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: 12/31/07 ----------------- 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 LETTER TO SHAREHOLDERS OF THE JAMES ADVANTAGE FUNDS ================================================================================ In our December 2007 Economic Outlook, we warned that the U.S. housing market was in serious trouble and that housing problems would slow the economy and hurt stocks. We were correct. Our Funds that have the ability to take defensive action in the face of that dire forecast were able to avoid many of the housing related problems. The stock market correction that began in mid year continues into 2008. Now we see many investors and pundits who did not see trouble ahead last year selling stocks with abandon amidst the carnage resultant from an orgy of subprime mortgage securitization and leverage. The Markets Over the Past Six Months The S&P 500, the Russell 2000 and the S&P MidCap Value Indexes all posted negative returns over the final 6 months of 2007. Most of the damage occurred in November, which truly was the cruelest month. It was in November that the investing public became aware of the enormity of the losses hiding on the books of major brokerage houses and banks. It seemed that every day a new announcement was made of ever higher write-offs, sending Financial stocks lower. The Federal Reserve's anemic response to a weakening economy was tempered by its desire to bolster its inflation fighting credentials, thus further aggravating the situation. Year end rallies, common in pre-election years, never came, setting the stage for additional weakness in the stock markets in January. Investment Goals and Objectives The James Advantage: Golden Rainbow has as part of its objective "the preservation of capital in declining markets". To succeed at that objective, the Adviser's economic forecasts must be good. We appear to have gotten it right both in forecasting a difficult stock market for 2007 and in moving heavily into safer, longer term U.S. Treasury securities while lowering equity levels significantly early in the year. The robust performance of these long term bonds helped to offset stock market weakness. The Fund's income objective was met with the regular quarterly distribution and the year end long term capital gains distribution. The James Equity Fund, James Small Cap Fund and James Mid Cap Fund do not have the ability to hold bonds or to significantly reduce equity levels. These Funds are charged with being fully invested in stocks that follow the Adviser's basic value strategy. These Funds invest in stocks that the Adviser's research determines are undervalued. The James Market Neutral Fund seeks to provide positive returns regardless of the returns on the stock market. To achieve its objective, the Fund uses a combination of holding stocks that the believes to be undervalued and selling short stocks that are considered overvalued. It may hold stocks held by the other four Funds. Investment Philosophy James Investment Research, Inc., Adviser to the James Advantage Funds, has taken a conservative approach to investing for over 35 years. Our experience has taught us that stocks with strong earnings growth, low valuations and other strong value traits are more likely to outperform the broad stock market over time. In addition, we have found that preserving capital in down markets is very important in achieving long term growth. Avoiding sectors that have become very expensive by historic standards, such as the Housing sector in 2007, go a long way in helping to preserve capital. We also believe that stock selection should be a serious business undertaken by professionals with depth of experience and strong credentials. Independent research, not tainted by the fad mentality of Wall Street, is key to our value oriented philosophy. 1 Strategy for Meeting Fund Objectives James Investment Research, Inc. uses a top down strategy to develop its portfolios. Every Fall we update and formalize our Economic Outlook following an intense period of independent research. That outlook helps us to identify Sectors and Industries that we believe are better situated to prosper in the coming year. Only then do we actually look for individual stocks in those Industries. Our portfolios are well diversified, but an examination of the holdings in comparison to the various popular stock indexes, will bear witness to our unique approach and the impact of our research. Our 2008 Annual Economic Outlook was prepared in December. We see the U.S. economy weakening in 2008 as fallout from the bursting of the housing bubble reaches into the Consumer Cyclical, Financial and Energy Sectors. Even Utilities can be harmed as demand from businesses for electricity and gas drops. We have identified Non-Cyclical industries, such as Pharmaceuticals and Agriculture, as potential winners. Importantly, we see opportunities arising for strong, albeit relatively brief, rallies in the broad markets from time to time in 2008. These rallies will run counter to the longer term downtrend, but can be captured by active management. Our strategy for 2008 is to actively manage the allocation of the James Balanced: Golden Rainbow Fund, and for all the Funds, to be nimble in identifying sectors that have become too oversold and are ripe for a rally. Fund Performance The James Balanced: Golden Rainbow Fund returned 8.61 percent for calendar 2007 compared with 5.50 percent on the all stock S&P 500 and with 1.80 percent on the Fund's benchmark, a blend of the S&P 500, the Russell 2000 and the Lehman Intermediate Government Credit Bond Index. We are pleased to note that this outperformance is consistent with outperformances over the last 5 and 10 years as well, where the Fund earned a compound total return of 11.15 percent and 7.73 percent versus the benchmark blend returns of 8.77 percent and 6.32 percent respectively. The Fund's strong performance in the second half of the year was due to a low allocation to stocks and relatively heavy exposure to high quality, longer term U.S. Treasury Bonds. The James Equity Fund returned 3.62 percent for the 2007 calendar year. This slightly trailed the benchmark S&P 500 which returned 5.50 percent. The Fund did avoid investing in home builders and financial institutions that were exposed heavily to them. However value stocks as a group underperformed growth in 2007. For example, the S&P 500 Value Index returned 2.03 percent for the year and actually declined by 4.98 percent over the last six months of 2007, whereas the S&P 500 Growth Index returned 9.25 percent for the year and 2.53 percent for the last six months. The James Small Cap Fund lost 6.16 percent for the 2007 calendar year compared with a decline of 1.55 percent on the benchmark Russell 2000. Value stocks underperformed growth in this market capitalization category as well. While the Fund did avoid investing in home builders and related companies, the Fund's exposure to Consumer Cyclical and Financial stocks hurt over this time period, while the index benefited from a larger exposure to Technology stocks. The James Mid Cap Fund returned 1.63 percent for calendar 2007, trailing its benchmark, the S&P 400 Citigroup Value Index, which returned 2.84 percent. The Mid Cap Fund's sector allocation was similar to the Small Cap Fund. Again, the underperformance of Value stocks relative to Growth stocks negatively impacted the return as did its investments in various Cyclical stocks. The James Market Neutral Fund returned 6.62 percent for the 2007 calendar year, ahead of its benchmark, the ninety day U.S. Treasury Bill, which returned 5.00 percent. The Fund's short positions added value, even as Growth outperformed Value. The Fund also paid a dividend of 10.36 cents/share in December. 2 Expectations for the Future James Investment Research, Inc. is unique in that it does its own research. We have developed quantitative models and processes that enable us to seek out undervalued securities that we believe have a high probability of outperforming the broad market. These qualities will be very important in 2008 as the U.S. economy struggles to free itself from a housing related slowdown. We believe the bear market that began in 2007 will be punctuated by sharp rallies in 2008 as hopes for a quick recovery periodically arise. Politically motivated fiscal stimulus packages may also act as a catalyst for such rallies. Active management of asset allocation can help to add to portfolio returns in 2008. In addition, troubled markets, such as the ones we are forecasting generally reward Value investors more than Growth investors. And as the economy begins to recover from recession, Small Capitalization stocks should once again begin to outperform. /s/ Thomas L. Mangan Thomas L. Mangan Chief Financial Officer Average Annual Total Returns As of December 31, 2007 - ------------------------------------------------------------------------------------------------ Six One Five Ten Since Months** Year Years Years Inception - ------------------------------------------------------------------------------------------------ Golden Rainbow Fund 3.56% 8.61% 11.15% 7.73% 9.08% Standard & Poor's 500 Index -1.37% 5.50% 12.83% 5.91% 10.86% Blended Index* 1.04% 1.80% 8.77% 6.32% 8.96% (Inception 7/1/91) James Small Cap Fund -10.82% -6.16% 17.08% NA 9.98% Russell 2000 Index -7.52% -1.55% 16.24% NA 10.20% (Inception 10/2/98) James Market Neutral Fund 2.85% 6.62% 5.14% NA 3.73% 90-Day U.S. Treasury Bill Index 2.40% 5.00% 3.07% NA 3.63% (Inception 10/2/98) James Equity Fund -4.23% 3.62% 16.46% NA 2.21% Standard & Poor's 500 Index -1.37% 5.50% 12.83% NA 2.59% (Inception 11/1/99) James Mid Cap Fund -8.44% 1.63% NA NA 4.93% Standard & Poor's 400 Value Index -6.86% 2.84% NA NA 6.83% (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, 2007 (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 3.5% CONSUMER, CYCLICAL 4.2% CONSUMER, NON-CYCLICAL 6.1% ENERGY 5.7% FINANCIAL 3.0% INDUSTRIAL 5.3% TECHNOLOGY 5.2% UTILITIES 4.5% INTERNATIONAL EQUITY FUNDS 1.9% BONDS (over 10 years) 24.1% BONDS (2-10 years) 14.5% BONDS (less than 2 years) 19.1% CASH EQUIVALENTS 1.6% OTHER 1.3% James Small Cap Fund Industry Sector Allocation (% of Net Assets) [pie chart] BASIC MATERIALS 10.5% CONGLOMERATE 1.3% CONSUMER, CYCLICAL 9.4% CONSUMER, NON-CYCLICAL 15.7% ENERGY 12.9% FINANCIAL 13.6% INDUSTRIAL 13.0% TECHNOLOGY 9.4% UTILITIES 9.8% CASH EQUIVALENTS 4.7% OTHER (0.3)% 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 7.1% 3.8% CONSUMER, CYCLICAL 8.8% 10.4% CONSUMER, NON-CYCLICAL 11.2% 9.0% ENERGY 9.0% 4.0% FINANCIAL 5.7% 10.5% INDUSTRIAL 5.0% 9.5% TECHNOLOGY 9.5% 11.5% UTILITIES 8.4% 2.3% INTERNATIONAL EQUITY FUNDS 2.9% James Equity Fund Industry Sector Allocation (% of Net Assets) [pie chart] BASIC MATERIALS 6.3% CONGLOMERATE 1.2% CONSUMER, CYCLICAL 13.1% CONSUMER, NON-CYCLICAL 13.4% ENERGY 13.8% FINANCIAL 9.4% INDUSTRIAL 14.4% TECHNOLOGY 9.0% UTILITIES 15.4% CASH EQUIVALENTS 3.9% OTHER 0.1% 5 JAMES ADVANTAGE FUNDS REPRESENTATION OF PORTFOLIOS OF INVESTMENTS (Continued) ================================================================================ James Mid Cap Fund Industry Sector Allocation (% of Net Assets) [pie chart] BASIC MATERIALS -- 12.3% CONSUMER, CYCLICAL -- 7.3% CONSUMER, NON-CYCLICAL -- 17.7% ENERGY -- 12.2% FINANCIAL -- 10.8% INDUSTRIAL -- 11.1% TECHNOLOGY -- 13.7% UTILITIES -- 11.1% CASH EQUIVALENTS -- 3.7% OTHER -- 0.1% 6 JAMES ADVANTAGE FUNDS STATEMENTS OF ASSETS AND LIABILITIES December 31, 2007 (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 $ 315,788,461 $ 236,435,941 $ 26,655,940 $ 15,053,573 $ 6,020,916 ============= ============= ============= ============= ============= At value $ 363,031,909 $ 254,874,715 $ 31,556,711 $ 22,012,753 $ 6,191,772 Segregated cash with brokers -- -- 37,813,180 -- -- Dividends and interest receivable 3,118,006 609,281 381,329 37,024 5,851 Receivable for securities sold 1,532,947 -- 424,803 -- -- Receivable for capital shares sold 1,415,213 478,922 17,056 12,484 11,821 Other assets 31,221 1,522 -- -- -- ------------- ------------- ------------- ------------- ------------- TOTAL ASSETS 369,129,296 255,964,440 70,193,079 22,062,261 6,209,444 ------------- ------------- ------------- ------------- ------------- LIABILITIES Payable for securities sold short (proceeds $31,117,319) -- -- 25,562,885 -- -- Payable for dividends on securities sold short -- -- 9,767 -- -- Payable for capital shares redeemed 712,554 1,523,590 1,321 2,100 -- Payable for securities purchased 280,530 -- 2,615,190 -- -- Accrued expenses: Management fees 229,337 280,757 60,907 23,497 6,685 12b-1 distribution and service fees -- -- 17,702 9,294 6,181 Trustees' fees 9,408 -- -- -- -- Other affiliates 26,532 -- -- -- -- Other 10,884 -- -- -- -- ------------- ------------- ------------- ------------- ------------- TOTAL LIABILITIES 1,269,245 1,804,347 28,267,772 34,891 12,866 ------------- ------------- ------------- ------------- ------------- NET ASSETS $ 367,860,051 $ 254,160,093 $ 41,925,307 $ 22,027,370 $ 6,196,578 ============= ============= ============= ============= ============= NET ASSETS CONSIST OF: Paid-in capital $ 320,844,770 $ 252,952,526 $ 40,575,277 $ 16,314,537 $ 6,091,656 Accumulated net investment income (loss) 13,606 (502) (1,625) 8 (1,969) Accumulated net realized losses from security transactions (241,773) (17,230,705) (9,103,550) (1,246,355) (63,965) Net unrealized appreciation on investments 47,243,448 18,438,774 10,455,205 6,959,180 170,856 ------------- ------------- ------------- ------------- ------------- NET ASSETS $ 367,860,051 $ 254,160,093 $ 41,925,307 $ 22,027,370 $ 6,196,578 ============= ============= ============= ============= ============= Shares of beneficial interest outstanding (unlimited number of shares authorized, no par) 19,993,395 11,633,083 3,400,717 1,876,148 580,005 ============= ============= ============= ============= ============= Net asset value, offering price and redemption price per share $ 18.40 $ 21.85 $ 12.33 $ 11.74 $ 10.68 ============= ============= ============= ============= ============= See accompanying notes to financial statements. 7 JAMES ADVANTAGE FUNDS STATEMENTS OF OPERATIONS For the Six Months Ended December 31, 2007 (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 $3,267, $655, $784, $0, $273, respectively) $ 1,580,153 $ 2,541,335 $ 1,117,420 $ 217,985 $ 48,513 Interest 4,979,890 279,990 23,770 -- 791 ------------ ------------ ------------ ------------ ------------ TOTAL INVESTMENT INCOME 6,560,043 2,821,325 1,141,190 217,985 49,304 ------------ ------------ ------------ ------------ ------------ EXPENSES Management fees 1,311,667 1,807,778 372,970 143,740 35,482 12b-1 distribution and service fees 443,129 362,560 35,782 29,255 6,576 Dividend expense on securities sold short -- -- 87,285 -- -- Servicing fees 138,052 -- -- -- -- Professional fees 40,011 -- -- -- -- Trustees' fees 8,750 5,028 5,006 5,007 5,001 Registration fees 30,755 -- -- -- -- Custodian fees and expenses 20,136 -- -- -- -- Shareholder report printing and mailing 17,810 -- -- -- -- Postage and supplies 27,929 -- -- -- -- Compliance fees and expenses 4,281 -- -- -- -- Other expenses 3,536 -- -- -- -- ------------ ------------ ------------ ------------ ------------ TOTAL EXPENSES 2,046,056 2,175,366 501,043 178,002 47,059 ------------ ------------ ------------ ------------ ------------ NET INVESTMENT INCOME 4,513,987 645,959 640,147 39,983 2,245 ------------ ------------ ------------ ------------ ------------ REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) from security transactions 882,122 (10,974,424) 1,188,353 (212,888) (68,179) Net realized losses on closed short positions -- -- (1,316,406) -- -- Net change in unrealized appreciation/ depreciation on investments 6,843,118 (23,763,288) 480,051 (872,160) (524,017) ------------ ------------ ------------ ------------ ------------ NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS 7,725,240 (34,737,712) 351,998 (1,085,048) (592,196) ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 12,239,227 $(34,091,753) $ 992,145 $ (1,045,065) $ (589,951) ============ ============ ============ ============ ============ 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 2007 June 30, (Unaudited) 2007 - ------------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 4,513,987 $ 6,906,976 Net realized gains on investments 882,122 7,508,290 Net change in unrealized appreciation/depreciation on investments 6,843,118 15,481,817 ------------- ------------- Net increase in net assets from operations 12,239,227 29,897,083 ------------- ------------- FROM DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income (4,442,863) (6,967,365) Distributions from net realized gains (6,758,977) (5,273,855) ------------- ------------- Decrease in net assets from distributions to shareholders (11,201,840) (12,241,220) ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold 62,030,008 125,693,280 Net asset value of shares issued in reinvestment of distributions to shareholders 10,763,794 11,752,390 Payments for shares redeemed (47,635,376) (82,203,239) ------------- ------------- Net increase in net assets from capital share transactions 25,158,426 55,242,431 ------------- ------------- TOTAL INCREASE IN NET ASSETS 26,195,813 72,898,294 NET ASSETS Beginning of period 341,664,238 268,765,944 ------------- ------------- End of period $ 367,860,051 $ 341,664,238 ============= ============= ACCUMULATED NET INVESTMENT INCOME (LOSS) $ 13,606 $ (57,518) ============= ============= SUMMARY OF CAPITAL SHARE ACTIVITY Shares sold 3,354,117 7,069,682 Shares issued in reinvestment of distributions to shareholders 582,803 658,997 Shares redeemed (2,581,995) (4,607,914) ------------- ------------- Net increase in shares outstanding 1,354,925 3,120,765 Shares outstanding, beginning of period 18,638,470 15,517,705 ------------- ------------- Shares outstanding, end of period 19,993,395 18,638,470 ============= ============= See accompanying notes to financial statements. 9 JAMES SMALL CAP FUND STATEMENTS OF CHANGES IN NET ASSETS ================================================================================ Six Months Ended Year December 31, Ended 2007 June 30, (Unaudited) 2007 - --------------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 645,959 $ 1,543,958 Net realized losses on investments (10,974,424) (3,997,335) Net change in unrealized appreciation/depreciation on investments (23,763,288) 25,687,814 ------------- ------------- Net increase (Decrease) in net assets from operations (34,091,753) 23,234,437 ------------- ------------- FROM DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income (646,461) (1,543,871) Distributions from net realized gains -- (2,572,028) ------------- ------------- Decrease in net assets from distributions to shareholders (646,461) (4,115,899) ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold 52,264,062 264,238,098 Net asset value of shares issued in reinvestment of distributions to shareholders 614,229 3,960,651 Payments for shares redeemed (91,446,795) (130,340,887)(A) ------------- ------------- Net increase (Decrease) in net assets from capital share transactions (38,568,504) 137,857,862 ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (73,306,718) 156,976,400 NET ASSETS Beginning of period 327,466,811 170,490,411 ------------- ------------- End of period $ 254,160,093 $ 327,466,811 ============= ============= ACCUMULATED NET INVESTMENT INCOME (LOSS) $ (503) $ 87 ============= ============= SUMMARY OF CAPITAL SHARE ACTIVITY Shares sold 2,263,546 11,336,919 Shares issued in reinvestment of distributions to shareholders 27,458 168,219 Shares redeemed (3,991,355) (5,495,532) ------------- ------------- Net increase (Decrease) in shares outstanding (1,700,351) 6,009,606 Shares outstanding, beginning of period 13,333,434 7,323,828 ------------- ------------- Shares outstanding, end of period 11,633,083 13,333,434 ============= ============= (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 year ended June 30, 2007, these fees were $50,529. 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 2007 June 30, (Unaudited) 2007 - ------------------------------------------------------------------------------------------------------------------------ FROM OPERATIONS Net investment income $ 640,147 $ 2,150,900 Net realized gains (losses) from: Security transactions 1,188,353 9,516,718 Closed short positions (1,316,406) (6,743,102) Net change in unrealized appreciation/depreciation on investments 480,051 (6,465,211) ------------ ------------ Net increase (Decrease) in net assets from operations 992,145 (1,540,695) ------------ ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income (629,826) (2,166,597) ------------ ------------ FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold 3,844,926 24,350,134 Net asset value of shares issued in reinvestment of distributions to shareholders 592,985 2,045,700 Payments for shares redeemed (14,401,615) (46,379,464)(A) ------------ ------------ Net decrease in net assets from capital share transactions (9,963,704) (19,983,630) ------------ ------------ TOTAL DECREASE IN NET ASSETS (9,601,385) (23,690,922) NET ASSETS Beginning of period 51,526,692 75,217,614 ------------ ------------ End of period $ 41,925,307 $ 51,526,692 ============ ============ ACCUMULATED NET INVESTMENT LOSS IN EXCESS OF $ (1,625) $ (11,946) ============ ============ SUMMARY OF CAPITAL SHARE ACTIVITY Shares sold 311,983 1,960,226 Shares issued in reinvestment of distributions to shareholders 48,663 169,177 Shares redeemed (1,192,157) (3,825,518) ------------ ------------ Net decrease in shares outstanding (831,511) (1,696,115) Shares outstanding, beginning of period 4,232,227 5,928,342 ------------ ------------ Shares outstanding, end of period 3,400,716 4,232,227 ============ ============ (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 year ended June 30, 2007, these fees were $20,790. 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 2007 June 30, (Unaudited) 2007 - ------------------------------------------------------------------------------------------------------------------------ FROM OPERATIONS Net investment income $ 39,983 $ 97,524 Net realized gains (losses) on investments (212,888) 762,304 Net change in unrealized appreciation/depreciation on investments (872,160) 2,125,529 ------------ ------------ Net increase (Decrease) in net assets from operations (1,045,065) 2,985,357 ------------ ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income (39,981) (97,518) ------------ ------------ FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold 2,996,710 17,092,635 Net asset value of shares issued in reinvestment of distributions to shareholders 39,649 95,205 Payments for shares redeemed (5,796,650) (27,995,177)(A) ------------ ------------ Net decrease in net assets from capital share transactions (2,760,291) (10,807,337) ------------ ------------ TOTAL DECREASE IN NET ASSETS (3,845,337) (7,919,498) NET ASSETS Beginning of period 25,872,707 33,792,205 ------------ ------------ End of period $ 22,027,370 $ 25,872,707 ============ ============ ACCUMULATED NET INVESTMENT INCOME $ 8 $ 6 ============ ============ SUMMARY OF CAPITAL SHARE ACTIVITY Shares sold 252,527 1,530,581 Shares issued in reinvestment of distributions to shareholders 3,304 8,075 Shares redeemed (487,349) (2,492,159) ------------ ------------ Net decrease in shares outstanding (231,518) (953,503) Shares outstanding, beginning of period 2,107,666 3,061,169 ------------ ------------ Shares outstanding, end of period 1,876,148 2,107,666 ============ ============ (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 year ended June 30, 2007, these fees were $7,252. 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 Year December 31, Ended 2007 June 30, (Unaudited) 2007 - ------------------------------------------------------------------------------------------------------------------------ FROM OPERATIONS Net investment income $ 2,245 $ 15,182 Net realized gains (losses) on investments (68,179) 18,217 Net change in unrealized appreciation/depreciation on investments (524,017) 694,873 ------------ ------------ Net increase (Decrease) in net assets from operations (589,951) 728,272 ------------ ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income (4,782) (14,614) Distributions from net realized gains (14,003) -- ------------ ------------ Decrease in net assets from distributions to shareholders (18,785) (14,614) ------------ ------------ FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold 1,370,979 6,055,137 Net asset value of shares issued in reinvestment of distributions to shareholders 18,776 14,577 Payments for shares redeemed (1,025,519) (442,294)(B) ------------ ------------ Net increase in net assets from capital share transactions 364,236 5,627,420 ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS (244,500) 6,341,078 NET ASSETS Beginning of period 6,441,078 100,000(A) ------------ ------------ End of period $ 6,196,578 $ 6,441,078 ============ ============ ACCUMULATED NET INVESTMENT INCOME (LOSS) $ (1,969) $ 568 ============ ============ SUMMARY OF CAPITAL SHARE ACTIVITY Shares sold 118,360 577,798 Shares issued in reinvestment of distributions to shareholders 1,700 1,383 Shares redeemed (90,672) (38,564) ------------ ------------ Net increase in shares outstanding 29,388 540,617 Shares outstanding, beginning of period 550,617 10,000(A) ------------ ------------ Shares outstanding, end of period 580,005 550,617 ============ ============ (A) The proceeds and shares represent the initial issuance of shares on commencement date of June 30, 2006. (B) 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 year ended June 30, 2007, 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, 2007 ------------------------------------------------------------------------ (Unaudited) 2007 2006 2005 2004 2003 - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period $ 18.33 $ 17.32 $ 17.18 $ 15.28 $ 13.72 $ 13.80 ---------- ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income 0.23 0.39 0.34 0.26 0.26 0.27 Net realized and unrealized gains on investments 0.42 1.34 0.75 1.95 1.56 0.28 ---------- ---------- ---------- ---------- ---------- ---------- Total from investment operations 0.65 1.73 1.09 2.21 1.82 0.55 ---------- ---------- ---------- ---------- ---------- ---------- Less distributions: From net investment income (0.23) (0.40) (0.34) (0.26) (0.26) (0.27) From net realized gains on investments (0.35) (0.32) (0.61) (0.05) (0.00)(A) (0.36) ---------- ---------- ---------- ---------- ---------- ---------- Total distributions (0.58) (0.72) (0.95) (0.31) (0.26) (0.63) ---------- ---------- ---------- ---------- ---------- ---------- Net asset value at end of period $ 18.40 $ 18.33 $ 17.32 $ 17.18 $ 15.28 $ 13.72 ========== ========== ========== ========== ========== ========== Total return 3.56%(B) 10.13% 6.48% 14.56% 13.32% 4.34% ========== ========== ========== ========== ========== ========== Net assets at end of period (000's) $ 367,860 $ 341,664 $ 268,766 $ 147,605 $ 83,893 $ 69,169 ========== ========== ========== ========== ========== ========== Ratios/Supplemental Data: Ratio of net expenses to average net assets 1.16%(C) 1.18% 1.21% 1.26% 1.28% 1.32% Ratio of net investment income to average net assets 2.55%(C) 2.24% 2.11% 1.70% 1.77% 2.08% Portfolio turnover rate 25%(C) 92% 68% 36% 29% 61% (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, 2007 ---------------------------------------------------------------------- (Unaudited) 2007 2006 2005 2004 2003 - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period $ 24.56 $ 23.28 $ 20.46 $ 18.66 $ 13.43 $ 12.08 ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income (loss) 0.05 0.11 (0.04) 0.05 0.01 0.10 Net realized and unrealized gains (losses) on investments (2.71) 1.50 3.19 2.65 5.26 1.35 ---------- ---------- ---------- ---------- ---------- ---------- Total from investment operations (2.66) 1.61 3.15 2.70 5.27 1.45 ---------- ---------- ---------- ---------- ---------- ---------- Less distributions: From net investment income (0.05) (0.11) (0.04) -- (0.01) (0.10) From net realized gains on investments -- (0.22) (0.30) (1.00) (0.05) -- ---------- ---------- ---------- ---------- ---------- ---------- Total distributions (0.05) (0.33) (0.34) (1.00) (0.06) (0.10) ---------- ---------- ---------- ---------- ---------- ---------- Paid-in capital from redemption fees (A) -- 0.00(B) 0.01 0.10 0.02 -- ---------- ---------- ---------- ---------- ---------- ---------- Net asset value at end of period $ 21.85 $ 24.56 $ 23.28 $ 20.46 $ 18.66 $ 13.43 ========== ========== ========== ========== ========== ========== Total return (10.82)%(C) 6.97% 15.59% 15.39% 39.47% 12.20% ========== ========== ========== ========== ========== ========== Net assets at end of period (000's) $ 254,160 $ 327,467 $ 170,490 $ 54,489 $ 13,186 $ 9,199 ========== ========== ========== ========== ========== ========== Ratios/Supplemental Data: Ratio of net expenses to average net assets 1.51%(D) 1.50% 1.50% 1.50% 1.50% 1.50% Ratio of net investment income (loss) to average net assets 0.45%(D) 0.54% (0.25)% 0.45% 0.05% 0.90% Portfolio turnover rate 46%(D) 104% 59% 94% 45% 52% (A) Amount calculated based on average shares outstanding throughout the period. (B) Amount rounds to less than $0.005. (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, 2007 ------------------------------------------------------------------------ (Unaudited) 2007 2006 2005 2004 2003 - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period $ 12.17 $ 12.69 $ 12.27 $ 11.02 $ 9.97 $ 10.79 ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income (loss) 0.18 0.40 0.17 0.01 (0.13) (0.10) Net realized and unrealized gains (losses) on investments 0.16 (0.51) 0.42 1.23 1.18 (0.72) ---------- ---------- ---------- ---------- ---------- ---------- Total from investment operations 0.34 (0.11) 0.59 1.24 1.05 (0.82) ---------- ---------- ---------- ---------- ---------- ---------- Less distributions: From net investment income (0.18) (0.41) (0.18) -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Paid-in capital from redemption fees (A) -- 0.00(B) 0.01 0.01 0.00(B) -- ---------- ---------- ---------- ---------- ---------- ---------- Net asset value at end of period $ 12.33 $ 12.17 $ 12.69 $ 12.27 $ 11.02 $ 9.97 ========== ========== ========== ========== ========== ========== Total return 6.62%(C) (0.84)% 4.94% 11.34% 10.53% (7.60)% ========== ========== ========== ========== ========== ========== Net assets at end of period (000's) $ 41,925 $ 51,527 $ 75,218 $ 47,303 $ 12,528 $ 9,219 ========== ========== ========== ========== ========== ========== Ratios/Supplemental Data: Ratio of net expenses to average net assets, excluding dividends on securities sold short 1.87%(D) 1.94% 1.95% 1.95% 1.95% 1.95% Ratio of dividend expense on securities sold short 0.39%(D) 0.32% 0.62% 0.42% 0.64% 0.53% ---------- ---------- ---------- ---------- ---------- ---------- Ratio of net expenses to average net assets 2.26%(D) 2.26% 2.57% 2.37% 2.59% 2.48% ---------- ---------- ---------- ---------- ---------- ---------- Ratio of net investment income (loss) to average net assets 2.89%(D) 3.21% 1.52% 0.11% (1.43)% (0.98)% Portfolio turnover rate(E) 25%(D) 57% 27% 35% 13% 86% (A) Amount calculated based on average shares outstanding throughout the period. (B) Amount rounds to less than $0.005. (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, 2007 --------------------------------------------------------------------------- (Unaudited) 2007 2006 2005 2004 2003 - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period $ 12.28 $ 11.04 $ 8.89 $ 7.36 $ 6.18 $ 6.62 ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.02 0.04 0.01 0.01 0.02 0.03 Net realized and unrealized gains (losses) on investments (0.54) 1.24 2.16 1.53 1.18 (0.44) ---------- ---------- ---------- ---------- ---------- ---------- Total from investment operations (0.52) 1.28 2.17 1.54 1.20 (0.41) ---------- ---------- ---------- ---------- ---------- ---------- Less distributions: From net investment income (0.02) (0.04) (0.01) (0.01) (0.02) (0.03) From distributions in excess of net investment income -- -- (0.01) -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Total distributions (0.02) (0.04) (0.02) (0.01) (0.02) (0.03) ---------- ---------- ---------- ---------- ---------- ---------- Paid-in capital from redemption fees (A) -- 0.00(B) 0.00(B) 0.00(B) 0.00(B) -- ---------- ---------- ---------- ---------- ---------- ---------- Net asset value at end of period $ 11.74 $ 12.28 $ 11.04 $ 8.89 $ 7.36 $ 6.18 ========== ========== ========== ========== ========== ========== Total return (4.23)%(C) 11.59% 24.45% 20.96% 19.38% (6.14)% ========== ========== ========== ========== ========== ========== Net assets at end of period (000's) $ 22,027 $ 25,873 $ 33,792 $ 16,833 $ 7,249 $ 5,379 ========== ========== ========== ========== ========== ========== 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 0.34%(D) 0.30% 0.06% 0.22% 0.25% 0.56% Portfolio turnover rate 0%(D) 58% 43% 33% 70% 65% (A) Amount calculated based on average shares outstanding throughout the period. (B) Amount rounds to less than $0.005. (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 Year December 31, Ended 2007 June 30, (Unaudited) 2007 - --------------------------------------------------------------------------------------- Net asset value at beginning of period $ 11.70 $ 10.00 ------------ ------------ Income (loss) from investment operations: Net investment income 0.00(A) 0.04 Net realized and unrealized gains (losses) on investments (0.99) 1.70 ------------ ------------ Total from investment operations (0.99) 1.74 ------------ ------------ Less distributions: From net investment income (0.01) -- From net realized gains on investments (0.02) (0.04) ------------ ------------ Total Distributions (0.03) (0.04) ------------ ------------ Paid-in capital from redemption fees (B) -- 0.00(A) ------------ ------------ Net asset value at end of period $ 10.68 $ 11.70 ============ ============ Total return (8.44%)(C) 17.41% ============ ============ Net assets at end of period (000's) $ 6,197 $ 6,441 ============ ============ Ratios/Supplemental Data: Ratio of net expenses to average net assets 1.46%(D) 1.49% Ratio of net investment income to average net assets 0.07%(D) 0.40% Portfolio turnover rate 35%(D) 53% (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, 2007 (Unaudited) ================================================================================ Shares COMMON STOCKS -- 39.4% Value - ------------------------------------------------------------------------------- BASIC MATERIALS -- 3.5% 14,000 AEP Industries, Inc.* $ 448,140 15,000 Alliance Resource Partners, L.P. 544,050 45,000 Barrick Gold Corporation 1,892,250 6,500 Castle (A.M.) & Company 176,735 18,000 Dow Chemical Company 709,560 45,650 Methanex Corporation 1,259,940 46,000 Newmont Mining Corporation 2,246,180 19,000 Nucor Corporation 1,125,180 17,000 PPG Industries, Inc. 1,193,910 15,000 RPM International, Inc. 304,500 19,500 Terra Nitrogen Company, L.P. 2,915,835 ------------ 12,816,280 ------------ CONSUMER, CYCLICAL -- 4.2% 80,812 Air Methods Corporation* 4,013,932 25,000 Dollar Trees Stores, Inc.* 648,000 25,000 Mattel, Inc. 476,000 70,000 McDonald's Corporation 4,123,700 45,000 Men's Wearhouse, Inc. 1,214,100 20,000 Movado Group 505,800 52,425 PACCAR, Inc. 2,856,114 43,500 The Buckle, Inc. 1,435,500 7,000 Walt Disney Company 225,960 ------------ 15,499,106 ------------ CONSUMER, NON-CYCLICAL -- 6.1% 12,000 Archer-Daniels-Midland Company 557,160 15,000 Biovail Corporation 201,900 15,000 Caraco Pharmaceutical Laboratories, Ltd.* 257,250 30,000 Corn Products International, Inc. 1,102,500 81,000 EZCORP, Inc. - Class A* 914,490 48,000 Imperial Sugar Company 900,960 20,000 Ingles Markets, Inc. - Class A 507,800 91,000 King Pharmaceuticals, Inc.* 931,840 60,000 Kroger Company 1,602,600 24,000 Manpower, Inc. 1,365,600 83,000 Merck & Co., Inc. 4,823,130 40,000 PepsiAmericas, Inc. 1,332,800 108,000 Pfizer, Inc. 2,454,840 10,534 The Andersons, Inc. 471,923 43,000 The Toro Company 2,340,920 55,500 Watson Wyatt Worldwide, Inc. 2,575,755 ------------ 22,341,468 ------------ 19 JAMES BALANCED: GOLDEN RAINBOW FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Shares COMMON STOCKS -- 39.4% (Continued) Value - -------------------------------------------------------------------------------- ENERGY -- 5.7% 9,500 Apache Corporation $ 1,021,630 41,500 Bolt Technology Corporation* 1,576,170 32,940 Chevron Corporation 3,074,290 16,000 Devon Energy Corporation 1,422,560 44,500 Exxon Mobil Corporation 4,169,205 41,400 Hess Corporation 4,175,604 105,200 ICO, Inc.* 1,350,768 23,300 Sunoco, Inc. 1,687,852 38,000 Valero Energy Corporation 2,661,140 ------------ 21,139,219 ------------ FINANCIAL -- 3.0% 32,500 AllianceBernstein Holding L.P. 2,445,625 46,500 American Financial Group, Inc. 1,342,920 48,750 American Physicians Capital, Inc. 2,021,175 14,500 Assurant, Inc. 970,050 28,000 CNA Surety Corporation* 554,120 25,000 SAFECO Corporation 1,392,000 75,000 W.R. Berkley Corporation 2,235,750 ------------ 10,961,640 ------------ INDUSTRIAL -- 5.3% 14,000 Cascade Corporation 650,440 18,000 CSX Corporation 791,640 43,000 Cummins, Inc. 5,476,910 40,000 Deere & Company 3,724,800 15,000 Eaton Corporation 1,454,250 30,000 Johnson Controls, Inc. 1,081,200 75,000 Metal Management, Inc. 3,414,750 15,500 Norfolk Southern Corporation 781,820 22,000 Superior Essex, Inc.* 528,000 11,000 TBS International Ltd. - Class A* 363,660 42,000 The Timken Company 1,379,700 ------------ 19,647,170 ------------ TECHNOLOGY -- 5.2% 46,000 Arrow Electronics, Inc.* 1,806,880 13,500 Ceradyne, Inc.* 633,555 61,500 Hewlett-Packard Company 3,104,520 4,500 Hurco Companies, Inc.* 196,425 29,000 International Business Machines Corporation (IBM) 3,134,900 8,000 Lockheed Martin Corporation 842,080 55,500 Northrop Grumman Corporation 4,364,520 10,000 Precision Castparts Corporation 1,387,000 119,000 Western Digital Corporation* 3,594,990 ------------ 19,064,870 ------------ 20 JAMES BALANCED: GOLDEN RAINBOW FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Shares COMMON STOCKS -- 39.4% (Continued) Value - -------------------------------------------------------------------------------- UTILITIES -- 4.5% 30,000 American Electric Power Company, Inc. $ 1,396,800 84,000 AT&T, Inc. 3,491,040 44,500 CenturyTel, Inc. 1,844,970 13,500 D&E Communications, Inc. 195,075 34,000 Edison International 1,814,580 75,800 Energen Corporation 4,868,634 14,000 FirstEnergy Corporation 1,012,760 30,500 Sempra Energy 1,887,340 ------------ 16,511,199 ------------ INTERNATIONAL EQUITY FUNDS -- 1.9% 18,500 Chile Fund, Inc. 407,000 12,000 Greater China Fund, Inc. 297,720 11,000 India Fund, Inc. 684,860 8,000 iShares MSCI EMU Index Fund 951,440 124,000 iShares MSCI Japan Index Fund 1,640,520 9,000 iShares MSCI South Africa Index Fund 1,170,990 30,000 iShares MSCI Sweden Index Fund 924,900 50,000 iShares MSCI Taiwan Index Fund 753,000 ------------ 6,830,430 ------------ TOTAL COMMON STOCKS $144,811,382 ------------ ================================================================================ Par Value U.S. GOVERNMENT & AGENCY BONDS -- 56.9% Value - -------------------------------------------------------------------------------- $ 2,000,000 Federal Farm Credit Bank, 5.950%, 3/16/09 $ 2,048,644 550,000 Federal Home Loan Bank, 4.500%, 2/17/10 550,025 7,500,000 U.S. Treasury Bonds, 4.875%, 2/15/12 7,955,858 10,000,000 U.S. Treasury Bonds, 3.875%, 2/15/13 10,200,000 13,000,000 U.S. Treasury Bonds, 4.500%, 2/15/16 13,531,167 50,000,000 U.S. Treasury Bonds, 5.250%, 11/15/28 55,011,700 22,000,000 U.S. Treasury Bonds, 4.500%, 2/15/36 22,111,716 16,000,000 U.S. Treasury Notes, 5.500%, 2/15/08 16,046,188 14,000,000 U.S. Treasury Notes, 3.000%, 2/15/08 13,999,177 33,000,000 U.S. Treasury Notes, 4.875%, 5/31/08 33,201,102 5,000,000 U.S. Treasury Notes, 4.500%, 2/15/09 5,075,390 19,000,000 U.S. Treasury Notes, 4.625%, 2/15/17 19,863,911 7,750,260 U.S. Treasury Notes, 3.625%, 4/15/28 9,818,611 ------------ TOTAL U.S. GOVERNMENT & AGENCY BONDS $209,413,489 ------------ 21 JAMES BALANCED: GOLDEN RAINBOW FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Par Value CORPORATE BONDS -- 0.8% Value - -------------------------------------------------------------------------------- $ 500,000 Anheuser-Busch Companies, Inc., 6.000%, 4/15/11 $ 523,825 500,000 Tennessee Valley Authority, 5.625%, 1/18/11 525,537 2,000,000 Walmart Stores, 5.250%, 9/1/35 1,774,027 ------------ TOTAL CORPORATE BONDS $ 2,823,389 ------------ ================================================================================ Shares SHORT TERM INVESTMENTS -- 1.6% - -------------------------------------------------------------------------------- 5,983,649 First American Treasury Obligations Fund $ 5,983,649 ------------ TOTAL INVESTMENT SECURITIES -- 98.7% (Amortized Cost $315,788,461) $363,031,909 OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.3% 4,828,142 ------------ NET ASSETS -- 100.0% $367,860,051 ============ * Non-income producing security. See accompanying notes to financial statements. 22 JAMES SMALL CAP FUND SCHEDULE OF INVESTMENTS December 31, 2007 (Unaudited) ================================================================================ Shares COMMON STOCKS -- 95.6% Value - -------------------------------------------------------------------------------- BASIC MATERIALS -- 10.5% 27,500 Alliance Resource Partners, L.P. $ 997,425 124,000 Cooper Tire & Rubber Company 2,055,920 40,600 NOVA Chemicals Corporation 1,315,034 146,800 Olin Corporation 2,837,644 20,000 OM Group, Inc.* 1,150,800 164,280 Quanex Corporation 8,526,132 73,690 Schnitzer Steel Industries, Inc. - Class A 5,094,190 22,728 Terra Nitrogen Company, L.P. 3,398,518 48,800 W.R. Grace & Co.* 1,277,584 ------------ 26,653,247 ------------ CONGLOMERATE -- 1.3% 115,200 LSB Industries, Inc.* 3,250,944 ------------ CONSUMER, CYCLICAL -- 9.4% 270,003 Barry (R.G.) Corporation* 1,903,521 187,850 Bob Evans Farms, Inc. 5,058,801 51,824 Champion Industries, Inc. 234,244 55,800 Cherokee, Inc. 1,800,666 99,312 Crown Crafts, Inc.* 347,592 80,900 E Com Ventures, Inc.* 2,016,028 41,300 JAKKS Pacific, Inc.* 975,093 32,100 Men's Wearhouse, Inc. 866,058 194,800 Pinnacle Airlines Corporation* 2,970,700 44,700 Tempur-Pedic International, Inc. 1,160,859 175,200 The Buckle, Inc. 5,781,600 78,460 Zones, Inc.* 849,722 ------------ 23,964,884 ------------ CONSUMER, NON-CYCLICAL -- 15.7% 99,000 AMERIGROUP Corporation* 3,608,550 221,225 Axcan Pharma, Inc.* 5,088,175 53,000 Cal-Maine Foods, Inc. 1,406,090 169,525 Fresh Del Monte Produce, Inc. 5,692,650 202,143 Hanger Orthopedic Group, Inc.* 2,225,594 143,700 Imperial Sugar Company 2,697,249 242,725 Ingles Markets, Inc. - Class A 6,162,788 44,300 Interactive Data Corporation 1,462,343 86,623 Nutraceutical International Corporation* 1,147,755 18,200 Ritchie Brothers Auctioneers 1,505,140 276,580 Tupperware Corporation 9,135,437 ------------ 40,131,771 ------------ 23 JAMES SMALL CAP FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Shares COMMON STOCKS -- 95.6% (Continued) Value - -------------------------------------------------------------------------------- ENERGY -- 12.9% 30,360 Basic Energy Services, Inc.* $ 666,402 80,400 Bolt Technology Corporation* 3,053,592 106,100 Delek US Holdings, Inc. 2,146,403 328,410 ICO, Inc.* 4,216,784 34,400 Lufkin Industries, Inc. 1,970,776 383,625 Matrix Service Company* 8,370,698 199,175 Parker Drilling Company* 1,503,771 157,165 Suburban Propane Partners, L.P. 6,377,756 80,410 W-H Energy Services, Inc.* 4,519,846 ------------ 32,826,028 ------------ FINANCIAL -- 13.6% 75,600 American Physicians Capital, Inc. 3,134,376 96,513 ASTA Funding, Inc. 2,551,804 236,100 CNA Surety Corporation* 4,672,419 147,750 FPIC Insurance Group, Inc.* 6,350,294 130,280 LTC Properties, Inc. 3,263,514 122,700 Max Re Capital Ltd. 3,434,373 75,300 Mercer Insurance Group, Inc. 1,352,388 158,500 MicroFinancial, Inc. 987,455 50,300 RLI Corporation 2,856,537 38,250 The Midland Company 2,474,393 119,400 United America Indemnity Ltd.* 2,378,448 76,500 UTEK Corporation 1,009,800 ------------ 34,465,801 ------------ INDUSTRIAL -- 13.0% 97,200 Applied Industrial Technologies, Inc. 2,820,744 134,960 Cascade Corporation 6,270,241 133,000 Chase Corporation 3,358,250 269,050 Metalico, Inc.* 2,916,502 476,911 North American Galvanizing & Coatings, Inc.* 2,894,850 48,500 Park-Ohio Holdings Corporation* 1,217,350 20,300 Pope Resources Limited Partnership 867,825 104,902 Superior Essex, Inc.* 2,517,648 53,945 The Eastern Company 989,351 85,800 Tsakos Energy Navigation Ltd. 3,177,174 17,200 Twin Disc, Inc. 1,217,244 97,420 VSE Corporation 4,757,993 ------------ 33,005,172 ------------ 24 JAMES SMALL CAP FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Shares COMMON STOCKS -- 95.6% (Continued) Value - -------------------------------------------------------------------------------- TECHNOLOGY -- 9.4% 350,600 Avici Systems, Inc. $ 2,780,258 985,200 BroadVision, Inc.* 1,763,508 23,059 Corel Corporation* 246,731 23,900 DRS Technologies, Inc. 1,297,053 105,573 Ducommun, Inc.* 4,011,774 79,400 Hurco Companies, Inc.* 3,465,810 24,900 Preformed Line Products Company 1,481,550 37,200 Shanda Interactive Entertainment Ltd.* 1,240,248 147,600 Trio-Tech International 1,350,540 42,600 Triumph Group, Inc. 3,508,110 224,600 United Online, Inc. 2,654,772 ------------ 23,800,354 ------------ UTILITIES -- 9.8% 352,200 Alaska Communications Systems Group, Inc. 5,283,000 87,751 Atlantic Tele-Network, Inc. 2,964,229 190,750 Central Vermont Public Service Corporation 5,882,730 57,600 New Jersey Resources Corporation 2,881,152 160,700 Northwest Natural Gas Company 7,819,662 ------------ 24,830,773 ------------ TOTAL COMMON STOCKS $242,928,974 ------------ ================================================================================ Shares SHORT TERM INVESTMENTS -- 4.7% Value - -------------------------------------------------------------------------------- 11,945,741 First American Treasury Obligations Fund $ 11,945,741 ------------ TOTAL INVESTMENT SECURITIES -- 100.3% (Cost $236,435,941) $254,874,715 LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.3%) (714,622) ------------ NET ASSETS -- 100.0% $254,160,093 ============ * Non-income producing security. See accompanying notes to financial statements. 25 JAMES MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS December 31, 2007 (Unaudited) ================================================================================ Shares COMMON STOCKS -- 67.6% Value - -------------------------------------------------------------------------------- BASIC MATERIALS -- 7.1% 12,290 Castle (A.M.) & Company $ 334,165 9,870 Celanese Corporation 417,698 13,000 Dow Chemical Company 512,460 17,350 Methanex Corporation 478,860 9,060 Quanex Corporation 470,214 5,180 Terra Nitrogen Company, L.P. 774,566 ------------ 2,987,963 ------------ CONSUMER, CYCLICAL -- 8.8% 11,490 Dollar Tree Stores, Inc.* 297,821 9,290 J.C. Penney Company, Inc. 408,667 8,760 McDonald's Corporation 516,052 29,167 PACCAR, Inc. 1,589,018 25,990 The Buckle, Inc. 857,670 ------------ 3,669,228 ------------ CONSUMER, NON-CYCLICAL -- 11.2% 15,000 Archer-Daniels-Midland Company 696,450 29,160 EZCORP, Inc. - Class A* 329,216 13,000 Imperial Sugar Company 244,010 25,990 King Pharmaceuticals, Inc.* 266,138 18,970 Merck & Co., Inc. 1,102,347 18,270 PepsiAmericas, Inc. 608,756 12,370 Pfizer, Inc. 281,170 20,720 The Toro Company 1,127,996 ------------ 4,656,083 ------------ ENERGY -- 9.0% 13,000 Bolt Technology Corporation* 493,740 8,330 Devon Energy Corporation 740,620 10,550 Exxon Mobil Corporation 988,430 25,990 Matrix Service Company* 567,102 12,150 Tesoro Corporation 579,555 5,980 Valero Energy Corporation 418,779 ------------ 3,788,226 ------------ FINANCIAL -- 5.7% 9,270 Assurant, Inc. 620,163 36,500 CNA Surety Corporation* 722,335 12,670 KeyCorp 297,112 3,480 The Goldman Sachs Group, Inc. 748,374 ------------ 2,387,984 ------------ INDUSTRIAL -- 5.0% 6,590 Cascade Corporation 306,171 9,100 Cummins, Inc. 1,159,068 6,920 Deere & Company 644,390 ------------ 2,109,629 ------------ 26 JAMES MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Shares COMMON STOCKS -- 67.6% (Continued) Value - -------------------------------------------------------------------------------- TECHNOLOGY -- 9.5% 9,770 Arrow Electronics, Inc.* $ 383,766 5,980 Ceradyne, Inc.* 280,641 16,130 Hewlett-Packard Company 814,241 9,550 Hurco Companies, Inc.* 416,858 5,790 International Business Machines Corporation (IBM) 625,899 15,690 MKS Instruments, Inc.* 300,307 5,790 Northrop Grumman Corporation 455,326 5,180 Precision Castparts Corporation 718,466 ------------ 3,995,504 ------------ UTILITIES -- 8.4% 25,990 CenturyTel, Inc. 1,077,546 11,580 Edison International 618,025 27,030 MDU Resources Group, Inc. 746,298 17,330 Sempra Energy 1,072,380 ------------ 3,514,249 ------------ INTERNATIONAL EQUITY FUNDS -- 2.9% 2,190 iShares FTSE/Xinhua China 25 Index Fund 373,286 34,650 iShares MSCI Japan Index Fund 458,419 13,000 iShares MSCI Sweden Index Fund 400,790 ------------ 1,232,495 ------------ TOTAL COMMON STOCKS $ 28,341,361 ------------ ================================================================================ Shares SHORT TERM INVESTMENTS -- 7.7% Value - -------------------------------------------------------------------------------- 3,215,350 First American Treasury Obligations Fund $ 3,215,350 ------------ TOTAL INVESTMENT SECURITIES -- 75.3% (Cost $26,655,940) $ 31,556,711 SEGREGATED CASH WITH BROKERS -- 90.2% 37,813,180 SECURITIES SOLD SHORT -- (61.0)% (Proceeds $31,117,319) (25,562,885) LIABILITIES IN EXCESS OF OTHER ASSETS -- (4.5%) (1,881,699) ------------ NET ASSETS -- 100.0% $ 41,925,307 ============ * Non-income producing security. See accompanying notes to financial statements. 27 JAMES MARKET NEUTRAL FUND SCHEDULE OF SECURITIES SOLD SHORT December 31, 2007 (Unaudited) ================================================================================ Shares COMMON STOCKS -- 61.0% Value - -------------------------------------------------------------------------------- BASIC MATERIALS -- 3.8% 14,602 AbitibiBowater, Inc. $ 300,939 32,120 Georgia Gulf Corporation 212,634 75,850 International Coal Group, Inc. 406,556 16,000 Zoltek Companies, Inc. 685,920 ------------ 1,606,049 ------------ CONSUMER, CYCLICAL -- 10.4% 13,500 Centex Corporation 341,010 20,340 Circuit City Stores, Inc. 85,427 71,880 Cumulus Media, Inc. - Class A 577,915 60,410 Fleetwood Enterprises, Inc. 361,252 10,440 Isle of Capri Casinos, Inc. 143,759 36,950 Jamba, Inc. 136,715 10,100 KB HOME 218,160 42,900 Leapfrog Enterprises, Inc. 288,717 14,630 Lennar Corporation 261,731 6,860 M.D.C. Holdings, Inc. 254,712 31,060 Martha Stewart Living Omnimedia, Inc. 287,926 61,360 Pier 1 Imports, Inc. 320,913 19,380 Pulte Homes, Inc. 204,265 14,710 RCN Corporation 229,329 27,370 Warner Music Group Corporation 165,862 36,340 XM Satellite Radio Holdings, Inc. 444,802 ------------ 4,322,495 ------------ CONSUMER, NON-CYCLICAL -- 9.0% 6,970 Advanced Medical Optics, Inc. 170,974 64,140 BearingPoint, Inc. 181,516 44,410 INVESTools, Inc. 787,833 52,760 Nektar Therapeutics 354,020 21,900 Pozen, Inc. 262,800 10,330 ResMed, Inc. 542,635 25,390 Senomyx, Inc. 190,171 13,870 Sirona Dental Systems, Inc. 464,368 10,760 SonoSite, Inc. 362,289 11,500 Tejon Ranch Company 469,775 ------------ 3,786,381 ------------ ENERGY -- 4.0% 14,160 Cheniere Energy, Inc. 462,182 37,800 Delta Petroleum Corporation 712,530 25,000 Energy Partners Ltd. 295,250 37,470 FX Energy, Inc. 212,830 ------------ 1,682,792 ------------ 28 JAMES MARKET NEUTRAL FUND SCHEDULE OF SECURITIES SOLD SHORT (Continued) ================================================================================ Shares COMMON STOCKS -- 61.0% (Continued) Value - -------------------------------------------------------------------------------- FINANCIAL -- 10.5% 1,370 Alexanders, Inc. $ 483,952 7,640 American Tower Corporation - Class A 325,464 22,766 BankFinancial Corporation 360,158 25,150 Brookline Bancorp, Inc. 255,524 14,880 Capitol Federal Financial 461,280 8,070 Forest City Enterprises, Inc. - Class A 358,631 32,420 Hudson City Bancorp, Inc. 486,948 30,200 Investors Bancorp, Inc. 427,028 15,840 Kearny Financial Corporation 188,655 43,140 Midwest Banc Holdings, Inc. 535,799 25,810 NewAlliance Bancshares, Inc. 297,331 43,420 Superior Bancorp 233,166 ------------ 4,413,936 ------------ INDUSTRIAL -- 9.5% 15,900 Energy Conversion Devices, Inc. 535,035 9,480 ESCO Technologies, Inc. 378,631 46,960 Evergreen Solar, Inc. 810,999 14,630 Intermec, Inc. 297,135 14,250 Tecumseh Products Company - Class A 333,592 13,070 The Shaw Group, Inc. 789,951 32,560 TurboChef Technologies, Inc. 537,240 67,350 Visteon Corporation 295,667 ------------ 3,978,250 ------------ TECHNOLOGY -- 11.5% 28,320 3D Systems Corporation 437,261 16,890 Affymetrix, Inc. 390,835 61,000 AudioCodes Ltd. 308,660 26,950 Cyberonics, Inc. 354,662 21,190 InfoSpace, Inc. 398,372 68,910 Keryx Biopharmaceuticals, Inc. 578,844 29,500 MannKind Corporation 234,820 22,310 Marvell Technology Group Ltd. 311,894 44,270 Momenta Pharmaceutical, Inc. 316,088 52,860 Powerwave Technologies, Inc. 213,025 14,020 Rambus, Inc. 293,579 10,190 Silicon Laboratories, Inc. 381,412 50,500 Verenium Corporation 251,995 33,650 Wind River Systems, Inc. 300,494 ------------ 4,771,941 ------------ UTILITIES -- 2.3% 18,880 Aqua America, Inc. 400,256 79,150 Aquila, Inc. 295,230 12,130 Consolidated Water Co., Ltd. 305,555 ------------ 1,001,041 ------------ TOTAL COMMON STOCKS SOLD SHORT (Proceeds $31,117,319) $ 25,562,885 ------------ See accompanying notes to financial statements. 29 JAMES EQUITY FUND SCHEDULE OF INVESTMENTS December 31, 2007 (Unaudited) ================================================================================ Shares COMMON STOCKS -- 96.0% Value - -------------------------------------------------------------------------------- BASIC MATERIALS -- 6.3% 9,510 Alliance Resource Partners, L.P. $ 344,928 6,883 PPG Industries, Inc. 483,393 7,965 Schnitzer Steel Industries, Inc. - Class A 550,620 ------------ 1,378,941 ------------ CONGLOMERATE -- 1.2% 9,600 LSB Industries, Inc.* 270,912 ------------ CONSUMER, CYCLICAL -- 13.1% 9,737 Barry (R.G.) Corporation* 68,646 10,435 Crown Crafts, Inc.* 36,523 13,318 Darden Restaurants, Inc. 369,042 5,060 E Com Ventures, Inc.* 126,095 10,400 McDonald's Corporation 612,664 16,996 PACCAR, Inc. 925,942 20,456 The Buckle, Inc. 675,048 5,709 Zones, Inc.* 61,828 ------------ 2,875,788 ------------ CONSUMER, NON-CYCLICAL -- 13.4% 55,500 EZCORP, Inc. - Class A* 626,595 4,750 Ingles Markets, Inc. - Class A 120,603 14,850 Merck & Co., Inc. 862,933 19,710 Pfizer, Inc. 448,008 8,000 The Toro Company 435,520 10,000 Watson Wyatt Worldwide, Inc. 464,100 ------------ 2,957,759 ------------ ENERGY -- 13.8% 4,840 Bolt Technology Corporation* 183,823 6,300 Exxon Mobil Corporation 590,247 22,860 Frontier Oil Corporation 927,659 4,760 Hess Corporation 480,094 11,730 Marathon Oil Corporation 713,888 6,970 Matrix Service Company* 152,085 ------------ 3,047,796 ------------ FINANCIAL -- 9.4% 5,580 AllianceBernstein Holding L.P. 419,895 10,665 American Financial Group, Inc. 308,005 9,180 American Physicians Capital, Inc. 380,603 20,250 CNA Surety Corporation* 400,748 6,240 Mercer Insurance Group, Inc. 112,070 2,040 The Goldman Sachs Group, Inc. 438,702 ------------ 2,060,023 ------------ 30 JAMES EQUITY FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Shares COMMON STOCKS -- 96.0% (Continued) Value - -------------------------------------------------------------------------------- INDUSTRIAL -- 14.4% 11,160 Cascade Corporation $ 518,494 8,460 Chase Corporation 213,615 12,591 Cummins, Inc. 1,603,715 7,830 Eaton Corporation 759,119 4,730 The Eastern Company 86,748 ------------ 3,181,691 ------------ TECHNOLOGY -- 9.0% 14,600 Avici Systems, Inc. 115,778 58,140 BroadVision, Inc.* 104,071 23,400 Hewlett-Packard Company 1,181,231 6,300 Northrop Grumman Corporation 495,432 9,225 Trio-Tech International* 84,409 ------------ 1,980,921 ------------ UTILITIES -- 15.4% 8,640 American Electric Power Company, Inc. 402,278 17,200 AT&T, Inc. 714,832 13,310 CenturyTel, Inc. 551,833 10,890 Energen Corporation 699,465 11,000 MDU Resources Group, Inc. 303,710 11,870 Sempra Energy 734,515 ------------ 3,406,633 ------------ TOTAL COMMON STOCKS $ 21,160,464 ------------ ================================================================================ Shares SHORT TERM INVESTMENTS -- 3.9% Value - -------------------------------------------------------------------------------- 852,289 First American Treasury Obligations Fund $ 852,289 ------------ TOTAL INVESTMENT SECURITIES -- 99.9% (Cost $15,053,573) $ 22,012,753 OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.1% 14,617 ------------ NET ASSETS -- 100.0% $22,027,370 ============ * Non-income producing security. See accompanying notes to financial statements. 31 JAMES MID CAP FUND SCHEDULE OF INVESTMENTS December 31, 2007 (Unaudited) ================================================================================ Shares COMMON STOCKS -- 96.2% Value - -------------------------------------------------------------------------------- BASIC MATERIALS -- 12.3% 5,000 Albermarle Corporation $ 206,250 4,500 Commercial Metals Company 132,075 12,500 Kinross Gold Corp.* 230,000 7,000 Methanex Corporation 193,200 ------------ 761,525 ------------ CONSUMER, CYCLICAL -- 7.3% 2,500 Columbia Sportswear Company 110,225 4,000 Darden Restaurants, Inc. 110,840 5,500 Dollar Tree Stores, Inc.* 142,560 3,350 Men's Wearhouse, Inc. 90,383 ------------ 454,008 ------------ CONSUMER, NON-CYCLICAL -- 17.7% 3,500 Corn Products International, Inc. 128,625 1,100 Energizer Holdings, Inc.* 123,343 2,200 Health Net, Inc.* 106,260 4,000 King Pharmaceuticals, Inc.* 40,960 4,000 Molson Coors Brewing Company - Class B 206,480 4,000 PepsiAmericas, Inc. 133,280 3,200 The Toro Company 174,208 4,000 Watson Wyatt Worldwide, Inc. 185,640 ------------ 1,098,796 ------------ ENERGY -- 12.2% 5,000 Frontier Oil Corporation 202,900 6,000 Global Industries, Ltd.* 128,520 2,400 Questar Corporation 129,840 3,000 Sunoco Logistics Partners L.P. 150,630 3,000 Tesoro Corporation 143,100 ------------ 754,990 ------------ FINANCIAL -- 10.8% 1,800 AllianceBernstein Holding L.P. 135,450 5,000 American Financial Group, Inc. 144,400 3,000 Assurant, Inc. 200,700 1,500 SAFECO Corporation 83,520 3,500 W.R. Berkley Corporation 104,335 ------------ 668,405 ------------ INDUSTRIAL -- 11.1% 1,400 Cummins, Inc. 178,318 3,000 Greif Bros. Corporation 196,110 4,000 Metal Management, Inc. 182,120 4,000 The Timken Company 131,400 ------------ 687,948 ------------ 32 JAMES MID CAP FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ Shares COMMON STOCKS -- 96.2% (Continued) Value - -------------------------------------------------------------------------------- TECHNOLOGY -- 13.7% 4,000 Arrow Electronics, Inc.* $ 157,120 3,000 Avnet, Inc.* 104,910 3,100 Ceradyne, Inc.* 145,483 2,500 Comtech Telecommunications Corporation* 135,025 3,000 Teledyne Technologies, Inc.* 159,990 4,900 Western Digital Corporation* 148,029 ------------ 850,557 ------------ UTILITIES -- 11.1% 4,000 CenturyTel, Inc. 165,840 3,000 DTE Energy Company 131,880 3,500 Energen Corporation 224,805 6,000 MDU Resources Group, Inc. 165,660 ------------ 688,185 ------------ TOTAL COMMON STOCKS $ 5,964,414 ------------ ================================================================================ Shares SHORT TERM INVESTMENTS -- 3.7% Value - -------------------------------------------------------------------------------- 227,358 First American Treasury Obligations Fund $ 227,358 ------------ TOTAL INVESTMENT SECURITIES -- 99.9% (Cost $6,020,916) $ 6,191,772 OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.1% 4,806 ------------ NET ASSETS -- 100.0% $ 6,196,578 ============ * Non-income producing security. See accompanying notes to financial statements. 33 JAMES ADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS December 31, 2007 (Unaudited) ================================================================================ 1. General Information and Significant Accounting Policies James Balanced: Golden Rainbow Fund, James Small Cap Fund, James Market Neutral Fund and James Mid Cap 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 February 21, 2007, the Board of Trustees of the James Advantage Funds voted to abolish the redemption fees for the James Small Cap Fund, the James Market Neutral Fund, the James Equity Fund, and the James Mid Cap Fund. Prior to February 21, 2007, the Funds charged a redemption fee of 1.00% of the amount redeemed if the shares sold were held for fewer than 90 days. The redemption fees were paid directly to the Funds. 34 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. Short-term investments in fixed-income securities with maturities of less than 60 days when acquired, or which subsequently are within 60 days of maturity, are valued by using the amortized cost method of valuation, which the Board has determined will represent fair value. 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, 2007, 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, 2007, 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. 35 JAMES ADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) ================================================================================ Short Sales and Segregated Cash The James Market Neutral Fund (the "Fund") actively sells short common stocks. Short sales are transactions in which the Fund sells a security it does not own in anticipation of a decline in the market value of that security. To complete such a transaction, the Fund must borrow the security to deliver to the buyer upon the short sale; the Fund is then obligated to replace the security borrowed by purchasing it in the open market at some later date. The Fund will incur a loss if the market price of the security increases between the date of the short sale and the date on which the Fund replaces the borrowed security. The Fund will realize a gain if the security declines in value between those dates. If a security sold short pays a dividend while the Fund is short that security, the Fund will pay the dividend and record that amount as an expense. All short sales are collateralized, as required by the Fund's prime broker. The Fund maintains the collateral in segregated accounts consisting of cash and/or high-grade liquid assets sufficient to collateralize the market value of its short positions. Investment Income Dividend income is recorded on the ex-dividend date. Interest income is determined on the basis of interest accrued, adjusted for amortization of premiums and accretion of discounts on all debt securities. Amortization and accretion is calculated using the effective yield method. Dividends and Distributions to Shareholders Net investment income, if any, is generally declared and distributed to shareholders of each Fund quarterly. Net realized capital gains from security transactions, if any, are distributed to shareholders not less frequently than annually. Furthermore, capital gains are distributed only to the extent they exceed available capital loss carryforwards. Distributions to shareholders of net investment income and net realized capital gains are recorded on the ex-dividend date. The amount and timing of distributions are determined in accordance with federal income tax regulations, which may differ from GAAP. Accordingly, temporary overdistributions as a result of these differences may occur and will be classified as either distributions in excess of net investment income and/or distributions in excess of net realized gains from security transactions, where applicable. 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. 36 JAMES ADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) ================================================================================ The tax character of distributions paid for the years ended June 30, 2007 and 2006 was as follows: - ------------------------------------------------------------------------------------ James Balanced: James Small Cap Golden Rainbow Fund Fund ----------------------------------------------------- 2007 2006 2007 2006 - ------------------------------------------------------------------------------------ From ordinary income $ 6,967,365 $ 4,473,409 $ 3,153,359 $ 140,631 From long-term capital gains 5,273,855 6,895,468 649,545 1,110,529 From return of capital -- -- 144,227 -- ----------- ----------- ----------- ----------- $12,241,220 $11,368,877 $ 3,947,131 $ 1,251,160 =========== =========== =========== =========== - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------- James James Market Neutral James Equity Mid Cap Fund Fund Fund - ------------------------------------------------------------------------------------- 2007 2006 2007 2006 2007 - ------------------------------------------------------------------------------------- From ordinary income $2,166,597 $ 994,103 $ 97,518 $ 41,105 $ 14,614 ---------- ---------- ---------- ---------- ---------- - ------------------------------------------------------------------------------------- The following information is computed on a tax basis for each item as of June 30, 2007: - ----------------------------------------------------------------------------------------------------------------------- James Balanced: James James James James Golden Rainbow Small Cap Market Neutral Equity Mid Cap Fund Fund Fund Fund Fund - ----------------------------------------------------------------------------------------------------------------------- Tax cost of investment securities $ 298,192,183 $ 284,410,882 $ 66,294,893 $ 17,585,038 $ 5,601,348 ============= ============= ============== ============= ============= Gross unrealized appreciation $ 43,426,435 $ 52,655,160 $ 12,359,389 $ 7,945,974 $ 775,676 Gross unrealized depreciation (3,311,332) (10,453,098) (2,417,452) (114,634) (80,803) ------------- ------------- ------------- ------------- ------------- Net unrealized appreciation 40,115,103 42,202,062 9,941,937 7,831,340 694,873 Capital loss carryforward -- -- (8,942,280) (1,033,467) -- Post-October losses -- (6,256,281) -- -- -- Undistributed net investment income 29,576 26,640 9,254 1,076 18,785 Undistributed long-term gains 5,920,309 -- -- -- -- Other temporary differences (87,094) (26,640) (21,200) (1,070) -- ------------- ------------- ------------- ------------- ------------- Accumulated earnings $ 45,977,894 $ 35,945,781 $ 987,711 $ 6,797,879 $ 713,658 ============= ============= ============== ============= ============= - ----------------------------------------------------------------------------------------------------------------------- 37 JAMES ADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) ================================================================================ The difference between the cost of investment securities 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, 2007, the James Equity Fund utilized $762,304 of capital loss carryforwards. The capital loss carryforwards remaining as of June 30, 2007 in the table below expire as follows: - -------------------------------------------------------------------------------- Amount Expiration Date - -------------------------------------------------------------------------------- The James Market Neutral Fund $ 82,513 June 30, 2008 $ 987,690 June 30, 2012 $ 773,042 June 30, 2013 $ 642,007 June 30, 2014 $6,457,028 June 30, 2015 The James Equity Fund $ 725,408 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. The Funds have analyzed their tax positions on Federal income tax returns for all open years (tax years ended December 31, 2004 through 2007) for purposes of implementing FIN?48 and have concluded that no provision for income is required in the financial statements. 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 Statement of Assets and Liabilities, for the year ended June 30, 2007 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 (Loss) Gains (Losses) - -------------------------------------------------------------------------------- James Small Cap Fund $ (144,227) $ (87) $ 144,314 James Market Neutral Fund $ 1 $ 2,400 $ (2,401) - -------------------------------------------------------------------------------- 38 JAMES ADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) ================================================================================ As of December 31, 2007, the Funds had the following federal tax cost resulting in net unrealized appreciation as follows: - ---------------------------------------------------------------------------------------------------------------- Gross Gross Unrealized Unrealized Net Unrealized Federal Tax Cost Appreciation Depreciation Appreciation - ---------------------------------------------------------------------------------------------------------------- James Balanced: Golden Rainbow Fund $ 316,073,688 $ 53,187,508 $ (6,229,287) $ 46,958,221 Small Cap Fund $ 236,435,942 $ 34,999,845 $ (16,561,072) $ 18,438,773 Market Neutral Fund $ 26,689,157 $ 13,637,386 $ (3,215,398) $ 10,421,988 Equity Fund $ 15,053,573 $ 7,370,314 $ (411,134) $ 6,959,180 Mid Cap Fund $ 6,020,916 $ 654,539 $ (483,683) $ 170,856 - ---------------------------------------------------------------------------------------------------------------- 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, 2007 were as follows: - -------------------------------------------------------------------------------- Purchases Sales - -------------------------------------------------------------------------------- James Balanced: Golden Rainbow Fund $64,636,729 $13,503,281 - -------------------------------------------------------------------------------- Purchases and sales (including maturities) of investments in other securities for the six months ended December 31, 2007 were as follows: - -------------------------------------------------------------------------------- Purchases Sales - -------------------------------------------------------------------------------- James Balanced: Golden Rainbow Fund $11,880,802 $23,431,153 James Small Cap Fund 64,651,119 99,797,585 James Market Neutral Fund 3,821,800 8,838,147 James Equity Fund 0 2,893,851 James Mid Cap Fund 1,506,560 1,081,077 - -------------------------------------------------------------------------------- For the six months ended December 31, 2007, the cost of securities purchased to cover short sales and the proceeds from securities sold short were $12,495,326 and $7,746,156, respectively, for the James Market Neutral Fund. 3. Management Fee and Other Transactions with Affiliates A trustee and certain officers of the Trust were also officers of James or JPMorgan Chase Bank, N.A. ("JPMorgan"), the administrative services agent, shareholder services and transfer agent and accounting services agent for the Trust and the exclusive agent for the distribution of the Funds' shares during the six months ended December 31, 2007. 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. 39 JAMES ADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) ================================================================================ 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, JPMorgan 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, JPMorgan 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, JPMorgan 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, JPMorgan 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 JPMorgan out-of-pocket expenses including, but not limited to, postage and supplies. Accounting Services Agreement Under the terms of the Accounting Services Agreement with the Trust, JPMorgan calculates the daily net asset value per share and maintains the financial books and records of each Fund. For these services, JPMorgan 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, JPMorgan is reimbursed by James Balanced: Golden Rainbow Fund and James for certain out-of-pocket expenses incurred by JPMorgan 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 JPMorgan, JPMorgan provides certain compliance services to the Trust, including developing and assisting in implementing a compliance program for JPMorgan on behalf of the funds and providing administrative support services to the Funds' Compliance Program and Chief Compliance Officer. 40 JAMES ADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) ================================================================================ Beneficial Ownership The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates a presumption of control of the fund under section 2 (A)(9) of the Investment Company Act of 1940. As of December 31, 2007, Charles Schwab & Co., Inc. owned, for the benefit of its customers, 40.03% and 32.66% of the James Balanced: Golden Rainbow Fund and the James Small Cap Fund, respectively. James, Dr. Frank James, and other affiliates of James owned 52.20% of the James Mid Cap Fund. 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 reinvested dividends or other distributions; and redemption fees; and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2007 through December 31, 2007). 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, 2007" 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 ratio 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 this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. 42 JAMES ADVANTAGE FUNDS OTHER ITEMS (Unaudited) (Continued) ================================================================================ Note that expenses shown in the table are meant to highlight and help you compare ongoing cost only. The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions. - ----------------------------------------------------------------------------------------------------------------- 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, 2007 2007 2007 2007* - ----------------------------------------------------------------------------------------------------------------- James Balanced: Golden Rainbow Fund Actual 1.16% $ 1,000.00 $ 1,035.60 $ 5.94 Hypothetical 1.16% $ 1,000.00 $ 1,019.30 $ 5.89 James Small Cap Fund Actual 1.51% $ 1,000.00 $ 891.80 $ 7.18 Hypothetical 1.51% $ 1,000.00 $ 1,017.55 $ 7.66 James Market Neutral Fund Actual 1.87% $ 1,000.00 $ 1,066.20 $ 9.71 Hypothetical 1.87% $ 1,000.00 $ 1,015.74 $ 9.48 James Equity Fund Actual 1.50% $ 1,000.00 $ 957.70 $ 7.38 Hypothetical 1.50% $ 1,000.00 $ 1,017.60 $ 7.61 James Mid Cap Fund Actual 1.46% $ 1,000.00 $ 915.60 $ 7.03 Hypothetical 1.46% $ 1,000.00 $ 1,017.80 $ 7.41 - ----------------------------------------------------------------------------------------------------------------- * Expenses are equal to the Fund's annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/366 (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 JPMorgan Chase Bank, N.A. P.O. Box 5354 Cincinnati, Ohio 45201-5354 O INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP 250 East Fifth Street Suite 1900 Cincinnati, Ohio 45202 O DISTRIBUTOR IFS Fund Distributors, Inc. 303 Broadway Cincinnati, Ohio 45202 O LEGAL COUNSEL Thompson Hine LLP 312 Walnut Street 14th Floor Cincinnati, Ohio 45202 www.jamesfunds.com For information about the Funds, or to make inquiries about the Funds, please call 1-800-99JAMES (1-800-995-2637). FORM IFS-163-0201 - -------------------------------------------------------------------------------- Semi-Annual Report December 31, 2007 (Unaudited) James Balanced: Golden Rainbow Fund James Small Cap Fund James Market Neutral Fund James Equity Fund James Mid Cap Fund [logo] 937 - 426 -7640 www.jamesfunds.com - -------------------------------------------------------------------------------- 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 3, 2008 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 3, 2008 By (Signature and Title) /s/ Thomas L. Mangan - ------------------------------- Thomas L. Mangan Treasurer, Chief Financial Officer Date: March 3, 2008