<PAGE>
FARRELL ALPHA STRATEGIES
780 Third Avenue
38th Floor
New York, New York 10017
THE JAPAN ALPHA FUND
ANNUAL REPORT
March 31, 1997
<TABLE>
<CAPTION>
INVESTMENT ADVISOR CUSTODIAN
<S> <C>
Farrell-Wako Global Investment Management, Inc. Sumitomo Bank of New York Trust Company
780 Third Avenue, 38th Floor 2 World Financial Center, Tower B
New York, New York 10017 225 Liberty Street, 35th Floor
(212) 319-3944 New York, New York 10281
UNDERWRITER SHAREHOLDER SERVICES
FPS Broker Services, Inc. FPS Services, Inc.
3200 Horizon Drive 3200 Horizon Drive
P.O. Box 61503 P.O. Box 61503
King of Prussia, Pennsylvania 19406 King of Prussia, Pennsylvania 19406
(610) 239-4700 (800) 262-7751
(610) 239-4600
LEGAL COUNSEL AUDITORS
Brown Raysman Millstein Felder & Steiner LLP Coopers & Lybrand, LLP
120 West 45th Street 2400 Eleven Penn Center
New York, New York 10036 Philadelphia, Pennsylvania 19103
</TABLE>
For Additional Information about The Japan Alpha Fund call:
(800) 262-7751
(610) 239-4600
<PAGE>
To our shareholders:
The market in Japan continued the sharp decline from the fourth quarter of 1996,
plummeting another 15% into mid January of this year. While the market rebounded
somewhat from that mid January low, the overall market return was -13% for the
first quarter. From March last year to March 1997, the market was down 27%. For
both periods, first quarter and year-over-year, the Japan Alpha portfolio was
down but slightly less so than the market average.
We continue to think that Japan offers good longer term return potential.
Adverse market action in the first quarter of 1997 reflects the continuing
concerns about: 1) the impact of tax increases on consumer spending; 2)
corporate dislocation from deregulation; and 3) continuing slow workout of the
bad loan problem for banks.
Despite tax increases, the economic data indicates that the economy is on a
continued growth path. Those sectors of the market most exposed to deregulation
have suffered the greatest decline in the recent two quarters to reflect that
risk. Longer term deregulation should create opportunities for greater economic
growth. We continue to think that there will be some defined resolutions to the
banks' loan problem.
At the same time, Japan represents an attractive market in a world context. In
comparison to the U.S., where economic cycle is at a mature stage, Japan is in
the early stages of a recovery. Since 1990 the market in Japan has declined by
40%, while the U.S. market has appreciated by more than 150% 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.
Longer range, we continue to think that the restructuring of industry in Japan
will become a wide-spread phenomenon. As happened in the U.S. 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. Over
time buybacks by these companies and others should represent an important and
potentially positive change in the market's supply and demand framework. While
creating uncertainty in the near term, deregulation should be a positive
influence in the longer term.
Sincerely,
/s/ James L. Farrell, Jr.
James L. Farrell, Jr.
Chairman and Portfolio Manager
Farrell-Wako Global Investment Management, Inc.
<PAGE>
THE JAPAN ALPHA FUND
SCHEDULE OF INVESTMENTS March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value
---------- -------------
<S> <C> <C>
Equities - Japan 95.48%
Achilles Corp.......................................... 12,000 $ 30,531
The Ashikaga Bank, Ltd................................. 5,000 16,760
Casio Computer Co., Ltd................................ 10,000 69,946
Chiyoda Fire & Marine Insurance Co., Ltd............... 17,000 63,573
Chubu Electric Power Co., Inc.......................... 1,434 23,280
Daikin Industries, Ltd................................. 9,000 67,240
Dainippon Ink & Chemicals, Inc......................... 18,000 60,334
East Japan Railway Co.................................. 9 36,709
Fanuc.................................................. 2,200 67,523
Fuji Fire & Marine Insurance........................... 17,000 53,687
Fuji Heavy Industries, Ltd............................. 13,000 58,275
Furukawa Co., Ltd...................................... 16,000 50,141
General Sekiyu K.K..................................... 8,000 47,234
Hitachi Koki........................................... 8,000 47,880
Hokkaido Electric Power................................ 3,570 57,381
Hokuetsu Paper Mills, Ltd.............................. 6,000 27,138
Inax................................................... 10,000 65,584
Itoham Foods........................................... 12,000 60,286
Japan Energy Corp...................................... 15,000 35,983
Japan Tobacco, Inc..................................... 8 53,114
Kamigumi Co., Ltd...................................... 10,000 47,734
Katokichi.............................................. 2,000 29,723
Komatsu Forklift Co., Ltd.............................. 14,000 66,489
Kubota Corp............................................ 7,000 29,117
Kyudenko Co., Ltd...................................... 4,000 29,529
Lion Corp.............................................. 12,000 46,329
Long-Term Credit Bank of Japan, Ltd.................... 9,000 30,531
Makita Corp............................................ 3,000 39,254
Maruetsu, Inc.......................................... 10,000 45,231
Matsushita Electric Works.............................. 7,000 63,888
Matsushita Refrigeration............................... 11,000 58,283
Mitsubishi Heavy Industries, Ltd....................... 8,000 52,015
Mitsubishi Motors Corp................................. 10,000 74,065
Mitsui Petrochemical Industries........................ 10,000 46,846
Morinaga Milk Industry Co.............................. 15,000 49,188
NHK Spring Co., Ltd.................................... 15,000 48,583
Nihon Kohden........................................... 5,000 27,461
Nippon Hodo............................................ 6,000 46,523
Nippon Paint Co., Ltd.................................. 15,000 45,190
Nippon Road............................................ 8,000 32,437
Nippon Telegraph & Telephone Corp...................... 5 35,175
Nippon Yusen Kabushiki Kaisha.......................... 13,000 45,990
Nishi-Nippon Railroad.................................. 10,000 30,046
Onward Kashiyama Co., Ltd.............................. 3,000 34,650
Orient Corp............................................ 12,000 49,915
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE JAPAN ALPHA FUND
SCHEDULE OF INVESTMENTS March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value
--------------- --------------
<S> <C> <C>
Equities (continued)
Rengo Co., Ltd...................................... 11,000 $ 54,196
Ryobi, Ltd.......................................... 18,000 57,427
Ryoden Trading Co................................... 8,000 47,169
Sakura Bank, Ltd.................................... 7,000 39,181
Sankyo Aluminum Industry Co......................... 17,000 52,314
Sanwa Bank, Ltd..................................... 5,000 53,711
Sanyo Electric Co., Ltd............................. 13,000 49,035
Seino Transportation................................ 5,000 48,865
Sekisui House, Ltd.................................. 8,000 78,184
Shionogi & Co., Ltd................................. 5,000 29,279
Snow Brand Milk Products............................ 11,000 53,130
Sumitomo Rubber Industries.......................... 11,000 69,300
Taisei Rotec Corp................................... 13,000 51,975
Takara Standard..................................... 8,000 56,215
Seiyu, Ltd.......................................... 4,000 30,337
Toho Gas............................................ 24,000 51,369
Tohoku Electric Power............................... 1,717 28,013
Tokico, Ltd......................................... 17,000 46,684
Toyo Ink Manufacturing.............................. 14,000 49,188
Yamamura Glass Co................................... 14,000 50,093
Yamanouchi Pharmaceutical Co , Ltd.................. 3,000 62,031
Yodogawa Steel Works................................ 9,000 51,175
Yokohama Rubber Co., Ltd............................ 11,000 44,778
Yoshitomi Pharmaceutical............................ 8,000 50,723
--------------
Total Equities - Japan
(Cost $4,492,776)............................... 3,301,163
--------------
Total Investments - 95.48%
(Cost $4,492,776*).............................. 3,301,163
--------------
Cash and Other Assets,
Less Liabilities - 4.52%........................ 156,400
--------------
Net Assets - 100%................................... $ 3,457,563
==============
</TABLE>
* Cost for Federal income tax purposes is $4,492,776 and net unrealized
depreciation consists of:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation................ $ 10,595
Gross unrealized depreciation................ (1,202,208)
--------------
Net unrealized depreciation.................. $ (1,191,613)
==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE JAPAN ALPHA FUND
STATEMENT OF ASSETS AND LIABILITIES March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments at market value (Cost $4,492,776) (Note 1)....................................... $ 3,301,163
Foreign currency at market value (Cost $6,828)............................................... 6,840
Cash......................................................................................... 32,161
Dividends receivable......................................................................... 20,094
Deferred organization costs (Note 1)......................................................... 73,351
Reimbursement due from Advisor............................................................... 89,296
Other assets................................................................................. 329
--------------
TOTAL ASSETS....................................................................... 3,523,234
--------------
LIABILITIES:
Accrued Expenses.......................................................................... 65,671
--------------
TOTAL LIABILITIES.................................................................. 65,671
--------------
NET ASSETS:
Applicable to 516,722 Class D shares; unlimited number of shares
of beneficial interest authorized without par value....................................... $ 3,457,563
==============
Net asset value and redemption price ($3,457,563 / 516,722 Class D shares)................... $ 6.69
==============
NET ASSETS CONSIST OF:
Paid-in capital.............................................................................. 4,925,654
Accumulated net realized loss on investments................................................. (276,592)
Net unrealized depreciation on investments and foreign currency related transactions......... (1,191,499)
--------------
NET ASSETS......................................................................... $ 3,457,563
==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE JAPAN ALPHA FUND
STATEMENT OF OPERATIONS
===============================================================================
<TABLE>
<CAPTION>
For the
Year Ended
March 31, 1997
--------------------
<S> <C>
INVESTMENT INCOME
Dividends (Net of foreign tax withholdings of $7,537) ....................... $ 42,711
Interest .................................................................... 229
-----------
TOTAL INCOME ...................................................... 42,940
-----------
EXPENSES:
Investment advisory fees (Note 2) ........................................... 42,802
Administration fees ......................................................... 100,596
Accounting fees ............................................................. 66,002
Transfer agent fees ......................................................... 35,248
Registration fees ........................................................... 31,804
Amortization of organization costs (Note 1) ................................. 21,835
Audit fees .................................................................. 19,800
Custodian fees .............................................................. 19,048
Distribution expense Class A (Note 2) ....................................... 3,813
Trustees' fees .............................................................. 3,750
Printing fees ............................................................... 3,576
Legal fees .................................................................. 2,244
Miscellaneous fees .......................................................... 1,793
-----------
TOTAL EXPENSES .................................................... 352,311
Expenses reimbursed and waived by Advisor (Note 2) ................ (250,230)
-----------
NET EXPENSES ...................................................... 102,081
-----------
NET INVESTMENT LOSS ............................................................ (59,141)
-----------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND
FOREIGN CURRENCY:
Net realized loss on investments ............................................ (274,276)
Net realized loss on foreign currency related transactions .................. (5,881)
Net change in unrealized depreciation on investments and foreign
currency related transactions ............................................. (1,010,530)
-----------
Net realized and unrealized loss on investments and foreign
currency related transactions ............................................. (1,290,687)
-----------
Net decrease in net assets resulting from operations ........................... $(1,349,828)
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE JAPAN ALPHA FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the Period
Year Ended April 18, 1995*
March 31, through
OPERATIONS: 1997 March 31, 1996
------------------ ------------------
<S> <C> <C>
Net investment loss........................................................... $ (59,141) $ (71,167)
Net realized (loss) gain on investments....................................... (274,276) 43,632
Net realized loss on foreign currency related transactions.................... (5,881) (148,954)
Net change in unrealized depreciation on investments and foreign
currency related transactions............................................. (1,010,530) (180,969)
----------------- -----------------
Net decrease in net assets resulting from operations.......................... (1,349,828) (357,458)
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gains on investments............................................. (2,316) 0
----------------- -----------------
CAPITAL SHARE TRANSACTIONS (NOTE I):
Proceeds from shares issued in reorganization................................. 0 5,114,658
Proceeds from shares issued due to exchange of
Class A shares for Class D shares......................................... 4,577,248 0
Proceeds from sale of shares.................................................. 28,712 65,251
Proceeds from shares issued on reinvestment of distributions.................. 2,313 0
Cost of shares from redemption of Class A shares for Class D shares........... (4,577,248) 0
Cost of shares redeemed....................................................... (40,826) (3,043)
----------------- -----------------
(Decrease) increase in net assets derived from capital share transactions..... (9,801) 5,176,866
----------------- -----------------
TOTAL INCREASE (DECREASE) IN NET ASSETS............................... (1,361,945) 4,819,408
----------------- -----------------
NET ASSETS:
Beginning of period........................................................... 4,819,508 100
----------------- -----------------
End of period................................................................. $ 3,457,563 $ 4,819,508
================= =================
</TABLE>
* Commencement of operations
See accompanying notes to financial statements.
<PAGE>
THE JAPAN ALPHA FUND
NOTES TO FINANCIAL STATEMENTS March 31, 1997
- --------------------------------------------------------------------------------
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 series called
The Japan Alpha Fund (the "Fund"). On July 14, 1995, pursuant to an Agreement
and Plan of Reorganization and Liquidation, 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 Fund. Shares
of the Fund 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.
From April 18, 1995 (commencement of operations) to July 29, 1996, the Fund
offered two classes of shares, the Class A Shares and Class D Shares, which
varied with respect to sales charges, distribution costs, voting rights and
dividends. Shares of Class A were offered at net asset value per share plus a
maximum sales charge at the time of purchase of 2.75%. Shares of Class D were
not subject to a sales load or distribution fees, and therefore had lower
expenses than the Class A Shares.
The Board of Trustees determined that it was no longer in the best interest of
shareholders to maintain two classes of shares of the Fund and decided to
eliminate the Class A Shares and reduce the initial investment minimum of the
Class D Shares from $5,000 to $1,000. Accordingly, the Class A shareholders
were offered the option of either converting their Class A Shares to Class D
Shares based upon the relative net asset values of the two classes as part of a
one-time tax-free exchange privilege or redeeming their Class A Shares and
receiving full redemption benefits. All the Class A Shares were converted to
Class D Shares as of July 26, 1996, and on July 29, 1996 the Trust eliminated
the Class A Shares. 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. Securities traded over-the-counter are priced at the mean of
the last bid and asked prices. Listed securities which are traded by
foreign investors in Japan in over-the-counter transactions are valued at
prices at which it is expected that such securities may be sold, as
determined in good faith by, or under the direction of, the Board of
Trustees. 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. All other securities are valued
at their fair value as determined in good faith under procedures
established by and under the supervision of the Board of Trustees. As of
March 31, 1997, there were no securities valued by the Board of Trustees.
<PAGE>
THE JAPAN ALPHA FUND
NOTES TO FINANCIAL STATEMENTS March 31, 1997
- --------------------------------------------------------------------------------
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.
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 continue 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 for the year ended March 31,
1997. 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 by use of the specific identification
method for both financial reporting and income tax purposes.
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.
G. 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
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
H. 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.
<PAGE>
THE JAPAN ALPHA FUND
NOTES TO FINANCIAL STATEMENTS March 31, 1997
- --------------------------------------------------------------------------------
I. 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 reflects the conversion of Class A Shares for
Class D Shares on July 29, 1996, and were as follows:
<TABLE>
<CAPTION>
For the Period For the
April 1, 1996 through Year Ended
July 26, 1996 March 31, 1997
------------- --------------
Class A Shares Class D Shares
-------------- --------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares issued due to exchange
of Class A Shares for Class D Shares........... 0 $ 0 501,297 $4,577,248
Shares sold..................................... 373 3,696 3,604 25,016
Shares issued on reinvestment of distributions.. 0 0 297 2,313
Shares redeemed due to exchange of
Class A Shares for Class D Shares.............. (503,370) (4,577,248) 0 0
Shares redeemed................................. 0 0 (4,891) (40,826)
-------- ------------ ------- ----------
Net Increase (Decrease)......................... (502,997) ($4,573,552) 500,307 $4,563,751
======== ============ ======= ==========
<CAPTION>
For the Period April 18, 1995
through March 31, 1996
----------------------
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., an affiliated broker of Farrell-Wako Global
Investment Management, Inc., the Fund's advisor, holds 498,228 (96.4%) of the
516,722 shares of the Japan Alpha Fund.
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 2.25% of the
Fund's average daily net assets. For the year ended March 31, 1997, the Advisor
agreed to waive fees of $42,802 and reimburse fees totaling $207,428.
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,
FPS Services, Inc., formerly known as 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.
Pursuant to Rule 12b-1 under the Act, the Fund adopted a Plan of Distribution
(the "Plan") for the Fund's Class A Shares. As provided in the Plan, the Class
A Shares paid an annual fee of 0.25% of the Fund's average daily net assets
attributable to Class A Shares to FPS Broker Services, Inc., formerly known as
Fund/Plan Broker Services, Inc., the Fund's distributor, as compensation for its
services. Payments made pursuant to the Plan ceased when the Class A Shares
were eliminated.
<PAGE>
THE JAPAN ALPHA FUND
NOTES TO FINANCIAL STATEMENTS March 31, 1997
- --------------------------------------------------------------------------------
3. Investment Transactions
Investment transactions for the year ended March 31, 1997, excluding temporary
short-term investments, aggregated $4,847,919 and $4,806,206 in purchases and
proceeds from sales, respectively. During the period, the Fund conducted all of
its 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 commissions, fees or other
renumerations received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period. For the year ended March 31,
1997, brokerage fees paid to Wako Securities Co., Ltd. were $84,115.
4. Other Related Party Transactions
The former secretary to the Fund also serves as counsel to the Fund. Fees paid
during the year ended March 31, 1997 were $2,244.
5. Capital Loss Carryover
At March 31, 1997, the Japan Alpha Fund had a capital loss carryover of $274,490
expiring March 31, 2005 to offset possible future capital gains of the Fund.
<PAGE>
THE JAPAN ALPHA FUND
FINANCIAL HIGHLIGHTS
================================================================================
The table below sets forth financial data for one share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
Class A Shares Class D Shares
------------------------------ --------------------------
For the For the For the
Period Period For the Period
April 1, 1996 April 18, 1995* Year Ended April 18, 1995*
through through March 31, through
July 26, 1996+ March 31, 1996 1997 March 31, 1996
--------------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period .......................... $ 9.28 $ 10.00 $ 9.31 $ 10.00
----------- ----------- ----------- --------------
Loss from investment operations:
Net investment income (loss) ............................ 0.07 (0.14) /1/ 0.01 (0.12) /1/
Net realized and unrealized loss on investments and
foreign currency related transactions ............. (0.26) (0.58) /1/ (2.62) (0.57) /1/
----------- ----------- ----------- ---------
Total loss from investment operations .............. (0.19) (0.72) (2.61) (0.69)
Less distributions from realized gains .................. 0.00 0.00 (0.01) 0.00
----------- ----------- ----------- ---------
Net asset value, end of period ................................ $ 9.09 $ 9.28 $ 6.69 $ 9.31
=========== =========== =========== =========
Total return .................................................. (2.05%)/2/ (7.20%)/2/ (28.10%) (6.90%)
Ratios/Supplemental Data
Net assets, end of period (in 000s) ..................... $ 4,577 $ 4,667 $ 3,458 $ 153
Ratio of expenses to average net assets:
Before expense reimbursement and waiver ............ 6.17% /3/ 8.79% /3/ 7.97% 8.54% /3/
After expense reimbursement and waiver ............. 2.50% /3/ 2.50% /3/ 2.25% 2.25% /3/
Ratio of net investment income to average net assets:
Before expense reimbursement and waiver ............ (5.74%)/3/ (7.92%)/3/ (6.99%) (7.67%)/3/
After expense reimbursement and waiver ............. (2.07%)/3/ (1.63%)/3/ (1.27%) (1.38%)/3/
Portfolio turnover rate ................................. 115.07% 122.71% 115.07% 122.71%
Average commission rate ................................. $ 0.0608 $ 0.0658 $ 0.0608 $ 0.0658
</TABLE>
* Commencement of operations
/1/ Calculated using the average shares method
/2/ Total return calculation does not reflect sales load
/3/ Annualized
+ Since July 29, 1996, no Class A Shares have been outstanding
See accompanying notes to financial statements.
<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 (the "Fund") as of March
31, 1997, and the related statement of operations for the year then ended, the
statements of changes in net assets and the financial highlights for each of the
two years (or periods) in the period then ended. These 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, 1997 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
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 The
Japan Alpha Fund as of March 31, 1997, the results of its operations for the
year then ended, and the changes in its net assets and its financial highlights
for each of the two years (or periods) in the period then ended, in conformity
with generally accepted accounting.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 23, 1997
