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: 12/31/06 -------- 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, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. Item 1. Reports to Stockholders. James Advantage Funds Semi-Annual Report - -------------------------------------------------------------------------------- Semi-Annual Report December 31, 2006 (Unaudited) James Balanced: Golden Rainbow Fund James Small Cap Fund James Market Neutral Fund James Equity Fund James Mid Cap Fund JAMES ADVANTAGE FUNDS [LOGO] Advised by James Investment Research, Inc. 937 - 426 -7640 www.jamesfunds.com - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS OF THE JAMES ADVANTAGE FUNDS ================================================================================ The rally we predicted in the latter part of 2006 did in fact develop and ran through the end of the year. With inflation showing some signs of moderating and the housing industry in hasty retreat, the Federal Reserve moved to the sidelines, after 17 consecutive tightening moves. This gave the stock market the green light to rally. Large companies generating much of their earnings from abroad tended to do very well as the weakened dollar raised earnings expectations. Small companies also rallied nicely. The Market Over the Past Six Months The S&P 500 bottomed on June 14 and the NASDAQ on July 18. Most indexes rallied from the mid-summer lows through the end of the year to achieve respectable total returns for the year. Over the last six months the Dow Jones Industrials led the S&P 500, 13.12 percent compared with 12.73 percent, but the small capitalization Russell 2000 Index rose only 9.39 percent. In each case the gains came after a painful correction in May and June. This correction followed the last rate hike by the Federal Reserve and was experienced by stock markets around the world. 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. To achieve the income objective, the James Balanced: Golden Rainbow Fund holds high quality bonds. Our independent research led us to add longer term bonds to the portfolio in May, and bonds rallied into December. We have now assumed a less aggressive position in bonds. Growth in the James Balanced: Golden Rainbow Fund comes from its stocks, which we believe to be bargain stocks. The Fund remains broadly diversified among the economic sectors with some international securities as well. James Small Cap Fund, James Mid Cap Fund and the James Equity Fund The objective of the James Small Cap Fund, the James Equity Fund and the James Mid Cap Fund is to provide long term capital appreciation. The James Equity Fund has the additional objective of outperforming the S&P 500. These Funds are invested in stocks selected after research is conducted on over 8500 companies. The hunt for bargain securities helps our portfolio managers build portfolios of stocks with strong value characteristics. James Market Neutral Fund 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 four James Advantage Funds. Investment Philosophy James Investment Research, Inc., adviser to the James Advantage Funds, holds a conservative management philosophy: we don't buy companies without positive earnings and we look for stocks that are relatively inexpensive given certain characteristics such as low price earnings and price to sales ratios. In fact our models contain over twenty such ratios and have helped our investment committee identify stocks we label as bargains. Many academics would call our approach "Value Investing". This approach helps us to avoid stock market bubbles and to preserve capital in declining markets in addition to identifying stocks that we believe poised to advance. 1 Strategy for Meeting Fund Objectives Every Fall we create a new economic outlook for the coming year. The economic outlook sets the stage and the investment committee selects securities our research leads us to believe will outperform in the expected environment. This requires Sector and Industry analysis, as well as stock analysis. In 2007, we are currently favoring stocks in the Finance and Consumer Non-Cyclical sectors. However, our diversification requirements lead us to have some exposure in all sectors. Over the coming months we see problems arising for the markets. One important sign of this is the very high level of bullishness in the markets. When it is hard to find any market bears, it is often hard for the market to continue to rally. In this type of market environment, the conservative nature of the James Balanced: Golden Rainbow Fund leads it to reduce exposure to stocks and increase bond holdings. The other funds will remain close to fully invested, as their mandate requires. However, we seek out less aggressive stocks and shift shareholder money into more conservative sectors and industries. Fund Performance The James Balanced: Golden Rainbow Fund returned 7.90 percent for 2006, trailing its blended benchmark's return of 10.67 percent. The Fund had an overweight in Energy stocks, which served it well in the first half of the year, but pulled down returns as oil prices corrected. The fund met its income objective, paying an ordinary dividend every quarter and a capital gains dividend in December. The James Equity Fund did beat its benchmark, the S&P 500, returning 16.19 percent for the year vs 15.79 percent on the index. The Fund also paid an ordinary dividend in the fourth quarter. The James Small Cap Fund returned 12.49 percent for the year, trailing the Russell 2000, its benchmark, which returned 18.43 percent. The James Small Cap Fund paid an ordinary dividend and a long term capital gains dividend in the fourth quarter. The James Market Neutral Fund returned -0.43 percent for the year, which trailed its benchmark, the ninety day Treasury Bill's 4.85 percent return. The James Market Neutral Fund paid an ordinary dividend every quarter in 2006. The James Mid Cap Fund began on June 30, 2006. Over the following six months, the Fund returned 5.77 percent. Its benchmark, the S&P 400 Value, returned 7.41 percent over that time period. The James Mid Cap Fund also paid an ordinary dividend in the fourth quarter. With the notable exception of the James Equity Fund, the James Advantage Funds underperformed their benchmarks over the last six months of 2006. Our process and strategies include some quantitative analysis which we believe has a strong history of favorable comparisons to the relevant indexes. However, no strategy will work every quarter or every year. Our research has shown that high relative strength stocks performed poorly in the last half of 2006. Many stocks that had done very well earlier in the year did an abrupt about face, especially stocks of smaller capitalization companies. While there is some evidence this may have reflected a concern over the November elections and investor fears of a change in the tax rates, we consider the price action to be an aberration. Our research team revalidates our processes every two years to make sure they still capture those characteristics of value that will lead to strong performance. This has been an ongoing process at the adviser for decades. However, we do not change our process or strategy because they didn't work over a short time period, such as a quarter or two. We remain true to our discipline, which has been rewarding in the past and we believe will continue to be rewarding over the long term. Expectations for the Future 2007 is a year before a presidential election in the United States. These pre-election years have typically been very strong for the stock market, and investors would have to look all the way back to 1937 to find a pre-election year where the stock market actually declined. Perhaps that is why so many investors are bullish as we begin the year! However, our research is again painting the contrarian picture. While bond investors have pushed the yields on bonds below the Fed Funds rate, the Fed remains concerned about inflation and tight money seems to be in the cards for some time. This is not what the bulls want to hear. 2 In addition, the return of gridlock in Washington is not friendly toward stocks. Pre-election years are generally good years for the stock market because of the additional spending pushed through Congress to spur economic activity in the face of the election. Under political gridlock that spending is harder to produce, eliminating a major bullish factor. What is left is an aging bull market, slowing earnings growth (if not declining earnings) and too many bullish investors. In short, we believe a significant correction is in order, and it could last for many months. These events can serve to create real opportunities for a longer term rally in stocks. As the year wears on and the political situation becomes clearer, reasons to be bullish may surface. However, in the short run, we believe a conservative approach is in order and those managers who can fulfill their preservation of capital mandates should outperform. /s/ Thomas L. Mangan Thomas L. Mangan Chief Financial Officer Average Annual Total Returns As of December 31, 2006 - ---------------------------------------------------------------------------------------------------- Six One Five Ten Since Months** Year Years Years Inception - ---------------------------------------------------------------------------------------------------- Golden Rainbow Fund........................... 5.00% 7.90% 9.15% 8.14% 9.11% Standard & Poor's 500 Index................... 12.74% 15.80% 6.19% 8.42% 11.22% Blended Index*................................ 7.44% 10.34% 6.96% 7.86% 9.42% (Inception 7/1/91) James Small Cap Fund.......................... 1.67% 12.49% 18.01% NA 12.12% Russell 2000 Index............................ 9.38% 18.37% 11.39% NA 11.71% (Inception 10/2/98) James Market Neutral Fund..................... -4.34% -0.43% 4.13% NA 3.39% 90-Day U.S. Treasury Bill Index............... 2.60% 4.85% 2.43% NA 3.46% (Inception 10/2/98) James Equity Fund............................. 3.14% 16.19% 10.62% NA 2.02% Standard & Poor's 500 Index................... 12.74% 15.80% 6.19% NA 2.20% (Inception 11/1/99) James Mid Cap Fund............................ 5.77% NA NA NA 5.77%** Standard & Poor's 400 Value Index............. 7.42% NA NA NA 7.42%** (Inception 6/30/06) - ---------------------------------------------------------------------------------------------------- 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. Current performance may be lower or higher than the performance data quoted. Please call 1-800-995-2637 for most recent month-end performance information. * The Blended Index is comprised of a 25% weighting in the Standard & Poor's 500 Index, a 25% weighting in the Russell 2000 Index and a 50% weighting in the Lehman Brothers Intemediate Government/Credit Index. ** Returns not annualized. 3 JAMES ADVANTAGE FUNDS REPRESENTATION OF PORTFOLIOS OF INVESTMENTS December 31, 2006 (Unaudited) ================================================================================ The illustrations below provide the industry sectors for the James Balanced: Golden Rainbow Fund, James Small Cap Fund, James Market Neutral Fund, James Equity Fund and James Mid Cap Fund. James Balanced: Golden Rainbow Fund Industry Sector Allocation (% of Net Assets) [PIE CHART] BASIC MATERIALS - 4.4% CONSUMER, CYCLICAL - 6.7% CONSUMER, NON-CYCLICAL - 7.1% ENERGY - 6.0% FINANCIAL - 7.2% INDUSTRIAL - 5.0% TECHNOLOGY - 6.1% UTILITIES - 6.0% INTERNATIONAL EQUITY FUNDS - 3.3% BONDS (over 10 years) - 11.0% BONDS (2-10 years) - 24.2% BONDS (less than 2 years) - 9.9% CASH EQUIVALENTS - 2.5% OTHER - 0.6% James Small Cap Fund Industry Sector Allocation (% of Net Assets) [PIE CHART] BASIC MATERIALS - 9.5% CONSUMER, CYCLICAL - 14.2% CONSUMER, NON-CYCLICAL - 15.2% ENERGY - 8.4% FINANCIAL - 15.0% INDUSTRIAL - 10.0% TECHNOLOGY - 11.0% UTILITIES - 13.4% CASH EQUIVALENTS - 8.5% OTHER - -5.2% 4 JAMES ADVANTAGE FUNDS REPRESENTATION OF PORTFOLIOS OF INVESTMENTS (Continued) ================================================================================ James Market Neutral Fund Industry Sector Allocation (% of Net Assets) (Cash, Cash Equivalents and Other Assets in Excess of Liabilities not included) [BAR CHART] Longs Shorts ------- -------- BASIC MATERIALS 6.6% 1.5% CONSUMER, CYCLICAL 13.6% 13.0% CONSUMER, NON-CYCLICAL 9.7% 10.5% ENERGY 12.3% 3.4% FINANCIAL 11.8% 7.4% INDUSTRIAL 3.3% 4.9% TECHNOLOGY 12.4% 17.9% UTILITIES 5.8% 2.6% INTERNATIONAL EQUITY FUNDS 0.9% James Equity Fund Industry Sector Allocation (% of Net Assets) [PIE CHART] BASIC MATERIALS - 7.2% CONSUMER, CYCLICAL - 13.7% CONSUMER, NON-CYCLICAL - 14.7% ENERGY - 14.8% FINANCIAL - 14.5% INDUSTRIAL - 10.7% TECHNOLOGY - 11.6% UTILITIES - 10.8% CASH EQUIVALENTS - 6.0% OTHER - -4.0% 5 JAMES ADVANTAGE FUNDS REPRESENTATION OF PORTFOLIOS OF INVESTMENTS (Continued) ================================================================================ James Mid Cap Fund Industry Sector Allocation (% of Net Assets) [PIE CHART] BASIC MATERIALS - 9.4% CONSUMER, CYCLICAL - 10.6% CONSUMER, NON-CYCLICAL - 16.4% ENERGY - 11.1% FINANCIAL - 17.0% INDUSTRIAL - 9.7% TECHNOLOGY - 9.3% UTILITIES - 12.1% CASH EQUIVALENTS - 7.3% OTHER - -2.9% 6 JAMES ADVANTAGE FUNDS STATEMENTS OF ASSETS AND LIABILITIES December 31, 2006 (Unaudited) ================================================================================ James Balanced: James James James James Golden Rainbow Small Cap Market Neutral Equity Mid Cap Fund Fund Fund Fund Fund - ---------------------------------------------------------------------------------------------------------------------------- ASSETS Investment securities: At amortized cost .................. $ 275,064,327 $ 323,490,249 $ 40,923,477 $ 30,340,636 $ 4,144,298 =============== =============== =============== =============== =============== At value ........................... $ 307,648,085 $ 345,719,180 $ 52,021,544 $ 36,865,339 $ 4,292,253 Segregated cash with brokers .......... -- -- 54,577,654 -- -- Dividends and interest receivable ..... 2,545,638 1,128,948 304,987 87,191 3,792 Receivable for capital shares sold .... 1,005,378 700,704 26,740 42,125 18,844 Other assets .......................... 30,114 -- -- -- -- --------------- --------------- --------------- --------------- --------------- TOTAL ASSETS ................... 311,229,215 347,548,832 106,930,925 36,994,655 4,314,889 --------------- --------------- --------------- --------------- --------------- LIABILITIES Dividends payable ..................... 87,402 19,502 40,706 1,242 37 Payable for securities sold short (proceeds $40,389,859) ............. -- -- 40,485,959 -- -- Payable for dividends on securities sold short .............. -- -- 3,955 -- -- Payable for capital shares redeemed ... 948,500 404,206 167,634 61,290 -- Payable for securities purchased ...... 270,110 18,199,017 -- 1,445,937 137,915 Accrued expenses: Management fees .................... 192,068 337,620 96,924 37,390 4,302 12b-1 distribution and service fees 186,127 111,861 32,331 18,167 2,490 Trustees' fees ..................... 2,534 -- -- -- -- Payable to other affiliates ........ 25,777 -- -- -- -- Other .............................. 1,830 -- -- -- -- --------------- --------------- --------------- --------------- --------------- TOTAL LIABILITIES .............. 1,714,348 19,072,206 40,827,509 1,564,026 144,744 --------------- --------------- --------------- --------------- --------------- NET ASSETS ............................ $ 309,514,867 $ 328,476,626 $ 66,103,416 $ 35,430,629 $ 4,170,145 =============== =============== =============== =============== =============== NET ASSETS CONSIST OF: Paid-in capital ....................... $ 275,991,121 $ 309,053,935 $ 66,285,613 $ 30,696,488 $ 4,021,838 Accumulated net investment income (loss) ...................... (6,878) (34,619) (42,662) 3,091 4 Accumulated net realized gains (losses) from security transactions ......... 946,866 (2,771,621) (11,141,502) (1,793,653) 348 Net unrealized appreciation on investments ..................... 32,583,758 22,228,931 11,001,967 6,524,703 147,955 --------------- --------------- --------------- --------------- --------------- NET ASSETS ............................ $ 309,514,867 $ 328,476,626 $ 66,103,416 $ 35,430,629 $ 4,170,145 =============== =============== =============== =============== =============== Shares of beneficial interest outstanding (unlimited number of shares authorized) .............. 17,532,429 14,032,594 5,548,078 3,116,881 395,811 =============== =============== =============== =============== =============== Net asset value, offering price and redemption price per share ......... $ 17.65 $ 23.41 $ 11.91 $ 11.37 $ 10.54 =============== =============== =============== =============== =============== See accompanying notes to financial statements. 7 JAMES ADVANTAGE FUNDS STATEMENTS OF OPERATIONS For the Six Months Ended December 31, 2006 (Unaudited) ================================================================================ James Balanced: James James James James Golden Rainbow Small Cap Market Neutral Equity Mid Cap Fund Fund Fund Fund Fund - ---------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (Net of withholding taxes of $2,162, $0, $1,633, $811, $33, respectively) ....... $ 1,144,785 $ 2,254,751 $ 508,558 $ 311,369 $ 27,063 Interest ........................... 4,183,444 346,893 1,693,370 34,743 4,389 --------------- --------------- --------------- --------------- --------------- TOTAL INVESTMENT INCOME ........ 5,328,229 2,601,644 2,201,928 346,112 31,452 --------------- --------------- --------------- --------------- --------------- EXPENSES Management fees .................... 1,066,219 1,499,000 651,146 213,557 14,005 12b-1 distribution and service fees 342,987 301,863 89,580 43,462 2,806 Dividend expense on securities sold short .......... -- -- 100,019 -- -- Administration fees ................ 81,495 -- -- -- -- Professional fees .................. 42,645 -- -- -- -- Transfer agent fees ................ 35,176 -- -- -- -- Accounting services fees ........... 24,399 -- -- -- -- Trustees' fees ..................... 9,113 10,319 8,160 7,167 23 Registration fees .................. 25,813 -- -- -- -- Custodian fees and expenses ........ 19,598 -- -- -- -- Shareholder report printing and mailing .................... 16,399 -- -- -- -- Postage and supplies ............... 13,947 -- -- -- -- Compliance fees and expenses ....... 3,698 -- -- -- -- Other expenses ..................... 2,314 -- -- -- -- --------------- --------------- --------------- --------------- --------------- TOTAL EXPENSES ................. 1,683,803 1,811,182 848,905 264,186 16,834 --------------- --------------- --------------- --------------- --------------- NET INVESTMENT INCOME ................. 3,644,426 790,462 1,353,023 81,926 14,618 --------------- --------------- --------------- --------------- --------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) from security transactions .......... 2,817,214 (474,215) 2,476,161 2,118 348 Net realized losses on closed short positions ................ -- -- (1,872,301) -- -- Net change in unrealized appreciation/depreciation on investments .................... 7,665,245 5,714,683 (5,438,398) 818,892 147,955 --------------- --------------- --------------- --------------- --------------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS ..................... 10,482,459 5,240,468 (4,834,538) 821,010 148,303 =============== =============== =============== =============== =============== NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .................... $ 14,126,885 $ 6,030,930 $ (3,481,515) $ 902,936 $ 162,921 =============== =============== =============== =============== =============== See accompanying notes to financial statements. 8 JAMES BALANCED: GOLDEN RAINBOW FUND STATEMENTS OF CHANGES IN NET ASSETS ================================================================================ Six Months Ended Year December 31, Ended 2006 June 30, (Unaudited) 2006 - --------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income ........................................................... $ 3,644,426 $ 4,445,213 Net realized gains on investments ............................................... 2,817,214 4,354,056 Net change in unrealized appreciation/depreciation on investments ............... 7,665,245 3,509,577 ------------- ------------- Net increase in net assets from operations ........................................... 14,126,885 12,308,846 ------------- ------------- FROM DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income ............................................ (3,651,315) (4,445,207) Distributions from net realized gains ........................................... (5,273,855) (6,923,670) ------------- ------------- Decrease in net assets from distributions to shareholders ............................ (8,925,170) (11,368,877) ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold ....................................................... 60,196,714 156,716,472 Net asset value of shares issued in reinvestment of distributions to shareholders 8,607,498 10,968,299 Payments for shares redeemed .................................................... (33,257,004) (47,464,018) ------------- ------------- Net increase in net assets from capital share transactions ........................... 35,547,208 120,220,753 ------------- ------------- TOTAL INCREASE IN NET ASSETS ......................................................... 40,748,923 121,160,722 NET ASSETS Beginning of period ............................................................. 268,765,944 147,605,222 ------------- ------------- End of period ................................................................... $ 309,514,867 $ 268,765,944 ============= ============= ACCUMULATED NET INVESTMENT INCOME (LOSS) ............................................. $ (6,878) $ 2,871 ============= ============= SUMMARY OF CAPITAL SHARE ACTIVITY Shares sold ..................................................................... 3,423,977 9,025,280 Shares issued in reinvestment of distributions to shareholders .................. 485,412 638,737 Shares redeemed ................................................................. (1,894,665) (2,737,742) ------------- ------------- Net increase in shares outstanding .............................................. 2,014,724 6,926,275 Shares outstanding, beginning of period ......................................... 15,517,705 8,591,430 ------------- ------------- Shares outstanding, end of period ............................................... 17,532,429 15,517,705 ============= ============= See accompanying notes to financial statements. 9 JAMES SMALL CAP FUND STATEMENTS OF CHANGES IN NET ASSETS ================================================================================ Six Months Ended Year December 31, Ended 2006 June 30, (Unaudited) 2006 - --------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss) .................................................... $ 790,462 $ (238,195) Net realized gains (losses) on investments ...................................... (474,215) 973,968 Net change in unrealized appreciation/depreciation on investments ............... 5,714,683 10,817,638 ------------- ------------- Net increase in net assets from operations ........................................... 6,030,930 11,553,411 ------------- ------------- FROM DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income ............................................ (579,295) (140,631) Distributions from net realized gains ........................................... (2,572,028) (1,110,529) ------------- ------------- Decrease in net assets from distributions to shareholders ............................ (3,151,323) (1,251,160) ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold ....................................................... 178,014,863 146,123,605 Net asset value of shares issued in reinvestment of distributions to shareholders 3,036,862 1,211,405 Payments for shares redeemed (A) ................................................ (25,945,117) (41,635,792) ------------- ------------- Net increase in net assets from capital share transactions ........................... 155,106,608 105,699,218 ------------- ------------- TOTAL INCREASE IN NET ASSETS ......................................................... 157,986,215 116,001,469 NET ASSETS Beginning of period ............................................................. 170,490,411 54,488,942 ------------- ------------- End of period ................................................................... $ 328,476,626 $ 170,490,411 ============= ============= ACCUMULATED NET INVESTMENT LOSS ...................................................... $ (34,619) $ -- ============= ============= SUMMARY OF CAPITAL SHARE ACTIVITY Shares sold ..................................................................... 7,697,389 6,488,734 Shares issued in reinvestment of distributions to shareholders .................. 129,997 56,228 Shares redeemed ................................................................. (1,118,620) (1,884,121) ------------- ------------- Net increase in shares outstanding .............................................. 6,708,766 4,660,841 Shares outstanding, beginning of period ......................................... 7,323,828 2,662,987 ------------- ------------- Shares outstanding, end of period ............................................... 14,032,594 7,323,828 ============= ============= (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 periods ended December 31, 2006 and June 30, 2006, these fees were $33,629 and $40,075, respectively. Effective February 21, 2007, the redemption fee was eliminated. See accompanying notes to financial statements. 10 JAMES MARKET NEUTRAL FUND STATEMENTS OF CHANGES IN NET ASSETS ================================================================================ Six Months Ended Year December 31, Ended 2006 June 30, (Unaudited) 2006 - --------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income ........................................................... $ 1,353,023 $ 986,065 Net realized gains (losses) from: Security transactions ....................................................... 2,476,161 1,432,520 Closed short positions ...................................................... (1,872,301) (11,320,096) Net change in unrealized appreciation/depreciation on investments ............... (5,438,398) 11,995,675 ------------- ------------- Net increase (decrease) in net assets from operations ................................ (3,481,515) 3,094,164 ------------- ------------- FROM DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income ............................................ (1,395,686) (1,008,466) ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold ....................................................... 17,891,889 55,571,273 Net asset value of shares issued in reinvestment of distributions to shareholders 1,314,050 951,011 Payments for shares redeemed (A) ................................................ (23,442,936) (30,693,297) ------------- ------------- Net increase (decrease) in net assets from capital share transactions ................ (4,236,997) 25,828,987 ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS .............................................. (9,114,198) 27,914,685 NET ASSETS Beginning of period ............................................................. 75,217,614 47,302,929 ------------- ------------- End of period ................................................................... $ 66,103,416 $ 75,217,614 ============= ============= ACCUMULATED NET INVESTMENT INCOME (LOSS) ............................................. $ (42,662) $ 1,351 ============= ============= SUMMARY OF CAPITAL SHARE ACTIVITY Shares sold ..................................................................... 1,422,224 4,486,840 Shares issued in reinvestment of distributions to shareholders .................. 108,370 76,956 Shares redeemed ................................................................. (1,910,858) (2,491,209) ------------- ------------- Net increase (decrease) in shares outstanding ................................... (380,264) 2,072,587 Shares outstanding, beginning of period ......................................... 5,928,342 3,855,755 ------------- ------------- Shares outstanding, end of period ............................................... 5,548,078 5,928,342 ============= ============= (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 periods ended December 31, 2006 and June 30, 2006, these fees were $20,603 and $37,999, respectively. Effective February 21, 2007, the redemption fee was eliminated. See accompanying notes to financial statements. 11 JAMES EQUITY FUND STATEMENTS OF CHANGES IN NET ASSETS ================================================================================ Six Months Ended Year December 31, Ended 2006 June 30, (Unaudited) 2006 - --------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income ........................................................... $ 81,926 $ 12,886 Net realized gains on investments ............................................... 2,118 1,393,779 Net change in unrealized appreciation/depreciation on investments ............... 818,892 3,117,729 ------------- ------------- Net increase in net assets from operations ........................................... 902,936 4,524,394 ------------- ------------- FROM DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income ............................................ (50,617) (12,886) Dividends in excess of net investment income .................................... -- (28,219) ------------- ------------- Decrease in net assets from distributions to shareholders ............................ (50,617) (41,105) ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold ....................................................... 13,224,313 17,542,319 Net asset value of shares issued in reinvestment of distributions to shareholders 49,374 40,392 Payments for shares redeemed (A) ................................................ (12,487,582) (5,107,288) ------------- ------------- Net increase in net assets from capital share transactions ........................... 786,105 12,475,423 ------------- ------------- TOTAL INCREASE IN NET ASSETS ......................................................... 1,638,424 16,958,712 NET ASSETS Beginning of period ............................................................. 33,792,205 16,833,493 ------------- ------------- End of period ................................................................... $ 35,430,629 $ 33,792,205 ============= ============= UNDISTRIBUTED NET INVESTMENT INCOME .................................................. $ 3,091 $ -- ============= ============= SUMMARY OF CAPITAL SHARE ACTIVITY Shares sold ..................................................................... 1,200,288 1,662,067 Shares issued in reinvestment of distributions to shareholders .................. 4,342 4,122 Shares redeemed ................................................................. (1,148,918) (499,385) ------------- ------------- Net increase in shares outstanding .............................................. 55,712 1,166,804 Shares outstanding, beginning of period ......................................... 3,061,169 1,894,365 ------------- ------------- Shares outstanding, end of period ............................................... 3,116,881 3,061,169 ============= ============= (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 periods ended December 31, 2006 and June 30, 2006, these fees were $6,933 and $4,373, respectively. Effective February 21, 2007, the redemption fee was eliminated. See accompanying notes to financial statements. 12 JAMES MID CAP FUND STATEMENTS OF CHANGES IN NET ASSETS ================================================================================ Six Months Ended December 31, 2006 (Unaudited) - --------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income ........................................................... $ 14,618 Net realized gains on investments ............................................... 348 Net change in unrealized appreciation/depreciation on investments ............... 147,955 ----------- Net increase in net assets from operations ........................................... 162,921 ----------- FROM DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income ............................................ (14,614) ----------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold ....................................................... 3,909,554 Net asset value of shares issued in reinvestment of distributions to shareholders 14,577 Payments for shares redeemed (A) ................................................ (2,293) ----------- Net increase in net assets from capital share transactions ........................... 3,921,838 ----------- TOTAL INCREASE IN NET ASSETS ......................................................... 4,070,145 NET ASSETS Beginning of period ............................................................. 100,000 ----------- End of period ................................................................... $ 4,170,145 =========== UNDISTRIBUTED NET INVESTMENT INCOME .................................................. $ 4 =========== SUMMARY OF CAPITAL SHARE ACTIVITY Shares sold ..................................................................... 384,653 Shares issued in reinvestment of distributions to shareholders .................. 1,383 Shares redeemed ................................................................. (225) ----------- Net increase in shares outstanding .............................................. 385,811 Shares outstanding, beginning of period ......................................... 10,000 ----------- Shares outstanding, end of period ............................................... 395,811 =========== (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 period ended December 31, 2006, these fees were $2. Effective February 21, 2007, the redemption fee was eliminated. See accompanying notes to financial statements. 13 JAMES BALANCED: GOLDEN RAINBOW FUND FINANCIAL HIGHLIGHTS ================================================================================ Per Share Data for a Share Outstanding Throughout Each Period - ---------------------------------------------------------------------------------------------------------------------------- Six Months Ended December 31, Year Ended June 30, 2006 --------------------------------------------------------------------- (Unaudited) 2006 2005 2004 2003 2002 - ---------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period ....................... $ 17.32 $ 17.18 $ 15.28 $ 13.72 $ 13.80 $ 14.34 --------- --------- --------- --------- --------- --------- Income from investment operations: Net investment income ........ 0.22 0.34 0.26 0.26 0.27 0.40 Net realized and unrealized gains on investments ..... 0.65 0.75 1.95 1.56 0.28 0.33 --------- --------- --------- --------- --------- --------- Total from investment operations .. 0.87 1.09 2.21 1.82 0.55 0.73 --------- --------- --------- --------- --------- --------- Less distributions: From net investment income ... (0.22) (0.34) (0.26) (0.26) (0.27) (0.40) From net realized gains on investments .............. (0.32) (0.61) (0.05) (0.00)(A) (0.36) (0.87) --------- --------- --------- --------- --------- --------- Total distributions ............... (0.54) (0.95) (0.31) (0.26) (0.63) (1.27) --------- --------- --------- --------- --------- --------- Net asset value at end of period .. $ 17.65 $ 17.32 $ 17.18 $ 15.28 $ 13.72 $ 13.80 ========= ========= ========= ========= ========= ========= Total return ...................... 5.00%(B) 6.48% 14.56% 13.32% 4.34% 5.37% ========= ========= ========= ========= ========= ========= Net assets at end of period (000's) $ 309,515 $ 268,766 $ 147,605 $ 83,893 $ 69,169 $ 65,456 ========= ========= ========= ========= ========= ========= Ratios/Supplemental Data: Ratio of net expenses to average net assets ................... 1.17%(C) 1.21% 1.26% 1.28% 1.32% 1.24% Ratio of net investment income to average net assets ........ 2.53%(C) 2.11% 1.70% 1.77% 2.08% 2.84% Portfolio turnover rate ........... 50%(C) 68% 36% 29% 61% 54% (A) Amount rounds to less than $0.005. (B) Not annualized. (C) Annualized. See accompanying notes to financial statements. 14 JAMES SMALL CAP FUND FINANCIAL HIGHLIGHTS ================================================================================ Per Share Data for a Share Outstanding Throughout Each Period - ---------------------------------------------------------------------------------------------------------------------------- Six Months Ended December 31, Year Ended June 30, 2006 --------------------------------------------------------------------- (Unaudited) 2006 2005 2004 2003 2002 - ---------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period ........................ $ 23.28 $ 20.46 $ 18.66 $ 13.43 $ 12.08 $ 11.03 --------- --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income (loss) . 0.07 (0.04) 0.05 0.01 0.10 0.00(A) Net realized and unrealized gains on investments ..... 0.32 3.19 2.65 5.26 1.35 1.06 --------- --------- --------- --------- --------- --------- Total from investment operations .. 0.39 3.15 2.70 5.27 1.45 1.06 --------- --------- --------- --------- --------- --------- Less distributions: From net investment income ... (0.04) (0.04) -- (0.01) (0.10) (0.01) From net realized gains on investments .............. (0.22) (0.30) (1.00) (0.05) -- -- --------- --------- --------- --------- --------- --------- Total distributions ............... (0.26) (0.34) (1.00) (0.06) (0.10) (0.01) --------- --------- --------- --------- --------- --------- Paid-in capital from redemption fees(B) ....................... 0.00(A) 0.01 0.10 0.02 -- -- --------- --------- --------- --------- --------- --------- Net asset value at end of period .. $ 23.41 $ 23.28 $ 20.46 $ 18.66 $ 13.43 $ 12.08 ========= ========= ========= ========= ========= ========= Total return ...................... 1.67%(C) 15.59% 15.39% 39.47% 12.20% 9.65% ========= ========= ========= ========= ========= ========= Net assets at end of period (000's) $ 328,477 $ 170,490 $ 54,489 $ 13,186 $ 9,199 $ 7,882 ========= ========= ========= ========= ========= ========= Ratios/Supplemental Data: Ratio of net expenses to average net assets .................... 1.49%(D) 1.50% 1.50% 1.50% 1.50% 1.48% Ratio of net investment income (loss) to average net assets .. 0.65%(D) (0.25%) 0.45% 0.05% 0.90% 0.02% Portfolio turnover rate ........... 79%(D) 59% 94% 45% 52% 78% (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. 15 JAMES MARKET NEUTRAL FUND FINANCIAL HIGHLIGHTS ================================================================================ Per Share Data for a Share Outstanding Throughout Each Period - ---------------------------------------------------------------------------------------------------------------------------- Six Months Ended December 31, Year Ended June 30, 2006 --------------------------------------------------------------------- (Unaudited) 2006 2005 2004 2003 2002 - ---------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period ........................ $ 12.69 $ 12.27 $ 11.02 $ 9.97 $ 10.79 $ 10.12 --------- --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income (loss) . 0.22 0.17 0.01 (0.13) (0.10) 0.02 Net realized and unrealized gains (losses) on investments .............. (0.77) 0.42 1.23 1.18 (0.72) 0.69 --------- --------- --------- --------- --------- --------- Total from investment operations .. (0.55) 0.59 1.24 1.05 (0.82) 0.71 --------- --------- --------- --------- --------- --------- Less distributions: From net investment income ... (0.23) (0.18) -- -- -- (0.04) --------- --------- --------- --------- --------- --------- Paid-in capital from redemption fees(B) ....................... 0.00(A) 0.01 0.01 0.00(A) -- -- --------- --------- --------- --------- --------- --------- Net asset value at end of period .. $ 11.91 $ 12.69 $ 12.27 $ 11.02 $ 9.97 $ 10.79 ========= ========= ========= ========= ========= ========= Total return ...................... (4.34%)(C) 4.94% 11.34% 10.53% (7.60%) 7.06% ========= ========= ========= ========= ========= ========= Net assets at end of period (000's) $ 66,103 $ 75,218 $ 47,303 $ 12,528 $ 9,219 $ 8,676 ========= ========= ========= ========= ========= ========= Ratios/Supplemental Data: Ratio of net expenses to average net assets, excluding dividends on securities sold short ........................ 1.93%(D) 1.95% 1.95% 1.95% 1.95% 1.95% Ratio of dividend expense on securities sold short ..... 0.26%(D) 0.62% 0.42% 0.64% 0.53% 0.28% --------- --------- --------- --------- --------- --------- Ratio of net expenses to average net assets .................... 2.19%(D) 2.57% 2.37% 2.59% 2.48% 2.23% --------- --------- --------- --------- --------- --------- Ratio of net investment income (loss) to average net assets . 3.49%(D) 1.52% 0.11% (1.43%) (0.98%) 0.25% Portfolio turnover rate(E) ........ 53%(D) 27% 35% 13% 86% 154% (A) Amount rounds to less than $0.005. (B) Amount calculated based on average shares outstanding throughout the period. (C) Not annualized. (D) Annualized. (E) Calculation does not include short positions or short transactions. Portfolio turnover rate would be lower if included. See accompanying notes to financial statements. 16 JAMES EQUITY FUND FINANCIAL HIGHLIGHTS ================================================================================ Per Share Data for a Share Outstanding Throughout Each Period - ---------------------------------------------------------------------------------------------------------------------------- Six Months Ended December 31, Year Ended June 30, 2006 --------------------------------------------------------------------- (Unaudited) 2006 2005 2004 2003 2002 - ---------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period ........................ $ 11.04 $ 8.89 $ 7.36 $ 6.18 $ 6.62 $ 7.65 --------- --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income ........ 0.03 0.01 0.01 0.02 0.03 0.01 Net realized and unrealized gains (losses) on investments .............. 0.32 2.16 1.53 1.18 (0.44) (1.03) --------- --------- --------- --------- --------- --------- Total from investment operations .. 0.35 2.17 1.54 1.20 (0.41) (1.02) --------- --------- --------- --------- --------- --------- Less distributions: From net investment income ... (0.02) (0.01) (0.01) (0.02) (0.03) (0.01) From distributions in excess of net investment income . -- (0.01) -- -- -- -- --------- --------- --------- --------- --------- --------- Total distributions .......... (0.02) (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) 0.00(A) -- -- --------- --------- --------- --------- --------- --------- Net asset value at end of period .. $ 11.37 $ 11.04 $ 8.89 $ 7.36 $ 6.18 $ 6.62 ========= ========= ========= ========= ========= ========= Total return ...................... 3.14%(C) 24.45% 20.96% 19.38% (6.14%) (13.29%) ========= ========= ========= ========= ========= ========= Net assets at end of period (000's) $ 35,431 $ 33,792 $ 16,833 $ 7,249 $ 5,379 $ 3,788 ========= ========= ========= ========= ========= ========= 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 to average net assets ........ 0.46%(D) 0.06% 0.22% 0.25% 0.56% 0.20% Portfolio turnover rate ........... 57%(D) 43% 33% 70% 65% 87% (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. 17 JAMES MID CAP FUND FINANCIAL HIGHLIGHTS ================================================================================ Per Share Data for a Share Outstanding Throughout the Period - -------------------------------------------------------------------------------- Six Months Ended December 31, 2006 (Unaudited) - -------------------------------------------------------------------------------- Net asset value at beginning of period ...................... $ 10.00 ------------- Income from investment operations: Net investment income .................................. 0.04 Net realized and unrealized gains on investments........ 0.54 ------------- Total from investment operations ............................ 0.58 ------------- Less distributions: From net investment income ............................. (0.04) ------------- Paid-in capital from redemption fees(B) ..................... 0.00(A) ------------- Net asset value at end of period ............................ $ 10.54 ============= Total return ................................................ 5.77%(C) ============= Net assets at end of period (000's) ......................... 4,170 ============= Ratios/Supplemental Data: Ratio of net expenses to average net assets ................. 1.48%(D) Ratio of net investment income to average net assets......... 1.29%(D) Portfolio turnover rate ..................................... 20%(D) (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. 18 JAMES BALANCED: GOLDEN RAINBOW FUND SCHEDULE OF INVESTMENTS December 31, 2006 (Unaudited) ================================================================================ Shares COMMON STOCKS -- 51.8% Value - -------------------------------------------------------------------------------- BASIC MATERIALS -- 4.4% 42,000 AEP Industries, Inc.*............................ $ 2,239,020 15,000 Alliance Resource Partners, L.P.................. 517,800 40,000 Barrick Gold Corporation......................... 1,228,000 35,000 Castle (A.M.) & Company.......................... 890,750 15,000 Dow Chemical Company............................. 599,100 40,000 Goldcorp, Inc.................................... 1,137,600 45,650 Methanex Corporation............................. 1,249,441 26,000 Newmont Mining Corporation....................... 1,173,900 19,000 Nucor Corporation................................ 1,038,540 175,000 Polyone Corporation - W/I*....................... 1,312,500 17,000 PPG Industries, Inc.............................. 1,091,570 30,000 RPM International, Inc........................... 626,700 19,500 Terra Nitrogen Company, L.P...................... 663,975 ------------- 13,768,896 ------------- CONSUMER, CYCLICAL -- 6.7% 100,812 Air Methods Corporation*......................... 2,814,671 185,000 Interstate Hotels & Resorts*..................... 1,380,100 39,000 J.C. Penney Company, Inc. ....................... 3,017,040 30,000 McDonald's Corporation........................... 1,329,900 45,000 Men's Wearhouse, Inc............................. 1,721,700 20,000 Office Depot, Inc.*.............................. 763,400 34,950 PACCAR, Inc...................................... 2,268,255 13,000 Papa John's Intl., Inc.*......................... 377,130 26,000 Steven Madden Ltd................................ 912,340 29,000 The Buckle, Inc.................................. 1,474,650 49,000 The Pantry, Inc.*................................ 2,295,160 55,500 Watson Wyatt Worldwide, Inc...................... 2,505,825 ------------- 20,860,171 ------------- CONSUMER, NON-CYCLICAL -- 7.1% 41,500 Archer-Daniels-Midland Company................... 1,326,340 53,500 Corvel Corporation*.............................. 2,544,995 201,000 EZCORP, Inc. - Class A*.......................... 3,266,250 48,000 Imperial Sugar Company........................... 1,162,080 12,000 Ingles Markets, Inc - CL A....................... 357,480 126,000 King Pharmaceuticals, Inc.*...................... 2,005,920 25,000 Magellan Health Services, Inc.*.................. 1,080,500 24,000 Manpower, Inc.................................... 1,798,320 60,000 Merck & Co., Inc................................. 2,616,000 97,000 Pfizer, Inc...................................... 2,512,300 9,000 Sierra Health Services, Inc.*.................... 324,360 20,534 The Andersons, Inc............................... 870,436 43,000 The Toro Company................................. 2,005,090 ------------- 21,870,071 ------------- 19 JAMES BALANCED: GOLDEN RAINBOW FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Shares COMMON STOCKS -- 51.8% (Continued) Value - -------------------------------------------------------------------------------- ENERGY -- 6.0% 15,800 Apache Corporation............................... $ 1,050,858 41,500 Bolt Technology Corporation*..................... 925,450 32,940 Chevron Corporation.............................. 2,422,078 38,500 Cimarex Energy Company........................... 1,405,250 28,000 Devon Energy Corporation......................... 1,878,240 16,000 EOG Resources, Inc............................... 999,200 44,500 Exxon Mobil Corporation.......................... 3,410,036 36,400 Hess Corporation................................. 1,804,348 151,313 ICO Inc.*........................................ 853,405 10,000 Lufkin Industries, Inc........................... 580,800 28,300 Sunoco, Inc...................................... 1,764,788 28,000 Valero Energy Corporation........................ 1,432,480 ------------- 18,526,933 ------------- FINANCIAL -- 7.2% 27,500 Alliance Bernstein Holding L.P................... 2,211,000 46,500 American Financial Group, Inc.................... 1,669,815 48,750 American Physicians Capital, Inc.*............... 1,951,950 11,500 Assurant, Inc.................................... 635,375 20,500 Bear Stearns Companies, Inc...................... 3,336,989 36,500 CIT Group, Inc................................... 2,035,605 28,000 CNA Surety Corporation*.......................... 602,000 14,000 KeyCorp.......................................... 532,420 40,000 Knight Capital Group, Inc.*...................... 766,800 47,500 Rent-A-Center, Inc.*............................. 1,401,725 20,000 SAFECO Corporation............................... 1,251,000 54,000 Safety Insurance Group, Inc...................... 2,738,340 82,500 W.R. Berkley Corporation......................... 2,847,075 ------------- 21,980,094 ------------- INDUSTRIAL -- 5.0% 14,000 Cascade Corporation.............................. 740,600 62,000 CSX Corporation.................................. 2,134,660 21,500 Cummins, Inc..................................... 2,540,870 11,000 Eaton Corporation................................ 826,540 75,000 Metal Management, Inc............................ 2,838,750 29,000 Norfolk Southern Corporation..................... 1,458,410 36,200 OMI Corporation.................................. 766,354 57,000 PW Eagle, Inc.................................... 1,966,500 27,000 Superior Essex, Inc.*............................ 897,750 2,000 The Black & Decker Corporation................... 159,940 42,000 Timken Company................................... 1,225,560 ------------- 15,555,934 ------------- 20 JAMES BALANCED: GOLDEN RAINBOW FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Shares COMMON STOCKS -- 51.8% (Continued) Value - -------------------------------------------------------------------------------- TECHNOLOGY -- 6.1% 42,000 Armor Holdings, Inc.*............................ $ 2,303,700 41,000 Arrow Electronics, Inc*.......................... 1,293,550 25,000 BTU International, Inc.*......................... 245,000 6,000 Ceradyne, Inc.*.................................. 339,000 35,000 Covansys Corporation*............................ 803,250 61,500 Hewlett-Packard Company.......................... 2,533,185 30,000 Intersections, Inc.*............................. 316,800 41,000 Komag, Inc.*..................................... 1,553,080 8,000 MicroStrategy, Inc.*............................. 912,080 17,000 Motorola, Inc.................................... 349,520 50,500 Northrop Grumman Corporation..................... 3,418,850 35,000 Sykes Enterprises, Inc.*......................... 617,400 30,000 WESCO International, Inc.*....................... 1,764,300 119,000 Western Digital Corporation*..................... 2,434,740 ------------- 18,884,455 ------------- UTILITIES -- 6.0% 76,000 AT&T, Inc........................................ 2,717,000 39,500 CenturyTel, Inc.................................. 1,724,570 34,000 Edison International............................. 1,546,320 70,800 Energen Corporation.............................. 3,323,352 52,000 IDACORP, Inc..................................... 2,009,800 43,500 MDU Resources Group, Inc......................... 1,115,340 28,000 Otter Tail Corporation........................... 872,480 30,500 Sempra Energy.................................... 1,707,085 38,000 TXU Corporation.................................. 2,059,980 25,000 WPS Resources Corporation........................ 1,350,750 ------------- 18,426,677 ------------- INTERNATIONAL EQUITY FUNDS -- 3.3% 27,000 Greater China Fund, Inc.......................... 849,960 30,000 India Fund, Inc.................................. 1,377,000 124,000 iShares MSCI Japan Index Fund.................... 1,760,800 10,300 iShares MSCI South Africa........................ 1,184,706 46,000 iShares MSCI Sweden.............................. 1,479,820 57,000 iShares MSCI Taiwan Index Fund................... 827,070 55,000 Japan Smaller Capitalization Fund, Inc........... 707,850 58,000 New Ireland Fund, Inc............................ 2,134,400 ------------- 10,321,606 ------------- TOTAL COMMON STOCKS.............................. $ 160,194,837 ------------- 21 JAMES BALANCED: GOLDEN RAINBOW FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Par Value U.S. GOVERNMENT & AGENCY BONDS -- 44.0% Value - -------------------------------------------------------------------------------- $ 2,000,000 Federal Farm Credit Bank, 5.950%, 3/16/09........ $ 2,038,076 550,000 Federal Home Loan Bank, 4.500%, 2/17/10.......... 540,184 7,500,000 U.S. Treasury Bonds, 4.875%, 2/15/12............. 7,568,558 14,000,000 U.S. Treasury Bonds, 4.750%, 5/15/14............. 14,036,092 35,000,000 U.S. Treasury Bonds, 4.500%, 2/15/16............. 34,442,170 13,000,000 U.S. Treasury Bonds, 5.125%, 5/15/16............. 13,390,507 22,200,000 U.S. Treasury Bonds, 5.375%, 2/15/31............. 23,780,018 9,000,000 U.S. Treasury Bonds, 4.500%, 2/15/36............. 8,558,442 11,500,000 U.S. Treasury Notes, 3.250%, 8/15/07............. 11,375,570 14,000,000 U.S. Treasury Notes, 3.000%, 2/15/08............. 13,699,224 3,000,000 U.S. Treasury Notes, 4.625%, 3/31/08............. 2,987,226 2,000,000 U.S. Treasury Notes, 2.625%, 5/15/08............. 1,940,312 2,000,000 U.S. Treasury Notes, 4.000%, 2/15/15............. 1,905,234 ------------- TOTAL U.S. GOVERNMENT & AGENCY BONDS............. $ 136,261,613 ------------- ================================================================================ Par Value CORPORATE BONDS -- 1.1% Value - -------------------------------------------------------------------------------- $ 500,000 Anheuser-Busch Companies, Inc., 6.000%, 4/15/1... $ 512,816 500,000 Barrick Gold Finance, Inc., 7.500%, 5/1/07....... 503,401 500,000 Tennessee Valley Authority, 5.625%, 1/18/11...... 511,576 2,000,000 Walmart Stores, 5.250%, 9/1/35................... 1,836,597 ------------- TOTAL CORPORATE BONDS............................ $ 3,364,390 ------------- ================================================================================ Shares SHORT TERM INVESTMENTS -- 2.5% Value - -------------------------------------------------------------------------------- 7,827,245 First American Treasury Obligations Fund......... $ 7,827,245 ------------- TOTAL INVESTMENT SECURITIES -- 99.4% (Amortized Cost $275,064,327).................... $ 307,648,085 OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.6%.... 1,866,782 ------------- NET ASSETS -- 100.0%............................. $ 309,514,867 ============= * Non-income producing security. See accompanying notes to financial statements. 22 JAMES SMALL CAP FUND SCHEDULE OF INVESTMENTS December 31, 2006 (Unaudited) ================================================================================ Shares COMMON STOCKS -- 96.7% Value - -------------------------------------------------------------------------------- BASIC MATERIALS -- 9.5% 129,870 AEP Industries Inc.*............................. $ 6,923,369 27,500 Alliance Resource Partners, L.P.................. 949,300 93,270 Castle (A.M.) & Company.......................... 2,373,722 29,900 Compass Minerals International, Inc. ............ 943,644 22,700 Innospec, Inc.................................... 1,056,685 20,000 OM Group, Inc.*.................................. 905,600 86,600 Oregon Steel Mills, Inc.*........................ 5,404,706 783,800 Polyone Corporation*............................. 5,878,500 73,690 Schnitzer Steel Industries, Inc. - Class A....... 2,925,493 54,000 Shiloh Industries, Inc.*......................... 1,023,300 62,700 Universal Forest Products, Inc. ................. 2,923,074 ------------- 31,307,393 ------------- CONSUMER, CYCLICAL -- 14.2% 275,700 Air Methods Corporation*......................... 7,697,544 160,650 Aldila, Inc. .................................... 2,395,292 344,350 Books-A-Million, Inc. ........................... 7,809,858 355,900 Charming Shoppes, Inc.*.......................... 4,815,327 586,600 Interstate Hotels & Resorts*..................... 4,376,036 41,300 JAKKS Pacific, Inc.*............................. 901,992 190,200 K2, Inc.*........................................ 2,508,738 103,200 Pinnacle Airlines Corporation*................... 1,738,920 71,500 Steiner Leisure Ltd.*............................ 3,253,250 116,800 The Buckle, Inc.................................. 5,939,280 112,575 The Pantry, Inc.*................................ 5,273,013 ------------- 46,709,250 ------------- CONSUMER, NON-CYCLICAL -- 15.2% 207,250 Advocat, Inc.*................................... 3,330,508 427,400 Central Parking Corporation...................... 7,693,199 176,605 Corvel Corporation*.............................. 8,401,099 179,000 First Consulting Group, Inc.*.................... 2,463,040 158,900 Gentek, Inc.*.................................... 5,496,351 143,700 Imperial Sugar Company........................... 3,478,977 196,100 Ingles Markets, Inc. - Class A................... 5,841,819 137,000 Magellan Health Services, Inc.*.................. 5,921,140 332,556 Spartan Stores, Inc.............................. 6,960,397 ------------- 49,586,530 ------------- ENERGY -- 8.4% 71,270 Copano Energy LLC................................ 4,251,256 60,000 Lufkin Industries, Inc. ......................... 3,484,800 357,900 Matrix Service Company*.......................... 5,762,190 225,675 RPC, Inc......................................... 3,809,394 90,000 Swift Energy Company*............................ 4,032,900 400,000 VAALCO Energy, Inc.*............................. 2,700,000 75,000 W-H Energy Services, Inc.*....................... 3,651,750 ------------- 27,692,290 ------------- 23 JAMES SMALL CAP FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Shares COMMON STOCKS -- 96.7% (Continued) Value - -------------------------------------------------------------------------------- FINANCIAL -- 15.0% 105,420 1st Source Corporation........................... $ 3,387,145 75,600 American Physicians Capital, Inc.*............... 3,027,024 188,050 ASTA Funding, Inc................................ 5,724,242 236,100 CNA Surety Corporation*.......................... 5,076,150 192,100 FelCor Lodging Trust, Inc........................ 4,195,464 99,050 FPIC Insurance Group, Inc.*...................... 3,859,979 188,420 LTC Properties, Inc.............................. 5,145,750 293,917 MCG Capital Corporation.......................... 5,972,393 56,000 Piper Jaffray Companies, Inc.*................... 3,648,400 133,400 Safety Insurance Group, Inc...................... 6,764,714 99,400 United America Indemnity Ltd.*................... 2,517,802 ------------- 49,319,063 ------------- INDUSTRIAL -- 10.0% 142,900 Arkansas Best Corporation........................ 5,144,400 112,900 Cascade Corporation.............................. 5,972,410 44,200 Commercial Vehicle Group, Inc.*.................. 963,560 52,600 Metal Management, Inc............................ 1,990,910 283,500 OMI Corporation.................................. 6,001,695 152,232 PW Eagle, Inc.................................... 5,252,004 212,430 Superior Essex, Inc.*............................ 7,063,298 17,200 Twin Disc, Inc................................... 610,600 ------------- 32,998,877 ------------- TECHNOLOGY -- 11.0% 310,300 Datalink Corporation*............................ 2,333,456 70,100 Hurco Companies, Inc.*........................... 2,227,778 56,125 John H. Harland Company.......................... 2,817,475 129,700 Komag, Inc.*..................................... 4,913,036 120,600 Park Electrochemical Corporation................. 3,093,390 523,000 RealNetworks, Inc.*.............................. 5,721,620 65,820 Rofin-Sinar Technologies, Inc.*.................. 3,979,477 41,900 Teledyne Technologies, Inc.*..................... 1,681,447 224,600 United Online, Inc............................... 2,982,688 163,700 Xyratex Ltd.*.................................... 3,532,646 201,500 Zoran Corporation*............................... 2,937,870 ------------- 36,220,883 ------------- UTILITIES -- 13.4% 352,200 Alaska Communications Systems Group Inc.......... 5,349,918 31,800 Atlantic Tele-Network, Inc....................... 931,740 279,400 Avista Corporation............................... 7,071,614 302,950 El Paso Electric Company*........................ 7,382,892 157,000 FairPoint Communications, Inc.................... 2,975,150 281,800 General Communication, Inc. - Class A*........... 4,432,714 177,100 Iowa Telecommunications Services, Inc. .......... 3,490,641 24 JAMES SMALL CAP FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Shares COMMON STOCKS -- 96.7% (Continued) Value - -------------------------------------------------------------------------------- UTILITIES -- 13.4% (Continued) 200,470 Southwest Gas Corporation........................ $ 7,692,033 127,300 Unisource Energy Corporation..................... 4,650,269 ------------- 43,976,971 ------------- TOTAL COMMON STOCKS.............................. $ 317,811,257 ------------- ================================================================================ Shares SHORT TERM INVESTMENTS -- 8.5% Value - -------------------------------------------------------------------------------- 27,907,923 First American Treasury Obligations Fund......... $ 27,907,923 ------------- TOTAL INVESTMENT SECURITIES -- 105.2% (Cost $323,490,249).............................. $ 345,719,180 LIABILITIES IN EXCESS OF OTHER ASSETS -- (5.2%) . (17,242,554) ------------- NET ASSETS -- 100.0%............................. $ 328,476,626 ============= * Non-income producing security. See accompanying notes to financial statements. 25 JAMES MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS December 31, 2006 (Unaudited) ================================================================================ Shares COMMON STOCKS -- 76.4% Value - -------------------------------------------------------------------------------- BASIC MATERIALS -- 6.6% 16,000 Barrick Gold Corporation......................... $ 491,200 26,000 Castle (A.M.) & Company.......................... 661,700 35,000 Goldcorp, Inc.................................... 995,400 31,400 Methanex Corporation............................. 859,418 20,500 Schnitzer Steel Industries, Inc. - Class A....... 813,850 15,000 Terra Nitrogen Company, L.P...................... 510,750 ------------- 4,332,318 ------------- CONSUMER, CYCLICAL -- 13.6% 40,000 Air Methods Corporation*......................... 1,116,800 26,000 Darden Restaurants, Inc. ........................ 1,044,420 18,000 J.C. Penney Company, Inc. ....................... 1,392,480 23,400 Office Depot, Inc.*.............................. 893,178 22,425 PACCAR, Inc. .................................... 1,455,383 32,000 The Buckle, Inc.................................. 1,627,199 29,900 The Pantry, Inc.*................................ 1,400,516 ------------- 8,929,976 ------------- CONSUMER, NON-CYCLICAL -- 9.7% 30,000 Archer-Daniels-Midland Company................... 958,800 54,000 EZCORP, Inc. - Class A*.......................... 877,500 40,000 King Pharmaceuticals, Inc.*...................... 636,800 20,000 Magellan Health Services, Inc.*.................. 864,400 21,900 Merck & Co., Inc. ............................... 954,840 40,000 Pfizer, Inc...................................... 1,036,000 23,900 The Toro Company................................. 1,114,457 ------------- 6,442,797 ------------- ENERGY -- 12.3% 10,096 Apache Corporation............................... 671,485 22,300 Devon Energy Corporation......................... 1,495,884 19,000 Exxon Mobil Corporation.......................... 1,455,970 15,000 Lufkin Industries, Inc. ......................... 871,200 22,000 Sunoco, Inc. .................................... 1,371,920 130,000 VAALCO Energy, Inc.*............................. 877,500 26,900 Valero Energy Corporation........................ 1,376,204 ------------- 8,120,163 ------------- FINANCIAL -- 11.8% 11,450 Bear Stearns Companies, Inc. .................... 1,863,831 45,000 Berkley (W.R.) Corporation....................... 1,552,950 20,600 CIT Group, Inc. ................................. 1,148,862 40,000 CNA Surety Corporation*.......................... 860,000 5,650 Hospitality Properties Trust..................... 268,545 22,600 KeyCorp.......................................... 859,478 25,000 Safety Insurance Group........................... 1,267,750 ------------- 7,821,416 ------------- 26 JAMES MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Shares COMMON STOCKS -- 76.4% (Continued) Value - -------------------------------------------------------------------------------- INDUSTRIAL -- 3.3% 20,000 CSX Corporation.................................. $ 688,600 7,000 Cummins, Inc..................................... 827,260 13,550 Norfolk Southern Corporation..................... 681,430 -------------- 2,197,290 -------------- TECHNOLOGY -- 12.4% 46,000 Hewlett-Packard Company.......................... 1,894,740 43,000 Komag, Inc.*..................................... 1,628,840 15,600 Northrop Grumman Corporation..................... 1,056,120 63,000 Park Electrochemical Corporation................. 1,615,950 34,400 WESCO International, Inc.*....................... 2,023,063 -------------- 8,218,713 -------------- UTILITIES -- 5.8% 30,000 CenturyTel, Inc. ................................ 1,309,800 31,200 MDU Resources Group, Inc......................... 799,968 10,000 Sempra Energy.................................... 559,700 21,900 TXU Corporation.................................. 1,187,199 -------------- 3,856,667 -------------- INTERNATIONAL EQUITY FUNDS -- 0.9% 40,000 iShares MSCI Japan Index Fund.................... 568,000 -------------- TOTAL COMMON STOCKS.............................. $ 50,487,340 -------------- ================================================================================ Par Value SHORT TERM INVESTMENTS -- 2.3% Value - -------------------------------------------------------------------------------- 1,534,204 First American Treasury Obligations Fund......... $ 1,534,204 ------------- TOTAL INVESTMENT SECURITIES -- 78.7% (Cost $40,923,477)............................... $ 52,021,544 SEGREGATED CASH WITH BROKERS -- 82.6%............ 54,577,654 SECURITIES SOLD SHORT -- (61.2)% (Proceeds $40,389,859)........................... (40,485,959) LIABILITIES IN EXCESS OF OTHER ASSETS -- (.01%) . (9,823) ------------- NET ASSETS -- 100.0%............................. $ 66,103,416 ============= * Non-income producing security. See accompanying notes to financial statements. 27 JAMES MARKET NEUTRAL FUND SCHEDULE OF SECURITIES SOLD SHORT December 31, 2006 (Unaudited) ================================================================================ Shares COMMON STOCKS -- 61.2% Value - -------------------------------------------------------------------------------- BASIC MATERIALS -- 1.5% 42,500 Massey Energy Company............................ $ 987,276 ------------- CONSUMER, CYCLICAL -- 13.0% 56,860 99 Cents Only Stores............................. 691,986 70,000 AFC Enterprises, Inc............................. 1,236,900 25,000 Amazon.com, Inc.................................. 986,500 54,000 Audiovox Corporation - Class A................... 760,860 42,000 InterContinental Hotels Group PLC - ADR.......... 1,060,500 55,000 JetBlue Airways Corporation...................... 781,000 100,000 Pathmark Stores, Inc............................. 1,115,000 60,500 Pep Boys - Manny, Moe & Jack..................... 899,030 75,000 XM Satellite Radio Holdings, Inc................. 1,083,750 ------------- 8,615,526 ------------- CONSUMER, NON-CYCLICAL -- 10.5% 71,480 BearingPoint, Inc................................ 562,548 61,300 CV Therapeutics, Inc............................. 855,748 48,500 Discovery Holding Company........................ 780,365 50,000 Fresh Del Monte Produce, Inc. ................... 745,500 51,390 Impax Laboratories, Inc. ........................ 501,052 79,350 Keryx Biopharmaceuticals, Inc.................... 1,055,355 24,000 MedImmune, Inc................................... 776,880 37,420 Nektar Therapeutics.............................. 569,158 37,500 Onyx Pharmaceuticals, Inc........................ 396,750 68,600 Taro Pharmaceutical Industries Ltd............... 686,000 ------------- 6,929,356 ------------- ENERGY -- 3.4% 30,300 Cheniere Energy, Inc............................. 874,761 35,000 Delta Petroleum Corporation...................... 810,600 48,160 FX Energy, Inc................................... 297,147 75,000 Syntroleum Corporation........................... 259,500 ------------- 2,242,008 ------------- FINANCIAL -- 7.4% 71,000 Affordable Residential Communities............... 827,150 55,000 BankAtlantic Bancorp............................. 759,550 46,100 Brookline Bancorp, Inc........................... 607,137 45,000 Max Re Capital Ltd............................... 1,116,900 47,200 NewAlliance Bancshares, Inc...................... 774,080 71,000 Primus Guaranty Ltd.............................. 820,050 ------------- 4,904,867 ------------- 28 JAMES MARKET NEUTRAL FUND SCHEDULE OF SECURITIES SOLD SHORT (Continued) ================================================================================ Shares COMMON STOCKS -- 61.2% (Continued) Value - -------------------------------------------------------------------------------- INDUSTRIAL -- 4.9% 90,000 American Superconductor Corporation.............. $ 882,900 24,500 Energy Conversion Devices, Inc. ................. 832,510 20,000 ESCO Technologies, Inc........................... 908,800 38,000 Tecumseh Products Company - Class A.............. 642,200 ------------- 3,266,410 ------------- TECHNOLOGY -- 17.9% 50,000 3D Systems Corporation........................... 798,000 65,000 Activision, Inc.................................. 1,120,600 46,000 Affymetrix, Inc. ................................ 1,060,760 61,000 AudioCodes Ltd................................... 571,570 35,000 Cyberonics, Inc.................................. 722,400 105,000 Diversa Corporation.............................. 1,142,400 50,000 GSI Commerce, Inc................................ 937,500 60,000 Momenta Pharmaceutical, Inc...................... 943,800 90,000 O2Micro International Ltd. - ADR................. 769,500 40,000 Per-Se Technologies, Inc......................... 1,111,200 28,000 Rambus, Inc...................................... 530,040 44,200 SINA Corporation................................. 1,268,540 85,369 Wind River Systems, Inc.......................... 875,032 ------------- 11,851,342 ------------- UTILITIES -- 2.6% 35,000 American Power Conversion Corporation............ 1,070,650 45,715 IDT Corporation.................................. 618,524 ------------- 1,689,174 ------------- TOTAL COMMON STOCKS SOLD SHORT (Proceeds $40,389,859)........................... $ 40,485,959 ============= ADR - American Depository Receipt See accompanying notes to financial statements. 29 JAMES EQUITY FUND SCHEDULE OF INVESTMENTS December 31, 2006 (Unaudited) ================================================================================ Shares COMMON STOCKS -- 98.0% Value - -------------------------------------------------------------------------------- BASIC MATERIALS -- 7.2% 14,200 AEP Industries, Inc.*............................ $ 757,002 12,510 Alliance Resource Partners, L.P.................. 431,845 16,290 Methanex Corporation............................. 445,857 38,500 PolyOne Corporation*............................. 288,750 4,950 PPG Industries, Inc.............................. 317,840 7,965 Schnitzer Steel Industries, Inc. - Class A....... 316,211 -------------- 2,557,505 -------------- CONSUMER, CYCLICAL -- 13.7% 19,500 Air Methods Corporation*......................... 544,440 19,400 Darden Restaurants, Inc. ........................ 779,298 3,900 Dillard's, Inc. ................................. 136,383 9,120 J.C. Penney Company, Inc. ....................... 705,523 28,500 K2, Inc.*........................................ 375,915 11,195 PACCAR, Inc. .................................... 726,556 10,200 Steven Madden Ltd................................ 357,918 12,700 The Buckle, Inc.................................. 645,795 12,500 The Pantry, Inc.*................................ 585,500 -------------- 4,857,328 -------------- CONSUMER, NON-CYCLICAL -- 14.7% 14,715 Archer-Daniels-Midland Company................... 470,291 3,375 Corvel Corporation*.............................. 160,549 55,500 EZCORP, Inc. - Class A*.......................... 901,875 4,750 Ingles Markets, Inc. - Class A................... 141,503 26,100 King Pharmaceuticals, Inc.*...................... 415,512 11,700 Magellan Health Services, Inc.*.................. 505,674 6,210 Manpower, Inc. .................................. 465,315 14,850 Merck & Co., Inc. ............................... 647,460 19,710 Pfizer, Inc...................................... 510,489 11,790 The Toro Company................................. 549,768 10,000 Watson Wyatt Worldwide, Inc...................... 451,500 -------------- 5,219,936 -------------- ENERGY -- 14.8% 6,875 Anadarko Petroleum Corporation................... 299,200 5,000 Apache Corporation............................... 332,550 9,000 Cimarex Energy Company........................... 328,500 1,750 Copano Energy LLC................................ 104,388 4,350 Devon Energy Corporation......................... 291,798 6,300 Exxon Mobil Corporation.......................... 482,769 22,860 Frontier Oil Corporation......................... 656,995 9,760 Hess Corporation................................. 483,803 8,100 Lufkin Industries, Inc. ......................... 470,448 5,865 Marathon Oil Corporation......................... 542,512 30 JAMES EQUITY FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Shares COMMON STOCKS -- 98.0% (Continued) Value - -------------------------------------------------------------------------------- ENERGY -- 14.8% (Continued) 6,970 Matrix Service Company*.......................... $ 112,217 7,020 Sunoco, Inc. .................................... 437,767 45,000 VAALCO Energy, Inc.*............................. 303,750 7,560 Valero Energy Corporation........................ 386,770 ------------- 5,233,467 ------------- FINANCIAL -- 14.5% 5,580 AllianceBernstein Holding L.P.................... 448,632 10,665 American Financial Group, Inc. .................. 382,980 9,180 American Physicians Capital, Inc.*............... 367,567 4,220 Bear Stearns Companies, Inc. .................... 686,932 8,235 CIT Group, Inc. ................................. 459,266 20,250 CNA Surety Corporation*.......................... 435,375 19,215 Knight Capital Group, Inc.*...................... 368,352 15,750 Safety Insurance Group, Inc...................... 798,682 3,600 The Goldman Sachs Group, Inc..................... 717,660 13,500 W.R. Berkley Corporation......................... 465,885 ------------- 5,131,331 ------------- INDUSTRIAL -- 10.7% 11,160 Cascade Corporation.............................. 590,364 6,880 Cummins, Inc. ................................... 813,078 7,830 Eaton Corporation................................ 588,346 2,095 Magna International, Inc. - Class A.............. 168,752 10,900 Metal Management, Inc. .......................... 412,565 5,490 Norfolk Southern Corporation..................... 276,092 6,950 PW Eagle, Inc.................................... 239,775 21,250 Superior Essex, Inc.*............................ 706,563 ------------- 3,795,535 ------------- TECHNOLOGY -- 11.6% 60,000 Datalink Corporation*............................ 451,200 23,400 Hewlett-Packard Company.......................... 963,846 15,570 Komag, Inc.*..................................... 589,792 20,400 Park Electrochemical Corporation................. 523,260 11,700 WESCO International, Inc.*....................... 688,077 25,000 Western Digital Corporation*..................... 511,500 27,000 Zoran Corporation*............................... 393,660 ------------- 4,121,335 ------------- UTILITIES -- 10.8% 8,640 American Electric Power.......................... 367,891 9,000 AT&T, Inc........................................ 321,750 13,310 CenturyTel, Inc. ................................ 581,115 7,110 El Paso Electric Company*........................ 173,271 10,890 Energen Corporation.............................. 511,177 15,300 Great Plains Energy, Inc......................... 486,540 2,650 IDACORP, Inc..................................... 102,423 31 JAMES EQUITY FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Shares COMMON STOCKS -- 98.0% (Continued) Value - -------------------------------------------------------------------------------- 11,000 MDU Resources Group, Inc......................... $ 282,040 11,870 Sempra Energy.................................... 664,363 6,480 WPS Resources Corporation........................ 350,114 ------------- 3,840,684 ------------- TOTAL COMMON STOCKS.............................. $ 34,757,121 ------------- ================================================================================ Shares SHORT TERM INVESTMENTS -- 6.0% Value - -------------------------------------------------------------------------------- 2,108,218 First American Treasury Obligations Fund......... $ 2,108,218 TOTAL INVESTMENT SECURITIES -- 104.0% (Cost $30,340,636) .............................. $ 36,865,339 LIABILITIES IN EXCESS OF OTHER ASSETS -- (4.0%).. (1,434,710) ------------- NET ASSETS -- 100.0%............................. $ 35,430,629 ============= * Non-income producing security. See accompanying notes to financial statements. 32 JAMES MID CAP FUND SCHEDULE OF INVESTMENTS December 31, 2006 (Unaudited) ================================================================================ Shares COMMON STOCKS -- 95.6% Value - -------------------------------------------------------------------------------- BASIC MATERIALS -- 9.4% 1,500 Albermarle Corporation........................... $ 107,700 3,500 Commercial Metals Company........................ 90,300 3,600 Goldcorp, Inc.................................... 102,384 3,400 Methanex Corporation............................. 93,058 ------------- 393,442 ------------- CONSUMER, CYCLICAL -- 10.6% 3,900 Charming Shoppes, Inc.*.......................... 52,767 1,600 Darden Restaurants, Inc.......................... 64,272 3,000 Dillard's, Inc................................... 104,910 700 Genesco, Inc.*................................... 26,110 3,050 Men's Wearhouse, Inc............................. 116,693 1,650 The Pantry, Inc.*................................ 77,286 ------------- 442,038 ------------- CONSUMER, NON-CYCLICAL -- 16.4% 900 Banta Corporation................................ 32,760 2,000 CenturyTel, Inc.................................. 87,320 2,400 EZCORP, Inc. - Class A*.......................... 39,000 4,400 King Pharmaceuticals, Inc.*...................... 70,048 2,400 Magellan Health Services, Inc.*.................. 103,728 1,600 Manpower, Inc.................................... 119,888 2,900 Newell Rubbermaid................................ 83,955 2,200 Pepsi Bottling Group, Inc........................ 68,002 1,700 The Toro Company................................. 79,271 ------------- 683,972 ------------- ENERGY -- 11.1% 2,000 Cimarex Energy Company........................... 73,000 3,400 Frontier Oil Corporation......................... 97,716 1,200 Questar Corporation.............................. 99,660 2,100 Swift Energy Company*............................ 94,101 2,100 Whiting Petroleum Corporation*................... 97,860 ------------- 462,337 ------------- FINANCIAL -- 17.0% 1,050 AllianceBernstein Holding L.P.................... 84,420 2,850 American Financial Group, Inc.................... 102,343 1,700 Assurant, Inc.................................... 93,925 1,600 Hospitality Properties TR........................ 76,048 4,600 Knight Capital Group, Inc.*...................... 88,182 3,500 Ohio Casualty Corporation........................ 104,334 1,400 SAFECO Corporation............................... 87,570 2,050 W.R. Berkley Corporation......................... 70,746 ------------- 707,568 ------------- 33 JAMES MID CAP FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Shares COMMON STOCKS -- 95.6% (Continued) Value - -------------------------------------------------------------------------------- INDUSTRIAL -- 9.7% 700 Cummins, Inc..................................... $ 82,726 1,300 GATX Corporation................................. 56,329 950 Greif Bros. Corporation.......................... 112,480 5,000 OMI Corporation.................................. 105,850 1,600 Timken Company................................... 46,688 ------------- 404,073 ------------- TECHNOLOGY -- 9.3% 1,800 Ceradyne, Inc.*.................................. 101,700 1,100 Komag, Inc.*..................................... 41,668 2,000 Teledyne Technologies, Inc.*..................... 80,260 1,250 WESCO International, Inc.*....................... 73,513 4,400 Western Digital Corporation*..................... 90,024 ------------- 387,165 ------------- UTILITIES -- 12.1% 2,450 Alliant Energy Corporation....................... 92,537 1,500 Comstock Resources, Inc.*........................ 46,590 1,400 Energen Corporation.............................. 65,716 2,000 Great Plains Energy, Inc......................... 63,600 2,200 IDACORP, Inc..................................... 85,030 3,650 MDU Resources Group, Inc......................... 93,586 1,100 WPS Resources Corporation........................ 59,433 ------------- 506,492 ------------- TOTAL COMMON STOCKS.............................. $ 3,987,087 ------------- ================================================================================ Shares SHORT TERM INVESTMENTS -- 7.3% Value - -------------------------------------------------------------------------------- 305,166 First American Treasury Obligations Fund ........ $ 305,166 ------------- TOTAL INVESTMENT SECURITIES -- 102.9% (Cost $4,144,298)................................ $ 4,292,253 LIABILITIES IN EXCESS OF OTHER ASSETS -- (2.9%).. (122,108) ------------- NET ASSETS -- 100.0%............................. $ 4,170,145 ============= * Non-income producing security. See accompanying notes to financial statements. 34 JAMES ADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS December 31, 2006 (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. The James Mid Cap Fund commenced its public offering of shares on June 30, 2006. 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. James Mid Cap Fund seeks to provide long-term capital appreciation. The Fund seeks to achieve its objective by investing primarily in common stocks of mid capitalization companies. 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. Redemption fees are paid directly to the Fund. On February 21, 2007, the Board of Trustees of the James Advantage Funds voted to abolish the redemption fee from the James Small Cap Fund, the James Market Neutral Fund, the James Equity Fund, and the James Mid Cap Fund. This change was effective immediately. 35 JAMES ADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) ================================================================================ Securities Valuation Securities that are traded on any exchange are valued at the last quoted sale price. Lacking a last sale price, a security is valued at its last bid price except when, in James's opinion, the last bid price does not accurately reflect the current value of the security. Securities that are traded on the NASDAQ over-the-counter market are valued at their NASDAQ Official Closing Price ("NOCP") for all NASDAQ National Market ("NNM") and NASDAQ Capital Market(R) securities. When market quotations are not readily available, if an event occurs after the close of the trading market (but before the time as of which 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. The Funds may use pricing services to determine market value for securities. In accordance with the Trust's good faith pricing guidelines, James is required to consider all appropriate factors relevant to the value of securities for which it has determined other pricing sources are not available or reliable as described above. No single standard for determining fair value controls, since fair value depends upon the circumstances of each individual case. As a general principle, the current fair value of an issue of securities being valued by the adviser would appear to be the amount which the owner might reasonably expect to receive for them upon their current sale. Methods which are in accord with this principle may, for example, be based on (i) a multiple of earnings; (ii) a discount from market of a similar freely traded security (including a derivative security or a basket of securities traded on other markets, exchanges or among dealers); or (iii) yield to maturity with respect to debt issues, or a combination of these and other methods. In September 2006, the Financial Accounting Standards Board (FASB) issued Statement on Financial Accounting Standards (SFAS) No. 157, "Fair Value Measurements." This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements already required or permitted by existing standards. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The changes to current generally accepted accounting principles from the application of this Statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. As of December 31, 2006, the Funds do not believe the adoption of SFAS No. 157 will impact the amounts reported in the financial statements, however, additional disclosures may be required about the inputs used to develop the measurements and the effect of certain of the measurements reported on the statement of changes in net assets for a fiscal period. 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, 2006, the James Balanced: Golden Rainbow Fund had no such outstanding purchase commitments. Withholding taxes on foreign dividends have been provided for in accordance with the Trust's understanding of the applicable country's tax rules and rates. 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. 36 JAMES ADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) ================================================================================ 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. 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, 2006 and 2005 was as follows: - -------------------------------------------------------------------------------- James Balanced: James Small Cap Golden Rainbow Fund Fund - -------------------------------------------------------------------------------- 2006 2005 2006 2005 - -------------------------------------------------------------------------------- From ordinary income ....... $ 4,473,409 $ 1,715,612 $ 140,631 $ -- From long-term capital gains 6,895,468 289,929 1,110,529 756,432 ----------- ----------- ----------- ----------- $11,368,877 $ 2,005,541 $ 1,251,160 $ 756,432 =========== =========== =========== =========== - -------------------------------------------------------------------------------- 37 JAMES ADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) ================================================================================ - -------------------------------------------------------------------------------- James Market Neutral James Equity Fund Fund - -------------------------------------------------------------------------------- 2006 2005 2006 2005 - -------------------------------------------------------------------------------- From ordinary income ............. $994,103 $ -- $ 41,105 $ 24,033 ======== ======== ======== ======== - -------------------------------------------------------------------------------- James Mid Cap Fund commenced operations June 30, 2006, and made no distributions during the period ended on that date. The following information is computed on a tax basis for each item as of June 30, 2006: - ---------------------------------------------------------------------------------------------------------- James James James James Balanced: Golden Small Cap Market Neutral Equity Rainbow Fund Fund Fund Fund - ---------------------------------------------------------------------------------------------------------- Tax cost of portfolio investments . $ 241,826,981 $ 153,650,828 $ 114,373,045 $ 27,205,116 ============= ============= ============= ============= Gross unrealized appreciation ..... $ 28,753,979 $ 22,520,772 $ 19,708,320 $ 6,694,777 Gross unrealized depreciation ..... (3,917,026) (6,006,524) (3,358,561) (988,966) ------------- ------------- ------------- ------------- Net unrealized appreciation ....... 24,836,953 16,514,248 16,349,759 5,705,811 Capital loss carryforward ......... -- -- (2,485,252) (1,795,771) Post-October losses ............... -- -- (9,170,855) -- Undistributed net investment income 60,420 -- 15,714 -- Undistributed long-term gains ..... 3,482,207 168,768 -- -- Other temporary differences ....... (57,549) -- (14,362) -- ------------- ------------- ------------- ------------- Accumulated earnings ......... $ 28,322,031 $ 16,683,016 $ 4,695,004 $ 3,910,040 ============= ============= ============= ============= - ---------------------------------------------------------------------------------------------------------- During the year ended June 30, 2006, the James Mid Cap made no portfolio investments. 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, 2006, the James Equity Fund utilized $1,393,779 of capital loss carryforwards. The capital loss carryforwards remaining as of June 30, 2006 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 $ 642,007 June 30, 2014 James Equity Fund............................. $ 1,487,712 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. On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Funds' tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Recent SEC guidance allows implementing FIN 48 in fund NAV calculations as late as the fund's last NAV calculation in the first required financial statement reporting period. As a result, the Fund will incorporate FIN 48 in its annual report on June 30, 2007. Management is in the process of determing the impact of adoption. 38 JAMES ADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) ================================================================================ Reclassification of Capital Accounts Reclassifications result primarily from the difference in the tax treatment of net investment losses and distributions in excess of net investment income. The following reclassifications were made on the Statements of Assets and Liabilities as of June 30, 2006, and have no impact on the net assets or net asset value of the Funds: - ---------------------------------------------------------------------------------------------- Undistributed Accumulated Paid-In Net Investment Net Realized Capital Income Gains (Losses) - ---------------------------------------------------------------------------------------------- James Small Cap Fund ....................... $(139,932) $ 245,786 $(105,854) James Market Neutral Fund .................. $ -- $ 1,350 $ (1,350) James Equity Fund .......................... $ (28,218) $ 28,218 $ -- - ---------------------------------------------------------------------------------------------- Federal Tax Information As of December 31, 2006, 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 Apppreciation - ------------------------------------------------------------------------------------------------ James Balanced: Golden Rainbow Fund .. $275,064,327 $ 36,533,630 $ (3,949,872) $ 32,583,758 Small Cap Fund ....................... $323,490,249 $ 32,565,887 $(10,336,956) $ 22,281,931 Market Neutral Fund .................. $ 41,014,083 $ 15,796,428 $ (4,885,067) $ 10,911,361 Equity Fund .......................... $ 30,340,636 $ 7,397,567 $ (872,864) $ 6,524,703 Mid Cap Fund ......................... $ 4,144,298 $ 241,701 $ (93,746) $ 147,955 - ------------------------------------------------------------------------------------------------ 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, 2006 were as follows: - -------------------------------------------------------------------------------- Purchases Sales - -------------------------------------------------------------------------------- James Balanced: Golden Rainbow Fund............. $49,307,344 $51,981,836 - -------------------------------------------------------------------------------- 39 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, 2006 were as follows: - -------------------------------------------------------------------------------- Purchases Sales - -------------------------------------------------------------------------------- James Balanced: Golden Rainbow Fund............. $ 72,589,130 $16,189,314 James Small Cap Fund............................ 242,795,762 90,108,690 James Market Neutral Fund....................... 14,765,462 18,361,851 James Equity Fund............................... 12,393,528 9,713,403 James Mid Cap Fund.............................. 4,074,494 235,710 - -------------------------------------------------------------------------------- For the six months ended December 31, 2006, the cost of securities purchased to cover short sales and the proceeds from securities sold short were $24,497,666 and $10,554,384, respectively, for the James Market Neutral Fund. 3. Management Fee and Other Transactions with Affiliates A trustee and certain officers of the Trust are also officers of James or Integrated Investment Services, Inc. (Integrated), formerly Integrated Fund Services, Inc., 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 equal to (a) an annual rate of 1.25% of the average daily net assets of the James Small Cap Fund, James Equity Fund, and James Mid Cap 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, James Equity Fund, and James Mid Cap 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, Integrated 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, Integrated 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, James Equity Fund, and James Mid Cap 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, Integrated 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, Integrated 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, James Equity Fund, and James Mid Cap Fund, subject to a minimum monthly fee for each Fund. In addition, James Balanced: Golden Rainbow Fund and James pay Integrated out-of-pocket expenses including, but not limited to, postage and supplies. 40 JAMES ADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) ================================================================================ Accounting Services Agreement Under the terms of the Accounting Services Agreement with the Trust, Integrated calculates the daily net asset value per share and maintains the financial books and records of each Fund. For these services, Integrated 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, James Equity Fund, and James Mid Cap Fund. In addition, Integrated is reimbursed by James Balanced: Golden Rainbow Fund and James for certain out-of-pocket expenses incurred by Integrated in obtaining valuations of the Funds' portfolio securities. Plan of Distribution Each Fund has a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act (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, James Equity Fund, and James Mid Cap 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 Integrated, Integrated provides certain compliance services to the Trust, including developing and assisting in implementing a compliance program for Integrated 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. 41 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 including applicable 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, 2006 through December 31, 2006). 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, 2006" 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. 42 JAMES ADVANTAGE FUNDS OTHER ITEMS (Continued) ================================================================================ Note that expenses shown in the table are meant to highlight your ongoing costs only. The calculations also 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. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The James Small Cap Fund, James Market Neutral Fund, James Equity Fund and James Mid Cap Fund each charge a redemption fee of 1.00% of the amount redeemed if the shares sold were held for fewer than 90 days. If these transactional costs were incurred and were included, your costs would have been higher. - ----------------------------------------------------------------------------------------------------------------- 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 2006 2006 2006 2006* - ----------------------------------------------------------------------------------------------------------------- James Balanced: Golden Rainbow Fund Actual ................................. 1.17% $1,000.00 $1,050.00 $ 6.05 Hypothetical............................ 1.17% $1,000.00 $1,019.31 $ 5.96 James Small Cap Fund Actual ................................. 1.49% $1,000.00 $1,016.70 $ 7.57 Hypothetical............................ 1.49% $1,000.00 $1,017.69 $ 7.58 James Market Neutral Fund Actual ................................ 2.19% $1,000.00 $ 956.60 $10.80 Hypothetical........................... 2.19% $1,000.00 $1,014.17 $11.12 James Equity Fund Actual ................................ 1.50% $1,000.00 $1,031.40 $ 7.68 Hypothetical........................... 1.50% $1,000.00 $1,017.64 $ 7.63 James Mid Cap Fund Actual ................................ 1.48% $1,000.00 $1,057.70 $ 7.68 Hypothetical........................... 1.48% $1,000.00 $1,017.74 $ 7.53 * 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). 43 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 Investment 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). 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 Companies. Not applicable. Item 6. Schedule of Investments. The schedule 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 Funds. Not applicable. Item 9. Purchases of Equity Securities by Closed-End Funds. 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 defined in Rule 30a-3(c) under the 1940 Act) the registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures are effective as of a date within 90 days of the filing date of this report. (b) There were no significant changes in the registrant's internal control over financial reporting that occurred during 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 12(a)(2) 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, 2007 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, 2007 By (Signature and Title) /s/ Thomas L. Mangan - --------------------------- Thomas L. Mangan Treasurer, Chief Financial Officer Date: March 2, 2007