N-CSRS 1 v037107_ncsr.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-8411 James Advantage Funds -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 1349 Fairground Road, Beavercreek, Ohio 45385 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Barry R. James, P.O. Box 8, Alpha, Ohio, 45301 -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (937) 426-7640 Date of fiscal year end: 6/30 Date of reporting period: 12/31/05 Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. Item 1. Reports to Stockholders. ================================================================================ [LOGO] Advised by James Investment Research, Inc. www.jamesfunds.com o December 31, 2005 Semi-Annual Report (Unaudited) o James Balanced: Golden Rainbow Fund James Small Cap Fund James Market Neutral Fund James Equity Fund ================================================================================ LETTER TO SHAREHOLDERS OF THE JAMES ADVANTAGE FUNDS ================================================================================ As we projected at the beginning of 2005, it was a difficult year for the markets. The Federal Reserve continued pushing up interest rates, which made it hard to find good profits in the bond market, and the equity markets spent most of the year in negative territory before rallying late in the year. We believe the coming year will be equally challenging, but opportunities will surely arise. The Market Over the Past Six Months The hurricanes in September led to rebuilding and plenty of federal assistance. This helped keep the U.S. economy on track, and the markets reversed their earlier course to end the year higher. A decline in crude oil prices after the hurricane related surge also nudged the markets higher. Heavy foreign buying of both corporate and government bonds helped keep the bond markets firm, despite four rate hikes by the Federal Reserve over the last six months of the year. Low rates in Europe and Japan plus a strong U.S. dollar made the U.S. bond market more attractive to international buyers. As a result, the longer bonds in the Balanced: Golden Rainbow Fund added value over that time period. Investment Goals and Objectives The objective of the James Balanced: Golden Rainbow Fund is to provide total return through growth and income and preservation of capital in declining markets. The Fund seeks to achieve this objective through a combination of high quality bonds and stocks we consider to be undervalued. As adviser to the Fund, we actively manage the bond portfolio, adjusting the level of market risk according to proprietary risk indicators. Allocation between bonds and stocks is also an important tool in preserving capital. The success of this strategy depends on the adviser's ability to predict market turns. The James Small Cap Fund and James Equity Fund do not try to time the market. They are generally fully invested in stocks that we consider to be at levels which are bargains compared to the broader market. Both Funds assume more risk than the James Balanced: Golden Rainbow, but are generally rewarded with strong returns if the stock market is moving up. While the James Small Cap Fund generally only holds stocks under $2 billion in market capitalization, the James Balanced: Golden Rainbow and James Equity Funds can hold stocks of all market capitalizations. The latter two Funds may hold some or many of the same stocks held by the James Small Cap Fund or by each other. The James Small Cap Fund seeks to provide long term capital appreciation and the James Equity Fund seeks to provide long term capital appreciation and outperform the S&P 500 Index. The James Market Neutral Fund seeks to provide positive returns regardless of the direction of the stock market. This objective incorporates a short selling strategy to take advantage of stocks which we believe are trading well above their intrinsic values and are due to correct. The Fund also holds long positions in stocks we believe are undervalued, and it may hold some or many of the same stocks owned by the other three James Advantage Funds. Investment Philosophy Conservative management has been our hallmark since our beginning in 1972. We are known for our quantitative research, independent of the herd psychology of Wall Street. Our original research and dynamic modeling, along with consistent fundamental analysis, have helped us establish our track record. Our portfolio managers have all been with us for many years and are all members of our Investment Committee. They share a common appreciation for the need to adhere to our discipline in seeking out bargain stocks and in keeping portfolio costs down. These commitments help to keep us on course when the markets become uncertain and volatility rises. Confidence in the research is paramount in maintaining our discipline. Strategy for Meeting Fund Objectives We begin every year with our annual Economic Outlook. This is a presentation, open to the shareholders, about the economy and the markets. The Outlook is the result of intensive research on the economy, stocks and bonds. It is an essential part of our strategy and process. 1 Once an economic overlay is developed, our portfolio managers try to identify stocks and bonds that historically have outperformed in the expected economic environment. Armed with our quantitative modeling and thorough fundamental analysis, the portfolio managers strive to identify stocks trading at bargain levels, but are likely to outperform in the coming months. We want to keep turnover low and try to give our selections time to perform. The bonds in the James Balanced: Golden Rainbow are chosen in much the same manner. The economic outlook sets the stage and the portfolio managers select those securities they believe will outperform in the expected environment. Our strict discipline includes only high quality securities, which means that government bonds generally are a significant part of the portfolio. Fund Performance All four Funds in the James Advantage Funds family outperformed their benchmarks in 2005. The James Balanced: Golden Rainbow returned 8.37 percent for the year. Its benchmark is a blend of the S&P 500, the Russell 2000 and the Lehman Intermediate Gov/Credit Indexes. That benchmark returned 3.34 percent for the year. The Fund also paid a regular quarterly dividend as well as an annual long term capital gains distribution. The James Market Neutral Fund returned 7.94 percent for 2005, while its benchmark, the ninety day Treasury Bill, returned 3.07 percent. The James Small Cap Fund ended 2005 with a yearly total return of 7.51 percent, besting its index, the Russell 2000, which rose by 4.55 percent. The family standout for 2005 was the James Equity Fund, returning 15.03 percent while the S&P 500, its benchmark, returned 4.93 percent. This is the second year in a row that all four funds in the series outperformed their respective benchmarks. Expectations for the Future We believe that 2006 will be another difficult year for the stock market. Too many investors have become bullish, but the market is not cheap. Bargain stocks are hard to find and the economy is showing signs of strain. The boost to the economy from hurricane repair will prove temporary, but the high cost of housing will have a significant dampening on future economic activity. Higher interest rates abroad and a new Federal Reserve Chairman at home will add to uncertainty. As the stock market's late 2005 momentum gives way to the sobering outlook for 2006, we fear investors will move to the sidelines. International events, always a source of uncertainty, could significantly add to the market's woes as hot spots, both old and new, wreak havoc with the flows of trade. However, these events should serve to create real opportunities for a longer term rally in stocks. The key is to be able to move into the market and take advantage of attractive levels once they arrive. That is our strategy for the coming year. /s/ Thomas L. Mangan Thomas L. Mangan Chief Financial Officer Average Annual Total Returns As of December 31, 2005
--------------------------------------------------------------------------------------- One Five Ten Since Year Years Years Inception --------------------------------------------------------------------------------------- James Balanced: Golden Rainbow Fund ...... 8.37% 8.05% 8.22% 9.19% (Inception 7/1/91) James Small Cap Fund ..................... 7.51% 16.48% NA 12.07% (Inception 10/2/98) James Market Neutral Fund ................ 7.94% 4.56% NA 3.93% (Inception 10/2/98) James Equity Fund ........................ 15.03% 1.52% NA -0.11% (Inception 11/1/99) ---------------------------------------------------------------------------------------
Past performance is not predictive of future results. The performance of the above Funds does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 2 JAMES ADVANTAGE FUNDS REPRESENTATION OF PORTFOLIOS OF INVESTMENTS December 31, 2005 (Unaudited) ================================================================================ The illustrations below provide the industry sectors for the James Balanced: Golden Rainbow Fund, James Small Cap Fund, James Market Neutral Fund, and James Equity Fund. James Balanced: Golden Rainbow Fund Industry Sector Allocation (% of Net Assets) [PIE CHART] BASIC MATERIALS - 3.3% CONSUMER, CYCLICAL - 4.3% CONSUMER, NON-CYCLICAL - 4.5% ENERGY - 5.0% FINANCIAL - 4.9% INDUSTRIAL - 3.0% TECHNOLOGY - 5.4% UTILITIES - 5.1% INTERNATIONAL EQUITY FUNDS - 1.3% BONDS (over 10 years) - 3.9% BONDS (2-10 years) - 31.7% BONDS (less than 2 years) - 23.5% CASH EQUIVALENTS - 3.1% OTHER - 1.0% James Small Cap Fund Industry Sector Allocation (% of Net Assets) [PIE CHART] BASIC MATERIALS - 8.9% CONSUMER, CYCLICAL - 13.6% CONSUMER, NON-CYCLICAL - 15.1% ENERGY - 15.6% FINANCIAL - 14.0% INDUSTRIAL - 3.8% TECHNOLOGY - 16.6% UTILITIES - 8.2% CASH EQUIVALENTS - 4.6% OTHER - (0.4%) 3 JAMES ADVANTAGE FUNDS REPRESENTATION OF PORTFOLIOS OF INVESTMENTS (Continued) ================================================================================ James Market Neutral Fund Industry Sector Allocation (% of Net Assets) (Cash and Cash Equivalents not included) [BAR CHART] Longs Shorts ------- -------- BASIC MATERIALS 3.3% 3.1% CONSUMER, CYCLICAL 16.5% 14.7% CONSUMER, NON-CYCLICAL 8.0% 12.6% ENERGY 7.5% 5.7% FINANCIAL 7.4% 9.8% INDUSTRIAL 4.4% 5.2% TECHNOLOGY 15.6% 16.3% UTILITIES 5.1% 1.7% James Equity Fund Industry Sector Allocation (% of Net Assets) [PIE CHART] BASIC MATERIALS - 8.6% CONSUMER, CYCLICAL - 14.1% CONSUMER, NON-CYCLICAL - 10.5% ENERGY - 13.8% FINANCIAL - 11.2% INDUSTRIAL - 7.1% TECHNOLOGY - 16.1% UTILITIES - 13.4% CASH EQUIVALENTS - 4.2% OTHER - 1.0% 4 JAMES ADVANTAGE FUNDS STATEMENTS OF ASSETS AND LIABILITIES December 31, 2005 (Unaudited) ================================================================================
------------------------------------------------------------------------------------------------------------------------------ James Balanced: James James James Golden Rainbow Small Cap Market Neutral Equity Fund Fund Fund Fund ------------------------------------------------------------------------------------------------------------------------------ ASSETS Investment securities: At amortized cost ....................................... $ 181,439,333 $ 73,470,583 $ 76,202,310 $ 15,716,681 ============= ============= ============= ============= At value ................................................ $ 205,306,672 $ 80,903,277 $ 85,078,030 $ 19,499,565 Segregated cash with brokers ............................... -- -- 34,073,696 -- Dividends and interest receivable .......................... 1,720,850 40,000 140,869 40,473 Receivable for capital shares sold ......................... 897,326 512,137 388,512 180,504 Other assets ............................................... 30,717 -- -- -- ------------- ------------- ------------- ------------- TOTAL ASSETS .......................................... 207,955,565 81,455,414 119,681,107 19,720,542 ------------- ------------- ------------- ------------- LIABILITIES Dividends payable .......................................... 42,745 1,110 15,203 714 Payable for securities sold short (proceeds $45,980,875) ... -- -- 48,344,049 -- Payable for dividends on securities sold short ............. -- -- 13,458 -- Payable for capital shares redeemed ........................ 355,182 492,533 241,081 3,024 Payable for securities purchased ........................... -- 288,431 950,970 -- Accrued expenses: Management fees ......................................... 128,540 83,313 97,738 17,692 12b-1 distribution and service fees ..................... 30,845 12,071 19,037 8,556 Trustees' fees .......................................... 545 -- -- -- Other ................................................... 13,505 -- -- -- ------------- ------------- ------------- ------------- TOTAL LIABILITIES ..................................... 571,362 877,458 49,681,536 29,986 ------------- ------------- ------------- ------------- NET ASSETS ................................................. $ 207,384,203 $ 80,577,956 $ 69,999,571 $ 19,690,556 ============= ============= ============= ============= NET ASSETS CONSIST OF: Paid-in capital ............................................ $ 182,531,106 $ 73,151,051 $ 67,641,063 $ 18,470,554 Accumulated net investment income .......................... 42 14 27 3 Accumulated net realized gains (losses) from security transactions ................................... 985,716 (5,803) (4,154,065) (2,562,885) Net unrealized appreciation on investments ................. 23,867,339 7,432,694 6,512,546 3,782,884 ------------- ------------- ------------- ------------- NET ASSETS ................................................. $ 207,384,203 $ 80,577,956 $ 69,999,571 $ 19,690,556 ------------- ------------- ------------- ------------- Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) .............. 12,184,574 3,830,072 5,694,467 2,008,419 ============= ============= ============= ============= Net asset value, offering price and redemption price per share ......................................... $ 17.02 $ 21.04 $ 12.29 $ 9.80 ============= ============= ============= =============
See accompanying notes to financial statements. 5 JAMES ADVANTAGE FUNDS STATEMENTS OF OPERATIONS For the Six Months Ended December 31, 2005 (Unaudited) ================================================================================
--------------------------------------------------------------------------------------------------------------------- James Balanced: James James James Golden Rainbow Small Cap Market Neutral Equity Fund Fund Fund Fund --------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (Net of withholding taxes of $1,716, $0, $900, and $615, respectively) ................... $ 524,056 $ 469,620 $ 221,918 $ 168,266 Interest .............................................. 2,475,343 63,555 880,453 14,537 ----------- ----------- ----------- ----------- TOTAL INVESTMENT INCOME ............................. 2,999,399 533,175 1,102,371 182,803 ----------- ----------- ----------- ----------- EXPENSES Management fees ....................................... 667,958 432,968 493,694 116,732 12b-1 distribution and service fees ................... 225,661 87,595 73,218 23,616 Dividend expense on securities sold short ............. -- -- 139,678 -- Administration fees ................................... 54,585 -- -- -- Professional fees ..................................... 24,786 -- -- -- Accounting services fees .............................. 18,158 -- -- -- Transfer agent fees ................................... 23,157 -- -- -- Postage and supplies .................................. 11,149 -- -- -- Custodian fees and expenses ........................... 12,597 -- -- -- Trustees' fees ........................................ 12,896 5,007 4,186 1,348 Registration fees ..................................... 18,202 -- -- -- Shareholder report printing and mailing ............... 4,973 -- -- -- Compliance fees and expenses .......................... 2,395 -- -- -- Other expenses ........................................ 4,227 -- -- -- ----------- ----------- ----------- ----------- TOTAL EXPENSES ........................................... 1,080,744 525,570 710,776 141,696 Trustees' fees reimbursed ............................. (7,806) -- -- -- ----------- ----------- ----------- ----------- NET EXPENSES ........................................ 1,072,938 525,570 710,776 141,696 ----------- ----------- ----------- ----------- NET INVESTMENT INCOME .................................... 1,926,461 7,605 391,595 41,107 ----------- ----------- ----------- ----------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains from security transactions ......... 1,936,265 693,543 587,512 626,665 Net realized losses on closed short positions ......... -- -- (2,883,791) -- Net change in unrealized appreciation/depreciation on investments ...................................... 2,458,403 1,736,084 2,067,856 1,194,802 ----------- ----------- ----------- ----------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS ............................... 4,394,668 2,429,627 (228,423) 1,821,467 ----------- ----------- ----------- ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............................. $ 6,321,129 $ 2,437,232 $ 163,172 $ 1,862,574 =========== =========== =========== ===========
See accompanying notes to financial statements. 6 JAMES BALANCED: GOLDEN RAINBOW FUND STATEMENTS OF CHANGES IN NET ASSETS ================================================================================
--------------------------------------------------------------------------------------------------------- Six Months Ended Year December 31, Ended 2005 June 30, (Unaudited) 2005 --------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income ............................................... $ 1,926,461 $ 1,718,477 Net realized gains on investments ................................... 1,936,265 6,852,704 Net change in unrealized appreciation/depreciation on investments ... 2,458,403 5,094,050 ------------- ------------- Net increase in net assets from operations ............................. 6,321,129 13,665,231 ------------- ------------- FROM DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income ................................ (1,926,424) (1,715,612) Distributions from net realized gains ............................... (6,923,670) (289,929) ------------- ------------- Decrease in net assets from distributions to shareholders .............. (8,850,094) (2,005,541) ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold ........................................... 68,469,138 57,984,009 Net asset value of shares issued in reinvestment of distributions to shareholders ..................................... 8,553,537 1,951,160 Payments for shares redeemed ........................................ (14,714,729) (7,882,492) ------------- ------------- Net increase in net assets from capital share transactions ............. 62,307,946 52,052,677 ------------- ------------- TOTAL INCREASE IN NET ASSETS ........................................... 59,778,981 63,712,367 NET ASSETS Beginning of period ................................................. 147,605,222 83,892,855 ------------- ------------- End of period ....................................................... $ 207,384,203 $ 147,605,222 ============= ============= UNDISTRIBUTED NET INVESTMENT INCOME .................................... $ 42 $ 2,865 ============= ============= SUMMARY OF CAPITAL SHARE ACTIVITY Shares sold ......................................................... 3,942,843 3,469,419 Shares issued in reinvestment of distributions to shareholders ...... 499,531 117,897 Shares redeemed ..................................................... (849,230) (485,412) ------------- ------------- Net increase in shares outstanding .................................. 3,593,144 3,101,904 Shares outstanding, beginning of period ............................. 8,591,430 5,489,526 ------------- ------------- Shares outstanding, end of period ................................... 12,184,574 8,591,430 ============= =============
See accompanying notes to financial statements. 7 JAMES SMALL CAP FUND STATEMENTS OF CHANGES IN NET ASSETS ================================================================================
----------------------------------------------------------------------------------------------------------------------- Six Months Ended Year December 31, Ended 2005 June 30, (Unaudited) 2005 ----------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income ............................................................... $ 7,605 $ 133,040 Net realized gains on investments ................................................... 693,543 411,183 Net change in unrealized appreciation/depreciation on investments ................... 1,736,084 1,340,299 ------------ ------------ Net increase in net assets from operations ............................................. 2,437,232 1,884,522 ------------ ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income ................................................ (140,631) -- Distributions from net realized gains ............................................... (1,110,529) (756,432) ------------ ------------ Decrease in net assets from distributions to shareholders .............................. (1,251,160) (756,432) ------------ ------------ FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold ........................................................... 37,293,205 64,131,237 Net asset value of shares issued in reinvestment of distributions to shareholders ... 1,211,405 743,313 Payments for shares redeemed (A) .................................................... (13,601,668) (24,699,336) ------------ ------------ Net increase in net assets from capital share transactions ............................. 24,902,942 40,175,214 ------------ ------------ TOTAL INCREASE IN NET ASSETS ........................................................... 26,089,014 41,303,304 NET ASSETS Beginning of period ................................................................. 54,488,942 13,185,638 ------------ ------------ End of period ....................................................................... $ 80,577,956 $ 54,488,942 ============ ============ UNDISTRIBUTED NET INVESTMENT INCOME .................................................... $ 14 $ 133,040 ============ ============ SUMMARY OF CAPITAL SHARE ACTIVITY Shares sold ......................................................................... 1,753,410 3,236,955 Shares issued in reinvestment of distributions to shareholders ...................... 56,228 39,060 Shares redeemed ..................................................................... (642,553) (1,319,487) ------------ ------------ Net increase in shares outstanding .................................................. 1,167,085 1,956,528 Shares outstanding, beginning of period ............................................. 2,662,987 706,459 ------------ ------------ Shares outstanding, end of period ................................................... 3,830,072 2,662,987 ============ ============
(A) The cost of payments for shares redeemed is net of the 1% redemption fee on Fund shares which have been held for less than the stated period in the prospectus. For the six months ended December 31, 2005, these fees were $16,229 and $149,700 for the year ended June 30, 2005. See accompanying notes to financial statements. 8 JAMES MARKET NEUTRAL FUND STATEMENTS OF CHANGES IN NET ASSETS ================================================================================
----------------------------------------------------------------------------------------------------------------------- Six Months Ended Year December 31, Ended 2005 June 30, (Unaudited) 2005 ----------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income ............................................................... $ 391,595 $ 22,402 Net realized gains (losses) from: Security transactions ............................................................. 587,512 1,378,774 Closed short positions ............................................................ (2,883,791) (872,058) Net change in unrealized appreciation/depreciation on investments ................... 2,067,856 1,087,201 ------------ ------------ Net increase in net assets from operations ............................................. 163,172 1,616,319 ------------ ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income ................................................ (413,970) -- ------------ ------------ FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold ........................................................... 32,831,171 37,708,584 Net asset value of shares issued in reinvestment of distributions to shareholders ... 389,160 -- Payments for shares redeemed (A) .................................................... (10,272,891) (4,550,046) ------------ ------------ Net increase in net assets from capital share transactions ............................. 22,947,440 33,158,538 ------------ ------------ TOTAL INCREASE IN NET ASSETS ........................................................... 22,696,642 34,774,857 NET ASSETS Beginning of period ................................................................. 47,302,929 12,528,072 ------------ ------------ End of period ....................................................................... $ 69,999,571 $ 47,302,929 ============ ============ UNDISTRIBUTED NET INVESTMENT INCOME .................................................... $ 27 $ 22,402 ============ ============ SUMMARY OF CAPITAL SHARE ACTIVITY Shares sold ......................................................................... 2,640,753 3,104,775 Shares issued in reinvestment of distributions to shareholders ...................... 31,645 -- Shares redeemed ..................................................................... (833,686) (385,737) ------------ ------------ Net increase in shares outstanding .................................................. 1,838,712 2,719,038 Shares outstanding, beginning of period ............................................. 3,855,755 1,136,717 ------------ ------------ Shares outstanding, end of period ................................................... 5,694,467 3,855,755 ============ ============
(A) The cost of payments for shares redeemed is net of the 1% redemption fee on Fund shares which have been held for less than the stated period in the prospectus. For the six months ended December 31, 2005, these fees were $31,943 and $23,920 for the year ended June 30, 2005. See accompanying notes to financial statements. 9 JAMES EQUITY FUND STATEMENTS OF CHANGES IN NET ASSETS ================================================================================
----------------------------------------------------------------------------------------------------------------------- Six Months Ended Year December 31, Ended 2005 June 30, (Unaudited) 2005 ----------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income ............................................................... $ 41,107 $ 22,304 Net realized gains on investments ................................................... 626,665 523,127 Net change in unrealized appreciation/depreciation on investments ................... 1,194,802 1,321,992 ------------ ------------ Net increase in net assets from operations ............................................. 1,862,574 1,867,423 ------------ ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income ................................................ (41,105) (24,033) ------------ ------------ FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold ........................................................... 3,338,675 9,091,949 Net asset value of shares issued in reinvestment of distributions to shareholders ... 40,391 23,591 Payments for shares redeemed (A) .................................................... (2,343,472) (1,374,205) ------------ ------------ Net increase in net assets from capital share transactions ............................. 1,035,594 7,741,335 ------------ ------------ TOTAL INCREASE IN NET ASSETS ........................................................... 2,857,063 9,584,725 NET ASSETS Beginning of period ................................................................. 16,833,493 7,248,768 ------------ ------------ End of period ....................................................................... $ 19,690,556 $ 16,833,493 ============ ============ UNDISTRIBUTED NET INVESTMENT INCOME .................................................... $ 3 $ 1 ============ ============ SUMMARY OF CAPITAL SHARE ACTIVITY Shares sold ......................................................................... 351,676 1,074,885 Shares issued in reinvestment of distributions to shareholders ...................... 4,122 2,654 Shares redeemed ..................................................................... (241,744) (167,493) ------------ ------------ Net increase in shares outstanding .................................................. 114,054 910,046 Shares outstanding, beginning of period ............................................. 1,894,365 984,319 ------------ ------------ Shares outstanding, end of period ................................................... 2,008,419 1,894,365 ============ ============
(A) The cost of payments for shares redeemed is net of the 1% redemption fee on Fund shares which have been held for less than the stated period in the prospectus. For the six months ended December 31, 2005, these fees were $975 and $2,315 for the year ended June 30, 2005. See accompanying notes to financial statements. 10 JAMES BALANCED: GOLDEN RAINBOW FUND FINANCIAL HIGHLIGHTS ================================================================================
Per Share Data for a Share Outstanding Throughout Each Period --------------------------------------------------------------------------------------------------------------------------------- Six Months Ended Year Ended June 30, December 31, 2005 -------------------------------------------------------------------- (Unaudited) 2005 2004 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period .. $ 17.18 $ 15.28 $ 13.72 $ 13.80 $ 14.34 $ 16.54 ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment income ................ 0.17 0.26 0.26 0.27 0.40 0.40 Net realized and unrealized gains (losses) on investments ...... 0.45 1.95 1.56 0.28 0.33 (0.08) ----------- ----------- ----------- ----------- ----------- ----------- Total from investment operations ........ 0.62 2.21 1.82 0.55 0.73 0.32 ----------- ----------- ----------- ----------- ----------- ----------- Less distributions: From net investment income ........... (0.17) (0.26) (0.26) (0.27) (0.40) (0.40) From net realized gains on investments (0.61) (0.05) 0.00(A) (0.36) (0.87) (2.12) ----------- ----------- ----------- ----------- ----------- ----------- Total distributions ..................... (0.78) (0.31) (0.26) (0.63) (1.27) (2.52) ----------- ----------- ----------- ----------- ----------- ----------- Net asset value at end of period ........ $ 17.02 $ 17.18 $ 15.28 $ 13.72 $ 13.80 $ 14.34 =========== =========== =========== =========== =========== =========== Total return ............................ 3.61%(B) 14.56% 13.32% 4.34% 5.37% 2.33% =========== =========== =========== =========== =========== =========== Net assets at end of period (000's) ..... $ 207,384 $ 147,605 $ 83,893 $ 69,169 $ 65,456 $ 65,902 =========== =========== =========== =========== =========== =========== Ratios/Supplemental Data: Ratio of net expenses to average net assets ........................... 1.19%(C) 1.26% 1.28% 1.32% 1.24% 1.25% Ratio of net investment income to average net assets ................ 2.13%(C) 1.70% 1.77% 2.08% 2.84% 2.61% Portfolio turnover rate ................. 77%(C) 36% 29% 61% 54% 57%
(A) Amount rounds to less than $0.005. (B) Not annualized. (C) Annualized. See accompanying notes to financial statements. 11 JAMES SMALL CAP FUND FINANCIAL HIGHLIGHTS ================================================================================
Per Share Data for a Share Outstanding Throughout Each Period ------------------------------------------------------------------------------------------------------------------------------- Six Months Ended Year Ended June 30, December 31, 2005 ------------------------------------------------------------------ (Unaudited) 2005 2004 2003 2002 2001 ------------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period .. $ 20.46 $ 18.66 $ 13.43 $ 12.08 $ 11.03 $ 10.61 ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment income (loss) ......... (0.01) 0.05 0.01 0.10 0.00(A) (0.04) Net realized and unrealized gains on investments ..................... 0.93 2.65 5.26 1.35 1.06 0.46 ----------- ----------- ----------- ----------- ----------- ----------- Total from investment operations ........ 0.92 2.70 5.27 1.45 1.06 0.42 ----------- ----------- ----------- ----------- ----------- ----------- Less distributions: From net investment income ........... (0.04) -- (0.01) (0.10) (0.01) -- From net realized gains on investments (0.30) (1.00) (0.05) -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Total distributions ..................... (0.34) (1.00) (0.06) (0.10) (0.01) -- ----------- ----------- ----------- ----------- ----------- ----------- Paid-in capital from redemption fees(B).. 0.00 (A) 0.10 0.02 -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Net asset value at end of period ........ $ 21.04 $ 20.46 $ 18.66 $ 13.43 $ 12.08 $ 11.03 =========== =========== =========== =========== =========== =========== Total return ............................ 4.47%(C) 15.39% 39.47% 12.20% 9.65% 3.96% =========== =========== =========== =========== =========== =========== Net assets at end of period (000's) .... $ 80,578 $ 54,489 $ 13,186 $ 9,199 $ 7,882 $ 7,066 =========== =========== =========== =========== =========== =========== Ratios/Supplemental Data: Ratio of net expenses to average net assets ........................... 1.50%(D) 1.50% 1.50% 1.50% 1.48% 1.50% Ratio of net investment income (loss) to average net assets ................ 0.02%(D) 0.45% 0.05% 0.90% 0.02% (0.45%) Portfolio turnover rate ................. 42%(D) 94% 45% 52% 78% 75%
(A) Amount rounds to less than $0.005. (B) Amount calculated based on average shares outstanding throughout the period. (C) Not annualized. (D) Annualized. See accompanying notes to financial statements. 12 JAMES MARKET NEUTRAL FUND FINANCIAL HIGHLIGHTS ================================================================================
Per Share Data for a Share Outstanding Throughout Each Period ----------------------------------------------------------------------------------------------------------------------------- Six Months Ended Year Ended June 30, December 31, 2005 ---------------------------------------------------------------- (Unaudited) 2005 2004 2003 2002 2001 ----------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period .. $ 12.27 $ 11.02 $ 9.97 $ 10.79 $ 10.12 $ 9.71 ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment income (loss) ......... 0.07 0.01 (0.13) (0.10) 0.02 0.24 Net realized and unrealized gains (losses) on investments ............ 0.02 1.23 1.18 (0.72) 0.69 0.41 ----------- ----------- ----------- ----------- ----------- ----------- Total from investment operations ........ 0.09 1.24 1.05 (0.82) 0.71 0.65 ----------- ----------- ----------- ----------- ----------- ----------- Less distributions: From net investment income ........... (0.08) -- -- -- (0.04) (0.24) ----------- ----------- ----------- ----------- ----------- ----------- Paid-in capital from redemption fees(B).. 0.01 0.01 0.00(A) -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Net asset value at end of period ........ $ 12.29 $ 12.27 $ 11.02 $ 9.97 $ 10.79 $ 10.12 =========== =========== =========== =========== =========== =========== Total return ............................ 0.81%(C) 11.34% 10.53% (7.60%) 7.06% 6.76% =========== =========== =========== =========== =========== =========== Net assets at end of period (000's) .... $ 70,000 $ 47,303 $ 12,528 $ 9,219 $ 8,676 $ 9,651 =========== =========== =========== =========== =========== =========== Ratios/Supplemental Data: Ratio of net expenses to average net assets, excluding dividends on securities sold short ............. 1.95%(D) 1.95% 1.95% 1.95% 1.95% 1.95% Ratio of dividend expense on securities sold short ............. 0.48%(D) 0.42% 0.64% 0.53% 0.28% 0.25% ----------- ----------- ----------- ----------- ----------- ----------- Ratio of net expenses to average net assets ................... 2.43%(D) 2.37% 2.59% 2.48% 2.23% 2.20% ----------- ----------- ----------- ----------- ----------- ----------- Ratio of net investment income (loss) to average net assets ................ 1.33%(D) 0.11% (1.43%) (0.98%) 0.25 2.47% Portfolio turnover rate ................. 18%(D) 35% 13% 86% 154% 104%
(A) Amount rounds to less than $0.005. (B) Amount calculated based on average shares outstanding throughout the period. (C) Not annualized. (D) Annualized. See accompanying notes to financial statements. 13 JAMES EQUITY FUND FINANCIAL HIGHLIGHTS ================================================================================
Per Share Data for a Share Outstanding Throughout Each Period -------------------------------------------------------------------------------------------------------------------------------- Six Months Ended Year Ended June 30, December 31, 2005 ------------------------------------------------------------------- (Unaudited) 2005 2004 2003 2002 2001 -------------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period .. $ 8.89 $ 7.36 $ 6.18 $ 6.62 $ 7.65 $ 13.65 ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment income (loss) ......... 0.02 0.01 0.02 0.03 0.01 (0.07) Net realized and unrealized gains (losses) on investments ............ 0.91 1.53 1.18 (0.44) (1.03) (5.93) ----------- ----------- ----------- ----------- ----------- ----------- Total from investment operations ........ 0.93 1.54 1.20 (0.41) (1.02) (6.00) ----------- ----------- ----------- ----------- ----------- ----------- Less distributions: From net investment income ........... (0.02) (0.01) (0.02) (0.03) (0.01) -- ----------- ----------- ----------- ----------- ----------- ----------- Paid-in capital from redemption fees(B) . 0.00 (A) 0.00(A) 0.00(A) -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Net asset value at end of period ........ $ 9.80 $ 8.89 $ 7.36 $ 6.18 $ 6.62 $ 7.65 =========== =========== =========== =========== =========== =========== Total return ............................ 10.47%(C) 20.96% 19.38% (6.14%) (13.29%) (43.96%) =========== =========== =========== =========== =========== =========== Net assets at end of period (000's) .... $ 19,691 $ 16,833 $ 7,249 $ 5,379 $ 3,788 $ 4,504 =========== =========== =========== =========== =========== =========== Ratios/Supplemental Data: Ratio of net expenses to average net assets ........................... 1.50%(D) 1.50% 1.50% 1.50% 1.50% 1.50% Ratio of net investment income (loss) to average net assets ................ 0.43%(D) 0.22% 0.25% 0.56% 0.20% (0.67%) Portfolio turnover rate ................. 37%(D) 33% 70% 65% 87% 131%
(A) Amount rounds to less than $0.005. (B) Amount calculated based on average shares outstanding throughout the period. (C) Not annualized. (D) Annualized. See accompanying notes to financial statements. 14 JAMES BALANCED: GOLDEN RAINBOW FUND SCHEDULE OF INVESTMENTS December 31, 2005 (Unaudited) ================================================================================ Shares COMMON STOCKS -- 36.8% Value -------------------------------------------------------------------------------- BASIC MATERIALS -- 3.3% 10,000 Alliance Resource Partners, L.P................... $ 372,000 30,000 Barrick Gold Corporation.......................... 836,100 31,000 Dow Chemical Company.............................. 1,358,420 35,650 Methanex Corporation.............................. 668,081 26,000 Newmont Mining Corporation........................ 1,388,400 14,000 NS Group, Inc.*................................... 585,340 17,000 PPG Industries, Inc............................... 984,300 29,500 Terra Nitrogen Company, L.P....................... 560,500 ------------ 6,753,141 ------------ CONSUMER, CYCLICAL -- 4.3% 6,000 Central Garden & Pet Company*..................... 275,640 30,000 EZCORP, Inc. - Class A*........................... 458,400 35,000 Hartmarx Corporation*............................. 273,350 30,000 J.C. Penney Company, Inc.......................... 1,668,000 10,000 Office Depot, Inc.*............................... 314,000 19,300 PACCAR, Inc....................................... 1,336,139 45,300 Supervalu, Inc.................................... 1,471,344 11,500 The Andersons, Inc................................ 495,420 17,000 The Buckle, Inc................................... 548,080 43,000 The Pantry, Inc.*................................. 2,020,570 ------------ 8,860,943 ------------ CONSUMER, NON-CYCLICAL -- 4.5% 25,000 Bristol-Myers Squibb Company...................... 574,500 22,000 CNS, Inc.......................................... 482,020 67,500 Coventry Health Care, Inc.*....................... 3,844,800 6,500 Papa John's Intl., Inc.*.......................... 385,515 8,000 Sanderson Farms, Inc.............................. 244,240 30,000 Sierra Health Services, Inc.*..................... 2,398,800 32,000 The Toro Company.................................. 1,400,640 ------------ 9,330,515 ------------ ENERGY -- 5.0% 3,500 Amerada Hess Corporation.......................... 443,870 16,800 Apache Corporation................................ 1,151,136 32,940 Chevron Corporation............................... 1,870,004 30,000 Devon Energy Corporation.......................... 1,876,200 21,500 EOG Resources, Inc................................ 1,577,455 34,500 Exxon Mobil Corporation........................... 1,937,865 20,500 Sunoco, Inc....................................... 1,606,790 ------------ 10,463,320 ------------ FINANCIAL -- 4.9% 32,500 American Physicians Capital, Inc.*................ 1,488,175 8,500 Bear Stearns Companies, Inc....................... 982,005 36,500 CIT Group, Inc.................................... 1,889,970 15 JAMES BALANCED: GOLDEN RAINBOW FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Shares COMMON STOCKS -- 36.8% (Continued) Value -------------------------------------------------------------------------------- FINANCIAL -- 4.9% (Continued) 9,000 Corus Bankshares, Inc............................. $ 506,430 14,000 KeyCorp........................................... 461,020 37,500 Rent-A-Center, Inc.*.............................. 707,250 20,000 SAFECO Corporation................................ 1,130,000 22,000 Stewart Information Services Corporation.......... 1,070,740 41,000 W.R. Berkley Corporation.......................... 1,952,420 ----------- 10,188,010 ----------- INDUSTRIAL -- 3.0% 10,000 Archer-Daniels-Midland Company.................... 246,600 20,000 BorgWarner, Inc................................... 1,212,600 23,000 Briggs & Stratton Corporation..................... 892,170 17,000 CSX Corporation................................... 863,090 11,000 Cummins, Inc...................................... 987,030 25,000 Goldcorp, Inc..................................... 557,000 23,000 Norfolk Southern Corporation...................... 1,031,090 4,500 The Black & Decker Corporation.................... 391,320 ----------- 6,180,900 ----------- TECHNOLOGY -- 5.4% 45,000 Armor Holdings, Inc.*............................. 1,919,250 35,000 Covansys Corporation*............................. 476,350 18,000 Diodes, Inc.*..................................... 558,900 105,000 Earthlink, Inc.*.................................. 1,166,550 10,000 Hewlett-Packard Company........................... 286,300 41,000 Komag, Inc.*...................................... 1,421,060 22,000 MicroStrategy, Inc.*.............................. 1,820,280 17,000 Motorola, Inc..................................... 384,030 37,500 Northrop Grumman Corporation...................... 2,254,125 25,000 WESCO International, Inc.*........................ 1,068,250 ----------- 11,355,095 ----------- UTILITIES -- 5.1% 24,000 ALLTEL Corporation................................ 1,514,400 20,000 DPL, Inc.......................................... 520,200 60,000 Edison International.............................. 2,616,600 70,800 Energen Corporation............................... 2,571,456 24,500 Sempra Energy..................................... 1,098,580 38,000 TXU Corporation................................... 1,907,220 5,000 WPS Resources Corporation......................... 276,550 ----------- 10,505,006 ----------- INTERNATIONAL EQUITY FUNDS -- 1.3% 10,000 Greater China Fund, Inc........................... 130,400 30,000 India Fund, Inc.*................................. 1,191,900 99,000 iShares MSCI Japan Index Fund..................... 1,336,500 ----------- 2,658,800 ----------- TOTAL COMMON STOCKS............................... $76,295,730 ----------- 16 JAMES BALANCED: GOLDEN RAINBOW FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Par Value U.S. GOVERNMENT & AGENCY BONDS -- 58.1% Value -------------------------------------------------------------------------------- $ 2,000,000 Federal Farm Credit Bank, 5.950%, 3/16/09......... $ 2,071,764 550,000 Federal Home Loan Bank, 4.500%, 2/17/10........... 540,528 2,000,000 U.S. Treasury Bills, 1/12/06...................... 1,997,454 2,500,000 U.S. Treasury Bonds, 5.000%, 2/15/11.............. 2,574,903 3,500,000 U.S. Treasury Bonds, 4.875%, 2/15/12.............. 3,593,380 12,000,000 U.S. Treasury Bonds, 4.250%, 8/15/13.............. 11,892,660 15,000,000 U.S. Treasury Bonds, 4.750%, 5/15/14.............. 15,365,040 5,000,000 U.S. Treasury Bonds, 5.500%, 8/15/28.............. 5,622,070 2,000,000 U.S. Treasury Bonds, 5.250%, 2/15/29.............. 2,182,422 200,000 U.S. Treasury Bonds, 5.375%, 2/15/31.............. 224,656 13,000,000 U.S. Treasury Notes, 2.000%, 5/15/06.............. 12,890,306 3,500,000 U.S. Treasury Notes, 3.500%, 11/15/06............. 3,472,518 5,000,000 U.S. Treasury Notes, 3.000%, 12/31/06............. 4,929,490 6,000,000 U.S. Treasury Notes, 6.250%, 2/15/07.............. 6,115,314 4,000,000 U.S. Treasury Notes, 4.375%, 5/15/07.............. 3,996,720 3,000,000 U.S. Treasury Notes, 6.625%, 5/15/07.............. 3,087,186 11,500,000 U.S. Treasury Notes, 3.250%, 8/15/07.............. 11,292,011 21,000,000 U.S. Treasury Notes, 3.000%, 2/15/08.............. 20,408,555 2,000,000 U.S. Treasury Notes, 2.625%, 5/15/08.............. 1,921,250 5,000,000 U.S. Treasury Notes, 6.000%, 8/15/09.............. 5,269,530 1,000,000 U.S. Treasury Notes, 5.000%, 8/15/11.............. 1,032,148 ------------ TOTAL U.S. GOVERNMENT & AGENCY BONDS.............. $120,479,905 ------------ ================================================================================ Par Value CORPORATE BONDS -- 1.0% Value -------------------------------------------------------------------------------- $ 500,000 Anheuser-Busch Companies, Inc., 6.000%, 4/15/11... $ 523,438 500,000 Barrick Gold Finance, Inc., 7.500%, 5/1/07........ 514,566 500,000 General Electric Capital Corporation, 7.875%, 12/1/06................................. 513,733 500,000 Tennessee Valley Authority, 5.625%, 1/18/11....... 518,544 ------------ TOTAL CORPORATE BONDS............................. $ 2,070,281 ------------ ================================================================================ Shares SHORT TERM INVESTMENTS -- 3.1% Value -------------------------------------------------------------------------------- 6,460,756 First American Treasury Obligations Fund.......... $ 6,460,756 ------------ TOTAL INVESTMENT SECURITIES -- 99.0% (Amortized Cost $181,439,333)..................... $205,306,672 OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.0%..... 2,077,531 ------------ NET ASSETS -- 100.0%.............................. $207,384,203 ============ * Non-income producing security. See accompanying notes to financial statements. 17 JAMES SMALL CAP FUND SCHEDULE OF INVESTMENTS December 31, 2005 (Unaudited) ================================================================================ Shares COMMON STOCKS -- 95.8% Value -------------------------------------------------------------------------------- BASIC MATERIALS -- 8.9% 75,100 Castle (A.M.) & Company*.......................... $ 1,640,184 67,100 Oregon Steel Mills, Inc.*......................... 1,974,082 45,100 Schnitzer Steel Industries, Inc. - Class A........ 1,379,609 51,400 Shiloh Industries, Inc.*.......................... 681,564 77,200 Terra Nitrogen Company, L.P....................... 1,466,800 ----------- 7,142,239 ----------- CONSUMER, CYCLICAL -- 13.6% 93,950 Aldila, Inc....................................... 2,389,149 30,750 Books-A-Million, Inc.............................. 297,968 153,600 Charming Shoppes, Inc.*........................... 2,027,520 28,500 Handelman Company................................. 353,970 44,600 K-Swiss, Inc...................................... 1,446,824 47,700 Steiner Leisure Ltd.*............................. 1,696,212 51,975 The Pantry, Inc.*................................. 2,442,304 12,500 Water Pik Technologies, Inc.*..................... 268,375 ----------- 10,922,322 ----------- CONSUMER, NON-CYCLICAL -- 15.1% 115,100 Alderwoods Group, Inc.*........................... 1,826,637 107,000 American Homepatient, Inc.*....................... 349,890 67,000 Chiquita Brands International, Inc................ 1,340,670 60,000 CNS, Inc.......................................... 1,314,600 56,100 Ingles Markets, Inc. - Class A.................... 877,965 46,100 Kindred Healthcare, Inc.*......................... 1,187,536 20,000 Magellan Health Services, Inc.*................... 629,000 154,000 Rural/Metro Corporation*.......................... 1,390,620 143,800 Spartan Stores, Inc.*............................. 1,498,396 22,260 The Toro Company.................................. 974,320 41,500 ViroPharma, Inc.*................................. 769,825 ------------ 12,159,459 ----------- ENERGY -- 15.6% 80,300 Callon Petroleum Company*......................... 1,417,295 73,350 Edge Petroleum Corporation*....................... 1,827,149 24,200 Giant Industries, Inc.*........................... 1,257,432 32,500 Remington Oil & Gas Corporation*.................. 1,186,250 79,950 RPC, Inc.......................................... 2,105,883 18,100 Stone Energy Corp.*............................... 824,093 36,600 Swift Energy Company*............................. 1,649,562 228,800 TransMontaigne, Inc.*............................. 1,510,080 200,000 VAALCO Energy, Inc.*.............................. 848,000 ----------- 12,625,744 ----------- FINANCIAL -- 14.0% 38,000 American Physicians Capital, Inc.*................ 1,740,020 52,300 ASTA Funding, Inc................................. 1,429,882 67,000 Bluegreen Corporation*............................ 1,058,600 156,680 Capital Title Group, Inc.......................... 866,440 18 JAMES SMALL CAP FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Shares COMMON STOCKS -- 95.8% (Continued) Value -------------------------------------------------------------------------------- FINANCIAL -- 14.0% (Continued) 41,350 FPIC Insurance Group, Inc.*....................... $ 1,434,845 24,000 LandAmerica Financial Group, Inc.................. 1,497,600 52,900 LTC Properties, Inc............................... 1,112,487 33,000 Safety Insurance Group, Inc....................... 1,332,210 22,000 State Auto Financial Corporation.................. 802,120 ----------- 11,274,204 ----------- INDUSTRIAL -- 3.8% 86,000 Blount International, Inc.*....................... 1,369,980 71,500 OMI Corporation................................... 1,297,725 8,200 Twin Disc, Inc.................................... 366,458 ----------- 3,034,163 ----------- TECHNOLOGY -- 16.6% 49,300 Applix, Inc.*..................................... 359,890 28,000 Comtech Telecommunications Corporation*........... 855,120 19,000 Hurco Companies, Inc.*............................ 585,580 31,100 InfoSpace, Inc.*.................................. 803,002 25,625 John H. Harland Company........................... 963,500 81,800 Komag, Inc.*...................................... 2,835,187 27,100 Lifecore Biomedical, Inc.*........................ 439,833 25,425 MicroStrategy, Inc.*.............................. 2,103,665 22,720 Rofin-Sinar Technologies, Inc.*................... 987,638 39,900 Teledyne Technologies, Inc.*...................... 1,161,090 82,200 United Online, Inc................................ 1,168,884 27,900 WESCO International, Inc.*........................ 1,192,167 ----------- 13,455,556 ----------- UTILITIES -- 8.2% 44,750 Cleco Corporation................................. 933,038 22,000 Florida Public Utilities Company.................. 300,300 27,800 Otter Tail Corp................................... 805,644 154,200 Sierra Pacific Resources*......................... 2,010,768 56,400 South Jersey Industries, Inc...................... 1,643,496 105,000 TALK America Holdings, Inc.*...................... 906,150 ----------- 6,599,396 ----------- TOTAL COMMON STOCKS............................... $77,213,083 ----------- ================================================================================ Shares SHORT TERM INVESTMENTS -- 4.6% Value -------------------------------------------------------------------------------- 3,690,194 First American Treasury Obligations Fund.......... $ 3,690,194 ----------- TOTAL INVESTMENT SECURITIES -- 100.4% (Cost $73,470,583)................................ $80,903,277 LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.4%)... (325,321) ----------- NET ASSETS -- 100.0%.............................. $80,577,956 =========== * Non-income producing security. See accompanying notes to financial statements. 19 JAMES MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS December 31, 2005 (Unaudited) ================================================================================ Shares COMMON STOCKS -- 69.2% Value -------------------------------------------------------------------------------- BASIC MATERIALS -- 3.3% 16,400 Methanex Corporation.............................. $ 307,336 15,500 Quanex Corporation................................ 774,535 20,500 Schnitzer Steel Industries, Inc. - Class A........ 627,095 15,000 Terra Nitrogen Company, L.P....................... 285,000 20,000 The Goodyear Tire & Rubber Company*............... 347,600 ----------- 2,341,566 ----------- COMPUTERS & INFORMATION -- 0.6% 15,000 Hewlett-Packard Company........................... 429,450 ----------- CONSUMER, CYCLICAL -- 16.5% 27,600 Conn's, Inc.*..................................... 1,017,612 26,000 Darden Restaurants, Inc........................... 1,010,880 18,000 J.C. Penney Company, Inc.......................... 1,000,800 23,400 Office Depot, Inc.*............................... 734,760 14,950 PACCAR, Inc....................................... 1,034,989 22,000 Papa John's Intl., Inc.*.......................... 1,304,820 33,550 The Andersons, Inc................................ 1,445,333 22,000 The Buckle, Inc................................... 709,280 23,400 The Home Depot, Inc............................... 947,232 29,900 The Pantry, Inc.*................................. 1,405,001 25,800 Timberland Company - Class A*..................... 839,790 ----------- 11,450,497 ----------- CONSUMER, NON-CYCLICAL -- 8.0% 22,600 Bristol-Myers Squibb Company...................... 519,348 20,600 Coventry Health Care, Inc.*....................... 1,173,376 19,200 Kos Pharmaceuticals, Inc.*........................ 993,216 15,150 Sierra Health Services, Inc.*..................... 1,211,393 23,900 The Toro Company.................................. 1,046,103 15,000 WYETH............................................. 691,050 ----------- 5,634,486 ----------- ENERGY -- 7.5% 10,096 Apache Corporation................................ 691,778 11,300 Devon Energy Corporation.......................... 706,702 43,300 Energy Partners Ltd.*............................. 943,507 13,000 Exxon Mobil Corporation........................... 730,210 10,000 Sunoco, Inc....................................... 783,800 26,900 Valero Energy Corporation......................... 1,388,040 ----------- 5,244,037 ----------- FINANCIAL -- 7.4% 6,450 Bear Stearns Companies, Inc....................... 745,169 30,000 Berkley (W.R.) Corporation........................ 1,428,600 20,600 CIT Group, Inc.................................... 1,066,668 20 JAMES MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Shares COMMON STOCKS -- 69.2% (Continued) Value -------------------------------------------------------------------------------- FINANCIAL -- 7.4% (Continued) 17,400 Corus Bankshares, Inc............................. $ 979,098 5,650 Hospitality Properties Trust...................... 226,565 22,600 KeyCorp........................................... 744,218 ----------- 5,190,318 ----------- INDUSTRIAL -- 4.4% 16,000 Barrick Gold Corporation.......................... 445,920 35,000 Goldcorp, Inc..................................... 779,800 13,550 Norfolk Southern Corporation...................... 607,447 14,400 The Black & Decker Corporation.................... 1,252,224 ----------- 3,085,391 ----------- TECHNOLOGY -- 15.6% 19,800 Armor Holdings, Inc.*............................. 844,470 13,000 Autodesk, Inc.*................................... 558,350 19,300 Aviall, Inc.*..................................... 555,840 109,610 EarthLink, Inc.*.................................. 1,217,767 43,000 Komag, Inc.*...................................... 1,490,380 21,500 MicroStrategy, Inc.*.............................. 1,778,909 61,000 Motorola, Inc..................................... 1,377,990 18,550 MTS Systems Corporation........................... 642,572 15,600 Northrop Grumman Corporation...................... 937,716 34,400 WESCO International, Inc.*........................ 1,469,912 ----------- 10,873,906 ----------- UTILITIES -- 5.1% 27,150 Edison International.............................. 1,184,012 20,800 MDU Resources Group, Inc.......................... 680,992 21,500 South Jersey Industries, Inc...................... 626,510 21,900 TXU Corporation................................... 1,099,161 ----------- 3,590,675 ----------- INTERNATIONAL EQUITY FUNDS -- 0.8% 40,000 iShares MSCI Japan Index Fund..................... 540,000 ----------- TOTAL COMMON STOCKS............................... $48,380,326 ----------- ================================================================================ Par Value U.S. GOVERNMENT & AGENCY BONDS -- 43.8% Value -------------------------------------------------------------------------------- $ 4,000,000 U.S. Treasury Bills, .00%, 1/12/06................ $ 3,994,908 7,000,000 U.S. Treasury Bills, .00%, 2/9/06................ 6,971,870 5,000,000 U.S. Treasury Bills, .00%, 3/2/06................ 4,968,855 15,000,000 U.S. Treasury Bills, .00%, 6/15/06............... 14,718,195 ----------- TOTAL U.S. GOVERNMENT & AGENCY BONDS............. $30,653,828 ----------- 21 JAMES MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Shares SHORT TERM INVESTMENTS -- 8.6% Value -------------------------------------------------------------------------------- 6,043,876 First American Treasury Obligations Fund.......... $ 6,043,876 ----------- TOTAL INVESTMENT SECURITIES -- 121.6% (Amortized Cost $76,202,310)...................... $85,078,030 SEGREGATED CASH WITH BROKERS -- 48.7%............. 34,073,696 SECURITIES SOLD SHORT -- (69.1)% (Proceeds $45,980,875)............................ (48,344,049) LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.2%)... (808,106) ----------- NET ASSETS -- 100.0%.............................. $69,999,571 =========== * Non-income producing security. See accompanying notes to financial statements. 22 JAMES MARKET NEUTRAL FUND SCHEDULE OF SECURITIES SOLD SHORT December 31, 2005 (Unaudited) ================================================================================ Shares COMMON STOCKS -- 69.1% Value -------------------------------------------------------------------------------- BASIC MATERIALS -- 3.1% 33,725 Apex Silver Mines Ltd.*........................... $ 536,227 31,200 Ferro Corporation................................. 585,312 28,500 Huntsman Corporation*............................. 490,770 33,500 Nalco Holding Company*............................ 593,285 ----------- 2,205,594 ----------- CONSUMER, CYCLICAL -- 14.7% 56,860 99 Cents Only Stores*............................. 594,756 8,760 Amazon.com, Inc.*................................. 413,034 54,000 Audiovox Corporation Class A*.................... 748,440 20,000 Churchill Downs, Inc.............................. 734,600 37,400 DIRECTV Group, Inc.*.............................. 528,088 16,200 Dow Jones & Company, Inc.......................... 574,938 51,000 Fleetwood Enterprises, Inc.*...................... 629,850 9,700 Four Seasons Hotels, Inc.......................... 482,575 19,200 General Motors Corporation........................ 372,864 48,000 InterContinental Hotels Group PCL ADR............ 693,600 41,190 JetBlue Airways Corporation*...................... 633,502 12,500 Lamar Advertising Company*........................ 576,750 42,000 Lions Gate Entertainment Corporation*............. 322,560 40,500 Pep Boys Manny, Moe & Jack....................... 603,045 52,100 Sirius Satellite Radio, Inc.*..................... 349,070 18,600 Texas Roadhouse, Inc.*............................ 289,230 63,100 Visteon Corporation*.............................. 395,006 11,800 Wynn Resorts Ltd.*................................ 647,230 25,000 XM Satellite Radio Holdings, Inc.*................ 682,000 ----------- 10,271,138 ----------- CONSUMER, NON-CYCLICAL -- 12.6% 60,450 Adolor Corporation*............................... 882,570 39,000 Animas Corporation*............................... 941,850 21,300 CV Therapeutics, Inc.*............................ 526,749 13,000 Cyberonics, Inc.*................................. 419,900 3,500 Discovery Holding Company*........................ 53,025 19,000 Farmer Brothers Company........................... 367,460 51,390 Impax Laboratories, Inc.*......................... 549,873 37,420 Nektar Therapeutics*.............................. 615,933 61,650 NPS Pharmaceuticals, Inc.*........................ 729,936 97,500 Opsware, Inc.*.................................... 662,025 23,550 OSI Pharmaceuticals, Inc.*........................ 660,342 46,000 Prestige Brands Holding, Inc.*.................... 575,000 19,000 SonoSite, Inc.*................................... 665,190 23,600 Taro Pharmaceutical Industries Ltd.*.............. 329,692 38,000 Tecumseh Products Company Class A................ 870,580 ----------- 8,850,125 ----------- 23 JAMES MARKET NEUTRAL FUND SCHEDULE OF SECURITIES SOLD SHORT (Continued) ================================================================================ Shares COMMON STOCKS -- 69.1% (Continued) Value -------------------------------------------------------------------------------- ENERGY -- 5.7% 16,550 Bill Barrett Corporation*......................... $ 638,995 48,160 FX Energy, Inc.*.................................. 384,317 90,200 Input/Output, Inc.*............................... 634,106 13,450 James River Coal Company*......................... 513,790 40,000 Reliant Energy, Inc.*............................. 412,800 75,000 Syntroleum Corporation*........................... 677,250 60,000 USEC, Inc......................................... 717,000 ----------- 3,978,258 ----------- FINANCIAL -- 9.8% 55,400 Affordable Residential Communities................ 527,962 36,100 Brookline Bancorp, Inc............................ 511,537 51,708 Hudson City Bancorp, Inc.......................... 626,701 25,000 International Securities Exchange, Inc.*.......... 688,000 21,000 IPC Holdings, Ltd................................. 574,980 22,350 Marsh & McLennan Companies, Inc................... 709,836 40,000 Montpelier Re Holdings Ltd........................ 756,000 37,200 NewAlliance Bancshares, Inc....................... 540,888 56,000 Primus Guaranty Ltd.*............................. 730,800 13,400 RenaissanceRe Holdings Ltd........................ 591,074 52,500 Spirit Finance Corporation........................ 595,875 ----------- 6,853,653 ----------- INDUSTRIAL -- 5.2% 87,660 Ballard Power Systems, Inc.*...................... 366,419 46,785 Exelixis, Inc.*................................... 440,715 12,500 Macquarie Infrastructure Company Trust............ 385,000 92,945 PowerOne, Inc.*................................... 559,529 15,000 Rogers Corporation*............................... 587,700 57,000 SmurfitStone Container Corporation*............... 807,690 31,550 Tetra Tech, Inc.*................................. 494,388 ----------- 3,641,441 ----------- TECHNOLOGY -- 16.3% 23,800 Abgenix, Inc.*.................................... 511,938 65,000 American Superconductor Corporation*.............. 511,550 51,500 AudioCodes Ltd.*.................................. 571,650 71,480 BearingPoint, Inc.*............................... 561,833 25,000 Cabot Microelectronics Corporation................ 733,250 27,480 FEI Company*...................................... 526,792 40,000 Flamel Technologies S.A. ADR*..................... 755,200 50,000 GSI Commerce, Inc.*............................... 754,500 25,700 ICOS Corporation*................................. 710,091 42,500 Infineon Technologies*............................ 386,750 39,250 InPhonic, Inc.*................................... 341,082 35,400 Insituform Technologies, Inc. Class A*........... 685,698 36,600 Medicines Company*................................ 638,670 24 JAMES MARKET NEUTRAL FUND SCHEDULE OF SECURITIES SOLD SHORT (Continued) ================================================================================ Shares COMMON STOCKS -- 69.1% (Continued) Value -------------------------------------------------------------------------------- TECHNOLOGY -- 16.3% (Continued) 30,000 Millicom International Cellular S.A.*............. $ 805,200 30,500 PMCSierra, Inc.*.................................. 235,155 45,200 Rambus, Inc.*..................................... 731,788 43,425 Tanox, Inc.*...................................... 710,867 96,000 Telesp Celular Participacoes S.A.................. 362,880 52,000 Ultratech, Inc.*.................................. 853,840 ----------- 11,388,734 ----------- UTILITIES -- 1.7% 4,000 Crosstex Energy, Inc.............................. 252,241 45,715 IDT Corporation*.................................. 528,465 12,000 Unisource Energy Corporation...................... 374,400 ----------- 1,155,106 ----------- TOTAL COMMON STOCKS (Proceeds $45,980,875)........ $48,344,049 =========== * Non-income producing security. See accompanying notes to financial statements. 25 JAMES EQUITY FUND SCHEDULE OF INVESTMENTS December 31, 2005 (Unaudited) ================================================================================ Shares COMMON STOCKS -- 94.8% Value -------------------------------------------------------------------------------- BASIC MATERIALS -- 8.6% 13,900 Alliance Resource Partners, L.P................... $ 517,080 4,800 Dow Chemical Company.............................. 210,336 10,600 Methanex Corporation.............................. 198,644 5,500 PPG Industries, Inc............................... 318,450 8,850 Schnitzer Steel Industries, Inc. - Class A........ 270,722 9,600 Terra Nitrogen Company, L.P....................... 182,400 ---------- 1,697,632 ---------- CONSUMER, CYCLICAL -- 14.1% 7,000 Aldila, Inc....................................... 178,010 39,500 Hartmarx Corporation*............................. 308,495 4,400 J.C. Penney Company, Inc.......................... 244,640 17,300 Office Depot, Inc.*............................... 543,220 5,250 PACCAR, Inc....................................... 363,458 9,700 The Andersons, Inc................................ 417,876 12,500 The Pantry, Inc.*................................. 587,374 4,000 Timberland Company - Class A*..................... 130,200 ---------- 2,773,273 ---------- CONSUMER, NON-CYCLICAL -- 10.5% 16,350 Archer-Daniels-Midland Company.................... 403,191 11,950 Bristol-Myers Squibb Company...................... 274,611 28,500 EZCORP, Inc. - Class A*........................... 435,480 2,000 Sierra Health Services, Inc.*..................... 159,920 7,300 Supervalu, Inc.................................... 237,104 7,600 The Toro Company.................................. 332,652 5,000 WYETH............................................. 230,350 ---------- 2,073,308 ---------- ENERGY -- 13.8% 1,620 Amerada Hess Corporation.......................... 205,448 3,820 Anadarko Petroleum Corporation.................... 361,945 4,850 Devon Energy Corporation.......................... 303,319 4,000 Exxon Mobil Corporation........................... 224,680 12,700 Frontier Oil Corporation.......................... 476,631 6,515 Marathon Oil Corporation.......................... 397,220 4,000 Sunoco, Inc....................................... 313,520 8,400 Valero Energy Corporation......................... 433,440 ---------- 2,716,203 ---------- FINANCIAL -- 11.2% 6,200 Alliance Capital Management Holding, L.P.......... 350,238 6,800 American Physicians Capital, Inc.*................ 311,372 3,800 Bear Stearns Companies, Inc....................... 439,014 13,000 Bluegreen Corporation*............................ 205,400 5,150 CIT Group, Inc.................................... 266,667 26 JAMES EQUITY FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Shares COMMON STOCKS -- 94.8% (Continued) Value -------------------------------------------------------------------------------- FINANCIAL -- 11.2% (Continued) 5,800 Corus Bankshares, Inc............................. $ 326,366 6,100 Stewart Information Services Corporation.......... 296,887 ----------- 2,195,944 ----------- INDUSTRIAL -- 7.1% 4,400 Cummins, Inc...................................... 394,812 4,600 Eaton Corporation................................. 308,614 2,325 Magna International, Inc. - Class A............... 167,377 6,100 Norfolk Southern Corporation...................... 273,463 2,900 The Black & Decker Corporation.................... 252,184 ----------- 1,396,450 ----------- TECHNOLOGY -- 16.1% 8,200 Armor Holdings, Inc.*............................. 349,730 16,500 Diodes, Inc.*..................................... 512,325 33,350 Earthlink, Inc.*.................................. 370,519 17,300 Komag, Inc.*...................................... 599,617 4,900 MicroStrategy, Inc. - Class A*.................... 405,426 17,100 Motorola, Inc..................................... 386,289 12,700 WESCO International, Inc.*........................ 542,671 ----------- 3,166,577 ----------- UTILITIES -- 13.4% 8,600 Edison International.............................. 375,046 9,100 Energen Corporation............................... 330,512 10,000 MDU Resources Group, Inc.......................... 327,400 9,300 Sempra Energy..................................... 417,012 30,500 Sierra Pacific Resources*......................... 397,720 13,700 South Jersey Industries, Inc...................... 399,218 7,200 WPS Resources Corporation......................... 398,232 ----------- 2,645,140 ----------- TOTAL COMMON STOCKS............................... $18,664,527 ----------- ================================================================================ Shares SHORT TERM INVESTMENTS -- 4.2% Value -------------------------------------------------------------------------------- 835,038 First American Treasury Obligations Fund.......... $ 835,038 ----------- TOTAL INVESTMENT SECURITIES -- 99.0% (Cost $15,716,681)................................ $19,499,565 OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.0%..... 190,991 ----------- NET ASSETS -- 100.0%.............................. $19,690,556 =========== * Non-income producing security. See accompanying notes to financial statements. 27 JAMES ADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS December 31, 2005 (Unaudited) ================================================================================ 1. General Information and Significant Accounting Policies James Balanced: Golden Rainbow Fund, James Small Cap Fund, and James Market Neutral Fund are each a diversified series of James Advantage Funds (the "Trust"), and James Equity Fund is a non-diversified series of the Trust (individually the "Fund," collectively the "Funds"). The Trust is an open-end management investment company that was organized as an Ohio business trust on August 29, 1997. The Trust is registered under the Investment Company Act of 1940 (the "1940 Act"). James Balanced: Golden Rainbow Fund was originally organized as a series of the Flagship Admiral Funds Inc., a Maryland corporation. On June 26, 1998, pursuant to an Agreement and Plan of Reorganization, James Balanced: Golden Rainbow Fund was restructured through a tax-free reorganization as a series of the Trust. The James Small Cap Fund and James Market Neutral Fund each commenced its public offering of shares on October 2, 1998. The James Equity Fund commenced its public offering of shares on November 1, 1999. James Balanced: Golden Rainbow Fund seeks to provide total return through a combination of growth and income and preservation of capital in declining markets. The Fund seeks to achieve its objective by investing primarily in common stocks and/or debt securities that the Fund's adviser, James Investment Research, Inc. ("James"), believes are undervalued. James Small Cap Fund seeks to provide long-term capital appreciation. The Fund seeks to achieve its objective by investing primarily in common stocks of small capitalization companies. James Market Neutral Fund seeks to provide positive returns regardless of the direction of the stock markets. The Fund seeks to achieve its objective by investing in common stocks that James believes are undervalued and more likely to appreciate, and selling short common stocks that James believes are overvalued and more likely to depreciate. James Equity Fund seeks to provide long-term capital appreciation and outperform the Standard & Poor's 500 Index (the "S&P 500 Index"). The Fund seeks to achieve its objective by investing primarily in equity securities without regard to the market capitalization of the stock. The Fund often buys stocks in the S&P 500 Index. The following is a summary of significant accounting policies followed by the Funds in preparation of their financial statements, in accordance with accounting principles generally accepted in the United States of America (GAAP). Share Valuation The net asset value per share of each Fund is calculated daily by dividing the total value of the Fund's assets, less liabilities, by the number of shares outstanding. The net asset value is determined as of the close of the NYSE (generally, 4:00 p.m., Eastern time) on each day that the NYSE is open for business, and on any other day on which there is sufficient trading in a Fund's securities to materially affect the net asset value. Redemption Fees Effective November 1, 2004, the James Small Cap Fund, James Market Neutral Fund and James Equity Fund each charge a redemption fee of 1.00% of the amount redeemed if the shares sold were held for fewer than 90 days. From November 1, 2003 through October 31, 2004, the redemption fee charged was 1.00% of the amount redeemed if the shares sold were held for fewer than 180 days. Redemption fees are paid directly to the Fund. Securities Valuation Each Fund's equity securities are valued based on market value. If a market quotation for a security is not readily available, if an event occurs after the close of the trading market (but before the Fund calculates its net asset value) that materially affects a security's value, when James determines that the market quotation does not accurately reflect the current value or when a restricted security is being valued, that security will be valued at its fair value as determined in good faith in conformity with guidelines adopted by and subject to review of the Board of Trustees of the Trust ("Board"). The Funds may use pricing services to determine market value for securities. 28 JAMES ADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) ================================================================================ 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 James believes such prices accurately reflect the fair market value of such securities. 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. If James decides that a price provided by a pricing service does not accurately reflect the fair market value of the securities, when prices are not readily available from a pricing service, or when restricted or illiquid securities are being valued, securities are valued at fair value as determined in good faith by James in conformity with guidelines adopted by and subject to the review of the Board. 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. Securities Transactions Securities transactions are recorded on a trade date basis. Realized gains and losses from security transactions are determined using the specific identification method. Securities purchased or sold on a when-issued or delayed delivery basis may have extended settlement periods. Any securities so purchased are subject to market fluctuation during this period. The James Balanced: Golden Rainbow Fund will instruct its custodian to segregate assets in a separate account with a current value at least equal to the amount of its when-issued and delayed delivery purchase commitments. As of December 31, 2005, the James Balanced: Golden Rainbow Fund had no such outstanding purchase commitments. Short Sales and Segregated Cash The James Market Neutral Fund actively sells short common stocks. Short sales are transactions in which the Fund sells a security it does not own in anticipation of a decline in the market value of that security. To complete such a transaction, the Fund must borrow the security to deliver to the buyer upon the short sale; the Fund is then obligated to replace the security borrowed by purchasing it in the open market at some later date. The Fund will incur a loss if the market price of the security increases between the date of the short sale and the date on which the Fund replaces the borrowed security. The Fund will realize a gain if the security declines in value between those dates. If a security sold short pays a dividend while the Fund is short that security, the Fund will pay the dividend and record that amount as an expense. All short sales are collateralized, as required by the Fund's prime broker. The Fund maintains the collateral in segregated accounts consisting of cash and/or high-grade liquid assets sufficient to collateralize the market value of its short positions. Investment Income Dividend income is recorded on the ex-dividend date. Interest income is determined on the basis of interest accrued, adjusted for amortization of premiums and accretion of discounts on all debt securities. Amortization and accretion is calculated using the effective yield method. Dividends and Distributions to Shareholders Net investment income, if any, is generally declared and distributed to shareholders of each Fund quarterly. Net realized capital gains from security transactions, if any, are distributed to shareholders not less frequently than annually. Furthermore, capital gains are distributed only to the extent they exceed available capital loss carryforwards. Distributions to shareholders of net investment income and net realized capital gains are recorded on the ex-dividend date. The amount and timing of distributions are determined in accordance with federal income tax regulations, which may differ from GAAP. Accordingly, temporary overdistributions as a result of these differences may occur and will be classified as either distributions in excess of net investment income and/or distributions in excess of net realized gains from security transactions, where applicable. 29 JAMES ADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) ================================================================================ Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Federal Income Taxes The Funds generally intend to distribute all taxable income and capital gains to shareholders and to otherwise comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies. Therefore, no federal tax provision is required. The tax character of distributions paid for the years ended June 30, 2005 and 2004 was as follows:
------------------------------------------------------------------------------------------ James Balanced: James Small Cap Golden Rainbow Fund Fund ------------------------------------------------------- 2005 2004 2005 2004 ------------------------------------------------------------------------------------------ From ordinary income ............ $1,715,612 $1,355,926 $ -- $ 5,930 From long-term capital gains .... 289,929 2,860 756,432 35,827 ---------- ---------- ---------- ---------- $2,005,541 $1,358,786 $ 756,432 $ 41,757 ========== ========== ========== ========== ------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------ James Market Neutral James Equity Fund Fund ------------------------------------------------------- 2005 2004 2005 2004 ------------------------------------------------------------------------------------------ From ordinary income ............ $ -- $ -- $ 24,033 $ 14,163 From long-term capital gains .... -- -- -- -- ---------- ---------- ---------- ---------- $ -- $ -- $ 24,033 $ 14,163 ========== ========== ========== ========== ------------------------------------------------------------------------------------------
The following information is computed on a tax basis for each item as of June 30, 2005:
------------------------------------------------------------------------------------------------------------------------ James James James James Balanced: Golden Small Cap Market Neutral Equity Rainbow Fund Fund Fund Fund ------------------------------------------------------------------------------------------------------------------------ Cost of portfolio investments ............... $ 124,993,524 $ 51,678,381 $ 64,115,033 $ 14,246,267 ============= ============= ============= ============= Gross unrealized appreciation ............... $ 22,345,751 $ 7,572,257 $ 6,826,049 $ 2,912,719 Gross unrealized depreciation ............... (936,815) (1,875,647) (2,395,901) (324,637) ------------- ------------- ------------- ------------- Net unrealized appreciation/depreciation .... 21,408,936 5,696,610 4,430,148 2,588,082 Capital loss carryforward ................... -- -- (1,843,245) (3,189,550) Undistributed ordinary income ............... 31,067 133,040 22,402 1 Undistributed long-term gains ............... 5,942,059 411,183 -- -- ------------- ------------- ------------- ------------- Accumulated earnings (deficit) ......... $ 27,382,062 $ 6,240,833 $ 2,609,305 $ (601,467) ============= ============= ============= ============= ------------------------------------------------------------------------------------------------------------------------
30 JAMES ADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) ================================================================================ The difference between the cost of portfolio investments and financial statement cost for the Funds is due to certain timing differences in the recognition of capital losses under income tax regulations and GAAP. During the year ended June 30, 2005, the James Balanced: Golden Rainbow Fund and James Equity Fund utilized $592,514 and $523,127 of capital loss carryforwards, respectively. The capital loss carryforwards remaining as of June 30, 2005 in the table above expire as follows: -------------------------------------------------------------------------------- Amount Expiration Date -------------------------------------------------------------------------------- James Market Neutral Fund..................... $ 82,513 June 30, 2008 $ 987,690 June 30, 2012 $ 773,042 June 30, 2013 James Equity Fund............................. $ 2,881,491 June 30, 2010 $ 130,880 June 30, 2011 $ 177,179 June 30, 2012 -------------------------------------------------------------------------------- The capital loss carryforwards may be utilized in future years to offset net realized capital gains, if any, prior to distributing such gains to shareholders. Reclassification of Capital Accounts As of June 30, 2005, the James Balanced: Golden Rainbow Fund reclassified $2,860 of capital loss carryforwards expired to paid-in capital on the Statement of Assets and Liabilities. This reclassification was required to adjust the capital loss carryforward at June 30, 2004 of $595,374 on the financial statements to the capital loss carryforward at June 30, 2004 of $592,514 on the tax return. Federal Tax Information As of December 31, 2005, the James Advantage Funds had the following federal tax cost resulting in net unrealized appreciation as follows:
------------------------------------------------------------------------------------------------------------- Gross Gross Net Federal Tax Unrealized Unrealized Unrealized Cost Appreciation Depreciation Appreciation ------------------------------------------------------------------------------------------------------------- James Balanced: Golden Rainbow Fund .... $ 181,439,333 $ 25,481,147 $ (1,613,808) $ 23,867,339 Small Cap Fund ......................... $ 73,470,583 $ 11,163,874 $ (3,731,180) $ 7,432,694 Market Neutral Fund .................... $ 76,202,310 $ 12,620,924 $ (6,108,378) $ 6,512,546 Equity Fund ............................ $ 15,716,681 $ 4,005,453 $ (222,569) $ 3,782,884 -------------------------------------------------------------------------------------------------------------
2. Securities Transactions Purchases and sales (including maturities) of investments in long-term U.S. Government obligations for James Balanced: Golden Rainbow Fund for the six months ended December 31, 2005 were as follows:
---------------------------------------------------------------------------------------------------------- Purchases Sales ---------------------------------------------------------------------------------------------------------- James Balanced: Golden Rainbow Fund..................................... $ 87,985,859 $ 64,284,318 ----------------------------------------------------------------------------------------------------------
31 JAMES ADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) ================================================================================ Purchases and sales (including maturities) of investments in other securities for the six months ended December 31, 2005 were as follows:
---------------------------------------------------------------------------------------------------------- Purchases Sales ---------------------------------------------------------------------------------------------------------- James Balanced: Golden Rainbow Fund..................................... $ 14,900,966 $ 11,179,049 James Small Cap Fund..................................................... 35,998,896 13,793,279 James Market Neutral Fund................................................ 15,886,999 4,725,113 James Equity Fund........................................................ 3,771,935 3,353,229 ----------------------------------------------------------------------------------------------------------
For the six months ended December 31, 2005, the cost of securities purchased to cover short sales and the proceeds from securities sold short were $14,354,807 and $32,697,266, respectively, for the James Market Neutral Fund. 3. Management Fee and Other Transactions with Affiliates Certain trustees and officers of the Trust are also officers of James or Integrated Fund Services, Inc. ("IFS"), the administrative services agent, shareholder services and transfer agent and accounting services agent for the Trust, or of IFS Fund Distributors, Inc., the exclusive agent for the distribution of the Funds' shares. Investment Management Agreement The Funds retain James to manage the Funds' investments. The investment decisions for the Funds are made by a committee of James' personnel, which is primarily responsible for the day-to-day management of each Fund's portfolio. James Balanced: Golden Rainbow Fund is authorized to pay James a fee equal to an annual rate of 0.74% of its average daily net assets. James Balanced: Golden Rainbow Fund is responsible for the payment of all operating expenses of the Fund. James is authorized to receive a fee (a) equal to an annual rate of 1.25% of the average daily net assets of the James Small Cap Fund and James Equity Fund and 1.70% of James Market Neutral Fund; minus (b) the fees and expenses of the non-interested person trustees incurred by the applicable Fund. James is responsible for the payment of all operating expenses of the James Small Cap Fund, James Market Neutral Fund and James Equity 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. Administrative Services Agreement Under the terms of an Administrative Services Agreement with the Trust, IFS supplies executive and regulatory services, supervises the preparation of tax returns, and coordinates the preparation of reports to shareholders and reports to and filings with the Securities and Exchange Commission and state securities authorities. For these services, IFS receives a monthly fee paid by James Balanced: Golden Rainbow Fund, and paid by James for the James Small Cap Fund, James Market Neutral Fund and James Equity Fund, based on each Fund's respective average daily net assets, subject to a minimum monthly fee for each Fund. Transfer Agent and Shareholder Service Agreement Under the terms of the Transfer, Dividend Disbursing, Shareholder Service and Plan Agency Agreement with the Trust, IFS maintains the records of each shareholder's account, answers shareholder inquiries concerning their accounts, processes purchases and redemptions of each Funds' shares, acts as dividend and distribution disbursing agent and performs other shareholder service functions. For these services, IFS receives a monthly fee paid by James Balanced: Golden Rainbow Fund, and paid by James for the James Small Cap Fund, James Market Neutral Fund and James Equity Fund, subject to a minimum monthly fee for each Fund. In addition, James Balanced: Golden Rainbow Fund and James pay IFS out-of-pocket expenses including, but not limited to, postage and supplies. 32 JAMES ADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) ================================================================================ Accounting Services Agreement Under the terms of the Accounting Services Agreement with the Trust, IFS calculates the daily net asset value per share and maintains the financial books and records of each Fund. For these services, IFS receives a monthly fee from James Balanced: Golden Rainbow Fund and from James with respect to each of the James Small Cap Fund, James Market Neutral Fund and James Equity Fund. In addition, IFS is reimbursed by James Balanced: Golden Rainbow Fund and James for certain out-of-pocket expenses incurred by IFS in obtaining valuations of the Funds' portfolio securities. Plan of Distribution Each Fund has a Plan of Distribution (the "Plan") under which the Fund may incur or reimburse James for expenses related to the distribution and promotion of its shares. The annual limitation for payment of such expenses under the Plans of James Balanced: Golden Rainbow Fund, James Small Cap Fund, James Market Neutral Fund and James Equity Fund is 0.25% of the average daily net assets of each respective Fund. Compliance Services Agreement Under the terms of the Compliance Services Agreement between the Trust and IFS, IFS provides certain compliance services to the Trust, including developing and assisting in implementing a compliance program for IFS on behalf of the funds and providing administrative support services to the Funds' Compliance Program and Chief Compliance Officer. 4. Commitments and Contingencies The Funds indemnify the Trust's officers and trustees for certain liabilities that might arise from their performance of their duties to the Funds. Additionally, in the normal course of business, the Funds enter into contracts that contain a variety of representations and warranties and that provide general indemnifications. The Funds' maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds that have not yet occurred. However, based on experience, the Funds expect the risk of loss to be remote. 33 JAMES ADVANTAGE FUNDS Other Items (Unaudited) ================================================================================ Proxy Voting Guidelines James is responsible for exercising the voting rights associated with the securities purchased and held by the Funds. A description of the policies and procedures that James uses in fulfilling this responsibility and information regarding how those proxies were voted during the most recent twelve month period ended June 30 are available without charge upon request by calling toll free 1-800-995-2637. These items are also available on the Securities and Exchange Commission's website at http://www.sec.gov. and on the James' website at www.jamesfunds.com. Quarterly Portfolio Disclosure James files a complete listing of portfolio holdings for each Fund as of the end of the first and third quarters of each fiscal year on Form N-Q. The complete listing (i) is available on the Commission's website; (ii) may be reviewed and copied at the Commission's Public Reference Room in Washington, DC; and (iii) will be made available to shareholders upon request by calling 1-800-995-2637. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Shareholder Expense Example As a shareholder of the Funds, you incur two types of costs: (1) transaction costs and redemption fees; and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2005 through December 31, 2005). Actual Expenses The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During the Six Months Ended December 31, 2005" to estimate the expenses you paid on your account during this period, if you held your shares for the entire period. Hypothetical Example for Comparison Purposes The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Funds' actual expense ratios and an assumed rate of return of 5% per year before expenses, which is not the Funds' actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare these 5% hypothetical examples with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Note that expenses shown in the table are meant to highlight and help you compare ongoing cost only. The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions. The James Small Cap Fund, James Market Neutral Fund and James Equity Fund each charge a redemption fee of 1.00% of the amount redeemed if the shares sold were held for fewer than 90 days. 34 JAMES ADVANTAGE FUNDS OTHER ITEMS (Continued) ================================================================================
Expenses Paid Net Expense During the Ratio Beginning Ending Six Months Annualized Account Value Account Value Ended December 31, July 1, December 31, December 31, 2005 2005 2005 2005* ---------------------------------------------------------------------------------------------------------- James Balanced: Golden Rainbow Fund Actual ....................... 1.19% $ 1,000.00 $ 1,036.10 $ 6.11 Hypothetical ................. 1.19% $ 1,000.00 $ 1,019.21 $ 6.06 James Small Cap Fund Actual ....................... 1.50% $ 1,000.00 $ 1,044.70 $ 7.73 Hypothetical ................. 1.50% $ 1,000.00 $ 1,017.64 $ 7.63 James Market Neutral Fund Actual ....................... 2.43% $ 1,000.00 $ 1,008.10 $ 12.30 Hypothetical ................. 2.43% $ 1,000.00 $ 1,012.96 $ 12.33 James Equity Fund Actual ....................... 1.50% $ 1,000.00 $ 1,104.70 $ 7.96 Hypothetical ................. 1.50% $ 1,000.00 $ 1,017.64 $ 7.63
* Expenses are equal to the Fund's annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 35 INVESTMENT ADVISER James Investment Research, Inc. P.O. Box 8 Alpha, Ohio 45301 info@jamesfunds.com o CUSTODIAN U.S. Bank 425 Walnut Street Cincinnati, Ohio 45202 o TRANSFER AGENT Integrated Fund Services, Inc. P.O. Box 5354 Cincinnati, Ohio 45201-5354 o INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP 250 East Fifth Street Suite 1900 Cincinnati, Ohio 45202 o DISTRIBUTOR IFS Fund Distributors, Inc. 303 Broadway Cincinnati, Ohio 45202 o LEGAL COUNSEL Thompson Hine LLP 312 Walnut Street 14th Floor Cincinnati, Ohio 45202 www.jamesfunds.com For information about the Funds, or to make inquiries about the Funds, please call 1-800-99JAMES (1-800-995-2637). FORM IFS-163-0201 Item 2. Code of Ethics. Not applicable. Item 3. Audit Committee Financial Expert. Not applicable. Item 4. Principal Accountant Fees and Services. Not applicable. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. Schedule of Investments. This information is included as part of the report to shareholders filed under Item 1 of this Form. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable. Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers. Not applicable. Item 10. Submission of Matters to a Vote of Security Holders. Not applicable. Item 11. Controls and Procedures. (a) Based on an evaluation of the registrant's disclosure controls and procedures as of March 1, 2006, the disclosure controls and procedures are reasonably designed to ensure that the information required in filings on Forms N-CSR is recorded, processed, summarized, and reported on a timely basis. (b) There were no significant changes in the registrant's internal control over financial reporting that occurred during the second quarter of the registrant's last fiscal half-year that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits. (a)(1) Not applicable. (a)(2) Certifications required by Item 11(a) of Form N-CSR are filed herewith. (a)(3) Not applicable. (b) Certifications required by Item 11(b) of Form N-CSR are filed herewith. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) The James Advantage Funds By (Signature and Title) /s/ Barry R. James -------------------------------- Barry R. James President Date: March 2, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title) /s/ Barry R. James -------------------------------- Barry R. James President Date: March 2, 2006 By (Signature and Title) /s/ Thomas L. Mangan -------------------------------- Thomas L. Mangan Treasurer and Chief Financial Officer Date: March 2, 2006