This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
(logo)
(logo)
THE JAPAN FUND, INC.
Semiannual Report
June 30, 1998
A pure no-load(TM) mutual fund
Scudder Kemper Investments, Inc.
Investment Manager
<PAGE>
THE JAPAN FUND, INC.
CONTENTS
Portfolio Management Discussion ..................................... 3
Reviews the period's investing strategies, financial markets,
and economic conditions
Performance Update................................................... 6
Portfolio Summary.................................................... 7
Investment Portfolio................................................. 8
Itemized list of your Fund's portfolio holdings
Financial Statements................................................ 14
Financial Highlights................................................ 17
Notes to Financial Statements ...................................... 18
Officers and Directors.............................................. 22
How to Contact The Japan Fund................................. Back cover
2
<PAGE>
THE JAPAN FUND, INC.
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
On July 14th Prime Minister Ryutaro Hashimoto resigned in light of the
surprisingly poor showing of his party, the Liberal Democratic Party, in the
upper house elections of July 12th. The LDP won only 44 of the 126 seats up for
election. These election returns underscored the growing and deep
dissatisfaction of voters with the weak economy, the growing risks from the
Southeast Asia crisis, and the lack of credible policy initiatives. These
concerns, coupled with the intractable bad debt position of the banking sector,
had been a drag on the stock market and the yen even before Mr. Hashimoto's
resignation.
During the six-month period ended June 30, 1998, the TOPIX (Tokyo Stock
Exchange Stock Price Index) declined by 1.3% in U.S. dollars. However,
performance of The Japan Fund, Inc. over the same period was supported by
careful stock selection and risk controls, resulting in a positive 6.69% return,
significantly better than the TOPIX benchmark.
Currency and Stock Markets Await Recovery
Despite the announcement of a 16 trillion yen fiscal stimulus package at
the end of March, both the currency and the stock markets were not convinced
that the ailing Japanese economy and banking system could reverse the growing
pressures from the Asian economic crisis and the continuing growth of bad debts.
The popularity of the Hashimoto government continued to plummet, along with
consumer and business confidence. The currency market rebounded briefly in late
June on the back of a concerted intervention by U.S. and Japanese authorities.
Now the stock and currency markets appear to be taking a "wait and see" attitude
on the actual content of the forthcoming "total plan" for financial system
recovery and any additional steps to stimulate the economy when a new Prime
Minister is appointed.
Top Holdings Demonstrate Structural Changes
At the corporate level, we are encouraged that some of the structural
changes we had been anticipating appear to be taking off. First, share buybacks,
which were only a nascent trickle last year, became a mainstream corporate
development by June. A total of almost 900 companies, or approximately one-third
of publicly traded companies, announced a revision of their corporate charters
to allow share buybacks. The next step is to monitor the number of actual share
buybacks and assess the resulting improvements in shareholder value.
3
<PAGE>
THE JAPAN FUND, INC.
PORTFOLIO MANAGEMENT DISCUSSION
We believe that the trend toward share buybacks in Japan is significant for
several reasons. First, it provides a channel for excess cash and other assets
which had historically been hoarded by companies to be paid out to shareholders.
Buybacks may also improve per-share value of earnings or assets, depending on
the price. Moreover, buybacks may present an indicator of management's focus on
balance sheet efficiency and shareholder value. Finally, they may provide a
means to absorb some of the selling pressures from the dissolution of
cross-holdings. The Japan Fund is positioned to take advantage of this trend in
that it has accumulated significant exposure to companies that are cash rich and
generate large free cash flow. We believe that a rerating of the value of these
cash-rich companies may have just begun.
Secondly, we had previously identified merger and acquisition activity as
another possible catalyst for unlocking the value of Japanese corporations.
Under such a thesis, The Japan Fund had accumulated positions in attractively
priced companies with valuable brands, sales franchises (such as distribution or
product offerings), or asset values. Daiwa and Nikko Securities were among
holdings we established in late 1997 in view of their domestic distribution
franchises and the value of their custody assets and asset management
subsidiaries.
In the first half of 1998, several headline acquisitions surprised the
market, including Daimler Benz's acquisition of Nissan Diesel, Traveler's
acquisition of a major stake in Nikko Securities, and Nidec's acquisition of
Shibaura Seisakusho, a Toshiba subsidiary. The Japan Fund benefited handsomely
from Traveler's acquisition of Nikko Securities and the subsequent surge in its
stock price; Nikko is now among the Fund's top ten holdings. Nidec also remains
among the Fund's top holdings.
Despite continuing efforts to speed write-offs and increase bank lending
spreads, the additional bad debts from the Southeast Asian crisis and the
continuing weakness in the domestic economy have severely impaired the credit
standing of the major banks. The Japan Fund took advantage of the bank rally
early in 1998 and trimmed or sold off its positions in the major banks. By the
end of June 1998, the Fund's exposure to the banking sector was once again down
to only 2% of the Fund, in comparison to a 14.5% weighting in the benchmark
TOPIX. Although we have cut our bank holdings significantly, we have maintained
4
<PAGE>
THE JAPAN FUND, INC.
PORTFOLIO MANAGEMENT DISCUSSION
exposure to the beneficial changes occurring in this sector. One such holding is
Orix Corp. another top ten holding of the Fund, which has been negatively
affected in the past from low spread and high volume lending of the banks and
their leasing affiliates. As banks increase loan spreads and cut back volume
growth in their leasing subsidiaries, we believe that the underlying earnings
power of Orix's lease assets should increase considerably.
Continued Focus on Individual Stock Selection
Looking forward, the investment climate in Japan continues to be one in
which the near-term macroeconomic and political concerns cloud the more
positive, secular corporate developments which appear to be gaining momentum. In
such an environment, The Japan Fund will continue to focus on stock selection,
and minimize overriding macro "bets" on the direction of the market, the
economy, or the currency. We continue to seek to position the Fund to perform
over a range of market and economic scenarios.
In terms of portfolio strategy, while we maintain our three-pronged
diversification among global companies, future blue chips, and domestic value
stocks, we are increasing our exposure to quality value opportunities in Japan,
regardless of sector. In particular, we are adding to attractively priced
companies with strong competitive positions and strong balance sheets that
preferably include large amounts of excess cash. Japan may be one of the
increasingly few markets globally where a combination of quality and value may
be found. The positive corporate trends mentioned above have the potential to
unleash the inherent value of Japan's corporate sector over the next two to
three years. Voter dissatisfaction and Mr. Hashimoto's resignation serve to
underscore the growing pressure for change in Japan.
Sincerely,
/s/Lynn S. Birdsong /s/Henry Rosovsky
Lynn Birdsong, Henry Rosovsky,
President Chairman
5
<PAGE>
THE JAPAN FUND, INC.
PERFORMANCE UPDATE as of June 30, 1998
- -----------------------------------------------------------------
THE JAPAN FUND, INC.
- -----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/98 $10,000 Cumulative Annual
- ---------------------------------------
SCUDDER SHORT TERM BOND FUND
- ---------------------------------------
1 Year $ 7,791 -22.09% -22.09%
5 Year $ 7,734 -22.66% -5.01%
10 Year $ 9,070 -9.30% -0.97%
- ---------------------------------------
TOPIX
- ---------------------------------------
1 Year $ 6,592 -34.08% -34.08%
5 Year $ 6,171 -38.29% -9.20%
10 Year $ 5,849 -41.51% -5.22%
- ---------------------------------------
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Yearly periods ended June 30
THE JAPAN FUND, INC.
Year Amount
- ----------------------
'88 $10,000
'89 $10,318
'90 $12,244
'91 $11,424
'92 $ 9,124
'93 $11,727
'94 $13,710
'95 $ 9,968
'96 $11,579
'97 $11,641
'98 $ 9,070
TOPIX
Year Amount
- ----------------------
'88 $10,000
'89 $10,485
'90 $ 9,549
'91 $ 8,224
'92 $ 6,157
'93 $ 9,478
'94 $10,830
'95 $ 9,066
'96 $10,118
'97 $ 8,872
'98 $ 5,849
The Tokyo Stock Exchange Stock Price Index (TOPIX) is an unmanaged
capitalization weighted measure (adjusted in U.S. dollars) of all shares listed
on the first section of the Tokyo Stock Exchange. Index returns assume dividends
reinvested net of withholding tax and, unlike Fund returns, do not reflect any
fees or expenses.
- -----------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
Yearly periods Ended June 30
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------
NET ASSET VALUE... $ 14.76 $ 13.01 $ 11.51 $ 9.01 $ 11.57 $ 12.71 $ 8.44 $ 9.77 $ 9.62 $ 7.15
INCOME DIVIDENDS.. $ .04 $ .06 $ .09 $ -- $ .01 $ .27 $ -- $ .03 $ .17 $ .33
CAPITAL GAINS
DISTRIBUTIONS..... $ 3.55 $ 4.24 $ .52 $ .21 $ -- $ .39 $ .96 $ -- $ -- $ --
FUND TOTAL
RETURN (%)........ 3.18 18.66 -6.69 -20.14 28.54 16.91 -27.29 16.16 0.54 -22.09
INDEX TOTAL
RETURN (%)........ 4.84 -8.94 -13.88 -25.13 53.93 14.25 -16.27 11.60 -12.32 -34.08
</TABLE>
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased.
6
<PAGE>
PORTFOLIO SUMMARY as of June 30, 1998
- ---------------------------------------------------------------------------
ASSET ALLOCATION
- ---------------------------------------------------------------------------
Equity Holdings 92%
Cash Equivalents 7%
Fixed Income Holdings 1%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The Fund remains almost
fully invested in Japanese
equity securities.
- ---------------------------------------------------------------------------
SECTOR DIVERSIFICATION (Excludes 7% Cash Equivalents)
- ---------------------------------------------------------------------------
Financial 20%
Technology 18%
Consumer Discretionary 14%
Manufacturing 13%
Consumer Staples 12%
Health 6%
Service Industries 4%
Construction 4%
Media 3%
Other 6%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The Fund maintained an
overweighting in the
financial sector, despite
trimming its exposure to
banks due to deterioration
in credit standing for many
major Japanese banks.
- ---------------------------------------------------------------------------
TEN LARGEST HOLDINGS (40% of Portfolio)
- ---------------------------------------------------------------------------
1. NIDEC CORP..
Top global manufacturer of small-scale motors for hard disc drives
2. CANON INC.
Leading producer of visual image and information equipment
3. NOMURA SECURITIES CO., LTD.
Leading Japanese securities broker and underwriter
4. ORIX CORP.
Largest leasing company in Japan
5. UNI-CHARM CO., LTD.
Leading manufacturer of sanitary napkins and paper diapers
6. SHIMANO INC.
Top global producer of bicycle parts
7. NIKKO SECURITIES CO., LTD.
Leading securities broker and dealer
8. MURATA MANUFACTURING CO., LTD.
Leading maker of ceramic capacitors and filters
9. MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
Leading maker of consumer electronic products
10. NINTENDO CO., LTD.
Leading game equipment manufacturer
Top holdings Nidec and
Nikko Securities were
involved in major
acquisitions during the
period that benefited the
Fund considerably.
- ---------------------------------------------------------------------------
For more complete details about the Fund's Investment Portfolio, see page
8. A monthly Investment Portfolio Summary and quarterly Portfolio Holdings
are available upon request.
7
<PAGE>
THE JAPAN FUND, INC.
INVESTMENT PORTFOLIO (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount (b) Value ($)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 3.7%
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 6/30/1998 at 5.75% to
be repurchased on 7/1/1998 at $10,789,723 collateralized by a $10,652,000 U.S. Treasury
Bond, 6.375%, 5/15/2000 (Cost $10,788,000)............................................. 10,788,000 10,788,000
----------
U.S. GOVERNMENT & AGENCIES 0.3%
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bill, 4.72%, 10/1/1998 (Cost $765,295) (d)................................... 775,000 765,116
----------
SHORT-TERM NOTES 2.9%
- -----------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association Discount Note, 5.84%, 7/1/1998 (Cost $8,498,619)..... 8,500,000 8,500,000
----------
FOREIGN BONDS -- NON U. S.$ DENOMINATED 0.6%
- -----------------------------------------------------------------------------------------------------------------------------
Sony Corp., 0.15%, 3/30/2001 (Cost $1,399,151)............................................. JPY 131,000,000 1,728,713
----------
CONVERTIBLE BONDS 3.5%
- -----------------------------------------------------------------------------------------------------------------------------
MEDIA 0.8%
Print Media
Softbank Corp., Zero Coupon, 3/31/2000..................................................... JPY 246,000,000 2,279,344
----------
MANUFACTURING 0.4%
Office Equipment/Supplies
Ricoh Co., Ltd., 1.5%, 3/29/2002........................................................... JPY 123,000,000 1,322,198
----------
TECHNOLOGY 2.3%
Electronic Components/Distributors 1.6%
Nidec Corp., 1%, 9/30/2003 (c)............................................................. JPY 263,000,000 4,797,568
Electronic Data Processing 0.6% ----------
Fujitsu Ltd., 1.95%, 3/31/2003............................................................. JPY 162,000,000 1,735,568
Semiconductors 0.1% ----------
Tokyo Electron Ltd., 0.9%, 9/30/2003....................................................... JPY 16,000,000 159,832
----------
TOTAL CONVERTIBLE BONDS (Cost $8,255,604)........................................................ 10,294,510
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
COMMON STOCKS 89.0%
- ------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 12.9%
Department & Chain Stores 0.8%
York-Benimaru Co., Ltd. ............................................ 126,900 2,397,546
Recreational Products 7.2% ----------
Nintendo Co., Ltd. ................................................. 95,900 8,920,446
Shimano Inc. ....................................................... 437,000 11,134,967
Square Co., Ltd. ................................................... 35,200 942,778
----------
20,998,191
----------
Restaurants 1.3%
Genki Sushi Co., Ltd. .............................................. 104,000 1,129,248
Yoshinoya D&C Co., Ltd. ............................................ 320 2,779,688
----------
3,908,936
----------
Specialty Retail 3.6%
Fast Retailing Co., Ltd. ........................................... 168,300 1,583,771
Ryohin Keikaku Co., Ltd. ........................................... 31,600 3,042,311
Senshukai........................................................... 754,000 3,618,676
Shimachu Co., Ltd. ................................................. 146,000 2,409,642
----------
10,654,400
----------
CONSUMER STAPLES 10.7%
Consumer Electronic & Photographic Products 0.9%
Fuji Photo Film Co., Ltd. .......................................... 72,000 2,517,355
Food & Beverage 3.0% ----------
Ariake Japan Co., Ltd. ............................................. 80,000 2,021,065
Fujicco Co., Ltd. .................................................. 350,000 3,876,362
Rock Field Co., Ltd. ............................................... 217,000 3,078,794
----------
8,976,221
----------
Package Goods/Cosmetics 3.9%
Uni-Charm Co., Ltd. ................................................ 306,800 11,415,194
Textiles 2.9% ----------
Gunze, Ltd. ........................................................ 1,678,000 3,850,490
Nisshinbo Industries Inc. .......................................... 162,000 650,838
Teijin, Ltd. ....................................................... 1,312,000 3,988,852
----------
8,490,180
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTH 5.9%
Medical Supply & Specialty 1.7%
Terumo Corporation.................................................. 311,000 4,952,767
Pharmaceuticals 4.2% ----------
Taisho Pharmaceutical Co., Ltd. .................................... 279,000 5,230,808
Yamanouchi Pharmaceutical Co., Ltd. ................................ 346,000 7,238,337
----------
12,469,145
----------
COMMUNICATIONS 1.0%
Telephone/Communications
Hikari Tsushin, Inc. ............................................... 91,000 2,898,404
----------
FINANCIAL 18.1%
Banks 1.9%
Sakura Bank, Ltd. .................................................. 2,085,000 5,433,421
----------
Other Financial Companies 16.2%
Daiwa Securities Co., Ltd. ......................................... 1,549,000 6,694,075
Jafco Co., Ltd. .................................................... 156,000 4,178,219
Nichiei Co., Ltd. .................................................. 8,413 574,894
Nikko Securities Co., Ltd. ......................................... 2,637,000 10,975,967
Nomura Securities Co., Ltd. ........................................ 1,025,000 11,982,880
Orix Corp. ......................................................... 171,800 11,652,727
Shohkoh Fund & Co., Ltd. ........................................... 6,300 1,555,105
----------
47,613,867
----------
MEDIA 2.1%
Advertising 2.0%
Asatsu Inc. ........................................................ 291,800 5,967,172
----------
Print Media 0.1%
Softbank Corp. ..................................................... 8,300 324,442
----------
SERVICE INDUSTRIES 3.9%
Environmental Services 1.3%
Sanix Inc. ......................................................... 177,500 3,790,401
Miscellaneous Commercial Services 1.0% ----------
Secom Co., Ltd. .................................................... 51,000 2,957,110
----------
Printing/Publishing 1.6%
Toppan Forms Co., Ltd. ............................................. 353,000 4,630,178
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
DURABLES 2.9%
Automobiles 1.2%
Kyokuto Kaihatsu Kogyo Co., Ltd. .................................... 242,100 914,808
ShinMaywa Industries, Ltd. .......................................... 1,010,000 2,558,906
----------
3,473,714
----------
Telecommunications Equipment 1.7%
Matsushita Communication Industrial Co., Ltd. ....................... 186,000 4,927,866
----------
MANUFACTURING 11.3%
Containers & Paper 1.2%
Hokuetsu Paper Mills, Ltd. .......................................... 802,000 3,628,434
Electrical Products 0.2% ----------
Yaskawa Electric Corp. .............................................. 187,000 584,777
Industrial Specialty 1.2% ----------
NHK Spring Co., Ltd. ................................................ 1,463,000 3,717,203
Machinery/Components/Controls 1.4% ----------
Minebea Co., Ltd. ................................................... 316,000 3,158,971
SMC Corp. ........................................................... 13,700 1,046,256
----------
4,205,227
----------
Office Equipment/Supplies 7.3%
Canon Inc. .......................................................... 570,000 12,997,213
Canon Chemicals, Inc. ............................................... 505,000 5,337,146
Ricoh Co., Ltd. ..................................................... 278,000 2,940,085
----------
21,274,444
----------
TECHNOLOGY 14.9%
Diverse Electronic Products 3.1%
Matsushita Electric Industrial Co., Ltd. ............................ 557,000 8,991,350
----------
Electronic Components/Distributors 9.0%
Murata Manufacturing Co., Ltd. ...................................... 277,000 9,023,128
Nidec Corp. ......................................................... 231,300 15,872,627
TDK Corp. ........................................................... 20,000 1,483,948
----------
26,379,703
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Electronic Data Processing 2.0%
Fujitsu Ltd. ....................................................... 572,000 6,045,242
Semiconductors 0.8% ------------
Tokyo Electron Ltd. ................................................ 73,000 2,245,829
------------
ENERGY 0.4%
Oil & Gas Production
Nippon Oil Co., Ltd. ............................................... 388,000 1,258,272
------------
METALS & MINERALS 1.1%
Steel & Metals
Nisshin Steel Co., Ltd. ............................................ 835,000 1,178,653
Sumitomo Metal Industries, Ltd. .................................... 1,233,000 1,990,365
------------
3,169,018
------------
CONSTRUCTION 3.8%
Building Materials 1.4%
Chichibu Onada Cement Corp. ........................................ 1,120,000 2,034,963
Sumitomo Osaka Cement Co., Ltd. .................................... 1,607,000 2,070,620
------------
4,105,583
------------
Homebuilding 1.9%
Daito Trust Construction Co., Ltd. ................................. 723,500 5,499,113
Miscellaneous 0.5% ------------
Toshiba Engineering & Construction Co., Ltd. ....................... 480,000 1,389,844
------------
TOTAL COMMON STOCKS (Cost $320,138,392)............................. 261,290,549
------------
- ------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0% (Cost $349,845,061) (a)........ $293,366,888
============
</TABLE>
(a) The cost for federal income tax purposes was $355,611,169. At June 30,
1998, net unrealized depreciation for all securities based on tax cost
was $62,244,281. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $15,967,820 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost
over market value of $78,212,101.
(b) Principal amount stated in U.S. dollars unless otherwise noted.
(c) Securities valued in good faith by the Valuation Committee of the Board
of Directors at fair value amounted to $4,797,568 (1.6% of net assets).
Their values have been estimated by the Board of Directors in the absence
of readily ascertainable market values. However, because of the inherent
uncertainty of valuation, those estimated values may differ significantly
from the values that would have been used had a ready market for the
securities existed, and the difference could be material. The cost of
these securities at June 30, 1998 aggregated $2,570,380. These securities
may also have certain restrictions as to resale.
(d) At June 30, 1998, this security has been pledged to cover initial margin
requirements for open futures contracts.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
- -------------------------------------------------------------------------------
At June 30, 1998, open futures contracts purchased long were as follows:
<TABLE>
<CAPTION>
AGGREGATE MARKET UNREALIZED
FUTURES EXPIRATION CONTRACTS FACE VALUE ($) VALUE ($) APPRECIATION ($)
------- ---------- --------- -------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Topix Index September 15, 1998 350,000 3,007,347 3,102,356 95,009
Nikkei 225 September 15, 1998 27,000 2,986,427 3,068,189 81,762
--------- --------- -------
5,993,774 6,170,545 176,771
========= ========= =======
</TABLE>
CURRENCY ABBREVIATIONS
--------------------------------------------------------
JPY Japanese Yen
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
THE JAPAN FUND, INC.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)
--------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments, at market (identified cost $349,845,061).......... $293,366,888
Foreign currency holdings, at market (identified
cost $404,875)............................................. 416,384
Receivable for investments sold................................ 2,374,881
Receivable for fund shares sold................................ 8,044,220
Dividends and interest receivable.............................. 1,074,802
Receivable for daily variation margin on open
futures contracts.......................................... 224,522
Other assets................................................... 83,011
------------
Total assets................................................... 305,584,708
LIABILITIES
Payable for fund shares redeemed............................... 4,314,908
Accrued management fee......................................... 174,442
Other payables and accrued expenses............................ 573,461
------------
Total liabilities.............................................. 5,062,811
------------
Net assets, at market value.................................... $300,521,897
============
NET ASSETS
Net Assets consists of:
Accumulated distributions in excess of net investment income... $ (468,637)
Net unrealized appreciation (depreciation) on:
Investments................................................ (56,478,173)
Futures.................................................... 176,771
Foreign currency related transactions...................... (41,926)
Accumulated net realized loss.................................. (57,067,075)
Paid-in capital................................................ 414,400,937
------------
Net assets, at market value.................................... $300,521,897
============
NET ASSET VALUE, offering and redemption price per share
($300,521,897 / 42,045,284 outstanding shares of capital
stock, $.333 par value, 600,000,000 shares authorized) $ 7.15
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
THE JAPAN FUND, INC.
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
-----------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income:
Dividends (net of withholding taxes of $254,638).............. $ 1,449,163
Interest (net of withholding taxes of $3,680)................. 596,314
------------
2,045,477
Expenses:
Management fee................................................ 1,158,631
Shareholder and Transfer Agent services....................... 305,871
Officers and directors fees and expenses...................... 103,993
Custodian and accounting fees................................. 134,664
Reports to shareholders....................................... 73,838
Legal......................................................... 71,278
Auditing...................................................... 32,750
Registration fees............................................. 31,386
Other......................................................... 22,236
------------
1,934,647
------------
Net investment income (loss).................................. 110,830
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain (loss) from:
Investments................................................... (11,935,127)
Futures....................................................... (228,897)
Foreign currency related transactions......................... 47,706
------------
(12,116,318)
------------
Net unrealized appreciation (depreciation) during the period on:
Investments................................................... 30,638,812
Futures....................................................... 176,771
Foreign currency related transactions......................... (61,856)
------------
30,753,727
------------
Net gain (loss) on investment transactions.................... 18,637,409
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM ------------
OPERATIONS................................................ $ 18,748,239
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
THE JAPAN FUND, INC.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) 1997
---------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss)..................... $ 110,830 $ (1,459,070)
Net realized gain (loss) from investment
transactions................................. (12,116,318) 21,214,707
Net unrealized appreciation (depreciation) on
investment transactions during the period.... 30,753,727 (56,888,094)
------------- -------------
Net increase (decrease) in net assets resulting
from operations.............................. 18,748,239 (37,132,457)
------------- -------------
Distributions to shareholders:
From net investment income....................... (3,176,155) --
In excess of net investment income............... -- (14,966,112)
------------- -------------
Total distributions to shareholders.............. (3,176,155) (14,966,112)
------------- -------------
Fund share transactions:
Proceeds from shares sold........................ 270,569,293 359,886,210
Net asset value of shares issued to
shareholders in reinvestment of distributions 2,709,032 12,571,505
Cost of shares redeemed.......................... (253,510,443) (441,141,177)
------------- -------------
Net increase (decrease) in net assets from Fund
share transactions........................... 19,767,882 (68,683,462)
------------- -------------
INCREASE (DECREASE) IN NET ASSETS................ 35,339,966 (120,782,031)
Net assets at beginning of period................ 265,181,931 385,963,962
------------- -------------
NET ASSETS AT END OF PERIOD (including
accumulated distributions in excess of net
investment income of $468,637 and
undistributed net investment income of
$2,596,688, respectively).................... $ 300,521,897 $ 265,181,931
============= =============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period........ 39,174,523 46,358,011
------------- -------------
Shares sold...................................... 37,501,008 43,064,968
Shares issued to shareholders in reinvestment of
distributions................................ 367,077 1,805,563
Shares redeemed.................................. (34,997,324) (52,054,019)
------------- -------------
Net increase (decrease) in Fund shares........... 2,870,761 (7,183,488)
------------- -------------
Shares outstanding at end of period.............. 42,045,284 39,174,523
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
THE JAPAN FUND, INC.
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
1998 (a) -----------------------------------------------------------------
(UNAUDITED) 1997(a) 1996(a) 1995 1994(a) 1993(a)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period...... $ 6.77 $ 8.33 $ 9.44 $ 10.50 $ 10.33 $ 8.90
------- ------- -------- -------- -------- --------
Income from investment operations:
Net investment income (loss).............. .00 (.03) (.03) (.01) (.05) (.05)
Net realized and unrealized gain (loss)
on investments.......................... .46 (1.16) (1.00) (.94) 1.07 2.15
------- ------- ------- -------- -------- --------
Total from investment operations.......... .46 (1.19) (1.03) (.95) 1.02 2.10
------- ------- ------- -------- -------- --------
Less distributions:
From net investment income................ (.08) -- -- -- -- --
In excess of net investment income........ -- (.37) (.08) -- -- (.28)
From net realized gains on investment.....
transactions............................ -- -- -- -- (.80) (.39)
In excess of net realized gains........... -- -- -- (.11) (.05) --
------- ------- -------- -------- ------- -------
Total distributions....................... (.08) (.37) (.08) (.11) (.85) (.67)
------- ------- ------- -------- ------- -------
Net asset value, end of period............ $ 7.15 $ 6.77 $ 8.33 $ 9.44 $ 10.50 $ 10.33
======= ======= ======== ======== ======== ========
TOTAL RETURN (%).......................... 6.69** (14.40) (10.92) (9.07) 10.03 23.64
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions).... 301 265 386 549 586 471
Ratio of operating expenses to average
daily net assets (%).................... 1.31* 1.21 1.16 1.21 1.08 1.25
Ratio of net investment income (loss) to
average daily net assets (%)............ .07* (.38) (.34) (.24) (.40) (.47)
Portfolio turnover rate (%)............... 89.2* 96.4 72.6 69.9 74.3 81.7
</TABLE>
(a) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
17
<PAGE>
THE JAPAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
A. Significant Accounting Policies
The Japan Fund, Inc. (the "Fund") is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company. The Fund's
financial statements are prepared in accordance with generally accepted
accounting principles which require the use of management estimates. The
policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio securities which are traded on an exchange are
valued at the most recent sale price reported on the exchange on which the
security is traded most extensively. If no sale occurred, the security is then
valued at the calculated mean between the most recent bid and asked quotations.
If there are no such bid and asked quotations, the most recent bid quotation is
used. Securities traded in the over-the-counter market are valued at the most
recent sale price on such market. If no sale occurred in the over-the-counter
market, the security is then valued at the calculated mean between the most
recent bid and asked quotations. If there are no such bid and asked quotations,
the most recent bid quotation shall be used.
Portfolio debt securities purchased with an original maturity greater than sixty
days are valued by pricing agents approved by the officers of the Fund, which
quotations reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Money market instruments purchased with an original maturity of
sixty days or less are valued at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Directors.
Futures Contracts. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of an item at a
specified price on a specific date (settlement date). During the period, the
Fund purchased securities index futures as a temporary substitute for purchasing
selected investments.
Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund each day,
dependent on the daily fluctuations in the value of the underlying security, and
are recorded for financial reporting purposes as unrealized gains or losses by
the Fund. When entering into a closing transaction, the Fund will realize a gain
or loss equal to the difference between the value of the futures contract to
sell and the futures contract to buy. Futures contracts are valued at the most
recent settlement price.
Certain risks may arise upon entering into futures contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out a
futures contract prior to the settlement
18
<PAGE>
THE JAPAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
date and that a change in the value of a futures contract may not correlate
exactly with changes in the value of the securities or currencies hedged. When
utilizing futures contracts to hedge, the Fund gives up the opportunity to
profit from favorable price movements in the hedged positions during the term of
the contract.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and
liabilities at the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and
interest income and certain expenses at the daily rates of
exchange prevailing on the respective dates of such
transactions.
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
market prices of the investments. Such fluctuations are included with the net
realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange
contract (forward contract) is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
Fund utilized forward contracts as a hedge in connection with portfolio
purchases and sales of securities denominated in foreign currencies.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
Federal Income Taxes. No provision for United States income taxes has been made
since it is the Fund's policy to comply with provisions of the Internal Revenue
Code, as amended, applicable to
19
<PAGE>
THE JAPAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
regulated investment companies. Under the United States-Japan tax treaty, Japan
imposes a withholding tax of 15% on dividends and 10% on interest. There is
currently no Japanese tax on capital gains.
At December 31, 1997, the Fund had a net tax basis capital loss carryforward of
approximately $35,818,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until December 31,
2003 ($23,266,000), December 31, 2004 ($7,417,000) and December 31, 2005
($5,135,000), the respective expiration dates, whichever occurs first. In
addition, from November 1, 1997 through December 31, 1997, the Fund incurred
approximately $3,367,000 of net realized capital losses. As permitted by tax
regulations, the Fund intends to elect to defer these losses and treat them as
arising in the fiscal year ending December 31, 1998.
Distribution of Income and Gains. Distributions of net investment income are
made annually. During any particular year, net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders annually. An additional distribution may be made to the extent
necessary to avoid the payment of a four percent federal excise tax. Earnings
and profits distributed to shareholders on redemption of Fund shares ("tax
equalization") may be utilized by the Fund, to the extent permissible, as part
of the Fund's dividends paid deduction on its federal income tax return.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to investments in forward contracts, foreign
denominated investments, passive foreign investment companies, and certain
securities sold at a loss. As a result, net investment income (loss) and net
realized gain (loss) on investment transactions for a reporting period may
differ significantly from distributions during such period. Accordingly, the
Fund may periodically make reclassifications among certain of its capital
accounts without impacting the net asset value of the Fund. The Fund uses the
identified cost method for determining realized gain or loss on investments for
both financial and federal income tax reporting purposes.
Other. Investment security transactions are accounted for on a trade-date basis.
Dividend income and distributions to shareholders are recorded on the ex-
dividend date. Interest income is recorded on an accrual basis. Acquisition
discount and original issue discount are accreted for both tax and financial
reporting purposes.
B. Purchases and Sales of Securities
For the six months ended June 30, 1998, purchases and sales of investment
securities (excluding short-term investments) aggregated $123,261,863 and
$125,734,828, respectively.
The aggregate face value of futures contracts opened and closed during the six
months ended June 30, 1998 was $40,088,197 and $34,094,423, respectively.
20
<PAGE>
THE JAPAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. (the "Adviser"), the Adviser directs the investments of the
Fund in accordance with its investment objective, policies, and restrictions.
The Adviser determines the securities, instruments, and other contracts relating
to investments to be purchased, sold or entered into by the Fund. In addition to
portfolio management services, the Adviser provides certain administrative
services in accordance with the Agreement. The Fund agrees to pay the Adviser a
fee equal to an annual rate of 0.85% of the first $100,000,000 of the Fund's
average daily net assets, 0.75% of the next $200,000,000 of such assets, 0.70%
of the next $300,000,000 of such assets and 0.65% of such net assets in excess
of $600,000,000 computed and accrued daily and paid monthly. For the six months
ended June 30, 1998, the fee pursuant to these agreements amounted to
$1,158,631, of which $174,422 is unpaid at June 30, 1998. This was equivalent to
an annual effective rate of 0.78% of the Fund's average daily net assets.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
six months ended June 30, 1998, the amount charged to the Fund by SSC aggregated
$266,985, of which $36,353 is unpaid at June 30, 1998.
The Fund pays each of its Officers and Directors not affiliated with the Adviser
an annual fee plus specified amounts for attended board and committee meetings.
For the six months ended June 30, 1998, the Officers and Directors fees and
expenses aggregated $76,748.
D. Directors' Retirement Benefits
Under a retirement program, which became effective January 1, 1992, independent
members of the Board of Directors who meet certain criteria become eligible to
participate in a defined benefit retirement program. Under this program monthly
payments will be made for a period of 120 months by the Fund based on the
individual's final year basic Directors fees and length of service. For the six
months ended June 30, 1998, Directors' retirement benefits amounted to $27,245.
At June 30, 1998, the Fund has accrued $249,344 for such benefits.
E. Lines of Credit
The Fund and several affiliated funds ("the Participants") share in a $500
million revolving credit facility for temporary or emergency purposes, including
the meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated among each of the Participants. Interest is calculated based
on the market rates at the time of the borrowing. The Fund may borrow up to a
maximum of 33 percent of its net assets under the agreement. In addition, the
Fund also maintains an uncommitted line of credit.
21
<PAGE>
THE JAPAN FUND, INC.
OFFICERS AND DIRECTORS
Henry Rosovsky
Chairman of the Board and Director
Professor Emeritus, Harvard
University; Professor, Geyser
University; Director, Corning
Inc., Paine Webber Group
Lynn Birdsong*
President
Peter Booth
Director
Senior Vice President,
Corning Inc.
William L. Givens
Director
President, Twain Associates
William H. Gleysteen, Jr.
Director
Consultant; Guest Scholar,
Brookings Institute
Thomas H. Hout
Director
Formerly Vice President and
Director, Boston Consulting
Group
John F. Loughran
Director
Director, The Finisterre Fund
Yoshihiko Miyauchi
Director
President and CEO, ORIX
Corporation
William V. Rapp
Director
Academic Director, International
Relations, Yale University; Senior
Research Associate, Columbia University;
Managing Director, Rue Associates
Takeo Shiina
Director
Chairman, President and
CEO, IBM Japan, Ltd.
O. Robert Theurkauf*
Director
Hiroshi Yamanaka
Director
Advisor to the Board, The Meiji
Mutual Life Insurance Company; Lifetime
Executive Director, Japan Association of
Corporate Executives; Vice Chairman, The
Security Analysts Association of Japan;
Governor, Board of Governors, Tokyo Stock
Exchange; Auditor, The Bank of
Tokyo-Mitsubishi, Ltd., The Mitsubishi
Foundation, Mitsubishi Research Institute;
Director, Kirin Brewery Co., Ltd., Seijo
Gakuen; Doctor of Commerce, Chuo
University
Elizabeth J. Allan*
Vice President
William E. Holzer*
Vice President
Thomas W. Joseph*
Vice President
Seung Kwak*
Vice President
Miyuki Wakatsuki
Vice President
Manager, Nikko International Capital
Management Co., Ltd.
Gina Provenzano*
Vice President and Treasurer
Kathryn L. Quirk*
Vice President and Secretary
John R. Hebble*
Assistant Treasurer
Thomas F. McDonough*
Assistant Secretary
HONORARY DIRECTORS
Allan Comrie
Former Director, The Japan Fund, Inc.
Jonathan Mason
Former Chairman of the Board and Director,
The Japan Fund, Inc.
James W. Morley
Professor of Political Science Emeritus,
Columbia University
Robert G. Stone, Jr.
Former Chairman of the Board and Director,
The Japan Fund, Inc.; Chairman Emeritus
and Director, Kirby Corporation
Shoji Umemura
Former Director of The Japan Fund, Inc.
Board Counselor, The Nikko Securities Co.,
Ltd.; Counselor, Tokyo Stock Exchange;
Advisor, Japan Securities Dealers
Association, Association of Tokyo Stock
Exchange Regular Members; Director, The
Securities Analysts Association of Japan;
Advisor, Japan Association of Corporate
Executives; Associate Advisor, Tokyo
Chamber of Commerce and Industry; Vice
President, Japan-Korea Economic
Association; Member, Executive Board,
Waseda University; Chairman, Congregation,
Waseda University
* Scudder Kemper Investments, Inc.
22
<PAGE>
(BLANK PAGE)
<PAGE>
(logo)
You can call toll free (1-800-343-2890) anytime day or night and get access to
automated information regarding transactions in your account as well as The
Japan Fund's share price. By using your touch-tone telephone and providing the
necessary information (including your account number), you can receive daily
updates from this computerized system.
We remind all shareholders that the Fund offers a free dividend reinvestment
program. You can obtain additional information about this feature and arrange to
have all dividends and capital gain distributions reinvested in additional Fund
shares by calling The Japan Fund Service Center at 1-800-53-JAPAN
(1-800-535-2726). The Fund typically distributes capital gains twice a year
(December and March).
HOW TO CONTACT US:
1-800-53-JAPAN
1-800-535-2726
(Outside the U.S. call 617-295-1000)
The Japan Fund
Shareholder Service Center
Two International Place
Boston, MA 02110
Scudder Kemper Investments, Inc.
Investment Manager
