Registration No. 33-37277
811-8411
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No.
Post-Effective Amendment No. 3
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and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 3
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The James Advantage Funds
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(Exact Name of Registrant as Specified in Charter)
P.O. Box 8, Alpha, Ohio 45301
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(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (937) 426-7640
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Donald S. Mendelsohn, Esq.
Brown, Cummins & Brown LPA
3500 Carew Tower
441 Vine Street
Cincinnati, Ohio 45202
----------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to Rule 485(b)
/ / on ( ) pursuant to Rule 485(b)
/ / ___ days after filing pursuant to Rule 485(a)
/X/ on November 1, 1999 pursuant to Rule 485(a)
The Registrant has registered an indefinite number of shares under the
Securities Act of 1933, as amended, pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended.
<PAGE>
THE JAMES ADVANTAGE FUNDS
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Cross-Reference Sheet Pursuant to Rule 495(a)
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Part A Prospectus
Form Item Cross-Reference
--------- ---------------
1. Front and Back Cover Pages Cover Pages
2. Risk/Return Summary: Investments, Risk/Return Summary
Risks, and Performance
3. Risk/Return Summary: Fee Table Expense Information;
Synopsis of Costs and
Expenses
4. Investment Objectives, Principal Investment Investment
Strategies, and Related Objectives, Principal
Risk Considerations Investment Strategies
and Related Risks
5. Management's Discussion of Fund Inapplicable (Included
Performance in Annual Report)
6. Management, Organization, and Management of the Fund
Capital Structure
7. Shareholder Information How to Purchase Shares;
How to Redeem Shares;
How Net Asset Value is
Determined; Dividend and
Capital Gain Distributions;
Dividends, Distributions
and Taxes; Tax Status
Application
8. Distribution Arrangements None
9. Financial Highlights Information Financial Highlights
PART B
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Caption in Statement of
Item No. Registration Statement Caption Additional Information
- -------- ------------------------------ ----------------------
10. Cover Page and Table of Contents Cover Page; Table of
Contents
11. Fund History Capital Shares and Voting
12. Description of the Fund and Its Investment Objective
Investments and Risks and Policies; Investment
Limitations; Allocation
of Trust Expenses
13. Management of the Fund Trustees and Officers
14. Control Persons and Principal Holders Trustees and Officers
of Securities
15. Investment Advisory and Other Services The Investment Adviser;
Administrator; Other
Services
16. Brokerage Allocation and Other Brokerage
Practices
17. Capital Stock and Other Securities Capital Shares and Voting
18. Purchase, Redemption and Pricing of Net Asset Value
Shares Determination; Special
Shareholder Services;
Purchase of Shares;
Redemption of Shares
19. Taxation of the Fund Additional Tax Information
20. Underwriters Distributor
21. Calculation of Performance Data Calculation of Performance
Data
22. Financial Statements Financial Statements and
Reports
<PAGE>
PART C
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The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
JAMES ADVANTAGE
FUNDS
Advised by
James Investment Research, Inc.
November 1, 1999
Prospectus
THE GOLDEN RAINBOW FUND
THE JAMES SMALL CAP FUND
THE JAMES LARGE CAP PLUS FUND
THE JAMES MARKET NEUTRAL FUND
These securities have not been approved nor disapproved by the Securities and
Exchange Commission nor has the Securities and Exchange Commission passed upon
the accuracy or adequacy of this Prospectus. Any representation to the contrary
is a criminal offense.
<PAGE>
Prospectus
November 1, 1999
THE GOLDEN RAINBOW FUND
THE JAMES SMALL CAP FUND
THE JAMES LARGE CAP PLUS FUND
THE JAMES MARKET NEUTRAL FUND
P.O. Box 8
Alpha, Ohio 45301
For Information, Shareholder Services and Requests:
(800) 99 JAMES
(800) 995-2637
[email protected]
The James Advantage Funds (the "Trust") currently offers four series of
shares to investors: The Golden Rainbow Fund, The James Small Cap Fund, The
James Large Cap Plus Fund and The James Market Neutral Fund. The investment
adviser to each series of the Trust is James Investment Research, Inc. (the
"Adviser").
THE GOLDEN RAINBOW FUND seeks to provide total return through a combination
of growth and income and preservation of capital in declining markets.
THE JAMES SMALL CAP FUND seeks to provide long-term capital appreciation.
THE JAMES LARGE CAP PLUS FUND seeks to outperform the Standard & Poor's 500
Index (the "S&P 500 Index").
THE JAMES MARKET NEUTRAL FUND seeks to provide positive returns regardless
of the direction of the stock markets.
TABLE OF CONTENTS
RISK/RETURN SUMMARY........................................................... 2
EXPENSE INFORMATION............................................................5
ADDITIONAL INVESTMENT INFORMATION..............................................7
MANAGEMENT OF THE FUNDS.......................................................11
HOW TO PURCHASE SHARES........................................................12
FREE REPURCHASE, SYSTEMATIC WITHDRAWAL, DIRECT DEPOSITS
AND EXCHANGE PRIVILEGE......................................................16
HOW TO REDEEM SHARES..........................................................17
DIVIDENDS AND DISTRIBUTIONS...................................................18
TAXES.........................................................................19
DISTRIBUTION PLANS............................................................20
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE..........................21
FINANCIAL HIGHLIGHTS..........................................................21
<PAGE>
RISK/RETURN SUMMARY
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
THE GOLDEN RAINBOW FUND seeks to provide total return through a combination
of growth and income and preservation of capital in declining markets.
THE JAMES SMALL CAP FUND seeks to provide long-term capital appreciation.
THE JAMES LARGE CAP PLUS FUND seeks to outperform the S&P 500 Index.
THE JAMES MARKET NEUTRAL FUND seeks to provide positive returns regardless
of the direction of the stock markets.
WHAT ARE THE FUNDS' PRINCIPAL INVESTMENT STRATEGIES?
The Adviser uses a proprietary investment model to select stocks for the
Funds that it believes are undervalued and more likely to appreciate. The
Adviser focuses on value, neglect or limited following by Wall Street analysts,
as well as on management commitment, and assesses a number of fundamental
factors such as earnings, earnings trend, price earnings multiples, return on
assets, and balance sheet data as well as other proprietary calculations.
THE GOLDEN RAINBOW FUND invests primarily in common stocks and/or debt
securities that the Adviser believes are undervalued. Normally, the Fund will
hold both common stocks and debt securities and may invest up to 90% of its
assets in either common stocks or debt securities. The Fund will attempt to
provide total return in excess of the rate of inflation over the long term (3 to
5 years).
THE SMALL CAP FUND invests primarily in common stocks of small
capitalization companies, defined by the Adviser as those companies with market
capitalizations of $1.5 billion or less at the time of purchase. The Adviser
will normally sell a security when the market capitalization exceeds $2 billion.
THE LARGE CAP PLUS FUND invests in common stocks the Adviser deems most
likely to outperform the S&P 500 Index. The Fund generally buys stocks in the
S&P 500 Index and will typically hold 25-30 stocks. Market capitalization is not
a factor in stock selection; most stocks in the S&P 500 Index are, however, mid
or large cap by current definition.
THE MARKET NEUTRAL FUND invests in common stocks that the Adviser believes
are undervalued and more likely to appreciate, and sells short common stocks
that the Adviser believes are overvalued and more likely to depreciate.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUNDS?
THE GOLDEN RAINBOW FUND. Investments in debt securities are subject to
inherent market risks and fluctuations in value due to changes in earnings,
economic conditions, quality ratings and other factors beyond the control of the
Adviser. Debt securities are also subject to
2
<PAGE>
price fluctuations based upon changes in the level of interest rates, which will
generally result in all those securities experiencing appreciation when interest
rates decline and depreciation when interest rates rise. As a result, the return
and net asset value of the Fund will fluctuate.
THE JAMES SMALL CAP FUND. The Fund will be subject to the risks associated
with investing in small capitalization companies. Smaller capitalization
companies may experience higher growth rates and higher failure rates than do
larger capitalization companies. Such companies may have limited product lines,
markets or financial resources and may lack management depth. The trading volume
of securities of smaller capitalization companies is normally less than that of
larger capitalization companies, and therefore may disproportionately affect
their market price, tending to make them rise more in response to buying demand
and fall more in response to selling pressure than is the case with larger
capitalization companies. The Adviser seeks to reduce risk by focusing on
securities it believes to be undervalued relative to the market; however,
substantial concentrations in economic sectors might occur, and some issues may
have liquidity concerns.
THE JAMES LARGE CAP PLUS FUND. As a non-diversified fund, the Fund may
invest greater than 5% of its total assets in the securities of one or more
issuers. Because a relatively high percentage of the assets of the Fund may be
invested in the securities of a limited number of issuers, the value of shares
of the Fund may be more sensitive to any single economic, business, political or
regulatory occurrence than the value of shares of a diversified investment
company. This fluctuation, if significant, may affect the performance of the
Fund.
THE JAMES MARKET NEUTRAL FUND. The term "selling short" means the Fund
sells a stock that it does not own, borrows the same stock from a broker or
other institution to complete the sale, and buys the same stock at a later date
to repay the lender. If the stock is overvalued, and the price declines before
the Fund buys the stock, the Fund makes a profit. If the price of the stock
increases before the Fund buys the stock, the Fund loses money. The Adviser's
strategy of using short positions in overvalued stocks along with long positions
(purchases) in undervalued stocks is intended to reduce the effects of general
market movements on the Fund's performance, although there is no assurance that
the Adviser will be able to do so.
The success of the Fund's strategy is dependent on the Adviser's ability to
correctly identify undervalued and overvalued stocks. If the Adviser is not
successful, the Fund may experience losses regardless of the overall performance
of the stock markets. In strong "bull" markets, when the prices of nearly all
stocks are rising regardless of the underlying value of the companies, the Fund
is expected to underperform the general markets because the Fund's short
positions will likely lose money. The Adviser will attempt to diversify the Fund
among industries and market sectors, but this is a secondary consideration.
The Market Neutral Fund engages in short selling activities that are
significantly different from the investment activities commonly associated with
conservative stock funds. Positions in shorted securities are more risky than
long positions (purchases) in stocks because the maximum sustainable loss on a
stock purchased is limited to the amount paid for the stock plus the
3
<PAGE>
transactions costs, whereas there is no maximum attainable price of the shorted
stock. Therefore, in theory, stocks sold short have unlimited risk.
The Adviser attempts to control the risk inherent in short selling through
several processes. One way is to decrease the relative weighing of each stock
sold short while increasing the number of shorted stocks, thus reducing the
impact each stock has on overall performance without reducing the market
neutrality of the Fund. The Adviser also employs various proprietary procedures
to eliminate stocks which have risen in price above a loss threshold. Investors
must be aware, however, of the intrinsic risk involved in the Fund and be
cognizant that any strategy which includes selling stocks short can suffer
significant losses.
As the Adviser adjusts the composition of the portfolio to deal with the
risk discussed above, the Fund may have a high portfolio turnover rate. A high
portfolio turnover rate can result in increased brokerage commission costs and
may expose taxable shareholders to higher current realization of capital gains
and a potentially larger current tax liability.
INVESTMENT RISKS COMMON TO ALL FUNDS
An investment in the Funds is not a deposit of a bank and it is not insured
or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
The return on and value of an investment in the Funds will fluctuate in
response to stock market movements. Common stocks and other equity securities
are subject to market risks, such as a rapid increase or decrease in a stock's
value or liquidity, and the fluctuations due to a company's earnings, economic
conditions and other factors beyond the control of the Adviser. As a result,
there is a risk that you could lose money by investing in the Funds.
PERFORMANCE SUMMARY
The bar chart and performance table shown below provide an indication of
the risks of investing in The Golden Rainbow Fund by showing the changes in the
performance of the Fund from year to year and by showing how the annual returns
of the Fund compare with those of a broad-based securities market index. The
Fund is the successor to another mutual fund managed by the Adviser, and the
performance information includes the past performance of the predecessor mutual
fund. Sales loads are not reflected in the bar chart. If they were, returns
would be less than those shown. The Fund's performance in the past is not
necessarily an indication of how the Fund will perform in the future.
[bar chart]
1984 1985 1986 1987 1988 1989 1990 1991
1992 1993 1994 1995 1996 1997 1998*
* The Adviser began managing a common trust fund, which fund was the predecessor
of The Golden Rainbow Fund, in 1984. The assets of this common trust fund became
a registered investment company in 1991. The Golden Rainbow Fund is the
successor of this registered investment company. Note that prior to _______,
1991, the performance is that of the common trust fund; from ______, 1991
forward, the performance is that of a registered investment company. It should
be noted that: (1) the quoted performance data includes performance for periods
before the Securities Act registration statement became effective; (2) the Fund
was not registered under the Investment Company Act of 1940 (the "1940 Act")
during such periods and therefore was not subject to certain investment
restrictions imposed by the 1940 Act and restriction of Sub-chapter M of the
Internal Revenue Code; and (3) if the Fund had been registered under the 1940
Act and subject to Sub-chapter M of the Internal Revenue Code during such
periods, performance may have been adversely affected.
During the period shown in the bar chart, the highest return for a quarter was
___% during the quarter ended ____ __, 19__ and the lowest return for a quarter
was ____% during the quarter ended _____ __, 19__.
The Fund's year-to-date return as of September 30, 1999 is ____%.
4
<PAGE>
Each of The James Small Cap Fund, The James Large Cap Plus Fund and The
James Market Neutral Fund is not permitted by the Securities and Exchange
Commission to report performance information in this section because it has not
completed one full calendar year of operation.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1998
One Five Ten Since Inception
Year Years Years ( , 1983)
---- ----- ----- -----------------
The Golden Rainbow Fund _____% _____% _____% _____%
S&P 500 Index* 28.58% 24.06% _____% _____%
Blended 25/25/50 Index** _____% _____% _____% _____%
* The S&P 500 Index is a widely recognized, unmanaged index of common stock
prices.
** The Blended Index is comprised of a 25% weighting in the S&P 500 Index, a
25% weighting in the Russell 2000 Index (a widely recognized index of
market activity based on the aggregate performance of small to mid-sized
publicly traded common stocks) and a 50% weighting in the Lehman Brothers
Intermediate Government/Corporate Bond Index (an unmanaged index generally
representative of intermediate term bonds).
EXPENSE INFORMATION
SHAREHOLDER FEES (fees paid directly from your investment):
<TABLE>
<CAPTION>
Class A Shares Class C Shares(a) Class R Shares(a)
-------------- ----------------- -----------------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases 4.2% None None
Maximum Deferred Sales Load Imposed
on Purchases None(b) 1%(c) None
</TABLE>
(a) As of the date of this Prospectus, these classes have not yet commenced
operations.
(b) Purchases at net asset value of amounts totaling $1 million or more may be
subject to a contingent deferred sales load of 1% if a redemption occurred
within 1 year of purchase and a commission was paid to a participating
unaffiliated dealer.
(c) This sales load applies if you redeem your shares within 1 year of
purchase.
ANNUAL FUND OPERATING EXPENSES (expenses deducted from Fund assets):
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT (12B-1) OTHER OPERATING
FEE FEE EXPENSES(b) EXPENSES
- -------------------------------------------------------------------------------------
THE GOLDEN RAINBOW FUND
<S> <C> <C> <C> <C>
Class A Shares............... .74%(b) .25% .___% _____%
Class C Shares(a)............ .74%(b) .85%(c) .___% _____%
Class R Shares(a)............ .74%(b) .00% .___% _____%
5
<PAGE>
THE JAMES SMALL CAP FUND........
Class A Shares............... .___% .25% .___% _____%
Class C Shares(a)............ .___% .85%(c) .___% _____%
Class R Shares(a)............ .___% .00% .___% _____%
THE JAMES LARGE CAP PLUS FUND
Class A Shares............... .___%(d) .25% .___% _____%
Class C Shares(a)............ .___%(d) .85%(c) .___% _____%
Class R Shares(a)............ .___%(d) .00% .___% _____%
THE JAMES MARKET NEUTRAL FUND
Class A Shares............... .___% .25% .___% _____%
Class C Shares(a)............ .___% .85%(c) .___% _____%
Class R Shares(a)............ .___% .00% .___% _____%
</TABLE>
(a) As of the date of this Prospectus, these classes have not yet commenced
operations.
(b)
(c) Of this amount, 0.75% is an asset based sales charge and 0.10% is a service
fee.
(d) The management fee is equal to (i) an annual rate of 1.25% of the Fund's
average net assets, minus (ii) the fees and expenses of the non-interested
person Trustees incurred by the Fund. Because trustee fees and expenses are
estimated to be ___%, the management fee is estimated to be ___%.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Funds with the cost of investing in other mutual funds. It assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Costs after 5 and 10 years are not provided for Class C and
Class R shares because the public offering of these classes has not yet
commenced as of the date of this prospectus. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
THE GOLDEN RAINBOW FUND
Class A Shares
Class C Shares
Class R Shares
THE JAMES SMALL CAP FUND
Class A Shares
Class C Shares
Class R Shares
6
<PAGE>
THE JAMES LARGE CAP PLUS FUND
Class A Shares
Class C Shares
Class R Shares
THE JAMES MARKET NEUTRAL FUND
Class A Shares
Class C Shares
Class R Shares
ADDITIONAL INVESTMENT INFORMATION
The Adviser does much of its own research using quantitative databases and
statistical expertise. It uses a number of elements to help predict future stock
and bond price movements. The Adviser uses a proprietary investment model to
select stocks for the Funds that it believes are undervalued and more likely to
appreciate. The Adviser focuses on value, neglect or limited following by Wall
Street analysts, as well as on management commitment, and assesses a number of
fundamental factors such as earnings, earnings trend, price earnings multiples,
return on assets, and balance sheet data as well as other proprietary
calculations. The model evaluates over 6,000 companies of all capitalization
ranges. For the Small Cap Fund, the Adviser refines the model by using a small
cap screen and evaluates thousands of small capitalization companies. For the
Large Cap Plus Fund, the Adviser uses a modified version of the model designed
for large capitalization stocks.
For temporary defensive purposes under adverse market conditions, each Fund
may hold all or a substantial portion of its assets in a combination of short
term U.S. Government or high quality money market instruments; repurchase
agreements collateralized by such securities; money market funds or other cash
equivalents. If a Fund acquires shares of another mutual fund, including a money
market fund, you will be subject to additional management fees. Each Fund may
also invest a substantial portion of its assets in such instruments at any time
to maintain liquidity or pending selection of investments in accordance with its
policies. When and to the extent a Fund assumes such a temporary defensive
position, it may not pursue or achieve its investment objective.
THE GOLDEN RAINBOW FUND
Normally, the Fund will hold both debt securities and common stocks, the
proportions of which are not fixed, and may invest up to 90% of its assets in
either debt securities or common stocks. 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 securities 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, which are determined by the Adviser to be of
equivalent quality.
7
<PAGE>
THE SMALL CAP FUND - ADVISER'S HISTORICAL PERFORMANCE
The Adviser has been managing small capitalization securities since its
origin in 1972 and has focused on this as a management style since July 1, 1996.
The performance of all accounts with investment objectives, policies and
strategies substantially similar to the Small Cap Fund appears below. The data
is provided to illustrate past performance of the Adviser in managing such
accounts, as compared to the Russell 2000 Index. The James Small Capitalization
Russell 2000 Small Accounts1 Index2 Cap Fund
Year ended June 30, 1999 _____% _____% n/a
Year ended June 30, 1998 20.83% 15.45% n/a
Year ended June 30, 1997 23.07% 15.16% n/a
Since inception July 1, 1996
through June 30, 1999 _____%3 _____%3 n/a
Since inception October 5, 1998
through June 30, 1999 n/a _____%3 _____%3
1 On July 1, 1996, the Adviser began managing this style with one
account totaling $200,000. As of June 30, 1999, the composite consisted of
____ accounts totaling approximately $__ million. The composite rate of
return is asset weighted, reflecting the relative size of each eligible
account, at the beginning of the relevant period. Performance figures
reflected are net of the estimated management fees of the Small Cap Fund
(not the actual management fees charged to the accounts) and all other
expenses, including transaction costs and commissions. Results include the
reinvestment of dividends and capital gains, but exclude the effect of
applicable sales loads.
2 The Russell 2000 Index is a widely recognized index of market activity
based on the aggregate performance of small to mid-sized publicly traded
common stocks. The Index reflects the total return of securities comprising
the Index, including changes in market prices as well as accrued investment
income, which is presumed to be reinvested. Performance figures for the
Index do not reflect deduction of transaction costs or expenses, including
management fees.
3 Annualized.
The performance of the accounts managed by the Adviser does not represent
the historical performance of the Fund and should not be considered indicative
of future performance of the Fund. Results may differ because of, among other
things, differences in brokerage commissions, account expenses, including
management fees, the size of positions taken in relation to account size and
diversification of securities, timing of purchases and sales, and availability
of cash for new investments. In addition, the managed accounts are not subject
to certain investment limitations, diversification requirements, and other
restrictions imposed by the Investment Company Act of 1940 (the "1940 Act") and
the Internal Revenue Code which, if applicable, may have adversely affected the
performance results of the managed accounts composite. The results for different
periods may vary.
8
<PAGE>
THE LARGE CAP PLUS FUND
Normally, the Fund will be fully invested (subject to liquidity needs). The
Fund seeks to invest in those stocks that the Adviser determines are most likely
to outperform the S&P 500. The Fund will generally buy stocks in the S&P 500 and
will typically hold 25-30 stocks. Market capitalization is not a factor in stock
selection; most stocks in the S&P 500 are, however, mid or large cap by current
definition. The Adviser does not intend to weight the Fund's portfolio by market
capitalization or any other method. It would not be reasonable, therefore, to
expect a stock position in the Fund to have the same weighting, or relative
weighting, as it does in the S&P 500.
THE ADVISER'S HISTORICAL PERFORMANCE. The Adviser has been managing larger
capitalization stocks since its inception in 1972, and has done considerable
modeling in this style. It began managing an account under the Large Cap Plus
style on May ___, 1998. The account has an investment objective and investment
policies and strategies substantially similar to the Large Cap Plus Fund. The
performance of the account is provided below to illustrate past performance of
the Adviser in managing the account, as compared with the S&P 500 Index.
Large Cap Plus Account1 S&P 500 Index2
----------------------- --------------
Quarter ended 6/30/99 _____% _____%
Quarter ended 3/31/99 _____% _____%
Quarter ended 12/31/98 _____% _____%
Since inception May __, 1998
through June 30, 1999 _____%3 _____%3
1 On May __, 1998 the account totaled $300,000. As of June 30, 1999, the
account totaled $______. Performance figures are net of the estimated
management fees of The Large Cap Plus Fund (the account was not charged a
management fee) and all other expenses, including transaction costs and
commissions. Results include the reinvestment of dividends and capital
gains, but exclude the effect of applicable sales loads.
2 The S&P 500 Index is a widely recognized, unmanaged index of common
stock prices. The Index reflects the total return of securities comprising
the Index, including changes in market price as well as accrued income,
which is presumed to be reinvested. Performance figures for the Index do
not reflect deduction of transaction costs or expenses, including
management fees.
3 Annualized.
The performance of the account managed by the Adviser does not represent
the historical performance of the Fund and should not be considered indicative
of future performance of the Fund. Results may differ because of, among other
things, differences in brokerage commissions, account expenses, including
management fees, the size of positions taken in relation to account size and
diversification of securities, timing of purchases and sales, and availability
of cash for new investments. In addition, the managed account is not subject to
certain investment limitations or other restrictions imposed by the 1940 Act and
the Internal Revenue Code which, if applicable, may have adversely affected the
performance results of the managed account. The results for different periods
may vary.
9
<PAGE>
THE MARKET NEUTRAL FUND
The risk of losing money due to general market movements is called market
risk. The risk that the Adviser will fail to correctly identify overvalued and
undervalued stocks is called stock selection risk. Investors in common stocks
are exposed to both market risk and stock selection risk. The Adviser's market
neutral strategy seeks to limit market risk by taking long positions (i.e.,
owning) and short positions in different stocks.
The Fund will hold short positions in stocks which, in the aggregate, will
approximately equal the long positions in the Fund. Due to the continuous
changes in the prices of the short positions and long positions, the market
value of the short positions and long positions will not be equal and can become
unequal to a significant degree. For example, if the Fund is successful, it is
likely that the long positions will increase in value while the short positions
decrease in value, thus reducing the market neutrality of the Fund. It is the
intention of the Adviser to take action to rebalance the long and short
positions to maintain a market neutral exposure when the imbalance reaches
proprietary thresholds, pre-established by the Adviser. This can be done by
adding or eliminating short or long positions depending on the rebalancing
needs.
When selling securities short, the Fund will be required to maintain a
segregated account with its custodian of cash or high-grade liquid assets equal
to the market value of the securities sold, less any collateral deposited with
its broker. It is the intention of the Adviser that the Fund NOT borrow money to
provide this collateral. Therefore, the Fund will always maintain high levels of
cash or high-grade liquid assets (e.g., U.S. Treasury bills, money market funds,
repurchase agreements, certificates of deposit and high quality commercial
paper) for collateral needs.
THE ADVISER'S HISTORICAL PERFORMANCE. The Adviser has been managing an
account using its market neutral strategy since October 31, 1995. The account
has an investment objective and investment policies and strategies substantially
similar to the Market Neutral Fund. The performance of the account is provided
below to illustrate past performance of the Adviser in managing the account, as
compared to 90-day U.S. Treasury Bill return, which the Adviser considers to be
an approximation of the risk-free rate of return.
<TABLE>
<CAPTION>
The James
Market
Market Neutral Account1 90-Day T-bills2 Neutral Fund
----------------------- --------------- ------------
<S> <C> <C> <C>
Year ended June 30, 1999 _____% ____% n/a
Year ended June 30, 1998 24.84% 3.71% n/a
Year ended June 30, 1997 13.05% 3.66% n/a
Since inception October 31, 1995
through June 30, 1999 _____%3 ____%3 n/a
Since inception October 5, 1998
through June 30, 1999 n/a ____%3 ____%3
</TABLE>
1 On October 31, 1995, the account totaled $500,000. As of June 30,
1999, the account totaled approximately $_____. Performance figures
reflected are net of the estimated management fees of the Market Neutral
Fund (the account was not charged a management fee) and all other expenses,
including transaction costs and commissions. Results include the
reinvestment of dividends and capital gains, but exclude the effect of
applicable sales loads.
10
<PAGE>
2 An investment in 90-day U.S. Treasury Bills is different from an
investment in the Fund or in the Account because Treasury Bills are backed
by the full faith and credit of the United States, have a fixed rate of
return and a short duration, and investors in Treasury Bills do not risk
losing capital. It has been standard for market neutral managers of private
accounts, including the Adviser, to use the 90-day Treasury Bill as a
benchmark. Traditional benchmarks for stock funds are not appropriate
because market neutral returns are not tied to the direction of the stock
market. Moreover, part of the return from a market neutral strategy is from
interest on the proceeds from short sales, which often approximates the
90-day Treasury Bill return. Unlike Treasury Bills, however, please keep in
mind that market neutral investing involves substantial risk. Stock prices
are more volatile and there is a risk of losing your capital.
3 Annualized.
The performance of the account managed by the Adviser does not represent
the historical performance of the Fund and should not be considered indicative
of future performance of the Fund. Results may differ because of, among other
things, differences in brokerage commissions, account expenses, including
management fees, the size of positions taken in relation to account size and
diversification of securities, timing of purchases and sales, and availability
of cash for new investments. In addition, the managed account is not subject to
certain investment limitations, diversification requirements, and other
restrictions imposed by the 1940 Act and the Internal Revenue Code which, if
applicable, may have adversely affected the performance results of the managed
account. The results for different periods may vary.
MANAGEMENT OF THE FUNDS
The Golden Rainbow Fund, the Small Cap Fund and the Market Neutral Fund are
each a diversified, open-end mutual fund. The Large Cap Plus Fund is a
non-diversified, open-end mutual fund. Each Fund is a series of The James
Advantage Funds, an open-end management investment company organized as an Ohio
business trust. The Board of Trustees supervises the business activities of the
Funds. Like other mutual funds, the Funds retain various organizations to
perform specialized services.
INVESTMENT ADVISER. The Funds retain James Investment Research, Inc. (the
"Adviser"), P.O. Box 8, Alpha, Ohio 45301, to manage each Fund's investments. A
committee of the Adviser makes the investment decisions for the Funds, and is
primarily responsible for the day-to-day management of each Fund's portfolio.
The Adviser was established in 1972 and provides advice to institutional as well
as individual clients.
The Golden Rainbow Fund is authorized to pay the Adviser a fee equal to an
annual rate of 0.74% of its average daily net assets. Pursuant to an agreement
between the Adviser and the Fund and, after the termination of such agreement on
June 30, 1999, on a voluntary basis, the Adviser waived a portion of its
advisory fee so that the fee after waiver was 0.65% of the Fund's average daily
net assets. This fee waiver was discontinued as of November 1, 1999.
11
<PAGE>
The Adviser is authorized to receive a fee (a) equal to an annual rate of
1.25% of the average daily net assets of the Small Cap Fund, 1.25% of the Large
Cap Plus Fund and 1.70% of the Market Neutral Fund, minus (b) the fees and
expenses of the non-interested person trustees incurred by the applicable Fund.
The Adviser is responsible for the payment of all operating expenses of the
Small Cap Fund, the Large Cap Plus Fund and Market Neutral Fund, except for
brokerage fees and commissions, taxes, interest (including dividend expense on
securities sold short), 12b-1 expenses, fees and expenses of non-interested
person trustees and extraordinary expenses.
YEAR 2000 READINESS. Like other mutual funds, financial and business
organizations and individuals around the world, the Funds could be adversely
affected if the computer systems used by the Adviser or the Funds' various
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Issue." The Adviser has taken steps that it believes are reasonably
designed to address the Year 2000 Issue with respect to computer systems that
are used and to obtain reasonable assurances that comparable steps are being
taken by the Funds' major service providers. At this time, however, there can be
no assurance that these steps will be sufficient to avoid any adverse impact on
the Funds. In addition, the Adviser cannot make any assurances that the Year
2000 Issue will not affect the companies in which the Funds invest or worldwide
markets and economies.
HOW TO PURCHASE SHARES
Shares of each Fund are sold on a continuous basis, and you may invest any
amount you choose, as often as you wish, subject to a minimum initial investment
in the Fund of $2,000 ($500 for qualified plans and $1 million for Class R
shares). Shares of each Fund are offered continuously at a public offering price
that is equal to net asset value ("NAV") per share next determined after a
purchase order is received by the Fund plus any applicable sales load.
INITIAL PURCHASE
You may open an account and make an initial investment through securities
dealers having a sales agreement with CW Fund Distributors, Inc., the Funds'
distributor (the "Distributor"). You may also make a direct initial investment
by completing and signing the investment application form which accompanies this
Prospectus and mailing it, in proper form, together with a check made payable to
the appropriate Fund, to the P.O. Box listed below. If you prefer overnight
delivery, use the overnight address listed below.
U.S. MAIL: OVERNIGHT:
The James Advantage Funds The James Advantage Funds
P.O. Box 5354 312 Walnut Street, 21st floor
Cincinnati, Ohio 45201-5354 Cincinnati, Ohio 45202
The sales load, at the election of the purchaser, may be imposed (1) at the
time of purchase (Class A Shares) or (2) on a contingent deferred basis (Class C
shares). The Class R shares are designed for institutional investors and are
sold at NAV with no front-end sales load, no contingent deferred sales load and
no Rule 12b-1 fees. When placing purchase orders, investors should specify the
name of the Fund and whether the order is for Class A, Class C or Class R
shares. All purchase orders that fail to specify a class will automatically be
invested in Class A shares.
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<PAGE>
CLASS A SHARES
Class A shares of each Fund are purchased at the public offering price. The
public offering price is the next determined NAV per share plus a sales load as
shown in the table below. Class A shares are subject to a continuing .25% annual
distribution fee.
<TABLE>
<CAPTION>
=============================================================================================
Sales Load as of % of:
Public Net
Offering Amount Dealer Reallowance as % of
Amount of Investment Price Invested Public Offering Price
=============================================================================================
<S> <C> <C> <C>
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 None None None
=============================================================================================
</TABLE>
For initial purchases of Class A shares of the Funds of $1 million or more and
subsequent purchases further increasing the size of the account, a dealer's
commission of 1% of such purchases may be paid by the Underwriter to
participating unaffiliated dealers through whom such purchases are effected. A
contingent deferred sales load is imposed upon redemptions of such Class A
shares if the dealer's commission described above was paid by the Distributor
and the shares are redeemed within 1 year from the date of purchase. The
contingent deferred sales load paid to the Distributor will be 1% of the NAV at
the time of purchase of the Class A shares being redeemed. If a purchase of
Class A shares is subject to the contingent deferred sales load, you will be so
notified on the confirmation you receive for such purchase. Redemptions of such
Class A shares of the Fund held for one year or more will not be subject to the
contingent deferred sales load.
CLASS C SHARES
Class C shares are offered at NAV, without an initial sales load, subject
to a maximum annual distribution fee of 1% (of which .75% is an asset based
sales charge and .25% is a service fee). The current authorized distribution fee
is .85%. Class C shares are subject to a contingent deferred sales load of 1% if
redeemed within 1 year of the purchase date.
CLASS R SHARES
Class R shares are no-load and are not subject to distribution fees or
service fees. Class R shares are available to those investing $1 million or
more. Dividends and capital gains distributions on Class R shares may be
reinvested as Class R shares.
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<PAGE>
ADDITIONAL PURCHASES
After an initial investment in a Fund, you may purchase additional shares
of the Fund at any time either through a securities dealer or by sending a check
payable to the applicable Fund to one of the addresses listed above. You may
also purchase shares of a Fund by bank wire. Please telephone Countrywide Fund
Services, Inc. (the "Transfer Agent") at 800-995-2637 for instructions. Your
bank may impose a charge for sending a wire. There is presently no fee for
receipt of wired funds, but the Transfer Agent reserves the right to charge
shareholders for this service upon 30 days' prior notice to shareholders.
Each additional purchase request must contain the name of the account and
the account number to permit proper crediting to the account. While there is no
minimum amount required for subsequent investments, the Trust reserves the right
to impose such a requirement. All additional purchases are made at NAV next
determined after receipt of a purchase order by the Trust, plus any applicable
sales load. If a broker-dealer received concessions for selling shares of a Fund
to a current shareholder, such broker-dealer will receive the concessions with
respect to additional investments by the shareholder.
GENERAL PURCHASE INFORMATION
Shares of a Fund may be purchased, in amounts less than the minimum
purchase amount, by officers, directors, trustees and employees of the Funds,
the Adviser, or the Distributor, and any such person's spouse, children, and
trustees or custodians of any qualified pension or profit sharing plan or IRA
established for the benefit of such person. Such persons should request
instructions on how to invest or redeem from the Distributor.
Under certain circumstances, the Distributor may change the reallowance to
dealers and may also compensate dealers out of its own assets. Dealers engaged
in the sale of shares of a Fund may be deemed to be underwriters under the
Securities Act of 1933. The Distributor retains the entire sales load on all
direct initial investments in the Fund and on all investments in accounts with
no designated dealer of record.
You may purchase Class A shares without a sales load at NAV if you are
within the following specified categories of investors: officers, service
providers and current and former trustees of the Trust; full-time and retired
employees of the Adviser and subsidiaries thereof, or their immediate family
members; persons who, for at least 90 days, have been an officer, director or
employee of any authorized dealer with a sales agreement, or their immediate
family members; officers and directors of banks, bank holding companies or other
financial institutions that make a Fund's shares available directly or through
subsidiaries or bank affiliates; bank or broker-affiliated trust departments;
and clients of investment advisers, financial planners or other financial
intermediaries. In addition, the Adviser and the Adviser's Pension and Profit
Sharing Plan may purchase shares at NAV.
If you are eligible to purchase either Class R shares or Class A shares at
NAV, you should be aware of the differences between these two classes of shares.
Class A shares are subject to an annual distribution fee to compensate the
Distributor for distribution costs associated with each Fund and to an annual
service fee to compensate authorized dealers for providing you with ongoing
account services. Class R shares are not subject to a distribution or service
fee and, consequently, holders of Class R shares may not receive the same types
or levels of services from authorized dealers. In deciding between Class A
shares and Class R shares, you should weigh the
14
<PAGE>
benefits of the services to be provided by authorized dealers against the annual
service fee imposed upon the Class A shares.
Shares of each Fund are sold on a continuous basis at the public offering
price next determined after receipt of a purchase order by the Trust. Purchase
orders received by dealers prior to 4:00 p.m., Eastern time, on any business day
and transmitted to the Distributor by 5:00 p.m., Eastern time, that day are
confirmed at the public offering price determined as of the close of the regular
session of trading on the New York Stock Exchange on that day. It is the
responsibility of dealers to transmit properly completed orders so that they
will be received by the Distributor by 5:00 p.m., Eastern time. Dealers may
charge a fee for effecting purchase orders. Direct purchase orders received by
4:00 p.m., Eastern time, are confirmed at that day's public offering price.
Direct investments received after 4:00 p.m. and orders received from dealers
after 5:00 p.m. are confirmed at the public offering price next determined on
the following business day. Any change in price due to the failure of the Fund
to receive an order prior to the close of the Exchange must be settled between
the investor and the dealer placing the order.
RIGHT OF ACCUMULATION AND LETTER OF INTENT (CLASS A SHARES ONLY)
You may use the Right of Accumulation to combine the cost or current NAV
(whichever is higher) of your existing Class A shares of any Fund in The James
Advantage Funds with the amount of your current purchases in order to take
advantage of the reduced sales loads set forth in the table above. Purchases
made pursuant to a Letter of Intent may also be eligible for the reduced sales
loads. The minimum initial investment under a Letter of Intent is $10,000. You
should contact the Transfer Agent for information about the Right of
Accumulation and Letter of Intent.
AUTOMATIC INVESTMENT PLAN
The Funds offer current shareholders who receive a quarterly statement from
the Funds' Distributor the convenience of automatic monthly investing. On the
15th (or the next business day following the 15th if it falls on a weekend or
holiday) or last business day of each month, the amount you specify will be
transferred from your bank to the Fund. To initiate the automatic investment
plan, complete the application form and attach a voided check.
Each Fund pays the cost associated with these transfers, but reserves the
right, upon 90 days written notice, to make reasonable charges for this service.
Your bank may charge for debiting your account. Shareholders can change the
amount or discontinue their participation in the plan by written notice to the
Transfer Agent 30 days prior to the transfer date. Because a sales charge is
applied on new shares purchased, it would be disadvantageous to purchase shares
while also making withdrawals.
15
<PAGE>
FREE REPURCHASE, SYSTEMATIC WITHDRAWAL, DIRECT DEPOSITS AND
EXCHANGE PRIVILEGE
FREE REPURCHASE
If you have redeemed shares, you may repurchase shares at NAV 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. You may exercise this
feature 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
If your account has a value greater than $10,000, you may establish a
Systematic Withdrawal Plan ("SWP") and receive monthly or quarterly checks for
$100 or more as you specify. To establish a SWP, all distributions must be in
the form of shares. Such payments are drawn from the proceeds of the redemption
shares held in your 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. You should not, therefore, have a SWP
in effect at the same time you are making recurring purchases of Fund shares.
You may withdraw from the program, change the payee or change the dollar amount
of each payment, by written instructions to the Transfer Agent. The Transfer
Agent may charge your 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 you. The Fund reserves the right
to amend or terminate the SWP on thirty days' notice.
DIRECT DEPOSITS
You can have dividends or SWP redemption proceeds deposited electronically
into a bank account. Under normal circumstances, direct deposits are credited to
the account on the second business day of the month following normal payment. In
order to utilize this option, your bank must be a member of Automated Clearing
House. In addition, you 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, your dividends and redemptions will be credited to the designated bank
account. You may terminate a direct deposit program at any time by written
notice to the Transfer Agent.
16
<PAGE>
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged for shares of the same class of any other
Fund. You may request an exchange by sending a written request to the Transfer
Agent. The request must be signed exactly as your name appears on the Trust's
account records. Exchanges may also be requested by telephone. If you are unable
to execute a transaction by telephone (for example during times of unusual
market activity) you should consider requesting the exchange by mail. An
exchange will be effected at the next determined NAV after receipt of a request
by the Transfer Agent.
Exchanges may only be made for shares of Funds then offered for sale in
your state of residence and are subject to the applicable minimum initial
investment requirements. The exchange privilege may be modified or terminated by
the Board of Trustees upon 60 days' prior notice to shareholders. An exchange
results in a sale of Fund shares, which may cause you to recognize a capital
gain or loss. Before making an exchange, contact the Transfer Agent to obtain
more information about exchanges.
HOW TO REDEEM SHARES
You may redeem shares of a Fund on each day that the Trust is open for
business by sending a written request to the Transfer Agent. The request must
state the number of shares or the dollar amount to be redeemed and the account
number. The request must be signed exactly as your name appears on the Trust's
account records. Upon receipt by a Fund of a proper redemption request, the Fund
will redeem shares at their next determined NAV. Neither the Distributor nor the
Fund charges a fee or a commission for redemption, except that the Fund may
charge a fee for wiring redemption proceeds and Class C shares may be subject to
a contingent deferred sales load.
You may also redeem shares by placing a wire redemption request through a
securities broker or dealer. You will receive the NAV per share next determined
after the Transfer Agent receives the wire redemption request. It is the
responsibility of broker-dealers to properly transmit wire redemption orders.
The Funds' Custodian charges a $9 processing fee for wire redemptions,
which may be changed upon 30 days' written notice. All charges will be deducted
from your account by redemption of shares in the account. Your bank or brokerage
firm may also impose a charge for processing the wire. In the event that wire
transfer of funds is impossible or impractical, the redemption proceeds will be
sent by mail to the designated account.
Payment is normally made within 3 business days after receipt of a proper
redemption request, provided that payment in redemption of shares purchased by
check will be effected only after the check has cleared, which may take up to 15
calendar days from the purchase date. To eliminate this delay, you may purchase
shares of a Fund by certified check or wire.
Neither the Trust, the Transfer Agent, nor their respective affiliates will
be liable for complying with telephone instructions they reasonably believe to
be genuine or for any loss, damage, cost or expenses in acting on such telephone
instructions. You will bear the risk of any such loss. The privilege of
exchanging shares by telephone is automatically available to you. The Trust or
the Transfer Agent, or both, will employ reasonable procedures to determine that
telephone instructions are genuine. If the Trust and/or the Transfer Agent do
not employ such
17
<PAGE>
procedures, they may be liable for losses due to unauthorized or fraudulent
instructions. The procedures may include, among others, requiring forms of
personal identification prior to acting upon telephone instructions, providing
written confirmation of the transactions and/or tape recording telephone
instructions. At the discretion of the Trust or the Transfer Agent, corporate
investors and other associations may be required to furnish an appropriate
certification authorizing redemptions to ensure proper authorization.
SIGNATURE GUARANTEE
The Transfer Agent will require a signature guarantee if the shares to be
redeemed have a value of $25,000 or more, if the address where the redemption is
to be mailed is other than your address of record or if the name(s) or address
or your account has been changed within 30 days. A signature guarantee may be
executed by any eligible guarantor. Eligible guarantors include member firms of
a domestic stock exchange, commercial banks, trust companies, savings
associations and credit unions as defined by the Federal Deposit Insurance Act.
You should verify with the institution that they are an eligible guarantor prior
to signing.
ADDITIONAL INFORMATION
Because the Funds incur certain fixed costs in maintaining shareholder
accounts, each Fund reserves the right to require you to redeem all of your
shares in the Fund on 30 days' written notice if the value of your shares in the
Fund is less than $2,000 due to redemption, or such other minimum amount as the
Fund may determine from time to time. An involuntary redemption constitutes a
sale. You should consult your tax adviser concerning the tax consequences of
involuntary redemptions. You may increase the value of your shares in a Fund to
the minimum amount within the 30 day period. Each share of each Fund is subject
to redemption at any time if the Board of Trustees determines, in its sole
discretion, that failure to so redeem may have materially adverse consequences
to all or any of the shareholders of the Funds.
DIVIDENDS AND DISTRIBUTIONS
Each Fund intends to distribute substantially all of its net investment
income as dividends to its shareholders on a quarterly basis, and intends to
distribute its net long-term capital gains and its net short-term capital gains
at least once a year.
Income dividends and capital gain distributions are automatically
reinvested in additional shares at the NAV per share on the distribution date.
You may elect to receive a cash payment of dividends and/or capital gain
distributions in the application to purchase shares or by separate written
notice to the Transfer Agent. You 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 5 business days after the payable date. If you withdraw your entire
account, all dividends accrued to the time of withdrawal, including the day of
withdrawal, will be paid at that time. You may elect to have distributions on
shares held in IRAs and 403(b) plans paid in cash only if you are 59 1/2 years
old or permanently and totally disabled or if you otherwise qualify under the
applicable plan.
18
<PAGE>
TAXES
Each Fund intends to qualify each year as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended. By so qualifying, a Fund
will not be subject to federal income taxes to the extent that it distributes
substantially all of its net investment income and any realized capital gains.
For federal income tax purposes, dividends paid by each Fund from ordinary
income are taxable to you 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. Due to the nature of the
investment strategies used, the distributions of the Small Cap Fund, the Large
Cap Plus Fund and the Market Neutral Fund are generally expected to consist
primarily of net capital gains; however the nature of each Fund's distributions
could vary in any given year.
Each Fund will mail to each shareholder after the close of the calendar
year a statement setting forth the federal income tax status of distributions
made during the year. Dividends and capital gains distributions may also be
subject to state and local taxes. You are urged to consult your own tax adviser
regarding specific questions as to federal, state or local taxes and the tax
effect of distributions and withdrawals from the Fund.
On the application or other appropriate form, the Funds will request your
certified taxpayer identification number (social security number for
individuals) and a certification that you are not subject to backup withholding.
Unless you provide 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 you. You should be aware that, under regulations promulgated
by the Internal Revenue Service, a Fund may be fined $50 annually for each
account for which a certified taxpayer identification number is not provided. In
the event that such a fine is imposed with respect to a specific account in any
year, the applicable Fund may make a corresponding charge against the account.
19
<PAGE>
DISTRIBUTION PLANS
Each Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act for
Class A and Class C shares (collectively, the "Plans") which permits the Fund to
pay for certain distribution and promotion expenses related to marketing its
shares. Such expenses may include certain fees to broker-dealers of record for
shareholders of the Fund, but such fees shall not, when aggregated with other
expenses reimbursed to the Distributor in accordance with the Plan, exceed the
maximum 12b-1 fee set forth in the table on pages ___ of this Prospectus. 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 NAV
as may be determined from time to time by vote cast in person at a meeting
called for such purpose, by a majority of the Fund's disinterested Trustees. The
scope of the foregoing shall be interpreted by the Trustees, which decision
shall be conclusive except to the extent it contravenes established legal
authority. Without in any way limiting the discretion of the Trustees, the
following activities are hereby declared to be primarily intended to result in
the sale of shares of the applicable Fund:
o advertising the Fund or the Adviser's mutual fund activities;
o 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;
o 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;
o 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;
o 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
o the financing of any activity for which payment is authorized by the
Trustees.
Pursuant to the Plan, each Fund, through authorized officers, may make similar
payments for marketing services and shareholder services to non-broker-dealers
who enter into service agreements with the Fund.
The maximum amount payable by a Fund under the Plan and related agreements
on an annual basis for Class A shares is .40% of average daily net assets for
the year. In the case of broker-dealers and others, such as banks, who have
selling or service agreements with the Distributor or a Fund, the maximum amount
payable to any recipient is .20%, on an annualized basis, of the portion of
daily net assets represented by such person's customers. The maximum amount
payable for Class C shares is 1.00% of its average daily net assets for the year
(of which .75% is an asset-based sales charge and .25% is a service fee). The
Board of Trustees have currently authorized a .75% asset-based sales charge and
a .10% service fee for Class C shares. The Board of Trustees may reduce these
amounts at any time. Expenditures pursuant to the Plan and related agreements
may reduce current yield after expenses. Because these fees are paid out
20
<PAGE>
of the Funds' assets on an on-going basis, over time these fees will increase
the cost of your investment and may cost you more than paying other types of
sales loads.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
The NAV per share of a Fund is calculated by dividing the total value of
the Fund's investments and other assets (including cash and accrued income),
less any liabilities (including estimated accrued expenses), by the number of
shares outstanding, rounded to the nearest cent. The public offering price (NAV
plus applicable sales load) of Class A shares and the share price of Class C and
Class R shares is determined as of the close of the New York Stock Exchange
(4:00 p.m., Eastern time) on each day that the exchange is open for business
(except for Ohio bank holidays), and on any other day on which there is
sufficient trading in a Fund's securities to materially affect the NAV. The NAV
per share of each Fund will fluctuate.
Securities 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, and when the Adviser determines that 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.
FINANCIAL HIGHLIGHTS
On June 26, 1998, The Golden Rainbow Fund acquired the assets and
liabilities of The Golden Rainbow A James Advised Mutual Fund (the "Predecessor
Fund") in a tax free reorganization. As a result of this reorganization, The
Golden Rainbow Fund assumed the financial history of the Predecessor Fund. The
Golden Rainbow Fund had no operating history prior to the reorganization.
The financial highlights tables are intended to help you understand The
Golden Rainbow Fund's financial performance for the past 5 years and the Small
Cap Fund's and the Market Neutral Fund's performance since their inception.
Certain information reflects financial results for a single Fund share. The
total returns in the table represent the rate that you would have earned on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information was audited by ____________________, whose
report, along with the Funds' financial statements, are included in the annual
report, which is available upon request.
Information is not provided for the Large Cap Plus Fund because the
public offering of the shares of the Fund has not yet commenced as of the date
of this Prospectus.
[to be inserted]
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<PAGE>
INVESTMENT ADVISER TRANSFER AGENT
James Investment Research, Inc. Countrywide Fund Services, Inc.
P.O. Box 8 312 Walnut Street
Alpha, Ohio 45301 Cincinnati, Ohio 45202
[email protected]
CUSTODIAN INDEPENDENT AUDITORS
Firstar Bank, N.A. ______________________
425 Walnut Street ______________________
Cincinnati, Ohio 45202 ______________________
LEGAL COUNSEL DISTRIBUTOR
Brown, Cummins & Brown Co., L.P.A. CW Fund Distributors, Inc.
3500 Carew Tower, 441 Vine Street 312 Walnut Street
Cincinnati, Ohio 45202 Cincinnati, Ohio 45202
Shareholder Services
- --------------------
Nationwide: (Toll-Free) 1-800-99 JAMES (1-800-995-2637)
Additional information about the Funds are included in the Statement of
Additional Information ("SAI"), which is hereby incorporated by reference in its
entirety. Additional information about the Funds' investments is available in
the Funds' annual and semiannual reports to shareholders. In the Funds' annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during the last
fiscal year. To obtain a free copy of the SAI, the annual and semiannual reports
or other information about the Funds, or to make inquires about the Funds,
please call 1-800-99 JAMES (1-800-995-2637).
Information about the Funds, including the SAI, can be reviewed and copied
at the Securities and Exchange Commission's public reference room in Washington,
D.C. Information on the operation of the public reference room can be obtained
by calling the Commission at 1-800-SEC-0330. Reports and other information about
the Funds are available on the Commission's Internet site at http:/www.sec.gov.
Copies of information on the Commission's Internet site may be obtained upon
payment of a duplicating fee, by writing to the Securities and Exchange
Commission, Public Reference Section, Washington, D.C. 20549-6009.
File No. 811-8411
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE GOLDEN RAINBOW FUND
November 1, 1999
A Series of
The James Advantage Funds
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
1-800-995-2637
TABLE OF CONTENTS
DESCRIPTION OF THE TRUST...................................................... 1
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS................................. 1
INVESTMENT LIMITATIONS........................................................13
TRUSTEES AND OFFICERS.........................................................16
INVESTMENT ADVISER............................................................17
TRANSFER AGENT AND DISTRIBUTOR................................................18
OTHER SERVICES................................................................19
PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................19
SHARES OF THE FUND............................................................20
DETERMINATION OF SHARE PRICE..................................................22
ADDITIONAL TAX INFORMATION....................................................23
DISTRIBUTION PLANS............................................................23
PERFORMANCE INFORMATION.......................................................24
FINANCIAL STATEMENTS..........................................................26
This Statement of Additional Information is not a prospectus and should
only be read in conjunction with the Prospectus of the Golden Rainbow Fund dated
November 1, 1999. A 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>
DESCRIPTION OF THE TRUST
The Golden Rainbow Fund (the "Fund") was organized as a series of The James
Advantage Funds (the "Trust"). The Trust is an open-end investment company
established under the laws of Ohio by an Agreement and Declaration of Trust
dated August 29, 1997 (the "Trust Agreement"). The Trust Agreement permits the
Trustees to issue an unlimited number of shares of beneficial interest of
separate series without par value. The Fund is one of a series of funds
currently authorized by the Trustees.
Each share of a series represents an equal proportionate interest in the
assets and liabilities belonging to that series with each other share of that
series and is entitled to such dividends and distributions out of income
belonging to the series as are declared by the Trustees. The shares do not have
cumulative voting rights or any preemptive or conversion rights, and the
Trustees have the authority from time to time to divide or combine the shares of
any series into a greater or lesser number of shares of that series so long as
the proportionate beneficial interest in the assets belonging to that series and
the rights of shares of any other series are in no way affected. In case of any
liquidation of a series, the holders of shares of the series being liquidated
will be entitled to receive as a class a distribution out of the assets, net of
the liabilities, belonging to that series. Expenses attributable to any series
are borne by that series. Any general expenses of the Trust not readily
identifiable as belonging to a particular series are allocated by or under the
direction of the Trustees in such manner as the Trustees determine to be fair
and equitable. No shareholder is liable to further calls or to assessment by the
Trust without his or her express consent.
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.
Upon 60 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 Purchase Shares" and "How to Redeem Shares" in the Fund's
Prospectus. For a description of the methods used to determine the share price
and value of the Fund's assets, see "Calculation of Share Price and Public
Offering Price" in the Fund's Prospectus.
DEFINITIONS, POLICIES 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.
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A. Equity Securities.
The Fund will invest in common stock, in addition to which, the Fund may
invest in preferred stock and common stock equivalents (such as convertible
preferred stock and convertible debentures). Convertible preferred stock is
preferred stock that can be converted into common stock pursuant to its terms.
Convertible debentures are debt instruments that can be converted into common
stock pursuant to their terms. The Adviser intends to invest only in preferred
stock rated A or higher by Standard & Poor's Corporation ("S&P") or by Moody's
Investors Services, Inc. ("Moody's").
B. U.S. Government Obligations.
The Fund may invest in U.S. government obligations. These securities may be
backed by the credit of the government as a whole or only by the issuing agency.
U.S. Treasury bonds, notes, and bills and some agency securities, such as those
issued by the Federal Housing Administration and the Government National
Mortgage Association (GNMA), are backed by the full faith and credit of the U.S.
government as to payment of principal and interest and are the highest quality
government securities. Other securities issued by U.S. government agencies or
instrumentalities, such as securities issued by the Federal Home Loan Banks and
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the agency that issued them, and not by the U.S. government. Securities issued
by the Federal Farm Credit System, the Federal Land Banks, and the Federal
National Mortgage Association (FNMA) are supported by the agency's right to
borrow money from the U.S. Treasury under certain circumstances, but are not
backed by the full faith and credit of the U.S. government.
C. Repurchase Agreements.
The Fund may invest in repurchase agreements fully collateralized by U.S.
Government obligations. A repurchase agreement is a short-term investment in
which the purchaser (i.e., the Fund) acquires ownership of a U.S. Government
obligation (which may be of any maturity) and the seller agrees to repurchase
the obligation at a future time at a set price, thereby determining the yield
during the purchaser's holding period (usually not more than seven days from the
date of purchase). Any repurchase transaction in which the Fund engages will
require full collateralization of the seller's obligation during the entire term
of the repurchase agreement. In the event of a bankruptcy or other default of
the seller, the Fund could experience both delays in liquidating the underlying
security and losses in value. However, the Fund intends to enter into repurchase
agreements only with banks with assets of $1 billion or more and registered
securities dealers determined by the Adviser (subject to review by the Board of
Trustees) to be creditworthy. The Adviser monitors the creditworthiness of the
banks and securities dealers with which the Fund engages in repurchase
transactions.
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D. Illiquid Securities.
The Fund may normally invest up to 5% of its assets (valued at the purchase
date) in illiquid securities. Illiquid securities generally include securities
that cannot be disposed of promptly and in the ordinary course of business
without taking a reduced price. Securities may be illiquid due to contractual or
legal restrictions on resale or lack of a ready market. The following securities
are considered to be illiquid: repurchase agreements maturing in more than seven
days, nonpublicly offered securities and restricted securities. Restricted
securities are securities the resale of which is subject to legal or contractual
restrictions. Restricted securities may be sold only in privately negotiated
transactions, in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1933 or pursuant to Rule 144
or Rule 144A promulgated under the 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.
E. 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 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 Adviser determines to be important. With respect to loans
of securities, there is the risk that the borrower may fail to return the loaned
securities or that the borrower may not be able to provide additional
collateral.
F. Borrowing and Leverage; Reverse Repurchase Agreements.
The Fund may borrow from banks, from time to time on a temporary basis, up
to 5% of its net assets, and the Fund may pledge assets in connection with such
borrowings. The Fund also may engage in reverse repurchase agreements in which
the Fund sells a security to another party, such as a bank, broker-dealer or
other financial institution, and simultaneously agrees to buy it back later at a
higher price. While a reverse repurchase agreement is outstanding, the Fund
generally will direct its custodian to segregate cash and appropriate liquid
assets to cover its obligations under the agreement. The Fund will enter into
reverse repurchase agreements only with parties whose creditworthiness has been
reviewed and deemed satisfactory by the Adviser. The Fund aggregates reverse
repurchase agreements with its bank borrowings for purposes of limiting
borrowings to 5% of its net 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.
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G. Foreign Securities
The Fund may, without limitation, in foreign 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 American depository
receipts ("ADR's"). ADRs are certificates of ownership issued by a U.S. bank as
a convenience to investors in lieu of the underlying shares which its holds in
custody.
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 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.
H. 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.
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<PAGE>
I. Portfolio Turnover
The Fund does not intend to purchase or sell securities for short term
trading purposes. The Fund may, however, sell any portfolio security (without
regard to the length of time it has been held) when the Adviser believes that
market conditions, creditworthiness factors or general economic conditions
warrant such action. The Fund's portfolio turnover rate is not expected to
exceed 100%.
J. Hedging Transactions.
The Fund may utilize various other investment strategies as described below
to hedge various market risks (such as interest rates, currency exchange rates,
and broad or specific equity market movements), or to manage the effective
maturity or duration of fixed-income securities. Such strategies are generally
accepted by modern portfolio managers and are regularly utilized by many mutual
funds and other institutional investors. Techniques and instruments may change
over time as new instruments and strategies are developed or regulatory changes
occur.
In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Hedging Transactions"). Hedging
Transactions may be used to attempt to protect against possible changes in the
market value of securities held in or to be purchased for the Fund's portfolio
resulting from securities markets or currency exchange rate fluctuations, to
protect the Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of the Fund's portfolio, or to establish a
position in the derivatives markets as a temporary substitute for purchasing or
selling particular securities. No more than 5% of the Fund's assets will be
committed to Hedging Transactions entered into for non-hedging purposes. Any or
all of these investment techniques may be used at any time and there is no
particular strategy that dictates the use of one technique rather than another,
as use of any Hedging Transaction is a function of numerous variables including
market conditions. The ability of the Fund to utilize these Hedging Transactions
successfully will depend on the Adviser's ability to predict pertinent market
movements, which cannot be assured. The Fund will comply with applicable
regulatory requirements when implementing these strategies, 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.
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<PAGE>
Hedging Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Hedging Transactions would result in losses greater than if they
had not been used. Use of put and call options may result in losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, limit the amount the appreciation of the
Fund can realize on its investments or cause the Fund to hold a security it
might otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements, or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of Hedging Transactions would reduce net
asset value, and possibly income, and such losses can be greater than if the
Hedging Transactions had not been utilized.
GENERAL CHARACTERISTICS OF OPTIONS
Put options and call options typically have similar structural
characteristics and operational mechanics regardless of the underlying
instrument on which they are purchased or sold. Thus, the following general
discussion relates to each of the particular types of options discussed in
greater detail below. In addition, many Hedging Transactions involving options
require segregation of Fund assets in special accounts, as described below under
"Use of Segregated and Other Special Accounts."
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 example, 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.
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<PAGE>
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.
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
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<PAGE>
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 (including convertible securities) and Eurodollar
instruments (whether or not it holds the above securities in its portfolio) and
on securities indices, currencies and futures contracts other than futures on
individual corporate debt and individual equity securities. The Fund will not
sell put options if, as a result, more than 50% of the Fund's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that the fund may be required to buy the underlying
security at a disadvantageous price above the market price.
GENERAL CHARACTERISTICS OF FUTURES
The Fund may enter into financial futures contracts, or purchase or sell
put and call options on such futures, as a hedge against anticipated interest
rate, currency or equity market changes, for duration management, and for risk
management purposes. Futures are generally bought and sold on the commodities
exchanges where they are listed with payment of initial and variation margin as
described below. The sale of a futures contract creates a firm obligation by the
Fund, as seller, to deliver to the buyer the specific type of financial
instrument called for in the contract at a specific future time for a specified
price (or, with respect to index futures and Eurodollar instruments, the net
cash amount). Options on futures contracts are similar to options on securities
except that an option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract and
obligates the seller to deliver such option.
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<PAGE>
The Fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements and in particular the
rules and regulations of the Commodity Futures Trading Commission and will be
entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark-to-market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract, it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction, but there can be no assurance that the position can be offset prior
to settlement at an advantageous price nor that delivery will occur. The
segregation requirements with respect to futures contracts and options thereon
are described below.
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
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<PAGE>
currency transactions with Counterparties which have received (or the guarantors
of the obligations of such Counterparties have received) a credit rating of A-1
or P-1 by S&P or Moody's, respectively, or that have an equivalent rating from
an NRSRO or (except for OTC currency options) are determined to be of equivalent
credit quality by the Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended to wholly or partially
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currency convertible into such currently
other than with respect to proxy hedging as described below.
The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when 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
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<PAGE>
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 that may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
COMBINED TRANSACTIONS
The Fund may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transactions
(including forward currency contracts) and any combination of futures, options
and currency transactions ("component" transactions), instead of a single
Hedging Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser, it is in the best interests of the Fund to do so. A
combined transaction will usually contain elements of risk that are present in
each of its competent transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.
SWAPS, CAPS, FLOORS AND COLLARS
Among the Hedging Transactions into which the Fund may enter are interest
rate, currency and index swaps and the purchase or sale of related caps, floors
and collars. The Fund expects to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio, to protect against currency fluctuations, as a duration management
technique or to protect against any increase in the price of securities the Fund
anticipates purchasing at a later date. The Fund intends to use these
transactions as hedges and not as speculative investments and will not sell
interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, for example, 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.
-11-
<PAGE>
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least "A" by S&P or Moody's or has an equivalent
rating from an NRSRO or is determined to be of equivalent credit quality by the
Adviser. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors, and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
EURODOLLAR INSTRUMENTS
The Fund may make investments in Eurodollar instruments. Eurodollar
instruments are U.S. dollar-denominated futures contracts or options thereon
which are linked to the London Interbank Offered Rate ("LIBOR"), although
foreign currency-denominated instruments are available from time to time.
Eurodollar futures contracts enable purchasers to obtain a fixed rate for the
lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
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.
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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 that obligates the Fund to buy or sell currency
will generally require the Fund to hold an amount of that currency or liquid
securities denominated in that currency equal to the Fund's obligations or to
segregate liquid high-grade assets equal to the amount of the Fund's obligation.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC-issued and exchange-listed
index options will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a noncash settled put, the same as an
OCC-guaranteed listed option sold by the Fund, or the in-the-money amount plus
any sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out, cash or cash equivalents equal in value to
such excess. OCC-issued and exchange-listed options sold by the Fund other than
those above generally settle with physical delivery, or with an election of
either physical delivery or cash settlement, and the Fund will segregate an
amount of assets equal to the full value of the option. OTC options settling
with physical delivery, or with an election of either physical delivery or cash
settlement, will be treated the same as other options settling with physical
delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlement with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high-grade securities
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
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<PAGE>
Hedging Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Hedging
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Hedging Transactions may also be offset in combinations. If
the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
INVESTMENT LIMITATIONS
FUNDAMENTAL. The investment limitations described below have been adopted
by the Trust with respect to the Fund and are fundamental ("Fundamental"), that
is, 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 that 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.
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<PAGE>
4. REAL ESTATE. The Fund will not purchase or sell real estate. This
limitation is not applicable to investments in marketable securities that 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 that are engaged in a commodities business or have a
significant portion of their assets in commodities.
6. LOANS. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities, (b) by engaging in repurchase agreements, or (c)
by purchasing nonpublicly offered debt securities. For purposes of this
limitation, the term "loans" shall not include the purchase of a portion of an
issue of publicly distributed bonds, debentures or other securities.
7. CONCENTRATION. The Fund will not invest 25% or more of its total
assets in any particular industry. This limitation is not applicable to
investments in obligations issued or guaranteed by the U.S. government, its
agencies and instrumentalities or repurchase agreements with respect thereto.
8. DIVERSIFICATION. The Fund will comply with the standards for
diversification as required by the then-current Investment Company Act of 1940,
as amended, the rules and regulations promulgated thereunder and interpretations
of the Securities and Exchange Commission or its staff.
With respect to the percentages adopted by the Trust as maximum limitations
on its investment policies and limitations, an excess above the fixed percentage
will not be a violation of the policy or limitation unless the excess results
immediately and directly from the acquisition of any security or the action
taken. This paragraph does not apply to the borrowing policy set forth in
paragraph 1 above.
With respect to the Fund's diversification, the current standards require
that the Fund may not purchase the securities of any one issuer, other than the
U.S. government or any of its instrumentalities, if immediately after such
purchase more than 5% of the value of its total assets would be invested in such
issuer, or the Fund would own more than 10% of the outstanding voting securities
of such issuer, except that up to 25% of the value of the Fund's total assets
may be invested without regard to such 5% and 10% limitations.
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<PAGE>
NON-FUNDAMENTAL. The following limitations have been adopted by the Trust
with respect to the Fund and are Non-Fundamental (see "Investment Limitations"
above).
1. PLEDGING. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any assets of the Fund except as
may be necessary in connection with borrowings described in limitation (1)
above. Margin deposits, security interests, liens and collateral arrangements
with respect to transactions involving options, futures contracts, short sales
and other permitted investments and techniques are not deemed to be a mortgage,
pledge or hypothecation of assets for purposes of this limitation.
2. BORROWING. The Fund will not purchase any security while borrowings
(including reverse repurchase agreements) representing more than 5% its total
assets are outstanding.
3. MARGIN PURCHASES. The Fund will not purchase securities or evidences
of interest thereon on "margin." This limitation is not applicable to short-term
credit obtained by the Fund for the clearance of purchases and sales or
redemption of securities, or to arrangements with respect to transactions
involving options, futures contracts, short sales and other permitted
investments and techniques.
4. OPTIONS. The Fund will not purchase or sell puts, calls, options or
straddles, except as described in the Prospectus and the Statement of Additional
Information.
5. SHORT SALES. The Fund will not effect short sales of securities.
6. ILLIQUID SECURITIES. The Fund will not invest more than 5% of its
assets in securities that are restricted as to resale or otherwise illiquid. For
this purpose, illiquid securities generally include securities that cannot be
disposed of within seven days in the ordinary course of business without taking
a reduced price.
TRUSTEES AND OFFICERS
The Board of Trustees has overall responsibility for management of the Fund
under the laws of Ohio governing the responsibilities of trustees of business
trusts. Following are the Trustees and executive officers of the Trust, their
present occupation with the Trust or Fund, age, principal occupation during the
past 5 years and their aggregate compensation from the Trust for the fiscal year
ended June 30, 1999.
<TABLE>
<CAPTION>
Name, Age, Position Principal Occupation Compensation From
And Address During Past 5 Years The Trust
----------- ------------------- ---------
<S> <C> <C>
Barry R. James, CFA * (42) Executive Vice President, James Investment $0
President and Trustee of the Trust Research, Inc. (1985 to Present).
P.O. Box 8
Alpha, Ohio 45301
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<PAGE>
Thomas L. Mangan (49) Vice president, James Investment Research, $0
Vice President, Treasurer Inc. (1994 to Present).
and Secretary of the Trust;
P.O. Box 8
Alpha, Ohio 45301
Anthony P. D'Angelo (68) Professor, Graduate School of Logistics $
Trustee and Acquisition Management, Air Force
Dept. of the Air Force, Building 641 Institute of Technology, Wright-Patterson
2950 P Street AFB, Ohio (1983 to present).
Wright-Patterson AFB Ohio 45433
Hazel L. Eichelberger (61) Retired Sr. Vice President, Citizens Federal $
Trustee Bank, Dayton, Ohio (1955 to 1997).
9438 Atchison Road
Dayton, Ohio 45458
James F. Zid (64) Retired Partner, Ernst & Young, LLP, $
Trustee Columbus, Ohio (1968 to 1993).
1083 N. Collier Blvd.
Marco Island, Florida 34145
</TABLE>
* Indicates that Trustee is an Interested Person for purposes of the
Investment Company Act of 1940.
PRINCIPAL HOLDERS OF VOTING SECURITIES. As of ____________, 1999, the officers
and Trustees of the Fund as group owned _______________________of the
then-outstanding shares of the Fund. [5% owners to be inserted]
It is anticipated that Fifth Third Bank, Dayton, Ohio, acting as either
trustee, investment agent or custodian for its clients, will own almost all of
the Golden Rainbow Fund's shares and may be deemed to control the Fund. While
Fifth Third has the legal right in certain situations to vote on behalf of its
clients, it is anticipated that Fifth Third will contact its clients and vote in
accordance with their preferences.
THE INVESTMENT ADVISER
James Investment Research, Inc., P.O. Box 8, Alpha, Ohio 45301 (the
"Adviser") supervises the Funds' investments pursuant to a Management Agreement
(the "Management Agreement") subject to the approval of the Board of Trustees.
Francis E. James is the controlling shareholder of the Adviser. The Management
Agreement is effective for initial two-year term until 2000 and will be renewed
thereafter for one year periods only so long as such renewal and continuance is
specifically approved at least annually by the Board of Trustees or by vote of a
majority of the Funds' outstanding voting securities, provided the continuance
is also approved by a majority of the Trustees who are not "interested persons"
of the Trust or the Adviser by vote cast in person at a meeting called for the
purpose of voting on such approval. The Management Agreement is terminable
without penalty on sixty days notice by the Board of Trustees of the Trust or by
the Adviser. The Management Agreement provides that it will terminate
automatically in the event of its assignment.
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<PAGE>
As compensation for its management services, the Fund is obligated to pay
the Adviser a fee computed and accrued daily and paid monthly at an annual rate
of 0.74% of the average daily net assets of the Fund. The Adviser may waive all
or part of its fee, at any time, and at its sole discretion, but such action
shall not obligate the Adviser to waive any fees in the future. For the fiscal
years ended June 30, 1999 and 1998, the Fund accrued advisory fees of $_______;
______, in order to reduce operating expenses of the Fund, the Adviser waived
$______ of its fees.
The Fund is responsible for the payment of all operating expenses of the
Fund, including brokerage fees and commissions; taxes or governmental fees;
interest fees and expenses of the non-interested person trustees; clerical and
shareholder service staff salaries; office space and other office expenses; fees
and expenses incurred by the Fund in connection with membership in investment
company organizations; legal, auditing and accounting expenses; expenses of
registering shares under federal and state securities laws; insurance expenses;
fees and expenses of the custodian, transfer agent, dividend disbursing agent,
shareholder service agent, administrator, accounting and pricing services agent
and underwriter of the Fund; expenses, including clerical expenses, of issue,
sale, redemption or repurchase of shares of the Fund; the cost of preparing and
distributing reports and notices to shareholders, the cost of printing or
preparing prospectuses and statements of additional information for delivery to
the Fund's shareholders; the cost of printing or preparing statements, reports
or other documents to shareholders; expenses of shareholders' meetings and proxy
solicitations; and such extraordinary or non-recurring expenses as may arise,
including litigation to which the Fund may be a party and indemnification of the
Trust's trustees and officers with respect thereto.
The 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 90 days after
termination of the Agreement and may be withdrawn by the Adviser on 90 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
-18-
<PAGE>
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.
TRANSFER AGENT AND DISTRIBUTOR
The Fund retains Countrywide Fund Services, Inc., 312 Walnut Street,
Cincinnati, Ohio 45202 (the "Transfer Agent"), to serve as transfer agent,
dividend paying agent and shareholder service agent. The Fund also retains the
Transfer Agent to provide the Fund with administrative services, including
regulatory reporting and necessary office equipment, personnel and facilities.
For its services as administrator, the Transfer Agent receives a monthly fee 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, subject to a minimum monthly fee of $1,000. The Fund
retains CW Fund Distributors, Inc., 312 Walnut Street, Cincinnati, Ohio 45202
(the "Distributor"), to act as the exclusive agent for distribution of the
Fund's shares. 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. The Transfer Agent and the
Distributor are wholly-owned indirect subsidiaries of Countrywide Credit
Industries, Inc., a New York Stock Exchange listed company principally engaged
in the business of residential mortgage lending.
For the fiscal year ended June 30, 1999, the aggregate commissions
collected on sales of shares of the Fund were $______, of which the Distributor
paid $______ to unaffiliated broker-dealers in the selling network and earned
$______ form underwriting and broker commissions.
OTHER SERVICES
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, 2000. Deloitte & Touche LLP performs an annual audit of the
Fund's financial statements and provides financial, tax and accounting
consulting services as requested.
Firstar Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, is Custodian
of the Fund's investments. The Custodian holds all cash and securities of the
Fund (either in the Custodian's possession or in its favor through "book entry
systems" authorized by the Trustee in accordance with the Investment Company Act
of 1940), collects all income and effects all securities transactions on behalf
of the Fund.
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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.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to its obligation of seeking best
qualitative execution, the Adviser may give consideration to sales of shares of
the Fund as a factor in the selection of brokers and dealers to execute
portfolio transactions.
The 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.
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The Adviser makes investment decisions for the Fund independently from
those of the other accounts the Adviser manages; investments of the type the
Fund may make, however, may also be made by those other accounts. When the Fund
and one or more other accounts the Adviser manages are prepared to invest in, or
desire to dispose of, the same security, the Adviser will allocate available
investments or opportunities for sales in a manner the Adviser believes to be
equitable to each. In some cases, this procedure may adversely affect the price
paid or received by the Fund or the size of the position obtained or disposed of
by the Fund. Orders placed for the Fund will not be combined ("blocked") with
other orders.
For the fiscal year ended June 30, 1999, the Fund paid brokerage
commissions of $_______.
SHARES OF THE FUND
The Funds do not issue share certificates. All shares are held in
non-certificate form registered on the books of the Fund and the 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.
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)
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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 Internal Revenue
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 contingent deferred sales load ("CDSL") will not be imposed on amounts
representing increases in net asset value above the initial purchase price.
Additionally, no charge will be assessed on Class B or Class C Shares derived
from reinvestment of dividends or capital gains distributions. The CDSL will be
waived (i) on redemption of shares following the disability (as determined in
writing by the Social Security Administration) or death of a stockholder and
(ii) on certain redemptions in connection with IRAs and other qualified
retirement plans. In the case of an exchange, the length of time that the
investor held the original Class B or Class C Shares is counted towards
satisfaction of the period during which a deferred sales charge is imposed on
the Class B or Class C for which the exchange was made.
LETTER OF INTENT. A shareholder may qualify for reduced sales charges by sending
to the Fund (within 90 days after the first purchase desired to be included in
the purchase program) the signed, non-binding Letter of Intent section on the
application form. All investments in retail shares of the Fund count toward the
indicated goal. It is understood that 5% of the dollar amount checked on the
application will be held in a special escrow account. These shares will be held
by an escrow agent subject to the terms of the escrow. All dividends and capital
gains distributions on the escrowed shares will be credited to the shareholder's
account in shares. If the total purchases, less redemptions by the shareholder,
his spouse, children and parents, equal the amount specified under this Letter,
the shares held in escrow will be deposited to the shareholder's open account or
delivered to the shareholder or to his or her 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
in escrow for the shareholder's account will be deposited to the shareholder's
open account or delivered to the shareholder or to his or her order. If within
20 days after written request by the Distributor such difference in sales charge
is not paid, the Distributor is hereby authorized to redeem an appropriate
number of shares to realize such difference. The Distributor is hereby
irrevocably constituted under this Letter of Intent to effect such redemption as
agent of the shareholder.
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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
"Calculation of Share Price and Public Offering Price" in the Prospectus.
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 the 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 the
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 the 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.
ADDITIONAL TAX INFORMATION
TAXATION OF THE FUNDS. The Fund has qualified and intends to continue to qualify
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). Among its requirements to qualify under
Subchapter M, each Fund must distribute annually at least 90% of its net
investment income. In addition to this distribution requirement, the Fund must
derive at least 90% of its gross income each taxable year from dividends,
interest, payments with respect to securities' loans, gains from the disposition
of stock or securities, and certain other income.
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While the above requirements are aimed at qualification of the Fund as a
regulated investment company under Subchapter M of the Code, the Fund also
intends to comply with certain requirements of the Code to avoid liability for
federal income and excise tax. If the Fund remains qualified under Subchapter M,
it will not be subject to federal income tax to the extent it distributes its
taxable net investment income and net realized capital gains. A nondeductible 4%
federal excise tax will be imposed on the Fund to the extent it does not
distribute at least 98% of its ordinary taxable income for a calendar year, plus
98% of its capital gain net taxable income for the one year period ending each
October 31, plus certain undistributed amounts from prior years. While the Fund
intends to distribute its taxable income and capital gains in a manner so as to
avoid imposition of the federal excise and income taxes, there can be no
assurance that the Fund indeed will make sufficient distributions to avoid
entirely imposition of federal excise or income taxes.
Should additional series, or funds, be created by the Trustees, each fund would
be treated as a separate tax entity for federal income tax purposes.
[Tax information regarding carryforwards]
DISTRIBUTION PLANS
With respect to the Fund, the Trust has adopted a Plan for each class of
shares, pursuant to Rule 12b-1 which was promulgated by the Securities and
Exchange Commission pursuant to the Investment Company Act of 1940 (the
"Plans"). Each Plan provides for payment of fees to the Distributor to finance
any activity that is principally intended to result in the sale of the Fund's
shares subject to the Plans. Such activities are described in the Prospectus.
Pursuant to the Plans, the Distributor may pay fees to brokers and others for
such services. The Trustees expect that the adoption of the Plans will result in
the sale of a sufficient number of shares so as to allow the Fund to achieve
economic viability. It is also anticipated that an increase in the size of the
Fund will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objective. The maximum amounts payable by the
Fund under the Plans are described in the Prospectus.
The Trust's Board of Trustees, including a majority of the Trustees who are
not "interested persons" of the Trust and who have no direct or indirect
financial interest in the Plans or any related agreement, approved the Plans,
the Distribution Agreement, the Selling Agreements and the Service Agreements of
the Fund by a vote cast in person at a meeting called for the purpose of voting
on the Plans and such agreements and by the shareholders on August 20, 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.
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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.
For the fiscal period ended June 30, 1999, the Trust incurred $_______
under the Plan on behalf of the Class A shares of the Fund for payments to
broker-dealers and others for the sale or retention of Fund shares.
PERFORMANCE INFORMATION
"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:
n
P(1+T) = ERV
Where: P = a hypothetical $1,000 initial investment
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the applicable period of
the hypothetical $1,000 investment made at the beginning of the
applicable period.
The computation assumes that all dividends and distributions are reinvested at
the net asset value on the reinvestment dates and that a complete redemption
occurs at the end of the applicable period.
Each Fund may also advertise performance information (a "non-standardized
quotation") which is calculated differently from "average annual total return."
A non-standardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. A non-standardized quotation may
also be an average annual compounded rate of return over a specified period,
which may be a period different from those specified for "average annual total
return." In addition, a non-standardized quotation may be an indication of the
value of a $10,000 investment (made on the date of the initial public offering
of the Fund's shares) as of the end of a specified period. A non-standardized
quotation will always be accompanied by the Fund's "average annual total return"
as described above.
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
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groups of unmanaged securities considered to be representative of or similar to
the portfolio holdings of the Fund or considered to be representative of the
stock market in general. The Fund may use the Standard & Poor's 500 Stock Index,
the Dow Jones Industrial Average, the Value Line Stock Index or a blend of stock
and bond indices.
In addition, the performance of the Fund may be compared to other groups of
mutual funds tracked by any widely used independent research firm which ranks
mutual funds by overall performance, investment objectives and assets, such as
Lipper Analytical Services, Inc. or Morningstar, Inc. The objectives, policies,
limitations and expenses of other mutual funds in a group may not be the same as
those of the Fund. Performance rankings and ratings reported periodically in
national financial publications such as Barron's and Fortune also may be used.
The Fund may also include in advertisements data comparing performance with
other mutual funds as reported in non-related investment media, published
editorial comments and performance rankings compiled by independent
organizations and publications that monitor the performance of mutual funds
(such as Lipper Analytical Services, Inc., Morningstar, Inc., Fortune or
Barron's). Performance information may be quoted numerically or may be presented
in a table, graph or other illustration. In addition, Fund performance may be
compared to well-known indices of market performance including the Standard &
Poor's (S&P) 500 Index, the Dow Jones Industrial Average or the Russell 2000
Index.
The Golden Rainbow Fund is the successor to another mutual fund referred to
herein as the Predecessor Fund. The Predecessor Fund is the successor to the
portfolio of two common trust funds managed by the Adviser. At the Predecessor
Fund's commencement of operations, the assets from both common trust funds were
transferred to the Predecessor Fund in exchange for Class A shares. The Adviser
has represented that The Golden Rainbow Fund's and Predecessor Fund's investment
objectives, policies and limitations are in all material respects identical to
those of both common trust funds.
The Golden Rainbow Fund's average annual total return for the 1, 5 and 10
year periods ending June 30, 1999 was ____%, ____% and ____%, respectively. The
Golden Rainbow Fund's average annual total return for the period September 30,
1984 (commencement of operations) through June 30, 1999 was ____%. The quoted
performance data includes the performance of the Predecessor Fund. The quoted
performance data also includes the performance of the common trust funds for the
periods before the Predecessor Fund's registration statement became effective,
as adjusted to reflect the Predecessor Fund's estimated expenses as set forth in
its original prospectus. The common trust fund was not registered under the 1940
Act and therefore was not subject to certain investment restrictions that are
imposed by the 1940 Act. If the common trust fund had been registered under the
1940 Act, the performance may have been adversely affected.
The advertised performance data of 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.
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FINANCIAL STATEMENTS
[to be inserted]
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STATEMENT OF ADDITIONAL INFORMATION
THE JAMES SMALL CAP FUND
THE JAMES MARKET NEUTRAL FUND
THE JAMES LARGE CAP PLUS FUND
November 1, 1999
Series of
The James Advantage Funds
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
1-800-995-2637
TABLE OF CONTENTS
DESCRIPTION OF THE TRUST...................................................... 2
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS................................ 2
INVESTMENT LIMITATIONS........................................................14
TRUSTEES AND OFFICERS.........................................................16
INVESTMENT ADVISER............................................................17
TRANSFER AGENT AND DISTRIBUTOR................................................18
OTHER SERVICES................................................................18
PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................19
SHARES OF THE FUND............................................................20
DETERMINATION OF SHARE PRICE..................................................22
ADDITIONAL TAX INFORMATION....................................................22
DISTRIBUTION PLANS............................................................23
PERFORMANCE INFORMATION.......................................................24
FINANCIAL STATEMENTS..........................................................26
This Statement of Additional Information is not a prospectus and should
only be read in conjunction with the Prospectus of The James Small Cap Fund, The
James Large Cap Plus Fund and The James Market Neutral Fund dated November 1,
1999. A 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>
DESCRIPTION OF THE TRUST
The James Small Cap Fund, The James Large Cap Plus Fund and The James
Market Neutral Fund (collectively the "Funds") were organized as series of The
James Advantage Funds (the "Trust"). The Trust is an open-end investment company
established under the laws of Ohio by an Agreement and Declaration of Trust
dated August 29, 1997 (the "Trust Agreement"). The Trust Agreement permits the
Trustees to issue an unlimited number of shares of beneficial interest of
separate series without par value. Each Fund is one of a series of Funds
currently authorized by the Trustees
Each share of a series represents an equal proportionate interest in the
assets and liabilities belonging to that series with each other share of that
series and is entitled to such dividends and distributions out of income
belonging to the series as are declared by the Trustees. The shares do not have
cumulative voting rights or any preemptive or conversion rights, and the
Trustees have the authority from time to time to divide or combine the shares of
any series into a greater or lesser number of shares of that series so long as
the proportionate beneficial interest in the assets belonging to that series and
the rights of shares of any other series are in no way affected. In case of any
liquidation of a series, the holders of shares of the series being liquidated
will be entitled to receive as a class a distribution out of the assets, net of
the liabilities, belonging to that series. Expenses attributable to any series
are borne by that series. Any general expenses of the Trust not readily
identifiable as belonging to a particular series are allocated by or under the
direction of the Trustees in such manner as the Trustees determine to be fair
and equitable. No shareholder is liable to further calls or to assessment by the
Trust without his or her express consent.
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.
Upon 60 days prior written notice to shareholders, the Funds may make
redemption payments in whole or in part in securities or other property if the
Trustees determine that existing conditions make cash payments undesirable. For
other information concerning the purchase and redemption of shares of the Funds,
see "How to Purchase Shares" and "How to Redeem Shares" in the Funds'
Prospectus. For a description of the methods used to determine the share price
and value of the Funds' assets, see "Calculation of Share Price and Public
Offering Price" in the Funds' Prospectus.
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
This section contains a more detailed discussion of some of the investments
the Funds may make and some of the techniques it may use, as described in the
Prospectus.
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A. Equity Securities.
The Funds may invest in common stock, in addition to which, the Funds may
invest in preferred stock and common stock equivalents (such as convertible
preferred stock and convertible debentures). Convertible preferred stock is
preferred stock that can be converted into common stock pursuant to its terms.
Convertible debentures are debt instruments that can be converted into common
stock pursuant to their terms. The Adviser intends to invest only in preferred
stock rated A or higher by Standard & Poor's Corporation ("S&P") or by Moody's
Investors Services, Inc. ("Moody's").
B. U.S. Government Obligations.
The Fund may invest in U.S. government obligations. These securities may be
backed by the credit of the government as a whole or only by the issuing agency.
U.S. Treasury bonds, notes, and bills and some agency securities, such as those
issued by the Federal Housing Administration and the Government National
Mortgage Association (GNMA), are backed by the full faith and credit of the U.S.
government as to payment of principal and interest and are the highest quality
government securities. Other securities issued by U.S. government agencies or
instrumentalities, such as securities issued by the Federal Home Loan Banks and
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the agency that issued them, and not by the U.S. government. Securities issued
by the Federal Farm Credit System, the Federal Land Banks, and the Federal
National Mortgage Association (FNMA) are supported by the agency's right to
borrow money from the U.S. Treasury under certain circumstances, but are not
backed by the full faith and credit of the U.S. government.
C. Repurchase Agreements.
The Funds 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., a Fund) acquires ownership of a U.S. Government
obligation (which may be of any maturity) and the seller agrees to repurchase
the obligation at a future time at a set price, thereby determining the yield
during the purchaser's holding period (usually not more than seven days from the
date of purchase). Any repurchase transaction in which a Fund engages will
require full collateralization of the seller's obligation during the entire term
of the repurchase agreement. In the event of a bankruptcy or other default of
the seller, a Fund could experience both delays in liquidating the underlying
security and losses in value. However, the Funds 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 Funds engage
in repurchase transactions.
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<PAGE>
D. Illiquid Securities.
The portfolio of each Fund may contain up to 15% in illiquid securities.
Illiquid securities generally include securities that cannot be disposed of
promptly and in the ordinary course of business without taking a reduced price.
Securities may be illiquid due to contractual or legal restrictions on resale or
lack of a ready market. The following securities are considered to be illiquid:
repurchase agreements maturing in more than seven days, nonpublicly offered
securities and restricted securities. Restricted securities are securities the
resale of which is subject to legal or contractual restrictions. Restricted
securities may be sold only in privately negotiated transactions, in a public
offering with respect to which a registration statement is in effect under the
Securities Act of 1933 or pursuant to Rule 144 or Rule 144A promulgated under
the Act. Where registration is required, the Funds 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 Funds might obtain a less favorable price
than the price it could have obtained when it decided to sell.
E. Loans of Securities.
The Funds 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 Funds on a daily market-to-market basis in an
amount at least equal to the value of the loaned securities. The Funds will
continue to receive dividends or interest on the loaned securities and may
terminate such loans at any time or reacquire such securities in time to vote on
any matter which the Adviser determines to be important. With respect to loans
of securities, there is the risk that the borrower may fail to return the loaned
securities or that the borrower may not be able to provide additional
collateral.
F. Borrowing and Leverage; Reverse Repurchase Agreements.
The Funds may borrow from banks, from time to time on a temporary basis, up
to 5% of their respective total assets, and the Funds may pledge assets in
connection with such borrowings. The Funds also may engage in reverse repurchase
agreements in which the Funds sell 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, a Fund generally will direct its custodian to segregate cash and
appropriate liquid assets to cover its obligations under the agreement. The
Funds will enter into reverse repurchase agreements only with parties whose
creditworthiness has been reviewed and deemed satisfactory by the Adviser. A
Fund aggregates reverse repurchase agreements with its bank borrowings for
purposes of limiting borrowings to 5% of its net assets. The borrowing of
securities for short sales is excluded for purposes of this limitation.
If the Funds make additional investments while borrowings are outstanding,
this may be construed as a form of leverage. The Funds' objectives would be to
pursue investment opportunities with returns that exceed the cost of the
borrowings. This leverage may exaggerate
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changes in a Fund's share value and the gains and losses on a Fund's investment.
Leverage also creates interest expenses that may exceed the return on
investments made with the borrowings.
G. Foreign Securities
The Funds may invest, without limitation, in foreign 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
American depository receipts ("ADR's"). ADRs are certificates of ownership
issued by a U.S. bank as a convenience to investors in lieu of the underlying
shares which its holds in custody.
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 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.
H. Portfolio Turnover
Neither The Small Cap Fund nor The Market Neutral Fund intends to purchase
or sell securities for short term trading purposes. The Funds may, however, sell
any portfolio security (without regard to the length of time it has been held)
when the Adviser believes that market conditions, creditworthiness factors or
general economic conditions warrant such action. The portfolio turnover rate is
not expected to exceed 100% for The Small Cap Fund nor The Large Cap Plus Fund,
or 300% for The Market Neutral Fund.
I. Investment Techniques Specific to The Market Neutral Fund
The James Market Neutral Fund may utilize various other investment
strategies as described below. Such strategies are generally accepted by modern
portfolio managers and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may
purchase and sell financial futures contracts and options thereon, and enter
into various interest rate transactions such
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as swaps, caps, floors or collars. Any or all of these investment techniques may
be used at any time and there is no particular strategy that dictates the use of
one technique rather than another, as use of any techniques is a function of
numerous variables including market conditions. The ability of the Fund to
utilize these techniques successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments.
These techniques have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such techniques would result in losses greater than if they had not been
used. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Finally, the daily
variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of such techniques would reduce net asset value, and possibility income,
and such losses can be greater than if the techniques had not been utilized.
GENERAL CHARACTERISTICS OF OPTIONS
Put options and call options typically have similar structural
characteristics and operational mechanics regardless of the underlying
instrument on which they are purchased or sold. Thus, the following general
discussion relates to each of the particular types of options discussed in
greater detail below. In addition, many Hedging Transactions involving options
require segregation of a Fund's 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 example, a 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. A 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 Funds are 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
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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.
A 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.
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
Funds will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Funds to require the Counterparty
to sell the option back to the Funds at a formula price within seven days. The
Funds expect generally to enter into OTC options that have cash settlement
provisions, although they are 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 a 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 Funds greater flexibility
to tailor an option to their needs, 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.
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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 a Fund sell 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 Funds 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 Funds must be "covered" (i.e., the Funds 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 a 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 Funds may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments (whether or not it holds the above securities in its portfolio) and
on securities indices, currencies and futures contracts other than futures on
individual corporate debt and individual equity securities. The Fund will not
sell put options if, as a result, more than 50% of the Fund's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that the fund may be required to buy the underlying
security at a disadvantageous price above the market price.
GENERAL CHARACTERISTICS OF FUTURES
The Funds 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 a
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 Funds' 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
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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 a 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 a Fund. If a Fund exercises an option on a futures contract, it will
be obligated to post initial margin (and potential subsequent variation margin)
for the resulting futures position just as it would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction, but there can be no assurance that the position can be
offset prior to settlement at an advantageous price nor that delivery will
occur. The segregation requirements with respect to futures contracts and
options thereon are described below.
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES
The Funds 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 Funds 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 Funds 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,
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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 Funds' 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 a 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 Funds will not enter into a transaction to hedge currency exposure to
an extent greater, after netting all transactions intended to wholly or
partially offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currency convertible into such
currently other than with respect to proxy hedging as described below.
The Funds 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 Funds have or in which the Funds
expect to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Funds may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Funds'
respective portfolios are 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 a 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 a Fund's securities denominated in linked
currencies. For example, if the Adviser considers the Austrian schilling linked
to the German deutschemark (the "D-mark"), a 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 a Fund is engaging
in proxy hedging. If a 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 a Fund if it
is unable to deliver or receive currency or funds in settlement of obligations
and could also cause hedges it
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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 that may not
always be available. Currency exchange rates may fluctuate based on factors
extrinsic to that country's economy.
COMBINED TRANSACTIONS
The Funds 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 a Fund to do so. A
combined transaction will usually contain elements of risk that are present in
each of its competent transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.
SWAPS, CAPS, FLOORS AND COLLARS
Among the Hedging Transactions into which the Funds may enter are interest
rate, currency and index swaps and the purchase or sale of related caps, floors
and collars. The Funds expect 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 a Fund
anticipates purchasing at a later date. The Funds intend 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 Funds may be obligated to pay.
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest, for example, 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 Funds 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 a 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 Funds 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 Funds 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
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or is determined to be of equivalent credit quality by the Adviser. If there is
a default by the Counterparty, a Fund may have contractual remedies pursuant to
the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
Caps, floors, and collars are more recent innovations for which standardized
documentation has not yet been fully developed and, accordingly, they are less
liquid than swaps.
EURODOLLAR INSTRUMENTS
The Funds 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 Funds
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
a 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 a 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 a 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 a Fund on an index will require the Fund to own portfolio securities which
correlate with the index or to segregate liquid
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high grade assets equal to the excess of the index value over the exercise price
on a current basis. A put option written by a Fund requires the Fund to
segregate liquid, high-grade assets equal to the exercise price.
Except when the Funds enter into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract that obligates a Fund to buy or sell currency
will generally require the Fund to hold an amount of that currency or liquid
securities denominated in that currency equal to the Fund's obligations or to
segregate liquid high-grade assets equal to the amount of the Fund's obligation.
OTC options entered into by the Funds, 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 a
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 a 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 a Fund sells a call option on an index at a time when the in-the-money
amount exceeds 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 a 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, a 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, a 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 Funds may also enter into offsetting
transactions so that their respective combined position, coupled with any
segregated assets, equals their net outstanding obligation in related options
and Hedging Transactions. For example, a 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 a 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
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than the price of the contract held. Other Hedging Transactions may also be
offset in combinations. If the offsetting transaction terminates at the time of
or after the primary transaction no segregation is required, but if it
terminates prior to such time, assets equal to any remaining obligation would
need to be segregated.
INVESTMENT LIMITATIONS
FUNDAMENTAL. The investment limitations described below have been adopted
by the Trust with respect to the Funds and are fundamental ("Fundamental"), that
is, they may not be changed without the affirmative vote of a majority of the
outstanding shares of the Funds. As used in the Prospectus and this Statement of
Additional Information, the term "majority" of the outstanding shares of the
Funds 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 Funds are present or represented at such meeting; or (2) more than 50% of
the outstanding shares of the Fund. Other investment practices that may be
changed by the Board of Trustees without the approval of shareholders to the
extent permitted by applicable law, regulation or regulatory policy are
considered non-fundamental ("Non-Fundamental").
1. BORROWING MONEY. The Funds will not borrow money, except (a) from a
bank, provided that immediately after such borrowing there is an asset coverage
of 300% for all borrowings of the Funds; 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 Funds' total assets at the time when the
borrowing is made. This limitation does not preclude the Funds from entering
into reverse repurchase transactions, provided that the Funds have an asset
coverage of 300% for all borrowings and repurchase commitments of the Funds
pursuant to reverse repurchase transactions.
2. SENIOR SECURITIES. The Funds will not issue senior securities. This
limitation is not applicable to activities that may be deemed to involve the
issuance or sale of a senior security by the Funds, provided that the Funds'
engagement in such activities is consistent with or permitted by the Investment
Company Act of 1940, as amended, the rules and regulations promulgated
thereunder or interpretations of the Securities and Exchange Commission or its
staff.
3. UNDERWRITING. The Funds will not act as underwriter of securities issued
by other persons. This limitation is not applicable to the extent that, in
connection with the disposition of portfolio securities (including restricted
securities), the Funds may be deemed an underwriter under certain federal
securities laws.
4. REAL ESTATE. The Funds will not purchase or sell real estate. This
limitation is not applicable to investments in marketable securities that are
secured by or represent interests in real estate. This limitation does not
preclude the Funds 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).
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5. COMMODITIES. The Funds will not purchase or sell commodities except as
described in the Prospectus and Statement of Additional Information. This
limitation does not preclude the Funds 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 that are engaged in a commodities business or have a
significant portion of their assets in commodities.
6. LOANS. The Funds will not make loans to other persons, except (a) by
loaning portfolio securities, (b) by engaging in repurchase agreements, or (c)
by purchasing nonpublicly offered debt securities. For purposes of this
limitation, the term "loans" shall not include the purchase of a portion of an
issue of publicly distributed bonds, debentures or other securities.
7. CONCENTRATION. The Funds 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 Small Cap Fund and the Market Neutral 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 Funds' diversification, the current standards require
that the Funds 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 Funds would own more than 10% of the outstanding voting
securities of such issuer, except that up to 25% of the value of the Funds'
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 Funds and are Non-Fundamental (see "Investment Limitations"
above).
1. PLEDGING. The Funds will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any assets of the Funds 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.
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2. BORROWING. The Funds will not purchase any security while borrowings
(including reverse repurchase agreements) representing more than 5% its total
assets are outstanding.
3. MARGIN PURCHASES. The Funds will not purchase securities or evidences of
interest thereon on "margin." This limitation is not applicable to short-term
credit obtained by the Funds for the clearance of purchases and sales or
redemption of securities, or to arrangements with respect to transactions
involving options, futures contracts, short sales and other permitted
investments and techniques.
4. OPTIONS. The Funds 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 James Small Cap Plus Fund and The James Large Cap Plus
Fund will not effect short sales of securities.
6. ILLIQUID SECURITIES. The Funds 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 that cannot be
disposed of within seven days in the ordinary course of business without taking
a reduced price.
TRUSTEES AND OFFICERS
The Board of Trustees has overall responsibility for management of the
Funds under the laws of Ohio governing the responsibilities of trustees of
business trusts. Following are the Trustees and executive officers of the Trust,
their present occupation with the Trust or Funds, age, principal occupation
during the past 5 years and their aggregate compensation from the Trust for the
fiscal year ended June 30, 1999.
<TABLE>
<CAPTION>
Name, Age, Position Principal Occupation Compensation From
And Address During Past 5 Years The Trust
----------- ------------------- ---------
<S> <C> <C>
Barry R. James, CFA * (42) Executive Vice President, James Investment $0
President and Trustee of the Trust Research, Inc. (1985 to Present).
P.O. Box 8
Alpha, Ohio 45301
Thomas L. Mangan (49) Vice president, James Investment Research, $0
Vice President, Treasurer and Inc. (1994 to Present).
Secretary of the Trust;
P.O. Box 8
Alpha, Ohio 45301
Anthony P. D'Angelo (68) Professor, Graduate School of Logistics and $
Trustee Acquisition Management, Air Force Institute
Dept. of the Air Force, Building 641 of Technology, Wright-Patterson AFB, Ohio
2950 P Street (1983 to present).
Wright-Patterson AFB Ohio 45433
Hazel L. Eichelberger (61) Retired Sr. Vice President, Citizens Federal $
Trustee Bank, Dayton, Ohio (1955 to 1997).
9438 Atchison Road
Dayton, Ohio 45458
James F. Zid (64) Retired Partner, Ernst & Young, LLP, $
Trustee Columbus, Ohio (1968 to 1993).
1083 N. Collier Blvd.
Marco Island, Florida 34145
</TABLE>
* Indicates that Trustee is an Interested Person for purposes of the Investment
Company Act of 1940.
PRINCIPAL HOLDERS OF VOTING SECURITIES. As of ____________, 1999, the officers
and Trustees of the Fund as group owned _______________________of the
then-outstanding shares of the Fund. [5% owners to be inserted]
THE INVESTMENT ADVISER
James Investment Research, Inc., P.O. Box 8, Alpha, Ohio 45301 (the
"Adviser") supervises the Funds' investments pursuant to a Management Agreement
(the "Management Agreement") subject to the approval of the Board of Trustees.
Francis E. James is the controlling shareholder of the Adviser. The Management
Agreement is effective for initial two-year term until 2000 and will be renewed
thereafter for one year periods only so long as such renewal and continuance is
specifically approved at least annually by the Board of Trustees or by vote of a
majority of the Funds' outstanding voting securities, provided the continuance
is also approved by a majority of the Trustees who are not "interested persons"
of the Trust or the Adviser by vote cast in person at a meeting called for the
purpose of voting on such approval. The Management Agreement is terminable
without penalty on sixty days notice by the Board of Trustees of the Trust or by
the Adviser. The Management Agreement provides that it will terminate
automatically in the event of its assignment.
As compensation for its management services, the Adviser is authorized to
receive a fee computed and accrued daily and paid monthly (a) at an annual rate
of 1.25% of the average daily net assets of The James Small Cap Fund and The
James Large Cap Plus Fund and 1.70% of The James Market Neutral Fund minus (b)
the fees and expenses of the non-interested person trustees incurred by the
Fund. The Adviser may waive all or part of its fee, at any time, and at its sole
discretion, but such action shall not obligate the Adviser to waive any fees in
the future. For the fiscal years ended June 30, 1999, The James Small Cap Fund
paid the Adviser advisory fees of $________ and the James Market Neutral Fund
paid the Adviser advisory fees of $_________.
-16-
<PAGE>
The Adviser retains the right to use the names "James Advantage," "James
Small Cap Fund," "James Market Neutral Fund" or "James Large Cap Plus Fund" or
any variation thereof in connection with another investment company or business
enterprise with which the Adviser is or may become associated. The Trust's right
to use the names "James Advantage," "James Small Cap Fund," "James Market
Neutral Fund" or "James Large Cap Plus Fund" or any variation thereof
automatically ceases 90 days after termination of the Agreement and may be
withdrawn by the Adviser on 90 days written notice.
The Adviser may make payments to banks or other financial institutions that
provide shareholder services and administer shareholder accounts. The
Glass-Steagall Act prohibits banks from engaging in the business of
underwriting, selling or distributing securities. Although the scope of this
prohibition under the Glass-Steagall Act has not been clearly defined by the
courts or appropriate regulatory agencies, management of the Funds believes that
the Glass-Steagall Act should not preclude a bank from providing such services.
However, state securities laws on this issue may differ from the interpretations
of federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law. If a bank were prohibited
from continuing to perform all or a part of such services, management of the
Funds believes that there would be no material impact on the Funds or their
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 Funds may from time to time
purchase securities issued by banks which provide such services; however, in
selecting investments for the Funds, no preference will be shown for such
securities.
TRANSFER AGENT AND DISTRIBUTOR
The Funds retain Countrywide Fund Services, Inc., 312 Walnut Street,
Cincinnati, Ohio 45202 (the "Transfer Agent"), to serve as transfer agent,
dividend paying agent and shareholder service agent. The Funds also retain the
Transfer Agent to provide the Funds 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 (a)
equal to an annual rate of 1.25% of the average daily net assets of The James
Small Cap Fund and The James Large Cap Plus Fund and 1.70% of the Market Neutral
Fund; minus (b) the fees and expenses of the non-interested person trustees
incurred by the applicable Fund, subject to a minimum monthly fee of $1,000. The
Funds retain CW Fund Distributors, Inc., 312 Walnut Street, Cincinnati, Ohio
45202 (the "Distributor"), to act as the exclusive agent for distribution of the
Funds' shares. The Distributor is obligated to sell shares of the Funds on a
best efforts basis only against purchase orders for the shares. Shares of the
Funds are offered to the public on a continuous basis. The Transfer Agent and
the Distributor are wholly-owned indirect subsidiaries of Countrywide Credit
Industries, Inc., a New York Stock Exchange listed company principally engaged
in the business of residential mortgage lending.
-17-
<PAGE>
For the fiscal year ended June 30, 1999, the aggregate commissions
collected on sales of shares of the James Small Cap Fund were $______, of which
the Distributor paid $______ to unaffiliated broker-dealers in the selling
network and earned $______ form underwriting and broker commissions. For the
fiscal year ended June 30, 1999, the aggregate commissions collected on sales of
shares of the James Market Neutral Fund were $______, of which the Distributor
paid $______ to unaffiliated broker-dealers in the selling network and earned
$______ form underwriting and broker commissions.
OTHER SERVICES
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, 2000. Deloitte & Touche LLP performs an annual audit of the
Fund's financial statements and provides financial, tax and accounting
consulting services as requested.
Firstar Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, is Custodian
of the Funds' investments. The Custodian holds all cash and securities of the
Funds (either in the Custodian's possession or in its favor through "book entry
systems" authorized by the Trustee in accordance with the Investment Company Act
of 1940), collects all income and effects all securities transactions on behalf
of the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Trustees of the Trust, the
Adviser is responsible for the Funds' portfolio decisions and the placing of the
Funds' portfolio transactions. In placing portfolio transactions, the Adviser
seeks the best qualitative execution for the Funds, 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.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to its obligation of seeking best
qualitative execution, the Adviser may give consideration to sales of shares of
the Fund as a factor in the selection of brokers and dealers to execute
portfolio transactions.
The Adviser is specifically authorized to select brokers or dealers who
also provide brokerage and research services to the Funds and/or the other
accounts over which the Adviser exercises investment discretion and to pay such
brokers or dealers a commission in excess of the commission another broker or
dealer would charge if the Adviser determines in good faith that the commission
is reasonable in relation to the value of the brokerage and research services
provided. The determination may be viewed in terms of a particular transaction
or the Adviser's overall responsibilities with respect to the Trust and to other
accounts over which it exercises investment discretion.
-18-
<PAGE>
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 Funds effect securities transactions may
also be used by the Adviser in servicing all of its accounts. Similarly,
research and information provided by brokers or dealers serving other clients
may be useful to the Adviser in connection with its services to the Funds.
Although research services and other information are useful to the Funds and the
Adviser, it is not possible to place a dollar value on the research and other
information received. 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 Funds 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.
The Adviser makes investment decisions for the Funds independently from
those of the other accounts the Adviser manages; investments of the type the
Funds may make, however, may also be made by those other accounts. When the
Funds and one or more other accounts the Adviser manages are prepared to invest
in, or desire to dispose of, the same security, the Adviser will allocate
available investments or opportunities for sales in a manner the Adviser
believes to be equitable to each. In some cases, this procedure may adversely
affect the price paid or received by the Funds or the size of the position
obtained or disposed of by the Fund. Orders placed for the Funds will not be
combined ("blocked") with other orders.
For the fiscal year ended June 30, 1999, The James Small Cap Fund and The
James Market Neutral Fund paid brokerage commissions of $_______ and $_______,
respectively.
SHARES OF THE FUND
The Funds do not issue share certificates. All shares are held in
non-certificate form registered on the books of the Funds and the Transfer Agent
for the account of the shareholder. The rights to limit the amount of purchases
and to refuse to sell to any person are reserved by the Funds. If your check or
wire does not clear, you will be responsible for any loss incurred by the Funds.
If you are already a shareholder, the Funds can redeem shares from any
identically registered account in the Funds as reimbursement for any loss
incurred. You may be prohibited or restricted from making future purchases in
the Funds.
Four classes of shares, Class A Shares, Class B Shares, Class C Shares, and
Class R Shares are authorized for the Fund. Currently, the Funds are 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 respective
-19-
<PAGE>
portfolios of investments of the Funds 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 Funds' 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 Internal Revenue 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 contingent deferred sales load ("CDSL") will not be imposed on amounts
representing increases in net asset value above the initial purchase price.
Additionally, no charge will be assessed on Class B or Class C Shares derived
from reinvestment of dividends or capital gains distributions. The CDSL will be
waived (i) on redemption of shares following the disability (as determined in
writing by the Social Security Administration) or death of a stockholder and
(ii) on certain redemptions in connection with IRAs and other qualified
retirement plans. In the case of an exchange, the length of time that the
investor held the original Class B or Class C Shares is counted towards
satisfaction of the period during which a deferred sales charge is imposed on
the Class B or Class C for which the exchange was made.
LETTER OF INTENT. A shareholder may qualify for reduced sales charges by sending
to the respective Funds (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
respective Funds 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
-20-
<PAGE>
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 or
her 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 in escrow for the shareholder's account will be deposited to the
shareholder's open account or delivered to the shareholder or to his or her
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.
DETERMINATION OF SHARE PRICE
The price (net asset value) of the shares of the Funds 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
"Calculation of Share Price and Public Offering Price" in the Prospectus.
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 the Funds, 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
-21-
<PAGE>
and on which the Funds' 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 Funds may not be purchased or redeemed.
The calculation of the share price of the Funds 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 Funds' 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.
ADDITIONAL TAX INFORMATION
TAXATION OF THE FUNDS. The James Small Cap Fund and The James Market Neutral
Funds have qualified and intend to continue to qualify as "regulated investment
companies" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). The James Large Cap Plus Fund intends to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). Among its requirements to qualify under Subchapter M, each
Fund must distribute annually at least 90% of its net investment income. In
addition to this distribution requirement, the Fund must derive at least 90% of
its gross income each taxable year from dividends, interest, payments with
respect to securities' loans, gains from the disposition of stock or securities,
and certain other income.
While the above requirements are aimed at qualification of the Funds as
regulated investment companies under Subchapter M of the Code, the Funds also
intend to comply with certain requirements of the Code to avoid liability for
federal income and excise tax. If the Funds remains qualified under Subchapter
M, they will not be subject to federal income tax to the extent they distributes
their taxable net investment income and net realized capital gains. A
nondeductible 4% federal excise tax will be imposed on the Funds to the extent
they do not distribute at least 98% of their ordinary taxable income for a
calendar year, plus 98% of their capital gain net taxable income for the one
year period ending each October 31, plus certain undistributed amounts from
prior years. While the Funds intend to distribute their taxable income and
capital gains in a manner so as to avoid imposition of the federal excise and
income taxes, there can be no assurance that the Funds indeed will make
sufficient distributions to avoid entirely imposition of federal excise or
income taxes.
Should additional series, or funds, be created by the Trustees, each fund
would be treated as a separate tax entity for federal income tax purposes.
[Tax information regarding carryforwards]
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<PAGE>
DISTRIBUTION PLANS
With respect to the Funds, the Trust has adopted a Plan for each class of
shares, pursuant to Rule 12b-1 which was promulgated by the Securities and
Exchange Commission pursuant to the Investment Company Act of 1940 (the
"Plans"). Each Plan provides for payment of fees to the Distributor to finance
any activity that is principally intended to result in the sale of the Funds'
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 Funds to achieve
economic viability. It is also anticipated that an increase in the size of the
Funds will facilitate more efficient portfolio management and assist the Funds
in seeking to achieve its investment objective. The maximum amounts payable by
the Funds under the Plans are described in the Prospectus.
The Trust's Board of Trustees, including a majority of the Trustees who are
not "interested persons" of the Trust and who have no direct or indirect
financial interest in the Plans or any related agreement, approved the Plans,
the Distribution Agreement, the Selling Agreements and the Service Agreements of
the respective Funds by a vote cast in person at a meeting called for the
purpose of voting on the Plans and such agreements and by the shareholders on
August 20, 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.
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.
For the fiscal period ended June 30, 1999, The James Small Cap Fund and The
James Large Cap Plus Fund incurred $_______ and $______, respectively, under the
Plans on behalf of the Class A shares of the Funds for payments to
broker-dealers and others for the sale or retention of Fund shares.
PERFORMANCE INFORMATION
"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:
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<PAGE>
n
P(1+T) = ERV
Where: P = a hypothetical $1,000 initial investment
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the applicable period of
the hypothetical $1,000 investment made at the beginning of the
applicable period.
The computation assumes that all dividends and distributions are reinvested at
the net asset value on the reinvestment dates and that a complete redemption
occurs at the end of the applicable period.
Each Fund may also advertise performance information (a "non-standardized
quotation") which is calculated differently from "average annual total return."
A non-standardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. A non-standardized quotation may
also be an average annual compounded rate of return over a specified period,
which may be a period different from those specified for "average annual total
return." In addition, a non-standardized quotation may be an indication of the
value of a $10,000 investment (made on the date of the initial public offering
of the Fund's shares) as of the end of a specified period. A non-standardized
quotation will always be accompanied by the Fund's "average annual total return"
as described above.
The Funds' investment performance will vary depending upon market
conditions, the composition of the Funds' respective portfolios and operating
expenses of the Funds. These factors and possible differences in the methods and
time periods used in calculating non-standardized investment performance should
be considered when comparing the Funds' performance to those of other investment
companies or investment vehicles. The risks associated with the Funds'
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
Funds may be compared to indices of broad groups of unmanaged securities
considered to be representative of or similar to the portfolio holdings of the
Funds or considered to be representative of the stock market in general. The
Funds 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 Funds 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
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<PAGE>
group may not be the same as those of the Funds. Performance rankings and
ratings reported periodically in national financial publications such as
Barron's and Fortune also may be used.
The Funds may also include in advertisements data comparing performance
with other mutual funds as reported in non-related investment media, published
editorial comments and performance rankings compiled by independent
organizations and publications that monitor the performance of mutual funds
(such as Lipper Analytical Services, Inc., Morningstar, Inc., Fortune or
Barron's). Performance information may be quoted numerically or may be presented
in a table, graph or other illustration. In addition, Fund performance may be
compared to well-known indices of market performance including the Standard &
Poor's (S&P) 500 Index, the Dow Jones Industrial Average or the Russell 2000
Index.
The advertised performance data of each Fund is based on historical
performance and is not intended to indicate future performance. Rates of total
return quoted by a Fund may be higher or lower than past quotations, and there
can be no assurance that any rate of total return will be maintained. The
principal value of an investment in each Fund will fluctuate so that a
shareholder's shares, when redeemed, may be worth more or less than the
shareholder's original investment.
FINANCIAL STATEMENTS
[to be inserted]
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits:
---------
a. Declaration of Trust**
b. Bylaws*
c. Not Applicable
d. (i) Investment Advisory Agreement for The Golden Rainbow Fund*
(ii) Investment Advisory Agreement for The James Small Cap Fund*
(iii) Investment Advisory Agreement for The James Market Neutral
Fund*
(iv) Investment Advisory Agreement for The James Large Cap Plus
Fund**
e. Underwriting Agreement between The James Advantage Funds and CW
Fund Distributors*
f. Not Applicable
g. Custodian Agreement with Firstar Bank, N.A.*
h. Administration, Accounting and Transfer Agency Agreement*
i. Opinion and Consent of Counsel*
j. Not Applicable
k. Not Applicable
l. Agreement Relating to Initial Capital for The James Large Cap
Plus Fund**
m. Plans of Distribution Pursuant to Rule 12b-1**
n. Not Applicable
o. Rule 18f-3 Plan Adopted With Respect to the Multiple Class
Distribution System*
- ----------------------
* Previously filed as Exhibit to Registration Statement on Form N-1A.
** To be filed by Amendment.
<PAGE>
Item 24. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
No person is directly or indirectly controlled by or under common
control with the Registrant.
Item 25. Indemnification.
----------------
Article VI of the Registrant's Agreement and Declaration of Trust
provides for indemnification of officers and trustees as follows:
"SECTION 6.4 Indemnification of Trustees, Officers, etc. Subject to
and except as otherwise provided in the Securities Act of 1933, as
amended, and the 1940 Act, the Trust shall indemnify each of its
Trustees and officers (including persons who serve at the Trust's
request as directors, officers or trustees of another organization in
which the Trust has any interest as a shareholder, creditor or
otherwise (hereinafter referred to as a "Covered Person") against all
liabilities, including but not limited to amounts paid in satisfaction
of judgments, in compromise or as fines and penalties, and expenses,
including reasonable accountants' and counsel fees, incurred by any
Covered Person in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before
any court or administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or otherwise or
with which such person may be or may have been threatened, while in
office or thereafter, by reason of being or having been such a Trustee
or officer, director or trustee, and except that no Covered Person
shall be indemnified against any liability to the Trust or its
Shareholders to which such Covered Person would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such
Covered Person's office.
"SECTION 6.5 Advances of Expenses. The Trust shall advance attorneys'
fees or other expenses incurred by a Covered Person in defending a
proceeding to the full extent permitted by the Securities Act of 1933,
as amended, the 1940 Act, and Ohio Revised Code Section 1701.13(E), as
amended, these laws, and not Ohio Revised Code Section 1701.13(E),
shall govern.
<PAGE>
"SECTION 6.6 Indemnification Not Exclusive, etc. The right of
indemnification provided by this Article VI shall not be exclusive of
or affect any other rights to which any such Covered Person may be
entitled. As used in this Article VI, "Covered Person" shall include
such person's heirs, executors and administrators. Nothing contained
in this article shall affect any rights to indemnification to which
personnel of the Trust, other than Trustees and officers, and other
persons may be entitled by contract or otherwise under law, nor the
power of the Trust to purchase and maintain liability insurance on
behalf of any such person."
The Trust maintains a standard mutual fund and investment advisory
professional and directors and officers liability policy. Coverage
under the policy includes losses by reason of any act, error,
omission, misstatement, misleading statement, neglect or breach of
duty. The Trust may not pay for insurance which protects its Trustees
and officers against liabilities arising from action involving willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of their offices.
Item 26. Business and Other Connections of Investment Advisor
----------------------------------------------------
James Investment Research, Inc. is a registered investment advisor
providing general investment advisory services to the series of The
James Advantage Funds: The Golden Rainbow Fund, The James Small Cap
Fund, The James Market Neutral Fund and The James Market Plus Fund.
James Investment Research, Inc. also provides investment advisory
services to corporations, trusts, pension and profit sharing plans,
other business and institutional accounts and individuals. The
following list sets forth the business and other connections of the
directors and officers of James Investment Research, Inc., P.O. Box 8,
Alpha, Ohio 45301.
(1) Francis E. James, Jr. - President of James Investment Research,
Inc.
(2) Barry R. James - Executive Vice President of James Investment
Research, Inc.
(a) President and Trustee of The James Advantage Funds.
(3) Ann Marie Shaw - Senior Vice President of James Investment
Research, Inc.
(4) Thomas L. Mangan - First Vice President and Compliance Officer of
James Investment Research, Inc.
(a) Treasurer and Secretary of The James Advantage Funds.
<PAGE>
(5) Suzanne Smith - Treasurer of James Investment Research, Inc.
(6) Iris Rae James - Secretary of James Investment Research, Inc.
(7) Jerome G. Peppers - Director of James Investment Research, Inc.
(8) Robert G. Hawkins - Director of James Investment Research, Inc.
Item 27. Principal Underwriter
---------------------
(a) CW Fund Distributors, Inc. (the "Distributor") also acts as
principal underwriter for other open-end investment companies:
Brundage, Story and Rose Investment Trust, The Caldwell & Orkin
Funds, Inc., Profit Funds Investment Trust, Firsthand Funds, the
Lake Shore Family of Funds, UC Investment Trust, The Winter
Harbor Fund and The Williamsburg Investment Trust.
(b) The following list sets forth the directors and executive
officers of the Distributor. Unless otherwise noted with an
asterisk(*), the address of the persons named below is 312 Walnut
Street, Cincinnati, Ohio 45202.
*The address is 4500 Park Granada Boulevard, Calabasas,
California 91302.
Position Position
with with
Name Distributor Registrant
---- ----------- ----------
*Angelo R. Mozilo Chairman of None
the Board/
Director
*Andrew S. Bielanski Director None
*Thomas H. Boone Director None
*Marshall M. Gates Director None
Robert H. Leshner President/ None
Vice Chairman/
Chief Executive
Officer/Director
Maryellen Peretzky Vice President, None
Secretary
Robert L. Bennett Vice President, Treasurer
Chief Operations
Officer
Terrie A. Wiedenheft Vice President, None
Chief Financial
Officer, Treasurer
(c) Inapplicable
Item 28. Locations of Accounts and Records
---------------------------------
The Registrant maintains the records required by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 to 31a-3 inclusive
thereunder at its principal executive office at 312 Walnut Street,
Cincinnati, Ohio 45202. Certain records, including records relating to
the physical possession of its securities, may be maintained pursuant
to Rule 31a-3 at the main offices of the Registrant's investment
advisors and custodians.
Item 29. Management Services
-------------------
Not Applicable
Item 30. Undertakings
------------
Not Applicable
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Cincinnati and the State of Ohio on
the 18th day of August, 1999.
THE JAMES ADVANTAGE FUNDS
By: /s/ Tina D. Hosking
-----------------------
Tina D. Hosking,
Attorney-in-Fact
The term "The James Advantage Funds" means and refers to the Trustees from
time to time serving under the Agreement and Declaration of Trust of the
Registrant dated August 29, 1997, as amended, a copy of which is on file with
the Secretary of State of The State of Ohio. The obligations of the Registrant
hereunder are not binding personally upon any of the Trustees, shareholders,
nominees, officers, agents or employees of the Registrant, but bind only the
trust property of the Registrant, as provided in the Agreement and Declaration
of Trust of the Registrant. The execution of this Registration Statement has
been authorized by the Trustees of the Registrant and this Registration
Statement has been signed by an authorized officer of the Registrant, acting as
such, and neither such authorization by such Trustees nor such execution by such
officer shall be deemed to have been made by any of them, but shall bind only
the trust property of the Registrant as provided in its Declaration of Trust.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
Signature Title Date
- --------- ----- ----
/s/ Barry R. James Trustee and President August 18, 1999
- ----------------------------- (principal executive
Barry R. James officer)
/s/ Robert L. Bennett Treasurer (principal August 18, 1999
- ----------------------------- financial and
Robert L. Bennett accounting officer)
Trustee
- -----------------------------
Barry R. James*
Trustee
- -----------------------------
Thomas L. Mangan*
Trustee
- -----------------------------
Anthony P. D'Angelo*
Trustee
- -----------------------------
Hazel L. Eichenberger*
Trustee
- -----------------------------
James F. Zid*
*By: /s/ Tina D. Hosking
---------------------
Tina D. Hosking
Attorney-in-Fact
August 18, 1999
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
- ------ ----------------------
a. Declaration of Trust*
b. Bylaws*
c. Not Applicable
d. (i) Investment Advisory Agreement for The Golden Rainbow Fund*
(ii) Investment Advisory Agreement for The James Small Cap Fund*
(iii) Investment Advisory Agreement for The James Market Neutral Fund*
(iv) Investment Advisory Agreement for The James Market Plus Fund*
e. Underwriting Agreement between The James Advantage Funds and CW Fund
Distributors*
f. Not Applicable
g. Custodian Agreement with Firstar Bank, N.A.*
h. Administration, Accounting and Transfer Agency Agreement*
i. Opinion and Consent of Counsel*
j. Not Applicable
k. Not Applicable
l. Agreement Relating to Initial Capital for The James Large Cap Plus
Fund**
m. Plan of Distribution Pursuant to Rule 12b-1*
n. Not Applicable
o. Rule 18f-3 Plan Adopted With Respect to the Multiple Class
Distribution System*
- -------------------
* Previously filed as Exhibit to Registration Statement on Form N-1A
** To be filed by Amendment
