SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
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Pre-Effective Amendment No. 1 /X/
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Post-Effective Amendment No. / /
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT / /
OF 1940 --
Amendment No. 1 /X/
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(Check appropriate box or boxes.)
THE JAMES ADVANTAGE FUNDS - FILE NOS.333-37277 AND 811-8411
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1349 FAIRGROUND ROAD, BEAVERCREEK, OHIO 45385
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(Address of Principal Executive Offices) Zip Code
Registrant's Telephone Number, including Area Code: 937-426-7640
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BARRY RAY JAMES, 1349 FAIRGROUND ROAD, BEAVERCREEK, OHIO 45385
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(Name and Address of Agent for Service)
With copy to:
Donald S. Mendelsohn, Brown, Cummins & Brown Co., L.P.A.
3500 Carew Tower, Cincinnati, Ohio 45202
Release Date:
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It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b)
/ / on pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered SHARES
--------------
Omit from the facing sheet reference to the other Act if the
Registration Statement or amendment is filed under only one of the Acts. Include
the "Approximate Date of Proposed Public Offering" and "Title of Securities
Being Registered" only where securities are being registered under the
Securities Act of 1933.
<PAGE>
THE JAMES ADVANTAGE FUNDS
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CROSS REFERENCE SHEET
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FORM N-1A
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FOR JAMES RAINBOW FUND
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ITEM SECTION IN PROSPECTUS
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1.............................. Cover Page
2.............................. Summary of Fund Expenses
3.............................. Performance Information; Financial
Highlights
4.............................. The Fund, Investment Objective and
Strategies and Risk Considerations,
Investment Policies and Techniques,
Operation of the Fund, General Information
5.............................. Operation of the Fund
5A............................. None
6.............................. Cover Page, Dividends and
Distributions, Taxes, General
Information, How to Redeem Shares
7.............................. Cover Page, How to Invest in the Fund, Share
Price Calculation, Operation of the Fund,
How to Redeem Shares, Free Repurchase and
Systematic Withdrawal and Direct Deposits,
Distribution Plan
8.............................. How to Redeem Shares, Free Repurchase and
Systematic Withdrawal and Direct Deposits
9.............................. None
13.............................. General Information
15.............................. General Information
SECTION IN STATEMENT OF
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ITEM ADDITIONAL INFORMATION
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10.............................. Cover Page
11.............................. Table of Contents
12.............................. None
13.............................. Additional Information About Fund
Investments and Risk Considerations,
Investment Limitations
14.............................. Trustees and Officers
15.............................. None
16.............................. The Investment Adviser, Custodian, Transfer
Agent, Accountants, Trustees and Officers,
Distribution Plan
17.............................. Portfolio Transactions and Brokerage
18.............................. Description of the Trust; Shares of the Fund
19.............................. Determination of Share Price, Letter of
Intent
20.............................. None
21.............................. Distributor
22.............................. Investment Performance
23.............................. Financial Statement
<PAGE>
THE GOLDEN RAINBOW FUND
PROSPECTUS ___________________, 1998
1349 Fairground Road
Beavercreek, Ohio 45385
For Information, Shareholder Services and Requests:
(888) _____________
The Golden Rainbow Fund (the "Fund") is a diversified, open-end mutual
fund whose investment objective is to provide total return through a combination
of growth and income and preservation of capital in declining markets. The Fund
seeks to achieve its objective by investing primarily in equity and/or debt
securities that the Fund's adviser, James Investment Research, Inc., believes
are undervalued. The Fund will attempt to provide total return in excess of the
rate of inflation over the long term (three to five years). The Fund is the
successor entity to another mutual fund which was called The Golden Rainbow A
James Advised Mutual Fund.(sm)
This Prospectus provides the information a prospective investor ought
to know before investing and should be retained for future reference. A
Statement of Additional Information has been filed with the Securities and
Exchange Commission (the "SEC") dated ________________, 1997, which is
incorporated herein by reference and can be obtained without charge by calling
the Fund at the phone number listed above. The SEC maintains a Web Site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding registrants
that file electronically with the SEC.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT
ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY, ENTITY, OR PERSON. THE PURCHASE OF FUND SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
SUMMARY OF FUND EXPENSES
The tables below are provided to assist an investor in understanding
the direct and indirect expenses that an investor may incur as a shareholder in
the Fund. The expenses are expressed as a percentage of average net assets.
The Example should not be considered a representation of future Fund performance
or expenses, both of which may vary.
As indicated in the expense table, the Trust utilizes a declining sales
load for Class A Shares, a contingent deferred sales load ("CDSL") for Class B
and Class C shares and a no-fee, no-load structure for institutional investors
for Class R Shares. Class R Shares are subject to a minimum purchase requirement
of $1,000,000. Long-term Class B and Class C shareholders could pay more than
the economic equivalent of the maximum front-end sales charge for Class A
Shares. The Fund's 12b-1 plan and management fee are more fully described
herein.
<TABLE>
<CAPTION>
Shareholder Transaction Annual Fund Operating Expenses*
Expense
- ---------------------------------------------- -----------------------------------------------------
Maximum Total Fund
Front End Maximum Management Other Operating
Sales Load CDSL Fee Expenses Expenses
Imposed On Imposed on (after 12b-1 (after (after waiver
Purchases Purchases waiver) Fee Reimbursement) and Reimbursement)
- ---------------------------------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares 4.20% N/A .65% .25% .10% 1.00%
Class B Shares(d) N/A 5.0%(a) .65% .85%(c) .10% 1.60%
Class C Shares(d) N/A 1.0%(b) .65% .85%(c) .10% 1.60%
Class R Shares(d) N/A N/A .65% .00 .10% .75%
<FN>
* Expense information has been restated to reflect current fees. The Fund
is authorized to pay the Adviser a fee equal to an annual rate of 0.74%
of its daily net assets. Through June 30, 1999, the Adviser has agreed
to waive a portion of its fee so that the fee after waiver will be
0.65%, and reimburse expenses to maintain total Class A operating
expenses at or below 1.00% of average daily net assets. Absent
reimbursement, it is estimated that other expenses for Class A through
June 30, 1999 would be 0.20%, and total Class A operating expenses,
absent reimbursement and fee waiver, would be 1.19% of average daily
net assets. Persons who indirectly purchase Fund shares through
intermediaries may pay fees charged by such intermediaries in addition
to the expenses and fees of the Fund shown above.
(a) No initial sales load; contingent deferred sales charge of 5% declining
to 1% in the 6th year if redeemed. Class B expense in years 9 through
10 are based on Class A expenses, because the shares automatically
convert to Class A after 8 years.
(b) No initial sales load; 1% contingent deferred sales charge if redeemed
within 1 year of purchase.
(c) Of this amount, 0.75% is an asset based sales charge and 0.10% is a
service fee.
(d) These classes have not yet commenced operations.
</FN>
</TABLE>
EXAMPLE OF EXPENSE
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You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
1 YEAR 3 YEARS
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Class A Shares $52 $73
Class B Shares(1) $56 $70
Class C Shares $16 $50
Class R Shares $ 8 $24
(1) Example of expenses would be $16 and $50 in years 1 and 3,
respectively, if you did not redeem.
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<PAGE>
THE FUND
The Golden Rainbow Fund (the "Fund") was organized as a series of The
James Advantage Funds, an Ohio business trust (the "Trust") on August 29, 1997.
On June 30, 1998, the Fund acquired the assets and assumed the liabilities of
The Golden Rainbow A James Advised Mutual Fund (the "Predecessor Fund") in a
tax-free reorganization. This prospectus offers shares of the Fund and each
share represents an undivided, proportionate interest in the Fund. The
investment adviser to the Fund is James Investment Research, Inc. (the
"Adviser").
FINANCIAL HIGHLIGHTS
As a result of the reorganization described above, the Fund assumed the
financial history of the Predecessor Fund. The financial information in the
table below is that of the Predecessor Fund and has been audited by Deloitte &
Touche LLP, independent auditors. The Fund had no operating history prior to the
reorganization.
The following table provides per share income and capital changes for a
share of capital stock of the Predecessor Fund outstanding from July 1, 1991
(commencement of operations) to June 30, 1997. Class B, Class C and Class R
Shares were not offered to the public during the fiscal year.
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------------------ ------------------------------------------------------------
NET ASSET NET DISTRI- NET
VALUE NET REALIZED & TOTAL DIVIDENDS BUTIONS ASSET
YEAR BEGINNING INVEST- UNREALIZED FROM (FROM NET (FROM RETURNS TOTAL VALUE
ENDED OF MENT GAIN (LOSS) INVEST INVESTMENT CAPITAL OF DISTRI- END OF TOTAL*
JUNE 30, PERIOD INCOME ON SECURITIES OPERATIONS INCOME) GAINS CAPITAL BUTIONS PERIOD RETURN
- -------- ------ ------ ------------- ---------- ------- ----- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 $15.00 $.87 $ .90 $1.77 $.87 $ .02 $ -- $ .89 $15.88 11.91%
1993 15.88 .76 2.05 2.81 .75 .13 -- .88 17.81 18.09
1994 17.81 .66 (.89) (.23) .66 .25 -- .91 16.67 (1.49)
1995 16.67 .69 1.94 2.63 .68 .35 -- 1.03 18.27 16.55
1996 18.27 .73 .61 1.34 .74 1.31 -- 2.05 17.56 7.76
1997 17.56 .66 2.16 2.82 .68 .39 -- 1.07 19.31 16.53
</TABLE>
<TABLE>
<CAPTION>
RATIOS / SUPPLEMENTAL DATA
--------------------------
RATIO OF
NET
RATIO OF INVESTMENT
EXPENSES INCOME
NET TO TO AVERAGE
YEAR ASSETS AVERAGE AVERAGE PORTFOLIO COMMISSION
ENDED END OF NET NET TURNOVER RATE
JUNE 30, PERIOD ASSETS(B) ASSETS(B) RATE PAID(C)
- -------- ------ --------- --------- ---- -------
<S> <C> <C> <C> <C> <C>
1992 $124,563 1.09% 5.51% 10.48% --
1993 179,209 1.02 4.44 38.42 --
1994 188,747 .96 3.70 30.64 --
1995 191,473 1.04 4.05 48.46 --
1996 184,307 1.06 4.01 83.17 $.0832
1997 157,183 1.09 3.63 56.37 $.0846
<FN>
(A) PRIOR TO JUNE, 1991, THE FUND WAS ORGANIZED AS A MASTER TRUST, WITH ITS
COMMON AND COLLECTIVE TRUST FUNDS (THE "ORIGINAL FUNDS") HELD AT CITIZENS
FEDERAL BANK, F.S.B. THESE ORIGINAL FUNDS WERE ADVISED BY THE FUND'S INVESTMENT
ADVISER, JAMES INVESTMENT RESEARCH, INC., USING INVESTMENT OBJECTIVES, POLICIES
AND STRATEGIES SUBSTANTIALLY SIMILAR TO THOSE USED IN MANAGING THE FUND. THE
ORIGINAL FUNDS' RETURNS FOR THE YEARS ENDED JUNE 30, 1985 THROUGH JUNE 30, 1991
WERE 20.35%, 33.73%, 17.73%, 16.53%, 10.37%, 6.49% AND 8.24% RESPECTIVELY. THIS
PERFORMANCE REPRESENTS A COMPOUNDED ANNUAL RETURN OF 15.7% THE PRIOR RETURNS OF
THE ORIGINAL FUNDS SHOULD NOT BE INTERPRETED AS THE HISTORICAL PERFORMANCE OF
THE FUND.
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<PAGE>
THE TOTAL RETURNS FOR EITHER THE PREDECESSOR FUND, THE ORIGINAL FUNDS OR THE
FUND SHOULD NOT BE INTERPRETED AS INDICATIVE OF THE FUND'S FUTURE PERFORMANCE.
TOTAL RETURNS ARE CALCULATED ON NET ASSET VALUE WITHOUT ANY SALES CHARGE.
(B) AFTER WAIVER OF CERTAIN MANAGEMENT FEES OR REIMBURSEMENT OF EXPENSES BY JOHN
NUVEEN & CO. INCORPORATED OR ITS PREDECESSOR FLAGSHIP FUNDS INC.
(C) AVERAGE COMMISSION RATE PAID ON EQUITY PORTFOLIO TRANSACTIONS. COMMISSIONS
PAID ARE INCLUDED IN THE COST OF THE SECURITIES. DISCLOSURE WAS NOT REQUIRED
PRIOR TO JUNE 30, 1996.
</FN>
</TABLE>
THE PREDECESSOR FUND'S ANNUAL REPORT FOR THE MOST RECENT FISCAL YEAR INCLUDES A
DISCUSSION OF FUND PERFORMANCE. IT IS AVAILABLE UPON REQUEST AND WITHOUT CHARGE.
INVESTMENT OBJECTIVE AND STRATEGIES AND RISK CONSIDERATIONS
The investment objective of the Fund is to provide shareholders with
total return through a combination of growth and income and preservation of
capital in declining markets. The Fund seeks to achieve its objective by
investing primarily in equity and/or debt securities that the Adviser believes
are undervalued. The Fund will attempt to provide total return in excess of the
rate of inflation over the long term (three to five years).
The Adviser does its own research using quantitative databases and
statistical expertise. It utilizes a number of elements to help predict future
stock and bond price movements. When selecting equity securities, the Adviser
focuses on value, neglect or limited following by Wall Street analysts, as well
as on management commitment, and assesses a number of fundamental factors such
as earnings, earnings trend, price earnings multiples, return on assets, and
balance sheet data as well as other proprietary calculations to identify stocks
which it considers undervalued.
Under normal circumstances, the Adviser expects that the Fund will hold
both debt and equity securities, the proportions of which are not fixed, and may
invest up to 90% of its assets in either debt or equity securities. The Adviser
expects that the fixed income portion of the Fund's portfolio will consist
primarily of U.S. government securities or high grade corporate bonds. When the
Adviser believes that interest rates will fall, it may extend maturities in
anticipation of capital appreciation in the bonds. If the Adviser believes that
interest rates may rise, it expects to seek capital preservation through the
purchase of shorter term bonds. The Fund may invest in debt obligations of any
maturity, consistent with the Fund's anticipated needs for liquidity. The Fund
will limit its holdings of debt securities to issues rated, at the time of
purchase, "A" or better by either Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P"), or if unrated, determined by the
Adviser to be of equivalent quality.
The Fund may invest in foreign markets by investing in the securities of
non-United States issuers as well as through the purchase of mutual funds that
invest in foreign securities. The Fund may also invest, without limitation, in
money market instruments, repurchase agreements and "when issued" securities.
The Fund may invest up to 10% of its net assets in other mutual funds. If the
Fund acquires securities of another mutual fund, the shareholders of the Fund
will be subject to duplicative management fees.
- 4 -
<PAGE>
The Fund may purchase and sell exchange-listed and over-the-counter put
and call options on securities, equity and fixed-income indices and other
financial instruments; purchase and sell financial futures contracts and options
thereon; enter into various interest rate transactions such as swaps, caps,
floors or collars; and enter into various currency transactions such as currency
forward contracts, currency futures contracts, currency swaps or options on
currencies or currency futures (collectively, all of the above are called
"hedging transactions").
For temporary defensive purposes under adverse market conditions, the
Fund may hold all or a substantial portion of its assets in short term U.S.
Government or high quality money market instruments; repurchase agreements
collateralized by such securities; or other cash equivalents. The Fund may also
invest a substantial portion of its assets in such instruments at any time to
maintain liquidity or pending selection of investments in accordance with its
policies.
As all investment securities are subject to inherent market risks and
fluctuations in value due to earnings, economic and political conditions and
other factors, the Fund cannot give any assurance that its investment objective
will be achieved. Rates of total return quoted by the Fund may be higher or
lower than past quotations, and there can be no assurance that any rate of total
return will be maintained. See "Investment Policies and Techniques" for a more
detailed discussion of the Fund's investment practices.
HOW TO INVEST IN THE FUND
Shares of the Fund are sold on a continuous basis, and you may invest
any amount you choose, as often as you wish, subject to a minimum initial
investment of $2,000 ($500 for qualified plans and $1 million for Class R).
Shares of the Fund are offered continuously at a public offering price that is
equal to net asset value per share next determined after a purchase order is
received by the Fund plus any applicable sales charge.
The sales charge, at the election of the purchaser, may be imposed (i)
at the time of purchase (Class A Shares) or (ii) on a contingent deferred basis
(Class B and Class C shares). The Class R Shares are designed for institutional
investors and are sold at net asset value with no front-end sales load, no
contingent deferred sales load and no Rule 12b-1 charge. When placing purchase
orders, investors should specify whether the order is for Class A, Class B,
Class C or Class R Shares. All purchase orders that fail to specify a Class will
automatically be invested in Class A Shares.
- 5 -
<PAGE>
CLASS A SHARES
Class A shares of the Fund are purchased at the public offering price.
The public offering price is the next determined net asset value per share plus
a sales load as shown in the table below. Class A shares are subject to a
continuing .25% annual distribution fee.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Sales Load as of % of:
Public Net
Offering Amount Dealer Reallowance as % of
Amount of Investment Price Invested Public Offering Price
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 4.20% 4.38% 3.70%
$50,000 but less than $100,000 4.00% 4.18% 3.50%
$100,000 but less than $250,000 3.50% 3.65% 3.00%
$250,000 but less than $500,000 2.50% 2.61% 2.00%
$500,000 but less than $1,000,000 2.00% 2.09% 1.50%
$1,000,000 or more .50% .52% .30%
</TABLE>
CLASS B SHARES
Class B shares are offered at net asset value, without an initial sales
charge, subject to a maximum annual distribution fee of 1.0% (of which .75% is
an asset based sales charge and .25% is a service fee). The current authorized
distribution fee is .85%. Class B shares are subject to a declining contingent
deferred sales load ("CDSL") if you redeem your shares within six years from the
purchase date. This CDSL charge is 5%, 4%, 4%, 3%, and 2% for years one through
five and 1% for years six through eight. Class B shares automatically convert to
Class A Shares at the end of eight years and, as a result, will benefit from the
lower Class A distribution fee. The conversion is based on the relative net
asset value of the two classes, and no sales load or other charge is imposed.
The Fund's distributor, CW Fund Distributors, Inc. (the "Distributor"),
pays a 0.20% service fee to dealers in advance for the first year upon the
sale of Class B shares. After the shares have been held for a year, the
Distributor pays the fee monthly. In addition, the Distributor pays a sales
commission of 3.80% of the purchase price to dealers from its own resources at
the time of sale.
CLASS C SHARES
Class C shares are offered at net asset value, without initial sales
charge, subject to a maximum annual distribution fee of 1.0% (of which .75% is
an asset based sales charge and .25% is a service fee). The current authorized
distribution fee is .85%. Class C shares are subject to a CDSL of 1% if redeemed
within one year of the purchase date. The first year's annual distribution fee
is paid to the Distributor, and in subsequent years 0.75% is paid to the dealer
and 0.10% is paid to the Distributor.
CLASS R SHARES
You may purchase Class R Shares with monies representing dividends and
capital gain distributions on Class R Shares of the Fund. Also, you may purchase
Class R Shares if you are within the following specified categories of investors
who are also eligible to purchase Class A Shares at net asset value without an
up-front sales charge: officers, current and former trustees of the Fund; bona
fide, full-time and retired employees of James Investment Research, Inc. and
subsidiaries thereof, or their immediate family members; any person who, for at
least 90 days, has been an officer, director or bona fide employee of any
Authorized Dealer, or their immediate family members; officers and directors of
bank holding companies that make Fund shares available directly or through
subsidiaries or bank affiliates;
- 6 -
<PAGE>
and bank or broker-affiliated trust departments; persons investing $1 million or
more in Class R Shares; and clients of investment advisers, financial planners
or other financial intermediaries.
GENERAL PURCHASE INFORMATION
If you are eligible to purchase either Class R Shares or Class A Shares
without a sales charge at net asset value, you should be aware of the
differences between these two classes of shares. Class A Shares are subject to
an annual distribution fee to compensate the Distributor for distribution costs
associated with the Fund and to an annual service fee to compensate authorized
dealers for providing you with ongoing account services. Class R Shares are not
subject to a distribution or service fee and, consequently, holders of Class R
Shares may not receive the same types or levels of services from authorized
dealers. In deciding between Class A Shares and Class R Shares, you should weigh
the benefits of the services to be provided by authorized dealers against the
annual service fee imposed upon the Class A Shares.
Shares of the Fund are sold to individuals or entities who hold their
shares in individual or master trust accounts at Citizens Federal, including
Individual Retirement Accounts, Keogh Plans, pension plans, bank and/or savings
and loan trust departments, trusts or accounts, including individuals who have
signed trust agreements (the "Citizens Accounts"). Such shares are sold in a
continuous offering without a sales charge at the net asset value per share next
determined after a purchase order is received by the Fund (see "Share Price
Calculation"). In the event there is a change of control of Citizens Federal,
whether due to a merger, acquisition, reorganization, sale of assets or other
transaction (such as acquisition of a controlling interest in its shares), it is
contemplated that, at the time of the transaction or subsequent thereto, all
Citizens Accounts (other than irrevocable trust accounts) will be converted to
direct accounts, and these direct accounts may continue purchasing shares at net
asset value without a sales charge.
Shares of the Fund may be purchased, in amounts less than the minimum
purchase amount, by officers, directors and employees of the Fund, the Adviser,
or the Distributor, and any such person's spouse, children, and trustees or
custodians of any qualified pension or profit sharing plan or IRA established
for the benefit of such person. Such person should request instructions on how
to invest or redeem from the Distributor.
Under certain circumstances, the Distributor may change the reallowance
to dealers and may also compensate dealers out of its own assets. Dealers
engaged in the sale of shares of the Fund may be deemed to be underwriters under
the Securities Act of 1933. The Distributor retains the entire sales load on all
direct initial investments in the Fund and on all investments in accounts with
no designated dealer of record.
Shares of the Fund are sold on a continuous basis at the public offering
price next determined after receipt of a purchase order by the Trust. Purchase
orders received by dealers prior to 4:00 p.m., Eastern time, on any business day
and transmitted to the Distributor by 5:00 p.m., Eastern time, that day are
confirmed at the public offering price determined as of the close of the regular
session of trading on the New York Stock Exchange on that day. It is the
responsibility of dealers to transmit properly completed orders so that they
will be received by the Distributor by 5:00 p.m., Eastern time. Dealers may
charge a fee for effecting purchase orders. Direct purchase orders received by
4:00 p.m., Eastern time, are confirmed at that day's public offering price.
Direct investments received after 4:00 p.m. and others
- 7 -
<PAGE>
received from dealers after 5:00 p.m. are confirmed at the public offering price
next determined on the following business day.
PURCHASE FOR TRUST ACCOUNTS THROUGH DEALERS
To purchase shares through a dealer, you should direct your dealer to
contact the Distributor to request information on the Fund and on Citizens
Federal's process for establishing the necessary trust accounts. The Distributor
can be reached toll free at ___________________. After establishing an account,
an investor may, either directly or through a broker, purchase shares of the
Fund. For purchases made through a dealer, that dealer will be designated as the
broker of record for those account assets. The public offering price is the
Fund's net asset value. Because the Fund determines net asset value daily as of
the close of trading (normally 4:00 p.m. New York time) on the New York Stock
Exchange on each day that the Exchange is open for trading, the dealer must
transmit your request to Citizens Federal prior to such time in order for your
order to be executed at the net asset value to be determined that day. Any
change in price due to the failure of the Fund to receive an order prior to the
close of the Exchange must be settled between the investor and the dealer
placing the order.
AUTOMATIC INVESTMENT PLAN
The Fund offers current shareholders who receive a quarterly statement
from the Fund's Distributor the convenience of automatic monthly investing. On
any regular business day between the fifth and twenty-eighth of each month, the
amount you specify will be transferred from your bank to the Fund. To initiate
the automatic investment plan, complete the application form and attach a voided
check.
The Fund pays the cost associated with these transfers, but reserves the
right, upon ninety (90) days written notice, to make reasonable charges for this
service. Your bank may charge for debiting your account. Shareholders can change
the amount or discontinue their participation in the plan by written notice to
Countrywide Fund Services, Inc. ("Transfer Agent") thirty (30) days prior to
fund transfer date. Because a sales charge is applied on new shares purchased,
it would be disadvantageous to purchase shares while also making systematic
withdrawals.
LETTER OF INTENT (RETAIL SHARES ONLY)
A shareholder may qualify for reduced sales charges by sending to the
Fund (within 90 days after the first purchase desired to be included in the
purchase program) a signed, non-binding letter of intent to purchase, during a
13-month period, an amount sufficient to qualify for a reduced sales charge. A
single letter may be used for spouses, their children and parents or any single
trust, estate or other fiduciary account. All investments in retail shares of
the Fund count toward the indicated goal. Once the Distributor receives the
required letter of intent, it will apply to qualifying purchases within the
13-month period the sales charge that would be applicable to a single purchase
of the total amount indicated in the letter. During the period covered by the
letter of intent, the first 5% of the intended purchase will be held in escrow
until the stated goal is reached. If the intended purchase program is not
completed within the 13-month period, the sales charge will be adjusted upward
as appropriate and a sufficient number of shares will be redeemed by the Fund if
the shareholder does not pay the increased sales charge. Please see the
Statement of Additional Information for further details.
- 8 -
<PAGE>
OTHER PURCHASE INFORMATION
Dividends begin to accrue after you become a shareholder. The Fund does
not issue share certificates. All shares are held in non-certificate form
registered on the books of the Fund and the Fund's Transfer Agent for the
account of the shareholder. The rights to limit the amount of purchases and to
refuse to sell to any person are reserved by the Fund. If your check or wire
does not clear, you will be responsible for any loss incurred by the Fund. If
you are already a shareholder, the Fund can redeem shares from any identically
registered account in the Fund as reimbursement for any loss incurred. You may
be prohibited or restricted from making future purchases in the Fund.
HOW TO REDEEM SHARES
Shareholders should advise their financial consultant of their desire to
redeem shares. Upon receipt by the Fund of a proper redemption request, the Fund
will redeem shares at their next determined net asset value. See "Share Price
Calculation." Neither the Distributor nor the Fund charges a fee or a commission
for redemption, except that the Fund may charge a fee for wiring redemption
proceeds and Class B and Class C shares may be subject to a CDSL charge (see
"How to Invest in the Fund").
SIGNATURE GUARANTEE - The Transfer Agent will require a signature
guarantee if the shares to be redeemed have a value of $25,000 or more, or if
the address where the redemption is to be mailed is other than that designated
on the account. A signature guarantee may be executed by any eligible guarantor.
Eligible guarantors include member firms of a domestic stock exchange,
commercial banks, trust companies, savings associations and credit unions as
defined by the Federal Deposit Insurance Act. You should verify with the
institution that they are an eligible guarantor prior to signing.
ADDITIONAL INFORMATION - Because the Fund incurs certain fixed costs in
maintaining shareholder accounts, the Fund reserves the right to require any
shareholder to redeem all of his or her shares in the Fund on 30 days' written
notice if the value of his or her shares in the Fund is less than $2,000 due to
redemption, or such other minimum amount as the Fund may determine from time to
time. An involuntary redemption constitutes a sale. You should consult your tax
adviser concerning the tax consequences of involuntary redemptions. A
shareholder may increase the value of his or her shares in the Fund to the
minimum amount within the 30 day period. Each share of the Fund is subject to
redemption at any time if the Board of Trustees determines in its sole
discretion that failure to so redeem may have materially adverse consequences to
all or any of the shareholders of the Fund.
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FREE REPURCHASE AND SYSTEMATIC WITHDRAWAL AND DIRECT DEPOSITS
FREE REPURCHASE
A shareholder who has redeemed shares may repurchase shares at net asset
value without incurring the applicable sales charge. Such a purchase must be in
an amount between the stated minimum investment of such fund and the amount of
the proceeds of redemption within one year of the redemption. This feature may
be exercised by a shareholder only twice per calendar year. Exercising the
reinvestment privilege will not affect the character of any gain or loss
realized on the redemption for federal income tax purposes, except that if the
redemptions resulted in a loss, the reinvestment may result in the loss being
disallowed under the "wash sale" rules.
SYSTEMATIC WITHDRAWAL PLAN
Accounts with a value greater than $10,000 may establish a Systematic
Withdrawal Plan ("SWP") and receive monthly or quarterly checks for $100 or more
as specified by the shareholder. To establish a SWP all distributions must be in
the form of shares. Such payments are drawn from the proceeds of the redemption
shares held in the shareholder's account. To the extent that SWP redemptions
exceed dividend income reinvested in the account, such redemptions will reduce
and may ultimately exhaust the number of shares in the account. Maintaining a
SWP concurrently with an investment program would be disadvantageous because of
the sales charges included in share purchases. Therefore, a shareholder should
not have a SWP in effect at the same time he is making recurring purchases of
shares of the Fund. The shareholder by written instructions to the Transfer
Agent may withdraw from the program, change the payee or change the dollar
amount of each payment. The Transfer Agent may charge the account for services
rendered and expenses incurred beyond those normally assumed by the Fund with
respect to the liquidation of shares. No charge is currently assessed against
the account, but could be instituted by the Transfer Agent on 60 days' notice in
writing to the shareholder. The Fund reserves the right to amend or terminate
the SWP on thirty days' notice.
DIRECT DEPOSITS
Shareholders can have dividends or SWP redemption proceeds deposited
electronically into their Citizens Federal or other bank accounts. Under normal
circumstances, direct deposits are credited to the account on the second
business day of the month following normal payment. In order to utilize this
option, the shareholder's bank must be a member of Automated Clearing House. In
addition, the shareholder must (1) fill out the appropriate section of the
application attached to this Prospectus and (2) include with the completed
application a voided check from the bank account into which funds are to be
deposited. Once the Transfer Agent has received the application and the voided
check, the shareholder's dividends and redemptions will be credited to the
designated bank account. A shareholder may terminate a direct deposit program at
any time by written notice to the Transfer Agent.
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SHARE PRICE CALCULATION
The value of an individual share in the Fund (the net asset value) is
calculated by dividing the total value of the Fund's investments and other
assets (including accrued income), less any liabilities (including estimated
accrued expenses), by the number of shares outstanding, rounded to the nearest
cent. Net asset value per share is determined as of the close of the New York
Stock Exchange (4:00 p.m., Eastern time) on each day that the exchange is open
for business (except for Ohio bank holidays), and on any other day on which
there is sufficient trading in the Fund's securities to materially affect the
net asset value. The net asset value per share of the Fund will fluctuate.
Securities which are traded on any exchange or on the NASDAQ
over-the-counter market are valued at the last quoted sale price. Lacking a last
sale price, a security is valued at its last bid price except when, in the
Adviser's opinion, the last bid price does not accurately reflect the current
value of the security. All other securities for which over-the-counter market
quotations are readily available are valued at their last bid price. When market
quotations are not readily available, when the Adviser determines the last bid
price does not accurately reflect the current value or when restricted
securities are being valued, such securities are valued at their fair value as
determined in good faith in accordance with consistently applied procedures
established by and under the general supervision of the Board of Trustees.
Fixed income securities generally are valued by using market quotations,
but may be valued on the basis of prices furnished by a pricing service when
market quotations are not readily available. A pricing service utilizes
electronic data processing techniques based on yield spreads relating to
securities with similar characteristics to determine prices for normal
institutional-size trading units of debt securities without regard to sale or
bid prices. When prices are not readily available from a pricing service, or
when restricted or illiquid securities are being valued, securities are valued
at their fair value as determined in good faith in accordance with consistently
applied procedures established by and under the general supervision of the Board
of Trustees. Short term investments in fixed income securities with maturities
of less than 60 days when acquired, or which subsequently are within 60 days of
maturity, are valued by using the amortized cost method of valuation, which the
Board has determined will represent fair value.
For valuation purposes, quotations of foreign securities in a foreign
currency are converted to U.S. dollar equivalents at the time of pricing. In
computing the net asset value of a Fund, the values of foreign portfolio
securities are generally based upon market quotations which, depending upon the
exchange or market, may be last sale price, last bid price, or the average of
the last bid and asked prices as of, in each case, the close of the appropriate
exchange or another designated time.
Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed at various times before the
close of business on each day on which the New York Stock Exchange is open.
Trading of these securities may not take place on every New York Stock Exchange
business day. In addition, trading may take place in various foreign markets on
Saturdays or on other days when the New York Stock Exchange is not open and on
which a Fund's share price is not calculated. Therefore, the value of the
portfolio of a Fund holding foreign securities may be significantly affected on
days when shares of the Fund may not be purchased or redeemed.
The calculation of the share price of a Fund holding foreign securities
in its portfolio does not take place contemporaneously with the determination of
the values of many of the foreign portfolio securities
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used in such calculation. Events affecting the values of foreign portfolio
securities that occur between the time their prices are determined and the
calculation of the Fund's share price will not be reflected in the calculation
unless the Adviser determines, subject to review by the Board of Trustees, that
the particular event would materially affect net asset value, in which case an
adjustment will be made.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute substantially all of its net investment
income as dividends to its shareholders on a quarterly basis, and intends to
distribute its net long term capital gains and its net short term capital gains
at least once a year.
Income dividends and capital gain distributions are automatically
reinvested in additional shares at the net asset value per share on the
distribution date. An election to receive a cash payment of dividends and/or
capital gain distributions may be made in the application to purchase shares or
by separate written notice to the Transfer Agent. Shareholders will receive a
confirmation statement reflecting the payment and reinvestment of dividends and
summarizing all other transactions. If cash payment is requested, a check
normally will be mailed within five business days after the payable date. If you
withdraw your entire account, all dividends accrued to the time of withdrawal,
including the day of withdrawal, will be paid at that time. You may elect to
have distributions on shares held in IRAs and 403(b) plans paid in cash only if
you are 59 1/2 years old or permanently and totally disabled or if you otherwise
qualify under the applicable plan.
TAXES
The Fund intends to qualify each year as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended. By so qualifying,
the Fund will not be subject to federal income taxes to the extent that it
distributes substantially all of its net investment income and any realized
capital gains.
For federal income tax purposes, dividends paid by the Fund from
ordinary income are taxable to shareholders as ordinary income, but may be
eligible in part for the dividends received deduction for corporations. Pursuant
to the Tax Reform Act of 1986 (the "Tax Reform Act"), all distributions of net
short term capital gains to individuals are taxed at the same rate as ordinary
income. All distributions of net capital gains to corporations are taxed at
regular corporate rates. Any distributions designated as being made from net
realized long term capital gains are taxable to shareholders as long term
capital gains regardless of the holding period of the shareholder.
The Fund will mail to each shareholder after the close of the calendar
year a statement setting forth the federal income tax status of distributions
made during the year. Dividends and capital gains distributions may also be
subject to state and local taxes. Shareholders are urged to consult their own
tax advisers regarding specific questions as to federal, state or local taxes
and the tax effect of distributions and withdrawals from the Fund.
On the application or other appropriate form, the Fund will request the
shareholder's certified taxpayer identification number (social security number
for individuals) and a certification that the shareholder is not subject to
backup withholding. Unless the shareholder provides this information, the Fund
will be required to withhold and remit to the U.S. Treasury 31% of the
dividends, distributions and redemption proceeds payable to the shareholder.
Shareholders should be aware that, under regulations promulgated
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by the Internal Revenue Service, the Fund may be fined $50 annually for each
account for which a certified taxpayer identification number is not provided. In
the event that such a fine is imposed with respect to a specific account in any
year, the Fund may make a corresponding charge against the account.
OPERATION OF THE FUND
The Fund is a diversified series of The James Advantage Funds, an
open-end management investment company organized as an Ohio business trust on
August 29, 1997. The Board of Trustees supervises the business activities of the
Fund. Like other mutual funds, the Fund retains various organizations to perform
specialized services.
The Fund retains James Investment Research, Inc., P.O. Box 8, Alpha,
Ohio 45301 (the "Adviser") to manage the Fund's investments. The investment
decisions for the Fund are made by a committee of the Adviser, which is
primarily responsible for the day-to-day management of the Fund's portfolio. The
Adviser is owned by Frank James, Ph.D., who established it in 1972. The Adviser
provides advice to institutional as well as individual clients, including NYSE
listed corporations, colleges, banks, hospitals, foundations, trusts, endowment
funds and individuals. The Fund is authorized to pay the Adviser a fee equal to
an annual rate of 0.74% of its average daily net assets, and the Adviser has
agreed to waive a portion of its fee so that through June 30, 1999 the fee after
waiver will be 0.65%.
The Fund is responsible for the payment of all operating expenses of the
Fund, including brokerage fees and commissions; taxes or governmental fees;
interest fees and expenses of the non-interested person trustees; clerical and
shareholder service staff salaries; office space and other office expenses; fees
and expenses incurred by the Fund in connection with membership in investment
company organizations; legal, auditing and accounting expenses; expenses of
registering shares under federal and state securities laws; insurance expenses;
fees and expenses of the custodian, transfer agent, dividend disbursing agent,
shareholder service agent, administrator, accounting and pricing services agent
and underwriter of the Fund; expenses, including clerical expenses, of issue,
sale, redemption or repurchase of shares of the Fund; the cost of preparing and
distributing reports and notices to shareholders, the cost of printing or
preparing prospectuses and statements of additional information for delivery to
the Fund's shareholders; the cost of printing or preparing statements, reports
or other documents to shareholders; expenses of shareholders' meetings and proxy
solicitations; and such extraordinary or non-recurring expenses as may arise,
including litigation to which the Fund may be a party and indemnification of the
Trust's trustees and officers with respect thereto.
The Fund retains Countrywide Fund Services, Inc., 312 Walnut Street,
Cincinnati, Ohio 45202 (the "Transfer Agent"), to serve as transfer agent,
dividend paying agent and shareholder service agent. The Fund also retains the
Transfer Agent to provide the Fund with administrative services, including
regulatory reporting and necessary office equipment, personnel and facilities.
For its services as administrator, the Transfer Agent receives a monthly fee
equal at the annual rate of .10% of the Fund's average daily net assets up to
$25 million; .075% of such assets from $25 million to $50 million; and .05% of
such assets in excess of $50 million. The Fund retains CW Fund Distributors,
Inc., 312 Walnut Street, Cincinnati, Ohio 45202, to act as the principal
distributor of the Fund's shares.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and subject to its obligation of seeking best
qualitative execution, the Adviser may give consideration to sales of shares of
the Fund as a factor in the selection of brokers and dealers to execute
portfolio transactions. The Distributor or the Adviser (not the Fund) may pay
certain financial institutions (which may include banks, brokers, dealers and
other industry professionals) a "servicing fee" for performing certain
administrative functions for the Fund shareholders to the extent these
institutions are allowed to do so by applicable statute, rule or regulation.
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DISTRIBUTION PLAN
The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
for each Class of shares (collectively, the "Plans") which permit each Fund to
pay for certain distribution and promotion expenses related to marketing its
shares. Such expenses may include certain fees to broker-dealers of record for
customers of Citizens Federal, who are shareholders of the Fund, but such fees
shall not, when aggregated with other expenses reimbursed to the Distributor in
accordance with the Plan, exceed the maximum 12b-1 fee set forth in the table on
page 2 of this Prospectus. The Plans conform to the requirements of the rules of
the National Association of Securities Dealers with regard to Rule 12b-1 plans.
Each Plan authorizes the Fund to expend its monies in an amount equal to the
aggregate for all such expenditures to such percentage of the Fund's daily net
asset value as may be determined from time to time by vote cast in person at a
meeting called for such purpose, by a majority of the Fund's disinterested
Trustees. The scope of the foregoing shall be interpreted by the Trustees, which
decision shall be conclusive except to the extent it contravenes established
legal authority. Without in any way limiting the discretion of the Trustees, the
following activities are hereby declared to be primarily intended to result in
the sale of shares of the applicable Fund: advertising the Fund or the Adviser's
mutual fund activities; compensating underwriters, dealers, brokers, banks and
other selling entities and sales and marketing personnel of any of them for
sales of shares of the Fund, whether in a lump sum or on a continuous, periodic,
contingent, deferred or other basis; compensating underwriters, dealers,
brokers, banks and other servicing entities (including the Adviser) and
servicing personnel of any of them for providing services to shareholders of the
Fund relating to their investment in the Fund, including assistance in
connection with inquiries relating to shareholder accounts; the production and
dissemination of prospectuses and statements of additional information of the
Fund and the preparation, production and dissemination of sales, marketing and
shareholder servicing materials; and the ordinary or capital expense, such as
equipment, rent, fixtures, salaries, bonuses, reporting and recordkeeping and
third party consultancy or similar expenses relating to any activity for which
payment is authorized by the Trustees; and the financing of any activity for
which payment is authorized by the Trustees. Pursuant to the Plan, each Fund
through authorized officers may make similar payments for marketing services and
shareholder services to non-broker-dealers who enter into service agreements
with the Fund. The Distributor has voluntarily waived any portion of its
normally retained 12b-1 fee with regard to its service agreement with Citizens
Federal and limited its payments to reimbursement of expenses and 12b-1 fees
with regard to selling agreements with broker-dealers until notice to and
approval by the Fund's Board of Trustees is obtained for increased payments.
The maximum amount payable by the Fund under the Plan and related
agreements on an annual basis for Class A shares is .40% of average daily net
assets for the year. In the case of broker-dealers and others, such as banks,
who have selling or service agreements with the Distributor or the Fund, the
maximum amount payable to any recipient is .20%, on an annualized basis of the
portion of daily net assets represented by such person's customers. The maximum
amount payable for Class B and Class C shares is 1.00% of the respective Class'
average daily net assets for the year (of which .75% is an asset based sales
charge and .25% is a service fee). The Board of Trustees have currently
authorized a .75% asset based sales charge and a .10% service fee for Class B
and Class C shares. The Board of Trustees may reduce these amounts at any time.
Expenditures pursuant to the Plan and related agreements may reduce current
yield after expenses.
Various state and federal laws limit the ability of a depository
institution (such as a commercial bank or a savings and loan association) to
become an underwriter or distributor of securities. In the event these laws are
deemed to prohibit depository institutions from acting in the capacities
described above or
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should Congress relax current restrictions on depository institutions, the Board
of Trustees will consider appropriate changes in the services. State securities
laws governing the ability of depository institutions to act as underwriters or
distributors of securities may differ from interpretations given to federal law
and, therefore, banks and financial institutions may be required to register as
dealers pursuant to state law.
INVESTMENT POLICIES AND TECHNIQUES
This section contains general information about various types of
securities and investment techniques that the Fund may purchase or employ.
EQUITY SECURITIES
The Fund may invest in common stock, preferred stock and common stock
equivalents (such as convertible preferred stock and convertible debentures).
Convertible preferred stock is preferred stock that can be converted into common
stock pursuant to its terms. Convertible debentures are debt instruments that
can be converted into common stock pursuant to their terms. The Adviser intends
to invest only in preferred stock rated A or higher by Standard & Poor's
Corporation ("S&P") or by Moody's Investors Services, Inc. ("Moody's").
FOREIGN SECURITIES
The Fund may invest up to 30% of its assets in foreign equity and fixed
income securities. Foreign fixed income securities include corporate debt
obligations issued by foreign companies and debt obligations of foreign
governments or international organizations. This category may include floating
rate obligations, variable rate obligations, Yankee dollar obligations (U.S.
dollar denominated obligations issued by foreign companies and traded on U.S.
markets) and Eurodollar obligations (U.S. dollar denominated obligations issued
by foreign companies and traded on foreign markets). This category may also
include American and European depository receipts ("ADR's" and "EDR's").
Purchases of foreign securities are usually made in foreign currencies
and, as a result, the Fund may incur currency conversion costs and may be
affected favorably or unfavorably by changes in the value of foreign currencies
against the U.S. dollar. In addition, there may be less information publicly
available about a foreign company than about a U.S. company, and foreign
companies are not generally subject to accounting, auditing and financial
reporting standards and practices comparable to those in the U.S. Other risks
associated with investments in foreign securities include changes in
restrictions on foreign currency transactions and rates of exchanges, changes in
the administrations or economic and monetary policies of foreign governments,
the imposition of exchange control regulations, the possibility of expropriation
decrees and other adverse foreign governmental action, the imposition of foreign
taxes, less liquid markets, less government supervision of exchanges, brokers
and issuers, difficulty in enforcing contractual obligations, delays in
settlement of securities transactions and greater price volatility. In addition,
investing in foreign securities will generally result in higher commissions than
investing in similar domestic securities.
U.S. GOVERNMENT OBLIGATIONS
U.S. government obligations may be backed by the credit of the
government as a whole or only by the issuing agency. U.S. Treasury bonds, notes,
and bills and some agency securities, such as those issued
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by the Federal Housing Administration and the Government National Mortgage
Association (GNMA), are backed by the full faith and credit of the U.S.
government as to payment of principal and interest and are the highest quality
government securities. Other securities issued by U.S. government agencies or
instrumentalities, such as securities issued by the Federal Home Loan Banks and
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the agency that issued them, and not by the U.S. government. Securities issued
by the Federal Farm Credit System, the Federal Land Banks, and the Federal
National Mortgage Association (FNMA) are supported by the agency's right to
borrow money from the U.S. Treasury under certain circumstances, but are not
backed by the full faith and credit of the U.S. government.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements fully collateralized by
U.S. Government obligations. A repurchase agreement is a short-term investment
in which the purchaser (i.e., the Fund) acquires ownership of a U.S. Government
obligation (which may be of any maturity) and the seller agrees to repurchase
the obligation at a future time at a set price, thereby determining the yield
during the purchaser's holding period (usually not more than seven days from the
date of purchase). Any repurchase transaction in which the Fund engages will
require full collateralization of the seller's obligation during the entire term
of the repurchase agreement. In the event of a bankruptcy or other default of
the seller, the Fund could experience both delays in liquidating the underlying
security and losses in value. However, the Fund intends to enter into repurchase
agreements only with banks with assets of $1 billion or more and registered
securities dealers determined by the Adviser (subject to review by the Board of
Trustees) to be creditworthy. The Adviser monitors the creditworthiness of the
banks and securities dealers with which the Fund engages in repurchase
transactions.
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LOANS OF SECURITIES
The Fund may make short and long term loans of its portfolio securities
in order to realize additional income. Under the lending policy authorized by
the Board of Trustees and implemented by the Adviser in responses to requests of
broker-dealers or institutional investors which the Adviser deems qualified, the
borrower must agree to maintain collateral, in the form of cash or U.S.
government obligations, with the Fund on a daily market-to-market basis in an
amount at least equal to 102% of the value of the loaned securities. The Fund
will continue to receive dividends or interest on the loaned securities and may
terminate such loans at any time or reacquire such securities in time to vote on
any matter which the Board of Trustees determines to be serious. With respect to
loans of securities, there is the risk that the borrower may fail to return the
loaned securities or that the borrower may not be able to provide additional
collateral.
HEDGING
The Fund may purchase and sell exchange-listed and over-the-counter put
and call options on securities, equity and fixed-income indices and other
financial instruments, purchase and sell financial futures contracts and options
thereon, enter into various interest rate transactions such as swaps, caps,
floors or collars, and enter into various currency transactions such as currency
forward contracts, currency futures contracts, currency swaps or options on
currencies or currency futures (collectively, all the above are called "hedging
transactions"). Hedging transactions may be used to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. No more than 5% of the Fund's
assets will be committed to hedging transactions. Any or all of these investment
techniques may be used at any time and there is no particular strategy that
dictates the use of one technique rather than another, as use of any hedging
transaction is a function of numerous variables including market conditions. The
ability of the Fund to utilize these hedging transactions successfully will
depend on the Adviser's ability to predict pertinent market movements, which
cannot be assured. The Fund will comply with applicable regulatory requirements
when implementing these strategies, techniques and instruments. Hedging
transactions involving financial futures and options thereon will be purchased,
sold or entered into only for bona fide hedging, risk management or portfolio
management purposes and not for speculative purposes.
RISKS
Hedging transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such hedging transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, limit the amount of appreciation the Fund
can realize on its investments or cause the Fund to hold
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a security it might otherwise sell. The use of currency transactions can result
in the Fund incurring losses as a result of a number of factors including the
imposition of exchange controls, suspension of settlements, or the inability to
deliver or receive a specified currency. The use of options and futures
transactions entails certain other risks. In particular, the variable degree of
correlation between price movements of futures contracts and price movements in
the related portfolio position of the Fund creates the possibility that losses
on the hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of hedging transactions would reduce net
asset value, and possibly income, and such losses can be greater than if the
hedging transactions had not been utilized.
WHEN ISSUED SECURITIES AND FORWARD COMMITMENTS
The Fund may buy and sell securities on a when-issued or delayed
delivery basis, with payment and delivery taking place at a future date. The
price and interest rate that will be received on the securities are each fixed
at the time the buyer enters into the commitment. The Fund may enter into such
forward commitments if it holds, and maintains until the settlement date in a
separate account at the Fund's Custodian, cash or U.S. government securities in
an amount sufficient to meet the purchase price. Forward commitments involve a
risk of loss if the value of the security to be purchased declines prior to the
settlement date. Any change in value could increase fluctuations in the Fund's
share price and yield. Although the Fund will generally enter into forward
commitments with the intention of acquiring securities for its portfolio, the
Fund may dispose of a commitment prior to the settlement if the Adviser deems it
appropriate to do so.
GENERAL
The Fund may borrow from time to time on a temporary basis and may
utilize reverse repurchase agreements. The Fund's borrowings, including reverse
repurchase agreements, will be limited to 5% of its net assets. The Fund may
normally invest up to 5% of its assets (valued at the purchase date) in illiquid
securities. Illiquid securities generally include securities which cannot be
disposed of promptly and in the ordinary course of business without taking a
reduced price.
GENERAL INFORMATION
FUNDAMENTAL POLICIES
The investment limitations set forth in the Statement of Additional
Information as fundamental policies may not be changed without the affirmative
vote of the majority of the outstanding shares of the Fund. The investment
objective of the Fund may be changed without the affirmative vote of a majority
of the outstanding shares of the Fund. Any such change may result in the Fund
having an investment objective different from the objective which the
shareholders considered appropriate at the time of investment in the Fund.
PORTFOLIO TURNOVER
The Fund does not intend to purchase or sell securities for short term
trading purposes. The Fund will, however, sell any portfolio security (without
regard to the length of time it has been held) when the
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Adviser believes that market conditions, creditworthiness factors or general
economic conditions warrant such action. It is anticipated that the Fund will
have a portfolio turnover rate of less than 100%.
SHAREHOLDER RIGHTS
Any Trustee of the Trust may be removed by vote of the shareholders
holding not less than two-thirds of the outstanding shares of the Trust. The
Trust does not hold an annual meeting of shareholders. When matters are
submitted to shareholders for a vote, each shareholder is entitled to one vote
for each whole share he owns and fractional votes for fractional shares he owns.
All shares of the Fund have equal voting rights and liquidation rights. The
Declaration of Trust can be amended by the Trustees, except that any amendment
that adversely effects the rights of shareholders must be approved by the
shareholders affected.
It is anticipated that Citizens Federal Bank, F.S.B., Dayton, Ohio,
acting as either trustee, investment agent or custodian for its clients, will
own almost all of the Fund's shares and may be deemed to control the Fund. While
Citizens Federal has the legal right in certain situations to vote on behalf of
its clients, it is anticipated that Citizens Federal will contact its clients
and vote in accordance with their preferences.
PERFORMANCE INFORMATION
The Fund may periodically advertise "average annual total return." The
"average annual total return" of the Fund refers to the average annual
compounded rate of return over the stated period that would equate an initial
amount invested at the beginning of a stated period to the ending redeemable
value of the investment. The calculation of "average annual total return"
assumes the reinvestment of all dividends and distributions.
The Fund may also periodically advertise its total return over various
periods in addition to the value of a $10,000 investment (made on the date of
the initial public offering of the Fund's shares) as of the end of a specified
period. The "total return" for the Fund refers to the percentage change in the
value of an account between the beginning and end of the stated period, assuming
no activity in the account other than reinvestment of dividends and capital
gains distributions.
The Fund may also include in advertisements data comparing performance
with other mutual funds as reported in non-related investment media, published
editorial comments and performance rankings compiled by independent
organizations and publications that monitor the performance of mutual funds
(such as Lipper Analytical Services, Inc., Morningstar, Inc., Fortune or
Barron's). Performance information may be quoted numerically or may be presented
in a table, graph or other illustration. In addition, Fund performance may be
compared to well-known indices of market performance including the Standard &
Poor's (S&P) 500 Index, the Dow Jones Industrial Average, the Value Line Stock
Index, or a blend of stock and bond indices.
- 19 -
<PAGE>
THE ADVERTISED PERFORMANCE DATA OF THE FUND IS BASED ON HISTORICAL
PERFORMANCE AND IS NOT INTENDED TO INDICATE FUTURE PERFORMANCE. RATES OF TOTAL
RETURN QUOTED BY THE FUND MAY BE HIGHER OR LOWER THAN PAST QUOTATIONS, AND THERE
CAN BE NO ASSURANCE THAT ANY RATE OF TOTAL RETURN WILL BE MAINTAINED. THE
PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT A
SHAREHOLDER'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE
SHAREHOLDER'S ORIGINAL INVESTMENT.
INVESTMENT ADVISER TRANSFER AGENT
James Investment Research, Inc. Countrywide Fund Services, Inc.
P.O. Box 8 312 Walnut Street
Alpha, Ohio 45301 Cincinnati, Ohio 45202
CUSTODIAN INDEPENDENT AUDITORS
Star Bank, N.A. Deloitte & Touche LLP
425 Walnut Street 1700 Courthouse Plaza, N.E.
Cincinnati, Ohio 45202 Dayton, Ohio 45402
DISTRIBUTOR
CW Fund Distributors, Inc.
312 Walnut Street
Cincinnati, Ohio 45202
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
the Fund. This Prospectus does not constitute an offer by the Fund to sell its
shares in any state to any person to whom it is unlawful to make such offer in
such state.
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<PAGE>
TABLE OF CONTENTS PAGE
SUMMARY OF FUND EXPENSES..................................................
THE FUND..................................................................
FINANCIAL HIGHLIGHTS......................................................
INVESTMENT OBJECTIVE AND STRATEGIES AND RISK CONSIDERATIONS...............
HOW TO INVEST IN THE FUND.................................................
Class A Shares ...................................................
Class B Shares....................................................
Class C Shares....................................................
Class R Shares....................................................
General Purchase Information......................................
Purchase For Trust Accounts Through Dealers.......................
Automatic Investment Plan.........................................
Letter of Intent (Retail Shares only).............................
Other Purchase Information........................................
HOW TO REDEEM SHARES......................................................
Signature Guarantee...............................................
Additional Information............................................
FREE REPURCHASE AND SYSTEMATIC WITHDRAWAL
AND DIRECT DEPOSITS....................................................
Free Repurchase...................................................
Systematic Withdrawal Plan........................................
Direct Deposits...................................................
SHARE PRICE CALCULATION...................................................
DIVIDENDS AND DISTRIBUTIONS...............................................
TAXES ..................................................................
OPERATION OF THE FUND.....................................................
DISTRIBUTION PLAN.........................................................
INVESTMENT POLICIES AND TECHNIQUES .......................................
Equity Securities.................................................
Foreign Securities................................................
U.S. Government Obligations.......................................
Repurchase Agreements.............................................
Loans of Securities...............................................
Hedging...........................................................
Risks ...........................................................
When Issued Securities and Forward Commitments....................
General...........................................................
GENERAL INFORMATION.......................................................
Fundamental Policies..............................................
Portfolio Turnover................................................
Shareholder Rights................................................
PERFORMANCE INFORMATION...................................................
<PAGE>
THE GOLDEN RAINBOW FUND
STATEMENT OF ADDITIONAL INFORMATION
_________________, 1998
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus of The Golden Rainbow Fund dated
____________________, 1998. A copy of the Prospectus can be obtained by writing
the Transfer Agent at 312 Walnut Street, Cincinnati, Ohio 45202, or by calling
- ---------------.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
-----------------
PAGE
----
DESCRIPTION OF THE TRUST..................................................... 1
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS
AND RISK CONSIDERATIONS...................................................... 1
A. Illiquid Securities........................................... 1
B. Borrowing and Leverage; Reverse Repurchase Agreements......... 2
C. Hedging Transactions.......................................... 2
INVESTMENT LIMITATIONS....................................................... 13
SHARES OF THE FUND........................................................... 15
LETTER OF INTENT............................................................. 16
THE INVESTMENT ADVISER....................................................... 16
TRUSTEES AND OFFICERS........................................................ 18
PORTFOLIO TRANSACTIONS AND BROKERAGE......................................... 19
DISTRIBUTION PLAN............................................................ 20
DETERMINATION OF SHARE PRICE................................................. 20
INVESTMENT PERFORMANCE....................................................... 20
CUSTODIAN.................................................................... 21
TRANSFER AGENT............................................................... 21
INDEPENDENT AUDITORS......................................................... 22
DISTRIBUTOR.................................................................. 22
FINANCIAL STATEMENTS......................................................... 22
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DESCRIPTION OF THE TRUST
The Golden Rainbow Fund (the "Fund") was organized as a series of The James
Advantage Funds (the "Trust"). The Trust is an open-end investment company
established under the laws of Ohio by an Agreement and Declaration of Trust
dated August 29, 1997 (the "Trust Agreement"). The Trust Agreement permits the
Trustees to issue an unlimited number of shares of beneficial interest of
separate series without par value. The Fund is the only series currently
authorized by the Trustees.
Each share of a series represents an equal proportionate interest in the
assets and liabilities belonging to that series with each other share of that
series and is entitled to such dividends and distributions out of income
belonging to the series as are declared by the Trustees. The shares do not have
cumulative voting rights or any preemptive or conversion rights, and the
Trustees have the authority from time to time to divide or combine the shares of
any series into a greater or lesser number of shares of that series so long as
the proportionate beneficial interest in the assets belonging to that series and
the rights of shares of any other series are in no way affected. In case of any
liquidation of a series, the holders of shares of the series being liquidated
will be entitled to receive as a class a distribution out of the assets, net of
the liabilities, belonging to that series. Expenses attributable to any series
are borne by that series. Any general expenses of the Trust not readily
identifiable as belonging to a particular series are allocated by or under the
direction of the Trustees in such manner as the Trustees determine to be fair
and equitable. No shareholder is liable to further calls or to assessment by the
Trust without his or her express consent.
Upon sixty days prior written notice to shareholders, the Fund may make
redemption payments in whole or in part in securities or other property if the
Trustees determine that existing conditions make cash payments undesirable. For
other information concerning the purchase and redemption of shares of the Fund,
see "How to Invest in the Fund" and "Redeeming Shares" in the Fund's Prospectus.
For a description of the methods used to determine the share price and value of
the Fund's assets, see "Share Price Calculation" in the Fund's Prospectus.
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS
AND RISK CONSIDERATIONS
This section contains a more detailed discussion of some of the investments
the Fund may make and some of the techniques it may use, as described in the
Prospectus (see "Investment Objective and Strategies and Risk Considerations"
and "Investment Policies and Techniques").
A. ILLIQUID SECURITIES.
The portfolio of the Fund may contain illiquid securities. Illiquid
securities generally include securities which cannot be disposed of promptly and
in the ordinary course of business without taking a reduced price. Securities
may be illiquid due to contractual or legal restrictions on resale or lack of a
ready market. The following securities are considered to be illiquid: repurchase
agreements maturing in more than seven days,
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<PAGE>
nonpublicly offered securities and restricted securities. Restricted securities
are securities the resale of which is subject to legal or contractual
restrictions. Restricted securities may be sold only in privately negotiated
transactions, in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1933 or pursuant to Rule 144
or Rule 144A promulgated under such Act. Where registration is required, the
Fund may be obligated to pay all or part of the registration expense, and a
considerable period may elapse between the time of the decision to sell and the
time such security may be sold under an effective registration statement. If
during such a period adverse market conditions were to develop, the Fund might
obtain a less favorable price than the price it could have obtained when it
decided to sell.
B. BORROWING AND LEVERAGE; REVERSE REPURCHASE AGREEMENTS.
The Fund may borrow from banks up to 5% of its total assets, and the Fund may
pledge assets in connection with such borrowings. The Fund also may engage in
reverse repurchase agreements in which the Fund sells a security to another
party, such as a bank, broker-dealer or other financial institution, and
simultaneously agrees to buy it back later at a higher price. While a reverse
repurchase agreement is outstanding, the Fund generally will direct its
custodian to segregate cash and appropriate liquid assets to cover its
obligations under the agreement. The Fund will enter into reverse repurchase
agreements only with parties whose creditworthiness has been reviewed and deemed
satisfactory by the Advisor. The Fund aggregates reverse repurchase agreements
with its bank borrowings for purposes of limiting borrowings to 5% of its total
assets.
If the Fund makes additional investments while borrowings are outstanding,
this may be construed as a form of leverage. The Fund's objective would be to
pursue investment opportunities with returns that exceed the cost of the
borrowings. This leverage may exaggerate changes in the Fund's share value and
the gains and losses on the Fund's investment. Leverage also creates interest
expenses that may exceed the return on investments made with the borrowings.
C. HEDGING TRANSACTIONS.
The Fund may utilize various other investment strategies as described below
to hedge various market risks (such as interest rates, currency exchange rates,
and broad or specific equity market movements), or to manage the effective
maturity or duration of fixed-income securities. Such strategies are generally
accepted by modern portfolio managers and are regularly utilized by many mutual
funds and other institutional investors. Techniques and instruments may change
over time as new instruments and strategies are developed or regulatory changes
occur.
In the course of pursuing these investment strategies, the Fund may purchase
and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward
- 2 -
<PAGE>
contracts, currency futures contracts, currency swaps or options on currencies
or currency futures (collectively, all the above are called "Hedging
Transactions"). Hedging Transactions may be used to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. No more than 5% of the Fund's
assets will be committed to Hedging Transactions entered into for non-hedging
purposes. Any or all of these investment techniques may be used at any time and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Hedging Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Hedging Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Hedging Transactions involving financial
futures and options thereon will be purchased, sold or entered into only for
bona fide hedging, risk management or portfolio management purposes and not for
speculative purposes.
Hedging Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Hedging Transactions would result in losses greater than if they
had not been used. Use of put and call options may result in losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, limit the amount the appreciation of the
Fund can realize on its investments or cause the Fund to hold a security it
might otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements, or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of Hedging Transactions would reduce net
asset value, and possibly income, and such losses can be greater than if the
Hedging Transactions had not been utilized.
- 3 -
<PAGE>
GENERAL CHARACTERISTICS OF OPTIONS
Put options and call options typically have similar structural
characteristics and operational mechanics regardless of the underlying
instrument on which they are purchased or sold. Thus, the following general
discussion relates to each of the particular types of options discussed in
greater detail below. In addition, many Hedging Transactions involving options
require segregation of Fund assets in special accounts, as described below under
"Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. The Fund is authorized to purchase and
sell exchange-listed options and over-the-counter options ("OTC options").
Exchange-listed options are issued by a regulated intermediary such as the
Options Clearing Corporation ("OCC"), which guarantees the performance of the
obligations of the parties to such options.
With certain exceptions, OCC-issued and exchange-listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
The Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange-listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
- 4 -
<PAGE>
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange-listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
option it has entered into with the Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. While this type of arrangement allows the Fund greater flexibility to
tailor an option to its need, OTC options generally involve greater credit risk
than exchange-traded options, which are guaranteed by the clearing organization
of the exchanges where they are traded. The risk of illiquidity also is greater
with OTC options, since these options generally can be closed out only by
negotiation with the other party to the option.
If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities, including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.
- 5 -
<PAGE>
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments (whether or not it holds the above securities in its portfolio) and
on securities indices, currencies and futures contracts other than futures on
individual corporate debt and individual equity securities. The Fund will not
sell put options if, as a result, more than 50% of the Fund's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that the fund may be required to buy the underlying
security at a disadvantageous price above the market price.
GENERAL CHARACTERISTICS OF FUTURES
The Fund may enter into financial futures contracts or purchase or sell put
and call options on such futures as a hedge against anticipated interest rate,
currency or equity market changes, for duration management and for risk
management purposes. Futures are generally bought and sold on the commodities
exchanges where they are listed with payment of initial and variation margin as
described below. The sale of a futures contract creates a firm obligation by the
Fund, as seller, to deliver to the buyer the specific type of financial
instrument called for in the contract at a specific future time for a specified
price (or, with respect to index futures and Eurodollar instruments, the net
cash amount). Options on futures contracts are similar to options on securities
except that an option on a futures contract gives the purchaser the right in
return for the premium paid to assume a position in a futures contract and
obligates the seller to deliver such option.
The Fund's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the Commodity Futures Trading Commission and will
be entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract, it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction, but there can be no assurance that the position can be offset prior
to settlement at an advantageous price nor that delivery will occur. The
segregation requirements with respect to futures contracts and options thereon
are described below.
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<PAGE>
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES
The Fund also may purchase and sell call and put options on securities
indices and other financial indices and in so doing can achieve many of the same
objectives it would achieve through the sale or purchase of options on
individual securities or other instruments. Options on securities indices and
other financial indices are similar to options on a security or other instrument
except that, rather than settling by physical delivery of the underlying
instrument, they settle by cash settlement, i.e., an option on an index gives
the holder the right to receive, upon exercise of the option, an amount of cash
if the closing level of the index upon which the option is based exceeds, in the
case of a call, or is less than, in the case of a put, the exercise price of the
option (except if, in the case of an OTC option, physical delivery is
specified). This amount of cash is equal to the excess of the closing price of
the index over the exercise price of the option, which also may be multiplied by
a formula value. The seller of the option is obligated, in return for the
premium received, to make delivery of this amount. The gain or loss of an option
on an index depends on price movements in the instruments making up the market,
market segment, industry or other composite on which the underlying index is
based, rather than price movements in individual securities, as is the case with
respect to options on securities.
CURRENCY TRANSACTIONS
The Fund may engage in currency transactions with Counterparties in order to
hedge the value of portfolio holdings denominated in particular currencies
against fluctuations in relative value. Currency transactions include forward
currency contracts, exchange-listed currency futures, exchange-listed and OTC
options on currencies, and currency swaps. A forward currency contract involves
a privately negotiated obligation to purchase or sell (with delivery generally
required) a specific currency at a future date, at a price set at the time of
the contract. A currency swap is an agreement to exchange cash flows based on
the notional difference among two or more currencies and operates similarly to
an interest rate swap, which is described below. The Fund may enter into
currency transactions with Counterparties which have received (or the guarantors
of the obligations of such Counterparties have received) a credit rating of A-1
or P-1 by S&P or Moody's, respectively, or that have an equivalent rating from
an NRSRO or (except for OTC currency options) are determined to be of equivalent
credit quality by the Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended to wholly or partially
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities
- 7 -
<PAGE>
held in its portfolio that are denominated or generally quoted in or currency
convertible into such currently other than with respect to proxy hedging as
described below.
The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering to a forward contract to sell a currency whose changes
in value are generally considered to be linked to a currency or currencies in
which some or all of the Fund's portfolio securities are or are expected to be
denominated, and to buy U.S. dollars. The amount of the contract would not
exceed the value of the Fund's securities denominated in linked currencies. For
example, if the Adviser considers the Austrian schilling linked to the German
deutschemark (the "D-mark"), the Fund holds securities denominated in schillings
and the Adviser believes that the value of schillings will decline against the
U.S. dollar, the Adviser may enter into a contract to sell D-marks and buy
dollars. Currency hedging involves some of the same risks and considerations as
other transactions with similar instruments. Further, there is the risk that the
perceived linkage between various currencies may not be present or may not be
present during the particular time that the Fund is engaging in proxy hedging.
If the Fund enters into a currency hedging transaction, the Fund will comply
with the asset segregation requirements described below.
RISKS OF CURRENCY TRANSACTIONS
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transaction
costs. Buyers and sellers of currency futures are subject to the same risk that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
COMBINED TRANSACTIONS
The Fund may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and any combination of
futures, options and currency transactions
- 8 -
<PAGE>
("component" transactions), instead of a single Hedging Transaction, as part of
a single or combined strategy when, in the opinion of the Adviser, it is in the
best interests of the Fund to do so. A combined transaction will usually contain
elements of risk that are present in each of its competent transactions.
Although combined transactions are normally entered into based on the Adviser's
judgment that the combined strategies will reduce risk or otherwise more
effectively achieve the desired portfolio management goal, it is possible that
the combination will instead increase such risks or hinder achievement of the
portfolio management objective.
SWAPS, CAPS, FLOORS AND COLLARS
Among the Hedging Transactions into which the Fund may enter are interest
rate, currency and index swaps and the purchase or sale of related caps, floors
and collars. The Fund expects to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio, to protect against currency fluctuations, as a duration management
technique or to protect against any increase in the price of securities the Fund
anticipates purchasing at a later date. The Fund intends to use these
transactions as hedges and not as speculative investments and will not sell
interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal. A currency swap is an agreement to exchange cash flows on a notional
amount of two or more currencies based on the relative value differential among
them and an index swap is an agreement to swap cash flows on a notional amount
based on changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors, and collars are entered into for good faith hedging purposes, the
Adviser and the Fund believe such obligations do not constitute senior
securities under the 1940 Act and, accordingly, will not treat them as being
subject to its borrowing restrictions. The Fund will not enter into any swap,
cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least "A" by S&P or Moody's or has an
equivalent rating from an NRSRO or is determined to be of equivalent credit
quality by the Adviser. If there is a default by the Counterparty, the Fund may
have contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As
- 9 -
<PAGE>
a result, the swap market has become relatively liquid. Caps, floors, and
collars are more recent innovations for which standardized documentation has not
yet been fully developed and, accordingly, they are less liquid than swaps.
EURODOLLAR INSTRUMENTS
The Fund may make investments in Eurodollar instruments. Eurodollar
instruments are U.S. dollar-denominated futures contracts or options thereon
which are linked to the London Interbank Offered Rate ("LIBOR"), although
foreign currency-denominated instruments are available from time to time.
Eurodollar futures contracts enable purchasers to obtain a fixed rate for the
lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
RISKS OF HEDGING TRANSACTIONS OUTSIDE THE UNITED STATES
When conducted outside the United States, Hedging Transactions may not be
regulated as rigorously as in the United States, may not involve a clearing
mechanism and related guarantees, and are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities, currencies
and other instruments. The value of such positions also could be adversely
affected by: (i) other complex foreign political, legal and economic factors,
(ii) lesser availability than in the United States of data on which to make
trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during nonbusiness hours in the United
States, (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, and (v) lower
trading volume and liquidity.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Many Hedging Transactions, in addition to other requirements, require that
the Fund segregate liquid high grade assets with its custodian to the extent
Fund obligations are not otherwise "covered" through ownership of the underlying
security, financial instrument or currency. In general, either the full amount
of any obligation by the Fund to pay or deliver securities or assets must be
covered at all times by the securities, instruments or currency required to be
delivered, or, subject to any regulatory restriction, an amount of cash or
liquid high grade securities at least equal to the current amount of the
obligation must be segregated with the custodian. The segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. For example, a call option
written by the Fund will require the Fund to hold the securities subject to the
call (or securities convertible into the needed securities without additional
consideration) or to segregate liquid high-grade securities sufficient to
purchase and deliver the securities if the call is exercised. A call option sold
by the Fund on an index will require the Fund to own portfolio securities which
correlate with the index or to segregate liquid high grade assets equal to the
excess of the index value over the exercise price on a current basis. A put
option written by the Fund requires the Fund to segregate liquid, high grade
assets equal to the exercise price.
- 10 -
<PAGE>
Except when the Fund enters into a forward contract for the purchase or sale
of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate liquid high grade assets equal to the amount of the Fund's
obligation.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC-issued and exchange-listed
index options will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a noncash settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount excess the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC-issued and exchange-listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement,
will be treated the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
assets sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Such assets may consist of cash, cash equivalents, liquid debt
or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlement with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade securities
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
Hedging Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Hedging
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Hedging Transactions may also be offset in combinations. If
the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
- 11 -
<PAGE>
INVESTMENT LIMITATIONS
FUNDAMENTAL. The investment limitations described below have been
adopted by the Trust with respect to the Fund and are fundamental
("Fundamental"), I.E., they may not be changed without the affirmative vote of a
majority of the outstanding shares of the Fund. As used in the Prospectus and
this Statement of Additional Information, the term "majority" of the outstanding
shares of the Fund means the lesser of (1) 67% or more of the outstanding shares
of the Fund present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented at such meeting; or
(2) more than 50% of the outstanding shares of the Fund. Other investment
practices which may be changed by the Board of Trustees without the approval of
shareholders to the extent permitted by applicable law, regulation or regulatory
policy are considered non-fundamental ("Non-Fundamental").
1. BORROWING MONEY. The Fund will not borrow money, except (a) from a
bank, provided that immediately after such borrowing there is an asset coverage
of 300% for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that such temporary borrowings are in an
amount not exceeding 5% of the Fund's total assets at the time when the
borrowing is made. This limitation does not preclude the Fund from entering into
reverse repurchase transactions, provided that the Fund has an asset coverage of
300% for all borrowings and repurchase commitments of the Fund pursuant to
reverse repurchase transactions.
2. SENIOR SECURITIES. The Fund will not issue senior securities. This
limitation is not applicable to activities that may be deemed to involve the
issuance or sale of a senior security by the Fund, provided that the Fund's
engagement in such activities is consistent with or permitted by the Investment
Company Act of 1940, as amended, the rules and regulations promulgated
thereunder or interpretations of the Securities and Exchange Commission or its
staff.
3. UNDERWRITING. The Fund will not act as underwriter of securities
issued by other persons. This limitation is not applicable to the extent that,
in connection with the disposition of portfolio securities (including restricted
securities), the Fund may be deemed an underwriter under certain federal
securities laws.
4. REAL ESTATE. The Fund will not purchase or sell real estate. This
limitation is not applicable to investments in marketable securities which are
secured by or represent interests in real estate. This limitation does not
preclude the Fund from investing in mortgage-related securities or investing in
companies engaged in the real estate business or that have a significant portion
of their assets in real estate (including real estate investment trusts).
5. COMMODITIES. The Fund will not purchase or sell commodities except as
described in the Prospectus and Statement of Additional Information. This
limitation does not preclude the Fund from acquiring commodities as a result of
ownership of securities or other investments; from entering into options,
futures, currency, swap, cap, floor, collar or similar transactions; from
investing in securities or other instruments backed by commodities;
- 12 -
<PAGE>
or from investing in companies which are engaged in a commodities business or
have a significant portion of their assets in commodities.
6. LOANS. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities, (b) by engaging in repurchase agreements, or (c)
by purchasing nonpublicly offered debt securities. For purposes of this
limitation, the term "loans" shall not include the purchase of a portion of an
issue of publicly distributed bonds, debentures or other securities.
7. CONCENTRATION. The Fund will not invest 25% or more of its total
assets in any particular industry. This limitation is not applicable to
investments in obligations issued or guaranteed by the U.S. government, its
agencies and instrumentalities or repurchase agreements with respect thereto.
8. DIVERSIFICATION. The Fund will comply with the standards for
diversification as required by the then current Investment Company Act of 1940,
as amended, the rules and regulations promulgated thereunder and interpretations
of the Securities and Exchange Commission or its staff.
With respect to the percentages adopted by the Trust as maximum
limitations on its investment policies and limitations, an excess above the
fixed percentage will not be a violation of the policy or limitation unless the
excess results immediately and directly from the acquisition of any security or
the action taken. This paragraph does not apply to the borrowing policy set
forth in paragraph 1 above.
With respect to the Fund's diversification, the current standards
require that the Fund may not purchase the securities of any one issuer, other
than the U.S. government or any of its instrumentalities, if immediately after
such purchase more than 5% of the value of its total assets would be invested in
such issuer, or the Fund would own more than 10% of the outstanding voting
securities of such issuer, except that up to 25% of the value of the Fund's
total assets may be invested without regard to such 5% and 10% limitations.
NON-FUNDAMENTAL. The following limitations have been adopted by the
Trust with respect to the Fund and are Non-Fundamental (see "Investment
Limitations" above).
1. PLEDGING. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any assets of the Fund except as
may be necessary in connection with borrowings described in limitation (1)
above. Margin deposits, security interests, liens and collateral arrangements
with respect to transactions involving options,
- 13 -
<PAGE>
futures contracts, short sales and other permitted investments and techniques
are not deemed to be a mortgage, pledge or hypothecation of assets for purposes
of this limitation.
2. BORROWING. The Fund will not purchase any security while borrowings
(including reverse repurchase agreements) representing more than 5% its total
assets are outstanding.
3. MARGIN PURCHASES. The Fund will not purchase securities or evidences
of interest thereon on "margin." This limitation is not applicable to short term
credit obtained by the Fund for the clearance of purchases and sales or
redemption of securities, or to arrangements with respect to transactions
involving options, futures contracts, short sales and other permitted
investments and techniques.
4. OPTIONS. The Fund will not purchase or sell puts, calls, options or
straddles, except as described in the Prospectus and the Statement of Additional
Information.
5. SHORT SALES. The Fund will not effect short sales of securities.
6. ILLIQUID SECURITIES. The Fund will not invest more than 5% of its
assets in securities that are restricted as to resale or otherwise illiquid. For
this purpose, illiquid securities generally include securities which cannot be
disposed of within seven days in the ordinary course of business without taking
a reduced price.
SHARES OF THE FUND
Four classes of shares, Class A Shares, Class B Shares, Class C Shares,
and Class R Shares are authorized for the Fund. Currently, the Fund is offering
Class A shares only, but others may be offered in the future. The four classes
of shares each represent an interest in the same portfolio of investments of the
Fund and have the same rights, except (i) Class B and Class C Shares bear the
expenses of the deferred sales arrangement and any expenses (including a higher
distribution services fee) resulting from such sales arrangement, (ii) each
class that is subject to a distribution fee has exclusive voting rights with
respect to those provisions of the Fund's Rule 12b-1 distribution plan which
relate only to such class and (iii) the classes have different exchange
privileges. Additionally, Class B Shares will automatically convert into Class A
Shares after a specified period of years (as described below). The net income
attributable to Class B and Class C Shares and the dividends payable on Class B
and Class C Shares will be reduced by the amount of the higher distribution
services fee and certain other incremental expenses associated with the deferred
sales charge arrangement. The net asset value per share of Class A Shares, Class
B Shares, Class C Shares and Class R Shares is expected to be substantially the
same, but it may differ from time to time.
For purposes of conversion of Class A Shares, Class B Shares purchased
through the reinvestment of dividends and distributions paid in respect of Class
B Shares in stockholder's account will be considered to be held in a separate
sub-account. Each time any Class B Shares in the stockholder's account (other
than those in the sub-account) convert to Class A Shares, an equal pro rata
portion of the Class B Shares in the sub-account also will convert to Class A
Shares. The conversion of Class B Shares to Class A Shares is subject to the
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<PAGE>
continuing determination that (i) the assessment of the higher distribution
services fee and transfer agency cost with respect to Class B Shares does not
result in the Fund's dividends or distributions constituting "preferential
dividends" under the Code, and (ii) that the conversion of Class B Shares does
not constitute a taxable event under federal income tax law. The conversion of
Class B Shares to Class A Shares may be suspended if such an opinion is no
longer available. In that event, no further conversions of Class B Shares would
occur, and Class B Shares might continue to be subject to the higher
distribution services fee for an indefinite period, which period may extend
beyond the conversion period after the end of the month in which the shares were
issued.
The CDSL will not be imposed on amounts representing increases in net
asset value above the initial purchase price. Additionally, no charge will be
assessed on Class B or Class C Shares derived from reinvestment of dividends or
capital gains distributions. The CDSL will be waived (i) on redemption of shares
following the disability (as determined in writing by the Social Security
Administration) or death of a stockholder and (ii) on certain redemptions in
connection with IRAs and other qualified retirement plans. In the case of an
exchange, the length of time that the investor held the original Class B or
Class C Shares is counted towards satisfaction of the period during which a
deferred sales charge is imposed on the Class B or Class C for which the
exchange was made.
LETTER OF INTENT
A shareholder may qualify for reduced sales charges by sending to the
Fund (within 90 days after the first purchase desired to be included in the
purchase program) the signed, non-binding Letter of Intent section on the
application form. All investments in retail shares of the Fund count toward the
indicated goal. It is understood that 5% of the dollar amount checked on the
application will be held in a special escrow account. These shares will be held
by an escrow agent subject to the terms of the escrow. All dividends and capital
gains distributions on the escrowed shares will be credited to the shareholder's
account in shares. If the total purchases, less redemptions by the shareholder,
his spouse, children and parents, equal the amount specified under this Letter,
the shares held in escrow will be deposited to the shareholder's open account or
delivered to the shareholder or to his order. If the total purchases, less
redemptions, exceed the amount specified under this Letter and an amount which
would qualify for a further quantity discount, a retroactive price adjustment
will be made by the Distributor and the dealer through whom purchases were made
pursuant to this Letter of Intent (to reflect such further quantity discount).
The resulting difference in offering price will be applied to the purchase of
additional shares at the offering price applicable to a single purchase of the
dollar amount of the total purchases. If the total purchases less redemptions
are less than the amount specified under this Letter, the shareholder will remit
to the Distributor an amount equal to the difference in the dollar amount of
sales charge actually paid and the amount of sales charge which would have
applied to the aggregate purchases if the total of such purchases had been made
at a single time. Upon such remittance the shares held for the shareholder's
account will be deposited to his Account or delivered to him or to his order. If
within 20 days after written request by the Distributor such difference in sales
charge is not paid, the Distributor is hereby authorized to redeem an
appropriate number of shares to realize such difference. The Distributor is
hereby irrevocably constituted under this Letter of Intent to effect such
redemption as agent of the shareholder.
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<PAGE>
THE INVESTMENT ADVISER
The Fund's investment adviser is James Investment Research, Inc., P.O.
Box 8, Alpha, Ohio 45301 (the "Adviser"). Francis E. James, Jr. is the
controlling shareholder of the Adviser.
Under the terms of the management agreement (the "Agreement"), the
Adviser manages the Fund's investments subject to approval of the Board of
Trustees. As compensation for its management services, the Fund is obligated to
pay the Adviser a fee computed and accrued daily and paid monthly at an annual
rate of 0.74% of the average daily net assets of the Fund. The Adviser may waive
all or part of its fee, at any time, and at its sole discretion, but such action
shall not obligate the Adviser to waive any fees in the future.
The Adviser retains the right to use the names "Golden Rainbow", "James
Advantage" or any variation thereof in connection with another investment
company or business enterprise with which the Adviser is or may become
associated. The Trust's right to use the names "Golden Rainbow," and "James
Advantage" or any variation thereof automatically ceases ninety days after
termination of the Agreement and may be withdrawn by the Adviser on ninety days
written notice.
The Adviser may make payments to banks or other financial institutions
that provide shareholder services and administer shareholder accounts. The
Glass-Steagall Act prohibits banks from engaging in the business of
underwriting, selling or distributing securities. Although the scope of this
prohibition under the Glass-Steagall Act has not been clearly defined by the
courts or appropriate regulatory agencies, management of the Fund believes that
the Glass-Steagall Act should not preclude a bank from providing such services.
However, state securities laws on this issue may differ from the interpretations
of federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law. If a bank were prohibited
from continuing to perform all or a part of such services, management of the
Fund believes that there would be no material impact on the Fund or its
shareholders. Banks may charge their customers fees for offering these services
to the extent permitted by applicable regulatory authorities, and the overall
return to those shareholders availing themselves of the bank services will be
lower than to those shareholders who do not. The Fund may from time to time
purchase securities issued by banks which provide such services; however, in
selecting investments for the Fund, no preference will be shown for such
securities.
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<PAGE>
TRUSTEES AND OFFICERS
The names of the Trustees and executive officers of the Trust are shown
below. Each Trustee who is an "interested person" of the Trust, as defined in
the Investment Company Act of 1940, is indicated by an asterisk.
================================================================================
NAME, ADDRESS AND AGE POSITIONS WITH THE TRUST
- --------------------------------------------------------------------------------
* Barry R. James, CFA President and a Trustee of the Trust;
P.O. Box 8 Executive Vice President, James Investment
Alpha, Ohio 45301 Research, Inc. (1985 to Present); President,
Age: 42 James Capital Alliance, Inc., Cincinnati,
Ohio (1992 to Present).
- --------------------------------------------------------------------------------
Thomas L. Mangan Vice President, Treasurer and Secretary of
P.O. Box 8 the Trust; Vice president, James Investment
Alpha, Ohio 45301 Research, Inc. (1994 to Present); senior vice
Age: 49 president, Fuji Securities, Inc., Chicago,
Illinois (prior to 1994).
- --------------------------------------------------------------------------------
Anthony P. D'Angelo Trustee of the Trust; Professor, Graduate
Dept. of the Air Force, School of Logistics and Acquisition
Building 641 Management, Air Force Institute of
2950 P Street Technology, Wright-Patterson AFB, Ohio
Wright-Patterson AFB OHIO (1983 to present).
45433-7765
Age: 68
- --------------------------------------------------------------------------------
Hazel L. Eichelberger Trustee of the Trust; Retired Sr. Vice
9438 Atchison Road President, Citizens Federal Bank, Dayton,
Dayton, Ohio 45458 Ohio (1955 to 1997).
Age: 61
- --------------------------------------------------------------------------------
James F. Zid Trustee of the Trust; Retired Partner, Ernst
1083 N. Collier Blvd. & Young, LLP, Columbus, Ohio (1968 to
Marco Island, Florida 34145 1993).
Age: 64
================================================================================
Trustee fees are Trust expenses. The following table estimates the
Trustees' compensation for the first full year of the Trust ending June 30,
1999.
================================================================================
NAME TOTAL COMPENSATION FROM TRUST (THE TRUST IS
NOT IN A FUND COMPLEX)
- --------------------------------------------------------------------------------
Barry R. James, CFA $0
- --------------------------------------------------------------------------------
Anthony P. D'Angelo $4,200
- --------------------------------------------------------------------------------
Hazel L. Eichelberger $4,200
- --------------------------------------------------------------------------------
James F. Zid $4,200
================================================================================
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<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Trustees of the Trust,
the Adviser is responsible for the Fund's portfolio decisions and the placing of
the Fund's portfolio transactions. In placing portfolio transactions, the
Adviser seeks the best qualitative execution for the Fund, taking into account
such factors as price (including the applicable brokerage commission or dealer
spread), the execution capability, financial responsibility and responsiveness
of the broker or dealer and the brokerage and research services provided by the
broker or dealer. The Adviser generally seeks favorable prices and commission
rates that are reasonable in relation to the benefits received.
The Adviser is specifically authorized to select brokers or dealers who
also provide brokerage and research services to the Fund and/or the other
accounts over which the Adviser exercises investment discretion and to pay such
brokers or dealers a commission in excess of the commission another broker or
dealer would charge if the Adviser determines in good faith that the commission
is reasonable in relation to the value of the brokerage and research services
provided. The determination may be viewed in terms of a particular transaction
or the Adviser's overall responsibilities with respect to the Trust and to other
accounts over which it exercises investment discretion.
Research services include supplemental research, securities and economic
analyses, statistical services and information with respect to the availability
of securities or purchasers or sellers of securities and analyses of reports
concerning performance of accounts. The research services and other information
furnished by brokers through whom the Fund effects securities transactions may
also be used by the Adviser in servicing all of its accounts. Similarly,
research and information provided by brokers or dealers serving other clients
may be useful to the Adviser in connection with its services to the Fund.
Although research services and other information are useful to the Fund and the
Adviser, it is not possible to place a dollar value on the research and other
information received. It is the opinion of the Board of Trustees and the Adviser
that the review and study of the research and other information will not reduce
the overall cost to the Adviser of performing its duties to the Fund under the
Agreement.
Over-the-counter transactions will be placed either directly with
principal market makers or with broker-dealers, if the same or a better price,
including commissions and executions, is available. Fixed income securities are
normally purchased directly from the issuer, an underwriter or a market maker.
Purchases include a concession paid by the issuer to the underwriter and the
purchase price paid to a market maker may include the spread between the bid and
asked prices.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Adviser, investments of the type the
Fund may make may also be made by those other accounts. When the Fund and one or
more other accounts managed by the Adviser are prepared to invest in, or desire
to dispose of, the same security, available investments or opportunities for
sales will be allocated in a manner believed by the Adviser to be equitable to
each. In some cases, this procedure may adversely affect the price paid or
received by the Fund or the size of the position obtained or disposed of by the
Fund. Orders placed for the Fund will not be combined ("blocked") with other
orders.
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<PAGE>
DISTRIBUTION PLAN
With respect to the Fund, the Trust has adopted a Plan for each class of
shares, pursuant to Rule 12b-1 which was promulgated by the Securities and
Exchange Commission pursuant to the Investment Company Act of 1940 (the
"Plans"). Each Plan provides for payment of fees to the Distributor to finance
any activity which is principally intended to result in the sale of the Fund's
shares subject to the Plans. Such activities are described in the Prospectus.
Pursuant to the Plans, the Distributor may pay fees to brokers and others for
such services. The Trustees expect that the adoption of the Plans will result in
the sale of a sufficient number of shares so as to allow the Fund to achieve
economic viability. It is also anticipated that an increase in the size of the
Fund will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objective. The maximum amount payable by the
Fund under the Plans are described in the Prospectus.
The Plan, the Distribution Agreement, the Selling Agreements and the
Service Agreements of the Fund have been approved by the Fund's Board of
Trustees, including a majority of the Trustees who are not "interested persons"
of the Fund and who have no direct or indirect financial interest in the Plans
or any related agreement, by a vote cast in person at meetings called for the
purpose of voting on the Plans and such agreements and by the shareholders on
_______________________, 1998. Continuation of the Plans and the related
agreements must be approved annually in the same manner, and the Plans or any
related agreement may be terminated at any time without penalty by a majority of
such independent Trustees or by a majority of a class' outstanding shares. Any
amendment increasing the maximum percentage payable under a Plan or other
material change must be approved by a majority of the respective class'
outstanding shares, and all other material amendments to a Plan or any related
agreement must be approved by a majority of the independent Trustees.
- 19 -
<PAGE>
DETERMINATION OF SHARE PRICE
The price (net asset value) of the shares of the Fund is determined as
of 4:00 p.m., Eastern time on each day the Trust is open for business and on any
other day on which there is sufficient trading in the Fund's securities to
materially affect the net asset value. The Trust is open for business on every
day except Saturdays, Sundays and the following holidays: New Year's Day,
President's Day, Martin Luther King, Jr. Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. For a description of
the methods used to determine the net asset value (share price), see "Share
Price Calculation" in the Prospectus.
- 20 -
<PAGE>
INVESTMENT PERFORMANCE
"Average annual total return," as defined by the Securities and Exchange
Commission, is computed by finding the average annual compounded rates of return
for the period indicated that would equate the initial amount invested to the
ending redeemable value, according to the following formula:
P(1+T)n=ERV
Where: P = a hypothetical $1,000 initial investment
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the
applicable period of the hypothetical $1,000
investment made at the beginning of the applicable
period.
The computation assumes that all dividends and distributions are reinvested at
the net asset value on the reinvestment dates and that a complete redemption
occurs at the end of the applicable period.
The Fund's investment performance will vary depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Fund. These factors and possible differences in the methods and time periods
used in calculating non-standardized investment performance should be considered
when comparing the Fund's performance to those of other investment companies or
investment vehicles. The risks associated with the Fund's investment objective,
policies and techniques should also be considered. At any time in the future,
investment performance may be higher or lower than past performance, and there
can be no assurance that any performance will continue.
From time to time, in advertisements, sales literature and information
furnished to present or to prospective shareholders, the performance of the Fund
may be compared to indices of broad groups of unmanaged securities considered to
be representative of or similar to the portfolio holdings of the Fund or
considered to be representative of the stock market in general. The Fund may use
the Standard & Poor's 500 Stock Index, the Dow Jones Industrial Average, the
Value Line Stock Index or a blend of stock and bond indices.
In addition, the performance of the Fund may be compared to other groups
of mutual funds tracked by any widely used independent research firm which ranks
mutual funds by overall performance, investment objectives and assets, such as
Lipper Analytical Services, Inc. or Morningstar, Inc. The objectives, policies,
limitations and expenses of other mutual funds in a group may not be the same as
those of the Fund. Performance rankings and ratings reported periodically in
national financial publications such as Barron's and Fortune also may be used.
- 21 -
<PAGE>
CUSTODIAN
Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, is Custodian of the
Fund's investments. As Custodian, Star Bank, N.A. acts as the Fund's depository,
safekeeps its portfolio securities, collects all income and other payments with
respect thereto, disburses funds at the Fund's request and maintains records in
connection with its duties.
TRANSFER AGENT
Countrywide Fund Services, Inc., 312 Walnut Street, Cincinnati, Ohio
45202, acts as the Fund's transfer agent and, in such capacity, maintains the
records of each shareholder's account, answers shareholders' inquiries
concerning their accounts, processes purchases and redemptions of the Fund's
shares, acts as dividend and distribution disbursing agent and performs other
accounting and shareholder service functions. Countrywide Fund Services, Inc.
also provides the Fund with certain monthly reports, record-keeping and other
management related services.
INDEPENDENT AUDITORS
The firm of Deloitte & Touche LLP, 1700 Courthouse Plaza N.E., Dayton,
Ohio 45402, has been selected as independent auditors for the Trust for the
fiscal year ending June 30, 1998. Deloitte & Touche LLP performs an annual audit
of the Fund's financial statements and provides financial, tax and accounting
consulting services as requested.
DISTRIBUTOR
CW Fund Distributors, Inc., 312 Walnut Street, Cincinnati, Ohio 45202,
is the exclusive agent for distribution of shares of the Fund. The Distributor
is obligated to sell shares of the Fund on a best efforts basis only against
purchase orders for the shares. Shares of the Fund are offered to the public on
a continuous basis.
FINANCIAL STATEMENTS
The financial statements and independent auditors report required to be
included herein are hereby incorporated by reference to the Annual Report of The
Golden Rainbow A James Advised Mutual Fund for the year ended June 30, 1997. The
Fund is the successor to The Golden Rainbow A James Advised Mutual Fund, a
series of Flagship Admiral Funds, Inc.
- 22 -
<PAGE>
- 29 -
<PAGE>
THE JAMES ADVANTAGE FUNDS
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Included in Part A:
Financial Highlights of The Golden Rainbow A James
Advised Mutual Fund, a series of Flagship Admiral Funds,
Inc. (predecessor to the Registrant) for the year ended
June 30, 1997.
Included in Part B:
Financial Statements, comprised of the following items,
of The Golden Rainbow A James Advised Mutual Fund, a
series of Flagship Admiral Funds, Inc. (predecessor to
the Registrant) are incorporated in the Statement of
Additional Information by reference to the Annual Report
to Shareholders of The Golden Rainbow A James Advised
Mutual Fund.
Report of Independent Accounts.
Schedule of Investments, June 30, 1997.
Statement of Assets and Liabilities, June 30, 1997.
Statement of Operations for the year ended
June 30, 1997.
Statement of changes in Net Assets for the year ended
June 30, 1997. Financial Highlights for the year ended
June 30, 1997.
Notes to Financial Statements.
(b) Exhibits
(1) (a) Copy of Registrant's Declaration of Trust,
which was filed as an Exhibit to Registrant's
Registration Statement, is hereby incorporated
by reference.
(b) Copy of Amendment No. 1 to Registrant's
Declaration of Trust, which was filed as an
Exhibit to Registrant's Registration Statement,
is hereby incorporated by reference.
(c) Copy of Amendment No. 2 to Registrant's
Declaration of Trust is filed herewith.
(2) Copy of Registrant's By-Laws, which was filed as
an Exhibit to Registrant's Registration
Statement, is hereby incorporated by reference.
- 1 -
<PAGE>
(3) Voting Trust Agreements - None.
(4) Specimen of Share Certificates - None.
(5) Copy of Registrant's Management Agreement with
its Adviser, James Investment Research, Inc. is
filed herewith.
(6) Copy of Registrant's Underwriting Agreement with
CW Fund Distributors, Inc. is filed herewith.
(7) Bonus, Profit Sharing, Pension or Similar
Contracts for the benefit of Directors or
Officers - None.
(8) Copy of Registrant's Agreement with the
Custodian, Star Bank, N.A., is filed herewith.
(9) Other Material Contracts - None.
(10) Opinion and Consent of Brown, Cummins & Brown
Co., L.P.A., which was filed as an Exhibit to
Registrant's Registration Statement, is hereby
incorporated by reference.
(11) Consent of independent auditors is filed
herewith.
(12) Financial Statements Omitted from Item 23 -
None.
(13) Form of Letter of Initial Stockholder is filed
herewith.
(14) Model Plan used in Establishment of any
Retirement Plan - None.
(15) 12b-1 Distribution Expense Plan for Class A
shares is filed herewith.
(16) Schedule for Computation of Each Performance
Quotation - None.
(17) Financial Data Schedule - None.
(18) Rule 18f-3 Plan is filed herewith.
(19) Powers of Attorney for the Trust and the
officers and Trustees of the Trust are filed
herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
- -------- ---------------------------------------------
WITH THE REGISTRANT
-------------------
None.
- 2 -
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES (AS OF MAY 12, 1998)
- -------- ----------------------------------------------------
TITLE OF CLASS NUMBER OF RECORD HOLDERS
-------------- ------------------------
The Golden Rainbow Fund 0
ITEM 27. INDEMNIFICATION
- -------- ---------------
(a) Article VI of the Registrant's Declaration of Trust
provides for indemnification of officers and Trustees as
follows:
SECTION 6.4 INDEMNIFICATION OF TRUSTEES,
OFFICERS, ETC. Subject to and except as
otherwise provided in the Securities Act of
1933, as amended, and the 1940 Act, the Trust
shall indemnify each of its Trustees and
officers (including persons who serve at the
Trust's request as directors, officers or
trustees of another organization in which the
Trust has any interest as a shareholder,
creditor or otherwise (hereinafter referred to
as a "Covered Person") against all liabilities,
including but not limited to amounts paid in
satisfaction of judgments, in compromise or as
fines and penalties, and expenses, including
reasonable accountants' and counsel fees,
incurred by any Covered Person in connection
with the defense or disposition of any action,
suit or other proceeding, whether civil or
criminal, before any court or administrative or
legislative body, in which such Covered Person
may be or may have been involved as a party or
otherwise or with which such person may be or
may have been threatened, while in office or
thereafter, by reason of being or having been
such a Trustee or officer, director or trustee,
and except that no Covered Person shall be
indemnified against any liability to the Trust
or its Shareholders to which such Covered Person
would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the
conduct of such Covered Person's office.
SECTION 6.5 ADVANCES OF EXPENSES. The
Trust shall advance attorneys' fees or other
expenses incurred by a Covered Person in
defending a proceeding to the full extent
permitted by the Securities Act of 1933, as
amended, the 1940 Act, and Ohio Revised Code
Chapter 1707, as amended. In the event any of
these laws conflict with Ohio Revised Code
Section 1701.13(E), as amended, these laws, and
not Ohio Revised Code Section 1701.13(E), shall
govern.
SECTION 6.6 INDEMNIFICATION NOT
EXCLUSIVE, ETC. The right of indemnification
provided by this Article VI shall not be
exclusive of or affect any other rights to which
any such Covered Person may be entitled. As used
in this Article VI, "Covered Person" shall
include such person's heirs, executors and
administrators. Nothing contained in this
- 3 -
<PAGE>
article shall affect any rights to
indemnification to which personnel of the Trust,
other than Trustees and officers, and other
persons may be entitled by contract or otherwise
under law, nor the power of the Trust to
purchase and maintain liability insurance on
behalf of any such person.
The Registrant may not pay for insurance which
protects the Trustees and officers against
liabilities rising from action involving willful
misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the
conduct of their offices.
(b) The Registrant may maintain a standard mutual fund and
investment advisory professional and directors and
officers liability policy. The policy, if maintained,
would provide coverage to the Registrant, its Trustees
and officers, and could cover its Advisers, among
others. Coverage under the policy would include losses
by reason of any act, error, omission, misstatement,
misleading statement, neglect or breach of duty.
(c) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to trustees,
officers and controlling persons of the Registrant
pursuant to the provisions of Ohio law and the Agreement
and Declaration of the Registrant or the By-Laws of the
Registrant, or otherwise, the Registrant has been
advised that in the opinion of the Securities and
Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
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 a trustee, officer or controlling person of the Trust
in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities
being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such
issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
- -------- ----------------------------------------------------
A. (i) Ann Marie Shaw Kremer, Senior Vice President of JIR
is also the Treasurer of James Capital Alliance, Inc.,
P.O. Box 12, Alpha, Ohio 45301, an investment advisory
business.
(ii) Barry Ray James, Executive Vice President of JIR is
also the President of James Capital Alliance, Inc. and
President and a Trustee of the Trust.
(iii) Robert G. Hawkins, Director of JIR is currently
the Dean of Ivan Allen College of Management, Georgia
Institute of Technology, a university in Atlanta,
Georgia.
- 4 -
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
- -------- ----------------------
(a) CW Fund Distributors, Inc. (the "Distributor") also acts
as underwriter for Firsthand Funds and UC Investment
Trust.
<TABLE>
<CAPTION>
(b) POSITION WITH POSITION WITH
NAME DISTRIBUTOR REGISTRANT
---- ---------- -----------
<S> <C> <C>
Angelo R. Mozilo Chairman of the Board None
and Director
Andrew S. Bielanski Director None
Thomas H. Boone Director None
Marshall M. Gates Director None
Robert H. Leshner Vice Chairman, Chief None
Executive Officer and Director
Robert G. Dorsey President Asst. Vice President
Maryellen Peretzky Vice President-Administration, None
Human Resources and Operations
John F. Splain Vice President, Secretary and Assistant Secretary
General Counsel
M. Kathleen Luegers Vice President-MIS None
Mark J. Seger Vice President Asst. Treasurer
Christina H. Kelso Vice President-Operations None
Gary H. Goldschmidt Assistant Vice President and None
Assistant Fund Controller
Terrie A. Wiedenheft Treasurer None
Tina D. Hosking Assistant Vice President-Legal Assistant Secretary
Elizabeth A. Santen Assistant Vice President-Legal None
- 5 -
<PAGE>
Steven F. Niehaus Assistant Vice President-MIS None
Sandor E. Samuels Asst. Secretary None
Susan E. Bow Asst. Secretary None
Anne Banducci Asst. Secretary None
</TABLE>
The address of all of the above-names persons is 312
Walnut Street, Cincinnati, Ohio 45202.
(c) Inapplicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
- -------- --------------------------------
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder will be maintained by the
Registrant at 1349 Fairground Road, Beavercreek, Ohio 45385
and/or by the Registrant's Custodian, Star Bank, N.A., 425
Walnut St., Cincinnati, OH 45202, and/or by the Registrant's
Transfer Agent, Countrywide Fund Services, Inc., 312 Walnut St.,
21st Floor, Cincinnati, OH 45202.
ITEM 31. MANAGEMENT SERVICES NOT DISCUSSED IN PARTS A OR B
- -------- -------------------------------------------------
None.
ITEM 32. UNDERTAKINGS
- -------- ------------
(a) Not Applicable.
(b) The Registrant hereby undertakes to furnish each person
to whom a prospectus is delivered with a copy of the
The Golden Rainbow A James Advised Mutual Fund's latest
annual report to shareholders, upon request and without
charge.
(c) The Registrant hereby undertakes to refrain from any
public offering of its shares until after the
consummation of the reorganization of The Golden Rainbow
A James Advised Mutual Fund, a series of the Flagship
Admiral Funds, Inc., into the Registrant.
- 6 -
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cincinnati, State of Ohio, on the 22nd day of
May, 1998.
The James Advantage Funds
By: /s/
---------------------------------
Donald S. Mendelsohn, Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Barry R. James, President and Trustee*
Thomas L. Mangan, Treasurer*
James F. Zid, Trustee*
Anthony P. D'Angelo, Trustee*
*By: /s/
-----------------------------------
Donald S. Mendelsohn, Attorney-in-Fact
May 22, 1998
-----------------------------
Hazel L. Eichelberger, Trustee
- 7 -
<PAGE>
EXHIBIT INDEX
-------------
PAGE
1. Amendment No. 2 to Declaration of Trust.....................EX-99.B1.1
2. Management Agreement..........................................EX-99.B5
3. Underwriting Agreement........................................EX-99.B6
4. Custody Agreement.............................................EX-99.B8
5. Consent of Independent Auditors. ............................EX-99.B11
6. Form of Letter of Initial Stockholder........................EX-99.B13
7. 12b-1 Distribution Plan Class A Shares.......................EX-99.B15
8. Rule 18f-3 Plan..............................................EX.99.B18
9. Powers of Attorney...........................................EX-99.POA
THE JAMES ADVANTAGE FUNDS AMENDMENT NO. 2
AGREEMENT AND DECLARATION OF TRUST
1. Pursuant to Sections 7.3 and 4.1 of the Agreement and Declaration of
Trust of The James Advantage Funds (the "Trust") and effective upon execution of
this document, the undersigned, being a majority of the trustees of the Trust,
hereby change the name of the "James Rainbow Fund" series to "The Golden Rainbow
Fund."
2. Pursuant to Section 4.1 of the Agreement and Declaration of Trust of
the Trust and effective upon the execution of this document, the undersigned,
being a majority of the trustees of The James Advantage Funds, hereby establish
four classes of shares of The Golden Rainbow Fund and designate such classes:
"Class A," "Class B," "Class C" and "Class R."
3. The relative rights and preferences of each class shall be those
rights and preferences set forth in Section 4.2 of the Agreement and Declaration
of Trust of the Trust.
4. This document shall have the status of an Amendment to said Agreement
and Declaration of Trust, and may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
- ---------------------------------------
Barry R. James
_\s\____________________________________
James F. Zid
_\s\___________________________________
Anthony P. D'Angelo
_\s\___________________________________
Hazel Eichelberger
Date: May 4, 1998
MANAGEMENT AGREEMENT
TO: James Investment Research, Inc.
P.O. Box 8
Alpha, Ohio 45301
Dear Sirs:
The James Advantage Funds (the "Trust") herewith confirms our agreement
with you.
The Trust has been organized to engage in the business of an investment
company. The Trust currently offers one series of shares to investors: The
Golden Rainbow Fund (the "Fund").
You have been selected to act as the sole investment adviser of the Fund
and to provide certain other services, as more fully set forth below, and you
are willing to act as such investment adviser and to perform such services under
the terms and conditions hereinafter set forth. Accordingly, the Trust agrees
with you as follows upon the date of the execution of this Agreement.
1. ADVISORY SERVICES
-----------------
You will regularly provide the Fund with such investment advice
as you in your discretion deem advisable and will furnish a continuous
investment program for the Fund consistent with the Fund's investment objectives
and policies. You will determine the securities to be purchased for the Fund,
the portfolio securities to be held or sold by the Fund and the portion of the
Fund's assets to be held uninvested, subject always to the Fund's investment
objectives, policies and restrictions, as each of the same shall be from time to
time in effect, and subject further to such policies and instructions as the
Board of Trustees of the Trust (the "Board") may from time to time establish.
You will advise and assist the officers of the Trust in taking such steps as are
necessary or appropriate to carry out the decisions of the Board and the
appropriate committees of the Board regarding the conduct of the business of the
Fund.
2. ALLOCATION OF CHARGES AND EXPENSES
----------------------------------
You will pay the compensation and expenses of any persons
rendering any services to the Fund who are officers, directors, stockholders or
employees of your corporation and will make available, without expense to the
Fund, the services of such of your employees as may duly be elected officers or
trustees of the Trust, subject to their individual consent to serve and to any
limitations imposed by law. The compensation and expenses of any officers,
trustees and employees
<PAGE>
of the Trust who are not officers, directors, employees or stockholders of your
corporation will be paid by the Fund. You will pay all advertising and promotion
expenses incurred in connection with the sale or distribution of the Fund's
shares to the extent such expenses are not permitted to be paid by the Fund
under any distribution expense plan or any other permissible arrangement which
may be adopted in the future; provided however, that neither the cost of
prospectuses or periodic reports provided to shareholders, nor expenses incurred
in complying with laws regulating the issue or sale of securities shall be
deemed expenses incurred in connection with the sale or distribution of the
Fund's shares. You may obtain reimbursement from the Fund, at such time or times
as you may determine in your sole discretion, for any of the expenses advanced
by you, which the Fund is obligated to pay, and such reimbursement shall not be
considered to be part of your compensation pursuant to this Agreement.
The Fund will pay all operating expenses of the Fund, including
brokerage fees and commissions; taxes or governmental fees; interest; fees and
expenses of the non-interested person trustees; clerical and shareholder service
staff salaries; office space and other office expenses; fees and expenses
incurred by the Fund in connection with membership in investment company
organizations; legal, auditing and accounting expenses; expenses of registering
shares under federal and state securities laws; insurance expenses; fees and
expenses of the custodian, transfer agent, dividend disbursing agent,
shareholder service agent, administrator, accounting and pricing services agent
and underwriter of the Fund; expenses, including clerical expenses, of issue,
sale, redemption or repurchase of shares of the Fund; the cost of preparing and
distributing reports and notices to shareholders, the cost of printing or
preparing prospectuses and statements of additional information for delivery to
the Fund's shareholders; expenses of shareholders' meetings and proxy
solicitations; and such extraordinary or non-recurring expenses as may arise,
including litigation to which the Fund may be a party and indemnification of the
Trust's trustees and officers with respect thereto.
3. COMPENSATION OF THE ADVISER
---------------------------
For all of the services to be rendered and payments to be made
as provided in this Agreement, as of the last business day of each month, the
Fund will pay you a fee at the annual rate of 0.74% of the average value of its
daily net assets.
The average value of the daily net assets of the Fund shall be
determined pursuant to the applicable provisions of the Declaration of Trust of
the Trust or a resolution of the Board, if required. If, pursuant to such
provisions, the determination of net asset value of the Fund is suspended for
any particular business day, then for the purposes of this paragraph, the value
of the net assets of the Fund as last determined shall be deemed to be the value
of the net assets as of the
- 2 -
<PAGE>
close of the business day, or as of such other time as the value of the Fund's
net assets may lawfully be determined, on that day. If the determination of the
net asset value of the Fund has been suspended for a period including such
month, your compensation payable at the end of such month shall be computed on
the basis of the value of the net assets of the Fund as last determined (whether
during or prior to such month).
4. EXECUTION OF PURCHASE AND SALE ORDERS
-------------------------------------
In connection with purchases or sales of portfolio securities
for the account of the Fund, it is understood that you will arrange for the
placing of all orders for the purchase and sale of portfolio securities for the
account with brokers or dealers selected by you, subject to review of this
selection by the Board from time to time. You will be responsible for the
negotiation and the allocation of principal business and portfolio brokerage. In
the selection of such brokers or dealers and the placing of such orders, you are
directed at all times to seek for the Fund the best qualitative execution,
taking into account such factors as price (including the applicable brokerage
commission or dealer spread), the execution capability, financial responsibility
and responsiveness of the broker or dealer and the brokerage and research
services provided by the broker or dealer.
You should generally seek favorable prices and commission rates
that are reasonable in relation to the benefits received. In seeking best
qualitative execution, you are authorized to select brokers or dealers who also
provide brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to the Fund and/or the other
accounts over which you exercise investment discretion. You are authorized to
pay a broker or dealer who provides such brokerage and research services a
commission for executing a Fund portfolio transaction which is in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction if you determine in good faith that the amount of the
commission is reasonable in relation to the value of the brokerage and research
services provided by the executing broker or dealer. The determination may be
viewed in terms of either a particular transaction or your overall
responsibilities with respect to the Fund and to accounts over which you
exercise investment discretion. The Fund and you understand and acknowledge
that, although the information may be useful to the Fund and you, it is not
possible to place a dollar value on such information. The Board shall
periodically review the commissions paid by the Fund to determine if the
commissions paid over representative periods of time were reasonable in relation
to the benefits to the Fund.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and subject to seeking best qualitative
execution as described above, you may give
- 3 -
<PAGE>
consideration to sales of shares of the Fund as a factor in the selection of
brokers and dealers to execute Fund portfolio transactions.
Subject to the provisions of the Investment Company Act of 1940,
as amended, and other applicable law, you, any of your affiliates or any
affiliates of your affiliates may retain compensation in connection with
effecting the Fund's portfolio transactions, including transactions effected
through others. If any occasion should arise in which you give any advice to
clients of yours concerning the shares of the Fund, you will act solely as
investment counsel for such client and not in any way on behalf of the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that you may render investment advice, management
and other services to others, including other registered investment companies.
5. LIMITATION OF LIABILITY OF ADVISER
----------------------------------
You may rely on information reasonably believed by you to be
accurate and reliable. Except as may otherwise be required by the Investment
Company Act of 1940 or the rules thereunder, neither you nor your officers,
directors, employees, agents, control persons or affiliates of any thereof shall
be subject to any liability for, or any damages, expenses or losses incurred by
the Trust in connection with, any error of judgment, mistake of law, any act or
omission connected with or arising out of any services rendered under, or
payments made pursuant to, this Agreement or any other matter to which this
Agreement relates, except by reason of willful misfeasance, bad faith or gross
negligence on the part of any such persons in the performance of your duties
under this Agreement, or by reason of reckless disregard by any of such persons
of your obligations and duties under this Agreement.
Any person, even though also a director, officer, employee or
agent of you, who may be or become an officer, director, trustee, employee or
agent of the Trust, shall be deemed, when rendering services to the Trust or
acting on any business of the Trust (other than services or business in
connection with your duties hereunder), to be rendering such services to or
acting solely for the Trust and not as a director, officer, employee or agent of
you, or one under your control or direction, even though paid by you.
6. DURATION AND TERMINATION OF THIS AGREEMENT
------------------------------------------
This Agreement shall take effect on the date of its execution by
you, and shall remain in force for a period of two (2) years from the date of
its execution, and from year to year thereafter, subject to annual approval by
(i) the Board or (ii) a vote of a majority (as defined in the Investment Company
Act of 1940) of the outstanding voting securities of the Fund, provided that in
- 4 -
<PAGE>
either event continuance is also approved by a majority of the trustees who are
not "interested persons," as defined in the Investment Company Act of 1940, of
you or the Trust, by a vote cast in person at a meeting called for the purpose
of voting such approval.
If the shareholders of the Fund fail to approve the Agreement in
the manner set forth above, upon request of the Board, you will continue to
serve or act in such capacity for the Fund for the period of time pending
required approval of the Agreement, of a new agreement with you or a different
adviser or other definitive action; provided that the compensation to be paid by
the Fund to you for your services to and payments on behalf of the Fund will be
equal to the lesser of your actual costs incurred in furnishing such services
and payments or the amount you would have received under this Agreement for
furnishing such services and payments.
This Agreement may, on sixty days written notice, be terminated
with respect to the Fund, at any time without the payment of any penalty, by the
Board, by a vote of a majority of the outstanding voting securities of the Fund,
or by you. This Agreement shall automatically terminate in the event of its
assignment.
7. USE OF NAME
-----------
The Trust and you acknowledge that all rights to the names
"Golden Rainbow," "James Advantage," or any variation thereof, belongs to you,
and that the Trust is being granted a limited license to use such words in its
Fund name or in any class name. In the event you cease to be the adviser to the
Fund, the Trust's right to the use of the names "Golden Rainbow," "James
Advantage," or any variation thereof, shall automatically cease on the ninetieth
day following the termination of this Agreement. The right to the name may also
be withdrawn by you during the term of this Agreement upon ninety (90) days'
written notice by you to the Trust. Nothing contained herein shall impair or
diminish in any respect, your right to use the names "Golden Rainbow," "James
Advantage," or any variation thereof, in the name of, or in connection with, any
other business enterprises with which you are or may become associated. There is
no charge to the Trust for the right to use these names.
8. AMENDMENT OF THIS AGREEMENT
---------------------------
No provision of this Agreement may be changed, waived,
discharged or terminated orally, and no amendment of this Agreement shall be
effective until approved by the Board, including a majority of the trustees who
are not interested persons of you or of the Trust, cast in person at a meeting
called for the purpose of voting on such approval, and (if required under
current
- 5-
<PAGE>
interpretations of the Act by the Securities and Exchange Commission) by vote of
the holders of a majority of the outstanding voting securities of the series to
which the amendment relates.
- 6 -
<PAGE>
9. LIMITATION OF LIABILITY TO TRUST PROPERTY
-----------------------------------------
The term "The James Advantage Funds" means and refers to the
Trustees from time to time serving under the Trust's Declaration of Trust as the
same may subsequently thereto have been, or subsequently hereto be, amended. It
is expressly agreed that the obligations of the Trust hereunder shall not be
binding upon any of the trustees, shareholders, nominees, officers, agents or
employees of the Trust personally, but bind only the trust property of the
Trust, as provided in the Declaration of Trust of the Trust. The execution and
delivery of this Agreement have been authorized by the trustees and shareholders
of the Trust and signed by officers of the Trust, acting as such, and neither
such authorization by such trustees and shareholders nor such execution and
delivery by such officers shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the trust property of the Trust as provided in its Declaration of
Trust. A copy of the Agreement and Declaration of Trust of the Trust is on file
with the Secretary of the State of Ohio.
10. SEVERABILITY
------------
In the event any provision of this Agreement is determined to be
void or unenforceable, such determination shall not affect the remainder of this
Agreement, which shall continue to be in force.
11. QUESTIONS OF INTERPRETATION
---------------------------
(a) This Agreement shall be governed by the laws of the State of
Ohio.
(b) Any question of interpretation of any term or provision of
this Agreement having a counterpart in or otherwise derived from a term or
provision of the Investment Company Act of 1940, as amended (the "Act") shall be
resolved by reference to such term or provision of the Act and to interpretation
thereof, if any, by the United States courts or in the absence of any
controlling decision of any such court, by rules, regulations or orders of the
Securities and Exchange Commission issued pursuant to said Act. In addition,
where the effect of a requirement of the Act, reflected in any provision of this
Agreement is revised by rule, regulation or order of the Securities and Exchange
Commission, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
12. NOTICES
-------
- 7 -
<PAGE>
Any notices under this Agreement shall be in writing, addressed
and delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further notice
to the other party, it is agreed that the address of the Trust is 1349
Fairground Road, Beavercreek, Ohio 45385, and your address for this purpose
shall be P.O. Box 8, Alpha, Ohio 45301.
13. COUNTERPARTS
------------
This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
14. BINDING EFFECT
--------------
Each of the undersigned expressly warrants and represents that
he has the full power and authority to sign this Agreement on behalf of the
party indicated, and that his signature will operate to bind the party indicated
to the foregoing terms.
15. CAPTIONS
--------
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
If you are in agreement with the foregoing, please sign the form
of acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
upon the date thereof.
Yours very truly,
The James Advantage Funds
By \S\
-------------------------
Barry Ray James, President
Dated: May 4, 1998
- 8 -
<PAGE>
ACCEPTANCE
----------
The foregoing Agreement is hereby accepted.
James Investment Research, Inc.
By \S\
Francis E. James, Jr., President
Dated: May 4, 1998
- 9 -
UNDERWRITING AGREEMENT
----------------------
This Agreement made as of May 20, 1998 by and between The James
Advantage Funds (the "Trust"), an Ohio business trust and an open-end registered
investment company, and CW Fund Distributors, Inc., a Delaware corporation
("Underwriter").
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Trust Act of 1940, as amended (the "Act"); and
WHEREAS, Underwriter is a broker-dealer registered with the
Securities and Exchange Commission and a member of the National
Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, the Trust and Underwriter are desirous of entering into an
agreement providing for the distribution by Underwriter of shares of beneficial
interest (the "Shares") of each series of shares of the Trust (the "Series");
NOW, THEREFORE, in consideration of the promises and
agreements of the parties contained herein, the parties agree as
follows:
1. APPOINTMENT.
-----------
The Trust hereby appoints Underwriter as its exclusive agent
for the distribution of the Shares, and Underwriter hereby accepts such
appointment under the terms of this Agreement. While this Agreement is in force,
the Trust shall not sell any Shares except on the terms set forth in this
Agreement. Notwithstanding any other provision hereof, the Trust may terminate,
suspend or withdraw the offering of Shares whenever, in its sole discretion, it
deems such action to be desirable.
<PAGE>
2. SALE AND REPURCHASE OF SHARES.
-----------------------------
(a) Underwriter will have the right, as agent for the
Trust, to enter into dealer agreements with responsible investment dealers, and
to sell Shares to such investment dealers against orders therefor at the public
offering price (as defined in subparagraph 2(d) hereof) stated in the Trust's
effective Registration Statement on Form N-1A under the Securities Act of 1933,
as amended, including the then current prospectus and statement of additional
information (the "Registration Statement"). Upon receipt of an order to purchase
Shares from a dealer with whom Underwriter has a dealer agreement, Underwriter
will promptly cause such order to be filled by the Trust.
(b) Underwriter will also have the right, as agent for the
Trust, to sell such Shares to the public against orders therefor at the public
offering price.
(c) Underwriter will also have the right to take, as agent for
the Trust, all actions which, in Underwriter's judgment, are necessary to carry
into effect the distribution of the Shares.
(d) The public offering price for the Shares of each Series
shall be the respective net asset value of the Shares of that Series then in
effect, plus any applicable sales charge determined in the manner set forth in
the Registration Statement or as permitted by the Act and the rules and
regulations of the Securities and Exchange Commission promulgated thereunder. In
no
- 2 -
<PAGE>
event shall any applicable sales charge exceed the maximum sales charge
permitted by the Rules of the NASD.
(e) The net asset value of the Shares of each Series shall be
determined in the manner provided in the Registration Statement, and when
determined shall be applicable to transactions as provided for in the
Registration Statement. The net asset value of the Shares of each Series shall
be calculated by the Trust or by another entity on behalf of the Trust.
Underwriter shall have no duty to inquire into or liability for the accuracy of
the net asset value per Share as calculated.
(f) On every sale, the Trust shall receive the applicable net
asset value of the Shares promptly, but in no event later than the third
business day following the date on which Underwriter shall have received an
order for the purchase of the Shares.
(g) Upon receipt of purchase instructions, Underwriter will
transmit such instructions to the Trust or its transfer agent for registration
of the Shares purchased.
(h) Nothing in this Agreement shall prevent Underwriter or any
affiliated person (as defined in the Act) of Underwriter from acting as
underwriter or distributor for any other person, firm or corporation (including
other investment companies) or in any way limit or restrict Underwriter or any
such affiliated person from buying, selling or trading any securities for its or
their own account or for the accounts of
- 3 -
<PAGE>
others for whom it or they may be acting; provided, however, that Underwriter
expressly represents that it will undertake no activities which, in its
judgment, will adversely affect the performance of its obligations to the Trust
under this Agreement.
(i) Underwriter, as agent of and for the account of the Trust,
may repurchase the Shares at such prices and upon such terms and conditions as
shall be specified in the Registration Statement.
3. SALE OF SHARES BY THE TRUST.
---------------------------
The Trust reserves the right to issue any Shares at any time
directly to the holders of Shares ("Shareholders"), to sell Shares to its
Shareholders or to other persons at not less than net asset value and to issue
Shares in exchange for substantially all the assets of any corporation or trust
or for the shares of any corporation or trust.
4. BASIS OF SALE OF SHARES.
-----------------------
Underwriter does not agree to sell any specific number of
Shares. Underwriter, as agent for the Trust, undertakes to sell Shares on a best
efforts basis only against orders therefor.
5. RULES OF NASD, ETC.
------------------
(a) Underwriter will conform to the Rules of the NASD and the
securities laws of any jurisdiction in which it sells, directly or indirectly,
any Shares.
(b) Underwriter will require each dealer with whom Underwriter
has a dealer agreement to conform to the applicable
- 4 -
<PAGE>
provisions hereof and the Registration Statement with respect to the public
offering price of the Shares, and neither Underwriter nor any such dealers shall
withhold the placing of purchase orders so as to make a profit thereby.
(c) Underwriter agrees to furnish to the Trust sufficient
copies of any agreements, plans or other materials it intends to use in
connection with any sales of Shares in adequate time for the Trust to file and
clear them with the proper authorities before they are put in use, and not to
use them until so filed and cleared.
(d) Underwriter, at its own expense, will qualify as dealer or
broker, or otherwise, under all applicable state or federal laws required in
order that Shares may be sold in such States as may be mutually agreed upon by
the parties.
(e) Underwriter shall not make, or permit any representative,
broker or dealer to make, in connection with any sale or solicitation of a sale
of the Shares, any representations concerning the Shares except those contained
in the then current prospectus and statement of additional information covering
the Shares and in printed information approved by the Trust as information
supplemental to such prospectus and statement of additional information. Copies
of the then effective prospectus and statement of additional information and any
such printed supplemental information will be supplied by the Trust to
Underwriter in reasonable quantities upon request.
- 5 -
<PAGE>
6. RECORDS TO BE SUPPLIED BY TRUST.
-------------------------------
The Trust shall furnish to Underwriter copies of all
information, financial statements and other papers which Underwriter may
reasonably request for use in connection with the distribution of the Shares,
and this shall include, but shall not be limited to, one certified copy, upon
request by Underwriter, of all financial statements prepared for the Trust by
independent public accountants.
7. FEES AND EXPENSES.
-----------------
For performing its services under this Agreement, Underwriter
will receive from the Trust a fee of $5,000 per year. Fees shall be paid monthly
in arrears. The Trust shall promptly reimburse Underwriter for any expenses
which are to be paid by the Trust in accordance with the following paragraph.
In the performance of its obligations under this Agreement,
Underwriter will pay only the costs incurred in qualifying as a broker or dealer
under state and federal laws and in establishing and maintaining its
relationships with the dealers selling the Shares. All other costs in connection
with the offering of the Shares will be paid by the Trust in accordance with
agreements between them as permitted by applicable law, including the Act and
rules and regulations promulgated thereunder. These costs include, but are not
limited to, licensing fees, filing fees, travel and such other expenses as may
be incurred by Underwriter on behalf of the Trust.
- 6 -
<PAGE>
8. INDEMNIFICATION OF TRUST.
------------------------
Underwriter agrees to indemnify and hold harmless the Trust
and each person who has been, is, or may hereafter be a trustee, director,
officer, employee, shareholder or control person of the Trust against any loss,
damage or expense (including the reasonable costs of investigation) reasonably
incurred by any of them in connection with any claim or in connection with any
action, suit or proceeding to which any of them may be a party, which arises out
of or is alleged to arise out of or is based upon any untrue statement or
alleged untrue statement of a material fact, or the omission or alleged omission
to state a material fact necessary to make the statements not misleading, on the
part of Underwriter or any agent or employee of Underwriter or any other person
for whose acts Underwriter is responsible, unless such statement or omission was
made in reliance upon written information furnished by the Trust. Underwriter
likewise agrees to indemnify and hold harmless the Trust and each such person in
connection with any claim or in connection with any action, suit or proceeding
which arises out of or is alleged to arise out of Underwriter's failure to
exercise reasonable care and diligence with respect to its services, if any,
rendered in connection with investment, reinvestment, automatic withdrawal and
other plans for Shares. The term "expenses" for purposes of this and the next
paragraph includes amounts paid in satisfaction of judgments or in
- 7 -
<PAGE>
settlements which are made with Underwriter's consent. The foregoing rights of
indemnification shall be in addition to any other rights to which the Trust or
each such person may be entitled as a matter of law.
9. INDEMNIFICATION OF UNDERWRITER.
------------------------------
The Trust agrees to indemnify and hold harmless Underwriter
and each person who has been, is, or may hereafter be a director, officer,
employee, shareholder or control person of Underwriter against any loss, damage
or expense (including the reasonable costs of investigation) reasonably incurred
by any of them in connection with the matters to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith or negligence,
including clerical errors and mechanical failures, on the part of any of such
persons in the performance of Underwriter's duties or from the reckless
disregard by any of such persons of Underwriter's obligations and duties under
this Agreement, for all of which exceptions Underwriter shall be liable to the
Trust. The Trust will advance attorneys' fees or other expenses incurred by any
such person in defending a proceeding, upon the undertaking by or on behalf of
such person to repay the advance if it is ultimately determined that such person
is not entitled to indemnification.
In order that the indemnification provisions contained in this
Paragraph 9 shall apply, it is understood that if in any case the Trust may be
asked to indemnify Underwriter or any other person or hold Underwriter or any
other person harmless, the
- 8 -
<PAGE>
Trust shall be fully and promptly advised of all pertinent facts concerning the
situation in question, and it is further understood that Underwriter will use
all reasonable care to identify and notify the Trust promptly concerning any
situation which presents or appears likely to present the probability of such a
claim for indemnification against the Trust. The Trust shall have the option to
defend Underwriter and any such person against any claim which may be the
subject of this indemnification, and in the event that the Trust so elects it
will so notify Underwriter, and thereupon the Trust shall take over complete
defense of the claim, and neither Underwriter nor any such person shall in such
situation initiate further legal or other expenses for which it shall seek
indemnification under this Paragraph 9. Underwriter shall in no case confess any
claim or make any compromise in any case in which the Trust will be asked to
indemnify Underwriter or any such person except with the Trust's written
consent.
Notwithstanding any other provision of this Agreement,
Underwriter shall be entitled to receive and act upon advice of counsel (who may
be counsel for the Trust or its own counsel) and shall be without liability for
any action reasonably taken or thing reasonably done pursuant to such advice,
provided that such action is not in violation of applicable federal or state
laws or regulations.
- 9 -
<PAGE>
10. TERMINATION AND AMENDMENT OF THIS AGREEMENT.
-------------------------------------------
This Agreement shall automatically terminate, without the
payment of any penalty, in the event of its assignment. This Agreement may be
amended only if such amendment is approved (i) by Underwriter, (ii) either by
action of the Board of Trustees of the Trust or at a meeting of the Shareholders
of the Trust by the affirmative vote of a majority of the outstanding Shares,
and (iii) by a majority of the Trustees of the Trust who are not interested
persons of the Trust or of Underwriter by vote cast in person at a meeting
called for the purpose of voting on such approval.
Either the Trust or Underwriter may at any time terminate this
Agreement on sixty (60) days' written notice delivered or mailed by registered
mail, postage prepaid, to the other party.
11. EFFECTIVE PERIOD OF THIS AGREEMENT.
----------------------------------
This Agreement shall take effect upon its execution and shall
remain in full force and effect for a period of two (2) years from the date of
its execution (unless terminated automatically as set forth in Section 10), and
from year to year thereafter, subject to annual approval (i) by Underwriter,
(ii) by the Board of Trustees of the Trust or a vote of a majority of the
outstanding Shares, and (iii) by a majority of the Trustees of the Trust who are
not interested persons of the Trust or of
- 10 -
<PAGE>
Underwriter by vote cast in person at a meeting called for the purpose of voting
on such approval.
12. NEW SERIES.
----------
The terms and provisions of this Agreement shall become
automatically applicable to any additional series of the Trust established
during the initial or renewal term of this Agreement.
13. SUCCESSOR INVESTMENT TRUST.
--------------------------
Unless this Agreement has been terminated in accordance with
Paragraph 10, the terms and provisions of this Agreement shall become
automatically applicable to any investment company which is a successor to the
Trust as a result of reorganization, recapitalization or change of domicile.
14. LIMITATION OF LIABILITY.
-----------------------
It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust, personally, but bind only the trust
property of the Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust and signed by an officer of the Trust,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Trust.
- 11 -
<PAGE>
15. SEVERABILITY.
------------
In the event any provision of this Agreement is determined to
be void or unenforceable, such determination shall not affect the remainder of
this Agreement, which shall continue to be in force.
16. QUESTIONS OF INTERPRETATION.
---------------------------
(a) This Agreement shall be governed by the laws of the State
of Ohio.
(b) Any question of interpretation of any term or provision of
this Agreement having a counterpart in or otherwise derived from a term or
provision of the Act shall be resolved by reference to such term or provision of
the Act and to interpretation thereof, if any, by the United States courts or in
the absence of any controlling decision of any such court, by rules, regulations
or orders of the Securities and Exchange Commission issued pursuant to said Act.
In addition, where the effect of a requirement of the Act, reflected in any
provision of this Agreement is revised by rule, regulation or order of the
Securities and Exchange Commission, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
17. NOTICES.
-------
Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is
- 12 -
<PAGE>
agreed that the address of the Trust for this purpose shall be 1349 Fairground
Road, Beavercreek, Ohio 45385, and that the address of Underwriter for this
purpose shall be 312 Walnut Street, Cincinnati, Ohio 45202.
18. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts,
and by the parties hereto on separate counterparts, each of which shall be
deemed an original but all of which together shall constitute but one and the
same instrument.
IN WITNESS WHEREOF, the Trust and Underwriter have each caused
this Agreement to be signed in duplicate on their behalf, all as of the day and
year first above written.
ATTEST: THE JAMES ADVANTAGE FUNDS
/S/ THOMAS L. MANGAN By: /S/ BARRY R. JAMES
- -------------------- ----------------------
Its:President
ATTEST: CW FUND DISTRIBUTORS, INC.
/S/ JOHN F. SPLAIN By: /S/ ROBERT G. DORSEY
- ------------------ ------------------------
Its:President
- 13 -
CUSTODY AGREEMENT
BETWEEN
STAR BANK, N.A.
AND
JAMES ADVANTAGE FUNDS
<PAGE>
TABLE OF CONTENTS
APPENDIX A
APPENDIX B
APPENDIX C
APPENDIX D
APPENDIX E
<PAGE>
CUSTODY AGREEMENT
This agreement (the "Agreement") is entered into as of the 20th day of
May, 1998, by and between the JAMES ADVANTAGE FUNDS, an Ohio business trust (the
"Trust") and Star Bank, National Association, (the "Custodian"), a national
banking association having its principal office at 425 Walnut Street,
Cincinnati, Ohio, 45202.
WHEREAS, the Trust and the Custodian desire to enter into this
Agreement to provide for the custody and safekeeping of the assets of the Trust
as required by the Act (as hereafter defined).
THEREFORE, in consideration of the mutual promises hereinafter set
forth, the Trust and the Custodian agree as follows:
DEFINITIONS
- -----------
The following words and phrases, when used in this Agreement, unless
the context otherwise requires, shall have the following meanings:
ACT - the Investment Company Act of 1940, as amended.
1934 ACT - the Securities and Exchange Act of 1934, as amended.
AUTHORIZED PERSON - any person, whether or not any such person is an
officer or employee of the Trust, who is duly authorized by the Board of
Trustees of the Trust to give Oral Instructions and Written Instructions on
behalf of the Trust or any Fund, and named in Appendix A attached hereto and as
amended from time to time by resolution of the Board of Trustees, certified by
an Officer, and received by the Custodian.
<PAGE>
BOARD OF TRUSTEES - the Trustees from time to time serving under the
Trust's Agreement and Declaration of Trust, as from time to time amended.
BOOK-ENTRY SYSTEM - a federal book-entry system as provided in Subpart
O of Treasury Circular No. 300, 31 CFR 306, in Subpart B of 31 CFT Part 350, or
in such book-entry regulations of federal agencies as are substantially in the
form of Subpart O.
BUSINESS DAY - any day recognized as a settlement day by The New York
Stock Exchange, Inc. and any other day for which the Trust computes the net
asset value of Shares of any fund.
DEPOSITORY - The Depository Trust Company ("DTC"), a limited purpose
trust company, its successor(s) and its nominee(s). Depository shall include any
other clearing agency registered with the SEC under Section 17A of the 1934 Act
which acts as a system for the central handling of Securities where all
Securities of any particular class or series of an issuer deposited within the
system are treated as fungible and may be transferred or pledged by bookkeeping
entry without physical delivery of the Securities provided that the Custodian
shall have received a copy of a resolution of the Board of Trustees, certified
by an Officer, specifically approving the use of such clearing agency as a
depository for the Funds.
DIVIDEND AND TRANSFER AGENT - the dividend and transfer agent
appointed, from time to time, pursuant to a written agreement between the
dividend and transfer agent and the Trust.
FOREIGN SECURITIES - a) securities issued and sold primarily outside of
the United States by a foreign government, a national of any foreign country, or
a trust or other organization incorporated or organized under the laws of any
foreign country or; b) securities issued or guaranteed by the government of the
United States, by any state, by any political subdivision or agency thereof, or
by any entity organized under the laws of the United States or of any state
- 2 -
<PAGE>
thereof, which have been issued and sold primarily outside of the United States.
FUND - each series of the Trust listed in Appendix B and any additional
series added pursuant to Proper Instructions. A series is individually referred
to as a "Fund" and collectively referred to as the "Funds."
MONEY MARKET SECURITY - debt obligations issued or guaranteed as to
principal and/or interest by the government of the United States or agencies or
instrumentalities thereof, commercial paper, obligations (including certificates
of deposit, bankers' acceptances, repurchase agreements and reverse repurchase
agreements with respect to the same), and time deposits of domestic banks and
thrift institutions whose deposits are insured by the Federal Deposit Insurance
Corporation, and short-term corporate obligations where the purchase and sale of
such securities normally require settlement in federal funds or their equivalent
on the same day as such purchase and sale, all of which mature in not more than
thirteen (13) months.
NASD - the National Association of Securities Dealers, Inc.
OFFICER - the Chairman, President, Secretary, Treasurer, any Vice
President, Assistant Secretary or Assistant Treasurer of the Trust.
ORAL INSTRUCTIONS - instructions orally transmitted to and received by
the Custodian from an Authorized Person (or from a person that the Custodian
reasonably believes in good faith to be an Authorized Person) and confirmed by
Written Instructions in such a manner that such Written Instructions are
received by the Custodian on the Business Day immediately following receipt of
such Oral Instructions.
PROPER INSTRUCTIONS - Oral Instructions or Written Instructions. Proper
Instructions may be continuing Written Instructions when deemed appropriate by
both parties.
PROSPECTUS - the Trust's then currently effective prospectus and
Statement of Additional Information,
- 3 -
<PAGE>
as filed with and declared effective from time to time by the Securities and
Exchange Commission.
SECURITY OR SECURITIES - Money Market Securities, common stock,
preferred stock, options, financial futures, bonds, notes, debentures, corporate
debt securities, mortgages, bank certificates of deposit, bankers' acceptances,
mortgage-backed securities or other obligations and any certificates, receipts,
warrants, or other instruments or documents representing rights to receive,
purchase, or subscribe for the same or evidencing or representing any other
rights or interest therein, or any similar property or assets, including
securities of any registered investment company, that the Custodian has the
facilities to clear and to service.
SEC - the Securities and Exchange Commission of the United States of
America.
SHARES - with respect to a Fund, the units of beneficial interest
issued by the Trust on account of such Fund.
TRUST - the business trust organized under the laws of Delaware which
is an open-end diversified investment company registered under the Act.
WRITTEN INSTRUCTIONS - communications in writing actually received by
the Custodian from an Authorized Person. A communication in writing includes a
communication by facsimile, telex or between electro-mechanical or electronic
devices (where the use of such devices have been approved by resolution of the
Board of Trustees and the resolution is certified by an Officer and delivered to
the Custodian). All written communications shall be directed to the Custodian,
attention: Mutual Fund Custody Department.
ARTICLE II
APPOINTMENT; ACCEPTANCE; AND FURNISHING OF DOCUMENTS
----------------------------------------------------
II. A. APPOINTMENT OF CUSTODIAN. The Trust hereby constitutes and
appoints the
- 4 -
<PAGE>
Custodian as custodian of all Securities and cash owned by the Trust at any time
during the term of this Agreement.
- 5 -
<PAGE>
II. B. ACCEPTANCE OF CUSTODIAN. The Custodian hereby accepts
appointment as such custodian and agrees to perform the duties thereof as
hereinafter set forth.
II. C. DOCUMENTS TO BE FURNISHED. The following documents, including
any amendments thereto, will be provided contemporaneously with the execution of
the Agreement, to the Custodian by the Trust:
1. A copy of the Declaration of Trust of the Trust certified
by the Secretary.
2. A copy of the By-Laws of the Trust certified by the
Secretary.
3. A copy of the resolution of the Board of Trustees of the
Trust appointing the Custodian, certified by the
Secretary.
4. A copy of the then current Prospectus.
5. A Certificate of the President and Secretary of the Trust
setting forth the names and signatures of all Authorized
Persons.
II. D. NOTICE OF APPOINTMENT OF DIVIDEND AND TRANSFER AGENT. The Trust
agrees to notify the Custodian in writing of the appointment, termination or
change in appointment of any Dividend and Transfer Agent.
ARTICLE III
RECEIPT OF TRUST ASSETS
-----------------------
III. A. DELIVERY OF MONEYS. During the term of this Agreement, the
Trust will deliver or cause to be delivered to the Custodian all moneys to be
held by the Custodian for the account of any Fund. The Custodian shall be
entitled to reverse any deposits made on any Fund's behalf where such deposits
have been entered and moneys are not finally collected within 30 days of the
making of such entry.
III. B. DELIVERY OF SECURITIES. During the term of this Agreement, the
Trust will deliver
- 6 -
<PAGE>
or cause to be delivered to the Custodian all Securities to be held by the
Custodian for the account of any Fund. The Custodian will not have any duties or
responsibilities with respect to such Securities until actually received by the
Custodian. The Custodian is hereby authorized by the Trust, acting on behalf of
the Fund, to actually deposit any assets of the Fund in the Book-Entry System or
in a Depository, provided, however, that the Custodian shall always be
accountable to the Trust for the assets of the Fund so deposited. Assets
deposited in the Book- Entry System or the Depository will be represented in
accounts which include only assets held by the Custodian for customers,
including but not limited to accounts in which the Custodian acts in a fiduciary
or representative capacity.
III. C. PAYMENTS FOR SHARES. As and when received, the Custodian shall
deposit to the account(s) of a Fund any and all payments for Shares of that Fund
issued or sold from time to time as they are received from the Trust's
distributor or Dividend and Transfer Agent or from the Trust itself.
III. D. DUTIES UPON RECEIPT. The Custodian shall not be responsible for
any Securities, moneys or other assets of any Fund until actually received.
ARTICLE IV
DISBURSEMENT OF TRUST ASSETS
----------------------------
IV. A. DECLARATION OF DIVIDENDS BY TRUST. The Trust shall furnish to
the Custodian a copy of the resolution of the Board of Trustees of the Trust,
certified by the Trust's Secretary, either (i) setting forth the date of the
declaration of any dividend or distribution in respect of Shares of any Fund of
the Trust, the date of payment thereof, the record date as of which the Fund
shareholders entitled to payment shall be determined, the amount payable per
share to Fund shareholders of record as of that date, and the total amount to be
paid by the Dividend and
- 7 -
<PAGE>
Transfer Agent on the payment date, or (ii) authorizing the declaration of
dividends and distributions in respect of Shares of a Fund on a daily basis and
authorizing the Custodian to rely on Written Instructions setting forth the date
of the declaration of any such dividend or distribution, the date of payment
thereof, the record date as of which the Fund shareholders entitled to payment
shall be determined, the amount payable per share to Fund shareholders of record
as of that date, and the total amount to be paid by the Dividend and Transfer
Agent on the payment date.
On the payment date specified in the resolution or Written Instructions
described above, the Custodian shall segregate such amounts from moneys held for
the account of the Fund so that they are available for such payment.
IV. B. SEGREGATION OF REDEMPTION PROCEEDS. Upon receipt of Proper
Instructions so directing it, the Custodian shall segregate amounts necessary
for the payment of redemption
- 8 -
<PAGE>
proceeds to be made by the Dividend and Transfer Agent from moneys held for the
account of the Fund so that they are available for such payment.
IV. C. DISBURSEMENTS OF CUSTODIAN. Upon receipt of a Certificate
directing payment and setting forth the name and address of the person to whom
such payment is to be made, the amount of such payment, the name of the Fund
from which payment is to be made, and the purpose for which payment is to be
made, the Custodian shall disburse amounts as and when directed from the assets
of that Fund. The Custodian is authorized to rely on such directions and shall
be under no obligation to inquire as to the propriety of such directions.
IV. D. PAYMENT OF CUSTODIAN FEES. Upon receipt of Written Instructions
directing payment, the Custodian shall disburse moneys from the assets of the
Trust in payment of the Custodian's fees and expenses as provided in Article
VIII hereof.
ARTICLE V
CUSTODY OF TRUST ASSETS
-----------------------
V. A. SEPARATE ACCOUNTS FOR EACH FUND. As to each Fund, the Custodian
shall open and maintain a separate bank account or accounts in the United States
in the name of the Trust coupled with the name of such Fund, subject only to
draft or order by the Custodian acting pursuant to the terms of this Agreement,
and shall hold all cash received by it from or for the account of the Fund,
other than cash maintained by the Fund in a bank account established and used by
the Fund in accordance with Rule 17f-3 under the Act. Moneys held by the
Custodian on behalf of a Fund may be deposited by the Custodian to its credit as
Custodian in the banking department of the Custodian. Such moneys shall be
deposited by the Custodian in its capacity as such, and shall be withdrawable by
the Custodian only in such capacity.
V. B. SEGREGATION OF NON-CASH ASSETS. All Securities and non-cash
property held by
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<PAGE>
the Custodian for the account of a Fund (other than Securities maintained in a
Depository or Book-entry System) shall be physically segregated from other
Securities and non-cash property in the possession of the Custodian (including
the Securities and non-cash property of the other Funds) and shall be identified
as subject to this Agreement.
V. C. SECURITIES IN BEARER AND REGISTERED FORM. All Securities held
which are issued or issuable only in bearer form, shall be held by the Custodian
in that form; all other Securities held for the Fund may be registered in the
name of the Custodian, any sub-custodian appointed in accordance with this
Agreement, or the nominee of any of them. The Trust agrees to furnish to the
Custodian appropriate instruments to enable the Custodian to hold, or deliver in
proper form for transfer, any Securities that it may hold for the account of any
Fund and which may, from time to time, be registered in the name of a Fund.
V. D. DUTIES OF CUSTODIAN AS TO SECURITIES. Unless otherwise instructed
by the Trust, with respect to all Securities held for the Trust, the Custodian
shall on a timely basis (concerning items 1 and 2 below, as defined in the
Custodian's Standards of Service Guide, as amended from time to time, annexed
hereto as Appendix D):
1.) Collect all income due and payable with respect to such
Securities;
2.) Present for payment and collect amounts payable upon all
Securities which may mature or be called, redeemed, or retired, or otherwise
become payable;
3.) Surrender interim receipts or Securities in temporary form
for Securities in definitive form; and
4.) Execute, as Custodian, any necessary declarations or
certificates of ownership under the Federal income tax laws or the laws or
regulations of any other taxing authority, including any foreign taxing
authority, now or hereafter in effect.
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<PAGE>
V. E. CERTAIN ACTIONS UPON WRITTEN INSTRUCTIONS. Upon receipt of a
Written Instructions and not otherwise, the Custodian shall:
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1.) Execute and deliver to such persons as may be designated
in such Written Instructions proxies, consents, authorizations, and any other
instruments whereby the authority of the Trust as beneficial owner of any
Securities may be exercised;
2.) Deliver any Securities in exchange for other Securities or
cash issued or paid in connection with the liquidation, reorganization,
refinancing, merger, consolidation, or recapitalization of any corporation, or
the exercise of any conversion privilege;
3.) Deliver any Securities to any protective committee,
reorganization committee, or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization, or sale of assets of any
corporation, and receive and hold under the terms of this Agreement such
certificates of deposit, interim receipts or other instruments or documents as
may be issued to it to evidence such delivery;
4.) Make such transfers or exchanges of the assets of any Fund
and take such other steps as shall be stated in the Written Instructions to be
for the purpose of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the Trust; and
5.) Deliver any Securities held for any Fund to the depository
agent for tender or other similar offers.
V. F. CUSTODIAN TO DELIVER PROXY MATERIALS. The Custodian shall
promptly deliver to the Trust all notices, proxy material and executed but
unvoted proxies pertaining to shareholder meetings of Securities held by any
Fund. The Custodian shall not vote or authorize the voting of any Securities or
give any consent, waiver or approval with respect thereto unless so directed by
Written Instructions.
V. G. CUSTODIAN TO DELIVER TENDER OFFER INFORMATION. The Custodian
shall promptly
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<PAGE>
deliver to the Trust all information received by the Custodian and pertaining to
Securities held by any Fund with respect to tender or exchange offers, calls for
redemption or purchase, or expiration of rights as described in the Standards of
Service Guide attached as Appendix D. If the Trust desires to take action with
respect to any tender offer, exchange offer or other similar transaction, the
Trust shall notify the Custodian at least five Business Days prior to the date
on which the Custodian is to take such action. The Trust will provide or cause
to be provided to the Custodian all relevant information for any Security which
has unique put/option provisions at least five Business Days prior to the
beginning date of the tender period.
V. H. CUSTODIAN TO DELIVER SECURITY AND TRANSACTION INFORMATION. On
each Business Day that the Federal Reserve Bank is open, the Custodian shall
furnish the Trust with a detailed statement of monies held for the Fund under
this Agreement and with confirmations and a summary of all transfers to or from
the account of the Fund. At least monthly and from time to time, the Custodian
shall furnish the Trust with a detailed statement of the Securities held for the
Fund under this Agreement. Where Securities are transferred to the account of
the Fund without physical delivery, the Custodian shall also identify as
belonging to the Fund a quantity of Securities in a fungible bulk of Securities
registered in the name of the Custodian (or its nominee) or shown on the
Custodian's account on the books of the Book-Entry System or the Depository.
With respect to information provided by this section, it shall not be necessary
for the Custodian to provide notice as described by Article XI Section F.
Notices to Trust; it shall be sufficient to communicate by such means as shall
be mutually agreeable to the Trust and the Custodian.
ARTICLE VI
PURCHASE AND SALE OF SECURITIES
-------------------------------
VI. A. PURCHASE OF SECURITIES. Promptly after each purchase of
Securities by the
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Trust, the Trust shall deliver to the Custodian (i) with respect to each
purchase of Securities which are not Money Market Securities, Written
Instructions, and (ii) with respect to each purchase of Money Market Securities,
Proper Instructions, specifying with respect to each such purchase the;
1.) name of the issuer and the title of the Securities,
2.) the number of shares, principal amount purchased (and
accrued interest, if any) or other units purchased,
3.) date of purchase and settlement,
4.) purchase price per unit,
5.) total amount payable,
6.) name of the person from whom, or the broker through which,
the purchase was made,
7.) the name of the person to whom such amount is payable, and
8.) the Fund for which the purchase was made. The Custodian
shall, against receipt of Securities purchased by or for the Trust, pay out of
the moneys held for the account of such Fund the total amount specified in the
Written Instructions, or Oral Instructions, if applicable, to the person named
therein. The Custodian shall not be under any obligation to pay out moneys to
cover the cost of a purchase of Securities for a Fund, if in the relevant Fund
custody account there is insufficient cash available to the Fund for which such
purchase was made. With respect to any repurchase agreement transaction for the
Funds, the Custodian shall assure that the collateral reflected on the
transaction advice is received by the Custodian.
VI. B. SALE OF SECURITIES. Promptly after each sale of Securities by a
Fund, the Trust shall deliver to the Custodian (i) with respect to each sale of
Securities which are not Money Market
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<PAGE>
Securities, Written Instructions, and (ii) with respect to each sale of Money
Market Securities, Proper Instructions, specifying with respect to each such
sale the:
1.) name of the issuer and the title of the Securities,
2.) number of shares, principal amount sold (and accrued
interest, if any) or other units sold,
3.) date of sale and settlement,
4.) sale price per unit,
5.) total amount receivable,
6.) name of the person to whom, or the broker through which,
the sale was made,
7.) name of the person to whom such Securities are to be
delivered, and
8.) Fund for which the sale was made.
The Custodian shall deliver the Securities against receipt of the total amount
specified in the Written Instructions, or Oral Instructions, if applicable.
VI. C. DELIVERY VERSUS PAYMENT FOR PURCHASES AND SALES. Purchases and
sales of Securities effected by the Custodian will be made on a delivery versus
payment basis. The Custodian may, in its sole discretion, upon receipt of
Written Instructions, elect to settle a purchase or sale transaction in some
other manner, but only upon receipt of acceptable indemnification from the Fund.
VI. D. PAYMENT ON SETTLEMENT DATE. On contractual settlement date, the
account of the Fund will be charged for all purchased Securities settling on
that day, regardless of whether or not delivery is made. Likewise, on
contractual settlement date, proceeds from the sale of Securities settling that
day will be credited to the account of the Fund, irrespective of delivery.
VI. E. SEGREGATED ACCOUNTS. The Custodian shall, upon receipt of Proper
Instructions so
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<PAGE>
directing it, establish and maintain a segregated account or accounts for and on
behalf of a Fund. Cash and/or Securities may be transferred into such account or
accounts for specific purposes, to-wit:
1.) in accordance with the provision of any agreement among
the Trust, the Custodian, and a broker-dealer registered under the 1934 Act, and
also a member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of the
Options Clearing Corporation and of any registered national securities exchange,
the Commodity Futures Trading Commission, any registered contract market, or any
similar organization or organizations requiring escrow or other similar
arrangements in connection with transactions by the Fund;
2.) for purposes of segregating cash or Securities in
connection with options purchased, sold, or written by the Fund or commodity
futures contracts or options thereon purchased or sold by the Fund;
3.) for the purpose of compliance by the Fund with the
procedures required for reverse repurchase agreements, firm commitment
agreements, standby commitment agreements, short sales, or any other securities
by Act Release No. 10666, or any subsequent release or releases or rule of the
SEC relating to the maintenance of segregated accounts by registered investment
companies;
4.) for the purpose of segregating collateral for loans of
Securities made by the Fund; and
5.) for other proper corporate purposes, but only upon receipt
of, in addition to Proper Instructions, a copy of a resolution of the Board of
Trustees, certified by an Officer, setting forth the purposes of such segregated
account.
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<PAGE>
Each segregated account established hereunder shall be established and
maintained for a single Fund only. All Proper Instructions relating to a
segregated account shall specify the Fund involved.
VI. F. ADVANCES FOR SETTLEMENT. Except as otherwise may be agreed upon
by the parties hereto, the Custodian shall not be required to comply with any
Written Instructions to settle the purchase of any Securities on behalf of a
Fund unless there is sufficient cash in the account(s) pertaining to such Fund
at the time or to settle the sale of any Securities from such an account(s)
unless such Securities are in deliverable form. Notwithstanding the foregoing,
if the purchase price of such Securities exceeds the amount of cash in the
account(s) at the time of such purchase, the Custodian may, in its sole
discretion, advance the amount of the difference in order to settle the purchase
of such Securities. The amount of any such advance shall be deemed a loan from
the Custodian to the Trust payable on demand and bearing interest accruing from
the date such loan is made up to but not including the date such loan is repaid
at the rate per annum customarily charged by the Custodian on similar loans.
ARTICLE VII
TRUST INDEBTEDNESS
------------------
VII. A. BORROWINGS. In connection with any borrowings by the Trust, the
Trust will cause to be delivered to the Custodian by a bank or broker requiring
Securities as collateral for such borrowings (including the Custodian if the
borrowing is from the Custodian), a notice or undertaking in the form currently
employed by such bank or broker setting forth the amount of collateral. The
Trust shall promptly deliver to the Custodian Written Instructions specifying
with respect to each such borrowing: (a) the name of the bank or broker, (b) the
amount and terms of the borrowing, which may be set forth by incorporating by
reference an attached promissory note
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<PAGE>
duly endorsed by the Trust, or a loan agreement, (c) the date, and time if
known, on which the loan is to be entered into, (d) the date on which the loan
becomes due and payable, (e) the total amount payable to the Trust on the
borrowing date, and (f) the description of the Securities securing the loan,
including the name of the issuer, the title and the number of shares or other
units or the principal amount. The Custodian shall deliver on the borrowing date
specified in the Written Instructions the required collateral against the
lender's delivery of the total loan amount then payable, provided that the same
conforms to that which is described in the Written Instructions. The Custodian
shall deliver, in the manner directed by the Trust, such Securities as
additional collateral, as may be specified in Written Instructions, to secure
further any transaction described in this Article VII. The Trust shall cause all
Securities released from collateral status to be returned directly to the
Custodian and the Custodian shall receive from time to time such return of
collateral as may be tendered to it.
The Custodian may, at the option of the lender, keep such collateral in
its possession, subject to all rights therein given to the lender because of the
loan. The Custodian may require such reasonable conditions regarding such
collateral and its dealings with third-party lenders as it may deem appropriate.
VII. B. ADVANCES. With respect to any advances of cash made by the
Custodian to or for the benefit of a Fund for any purpose which results in the
Fund incurring an overdraft at the end of any Business Day, such advance shall
be repayable immediately upon demand made by the Custodian at any time.
ARTICLE VIII
CONCERNING THE CUSTODIAN
------------------------
VIII. A. LIMITATIONS ON LIABILITY OF CUSTODIAN. Except as otherwise
provided herein,
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<PAGE>
the Custodian shall not be liable for any loss or damage, including counsel
fees, resulting from its action or omission to act or otherwise, except for any
such loss or damage arising out of its negligence or willful misconduct. The
Trust, on behalf of the Fund and only from assets of the Fund (or insurance
purchased by the Trust with respect to its liabilities on behalf of the Fund
hereunder), shall defend, indemnify and hold harmless the Custodian and its
directors, officers, employees and agents with respect to any loss, claim,
liability or cost (including reasonable attorneys' fees) arising or alleged to
arise from or relating to the Trust's duties hereunder or any other action or
inaction of the Trust or its Trustees, officers, employees or agents, except
such as may arise from the negligent action, omission, willful misconduct or
breach of this Agreement by the Custodian, its directors, officers, employees or
agents.. The Custodian shall defend, indemnify and hold harmless the Trust and
its trustees, officers, employees or agents with respect to any loss, claim,
liability or cost (including reasonable attorneys' fees) arising or alleged to
arise from or relating to the Custodian's duties as specifically set forth in
this agreement with respect to the Fund hereunder or any other action or
inaction of the Custodian or its directors, officers, employees, agents,
nominees, or Sub- Custodians as to the Fund, except such as may arise from the
negligent action, omission or willful misconduct of the Trust, its trustees,
officers, employees, or agents. The Custodian may, with respect to questions of
law apply for and obtain the advice and opinion of counsel to the Trust at the
expense of the Fund, or of its own counsel at its own expense, and shall be
fully protected with respect to anything done or omitted by it in good faith in
conformity with the advice or opinion of counsel to the Trust, and shall be
similarly protected with respect to anything done or omitted by it in good faith
in conformity with advice or opinion of its counsel, unless counsel to the Fund
shall, within a reasonable time after being notified of legal advice received by
the Custodian, have a differing interpretation of such question of law.
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<PAGE>
The Custodian shall be liable to the Trust for any proximate loss or damage
resulting from the use of the Book-Entry System or any Depository arising by
reason of any negligence, misfeasance or misconduct on the part of the Custodian
or any of its employees, agents, nominees or Sub- Custodians, but not for any
special, incidental, consequential, or punitive damages; provided, however, that
nothing contained herein shall preclude recovery by the Trust, on behalf of the
Fund, of principal and of interest to the date of recovery on Securities
incorrectly omitted from the Fund's account or penalties imposed on the Trust,
in connection with the Fund, for any failures to deliver Securities.
In any case in which one party hereto may be asked to indemnify the
other or hold the other harmless, the party from whom indemnification is sought
(the "Indemnifying Party") shall be advised of all pertinent facts concerning
the situation in question, and the party claiming a right to indemnification
(the "Indemnified Party") will use reasonable care to identify and notify the
Indemnifying Party promptly concerning any situation which presents or appears
to present a claim for indemnification against the Indemnifying Party. The
Indemnifying Party shall have the option to defend the Indemnified Party against
any claim which may be the subject of the indemnification, and in the event the
Indemnifying Party so elects, such defense shall be conducted by counsel chosen
by the Indemnifying Party and satisfactory to the Indemnified Party and the
Indemnifying Party will so notify the Indemnified Party and thereupon such
Indemnifying Party shall take over the complete defense of the claim and the
Indemnifying Party shall sustain no further legal or other expenses in such
situation for which indemnification has been sought under this paragraph, except
the expenses of any additional counsel retained by the Indemnified Party. In no
case shall any party claiming the right to indemnification confess any claim or
make any compromise in any case in which the other party has been asked to
indemnify such party (unless such confession or
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<PAGE>
compromise is made with such other party's prior written consent. The provisions
of this section VIII. A. shall survive the termination of this Agreement.
VIII. B. ACTIONS NOT REQUIRED BY CUSTODIAN. Without limiting the
generality of the foregoing, the Custodian, acting in the capacity of Custodian
hereunder, shall be under no obligation to inquire into, and shall not be liable
for:
1.) The validity of the issue of any Securities purchased by
or for the account of any Fund, the legality of the purchase thereof, or the
propriety of the amount paid therefor;
2.) The legality of the sale of any Securities by or for the
account of any Fund, or the propriety of the amount for which the same are sold;
3.) The legality of the issue or sale of any Shares of any
Fund, or the sufficiency of the amount to be received therefor;
4.) The legality of the redemption of any Shares of any Fund,
or the propriety of the amount to be paid therefor;
5.) The legality of the declaration or payment of any dividend
by the Trust in respect of Shares of any Fund;
6.) The legality of any borrowing by the Trust on behalf of
the Trust or any Fund, using Securities as collateral;
7.) Whether the Trust or a Fund is in compliance with the 1940
Act, the regulations thereunder, the provisions of the Trust's charter documents
or by-laws, or its investment objectives and policies as then in effect.
VIII. C. NO DUTY TO COLLECT AMOUNTS DUE FROM DIVIDEND AND TRANSFER
AGENT. The Custodian shall not be under any duty or obligation to take action to
effect collection of any amount due to the Trust from any Dividend and Transfer
Agent of the Trust nor to take any action
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<PAGE>
to effect payment or distribution by any Dividend and Transfer Agent of the
Trust of any amount paid by the Custodian to any Dividend and Transfer Agent of
the Trust in accordance with this Agreement.
VIII. D. NO ENFORCEMENT ACTIONS. Notwithstanding Section D of Article
V, the Custodian shall not be under any duty or obligation to take action, by
legal means or otherwise, to effect collection of any amount, if the Securities
upon which such amount is payable are in default, or if payment is refused after
due demand or presentation, unless and until (i) it shall be directed to take
such action by Written Instructions and (ii) it shall be assured to its
satisfaction (including prepayment thereof) of reimbursement of its costs and
expenses in connection with any such action.
VIII. E. AUTHORITY TO USE AGENTS AND SUB-CUSTODIANS. The Trust
acknowledges and hereby authorizes the Custodian to hold Securities through its
various agents described in Appendix C annexed hereto. In addition, the Trust
acknowledges that the Custodian may appoint one or more financial institutions,
as agent or agents or as sub-custodian or sub-custodians, including, but not
limited to, banking institutions located in foreign countries, for the purpose
of holding Securities and moneys at any time owned by the Fund. The Custodian
shall not be relieved of any obligation or liability under this Agreement in
connection with the appointment or activities of such agents or sub-custodians.
Any such agent or sub-custodian shall be qualified to serve as such for assets
of investment companies registered under the Act. The Funds shall reimburse the
Custodian for all costs incurred by the Custodian in connection with opening
accounts with any such agents or sub-custodians. Upon request, the Custodian
shall promptly forward to the Trust any documents it receives from any agent or
sub-custodian appointed hereunder which may assist trustees of registered
investment companies to fulfill their responsibilities under Rule 17f-5 of the
Act.
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<PAGE>
VIII. F. NO DUTY TO SUPERVISE INVESTMENTS. The Custodian shall not be
under any duty or obligation to ascertain whether any Securities at any time
delivered to or held by it for the account of the Trust are such as properly may
be held by the Trust under the provisions of the Declaration of Trust and the
Trust's By-Laws.
VIII. G. ALL RECORDS CONFIDENTIAL. The Custodian shall treat all
records and other information relating to the Trust and the assets of all Funds
as confidential and shall not disclose any such records or information to any
other person unless (i) the Trust shall have consented thereto in writing or
(ii) such disclosure is compelled by law.
VIII. H. COMPENSATION OF CUSTODIAN. The Custodian shall be entitled to
receive and the Trust agrees to pay to the Custodian, for the Fund's account
from the Fund's assets only, such compensation as shall be determined pursuant
to Appendix E attached hereto, or as shall be determined pursuant to amendments
to Appendix E as approved by the Custodian and the Trust. The Custodian shall be
entitled to charge against any money held by it for the accounts of the Fund the
amount of any loss, damage, liability or expense, including counsel fees, for
which it shall be entitled to reimbursement under the provisions of this
Agreement as determined by agreement of the Custodian and the Trust or by the
final order of any court or arbitrator having jurisdiction and as to which all
rights of appeal shall have expired. The expenses which the Custodian may charge
against the account of a Fund include, but are not limited to, the expenses of
agents or Sub-Custodians incurred in settling transactions involving the
purchase and sale of Securities of the Fund.
VIII. I. RELIANCE UPON INSTRUCTIONS. The Custodian shall be entitled to
rely upon
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<PAGE>
any Proper Instructions if such reliance is made in good faith. The Trust agrees
to forward to the Custodian Written Instructions confirming Oral Instructions in
such a manner so that such Written Instructions are received by the Custodian,
whether by hand delivery, telex, facsimile or otherwise, on the same Business
Day on which such Oral Instructions were given. The Trust agrees that the
failure of the Custodian to receive such confirming instructions shall in no way
affect the validity of the transactions or enforceability of the transactions
hereby authorized by the Trust. The Trust agrees that the Custodian shall incur
no liability to the Trust for acting upon Oral Instructions given to the
Custodian hereunder concerning such transactions.
VIII. J. BOOKS AND RECORDS. The Custodian will (i) set up and maintain
proper books of account and complete records of all transactions in the accounts
maintained by the Custodian hereunder in such manner as will meet the
obligations of the Fund under the Act, with particular attention to Section 31
thereof and Rules 3la-1 and 3la-2 thereunder and those records are the property
of the Trust, and (ii) preserve for the periods prescribed by applicable Federal
statute or regulation all records required to be so preserved. All such books
and records shall be the property of the Trust, and shall be available, upon
request, for inspection by duly authorized officers, employees or agents of the
Trust and employees of the SEC.
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<PAGE>
VIII. K. INTERNAL ACCOUNTING CONTROL SYSTEMS. The Custodian shall send
to the Trust any report received on the systems of internal accounting control
of the Custodian, or its agents or sub-custodians, as the Trust may reasonably
request from time to time.
VIII. L. NO MANAGEMENT OF ASSETS BY CUSTODIAN. The Custodian performs
only the services of a custodian and shall have no responsibility for the
management, investment or reinvestment of the Securities or other assets from
time to time owned by any Fund. The Custodian is not a selling agent for Shares
of any Fund and performance of its duties as custodian shall not be deemed to be
a recommendation to any Fund's depositors or others of Shares of the Fund as an
investment. The Custodian shall have no duties or obligations whatsoever except
such duties and obligations as are specifically set forth in this Agreement, and
no covenant or obligation shall be implied in this Agreement against the
Custodian.
VIII. M. ASSISTANCE TO TRUST. The Custodian shall take all reasonable
action, that the Trust may from time to time request, to assist the Trust in
obtaining favorable opinions from the Trust's independent accountants, with
respect to the Custodian's activities hereunder, in connection with the
preparation of the Fund's Form N- IA, Form N-SAR, or other annual reports to the
SEC.
VIII. N. GRANT OF SECURITY INTEREST. The Trust hereby pledges to and
grants the Custodian a security interest in the assets of any Fund to secure the
payment of any liabilities of the Fund to the Custodian for money borrowed from
the Custodian. This pledge is in addition to any other pledge of collateral by
the Trust to the Custodian.
ARTICLE IX
TERMINATION
-----------
IX. A. TERMINATION. Either party hereto may terminate this Agreement
for
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<PAGE>
any reason by giving to the other party a notice in writing specifying the date
of such termination, which shall be not less than ninety (90) days after the
date of giving of such notice. If such notice is given by the Trust, it shall be
accompanied by a copy of a resolution of the Board of Trustees of the Trust,
certified by the Secretary of the Trust, electing to terminate this Agreement
and designating a successor custodian or custodians each of which shall be a
bank or trust company having not less than $100,000,000 aggregate capital,
surplus, and undivided profits. In the event such notice is given by the
Custodian, the Trust shall, on or before the termination date, deliver to the
Custodian a copy of a resolution of the Board of Trustees of the Trust,
certified by the Secretary, designating a successor custodian or custodians to
act on behalf of the Trust. In the absence of such designation by the Trust, the
Custodian may designate a successor custodian which shall be a bank or trust
company having not less than $100,000,000 aggregate capital, surplus, and
undivided profits. Upon the date set forth in such notice this Agreement shall
terminate, and the Custodian, provided that it has received a notice of
acceptance by the successor custodian, shall deliver, on that date, directly to
the successor custodian all Securities and monies then owned by the Fund and
held by it as Custodian. Upon termination of this Agreement, the Trust shall pay
to the Custodian on behalf of the Trust such compensation as may be due as of
the date of such termination. The Trust agrees on behalf of the Trust that the
Custodian shall be reimbursed for its reasonable costs in connection with the
termination of this Agreement.
IX. B. FAILURE TO DESIGNATE SUCCESSOR TRUSTEE. If a successor custodian
is not designated by the Trust, or by the Custodian in accordance with the
preceding paragraph, or the designated successor cannot or will not serve, the
Trust shall, upon the delivery by the Custodian to the Trust of all Securities
(other than Securities held in the Book-Entry System which cannot be delivered
to the Trust) and moneys then owned by the Trust, be deemed to be the custodian
for the Trust,
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<PAGE>
and the Custodian shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement, other than the duty with respect to
Securities held in the Book-Entry System, which cannot be delivered to the
Trust, which shall be held by the Custodian in accordance with this Agreement.
ARTICLE X
FORCE MAJEURE
-------------
Neither the Custodian nor the Trust shall be liable for any failure or
delay in performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable control,
including, without limitation, acts of God; earthquakes; fires; floods; wars;
civil or military disturbances; sabotage; strikes; epidemics; riots; labor
disputes; acts of civil or military authority; governmental actions; or
inability to obtain labor, material, equipment or transportation; provided,
however, that the Custodian, in the event of a failure or delay, shall use its
best efforts to ameliorate the effects of any such failure or delay.
ARTICLE XI
MISCELLANEOUS
-------------
XI. A. DESIGNATION OF AUTHORIZED PERSONS. Appendix A sets forth the
names and the signatures of all Authorized Persons as of this date, as certified
by the Secretary of the Trust. The Trust agrees to furnish to the Custodian a
new Appendix A in form similar to the attached Appendix A, if any present
Authorized Person ceases to be an Authorized Person or if any other or
additional Authorized Persons are elected or appointed. Until such new Appendix
A shall be received, the Custodian shall be fully protected in acting under the
provisions of this Agreement upon Oral Instructions or signatures of the then
current Authorized Persons as set forth in the last delivered Appendix A.
XI. B. LIMITATION OF PERSONAL LIABILITY. No recourse under any
obligation of this
- 27 -
<PAGE>
Agreement or for any claim based thereon shall be had against any organizer,
shareholder, officer, trustee, past, present or future as such, of the Trust or
of any predecessor or successor, either directly or through the Trust or any
such predecessor or successor, whether by virtue of any constitution, statute or
rule of law or equity, or by the enforcement of any assessment or penalty or
otherwise; it being expressly agreed and understood that this Agreement and the
obligations thereunder are enforceable solely against the assets of the Trust,
and that no such personal liability whatever shall attach to, or is or shall be
incurred by, the organizers, shareholders, officers, or trustees of the Trust or
of any predecessor or successor, or any of them as such, because of the
obligations contained in this Agreement or implied therefrom and that any and
all such liability is hereby expressly waived and released by the Custodian as a
condition of, and as a consideration for, the execution of this Agreement.
XI. C. AUTHORIZATION BY BOARD. The obligations set forth in this
Agreement as having been made by the Trust have been made by the Board of
Trustees, acting as such Trustees for and on behalf of the Trust, pursuant to
the authority vested in them under the laws of the State of OHIO, the
Declaration of Trust and the By-Laws of the Trust. This Agreement has been
executed by Officers of the Trust as officers, and not individually, and the
obligations contained herein are not binding upon any of the Trustees, Officers,
agents or holders of shares, personally, but bind only the Trust and then only
to the extent of the assets of the Trust.
XI. D. CUSTODIAN'S CONSENT TO USE OF ITS NAME. The Trust shall obtain
the Custodian's consent prior to the publication and/or dissemination or
distribution, of the Prospectus and any other documents (including advertising
material) specifically mentioning the Custodian (other than merely by name and
address).
XI. E. NOTICES TO CUSTODIAN. Any notice or other instrument in writing,
authorized or
- 28 -
<PAGE>
required by this Agreement to be given to the Custodian, shall be sufficiently
given if addressed to the Custodian and mailed or delivered to it at its offices
at Star Bank Center, 425
- 29 -
<PAGE>
Walnut .Street, M. L. 6118, Cincinnati, Ohio 45202, attention Mutual Fund
Custody Department, or at such other place as the Custodian may from time to
time designate in writing.
XI. F. NOTICES TO TRUST. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the Trust shall be
sufficiently given when delivered to the Trust or on the second Business Day
following the time such notice is deposited in the U.S. mail postage prepaid and
addressed to the Trust at its office at 425 WALNUT STREET, CINCINNATI, OHIO
45202 or at such other place as the Trust may from time to time designate in
writing.
XI. G. AMENDMENTS IN WRITING. This Agreement, with the exception of the
Appendices, may not be amended or modified in any manner except by a written
agreement executed by both parties with the same formality as this Agreement,
and authorized and approved by a resolution of the Board of Trustees of the
Trust.
XI. H. SUCCESSORS AND ASSIGNS. This Agreement shall extend to and shall
be binding upon the parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable by the Trust or
by the Custodian, and no attempted assignment by the Trust or the Custodian
shall be effective without the written consent of the other party hereto.
XI. I. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Ohio.
XI. J. JURISDICTION. Any legal action, suit or proceeding to be
instituted by either party with respect to this Agreement shall be brought by
such party exclusively in the courts of the State of Ohio or in the courts of
the United States for the Southern District of Ohio, and each party, by its
execution of this Agreement, irrevocably (i) submits to such jurisdiction and
- 30 -
<PAGE>
(ii) consents to the service of any process or pleadings by first class U.S.
mail, postage prepaid and return receipt requested, or by any other means from
time to time authorized by the laws of such jurisdiction.
XI. K. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
XI. L. HEADINGS. The headings of paragraphs in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
- 31 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized as of the day
and year FIRST above written.
ATTEST: TRUST:
/S/ JAMES ADVANTAGE FUNDS
By: Barry R. James
-----------------------
Title: President
-----------------------
ATTEST: CUSTODIAN:
/S/ STAR BANK, N.A.
By: Marsh A. Croxton
-----------------------
Title: Senior Vice President
-----------------------
- 32 -
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-Effective Amendment No. 1 to the Registration
Statement of the James Advantage Fund under the Securities Act of 1933, filed
under Registration Statement No. 33- 37277 of our report dated August 27, 1997,
relating to The Golden Rainbow A James Advised Mutual Fund (predecessor of the
Registrant) incorporated by reference in the Statement of Additional
Information, which is part of such Registration Statement, and to the references
to us under the captions "Independent Auditors" and "Financial Highlights," in
such Registration Statement.
/s/
DELOITTE & TOUCHE LLP
Dayton, Ohio
May 15, 1998
_________________, 1998
The James Advantage Funds
1349 Fairground Road
Beavercreek, Ohio 45385
Gentlemen:
The undersigned hereby purchases 1 share of The James Advantage Funds at
$10 per share, representing a total investment of $10.00 in the shares of the
series of The Golden Rainbow Fund. The undersigned hereby represents that (i)
such purchase is for investment purposes, and (ii) the undersigned has no
present intention of redeeming or selling said shares.
JAMES INVESTMENT RESEARCH, INC.
By: ______________________
Name: ______________________
Title: ______________________
FORM OF DISTRIBUTION PLAN
CLASS A SHARES
THE GOLDEN RAINBOW FUND
1. This Plan (the "Plan") is the written plan contemplated by Rule 12b-1
(the "Rule") under the Investment company Act of 1940 (the "1940 Act")
of the Class A Shares (the "Class") of The Golden Rainbow Fund (the
"Fund"). This Plan describes the material terms and conditions under
which assets of the Fund may be used in connection with financing
distribution of shares of the Class (the "Shares"). This Plan will be
implemented by certain related agreements with the Fund's distributor or
distributors ("Distribution Agreements"), broker-dealers ("Selling
Agreements") and non-broker-dealers ("Service Agreements").
2. The Fund is hereby authorized, for the purposes and on the further terms
and conditions set forth herein, to expend its monies in an amount equal
in the aggregate for all such expenditures to such percentage (not in
excess of .40% per annum) of the Class's average daily net asset values
as may be determined from time to time, by vote cast in person at a
meeting called for the purpose of voting on such determination, by a
majority of the members of the Board of Trustees of the James Advantage
Funds (the "Trust") who are not "interested persons" of the Trust (as
such term is defined in the 1940 Act) and have no direct or indirect
financial interest in the operation of this Plan or any of the
agreements contemplated hereby (the "Disinterested Trustees").
3. The Fund is hereby authorized to pay all fees and expenses payable by
the Fund to the Fund's distributor or distributors pursuant to the
Distribution Agreement. In addition, the Fund is hereby authorized to
reimburse any underwriter, distributor or selling agent (a "Seller") of
Shares for out-of-pocket costs and expenditures actually incurred by any
such Seller for (a) printing and distributing copies of any prospectuses
and annual and interim reports of the Fund (after the Fund has prepared
and set in type such materials) that are used by such Seller in
connection with the offering of Shares; (b) preparing, printing and
distributing any other literature used by such Seller in connection with
the offering of Shares; (c) advertising, promoting and selling Shares to
the public and (d) performing Selling Agreements with other persons.
Such reimbursement shall be made only to Sellers with which the Fund has
entered into a Distribution Agreement that permits payments by the Fund
only in accordance with the foregoing provisions and the form of which
has the approval of both a majority of the Board of Trustees of the
Trust and a majority of the Disinterested Trustees as required by the
Rule.
<PAGE>
Such reimbursement shall be made monthly upon receipt by the Fund of a
written expense report showing the expenses qualifying for such
reimbursement and the purposes thereof and shall not, for any Seller or
for all Sellers in the aggregate if there are more than one such Seller
at any time, exceed the amount determined pursuant to Section 2.
4. The Selling Agreements contemplated by paragraph 3(d) above shall permit
payments by a Seller only in accordance with the provisions of this
paragraph and the form of such agreement shall have the approval of a
majority of the Board of Trustees of the Trust and a majority of the
Disinterested Trustees by vote cast in person at a meeting called for
the purpose of voting on such Selling Agreement. A Seller may pay the
other party to such a Selling Agreement a monthly fee (and no other
compensation of any sort whatsoever) for distribution and marketing
services provided by such other party. Such monthly fee shall be payable
in arrears in an amount equal to such percentage (not in excess of
.001096% per day) of the aggregate net asset value of the Shares held by
such other party's customers or clients at the close of each day as
determined from time to time by such Seller. The distribution and
marketing services contemplated hereby shall include answering inquiries
regarding the Fund, assisting in selecting dividend payment options,
account designations and addresses, maintaining the investment of such
other party's customers or clients in the Fund and similar services. In
determining the extent of such other party's assistance in maintaining
such investment by its customers or clients, such Seller may take into
account the possibility that the Shares held by such other party's
customers or clients would be redeemed in the absence of such monthly
fee.
5. The Fund is hereby authorized to pay a monthly fee, subject to the same
limitations (including the amount of such fee) and for the same purposes
as set forth in paragraphs 3 and 4 above, to any person that is not an
"affiliated person" or "interested person" of the Fund or of its
"investment adviser" or "principal underwriter" (as such terms are
defined in the 1940 Act) who provides marketing and distribution
services to the Fund. Such monthly fee shall be paid only pursuant to
Service Agreements between the Fund and such other persons that permit
payments to such person, only in accordance with the provisions of this
paragraph 5 and the form of which has the approval of a majority of the
Board of Trustees of the Trust and a majority of the Disinterested
Trustees by vote cast in person at a meeting called for the purpose of
voting on such Service Agreement.
6. The Fund and each Seller making any payments pursuant to a Selling
Agreement shall prepare separate written reports to the Board of
Trustees on a quarterly basis summarizing all payments made by them
pursuant to this Plan and the agreements contemplated hereby, the
- 2 -
<PAGE>
purposes for which such payments were made and such other information as
the Board of Trustees or the Disinterested Trustees may reasonably
request from time to time.
7. This Plan shall become effective upon its approval by (a) a majority of
the outstanding voting securities (as such phrase is defined in the 1940
Act) of the Class and (b) a majority of the Board of Trustees of the
Trust and a majority of the Disinterested Trustees by vote cast in
person at a meeting called for the purpose of voting on this Plan.
8. Upon receipt of the approvals required by paragraph 7 above, this Plan
and any agreement contemplated hereby shall continue in effect beyond
the first anniversary of its adoption by the Board of Trustees of the
Trust only so long as (a) its continuation is approved at least annually
in the manner set forth in clause (b) of paragraph 7 above and (b) the
selection and nomination of those Trustees of the Trust who are not
"interested persons" of the Trust are committed to the discretion of
such Trustees.
9. This Plan may be terminated without penalty at any time by a majority of
the Disinterested Trustees or by a "majority of the outstanding voting
securities" of the Class.
10. This Plan may not be amended to increase materially the maximum amount
permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the Class and may not
be amended in any other material respect except with the approval of a
majority of the Disinterested Trustees. Amendments required to conform
this Plan to changes in the Rule shall not be deemed to be material
amendments.
-3 -
THE JAMES ADVANTAGE FUNDS
MULTIPLE CLASS PLAN PURSUANT TO RULE 18F-3
This Multiple Class Plan (the "Plan") is adopted in accordance with Rule
18f-3 (the "Rule") under the Investment Company Act of 1940, as amended (the
"Act") by The James Advantage Funds (the "Trust") on behalf of its current
series, The Golden Rainbow Fund, and any series that may be established in the
future (collectively the "Funds" and individually a "Fund"). A majority of the
Trustees, including a majority of the Trustees who are not interested persons of
the Trust (as defined in the Act), having determined that the Plan is in the
best interests of each class of each Fund individually and of the Trust as a
whole, have approved the Plan.
The provisions of the Plan are:
1. GENERAL DESCRIPTION OF CLASSES. Each class of shares of a Fund
shall represent interests in the same portfolio of investments
of that Fund and shall be identical in all respects, except that
each class shall differ with respect to: (i) Rule 12b-1 Plans
adopted with respect to the class; (ii) distribution and related
services and expenses as provided for in the Plan; (iii) such
differences relating to purchase minimums, eligible investors
and exchange privileges as may be set forth in the prospectuses
and statements of additional information of the Series, as the
same may be amended or supplemented from time to time; and (iv)
the designation of each class of Shares. There currently are
four classes designated: Class A, Class B, Class C and Class R.
a. Class A Shares are offered and sold at net asset value
plus a maximum sales load of 4.20%. Class A Shares are
subject to a maximum 0.40% annual distribution fee.
b. Class B Shares are offered at net asset value, without
an initial sales charge, subject to a maximum 1.00%
annual distribution fee (of which .75% is an asset based
sales charge and .25% is a service fee). Class B Shares
are subject to a declining contingent deferred sales
load ("CDSL") if shares are redeemed within six years
from the purchase date. Class B Shares automatically
convert to Class A Shares at the end of eight years.
c. Class C Shares are offered at net asset value, without
initial sales charge, subject to a maximum 1.00% annual
distribution fee (of which .75% is an asset based
<PAGE>
sales charge and .25% is a service fee) and a CDSL of 1%
if redeemed within one year of the purchase date.
d. Class R Shares are designed for institutional investors
and are offered to individuals within categories of
investors as specified in the then current Prospectus
who are also eligible to purchase Class A Shares at net
asset value without an up-front sales charge. Class R
Shares may also be purchased with monies representing
dividends and capital gain distributions on Class R
Shares of the Fund.
2. EXPENSE ALLOCATIONS TO EACH CLASS.
a. In addition to the service and distribution fees
described above, certain expenses may be attributable to
a particular class of shares of a Fund ("Class
Expenses"). Class Expenses are charged directly to net
assets of the class to which the expense is attributed
and are borne on a pro rata basis by the outstanding
shares of that class. Class Expenses may include;
(i) expenses incurred in connection with a meeting of
shareholders;
(ii) litigation expenses;
(iii) printing and postage expenses of shareholders
reports, prospectuses and proxies to current
shareholders of a specific class;
(iv) expenses of administrative personnel and
services required to support the shareholders of
a specific class;
(v) transfer agent fees and shareholder servicing
expenses; and (vi) such other expenses incurred by
or attributable to a specific class.
b. All other expenses of a Fund are allocated to each class
on the basis of the net asset value of that class in
relation to the net asset value of the Fund.
Notwithstanding the foregoing, the distributor or
adviser of a Fund may waive or reimburse the expenses of
a specific class or classes to the extent permitted
under the Rule.
- 2 -
<PAGE>
3. CLASS DESIGNATION. Subject to the approval by the Trustees of
the Trust, a Fund may alter the nomenclature for the
designations of one or more of its classes of shares.
4. ADDITIONAL INFORMATION. This plan is qualified by and subject to
the terms of the then current Prospectus for the applicable
class of shares; provided, however, that none of the terms set
forth in any such Prospectus shall be inconsistent with the
terms of this Plan. The Prospectus for each class contains
additional information about the class and the Fund's multiple
class structure.
5. EFFECTIVE DATE. This Plan is effective on May 4, 1998, provided
that this Plan shall not become effective with respect to any
Fund or class unless first approved by a majority of the
Trustees, including a majority of the Trustees who are not
interested persons of the Trust (as defined in the Act). This
Plan may be terminated or amended at any time with respect to
the Trust or any Fund or class thereof by a majority of the
Trustees, including a majority of the Trustees who are not
interested persons of the Trust (as defined in the Act).
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE JAMES ADVANTAGE FUNDS, a business trust organized under the
laws of the State of Ohio (hereinafter referred to as the "Trust"), periodically
files amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
WHEREAS, the undersigned is Secretary and Treasurer of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES R.
CUMMINS and DONALD S. MENDELSOHN, and each of them, his attorneys for him and in
his name, place and stead, and in his office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 4th
day of May, 1998.
\S\
THOMAS L. MANGAN
Secretary and Treasurer
STATE OF OHIO )
) ss:
COUNTY OF GREENE )
Before me, a Notary Public, in and for said county and state, personally
appeared THOMAS L. MANGAN, known to me to be the person described in and who
executed the foregoing
<PAGE>
instrument, and who acknowledged to me that he executed and delivered the same
for the purposes therein expressed.
WITNESS my hand and official seal this 4th day of May, 1998.
\S\
Notary Public
My commission expires:
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE JAMES ADVANTAGE FUNDS, a business trust organized under the
laws of the State of Ohio (hereinafter referred to as the "Trust"), periodically
files amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
WHEREAS, the undersigned is a Trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES R.
CUMMINS and DONALD S. MENDELSOHN, and each of them, his attorneys for him and in
his name, place and stead, and in his office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 4th
day of May, 1998.
\S\
JAMES F. ZID, Trustee
STATE OF OHIO )
) ss:
COUNTY OF GREENE )
Before me, a Notary Public, in and for said county and state, personally
appeared JAMES F. ZID, known to me to be the person described in and who
executed the foregoing instrument, and who acknowledged to me that he executed
and delivered the same for the purposes therein expressed.
<PAGE>
WITNESS my hand and official seal this 4th day of May, 1998.
\S\
Notary Public
My commission expires:
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE JAMES ADVANTAGE FUNDS, a business trust organized under the
laws of the State of Ohio (hereinafter referred to as the "Trust"), periodically
files amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
WHEREAS, the undersigned is a Trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES R.
CUMMINS and DONALD S. MENDELSOHN, and each of them, his attorneys for him and in
his name, place and stead, and in his office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 4th
day of May, 1998.
\S\
ANTHONY P. D'ANGELO, Trustee
STATE OF OHIO )
) ss:
COUNTY OF GREENE )
Before me, a Notary Public, in and for said county and state, personally
appeared ANTHONY P. D'ANGELO, known to me to be the person described in and who
executed the foregoing instrument, and who acknowledged to me that he executed
and delivered the same for the purposes therein expressed.
<PAGE>
WITNESS my hand and official seal this 4th day of May, 1998.
\S\
Notary Public
My commission expires:
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE JAMES ADVANTAGE FUNDS, a business trust organized under the
laws of the State of Ohio (hereinafter referred to as the "Trust"), periodically
files amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
WHEREAS, the undersigned is a Trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES R.
CUMMINS and DONALD S. MENDELSOHN, and each of them, his attorneys for him and in
his name, place and stead, and in his office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 4th
day of May, 1998.
\S\
HAZEL L. EICHELBERGER, Trustee
STATE OF OHIO )
) ss:
COUNTY OF GREENE )
Before me, a Notary Public, in and for said county and state, personally
appeared HAZEL L. EICHELBERGER, known to me to be the person described in and
who executed the foregoing instrument, and who acknowledged to me that she
executed and delivered the same for the purposes therein expressed.
<PAGE>
WITNESS my hand and official seal this 4th day of May, 1998.
\S\
Notary Public
My commission expires:
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE JAMES ADVANTAGE FUNDS, a business trust organized under the
laws of the State of Ohio (hereinafter referred to as the "Trust"), periodically
files amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
WHEREAS, the undersigned is a Trustee and the President of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES R.
CUMMINS and DONALD S. MENDELSOHN, and each of them, his attorneys for him and in
his name, place and stead, and in his office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st
day of May, 1998.
\S\
BARRY R. JAMES, Trustee and President
STATE OF OHIO )
) ss:
COUNTY OF GREENE )
Before me, a Notary Public, in and for said county and state, personally
appeared BARRY R. JAMES, known to me to be the person described in and who
executed the foregoing instrument, and who acknowledged to me that he executed
and delivered the same for the purposes therein expressed.
<PAGE>
WITNESS my hand and official seal this 21st day of May, 1998.
\S\
Notary Public
My commission expires:
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE JAMES ADVANTAGE FUNDS, a business trust organized under the
laws of the State of Ohio (hereinafter referred to as the "Trust"), periodically
files amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
NOW, THEREFORE, the Trust hereby constitutes and appoints JAMES R.
CUMMINS and DONALD S. MENDELSOHN, and each of them, his attorneys for him and in
his name, place and stead, and in his office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the Trust has caused its name to be subscribed
hereto by the President this 4th day of May, 1998.
ATTEST: THE JAMES ADVANTAGE FUNDS
\S\ By: \S\
THOMAS L. MANGAN, Secretary BARRY R. JAMES, President
STATE OF OHIO )
) ss:
COUNTY OF GREENE )
Before me, a Notary Public, in and for said county and state, personally
appeared BARRY R. JAMES, President and THOMAS L. MANGAN, Secretary, who
represented that they are duly authorized in the premises, and who are known to
me to be the persons described in and who
<PAGE>
executed the foregoing instrument, and they duly acknowledged to me that they
executed and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 4th day of May, 1998.
\S\
Notary Public
My commission expires:
<PAGE>
CERTIFICATE
The undesigned, Secretary of The James Advantage Funds, hereby certifies
that the following resolution was duly adopted by a majority of the Board of
Trustees at a meeting held May 4, 1998, and is in full force and effect:
"WHEREAS, The James Advantage Funds, a business trust organized
under the laws of the State of Ohio (hereinafter referred to as
the "Trust"), periodically files amendments to its Registration
Statement with the Securities and Exchange Commission under the
provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
JAMES R. CUMMINS and DONALD S. MENDELSOHN, and each of them, its
attorneys for it and in its name, place and stead, to execute
and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full
power and authority to do and perform all and every act and
thing whatsoever requisite and necessary to be done in and about
the premises as fully to all intents and purposes as it might or
could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall
lawfully do or cause to be done by virtue hereof."
Dated: May 4, 1998 \S\
Thomas L. Mangan, Secretary
The James Advantage Funds
