SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 1 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT / /
OF 1940
Amendment No. 2 /X/
------
(Check appropriate box or boxes.)
THE JAMES ADVANTAGE FUNDS - FILE NOS. 333-37277 AND 811-8411
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1349 FAIRGROUND ROAD, BEAVERCREEK, OHIO 45385
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(Address of Principal Executive Offices) Zip Code
Registrant's Telephone Number, including Area Code: 937-426-7640
BARRY RAY JAMES, 1349 FAIRGROUND ROAD, BEAVERCREEK, OHIO 45385
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(Name and Address of Agent for Service)
With copy to:
Donald S. Mendelsohn, Brown, Cummins & Brown Co., L.P.A.
3500 Carew Tower, Cincinnati, Ohio 45202
Approximate Date of Proposed Public Offering: October 1, 1998
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b)
/ / on pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/X/ 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered SHARES
------
Omit from the facing sheet reference to the other Act if the Registration
Statement or amendment is filed under only one of the Acts. Include the
"Approximate Date of Proposed Public Offering" and "Title of Securities Being
Registered" only where securities are being registered under the Securities Act
of 1933.
<PAGE>
THE JAMES ADVANTAGE FUNDS
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CROSS REFERENCE SHEET
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FORM N-1A
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ITEM SECTION IN PROSPECTUS
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1..................... Cover Page
2..................... Summary of Fund Expenses
3..................... Performance Information; Financial Highlights
4..................... The Funds, Investment Objectives and Strategies and
Risk Considerations, Investment Policies and
Techniques, Operation of the Funds,
General Information
5..................... Operation of the Funds
5A.................... None
6..................... Cover Page, Dividends and Distributions, Taxes,
General Information, How to Redeem Shares
7..................... Cover Page, How to Invest in the Funds, Share Price
Calculation, Operation of the Funds, How to Redeem
Shares, Free Repurchase and Systematic Withdrawal
and Direct Deposits, Distribution Plan
8..................... How to Redeem Shares, Free Repurchase and Systematic
Withdrawal and Direct Deposits
9..................... None
13..................... General Information
15..................... General Information
SECTION IN GOLDEN RAINBOW FUND STATEMENT OF ADDITIONAL
------------------------------------------------------
INFORMATION
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ITEM
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10..................... Cover Page
11..................... Table of Contents
12..................... None
13..................... Additional Information About Fund Investments and
Risk Considerations, Investment Limitations
14..................... Trustees and Officers
15..................... None
16..................... The Investment Adviser, Custodian, Transfer Agent,
Accountants, Trustees and Officers,
Distribution Plan
17..................... Portfolio Transactions and Brokerage
18..................... Description of the Trust, Shares of the Funds
19..................... Determination of Share Price, Letter of Intent
20..................... None
21..................... Distributor
22..................... Investment Performance
23..................... Financial Statements
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<PAGE>
SECTION IN SMALL CAP FUND AND MARKET NEUTRAL FUND
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COMBINED STATEMENT OF ADDITIONAL INFORMATION
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ITEM
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10................... Cover Page
11................... Table of Contents
12................... None
13................... Additional Information About Fund Investments and Risk
Considerations, Investment Limitations
14................... Trustees and Officers
15................... None
16................... The Investment Adviser, Custodian, Transfer Agent,
Accountants, Trustees and Officers, Distribution Plan
17................... Portfolio Transactions and Brokerage
18................... Description of the Trust, Shares of the Funds
19................... Determination of Share Price, Letter of Intent
20................... None
21................... Distributor
22................... Investment Performance
23................... None
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<PAGE>
Prospectus _____, 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.(sm)
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 ___________, 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 FUND ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT
ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY, ENTITY, OR PERSON. THE PURCHASE OF FUND SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
SUMMARY OF FUND EXPENSES
The tables below are provided to assist an investor in understanding the
direct and indirect expenses that an investor may incur as a shareholder in a
Fund. The Golden Rainbow Fund expenses have been restated to reflect current
fees. 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.
As indicated in the expense table, the Trust utilizes a declining sales
load for Class A Shares, a contingent deferred sales load ("CDSL") 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 C shareholders could pay more than the economic
equivalent of the maximum front-end sales charge for Class A Shares. The Fund's
12b-1 plan and management fee are more fully described herein. Persons who
indirectly purchase Fund shares through intermediaries may pay fees charged by
such intermediaries in addition to those shown below.
THE GOLDEN RAINBOW FUND
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES ANNUAL FUND OPERATING EXPENSES*
- ----------------------------------------- ------------------------------------------------
TOTAL FUND
MAXIMUM OPERATING
FRONT END MAXIMUM MANAGEMENT OTHER EXPENSES
SALES LOAD CDSL FEE EXPENSES (AFTER
IMPOSED ON IMPOSED ON (AFTER 12B-1 (AFTER WAIVER AND
PURCHASES PURCHASES WAIVER) FEE REIMBURSEMENT) REIMBURSEMENT)
- ----------------------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares 4.20% N/A .65% .25% .10% 1.00%
Class C Shares (c) N/A 1.0%(a) .65% .85%(b) .10% 1.60%
Class R Shares (c) N/A N/A .65% .00% .10% .75%
<FN>
* The Fund is authorized to pay the Adviser a fee equal to an annual rate of
0.74% of its daily net assets. Through June 30, 1999, the Adviser has agreed to
waive a portion of its fee so that the fee after waiver will be 0.65%, and
reimburse expenses to maintain total Class A operating expenses at or below
1.00% of average daily net assets. Absent reimbursement, it is estimated that
other expenses for Class A through June 30, 1999 would be 0.20%, and total Class
A operating expenses, absent reimbursement and fee waiver, would be 1.19% of
average daily net assets.
</FN>
</TABLE>
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<PAGE>
SMALL CAP FUND
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES ANNUAL FUND OPERATING EXPENSES*
- ----------------------------------------- ------------------------------------------------
TOTAL FUND
MAXIMUM OPERATING
FRONT END MAXIMUM MANAGEMENT OTHER EXPENSES
SALES LOAD CDSL FEE EXPENSES (AFTER
IMPOSED ON IMPOSED ON (AFTER 12B-1 (AFTER WAIVER AND
PURCHASES PURCHASES WAIVER) FEE REIMBURSEMENT) REIMBURSEMENT)
- ----------------------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares 4.20% N/A .--% .--% .--% ---%
Class C Shares (c) N/A 1.0%(a) .--% .--%(b) .--% ---%
Class R Shares (c) N/A N/A .--% .--% .--% ---%
</TABLE>
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<PAGE>
MARKET NEUTRAL FUND
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES ANNUAL FUND OPERATING EXPENSES*
- ----------------------------------------- ------------------------------------------------
TOTAL FUND
MAXIMUM OPERATING
FRONT END MAXIMUM MANAGEMENT OTHER EXPENSES
SALES LOAD CDSL FEE EXPENSES (AFTER
IMPOSED ON IMPOSED ON (AFTER 12B-1 (AFTER WAIVER AND
PURCHASES PURCHASES WAIVER) FEE REIMBURSEMENT) REIMBURSEMENT)
- ----------------------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares 4.20% N/A .--% .--% .--% ---%
Class C Shares (c) N/A 1.0%(a) .--% .--%(b) .--% ---%
Class R Shares (c) N/A N/A .--% .--% .--% ---%
<FN>
(a) No initial sales load; 1% contingent deferred sales charge if redeemed
within 1 year of purchase.
(b) Of this amount, 0.75% is an asset based sales charge and 0.10% is a service
fee.
(c) These classes have not yet commenced operations.
</FN>
</TABLE>
EXAMPLE OF EXPENSE
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You would pay the following expenses on a $1,000 investment, assuming (1) a
5% annual return and (2) redemption at the end of each time period:
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<PAGE>
1 Year 3 Years 5 Years 10 Years
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GOLDEN RAINBOW FUND
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Class A Shares $ -- $ -- $ -- $---
Class C Shares $ -- $ -- $ -- $---
Class R Shares $ -- $ -- $ -- $---
SMALL CAP FUND
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Class A Shares $ -- $ --
Class C Shares $ -- $ --
Class R Shares $ -- $ --
MARKET NEUTRAL FUND
- -------------------
Class A Shares $ -- $ --
Class C Shares $ -- $ --
Class R Shares $ -- $ --
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<PAGE>
THE FUNDS
The Golden Rainbow Fund was organized as a series of The James Advantage
Funds, an Ohio business trust (the "Trust") on August 29, 1997. On June 30,
1998, the Fund acquired the assets and assumed the liabilities of The Golden
Rainbow A James Advised Mutual Fund (the "Predecessor Fund") in a tax-free
reorganization. The James Small Cap Fund and the James Market Neutral Fund were
organized as series of the Trust on ____________, 1998. This prospectus offers
shares of each Fund and each share represents an undivided, proportionate
interest in a Fund. The investment adviser to each Fund is James Investment
Research, Inc. (the "Adviser").
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<PAGE>
GOLDEN RAINBOW FUND FINANCIAL HIGHLIGHTS
[To be provided]
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<PAGE>
INVESTMENT OBJECTIVES AND STRATEGIES AND RISK CONSIDERATIONS
THE GOLDEN RAINBOW FUND: The investment objective of the Fund is to provide
shareholders with total return through a combination of growth and income and
preservation of capital in declining markets. The Fund seeks to achieve its
objective by investing primarily in equity and/or debt securities that the
Adviser believes are undervalued. The Fund will attempt to provide total return
in excess of the rate of inflation over the long term (three to five years).
The Adviser does its own research using quantitative databases and
statistical expertise. It utilizes a number of elements to help predict future
stock and bond price movements. When selecting equity securities, the Adviser
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 Fund's portfolio will consist
primarily of U.S. government securities or high grade corporate bonds. When the
Adviser believes that interest rates will fall, it may extend maturities in
anticipation of capital appreciation in the bonds. If the Adviser believes that
interest rates may rise, it expects to seek capital preservation through the
purchase of shorter term bonds. The Fund may invest in debt obligations of any
maturity, consistent with the Fund's anticipated needs for liquidity. The Fund
will limit its holdings of debt securities to issues rated, at the time of
purchase, "A" or better by either Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P"), or if unrated, determined by the
Adviser to be of equivalent quality.
The Fund may invest in foreign markets by investing in the securities of
non-United States issuers as well as through the purchase of mutual funds that
invest in foreign securities. The Fund may also invest, without limitation, in
money market instruments, repurchase agreements and "when issued" securities.
The Fund may invest up to 10% of its net assets in other mutual funds.
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
- 8 -
<PAGE>
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 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. 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 similar to the
companies in the Russell 2000 Index, which presently is $_ billion or less. The
Adviser will normally sell a security when the market capitalization reaches $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.
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 the accounts with investment objectives, policies and
strategies 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(1) INDEX(2)
Year ended June 30, 1998 ____% ___%
Year ended June 30, 1997 ____ ___
(1) On July 1, 1996, the Adviser began managing this style with one account
totalling $200,000. As of June 30, 1998, the composite consisted of ___ accounts
totalling approximately $______ 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 account) 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).
(2) 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
- 9 -
<PAGE>
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 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. See
"Short Sales," page ___, for more information on the risks of short sales.
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.
In addition to common stocks of U.S. companies, the Fund's 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 Adviser has been managing an account using its market neutral strategy
since July 1, 1996. The account has an investment objective and investment
policies and strategies 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(1) 90 DAY T-BILLS(2)
------------------------- -----------------
Year ended June 30, 1998 ____% ___%
Year ended June 30, 1997 ____ ___
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<PAGE>
(1) On July 1, 1996, the account totaled $______ million. As of June 30,
1998, the account totaled approximately $______ million. 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).
(2) Insert description of the benchmark.
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 FUND
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.
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<PAGE>
U.S. MAIL: OVERNIGHT:
---------- ----------
The ______________ Fund The _________________ Fund
P.O. Box _____________ c/o Countrywide Fund Services, Inc.
Cincinnati, Ohio 45202 312 Walnut Street
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.
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<PAGE>
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
OFFERING AMOUNT DEALER REALLOWANCE 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. [The first year's annual distribution fee
is paid to the Distributor, and in subsequent years 0.75% is paid to the dealer
and 0.10% is paid to the Distributor.]
CLASS R SHARES
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. Dividends and capital gains distributions on Class R shares may be
reinvested as Class R shares.
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<PAGE>
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 net asset
value 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.
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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 or Class R shares without a sales charge at net
asset value if you are within the following specified categories of investors:
officers and current and former trustees of the Fund; 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
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Fund are sold on a continuous basis at the public offering price next determined
after receipt of a purchase order by the Trust. Purchase orders received by
dealers prior to 4:00 p.m., Eastern time, on any business day and transmitted to
the Distributor by 5:00 p.m., Eastern time, that day are confirmed at the public
offering price determined as of the close of the regular session of trading on
the New York Stock Exchange on that day. It is the responsibility of dealers to
transmit properly completed orders so that they will be received by the
Distributor by 5:00 p.m., Eastern time. Dealers may charge a fee for effecting
purchase orders. Direct purchase orders received by 4:00 p.m., Eastern time, are
confirmed at that day's public offering price. Direct investments received after
4:00 p.m. and 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.
[PURCHASE FOR TRUST ACCOUNTS THROUGH DEALERS
If you wish to purchase shares of a Fund for a trust account, you should
direct your dealer to contact the Distributor to request information on the Fund
and your bank for information on establishing the necessary trust accounts. The
Distributor can be reached toll free at ___________________. For purchases made
through a dealer, that dealer will be designated as the broker of record for
those account assets. The public offering price is the Fund's net asset value.
[to be revised: Because the Fund determines net asset value daily as of the
close of trading (normally 4:00 p.m. New York time) on the New York Stock
Exchange on each day that the Exchange is open for trading, the dealer must
transmit your request to your bank prior to such time in order for your order to
be executed at the net asset value to be determined that day. ]]
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 next business day following 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.
LETTER OF INTENT (CLASS A SHARES ONLY)
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
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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
Dividends begin to accrue after you become a shareholder. 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 Trust's 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.
The Funds' custodian charges a $___ processing fee for wire redemptions,
which may be changed upon thirty days' written notice. 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
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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 the Fund is less than $2,000 due to
redemption, or such other minimum amount as the Fund may determine from time to
time. An involuntary redemption constitutes a sale. You should consult your tax
adviser concerning the tax consequences of involuntary redemptions. A
shareholder may increase the value of his or her shares in 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 in
the form of shares. Such payments are drawn from the proceeds of the redemption
shares held in the shareholder's account. To the extent that SWP redemptions
exceed dividend income reinvested in the account, such redemptions will reduce
and may ultimately exhaust the number of shares in the account. Maintaining a
SWP concurrently with an investment program would be disadvantageous because of
the sales charges included in share purchases. Therefore, a shareholder should
not have a SWP in effect at the same time he is making recurring purchases of
shares of the Fund. The shareholder by written instructions to the Transfer
Agent may withdraw from the program, change the payee or change the dollar
amount of each payment. The Transfer Agent may charge the account for services
rendered and expenses incurred beyond those normally assumed by the Fund with
respect to the liquidation of shares. No charge is currently assessed against
the account, but could be instituted by the Transfer Agent on 60 days' notice in
writing to the shareholder. The Fund reserves the right to amend or terminate
the SWP on thirty days' notice.
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<PAGE>
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.
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 Fund's investments and other
assets (including accrued income), less any liabilities (including estimated
accrued expenses), by the number of shares outstanding, rounded to the nearest
cent. Net asset value per share is determined as of the close of the New York
Stock Exchange (4:00 p.m., Eastern time) on each day that the exchange is open
for business (except for Ohio bank holidays), and on any other day on which
there is sufficient trading in the Fund's securities to materially affect the
net asset value. The net asset value per share of the Fund will fluctuate.
Securities which are traded on any exchange or on the NASDAQ
over-the-counter market are valued at the last quoted sale price. Lacking a last
sale price, a security is valued at its last bid price except when, in the
Adviser's opinion, the last bid price does not accurately reflect the current
value of the security. All other securities for which over-the-counter market
quotations are readily available are valued at their last bid price. When market
quotations are not readily available, when the Adviser determines the last bid
price does not accurately reflect the current value or when restricted
securities are being valued, such securities are valued at their fair value as
determined in good faith in accordance with consistently applied procedures
established by and under the general supervision of the Board of Trustees.
Fixed income securities generally are valued by using market quotations,
but may be valued on the basis of prices furnished by a pricing service when
market quotations are not readily available. A pricing service utilizes
electronic data processing techniques based on yield spreads relating to
securities with similar characteristics to determine prices for normal
institutional-size trading units of debt securities without regard to sale or
bid prices. When prices are not readily available from a pricing service, or
when restricted or illiquid securities are being valued, securities are valued
at their fair value as determined in good faith in accordance with consistently
applied procedures established by and under the general supervision of the Board
of Trustees. Short term investments in fixed income securities with maturities
of less than 60 days when acquired, or which subsequently are within 60 days of
maturity, are valued by using the amortized cost method of valuation, which the
Board has determined will represent fair value.
For valuation purposes, quotations of foreign securities in a foreign
currency are converted to U.S. dollar equivalents at the time of pricing. In
computing the net asset value of a Fund, the values of foreign portfolio
securities are generally based upon market quotations which, depending upon the
exchange or market, may be last sale price, last bid price, or the average of
the last bid and asked prices as of, in each case, the close of the appropriate
exchange or another designated time.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed at various times before the close
of business on each day on which the New York Stock Exchange is open. Trading of
these securities may not take place on every New York Stock Exchange business
day. In addition, trading may take place in various foreign markets on Saturdays
or on other days when the New York Stock Exchange is not open and on which a
fund's share price is not calculated. Therefore, the value of the portfolio of a
fund holding foreign securities may be significantly affected on days when
shares of the Fund may not be purchased or redeemed.
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<PAGE>
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 the Fund's share
price will not be reflected in the calculation unless the Adviser determines,
subject to review by the Board of Trustees, that the particular event would
materially affect net asset value, in which case an adjustment will be made.
DIVIDENDS AND DISTRIBUTIONS
[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.]
Income dividends and capital gain distributions are automatically
reinvested in additional shares at the net asset value per share on the
distribution date. An election to receive a cash payment of dividends and/or
capital gain distributions may be made in the application to purchase shares or
by separate written notice to the Transfer Agent. Shareholders will receive a
confirmation statement reflecting the payment and reinvestment of dividends and
summarizing all other transactions. If cash payment is requested, a check
normally will be mailed within five business days after the payable date. If you
withdraw your entire account, all dividends accrued to the time of withdrawal,
including the day of withdrawal, will be paid at that time. You may elect to
have distributions on shares held in IRAs and 403(b) plans paid in cash only if
you are 59 1/2 years old or permanently and totally disabled or if you otherwise
qualify under the applicable plan.
TAXES
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. Pursuant to the Tax
Reform Act of 1986 (the "Tax Reform Act"), all distributions of net short term
capital gains to individuals are taxed at the same rate as ordinary income. All
distributions of net capital gains to corporations are taxed at regular
corporate rates. Any distributions designated as being made from net realized
long term capital gains are taxable to shareholders as long term capital gains
regardless of the holding period of the shareholder.
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.
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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. 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 Adviser is authorized to receive a fee equal to an annual rate of ____%
of its average daily net assets from the Small Cap Fund and ___% from the Market
Neutral Fund.
Each 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 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. 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.] The Funds retain CW Fund Distributors, Inc.,
312 Walnut Street, Cincinnati, Ohio 45202, to act as the principal distributor
of each Fund's shares.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to its obligation of seeking best
qualitative execution, the Adviser may give consideration to sales of shares of
a Fund as a factor in the selection of brokers and dealers to execute portfolio
transactions.
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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 the 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 page 2 of this Prospectus. The Plans conform
to the requirements of the rules of the National Association of Securities
Dealers with regard to Rule 12b-1 plans. Each Plan authorizes the Fund to expend
its monies in an amount equal to the aggregate for all such expenditures to such
percentage of the Fund's daily net asset value as may be determined from time to
time by vote cast in person at a meeting called for such purpose, by a majority
of the Fund's disinterested Trustees. The scope of the foregoing shall be
interpreted by the Trustees, which decision shall be conclusive except to the
extent it contravenes established legal authority. Without in any way limiting
the discretion of the Trustees, the following activities are hereby declared to
be primarily intended to result in the sale of shares of the applicable Fund:
advertising the Fund or the Adviser's mutual fund activities; compensating
underwriters, dealers, brokers, banks and other selling entities and sales and
marketing personnel of any of them for sales of shares of the Fund, whether in a
lump sum or on a continuous, periodic, contingent, deferred or other basis;
compensating underwriters, dealers, brokers, banks and other servicing entities
(including the Adviser) and servicing personnel of any of them for providing
services to shareholders of the Fund relating to their investment in the Fund,
including assistance in connection with inquiries relating to shareholder
accounts; the production and dissemination of prospectuses and statements of
additional information of the Fund and the preparation, production and
dissemination of sales, marketing and shareholder servicing materials; and the
ordinary or capital expense, such as equipment, rent, fixtures, salaries,
bonuses, reporting and recordkeeping and third party consultancy or similar
expenses relating to any activity for which payment is authorized by the
Trustees; and the financing of any activity for which payment is authorized by
the Trustees. Pursuant to the Plan, each Fund through authorized officers may
make similar payments for marketing services and shareholder services to
non-broker-dealers who enter into service agreements with the Fund. [The
Distributor has voluntarily waived any portion of its normally retained 12b-1
fee with regard to its service agreement with [Citizens Federal] [Fifth-Third]
and limited its payments to reimbursement of expenses and 12b-1 fees with regard
to selling agreements with broker-dealers until notice to and approval by the
Fund's Board of Trustees is obtained for increased payments.]
The maximum amount payable by 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.
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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 & Poor's
Corporation ("S&P") or by Moody's Investors Services, Inc. ("Moody's").
SHORT SALES
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. Depending on arrangements made with the broker or
Custodian, the Fund may not receive any payments (including interest) on the
collateral. Although the Fund's gain is limited to the amount at which it sold a
security short, its potential loss is limited only by the maximum attainable
price of the security less the price at which the security was sold. The Fund
will not make a short sale if after the sale, the market value of all securities
sold short exceeds 100% of the value of the Fund's net assets.
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, the Fund may incur currency conversion costs and may be affected
favorably or unfavorably by changes in the value of foreign currencies against
the U.S. dollar. In addition, there may be less information publicly available
about a foreign company than about a U.S. company, and foreign companies are not
generally subject to accounting, auditing and financial reporting standards and
practices comparable to those in the U.S. Other risks associated with
investments in foreign securities include changes in restrictions on foreign
currency transactions and rates of exchanges, changes in the administrations or
economic and monetary policies of foreign governments, the imposition of
exchange control regulations, the possibility of expropriation decrees and other
adverse foreign governmental action, the imposition of foreign taxes, less
liquid markets, less government supervision of exchanges, brokers and issuers,
difficulty in enforcing contractual obligations, delays in settlement of
securities transactions and greater price volatility. In addition, investing in
foreign securities will generally result in higher commissions than investing in
similar domestic securities.
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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 102% of 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
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<PAGE>
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 Fund's Custodian, cash or U.S. government securities
in an amount sufficient to meet the purchase price. Forward commitments involve
a risk of loss if the value of the security to be purchased declines prior to
the settlement date. Any change in value could increase fluctuations in the
Fund's share price and yield. Although the Fund will generally enter into
forward commitments with the intention of acquiring securities for its
portfolio, the Fund may dispose of a commitment prior to the settlement if the
Adviser deems it appropriate to do so.
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<PAGE>
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 50% for the Small Cap Fund, 100% for the Golden Rainbow
Fund and 300% for the Market Neutral Fund. The Market Neutral Fund's 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, ___________________________
purchased all of the outstanding shares of the Small Cap and Market Neutral
Funds and may be deemed to control each Fund.
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<PAGE>
PERFORMANCE INFORMATION
[This section may be revised to discuss non-standardized performance
quotations.]
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 periodically advertise its total return over various
periods in addition to the value of a $10,000 investment (made on the date of
the initial public offering of the Fund's shares) as of the end of a specified
period. The "total return" for each Fund refers to the percentage change in the
value of an account between the beginning and end of the stated period, assuming
no activity in the account other than reinvestment of dividends and capital
gains distributions.
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
Barron's). Performance information may be quoted numerically or may be presented
in a table, graph or other illustration. In addition, Fund performance may be
compared to well-known indices of market performance including the Standard &
Poor's (S&P) 500 Index, the Dow Jones Industrial Average 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 a
common trust fund managed by the Adviser. At the Predecessor Fund's commencement
of operations, the assets from the common trust fund 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 the
common trust fund.
The Golden Rainbow Fund's average annual total return for the 1, 5 and 10
year periods ending June 30, 1998 was ___%, ___% and ____%, respectively. The
Golden Rainbow Fund's average annual total return for the period _____, 1983
(commencement of operations) through June 30, 1998 was ___%. The quoted
performance data includes the performance of the Predecessor Fund. The quoted
performance data also includes the performance of the common trust fund 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.
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<PAGE>
INVESTMENT ADVISER TRANSFER AGENT
James Investment Research, Inc. Countrywide Fund Services, Inc.
P.O. Box 8 312 Walnut Street
Alpha, Ohio 45301 Cincinnati, Ohio 45202
CUSTODIAN INDEPENDENT AUDITORS
Star Bank, N.A. Deloitte & Touche LLP
425 Walnut Street 1700 Courthouse Plaza, N.E.
Cincinnati, Ohio 45202 Dayton, Ohio 45402
DISTRIBUTOR
CW Fund Distributors, Inc.
312 Walnut Street
Cincinnati, Ohio 45202
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
each Fund. This Prospectus does not constitute an offer by the Funds to sell its
shares in any state to any person to whom it is unlawful to make such offer in
such state.
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<PAGE>
TABLE OF CONTENTS PAGE
SUMMARY OF FUND EXPENSES................................................... 2
THE FUNDS.................................................................. 3
GOLDEN RAINBOW FUND
FINANCIAL HIGHLIGHTS....................................................... 4
INVESTMENT OBJECTIVES AND STRATEGIES AND RISK CONSIDERATIONS............... 4
HOW TO INVEST IN THE FUND................................................... 7
Initial Purchase................................................... 7
Class A Shares ................................................... 8
Class C Shares..................................................... 8
Class R Shares..................................................... 8
Additional Purchases............................................... 8
General Purchase Information....................................... 9
Purchase For Trust Accounts Through Dealers........................ 9
Automatic Investment Plan.......................................... 10
Letter of Intent (Class A Shares only)............................. 10
Other Purchase Information......................................... 10
HOW TO REDEEM SHARES........................................................ 10
Signature Guarantee................................................ 11
Additional Information............................................. 11
FREE REPURCHASE AND SYSTEMATIC WITHDRAWAL
AND DIRECT DEPOSITS......................................................... 11
Free Repurchase.................................................... 11
Systematic Withdrawal Plan......................................... 12
Direct Deposits.................................................... 12
SHARE PRICE CALCULATION..................................................... 12
DIVIDENDS AND DISTRIBUTIONS................................................. 13
TAXES....................................................................... 13
OPERATION OF THE FUNDS..................................................... 14
DISTRIBUTION PLANS......................................................... 15
INVESTMENT POLICIES AND TECHNIQUES ......................................... 16
Equity Securities.................................................. 16
<PAGE>
Short Sales......................................................... 16
Foreign Securities.................................................. 16
U.S. Government Obligations......................................... 17
REPURCHASE AGREEMENTS............................................... 17
LOANS OF SECURITIES................................................. 17
Hedging and Associated Risks........................................ 18
When Issued Securities and Forward Commitments...................... 19
General............................................................. 19
GENERAL INFORMATION.......................................................... 19
Fundamental Policies................................................ 19
Portfolio Turnover.................................................. 19
Shareholder Rights.................................................. 19
PERFORMANCE INFORMATION...................................................... 20
SUMMARY OF FUND EXPENSES..................................................... 2
THE FUNDS.................................................................... 3
GOLDEN RAINBOW FUND FINANCIAL HIGHLIGHTS..................................... 3
INVESTMENT OBJECTIVES AND STRATEGIES AND RISK CONSIDERATIONS................. 4
HOW TO INVEST IN THE FUND.................................................... 7
Class A Shares ..................................................... 7
Class C Shares...................................................... 8
Class R Shares...................................................... 8
General Purchase Information........................................ 8
Purchase For Trust Accounts Through Dealers......................... 9
Automatic Investment Plan........................................... 9
Letter of Intent (Class A Shares only).............................. 9
Other Purchase Information.......................................... 10
HOW TO REDEEM SHARES......................................................... 10
Signature Guarantee................................................. 10
Additional Information.............................................. 10
FREE REPURCHASE AND SYSTEMATIC WITHDRAWAL AND DIRECT DEPOSITS................ 10
Free Repurchase..................................................... 10
Systematic Withdrawal Plan.......................................... 11
Direct Deposits..................................................... 11
SHARE PRICE CALCULATION...................................................... 11
<PAGE>
DIVIDENDS AND DISTRIBUTIONS................................................. 12
TAXES....................................................................... 13
OPERATION OF THE FUNDS...................................................... 13
DISTRIBUTION PLANS.......................................................... 14
INVESTMENT POLICIES AND TECHNIQUES ......................................... 15
Equity Securities.................................................. 15
Short Sales........................................................ 15
Foreign Securities................................................. 15
U.S. Government Obligations........................................ 16
Repurchase Agreements.............................................. 16
Loans of Securities................................................ 17
Hedging............................................................ 17
Risks.............................................................. 17
When Issued Securities and Forward Commitments..................... 18
<PAGE>
JAMES SMALL CAP FUND
JAMES MARKET NEUTRAL FUND
STATEMENT OF ADDITIONAL INFORMATION
_________________, 1998
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Prospectus dated ____________________, 1998. A copy
of the Prospectus can be obtained by writing the Transfer Agent at 312 Walnut
Street, Cincinnati, Ohio 45202, or by calling _______________.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
TABLE OF CONTENTS
-----------------
PAGE
DESCRIPTION OF THE TRUST.................................................. 1
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND
RISK CONSIDERATIONS....................................................... 1
INVESTMENT LIMITATIONS.................................................... 4
SHARES OF THE FUND........................................................ 7
LETTER OF INTENT.......................................................... 8
THE INVESTMENT ADVISER.................................................... 9
TRUSTEES AND OFFICERS..................................................... 9
PORTFOLIO TRANSACTIONS AND BROKERAGE...................................... 10
DISTRIBUTION PLAN......................................................... 11
DETERMINATION OF SHARE PRICE.............................................. 12
INVESTMENT PERFORMANCE.................................................... 12
CUSTODIAN................................................................. 14
TRANSFER AGENT............................................................ 14
INDEPENDENT AUDITORS...................................................... 14
DISTRIBUTOR............................................................... 14
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<PAGE>
DESCRIPTION OF THE TRUST
James Small Cap Fund and 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, the Fund may make
redemption payments in whole or in part in securities or other property if the
Trustees determine that existing conditions make cash payments undesirable. For
other information concerning the purchase and redemption of shares of the Fund,
see "How to Invest in the Fund" and "Redeeming Shares" in the Fund's Prospectus.
For a description of the methods used to determine the share price and value of
the Fund's assets, see "Share Price Calculation" in the Fund's Prospectus.
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND
RISK CONSIDERATIONS
This section contains a more detailed discussion of some of the investments
each 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").
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
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<PAGE>
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.
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 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
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
- 2 -
<PAGE>
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.
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.
- 3 -
<PAGE>
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 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
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
- 4 -
<PAGE>
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 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 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 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 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
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.
- 5 -
<PAGE>
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 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 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.
- 6 -
<PAGE>
SHARES OF THE FUND
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.
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.
- 7 -
<PAGE>
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 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.
- 8 -
<PAGE>
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 at an annual rate of ____% of
the average daily net assets of the Small Cap Fund and ___% of the Market
Neutral 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
"_________________________________" 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
"_____________________________________" 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 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.
- 9 -
<PAGE>
NAME, ADDRESS AND AGE POSITIONS WITH THE TRUST
- --------------------- ------------------------
* Barry R. James, CFA,CIC President and a Trustee of the Trust;
P.O. Box 8 Executive Vice President, James Investment
Alpha, Ohio 45301 Research, Inc. (1985 to Present); President,
Age: 42 James Capital Alliance, Inc., Alpha, Ohio
(1992 to Present).
Thomas L. Mangan Vice President, Treasurer and Secretary of
P.O. Box 8 the Trust; Vice president, James Investment
Alpha, Ohio 45301 Research, Inc. (1994 to Present); senior vice
Age: 49 president, Fuji Securities, Inc., Chicago,
Illinois (prior to 1994).
Anthony P. D'Angelo Trustee of the Trust; Professor, Graduate
Dept. of the Air Force, School of Logistics and Acquisition
Building 641 Management, Air Force Institute of
2950 P Street Technology, Wright-Patterson AFB, Ohio
Wright-Patterson AFB OHIO (1983 to present).
45433-7765
Age: 68
Hazel L. Eichelberger Trustee of the Trust; Retired Sr. Vice
9438 Atchison Road President, Citizens Federal Bank, Dayton,
Dayton, Ohio 45458 Ohio (1955 to 1997).
Age: 61
James F. Zid Trustee of the Trust; Retired Partner,
1083 N. Collier Blvd. Ernst & Young, LLP, Columbus, Ohio (1968 to
Marco Island, Florida 34145 1993).
Age: 64
Trustee fees are Trust expenses. The following table estimates the
Trustees' compensation for the first full year of the Trust ending June 30,
1999.
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
- 10 -
<PAGE>
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 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 PLAN
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
- 11 -
<PAGE>
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 amount payable by a Fund under the Plans are
described in the Prospectus.
The Plan, the Distribution Agreement, the Selling Agreements and the
Service Agreements of each Fund have been approved by the Funds' Board of
Trustees, including a majority of the Trustees who are not "interested persons"
of the Funds and who have no direct or indirect financial interest in the Plans
or any related agreement, by a vote cast in person at meetings called for the
purpose of voting on the Plans and such agreements and by the shareholders on
_______________________, 1998. Continuation of the Plans and the related
agreements must be approved annually 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 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 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.
- 12 -
<PAGE>
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 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.
- 13 -
<PAGE>
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.
INDEPENDENT AUDITORS
[To be supplied]
DISTRIBUTOR
CW Fund Distributors, Inc., 312 Walnut Street, Cincinnati, Ohio 45202, is
the exclusive agent for distribution of shares of each Fund. The Distributor is
obligated to sell shares of each Fund on a best efforts basis only against
purchase orders for the shares. Shares of each Fund are offered to the public on
a continuous basis.
- 14 -
<PAGE>
THE GOLDEN RAINBOW FUND
STATEMENT OF ADDITIONAL INFORMATION
_______, 1998
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Prospectus dated _______, 1998. A copy of the
Prospectus can be obtained by writing the Transfer Agent at 312 Walnut Street,
Cincinnati, Ohio 45202, or by calling 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
A. Illiquid Securities. 1
B. Borrowing and Leverage; Reverse Repurchase Agreements 2
C. Hedging Transactions. 2
INVESTMENT LIMITATIONS 12
SHARES OF THE FUND 14
LETTER OF INTENT 15
THE INVESTMENT ADVISER 15
TRUSTEES AND OFFICERS 17
PORTFOLIO TRANSACTIONS AND BROKERAGE 18
DISTRIBUTION PLAN 19
DETERMINATION OF SHARE PRICE 19
INVESTMENT PERFORMANCE 20
CUSTODIAN 21
TRANSFER AGENT 21
INDEPENDENT AUDITORS 21
DISTRIBUTOR 21
FINANCIAL STATEMENTS 21
<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 Fund" and "Redeeming Shares" in the Fund's Prospectus.
For a description of the methods used to determine the share price and value of
the Fund's assets, see "Share Price Calculation" in the Fund's Prospectus.
As of ___, 1998, the following persons may be deemed to beneficially own
five percent (5%) or more of the Class A shares of the Fund: [to be supplied].
As of ____, 1998, _____ may be deemed to control the Fund as a result of its
beneficial ownership of shares of the Fund. As of _____, 1998, the officers and
Trustees of the Fund owned as group ___% 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 Advisor. 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
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these strategies, techniques and instruments. Hedging Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes.
Hedging Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Hedging Transactions would result in losses greater than if they
had not been used. Use of put and call options may result in losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, limit the amount the appreciation of the
Fund can realize on its investments or cause the Fund to hold a security it
might otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements, or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of Hedging Transactions would reduce net
asset value, and possibly income, and such losses can be greater than if the
Hedging Transactions had not been utilized.
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GENERAL CHARACTERISTICS OF OPTIONS
Put options and call options typically have similar structural
characteristics and operational mechanics regardless of the underlying
instrument on which they are purchased or sold. Thus, the following general
discussion relates to each of the particular types of options discussed in
greater detail below. In addition, many Hedging Transactions involving options
require segregation of Fund assets in special accounts, as described below under
"Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. The Fund is authorized to purchase and
sell exchange-listed options and over-the-counter options ("OTC options").
Exchange-listed options are issued by a regulated intermediary such as the
Options Clearing Corporation ("OCC"), which guarantees the performance of the
obligations of the parties to such options.
With certain exceptions, OCC-issued and exchange-listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
The Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange-listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions
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<PAGE>
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.
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.
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<PAGE>
If the Fund sells a call option, the premium that it receives may serve as
a partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities, including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.
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.
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<PAGE>
The Fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements and in particular the
rules and regulations of the Commodity Futures Trading Commission and will be
entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract, it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction, but there can be no assurance that the position can be offset prior
to settlement at an advantageous price nor that delivery will occur. The
segregation requirements with respect to futures contracts and options thereon
are described below.
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<PAGE>
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES
The Fund also may purchase and sell call and put options on securities
indices and other financial indices and in so doing can achieve many of the same
objectives it would achieve through the sale or purchase of options on
individual securities or other instruments. Options on securities indices and
other financial indices are similar to options on a security or other instrument
except that, rather than settling by physical delivery of the underlying
instrument, they settle by cash settlement, i.e., an option on an index gives
the holder the right to receive, upon exercise of the option, an amount of cash
if the closing level of the index upon which the option is based exceeds, in the
case of a call, or is less than, in the case of a put, the exercise price of the
option (except if, in the case of an OTC option, physical delivery is
specified). This amount of cash is equal to the excess of the closing price of
the index over the exercise price of the option, which also may be multiplied by
a formula value. The seller of the option is obligated, in return for the
premium received, to make delivery of this amount. The gain or loss of an option
on an index depends on price movements in the instruments making up the market,
market segment, industry or other composite on which the underlying index is
based, rather than price movements in individual securities, as is the case with
respect to options on securities.
CURRENCY TRANSACTIONS
The Fund may engage in currency transactions with Counterparties in order
to hedge the value of portfolio holdings denominated in particular currencies
against fluctuations in relative value. Currency transactions include forward
currency contracts, exchange-listed currency futures, exchange-listed and OTC
options on currencies, and currency swaps. A forward currency contract involves
a privately negotiated obligation to purchase or sell (with delivery generally
required) a specific currency at a future date, at a price set at the time of
the contract. A currency swap is an agreement to exchange cash flows based on
the notional difference among two or more currencies and operates similarly to
an interest rate swap, which is described below. The Fund may enter into
currency transactions with Counterparties which have received (or the guarantors
of the obligations of such Counterparties have received) a credit rating of A-1
or P-1 by S&P or Moody's, respectively, or that have an equivalent rating from
an NRSRO or (except for OTC currency options) are determined to be of equivalent
credit quality by the Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise
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<PAGE>
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 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
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<PAGE>
currency exposure as well as incurring transaction costs. Buyers and sellers of
currency futures are subject to the same risk that apply to the use of futures
generally. Further, settlement of a currency futures contract for the purchase
of most currencies must occur at a bank based in the issuing nation. Trading
options on currency futures is relatively new, and the ability to establish and
close out positions on such options is subject to the maintenance of a liquid
market which may not always be available. Currency exchange rates may fluctuate
based on factors extrinsic to that country's economy.
COMBINED TRANSACTIONS
The Fund may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transactions
(including forward currency contracts) and any combination of futures, options
and currency transactions ("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
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<PAGE>
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors, and collars are entered into for good faith hedging purposes, the
Adviser and the Fund believe such obligations do not constitute senior
securities under the 1940 Act and, accordingly, will not treat them as being
subject to its borrowing restrictions. The Fund will not enter into any swap,
cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least "A" by S&P or Moody's or has an
equivalent rating from an NRSRO or is determined to be of equivalent credit
quality by the Adviser. If there is a default by the Counterparty, the Fund may
have contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As 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.
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<PAGE>
RISKS OF HEDGING TRANSACTIONS OUTSIDE THE UNITED STATES
When conducted outside the United States, Hedging Transactions may not be
regulated as rigorously as in the United States, may not involve a clearing
mechanism and related guarantees, and are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities, currencies
and other instruments. The value of such positions also could be adversely
affected by: (i) other complex foreign political, legal and economic factors,
(ii) lesser availability than in the United States of data on which to make
trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during nonbusiness hours in the United
States, (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, and (v) lower
trading volume and liquidity.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Many Hedging Transactions, in addition to other requirements, require that
the Fund segregate liquid high grade assets with its custodian to the extent
Fund obligations are not otherwise "covered" through ownership of the underlying
security, financial instrument or currency. In general, either the full amount
of any obligation by the Fund to pay or deliver securities or assets must be
covered at all times by the securities, instruments or currency required to be
delivered, or, subject to any regulatory restriction, an amount of cash or
liquid high grade securities at least equal to the current amount of the
obligation must be segregated with the custodian. The segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. For example, a call option
written by the Fund will require the Fund to hold the securities subject to the
call (or securities convertible into the needed securities without additional
consideration) or to segregate liquid high-grade securities sufficient to
purchase and deliver the securities if the call is exercised. A call option sold
by the Fund on an index will require the Fund to own portfolio securities which
correlate with the index or to segregate liquid high grade assets equal to the
excess of the index value over the exercise price on a current basis. A put
option written by the Fund requires the Fund to segregate liquid, high grade
assets equal to the exercise price.
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.
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<PAGE>
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC-issued and exchange-listed
index options will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a noncash settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount excess the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC-issued and exchange-listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement,
will be treated the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlement with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade securities
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
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<PAGE>
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.
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INVESTMENT LIMITATIONS
FUNDAMENTAL. The investment limitations described below have been adopted
-----------
by the Trust with respect to the Fund and are fundamental ("Fundamental"), I.E.,
they may not be changed without the affirmative vote of a majority of the
outstanding shares of the Fund. As used in the Prospectus and this Statement of
Additional Information, the term "majority" of the outstanding shares of the
Fund means the lesser of (1) 67% or more of the outstanding shares of the Fund
present at a meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present or represented at such meeting; or (2) more than 50% of
the outstanding shares of the Fund. Other investment practices which may be
changed by the Board of Trustees without the approval of shareholders to the
extent permitted by applicable law, regulation or regulatory policy are
considered non-fundamental ("Non-Fundamental").
1. BORROWING MONEY. The Fund will not borrow money, except (a) from a bank,
---------------
provided that immediately after such borrowing there is an asset coverage of
300% for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that such temporary borrowings are in an
amount not exceeding 5% of the Fund's total assets at the time when the
borrowing is made. This limitation does not preclude the Fund from entering into
reverse repurchase transactions, provided that the Fund has an asset coverage of
300% for all borrowings and repurchase commitments of the Fund pursuant to
reverse repurchase transactions.
2. SENIOR SECURITIES. The Fund will not issue senior securities. This
-----------------
limitation is not applicable to activities that may be deemed to involve the
issuance or sale of a senior security by the Fund, provided that the Fund's
engagement in such activities is consistent with or permitted by the Investment
Company Act of 1940, as amended, the rules and regulations promulgated
thereunder or interpretations of the Securities and Exchange Commission or its
staff.
3. UNDERWRITING. The Fund will not act as underwriter of securities issued
------------
by other persons. This limitation is not applicable to the extent that, in
connection with the disposition of portfolio securities (including restricted
securities), the Fund may be deemed an underwriter under certain federal
securities laws.
4. REAL ESTATE. The Fund will not purchase or sell real estate. This
limitation is not applicable to investments in marketable securities which are
secured by or represent interests in real estate. This limitation does not
preclude the Fund from investing in mortgage-related securities or investing in
companies engaged in the real estate business or that have a significant portion
of their assets in real estate (including real estate investment trusts).
- 17 -
<PAGE>
5. COMMODITIES. The Fund will not purchase or sell commodities except as
-----------
described in the Prospectus and Statement of Additional Information. This
limitation does not preclude the Fund from acquiring commodities as a result of
ownership of securities or other investments; from entering into options,
futures, currency, swap, cap, floor, collar or similar transactions; from
investing in securities or other instruments backed by commodities; 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.
- 18 -
<PAGE>
With respect to the Fund's diversification, the current standards require
that the Fund may not purchase the securities of any one issuer, other than the
U.S. government or any of its instrumentalities, if immediately after such
purchase more than 5% of the value of its total assets would be invested in such
issuer, or the Fund would own more than 10% of the outstanding voting securities
of such issuer, except that up to 25% of the value of the Fund's total assets
may be invested without regard to such 5% and 10% limitations.
NON-FUNDAMENTAL. The following limitations have been adopted by the Trust
---------------
with respect to the Fund and are Non-Fundamental (see "Investment Limitations"
above).
1. PLEDGING. The Fund will not mortgage, pledge, hypothecate or in any
--------
manner transfer, as security for indebtedness, any assets of the Fund except as
may be necessary in connection with borrowings described in limitation (1)
above. Margin deposits, security interests, liens and collateral arrangements
with respect to transactions involving options, 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.
- 19 -
<PAGE>
SHARES OF THE FUND
Four classes of shares, Class A Shares, Class B Shares, Class C Shares, and
Class R Shares are authorized for the Fund. Currently, the Fund is offering
Class A shares only, but others may be offered in the future. The four classes
of shares each represent an interest in the same portfolio of investments of the
Fund and have the same rights, except (i) Class B and Class C Shares bear the
expenses of the deferred sales arrangement and any expenses (including a higher
distribution services fee) resulting from such sales arrangement, (ii) each
class that is subject to a distribution fee has exclusive voting rights with
respect to those provisions of the Fund's Rule 12b-1 distribution plan which
relate only to such class and (iii) the classes have different exchange
privileges. Additionally, Class B Shares will automatically convert into Class A
Shares after a specified period of years (as described below). The net income
attributable to Class B and Class C Shares and the dividends payable on Class B
and Class C Shares will be reduced by the amount of the higher distribution
services fee and certain other incremental expenses associated with the deferred
sales charge arrangement. The net asset value per share of Class A Shares, Class
B Shares, Class C Shares and Class R Shares is expected to be substantially the
same, but it may differ from time to time.
For purposes of conversion of Class A Shares, Class B Shares purchased
through the reinvestment of dividends and distributions paid in respect of Class
B Shares in stockholder's account will be considered to be held in a separate
sub-account. Each time any Class B Shares in the stockholder's account (other
than those in the sub-account) convert to Class A Shares, an equal pro rata
portion of the Class B Shares in the sub-account also will convert to Class A
Shares. The conversion of Class B Shares to Class A Shares is subject to the
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.
- 20 -
<PAGE>
LETTER OF INTENT
A shareholder may qualify for reduced sales charges by sending to the Fund
(within 90 days after the first purchase desired to be included in the purchase
program) the signed, non-binding Letter of Intent section on the application
form. All investments in retail shares of the Fund count toward the indicated
goal. It is understood that 5% of the dollar amount checked on the application
will be held in a special escrow account. These shares will be held by an escrow
agent subject to the terms of the escrow. All dividends and capital gains
distributions on the escrowed shares will be credited to the shareholder's
account in shares. If the total purchases, less redemptions by the shareholder,
his spouse, children and parents, equal the amount specified under this Letter,
the shares held in escrow will be deposited to the shareholder's open account or
delivered to the shareholder or to his order. If the total purchases, less
redemptions, exceed the amount specified under this Letter and an amount which
would qualify for a further quantity discount, a retroactive price adjustment
will be made by the Distributor and the dealer through whom purchases were made
pursuant to this Letter of Intent (to reflect such further quantity discount).
The resulting difference in offering price will be applied to the purchase of
additional shares at the offering price applicable to a single purchase of the
dollar amount of the total purchases. If the total purchases less redemptions
are less than the amount specified under this Letter, the shareholder will remit
to the Distributor an amount equal to the difference in the dollar amount of
sales charge actually paid and the amount of sales charge which would have
applied to the aggregate purchases if the total of such purchases had been made
at a single time. Upon such remittance the shares held for the shareholder's
account will be deposited to his Account or delivered to him or to his order. If
within 20 days after written request by the Distributor such difference in sales
charge is not paid, the Distributor is hereby authorized to redeem an
appropriate number of shares to realize such difference. The Distributor is
hereby irrevocably constituted under this Letter of Intent to effect such
redemption as agent of the shareholder.
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.
- 21 -
<PAGE>
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 $______ 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 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.
- 22 -
<PAGE>
TRUSTEES AND OFFICERS
The names of the Trustees and executive officers of the Trust are shown
below. Each Trustee who is an "interested person" of the Trust, as defined in
the Investment Company Act of 1940, is indicated by an asterisk.
NAME, ADDRESS AND AGE POSITIONS WITH THE TRUST
- --------------------- ------------------------
* Barry R. James, CFA President and a Trustee of the Trust;
P.O. Box 8 Executive Vice President, James Investment
Alpha, Ohio 45301 Research, Inc. (1985 to Present); President,
Age: 42 James Capital Alliance, Inc., Cincinnati,
Ohio (1992 to Present).
Thomas L. Mangan Vice President, Treasurer and Secretary
P.O. Box 8 of the Trust; Vice president,
Alpha, Ohio 45301 James Investment Research, Inc.
Age: 49 (1994 to Present); senior vice president,
Fuji Securities, Inc., Chicago, Illinois
(prior to 1994).
Anthony P. D'Angelo Trustee of the Trust; Professor, Graduate
Dept. of the Air Force, School of Logistics and Acquisition
Building 641 Management, Air Force Institute of
2950 P Street Technology, Wright-Patterson AFB, Ohio
Wright-Patterson AFB OHIO (1983 to present).
45433-7765
Age: 68
Hazel L. Eichelberger Trustee of the Trust; Retired Sr.
9438 Atchison Road Vice President, Citizens
Dayton, Ohio 45458 Federal Bank, Dayton, Ohio
Age: 61 (1955 to 1997).
James F. Zid Trustee of the Trust; Retired Partner,
1083 N. Collier Blvd. Ernst & Young, LLP,
Marco Island, Florida 34145 Columbus, Ohio (1968 to 1993).
Age: 64
Trustee fees are Trust expenses. The following table estimates the
Trustees' compensation for the first full year of the Trust ending June 30,
1999.
- 23 -
<PAGE>
NAME TOTAL COMPENSATION FROM TRUST (THE TRUST IS
NOT IN A FUND COMPLEX)
- ---- ----------------------
Barry R. James, CFA $0
Anthony P. D'Angelo $4,200
Hazel L. Eichelberger $4,200
James F. Zid $4,200
- 24 -
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Trustees of the Trust, the
Adviser is responsible for the Fund's portfolio decisions and the placing of the
Fund's portfolio transactions. In placing portfolio transactions, the Adviser
seeks the best qualitative execution for the Fund, taking into account such
factors as price (including the applicable brokerage commission or dealer
spread), the execution capability, financial responsibility and responsiveness
of the broker or dealer and the brokerage and research services provided by the
broker or dealer. The Adviser generally seeks favorable prices and commission
rates that are reasonable in relation to the benefits received.
The Adviser is specifically authorized to select brokers or dealers who
also provide brokerage and research services to the Fund and/or the other
accounts over which the Adviser exercises investment discretion and to pay such
brokers or dealers a commission in excess of the commission another broker or
dealer would charge if the Adviser determines in good faith that the commission
is reasonable in relation to the value of the brokerage and research services
provided. The determination may be viewed in terms of a particular transaction
or the Adviser's overall responsibilities with respect to the Trust and to other
accounts over which it exercises investment discretion.
Research services include supplemental research, securities and economic
analyses, statistical services and information with respect to the availability
of securities or purchasers or sellers of securities and analyses of reports
concerning performance of accounts. The research services and other information
furnished by brokers through whom the Fund effects securities transactions may
also be used by the Adviser in servicing all of its accounts. Similarly,
research and information provided by brokers or dealers serving other clients
may be useful to the Adviser in connection with its services to the Fund.
Although research services and other information are useful to the Fund and the
Adviser, it is not possible to place a dollar value on the research and other
information received. It is the opinion of the Board of Trustees and the Adviser
that the review and study of the research and other information will not reduce
the overall cost to the Adviser of performing its duties to the Fund under the
Agreement.
Over-the-counter transactions will be placed either directly with principal
market makers or with broker-dealers, if the same or a better price, including
commissions and executions, is available. Fixed income securities are normally
purchased directly from the issuer, an underwriter or a market maker. Purchases
include a concession paid by the issuer to the underwriter and the purchase
price paid to a market maker may include the spread between the bid and asked
prices.
- 25 -
<PAGE>
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.
For the period from June 26, 1998 (commencement of operations of the Fund)
to June 30, 1998, the Fund incurred brokerage costs of $________. [ANY DIRECTED
BROKERAGE?]
DISTRIBUTION PLAN
With respect to the Fund, the Trust has adopted a Plan for each class of
shares, pursuant to Rule 12b-1 which was promulgated by the Securities and
Exchange Commission pursuant to the Investment Company Act of 1940 (the
"Plans"). Each Plan provides for payment of fees to the Distributor to finance
any activity which is principally intended to result in the sale of the Fund's
shares subject to the Plans. Such activities are described in the Prospectus.
Pursuant to the Plans, the Distributor may pay fees to brokers and others for
such services. The Trustees expect that the adoption of the Plans will result in
the sale of a sufficient number of shares so as to allow the Fund to achieve
economic viability. It is also anticipated that an increase in the size of the
Fund will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objective. The maximum amount payable by the
Fund under the Plans are described in the Prospectus.
The Plan, the Distribution Agreement, the Selling Agreements and the
Service Agreements of the Fund have been approved by the Fund's Board of
Trustees, including a majority of the Trustees who are not "interested persons"
of the Fund and who have no direct or indirect financial interest in the Plans
or any related agreement, by a vote cast in person at meetings called for the
purpose of voting on the Plans and such agreements and by the shareholders on
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.
- 26 -
<PAGE>
For the period from June 26, 1998 (commencement of operations of the Fund)
to June 30, 1998, the Trust spent $_____ under the Plan on behalf of the Fund.
Of the amount, $______ was spent for _____________ and $_________ for
______________.
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.
- 27 -
<PAGE>
INVESTMENT PERFORMANCE
"Average annual total return," as defined by the Securities and Exchange
Commission, is computed by finding the average annual compounded rates of return
for the period indicated that would equate the initial amount invested to the
ending redeemable value, according to the following formula:
P(1+T)n=ERV
Where: P = a hypothetical $1,000 initial investment
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the applicable
period of the hypothetical $1,000 investment made at the
beginning of the applicable period.
The computation assumes that all dividends and distributions are reinvested at
the net asset value on the reinvestment dates and that a complete redemption
occurs at the end of the applicable period.
The Fund's investment performance will vary depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Fund. These factors and possible differences in the methods and time periods
used in calculating non-standardized investment performance should be considered
when comparing the Fund's performance to those of other investment companies or
investment vehicles. The risks associated with the Fund's investment objective,
policies and techniques should also be considered. At any time in the future,
investment performance may be higher or lower than past performance, and there
can be no assurance that any performance will continue.
From time to time, in advertisements, sales literature and information
furnished to present or to prospective shareholders, the performance of the Fund
may be compared to indices of broad groups of unmanaged securities considered to
be representative of or similar to the portfolio holdings of the Fund or
considered to be representative of the stock market in general. The Fund may use
the Standard & Poor's 500 Stock Index, the Dow Jones Industrial Average, the
Value Line Stock Index or a blend of stock and bond indices.
In addition, the performance of the Fund may be compared to other groups of
mutual funds tracked by any widely used independent research firm which ranks
mutual funds by overall performance, investment objectives and assets, such as
Lipper Analytical Services, Inc. or Morningstar, Inc. The objectives, policies,
limitations and expenses of other mutual funds in a group may not be the same as
those of the Fund. Performance rankings and
- 28 -
<PAGE>
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 since inception to June 30, 1998, was ___%, ___%, ___% and ___%,
respectively.
- 29 -
<PAGE>
CUSTODIAN
Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, is Custodian of
the Fund's investments. As Custodian, Star Bank, N.A. acts as the Fund's
depository, safekeeps its portfolio securities, collects all income and other
payments with respect thereto, disburses funds at the Fund's request and
maintains records in connection with its duties.
TRANSFER AGENT
Countrywide Fund Services, Inc. ("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. For the period June 26, 1998 (commencement of operations for
the Fund) to June 30, 1998, the Trust paid Countrywide $_______ on behalf of the
Fund for these management related services.
INDEPENDENT AUDITORS
[TO BE
SUPPLIED]
DISTRIBUTOR
CW Fund Distributors, Inc., 312 Walnut Street, Cincinnati, Ohio 45202, is
the exclusive agent for distribution of shares of the Fund. The Distributor is
obligated to sell shares of the Fund on a best efforts basis only against
purchase orders for the shares. For its services, the Distributor receives an
annual fee of $5,000. Shares of the Fund are offered to the public on a
continuous basis. For the period from June 26, 1998 (commencement of operations
of the Fund) to June 30, 1998, the Trust paid the Distributor $____ on behalf of
the Fund. In addition, the aggregate commissions paid to the Distributor for the
same period was $____, of which the Distributor retained $_____.
FINANCIAL STATEMENTS
[TO BE SUPPLIED]
- 30 -
<PAGE>
THE JAMES ADVANTAGE FUNDS
PART C. OTHER INFORMATION
- ------- -----------------
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
- -------- ---------------------------------
(a) Financial Statements
Included in Part A: NONE
Included in Part B: NONE
(b) Exhibits
(1) (a) Copy of Registrant's Declaration of Trust, which was
filed as an Exhibit to Registrant's Registration
Statement, is hereby incorporated by reference.
(b) Copy of Amendment No. 1 to Registrant's Declaration of
Trust, which was filed as an Exhibit to Registrant's
Registration Statement, is hereby incorporated by
reference.
(c) Copy of Amendment No. 2 to Registrant's Declaration of
Trust, which was filed as an Exhibit to Registrant's
Pre-Effective Amendment No.1, is hereby incorporated by
reference.
(2) Copy of Registrant's By-Laws, which was filed as an
Exhibit to Registrant's Registration Statement, is hereby
incorporated by reference.
(3) Voting Trust Agreements - None.
(4) Specimen of Share Certificates - None.
(5) a) Copy of Registrant's Management Agreement with
James Investment Research, Inc. for The Golden
Rainbow Fund, which was filed as an Exhibit to
Registrant's Pre-Effective Amendment No.1, is
hereby incorporated by reference.
b) Other Management Agreements - to be supplied.
(6) Copy of Registrant's Underwriting Agreement with CW Fund
Distributors, Inc., which was filed as an Exhibit to
Registrant's Pre-Effective Amendment No.1, is hereby
incorporated by reference.
- -
<PAGE>
(7) Bonus, Profit Sharing, Pension or Similar Contracts for
the benefit of Directors or Officers - None.
(8) Copy of Registrant's Agreement with the Custodian, Star
Bank, N.A., which was filed as an Exhibit to Registrant's
Pre-Effective Amendment No.1, is hereby incorporated by
reference.
(9) Other Material Contracts - None.
(10) Opinion and Consent of Brown, Cummins & Brown Co., L.P.A.,
which was filed as an Exhibit to Registrant's Registration
Statement, is hereby incorporated by reference.
(11) Consent of independent auditors - None.
(12) Financial Statements Omitted from Item 23 - None.
(13) a) Letter of Initial Stockholder for The Golden Rainbow
Fund, which was filed as an Exhibit to Registrant's
Pre-Effective Amendment No.1, is hereby incorporated by
reference.
b) Other Initial Stockholder Letters - to be supplied.
(14) Model Plan used in Establishment of any Retirement Plan -
None.
(15) a) 12b-1 Distribution Expense Plan for Class A shares of
The Golden Rainbow Fund, which was filed as an Exhibit to
Registrant's Pre- Effective Amendment No.1, is hereby
incorporated by reference.
b) Other 12b-1 Distribution Expense Plans - to be
supplied.
(16) Schedule for Computation of Each Performance Quotation -
None.
(17) Financial Data Schedule - None.
(18) Rule 18f-3 Plan, which was filed as an Exhibit to
Registrant's Pre-Effective Amendment No.1, is hereby
incorporated by reference.
(19) Powers of Attorney for the Trust and the officers and
Trustees of the Trust, which was filed as an Exhibit to
Registrant's Pre-Effective Amendment No.1, is hereby
incorporated by reference.
- -
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT
- -------- -----------------------------------------------------------------
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES (AS OF JUNE 30, 1998)
- -------- -----------------------------------------------------
TITLE OF CLASS NUMBER OF RECORD HOLDERS
-------------- ------------------------
The Golden Rainbow Fund 83
The Small Cap Fund 0
The Market Neutral Fund 0
ITEM 27. INDEMNIFICATION
- -------- ---------------
(a) Article VI of the Registrant's Declaration of Trust
provides for indemnification of officers and Trustees as
follows:
SECTION 6.4 INDEMNIFICATION OF TRUSTEES, OFFICERS, ETC.
------------------------------------------------------
Subject to and except as otherwise provided in the
Securities Act of 1933, as amended, and the 1940 Act, the
Trust shall indemnify each of its Trustees and officers
(including persons who serve at the Trust's request as
directors, officers or trustees of another organization in
which the Trust has any interest as a shareholder, creditor
or otherwise (hereinafter referred to as a "Covered
Person") against all liabilities, including but not limited
to amounts paid in satisfaction of judgments, in compromise
or as fines and penalties, and expenses, including
reasonable accountants' and counsel fees, incurred by any
Covered Person in connection with the defense or
disposition of any action, suit or other proceeding,
whether civil or criminal, before any court or
administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or
otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or
trustee, and except that no Covered Person shall be
indemnified against any liability to the Trust or its
Shareholders to which such Covered Person would otherwise
be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office.
SECTION 6.5 ADVANCES OF EXPENSES.
---------------------------------
The Trust shall advance attorneys' fees or other expenses
incurred by a Covered Person in defending a proceeding to
the full extent permitted by the Securities Act of 1933, as
amended, the 1940 Act, and Ohio Revised Code Chapter 1707,
- -
<PAGE>
as amended. In the event any of these laws conflict with
Ohio Revised Code Section 1701.13(E), as amended, these
laws, and not Ohio Revised Code Section 1701.13(E), shall
govern.
SECTION 6.6 INDEMNIFICATION NOT EXCLUSIVE, ETC.
-----------------------------------------------
The right of indemnification provided by this Article VI
shall not be exclusive of or affect any other rights to
which any such Covered Person may be entitled. As used in
this Article VI, "Covered Person" shall include such
person's heirs, executors and administrators. Nothing
contained in this article shall affect any rights to
indemnification to which personnel of the Trust, other than
Trustees and officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the Trust
to purchase and maintain liability insurance on behalf of
any such person.
The Registrant may not pay for insurance which
protects the Trustees and officers against liabilities
rising from action involving willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of their offices.
(b) The Registrant may maintain a standard mutual fund and
investment advisory professional and directors and
officers liability policy. The policy, if maintained,
would provide coverage to the Registrant, its Trustees and
officers, and could cover its Advisers, among others.
Coverage under the policy would include losses by reason
of any act, error, omission, misstatement, misleading
statement, neglect or breach of duty.
(c) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to trustees,
officers and controlling persons of the Registrant
pursuant to the provisions of Ohio law and the Agreement
and Declaration of the Registrant or the By-Laws of the
Registrant, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a trustee, officer or
controlling person of the Trust in the successful defense
of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with
the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
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<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
- -------- ----------------------------------------------------
A. (i) Ann Marie Shaw Kremer, Senior Vice President of JIR is
also the Treasurer of James Capital Alliance, Inc., P.O.
Box 12, Alpha, Ohio 45301, an investment advisory
business.
(ii) Barry Ray James, Executive Vice President of JIR is
also the President of James Capital Alliance, Inc. and
President and a Trustee of the Trust.
(iii) Robert G. Hawkins, Director of JIR is currently the
Dean of Ivan Allen College of Management, Georgia
Institute of Technology, a university in Atlanta, Georgia.
ITEM 29. PRINCIPAL UNDERWRITERS
- -------- ----------------------
(a) CW Fund Distributors, Inc. (the "Distributor") also acts
as underwriter for Firsthand Funds and UC Investment
Trust.
<TABLE>
<CAPTION>
(b) NAME POSITION WITH DISTRIBUTOR POSITION WITH REGISTRANT
---- ------------------------- ------------------------
<S> <C> <C>
Angelo R. Mozilo Chairman of the Board None
and Director
Andrew S. Bielanski Director None
Thomas H. Boone Director None
Marshall M. Gates Director None
Robert H. Leshner Vice Chairman None
Chief Executive Officer
and Director
Robert G. Dorsey President Asst. Vice President
Maryellen Peretzky Vice President None
Administration
Human Resources and
Operations
John F. Splain Vice President, Secretary Assistant Secretary
and General Counsel
M. Kathleen Luegers Vice President-MIS None
- -
<PAGE>
Mark J. Seger Vice President Asst. Treasurer
Christina H. Kelso Vice President-Operations None
Gary H. Goldschmidt Assistant Vice President and None
Assistant Fund Controller
Terrie A. Wiedenheft Treasurer None
Tina D. Hosking Asst. Vice President-Legal Assistant Secretary
Elizabeth A. Santen Asst. Vice President-Legal None
Steven F. Niehaus Asst. Vice President-MIS None
Sandor E. Samuels Asst. Secretary None
Susan E. Bow Asst. Secretary None
Anne Banducci Asst. Secretary None
</TABLE>
The address of all of the above-names persons is 312 Walnut
Street, Cincinnati, Ohio 45202.
(c) Inapplicable.
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<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
- -------- --------------------------------
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder will be maintained by the
Registrant at 1349 Fairground Road, Beavercreek, Ohio 45385
and/or by the Registrant's Custodian, Star Bank, N.A., 425
Walnut St., Cincinnati, OH 45202, and/or by the
Registrant's Transfer Agent, Countrywide Fund Services,
Inc., 312 Walnut St., 21st Floor, Cincinnati, OH 45202.
ITEM 31. MANAGEMENT SERVICES NOT DISCUSSED IN PARTS A OR B
- -------- -------------------------------------------------
None.
ITEM 32. UNDERTAKINGS
- -------- ------------
(a) Not Applicable.
(b) The Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of The Golden
Rainbow A James Advised Mutual Fund's latest annual report
to shareholders, upon request and without charge.
- -
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cincinnati, State of Ohio, on the 10 day of July,
1998.
The James Advantage Funds
By: /s/ Donald S. Mendelsohn
------------------------------------
Donald S. Mendelsohn, Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Barry R. James, President and Trustee *
Thomas L. Mangan, Treasurer *
James F. Zid, Trustee *
Anthony P. D'Angelo, Trustee *
Hazel. L. Eichelberger, Trustee*
*By: /s/ Donald S. Mendelsohn
-------------------------------------
Donald S. Mendelsohn, Attorney-in-Fact
July 10, 1998
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<PAGE>
EXHIBIT INDEX
NONE
