JAMES
ADVANTAGE
FUNDS
[LOGO]
Advised by James
Investment Research, Inc.
o
October 1, 1998
Prospectus
o
The Golden Rainbow Fund
The James Small Cap Fund
The James Market Neutral Fund
<PAGE>
PROSPECTUS
October 1, 1998
THE GOLDEN RAINBOW FUND
THE JAMES SMALL CAP FUND
THE JAMES MARKET NEUTRAL FUND
P.O. Box 8
Alpha, Ohio 45301
For Information, Shareholder Services and Requests:
(800) 99 JAMES
(800) 995-2637
The investment adviser to each series of the James Advantage Funds is James
Investment Research, Inc. (the "Adviser"). Each Fund is a diversified, open-end
mutual fund.
THE GOLDEN RAINBOW FUND: The investment objective of The Golden Rainbow Fund 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
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
Fund is the successor entity to another mutual fund which was called The Golden
Rainbow A James Advised Mutual Fund.
JAMES SMALL CAP FUND: The investment objective of the James Small Cap Fund is to
provide long term capital appreciation. The Fund seeks to achieve its objective
by investing primarily in common stocks of U.S. companies with small market
capitalizations. The Adviser selects stocks that it believes are undervalued and
more likely to appreciate.
JAMES MARKET NEUTRAL FUND: The investment objective of the James Market Neutral
Fund is to provide positive returns regardless of the direction of the stock
markets. The Fund seeks to achieve its objective by investing in common stocks
that the Adviser believes are undervalued and more likely to appreciate, and
selling short common stocks that the Adviser believes are overvalued and more
likely to depreciate.
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 October 1, 1998, 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 FUNDS 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.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
ANDEXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THESECURITIES
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.
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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 a Fund. The
Golden Rainbow Fund Class A expenses are based upon actual expenses incurred
during the most recent fiscal year, except that they have been restated to
reflect current fee waivers and expense reimbursement. The Golden Rainbow Class
C and Class R and the Small Cap Fund and Market Neutral Fund expenses are based
on estimated amounts for the current fiscal year. 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.
The Golden Rainbow Fund, like most other mutual funds, pays all of its own
operating expenses. The Adviser pays, from its management fee, all of the
operating expenses of the Small Cap Fund and the Market Neutral Fund, except
brokerage, taxes, interest, 12b-1 expenses, fees and expenses of non-interested
person trustees and extraordinary expenses. 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 C shares and a no-load, no 12b-1 fee
structure for institutional investors for Class R Shares. Class R Shares are
subject to a minimum purchase requirement of $1 million. Long-term Class A and
Class C shareholders could pay more than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers.
Class A Class C Class R
Shares Shares(b) Shares(b)
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Front End Sales Load
Imposed on Purchases 4.20% None None
Maximum CDSL Imposed on Purchases None 1.00%(c) None
Sales Load Imposed on Reinvested Dividends None None None
Exchange Fee None None None
Redemption Fee None None None
(a) Persons who indirectly purchase Fund shares through intermediaries may pay
fees charged by such intermediaries in addition to those shown above. Each
Fund may charge a fee for wiring redemption proceeds.
(b) These classes have not yet commenced operations.
(c) If redeemed within one year of purchase.
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ANNUAL FUND OPERATING EXPENSES
Total Fund
Management 12b-1 Other Operating
Fee Fee Expenses Expenses
Golden Rainbow Fund
Class A Shares .65%(b) .25% .10% 1.00%
Class C Shares(a) .65%(b) .85%(e) .75% 2.25%
Class R Shares(a) .65%(b) .00% .75% 1.40%
Small Cap Fund
Class A Shares 1.21%(c) .25% .04% 1.50%
Class C Shares(a) 1.21%(c) .85%(e) .04% 2.10%
Class R Shares(a) 1.21%(c) .00% .04% 1.25%
Market Neutral Fund
Class A Shares 1.66%(d) .25% .04% 1.95%
Class C Shares(a) 1.66%(d) .85%(e) .04% 2.55%
Class R Shares(a) 1.66%(d) .00% .04% 1.70%
(a) As of October 1, 1998, these classes had not yet commenced operations.
(b) The Adviser's fee is 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 0.17%, and total
Class A operating expenses, absent reimbursement and fee waiver, would be
1.16% of average daily net assets.
(c) The Adviser's fee is equal to (i) an annual rate of 1.25% of the Fund's
average net assets; minus (ii) the fees and expenses of the non-interested
person trustees incurred by the Fund. Because trustee fees and expenses
are estimated to be 0.04%, the Adviser's fee is estimated to be 1.21%.
(d) The Adviser's fee is equal to (i) an annual rate of 1.70% of the Fund's
average net assets; minus (ii) the fees and expenses of the non-interested
person trustees incurred by the Fund. Because trustee fees and expenses
are estimated to be 0.04%, the Adviser's fee is estimated to be 1.66%.
(e) Of this amount, 0.75% is an assets based sales charge and 0.10% is a
service fee.
EXAMPLE OF EXPENSE
You would pay the following expenses on a $1,000 investment, assuming (1) a 5%
annual return and (2) redemption at the end of each time period:
1 Year 3 Years 5 Years 10 Years
Golden Rainbow Fund
Class A Shares $52 $73 $95 $159
Class C Shares $27 $50 $87 $190
Class R Shares $08 $24 $42 $93
Small Cap Fund
Class A Shares $57 $87
Class C Shares $31 $66
Class R Shares $13 $40
Market Neutral Fund
Class A Shares $61 $101
Class C Shares $36 $79
Class R Shares $17 $53
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GOLDEN RAINBOW FUND FINANCIAL HIGHLIGHTS
On June 26, 1998, the Golden Rainbow Fund acquired the assets and liabilities of
The Golden Rainbow A James Advised Mutual Fund (the "Predecessor Fund") in a tax
free reorganization. As a result of this reorganization, the Golden Rainbow Fund
assumed the financial history of the Predecessor Fund. The financial information
in the table below has been audited by Deloitte & Touche LLP, independent
auditors. The Golden Rainbow Fund had no operating history prior to the
reorganization. The Fund's annual report for the most recent fiscal year
includes a discussion of fund performance. It is available upon request and
without change.
The following table provides per share income and capital changes for a share of
capital stock of the Fund outstanding from July 1, 1993 to June 30, 1998. Class
C and Class R Shares of the Golden Rainbow Fund were not offered to the public
during previous fiscal years. The Small Cap and Market Neutral Funds have no
operating history.
<TABLE>
<S> <C> <C> <C> <C> <C>
Year Ended June 30,
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1998 1997 1996 1995 1994
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Net asset value at beginning of period $ 19.31 $ 17.56 $ 18.27 $ 16.67 $ 17.81
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.65 0.66 0.73 0.69 0.66
Net realized and unrealized gains
(losses) on investments 1.08 2.16 0.61 1.94 (0.89)
-------- -------- -------- -------- --------
Total from investment operations 1.73 2.82 1.34 2.63 (0.23)
-------- -------- -------- -------- --------
Less distributions:
From net investment income (0.65) (0.68) (0.74) (0.68) (0.66)
From net realized gains on investments (1.43) (0.39) (1.31) (0.35) (0.25)
-------- -------- -------- -------- --------
Total distributions (2.08) (1.07) (2.05) (1.03) (0.91)
-------- -------- -------- -------- --------
Net asset value at end of period $ 18.96 $ 19.31 $ 17.56 $ 18.27 $ 16.67
======== ======== ======== ======== ========
Total return (a) 9.5% 16.5% 7.8% 16.6% (1.5)%
======== ======== ======== ======== ========
Ratios/Supplementary Data:
Ratio of net expenses to average net assets (b) 1.08% 1.09% 1.06% 1.04% 0.96%
Ratio of net investment income to average net assets 3.29% 3.63% 4.01% 4.05% 3.70%
Portfolio turnover rate 54% 56% 83% 48% 31%
Net assets at end of period (000's) $132,094 $157,183 $184,307 $191,473 $188,747
(a) Total returns exclude the effect of applicable sales loads.
(b) Absent fee waivers and/or expense reimbursements, the ratios of expenses to average net assets would have been 1.23%, 1.24%,
1.26%, 1.27%, and 1.24% for the years ended June 30, 1998, 1997, 1996, 1995 and 1994, respectively.
</TABLE>
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INVESTMENT OBJECTIVES AND STRATEGIES AND RISK CONSIDERATIONS
THE GOLDEN RAINBOW FUND:
The investment objective of the Golden Rainbow 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 uses a
proprietary investment model to select stocks that it believes are undervalued
and more likely to appreciate. 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.
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 Funds 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 Funds 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 Moodys Investors Service, Inc. ("Moody's") or
Standard & Poors 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.
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").
THE SMALL CAP FUND:
The investment objective of the James Small Cap Fund is to provide long term
capital appreciation. The Fund seeks to achieve its objective by investing
primarily in common stocks of U.S. companies with small market capitalizations.
Under normal circumstances, the Fund will be fully invested (subject to
liquidity needs) in small capitalization companies, defined by the Adviser as
those companies with market capitalizations of $1.5 billion or less at the time
of purchase. The Adviser will normally sell a security when the market
capitalization exceeds $2 billion.
The Adviser uses the same proprietary investment model as it uses for the Golden
Rainbow Fund to select stocks that it believes are undervalued and more likely
to appreciate. The model evaluates thousands of small capitalization companies
using the factors discussed above with respect to the Golden Rainbow Fund.
By investing primarily in small capitalization companies, the Fund will be
subject to the risks associated with such companies. Smaller capitalization
companies may experience higher growth rates and higher failure rates than do
larger capitalization companies. Companies in which the Fund is likely to invest
may have limited product lines, markets or financial resources and may lack
management depth. The trading volume of securities of smaller capitalization
companies is normally less than that of larger capitalization companies, and
therefore may disproportionately affect their market price, tending to make them
rise more in response to buying demand and fall more in response to selling
pressure than is the case with larger capitalization companies. The Adviser
seeks to reduce risk by focusing on securities it believes to be undervalued
relative to the market; however, substantial concentrations in economic sectors
might occur, and some issues may have liquidity concerns.
ADVISER'S HISTORICAL PERFORMANCE: The Adviser has been managing small
capitalization securities since its origin in 1972 and has focused on this as a
management style since July 1, 1996. The performance of all accounts with
investment objectives, policies and strategies substantially similar to the
Small Cap Fund appears below. The data is provided to illustrate past
performance of the Adviser in managing such accounts, as compared to the Russell
2000 Index.
Small Capitalization Russell 2000
Accounts(a) Index(b)
-------------------- ------------
Year ended June 30, 1998 20.83% 15.45%
Year ended June 30, 1997 23.07 15.16
Since inception July 1, 1996 21.94 15.30
(a) On July 1, 1996, the Adviser began managing this style with one account
totaling $200,000. As of June 30, 1998, the composite consisted of nine
accounts totaling approximately $3.5 million. The composite rate of return
is asset weighted, reflecting the relative size of each eligible account,
at the beginning of the relevant period. Performance figures reflected are
net of the estimated management fees of the Small Cap Fund (not the actual
management fees charged to the accounts) and all other expenses, including
transaction costs and commissions. Results include the reinvestment of
dividends and capital gains. The presentation of the performance composite
complies with the Performance Presentation Standards of the Association for
Investment Management and Research (AIMR-PPS).
(b) The Russell 2000 Index is a widely recognized index of market activity
based on the aggregate performance of small to mid-sized publicly traded
common stocks. The Index reflects the total return of securities comprising
the Index, including changes in market prices as well as accrued investment
income, which is presumed to be reinvested. Performance figures for the
Index do not reflect deduction of transaction costs or expenses, including
management fees.
The performance of the accounts managed by the Adviser does not represent the
historical performance of a Fund and should not be considered indicative of
future performance of a Fund. Results may differ because of, among other things,
differences in brokerage commissions, account expenses, including management
fees, the size of positions taken in relation to account size and
diversification of securities, timing of purchases and sales, and availability
of cash for new investments. In addition, the managed accounts are not subject
to certain investment limitations, diversification requirements, and other
restrictions imposed by the Investment Company Act and the Internal Revenue Code
which, if applicable, may have adversely affected the performance results of the
managed accounts composite. The results for different periods may vary.
THE JAMES MARKET NEUTRAL FUND:
The investment objective of the James Market Neutral Fund is to provide positive
returns regardless of the direction of the stock markets. The Fund seeks to
achieve its objective by investing in common stocks that the Adviser believes
are undervalued and more likely to appreciate, and selling short common stocks
that the Adviser believes are overvalued and more likely to depreciate.
The term "selling short" means the Fund sells a stock that it does not own,
borrows the same stock from a broker or other institution to complete the sale,
and buys the same stock at a later date to repay the lender. If the stock is
overvalued, and the price declines before the Fund buys the stock, the Fund
makes a profit. If the price of the stock increases before the Fund buys the
stock, the Fund loses money. The Adviser's strategy of using short positions in
overvalued stocks along with long positions (purchases) in undervalued stocks is
intended to reduce the effects of general market movements on the Fund's
performance, although there is no assurance that the Adviser will be able to do
so.
The risk of losing money due to general market movements is called market risk.
The risk that the Adviser will fail to correctly identify overvalued and
undervalued stocks is called stock selection risk. Investors in common stocks
are exposed to both market risk and stock selection risk. The Adviser's market
neutral strategy seeks to limit market risk by taking long positions (i.e.,
owning) and short positions in different stocks. The Fund's return will depend
on the Adviser's ability to maintain a portfolio of stocks that increase in
value more (or decline less) than the stocks which the Adviser has sold short.
The success of this strategy is dependent on the Adviser's ability to correctly
identify undervalued and overvalued stocks. If the Adviser is not successful,
the Fund may experience losses regardless of the overall performance of the
stock markets. In strong "bull" markets, when the prices of nearly all stocks
are rising regardless of the underlying value of the companies, the Fund is
expected to underperform the general markets because the Fund's short positions
will likely lose money. The Adviser uses its proprietary investment model as the
primary method of selecting stocks for the Fund's portfolio. The model evaluates
over 6,000 companies of all capitalization ranges using the factors and
techniques discussed above with respect to The Golden Rainbow Fund. The Adviser
will attempt to diversify the Fund among industries and market sectors, but this
is a secondary consideration.
The Market Neutral Fund will hold short positions in stocks which, in the
aggregate, will approximately equal the long positions in the Fund. Due to the
continuous changes in the prices of the short positions and long positions, the
market value of the short positions and long positions will not be equal and can
become unequal to a significant degree. For example, if the Fund is successful,
it is likely that the long positions will increase in value while the short
positions decrease in value, thus reducing the market neutrality of the Fund. It
is the intention of the Adviser to take action to rebalance the long and short
positions to maintain a market neutral exposure when the imbalance reaches
proprietary thresholds, pre-established by the Adviser. This can be done by
adding or eliminating short or long positions depending on the rebalancing
needs.
When selling securities short, the Market Neutral Fund will be required to
maintain a segregated account with its Custodian of cash or high grade liquid
assets equal to the market value of the securities sold less any collateral
deposited with its broker. It is the intention of the Adviser that the Market
Neutral Fund not borrow money to provide this collateral. Therefore, the Fund
will always maintain high levels of cash or high grade liquid assets (e.g., U.S.
Treasury bills, money market funds, repurchase agreements, certificates of
deposit and high quality commercial paper) for collateral needs.
The Market Neutral Fund engages in short selling activities which are
significantly different from the investment activities commonly associated with
conservative stock funds. Positions in shorted securities are more risky than
long positions (purchases) in stocks because the maximum sustainable loss on a
stock purchased is limited to the amount paid for the stock plus the
transactions costs, whereas there is no maximum attainable price of the shorted
stock. Therefore, in theory, stocks sold short have unlimited risk.
The Adviser attempts to control the risk inherent in short selling through
several processes. One way is to decrease the relative weighing of each stock
sold short while increasing the number of shorted stocks, thus reducing the
impact each stock has on overall performance without reducing the market
neutrality of the Fund. The Adviser also employs various proprietary procedures
to eliminate stocks which have risen in price above a loss threshold. However,
investors must be aware of the intrinsic risk involved in the Market Neutral
Fund and be cognizant that any strategy which includes selling stocks short can
suffer significant losses.
In addition to common stocks of U.S. companies, the Funds long and short
positions may involve American Depositary Receipts. See "Investment Policies and
Techniques" for more information on American Depositary Receipts and other
securities in which the Fund may invest.
THE ADVISOR'S HISTORICAL PERFORMANCE: The Adviser has been managing an account
using its market neutral strategy since October 31, 1995. The account has an
investment objective and investment policies and strategies substantially
similar to the Market Neutral Fund. The performance of the account is provided
below to illustrate past performance of the Adviser in managing the account, as
compared to 90-day U.S. treasury bill return, which the Adviser considers to be
an approximation of the risk-free rate of return.
Market Neutral Account(a) 90 Day T-bills(b)
---------------------- --------------
Year ended June 30, 1998 24.84% 3.71%
Year ended June 30, 1997 13.05 3.66
Since inception October 31, 1995 14.19 3.67
(a) On October 31, 1995, the account totaled $500,000. As of June 30, 1998, the
account totaled approximately $740,000. Performance figures reflected are
net of the estimated management fees of the Market Neutral Fund (the
account was not charged a management fee) and all other expenses, including
transaction costs and commissions. Results include the reinvestment of
dividends and capital gains. The presentation of the performance complies
with the Performance Presentation Standards of the Association for
Investment Management and Research (AIMR-PPS).
(b) An investment in 90 day U.S. Treasury Bills is different from an investment
in the Fund or in the Account because Treasury Bills are backed by the full
faith and credit of the United States, have a fixed rate of return and a
short duration, and investors in Treasury Bills do not risk losing capital.
It has been standard for market neutral managers of private accounts,
including the Adviser, to use the 90 day Treasury Bill as a benchmark.
Traditional benchmarks for stock funds are not appropriate because market
neutral returns are not tied to the direction of the stock market.
Moreover, part of the return from a market neutral strategy is from
interest on the proceeds from short sales, which often approximates the 90
day Treasury Bill return. Unlike Treasury Bills, however, please keep in
mind that market neutral investing involves substantial risk. Stock prices
are more volatile and there is a risk of losing your capital.
The performance of the account managed by the Adviser does not represent the
historical performance of a Fund and should not be considered indicative of
future performance of a Fund. Results may differ because of, among other things,
differences in brokerage commissions, account expenses, including management
fees, the size of positions taken in relation to account size and
diversification of securities, timing of purchases and sales, and availability
of cash for new investments. In addition, the managed account is not subject to
certain investment limitations, diversification requirements, and other
restrictions imposed by the Investment Company Act and the Internal Revenue Code
which, if applicable, may have adversely affected the performance results of the
managed account. The results for different periods may vary.
GENERAL:
For temporary defensive purposes under adverse market conditions, each 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; money market funds or other cash equivalents. Each 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. If a Fund acquires securities of another mutual fund, including a
money market fund, the shareholders of the Fund will be subject to additional
management fees. See "Investment Policies and Techniques" for a more detailed
discussion of each Fund's investment practices.
As all investment securities are subject to inherent market risks and
fluctuations in value due to earnings, economic and political conditions and
other factors, no Fund can give any assurance that its investment objective will
be achieved. Rates of total return quoted by a Fund may be higher or lower than
past quotations, and there can be no assurance that any rate of total return
will be maintained.
HOW TO INVEST IN THE FUNDS
Shares of each 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
in the Fund of $2,000 ($500 for qualified plans and $1 million for Class R).
Shares of each 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.
INITIAL PURCHASE
You may open an account and make an initial investment through securities
dealers having a sales agreement with CW Fund Distributors, Inc., the Funds
distributor (the "Distributor"). You may also make a direct initial investment
by completing and signing the investment application form which accompanies this
Prospectus and mailing it, in proper form, together with a check made payable to
the appropriate Fund, to the P.O. Box listed below. If you prefer overnight
delivery, use the overnight address listed below.
U.S. MAIL: OVERNIGHT:
The James Advantage Funds The James Advantage Funds
P.O. Box 5354 312 Walnut Street, 21st floor
Cincinnati, Ohio 45201-5354 Cincinnati, Ohio 45202
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
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 the name of the Fund and whether the order is for Class A, Class
C or Class R Shares. All purchase orders that fail to specify a Class will
automatically be invested in Class A Shares.
CLASS A SHARES
Class A shares of each 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.
Sales Load as % of:
- --------------------------------------------------------------------------------
Public Net Dealer Reallowance
Offering Amount as % of
Amount of Investment Price Invested Public Offering Price
- --------------------------------------------------------------------------------
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%
- --------------------------------------------------------------------------------
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% (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.
CLASS R SHARES
Class R Shares are no-load and are not subject to distribution fees or service
fees. Class R shares are available to those investing $1 million or more.
ADDITIONAL PURCHASES
After an initial investment in a Fund, you may purchase additional shares of the
Fund at any time either through a securities dealer or by sending a check
payable to the applicable Fund to the address listed above. You may also
purchase shares of a Fund by bank wire. Please telephone Countrywide Fund
Services, Inc. (the "Transfer Agent") at 800-995-2637 for instructions. The bank
may impose a charge for sending a wire. There is presently no fee for receipt of
wired funds, but the Transfer Agent reserves the right to charge shareholders
for this service upon thirty days' prior notice to shareholders.
Each additional purchase request must contain the name of the account and the
account number to permit proper crediting to the account. While there is no
minimum amount required for subsequent investments, the Trust reserves the right
to impose such a requirement. All additional purchases are made at public
offering price next determined after receipt of a purchase order by the Trust,
plus any applicable sales charge. If a broker-dealer received concessions for
selling shares of a Fund to a current shareholder, such broker-dealer will
receive the concessions with respect to additional investments by the
shareholder.
GENERAL PURCHASE INFORMATION
Shares of a Fund may be purchased, in amounts less than the minimum
purchase amount, by officers, directors and employees of the Funds, 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 persons 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 a 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.
You may purchase Class A shares without a sales charge at net asset value if you
are within the following specified categories of investors: officers, service
providers and current and former trustees of the Trust; full-time and retired
employees of the Adviser and subsidiaries thereof, or their immediate family
members; persons who, for at least 90 days, have been an officer, director or
employee of any authorized dealer with a sales agreement, or their immediate
family members; officers and directors of banks, bank holding companies or other
financial institutions that make a Fund's shares available directly or through
subsidiaries or bank affiliates; bank or broker-affiliated trust departments;
and clients of investment advisers, financial planners or other financial
intermediaries.
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 each 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 each 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 days public offering price.
Direct investments received after 4:00 p.m. and orders received from dealers
after 5:00 p.m. are confirmed at the public offering price next determined on
the following business 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 Funds offer current shareholders who receive a quarterly statement from the
Funds' Distributor the convenience of automatic monthly investing. On the 15th
(or the business day prior to the 15th if it falls on a weekend or holiday) or
last business day 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.
Each 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
the 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 withdrawals.
RIGHT OF ACCUMULATION AND LETTER OF INTENT (CLASS A SHARES ONLY)
A Fund shareholder may use the Right of Accumulation to combine the cost or
current net asset value (whichever is higher) of his existing Class A shares of
any Fund in the James Advantage Funds with the amount of his current purchases
in order to take advantage of the reduced sales loads set forth in the table
above.
A Fund 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.
OTHER PURCHASE INFORMATION
The Funds do not issue share certificates. All shares are held in
non-certificate form registered on the books of the Funds and the Funds'
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
Funds. If your check or wire does not clear, you will be responsible for any
loss incurred by the Funds. If you are already a shareholder, the Fund can
redeem shares from any identically registered account in the Funds as
reimbursement for any loss incurred. You may be prohibited or restricted from
making future purchases in the Funds.
HOW TO REDEEM SHARES
Shareholders may redeem shares of a Fund on each day that the Trust is open for
business by sending a written request to the Transfer Agent. The request must
state the number of shares or the dollar amount to be redeemed and the account
number. The request must be signed exactly as the shareholder's name appears on
the Trusts account records. Upon receipt by a 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 C shares may be subject to a CDSL charge
(see "How to Invest in the Fund").
A shareholder may also redeem shares by placing a wire redemption request
through a securities broker or dealer. Shareholders will receive the net asset
value per share next determined after receipt by the Transfer Agent of the wire
redemption request. It is the responsibility of broker-dealers to properly
transmit wire redemption orders.
If written instructions so indicate, redemption procedes may be wired to an
account at a domestic bank or financial institution. The Fund's custodian
charges a processing fee for wire redemptions. All charges will be deducted from
the shareholder's account by redemption of shares in the account. The
shareholder's bank or brokerage firm may also impose a charge for processing the
wire. In the event that wire transfer of funds is impossible or impractical, the
redemption proceeds will be sent by mail to the designated account.
Payment is normally made within three business days after receipt of a proper
redemption request, provided that payment in redemption of shares purchased by
check will be effected only after the check has cleared, which may take up to
fifteen calendar days from the purchase date. To eliminate this delay,
shareholders may purchase shares of a Fund by certified check or wire.
The Trust and the Transfer Agent will consider all written and verbal
instructions as authentic and will be responsible for the processing of exchange
instructions received by telephone which are reasonably believed to be genuine
or the delivery or transmittal of the redemption proceeds by wire. The affected
shareholders will bear the risk of any such loss. The privilege of exchanging
shares by telephone is automatically available to all shareholders. The Trust or
the Transfer Agent, or both, will employ reasonable procedures to determine that
telephone instructions are genuine. If the Trust and/or the Transfer Agent do
not employ such procedures, they may be liable for losses due to unauthorized or
fraudulent instructions. The procedures may include, among others, requiring
forms of personal identification prior to acting upon telephone instructions,
providing written confirmation of the transactions and/or tape recording
telephone instructions. At the discretion of the Trust or the Transfer Agent,
corporate investors and other associations may be required to furnish an
appropriate certification authorizing redemptions to ensure proper
authorization.
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 Funds incur certain fixed costs in
maintaining shareholder accounts, each 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 a 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 a Fund to the minimum
amount within the 30 day period. Each share of each 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 Funds.
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
reinvested in additional shares. Such payments are drawn from the proceeds of
the redemption shares held in the shareholders 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 a bank account. 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.
EXCHANGE PRIVILEGE
Shares of a James Advantage Fund may be exchanged for shares of the same class
of any of the James Advantage Funds. Shareholders may request an exchange by
sending a written request to the Transfer Agent. The request must be signed
exactly as the shareholder's name appears on the Trust's account records.
Exchanges may also be requested by telephone. If a shareholder is unable to
execute a transaction by telephone (for example during times of unusual market
activity) the shareholder should consider requesting the exchange by mail. An
exchange will be effected at the next determined net asset value after receipt
of a request by the Transfer Agent.
Exchanges may only be made for shares of Funds then offered for sale in the
shareholder's state of residence and are subject to the applicable minimum
initial investment requirements. The exchange privilege may be modified or
terminated by the Board of Trustees upon 60 days' prior notice to shareholders.
An exchange results in a sale of Fund shares, which may cause the shareholder to
recognize a capital gain or loss. Before making an exchange, contact the
Transfer Agent to obtain more information about exchanges.
SHARE PRICE CALCULATION
The value of an individual share in a Fund (the net asset value) is calculated
by dividing the total value of the Funds 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 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.
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 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 a 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
Each 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.
Unless a shareholder has elected otherwise, 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. 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
Each Fund intends to qualify each year as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended. By so qualifying, a 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 each Fund from ordinary
income are taxable to shareholders as ordinary income, but may be eligible in
part for the dividends received deduction for corporations. 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.
Each 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 Funds 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 by the Internal
Revenue Service, a 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 applicable
Fund may make a corresponding charge against the account.
OPERATION OF THE FUNDS
Each 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. This prospectus offers shares of each Fund and each share represents an
undivided, proportionate interest in a Fund. The Board of Trustees supervises
the business activities of the Funds. Like other mutual funds, the Funds retain
various organizations to perform specialized services.
The Funds retain James Investment Research, Inc., P.O. Box 8, Alpha, Ohio 45301
(the "Adviser") to manage the Funds' investments. The investment decisions for
the Funds are made by a committee of the Adviser, which is primarily responsible
for the day-to-day management of each Fund's portfolio. The Adviser is owned by
Francis E. 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 Golden Rainbow 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 Golden Rainbow 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 Adviser is authorized to receive a fee (a) equal to an annual rate of 1.25%
of the average daily net assets of the Small Cap Fund and 1.70% of the Market
Neutral Fund; minus (b) the fees and expenses of the non-interested person
trustees incurred by the applicable Fund. The Adviser is responsible for the
payment of all operating expenses of the Small Cap Fund and the Market Neutral
Fund, except for brokerage fees and commissions, taxes, interest, 12b-1
expenses, fees and expenses of non-interested person trustees and extraordinary
expenses.
The Funds retain 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 and to provide accounting and pricing
services. The Funds also retain 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 at an annual rate of .10% of each 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,
subject to a minimum monthly fee of $1,000. The Funds retain CW Fund
Distributors, (the "Distributor") Inc. 312 Walnut Street, Cincinnati, Ohio
45202, to act as the principal distributor of each Fund's shares. The Transfer
Agent and the Distributor are wholly-owned indirect subsidiaries of Countrywide
Credit Industries, Inc., a New York Stock Exchange listed company principally
engaged in the business of residential mortgage lending.
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
a Fund as a factor in the selection of brokers and dealers to execute portfolio
transactions.
DISTRIBUTION PLANS
Each Fund has adopted a plan pursuant to Rule 12b-1 under the Investment Company
Act of 1940 Act (the "1940 Act") for Class A and Class C shares (collectively,
the Plans) which permits a 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 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
pages 2-3 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 maximum amount payable by a 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 a 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 C shares is 1.00% of its 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 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 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 Funds may purchase or employ. For more
information, see the Statement of Additional Information.
EQUITY SECURITIES
Each Fund may invest in common stock. In addition to common stock, the Golden
Rainbow Fund may invest in 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 & Poors Corporation ("S&P") or by
Moodys Investors Services, Inc. ("Moody's").
FOREIGN SECURITIES
The Golden Rainbow 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"). The
Small Cap Fund and Market Neutral Fund may invest without limitation in ADR's.
These securities are certificates of ownership issued by a U.S. bank as a
convenience to investors in lieu of the underlying shares which its holds in
custody.
Purchases of foreign securities are usually made in foreign currencies and, as a
result, a 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
Each Fund may invest in U.S. government obligations. These securities 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 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
Each 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 a 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, each 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 a Fund engages
in repurchase transactions.
LOANS OF SECURITIES
Each 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 the value of the loaned securities. A 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 Adviser determines to be important. 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 AND ASSOCIATED RISKS
The Golden Rainbow 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 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. Transactions involving financial futures and options thereon will
be purchased, sold or entered into by the Golden Rainbow Fund 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 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 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 Golden Rainbow 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 Funds Custodian, cash or liquid portfolio
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
Each Fund may borrow from time to time on a temporary basis and may utilize
reverse repurchase agreements. A Fund's borrowings, including reverse repurchase
agreements, will be limited to 5% of its net assets. The borrowing of securities
for short sales is excluded for purposes of this limitation. The Market Neutral
Fund and Small Cap Fund may normally invest up to 15% and the Golden Rainbow
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.
The Market Neutral Fund may invest up to 5% of its net assets in each of the
following: futures contracts, options on futures contracts, caps, floors or
collars. Some of the risks associated with these securities are discussed above
with respect to the Golden Rainbow Fund, although the Market Neutral Fund can
use these securities for speculative, non-hedging purposes. For more
information, see the Statement of Additional Information.
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 applicable Fund. The investment
objective of each Fund may be changed without the affirmative vote of a majority
of the outstanding shares of the Fund. Any such change may result in a Fund
having an investment objective different from the objective which the
shareholders considered appropriate at the time of investment in the Fund.
PORTFOLIO TURNOVER
Neither the Golden Rainbow Fund nor the Small Cap Fund intends to purchase or
sell securities for short term trading purposes. Each Fund may, however, sell
any portfolio security (without regard to the length of time it has been held)
when the Adviser believes that market conditions, creditworthiness factors or
general economic conditions warrant such action. The portfolio turnover rate is
not expected to exceed 100% for the Small Cap Fund or the Golden Rainbow Fund
and 300% for the Market Neutral Fund. The Market Neutral Funds higher turnover
rate will result in correspondingly greater brokerage commission expenses and
may result in the realization of additional capital gains for tax purposes.
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 Fifth Third Bank, Dayton, Ohio, acting as either trustee,
investment agent or custodian for its clients, will own almost all of the Golden
Rainbow Fund's shares and may be deemed to control the Fund. While Fifth Third
has the legal right in certain situations to vote on behalf of its clients, it
is anticipated that Fifth Third will contact its clients and vote in accordance
with their preferences.
Prior to the offering made by this Prospectus, Francis E. James, Ph.D.,
purchased all of the outstanding shares of the Small Cap and Market Neutral
Funds and may be deemed to control each Fund.
PERFORMANCE INFORMATION
Each Fund may periodically advertise "average annual total return." The "average
annual total return" of a 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.
Each Fund may also advertise performance information (a "non-standardized
quotation") which is calculated differently from "average annual total return."
A non-standardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. A non-standardized quotation may
also be an average annual compounded rate of return over a specified period,
which may be a period different from those specified for "average annual total
return." In addition, a non-standardized quotation may be an indication of 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. A non-standardized
quotation will always be accompanied by the Fund's "average annual total return"
as described above.
Each 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
Barrons). 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 &
Poors (S&P) 500 Index, the Dow Jones Industrial Average or the Russell 2000
Index.
As described above in the section titled "The Funds", The Golden Rainbow Fund is
the successor to another mutual fund referred to herein as the Predecessor Fund.
The Predecessor Fund is the successor to the portfolio of two common trust funds
managed by the Adviser. At the Predecessor Fund's commencement of operations,
the assets from both common trust funds were transferred to the Predecessor Fund
in exchange for Class A shares. The Adviser has represented that The Golden
Rainbow Fund's and Predecessor Fund's investment objectives, policies and
limitations are in all material respects identical to those of both common trust
funds.
The Golden Rainbow Fund's average annual total returns for the 1, 5 and 10 year
periods ending June 30, 1998 were 4.87%, 8.62% and 9.95%, respectively. The
Golden Rainbow Fund's average annual total return for the period September 30,
1984 (commencement of operations) through June 30, 1998 was 13.19%. The quoted
performance data includes the performance of the Predecessor Fund. The quoted
performance data also includes the performance of the common trust funds for the
periods before the Predecessor Fund's registration statement became effective,
as adjusted to reflect the Predecessor Fund's estimated expenses as set forth in
its original prospectus. The common trust fund was not registered under the 1940
Act and therefore was not subject to certain investment restrictions that are
imposed by the 1940 Act. If the common trust fund had been registered under the
1940 Act, the performance may have been adversely affected.
THE ADVERTISED PERFORMANCE DATA OF EACH FUND IS BASED ON HISTORICAL PERFORMANCE
AND IS NOT INTENDED TO INDICATE FUTURE PERFORMANCE. RATES OF TOTAL RETURN QUOTED
BY A 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 EACH FUND WILL FLUCTUATE SO THAT A SHAREHOLDER'S SHARES,
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE SHAREHOLDER'S ORIGINAL
INVESTMENT.
<PAGE>
<TABLE>
<S> <C> <C>
Account Application ACCOUNT NO. _____________________
(Check appropriate Fund) (For Fund Use Only)
o The Golden Rainbow Fund (31) $_______ FOR BROKER/DEALER USE ONLY
o The James Small Cap Fund (J1) $_______ Firm Name:____________________________________________
o The James Market Neutral Fund (J2) $_______ Home Office Address:__________________________________
Branch Address: ______________________________________
Please mail account application to: Rep Name & No.: ______________________________________
The James Advantage Funds Rep Signature:________________________________________
P.O. Box 5354
Cincinnati, Ohio 45201-5354
o Check or draft enclosed payable to the Fund(s) designated above.
o Bank Wire From:_________________________________________________________________________________________________________________
o Exchange From:__________________________________________________________________________________________________________________
(Fund Account #)
Account Name S.S. #/Tax l.D.#
__________________________________________________________________________ ___________________________________________________
Name of Individual, Corporation, Organization, or Minor, etc. (In case of custodial account please list minor's
S.S.#)
__________________________________________________________________________ Citizenship: o U.S.
Name of Joint Tenant, Partner, Custodian o Other________________________
Address Phone
__________________________________________________________________________ ( )_____________________________
Street or P.O. Box Business Phone
__________________________________________________________________________ ( )_____________________________
City State Zip Home Phone
Check Appropriate Box: o Individual o Joint Tenant (Right of survivorship presumed) o Partnership o Corporation o Trust
o Custodial o Non-Profit o Other
Occupation and Employer Name/Address_______________________________________________________________________________________________
Are you an associated person of an NASD member? o Yes o No
TAXPAYER IDENTIFICATION NUMBER-- Under penalties of perjury I certify that the Taxpayer Identification Number listed above is my
correct number. The Internal Revenue Service does not require my consent to any provision of this document other than the
certifications required to avoid backup withholding. Check box if appropriate:
o I am exempt from backup withholding under the provisions of section 3406(a)(1)(c) of the Internal Revenue Code; or I am not
subject to backup withholding because I have not been notified that I am subject to backup withholding as a result of a failure
to report all interest or dividends; or the Internal Revenue Service has notified me that I am no longer subject to backup
withholding.
o I certify under penalties of perjury that a Taxpayer Identification Number has not been issued to me and I have mailed or
delivered an application to receive a Taxpayer Identification Number to the Internal Revenue Service Center or Social Security
Administration Office. I understand that if I do not provide a Taxpayer Identification Number within 60 days that 31% of all
reportable payments will be withheld until I provide a number.
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
o Share Option -- Income distributions and capital gains distributions automatically reinvested in additional shares.
o Income Option -- Income distributions and short term capital gains distributions paid in cash, long term capital gains
distributions reinvested in additional shares.
o Cash Option -- Income distributions and capital gains distributions paid in cash.
o By Check o By ACH to my bank checking or savings account. Please attach a voided check.
REDUCED SALES CHARGES
Right of Accumulation: I apply for Right of Accumulation subject to the Agent's confirmation of the following holdings of the James
Advantage Funds.
Account Number/Name Account Number/Name
_____________________________________________________________ _____________________________________________
_____________________________________________________________ _____________________________________________
_____________________________________________________________ _____________________________________________
Letter of Intent: (Class A shares only)
o I agree to the Letter of Intent in the current Prospectus of The James Advantage Funds. Although I am not obligated to
purchase, and the Trust is not obligated to sell, I intend to invest over a 13 month period beginning ________________ 19 _____
(Purchase Date of not more than 90 days prior to this Letter) an aggregate amount in the Funds at least equal to (check
appropriate box):
o $50,000 o $100,000 o $250,000 o $500,000 o $1,000,000
SIGNATURES
By signature below each investor certifies that he has received a copy of the Funds' current Prospectus, that he is of legal age,
and that he has full authority and legal capacity for himself or the organization named below, to make this investment and to use
the options selected above. The investor appoints Countrywide Fund Services, Inc. as his agent to enter orders for shares whether by
direct purchase or exchange, to receive dividends and distributions for automatic reinvestment in additional shares of the Funds for
credit to the investor's account and to surrender for redemption shares held in the investor's account in accordance with any of the
procedures elected above or for payment of service charges incurred by the investor. The investor further agrees that Countrywide
Fund Services, Inc. can cease to act as such agent upon ten days' notice in writing to the investor at the address contained in this
Application. The investor hereby ratifies any instructions given pursuant to this Application and for himself and his successors and
assigns does hereby release The James Advantage Funds, James Investment Research, Inc., CW Fund Distributors, Inc., Countrywide Fund
Services, Inc., and their respective officers, employees, agents and affiliates from any and all liability in the performance of the
acts instructed herein provided that such entities have exercised due care to determine that the instructions are genuine.
____________________________________________________________________ ________________________________________________
Signature of Individual Owner, Corporate Officer, Trustee, etc. Signature of Joint Owner, if Any
___________________________________________________________________ ________________________________________________
Title of Corporate Officer, Trustee, etc. Date
NOTE: Corporations, trusts and other organizations must complete the resolution form on the reverse side.
Unless otherwise specified, each joint owner shall have full authority to act on behalf of the account
<PAGE>
AUTOMATIC INVESTMENT PLAN (Complete for Investments Into the Funds)
The Automatic Investment Plan is available to current shareholders who receive a quarterly statement from the Funds' distributor.
There is no charge for this service, and it offers the convenience of automatic investing on a regular basis. The minimum investment
is $100.00 per month. For an account that is opened by using this Plan, the minimum initial and subsequent investments must be
$100.00. Though a continuous program of 12 monthly investments is recommended, the Plan may be discontinued by the shareholder at
any time.
Please invest $ _________________ per month in the (check the appropriate Fund.) ABA Routing Number_________________________
o Golden Rainbow Fund o James Small Cap Fund o James Market Neutral Fund FI Account Number__________________________
o Checking Account o Savings Account
_____________________________________________________________
Name of Financial Institution (FI) Please make my automatic investment on:
o the last business day of each month
_____________________________________________________________ o the 15th day of each month
City State o both the 15th and last business day
X____________________________________________________________ X_____________________________________________
(Signature of Depositor EXACTLY as it appears on FI Records) (Signature of Joint Tenant - if any)
(Joint Signatures are required when bank account is in joint names. Please sign exactly as signature appears on your FI's records.)
Please attach a voided check from your checking account or a voided deposit/withdrawal slip from your savings account for
the Automatic Investment Plan.
Indemnification to Depositor's Bank
In consideration of your participation in a plan which Countrywide Fund Services, Inc. ("CFS") has put into effect, by which
amounts, determined by your depositor, payable to the applicable Fund designated above, for purchase of shares of said Fund, are
collected by CFS, CFS hereby agrees:
CFS will indemnify and hold you harmless from any liability to any person or persons whatsoever arising out of the payment by
you of any amount drawn by the Funds to their own order on the account of your depositor or from any liability to any person
whatsoever arising out of the dishonor by you whether with or without cause or intentionally or inadvertently, of any such amount.
CFS will defend, at its own cost and expense, any action which might be brought against you by any person or persons whatsoever
because of your actions taken pursuant to the foregoing request or in any manner arising by reason of your participation in this
arrangement. CFS will refund to you any amount erroneously paid by you to the Funds if the claim for the amount of such erroneous
payment is made by you within six (6) months from the date of such erroneous payment; your participation in this arrangement and
that of the Funds may be terminated by thirty (30) days written notice from either party to the other.
SYSTEMATIC WITHDRAWAL PLAN (Complete for Withdrawals from the Funds)
This is an authorization for you to withdraw $____________ from my mutual fund account beginning the last business day of the month
of ___________________.
Please Indicate Withdrawal Schedule (Check One): Please Indicate Which Fund:
o Monthly -- Withdrawals will be made on the last business day of each month. o Golden Rainbow Fund
o Quarterly -- Withdrawals will be made on or about 3/31, 6/30, 9/30 and 12/31. o James Small Cap Fund
o James Market Neutral Fund
Please Select Payment Method (Check One):
o Exchange: Please exchange the withdrawal proceeds into another account number. ___ ___-___ ___ ___ ___ ___ ___ ___
o Check: Please mail a check for my withdrawal proceeds to the mailing address on this account.
o ACH Transfer: Please send my withdrawal proceeds via ACH transfer to my bank checking or savings account as indicated
below. I understand that the transfer will be completed in two to three business days and that there is no charge.
o Bank Wire: Please send my withdrawal proceeds via bank wire, to the account indicated below. I understand that the wire
will be completed in one business day and that there is a $9.00 fee.
Please attach a voided ___________________________________________________________________________________________
check for ACH or bank wire Bank Name Bank Address
___________________________________________________________________________________________
Bank ABA# Account # Account Name
o Send to special payee (other than applicant): Please mail a check for my withdrawal proceeds to the mailing address below:
Name of payee______________________________________________________________________________________________________________________
Please send to:____________________________________________________________________________________________________________________
Street address City State Zip
RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other Organizations)
RESOLVED: That this corporation or organization become a shareholder of The James Advantage Funds (the "Trust") and that
___________________________________________________________________________________________________________________________________
is (are) hereby authorized to complete and execute the Application on behalf of the corporation or organization and to take any
action for it as may be necessary or appropriate with respect to its shareholder account with the Trust, and it is
FURTHER RESOLVED: That any one of the above noted officers is authorized to sign any documents necessary or appropriate to appoint
Countrywide Fund Services, Inc. as redemption agent of the corporation or organization for shares of the applicable series of the
Trust, to establish or acknowledge terms and conditions governing the redemption of said shares and to otherwise implement the
privileges elected on the Application.
Certificate
I hereby certify that the foregoing resolutions are in conformity with the Charter and By-Laws or other empowering documents of the
___________________________________________________________________________________________________________________________________
(Name of Organization)
incorporated or formed under the laws of___________________________________________________________________________________________
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the organization or corporation duly called and held on
________________ at which a quorum was present and acting throughout, and that the same are now in full force and effect.
I further certify that the following is (are) duly elected officer(s) of the corporation or organization, authorized to act in
accordance with the foregoing resolutions.
Name Title
________________________________________________ __________________________________________
________________________________________________ __________________________________________
________________________________________________ __________________________________________
Witness my hand and seal of the corporation or organization this____________________________day of____________________, 19_______
________________________________________________ __________________________________________
*Secretary-Clerk Other Authorized Officer (if required)
*If the Secretary or other recording officer is authorized to act by the above resolutions, this certificate must also be signed by
another officer.
</TABLE>
<PAGE>
INVESTMENT ADVISER
James Investment Research, Inc.
P.O. Box 8
Alpha, Ohio 45301
[email protected]
o
CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
o
TRANSFER AGENT
Countrywide Fund Services, Inc.
312 Walnut Street
Cincinnati, Ohio 45202
o
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1700 Courthouse Plaza, N.E.
Dayton, Ohio 45402
o
DISTRIBUTOR
CW Fund Distributors, Inc.
312 Walnut Street
Cincinnati, Ohio 45202
o
LEGAL COUNSEL
Brown, Cummins & Brown Co., L.P.A.
3500 Carew Tower, 441 Vine Street
Cincinnati, Ohio 45202
TABLE OF CONTENTS
- -------------------------------------------
Summary of Fund Expenses 2
Golden Rainbow Fund Financial Highlights 4
Investment Objective and
Strategies and Risk Considerations 5
How to Invest in the Funds 9
How to Redeem Shares 12
Free Repurchase and Systematic
Withdrawal and Direct Deposits 13
Share Price Calculation 14
Dividends and Distributions 15
Taxes 15
Operation of the Funds 16
Distribution Plans 17
Investment Policies and Techniques 18
General Information 21
Performance Information 21
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 Golden
Rainbow Fund, The James Small Cap Fund, and
The James Market Neutral Fund. This Prospectus
does not constitute an offer by the Funds to
sell shares in any state to any person to
whom it is unlawful to make such offer in such
state.
<PAGE>
THE GOLDEN RAINBOW FUND
STATEMENT OF ADDITIONAL INFORMATION
October 1, 1998
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus dated October 1, 1998. A copy of the
Prospectus can be obtained by writing the Transfer Agent at 312 Walnut Street,
Cincinnati, Ohio 45202, or by calling 888-99 JAMES (888-995-2637).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
DESCRIPTION OF THE TRUST........................................ 1
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS
AND RISK CONSIDERATIONS......................................... 2
A. Illiquid Securities........................... 2
B. Borrowing and Leverage; Reverse Repurchase
Agreements.................................... 2
C. Hedging Transactions.......................... 3
INVESTMENT LIMITATIONS.......................................... 14
SHARES OF THE FUND.............................................. 17
LETTER OF INTENT................................................ 18
THE INVESTMENT ADVISER.......................................... 19
TRUSTEES AND OFFICERS........................................... 20
PORTFOLIO TRANSACTIONS AND BROKERAGE............................ 21
DISTRIBUTION PLANS.............................................. 22
DETERMINATION OF SHARE PRICE.................................... 23
INVESTMENT PERFORMANCE.......................................... 23
CUSTODIAN....................................................... 24
TRANSFER AGENT.................................................. 25
INDEPENDENT AUDITORS............................................ 25
DISTRIBUTOR..................................................... 25
FINANCIAL STATEMENTS............................................ 25
<PAGE>
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 one of a series of Funds
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 Funds" and "How to Redeem 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.
As of September 18, 1998, Citizens Federal Bank F.S.B., One Citizens
Federal Centre, Dayton, Ohio 45402, owned of record 89.2% of the outstanding
Class A shares of the Fund. Citizens Federal Bank F.S.B. may be deemed to
control the Fund as a result of its beneficial ownership of shares of the Fund.
As of September 18, 1998, the officers and Trustees of the Fund as group owned
less than 1% of the outstanding shares of the Fund.
- 1 -
<PAGE>
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, 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 Adviser. The Fund aggregates reverse repurchase agreements
with its bank borrowings for purposes of limiting borrowings to 5% of its total
assets.
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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 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,
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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.
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."
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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.
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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
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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.
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
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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.
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.
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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 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
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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
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transactions ("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
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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 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.
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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.
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
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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.
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
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<PAGE>
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
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<PAGE>
investing in securities or other instruments backed by commodities; 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.
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<PAGE>
Margin deposits, security interests, liens and collateral arrangements with
respect to transactions involving options, 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.
- 17 -
<PAGE>
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
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
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<PAGE>
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.
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. For the period
June 26, 1998 (commencement of operations for the Fund) to June 30, 1998, the
Trust paid the Adviser $10,681 on behalf of the Fund.
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
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<PAGE>
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.
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
P.O. Box 8 Trust; Executive Vice
Alpha, Ohio 45301 President, James Investment
Age: 42 Research, Inc. (1985 to
Present); President, James
Capital Alliance, Inc.,
Cincinnati, Ohio (1992 to
Present).
- ------------------------------------------------------------------------------
Thomas L. Mangan Vice President, Treasurer and
P.O. Box 8 Secretary of the Trust; Vice
Alpha, Ohio 45301 president, James Investment
Age: 49 Research, Inc. (1994 to
Present); senior vice
president, Fuji
Securities, Inc.,
Chicago, Illinois
(prior to 1994).
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Anthony P. D'Angelo Trustee of the Trust;
Dept. of the Air Force, Professor, Graduate School of
Building 641 Logistics and Acquisition
2950 P Street Management, Air Force Institute
Wright-Patterson AFB OHIO of Technology, Wright-Patterson
45433-7765 AFB, Ohio (1983 to present).
Age: 68
- ------------------------------------------------------------------------------
Hazel L. Eichelberger Trustee of the Trust; Retired
9438 Atchison Road Sr. Vice President, Citizens
Dayton, Ohio 45458 Federal Bank, Dayton, Ohio
Age: 61 (1955 to 1997).
- ------------------------------------------------------------------------------
James F. Zid Trustee of the Trust; Retired
1083 N. Collier Blvd. Partner, Ernst & Young, LLP,
Marco Island, Florida 34145 Columbus, Ohio (1968 to 1993).
Age: 64
==============================================================================
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<PAGE>
Trustee fees are Trust expenses. The following table estimates the
Trustees' compensation for the first full year of the Trust ending June 30,
1999.
===============================================================================
TOTAL COMPENSATION FROM TRUST (THE TRUST IS
NAME 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
===============================================================================
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
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<PAGE>
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.
DISTRIBUTION PLANS
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 amounts payable by the
Fund under the Plans are described in the Prospectus.
- 22 -
<PAGE>
The Plans, the Distribution Agreement, the Selling Agreements and
Service Agreements of the Fund have been approved by the Trust's Board of
Trustees, including a majority of the Trustees who are not "interested persons"
of the Trust and who have no direct or indirect financial interest in the Plans
or any related agreement, by a vote cast in person at a meeting called for the
purpose of voting on the Plans and such agreements and by the shareholders on
June 25, 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.
For the period from June 26, 1998 (commencement of operations of the
Fund) to June 30, 1998, the Trust incurred $3,602 under the Plan on behalf of
the Class A shares fo the Fund for payments to broker-dealers and others for the
sale or retention of Fund shares.
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.
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.
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<PAGE>
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. The average annual total return of Class A shares for
the one, five and ten year periods ended June 30, 1998, and the period from
commencement of operations (September 30, 1984) to June 30, 1998, was 4.87%,
8.62%, 9.95% and 13.19%, respectively.
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.
- 24 -
<PAGE>
TRANSFER AGENT
Countrywide Fund Services, Inc. ("Countrywide"), 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 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, 1999. 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
(the "Distributor"), 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. For its services, the
Distributor receives an annual fee of $5,000.
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 Fund for the year ended June 30, 1998.
- 25 -
<PAGE>
THE JAMES SMALL CAP FUND
THE JAMES MARKET NEUTRAL FUND
STATEMENT OF ADDITIONAL INFORMATION
October 1, 1998
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus dated October 1, 1998. A copy of the
Prospectus can be obtained by writing the Transfer Agent at 312 Walnut Street,
Cincinnati, Ohio 45202, or by calling 888-99 JAMES (888-995-2637).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
DESCRIPTION OF THE TRUST................................... 1
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND
RISK CONSIDERATIONS........................................ 1
INVESTMENT LIMITATIONS..................................... 5
SHARES OF THE FUNDS........................................ 8
LETTER OF INTENT........................................... 9
THE INVESTMENT ADVISER.................................... 10
TRUSTEES AND OFFICERS..................................... 11
PORTFOLIO TRANSACTIONS AND BROKERAGE....................... 12
DISTRIBUTION PLANS......................................... 13
DETERMINATION OF SHARE PRICE............................... 14
INVESTMENT PERFORMANCE..................................... 14
CUSTODIAN.................................................. 15
TRANSFER AGENT............................................. 15
INDEPENDENT AUDITORS....................................... 16
DISTRIBUTOR................................................ 16
<PAGE>
DESCRIPTION OF THE TRUST
The James Small Cap Fund and The James Market Neutral Fund (each a
"Fund" or collectively the "Funds") were organized as 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. Each Fund is one of a series of Funds
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, a 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 Funds,
see "How to Invest in the Funds" and "How to Redeem Shares" in the Funds'
Prospectus. For a description of the methods used to determine the share price
and value of the Funds' assets, see "Share Price Calculation" in the Funds'
Prospectus.
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK CONSIDERATIONS
This section contains a more detailed discussion of some of the
investments each Fund may make and some of the techniques it may use, as
described in the Prospectus (see "Investment Objectives and Strategies and Risk
Considerations" and "Investment Policies and Techniques").
- 1 -
<PAGE>
ILLIQUID SECURITIES
The portfolio of each Fund may contain up to 15% 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. 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, 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, a 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, a Fund might
obtain a less favorable price than the price it could have obtained when it
decided to sell.
INVESTMENT TECHNIQUES
The James Market Neutral Fund may utilize various other investment
strategies as described below. 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 financial futures contracts and options thereon, and enter
into various interest rate transactions such as swaps, caps, floors or collars.
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 techniques is a function of numerous variables including
market conditions. The ability of the Fund to utilize these techniques
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.
These techniques 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 techniques
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would result in losses greater than if they had not been used. 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. 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 such techniques would
reduce net asset value, and possibly income, and such losses can be greater than
if the techniques had not been utilized.
GENERAL CHARACTERISTICS OF FUTURES
The James Market Neutral Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures. 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, 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.
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>
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 should tend to minimize the risk of loss due to a decline in the
value of the 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 futures and options would reduce net asset value, and possibly
income, and such losses can be greater than if the techniques had not been
utilized.
SWAPS, CAPS, FLOORS AND COLLARS
The James Market Neutral Fund may enter into interest rate, currency
and index swaps and the purchase or sale of related caps, floors and collars.
The Fund may invest up to 5% of its assets in these transactions. 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. 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. 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. 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
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<PAGE>
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 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.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
The James Market Neutral Fund may be required to 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 or instruments 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.
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 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.
INVESTMENT LIMITATIONS
Fundamental. The investment limitations described below have been
adopted by the Trust with respect to each 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
the Statement of Additional Information, the term "majority" of the outstanding
shares of the
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<PAGE>
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 Funds 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 Funds 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 Funds 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 a 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 Funds 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), a Fund may be deemed an underwriter under certain federal
securities laws.
4. Real Estate. The Funds 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 a 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 Funds will not purchase or sell commodities except
as described in the Prospectus and Statement of Additional Information. This
limitation does not preclude a 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
- 6 -
<PAGE>
investing in securities or other instruments backed by commodities; 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 Funds 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. Each 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. Each 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 each Fund's diversification, the current standards
require that a 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 a Fund would own more than 10% of the outstanding voting
securities of such issuer, except that up to 25% of the value of a 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 each Fund and are Non-Fundamental (see "Investment
Limitations" above).
1. Pledging. The Funds will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any assets of a Fund except as
may be necessary in connection with borrowings described in limitation (1)
above. Margin deposits, security interests, liens and collateral
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<PAGE>
arrangements with respect to transactions involving 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. Each Fund will not purchase any security while borrowings
representing more than 5% its total assets are outstanding. For purposes of this
limitation, borrowing of securities for short sales are excluded.
3. Margin Purchases. The Funds will not purchase securities or
evidences of interest thereon on "margin." This limitation is not applicable to
short term credit obtained by a 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. Neither Fund will purchase or sell puts, calls, options or
straddles, except as described in the Prospectus and the Statement of Additional
Information.
5. Short Sales. The James Small Cap Fund will not effect short sales of
securities.
6. Illiquid Securities. Neither Fund will invest more than 15% 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 FUNDS
Four classes of shares, Class A Shares, Class B Shares, Class C Shares,
and Class R Shares are authorized for each Fund. Currently, each 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 a 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.
- 8 -
<PAGE>
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
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 a 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 a
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 a 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
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<PAGE>
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.
THE INVESTMENT ADVISER
The Funds' 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 Funds' investments subject to approval of the Board of
Trustees. As compensation for its management services, the Adviser is authorized
to receive a fee computed and accrued daily and paid monthly (a) at an annual
rate of 1.25% of the average daily net assets of The James Small Cap Fund and
1.70% of The James Market Neutral Fund; minus (b) the fees and expenses of the
non-interested person trustees incurred by 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 "James Small Cap" and
"James Market Neutral" 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 "James Small Cap" and
"James Market Neutral" 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 Funds 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
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prohibited from continuing to perform all or a part of such services, management
of the Funds believes that there would be no material impact on the Funds 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. Each Fund may from time to time
purchase securities issued by banks which provide such services; however, in
selecting investments for a Fund, no preference will be shown for such
securities.
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,CIC President and a Trustee of the
P.O. Box 8 Trust; Executive Vice
Alpha, Ohio 45301 President, James Investment
Age: 42 Research, Inc. (1985 to
Present); President, James
Capital Alliance, Inc., Alpha,
Ohio (1992 to Present).
- ------------------------------------------------------------------------------
Thomas L. Mangan Vice President, Treasurer and
P.O. Box 8 Secretary of the Trust; Vice
Alpha, Ohio 45301 president, James Investment
Age: 49 Research, Inc. (1994 to
Present); senior vice
president, Fuji Securities,
Inc., Chicago, Illinois
(prior to 1994).
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Anthony P. D'Angelo Trustee of the Trust;
Dept. of the Air Force, Professor, Graduate School of
Building 641 Logistics and Acquisition
2950 P Street Management, Air Force Institute
Wright-Patterson AFB OHIO of Technology, Wright-Patterson
45433-7765 AFB, Ohio (1983 to present).
Age: 68
- ------------------------------------------------------------------------------
Hazel L. Eichelberger Trustee of the Trust; Retired
9438 Atchison Road Sr. Vice President, Citizens
Dayton, Ohio 45458 Federal Bank, Dayton, Ohio
Age: 61 (1955 to 1997).
- ------------------------------------------------------------------------------
James F. Zid Trustee of the Trust; Retired
1083 N. Collier Blvd. Partner, Ernst & Young, LLP,
Marco Island, Florida 34145 Columbus, Ohio (1968 to 1993).
Age: 64
==============================================================================
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Trustee fees are Trust expenses. The following table estimates the
Trustees' compensation for the first full year of the Trust ending June 30,
1999.
===============================================================================
TOTAL COMPENSATION FROM TRUST (THE TRUST IS
NAME 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
===============================================================================
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Trustees of the Trust,
the Adviser is responsible for each Fund's portfolio decisions and the placing
of each Fund's portfolio transactions. In placing portfolio transactions, the
Adviser seeks the best qualitative execution for each 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 Funds 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 a 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
Funds. Although research services and
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<PAGE>
other information are useful to the Funds and the Adviser, it is not possible to
place a dollar value on the research and other information received.
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 a Fund are made independently from
those of the other accounts managed by the Adviser, investments of the type a
Fund may make may also be made by those other accounts. When a 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 a Fund or the size of the position obtained or disposed of by a
Fund. Orders placed for a Fund will not be combined ("blocked") with other
orders.
DISTRIBUTION PLANS
With respect to the Funds, 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 a 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 each Fund to achieve
economic viability. It is also anticipated that an increase in the size of a
Fund will facilitate more efficient portfolio management and assist a Fund in
seeking to achieve its investment objective. The maximum amounts payable by the
Funds under the Plans are described in the Prospectus.
The Plans, the Distribution Agreement, the Selling Agreements and the
Service Agreements of each Fund have been approved by the Trust's Board of
Trustees, including a majority of the Trustees who are not "interested persons"
of the Trust and who have no direct or indirect financial interest in the Plans
or any related agreement,
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<PAGE>
by a vote cast in person at a meeting called for the purpose of voting on the
Plans and such agreements on August 20, 1998. Continuation of the Plans and the
related agreements must be approved annually by the Trustees, 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.
DETERMINATION OF SHARE PRICE
The price (net asset value) of the shares of each 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 each Fund's securities to
materially affect the net asset value. The Trust is open for business on every
day except Saturdays, Sundays and official federal holidays. For a description
of the methods used to determine the net asset value (share price), see "Share
Price Calculation" in the Prospectus.
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.
Each Fund's investment performance will vary depending upon market
conditions, the composition of each Fund's portfolio and operating expenses of
each Fund. These factors and possible differences in the methods and time
periods used in calculating
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<PAGE>
non-standardized investment performance should be considered when comparing a
Fund's performance to those of other investment companies or investment
vehicles. The risks associated with each 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 each
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. Each
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 each 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.
CUSTODIAN
Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, is
Custodian of each Fund's investments. As Custodian, Star Bank, N.A. acts as each
Fund's depository, safekeeps its portfolio securities, collects all income and
other payments with respect thereto, disburses funds at a 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 each 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 each 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 Funds with certain monthly reports, record-keeping and other
management related services.
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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, 1999. Deloitte & Touche LLP will perform an annual
audit of the Funds' financial statements and provides financial, tax and
accounting consulting services as requested.
DISTRIBUTOR
CW Fund Distributors, Inc., 312 Walnut Street, Cincinnati, Ohio 45202
(the "Distributor"), is the exclusive agent for distribution of shares of the
Funds. The Distributor is obligated to sell shares of the Funds on a best
efforts basis only against purchase orders for the shares. Shares of the Funds
are offered to the public on a continuous basis.
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