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Hot off last year's sizzling gains, Japan mutual funds have done one of their favorite dances: the el foldo.

Positive economic growth figures, corporate/financial system restructuring, and lest we forget, the tech-stock craze propelled Japan funds to an average 114% return last year. Funds with a healthy dose of small-cap and tech stocks posted even bigger numbers.


Warburg Pincus Japan Small Company, which had big stakes in small-tech stocks, turned in an eye-popping 329% return in 1999.

But that was then and this is now. The Japanese economy and those much-hyped restructurings have both slowed, and the impact of the ripple effect of the


stumble has swamped many of last year's Japan stars. This year the average Japan fund is down more than 13%, according to


. And those high-octane types, like Warburg Pincus' Japan Small Company fund, are down more than 40%.

Of course, peaks and valleys are nothing new to Japan funds, which must cope with currency risk as well as a volatile market. The average Japan fund lost money in five calendar years in the 1990s; four of those down years were double-digit losses.

Clearly Japan stock funds are only for long-term investors who truly believe in the Japan markets' prospects and are willing to commit a modest portion of their portfolio for ten years or more. For those in that crowd, we've dedicated this week's Big Screen to Japan funds. To make our list, a fund had to beat its average peer since Jan. 1, over the past year and over the past three years. Funds also had to have managers who've held the reins for at least three years. Only two funds out of the roughly 29 in the category made the cut. Here they are, ranked by year-to-date return.

What we have here are two no-load funds with a less-risky approach than their peers. They even have expenses below the category's 1.94% Mendoza.


Japan, a

Scudder Kemper

fund started in 1962, is co-managed by Elizabeth Allen and Seung Kwak, who've both been working on the fund for more than 10 years. The duo follows a diversified strategy, spreading the $933 million fund's assets broadly across sectors and market caps, focusing on stock selection, rather than sector bets.

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The conservative approach has led to lower volatility than average without sapping returns. Over the past one-, three-, five- and 10-year periods the fund's return beats more than 85% of its peers. And even though tech and small-cap stocks led the way last year, the fund still posted a 120% return, beating its average competitor.


(PRJPX) - Get T. Rowe Price Japan Fund Report

T. Rowe Price Japan, co-managers David Warren, John Ford and Ian MacDonald (no relation) follow a similarly diversified strategy, with more of a large-cap blue-chip bias. At the end of May more than 70% of the fund was invested in large-cap stocks like


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NTT Mobile Communications



, according to Morningstar.

Warren has worked on the fund since its 1991 inception; MacDonald and Ford joined in 1998 and last March, respectively. Under their direction, the fund has been less volatile than its peers, while still posting solid returns.

Over the past five years, the fund's 9.2% annualized return might not knock you over, but that's better than its average peer. And despite its diversified, large-cap style, the fund managed a 113% return last year, keeping pace with its competitors.

Before you get too excited about this pair's decent risk/reward profile, they're still Japan funds and aren't immune to big drops. The Japan fund lost more than 18% in 1997's fourth quarter alone and the T. Rowe Price fund lost more than 20% that quarter.

If you're a Japan fan who scoffs at that kind of drop, there are plenty of funds that take home run swings.

There's the Warburg Pincus Japan Small Company fund, run by Nick Edwards and Todd Jacobsen since 1997 and 1999, respectively. The pair also run


Warburg Pincus Japan Growth, which has posted frothy returns with slightly less volatility than its sibling.

The fund, which focuses primarily on big-caps, tends to bet big on technology and New Economy stocks. Its 22.3% annualized return over the past three years beats the

S&P 500

and 83% of its Japan fund peers.

If you're looking for a broader Asian-stock fund, we ran the same screen on that group and came up with two funds: the no-load


59 Wall Street Pacific Basin Equity fund and the broker-sold

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Merrill Lynch Pacific fund.

Both tend to invest half or more of their assets in Japanese stocks, but the rest is spread across other Pacific Rim markets, including Korea, China, Australia and Taiwan. The funds' conservative approach has also led to solid returns with lower risk than their peers and pure Japan funds.

No matter how much you like the Japanese market, you should check out your current exposure before picking up one of these funds. Morningstar data indicate that 20 cents of every dollar in the average foreign stock fund is invested in Japan.