INVESTMENT ADVISER
James Investment Research, Inc.
P.O. Box 8
Alpha, Ohio 45301 JAMES
[email protected] ADVANTAGE
o FUNDS
CUSTODIAN
Firstar Bank, N. A. Advised by James
425 Walnut Street Investment Research, Inc.
Cincinnati, Ohio 45202
o o
TRANSFER AGENT
Countrywide Fund Services, Inc. December 31, 1999
312 Walnut Street Semi-Annual Report
Cincinnati, Ohio 45202 (Unaudited)
o
INDEPENDENT AUDITORS o
Deloitte & Touche LLP
1700 Courthouse Plaza, N.E.
Dayton, Ohio 45402 THE GOLDEN RAINBOW FUND
o
DISTRIBUTOR THE JAMES SMALL CAP FUND
CW Fund Distributors, Inc.
312 Walnut Street THE JAMES MARKET NEUTRAL FUND
Cincinnati, Ohio 45202
o THE JAMES LARGE CAP PLUS FUND
LEGAL COUNSEL
Brown, Cummins & Brown Co. L.P.A.
3500 Carew Tower
Cincinnati, Ohio 45202
<PAGE>
LETTER TO SHAREHOLDERS
OF THE JAMES ADVANTAGE FUNDS
================================================================================
The most recent addition to the James Advantage Funds, the Large Cap Plus Fund,
continues to surpass its objective of outperforming the S&P 500 index. We are
extremely pleased with the performance of our new fund. We also believe it to be
a healthy form of diversification in our Fund Family. Together with the Small
Cap Value, the Market Neutral, and the more conservative balanced approach of
the Golden Rainbow, the James Advantage Funds offer an array of equity risk
levels. Of course, the Money Market Account provides a high level of safety for
those wishing to scale into the other funds over time.
INVESTMENT GOALS AND OBJECTIVES
The latter half of 1999 saw the market continue its divergence between growth
and value. As the Federal Reserve began tightening monetary policy, almost all
sectors of the market, except technology stocks and energy stocks, lost ground.
Even former growth oriented stocks began to suffer from higher rates, and
portfolios without a heavy over-weighting in technology posted returns lower
than what many investors had become accustomed. The James Advantage Funds have
continued to adhere to their stated objectives.
The value approach of the Golden Rainbow has not been diluted due to swings in
sentiment or the cyclical moves of interest rates. The Market Neutral's
objective of positive returns regardless of the direction of the market takes on
added value to investors concerned about the level of the markets. The Small Cap
Value strategy is the most vulnerable to the Fed's tightening moves as investors
often fear greater damage to earnings growth in smaller companies than in larger
companies.
INVESTMENT PHILOSOPHY
The Funds' Advisor, James Investment Research, Inc., has typically been a value
manager. We have found that over time, portfolios managed under the mantle of
"Value investing" have done well. James has made a fundamental decision to
retain this value-investing style in its traditional products, specifically the
Golden Rainbow and the Small Cap Value. This will help us to be able to
outperform when value investing returns as the dominant style. We believe our
clients need to be sure that the style they think we have, is in fact, the style
we do have.
However, we also know that many clients, especially those with higher tolerances
for risk, need a suitable investment strategy. That is why we started the Large
Cap Plus Fund in November. This momentum style is a departure from the value
style and offers clients an opportunity to put some of their assets into a more
aggressive style, while remaining with James' dedication to research and
service.
STRATEGY FOR MEETING FUND OBJECTIVES
In the rising interest rate environment of the last half of 1999, the Golden
Rainbow will maintain a low duration on the bonds in the portfolio. This helped
to reduce the negative impact of rising interest rates by avoiding large
positions in longer-term bonds. Callable Agency securities helped the Fund to
generate income for clients depending on their dividends from the Fund. Equity
levels remained at about 55 percent of total assets. The Small Cap Fund
continued to invest in undervalued stocks with strong value traits. While that
strategy did not work in 1999, we remain confident of its merits over time. The
Market Neutral Fund continues to focus on a combination of growth and value for
those stocks held long and short. The Large Cap Plus strategy, which began in
November, concentrates on growth stocks with strong earnings momentum and price
momentum. This new product is designed to participate in whatever sectors and
industries are currently the strongest, and so has a higher turnover rate. It
also is a riskier approach because it is a non-diversified product, and so can
have large exposures in certain sectors, such as technology. While this strategy
has been successful in the past, investors looking to diversify into it should
consider these risks and should discuss the move with a James
2
<PAGE>
representative before making significant changes to their portfolios.
FUND PERFORMANCE
The Golden Rainbow managed to achieve positive returns in 1999 despite the
rising interest rate environment and the continued disfavor of value stocks.
Despite one of the worst years in history for high quality bonds, the fund did
meet its objective of preservation of capital and continued to provide income
and some growth, utilizing a lower risk strategy. The Small Cap Fund
under-performed, as did most value stocks. This performance underscores the
importance of diversification and suggests that a combination of several of the
James Advantage Funds may be a more prudent approach than an investment in a
single fund. The Market Neutral Fund did not meet its objective as investors
continued to favor highly speculative issues, which the Fund considers to be
overvalued. We continue to believe the Market Neutral Fund will provide solid
returns over time. The Large Cap Plus returned over 22 percent for the period
ending December 31, 1999, even though it only began in November. Clearly, this
was the right strategy for that time period, as the Fund's benchmark, the S&P
500 returned only about 8.74 percent.
EXPECTATIONS FOR THE FUTURE
The first year of the new millennium will be a fascinating time in the financial
markets. The Federal Reserve will most likely continue to raise short-term
interest rates, while the U.S. Treasury says it will buy back U.S. debt, which
pushes longer term rates lower. Interest sensitive stocks, such as financials
and consumer cyclicals, will continue to be under pressure, and in the process,
create value opportunities. Technology stocks, which have not exhibited concerns
over higher rates, are reaching breathtaking valuations, and mergers between
technology companies and cyclical companies (such as the AOL-Time Warner deal)
change the fundamentals of both companies. In these turbulent times there will
certainly be winners and losers. Our disciplined approach and dedication to
research will remain the basic tools we use to sort things out.
/s/ Thomas L. Mangan
Thomas L. Mangan
Vice President and Chief Financial Officer
3
<PAGE>
<TABLE>
<CAPTION>
THE JAMES ADVANTAGE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1999 (Unaudited)
===========================================================================================================================
The Golden The James The James The James
Rainbow Small Cap Market Neutral Large Cap Plus
Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities:
<S> <C> <C> <C> <C>
At amortized cost .................................. $ 77,689,831 $ 4,592,147 $ 4,051,318 $ 3,069,176
============ ============ ============ ============
At value (Note 1) .................................. $ 94,887,963 $ 4,529,207 $ 4,904,557 $ 3,493,368
Segregated cash with brokers (Note 1) ................... -- -- 3,493,997 --
Receivable for capital shares sold ...................... 813 300 200 45,709
Dividends and interest receivable ....................... 768,327 1,507 14,709 2,802
Other assets ............................................ 60,058 4,798 2,002 16,461
------------ ------------ ------------ ------------
TOTAL ASSETS ....................................... 95,717,161 4,535,812 8,415,465 3,558,340
------------ ------------ ------------ ------------
LIABILITIES
Securities sold short (proceeds $2,333,273) (Note 1) .... -- -- 2,424,188 --
Payable for capital shares redeemed ..................... 105,423 -- 24,228 --
Payable for securities purchased ........................ -- 158,921 -- 407,358
Dividends payable on securities sold short .............. -- -- 416 --
Accrued expenses:
Management fees (Note 3) ........................... 60,723 4,114 8,606 2,660
12b-1 distribution and service fees (Note 3) ....... 71,415 4,287 5,034 860
Other .............................................. 9,631 -- -- --
------------ ------------ ------------ ------------
TOTAL LIABILITIES ............................. 247,192 167,322 2,462,472 410,878
------------ ------------ ------------ ------------
NET ASSETS .............................................. $ 95,469,969 $ 4,368,490 $ 5,952,993 $ 3,147,462
============ ============ ============ ============
NET ASSETS CONSIST OF:
Paid-in capital ......................................... $ 76,519,124 $ 4,987,639 $ 6,850,838 $ 2,720,115
Undistributed net investment income (loss) .............. 5,507 (12,606) 5,547 (763)
Accumulated net realized gains (losses) from
security transactions .............................. 1,747,206 (543,603) (1,665,716) 3,918
Net unrealized appreciation (depreciation) on investments 17,198,132 (62,940) 762,324 424,192
------------ ------------ ------------ ------------
NET ASSETS .............................................. $ 95,469,969 $ 4,368,490 $ 5,952,993 $ 3,147,462
============ ============ ============ ============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) (Note 1) 5,786,342 431,059 671,983 256,821
============ ============ ============ ============
Net asset value and redemption price per share (Note 1) . $ 16.50 $ 10.13 $ 8.86 $ 12.26
============ ============ ============ ============
Maximum offering price per share (Note 1) ............... $ 17.51 $ 10.75 $ 9.40 $ 13.01
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
THE JAMES ADVANTAGE FUNDS
STATEMENTS OF OPERATIONS
For the Six Months Ended December 31, 1999 (Unaudited)
==============================================================================================================================
The Golden The James The James The James
Rainbow Small Cap Market Neutral Large Cap Plus
Fund Fund(A) Fund(A) Fund(A)
- ------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C> <C> <C>
Dividends ............................................ $ 346,589 $ 23,520 $ 17,055 $ 789
Interest ............................................. 1,636,531 2,429 157,900 3,606
------------ ------------ ------------ ------------
TOTAL INVESTMENT INCOME ......................... 1,983,120 25,949 174,955 4,395
------------ ------------ ------------ ------------
EXPENSES
Management fees (Note 3) ............................. 382,329 30,126 60,812 3,505
12b-1 distribution and service fees - Class A (Note 3) 129,165 6,426 9,222 860
Administration fees (Note 3) ......................... 34,926 -- -- --
Accounting services fees (Note 3) .................... 18,000 -- -- --
Postage and supplies ................................. 12,589 -- -- --
Professional fees .................................... 10,680 -- -- --
Custodian fees and expenses .......................... 9,519 -- -- --
Transfer agent fees (Note 3) ......................... 9,377 -- -- --
Shareholder report printing and mailing .............. 8,493 -- -- --
Trustees fees ........................................ 1,899 2,003 1,899 793
Dividend expense on securities sold short ............ -- -- 17,446 --
Other expenses ....................................... 13,293 -- -- --
------------ ------------ ------------ ------------
Total expenses before fee waivers ............... 630,270 38,555 89,379 5,158
------------ ------------ ------------ ------------
Management fees waived (Note 3) ...................... (23,973) -- -- --
12b-1 distribution and service fees waived (Note 3) .. (67,113) -- -- --
------------ ------------ ------------ ------------
Total fee waivers ............................... (91,086) -- -- --
------------ ------------ ------------ ------------
Net expenses .................................... 539,184 38,555 89,379 5,158
------------ ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) .............................. 1,443,936 (12,606) 85,576 (763)
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) from security transactions 4,048,406 (529,521) 47,872 3,918
Net realized losses on closed short positions ........ -- -- (859,809) --
Net change in unrealized appreciation/depreciation
on investments .................................. (2,447,535) (557,084) 467,182 424,192
------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS .............................. 1,600,871 (1,086,605) (344,755) 428,110
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS ...................................... $ 3,044,807 $ (1,099,211) $ (259,179) $ 427,347
============ ============ ============ ============
</TABLE>
(A) Represents the period from the initial public offering of shares (November
1, 1999) through December 31, 1999.
See accompanying notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
THE GOLDEN RAINBOW FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Periods Ended December 31, 1999 and June 30, 1999
===========================================================================================
Six Months Year
Ended Ended
Dec. 31, 1999 June 30,
(Unaudited) 1999
- -------------------------------------------------------------------------------------------
FROM OPERATIONS
<S> <C> <C>
Net investment income ............................... $ 1,443,936 $ 3,260,385
Net realized gains on investments ................... 4,048,406 6,108,860
Net change in unrealized appreciation/
depreciation on investments ..................... (2,447,535) (301,156)
------------ ------------
Net increase in net assets from operations ............... 3,044,807 9,068,089
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ................ (1,468,014) (3,303,746)
Distributions from net realized gains ............... (5,724,817) (16,312,364)
------------ ------------
Decrease in net assets from distributions to shareholders (7,192,831) (19,616,110)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ........................... 3,050,153 7,395,720
Net asset value of shares issued in
reinvestment of distributions to shareholders ... 6,982,183 18,933,981
Payments for shares redeemed ........................ (18,216,786) (40,073,518)
------------ ------------
Net decrease in net assets from capital share transactions (8,184,450) (13,743,817)
------------ ------------
TOTAL DECREASE IN NET ASSETS ............................. (12,332,474) (24,291,838)
NET ASSETS
Beginning of period ................................. 107,802,443 132,094,281
------------ ------------
End of period ....................................... $ 95,469,969 $107,802,443
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME ...................... $ 5,508 $ 29,585
============ ============
SUMMARY OF CAPITAL SHARE ACTIVITY
Shares sold ......................................... 177,726 418,738
Shares issued in reinvestment of
distributions to shareholders ................... 427,578 1,106,830
Shares redeemed ..................................... (1,058,681) (2,251,386)
------------ ------------
Net decrease in shares outstanding .................. (453,377) (725,818)
Shares outstanding, beginning of period ............. 6,239,719 6,965,537
------------ ------------
Shares outstanding, end of period ................... 5,786,342 6,239,719
============ ============
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
THE JAMES SMALL CAP FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Periods Ended December 31, 1999 and June 30, 1999
===========================================================================================
Six Months Year
Ended Ended
Dec. 31, 1999 June 30,
(Unaudited) 1999(A)
- -------------------------------------------------------------------------------------------
FROM OPERATIONS
<S> <C> <C>
Net investment loss ................................ $ (12,606) $ (3,171)
Net realized losses on investments ................. (529,521) (14,082)
Net change in unrealized appreciation/
depreciation on investments .................... (557,084) 494,144
------------ ------------
Net increase (decrease) in net assets from operations ... (1,099,211) 476,891
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Return of capital .................................. -- (985)
------------ ------------
Decrease in net assets from distributions to shareholders -- (985)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .......................... 682,195 6,266,758
Net asset value of shares issued in
reinvestment of distributions to shareholders .. -- 985
Payments for shares redeemed ....................... (1,778,248) (179,895)
------------ ------------
Net increase (decrease) in net assets from
capital share transactions ......................... (1,096,053) 6,087,848
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ................. (2,195,264) 6,563,754
NET ASSETS
Beginning of period ................................ 6,563,754 --
------------ ------------
End of period ...................................... $ 4,368,490 $ 6,563,754
============ ============
SUMMARY OF CAPITAL SHARE ACTIVITY
Shares sold ........................................ 68,197 569,652
Shares issued in reinvestment of
distributions to shareholders .................. -- 90
Shares redeemed .................................... (190,324) (16,556)
------------ ------------
Net increase (decrease) in shares outstanding ...... (122,127) 553,186
Shares outstanding, beginning of period ............ 553,186 --
------------ ------------
Shares outstanding, end of period .................. 431,059 553,186
============ ============
</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.
7
<PAGE>
<TABLE>
<CAPTION>
THE JAMES MARKET NEUTRAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Periods Ended December 31, 1999 and June 30, 1999
==========================================================================================
Six Months Period
Ended Ended
Dec. 31, 1999 June 30,
(Unaudited) 1999(A)
- ------------------------------------------------------------------------------------------
FROM OPERATIONS
<S> <C> <C>
Net investment income .............................. $ 85,576 $ 95,453
Net realized gains (losses) from:
Security transactions ......................... 47,872 (187,769)
Closed short positions ........................ (859,809) (666,010)
Net change in unrealized appreciation/
depreciation on investments ................... 467,182 295,142
------------ ------------
Net decrease in net assets from operations .............. (259,179) (463,184)
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ............... (83,047) (92,435)
------------ ------------
Decrease in net assets from distributions to shareholders (83,047) (92,435)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .......................... 903,771 9,117,948
Net asset value of shares issued in
reinvestment of distributions to shareholders . 82,867 92,407
Payments for shares redeemed ....................... (2,975,154) (371,001)
------------ ------------
Net increase (decrease) in net assets
from capital share transactions .................... (1,988,516) 8,839,354
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ................. (2,330,742) 8,283,735
------------ ------------
NET ASSETS
Beginning of period ................................ 8,283,735 --
------------ ------------
End of period ...................................... $ 5,952,993 $ 8,283,735
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME ..................... $ 5,547 $ 3,018
============ ============
SUMMARY OF CAPITAL SHARE ACTIVITY
Shares sold ........................................ 97,689 918,724
Shares issued in reinvestment of
distributions to shareholders ................. 9,202 9,721
Shares redeemed .................................... (325,158) (38,195)
------------ ------------
Net increase (decrease) in shares outstanding ...... (218,267) 890,250
Shares outstanding, beginning of period ............ 890,250 --
------------ ------------
Shares outstanding, end of period .................. 671,983 890,250
============ ============
</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.
8
<PAGE>
THE JAMES LARGE CAP PLUS FUND
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
Period
Ended
Dec. 31, 1999(A)
(Unaudited)
- --------------------------------------------------------------------------------
FROM OPERATIONS
Net investment loss ..................................... $ (763)
Net realized gains on investments ....................... 3,918
Net change in unrealized appreciation/
depreciation on investments ........................ 424,192
------------
Net increase in net assets from operations ................... 427,347
------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ............................... 2,735,710
Payments for shares redeemed ............................ (15,595)
------------
Net increase in net assets from
capital share transactions .............................. 2,720,115
------------
TOTAL INCREASE IN NET ASSETS ................................. 3,147,462
NET ASSETS
Beginning of period ..................................... --
------------
End of period ........................................... $ 3,147,462
============
SUMMARY OF CAPITAL SHARE ACTIVITY
Shares sold ............................................. 258,089
Shares redeemed ......................................... (1,268)
------------
Net increase in shares outstanding ...................... 256,821
Shares outstanding, beginning of period ................. --
------------
Shares outstanding, end of period ....................... 256,821
============
(A) Represents the period from the initial public offering of shares (November
1, 1999) through December 31, 1999.
See accompanying notes to financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
THE GOLDEN RAINBOW FUND
FINANCIAL HIGHLIGHTS
=============================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
- -----------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended June 30,
Dec. 31, 1999 -------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period ....... $ 17.28 $ 18.96 $ 19.31 $ 17.56 $ 18.27 $ 16.67
--------- --------- --------- --------- --------- ---------
Income from investment operations:
Net investment income ................... 0.25 0.49 0.65 0.66 0.73 0.69
Net realized and unrealized
gains on investments ................ 0.27 0.91 1.08 2.16 0.61 1.94
--------- --------- --------- --------- --------- ---------
Total from investment operations ............. 0.52 1.40 1.73 2.82 1.34 2.63
--------- --------- --------- --------- --------- ---------
Less distributions:
From net investment income .............. (0.25) (0.49) (0.65) (0.68) (0.74) (0.68)
From net realized gains on investments .. (1.05) (2.59) (1.43) (0.39) (1.31) (0.35)
--------- --------- --------- --------- --------- ---------
Total distributions .......................... (1.30) (3.08) (2.08) (1.07) (2.05) (1.03)
--------- --------- --------- --------- --------- ---------
Net asset value at end of period ............. $ 16.50 $ 17.28 $ 18.96 $ 19.31 $ 17.56 $ 18.27
========= ========= ========= ========= ========= =========
Total return(A) .............................. 3.16% 7.97% 9.47% 16.55% 7.76% 16.54%
========= ========= ========= ========= ========= =========
Net assets at end of period (000's) .......... $ 95,470 $ 107,802 $ 132,094 $ 157,183 $ 184,307 $ 191,473
========= ========= ========= ========= ========= =========
Ratios/Supplemental Data:
Ratio of net expenses to average net assets(B) 1.04%(C) 1.00% 1.08% 1.09% 1.06% 1.04%
Ratio of net investment income
to average net assets ................... 2.80%(C) 2.71% 3.29% 3.63% 4.01% 4.05%
Portfolio turnover rate ...................... 59%(C) 38% 54% 56% 83% 48%
</TABLE>
(A) Total returns exclude the effect of applicable sales loads and is not
annualized.
(B) Absent fee waivers and/or expense reimbursements, the ratios of expenses to
average net assets would have been 1.22%(C) for the six months ended
December 31, 1999 and 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).
(C) Annualized.
See accompanying notes to financial statements.
10
<PAGE>
THE JAMES SMALL CAP FUND
FINANCIAL HIGHLIGHTS
================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
Six Months Period
Ended Ended
Dec. 31, 1999 June 30,
(Unaudited) 1999(A)
- --------------------------------------------------------------------------------
Net asset value at beginning of period ........... $ 11.87 $ 10.00
--------- ---------
Income (loss) from investment operations:
Net investment loss ......................... (0.03) (0.00)
Net realized and unrealized gains
(losses) on investments ................ (1.71) 1.87
--------- ---------
Total from investment operations ................. (1.74) 1.87
--------- ---------
Less distributions:
Return of capital ........................... -- (0.00)
--------- ---------
Net asset value at end of period ................. $ 10.13 $ 11.87
========= =========
Total return(B) .................................. (14.66%) 18.74%
========= =========
Net assets at end of period (000's) .............. $ 4,368 $ 6,564
========= =========
Ratios/Supplemental Data:
Ratio of net expenses to average net assets ...... 1.50%(C) 1.49%(C)
Ratio of net investment loss to average net assets (0.49%)(C) (0.11%)(C)
Portfolio turnover rate .......................... 62%(C) 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.
11
<PAGE>
<TABLE>
<CAPTION>
THE JAMES MARKET NEUTRAL FUND
FINANCIAL HIGHLIGHTS
=====================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------------
Six Months Period
Ended Ended
Dec. 31, 1999 June 30,
(Unaudited) 1999(A)
- -------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period ............... $ 9.30 $ 10.00
--------- ---------
Income (loss) from investment operations:
Net investment income ........................... 0.11 0.13
Net realized and unrealized losses on investments (0.44) (0.70)
--------- ---------
Total from investment operations ..................... (0.33) (0.57)
--------- ---------
Less distributions:
From net investment income ...................... (0.11) (0.13)
--------- ---------
Net asset value at end of period ..................... $ 8.86 $ 9.30
========= =========
Total return(B) ...................................... (3.56)% (5.74)%
========= =========
Net assets at end of period (000's) .................. $ 5,953 $ 8,284
========= =========
Ratios/Supplemental Data:
Ratio of net expenses to average net assets, excluding
dividends on securities sold short .............. 1.96%(C) 1.94%(C)
Expenses from dividends on securities sold short ..... 0.47%(C) 0.36%(C)
--------- ---------
Ratio of net expenses to average net assets .......... 2.43%(C) 2.30%(C)
--------- ---------
Ratio of net investment income to average net assets . 2.32%(C) 2.31%(C)
Portfolio turnover rate .............................. 65%(C) 54%(C)
</TABLE>
(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.
12
<PAGE>
THE JAMES LARGE CAP PLUS FUND
FINANCIAL HIGHLIGHTS
================================================================================
Per Share Data for a Share Outstanding Throughout the Period
- --------------------------------------------------------------------------------
Period
Ended
Dec. 31, 1999(A)
(Unaudited)
- --------------------------------------------------------------------------------
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 2.26
---------
Total from investment operations 2.26
---------
Net asset value at end of period $ 12.26
=========
Total return(B) 22.60%
=========
Net assets at end of period (000's) $ 3,147
=========
Ratios/Supplemental Data:
Ratio of net expenses to average net assets 1.49%(C)
Ratio of net investment loss to average net assets (0.22%)(C)
Portfolio turnover rate 43%(C)
(A) Represents the period from the initial public offering of shares (November
1, 1999) through December 31, 1999.
(B) Total return excludes the effect of applicable sales loads and is not
annualized.
(C) Annualized.
See accompanying notes to financial statements.
13
<PAGE>
THE GOLDEN RAINBOW FUND
SCHEDULE OF INVESTMENTS
December 31, 1999 (Unaudited)
================================================================================
Shares COMMON STOCKS-- 56.1% Value
- --------------------------------------------------------------------------------
BASIC MATERIALS-- 2.6%
65,900 Barrick Gold Corporation ......................... $ 1,165,606
60,000 Ethyl Corporation ................................ 236,250
23,000 Georgia Pacific (The Timber Group) ............... 566,375
21,500 Newmont Mining Corporation ....................... 526,750
------------
2,494,981
------------
CONSUMER, CYCLICAL-- 5.7%
8,000 Borg-Warner Automotive, Inc. ..................... 324,000
8,000 Dayton-Hudson Corporation ........................ 587,500
20,250 GAP, Inc. ........................................ 931,500
20,000 Jones Apparel Group, Inc.* ....................... 542,500
20,500 Lowe's Companies, Inc. ........................... 1,224,875
9,000 Mohawk Industries, Inc.* ......................... 237,375
22,500 Navistar International Corporation ............... 1,065,937
18,572 Priority Healthcare Corporation* ................. 537,413
------------
5,451,100
------------
CONSUMER, NON-CYCLICAL-- 14.5%
19,000 Agribrands International, Inc.* .................. 874,000
39,000 Amgen, Inc.* ..................................... 2,342,437
33,777 Bindley Western Industries, Inc. ................. 508,766
63,500 Bristol-Myers Squibb Company ..................... 4,075,906
34,000 Church & Dwight Company, Inc. .................... 907,375
5,500 Coors (Adolph) Company - Class B ................. 288,750
34,000 Darden Restaurants, Inc. ......................... 616,250
20,500 IBP, Inc.* ....................................... 369,000
18,500 Michael Foods, Inc. .............................. 455,562
9,000 Pfizer, Inc. ..................................... 291,938
7,000 Procter & Gamble Company ......................... 766,937
9,000 Schering-Plough Corporation ...................... 379,688
23,000 Smithfield Foods, Inc.* .......................... 552,000
56,000 Supervalu, Inc. .................................. 1,120,000
7,500 Tyco International, LTD .......................... 291,563
------------
13,840,172
------------
ENERGY-- 5.1%
10,000 El Paso Energy Corporation ....................... 388,125
20,000 Exxon Mobil Corporation .......................... 1,611,250
16,000 Helmerich & Payne, Inc. .......................... 349,000
18,000 Santa Fe International Corporation ............... 465,750
17,500 Tidewater, Inc. .................................. 630,000
19,000 Transocean Sedco Forex, Inc. ..................... 640,063
24,500 The Williams Companies, Inc. ..................... 748,781
------------
4,832,969
------------
14
<PAGE>
THE GOLDEN RAINBOW FUND
SCHEDULE OF INVESTMENTS (Continued)
================================================================================
Shares COMMON STOCKS-- 56.1% Value
- --------------------------------------------------------------------------------
FINANCE-- 1.8%
39,000 Fidelity National Financial, Inc. ................ $ 560,625
37,000 Health Care REIT, Inc. ........................... 559,625
5,000 J.P. Morgan & Company ............................ 633,125
------------
1,753,375
------------
INDUSTRIAL -- 5.4%
19,500 American Standard Company* ....................... 894,562
14,500 Briggs & Stratton Corporation .................... 777,562
7,000 Donaldson Company, Inc. .......................... 168,438
22,500 Lafarge Corporation .............................. 621,563
30,000 Southdown, Inc. .................................. 1,548,750
24,000 USG Corporation .................................. 1,131,000
------------
5,141,875
------------
INTERNATIONAL-- 0.5%
20,000 WEBS - Japan Index Series ........................ 326,250
4,000 WEBS - Spain Index Series ........................ 113,000
------------
439,250
------------
TECHNOLOGY-- 15.0%
31,500 AT & T Corporation ............................... 1,598,625
35,000 Cordant Technologies, Inc. ....................... 1,155,000
54,000 CTS Corporation .................................. 4,070,250
46,100 Intel Corporation ................................ 3,794,606
10,200 Lucent Technologies, Inc. ........................ 763,088
15,600 Microsoft Corporation* ........................... 1,821,300
8,500 Siliconix, Inc.* ................................. 1,117,750
------------
14,320,619
------------
UTILITIES-- 5.5%
33,000 Columbia Energy Group ............................ 2,087,250
30,500 Duke Energy Corporation .......................... 1,528,813
55,400 Energen Corporation .............................. 1,000,662
14,500 GPU, Inc. ........................................ 434,094
5,000 PECO Energy Company .............................. 173,750
------------
5,224,569
------------
TOTAL COMMON STOCKS (Cost $36,219,022) ........... $ 53,498,910
------------
================================================================================
Par Value CORPORATE BONDS -- 7.9% Value
- --------------------------------------------------------------------------------
$2,625,000 Ameritech Capital Funding, 5.95%, 1/15/38 ........ $ 2,514,913
500,000 AT&T Corporation, 5.625%, 3/15/04 ................ 474,038
1,200,000 First Maryland Bancorp., 6.875%, 6/01/09 ......... 1,118,754
3,000,000 Tennessee Valley Authority, 6.00%, 9/24/02 ....... 2,952,045
500,000 Wal-Mart Stores, 6.55%, 8/10/04 .................. 491,724
------------
TOTAL CORPORATE BONDS (Amortized Cost $7,752,001) $ 7,551,474
------------
15
<PAGE>
THE GOLDEN RAINBOW FUND
SCHEDULE OF INVESTMENTS (Continued)
================================================================================
Par Value U.S. GOVERNMENT & AGENCY BONDS -- 33.7% Value
- --------------------------------------------------------------------------------
$3,000,000 U.S. Treasury Notes, 5.125%, 8/31/00 ............. $ 2,984,064
3,000,000 U.S. Treasury Notes, 6.25%, 4/30/01 .............. 3,002,814
3,000,000 U.S. Treasury Notes, 6.50%, 5/31/01 .............. 3,012,189
7,000,000 U.S. Treasury Notes, 5.50%, 1/31/03 .............. 6,833,750
9,500,000 U.S. Treasury Notes, 6.25%, 2/15/07 .............. 9,348,598
500,000 U.S. Treasury Bonds, 10.375%, 11/15/09 ........... 575,782
2,000,000 U.S. Treasury Bonds, 10.00%, 5/15/10 ............. 2,294,376
500,000 Federal Home Loan Bank , 8.00%, 8/19/14 .......... 483,600
3,000,000 Federal National Mortgage Association,
6.78%, 10/30/02 ................................ 2,985,030
700,000 Federal National Mortgage Association,
6.00%, 3/12/04 ................................. 675,797
------------
TOTAL U.S. GOVERNMENT & AGENCY BONDS
(Amortized Cost $32,077,229) ................... $ 32,196,000
------------
================================================================================
Shares SHORT TERM INVESTMENTS -- 1.7% Value
- --------------------------------------------------------------------------------
1,641,579 Firstar Stellar Treasury Fund (Cost $1,641,579) $ 1,641,579
------------
TOTAL INVESTMENT SECURITIES-- 99.4%
(Amortized Cost $77,689,831) ................... $ 94,887,963
OTHER ASSETS IN EXCESS OF LIABILITIES-- 0.6% ..... 582,006
------------
NET ASSETS-- 100.0% .............................. $ 95,469,969
============
* Non-income producing securities.
See accompanying notes to financial statements.
16
<PAGE>
THE JAMES SMALL CAP FUND
SCHEDULE OF INVESTMENTS
December 31, 1999 (Unaudited)
================================================================================
Shares COMMON STOCKS-- 97.3% Value
- --------------------------------------------------------------------------------
BASIC MATERIALS-- 2.6%
3,145 Mueller Industries, Inc.* ........................ $ 114,006
------------
CONSUMER, CYCLICAL-- 32.4%
2,780 Alaska Air Group, Inc.* .......................... 97,648
7,200 America West Holding Corporation - Class B* ...... 149,400
4,500 Ames Department Stores, Inc.* .................... 129,656
4,105 Arvin Industries, Inc. ........................... 116,479
6,700 Dollar Thrifty Automotive Group, Inc.* ........... 160,381
5,860 The Dress Barn, Inc.* ............................ 97,423
6,300 K-Swiss, Inc. .................................... 117,042
6,800 LNR Property Corporation ......................... 135,150
4,250 NVR, Inc.* ....................................... 202,938
7,000 Ryan's Family Steak Houses, Inc.* ................ 59,500
13,900 Trans World Entertainment Corporation* ........... 145,950
------------
1,411,567
------------
CONSUMER NON-CYCLICAL-- 6.5%
2,800 Agribrands International , Inc.* ................. 128,800
5,070 West Pharmaceutical Services, Inc. ............... 156,853
------------
285,653
------------
ENERGY-- 2.6%
5,000 Southwest Gas Corporation ........................ 115,000
------------
INDUSTRIAL-- 29.2%
6,800 Astec Industries, Inc.* .......................... 127,925
3,950 Centex Construction Products, Inc. ............... 154,050
10,000 JLG Industries, Inc. ............................. 158,750
6,440 Roadway Express, Inc. ............................ 139,265
6,500 Specialty Equipment Companies, Inc.* ............. 155,594
3,000 Tecumseh Products Company - Class B .............. 125,250
6,600 Terex Corporation* ............................... 183,150
3,400 Texas Industries, Inc. ........................... 144,712
5,170 Yellow Corporation* .............................. 86,921
------------
1,275,617
------------
TECHNOLOGY-- 19.0%
7,460 GenCorp, Inc. .................................... 73,668
6,200 Graco, Inc. ...................................... 222,425
4,100 Progress Software Corporation* ................... 232,675
2,300 Siliconix, Inc.* ................................. 302,450
------------
831,218
------------
17
<PAGE>
THE JAMES SMALL CAP FUND
SCHEDULE OF INVESTMENTS (Continued)
================================================================================
Shares COMMON STOCKS -- 97.3% (Continued) Value
- --------------------------------------------------------------------------------
UTILITIES-- 5.0%
4,900 Northwest Natural Gas Company .................... $ 107,494
6,730 Public Service Company of New Mexico ............. 109,362
------------
216,856
------------
TOTAL COMMON STOCKS (Cost $4,312,857) ............ $ 4,249,917
------------
================================================================================
Shares SHORT TERM INVESTMENTS -- 6.4% Value
- --------------------------------------------------------------------------------
279,290 Firstar Stellar Treasury Fund (Cost $279,290) .... $ 279,290
TOTAL INVESTMENT SECURITIES-- 103.7%
(Cost $4,592,147) .............................. $ 4,529,207
LIABILITIES IN EXCESS OF OTHER ASSETS-- (3.7)% ... (160,717)
------------
NET ASSETS-- 100.0% .............................. $ 4,368,490
============
* Non-income producing securities
See accompanying notes to financial statements.
18
<PAGE>
THE JAMES MARKET NEUTRAL FUND
SCHEDULE OF INVESTMENTS
December 31, 1999 (Unaudited)
================================================================================
Shares COMMON STOCKS-- 51.0% Value
- --------------------------------------------------------------------------------
CONSUMER, CYCLICAL-- 7.7%
5,500 Darden Restaurants, Inc. ......................... $ 99,687
3,000 Furniture Brands International, Inc.* ............ 66,000
3,550 Navistar International Corporation* .............. 168,181
5,400 THQ, Inc.* ....................................... 125,212
------------
459,080
------------
CONSUMER, NON-CYCLICAL-- 11.0%
2,000 Amgen, Inc.* ..................................... 120,125
800 Andrx Corporation* ............................... 33,850
4,700 IBP, Inc. ........................................ 84,600
2,000 IDEC Pharmaceuticals Corporation ................. 196,500
4,040 Michael Foods, Inc. .............................. 99,485
1,600 Smithfield Foods, Inc.* .......................... 38,400
4,000 Supervalu, Inc. .................................. 80,000
------------
652,960
------------
ENERGY-- 5.4%
2,700 Diamond Offshore Drilling, Inc. .................. 82,519
6,000 Ensco International, Inc. ........................ 137,250
2,900 Tidewater, Inc. .................................. 104,400
------------
324,169
------------
FINANCIAL-- 5.5%
4,400 BancWest Corporation ............................. 85,800
1,000 Marsh & McLennan Companies, Inc. ................. 95,688
750 J.P. Morgan & Company ............................ 94,969
700 National Western Life Insurance Company* ......... 48,038
------------
324,495
------------
INDUSTRIAL-- 1.7%
1,900 Briggs & Stratton Corporation .................... 101,887
------------
TECHNOLOGY-- 19.7%
2,900 America Online, Inc.* ............................ 218,769
1,700 Apple Computer, Inc.* ............................ 174,781
700 Inet Technologies, Inc.* ......................... 48,912
1,650 Lucent Technologies, Inc. ........................ 123,441
750 MedImmune, Inc.* ................................. 124,406
3,700 Polycom, Inc.* ................................... 235,644
1,000 Sun Microsystems, Inc.* .......................... 77,438
3,000 Sybase, Inc.* .................................... 51,000
2,600 Xilinx, Inc.* .................................... 118,219
------------
1,172,610
------------
TOTAL COMMON STOCK (Cost $2,180,858) ............. $ 3,035,201
------------
19
<PAGE>
THE JAMES MARKET NEUTRAL FUND
SCHEDULE OF INVESTMENTS (Continued)
================================================================================
Par Value U.S. GOVERNMENT & AGENCY BONDS-- 29.3% Value
- --------------------------------------------------------------------------------
750,000 Federal Home Loan Bank Discount Note, 1/6/00 ..... $ 748,947
1,000,000 Farmers Credit Discount Note, 1/12/00 ............ 997,617
------------
TOTAL U.S. GOVERNMENT & AGENCY BONDS
(Cost $1,747,668) .............................. $ 1,746,564
------------
================================================================================
Shares SHORT TERM INVESTMENTS -- 2.1% Value
- --------------------------------------------------------------------------------
122,792 Firstar Stellar Treasury Fund (Cost $122,792) .... $ 122,792
------------
TOTAL INVESTMENTS SECURITIES-- 82.4%
(Amortized Cost $4,051,318) .................... $ 4,904,557
------------
SEGREGATED CASH WITH BROKERS-- 58.7% ............. 3,493,997
SECURITIES SOLD SHORT-- (40.7)%
(Proceeds $2,333,273) .......................... (2,424,188)
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.4)% .. (21,373)
------------
NET ASSETS-- 100.0% .............................. $ 5,952,993
============
* Non-income producing securities.
See accompanying notes to financial statements.
20
<PAGE>
THE JAMES MARKET NEUTRAL FUND
SCHEDULE OF SECURITIES SOLD SHORT
December 31, 1999 (Unaudited)
================================================================================
Shares COMMON STOCKS SOLD SHORT-- 40.7% Value
- --------------------------------------------------------------------------------
BASIC MATERIALS-- 2.7%
6,400 Lyondell Chemical Company ........................ $ 81,600
2,200 Monsanto Company ................................. 78,375
------------
159,975
------------
CONSUMER, CYCLICAL-- 7.5%
450 Amazon.com, Inc.* ................................ 34,256
3,500 The Walt Disney Company .......................... 102,375
1,700 The Seagram Company Ltd. ......................... 76,394
2,500 SFX Entertainment, Inc.* ......................... 90,469
2,300 Sirius Satellite Radio, Inc.* .................... 102,350
6,000 Venator Group, Inc.* ............................. 42,000
------------
447,844
------------
CONSUMER, NON-CYCLICAL-- 7.9%
5,250 Archer-Daniels-Midland Company ................... 63,984
1,200 Campbell Soup Company ............................ 46,425
1,000 Coca-Cola Company ................................ 58,250
2,600 Coca-Cola Enterprises, Inc. ...................... 52,325
4,500 Dura Pharmaceuticals, Inc.* ...................... 62,719
2,000 The Gillette Company ............................. 82,375
2,640 Iron Mountain, Inc.* ............................. 103,785
------------
469,863
------------
ENERGY-- 2.5%
3,000 Kinder Morgan, Inc. .............................. 60,562
1,500 USX - Marathon Group ............................. 37,031
4,100 Vintage Petroleum, Inc. .......................... 49,456
------------
147,049
------------
FINANCIAL-- 3.5%
1,400 The Bank of New York Company, Inc. ............... 56,000
3,200 W.R. Berkley Corporation ......................... 66,800
3,300 Ohio Casualty Corporation ........................ 53,006
2,500 Premier Bancshares, Inc. ......................... 34,063
------------
209,869
------------
INDUSTRIAL-- 2.2%
4,225 Norfolk Southern Corporation ..................... 86,612
2,500 Waste Management, Inc. ........................... 42,969
------------
129,581
------------
21
<PAGE>
THE JAMES MARKET NEUTRAL FUND
SCHEDULE OF SECURITIES SOLD SHORT (Continued)
================================================================================
Shares COMMON STOCKS SOLD SHORT-- 40.7% (Continued) Value
- --------------------------------------------------------------------------------
TECHNOLOGY-- 14.1%
3,900 Cerner Corporation* .............................. $ 76,781
3,750 Harris Corporation ............................... 100,078
2,000 IGEN International, Inc.* ........................ 59,500
1,600 Incyte Pharmaceuticals, Inc.* .................... 96,000
6,150 Loral Space & Communications Ltd.* ............... 149,522
2,500 Network Associates, Inc.* ........................ 66,719
3,500 Photronics, Inc.* ................................ 100,188
2,000 Teligent, Inc.* .................................. 123,500
3,500 World Access, Inc.* .............................. 67,375
------------
839,663
------------
UTILITIES-- 0.3%
3,500 e.spire Communications, Inc.* .................... 20,344
------------
TOTAL COMMON STOCK SOLD SHORT (Cost $2,333,273) .. $ 2,424,188
============
* Non-income producing securities.
See accompanying notes to financial statements.
22
<PAGE>
THE JAMES LARGE CAP PLUS FUND
SCHEDULE OF INVESTMENTS
December 31, 1999 (Unaudited)
================================================================================
Shares COMMON STOCK-- 92.8% Value
- --------------------------------------------------------------------------------
BASIC MATERIALS-- 2.4%
1,050 Weyerhauser Company .............................. $ 75,403
------------
CONSUMER, CYCLICAL-- 1.5%
950 Best Buy Company, Inc.* .......................... 47,678
------------
CONSUMER, NON-CYCLICAL-- 7.4%
1,950 Amgen, Inc.* ..................................... 117,122
3,800 Tupperware Corporation ........................... 64,363
1,350 Tyco International, LTD .......................... 52,481
------------
233,966
------------
FINANCE-- 2.6%
900 Providian Financial Corporation .................. 81,956
------------
INDUSTRIAL-- 2.6%
1,500 Briggs & Stratton Corporation .................... 80,438
------------
TECHNOLOGY-- 76.3%
1,325 ADC Telecommunications* .......................... 96,145
1,575 Adaptec, Inc.* ................................... 78,553
1,950 Adobe Systems, Inc. .............................. 131,137
2,250 America Online, Inc.* ............................ 169,734
1,725 Apple Computer, Inc.* ............................ 177,352
700 Applied Materials, Inc.* ......................... 88,681
2,750 Compuware Corporation* ........................... 102,438
1,950 EMC Corporation* ................................. 213,037
1,750 Gateway, Inc.* ................................... 126,109
1,900 Lucent Technologies, Inc. ........................ 142,144
1,200 Microsoft Corporation* ........................... 140,100
1,450 Network Appliance, Inc.* ......................... 120,441
1,500 Qualcomm, Inc.* .................................. 264,188
1,350 Scientific-Atalanta, Inc. ........................ 75,094
1,150 Sun Microsystems, Inc.* .......................... 89,053
2,950 Tellabs, Inc.* ................................... 189,353
700 Texas Instruments ................................ 67,813
300 Yahoo!, Inc. ..................................... 129,805
------------
2,401,177
------------
TOTAL COMMON STOCKS (Cost $2,496,426) ............ $ 2,920,618
------------
23
<PAGE>
THE JAMES LARGE CAP PLUS FUND
SCHEDULE OF INVESTMENTS (Continued)
================================================================================
Shares SHORT TERM INVESTMENTS-- 18.2% Value
- --------------------------------------------------------------------------------
572,750 Firstar Stellar Treasury Fund (Cost $572,750) .... $ 572,750
------------
TOTAL INVESTMENT SECURITIES-- 111.0%
(Cost $3,069,176) .............................. $ 3,493,368
LIABILITIES IN EXCESS OF OTHER ASSETS-- (11.0)% .. (345,906)
------------
NET ASSETS-- 100.0% .............................. $ 3,147,462
============
* Non-income producing securities.
See accompanying notes to financial statements.
24
<PAGE>
THE JAMES ADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Unaudited)
================================================================================
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"), and The James Large Cap Plus Fund is a non-diversified series of
the Trust. 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"). 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 James Large Cap Plus Fund commenced its public offering of shares on
November 1, 1999.
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 James Large Cap Plus 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 common stocks of U. S.
companies with large capitalizations. The Fund generally buys stocks in the S&P
500 Index and will typically hold 25-30 stocks.
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 6.08% of net asset value (or 5.75% 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.
25
<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 December 31, 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.
26
<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 December 31, 1999:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
The Golden The James The James The James
Rainbow Small Cap Market Neutral Large Cap Plus
Fund Fund Fund Fund
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gross unrealized appreciation ................ $ 19,118,578 $ 428,410 $ 1,188,406 $ 475,461
Gross unrealized depreciation ................ (1,920,446) (491,350) (426,082) (51,269)
------------ ----------- ----------- -----------
Net unrealized appreciation (depreciation) ... $ 17,198,132 $ (62,940) $ 762,324 $ 424,192
============ =========== =========== ===========
Federal income tax cost ...................... $ 77,689,831 $ 4,592,147 $ 1,718,045 $ 3,069,176
============ =========== =========== ===========
- --------------------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 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
the current and future years to offset net realized capital gains, if any, prior
to distributing such gains to shareholders.
2. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investments in long-term U.S.
government obligations for The Golden Rainbow Fund for the six months ended
December 31, 1999 equaled $7,039,063 and $23,197,625, respectively. Purchases
and sales (including maturities) of investments in other long-term securities
for the six months ended December 31, 1999 equaled $21,626,237 and $17,029,905,
respectively, for The Golden Rainbow Fund, $1,576,506 and $2,695,319,
respectively, for The James Small Cap Fund, $1,185,183 and $2,659,244,
respectively, for The James Market Neutral Fund and $2,604,217 and $111,709,
respectively, for The James Large Cap Plus Fund. For the six months ended
December 31, 1999, the cost of securities purchased to cover short sales and the
proceeds from securities sold short were $4,151,512 and $2,298,606,
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 September 30, 1999 the fee after waiver was 0.69%.
Accordingly, James voluntarily waived $23,973 of management fees for the Fund
during the six months ended December 31, 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 The Large Cap Plus Fund and
1.70% of The Market Neutral Fund; minus (b) the fees and expenses of the
non-interested person trustees incurred by the applicable Fund. James is
responsible for the payment of all operating expenses of The Small Cap Fund, The
Market Neutral Fund and The Large Cap Plus 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.
27
<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, The James Market
Neutral Fund and The James Large Cap Plus 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, The James Market Neutral Fund
and The James Large Cap Plus 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, Market Neutral Fund and The James Large Cap Plus Fund.
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 $18, $270, $260 and
$263 from underwriting commissions on the sale of shares of The Golden Rainbow
Fund, The James Small Cap Fund, The James Market Neutral Fund and The James
Large Cap Plus Fund, respectively. Additionally, the Distributor earned $1,784
and $105 from broker commissions on the sale of shares of The James Small Cap
Fund and The James Large Cap Plus 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 September 30, 1999, and to 1.09% for the period
subsequent to September 30, 1999. Accordingly, James voluntarily waived $67,113
of distribution expenses for the Fund during the six months ended December 31,
1999.
