<PAGE>
FARRELL ALPHA STRATEGIES
780 THIRD AVENUE
38TH FLOOR
NEW YORK, NEW YORK 10017
THE JAPAN ALPHA FUND
ANNUAL REPORT
MARCH 31, 1996
<TABLE>
<S> <C>
INVESTMENT ADVISOR CUSTODIAN
Farrell-Wako Global Investment Management, Inc. Sumitomo Bank of New York Trust Company
780 Third Avenue, 38th Floor 277 Park Avenue
New York, New York 10017 New York, New York 10172
(212) 319-3944
UNDERWRITER LEGAL COUNSEL
Fund/Plan Broker Services, Inc. Whitman Breed Abbott & Morgan
2 W. Elm Street 200 Park Avenue
Conshohocken, Pennsylvania 19428 New York, New York 10166
(800) 262-7751
(610) 834-3694
SHAREHOLDER SERVICES AUDITORS
Fund/Plan Services, Inc. Coopers & Lybrand, L.L.P.
2 W. Elm Street 2400 Eleven Penn Center
Conshohocken, Pennsylvania 19428 Philadelphia, Pennsylvania 19103
(800) 262-7751
(610) 834-3694
</TABLE>
For Additional Information about The Japan Alpha Fund call:
(800) 262-7751
(610) 834-3694
<PAGE>
To our shareholders:
We are pleased to report for the first quarter of 1996.
The market in Japan continued the gain in the first quarter from the bottoming
last July. Over the quarter the Nikkei 225 gained 7.74%, while the MSCI was up
3.84%. Since July, the Nikkei 225 has increased 47.46% and the MSCI 39.05%.
These gains, however, have been muted by the weakness in the Yen over the
period. On a dollar adjusted basis the Nikkei 225 was up 3.98% for the quarter,
and 16.35% from July, while the MSCI was up .21% in the quarter, and 9.71%, from
July.
Our Japan Alpha Strategy showed a gain of 2.2% over the first quarter, and was
ahead of the MSCI return, but below the Nikkei 225. The Nikkei 225 is a more
volatile index than the MSCI, but over time these two indexes tend to show
similar returns.
The economic fundamentals continue to improve in Japan. For the first time in
this cycle economic activity has shown widespread strength, with growth of 3.6%
in the fourth quarter of 1995, and a continuation of that pattern so far in
1996. The monetary environment continues to be favorable with the discount rate
at .5% and money supply growing to provide liquidity. Furthermore, the yen is no
longer placing a deflationary depressant on the economy as it has weakened
significantly since last summer. Finally, the banking situation is improving
naturally as the current positioning of the yield curve is providing profit
opportunities to rebuild capital position. Correspondingly, banks have become
more aggressive in writing down bad debt and legislation to use public funds to
fill the financial gap is forthcoming.
At the same time Japan represents an attractive market in a world context. Since
1990 the market in Japan has declined by 25%, while the US market has
appreciated by more than 100% over the same period. We think that this contrary
price action between the two major world markets has shifted the relative value
attractiveness toward the market in Japan. Correspondingly, the trends in
corporate earnings for the two countries is now favoring companies in Japan. For
the first time in a decade there should be a predominance of upward revisions to
earnings for companies in Japan. It also seems that Japan could be the only
major economy in the world to experience upgrades in 1996.
Longer range, we continue to think that the restructuring of industry in Japan
will become a widespread phenomenon. As happened in the US in the 1980's, it
should provide a firm underpinning to the market in Japan over the balance of
the 1990's and beyond. A second favorable long-term factor is the emergence of a
trend toward share repurchase programs by Japanese industrial corporations. This
began with an announcement to repurchase shares by Amway Japan and Asahi Brewing
in last year's fourth quarter, and has continued with announcements by 7 other
corporations, most notably on the part of Toyota Motors. Over time buybacks by
these companies and others should represent an important and potentially
positive change in the market's supply and demand framework.
The portfolio consists of 60 select Japanese equities that meet the parameters
of the adviser's proprietary valuation methodology and strict diversification
guidelines. Industries that appear especially attractive within the portfolio
include: Food and Beverages, Automobiles, Electric Power, Pharmaceuticals,
Electrical Equipment and Electronics.
We look forward to participating in the recovery and long term growth of the
market in Japan.
Sincerely,
/s/ James L. Farrell, Jr.
James L. Farrell, Jr.
Chairman and Portfolio Manager
Farrell-Wako Global Investment Management, Inc.
<PAGE>
JAPAN ALPHA FUND
SCHEDULE OF INVESTMENTS MARCH 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
---------- ----------
<S> <C> <C>
EQUITIES-JAPAN 94.29%
Ando Corp. ........................................... 16,000 $ 81,648
Asahi Breweries, Ltd. ................................ 6,000 69,101
Ashikaga Bank, Ltd. .................................. 5,000 32,069
Bridgestone Corp. .................................... 6,000 100,562
Chubu Electric Power Co., Inc. ....................... 3,434 79,098
Daicel Chemical Industries, Ltd. ..................... 12,000 72,697
Daikyo, Inc. ......................................... 8,000 57,303
Dainippon Ink & Chemicals, Inc. ...................... 10,000 49,719
East Japan Railway Co. ............................... 18 92,697
Ezaki Glico Co., Ltd. ................................ 10,000 90,824
Fuji Fire & Marine Insurance ......................... 17,000 89,934
Fuji Heavy Industry /1/ .............................. 16,000 71,611
Fujisawa Pharmaceutical .............................. 7,000 67,509
Fujita Corp. ......................................... 14,000 66,723
Gunze, Ltd. .......................................... 15,000 86,517
Hitachi Cable ........................................ 12,000 97,079
Hitachi Chemical ..................................... 6,000 61,798
Hitachi Koki ......................................... 9,000 82,247
Hokkaido Bank ........................................ 23,000 70,852
Hokkaido Electric Power .............................. 3,570 81,228
Inax ................................................. 5,000 48,221
Itoham Foods ......................................... 9,000 70,281
KDD .................................................. 700 64,822
Keiyo Bank ........................................... 13,000 69,382
Kitz Corp. ........................................... 12,000 55,730
Komatsu Forklift Co., Ltd. ........................... 14,000 96,348
Kubota Corp. ......................................... 7,000 46,470
Maruetsu ............................................. 10,000 81,648
Matsushita Electric Works ............................ 7,000 75,375
Matsushita Refrigeration ............................. 11,000 82,603
Matsushita Seiko ..................................... 13,000 92,266
Mikuni Coca-Cola Bottling ............................ 4,000 53,558
Mitsubishi Electric Corp. ............................ 11,000 81,985
Mitsubishi Motors Corp. .............................. 10,000 85,581
Mitsui Petrochemical Industries ...................... 6,000 49,494
Mizuno Corp. ......................................... 10,000 89,045
New Oji Paper Co., Ltd. .............................. 8,000 73,034
Nichimen Corp. ....................................... 10,000 41,198
Nihon Unisys ......................................... 6,000 64,607
Nippon Telegraph & Telephone Corp. ................... 12 87,865
Nishi-Nippon Railroad ................................ 10,000 40,730
Nitto Denko Corp. .................................... 5,000 73,970
NKK Corp./1/ ......................................... 18,000 52,079
</TABLE>
See accompanying notes to financial statements.
<PAGE>
JAPAN ALPHA FUND
SCHEDULE OF INVESTMENTS MARCH 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
---------- ----------
<S> <C> <C>
EQUITIES (CONTINUED)
Okamura Corp. ................................................ 11,000 $ 92,594
Orient Corp. ................................................. 17,000 102,669
Rinnai ....................................................... 3,700 84,532
Ryobi, Ltd. .................................................. 13,000 67,921
Sanyo Chemical Industries .................................... 7,000 66,854
Sogo /1/ ..................................................... 9,000 39,691
Sun Wave Industrial .......................................... 6,000 88,764
Tadano ....................................................... 11,000 97,846
Takara Standard .............................................. 8,000 86,891
Tanabe Seiyaku ............................................... 11,000 81,367
Toho Gas ..................................................... 24,000 77,528
Tohoku Electric Power ........................................ 1,717 39,870
Tokyo Ohka Kogyo ............................................. 2,000 55,618
Tokyo Tomin Bank ............................................. 1,000 56,929
Tokyu Construction Co. ....................................... 13,000 61,835
Tokyu Hotel Chain Co., Ltd. .................................. 11,000 76,217
Toshiba Corp. ................................................ 12,000 91,236
Toyo Ink Manufacturing ....................................... 12,000 65,730
Unisia Jecs Corp. ............................................ 8,000 49,064
Yamamura Glass ............................................... 14,000 83,764
----------
TOTAL EQUITIES - JAPAN
(Cost $4,725,339) .......................................... 4,544,428
----------
<CAPTION>
PRINCIPAL
----------
<S> <C> <C>
SHORT TERM INVESTMENTS - 0.87%
Sumitomo Bank of New York, Time Deposit 3.00%, due 04/02/96
(Cost $41,937) ............................................. $ 41,937 41,937
----------
TOTAL INVESTMENTS - 95.16%
(Cost $4,767,276*) ......................................... 4,586,365
----------
CASH AND OTHER ASSETS,
LESS LIABILITIES - 4.84% ................................... 233,143
----------
NET ASSETS (APPLICABLE TO 502,998 CLASS A SHARES AND
16,414 CLASS D SHARES) - 100% .............................. $ 4,819,508
==========
/1/ Non-income producing security
* Cost for Federal income tax purposes is $4,767,276 and net unrealized
depreciation consists of:
Gross unrealized appreciation............................ $ 81,126
Gross unrealized depreciation............................ (262,037)
----------
Net unrealized depreciation.............................. $ (180,911)
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
JAPAN ALPHA FUND
STATEMENT OF ASSETS AND LIABILITIES March 31, 1996
================================================================================
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at market value (Cost $4,767,276) (Note 1)........................................... $ 4,586,365
Foreign currency at market value (Cost $96,341).................................................. 96,283
Dividends and interest receivable................................................................ 17,779
Deferred organization costs (Note 1)............................................................. 77,493
Receivable from Advisor.......................................................................... 73,090
Other assets..................................................................................... 11,737
-----------
TOTAL ASSETS............................................................................... 4,862,747
-----------
LIABILITIES:
Payables:
Accrued expenses............................................................................... 43,239
-----------
TOTAL LIABILITIES.......................................................................... 43,239
-----------
NET ASSETS:....................................................................................... $ 4,819,508
===========
CLASS A SHARES:
Net assets (Applicable to 502,998 shares; unlimited number of shares
of beneficial interest authorized without par value)............................................ $ 4,666,715
===========
Net asset value and redemption price per Class A share ($4,666,715 divided by 502,998 shares).... $ 9.28
===========
Offering price per share ($9.28 divided by .9725)................................................ $ 9.54
===========
CLASS D SHARES:
Net assets (Applicable to 16,414 shares; unlimited number of shares
of beneficial interest authorized without par value)............................................ $ 152,793
===========
Net asset value, offering and redemption price per Class D share
($152,793 divided by 16,414 shares)......................................................... $ 9.31
===========
NET ASSETS CONSIST OF:
Paid-in capital.................................................................................. 5,000,477
Net unrealized depreciation on investments and foreign currency related transactions............. (180,969)
-----------
NET ASSETS.................................................................................. $ 4,819,508
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
JAPAN ALPHA FUND
STATEMENT OF OPERATIONS
===============================================================================
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 18, 1995*
THROUGH
MARCH 31, 1996
--------------
<S> <C>
INVESTMENT INCOME
Dividends ..................................................................... $ 36,735
Interest ...................................................................... 1,260
--------------
TOTAL INCOME......................................................... 37,995
--------------
EXPENSES:
Administration fees ........................................................... 115,203
Accounting fees ............................................................... 50,838
Transfer agent fees ........................................................... 40,998
Investment advisory fees (Note 2) ............................................. 39,409
Legal fees .................................................................... 36,308
Registration fees ............................................................. 32,634
Custodian fees ................................................................ 16,583
Auditing fees ................................................................. 15,232
Printing fees ................................................................. 11,913
Distribution expense Class A (Note 2) ......................................... 10,664
Amortization of organization costs (Note 1) ................................... 8,306
Directors' fees ............................................................... 2,019
Insurance expense ............................................................. 803
Miscellaneous fees ............................................................ 4,004
--------------
TOTAL EXPENSES ...................................................... 384,914
Expenses reimbursed and waived by Advisor (Note 2) .................. (275,752)
--------------
NET EXPENSES ........................................................ 109,162
--------------
NET INVESTMENT LOSS .............................................................. (71,167)
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY:
Net realized gain on investments .............................................. 43,632
Net realized loss on foreign currency related transactions .................... (148,954)
Net change in unrealized depreciation on investments and foreign
currency related transactions ............................................... (180,969)
--------------
Net realized and unrealized loss on investments and foreign
currency related transactions ............................................... (286,291)
--------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ............................. $ (357,458)
==============
</TABLE>
* Commencement of operations
See accompanying notes to financial statements.
<PAGE>
JAPAN ALPHA FUND
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 18, 1995*
THROUGH
MARCH 31, 1996
---------------
<S> <C>
OPERATIONS:
Net investment loss ................................................................ $ (71,167)
Net realized gain on investments ................................................... 43,632
Net realized loss on foreign currency related transactions ......................... (148,954)
Net change in unrealized depreciation on investments and foreign
currency related transactions .................................................. (180,969)
----------------
Net decrease in net assets resulting from operations ............................... (357,458)
----------------
CAPITAL SHARE TRANSACTIONS (NOTE H):
Proceeds from shares issued in reorganization ...................................... 5,114,658
Proceeds from sale of shares ....................................................... 65,251
Cost of shares repurchased ......................................................... (3,043)
----------------
Increase in net assets derived from capital share transactions ..................... 5,176,866
----------------
TOTAL INCREASE IN NET ASSETS ............................................... 4,819,408
----------------
NET ASSETS:
Beginning of period ................................................................ 100
----------------
End of period ...................................................................... $ 4,819,508
================
</TABLE>
* Commencement of operations
See accompanying notes to financial statements.
<PAGE>
JAPAN ALPHA FUND
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Farrell Alpha Strategies (the "Trust") is organized as a Delaware business trust
pursuant to a Trust Agreement dated April 6, 1995. The Trust is registered under
the Investment Company Act of 1940 (the "Act") as an open-end management
investment company. The Trust consists of a separate investment fund called The
Japan Alpha Fund (the "Fund"). The Trust, through the Fund, offers two separate
classes of shares (Class A Shares and Class D Shares) which vary with respect to
sales charges, distribution costs, voting rights and dividends. Shares of Class
A are offered at net asset value per share plus a maximum sales charge at the
time of purchase of 2.75%, which will remain in place until the assets of the
Fund reach $10 million or more, at which time the sales charge increases.
Shareholders who purchase Class D Shares are not subject to a sales charge or
distribution fees. On July 14, 1995, pursuant to an Agreement and Plan of
Reorganization and Liquidation, the Japan Alpha Fund (the "Trust") acquired all
of the assets of the Japan Alpha Fund (the "Acquired Fund") of the Advisors'
Inner Circle Fund, a Massachusetts business trust. The acquisition was
accomplished by a tax-free exchange of 502,529 of the Class A Shares and 9,605
of the Class D Shares of the Acquired Fund for the same amount of shares of the
Japan Alpha Fund (the "Trust"). Shares were reissued to shareholders at the time
of the reorganization. The net assets of the Fund prior to and directly after
the reorganization was $4,649,123, including $230,630 of unrealized
depreciation. The Fund assumed the prior operating history of the Acquired Fund.
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 statement and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements.
A. SECURITY VALUATION: Foreign securities are valued as of the close of
trading on the primary exchange on which they trade. The value is then
converted to U.S. dollars using current exchange rates. Securities listed on
any national securities exchange are valued at their last sale price on the
exchange where the securities are principally traded or, if there has been no
sale on that date, at the mean between the last reported bid and asked
prices. The Nikkei Stock Average and the Morgan Stanley Capital International
Japan Index have been selected as the standards or benchmarks against which
the Fund's performance will be compared. Securities traded over-the-counter
are priced at the mean of the last bid and asked prices. Securities are
valued through valuations obtained from a commercial pricing service or at
the most recent mean of the bid and asked prices provided by investment
dealers in accordance with procedures established by the Board of Trustees.
Short-term investments having a maturity of 60 days or less are valued at
amortized cost, which the Board of Trustees believes represents fair value.
The books and records of the Fund are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollars at the current exchange rate.
Translation gains or losses resulting from changes in the exchange rate
during the reporting period and realized gains and losses on the settlement
of foreign currency transactions are reported in the results of operations
for the current period. The Fund does not isolate that portion of gains and
losses on investments in equity securities which is due to changes in the
foreign exchange rate from that which is due to changes in market prices of
equity securities.
Portfolio securities traded on a foreign exchange are generally valued at the
respective current prevailing exchange rates. The securities' values are
translated into U.S. dollars using these rates.
<PAGE>
JAPAN ALPHA FUND
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996
- --------------------------------------------------------------------------------
B. RISKS ASSOCIATED WITH FOREIGN SECURITIES: Investments by the Fund in
securities of foreign issuers may involve investment risks different from
those of U.S. issuers including possible political or economic instability of
the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of currency exchange controls, possible imposition
of foreign withholding tax on the interest income payable on such
instruments, possible establishment of foreign controls, the possible seizure
or nationalization of foreign deposits or assets, or the adoption of other
foreign government restrictions that might adversely affect the foreign
securities held by the Fund. Foreign securities may also be subject to
greater fluctuations in price than securities of domestic corporations or the
U.S. government.
C. FEDERAL INCOME TAXES: It is the policy of the Fund to comply with all
requirements of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute substantially all of its
taxable income to its shareholders. The Fund has met the requirements of the
Code applicable to regulated investment companies from April 18, 1995
(commencement of investment operations) through March 31, 1996. Therefore, no
provision has been made for federal income taxes.
D. DETERMINATION OF GAINS OR LOSSES ON SALES OF SECURITIES: Gains or
losses on the sale of securities are determined on the identified cost
basis.
E. ORGANIZATION COSTS: Organization costs are being amortized on a straight-
line basis over five years from the Fund's commencement of operations.
F. DISTRIBUTIONS TO SHAREHOLDERS: The Fund will distribute substantially
all of its net investment income annually in December. Any net gains realized
from the sale of portfolio securities and net gains realized from foreign
currency transactions are distributed at least once each year unless they are
used to offset losses carried forward from prior years. Distributions to
shareholders will be recorded on the ex-dividend date. Income and capital
gain distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. The dividends
on Class A Shares will normally be lower than those on Class D Shares because
of additional distribution expenses charged to Class A Shares.
G. OTHER: Securities transactions are accounted for on the date the
securities are purchased or sold. Interest income is recorded on the accrual
basis and dividend income on the ex-dividend date. Income, expenses
(excluding class-specific expenses) and realized/unrealized gains/losses are
allocated proportionately to each class of shares based upon the relative net
assets (inclusive of capital stock activity) of each class of shares.
H. CAPITAL SHARE TRANSACTIONS: The Fund is authorized to issue an unlimited
number of shares of beneficial interest without par value. Transactions in
shares of beneficial interest from April 18, 1995 (commencement of investment
operations) through March 31, 1996 were as follows:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS D SHARES
-------------- --------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares issued in reorganization.. 502,529 $5,023,058 9,605 $ 91,600
Shares sold...................... 469 4,051 7,138 61,200
Shares redeemed.................. (5) (45) (334) (2,998)
-------- ----------- ------- ---------
Net Increase..................... 502,993 $5,027,064 16,409 $149,802
======= ========== ====== ========
</TABLE>
Wako Securities Co., Ltd. holds 500,000 (99.4%) of the 502,998 Class A
Shares.
<PAGE>
JAPAN ALPHA FUND
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996
- --------------------------------------------------------------------------------
2. ADVISORY, ADMINISTRATION AND DISTRIBUTION AGREEMENTS:
Farrell-Wako Global Investment Management, Inc. (the "Advisor"), a registered
investment advisor, provides the Fund with investment management services. As
compensation for these services, the Fund pays the Advisor a monthly fee which
is calculated daily by applying an annual rate of 0.98% to the average daily net
assets of the Fund. The Advisor has voluntarily agreed to waive its fees and
reimburse the Fund to the extent total annualized expenses exceed 2.50% (Class A
Shares) and 2.25% (Class D Shares) of the Fund's average daily net assets. From
April 18, 1995 (commencement of investment operations) through March 31, 1996,
the Advisor agreed to waive fees of $39,409 and reimburse fees totaling
$236,343. Certain officers and trustees of the Fund are also officers and
directors of the Advisor. All officers serve without direct compensation from
the Fund.
Under its Administrative Services Agreement (the "Agreement") with the Fund,
Fund/Plan Services, Inc., the Fund's Administrator, provides certain
administrative services for which the Fund pays a fee computed at the annual
rate of 0.15% of the first $75 million of total average net assets, 0.10% of the
next $75 million of total average net assets and 0.05% of total net assets in
excess of $150 million. As stated in the Agreement, aggregate administration
fees will not be less than $95,000 for both Class A and Class D Shares.
Pursuant to Rule 12b-1 under the Act, the Fund has adopted a Plan of
Distribution (the "Plan") for the Fund's Class A Shares. As provided in the
Plan, the Class A Shares will pay an annual fee of 0.25% of the Fund's average
daily net assets attributable to Class A Shares to Fund/Plan Broker Services,
Inc., the Fund's distributor, as compensation for its services.
3. INVESTMENT TRANSACTIONS
Investment transactions from April 18, 1995 (commencement of investment
operations) through March 31, 1996, excluding temporary short-term investments,
aggregated $10,090,733 and $5,409,026 in purchases and proceeds from sales,
respectively. During the year the Fund conducted all of it's brokerage
transactions through Wako Securities Co., Ltd., an affiliated broker of the
Advisor. The commissions on these transactions are deemed by the Fund to be fair
and reasonable compared to the commission, fee or other renumeration received by
other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period. From April 18, 1995 (commencement of investment operations) through
March 31, 1996, brokerage fees paid to Wako Securities Co., Ltd. were $135,054.
<PAGE>
JAPAN ALPHA FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth financial data for one share of capital stock
outstanding throughout the period presented.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS D SHARES
---------------- ----------------
FOR THE PERIOD FOR THE PERIOD
APRIL 18, 1995* APRIL 18, 1995*
THROUGH THROUGH
MARCH 31, 1996 MARCH 31, 1996
---------------- ----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ...................... $ 10.00 $ 10.00
---------------- ----------------
Loss from investment operations:
Net investment loss .................................... (0.14) /1/ (0.12)/1/
Net realized and unrealized loss on investments and
foreign currency related transactions ............... (0.58) /1/ (0.57) /1/
---------------- ----------------
Total loss from investment operations ............... (0.72) (0.69)
---------------- ----------------
NET ASSET VALUE, END OF PERIOD ............................ $ 9.28 $ 9.31
================ ================
TOTAL RETURN .............................................. (7.20%) /2/ (6.90%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s) .................... $ 4,667 $ 153
Ratio of expenses to average net assets:
Before expense reimbursement and waiver .............. 8.79% /3/ 8.54% /3/
After expense reimbursement and waiver ............... 2.50% /3/ 2.25% /3/
Ratio of net investment income to average net assets:
Before expense reimbursement and waiver .............. (7.92%) /3/ (7.67%) /3/
After expense reimbursement and waiver ............... (1.63%) /3/ (1.38%) /3/
Portfolio turnover rate ................................ 122.71% 122.71%
Average commission rate ................................ 0.07 0.07
</TABLE>
* Commencement of operations
/1/ Calculated using the average shares method
/2/ Total return calculation does not reflect sales load
/3/ Annualized
See accompanying notes to financial statements.
<PAGE>
JAPAN ALPHA FUND
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
- --------------------------------------------------------------------------------
The graph below compares the change in value of a $10,000 investment in Japan
Alpha Fund Class A Shares (no sales load) with performance of the Nikkei 225
Index and the Morgan Stanley Japan Index.
================================================================================
JAPAN ALPHA FUND CLASS A
(Assuming $10,000 invested at inception with no sales load included)
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Japan Alpha (Class A) Nikkei 225 Index Morgan Stanley Japan Index
<S> <C> <C> <C>
04/18/95 $10,000 $10,000 $10,000
06/95 8,530 8,525 8,909
09/95 8,710 8,927 9,294
12/95 9,140 9,539 9,754
03/96 9,280 9,918 9,774
</TABLE>
================================================================================
The graph below compares the change in value of a $10,000 investment in Japan
Alpha Fund Calss D Shares with performance of the Nikkei 225 Index and the
Morgan Stanley Japan Index.
================================================================================
JAPAN ALPHA FUND CLASS D
(Assuming $10,000 invested at inception)
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Japan Alpha (Class A) Nikkei 225 Index Morgan Stanley Japan Index
<S> <C> <C> <C>
04/18/95 $10,000 $10,000 $10,000
06/95 8,540 8,525 8,909
09/95 8,730 8,927 9,294
12/95 9,160 9,539 9,754
03/96 9,310 9,918 9,774
</TABLE>
================================================================================
<PAGE>
JAPAN ALPHA FUND
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
To the Shareholders and Board of Trustees of The Japan Alpha Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of The Japan Alpha Fund as of March 31, 1996, and
the related statement of operations, the statement of changes in net assets and
financial highlights from the period April 18, 1995 (commencement of operations)
through March 31, 1996. The financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on the financial statements and financial highlights based on our
audits.
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 investments owned as of March 31, 1996, by
correspondence with the custodian. 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
audit provides 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 The
Japan Alpha Fund as of March 31, 1996, and the results of its operations and the
changes in its net assets and its financial highlights from the period April 18,
1995 (commencement of operations) through March 31, 1996 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 26, 1996
