---------
JAMES
ADVANTAGE
FUNDS
---------
Advised by James
Investment Research, Inc.
o
June 30, 1999
Annual Report
The Golden Rainbow Fund
The James Small Cap Fund
The James Market Neutral Fund
<PAGE>
Letter to Shareholders
of the James Advantage Funds
================================================================================
The past fiscal year has been one of growth for the James Advantage Funds as we
have added The James Small Cap Fund and The James Market Neutral Fund to the
already existing Golden Rainbow Fund. This growth has been exciting for us, and
we are working to build a foundation for future successes within our expanding
family of funds. We look forward to offering you and other investors a number of
unique investments which can meet a variety of needs.
THE MARKET OVER THE PAST YEAR
The market has been anything but docile during the past fiscal year. At the
beginning of the year (July 1998), the market undertook a dramatic sell-off
which sent the Dow down more than 1,000 points. We had previously relayed our
concerns about the market in our special report entitled "Shift to Defense." The
outlook brightened and we became more aggressive beginning in September 1998 as
opportunities to find value became abundant. Our actions were soon rewarded as
the market rallied in the quarter ended December 31, 1998.
However, as calendar 1998 departed, the market's personality split. Value stocks
went through a period of dramatic underperformance relative to speculative
stocks. Our research found that top value stocks returned 13.6%, while the worst
value stocks (most speculative) gained 28.8%.
INVESTMENT GOALS AND OBJECTIVES
The volatile condition of the markets gave added incentive to investors looking
for funds, such as The Golden Rainbow Fund, which have preservation of capital
as one of their primary objectives. The James Market Neutral Fund's objective of
adding value regardless of market direction also generated interest in that Fund
given the current market environment. The longer term outlook and higher risk
tolerance of investors in The James Small Cap Fund was important as that market
sector continues to be highly volatile.
INVESTMENT PHILOSOPHY
Our value-oriented approach to investing is designed to be conservative in
nature. We find that companies with strong earnings and growing markets
generally attract investor interest when viewed in a top-down style of portfolio
management. This has been the philosophy behind The Golden Rainbow Fund since
its inception, and we remain committed to researching and discovering value in
the stock market. This pursuit is used in combination with its opposite for The
James Market Neutral Fund. That is, we try to purchase stocks showing value
while selling short stocks exhibiting what our analysis shows to be a lack of
value. If we are successful, this investment style would be profitable
regardless of market conditions. The value orientation of The James Small Cap
Fund is determined through our proprietary investment model, which uses a
multi-factor approach in identifying stocks that are undervalued and more likely
to appreciate. In all these styles, we place value at the top of the list of
desirable traits.
FUND PERFORMANCE
THE GOLDEN RAINBOW FUND
The schism in the market had a negative affect on value investors, such as
ourselves. The Golden Rainbow Fund, which holds a combination of stocks and
bonds, was certainly impacted by this trend. Nevertheless, we are pleased with
the performance of the Fund during the fiscal year, and believe our conservative
approach is one that is very prudent if more difficult periods lie ahead. In
fact, the Fund held up well in the quarter ended September 30, 1998, when the
stock market had a significant decline. For the twelve months ended June 30,
1999, the Fund's total return (excluding the impact of applicable sales loads)
was 8.0% versus 22.8% for the S&P 500 and 9.2% for a Blended 25/25/50 Index
comprised of 25% S&P 500 Index, 25% Russell 2000 Index and 50% Lehman Brothers
Intermediate Government/Corporate Bond Index.
THE JAMES SMALL CAP FUND
The Small Cap Fund was affected by the mood swings experienced by small cap
stocks. The Fund ended calendar year 1998 on a strong note as smaller stocks
rebounded. However, 1999 started out on a down note, only to recover later. We
are pleased to see strong gains in the Fund and the small cap sector and will
continue to pursue our value approach to smaller stocks. For the period since
inception (October 2, 1998) through June 30, 1999, the Fund's total return
(excluding the impact of applicable sales loads) was 18.7% versus 32.1% for the
Russell 2000 Index.
THE JAMES MARKET NEUTRAL FUND
The Market Neutral Fund's unique approach seeks to find a balance between stocks
which are purchased and stocks which are sold short. It is designed to have
performance which is uncorrelated to movements in the market. With stocks
rising, especially speculative stocks, it would be expected that our value
approach would not show progress. However, we see this time period as an
aberration and expect our value approach to do well over time. For the period
since inception (October 2, 1998) through June 30, 1999, the Fund's total return
(excluding the impact of applicable sales loads) was -5.7% versus 3.3% for the
90-Day Treasury Bill Index.
EXPECTATIONS FOR THE FUTURE
The stock market is likely to enter into another difficult period due to rising
interest rates and inflationary pressures. The rise of oil prices is indicative
of opportunities in the energy area, and we will seek to take advantage of this.
In addition, we think the economy is likely to slow down in the coming months.
This will be helpful for bond prices and for stocks that are defensive in
nature, such as utility and non-cyclical consumer stocks. We think investors
should focus on stability and, to do so, should look for value, income and
preservation of assets.
/s/ Barry R. James
Barry R. James, CFA, CIC
President, The James Advantage Funds
<PAGE>
<TABLE>
<CAPTION>
THE JAMES ADVANTAGE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1999
===================================================================================================================
The Golden The James The James
Rainbow Small Cap Market Neutral
Fund Fund Fund
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities:
<S> <C> <C> <C>
At amortized cost ............................................. $ 87,289,913 $ 6,073,924 $ 6,416,174
============ ============ ============
At value (Note 1) ............................................. $106,935,580 $ 6,568,068 $ 7,149,245
Segregated cash with brokers (Note 1) ............................ -- -- 4,853,905
Receivable for capital shares sold ............................... 9,427 3,486 7,116
Receivable for securities sold ................................... -- -- 88,839
Dividends and interest receivable ................................ 1,142,605 2,936 14,719
Other assets ..................................................... 6,327 315 807
------------ ------------ ------------
TOTAL ASSETS ............................................... 108,093,939 6,574,805 12,114,631
------------ ------------ ------------
LIABILITIES
Securities sold short (proceeds $3,252,622) (Note 1) ............. -- -- 3,690,551
Payable for capital shares redeemed .............................. 55,796 -- 34,600
Payable for securities purchased ................................. 109,725 -- 83,936
Dividends payable on securities sold short ....................... -- -- 2,310
Accrued expenses:
Management fees (Note 3) ...................................... 58,610 6,033 11,194
12b-1 distribution and service fees (Note 3) .................. 30,948 5,018 8,305
Other ......................................................... 36,417 -- --
------------ ------------ ------------
TOTAL LIABILITIES .......................................... 291,496 11,051 3,830,896
------------ ------------ ------------
NET ASSETS ....................................................... $107,802,443 $ 6,563,754 $ 8,283,735
============ ============ ============
NET ASSETS CONSIST OF:
Paid-in capital .................................................. $ 84,703,574 $ 6,083,692 $ 8,839,354
Undistributed net investment income .............................. 29,585 -- 3,018
Accumulated net realized gains (losses) from security transactions 3,423,617 (14,082) (853,779)
Net unrealized appreciation on investments ....................... 19,645,667 494,144 295,142
------------ ------------ ------------
NET ASSETS ....................................................... $107,802,443 $ 6,563,754 $ 8,283,735
============ ============ ============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) (Note 1) ........... 6,239,719 553,186 890,250
============ ============ ============
Net asset value and redemption price per share (Note 1) .......... $ 17.28 $ 11.87 $ 9.30
============ ============ ============
Maximum offering price per share (Note 1) ........................ $ 18.04 $ 12.39 $ 9.71
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
THE JAMES ADVANTAGE FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended June 30, 1999
========================================================================================================
The Golden The James The James
Rainbow Small Cap Market Neutral
Fund Fund(A) Fund(A)
- --------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C> <C>
Dividends ............................................ $ 904,004 $ 29,771 $ 24,453
Interest ............................................. 3,561,943 8,926 166,006
----------- ----------- -----------
TOTAL INVESTMENT INCOME ........................... 4,465,947 38,697 190,459
----------- ----------- -----------
EXPENSES
Management fees (Note 3) ............................. 892,188 32,819 67,728
12b-1 distribution and service fees - Class A (Note 3) 301,414 6,978 10,265
Administration fees (Note 3) ......................... 79,055 -- --
Accounting services fees (Note 3) .................... 36,000 -- --
Postage and supplies ................................. 22,237 -- --
Professional fees .................................... 21,005 -- --
Custodian fees and expenses .......................... 18,050 -- --
Transfer agent fees (Note 3) ......................... 18,000 -- --
Shareholder report printing and mailing .............. 16,713 -- --
Trustees fees ........................................ 11,087 2,071 2,071
Dividend expense on securities sold short ............ -- -- 14,942
Other expenses ....................................... 12,892 -- --
----------- ----------- -----------
Total expenses before fee waivers ................. 1,428,641 41,868 95,006
Management fees waived (Note 3) ...................... (108,490) -- --
12b-1 distribution and service fees waived (Note 3) .. (114,589) -- --
----------- ----------- -----------
Total fee waivers ................................. (223,079) -- --
----------- ----------- -----------
Net expenses ...................................... 1,205,562 41,868 95,006
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ............................ 3,260,385 (3,171) 95,453
----------- ----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) from security transactions 6,108,860 (14,082) (187,769)
Net realized losses on closed short positions ........ -- -- (666,010)
Net change in unrealized appreciation/depreciation
on investments .................................... (301,156) 494,144 295,142
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS ....................................... 5,807,704 480,062 (558,637)
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS ...................................... $ 9,068,089 $ 476,891 $ (463,184)
=========== =========== ===========
</TABLE>
(A) Represents the period from the initial public offering of shares (October
2, 1998) through June 30, 1999.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
THE JAMES ADVANTAGE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
For the Periods Ended June 30, 1999 and 1998
============================================================================================================================
The Golden The James The James
Rainbow Small Cap Market Neutral
Fund Fund Fund
------------------------------- ------------- -------------
Year Ended Year Ended Period Ended Period Ended
June 30, June 30, June 30, June 30,
1999 1998 1999(A) 1999(A)
- ----------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
<S> <C> <C> <C> <C>
Net investment income (loss) ..................... $ 3,260,385 $ 4,809,856 $ (3,171) $ 95,453
Net realized gains (losses) from:
Security transactions ......................... 6,108,860 17,391,584 (14,082) (187,769)
Closed short positions ........................ -- -- -- (666,010)
Net change in unrealized appreciation/
depreciation on investments ................ (301,156) (8,773,490) 494,144 295,142
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from operations 9,068,089 13,427,950 476,891 (463,184)
------------- ------------- ------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ............. (3,303,746) (4,808,630) -- (92,435)
Return of capital ................................ -- -- (985) --
Distributions from net realized gains ............ (16,312,364) (10,825,570) -- --
------------- ------------- ------------- -------------
Decrease in net assets from distributions
to shareholders .................................. (19,616,110) (15,634,200) (985) (92,435)
------------- ------------- ------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ........................ 7,395,720 8,787,070 6,266,758 9,117,948
Net asset value of shares issued in reinvestment
of distributions to shareholders .............. 18,933,981 14,819,001 985 92,407
Payments for shares redeemed ..................... (40,073,518) (46,489,017) (179,895) (371,001)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from capital
share transactions ............................... (13,743,817) (22,882,946) 6,087,848 8,839,354
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS ....................................... (24,291,838) (25,089,196) 6,563,754 8,283,735
NET ASSETS
Beginning of period .............................. 132,094,281 157,183,477 -- --
------------- ------------- ------------- -------------
End of period .................................... $ 107,802,443 $ 132,094,281 $ 6,563,754 $ 8,283,735
============= ============= ============= =============
UNDISTRIBUTED NET INVESTMENT INCOME ................. $ 29,585 $ 72,946 $ -- $ 3,018
============= ============= ============= =============
SUMMARY OF CAPITAL SHARE ACTIVITY
Shares sold ...................................... 418,738 453,412 569,652 918,724
Shares issued in reinvestment of distributions
to shareholders ............................... 1,106,830 798,284 90 9,721
Shares redeemed .................................. (2,251,386) (2,425,023) (16,556) (38,195)
------------- ------------- ------------- -------------
Net increase (decrease) in shares outstanding .... (725,818) (1,173,327) 553,186 890,250
Shares outstanding, beginning of period .......... 6,965,537 8,138,864 -- --
------------- ------------- ------------- -------------
Shares outstanding, end of period ................ 6,239,719 6,965,537 553,186 890,250
============= ============= ============= =============
</TABLE>
(A) Represents the period from the initial public offering of shares (October
2, 1998) through June 30, 1999.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
THE GOLDEN RAINBOW FUND
FINANCIAL HIGHLIGHTS
==================================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Year
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended June 30,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year ............... $ 18.96 $ 19.31 $ 17.56 $ 18.27 $ 16.67
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income ........................... 0.49 0.65 0.66 0.73 0.69
Net realized and unrealized gains on investments 0.91 1.08 2.16 0.61 1.94
---------- ---------- ---------- ---------- ----------
Total from investment operations ................... 1.40 1.73 2.82 1.34 2.63
---------- ---------- ---------- ---------- ----------
Less distributions:
From net investment income ...................... (0.49) (0.65) (0.68) (0.74) (0.68)
From net realized gains on investments .......... (2.59) (1.43) (0.39) (1.31) (0.35)
---------- ---------- ---------- ---------- ----------
Total distributions ................................ (3.08) (2.08) (1.07) (2.05) (1.03)
---------- ---------- ---------- ---------- ----------
Net asset value at end of year ..................... $ 17.28 $ 18.96 $ 19.31 $ 17.56 $ 18.27
========== ========== ========== ========== ==========
Total return(A) .................................... 7.97% 9.47% 16.55% 7.76% 16.54%
========== ========== ========== ========== ==========
Net assets at end of year (000's) .................. $ 107,802 $ 132,094 $ 157,183 $ 184,307 $ 191,473
========== ========== ========== ========== ==========
Ratios/Supplemental Data:
Ratio of net expenses to average net assets(B) ..... 1.00% 1.08% 1.09% 1.06% 1.04%
Ratio of net investment income to average net assets 2.71% 3.29% 3.63% 4.01% 4.05%
Portfolio turnover rate ............................ 38% 54% 56% 83% 48%
</TABLE>
(A) Total returns exclude the effect of applicable sales loads.
(B) Absent fee waivers and/or expense reimbursements, the ratios of expenses to
average net assets would have been 1.19%, 1.23%, 1.24%, 1.26% and 1.27% for
the years ended June 30, 1999, 1998, 1997, 1996 and 1995, respectively
(Note 3).
See accompanying notes to financial statements.
<PAGE>
THE JAMES SMALL CAP FUND
FINANCIAL HIGHLIGHTS
================================================================================
Per Share Data for a Share Outstanding Throughout the Period
- --------------------------------------------------------------------------------
Period Ended
June 30,
1999(A)
- --------------------------------------------------------------------------------
Net asset value at beginning of period ...................... $ 10.00
----------
Income (loss) from investment operations:
Net investment loss ...................................... (0.00)
Net realized and unrealized gains on investments ......... 1.87
----------
Total from investment operations ............................ 1.87
----------
Less distributions:
Return of capital ........................................ (0.00)
----------
Net asset value at end of period ............................ $ 11.87
==========
Total return(B) ............................................. 18.74%
==========
Net assets at end of period (000's) ......................... $ 6,564
==========
Ratios/Supplemental Data:
Ratio of net expenses to average net assets ................. 1.49%(C)
Ratio of net investment loss to average net assets .......... (0.11%)(C)
Portfolio turnover rate ..................................... 42%(C)
(A) Represents the period from the initial public offering of shares (October
2, 1998) through June 30, 1999.
(B) Total return excludes the effect of applicable sales loads and is not
annualized.
(C) Annualized.
See accompanying notes to financial statements.
<PAGE>
THE JAMES MARKET NEUTRAL FUND
FINANCIAL HIGHLIGHTS
================================================================================
Per Share Data for a Share Outstanding Throughout the Period
- --------------------------------------------------------------------------------
Period Ended
June 30,
1999(A)
- --------------------------------------------------------------------------------
Net asset value at beginning of period ...................... $ 10.00
----------
Income (loss) from investment operations:
Net investment income .................................... 0.13
Net realized and unrealized losses on investments ........ (0.70)
----------
Total from investment operations ............................ (0.57)
----------
Less distributions:
From net investment income ............................... (0.13)
----------
Net asset value at end of period ............................ $ 9.30
==========
Total return(B) ............................................. (5.74)%
==========
Net assets at end of period (000's) ......................... $ 8,284
==========
Ratios/Supplemental Data:
Ratio of net expenses to average net assets,
excluding dividends on securities sold short ............. 1.94%(C)
Expenses from dividends on securities sold short ............ 0.36%(C)
Ratio of net expenses to average net assets ................. 2.30%(C)
Ratio of net investment income to average net assets ........ 2.31%(C)
Portfolio turnover rate ..................................... 54%(C)
(A) Represents the period from the initial public offering of shares (October
2, 1998) through June 30, 1999.
(B) Total return excludes the effect of applicable sales loads and is not
annualized.
(C) Annualized.
See accompanying notes to financial statements.
<PAGE>
THE GOLDEN RAINBOW FUND
SCHEDULE OF INVESTMENTS
June 30, 1999
===============================================================================
Shares COMMON STOCKS - 45.3% Value
- -------------------------------------------------------------------------------
BASIC MATERIALS - 0.7%
21,900 Barrick Gold Corporation ................... $ 424,312
60,000 Ethyl Corporation .......................... 360,000
------------
784,312
------------
CONSUMER, CYCLICAL - 6.1%
8,000 Dayton-Hudson Corporation .................. 520,000
1,048 Delphi Automotive Systems Corporation ...... 19,461
20,250 GAP, Inc. .................................. 1,020,094
20,000 Jones Apparel Group, Inc.* ................. 686,250
40,500 Lowe's Companies, Inc. ..................... 2,295,844
45,000 Mohawk Industries, Inc.* ................... 1,366,875
18,572 Priority Healthcare Corporation* ........... 640,717
------------
6,549,241
------------
CONSUMER, NON-CYCLICAL - 13.3%
19,500 Amgen, Inc.* ............................... 1,187,062
45,777 Bindley Western Industries, Inc. ........... 1,055,739
78,000 Bristol-Myers Squibb Company ............... 5,494,125
13,000 Church & Dwight Company, Inc. .............. 565,500
5,500 Coors (Adolph) Company - Class B ........... 272,250
8,000 Darden Restaurants, Inc. ................... 174,500
14,000 Kroger Company* ............................ 391,125
3,000 Pfizer, Inc. ............................... 329,250
51,000 Premark International, Inc. ................ 1,912,500
14,500 Procter & Gamble Company ................... 1,294,125
9,000 Schering-Plough Corporation ................ 477,000
45,000 Supervalu, Inc. ............................ 1,155,938
------------
14,309,114
------------
ENERGY - 5.1%
32,000 Exxon Corporation .......................... 2,468,000
11,000 Helmerich & Payne, Inc. .................... 261,937
9,000 PECO Energy Company ........................ 376,875
17,500 Tidewater, Inc. ............................ 533,750
14,000 Transocean Offshore, Inc. .................. 367,500
10,000 Santa Fe International Corporation ......... 230,000
29,500 The Williams Companies, Inc. ............... 1,255,594
------------
5,493,656
------------
FINANCIAL - 3.1%
35,000 American Bankers Insurance Group, Inc. ..... 1,905,313
10,500 Countrywide Credit Industries, Inc. ........ 448,875
8,000 The Equitable Companies, Inc. .............. 536,000
22,000 Fidelity National Financial, Inc. .......... 462,000
------------
3,352,188
------------
<PAGE>
THE GOLDEN RAINBOW FUND
SCHEDULE OF INVESTMENTS (Continued)
================================================================================
Shares COMMON STOCKS - 45.3% (Continued) Value
- --------------------------------------------------------------------------------
INDUSTRIAL - 3.6%
27,000 CTS Corporation ............................ $ 1,890,000
7,500 Lafarge Corporation ........................ 265,781
27,000 Southdown, Inc. ............................ 1,734,750
------------
3,890,531
------------
INTERNATIONAL - 0.2%
10,000 WEBS - Japan Index Series .................. 125,000
4,000 WEBS - Spain Index Series .................. 111,250
------------
236,250
------------
TECHNOLOGY - 7.2%
31,500 AT&T Corporation ........................... 1,758,094
21,200 Dell Computer Corporation* ................. 784,400
47,600 Intel Corporation .......................... 2,832,200
10,200 Lucent Technologies, Inc. .................. 687,863
18,600 Microsoft Corporation* ..................... 1,677,488
------------
7,740,045
------------
UTILITIES - 6.0%
38,000 Columbia Energy Corporation ................ 2,382,125
35,500 Duke Energy Corporation .................... 1,930,313
55,400 Energen Corporation ........................ 1,031,825
42,000 NiSource, Inc. ............................. 1,084,125
------------
6,428,388
------------
TOTAL COMMON STOCKS (Cost $29,846,666) ..... $ 48,783,725
------------
================================================================================
Par Value CORPORATE BONDS - 5.7% Value
- --------------------------------------------------------------------------------
$ 2,625,000 Ameritech Capital Funding, 5.95%, 1/15/38 .. $ 2,558,306
500,000 AT&T Corporation, 5.625%, 3/15/04 .......... 484,134
1,200,000 Bank One Texas, 6.25%, 2/15/08 ............. 1,136,274
500,000 GTE Corporation, 7.51%, 4/1/09 ............. 518,130
500,000 Illinois Bell Telephone, 7.125%, 7/1/23 .... 478,997
500,000 PG&E Corporation, 7.25%, 8/1/26 ............ 484,804
500,000 Procter & Gamble Company, 7.375%, 3/1/23 ... 486,006
------------
TOTAL CORPORATE BONDS (Amortized Cost $6,344,561) $ 6,146,651
------------
<PAGE>
THE GOLDEN RAINBOW FUND
SCHEDULE OF INVESTMENTS (Continued)
================================================================================
Par Value U.S. GOVERNMENT & AGENCY BONDS - 45.7% Value
- --------------------------------------------------------------------------------
$ 1,000,000 U.S. Treasury Notes, 5.375%, 1/31/00 ....... $ 1,001,875
1,000,000 U.S. Treasury Notes, 5.50%, 5/31/00 ........ 1,001,563
3,000,000 U.S. Treasury Notes, 5.125%, 8/31/00 ....... 2,989,689
3,000,000 U.S. Treasury Notes, 6.25%, 4/30/01 ........ 3,036,564
3,000,000 U.S. Treasury Notes, 6.50%, 5/31/01 ........ 3,052,500
7,000,000 U.S. Treasury Notes, 5.50%, 1/31/03 ........ 6,951,875
15,000,000 U.S. Treasury Notes, 6.25%, 2/15/07 ........ 15,281,250
7,300,000 U.S. Treasury Notes, 6.125%, 8/15/07 ....... 7,379,847
500,000 U.S. Treasury Bonds, 10.375%, 11/15/09 ..... 597,032
2,000,000 U.S. Treasury Bonds, 10.00%, 5/15/10 ....... 2,380,000
1,000,000 U.S. Treasury Bonds, 6.00%, 2/15/26 ........ 972,500
500,000 Federal Home Loan Mortgage Corporation,
6.310%, 3/30/06 .......................... 489,032
2,000,000 Federal National Mortgage Association,
5.44%, 2/1/02 ............................ 1,967,192
1,000,000 Federal National Mortgage Association,
5.67%, 4/5/02 ............................ 985,689
1,200,000 Federal National Mortgage Association,
6.00%, 3/12/04 ........................... 1,174,542
------------
TOTAL U.S. GOVERNMENT & AGENCY BONDS
(Amortized Cost $48,354,632) ............. $ 49,261,150
------------
================================================================================
Shares SHORT TERM INVESTMENTS - 2.5% Value
- --------------------------------------------------------------------------------
2,744,054 Firstar Stellar Treasury Fund
(Cost $2,744,054) ........................ $ 2,744,054
------------
TOTAL INVESTMENT SECURITIES - 99.2%
(Amortized Cost $87,289,913) ............. $106,935,580
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.8% 866,863
------------
NET ASSETS - 100.0% ........................ $107,802,443
============
* Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
THE JAMES SMALL CAP FUND
SCHEDULE OF INVESTMENTS
June 30, 1999
================================================================================
Shares COMMON STOCKS - 98.4% Value
- --------------------------------------------------------------------------------
BASIC MATERIALS - 5.2%
35,400 Armco, Inc.* ............................... $ 234,525
1,945 Mueller Industries, Inc.* .................. 66,008
2,430 RTI International Metals, Inc.* ............ 35,691
------------
336,224
------------
CONSUMER, CYCLICAL - 23.4%
2,780 Alaska Air Group, Inc.* .................... 116,065
6,500 Ames Department Stores, Inc.* .............. 296,563
6,105 Arvin Industries, Inc. ..................... 231,227
3,860 The Dress Barn, Inc.* ...................... 61,760
6,300 K-Swiss, Inc. .............................. 292,950
4,250 NVR, Inc.* ................................. 221,797
16,900 Ryan's Family Steak Houses, Inc.* .......... 196,462
9,900 Trans World Entertainment Corporation* ..... 111,375
------------
1,528,199
------------
CONSUMER NON-CYCLICAL - 16.3%
7,700 Fresh Del Monte Produce, Inc.* ............. 108,762
16,295 Pilgrims Pride Corporation - Class B ....... 488,850
12,500 Summit Technology, Inc.* ................... 275,000
5,070 West Pharmaceutical Services, Inc. ......... 198,998
------------
1,071,610
------------
ENERGY - 6.0%
3,700 SEACOR SMIT, Inc.* ......................... 197,950
6,915 Southwest Gas Corporation .................. 197,942
------------
395,892
------------
FINANCIAL - 5.0%
12,893 Fidelity National Financial, Inc. .......... 270,753
2,100 LandAmerica Financial Group, Inc. .......... 60,375
------------
331,128
------------
INDUSTRIAL - 35.2%
6,800 Astec Industries, Inc.* .................... 277,100
3,950 Centex Construction Products, Inc. ......... 134,794
9,800 Granite Construction, Inc. ................. 287,263
13,885 JLG Industries, Inc. ....................... 282,907
7,880 Lincoln Electric Holdings, Inc. ............ 161,540
4,440 Roadway Express, Inc. ...................... 86,025
6,500 Specialty Equipment Companies, Inc.* ....... 191,344
3,000 Tecumseh Products Company - Class B ........ 163,500
6,600 Terex Corporation* ......................... 200,887
2,400 Texas Industries, Inc. ..................... 93,000
6,935 Tredegar Industries, Inc. .................. 150,836
4,900 Xtra Corporation* .......................... 225,094
3,170 Yellow Corporation* ........................ 56,267
------------
2,310,557
------------
<PAGE>
THE JAMES SMALL CAP FUND
SCHEDULE OF INVESTMENTS (Continued)
================================================================================
Shares COMMON STOCKS - 98.4% (Continued) Value
- --------------------------------------------------------------------------------
TECHNOLOGY - 1.9%
4,960 GenCorp, Inc. .............................. $ 125,240
------------
UTILITIES - 5.4%
3,175 Commonwealth Energy System ................. 133,350
10,000 El Paso Electric Company* .................. 89,375
6,730 Public Service Company of New Mexico ....... 133,759
------------
356,484
------------
TOTAL COMMON STOCKS (Cost $5,961,190) $ 6,455,334
------------
================================================================================
Shares SHORT TERM INVESTMENTS - 1.7% Value
- --------------------------------------------------------------------------------
112,734 Firstar Stellar Treasury Fund (Cost $112,734) $ 112,734
------------
TOTAL INVESTMENT SECURITIES - 100.1%
(Cost $6,073,924) ........................ $ 6,568,068
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.1)% (4,314)
------------
NET ASSETS - 100.0% $ 6,563,754
============
* Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
THE JAMES MARKET NEUTRAL FUND
SCHEDULE OF INVESTMENTS
June 30, 1999
================================================================================
Shares COMMON STOCKS - 52.4% Value
- --------------------------------------------------------------------------------
CONSUMER, CYCLICAL - 8.7%
1,413 DaimlerChrysler AG ......................... $ 125,580
3,000 Darden Restaurants, Inc. ................... 65,437
2,100 Maytag Corporation ......................... 146,344
3,550 Navistar International Corporation* ........ 177,500
3,400 Southwest Airlines Company ................. 105,825
4,400 Webb (Del E.) Corporation .................. 105,050
------------
725,736
------------
CONSUMER, NON-CYCLICAL - 12.0%
1,900 Amgen, Inc.* ............................... 115,663
1,700 Coors (Adolph) Company - Class B ........... 84,150
4,700 IBP, Inc. .................................. 111,625
2,400 IDEC Pharmaceuticals Corporation* .......... 184,950
5,540 Michael Foods, Inc. ........................ 130,190
1,350 PacifiCare Health Systems, Inc.* ........... 97,116
900 Pfizer, Inc. ............................... 98,775
5,700 Pilgrims Pride Corporation - Class B ....... 171,000
------------
993,469
------------
ENERGY - 4.5%
2,700 Diamond Offshore Drilling, Inc. ............ 76,612
6,000 Ensco International, Inc. .................. 119,625
5,700 Tidewater, Inc. ............................ 173,850
------------
370,087
------------
FINANCIAL - 6.8%
2,200 BancWest Corporation ....................... 81,675
2,750 Countrywide Credit Industries, Inc. ........ 117,562
2,000 Flagstar Bancorp, Inc. ..................... 50,500
1,900 Kansas City Life Insurance Company ......... 81,700
1,000 Marsh & McLennan Companies, Inc. ........... 75,500
700 National Western Life Insurance Company* ... 67,375
1,210 Transamerica Corporation ................... 90,750
------------
565,062
------------
INDUSTRIAL - 2.7%
1,900 Briggs & Stratton Corporation .............. 109,725
3,700 Terex Corporation* ......................... 112,619
------------
222,344
------------
<PAGE>
THE JAMES MARKET NEUTRAL FUND
SCHEDULE OF INVESTMENTS (Continued)
================================================================================
Shares COMMON STOCKS - 52.4% (Continued) Value
- --------------------------------------------------------------------------------
TECHNOLOGY - 17.7%
1,000 America Online, Inc.* ...................... $ 110,500
2,250 AT&T Corporation ........................... 125,578
1,400 CenturyTel, Inc. ........................... 55,650
3,825 Cordant Technologies, Inc. ................. 172,842
2,400 Dell Computer Corporation* ................. 88,800
2,792 Investment Technology Group, Inc. .......... 90,391
2,000 Lucent Technologies, Inc. .................. 134,875
3,100 NCR Corporation* ........................... 151,319
6,400 Polycom, Inc.* ............................. 249,600
5,100 THQ, Inc.* ................................. 146,625
3,525 Unisys Corporation* ........................ 137,255
------------
1,463,435
------------
TOTAL COMMON STOCKS (Cost $3,607,047) ...... $ 4,340,133
------------
================================================================================
Par Value U.S. GOVERNMENT & AGENCY BONDS - 32.6% Value
- --------------------------------------------------------------------------------
$ 2,700,000 U.S. Treasury Bill, 7/8/99
(Amortized Cost $2,698,057) .............. $ 2,698,042
------------
================================================================================
Shares SHORT TERM INVESTMENTS - 1.3% Value
- --------------------------------------------------------------------------------
111,070 Firstar Stellar Treasury Fund (Cost $111,070) $ 111,070
------------
TOTAL INVESTMENT SECURITIES - 86.3%
(Amortized Cost $6,416,174) .............. $ 7,149,245
SEGREGATED CASH WITH BROKERS - 58.6% ....... 4,853,905
SECURITIES SOLD SHORT - (44.6)%
(Proceeds $3,252,622) .................... (3,690,551)
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.3)% (28,864)
------------
NET ASSETS - 100.0% ........................ $ 8,283,735
============
* Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
THE JAMES MARKET NEUTRAL FUND
SCHEDULE OF SECURITIES SOLD SHORT
June 30, 1999
================================================================================
Shares COMMON STOCKS SOLD SHORT - 44.6% Value
- --------------------------------------------------------------------------------
CONSUMER, CYCLICAL - 8.2%
1,850 Lamar Advertising Company .................. $ 75,734
4,900 Northwest Airlines Corporation ............. 159,250
1,400 The Pep Boys - Manny, Moe & Jack ........... 30,275
4,325 Polaroid Corporation ....................... 119,478
3,000 Rite Aid Corporation ....................... 73,875
1,700 The Seagram Company, Ltd. .................. 85,637
5,600 Stein Mart, Inc. ........................... 52,500
4,000 Triarc Companies, Inc. ..................... 85,000
------------
681,749
------------
CONSUMER, NON-CYCLICAL - 8.7%
1,900 Algos Pharmaceutical Corporation ........... 41,919
1,700 Alkermes, Inc. ............................. 39,313
5,000 Archer-Daniels-Midland Company ............. 77,187
1,500 Coca-Cola Enterprises, Inc. ................ 46,125
2,000 Columbia/HCA Healthcare Corporation ........ 45,625
4,100 Dreyer's Grand Ice Cream, Inc. ............. 62,013
5,500 Dura Pharmaceuticals, Inc. ................. 65,656
1,000 The Gillette Company ....................... 41,000
2,000 Inhale Therapeutic Systems, Inc. ........... 47,625
5,000 Ligand Pharmaceuticals, Inc. - Class B ..... 55,625
4,000 Pierce Leahy Corporation ................... 98,750
3,400 The Pioneer Group, Inc. .................... 58,650
500 Sepracor, Inc. ............................. 40,625
------------
720,113
------------
ENERGY - 3.7%
400 Arch Coal, Inc. ............................ 5,550
1,350 Noble Affiliates, Inc. ..................... 38,053
4,000 Occidental Petroleum Corporation ........... 84,500
4,000 USX - Marathon Group ....................... 130,250
4,100 Vintage Petroleum, Inc. .................... 44,075
------------
302,428
------------
FINANCIAL - 6.9%
2,900 American Financial Group, Inc. ............. 98,781
3,000 Argonaut Group, Inc. ....................... 72,000
2,100 Cincinnati Financial Corporation ........... 78,881
2,600 Eaton Vance Corporation .................... 89,538
3,780 Imperial Bancorp ........................... 74,891
2,500 Premier Bancshares, Inc. ................... 45,781
1,600 St. Paul Companies, Inc. ................... 50,900
2,300 UICI* ...................................... 63,538
------------
574,310
------------
<PAGE>
THE JAMES MARKET NEUTRAL FUND
SCHEDULE OF SECURITIES SOLD SHORT (Continued)
================================================================================
Shares COMMON STOCKS SOLD SHORT - 44.6% (Continued) Value
- --------------------------------------------------------------------------------
INDUSTRIAL - 2.8%
2,200 Alexander & Baldwin, Inc. .................. $ 48,950
4,000 Lyondell Chemical Company .................. 82,500
2,400 Millipore Corporation ...................... 97,350
------------
228,800
------------
TECHNOLOGY - 14.3%
5,400 Atmel Corporation .......................... 141,413
1,500 CIENA Corporation .......................... 45,281
3,000 Cymer, Inc. ................................ 75,000
3,500 e.spire Communications, Inc. ............... 36,969
1,500 Human Genome Sciences, Inc. ................ 59,250
1,000 IGEN International, Inc. ................... 29,125
11,400 International Rectifier Corporation ........ 151,763
6,150 Loral Space & Communications, Ltd. ......... 110,700
2,700 Manugistics Group, Inc. .................... 39,150
800 McLeodUSA, Inc. ............................ 44,000
4,000 Open Market, Inc. .......................... 56,750
5,000 PairGain Technologies, Inc. ................ 57,500
4,000 PeopleSoft, Inc. ........................... 69,000
3,500 Photronics, Inc. ........................... 85,750
5,200 Security Dynamics Technologies, Inc. ....... 110,500
4,000 Sequent Computer Systems, Inc. ............. 71,000
------------
1,183,151
------------
TOTAL COMMON STOCKS SOLD SHORT
(Proceeds $3,252,622) .................... $ 3,690,551
============
See accompanying notes to financial statements.
<PAGE>
THE JAMES ADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
================================================================================
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The Golden Rainbow Fund, The James Small Cap Fund, and The James Market Neutral
Fund (the "Funds") are each a diversified series of The James Advantage Funds
(the "Trust"), an open-end management investment company, organized as an Ohio
business trust on August 29, 1997. The Trust is registered under the Investment
Company Act of 1940 (the "1940 Act"). The 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, The Golden Rainbow Fund was restructured through a tax-free
reorganization as a series of the Trust. The James Small Cap Fund and The James
Market Neutral Fund each commenced its public offering of shares on October 2,
1998.
The Golden Rainbow Fund seeks to provide total return through a combination of
growth, income and preservation of capital in declining markets. The Fund seeks
to achieve its objective by investing primarily in equity and/or debt securities
that the Fund's adviser, James Investment Research, Inc. ("James") believes are
undervalued.
The 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
U.S. companies with small market capitalizations. James selects stocks that it
believes are undervalued and more likely to appreciate.
The 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.
The following is a summary of significant accounting policies followed by the
Funds in preparation of their financial statements, in accordance with generally
accepted accounting principles.
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 maximum offering price per share is equal to net asset value
per share plus a sales load equal to 4.38% of net asset value (or 4.2% of the
offering price). The redemption price per share is equal to the net asset value
per share.
SECURITIES VALUATION
Securities which are traded on any exchange or on the NASDAQ over-the-counter
market are valued at the last quoted sale price. Lacking a last sale price, a
security is valued at its last bid price. All other securities for which
over-the-counter market quotations are readily available are valued at their
last bid price. When market quotations are not readily available, when the
Adviser determines the last bid price does not accurately reflect the current
value or when restricted securities are being valued, such securities are valued
at their fair value as determined in good faith in accordance with consistently
applied procedures established by and under the general supervision of the Board
of Trustees.
Fixed income securities generally are valued using market quotations, but may be
valued on the basis of prices furnished by a pricing service when market
quotations are not readily available. A pricing service utilizes electronic data
processing techniques based on yield spreads relating to securities with similar
characteristics to determine prices for normal institutional-size trading units
of debt securities, without regard to sale or bid prices.
<PAGE>
THE JAMES ADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
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 Funds have instructed
their 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. At June 30, 1999, the Funds had no such outstanding purchase
commitments.
SHORT SALES AND SEGREGATED CASH
The James Market Neutral Fund actively sells short common stocks. Short sales
are transactions in which the Fund sells a security it does not own in
anticipation of a decline in the market value of that security. To complete such
a transaction, the Fund must borrow the security to deliver to the buyer upon
the short sale; the Fund is then obligated to replace the security borrowed by
purchasing it in the open market at some later date.
The Fund will incur a loss if the market price of the security increases between
the date of the short sale and the date on which the Fund replaces the borrowed
security. The Fund will realize a gain if the security declines in value between
those dates.
All short sales are fully collateralized. The Fund maintains the collateral in
segregated accounts consisting of cash and/or U.S. Government securities
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 long-term debt securities when required
for federal income tax purposes.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income, if any, is 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 loss carryovers. 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 generally accepted accounting
principles. 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 generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of 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 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.
<PAGE>
THE JAMES ADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
The following information is based upon the federal income tax cost of portfolio
investments and securities sold short as of June 30, 1999:
- --------------------------------------------------------------------------------
The Golden The James The James
Rainbow Small Cap Market Neutral
Fund Fund Fund
- --------------------------------------------------------------------------------
Gross unrealized appreciation $ 20,281,797 $ 813,114 $ 894,770
Gross unrealized depreciation (636,130) (318,970) (599,628)
------------ ------------ ------------
Net unrealized appreciation . $ 19,645,667 $ 494,144 $ 295,142
============ ============ ============
Federal income tax cost ..... $ 87,289,913 $ 6,073,924 $ 3,163,552
============ ============ ============
- --------------------------------------------------------------------------------
As of June 30, 1999, The James Small Cap Fund had capital loss carryforwards for
federal income tax purposes of $794, which expire in the year 2007. In addition,
during the period from November 1, 1998 through June 30, 1999, The James Small
Cap Fund and The James Market Neutral Fund had net realized capital losses of
$13,288 and $853,779, respectively, which are treated for federal income tax
purposes as arising during the Fund's tax year ending June 30, 2000. These
capital loss carryforwards and "post-October" losses may be utilized in future
years to offset net realized capital gains, if any, prior to distributing such
gains to shareholders. The James Small Cap Fund's net investment loss of $3,171
and return of capital of $985 for the period ended June 30, 1999 has been
reclassified to paid-in capital on the Statement of Assets and Liabilities.
2. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investments in long-term U.S.
government obligations for The Golden Rainbow Fund for the year ended June 30,
1999 equaled $20,793,875 and $36,528,344, respectively. Purchases and sales
(including maturities) of investments in other long-term securities for the
periods ended June 30, 1999 equaled $23,491,323 and $39,109,436, respectively,
for The Golden Rainbow Fund, $7,074,112 and $1,098,840, respectively, for The
James Small Cap Fund, and $4,839,325 and $1,044,510, respectively, for The James
Market Neutral Fund. For the period ended June 30, 1999, the cost of securities
purchased to cover short sales and the proceeds from securities sold short were
$3,192,129 and $5,778,741, respectively, for The James Market Neutral Fund.
3. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Trust are also officers of James or
Countrywide Fund Services, Inc. ("CFS"), the administrative services agent for
the Trust.
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.
The Golden Rainbow Fund is authorized to pay James a fee equal to an annual rate
of 0.74% of its average daily net assets, and James agreed to waive a portion of
its fee so that through June 30, 1999 the fee after waiver was 0.65%.
Accordingly, James voluntarily waived $108,490 of management fees for the Fund
during the year ended June 30, 1999. The Golden Rainbow Fund is responsible for
the payment of all operating expenses of the Fund.
James is authorized to receive a fee (a) equal to an annual rate of 1.25% of the
average daily net assets of The Small Cap Fund and 1.70% of The Market Neutral
Fund; minus (b) the fees and expenses of the non-interested person trustees
incurred by the applicable Fund. James is responsible for the payment of all
operating expenses of The Small Cap Fund and The Market Neutral Fund, except for
brokerage fees and commissions, taxes, interest (including dividend expense on
securities sold short), 12b-1 expenses, fees and expenses of non-interested
person trustees and extraordinary expenses.
<PAGE>
THE JAMES ADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
ADMINISTRATIVE SERVICES AGREEMENT
Under the terms of an Administrative Agreement with the Trust, CFS 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, CFS receives a monthly fee paid by The Golden
Rainbow Fund, and paid by James for The James Small Cap Fund and The James
Market Neutral Fund, at the annual rate of 0.10% of the average value of each
Fund's respective daily net assets up to $25 million; 0.075% of such assets from
$25 million to $50 million; and 0.05% of such assets in excess of $50 million,
subject to a $1,000 monthly minimum 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, CFS maintains the records of each
shareholder's account, answers shareholder inquiries concerning their accounts,
processes purchases and redemptions of each Fund's shares, acts as dividend and
distribution disbursing agent and performs other shareholder service functions.
For these services, CFS receives a monthly fee paid by The Golden Rainbow Fund,
and paid by James for The James Small Cap Fund and The James Market Neutral
Fund, at an annual rate of $20 per shareholder account, subject to a $1,500
minimum monthly fee for each Fund. In addition, The Golden Rainbow Fund and
James pay CFS 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, CFS
calculates the daily net asset value per share and maintains the financial books
and records of each Fund. For these services, CFS receives a monthly fee of
$3,000 from The Golden Rainbow Fund and $2,000 from James with respect to each
of the James Small Cap and Market Neutral Funds. In addition, CFS is reimbursed
by The Golden Rainbow Fund and James for certain out-of-pocket expenses incurred
by CFS in obtaining valuations of the Funds' portfolio securities.
UNDERWRITING AGREEMENT
Under the terms of an Underwriting Agreement between the Trust and CW Fund
Distributors (the "Distributor"), the Distributor acts as the principal
distributor of each Fund's shares. The Distributor earned $1,224, $1,062 and
$5,587 from underwriting commissions on the sale of shares of The Golden Rainbow
Fund, The James Small Cap Fund and The James Market Neutral Fund, respectively.
Additionally, the Distributor earned $545 and $74 from broker commissions on the
sale of shares of The Golden Rainbow Fund and The James Small Cap Fund,
respectively.
PLAN OF DISTRIBUTION
Each Fund has a Plan of Distribution (the "Plan") under which the Fund may incur
or reimburse James for expenses related to the distribution and promotion of its
shares. While the annual limitation for payment of such expenses under each Plan
is 0.40% of the average daily net assets of the Fund, the Board of Trustees has
currently authorized only 0.25% for such expenditures. James agreed to limit the
total operating expenses of The Golden Rainbow Fund to 1.00% of its average
daily net assets through June 30, 1999. Accordingly, James voluntarily waived
$114,589 of distribution expenses for the Fund during the year ended June 30,
1999.
4. FEDERAL TAX INFORMATION (UNAUDITED)
In accordance with federal tax requirements, the following provides shareholders
with information concerning distributions from net realized gains, if any, made
by the Funds during the periods ended June 30, 1999. On December 10, 1998, The
Golden Rainbow Fund declared and paid a long-term capital gain distribution of
$2.5650 per share and a short-term capital gain distribution of $0.0200 per
share. As required by federal regulations, shareholders will receive
notification of their portion of a Fund's taxable capital gain distribution, if
any, paid during the 1999 calendar year early in 2000.
<PAGE>
INDEPENDENT AUDITORS' REPORT
================================================================================
To the Board of Trustees and Shareholders of The James Advantage Funds:
We have audited the accompanying statements of assets and liabilities of The
James Advantage Funds, including The Golden Rainbow Fund, James Small Cap Fund
and James Market Neutral Fund (the "Funds"), including the schedules of
investments and securities sold short, as of June 30, 1999, the related
statements of operations for the period then ended and the statements of changes
in net assets, and the financial highlights for each of the periods presented.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1999, by correspondence with the Funds' custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Funds at June
30, 1999, the results of their operations, the changes in their net assets and
the financial highlights for the respective stated periods, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 30, 1999
<PAGE>
INVESTMENT ADVISER
James Investment Research, Inc.
P.O. Box 8
Alpha, Ohio 45301
[email protected]
o
CUSTODIAN
Firstar Bank, N. A.
425 Walnut Street
Cincinnati, Ohio 45202
o
TRANSFER AGENT
Countrywide Fund Services, Inc.
312 Walnut Street
Cincinnati, Ohio 45202
o
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1700 Courthouse Plaza, N.E.
Dayton, Ohio 45402
o
DISTRIBUTOR
CW Fund Distributors, Inc.
312 Walnut Street
Cincinnati, Ohio 45202
o
LEGAL COUNSEL
Brown, Cummins & Brown Co. L.P.A.
3500 Carew Tower
Cincinnati, Ohio 45202
