund
-- Centura Quality Income 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. Each Fund, including the Money Market Fund, 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 30, 2000
(collectively, 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 financial statements and related report of
the independent accountants in the Funds' Annual Report for the fiscal year
ended April 30, 2000 are incorporated by reference into this SAI. A copy of the
Annual Report. The Prospectus is available, without charge, and may be obtained
by writing or calling the Funds at the address and information numbers printed
above.
August 30, 2000
<PAGE> 133
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INVESTMENT POLICIES................................................................. 4
The Funds Description of Securities and Investment Practices........................ 8
U.S. Government Securities.......................................................... 8
Bank Obligations.................................................................... 8
Commercial Paper.................................................................... 9
Convertible Securities.............................................................. 9
Corporate Debt Securities........................................................... 9
Repurchase Agreements............................................................... 9
Variable and Floating Rate Demand and Master Demand Notes........................... 10
Forward Commitments and When-Issued Securities...................................... 10
Mortgage Related Securities......................................................... 11
Loans of Portfolio Securities....................................................... 12
Zero Coupon and Pay-in-Kind Securities.............................................. 12
Foreign Securities.................................................................. 12
Forward Foreign Currency Exchange Contracts......................................... 13
Interest Rate Futures Contracts..................................................... 14
Stock Index Futures Contracts....................................................... 14
Option Writing and Purchasing....................................................... 15
Options on Futures Contracts........................................................ 17
Risks of Futures and Options Investments............................................ 17
Limitations on Futures Contracts and Options on Futures Contracts................... 18
North Carolina Municipal Obligations................................................ 19
Stand-By Commitments................................................................ 22
Third Party Puts.................................................................... 22
Participation Interests............................................................. 23
Municipal Lease Obligations......................................................... 23
Investment Companies................................................................ 24
Real Estate Investment Trusts....................................................... 24
INVESTMENT RESTRICTIONS............................................................. 24
MANAGEMENT.......................................................................... 29
Directors and Officers.............................................................. 29
Distribution of Fund Shares......................................................... 34
Administrative Services............................................................. 34
Service Organizations............................................................... 35
DETERMINATION OF NET ASSET VALUE.................................................... 36
PORTFOLIO TRANSACTIONS.............................................................. 38
Portfolio Turnover.................................................................. 40
</TABLE>
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<TABLE>
<S> <C>
TAXATION............................................................................ 40
Centura North Carolina Tax-Free Bond Fund........................................... 44
OTHER INFORMATION................................................................... 46
Capitalization...................................................................... 46
Voting Rights....................................................................... 46
Custodian, Transfer Agent and Dividend Disbursing Agent............................. 46
Independent Accountants............................................................. 52
Counsel............................................................................. 52
Registration Statement.............................................................. 53
Financial Statements................................................................ 53
APPENDIX............................................................................ 54
</TABLE>
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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. The investment objective of each Fund is a fundamental
policy of the Fund and may not be changed without the approval of the Fund's
shareholders.
References herein to "Adviser" include any sub-adviser, if applicable.
THE FUNDS
CENTURA MID CAP EQUITY FUND. Centura Mid Cap Equity Fund pursues its objective
of long-term capital appreciation by investing primarily in a diversified
portfolio of publicly traded common and preferred stocks and securities
convertible into or exchangeable for common stock (see "Convertible
Securities"). 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 American Depository Receipts ("ADRs").(See "Foreign Securities"). Under
normal circumstances, at least 65% of the Fund's total assets will be invested
in equity securities of mid-sized companies. Mid-sized companies are defined as
those with market capitalizations that fall within the range of companies in the
S&P 400 Mid Cap Index at the time of investment. The S&P 400 Mid Cap Index is an
unmanaged index that is designed to track the performance of medium sized
companies. The index is updated quarterly, and the companies included in the
index, as well as their capitalization ranges, change from time to time. A
company that was within the range of the index at the time its stock was
purchased by the Fund will continue to be considered mid-sized for purposes of
the 65% test even if its capitalization subsequently falls outside the range of
the index. 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); variable and floating rate
demand and master demand notes; commercial paper; and repurchase agreements with
respect to securities in which the Fund is authorized to invest. (See "Bank
Obligations", "Commercial Paper", "Corporate Debt Securities, " "Repurchase
Agreements" and "Variable and Floating Rate Demand and Master Demand Notes").
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. 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. In addition,
the Fund may enter into stock index future contracts, options on securities and
options on future contracts to a limited extent (see "Stock Index Future
Contracts", "Option Writing and Purchasing", and "Options on Future Contracts").
The Fund may also invest in investment companies and real estate investment
trusts (REITS) and lend portfolio securities (See "Investment Companies", and
"Real Estate Investment Trusts").
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CENTURA LARGE CAP EQUITY FUND. Centura Large Cap Equity Fund pursues its
objective of long-term capital appreciation by investing primarily in common
stocks, convertible preferred stocks, and convertible bonds, notes and
debentures. In addition, the Fund may enter into stock index futures contracts,
options on securities, options on futures contracts and forward foreign currency
exchange contracts to a limited extent (see "Stock Index Futures Contracts",
"Options Writing and Purchasing", "Options on Futures Contracts" and "Forward
Foreign Currency Exchange Contracts"). 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 (see "Foreign Securities"). Under
normal circumstances, at least 65% of the Fund's total assets will be invested
in equity securities of large U.S. companies. Large companies are defined as
those with market capitalization in excess of $3 billion at the time of
purchase. Companies that satisfy this test at the time of purchase will continue
to be considered "large" for purposes of the 65% test even if they subsequently
fall below this range. 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 Mid Cap Equity Fund under such circumstances.
CENTURA SMALL CAP EQUITY FUND. Centura Small Cap Equity Fund pursues its
objective of long-term capital appreciation by investing primarily in a
diversified portfolio of common and preferred stocks and securities convertible
into common stock of small companies as described in the prospectus (see
"Convertible Securities").
Its investments in non-U.S. issuers will generally be in the form of American
Depository Receipts ("ADRs") (see "Foreign Securities"). In addition, the Fund
may enter into stock index futures contracts, options on securities, options on
futures contracts and forward foreign currency exchange contracts to a limited
extent (see "Stock Index Futures Contracts", "Options Writing and Purchasing",
"Options on Futures Contracts" and "Forward Foreign Currency Exchange
Contracts"). The Fund may also invest in investment companies and REITS and lend
its portfolio securities (see "Investment Companies", "Real Estate Investment
Trusts", and "Loans of Portfolio Securities"). For temporary defensive purposes
during abnormal market or economic conditions, the Fund may invest without limit
in debt instruments of the same type, and subject to the same conditions, as
Centura Mid Cap Equity Fund under such circumstances.
CENTURA GOVERNMENT INCOME FUND. Centura Government Income Fund pursues its
objective of relatively high current income consistent with relative stability
of principal and safety by investing primarily in securities issued by the U.S.
Government, its agencies and instrumentalities with maximum maturities of 10
years (see "U.S. Government Securities" and "Mortgage Related Securities").
These securities may also include zero coupon and pay-in-kind securities (see
"Zero Coupon and Pay-in-kind Securities").
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 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; variable and floating rate demand and master
demand notes; and repurchase agreements with respect to securities in which the
Fund is authorized to invest (see "Bank Obligations", "Commercial Paper",
"Corporate Debt Securities", "Repurchase Agreements", and "Variable and Floating
Rate Demand and Master Demand Notes"). In addition, the Fund may enter into
interest rate futures contracts, options on securities and options on futures
contracts to a limited extent (see "Interest Rate Futures Contracts", "Option
Writing and Purchasing" and "Options on Futures Contracts"). The Fund may also
invest in
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investment companies, REITS, securities on a when-issued basis or forward
commitment basis and lend its portfolio securities (see "Investment Companies",
"Real Estate Investment Trusts", "Forward Commitments and When-Issued
Securities" and "Loans of Portfolio Securities").
CENTURA NORTH CAROLINA TAX-FREE BOND FUND. Centura North Carolina Tax-Free Bond
Fund pursues its objective of relatively high current income that is free of
both regular federal and North Carolina personal income tax, together with
relative safety of principal by investing 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. (See "North Carolina Municipal
Obligations"). The Fund may also invest in municipal leases, participation
interests, stand-by commitments and third party puts (see "Municipal Lease
Obligations", "Participation Interests", "Stand-By Commitments" and "Third Party
Puts"). The Fund 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 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. (see "Bank Obligations", "Commercial Paper", "Corporate
Debt Securities", "U.S. Government Securities", "Repurchase Agreements", and
"Mortgage-Related Securities"). 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 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. The Fund's
investments in Municipal Obligations may also include zero coupon and
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pay-in-kind securities, variable and floating rate demand and master demand
notes, and when-issued securities (see "Zero Coupon and Pay-in-Kind Securities",
"Variable and Floating Rate Demand and Master Demand Notes" and "Forward
Commitments and When-Issued Securities").
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. In addition, the Fund may enter
into interest rate futures contracts, options on securities and options on
futures contracts to a limited extent (see "Interest Rate Futures Contracts",
"Option Writing and Purchasing" and "Options on Futures Contracts"). The Fund
may also invest in investment company securities and lend its portfolio
securities (see "Investment Companies" and "Loans of Portfolio Securities").
CENTURA QUALITY INCOME FUND. Centura Quality Income Fund pursues its objective
of current income and capital appreciation by investing in a diversified
portfolio consisting primarily of investment grade debt obligations, including
U.S. government securities. Under normal market conditions, at least 65% of the
Fund's total assets will be invested in: obligations of the U.S. government, its
agencies and instrumentalities; corporate bonds of U.S. issuers; and
mortgage-backed securities issued by U.S. government agencies (see "U.S.
Government Securities", "Mortgage Related Securities" and "Corporate Debt
Securities"). These debt obligations may pay either fixed or variable rates of
interest (see "Variable and Floating Rate Demand and Master Demand Notes").
The Fund also has authority to invest in other types of securities, including
preferred stocks, securities convertible into common stock, dollar-denominated
obligations of non-U.S. issuers, various types of asset-backed securities,
taxable municipal obligations and money market instrument (see "Convertible
Securities", "Foreign Securities", and "Municipal Obligations). The Fund may
also invest in income-producing securities issued by real estate investment
trusts ("REITs") (see "Real Estate Investment Trusts"). The Fund may engage in
transactions in covered options and interest-rate futures contracts in order to
lengthen or shorten the average maturity of its portfolio. (see "Interest Rate
Futures Contracts", "Option Writing and Purchasing", and "Options on Futures
Contracts"). The Fund expects to maintain a dollar-weighted average portfolio
maturity of between 5 and 15 years.
Debt obligations acquired by the Fund will be rated at least investment grade
BBB or better by S & P or Baa by Moody's or deemed of comparable quality by the
Adviser. At least 70% of the Fund's portfolio securities will be rated A or
better by Moody's or S&P or, if unrated, deemed of comparable quality by the
Adviser. If the rating of a security held by the Fund is reduced, the Adviser is
not required to sell the security but will do so if and when the Adviser
believes the sale is in the best interests of the Fund. Up to 30% of the Fund's
assets may be invested in securities rated BBB by S&P or Baa by Moody's (or, if
unrated, deemed of comparable quality by the Sub-Adviser) at the time of
purchase by the Fund, in preferred stocks, zero coupon obligations and in
convertible securities. (see "Zero Coupon and Pay-in-Kind Securities"). The Fund
may invest in defensive investments as described for Government Income Fund. The
Fund may also invest in other investment companies; forward commitments and
when-issued securities, municipal lease obligations, stand-by commitments;
participation interests and third party puts. (see "Investment Companies",
"Forward Commitments and When-Issued Securities", "Forward Foreign Currency
Exchange Contracts", "Municipal Lease Obligations", "Stand-by Commitments",
"Participation Interests", and "Third Party Puts"). The Fund has authority to
lend its portfolio securities (see "Loans of Portfolio Securities").
CENTURA MONEY MARKET FUND. The Fund pursues its objective to provide investors
with as high a level of current income as is consistent with preservation of
capital and liquidity by investing in a broad range
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of high quality, short-term, money market instruments that have remaining
maturities not exceeding 397 days. The Fund is required to maintain a
dollar-weighted average portfolio maturity no greater than 90 days. The Fund's
investments may include any investments permitted under federal rules governing
money market funds, including: U.S. Government securities; bank obligations;
commercial paper, corporate debt securities, variable rate demand notes and
repurchase agreements and other high quality short-term securities (see "U.S.
Government Securities", "Bank Obligations", "Commercial Paper", "Corporate Debt
Securities", "Repurchase Agreements", and "Variable and Floating Rate Demand ",
and "Master Demand Notes").
The Adviser selects only those U.S. dollar-denominated debt instruments that
meet the high quality and credit risk standards established by the Board of
Directors and consistent with Federal requirements applicable to money market
funds. In accordance with such requirements, the Fund will purchase securities
that are rated within the top two rating categories by at least two nationally
recognized statistical rating organizations ("NRSROs") or, if only one NRSRO has
rated the security, by that NRSRO, or if not rated, the securities are deemed of
comparable quality pursuant to standards adopted by the Board of Directors. The
Fund will purchase commercial paper only if, at the time of the investment, the
paper is rated within the top rating category or deemed of comparable quality
pursuant to standards adopted by the Board of Directors. The Fund will invest no
more than 5% of its total assets in securities rated below the highest rating
category or, if unrated, deemed of comparable quality.
The Fund 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 (see "Investment Companies"). The Fund may also
invest in forward commitments and lend its portfolio securities (see "Forward
Commitments and When Issued Securities" and "Loans of Portfolio Securities").
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 Banks, 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.
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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. 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 MID CAP EQUITY FUND, CENTURA LARGE CAP EQUITY
FUND, CENTURA SMALL CAP EQUITY FUND AND CENTURA QUALITY 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.
SHORT SALES AGAINST THE BOX. (CENTURA LARGE CAP EQUITY FUND, CENTURA MID CAP
EQUITY FUND AND CENTURA SMALL CAP EQUITY FUND). Each of the Small Cap Equity,
Mid Cap Equity and Large Cap Equity Funds may engage in short sales against the
box. In a short sale, the Fund sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The seller does not
immediately deliver the securities sold and is said to have a short position in
those securities until delivery occurs. A Fund may engage in a short sale if at
the time of the short sale the Fund owns or has the right to obtain without
additional cost an equal amount of the security being sold short. This
investment technique is known as a short sale "against the box." It may be
entered into by a Fund to, for example, lock in a sale price for a security the
Fund does not wish to sell immediately. If a Fund engages in a short sale, the
proceeds of the short sale are retained by the broker pursuant to applicable
margin rules. Additionally, the collateral for the short position will be
segregated in an account with the Fund's custodian or qualified sub-custodian.
The segregated assets are pledged to the selling broker pursuant to applicable
margin rules. If the broker were to become bankrupt, a Fund could experience
losses or delays in recovering gains on short sales. To minimize this risk, a
Fund will enter into short sales against the box only with brokers deemed by the
Adviser to be creditworthy. No more than [10%] of the Funds net assets (taken at
current value) may be held as collateral for short sales against the box at any
one time.
The Fund may make a short sale as a hedge, when it believes that the price of a
security may decline, causing a decline in the value of a security owned by the
Fund (or a security convertible or exchangeable for such security). In such
case, any future losses in the Fund's long position should be offset by a gain
in the short position and, conversely, any gain in the long position should be
reduced by a loss in the short position. The extent to which such gains or
losses are reduced will depend upon the amount of the security sold short
relative to the amount the Fund owns. There will be certain additional
transaction costs associated with short sales against the box, but the Fund will
endeavor to offset these costs with the income from the investment of the cash
proceeds of short sales.
If the Fund effects a short sale of securities at a time when it has an
unrealized gain on the securities, it may be required to recognize that gain as
if it had actually sold the securities (as a "constructive sale") on the date it
effects the short sale. However, such constructive sale treatment may not apply
if the Fund closes out the short sale with securities other than the appreciated
securities held at the time of the short sale and if certain other conditions
are satisfied. Uncertainty regarding the tax consequences of effecting short
sales may limit the extent to which the Fund may effect the short sales.
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, or if unrated, are in the Adviser's opinion comparable in quality
to corporate debt securities in which the Fund may invest.
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 event in its determination of whether the Fund should continue to hold the
security. To the extent the ratings given by Moody's 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. 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 at all times 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. 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
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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 or other designated 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
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.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES (ALL FUNDS). 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 GOVERNMENT INCOME FUND, CENTURA QUALITY
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 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. Longer-term securities tend to experience more
price volatility. 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 in 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
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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" .
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 GOVERNMENT INCOME FUND, CENTURA QUALITY
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.
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.
ZERO COUPON AND PAY-IN-KIND SECURITIES (CENTURA GOVERNMENT INCOME FUND, CENTURA
QUALITY 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).
FOREIGN SECURITIES (CENTURA MID CAP EQUITY FUND, CENTURA LARGE CAP EQUITY FUND
CENTURA SMALL CAP EQUITY FUND AND CENTURA QUALITY 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
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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 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.
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.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS (CENTURA MID CAP EQUITY FUND,
CENTURA LARGE CAP EQUITY FUND AND CENTURA SMALL CAP EQUITY FUND). Centura Mid
Cap Equity Fund, Centura Large Cap Equity Fund and Centura Small Cap Equity 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.
RISKS OF FORWARD FOREIGN CURRENCY CONTRACTS (CENTURA MID CAP EQUITY FUND,
CENTURA LARGE CAP EQUITY FUND AND CENTURA SMALL CAP EQUITY FUND). The precise
matching of forward contracts and that of the securities involved will not
generally be possible since the future value of the securities in
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currencies will change as a consequence of market movements in the value of
those securities in 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
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is uncertain. There can be no assurance that new forward
contracts or offsets will always be available to the Funds.
INTEREST RATE FUTURES CONTRACTS (CENTURA GOVERNMENT INCOME FUND, CENTURA NORTH
CAROLINA TAX FREE BOND FUND AND CENTURA QUALITY INCOME 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.
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 MID CAP EQUITY FUND, CENTURA LARGE CAP
EQUITY FUND AND CENTURA SMALL CAP EQUITY 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 Mid Cap Equity Fund, Centura Large Cap Equity Fund and Centura Small Cap
Equity 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
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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 EXCEPT CENTURA MONEY MARKET FUND). 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 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
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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 canceling 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.
RISKS OF OPTIONS TRANSACTIONS (ALL FUNDS EXCEPT CENTURA MONEY MARKET FUND). 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 at 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.
RISK OF FOREIGN CURRENCY OPTIONS (CENTURA MID CAP EQUITY FUND, CENTURA LARGE CAP
EQUITY FUND AND CENTURA SMALL CAP EQUITY 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
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have to exercise its option in order to realize any profit and would incur
transactional costs on the sale of underlying assets.
OPTIONS ON FUTURES CONTRACTS (ALL FUNDS EXCEPT CENTURA MONEY MARKET FUND). 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 transaction costs.
RISKS OF FUTURES AND RELATED OPTIONS INVESTMENTS (ALL FUNDS EXCEPT CENTURA MONEY
MARKET FUND). There are several risks associated with the use of futures
contracts and options on futures contracts. While the 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
movement 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 the
Fund from a futures transaction is unlimited. Therefore, although the Funds have
authority to engage in
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futures transactions, they have no present intention to do so and will engage in
such transactions only when disclosure to that effect has 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 for Centura Mid Cap Equity Fund, Centura Large Cap Equity Fund
and Centura Small Cap Equity Fund also on exchanges located outside of the
United States. Foreign markets may offer 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 for foreign exchanges may include both commodities
that are traded on domestic exchanges or boards of trade and those that are not.
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
EXCEPT CENTURA MONEY MARKET FUND). 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.
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
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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 North Carolina Municipal 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 ("North Carolina Municipal Obligations").
NORTH CAROLINA MUNICIPAL OBLIGATIONS (CENTURA NORTH CAROLINA TAX-FREE BOND
FUND). 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.
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.
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The North Carolina Constitution requires that total state expenditures for any
fiscal period not exceed the total receipts during that fiscal period plus any
surplus remaining in the State Treasury from previous fiscal periods. The State
operates on a fiscal year ending June 30th. The ending fund balance for the
State's General Fund at June 30, 1998 was $1,662.0 million. The budget being
considered by the North Carolina General Assembly for the fiscal year ending
June 30, 2000, projects an ending fund balance of approximately $1,043 million.
However, no funds have been appropriated or reserved for intangible tax refunds,
which could be as much as $465 million. These funds may need to be paid as a
result of the Smith-Shaver cases (as described below).
The State of North Carolina is the tenth most populous state in the United
States. Its economy is a combination of manufacturing, agriculture, services and
tourism. The State's seasonally adjusted unemployment rate in April 1999 was
2.6%. The state's labor force grew 26.4% between 1980 and 1994. In recent years,
the State has moved from an agricultural economy to a service and goods
producing economy. From 1980 to 1995, the state's per capita income grew 133.8%
from $7,999 to $20,604. The State leads the nation in the production of
textiles, tobacco products, furniture and fiber optic cable and is among the
largest producers of pharmaceuticals, electronics and telecommunications
equipment. The principal agricultural products are poultry, pork and tobacco.
North Carolina is the third most diversified state in the country in terms of
its agriculture. Charlotte is now the second largest financial center in the
nation, based on the assets of banks headquartered there.
There are several cases pending in which the State faces the risk of either a
loss of revenue or an unanticipated expenditure. In the Opinion of the
Department of the State Treasurer, however, any such loss of revenue or
expenditure would not materially adversely affect the State's ability to meet
its financial obligations. The cases in which the State faces the risk of either
a loss of revenue or an unanticipated expenditure are the following:
(1) In the case of Leandro, et al. v. State of North Carolina and
State Board of Education, students and boards of education in
five counties filed suit on May 25, 1994. They are requesting
a declaration that the public education system of North
Carolina violates the State Constitution by failing to provide
adequate or substantially equal education opportunities, and
that the educational system also denies due process under the
law. The defendants' motion to dismiss was denied. However,
the North Carolina Supreme Court upheld the present funding
system and remanded the case for trial to be based on the
premise that the constitution guarantees every child the
opportunity to obtain a sound basic education. Five other
counties intervened and now also allege claims for relief on
behalf of their students' rights to a sound basic education on
the basis of the high proportion of at-risk students in their
counties' systems.
(2) The San Francisco case was filed on August 10, 1994. This
case, a class action lawsuit, was filed against the
Superintendent of Public Instruction and the State Board of
Education on behalf of a class of parents and their children
who are characterized as being limited in their English
proficiency. The complaint alleges that the State has failed
to provide funding for the education of these students and has
failed to supervise local school systems which administer
programs for these children. The complaint asks the Court to
order defendants to fund a comprehensive program to ensure
equal educational opportunities for limited English proficient
children.
(3) The Bailey-Emory-Patton cases are a group of cases where state
and local government retirees filed a class action suit in
1990 challenging the repeal of the income tax exemptions of
State and local government retirement benefits. Additional
lawsuits were filed reserving refund claims for future years
and Federal retirees filed a class action suit in 1995 seeking
monetary relief for taxes paid on federal government
retirement benefits. In 1998, the North Carolina Supreme Court
ruled that it was unconstitutional for the State of North
Carolina to collect taxes on the pensions of
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retired Federal, State and local government employees. The
required refunds were estimated to be $1.1 billion. However, a
settlement has been reached and a Consent Order approved in
which the State will pay a total of $799 million with $400
million to be paid in 1998 and the balance due by July 1999.
The balance is reserved in the State's budget for the year
ending June 30, 1999.
(4) The Smith-Shaver cases are a group of class action intangible
tax refund lawsuits relating to prior litigation in which the
United States Supreme Court in 1996 ruled unconstitutional the
intangibles tax previously collected by the State on shares of
stock. Refunds have been made with interest to those taxpayers
who complied with the applicable State tax refund statutes.
The North Carolina Supreme Court held in 1998 that the
taxpayers who paid the intangibles tax, but did not comply
with the State tax refund statute, were nonetheless entitled
to intangibles tax refunds which are estimated at
approximately $360 million. Because a dispute continues as to
the timing of the payment of these intangibles tax refunds,
the General Assembly of North Carolina has made no
appropriations for their payment, and consequently, they are
not included in the budget being considered by the North
Carolina General Assembly for the fiscal year ending June 30,
2000. Additional class action lawsuits claim approximately
$105 million for intangibles taxes paid for 1990. While the
State believes that this claim is barred by the statute of
limitations, this defense has been dismissed by the Superior
Court.
(5) The Faulkenbury v. Teachers' and State Employees' Retirement
System, Peele v. Teachers' and State Employees' Retirement
System, and Woodard v. Local Governmental Employees'
Retirement System cases, are a group of class action lawsuits
where disability retirees brought class actions in state court
challenging changes in the formula for payment of disability
retirement benefits. They are claiming impairment of
contractual rights, breach of fiduciary duties, violation of
other federal constitutional rights, and the violation of
state constitutional and statutory rights. The North Carolina
Court of Appeals and the North Carolina Supreme Court
dismissed the fiduciary claims and certain of the
constitutional claims. The primary claim for relief due to the
unconstitutional impairment of contract was tried in Superior
Court in 1995, and the court issued an order in favor of the
plaintiffs. In 1997, the North Carolina Supreme Court upheld
the trial court's ruling. A determination of the actual amount
of liability and the payment process is being made by the
parties. The plaintiffs have submitted documentation to the
court asserting that the costs, damages, and higher
prospective benefit payments to the plaintiffs and class
members would amount to $407 million. Calculations and
payments so far indicate that retroactive benefits will be
significantly less than estimated. Payments have been made of
approximately $73 million and the State estimates that the
remaining liability will not exceed $42 million. All
retroactive and future benefit payments are payable from the
State's retirement system funds.
(6) The N.C. School Boards Association case was filed in December
1998 by certain plaintiffs which include the school boards of
six North Carolina counties. They are requesting a declaration
that certain payments to State administrative agencies must be
distributed to the public schools on the theory that such
amounts are fines which under the North Carolina Constitution
must be paid to the public schools. The plaintiffs allege that
they are due approximately $84 million. The State believes
that sound legal arguments support the State's position that
these amounts may be retained by State administrative
agencies.
The Adviser believes that the information summarized above describes some of the
more significant matters relating to the North Carolina Tax-Free Bond Fund. The
information was derived from publicly available documents. The Adviser has not
independently verified any of the information contained in the publicly
available documents.
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
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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.
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 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.
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
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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.
MUNICIPAL LEASE OBLIGATIONS (CENTURA NORTH CAROLINA TAX-FREE BOND FUND AND
CENTURA QUALITY INCOME 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 credity 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. 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, a 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 a 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
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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.
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.
REAL ESTATE INVESTMENT TRUSTS (ALL FUNDS EXCEPT CENTURA NORTH CAROLINA TAX-FREE
BOND FUND AND CENTURA MONEY MARKET FUND). A Fund may invest to a limited extent
in equity or debt real estate investment trusts ("REITs"). Equity REITs are
trusts that sell shares to investors and use the proceeds to invest in real
estate or interests in real estate. Debt REITs invest in obligations secured by
mortgages on real property or interest in real property. A REIT may focus on
particular types of projects, such as apartment complexes or shopping centers,
or on particular geographic regions, or both. An investment in a REIT may be
subject to certain risks similar to those associated with direct ownership of
real estate, including: declines in the value of real estate; risks related to
general and local economic conditions, overbuilding and competition; increases
in property taxes and operating expenses; and variations in rental income. Also,
REITs may not be diversified. A REIT may fail to qualify for pass-through tax
treatment of its income under the Internal Revenue Code and may also fail to
maintain its exemption from registration under the Investment Company Act of
1940. Also, REITs (particularly equity REITs) may be dependent upon management
skill and face risks of failing to obtain adequate financing on favorable terms.
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 (other than Centura Money Market 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;
(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,
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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 (1), the Centura Quality Income 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 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.
With respect to Centura Money Market Fund, only:
(1) The Fund has elected to be qualified as a diversified series of an
open-end investment company.
(2) The Fund may not 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 (including repurchase
agreements with respect to such investments) and provided also that the
Fund may invest more than 25% of its assets in instruments issued by
domestic banks.
(3) The Fund may not borrow money, except as permitted under the
Investment Company Act to 1940, as amended, and as interpreted from time
to time by regulatory authority having jurisdiction, from time to time.
(4) The Fund may not make loans to other persons, except (i) loans of
portfolio securities, and (ii) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(5) The Fund may not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time.
(6) The Fund may not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio securities.
(7) The Fund may not purchase or sell real estate, which term does not
include securities of companies that deal in real estate or mortgages or
investment
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secured by real estate or interests therein, except that the Fund reserves
freedom of action to hold and to sell real estate acquired as a result of
the Fund's ownership of securities.
(8) The Fund may not purchase physical commodities or contracts relating
to physical commodities.
The following policies apply to each of the Funds other than Centura Money
Market Fund and Centura Quality Income Fund. These 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;
(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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ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each of the classes of shares of the Company's Funds is sold on a continuous
basis by the Company's distributor, Centura Funds Distributor (the
"Distributor"), and the Distributor has agreed to use appropriate efforts to
solicit all purchase orders. The Company's Funds offer one or more of the
following classes of shares: Class A Shares, Class B Shares and Class C Shares.
(Information concerning Class A and Class B Shares is contained in a separate
prospectus and Statement of Additional Information, each dated August 30, 2000.)
As stated in the Prospectus, the public offering price of Class C Shares of the
Money Market Fund is their net asset value per share which they will seek to
maintain at $1.00; the public offering price of Class C Shares of each other
Fund is their net asset value per share.
The offering price is rounded to two decimal places each time a computation is
made.
Each Fund may redeem shares involuntarily if redemption appears appropriate in
light of the Company's responsibilities under the 1940 Act.
28
<PAGE> 160
MANAGEMENT DIRECTORS AND OFFICERS
The business and affairs of each Fund are managed under the direction of the
Board of Directors. The principal occupations of the Directors and executive
officers of the Company for the past five years are listed below. Directors
deemed to be "interested persons" of the Company for purposes of the 1940 Act
are indicated by an asterisk.
<TABLE>
<CAPTION>
POSITION WITH
NAME, ADDRESS AND AGE COMPANY PRINCIPAL OCCUPATION
<S> <C> <C>
Leslie H. Garner, Jr. Director President, Cornell College.
Cornell College
600 First Street West
Mount Vernon, IA 52314-1098
Age: 46
James H. Speed, Jr. Director Hardee's Food Systems, Inc.
1233 Hardee's Blvd Vice President
Rocky Mount, NC 27802 Controller (1991-present);
Age: 44 Deloitte & Touche -- Senior
Audit Manager (1979-1991).
Director Banking Consultant;
R. William Shauman President, First of America
3131 Woodham Ave Insurance Co. (1997-1998);
Portage, MI 49002 Executive Vice President, First
Age 62 of America Bank Corp.
(1993-1997).
*Lucy Hancock Bode Director Lobbyist.
P.O. Box 6338
Raleigh, NC 27628
Age: 45
*J. Franklin Martin Director President of LandCraft
LandCraft Properties (1978-present).
Properties
227 W. Trade Street
Suite 2730
Charlotte, NC 28202
Age: 52
Walter B. Grimm(1) President BISYS -- Senior Vice
Age: 55 President and Client Services
Executive of
Client
Services (1992-present).
John Quillin(1) Vice President BISYS -- Vice President
Age: 40 of Client Services
(1990-present)
Nadeem Yousaf(1) Treasurer and Principal BISYS -- Director
Age: 33 Financial Officer (1999-present); Previously,
Director, Investors Bank and
Trust
</TABLE>
29
<PAGE> 161
<TABLE>
<S> <C> <C>
Services Group - Audit
Manager.
Curtis Barnes(1) Secretary BISYS -- Legal Administrative
Age: 45 Officer (1995 - present); John
Hancock Advisors, Inc. -- Sr.
Legal Analyst (1984-1995)
</TABLE>
(1) Address is 3435 Stelzer Road, Columbus, Ohio 43219.
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
$3000 (plus $750 for serving on the Board's Audit Committee) and a fee of $750
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, 2000.
<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION
RETIREMENT FROM FUND AND
AGGREGATE BENEFITS ACCRUED ESTIMATED FUND COMPLEX (7
NAME OF PERSON, COMPENSATION AS A PART OF FUND ANNUAL BENEFITS FUNDS) PAID TO
POSITION FROM FUND EXPENSES UPON RETIREMENT DIRECTORS
<S> <C> <C> <C> <C>
Leslie H. Garner, Jr $7,500 -0- -0- $7,500
James H. Speed, Jr. $7,500 -0- -0- $7,500
Frederick E. Turnage $2,250 -0- -0- $2,250
Lucy Hancock Bode $6,750 -0- -0- $6,570
J. Franklin Martin $6,000 -0- -0- $6,000
</TABLE>
As of August , 2000, the Officers and Directors of the Company, as a group,
own less than 1% of the outstanding shares of the Funds.
As of August , 2000, the following individuals owned 5% or more of the Class C
shares of the Funds:
CENTURA MID CAP EQUITY FUND
CLASS C OWNED SHARES OWNED PERCENTAGE OWNED
------------- ------------ ----------------
Centura Bank -- * -- %
PO Box 1220
Rocky Mount, NC
CENTURA SMALL CAP EQUITY FUND
CLASS C OWNED SHARES OWNED PERCENTAGE OWNED
------------- ------------ ----------------
Centura Bank -- * -- %
PO Box 1220
Rocky Mount, NC
30
<PAGE> 162
CENTURA GOVERNMENT INCOME FUND
CLASS C OWNED SHARES OWNED PERCENTAGE OWNED
------------- ------------ ----------------
Centura Bank -- * -- %
PO Box 1220
Rocky Mount, NC
*Disclaims beneficial ownership.
CENTURA QUALITY INCOME FUND
CLASS C OWNED SHARES OWNED PERCENTAGE OWNED
------------- ------------ ----------------
Centura Bank -- * -- %
PO Box 1220
Rocky Mount, NC
CENTURA NORTH CAROLINA TAX-FREE BOND FUND
CLASS C OWNED SHARES OWNED PERCENTAGE OWNED
------------- ------------ ----------------
Centura Bank -- * -- %
PO Box 1220
Rocky Mount, NC
CENTURA LARGE CAP EQUITY FUND
CLASS C OWNED SHARES OWNED PERCENTAGE OWNED
------------- ------------ ----------------
Centura Bank -- * -- %
PO Box 1220
Rocky Mount, NC
CENTURA MONEY MARKET FUND
CLASS C OWNED SHARES OWNED PERCENTAGE OWNED
------------- ------------ ----------------
Centura Bank -- * -- %
PO Box 1220
Rocky Mount, NC
*Disclaims beneficial ownership.
31
<PAGE> 163
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 Mid Cap
Equity Fund, 0.70% for Centura Large Cap Equity Fund, 0.30% for Centura
Government Income Fund, 0.35% for Centura North Carolina Tax-Free Bond Fund,
0.70% for Centura Small Cap Equity Fund, 0.60% for Centura Quality Income Fund
and 0.30% for Centura Money Market 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.
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 Large Cap Equity Fund,
Centura Small Cap Equity Fund, Centura Quality Income Fund and Centura Money
Market 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.
With respect to Centura Large Cap Equity Fund, Centura Small Cap Equity Fund,
Centura Quality Income Fund and Centura Money Market Fund, respectively, 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 meetings called for such purpose held on July 24, 1996 (for Large
Cap Equity Fund), January 29, 1997 (for Small Cap Equity Fund), January 27, 1999
(for Centura Quality Income Fund) and April 27, 1998 (for Centura Money Market
Fund) and by the sole shareholder of each such Fund on July 24, 1996 (for Large
Cap Equity Fund), January 29, 1997 (for Small Cap Equity Fund), January 27, 1999
(for Centura Bond Fund) and June 1, 1998 (for Centura Money Market Fund). This
Agreement, as it relates to all Centura Funds (except Centura Quality Income
Fund), was re-approved at the February 23, 2000 Board of Directors Meeting. 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, 2000, the Adviser earned the following
advisory fees: $244,052 from the Small Cap Equity Fund, $966,319 from the Mid
Cap Equity Fund, $1,335,602 from the Large Cap Equity Fund, $312,754 from the
Money Market Fund, $247,841 from the Government Income Fund, $141,519 from the
North Carolina Tax-Free Bond Fund and for the period May 11, 1999 through April
30, 2000, $246,461 for the Quality Income Fund in advisory fees. For the
fiscal year ended April 30, 2000, the Adviser waived advisory fees of $5,361,
$204,281 and $5,854 for each of the North Carolina Tax-Free Bond Fund, Money
Market Fund and Quality Income Fund, respectively.
For the fiscal year ended April 30, 1999, the Adviser earned the following in
advisory fees: $1,308,830 from the Mid Cap Equity Fund, $259,395 from the Small
Cap Equity Fund, $634,643 from the Large Cap Equity Fund, $155,707 from the
Money Market Fund, $389,332 from the Government Income Fund and $155,132 from
the North Carolina Tax-Free Bond Fund. For the fiscal year ended April 30, 1999,
the Adviser waived the following advisory fees: $145,325 from the Money Market
Fund, $75,833 from the Large Cap Equity Fund and $62,334 from the North Carolina
Tax-Free Bond.
For the fiscal year ended April 30, 1998, the Adviser earned Advisory fees in
the amount of $1,362,369, $442,170, $191,290, $382,159 and $140,332 from the Mid
Cap Equity Fund, Large Cap
32
<PAGE> 164
Equity Fund, Small Cap Equity Fund, Government Income Fund and the North
Carolina Tax-Free Bond Fund, respectively. For the year ended April 30, 1998,
the Adviser waived fees in the amount of $214,769, $25,157 and $100,237 for the
Large Cap Equity Fund, Small Cap Equity Fund and the North Carolina Tax-Free
Bond Fund, respectively. (As of the fiscal year ended April 30, 1998, the
Quality Bond Fund and Money Market Fund had not yet commenced operations.)
For the period May 11, 1999 through April 30, 2000, Sovereign Advisers served as
Sub-Adviser to the Centura Quality Income Fund and received $100,199 in
sub-advisory fees from the Adviser.
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.
ADMINISTRATIVE SERVICES
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS") is
the Sponsor and Administrator of the Funds and 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, Sub-Adviser, Distributor, custodians,
independent accountants, legal counsel and others. In addition, BISYS 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 BISYS. For these services, BISYS receives from each Fund a fee,
payable monthly, at the annual rate of 0.15% of each Fund's average daily net
assets.
BISYS is a subsidiary of BISYS Group, Inc, which is headquartered in Little
Falls, New Jersey and supports more than 5,000 financial institutions and
corporate clients through two strategic business units. BISYS Information
Services Group provides image and data processing outsourcing, and pricing
analysis to more than 600 banks nationwide. BISYS Investment Services Group
designs, administers and
33
<PAGE> 165
distributes over 30 families of proprietary mutual funds consisting of more than
365 portfolios, and provides 401(k) marketing support, administration, and
recordkeeping services in partnership with banking institutions and investment
management companies. At a meeting held on July 24, 1996, the Directors reviewed
and approved an Administration Agreement with BISYS, a Transfer Agency Agreement
and a Fund Accounting Agreement with BISYS Fund Services, Inc. Both BISYS
companies have their principal place of business at 3435 Stelzer Road, Columbus,
Ohio 43219.
For the fiscal year ended April 30, 2000, BISYS received administration fees of
$207,073, $286,202, $52,297, $123,921, $60,706, $157,461 and, for the period
May 11, 1999 through April 30, 2000, $62,094 for each of the Mid Cap Equity
Fund, the Large Cap Equity Fund, the Small Cap Equity Fund, the Government
Income Fund, the North Carolina Tax-Free Bond Fund, the Money Market Fund and
the Quality Income Fund, respectively. For the same period, BISYS waived fee
of $7,423 and $124,631 for the North Carolina Tax-Free Bond Fund and Money
Market Fund, respectively.
For the fiscal year ended April 30, 1999, BISYS, earned administrative services
fees of $280,464, $135,995, $55,585, $194,666, $ 66,486 and $77,853 for the Mid
Cap Equity Fund, the Large Cap Equity Fund, the Small Cap Equity Fund, the
Government Income Fund, the North Carolina Tax-Free Bond Fund and the Money
Market Fund, respectively. For the same period BISYS waived fees of $0, $12,696,
$0, $0, $25,980 and $70,228 for the Mid Cap Equity Fund, the Large Cap Equity
Fund, the Small Cap Equity Fund, the Government Income Fund, the North Carolina
Tax-Free Bond Fund and the Money Market Fund, respectively.
(As of April 30, 1999, Quality Income Fund had not yet commenced operations).
For fiscal year ended April 30, 1998, BISYS earned administration fees of
$291,936, $94,751, $40,991, $191,079 and $60,117 for the Mid Cap Equity Fund,
the Large Cap Equity Fund, the Small Cap Equity Fund, the Government Income Fund
and the North Carolina Tax-Free Bond Fund, respectively. For the same period,
BISYS waived fees of $40,456, $5,391 and $42,883 for the Large Cap Equity Fund,
the Small Cap Equity Fund and the North Carolina Tax-Free Bond Fund,
respectively. (As of the fiscal year ended April 30, 1998, the Quality Income
Fund and the Money Market Fund had not yet commenced operations.)
The Administration Agreement for each was approved by the Board of Directors,
including a majority of the Directors who are not parties to the Agreement or
interested persons of such parties, at meetings held July 24, 1996 and January
29, 1997 April 27, 1998 and January 27, 1999. The Administration Agreement 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
34
<PAGE> 166
the Fund, each upon not more than 90 days written notice to the Administrator,
and upon 90 days notice, by the Administrator.
SERVICE ORGANIZATIONS
The Money Market Fund has adopted a Shareholder Services Plan (the "Plan") which
provides that the Fund will make payments equal to 0.25% (on an annual basis) of
the average daily value of the net assets of the Fund's Class C shares
attributable to or held in the name of banks, trust companies, broker-dealers
(other than BISYS) or other financial organizations ("Service Organizations") to
provide certain administrative services. The Company will enter into agreements
("Shareholder Services Agreements") with Service Organizations that purchase
Class C shares on behalf of their clients. The Shareholder Services Agreements
will provide for compensation to the Service Organizations in an amount up to
0.25% (on an annual basis) of the average daily net assets of Class C shares
attributable to or held in the name of the Service Organizations for its
clients. 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
Money Market Fund to clients; and providing such other services as the Fund or a
client reasonably may request, to the extent permitted by applicable statute,
rule or regulation. Neither BISYS 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 Fund 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 Fund. 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 Directors of the Company, including a majority of the Directors who are not
interested persons of the Company and who have no direct or indirect financial
interest in the operation of the Plan or the related Shareholder Services
Agreement, voted to adopt the Plan and Shareholder Services Agreement at a
meeting called for the purpose of voting on such Plan and Shareholder Services
Agreement on October, 1998. The Plan and Shareholder Services Agreement will
remain in effect for a period of one year and will continue in effect thereafter
only if such continuance is specifically approved annually by a vote of the
Directors in the manner described above. All material amendments of the Plan
must also be approved by the Directors in the manner described above. The Plan
may be terminated at any time by a majority of the Directors as described above
or by vote of a majority of the outstanding class of shares of the Fund. The
Shareholder Services Agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Directors as described above or by a
vote of a majority of the outstanding class of shares of the Fund on not more
than 60 days' written notice to any other party to the Shareholder Services
Agreement. The Shareholder Services Agreement shall terminate automatically if
assigned. The Directors have determined that, in their judgment, there is a
reasonable likelihood that the Plan will benefit the Money Market Fund. In the
Directors' quarterly review of the Plan and Shareholder Services Agreement, they
will consider their continued appropriateness and the level of compensation
provided therein.
35
<PAGE> 167
DETERMINATION OF NET ASSET VALUE
The net asset value per share for each class of shares of each Fund is
calculated at 4:00 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'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.
Valuation of the Money Market Fund
The Money Market Fund has elected to use the amortized cost method of valuation
pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an instrument at
its cost initially and thereafter assuming a constant amortization to maturity
of any discount or premium, regardless of the impact of fluctuating interest
rates on the market value of the instrument. This method may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Fund would receive if it sold the instrument. The value of securities
in the Money Market Fund can be expected to vary inversely with changes in
prevailing interest rates.
Pursuant to Rule 2a-7, the Money Market Fund will maintain a dollar-weighted
average maturity appropriate to the Fund's objective of maintaining a stable net
asset value per share, provided that the Fund will not purchase any security
with a remaining maturity of more than 397 days (thirteen months) (securities
subject to repurchase agreements may bear longer maturities) nor will it
maintain a dollar-weighted average maturity which exceeds 90 days. The Company's
Board of Directors has also undertaken to establish procedures reasonably
designed, taking into account current market conditions and the investment
objective of the Fund, to stabilize the net asset value per share of the Fund
for purposes of sales and redemptions at $1.00. These procedures include review
by the Directors, at such intervals as they deem appropriate, to determine the
extent, if any, to which the net asset value per share of the Fund calculated by
using available market quotations deviates from $1.00 per share. In the event
such deviation exceeds 0.5%, Rule 2a-7 requires that the Board of Directors
promptly consider what action, if any, should be initiated. If the Directors
believe that the extent of any deviation from the Fund's $1.00 amortized cost
price per share may result in material dilution or other unfair results to new
or existing investors, they will take such steps as they consider appropriate to
eliminate or reduce, to the extent reasonably practicable, any such dilution or
unfair results. These steps may include selling portfolio instruments prior to
maturity, shortening the dollar-weighted average maturity, withholding or
reducing dividends, reducing the number of the Fund's outstanding shares without
monetary consideration, or utilizing a net asset value per share determined by
using available market quotations. As permitted by Rule 2a-7 and the procedures
adopted by the Board, certain of the Board's responsibilities under the Rule may
be delegated to the Adviser.
Valuation of the Non-Money Market Funds.
36
<PAGE> 168
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 from 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.
37
<PAGE> 169
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.
A Fund 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.
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.
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
38
<PAGE> 170
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 BISYS 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 can 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 their 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 or Sub-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, 2000, $378,462, $219,825 and $302,736 were
paid in brokerage commissions by the Mid Cap Equity Fund, Large Cap Equity Fund
and Small Cap Equity Fund. Of this amount, none was paid to any affiliated
brokers. None of the other Funds paid any brokerage commissions for such
periods.
For the fiscal year ended April 30, 1999, $796,306, $262,893, and $153,178 were
paid in brokerage commissions by the Mid Cap Equity Fund, Large Cap Equity Fund
and Small Cap Equity Fund. Of this amount, none was paid to any affiliated
brokers. None of the other Funds paid any brokerage commissions for such
periods. For the fiscal year ended April 30, 1998, the Mid Cap Equity Fund and
the Large Cap Equity Fund paid brokerage commissions of $388,152 and $94,016,
respectively Of these amounts, none were paid to any affiliated brokers.
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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 100%. 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 rates for the fiscal year ended April 30, 2000 were 258%, 61%, 63%, 60%
and 14% for the Small Cap Equity Fund, Mid Cap Equity Fund, the Large Cap Equity
Fund, the Government Income Fund and the North Carolina Tax-Free Bond Fund,
respectively. For the year ended April 30, 1999, the turnover rates for the
Small Cap Equity Fund, the Large Cap Equity Fund, the Mid Cap Equity Fund, the
Government Income Fund and the North Carolina Tax-Free Bond Fund, were 130%,
114%, 142% 104% and 11%, 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; and (c) 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
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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 (the excess of net long-term capital gains
over short-term capital losses), if any, designated by a Fund as capital gain
dividends will generally be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held Fund shares. 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 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.
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
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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.
Recently enacted rules may affect the timing and character of gain if a Fund
engages in transactions that reduce or eliminate its risk of loss with respect
to appreciated financial positions. If a Fund enters into certain transactions
in property while holding substantially identical property, the Fund would be
treated as if it had sold and immediately repurchased the property and would be
taxed on any gain (but not loss) from the constructive sale. The character of
gain from a constructive sale would depend upon the Fund's holding period in the
property. Loss from a constructive sale would be recognized when the property
was subsequently disposed of, and its character would depend on the Fund's
holding period and the application of various loss deferral provisions of the
Code.
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 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
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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 Fund's PFIC
shares at the end of each taxable year, with the result that unrealized gains
are treated as though they were realized and reported as ordinary income. Any
mark-to-market losses and any loss from an actual disposition of PFIC shares
would be deductible as ordinary losses to the extent of any net mark-to-market
gains included in income in prior years. 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
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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 ability to claim
foreign tax credits also is subject to holding period requirements.
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 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,
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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 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.
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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 seven separately
managed portfolios, each of which offers three classes of shares, except that
Centura Money Market Fund offers only two classes of shares. The capitalization
of the Company consists solely of one billion fifty million (1,050,000,000)
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.
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. 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.
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 FUND ACCOUNTING 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, 2000,
the custodian earned fees of $34,503, $47,698, $20,649, $10,246, $27,314,$8,714,
and, for the period May 11, 1999 through April 30, 2000, $10,354 for the Mid Cap
Equity Fund, Large Cap Equity Fund, Government Income Fund, North Carolina
Tax-Free Bond Fund, Money Market Fund, Small Cap Equity Fund and Quality Income
Fund, respectively. For the fiscal year ended April 30, 1999 the custodian
earned fees of $46,734, $22,665, $32,446, $11,084, $12,975 and $9,448 for the
Mid Cap Equity Fund, Large Cap Equity Fund, Government Income Fund, North
Carolina Tax-Free Bond Fund Money Market Fund and Small Cap Equity Fund,
respectively. (the Quality Income Fund had not commenced operations as such
fiscal year). For the fiscal
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year ended April 30, 1998, Centura Bank earned custodian fees and out-of-pocket
expenses of $44,842, $15,560, $26,313, and $11,932 for the Mid Cap Equity Fund,
Large Cap Equity Fund, Government Income Fund, and North Carolina Tax-Free Bond
Fund, respectively. For the period from May 2, 1997 (commencement of operations)
to April 30, 1998, custodian expenses incurred by the Small Cap Equity Fund were
$12,766. (As of the fiscal year ended April 30, 1998, the Quality Income Fund
and the Money Market Fund had not yet commenced operations.)
BISYS Fund Services, Inc. ("BFSI") serves as the Company's transfer agent
pursuant to a Transfer Agency Agreement.
Pursuant to a Fund Accounting Agreement, each Fund compensates BFSI $2,500 per
month for providing fund accounting services for the Funds. For the fiscal year
ended April 30, 2000 BFSI earned the following fund accounting service fees:
$48,881 for the Mid Cap Equity Fund, $63,225 for the Large Cap Equity Fund,
$36,540 for the Small Cap Equity Fund, $34,991 for the Government Income Fund,
$37,439 for the North Carolina Tax-Free Bond Fund, $38,185 for the Money Market
Fund and, for the period May 11, 1999 through April 30, 2000, $36,153 for the
Quality Income Fund. For the fiscal year ended April 30, 1999, BFSI earned the
following fund accounting service fees: $33,860 for the Mid Cap Equity Fund,
$34,565 for the Government Income Fund, $34,471 for the Large Cap Equity Fund,
$30,360 for the Small Cap Equity Fund, $28,614 for the Money Market Fund and
$36,694 for the North Carolina Tax-Free Bond Fund. For the fiscal year ended
April 30, 1998, BFSI received fees for fund accounting services of $32,519,
$31,269, $38,031 and $35,374 for the Mid Cap Equity Fund, the Large Cap Equity
Fund, the Government Income Fund and the North Carolina Tax-Free Bond Fund,
respectively. For the period from May 2, 1997 (commencement of operations) to
April 30, 1998, BFSI received fees for fund accounting services of $34,581 for
the Small Cap Equity Fund. (As of the fiscal year ended April 30, 1998, the
Quality Bond Fund and the Money Market Fund had not yet commenced operations.)
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.
CENTURA MONEY MARKET FUND
The current yield is the net annualized yield based on a specific 7
calendar-days calculated at simple interest rates. Current yield is calculated
by determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period and dividing such change by the value of the account at the
beginning of the base period to obtain the base-period return. The base-period
return is then annualized by multiplying it by 365/7; the resultant product
equals net annualized current yield. The current yield figure is stated to the
nearest hundredth of one percent.
The effective yield is the net annualized yield for a specified 7 calendar-days
assuming a reinvestment in Fund shares of all dividends during the period, i.e.,
compounding. Effective yield is calculated by using the same base-period return
used in the calculation of current yield except that the base-period return is
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compounded by adding 1, raising the sum to a power equal to 365 divided by 7,
and subtracting 1 from the result according to the following formula:
As described above, current yield and effective yield are based on historical
earnings, show the performance of a hypothetical investment and are not intended
to indicate future performance. Current yield and effective yield will vary
based on changes in market conditions and the level of Fund expenses. Current
yield and effective yield for the 7 day period ending April 30, 2000 for the
Centura Money Market Fund, (Class C Shares) were 5.73% and 5.89%, respectively.
OTHER CENTURA FUNDS
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)#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 # indicates that the following single character is an
exponent.
The 30-day yield for the period ended April 30, 2000 was as follows: 5.95%,
4.40% and 6.25% for the Class C shares of the Government Income Fund and the
North Carolina Tax-Free Bond Fund and Quality Income 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)#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; the # indicates that the
following single character is an exponent. 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
48
<PAGE> 180
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.
PERFORMANCE INFORMATION
TOTAL RETURN SUMMARY
THE CENTURA FUNDS (C CLASS)
PERIOD ENDED APRIL 30, 2000
AVERAGE ANNUAL RETURNS
<TABLE>
<CAPTION>
INCEPTION SINCE
FUND DATE 1 YR 3 YR 5 YR INCEPTION
---- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Centura Mid Cap Equity Fund ............. 12/31/90 21.67% 21.96% 22.32% 19.11%
Centura Large Cap Equity Fund............ 12/31/90 14.88% 21.67% 21.23% 16.78%
Centura Small Cap Equity Fund........... 01/01/95 20.24% 21.44% 18.57% 19.04%
Centura Government Income Fund........... 12/31/90 1.99% 5.34% 5.56% 5.93%
Centura North Carolina Tax-Free Fund..... 01/31/91 (0.90)% 4.33% 4.74% 4.81%
Centura Quality Income Fund.............. 05/10/99 N/A N/A N/A 0.20%
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results as yields fluctuate daily.
Centura Funds Distributor, Inc. is the Distributor for The Centura Group of
Funds.
NOTES ABOUT THE PERFORMANCE INFORMATION
(a) BACKGROUND OF THE FUNDS
From 12/31/90 to 5/31/94 (conversion date), Centura Mid Cap Equity Fund and
Centura Government Income Fund were bank collective trust funds maintained and
managed by Centura Bank, and from 1/31/91 to 5/31/94 (conversion date), Centura
North Carolina Tax-Free Bond Fund was a common trust fund maintained and managed
by Centura Bank. From 12/31/90 to 9/30/96 (conversion date), Centura Large Cap
Equity Fund was a common trust fund maintained and managed by Centura Bank. From
1/1/95 to 5/1/97 (conversion date), Centura Small Cap Equity Fund was a bank
common trust fund maintained and managed by Centura Bank. Bank collective and
common trust funds are not required to register as investment companies under
the Investment Company Act of 1940. Accordingly, performance achieved by a
Fund's predecessor collective or common trust fund reflects performance prior to
the Fund's commencement of operations as a series of a registered investment
company. The investment objectives, strategies and policies of each of these
Funds prior to its conversion from the bank common or collective fund
predecessor to a registered mutual fund were in all material respects equivalent
to those of its successor registered mutual fund.
(b) HOW THE PERFORMANCE INFORMATION WAS CALCULATED
Investment performance for the Funds during their maintenance as common or
collective trust funds has been calculated on a monthly basis utilizing the Bank
Administration Institute's recommended time-weighted rate of return method to
compute the investment performance reflected in the above Schedule.
49
<PAGE> 181
The performance figures assume the reinvestment of dividends and interest and
include the cost of brokerage commissions. The investment performance excludes
taxes an investor might have incurred as a result of taxable ordinary income and
capital gains realized by the accounts. Bank common and collective trust funds
are not subject to certain expenses normally incurred by a mutual fund, such as
advisory, administrative, transfer and fund accounting agent and 12b-1 fees.
Thus, the performance figures, for periods prior to conversion to registered
funds have been adjusted, on a monthly basis, to reflect the impact of the
higher contractual expense ratios for the registered funds at the time of the
conversion.
It should be noted, however, that the bank-maintained common and collective
trust funds are not subject to the same tax and regulatory requirements,
including certain investment restrictions, applicable to registered mutual
funds. These regulatory and tax requirements could have adversely affected the
performance of the Funds' collective and common trust fund predecessors.
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 or transaction
costs.
Performance information for the Funds may be compared, in reports and
promotional literature, to: (i) , 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 , Inc. 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.
Other Indexes to which the Funds' performance may be compared may include:
-- Standard & Poor's 500 Composite Stock Price Index -- an index of market
activity based on the aggregatE performance of a selected portfolio of publicly
traded common stocks, including monthly adjustments to reflect the reinvestment
of dividends. The Index thus reflects the total return of its portfolio,
including changes in market prices as well as accrued income interest;
-- The Russell 2000 Index -- an index comprised of the smallest 2000 companies
in the Russell 3000 Index, representing approximately 11% of the Russell 3000
total market capitalization. The Index was developed with the base value of
135.00 as of December 31, 1986;
-- Merrill Lynch Government, U.S. Treasury Short-Term Index -- this index shows
total return for alL outstanding U.S. Treasury securities maturing in from one
to 2.99 years. Price, coupon and total return are reported using market weighted
value including accrued interest; and
-- Lehman Brothers Municipal Bond Index -- a total return performance index of
approximately 21,000 municipal bonds that meet certain criteria. Price, coupon,
and total return are reported using market weighted value including accrued
interest.
In addition to those indexes listed above, the following indexes to which the
Funds' performance may be compared may include:
-- Lehman Brothers Intermediate Government Index
50
<PAGE> 182
-- Lipper Short U.S. Treasury Funds Index
-- Lipper Growth Index
-- Lipper Equity Income Index
-- S&P Mid-Cap 400 Index
-- Valueline Index
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.
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.
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 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 1998 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.
51
<PAGE> 183
2000 TAXABLE YEAR
TAXABLE EQUIVALENT YIELD TABLE (1) -- FEDERAL AND
NORTH CAROLINA PERSONAL INCOME TAXES
(to be updated)
<TABLE>
<CAPTION>
TO EQUAL HYPOTHETICAL TAX-FREE YIELD OF
4%, 5%, 6%, 7% OR 8%, A TAXABLE
TAXABLE INCOME ( 2) COMBINED INVESTMENT WOULD HAVE TO YIELD
MARGINAL APPROXIMATELY
SINGLE RETURN JOINT RETURN RATE 4% 5% 6% 7% 8%
------------- ------------ ---------- ------ ----- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
up to $12,750 up to $21,250 20.10% 5.01% 6.26% 7.51% 8.76% 10.01%
$12,751-$25,750 $21,251-$43,050 20.95% 5.06% 6.33% 7.59% 8.86% 10.12%
$25,751-$60,000 $43,051-$100,000 33.04% 5.97% 7.47% 8.96% 10.45% 11.95%
$60,001-$62,450 $100,001-$104,050 33.58% 6.02% 7.53% 9.03% 10.54% 12.04%
$62,451-$130,250 $104,051-$158,550 36.35% 6.28% 7.86% 9.43% 11.00% 12.57%
$130,251-$283,150 $158,551-$283,150 40.96% 6.78% 8.47% 10.16% 11.86% 13.55%
$283,151 and over $283,151 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; 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 1999 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 1999 exceeds $126,600($63,300 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 1999, $126,600 in the case of single individuals and
$189,950 in the case of married individuals filing a joint return).
INDEPENDENT ACCOUNTANTS
[ ], 2 Nationwide Plaza, Columbus, Ohio 43215, serves as the independent
accountants for the Company for the fiscal year ending April 30, 1999. [ ]
provides audit services, tax return preparation and assistance and consultation
in connection with review of certain SEC filings.
COUNSEL
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C., 20006, passes
upon certain legal matters in connection with the shares offered by the Company
and also acts as Counsel to the Company.
52
<PAGE> 184
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.
FINANCIAL STATEMENTS
The Report of Independent Accountants and financial statements of the Funds
included in their Annual Report for the period ended April 30, 2000 (the "Annual
Report") are incorporated herein by reference to such Report. Copies of such
Annual Report are available without charge upon request by writing to Centura
Funds, Inc., 3435 Stelzer Road, Columbus, Ohio 43219-8006 or telephoning (800)
442-3688.
The financial statements for the period ended April 30, 2000 in the Annual
Report incorporated by reference into this Statement of Additional Information
have been audited by [ ], independent accountants, and have been so
included and incorporated by reference in reliance upon the report of said firm,
which report is given upon their authority as experts in auditing and
accounting.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS, OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS SAI OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR PRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUNDS. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE AN
OFFERING BY THE FUNDS IN ANY JURISDICTION IN WHICH SUCH AN OFFERING MAY NOT
LAWFULLY BE MADE.
53
<PAGE> 185
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 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
54
<PAGE> 186
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 debt obligations; PRIME-2 -- issuers (or supporting
institutions) have a strong ability for repayment of senior short-term debt
obligations; PRIME-3 -- issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt 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 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
55
<PAGE> 187
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
EXHIBIT DESCRIPTION
(a)(1)--Articles of Incorporation of Registrant(1)
(a)(2)--Articles Supplementary dated March 27, 1997(7)
(a)(3)--Articles of Amendment dated October 21, 1996(6)
(a)(4)--Form of Articles Supplementary dated January 29, 1997(6)
(a)(5)--Form of Articles Supplementary dated January 28, 1998(9)
(a)(6)--Form of Articles Supplementary(11)
(a)(7)--Articles Supplementary dated May 5, 1999 - (12)
(b)--ByLaws of Registrant (2)
(c)--Not applicable
<TABLE>
<CAPTION>
<S> <C>
(d)(1)--Form of Master Investment Advisory Contract(4)
(d)(2)--Form of Investment Advisory Contract Supplement(7)
(d)(3)--Form of Investment Advisory Contract Supplement Southeast Equity Fund(6)
(d)(4)--Form of Investment Advisory Contract Supplement Money Market Fund(9)
(d)(5)--Form of Investment Advisory Contract Supplement Quality Bond fund(10)
</TABLE>
(d)(6)--Form of Investment Advisory Contract Supplement(10)
(e)(1)--Form of Distribution Contract(6)
(e)(2)--Form of Dealer and Selling Group Agreement(9)
(f)--Not applicable
(g)--Form of Custody Agreement(7)
(h)(1)(i)--Form of Administration Agreement(6)
(h)(1)(ii)--Amendment to Administration Agreement - (12)
(h)(2)(i)--Form of Transfer Agency Agreement(6)
(h)(2)(ii)--Amendment to Transfer Agency Agreement - (12)
(h)(3)--Form of Sub-Transfer Agency Agreement(7)
(h)(4)(i)--Form of Fund Accounting Agreement(6)
(h)(4)(ii)--Amendment to Fund Accounting Agreement - (12)
(h)(5)--Form of Services Agreement(7)
(i)--Opinion of Counsel - to be filed by post-effective amendment
(j)(1)--Consent of Independent Auditors - to be filed by post-effective
amendment
(j)(2)--Powers of Attorney(8)
(k)--Not Applicable
(l)--Purchase Agreement(3)
(m)(1)--Form of Master Distribution Plan(4)
(m)(2)--Form of Distribution Plan Supplement(3)
(m)(3)--Form of Distribution Plan Supplement - Southeast Equity Fund(6)
(m)(4)--Form of Distribution Plan Supplement(9)
(m)(5)--Form of Distribution Plan Supplement - Corporate Bond Fund(10)
(m)(6)--Forms of Distribution Plan Supplements - Money Market Fund(11)
(m)(7)--Form of Shareholders Services Plan(10)
<PAGE> 188
(m)(8)--Form of Shareholder Services Agreement(10)
(n)--Not applicable
(o)--Form of Amended Plan Pursuant to Rule 18f-3(9)
----------------
1. Filed as part of Post-Effective No. 4 to Registrant's Registration
Statement on June 14, 1996.
2. Filed as part of Registrant's initial Registration Statement on March 1,
1994.
3. Filed as part of Post-Effective No. 2 to Registrant's Registration
Statement on June 30, 1995.
4. Filed as part of Post-Effective Amendment No. 1 to Registrant's
Registration Statement on April 14, 1994.
5. Filed as part of Post-Effective No. 1 to Registrant's Registration
Statement on November 30, 1994.
6. Filed as part of Post-Effective No. 6 to Registrant's Registration
Statement on January 15, 1997.
7. Filed as part of Post-Effective Amendment No. 7 to Registrant's
Registration Statement on March 27, 1997 and incorporated by reference
herein.
8. Filed as part of Post-Effective No. 8 to Registrant's Registration
statement on August 28, 1997 and incorporated by reference herein.
9. Filed as part of Post-Effective Amendment No. 10 to Registrant's
Registration Statement on February 13, 1998 and incorporated by reference
herein.
10. Filed as part of Post-Effective Amendment No. 12 to Registrant's
Registration Statement on June 1, 1998 and incorporated by reference herein.
11. Filed with Post-Effective Amendment No. 16 to Registrant's Registration
Statement on February 8, 1999 and incorporated herein by reference.
12. Filed as part of Post-Effective Amendment No. 19 to Registrant's
Registration Statement and incorporated by reference herein.
24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
25. 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
<PAGE> 189
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.
26. 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:
<TABLE>
<CAPTION>
BUSINESS AND OTHER
NAME TITLE CONNECTIONS
<S> <C> <C>
Richard H. Barnhardt Director Director, Centura Bank;
Chairman, Best of Beers, LLC.
C. Wood Beasley Director Director, Centura Bank;
President, Wood Beasley Farms, Inc.
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.
Bernard W. Franklin, Ed.D. Director Director, Centura Bank;
President, Saint Augustine's College
Susan E. Gravely Director Director, Centura Bank;
President, Vietri, Inc.
John H. High Director Director, Centura Bank;
President, John H. High &
Co., Inc.
Robert L. Hubbard Director Director, Centura Bank;
Chief Executive Officer, RLH Associates
Floyd E. Kellam, Jr. Director Director, Centura Bank;
Attorney
William H. Kincheloe Director Director, Centura Bank;
President, Bulluck Furniture Co., Inc.
H. Kel Landis III Director Director, Centura Bank;
President, Centura Bank
Charles T. Lane Director Director, Centura Bank;
Partner, Poyner & Spruill,
L.L.P.
</TABLE>
<PAGE> 190
<TABLE>
<CAPTION>
BUSINESS AND OTHER
NAME TITLE CONNECTIONS
<S> <C> <C>
Joseph H. Nelson Director Director, Centura Bank;
President, Davenport Motor
Company.
Dean E. Painter, Jr. Director Director, Centura Bank;
Chairman, CLG, Inc.
D. Earl Purdue Director Director, Centura Bank;
President, Brightwood Farm,
Inc.
O. Tracy Parks III Director Director, Centura Bank;
Partner, Parks, Pate & Scarborough,
L.L.P.
Frank L. Pattillo Director Director, Centura Bank;
Vice Chairman, Centura Banks, Inc.
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. Chairman, Chief Chairman, Chief Executive
Executive Officer, 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.
William H. Wilkerson President and President and Director,
Director Centura Banks, Inc.
Charles P. Wilkins Director Director, Centura Bank;
Partner, Broughton, Wilkins
Webb & Sugg, P.A.
</TABLE>
1. The above Directors and Officers of Centura Bank can be reached at 131 North
Church Street, Rocky Mount, North Carolina 27802.
<PAGE> 191
27. PRINCIPAL UNDERWRITERS
(a) Not applicable.
(b) Centura Funds Distributor, Inc.
PRINCIPAL POSITIONS POSITIONS AND
NAME AND AND OFFICES OFFICES WITH
BUSINESS ADDRESS WITH UNDERWRITER REGISTRANT
Lynn J. Mangum Chairman/CEO None
150 Clove Road
Little Falls, NJ 07424
Kevin J. Dell Vice President/General None
150 Clove Road Counsel/Secretary
Little Falls, NJ 07424
<PAGE> 192
PRINCIPAL POSITIONS POSITIONS AND
NAME AND AND OFFICES OFFICES WITH
BUSINESS ADDRESS WITH UNDERWRITER REGISTRANT
Dennis Sheehan Senior Vice President None
150 Clove Road
Little Falls, NJ 07424
William Tomko Senior Vice President None
3435 Stelzer Road
Columbus, Ohio 43219
(c) None
28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940,
and the Rules thereunder will be kept by the Registrant at:
(1) Centura Bank, 131 North Church Street, Rocky Mount, North Carolina
27802 (records relating to its functions as investment adviser and records
relating to its function as Custodian); and
(2) BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio (records
relating to the administrator, fund accountant and transfer agency).
29. MANAGEMENT SERVICES
Not applicable.
30. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish to each person to whom a prospectus
is delivered a copy of Registrant's latest annual report and
semi-annual report to shareholders upon request and without charge.
(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.
<PAGE> 193
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, 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 Columbus within the State of Ohio on the 30th
day of June, 2000.
CENTURA FUNDS, INC.
By /s/ WALTER B. GRIMM
Walter B. Grimm, President
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 30th day of June, 2000.
/s/ Walter B. Grimm President
--------------------------
Walter B. Grimm
/s/ Nadeem Yousaf Treasurer and Principal Financial Officer
--------------------------
Nadeem Yousaf
/s/ Leslie H. Garner, Jr.* Director and Chairman of the Board of Directors
--------------------------
Leslie Garner
/s/ James H. Speed, Jr.* Director
--------------------------
James H. Speed, Jr.
/s/ J. Franklin Martin* Director
--------------------------
J. Franklin Martin
/s/ Lucy Hancock Bode* Director
--------------------------
Lucy Hancock Bode
-------------------------- Director
R. William Shauman
*By: /s/ Olivia Adler
--------------------------
Olivia Adler
Attorney-in-Fact
