JAMES FUNDS, 497, 1998-07-01

JAMES FUNDS
497, 1998-07-01

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JAMES
ADVANTAGE
FUNDS

Advised by James
Investment Research, Inc.

June 26, 1998
Prospectus

THE
GOLDEN RAINBOW
FUND

<PAGE>

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

Summary of Fund Expenses......................................................2
Financial Highlights..........................................................3
Investment Objective and
Strategies and Risk Considerations.......................................4
How to Invest in the Fund.....................................................4
How to Redeem Shares..........................................................7
Free Repurchase and Systematic
Withdrawal and Direct Deposits...........................................8
Share Price Calculation.......................................................8
Dividends and Distributions...................................................9
Taxes.........................................................................10
Operations of the Fund........................................................10
Distribution Plan.............................................................11
Investment Policies and Techniques............................................12
General Information...........................................................14
Performance Information.......................................................15

No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
the Fund. This Prospectus does not constitute an offer by the Fund to sell its
shares in any state to any person to whom it is unlawful to make such offer in
such state.

<PAGE>

PROSPECTUS
June 26, 1998

THE GOLDEN RAINBOW FUND
P.O. Box 8
Alpha, Ohio 45301
- --------------------------------------------------------------------------------

For Information, Shareholder Services and Requests:
(800) 99 JAMES
(800) 995-2637

The Golden Rainbow Fund (the "Fund") is a diversified, open-end mutual fund
whose investment objective is to provide total return through a combination of
growth, income and preservation of capital in declining markets. The Fund seeks
to achieve its objective by investing primarily in equity and/or debt securities
that the Fund's adviser, James Investment Research, Inc., believes are
undervalued. The Fund will attempt to provide total return in excess of the rate
of inflation over the long term (three to five years). The Fund is the successor
entity to another mutual fund which was called The Golden Rainbow A James
Advised Mutual Fund.

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 dated June 26, 1998 has been filed with the Securities
and Exchange Commission (the "SEC") and is incorporated herein by reference. A
copy 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.

- 1 -
<PAGE>

SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------

The tables below are provided to assist an investor in understanding the direct
and indirect expenses that an investor may incur as a shareholder in the Fund.
The expenses are expressed as a percentage of average net assets. The Example
should not be considered a representation of future Fund performance or
expenses, both of which may vary.

As indicated in the expense table, the Trust utilizes a declining sales load for
Class A shares, a contingent deferred sales load ("CDSL") for Class B and Class
C shares and a no-fee, no-load structure for institutional investors for Class R
shares. Class R shares are subject to a minimum purchase requirement of
$1,000,000. Long-term Class B and Class C shareholders could pay more than the
economic equivalent of the maximum front-end sales charge for Class A shares.
The Fund's 12b-1 plan and management fee are more fully described herein.
<TABLE>
<CAPTION>

SHAREHOLDER TRANSACTION 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 B Shares (d) N/A 5.0%(a) .65% .85%(c) .10% 1.60%
Class C Shares (d) N/A 1.0%(b) .65% .85%(c) .10% 1.60%
Class R Shares (d) N/A N/A .65% .00% .10% .75%
<FN>

* Expense information has been restated to reflect current fees. The Fund is
authorized to pay the Adviser a fee equal to an annual rate of 0.74% of its
daily net assets. Through June 30, 1999, the Adviser has agreed to waive a
portion of its fee so that the fee after waiver will be 0.65%, and reimburse
expenses to maintain total Class A operating expenses at or below 1.00% of
average daily net assets. Absent reimbursement, it is estimated that other
expenses for Class A through June 30, 1999 would be 0.20%, and total Class A
operating expenses, absent reimbursement and fee waiver, would be 1.19% of
average daily net assets. Persons who indirectly purchase Fund shares through
intermediaries may pay fees charged by such intermediaries in addition to the
expenses and fees of the Fund shown above.

(a) No initial sales load; contingent deferred sales charge of 5% declining to
1% in years 6 through 8 if redeemed.

(b) No initial sales load; 1% contingent deferred sales charge if redeemed
within 1 year of purchase.

(d) These classes have not yet commenced operations.
</FN>
</TABLE>

EXAMPLE OF EXPENSE
- ------------------

You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

Class A Shares $ 52 $ 73 $ 95 $159
Class B Shares (1) $ 68 $ 94 $110 $174
Class C Shares $ 27 $ 50 $ 87 $190
Class R Shares $ 08 $ 24 $ 42 $ 93

(1) Example of expenses would be $16, $50 and $87 in years 1, 3 and 5
respectively, if you did not redeem. Class B expenses in years 9 and 10 are
based on Class A expenses, because the shares automatically convert to Class A
after 8 years.

- 2 -
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

On June 26, 1998, The Golden Rainbow Fund (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. As a result of the
reorganization, the Fund assumed the financial history of the Predecessor Fund.
The financial information in the table below is that of the Predecessor Fund and
has been audited by Deloitte & Touche LLP, independent auditors. The Fund had no
operating history prior to the reorganization.

The following table provides per share income and capital changes for a share of
capital stock of the Predecessor Fund outstanding from July 1, 1991
(commencement of operations) to June 30, 1997. Class B, Class C and Class R
shares were not offered to the public during the fiscal year.

INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
- --------------------------------------- --------------------------------------------------------------------------
NET
REALIZED
NET ASSET & DIVIDENDS NET
VALUE UNREALIZED TOTAL (FROM DISTRIBUTIONS ASSET
YEAR BEGINNING NET GAIN FROM NET FROM RETURNS VALUE
ENDED OF INVESTMENT (LOSS) ON INVEST INVESTMENT CAPITAL OF TOTAL END OF TOTAL
JUNE 30, YEAR INCOME SECURITIES OPERATIONS INCOME) GAINS CAPITAL DISTRIBUTION YEAR RETURN()
- -------------------------------------------------------------------------------------------------------------------

RATIOS/SUPLEMENTAL DATA
-----------------------------------------------------------------------
RATIO OF
NET
RATIO OF INVESTMENT
EXPENSES INCOME
NET TO TO AVERAGE
YEAR ASSETS AVERAGE AVERAGE PORTFOLIO COMMISSION
ENDED END OF NET NET TURNOVER RATE
JUNE 30, YEAR ASSETS(b) ASSETS(b) RATE PAID(c)
- --------------------------------------------------------------------------------

1992 $124,563 1.09% 5.51% 10.48% --
1993 179,209 1.02 4.44 38.42 --
1994 188,747 .96 3.70 30.64 --
1995 191,473 1.04 4.05 48.46 --
1996 184,307 1.06 4.01 83.17 $.0832
1997 157,183 1.09 3.63 56.37 $.0846

(a) Prior to June, 1991, the Predecessor Fund was organized as a Master Trust,
with its common and collective trust funds (the "Original Funds") held at
Citizens Federal Bank, F.S.B. The Predecessor Fund and the Original Funds were
advised by the Fund's investment adviser, James Investment Research, Inc., using
investment objectives, policies and strategies substantially similar to those
used in managing the Fund. The Original Funds' returns for the years ended June
30, 1985 through June 30, 1991 were 20.35%, 33.73%, 17.73%, 16.53%, 10.37%,
6.49% and 8.24% respectively. This performance represents a compounded annual
return of 15.7% The prior returns of the Original Funds should not be
interpreted as the historical performance of the Predecessor Fund or the Fund.
The total returns for either the Predecessor Fund, the Original Funds or the
Fund should not be interpreted as indicative of the Fund's future performance.
Total returns are calculated on net asset value without any sales charge.

(b) After waiver of certain management fees or reimbursement of expenses by John
Nuveen & Co. Incorporated or its predecessor Flagship Funds Inc.

(c) Average commission rate paid on equity portfolio transactions. Commissions
paid are included in the cost of the securities. Disclosure was not required
prior to June 30, 1996.

The Predecessor Fund's annual report for the most recent fiscal year includes a
discussion of fund performance. It is available upon request and without charge.

- 3 -
<PAGE>

INVESTMENT OBJECTIVE AND STRATEGIES AND
RISK CONSIDERATIONS
- --------------------------------------------------------------------------------

The investment objective of the Fund is to provide shareholders with total
return through a combination of growth and income and preservation of capital in
declining markets. The Fund seeks to achieve its objective by investing
primarily in equity and/or debt securities that James Investment Research, Inc.
(the "Adviser") believes are undervalued. The Fund will attempt to provide total
return in excess of the rate of inflation over the long term (three to five
years).

The Adviser does its own research using quantitative databases and statistical
expertise. It utilizes a number of elements to help predict future stock and
bond price movements. When selecting equity securities, the Adviser focuses on
value, neglect or limited following by Wall Street analysts, as well as on
management commitment, and assesses a number of fundamental factors such as
earnings, earnings trend, price earnings multiples, return on assets, and
balance sheet data as well as other proprietary calculations to identify stocks
which it considers undervalued.

Under normal circumstances, the Adviser expects that the Fund will hold both
debt and equity securities, the proportions of which are not fixed, and may
invest up to 90% of its assets in either debt or equity securities. The Adviser
expects that the fixed income portion of the Fund's portfolio will consist
primarily of U.S. government securities or high grade corporate bonds. When the
Adviser believes that interest rates will fall, it may extend maturities in
anticipation of capital appreciation in the bonds. If the Adviser believes that
interest rates may rise, it expects to seek capital preservation through the
purchase of shorter term bonds. The Fund may invest in debt obligations of any
maturity, consistent with the Fund's anticipated needs for liquidity. The Fund
will limit its holdings of debt securities to issues rated, at the time of
purchase, "A" or better by either Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P"), or if unrated, determined by the
Adviser to be of equivalent quality.

The Fund may invest in foreign markets by investing in the securities of
non-United States issuers as well as through the purchase of mutual funds that
invest in foreign securities. The Fund may also invest, without limitation, in
money market instruments, repurchase agreements and "when issued" securities.
The Fund may invest up to 10% of its net assets in other mutual funds. If the
Fund acquires securities of another mutual fund, the shareholders of the Fund
will be subject to duplicative management fees.

The Fund may purchase and sell exchange-listed and over-the-counter put and call
options on securities, equity and fixed-income indices and other financial
instruments; purchase and sell financial futures contracts and options thereon;
enter into various interest rate transactions such as swaps, caps, floors or
collars; and enter into various currency transactions such as currency forward
contracts, currency futures contracts, currency swaps or options on currencies
or currency futures (collectively, all of the above are called "hedging
transactions").

For temporary defensive purposes under adverse market conditions, the Fund may
hold all or a substantial portion of its assets in short term U.S. Government or
high quality money market instruments; repurchase agreements collateralized by
such securities; or other cash equivalents. The Fund may also invest a
substantial portion of its assets in such instruments at any time to maintain
liquidity or pending selection of investments in accordance with its policies.

As all investment securities are subject to inherent market risks and
fluctuations in value due to earnings, economic and political conditions and
other factors, the Fund cannot give any assurance that its investment objective
will be achieved. Rates of total return quoted by the Fund may be higher or
lower than past quotations, and there can be no assurance that any rate of total
return will be maintained. See "Investment Policies and Techniques" for a more
detailed discussion of the Fund's investment practices.

HOW TO INVEST IN THE FUND
- --------------------------------------------------------------------------------

Shares of the Fund are sold on a continuous basis, and you may invest any amount
you choose, as often as you wish, subject to a minimum initial investment of
$2,000 ($500 for qualified plans and $1 million for Class R). Shares of the Fund
are offered continuously at a public offering price that is equal to net asset
value per share next determined after a purchase order is received by the Fund
plus any applicable sales charge. At present, only Class A shares are offered
for purchase.

- 4 -

<PAGE>

The sales charge, at the election of the purchaser, may be imposed (i) at the
time of purchase (Class A shares) or (ii) on a contingent deferred basis (Class
B and Class C shares). The Class R shares are designed for institutional
investors and are sold at net asset value with no front-end sales load, no
contingent deferred sales load and no Rule 12b-1 charge. When placing purchase
orders, investors should specify whether the order is for Class A, Class B,
Class C or Class R shares. All purchase orders that fail to specify a Class will
automatically be invested in Class A shares.

CLASS A SHARES

Class A shares of the Fund are purchased at the public offering price. The
public offering price is the next determined net asset value per share plus a
sales load as shown in the table below. Class A shares are subject to a
continuing .25% annual distribution fee.

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 B SHARES

Class B shares are offered at net asset value, without an initial sales charge,
subject to a maximum annual distribution fee of 1.0% (of which .75% is an asset
based sales charge and .25% is a service fee). The current authorized
distribution fee is .85%. Class B shares are subject to a declining contingent
deferred sales load ("CDSL") if you redeem your shares within eight years from
the purchase date. This CDSL charge is 5%, 4%, 4%, 3%, and 2% for years one
through five and 1% for years six through eight. Class B shares automatically
convert to Class A shares at the end of eight years and, as a result, will
benefit from the lower Class A distribution fee. The conversion is based on the
relative net asset value of the two classes, and no sales load or other charge
is imposed.

The Fund's distributor, CW Fund Distributors, Inc. (the "Distributor"), pays a
0.20% service fee to dealers in advance for the first year upon the sale of
Class B shares. After the shares have been held for a year, the Distributor pays
the fee monthly. In addition, the Distributor pays a sales commission of 3.80%
of the purchase price to dealers from its own resources at the time of sale. At
present, Class B shares are not offered for purchase.

CLASS C SHARES

Class C shares are offered at net asset value, without initial sales charge,
subject to a maximum annual distribution fee of 1.0% (of which .75% is an asset
based sales charge and .25% is a service fee). The current authorized
distribution fee is .85%. Class C shares are subject to a CDSL of 1% if redeemed
within one year of the purchase date. The first year's annual distribution fee
is paid to the Distributor, and in subsequent years 0.75% is paid to the dealer
and 0.10% is paid to the Distributor. At present, Class C shares are not offered
for purchase.

CLASS R SHARES

You may purchase Class R shares with monies representing dividends and capital
gain distributions on Class R shares of the Fund. Also, you may purchase Class R
shares if you are within the following specified categories of investors who are
also eligible to purchase Class A shares at net asset value without an up-front
sales charge: officers, current and former trustees of the Fund; bona fide,
full-time and retired employees of James Investment Research, Inc. and
subsidiaries thereof, or their immediate family members; any person who, for at
least 90 days, has been an officer, director or bona fide employee of any
Authorized Dealer, or their immediate family members; officers and directors of
bank holding companies that make Fund shares available directly or

- 5 -

<PAGE>

through subsidiaries or bank affiliates; and bank or broker-affiliated trust
departments; persons investing $1 million or more in Class R shares; and clients
of investment advisers, financial planners or other financial intermediaries. At
present, Class R shares are not offered for purchase.

GENERAL PURCHASE INFORMATION

If you are eligible to purchase either Class R shares or Class A shares without
a sales charge at net asset value, you should be aware of the differences
between these two classes of shares. Class A shares are subject to an annual
distribution fee to compensate the Distributor for distribution costs associated
with the Fund and to an annual service fee to compensate authorized dealers for
providing you with ongoing account services. Class R shares are not subject to a
distribution or service fee and, consequently, holders of Class R shares may not
receive the same types or levels of services from authorized dealers. In
deciding between Class A shares and Class R shares, you should weigh the
benefits of the services to be provided by authorized dealers against the annual
service fee imposed upon the Class A shares.

Shares of the Fund are sold to individuals or entities who hold their shares in
individual or master trust accounts at Citizens Federal, including Individual
Retirement Accounts, Keogh Plans, pension plans, bank and/or savings and loan
trust departments, trusts or accounts, including individuals who have signed
trust agreements (the "Citizens Accounts"). Such shares are sold in a continuous
offering without a sales charge at the net asset value per share next determined
after a purchase order is received by the Fund (see "Share Price Calculation").
Due to the anticipated acquisition of Citizens Federal on or about June 26,
1998, it is contemplated that, at the time of the transaction or subsequent
thereto, all Citizens Accounts (other than irrevocable trust accounts) will be
permitted to convert to direct accounts, and these direct accounts may continue
purchasing shares at net asset value without a sales charge.

Shares of the Fund may be purchased, in amounts less than the minimum purchase
amount, by officers, directors and employees of the Fund, the Adviser, or the
Distributor, and any such person's spouse, children, and trustees or custodians
of any qualified pension or profit sharing plan or IRA established for the
benefit of such person. Such person should request instructions on how to invest
or redeem from the Distributor.

Under certain circumstances, the Distributor may change the reallowance to
dealers and may also compensate dealers out of its own assets. Dealers engaged
in the sale of shares of the Fund may be deemed to be underwriters under the
Securities Act of 1933. The Distributor retains the entire sales load on all
direct initial investments in the Fund and on all investments in accounts with
no designated dealer of record.

Shares of the Fund are sold on a continuous basis at the public offering price
next determined after receipt of a purchase order by the Trust. Purchase orders
received by dealers prior to 4:00 p.m., Eastern time, on any business day and
transmitted to the Distributor by 5:00 p.m., Eastern time, that day are
confirmed at the public offering price determined as of the close of the regular
session of trading on the New York Stock Exchange on that day. It is the
responsibility of dealers to transmit properly completed orders so that they
will be received by the Distributor by 5:00 p.m., Eastern time. Dealers may
charge a fee for effecting purchase orders. Direct purchase orders received by
4:00 p.m., Eastern time, are confirmed at that day's public offering price.
Direct investments received after 4:00 p.m. and others received from dealers
after 5:00 p.m. are confirmed at the public offering price next determined on
the following business day.

PURCHASE FOR TRUST ACCOUNTS THROUGH DEALERS

To purchase shares through a dealer, you should direct your dealer to contact
the Distributor to request information on the Fund and on Citizens Federal's
process for establishing the necessary trust accounts. The Distributor can be
reached toll free at (800) 99 JAMES or (800) 995-2637. After establishing an
account, an investor may, either directly or through a broker, purchase shares
of the Fund. For purchases made through a dealer, that dealer will be designated
as the broker of record for those account assets. The public offering price is
the Fund's net asset value. Because the Fund determines net asset value daily as
of the close of trading (normally 4:00 p.m. New York time) on the New York Stock
Exchange on each day that the Exchange is open for trading, the dealer must
transmit your request to Citizens Federal prior to such time in order for your
order to be executed at the net asset value to be determined that day. Any
change in price due to the failure of the Fund to receive an order prior to the
close of the Exchange must be settled between the investor and the dealer
placing the order.

-6 -

<PAGE>

AUTOMATIC INVESTMENT PLAN

The Fund offers current shareholders who receive a quarterly statement from the
Fund's Distributor the convenience of automatic monthly investing. On 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.

The Fund pays the cost associated with these transfers, but reserves the right,
upon ninety (90) days written notice, to make reasonable charges for this
service. Your bank may charge for debiting your account. Shareholders can change
the amount or discontinue their participation in the plan by written notice to
Countrywide Fund Services, Inc. ("Transfer Agent") thirty (30) days prior to
fund transfer date. Because a sales charge is applied on new shares purchased,
it would be disadvantageous to purchase shares while also making systematic
withdrawals.

LETTER OF INTENT (CLASS A SHARES ONLY)

A shareholder may qualify for reduced sales charges by sending to the Fund
(within 90 days after the first purchase desired to be included in the purchase
program) a signed, non-binding letter of intent to purchase, during a 13-month
period, an amount sufficient to qualify for a reduced sales charge. A single
letter may be used for spouses, their children and parents or any single trust,
estate or other fiduciary account. All investments in Class A shares of the Fund
count toward the indicated goal. Once the Distributor receives the required
letter of intent, it will apply to qualifying purchases within the 13-month
period the sales charge that would be applicable to a single purchase of the
total amount indicated in the letter. During the period covered by the letter of
intent, the first 5% of the intended purchase will be held in escrow until the
stated goal is reached. If the intended purchase program is not completed within
the 13-month period, the sales charge will be adjusted upward as appropriate and
a sufficient number of shares will be redeemed by the Fund if the shareholder
does not pay the increased sales charge. Please see the Statement of Additional
Information for further details.

OTHER PURCHASE INFORMATION

The Fund does not issue share certificates. All shares are held in
non-certificate form registered on the books of the Fund and the Fund's Transfer
Agent for the account of the shareholder. The rights to limit the amount of
purchases and to refuse to sell to any person are reserved by the Fund. If your
check or wire does not clear, you will be responsible for any loss incurred by
the Fund. If you are already a shareholder, the Fund can redeem shares from any
identically registered account in the Fund as reimbursement for any loss
incurred. You may be prohibited or restricted from making future purchases in
the Fund.

HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------

Shareholders should advise their financial consultant of their desire to redeem
shares. Upon receipt by the Fund of a proper redemption request, the Fund will
redeem shares at their next determined net asset value. See "Share Price
Calculation." Neither the Distributor nor the Fund charges a fee or a commission
for redemption, except that the Fund may charge a fee for wiring redemption
proceeds and Class B and Class C shares may be subject to a CDSL charge (see
"How to Invest in the Fund").

SIGNATURE GUARANTEE -- The Transfer Agent will require a signature guarantee if
the shares to be redeemed have a value of $25,000 or more, or if the address
where the redemption is to be mailed is other than that designated on the
account. A signature guarantee may be executed by any eligible guarantor.
Eligible guarantors include member firms of a domestic stock exchange,
commercial banks, trust companies, savings associations and credit unions as
defined by the Federal Deposit Insurance Act. You should verify with the
institution that they are an eligible guarantor prior to signing.

ADDITIONAL INFORMATION -- Because the Fund incurs certain fixed costs in
maintaining shareholder accounts, the Fund reserves the right to require any
shareholder to redeem all of his or her shares in the Fund on 30 days' written
notice if the value of his or her shares in the Fund is less than $2,000 due to
redemption, or such other minimum amount as the Fund may determine from time to
time. An involuntary redemption constitutes a sale. You should consult your tax
adviser concerning the tax consequences of

- 7 -

<PAGE>

involuntary redemptions. A shareholder may increase the value of his or her
shares in the Fund to the minimum amount within the 30 day period. Each share of
the Fund is subject to redemption at any time if the Board of Trustees
determines in its sole discretion that failure to so redeem may have materially
adverse consequences to all or any of the shareholders of the Fund.

FREE REPURCHASE AND SYSTEMATIC WITHDRAWAL AND DIRECT DEPOSITS
- --------------------------------------------------------------------------------

FREE REPURCHASE

A shareholder who has redeemed shares may repurchase shares at net asset value
without incurring the applicable sales charge. Such a purchase must be in an
amount between the stated minimum investment of such fund and the amount of the
proceeds of redemption within one year of the redemption. This feature may be
exercised by a shareholder only twice per calendar year. Exercising the
reinvestment privilege will not affect the character of any gain or loss
realized on the redemption for federal income tax purposes, except that if the
redemptions resulted in a loss, the reinvestment may result in the loss being
disallowed under the "wash sale" rules.

SYSTEMATIC WITHDRAWAL PLAN

Accounts with a value greater than $10,000 may establish a Systematic Withdrawal
Plan ("SWP") and receive monthly or quarterly checks for $100 or more as
specified by the shareholder. To establish a SWP all distributions must be
reinvested in additional shares. Such payments are drawn from the proceeds of
the redemption of shares held in the shareholder's account. To the extent that
SWP redemptions exceed dividend income reinvested in the account, such
redemptions will reduce and may ultimately exhaust the number of shares in the
account. Maintaining a SWP concurrently with an investment program would be
disadvantageous because of the sales charges included in share purchases.
Therefore, a shareholder should not have a SWP in effect at the same time he is
making recurring purchases of shares of the Fund. The shareholder by written
instructions to the Transfer Agent may withdraw from the program, change the
payee or change the dollar amount of each payment. The Transfer Agent may charge
the account for services rendered and expenses incurred beyond those normally
assumed by the Fund with respect to the liquidation of shares. No charge is
currently assessed against the account, but could be instituted by the Transfer
Agent on 60 days' notice in writing to the shareholder. The Fund reserves the
right to amend or terminate the SWP on thirty days' notice.

DIRECT DEPOSITS

Shareholders can have dividends or SWP redemption proceeds deposited
electronically into their Citizens Federal or other bank accounts. Under normal
circumstances, direct deposits are credited to the account on the second
business day of the month following normal payment. In order to utilize this
option, the shareholder's bank must be a member of Automated Clearing House. In
addition, the shareholder must (1) fill out the appropriate section of the
application attached to this Prospectus and (2) include with the completed
application a voided check from the bank account into which funds are to be
deposited. Once the Transfer Agent has received the application and the voided
check, the shareholder's dividends and redemptions will be credited to the
designated bank account. A shareholder may terminate a direct deposit program at
any time by written notice to the Transfer Agent.

SHARE PRICE CALCULATION
- --------------------------------------------------------------------------------

The value of an individual share in the Fund (the net asset value) is calculated
by dividing the total value of the Fund's investments and other assets
(including accrued income), less any liabilities (including estimated accrued
expenses), by the number of shares outstanding, rounded to the nearest cent. Net
asset value per share is determined as of the close of the New York Stock
Exchange (4:00 p.m., Eastern time) on each day that the exchange is open for
business, 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.

- 8 -

<PAGE>

Securities which are traded on any exchange or on the NASDAQ over-the-counter
market are valued at the last quoted sale price. Lacking a last sale price, a
security is valued at its last bid price except when, in the Adviser's opinion,
the last bid price does not accurately reflect the current value of the
security. All other securities for which over-the-counter market quotations are
readily available are valued at their last bid price. When market quotations are
not readily available, when the Adviser determines the last bid price does not
accurately reflect the current value or when restricted securities are being
valued, such securities are valued at their fair value as determined in good
faith in accordance with consistently applied procedures established by and
under the general supervision of the Board of Trustees.

Fixed income securities generally are valued by using market quotations, but may
be valued on the basis of prices furnished by a pricing service when market
quotations are not readily available. A pricing service utilizes electronic data
processing techniques based on yield spreads relating to securities with similar
characteristics to determine prices for normal institutional-size trading units
of debt securities without regard to sale or bid prices. When prices are not
readily available from a pricing service, or when restricted or illiquid
securities are being valued, securities are valued at their fair value as
determined in good faith in accordance with consistently applied procedures
established by and under the general supervision of the Board of Trustees. Short
term investments in fixed income securities with maturities of less than 60 days
when acquired, or which subsequently are within 60 days of maturity, are valued
by using the amortized cost method of valuation, which the Board has determined
will represent fair value.

For valuation purposes, quotations of foreign securities in a foreign currency
are converted to U.S. dollar equivalents at the time of pricing. In computing
the net asset value of a Fund, the values of foreign portfolio securities are
generally based upon market quotations which, depending upon the exchange or
market, may be last sale price, last bid price, or the average of the last bid
and asked prices as of, in each case, the close of the appropriate exchange or
another designated time.

Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed at various times before the close
of business on each day on which the New York Stock Exchange is open. Trading of
these securities may not take place on every New York Stock Exchange business
day. In addition, trading may take place in various foreign markets on Saturdays
or on other days when the New York Stock Exchange is not open and on which a
fund's share price is not calculated. Therefore, the value of the portfolio of a
fund holding foreign securities may be significantly affected on days when
shares of the Fund may not be purchased or redeemed.

The calculation of the share price of a fund holding foreign securities in its
portfolio does not take place contemporaneously with the determination of the
values of many of the foreign portfolio securities used in such calculation.
Events affecting the values of foreign portfolio securities that occur between
the time their prices are determined and the calculation of the Fund's share
price will not be reflected in the calculation unless the Adviser determines,
subject to review by the Board of Trustees, that the particular event would
materially affect net asset value, in which case an adjustment will be made.

DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------

The Fund intends to distribute substantially all of its net investment income as
dividends to its shareholders on a quarterly basis, and intends to distribute
its net long term capital gains and its net short term capital gains at least
once a year.

Income dividends and capital gain distributions are automatically reinvested in
additional shares at the net asset value per share on the distribution date. An
election to receive a cash payment of dividends and/or capital gain
distributions may be made in the application to purchase shares or by separate
written notice to the Transfer Agent. Shareholders will receive a confirmation
statement reflecting the payment and reinvestment of dividends and summarizing
all other transactions. If cash payment is requested, a check normally will be
mailed within five business days after the payable date. 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.

- 9 -
<PAGE>

TAXES
- --------------------------------------------------------------------------------

The Fund intends to qualify each year as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended. By so qualifying, the Fund will
not be subject to federal income taxes to the extent that it distributes
substantially all of its net investment income and any realized capital gains.

For federal income tax purposes, dividends paid by the Fund from ordinary income
are taxable to shareholders as ordinary income, but may be eligible in part for
the dividends received deduction for corporations. Pursuant to the Tax Reform
Act of 1986 (the "Tax Reform Act"), all distributions of net short term capital
gains to individuals are taxed at the same rate as ordinary income. All
distributions of net capital gains to corporations are taxed at regular
corporate rates. Any distributions designated as being made from net realized
long term capital gains are taxable to shareholders as long term capital gains
regardless of the holding period of the shareholder.

The Fund will mail to each shareholder after the close of the calendar year a
statement setting forth the federal income tax status of distributions made
during the year. Dividends and capital gains distributions may also be subject
to state and local taxes. Shareholders are urged to consult their own tax
advisers regarding specific questions as to federal, state or local taxes and
the tax effect of distributions and withdrawals from the Fund.

On the application or other appropriate form, the Fund will request the
shareholder's certified taxpayer identification number (social security number
for individuals) and a certification that the shareholder is not subject to
backup withholding. Unless the shareholder provides this information, the Fund
will be required to withhold and remit to the U.S. Treasury 31% of the
dividends, distributions and redemption proceeds payable to the shareholder.
Shareholders should be aware that, under regulations promulgated by the Internal
Revenue Service, the Fund may be fined $50 annually for each account for which a
certified taxpayer identification number is not provided. In the event that such
a fine is imposed with respect to a specific account in any year, the Fund may
make a corresponding charge against the account.

OPERATION OF THE FUND
- --------------------------------------------------------------------------------

The Fund is a diversified series of The James Advantage Funds, an open-end
management investment company organized as an Ohio business trust on August 29,
1997. This prospectus offers shares of the Fund and each share represents an
undivided, proportionate interest in the Fund. The Board of Trustees supervises
the business activities of the Fund. Like other mutual funds, the Fund retains
various organizations to perform specialized services.

The Fund retains James Investment Research, Inc., P.O. Box 8, Alpha, Ohio 45301
(the "Adviser") to manage the Fund's investments. The investment decisions for
the Fund are made by a committee of the Adviser, which is primarily responsible
for the day-to-day management of the Fund's portfolio. The Adviser is owned by
Francis E. James, Ph.D., who established it in 1972. The Adviser provides advice
to institutional as well as individual clients, colleges, banks, hospitals,
foundations, trusts, endowment funds and individuals. The Fund is authorized to
pay the Adviser a fee equal to an annual rate of 0.74% of its average daily net
assets, and the Adviser has agreed to waive a portion of its fee so that through
June 30, 1999 the fee after waiver will be 0.65%.

The Fund is responsible for the payment of all operating expenses of the Fund,
including brokerage fees and commissions; taxes or governmental fees; interest
fees and expenses of the non-interested person trustees; clerical and
shareholder service staff salaries; office space and other office expenses; fees
and expenses incurred by the Fund in connection with membership in investment
company organizations; legal, auditing and accounting expenses; expenses of
registering shares under federal and state securities laws; insurance expenses;
fees and expenses of the custodian, transfer agent, dividend disbursing agent,
shareholder service agent, administrator, accounting and pricing services agent
and underwriter of the Fund; expenses, including clerical expenses, of issue,
sale, redemption or repurchase of shares of the Fund; the cost of preparing and
distributing reports and notices to shareholders, the cost of printing or
preparing prospectuses and statements of additional information for delivery to
the Fund's

- 10 -
<PAGE>

shareholders; the cost of printing or preparing statements, reports or other
documents to shareholders; expenses of shareholders' meetings and proxy
solicitations; and such extraordinary or non-recurring expenses as may arise,
including litigation to which the Fund may be a party and indemnification of the
Trust's trustees and officers with respect thereto.

The Fund retains Countrywide Fund Services, Inc., 312 Walnut Street, Cincinnati,
Ohio 45202 (the "Transfer Agent"), to serve as transfer agent, dividend paying
agent and shareholder service agent. The Fund aso retains the Transfer Agent to
provide the Fund with administrative services, including regulatory reporting
and necessary office equipment, personnel and facilities. For its services as
administrator, the Transfer Agent receives a monthly fee at an annual rate of
.10% of the Fund's average daily net assets up to $25 million; .075% of such
assets from $25 million to $50 million; and .05% of such assets in excess of $50
million. The Fund retains CW Fund Distributors, Inc., 312 Walnut Street,
Cincinnati, Ohio 45202, to act as the principal distributor of the Fund's
shares.

Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to its obligation of seeking best
qualitative execution, the Adviser may give consideration to sales of shares of
the Fund as a factor in the selection of brokers and dealers to execute
portfolio transactions.

DISTRIBUTION PLAN
- --------------------------------------------------------------------------------

The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act for each
Class of shares (collectively, the "Plans") which 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 customers
of Citizens Federal, who are shareholders of the Fund, but such fees shall not,
when aggregated with other expenses reimbursed to the Distributor in accordance
with the Plan, exceed the maximum 12b-1 fee set forth in the table on page 2 of
this Prospectus. The Plans conform to the requirements of the rules of the
National Association of Securities Dealers with regard to Rule 12b-1 plans. Each
Plan authorizes the Fund to expend its monies in an amount equal to the
aggregate for all such expenditures to such percentage of the Fund's daily net
asset value as may be determined from time to time by vote cast in person at a
meeting called for such purpose, by a majority of the Fund's disinterested
Trustees. The scope of the foregoing shall be interpreted by the Trustees, which
decision shall be conclusive except to the extent it contravenes established
legal authority. Without in any way limiting the discretion of the Trustees, the
following activities are hereby declared to be primarily intended to result in
the sale of shares of the 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, the Fund
through authorized officers may make similar payments for marketing services and
shareholder services to non-broker-dealers who enter into service agreements
with the Fund. The Distributor has voluntarily waived any portion of its
normally retained 12b-1 fee with regard to its service agreement with Citizens
Federal and limited its payments to reimbursement of expenses and 12b-1 fees
with regard to selling agreements with broker-dealers until notice to and
approval by the Fund's Board of Trustees is obtained for increased payments.

The maximum amount payable by the Fund under the Plan and related agreements on
an annual basis for Class A shares is .40% of average daily net assets for the
year. In the case of broker-dealers and others, such as banks, who have selling
or service agreements with the Distributor or the Fund, the maximum amount
payable to any recipient is .20%, on an annualized basis, of the portion of
daily net assets represented by such person's customers. The maximum amount
payable for Class B and Class C shares is 1.00% of the respective Class' average
daily net assets for the year (of which .75% is an asset based sales charge and
.25% is a

- 11 -
<PAGE>

service fee). The Board of Trustees have currently authorized a .75% asset based
sales charge and a .10% service fee for Class B and Class C shares. The Board of
Trustees may reduce these amounts at any time. Expenditures pursuant to the Plan
and related agreements may reduce current yield after expenses.

Various state and federal laws limit the ability of a depository institution
(such as a commercial bank or a savings and loan association) to become an
underwriter or distributor of securities. In the event these laws are deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Board of Trustees will consider appropriate changes in the services. State
securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to federal law and, therefore, banks and financial institutions may be required
to register as dealers pursuant to state law.

INVESTMENT POLICIES AND TECHNIQUES
- --------------------------------------------------------------------------------

This section contains general information about various types of securities and
investment techniques that the Fund may purchase or employ.

EQUITY SECURITIES

The Fund may invest in common stock, preferred stock and common stock
equivalents (such as convertible preferred stock and convertible debentures).
Convertible preferred stock is preferred stock that can be converted into common
stock pursuant to its terms. Convertible debentures are debt instruments that
can be converted into common stock pursuant to their terms. The Adviser intends
to invest only in preferred stock rated A or higher by Standard & Poor's
Corporation ("S&P") or by Moody's Investors Services, Inc. ("Moody's").

FOREIGN SECURITIES

The Fund may invest up to 30% of its assets in foreign equity and fixed income
securities. Foreign fixed income securities include corporate debt obligations
issued by foreign companies and debt obligations of foreign governments or
international organizations. This category may include floating rate
obligations, variable rate obligations, Yankee dollar obligations (U.S. dollar
denominated obligations issued by foreign companies and traded on U.S. markets)
and Eurodollar obligations (U.S. dollar denominated obligations issued by
foreign companies and traded on foreign markets). This category may also include
American and European depository receipts ("ADR's" and "EDR's").

Purchases of foreign securities are usually made in foreign currencies and, as a
result, the Fund may incur currency conversion costs and may be affected
favorably or unfavorably by changes in the value of foreign currencies against
the U.S. dollar. In addition, there may be less information publicly available
about a foreign company than about a U.S. company, and foreign companies are not
generally subject to accounting, auditing and financial reporting standards and
practices comparable to those in the U.S. Other risks associated with
investments in foreign securities include changes in restrictions on foreign
currency transactions and rates of exchanges, changes in the administrations or
economic and monetary policies of foreign governments, the imposition of
exchange control regulations, the possibility of expropriation decrees and other
adverse foreign governmental action, the imposition of foreign taxes, less
liquid markets, less government supervision of exchanges, brokers and issuers,
difficulty in enforcing contractual obligations, delays in settlement of
securities transactions and greater price volatility. In addition, investing in
foreign securities will generally result in higher commissions than investing in
similar domestic securities.

U.S. GOVERNMENT OBLIGATIONS

U.S. government obligations may be backed by the credit of the government as a
whole or only by the issuing agency. U.S. Treasury bonds, notes, and bills and
some agency securities, such as those issued 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

- 12 -
<PAGE>

the Federal Farm Credit System, the Federal Land Banks, and the Federal National
Mortgage Association (FNMA) are supported by the agency's right to borrow money
from the U.S. Treasury under certain circumstances, but are not backed by the
full faith and credit of the U.S. government.

REPURCHASE AGREEMENTS

The Fund may invest in repurchase agreements fully collateralized by U.S.
Government obligations. A repurchase agreement is a short-term investment in
which the purchaser (i.e., the Fund) acquires ownership of a U.S. Government
obligation (which may be of any maturity) and the seller agrees to repurchase
the obligation at a future time at a set price, thereby determining the yield
during the purchaser's holding period (usually not more than seven days from the
date of purchase). Any repurchase transaction in which the Fund engages will
require full collateralization of the seller's obligation during the entire term
of the repurchase agreement. In the event of a bankruptcy or other default of
the seller, the Fund could experience both delays in liquidating the underlying
security and losses in value. However, the Fund intends to enter into repurchase
agreements only with banks with assets of $1 billion or more and registered
securities dealers determined by the Adviser (subject to review by the Board of
Trustees) to be creditworthy. The Adviser monitors the creditworthiness of the
banks and securities dealers with which the Fund engages in repurchase
transactions.

LOANS OF SECURITIES

The Fund may make short and long term loans of its portfolio securities in order
to realize additional income. Under the lending policy authorized by the Board
of Trustees and implemented by the Adviser in responses to requests of
broker-dealers or institutional investors which the Adviser deems qualified, the
borrower must agree to maintain collateral, in the form of cash or U.S.
government obligations, with the Fund on a daily market-to-market basis in an
amount at least equal to 102% of the value of the loaned securities. The Fund
will continue to receive dividends or interest on the loaned securities and may
terminate such loans at any time or reacquire such securities in time to vote on
any matter which the Board of Trustees determines to be serious. With respect to
loans of securities, there is the risk that the borrower may fail to return the
loaned securities or that the borrower may not be able to provide additional
collateral.

HEDGING

The Fund may purchase and sell exchange-listed and over-the-counter put and call
options on securities, equity and fixed-income indices and other financial
instruments, purchase and sell financial futures contracts and options thereon,
enter into various interest rate transactions such as swaps, caps, floors or
collars, and enter into various currency transactions such as currency forward
contracts, currency futures contracts, currency swaps or options on currencies
or currency futures (collectively, all the above are called "hedging
transactions"). Hedging transactions may be used to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. No more than 5% of the Fund's
assets will be committed to hedging transactions. Any or all of these investment
techniques may be used at any time and there is no particular strategy that
dictates the use of one technique rather than another, as use of any hedging
transaction is a function of numerous variables including market conditions. The
ability of the Fund to utilize these hedging transactions successfully will
depend on the Adviser's ability to predict pertinent market movements, which
cannot be assured. The Fund will comply with applicable regulatory requirements
when implementing these strategies, techniques and instruments. Hedging
transactions involving financial futures and options thereon will be purchased,
sold or entered into only for bona fide hedging, risk management or portfolio
management purposes and not for speculative purposes.

RISKS

Hedging transactions have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such hedging transactions could result in losses greater than if they had
not been used. Use of put and call options may result in losses to the Fund,
force the

- 13 -

<PAGE>

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 Fund may buy and sell securities on a when-issued or delayed delivery basis,
with payment and delivery taking place at a future date. The price and interest
rate that will be received on the securities are each fixed at the time the
buyer enters into the commitment. The Fund may enter into such forward
commitments if it holds, and maintains until the settlement date in a separate
account at the Fund's Custodian, cash or U.S. government securities in an amount
sufficient to meet the purchase price. Forward commitments involve a risk of
loss if the value of the security to be purchased declines prior to the
settlement date. Any change in value could increase fluctuations in the Fund's
share price and yield. Although the Fund will generally enter into forward
commitments with the intention of acquiring securities for its portfolio, the
Fund may dispose of a commitment prior to the settlement if the Adviser deems it
appropriate to do so.

GENERAL

The Fund may borrow from time to time on a temporary basis and may utilize
reverse repurchase agreements. The Fund's borrowings, including reverse
repurchase agreements, will be limited to 5% of its net assets. The Fund may
normally invest up to 5% of its assets (valued at the purchase date) in illiquid
securities. Illiquid securities generally include securities which cannot be
disposed of promptly and in the ordinary course of business without taking a
reduced price.

GENERAL INFORMATION
- --------------------------------------------------------------------------------

FUNDAMENTAL POLICIES

The investment limitations set forth in the Statement of Additional Information
as fundamental policies may not be changed without the affirmative vote of the
majority of the outstanding shares of the Fund. The investment objective of the
Fund may be changed without the affirmative vote of a majority of the
outstanding shares of the Fund. Any such change may result in the Fund having an
investment objective different from the objective which the shareholders
considered appropriate at the time of investment in the Fund.

PORTFOLIO TURNOVER

The Fund does not intend to purchase or sell securities for short term trading
purposes. The Fund will, however, sell any portfolio security (without regard to
the length of time it has been held) when the Adviser believes that market
conditions, creditworthiness factors or general economic conditions warrant such
action. It is anticipated that the Fund will have a portfolio turnover rate of
less than 100%.

- 14 -

<PAGE>

SHAREHOLDER RIGHTS

Any Trustee of the Trust may be removed by vote of the shareholders holding not
less than two-thirds of the outstanding shares of the Trust. The Trust does not
hold an annual meeting of shareholders. When matters are submitted to
shareholders for a vote, each shareholder is entitled to one vote for each whole
share he owns and fractional votes for fractional shares he owns. All shares of
the Fund have equal voting rights and liquidation rights. The Declaration of
Trust can be amended by the Trustees, except that any amendment that adversely
effects the rights of shareholders must be approved by the shareholders
affected.

It is anticipated that Citizens Federal Bank, F.S.B., Dayton, Ohio, acting as
either trustee, investment agent or custodian for its clients, will own almost
all of the Fund's shares and may be deemed to control the Fund. While Citizens
Federal has the legal right in certain situations to vote on behalf of its
clients, it is anticipated that Citizens Federal will contact its clients and
vote in accordance with their preferences.

PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

The Fund may periodically advertise "average annual total return." The "average
annual total return" of the Fund refers to the average annual compounded rate of
return over the stated period that would equate an initial amount invested at
the beginning of a stated period to the ending redeemable value of the
investment. The calculation of "average annual total return" assumes the
reinvestment of all dividends and distributions.

The Fund may also periodically advertise its total return over various periods
in addition to the value of a $10,000 investment (made on the date of the
initial public offering of the Fund's shares) as of the end of a specified
period. The "total return" for the Fund refers to the percentage change in the
value of an account between the beginning and end of the stated period, assuming
no activity in the account other than reinvestment of dividends and capital
gains distributions.

The Fund may also include in advertisements data comparing performance with
other mutual funds as reported in non-related investment media, published
editorial comments and performance rankings compiled by independent
organizations and publications that monitor the performance of mutual funds
(such as Lipper Analytical Services, Inc., Morningstar, Inc., Fortune or
Barron's). Performance information may be quoted numerically or may be presented
in a table, graph or other illustration. In addition, Fund performance may be
compared to well-known indices of market performance including the Standard &
Poor's (S&P) 500 Index, the Dow Jones Industrial Average, the Value Line Stock
Index, or a blend of stock and bond indices.

THE ADVERTISED PERFORMANCE DATA OF THE FUND IS BASED ON HISTORICAL PERFORMANCE
AND IS NOT INTENDED TO INDICATE FUTURE PERFORMANCE. RATES OF TOTAL RETURN QUOTED
BY THE FUND MAY BE HIGHER OR LOWER THAN PAST QUOTATIONS, AND THERE CAN BE NO
ASSURANCE THAT ANY RATE OF TOTAL RETURN WILL BE MAINTAINED. THE PRINCIPAL VALUE
OF AN INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT A SHAREHOLDER'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THE SHAREHOLDER'S ORIGINAL INVESTMENT.

- 15 -
<PAGE>

INVESTMENT ADVISER
James Investment Research, Inc.
P.O. Box 8
Alpha, Ohio 45301
EMAIL

CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202

INDEPENDENT AUDITORS
Deloitte & Touche L.L.P.
1700 Courthouse Plaza, N.E.
Dayton, Ohio 45402

DISTRIBUTOR
CW Fund Distributors, Inc.
312 Walnut Street
Cincinnati, Ohio 45202

<PAGE>

THE GOLDEN RAINBOW FUND ACCOUNT NO. 31-_______________
ACCOUNT APPLICATION (For Fund Use Only)

Please mail account application to: FOR BROKER/DEALER USE ONLY
The James Advantage Funds Firm Name:____________________
P.O. Box 5354 Home Office Address:__________
Cincinnati, Ohio 45201-5354 Branch Address:_______________
Rep Name & No.:_______________
Rep Signature:________________
- --------------------------------------------------------------------------------

- -- Check or draft enclosed payable to the Fund designated above.

- -- Bank Wire From:______________________________________________________________

Account Name S.S. #/Tax l.D.#

_____________________________________________________________ ________________
Name of Individual, Corporation, Organization, or Minor, etc. (In case of
custodial account please list minor's S.S.#)

________________________________________________ Citizenship:-- U.S.
Name of Joint Tenant, Partner, Custodian -- Other________

Address Phone
________________________________________________ ( )________________________
Street or P.O. Box Business Phone
________________________________________________ ( )________________________
City State Zip Home Phone

Check Appropriate Box: -- Individual
- -- Joint Tenant (Right of survivorship presumed) -- Partnership
- -- Corporation -- Trust -- Custodial -- Non-Profit -- Other

Occupation and Employer Name/Address____________________________________________

Are you an associated person of an NASD member? -- Yes -- No
- --------------------------------------------------------------------------------

TAXPAYER IDENTIFICATION NUMBER -- Under penalties of perjury I certify that the
Taxpayer Identification Number listed above is my correct number. The Internal
Revenue Service does not require my consent to any provision of this document
other than the certifications required to avoid backup withholding.
Check box if appropriate:

- -- I am exempt from backup withholding under the provisions of section
3406(a)(1)(c) of the Internal Revenue Code; or I am not subject to backup
withholding because I have not been notified that I am subject to backup
withholding as a result of a failure to report all interest or dividends; or the
Internal Revenue Service has notified me that I am no longer subject to backup
withholding.

- -- I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me and I have mailed or delivered an application to
receive a Taxpayer Identification Number to the Internal Revenue Service Center
or Social Security Administration Office. I understand that if I do not provide
a Taxpayer Identification Number within 60 days that 31% of all reportable
payments will be withheld until I provide a number.
- --------------------------------------------------------------------------------

<PAGE>

DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)

- -- Share Option -- Income distributions and capital gains distributions
automatically reinvested in additional shares.

- -- Income Option -- Income distributions and short term capital gains
distributions paid in cash, long term capital gains distributions reinvested in
additional shares.

- -- Cash Option -- Income distributions and capital gains distributions paid in
cash.

- -- By Check

- -- By ACH to my bank checking or savings account. Please attach a voided check.
- --------------------------------------------------------------------------------

REDUCED SALES CHARGES

Right of Accumulation: I apply for Right of Accumulation subject to the Agent's
confirmation of the following holdings of eligible load funds of Countrywide
Investments.

Letter of Intent:

- -- I agree to the Letter of Intent in the current Prospectus of the Golden
Rainbow Fund. Although I am not obligated to purchase, and the Fund is not
obligated to sell, I intend to invest over a 13 month period beginning
______________________ 19 _______ (Purchase Date of not more than 90 days prior
to this Letter) an aggregate amount in the Fund at least equal to (check
appropriate box):

- -- $50,000 -- $100,000 -- $250,000 -- $500,000 -- $1,000,000

SIGNATURES
By signature below each investor certifies that he has received a copy of the
Fund's current Prospectus, that he is of legal age, and that he has full
authority and legal capacity for himself or the organization named below, to
make this investment and to use the options selected above. The investor
appoints Countrywide Fund Services, Inc. as his agent to enter orders for shares
whether by direct purchase or exchange, to receive dividends and distributions
for automatic reinvestment in additional shares of the Funds for credit to the
investor's account and to surrender for redemption shares held in the investor's
account in accordance with any of the procedures elected above or for payment of
service charges incurred by the investor. The investor further agrees that
Countrywide Fund Services, Inc. can cease to act as such agent upon ten days'
notice in writing to the investor at the address contained in this Application.
The investor hereby ratifies any instructions given pursuant to this Application
and for himself and his successors and assigns does hereby release the Fund,
James Investment Research, Inc., CW Fund Distributors, Inc., Countrywide Fund
Services, Inc., and their respective officers, employees, agents and affiliates
from any and all liability in the performance of the acts instructed herein
provided that such entities have exercised due care to determine that the
instructions are genuine.

______________________________________________________________
Signature of Individual Owner, Corporate Officer, Trustee, etc.

________________________________
Signature of Joint Owner, if Any

________________________________________ ___________________________
Title of Corporate Officer, Trustee, etc. Date

NOTE: CORPORATIONS, TRUSTS AND OTHER ORGANIZATIONS MUST COMPLETE THE
RESOLUTION FORM ON THE REVERSE SIDE.

<PAGE>

AUTOMATIC INVESTMENT PLAN (COMPLETE FOR INVESTMENTS INTO THE FUND)
The Automatic Investment Plan is available for all established accounts of the
Golden Rainbow Fund. There is no charge for this service, and it offers the
convenience of automatic investing on a regular basis. The minimum investment is
$100.00 per month. For an account that is opened by using this Plan, the minimum
initial and subsequent investments must be $100.00. Though a continuous program
of 12 monthly investments is recommended, the Plan may be discontinued by the
shareholder at any time.

Please invest $ _________________ per month in the Golden Rainbow Fund.

ABA Routing Number____________________

FI Account Number_____________________

-- Checking Account -- Savings Account
__________________________________
Name of Financial Institution (FI) Please make my automatic investment on:

-- the last business day of each month
__________________________________ -- the 15th day of each month
City State -- both the 15th and last business day

X___________________________________________________________
(Signature of Depositor EXACTLY as it appears on FI Records)

X___________________________________________________________
(Signature of Joint Tenant - if any)

(Joint Signatures are required when bank account is in joint names.
Please sign exactly as signature appears on your FI's records.)

Please attach a voided check for the Automatic Investment Plan.

INDEMNIFICATION TO DEPOSITOR'S BANK

In consideration of your participation in a plan which Countrywide Fund
Services, Inc. ("CFS") has put into effect, by which amounts, determined by your
depositor, payable to the Fund, for purchase of shares of the Fund, are
collected by CFS, CFS hereby agrees:

CFS will indemnify and hold you harmless from any liability to any
person or persons whatsoever arising out of the payment by you of any amount
drawn by the Fund to its own order on the account of your depositor or from any
liability to any person whatsoever arising out of the dishonor by you whether
with or without cause or intentionally or inadvertently, of any such amount. CFS
will defend, at its own cost and expense, any action which might be brought
against you by any person or persons whatsoever because of your actions taken
pursuant to the foregoing request or in any manner arising by reason of your
participation in this arrangement. CFS will refund to you any amount erroneously
paid by you to the Fund if the claim for the amount of such erroneous payment is
made by you within six (6) months from the date of such erroneous payment; your
participation in this arrangement and that of the Fund may be terminated by
thirty (30) days written notice from either party to the other.

- --------------------------------------------------------------------------------

<PAGE>

SYSTEMATIC WITHDRAWAL PLAN (COMPLETE FOR WITHDRAWALS FROM THE FUND)
This is an authorization for you to withdraw $___________ from my mutual fund
account beginning the last business day of the month of ____________.

Please Indicate Withdrawal Schedule (Check One):

- -- Monthly -- Withdrawals will be made on the last business day of each month.
- -- Quarterly -- Withdrawals will be made on or about 3/31, 6/30, 9/30 and 12/31.
- -- Annually -- Please make withdrawals on the last business day of the month
of:______________.

Please Select Payment Method (Check One):

- -- Check: Please mail a check for my withdrawal proceeds to the mailing address
on this account.

- -- ACH Transfer: Please send my withdrawal proceeds via ACH transfer to my bank
checking or savings account as indicated below. I understand that the transfer
will be completed in two to three business days and that there is no charge.

- -- Bank Wire: Please send my withdrawal proceeds via bank wire, to the account
indicated below. I understand that the wire will be completed in one business
day and that there is a $9.00 fee.

Please attach a voided ________________________________________________
check for ACH or bank wire Bank Name Bank Address

________________________________________________
Bank ABA# Account # Account Name

- -- Send to special payee (other than applicant): Please mail a check for my
withdrawal proceeds to the mailing address below:

Name of payee___________________________________________________________________

Please send to:_________________________________________________________________
Street address City State Zip
- --------------------------------------------------------------------------------

RESOLUTIONS

(This Section to be completed by Corporations, Trusts, and Other Organizations)
RESOLVED: That this corporation or organization become a shareholder of the
Golden Rainbow Fund and that
________________________________________________________________________________
is (are) hereby authorized to complete and execute the Application on behalf of
the corporation or organization and to take any action for it as may be
necessary or appropriate with respect to its shareholder account with the Trust,
and it is

FURTHER RESOLVED: That any one of the above noted officers is authorized to sign
any documents necessary or appropriate to appoint Countrywide Fund Services,
Inc. as redemption agent of the corporation or organization for shares of the
Fund, to establish or acknowledge terms and conditions governing the redemption
of said shares and to otherwise implement the privileges elected on the
Application.

CERTIFICATE

I hereby certify that the foregoing resolutions are in conformity with the
Charter and By-Laws or other empowering documents of the

________________________________________________________________________________
(Name of Organization)

incorporated or formed under the laws of________________________________________
(State)

and were adopted at a meeting of the Board of Directors or Trustees of the
organization or corporation duly called and held on _____________ at which a
quorum was present and acting throughout, and that the same are now in full
force and effect.
I further certify that the following is (are) duly elected officer(s) of the
corporation or organization, authorized to act in accordance with the foregoing
resolutions.

Name Title
____________________________________ ________________________

____________________________________ _______________________

____________________________________ ________________________

Witness my hand and seal of the corporation or organization
this_________________________day of___________________________, 19_______

__________________________________ ______________________________________
*Secretary-Clerk Other Authorized Officer (if required)

*If the Secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.

<PAGE>

THE GOLDEN RAINBOW FUND

STATEMENT OF ADDITIONAL INFORMATION

June 26, 1998

This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus of The Golden Rainbow Fund dated June
26, 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........................................... 2
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 the only series currently
authorized by the Trustees.

Each share of a series represents an equal proportionate interest in
the assets and liabilities belonging to that series with each other share of
that series and is entitled to such dividends and distributions out of income
belonging to the series as are declared by the Trustees. The shares do not have
cumulative voting rights or any preemptive or conversion rights, and the
Trustees have the authority from time to time to divide or combine the shares of
any series into a greater or lesser number of shares of that series so long as
the proportionate beneficial interest in the assets belonging to that series and
the rights of shares of any other series are in no way affected. In case of any
liquidation of a series, the holders of shares of the series being liquidated
will be entitled to receive as a class a distribution out of the assets, net of
the liabilities, belonging to that series. Expenses attributable to any series
are borne by that series. Any general expenses of the Trust not readily
identifiable as belonging to a particular series are allocated by or under the
direction of the Trustees in such manner as the Trustees determine to be fair
and equitable. No shareholder is liable to further calls or to assessment by the
Trust without his or her express consent.

Upon sixty days prior written notice to shareholders, the Fund may make
redemption payments in whole or in part in securities or other property if the
Trustees determine that existing conditions make cash payments undesirable. For
other information concerning the purchase and redemption of shares of the Fund,
see "How to Invest in the Fund" and "Redeeming Shares" in the Fund's Prospectus.
For a description of the methods used to determine the share price and value of
the Fund's assets, see "Share Price Calculation" in the Fund's Prospectus.

ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS
AND RISK CONSIDERATIONS

This section contains a more detailed discussion of some of the
investments the Fund may make and some of the techniques it may use, as
described in the Prospectus (see "Investment Objective and Strategies and Risk
Considerations" and "Investment Policies and Techniques").

A. Illiquid Securities.

The portfolio of the Fund may contain illiquid securities. Illiquid
securities generally include securities which cannot be disposed of promptly and
in the ordinary course of business without taking a reduced price. Securities
may be illiquid due to contractual or legal restrictions on resale or lack of a
ready market. The following securities are considered to be illiquid: repurchase
agreements maturing in more than seven days, nonpublicly offered securities and

- 1 -

<PAGE>

restricted securities. Restricted securities are securities the resale of which
is subject to legal or contractual restrictions. Restricted securities may be
sold only in privately negotiated transactions, in a public offering with
respect to which a registration statement is in effect under the Securities Act
of 1933 or pursuant to Rule 144 or Rule 144A promulgated under such Act. Where
registration is required, the Fund may be obligated to pay all or part of the
registration expense, and a considerable period may elapse between the time of
the decision to sell and the time such security may be sold under an effective
registration statement. If during such a period adverse market conditions were
to develop, the Fund might obtain a less favorable price than the price it could
have obtained when it decided to sell.

B. Borrowing and Leverage; Reverse Repurchase Agreements.

The Fund may borrow from banks up to 5% of its total assets, and the
Fund may pledge assets in connection with such borrowings. The Fund also may
engage in reverse repurchase agreements in which the Fund sells a security to
another party, such as a bank, broker-dealer or other financial institution, and
simultaneously agrees to buy it back later at a higher price. While a reverse
repurchase agreement is outstanding, the Fund generally will direct its
custodian to segregate cash and appropriate liquid assets to cover its
obligations under the agreement. The Fund will enter into reverse repurchase
agreements only with parties whose creditworthiness has been reviewed and deemed
satisfactory by the Advisor. The Fund aggregates reverse repurchase agreements
with its bank borrowings for purposes of limiting borrowings to 5% of its total
assets.

If the Fund makes additional investments while borrowings are
outstanding, this may be construed as a form of leverage. The Fund's objective
would be to pursue investment opportunities with returns that exceed the cost of
the borrowings. This leverage may exaggerate changes in the Fund's share value
and the gains and losses on the Fund's investment. Leverage also creates
interest expenses that may exceed the return on investments made with the
borrowings.

C. Hedging Transactions.

The Fund may utilize various other investment strategies as described
below to hedge various market risks (such as interest rates, currency exchange
rates, and broad or specific equity market movements), or to manage the
effective maturity or duration of fixed-income securities. Such strategies are
generally accepted by modern portfolio managers and are regularly utilized by
many mutual funds and other institutional investors. Techniques and instruments
may change over time as new instruments and strategies are developed or
regulatory changes occur.

In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the

- 2 -

<PAGE>

above are called "Hedging Transactions"). Hedging Transactions may be used to
attempt to protect against possible changes in the market value of securities
held in or to be purchased for the Fund's portfolio resulting from securities
markets or currency exchange rate fluctuations, to protect the Fund's unrealized
gains in the value of its portfolio securities, to facilitate the sale of such
securities for investment purposes, to manage the effective maturity or duration
of the Fund's portfolio, or to establish a position in the derivatives markets
as a temporary substitute for purchasing or selling particular securities. No
more than 5% of the Fund's assets will be committed to Hedging Transactions
entered into for non-hedging purposes. Any or all of these investment techniques
may be used at any time and there is no particular strategy that dictates the
use of one technique rather than another, as use of any Hedging Transaction is a
function of numerous variables including market conditions. The ability of the
Fund to utilize these Hedging Transactions successfully will depend on the
Adviser's ability to predict pertinent market movements, which cannot be
assured. The Fund will comply with applicable regulatory requirements when
implementing these strategies, techniques and instruments. Hedging Transactions
involving financial futures and options thereon will be purchased, sold or
entered into only for bona fide hedging, risk management or portfolio management
purposes and not for speculative purposes.

Hedging Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Hedging Transactions would result in losses greater than if they
had not been used. Use of put and call options may result in losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, limit the amount the appreciation of the
Fund can realize on its investments or cause the Fund to hold a security it
might otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements, or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of Hedging Transactions would reduce net
asset value, and possibly income, and such losses can be greater than if the
Hedging Transactions had not been utilized.

- 3 -

<PAGE>

GENERAL CHARACTERISTICS OF OPTIONS

Put options and call options typically have similar structural
characteristics and operational mechanics regardless of the underlying
instrument on which they are purchased or sold. Thus, the following general
discussion relates to each of the particular types of options discussed in
greater detail below. In addition, many Hedging Transactions involving options
require segregation of Fund assets in special accounts, as described below under
"Use of Segregated and Other Special Accounts."

A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. The Fund is authorized to purchase and
sell exchange-listed options and over-the-counter options ("OTC options").
Exchange-listed options are issued by a regulated intermediary such as the
Options Clearing Corporation ("OCC"), which guarantees the performance of the
obligations of the parties to such options.

With certain exceptions, OCC-issued and exchange-listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.

The Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange-listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

- 4 -

<PAGE>

The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange-listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy- back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.

Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. While this type of arrangement allows the Fund greater
flexibility to tailor an option to its need, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed by the
clearing organization of the exchanges where they are traded. The risk of
illiquidity also is greater with OTC options, since these options generally can
be closed out only by negotiation with the other party to the option.

If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.

The Fund may purchase and sell call options on securities, including
U.S. Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.

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

- 5 -

<PAGE>

(including convertible securities) and Eurodollar instruments (whether or not it
holds the above securities in its portfolio) and on securities indices,
currencies and futures contracts other than futures on individual corporate debt
and individual equity securities. The Fund will not sell put options if, as a
result, more than 50% of the Fund's assets would be required to be segregated to
cover its potential obligations under such put options other than those with
respect to futures and options thereon. In selling put options, there is a risk
that the fund may be required to buy the underlying security at a
disadvantageous price above the market price.

GENERAL CHARACTERISTICS OF FUTURES

The Fund may enter into financial futures contracts or purchase or sell
put and call options on such futures as a hedge against anticipated interest
rate, currency or equity market changes, for duration management and for risk
management purposes. Futures are generally bought and sold on the commodities
exchanges where they are listed with payment of initial and variation margin as
described below. The sale of a futures contract creates a firm obligation by the
Fund, as seller, to deliver to the buyer the specific type of financial
instrument called for in the contract at a specific future time for a specified
price (or, with respect to index futures and Eurodollar instruments, the net
cash amount). Options on futures contracts are similar to options on securities
except that an option on a futures contract gives the purchaser the right in
return for the premium paid to assume a position in a futures contract and
obligates the seller to deliver such option.

The Fund's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the Commodity Futures Trading Commission and will
be entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract, it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction, but there can be no assurance that the position can be offset prior
to settlement at an advantageous price nor that delivery will occur. The
segregation requirements with respect to futures contracts and options thereon
are described below.

- 6 -

<PAGE>

OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES

The Fund also may purchase and sell call and put options on securities
indices and other financial indices and in so doing can achieve many of the same
objectives it would achieve through the sale or purchase of options on
individual securities or other instruments. Options on securities indices and
other financial indices are similar to options on a security or other instrument
except that, rather than settling by physical delivery of the underlying
instrument, they settle by cash settlement, i.e., an option on an index gives
the holder the right to receive, upon exercise of the option, an amount of cash
if the closing level of the index upon which the option is based exceeds, in the
case of a call, or is less than, in the case of a put, the exercise price of the
option (except if, in the case of an OTC option, physical delivery is
specified). This amount of cash is equal to the excess of the closing price of
the index over the exercise price of the option, which also may be multiplied by
a formula value. The seller of the option is obligated, in return for the
premium received, to make delivery of this amount. The gain or loss of an option
on an index depends on price movements in the instruments making up the market,
market segment, industry or other composite on which the underlying index is
based, rather than price movements in individual securities, as is the case with
respect to options on securities.

CURRENCY TRANSACTIONS

The Fund may engage in currency transactions with Counterparties in
order to hedge the value of portfolio holdings denominated in particular
currencies against fluctuations in relative value. Currency transactions include
forward currency contracts, exchange-listed currency futures, exchange-listed
and OTC options on currencies, and currency swaps. A forward currency contract
involves a privately negotiated obligation to purchase or sell (with delivery
generally required) a specific currency at a future date, at a price set at the
time of the contract. A currency swap is an agreement to exchange cash flows
based on the notional difference among two or more currencies and operates
similarly to an interest rate swap, which is described below. The Fund may enter
into currency transactions with Counterparties which have received (or the
guarantors of the obligations of such Counterparties have received) a credit
rating of A-1 or P-1 by S&P or Moody's, respectively, or that have an equivalent
rating from an NRSRO or (except for OTC currency options) are determined to be
of equivalent credit quality by the Adviser.

The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.

The Fund will not enter into a transaction to hedge currency exposure
to an extent greater, after netting all transactions intended to wholly or
partially offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities 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.

- 7 -

<PAGE>

The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.

To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering to a forward contract to sell a currency whose changes
in value are generally considered to be linked to a currency or currencies in
which some or all of the Fund's portfolio securities are or are expected to be
denominated, and to buy U.S. dollars. The amount of the contract would not
exceed the value of the Fund's securities denominated in linked currencies. For
example, if the Adviser considers the Austrian schilling linked to the German
deutschemark (the "D-mark"), the Fund holds securities denominated in schillings
and the Adviser believes that the value of schillings will decline against the
U.S. dollar, the Adviser may enter into a contract to sell D-marks and buy
dollars. Currency hedging involves some of the same risks and considerations as
other transactions with similar instruments. Further, there is the risk that the
perceived linkage between various currencies may not be present or may not be
present during the particular time that the Fund is engaging in proxy hedging.
If the Fund enters into a currency hedging transaction, the Fund will comply
with the asset segregation requirements described below.

RISKS OF CURRENCY TRANSACTIONS

Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transaction
costs. Buyers and sellers of currency futures are subject to the same risk that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.

COMBINED TRANSACTIONS

The Fund may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and any combination of
futures, options and currency transactions ("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

- 8 -

<PAGE>

judgment that the combined strategies will reduce risk or otherwise more
effectively achieve the desired portfolio management goal, it is possible that
the combination will instead increase such risks or hinder achievement of the
portfolio management objective.

SWAPS, CAPS, FLOORS AND COLLARS

Among the Hedging Transactions into which the Fund may enter are
interest rate, currency and index swaps and the purchase or sale of related
caps, floors and collars. The Fund expects to enter into these transactions
primarily to preserve a return or spread on a particular investment or portion
of its portfolio, to protect against currency fluctuations, as a duration
management technique or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. The Fund intends to
use these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal. A currency swap is an agreement to exchange cash flows on a notional
amount of two or more currencies based on the relative value differential among
them and an index swap is an agreement to swap cash flows on a notional amount
based on changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.

The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors, and collars are entered into for good faith hedging purposes, the
Adviser and the Fund believe such obligations do not constitute senior
securities under the 1940 Act and, accordingly, will not treat them as being
subject to its borrowing restrictions. The Fund will not enter into any swap,
cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least "A" by S&P or Moody's or has an
equivalent rating from an NRSRO or is determined to be of equivalent credit
quality by the Adviser. If there is a default by the Counterparty, the Fund may
have contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As 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.

- 9 -

<PAGE>

EURODOLLAR INSTRUMENTS

The Fund may make investments in Eurodollar instruments. Eurodollar
instruments are U.S. dollar-denominated futures contracts or options thereon
which are linked to the London Interbank Offered Rate ("LIBOR"), although
foreign currency-denominated instruments are available from time to time.
Eurodollar futures contracts enable purchasers to obtain a fixed rate for the
lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.

RISKS OF HEDGING TRANSACTIONS OUTSIDE THE UNITED STATES

When conducted outside the United States, Hedging Transactions may not
be regulated as rigorously as in the United States, may not involve a clearing
mechanism and related guarantees, and are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities, currencies
and other instruments. The value of such positions also could be adversely
affected by: (i) other complex foreign political, legal and economic factors,
(ii) lesser availability than in the United States of data on which to make
trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during nonbusiness hours in the United
States, (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, and (v) lower
trading volume and liquidity.

USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS

Many Hedging Transactions, in addition to other requirements, require
that the Fund segregate liquid high grade assets with its custodian to the
extent Fund obligations are not otherwise "covered" through ownership of the
underlying security, financial instrument or currency. In general, either the
full amount of any obligation by the Fund to pay or deliver securities or assets
must be covered at all times by the securities, instruments or currency required
to be delivered, or, subject to any regulatory restriction, an amount of cash or
liquid high grade securities at least equal to the current amount of the
obligation must be segregated with the custodian. The segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. For example, a call option
written by the Fund will require the Fund to hold the securities subject to the
call (or securities convertible into the needed securities without additional
consideration) or to segregate liquid high-grade securities sufficient to
purchase and deliver the securities if the call is exercised. A call option sold
by the Fund on an index will require the Fund to own portfolio securities which
correlate with the index or to segregate liquid high grade assets equal to the
excess of the index value over the exercise price on a current basis. A put
option written by the Fund requires the Fund to segregate liquid, high grade
assets equal to the exercise price.

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.

- 10 -

<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.

Hedging Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Hedging
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Hedging Transactions may also be offset in combinations. If
the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.

- 11 -

<PAGE>

INVESTMENT LIMITATIONS

FUNDAMENTAL. The investment limitations described below have been
adopted by the Trust with respect to the Fund and are fundamental
("Fundamental"), i.e., they may not be changed without the affirmative vote of a
majority of the outstanding shares of the Fund. As used in the Prospectus and
this Statement of Additional Information, the term "majority" of the outstanding
shares of the Fund means the lesser of (1) 67% or more of the outstanding shares
of the Fund present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented at such meeting; or
(2) more than 50% of the outstanding shares of the Fund. Other investment
practices which may be changed by the Board of Trustees without the approval of
shareholders to the extent permitted by applicable law, regulation or regulatory
policy are considered non-fundamental ("Non-Fundamental").

1. BORROWING MONEY. The Fund will not borrow money, except (a) from a
bank, provided that immediately after such borrowing there is an asset coverage
of 300% for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that such temporary borrowings are in an
amount not exceeding 5% of the Fund's total assets at the time when the
borrowing is made. This limitation does not preclude the Fund from entering into
reverse repurchase transactions, provided that the Fund has an asset coverage of
300% for all borrowings and repurchase commitments of the Fund pursuant to
reverse repurchase transactions.

2. SENIOR SECURITIES. The Fund will not issue senior securities. This
limitation is not applicable to activities that may be deemed to involve the
issuance or sale of a senior security by the Fund, provided that the Fund's
engagement in such activities is consistent with or permitted by the Investment
Company Act of 1940, as amended, the rules and regulations promulgated
thereunder or interpretations of the Securities and Exchange Commission or its
staff.

3. UNDERWRITING. The Fund will not act as underwriter of securities
issued by other persons. This limitation is not applicable to the extent that,
in connection with the disposition of portfolio securities (including restricted
securities), the Fund may be deemed an underwriter under certain federal
securities laws.

4. REAL ESTATE. The Fund will not purchase or sell real estate. This
limitation is not applicable to investments in marketable securities which are
secured by or represent interests in real estate. This limitation does not
preclude the Fund from investing in mortgage-related securities or investing in
companies engaged in the real estate business or that have a significant portion
of their assets in real estate (including real estate investment trusts).

5. COMMODITIES. The Fund will not purchase or sell commodities except
as described in the Prospectus and Statement of Additional Information. This
limitation does not preclude the Fund from acquiring commodities as a result of
ownership of securities or other investments; from entering into options,
futures, currency, swap, cap, floor, collar or similar transactions; from
investing in securities or other instruments backed by commodities; or from
investing in companies which are engaged in a commodities business or have a
significant portion of their assets in commodities.

- 12 -

<PAGE>

6. LOANS. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities, (b) by engaging in repurchase agreements, or (c)
by purchasing nonpublicly offered debt securities. For purposes of this
limitation, the term "loans" shall not include the purchase of a portion of an
issue of publicly distributed bonds, debentures or other securities.

7. CONCENTRATION. The Fund will not invest 25% or more of its total
assets in any particular industry. This limitation is not applicable to
investments in obligations issued or guaranteed by the U.S. government, its
agencies and instrumentalities or repurchase agreements with respect thereto.

8. DIVERSIFICATION. The Fund will comply with the standards for
diversification as required by the then current Investment Company Act of 1940,
as amended, the rules and regulations promulgated thereunder and interpretations
of the Securities and Exchange Commission or its staff.

With respect to the percentages adopted by the Trust as maximum
limitations on its investment policies and limitations, an excess above the
fixed percentage will not be a violation of the policy or limitation unless the
excess results immediately and directly from the acquisition of any security or
the action taken. This paragraph does not apply to the borrowing policy set
forth in paragraph 1 above.

With respect to the Fund's diversification, the current standards
require that the Fund may not purchase the securities of any one issuer, other
than the U.S. government or any of its instrumentalities, if immediately after
such purchase more than 5% of the value of its total assets would be invested in
such issuer, or the Fund would own more than 10% of the outstanding voting
securities of such issuer, except that up to 25% of the value of the Fund's
total assets may be invested without regard to such 5% and 10% limitations.

NON-FUNDAMENTAL. The following limitations have been adopted by the
Trust with respect to the Fund and are Non-Fundamental (see "Investment
Limitations" above).

1. PLEDGING. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any assets of the Fund except as
may be necessary in connection with borrowings described in limitation (1)
above. Margin deposits, security interests, liens and collateral arrangements
with respect to transactions involving options, 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.

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<PAGE>

4. OPTIONS. The Fund will not purchase or sell puts, calls, options or
straddles, except as described in the Prospectus and the Statement of Additional
Information.

5. SHORT SALES. The Fund will not effect short sales of securities.

6. ILLIQUID SECURITIES. The Fund will not invest more than 5% of its
assets in securities that are restricted as to resale or otherwise illiquid. For
this purpose, illiquid securities generally include securities which cannot be
disposed of within seven days in the ordinary course of business without taking
a reduced price.

SHARES OF THE FUND

Four classes of shares, Class A Shares, Class B Shares, Class C Shares,
and Class R Shares are authorized for the Fund. Currently, the Fund is offering
Class A shares only, but others may be offered in the future. The four classes
of shares each represent an interest in the same portfolio of investments of the
Fund and have the same rights, except (i) Class B and Class C Shares bear the
expenses of the deferred sales arrangement and any expenses (including a higher
distribution services fee) resulting from such sales arrangement, (ii) each
class that is subject to a distribution fee has exclusive voting rights with
respect to those provisions of the Fund's Rule 12b-1 distribution plan which
relate only to such class and (iii) the classes have different exchange
privileges. Additionally, Class B Shares will automatically convert into Class A
Shares after a specified period of years (as described below). The net income
attributable to Class B and Class C Shares and the dividends payable on Class B
and Class C Shares will be reduced by the amount of the higher distribution
services fee and certain other incremental expenses associated with the deferred
sales charge arrangement. The net asset value per share of Class A Shares, Class
B Shares, Class C Shares and Class R Shares is expected to be substantially the
same, but it may differ from time to time.

For purposes of conversion of Class A Shares, Class B Shares purchased
through the reinvestment of dividends and distributions paid in respect of Class
B Shares in stockholder's account will be considered to be held in a separate
sub-account. Each time any Class B Shares in the stockholder's account (other
than those in the sub-account) convert to Class A Shares, an equal pro rata
portion of the Class B Shares in the sub-account also will convert to Class A
Shares. The conversion of Class B Shares to Class A Shares is subject to the
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

- 14 -

<PAGE>

Social Security Administration) or death of a stockholder and (ii) on certain
redemptions in connection with IRAs and other qualified retirement plans. In the
case of an exchange, the length of time that the investor held the original
Class B or Class C Shares is counted towards satisfaction of the period during
which a deferred sales charge is imposed on the Class B or Class C for which the
exchange was made.

LETTER OF INTENT

A shareholder may qualify for reduced sales charges by sending to the
Fund (within 90 days after the first purchase desired to be included in the
purchase program) the signed, non-binding Letter of Intent section on the
application form. All investments in retail shares of the Fund count toward the
indicated goal. It is understood that 5% of the dollar amount checked on the
application will be held in a special escrow account. These shares will be held
by an escrow agent subject to the terms of the escrow. All dividends and capital
gains distributions on the escrowed shares will be credited to the shareholder's
account in shares. If the total purchases, less redemptions by the shareholder,
his spouse, children and parents, equal the amount specified under this Letter,
the shares held in escrow will be deposited to the shareholder's open account or
delivered to the shareholder or to his order. If the total purchases, less
redemptions, exceed the amount specified under this Letter and an amount which
would qualify for a further quantity discount, a retroactive price adjustment
will be made by the Distributor and the dealer through whom purchases were made
pursuant to this Letter of Intent (to reflect such further quantity discount).
The resulting difference in offering price will be applied to the purchase of
additional shares at the offering price applicable to a single purchase of the
dollar amount of the total purchases. If the total purchases less redemptions
are less than the amount specified under this Letter, the shareholder will remit
to the Distributor an amount equal to the difference in the dollar amount of
sales charge actually paid and the amount of sales charge which would have
applied to the aggregate purchases if the total of such purchases had been made
at a single time. Upon such remittance the shares held for the shareholder's
account will be deposited to his Account or delivered to him or to his order. If
within 20 days after written request by the Distributor such difference in sales
charge is not paid, the Distributor is hereby authorized to redeem an
appropriate number of shares to realize such difference. The Distributor is
hereby irrevocably constituted under this Letter of Intent to effect such
redemption as agent of the shareholder.

THE INVESTMENT ADVISER

The Fund's investment adviser is James Investment Research, Inc., P.O.
Box 8, Alpha, Ohio 45301 (the "Adviser"). Francis E. James, Jr. is the
controlling shareholder of the Adviser.

Under the terms of the management agreement (the "Agreement"), the
Adviser manages the Fund's investments subject to approval of the Board of
Trustees. As compensation for its management services, the Fund is obligated to
pay the Adviser a fee computed and accrued daily and paid monthly at an annual
rate of 0.74% of the average daily net assets of the Fund. The Adviser may waive
all or part of its fee, at any time, and at its sole discretion, but such action
shall not obligate the Adviser to waive any fees in the future.

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<PAGE>

The Adviser retains the right to use the names "Golden Rainbow", "James
Advantage" or any variation thereof in connection with another investment
company or business enterprise with which the Adviser is or may become
associated. The Trust's right to use the names "Golden Rainbow," and "James
Advantage" or any variation thereof automatically ceases ninety days after
termination of the Agreement and may be withdrawn by the Adviser on ninety days
written notice.

The Adviser may make payments to banks or other financial institutions
that provide shareholder services and administer shareholder accounts. The
Glass-Steagall Act prohibits banks from engaging in the business of
underwriting, selling or distributing securities. Although the scope of this
prohibition under the Glass-Steagall Act has not been clearly defined by the
courts or appropriate regulatory agencies, management of the Fund believes that
the Glass- Steagall Act should not preclude a bank from providing such services.
However, state securities laws on this issue may differ from the interpretations
of federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law. If a bank were prohibited
from continuing to perform all or a part of such services, management of the
Fund believes that there would be no material impact on the Fund or its
shareholders. Banks may charge their customers fees for offering these services
to the extent permitted by applicable regulatory authorities, and the overall
return to those shareholders availing themselves of the bank services will be
lower than to those shareholders who do not. The Fund may from time to time
purchase securities issued by banks which provide such services; however, in
selecting investments for the Fund, no preference will be shown for such
securities.

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<PAGE>

TRUSTEES AND OFFICERS

The names of the Trustees and executive officers of the Trust are shown
below. Each Trustee who is an "interested person" of the Trust, as defined in
the Investment Company Act of 1940, is indicated by an asterisk.

NAME, ADDRESS AND AGE
POSITIONS WITH THE TRUST
- ------------------------

* Barry R. James, CFA
P.O. Box 8
Alpha, Ohio 45301
Age: 42
President and a Trustee of the Trust;
Executive Vice President,
James Investment Research, Inc. (1985 to Present);
President, James Capital Alliance, Inc.,
Cincinnati, Ohio (1992 to Present).

Thomas L. Mangan
P.O. Box 8
Alpha, Ohio 45301
Age: 49
Vice President, Treasurer and Secretary of
the Trust; Vice president, James Investment
Research, Inc. (1994 to Present);
senior vice president, Fuji Securities, Inc.,
Chicago, Illinois (prior to 1994).

Anthony P. D'Angelo
Dept. of the Air Force, Building 641
2950 P Street
Wright-Patterson AFB OHIO 45433-7765
Age: 68
Trustee of the Trust; Professor, Graduate
School of Logistics and Acquisition
Management, Air Force Institute of
Technology, Wright-Patterson AFB, Ohio
(1983 to present).

Hazel L. Eichelberger
9438 Atchison Road
Dayton, Ohio 45458
Age: 61
Trustee of the Trust; Retired Sr. Vice
President, Citizens Federal Bank, Dayton,
Ohio (1955 to 1997).

James F. Zid
1083 N. Collier Blvd.
Marco Island, Florida 34145
Age: 64
Trustee of the Trust; Retired Partner,
Ernst & Young, LLP, Columbus, Ohio
(1968 to 1993).

Trustee fees are Trust expenses. The following table estimates the
Trustees' compensation for the first full year of the Trust ending June 30,
1999.

NAME
TOTAL COMPENSATION FROM TRUST (THE TRUST IS
NOT IN A FUND COMPLEX)
----------------------

Barry R. James, CFA
$0
Anthony P. D'Angelo
$4,200
Hazel L. Eichelberger
$4,200
James F. Zid
$4,200

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<PAGE>

PORTFOLIO TRANSACTIONS AND BROKERAGE

Subject to policies established by the Board of Trustees of the Trust,
the Adviser is responsible for the Fund's portfolio decisions and the placing of
the Fund's portfolio transactions. In placing portfolio transactions, the
Adviser seeks the best qualitative execution for the Fund, taking into account
such factors as price (including the applicable brokerage commission or dealer
spread), the execution capability, financial responsibility and responsiveness
of the broker or dealer and the brokerage and research services provided by the
broker or dealer. The Adviser generally seeks favorable prices and commission
rates that are reasonable in relation to the benefits received.

The Adviser is specifically authorized to select brokers or dealers who
also provide brokerage and research services to the Fund and/or the other
accounts over which the Adviser exercises investment discretion and to pay such
brokers or dealers a commission in excess of the commission another broker or
dealer would charge if the Adviser determines in good faith that the commission
is reasonable in relation to the value of the brokerage and research services
provided. The determination may be viewed in terms of a particular transaction
or the Adviser's overall responsibilities with respect to the Trust and to other
accounts over which it exercises investment discretion.

Research services include supplemental research, securities and
economic analyses, statistical services and information with respect to the
availability of securities or purchasers or sellers of securities and analyses
of reports concerning performance of accounts. The research services and other
information furnished by brokers through whom the Fund effects securities
transactions may also be used by the Adviser in servicing all of its accounts.
Similarly, research and information provided by brokers or dealers serving other
clients may be useful to the Adviser in connection with its services to the
Fund. Although research services and other information are useful to the Fund
and the Adviser, it is not possible to place a dollar value on the research and
other information received. It is the opinion of the Board of Trustees and the
Adviser that the review and study of the research and other information will not
reduce the overall cost to the Adviser of performing its duties to the Fund
under the Agreement.

Over-the-counter transactions will be placed either directly with
principal market makers or with broker-dealers, if the same or a better price,
including commissions and executions, is available. Fixed income securities are
normally purchased directly from the issuer, an underwriter or a market maker.
Purchases include a concession paid by the issuer to the underwriter and the
purchase price paid to a market maker may include the spread between the bid and
asked prices.

Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Adviser, investments of the type the
Fund may make may also be made by those other accounts. When the Fund and one or
more other accounts managed by the Adviser are prepared to invest in, or desire
to dispose of, the same security, available investments or opportunities for
sales will be allocated in a manner believed by the Adviser to be equitable to
each. In some cases, this procedure may adversely affect the price paid or
received by the Fund or the size of the position obtained or disposed of by the
Fund. Orders placed for the Fund will not be combined ("blocked") with other
orders.

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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.

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.

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INVESTMENT PERFORMANCE

"Average annual total return," as defined by the Securities and
Exchange Commission, is computed by finding the average annual compounded rates
of return for the period indicated that would equate the initial amount invested
to the ending redeemable value, according to the following formula:

P(1+T)n=ERV

Where: P = a hypothetical $1,000 initial investment
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the applicable period of
the hypothetical $1,000 investment made at the beginning of the
applicable period.

The computation assumes that all dividends and distributions are reinvested at
the net asset value on the reinvestment dates and that a complete redemption
occurs at the end of the applicable period.

The Fund's investment performance will vary depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Fund. These factors and possible differences in the methods and time periods
used in calculating non-standardized investment performance should be considered
when comparing the Fund's performance to those of other investment companies or
investment vehicles. The risks associated with the Fund's investment objective,
policies and techniques should also be considered. At any time in the future,
investment performance may be higher or lower than past performance, and there
can be no assurance that any performance will continue.

From time to time, in advertisements, sales literature and information
furnished to present or to prospective shareholders, the performance of the Fund
may be compared to indices of broad groups of unmanaged securities considered to
be representative of or similar to the portfolio holdings of the Fund or
considered to be representative of the stock market in general. The Fund may use
the Standard & Poor's 500 Stock Index, the Dow Jones Industrial Average, the
Value Line Stock Index or a blend of stock and bond indices.

In addition, the performance of the Fund may be compared to other
groups of mutual funds tracked by any widely used independent research firm
which ranks mutual funds by overall performance, investment objectives and
assets, such as Lipper Analytical Services, Inc. or Morningstar, Inc. The
objectives, policies, limitations and expenses of other mutual funds in a group
may not be the same as those of the Fund. Performance rankings and ratings
reported periodically in national financial publications such as Barron's and
Fortune also may be used.

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CUSTODIAN

Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, is
Custodian of the Fund's investments. As Custodian, Star Bank, N.A. acts as the
Fund's depository, safekeeps its portfolio securities, collects all income and
other payments with respect thereto, disburses funds at the Fund's request and
maintains records in connection with its duties.

TRANSFER AGENT

Countrywide Fund Services, Inc., 312 Walnut Street, Cincinnati, Ohio
45202, acts as the Fund's transfer agent and, in such capacity, maintains the
records of each shareholder's account, answers shareholders' inquiries
concerning their accounts, processes purchases and redemptions of the Fund's
shares, acts as dividend and distribution disbursing agent and performs other
accounting and shareholder service functions. Countrywide Fund Services, Inc.
also provides the Fund with certain monthly reports, record-keeping and other
management related services.

INDEPENDENT AUDITORS

The firm of Deloitte & Touche LLP, 1700 Courthouse Plaza N.E., Dayton,
Ohio 45402, has been selected as independent auditors for the Trust for the
fiscal year ending June 30, 1998. Deloitte & Touche LLP performs an annual audit
of the Fund's financial statements and provides financial, tax and accounting
consulting services as requested.

DISTRIBUTOR

CW Fund Distributors, Inc., 312 Walnut Street, Cincinnati, Ohio 45202,
is the exclusive agent for distribution of shares of the Fund. The Distributor
is obligated to sell shares of the Fund on a best efforts basis only against
purchase orders for the shares. Shares of the Fund are offered to the public on
a continuous basis.

FINANCIAL STATEMENTS

The financial statements and independent auditors report required to be
included herein are hereby incorporated by reference to the Annual Report of The
Golden Rainbow A James Advised Mutual Fund for the year ended June 30, 1997. The
Fund is the successor to The Golden Rainbow A James Advised Mutual Fund, a
series of Flagship Admiral Funds, Inc.

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