CAPSTONE JAPAN FUND
- -----------------------------------------------------------------------------
Dear Shareholder,
We are pleased to present this annual report on the
Capstone Japan Fund for the year ended October 31, 1998.
The Fund's net asset value ("NAV") at October 31, 1998 was
US $4.55 per share compared to US $5.23 per share on
October 31, 1997.
FUND'S COMPARATIVE PERFORMANCE
The Fund's strategy is to seek a diversified portfolio of
stocks of mostly larger-cap companies that provide
current income through dividends, trade at comparatively
low price/earnings multiples, have a below average price-to-
book ratio, and/or have potential for long-term capital
appreciation. This includes a focus on American
Depository Receipts* because they can provide an efficient
currency exchange management for a US dollar fund and
greater liquidity.
The most relevant index against which to compare the
Fund's performance is the TOPIX1 that comprises all the
stocks currently listed on the first section of the Tokyo
Stock Exchange. During the twelve months ended October 31,
1998, the TOPIX decreased by 19% in Japanese yen and by
16% in $US. For the same period, the Fund's total US
dollar return was -13%. In analyzing comparisons of
performance to the TOPIX, the reader should remember an
index does not reflect any cash positions, brokerage
costs or administrative or management fees incurred
by the Fund or individual investor. The yen/dollar
exchange rate was 120.38 yen/$ on October 31, 1997
versus 115.75 yen/$ on October 31, 1998.
Line Chart
Comparison of Change in Value of a $10,000 Investment
in Capstone Japan Fund +, and the TOPIX
Average Annual Total Return as of 10/31/98
1 year 5 years Inception
- -12.67% -8.09% -7.86%
Graph Data
Japan Fund TOPIX
07/10/89 10000.00 10000.00
10/31/89 10620.00 10487.80
10/31/90 8100.17 7932.37
10/31/91 7591.36 7976.72
10/31/92 4976.11 5759.42
10/31/93 7113.09 8337.03
10/31/94 8171.40 9029.93
10/31/95 6879.04 7638.58
10/31/96 6930.66 7549.89
10/31/97 5341.53 5875.83
10/31/98 4664.86 4764.64
JAPAN MARKET
OVERVIEW
Bearish sentiment has dominated Japan's market
throughout most of 1998 and the TOPIX experience a
decline. The Southeast Asian currency crisis also
contributed to Japan's problems. The Japanese
economy is forecast to contract by around 2.5%
this year, and by a further 0.5% in 1999. The recent
extreme negative market sentiment has spurred the
Japanese government to use
public funds to help the economy by bailing out
the banking system and increasing public spending.
Whether or not the rising trend in the equity
market will continue depends in part on how the
Japanese government decides to carry out the bank's
re-capitalization process from here on and the
duration and depth of the Asian recession.
<PAGE>
CAPSTONE JAPAN FUND
The currency market is becoming increasingly
volatile. The market has been knocked around by news
on the Japanese financial system problems and
monetary loosening in the US. It is looking for a
new longer-term trend. Factors that may bolster the
yen are 1) the US continues to loosen its monetary
policy; 2) the US current account deficit continues
to rise to historical highs and the Japanese
surplus remains huge; and 3) how quickly progress
is made in resolving Japan's financial system
problems.
The risk of the dollar rising significantly above
US$1=140 Yen has decreased dramatically. Judging from
the state of corporate earnings in Japan, where
domestic demand is still struggling, US$1=120-130 Yen
is probably an appropriate yen/dollar range. We see
signs that the credit crunch is easing and we see
aggressive fiscal spending on the part of the
government, making a yen under US$=130 Yen sustainable.
Even in light of the recent turbulence in Asian
markets, there remains high future growth potential
for a number of global companies such as Sony, Honda,
and Canon.
If you have any questions, please feel free to
contact us. We thank you for your continued
support.
Sincerely,
/s/ Robert W. Scharar
______________________________
Robert W. Scharar
President and Portfolio Manager
[FN]
* There are over 160 Japanese ADR stocks that are
estimated to be about 25% of the Japanese market
capitalization. An ADR (American Depository Receipt)
share is a certificate representing ownership of
foreign stocks, which are traded on stock exchanges
in the United States.
1 TOPIX is an unmanaged index including all the
stocks currently listed in the Tokyo Stock Exchange
First Section (over 90% of all equity securities
traded on the Tokyo Stock Exchange) weighted by
market capitalization. Index returns are calculated
monthly and assume reinvestment of dividends.
Unlike Fund returns, TOPIX returns do reflect
deduction of any fees or expenses.
</FN>
This publication must be accompanied or preceded by
a current prospectus for Capstone
JAPAN Fund.
<PAGE>
CAPSTONE JAPAN FUND
PORTFOLIO OF INVESTMENTS - October 31, 1998
- -----------------------------------------------------------------------------
Market % of
Value Net
COMMON STOCKS (92.04)% Shares (Note 1-A) Assets
AUTOMOTIVE (9.71%)
Bridgestone Coproration - ADR 550 $ 121,067 4.65%
Honda Motor Co., Limited - ADR # 1,700 104,337 4.01%
Keihin Seiki Corporation 2,000 27,289 1.05%
_________ ______
252,693 9.71%
AUDIO/VIDEO EQUIPMENT (3.79%)
SONY Corporation - ADR # 1,500 98,812 3.79%
BANKING (1.04%)
Mitsubishi Trust & Banking Corporation 4,000 27,014 1.04%
CONSTRUCTION (6.93%)
Daiwa House Industry Co., Limited - ADR 1,600 80,560 6.93%
COMMUNICATIONS (2.67%)
Kyocera Corporation - ADR 1,600 69,600 2.67%
COMMUNICATIONS EQUIPMENT (12.26%)
Cannon Inc - ADR 5,500 105,875 4.07%
Fujitsu, Limited 2,000 21,282 0.82%
Fujitsu, Limited - ADR 1,600 85,131 3.27%
NEC Corporation - ADR 2,850 106,875 4.10%
_________ ______
319,163 12.26%
CONSUMER ELECTRONICS (3.17%)
Alps Electric Co., Limited 6,000 82,588 3.17%
DISTRIBUTION-CONSUMER NON-DURABLES (5.65%)
Nu Skin Enterprises Inc. 8,000 147,000 5.65%
FOOD & BEVERAGE (4.36%)
Ajinomoto, Incorporated - ADR 1,200 113,485 4.36%
<PAGE>
CAPSTONE JAPAN FUND
PORTFOLIO OF INVESTMENTS - October 31, 1998
- -----------------------------------------------------------------------------
Market % of
Value Net
Shares (Note 1-A) Assets
INDICES (8.42%)
Salomon Nikkei 225 Index 10,000 $ 87,500 3.36%
World Equity Benchmark Series - Japan Index Series 13,600 131,750 5.06%
_________ ______
219,250 8.42%
MACHINERY (3.97%)
Minebea Co., Limited - ADR 5,500 103,367 3.97%
MISCELLANEOUS FINANCING (5.69%)
Nomura Securities Co., Limited 3,000 22,655 0.87%
Tokio Marine & Fire Insurance Co. 8,000 90,964 3.49%
Tokio Marine & Fire Insurance Co. - ADR 600 34,500 1.33%
_________ ______
148,119 5.69%
PHARMACEUTICALS (9.15%)
Banyu Pharmaceuticals Co., Limited - ADR 300 101,900 3.91%
Eisai Co., Limited - ADR 7,400 116,087 4.46%
Sankyo Co., Limited 900 20,312 0.78%
_________ ______
238,299 9.15%
RETAIL (4.97%)
Seven-Eleven Japan Co., Limited - ADR 1,700 129,258 4.97%
STEEL PRODUCTION (0.87%)
Nippon Steel Corporation 13,000 22,646 0.87%
TELECOMMUNICATIONS (3.92%)
Nippon Telegraph & Telephone Corporation - ADR 2,600 102,050 3.92%
TRANSPORT EQUIPMENT (0.80%)
Nippon Cable System 4,000 20,939 0.80%
WIRES & CABLES (2.12%)
Sumitomo Electric Industries 5,000 55,351 2.12%
WATER PURIFICATION (2.55%)
Kurita Water Industries 5,000 66,506 2.55%
Total Common Stocks (Cost $2,622,847) 2,396,700 92.04%
<PAGE>
CAPSTONE JAPAN FUND
PORTFOLIO OF INVESTMENTS - October 31, 1998
- -----------------------------------------------------------------------------
Market % of
Value Net
CORPORATE BONDS (5.64%) Par Value (Note 1-A) Assets
Merrill Lynch & Co., Variable rate,
01/31/2000 (Cost $142,246) $139,000 $ 146,819 5.64%
TOTAL INVESTMENTS (Cost $2,765,093) 2,543,519 97.68%
OTHER ASSETS, LESS LIABILITIES 60,374 2.32%
_________ ______
NET ASSETS $2,603,893 100.00%
_________ ______
_________ ______
[FN]
# Call options have been written by the Fund against these positions. (Note 5)
</FN>
<PAGE>
CAPSTONE JAPAN FUND
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES - October 31, 1998
- -----------------------------------------------------------------------------
<CAPTION>
<S> <C>
ASSETS:
Investments in securities at market value (identified cost $2,765,093) (Note 1A) $ 2,543,519
Receivable for capital stock sold 143,574
Dividends receivable 1,531
Due from advisor (Note 2) 68,007
___________
Total Assets 2,756,631
___________
LIABILITIES:
Cash overdraft 110,366
Covered call options written, at value (premiums received $11,602) (Notes 1 and 5) 8,100
Accrued expenses 34,272
___________
Total Liabilities 152,738
___________
NET ASSETS $ 2,603,893
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
($2,603,893 / 572,288 shares of beneficial interest outstanding) $ 4.55
===========
SOURCE OF NET ASSETS:
Paid in capital $ 6,409,581
Accumulated net realized loss on investments (3,587,779)
Net unrealized depreciation of securities and foreign currencies (217,909)
___________
Total $ 2,603,893
===========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
CAPSTONE JAPAN FUND
<TABLE>
STATEMENT OF OPERATIONS For The Year Ended October 31, 1998
- -----------------------------------------------------------------------------
<CAPTION>
INVESTMENT INCOME:
<S> <C> <C>
Dividend income (net of foreign taxes withheld of $745) $ 10,263
Interest income 3,628
________
Total Investment Income 13,891
________
Expenses: (Note 2)
Advisory fees $ 16,611
Distribution fees 5,536
Administrative services 1,558
Transfer agent fees 29,477
Reports and notices to stockholders 11,465
Audit fees 10,800
Legal fees 3,638
Trustees' fees and expenses 5,745
Custodian fees 7,555
Fund accounting fees 39,486
Registration and filing fees 7,587
Miscellaneous 529
__________
Total Expenses 139,987
Less: Advisory fees waived (16,611)
Expenses reimbursed by Investment Adviser (68,007) (84,618)
__________ ________
Net Expenses 55,369
________
Net Investment Loss (41,478)
________
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized loss from security transactions (280,577)
Net realized gain on option contracts written 35,594
Net realized loss on conversion of foreign currencies to U.S. Dollars (18,451)
Unrealized depreciation of investments, foreign currencies and forward currency contracts:
Beginning of period (237,133)
End of period (217,909)
__________
Net change in unrealized depreciation of investments,
foreign currencies and forward currency contracts 19,224
_________
Net realized and unrealized loss on investments (244,210)
_________
Net decrease in net assets resulting from operations $ (285,688)
=========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
CAPSTONE JAPAN FUND
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------
<CAPTION>
Year Ended Year Ended
October 31, 1998 October 31, 1997
<S> <C> <C>
OPERATIONS:
Net investment loss $ (41,478) $ (102,679)
Net realized loss on investments (263,434) (364,093)
Net change in unrealized depreciation of investments, forward
currency contracts and foreign currencies 19,224 (101,501)
__________ ___________
Net decrease in net assets resulting from operations (285,688) (568,273)
CAPITAL SHARE TRANSACTIONS:
Increase (decrease) in net assets resulting from
capital share transactions (Note 3) 987,630 (504,622)
__________ ___________
Total increase (decrease) in net assets 701,942 (1,072,895)
NET ASSETS
Beginning of period 1,901,951 2,974,846
__________ ___________
End of period $2,603,893 $1,901,951
========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - October 31, 1998
- -----------------------------------------------------------------------------
Note 1 - Significant Accounting Policies
Capstone Japan Fund, formerly Capstone Nikko Japan Fund, (the"Fund"),
is one of two series of beneficial interest of Capstone International Series
Trust (the "Trust") which is registered under the Investment Company Act
of 1940 (the "Act"), as a diversified open-end management investment
company. The Fund's investment objective is to seek long-term capital
appreciation and income using a research oriented approach. The following
is a summary of significant accounting policies consistently followed by
the Fund in the preparation of its financial statements.
A) Valuation of Securities - Portfolio securities which are traded
on Japanese securities exchanges are valued at the last sales price or,
if there is no recent last sales price available, at the last current bid
quotation. A security which is listed or traded on more than one exchange
is valued at the quotation on the exchange determined to be the primary
market for such security. All other equity securities not so traded are
valued at the last current bid quotation. In the absence of any applicable
price, securities will be valued at a fair value as determined in good faith
in accordance with procedures established by the Board of Trustees.
B) Currency Translation - For purposes of determining the Fund's net asset
value, all assets and liabilities initially expressed in foreign currency
values are converted into U.S. dollar values at the prevailing market rate
at 14:00 GMT on each U.S. business day, as established by the Board of
Trustees. The cost of securities is determined by using historical
exchange rates. Income is translated at approximate rates prevailing
when accrued. The Fund does not isolate that portion of gains and losses
on investments which is due to changes in foreign exchange rates from that
which is due to changes in the market prices of the investments. Such
fluctuations are included with the net realized and unrealized gains and
losses from investments.
<PAGE>
CAPSTONE JAPAN FUND
C) Accounting for Investments - Security transactions are accounted for
on the trade date. Realized gains and losses on security transactions are
based on the identified cost basis for both financial statement and Federal
income tax purposes. Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Discounts and premiums on bonds purchased
are amortized over the life of the bonds. Interest income and estimated
expenses are accrued daily.
D) Option Accounting Principles - When the Fund sells an option, an amount
equal to the premium received by the Fund is recorded as a liability. The
amount of the liability is marked-to-market to reflect the current market
value of the options written. The current market value of a traded option
is the last sale price and options not traded that day are valued at the
prevailing quoted bid price. When an option expires on its stipulated
expiration date or the Fund enters into a closing purchase transaction,
the Fund realizes a gain (or loss, if the cost of a closing purchase
transaction exceeds the premium received when the option was sold)
without regard to any unrealized gain or loss on the underlying security,
and the liability related to such option is extinguished. If a call option
is exercised, the premium is added to the proceeds from the sale of the
underlying security in determining whether the Fund has a realized gain
or loss.
E) Forward Currency Contracts - Forward currency transaction are undertaken
to hedge against possible variations in the foreign exchange rates between
the United States Dollar and the Japanese Yen. A forward currency contract
is an agreement between two parties to buy or sell a currency at a set
price on a future date. Forward contracts are marked-to-market daily and the
change in the market value is recorded by the Fund as an unrealized gain
or loss. When a contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. The Fund could be
exposed to risk if the counterparties are unable to meet the terms of the
contracts or if the value of the currency changes unfavorably.
F) Federal Income Taxes - No provision has been made for Federal income
taxes on net income or capital gains, since it is the policy of the Fund to
continue to comply with the special provisions of the Internal Revenue
Code applicable to investment companies and to distribute all of its taxable
income and realized capital gains, in excess of any capital loss carryovers,
to relieve it from all, or substantially all, such taxes. At October 31, 1998,
the Fund had capital loss carryovers of $3,587,779 of which $1,413,422
expires in 2000, $1,494,646 expires in 2001, $434,729 expires in 2005
and $244,982 expires in 2006. Under the United States-Japan tax treaty,
Japan imposes a withholding tax of 15% on the dividends received by the Fund.
There is currently no Japanese tax on capital gains.
G) Distributions to Shareholders - The Fund distributes its net investment
income, if any, and net realized gains (net of any capital loss carryovers)
annually. Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for foreign currency transactions and net operating losses.
H) Use of Estimates - The preparation of the 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 revenue and expense during the reporting
period. Actual results could differ from those estimates.
Note 2 - Investment Advisory Fees, Administrative Fees and Other
Transactions with Affiliates
The Fund retains FCA Corp, ("FCA") as its Investment Adviser. Under the
Investment Advisory Agreement (the "Agreement"), the Adviser is paid a
monthly fee based on the average net assets at the annual rate of .75% and
the adviser has undertaken to cap the Fund's expenses at 2.5% until
October 31, 1998. For the period November 1, 1997 through October 31, 1998,
$16,611 in advisory fees were waived by FCA and FCA has agreed to reimburse
the Fund $68,007 for excess expenses for the November 1st through October 31st
period. Such reimbursement will be made as the Fund pays the related expenses.
The Administrator, Capstone Asset Management Company, is paid a fee,
calculated daily and paid monthly, equal to an annual rate of .20% of the
Fund's average daily net assets.
<PAGE>
CAPSTONE JAPAN FUND
Capstone Asset Planning Company ("CAPCO") serves as Distributor of the
Fund's shares. CAPCO is an affiliate of the Administrator, and both are wholly-
owned subsidiaries of Capstone Financial Services, Inc.("CFS").
The Fund has adopted a Service and Distribution Plan (the "Plan") pursuant
to Rule 12b-1 under the Act whereby Fund assets are used to reimburse CAPCO
for costs and expenses incurred with the distribution and marketing of shares
of the Fund and servicing of Fund shareholders. Distribution and marketing
expenses include, among other things, printing of prospectuses, advertising
literature, and costs of personnel involved with the promotion and
distribution of the Fund's shares. Under the Plan, the Fund pays CAPCO an
amount computed at an annual rate of up to 0.25% of the Fund's average net
assets (including reinvested dividends paid with respect to those assets).
Of this amount, CAPCO may reallocate to securities dealers (which may
include CAPCO itself) and other financial institutions and organizations
(collectively, "Service Organizations") amounts based on the Fund's
average net assets owned by stockholders for whom the Service Organizations
have a servicing relationship. The Plan permits CAPCO to carry forward
for a maximum of twelve months distribution expenses covered by the Plan for
which CAPCO has not yet received reimbursement. For the year ended
October 31, 1998, the Fund paid $5,536 in 12b-1 fees. Of this amount
approximately 7.5% was paid to Service Organizations other than CAPCO.
Certain officers and trustees' of the Fund who are also officers and
trustees' of the Adviser, the Administrator, Distributor or CFS, received
no compensation from the Fund. During the year ended October 31, 1998,
trustees of the Fund who are not "interested persons" received trustees'
fees of $5,745.
Note 3 - Capital Stock
At October 31, 1998 there were 572,288 Fund shares outstanding.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1998 October 31, 1997
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 536,185 $2,510,425 395,272 $2,281,972
Shares issued to shareholders in reinvestment
of distributions - - - -
_______ _________ _______ _________
536,185 2,510,425 395,272 2,281,972
Shares redeemed (328,905) (1,522,795) (470,624) (2,786,594)
_______ _________ _______ _________
Net increase (decrease) 207,280 $ 987,630 (75,352) $ (504,622)
======= ========= ======= ========
</TABLE>
Note 4 - Purchases and Sales of Securities
Purchases and sales of securities other than U.S. Government obligations
aggregated $1,637,495 and $731,411 respectively. At October 31, 1998, the
cost of investments for Federal income tax purposes was $2,765,093.
Accumulated net unrealized depreciation on investments was $221,574 consisting
of $132,195 gross unrealized appreciation and $353,769 gross unrealized
depreciation.
<PAGE>
CAPSTONE JAPAN FUND
Note 5 - Options Written by the Fund
A call option gives the holder the right to buy the underlying stock from
the writer (the Fund) at a specified price within a fixed period of time.
Therefore, the securities held by the Fund against which options are
written may not be traded and are held in escrow by the custodian.
The following table sets forth the outstanding call options written by the Fund
as of October 31, 1998.
Unrealized
Call Options On Premium Market Appreciation
Received Value (Depreciation)
1,700 shs Honda Corp-ADR @ 70 exp April 1999 $6,502 $5,100 $1,402
1,500 shs Sony Corp-ADR @ 85 exp April 1999 5,100 3,000 2,100
_______ ______ ______
$11,602 $8,100 $3,502
====== ===== =====
The aggregate market value at October 31, 1998 of securities subject to
call options is $203,150 or approximately 8% of net assets. Written option
activity for the year ended October 31, 1998 was as follows:
Number of Amount of
Options Premium
Options outstanding at October 31, 1997 27 $23,060
Options written 59 26,619
Options closed (27) (15,017)
Options expired (27) (23,060)
___ _______
Options outstanding at October 31, 1998 32 $ 11,602
=== =======
<PAGE>
CAPSTONE JAPAN FUND
<TABLE>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------
The following table sets forth the per share operating performance data for
a share of capital stock outstanding, total return, ratios to average net
assets and other supplemental data for each year indicated.
<CAPTION>
Years Ended October 31,
1998 1997 1996 1995 1994
Per Share Data
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 5.21 $ 6.76 $ 6.76 $ 8.03 $ 6.99
_____ _____ _____ _____ _____
Income from investment operations:
Net investment loss (0.07) (0.28) (0.19) (0.21) (0.21)
Net realized and unrealized gain (loss) (0.59) (1.27) 0.25 (1.06) 1.25
_____ _____ _____ _____ _____
Total from investment operations (0.66) (1.55) 0.06 (1.27) 1.04
_____ _____ _____ _____ _____
Less distributions from:
Net investment income - - (0.06) - -
_____ _____ _____ _____ _____
Net asset value at end of period $ 4.55 $ 5.21 $ 6.76 $ 6.76 $ 8.03
===== ===== ===== ===== =====
Total Return (%) (1) (12.67)% (22.93)% 0.75% (15.82)% 14.88%
Ratios/Supplemental Data
Net assets at end of period (in thousands) $2,604 $1,902 $2,975 $2,908 $3,484
Ratio of total expenses to average net assets 2.50% 4.55% 3.30% 3.61% 3.25%
Ratio of net investment loss to average net assets (1.87)% (3.87)% (2.59)% (2.93)% (2.62)%
Ratio of total expenses to average net assets,
before reimbursements and waivers of expenses 6.32% 5.46% 3.90% 4.21% 3.85%
Ratio of net investment loss to average net assets,
before reimbursements and waivers of expenses (5.69)% (4.78)% (3.19)% (3.53)% (3.22)%
Portfolio turnover rate 35% 73% 47% 27% 57%
</TABLE>
[FN]
(1) Calculated without sales charge. Sales charge eliminated on
August 21, 1995.
</FN>
See Accompanying Notes to Financial Statements
<PAGE>
CAPSTONE JAPAN FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- -----------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Capstone International Series Trust
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments of Capstone Japan Fund (a series
of Capstone International Series Trust), as of October 31, 1998, the
related statement of operations for the year then ended, and the statement
of changes in net assets, and the financial highlights for each of the two
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for each
of the three years in the period ended October 31, 1996 were audited by
other auditors whose report dated November 18, 1996, expressed an unqualified
opinion on the financial highlights.
We conducted our audit 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 October 31, 1998 by correspondence with the
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, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Capstone Japan Fund at October 31, 1998, the results of its operations for
the year then ended, and the changes in its net assets, and the financial
highlights for each of the two years in the period then ended in conformity
with generally accepted accounting principles.
Briggs, Bunting & Dougherty, LLP
Philadelphia, Pennsylvania
November 20, 1998
<PAGE>
CAPSTONE JAPAN FUND
5847 San Felipe,
Suite 4100
Houston, Texas 77057
1-800-262-6631
ANNUAL REPORT TO SHAREHOLDERS
October 31, 1998
TRUSTEES OFFICERS
Edward L. Jaroski Edward L. Jaroski
President-Capstone International Series Trust
James F. Leary
Robert W. Scharar
John R. Parker President-Capstone Japan Fund
Bernard J. Vaughan Linda G. Giuffre
Secretary/Treasurer
INVESTMENT ADVISER TRANSFER AGENT
FCA Corp. First Data Investor Services Group, Inc.
5847 San Felipe 3200 Horizon Drive
Suite 850 P.O. Box 61503
Houston, TX 77057 King of Prussia, PA 19406-0903
1-800-845-2340
ADMINISTRATOR CUSTODIAN
Capstone Asset Management Company Fifth Third Bank
5847 San Felipe, Suite 4100 Fifth Third Center
Houston, TX 77057 38 Fountain Square
1-800-262-6631 Cincinnati, OH 45263
DISTRIBUTOR AUDITORS
Capstone Asset Planning Company Briggs, Bunting & Dougherty, LLP
5847 San Felipe, Suite 4100 Two Logan Square, Suite 2121
Houston, TX 77057 Philadelphia, PA 19103-4901
1-800-262-6631
<PAGE>
Annual Report
October 31, 1998
CAPSTONE
JAPAN FUND
GRAPHICOF: Pyramid
Member Of
The Capstone Group
of Mutual Funds
GRAPHICOF: Pyramid
The Capstone Group of Mutual Funds
Equity
Capstone Growth Fund, Inc.
Fixed Income
Capstone Government Income Fund
International/Global
Capstone Japan Fund
Capstone New Zealand Fund
For more complete information about the
Capstone Funds including charges and expenses,
contact the Distributor at the address below
to receive additional prospectuses. Please
read it carefully before you invest or send
money.
This publication must be accompanied or
preceded by a current prospectus for
Capstone Japan Fund
Capstone Asset Planning Company
5847 San Felipe,
Suite 4100
Houston, Texas 77057
1-800-262-6631
