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.
Annual Report
December 31, 1997
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................................................ 8
Portfolio Summary................................................. 9
Investment Portfolio.............................................. 10
Itemized list of your Fund's portfolio holdings
Financial Statements.............................................. 14
Financial Highlights.............................................. 17
Notes to Financial Statements..................................... 18
Report of Independent Accountants................................. 23
Tax Information................................................... 24
Stockholder Meeting Results....................................... 25
Officers and Directors............................................ 27
How to Contact The Japan Fund............................. Back cover
2
<PAGE>
THE JAPAN FUND, INC.
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
1997 was another trying year for investors in Japanese equities. With
the 7.95% depreciation in the yen and the 20.10% decline in the stock market,
the dollar based TOPIX experienced a total return of -28.05%. In contrast, The
Japan Fund provided a total return of -14.40%, outperforming the TOPIX
benchmark.
Despite the poor performance of Japanese equities over the period, as
outlined in a special letter to shareholders of The Japan Fund, dated January
16, 1998, as well as in the following discussion, we believe the foundation is
being laid for an improved business and investment climate in Japan. This view
is supported by both improved equity valuations and the ongoing trend toward
deregulation of the Japanese economy.
Review of 1997
The Japanese stock market and the yen rallied in the first half of
1997, as the front-loading of demand before the consumption tax hike in April
raised hopes of a gradual reflation in the Japanese economy. In addition, the
government's rescue plan for the ailing Nippon Credit Bank was viewed as an
indication of progress toward getting financial system risks under control, and
nascent corporate initiatives in share buybacks and management stock options
reflected a new sensitivity to stock price levels by a growing number of
Japanese corporate managers.
However, optimism eroded rapidly in the latter half of the year as
economic activity stalled after the fiscal retrenchment became effective.
Furthermore, the currency and stock market crisis in Southeast Asia in late
summer threatened to slow the only vibrant engine of growth in Japan, the export
sector. Finally, a series of major bankruptcies in the fall, culminating in the
collapse of a major bank, Hokkaido Takushoku Bank, and a major securities
company, Yamaichi Securities, the largest post-war bankruptcy, caused a severe
loss of confidence in the strength of the Japanese financial system, uncertainty
among consumers about their employment prospects, and a cynicism regarding the
ability of the authorities to contain the economic and financial downturn. The
two trillion yen surprise tax cut announced in December failed to reverse this
negative market sentiment. The yen entered into a new bout of weakness in the
second half of the year, and the TOPIX closed 1997 near its record low for the
post-1990 bear market.
3
<PAGE>
THE JAPAN FUND, INC.
PORTFOLIO MANAGEMENT DISCUSSION
There were some bright spots within the stock market, however. The growing
deregulation and globalization of the Japanese economy continued to support a
polarization between the "winners" and the "losers" in the stock market.
Non-bank financial companies, global companies, and the strongest companies in
their respective industries retained much of their value, while the weaker
companies and industries were sold mercilessly. This polarization significantly
boosted the performance of The Japan Fund versus the overall market. The Fund's
core holdings among global companies, such as Canon, Sony, and Ricoh, its core
holdings among non-bank financials, such as Nichiei, Shohkoh Fund, and Orix, as
well as the Fund's major holdings among industry leaders such as Secom, Nomura
Securities, and Nippon Meat Packers, buttressed the Fund's performance in a
falling market.
Improved Valuations Support Outlook
The overall market sentiment in Tokyo as we enter 1998 is very weak, and
the visible economic and earnings prospects indicate a possibility of further
near term weakening of the yen and the stock market. However, an objective
analysis of market valuations gives some signs of encouragement for the
fundamental investor. This is because we believe that valuations for many of the
companies in the Japanese market may have by now, to a large extent, discounted
the worst of the market's fears. At the end of 1997, over half of the companies
on the Tokyo Stock Exchange First Section were selling below book value and at
price-earnings ratios of less than 25, while nearly the same number offered
dividend yields in excess of the 10-year Japanese government bond yield.
Because of the major waves of deregulation and global competition, some of
the cheapest stocks may be on their way to bankruptcy. However, we believe that
many others that have been similarly sold down have the potential to cut costs,
expand margins and boost earnings once the management becomes more stock price
and earnings driven. And this change in Japanese corporate governance from an
emphasis on stakeholders -- employees, creditors, suppliers, buyers -- to an
emphasis on equity shareholders appears to be gaining momentum. As visible
evidence of such a trend, stock buybacks and introduction of management stock
options are accelerating and increasingly becoming mainstream, rather than
maverick, activities.
4
<PAGE>
THE JAPAN FUND, INC.
PORTFOLIO MANAGEMENT DISCUSSION
To be sure, stock market movements often overshoot fair valuations by
large magnitudes and for protracted durations, both on the upside and downside.
A highly visible catalyst is often needed for market dynamics to be reversed and
for attractive values to come into focus. While it is difficult to predict the
nature and timing of such a catalyst, we believe that several potential
developments could act as a trigger for any market rebound.
First, the Hashimoto regime is currently claiming both fiscal balance
and economic stimulus as policy goals; a capitulation on the goal of budget
retrenchment would help restore confidence in the prospects for recovery.
Second, radical changes in the stock market, the financial system, and corporate
structures would also fuel the necessary change in market dynamics. These could
include massive infusion of public money to shore up bank capital, a large
reduction in corporate taxes or taxation on dividends, or a creation of some
mechanisms to offset sales of cross-holdings with share buybacks. Finally, as
valuations of even sound businesses get cheap enough, merger and acquisition
("M&A") activity that attempts to unlock the large corporate wealth -- assets,
brand, distribution, or technology -- may lead to a reappraisal of "value" in
Japanese corporations. Already, the management of Nidec, one of The Japan Fund's
top holdings, has begun to acquire other publicly traded companies with strong
technology, established production and distribution channels, and capable
personnel at attractive prices. The continued dissolution of cross-holdings and
the already visible signs that the banks are moving away from protecting their
"convoy" of borrowers indicate that the "normal" capital market dynamics of M&A
activity should occur in Japan in a matter of time. The Japanese market should
no longer be immune to market discipline, and these forces may speed the pace of
much-needed consolidation and restructuring in many Japanese industries.
Portfolio Focus on "Winners" from Deregulation
The Japan Fund continues to focus on the likely "winners" in an environment
of deregulation and globalization. Global companies, smaller and medium size
growth companies with the potential to become future blue chips, and leading
domestic companies with attractive valuations continue to be the backbone of the
Fund. Among the Fund's top ten holdings at 1997-end were: Canon, Nintendo, and
Shimano among global companies;
5
<PAGE>
THE JAPAN FUND, INC.
PORTFOLIO MANAGEMENT DISCUSSION
Unicharm, Shohkoh Fund, and Nidec among potential blue chips; and Secom, Orix,
and Nomura Securities among domestic industry leaders.
To position the Fund for 1998, we have added to investments in the food and
pharmaceutical industries, first, to add to the defensiveness of the portfolio
given uncertainties in economic and market prospects, and second, to seize the
upside opportunity afforded by the attractive M&A valuation of some of these
companies. For example, House Foods and Yamanouchi Pharmaceutical boast strong
brands, competitive positions, and distribution, and carry large net cash on
their balance sheets equal to a substantial portion of their stock market
capitalizations. Moreover, they generate steady and growing streams of free cash
flow which we believe are undervalued by the stock market.
In the financial sector, while Nomura Securities is among our top holdings
because of its prospects as a "winner" in its industry, we have also added Daiwa
and Nikko Securities, given that they now sell for less than their current net
asset values, not including the hidden value of their asset management
subsidiaries, despite having among the top three domestic securities
distribution networks. We have also initiated preliminary investments in some of
the major banks since November, as we believe that the collapse of bank stocks
to levels 80% below their peak and valuations relative to operating profits on
par with global valuations indicate that the market may finally be discounting
much of their bad debt risks. Moreover, the changes we observe in some of the
leading banks' managements from asset expansion orientation to asset downsizing
and margin expansion indicate a potential for substantial improvement in
shareholder returns once the bad debt issues are cleared. We are even beginning
to see evidence that some of the leading banks have joined the better known
global companies in leading Japanese corporate governance to a greater
shareholder orientation. We believe that these recent additions should boost the
Fund's performance on the next market upturn, as well as over the longer term.
A Stronger Foundation for Japanese Equities
While further bankruptcies among the weaker publicly traded companies,
especially in industries such as construction, finance, and basic materials, may
6
<PAGE>
be possible, and the stock market may be vulnerable to more volatility in the
short term, we view such shocks as the necessary cost of removing excess
capacity, forcing consolidation and restructuring of Japanese corporations that
will emerge as stronger and more profitable global players. We believe that the
current turmoil is not the start of a meltdown of the Japanese financial system,
but the birth pains of a new, more global, and ultimately stronger corporate
sector in Japan.
Unlike its Asian neighbors, Japan still boasts one of the top credit
ratings in terms of sovereign risk, the largest current account surplus in the
world, a motivated and well educated work force, a deep capital and technology
base, and a group of world class companies who are leading the way to a more
shareholder oriented corporate management. We believe the Fund is well
positioned to capitalize on the long-term opportunity presented by one of the
world's largest and most highly developed economies, and thank you for your
continued investment.
Sincerely,
/s/Lynn Birdsong, /s/Henry Rosovsky,
Lynn Birdsong, Henry Rosovsky,
President Chairman
The Japan Fund:
A Team Approach to Investing
The Japan Fund is managed by a team of Scudder Kemper Investments, Inc. (SKI)
professionals who each play an important role in the Fund's management process.
Team members work together to develop investment strategies and select
securities for the Fund. They are supported by a large staff of economists,
research analysts, traders, and other investment specialists who work in our
offices across the United States and abroad. We believe our team approach
benefits Fund investors by bringing together many disciplines and leveraging
SKI's extensive resources.
Lead Portfolio Manager Seung Kwak assumed responsibility for the Fund's
investment strategy and daily operation in 1994 and has been a member of the
portfolio management team since 1989. Mr. Kwak has directed our Tokyo-based
research effort since he joined SKI in 1988. Elizabeth J. Allan, Portfolio
Manager, helps set the Fund's general investment strategy. Ms. Allan has
contributed her expertise to the management of the Fund since she joined SKI in
1987 and has numerous years of Pacific Basin research and investing experience.
7
<PAGE>
THE JAPAN FUND, INC.
PERFORMANCE UPDATE as of December 31, 1997
- -----------------------------------------------------------------
THE JAPAN FUND, INC.
- -----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/97 $10,000 Cumulative Annual
- ---------------------------------------
SCUDDER SHORT TERM BOND FUND
- ---------------------------------------
1 Year $ 8,560 -14.40% -14.40%
5 Year $ 9,434 -5.66% -1.16%
10 Year $ 9,028 -9.72% -1.02%
- ---------------------------------------
TOPIX
- ---------------------------------------
1 Year $ 7,195 -28.05% -28.05%
5 Year $ 8,974 -10.26% -2.14%
10 Year $ 6,839 -31.61% -3.72%
- ---------------------------------------
- -----------------------------------------------------------------
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 December 31
THE JAPAN FUND, INC.
Year Amount
- ----------------------
'87 $10,000
'88 $11,940
'89 $13,329
'90 $11,148
'91 $11,495
'92 $ 9,570
'93 $11,832
'94 $13,020
'95 $11,839
'96 $10,546
'97 $ 9,028
TOPIX
Year Amount
- ----------------------
'87 $10,000
'88 $13,320
'89 $14,226
'90 $ 9,122
'91 $ 9,887
'92 $ 7,621
'93 $ 9,458
'94 $11,534
'95 $11,385
'96 $ 9,506
'97 $ 6,839
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 December 31
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------
NET ASSET VALUE... $ 16.24 $ 14.27 $ 10.76 $ 10.69 $ 8.90 $ 10.33 $ 10.50 $ 9.44 $ 8.33 $ 6.77
INCOME DIVIDENDS.. $ .02 $ .08 $ .09 $ -- $ -- $ .28 $ -- $ -- $ .08 $ .37
CAPITAL GAINS
DISTRIBUTIONS..... $ 3.88 $ 3.59 $ 1.10 $ .41 $ -- $ .39 $ .85 $ .11 $ -- $ --
FUND TOTAL
RETURN (%)........ 19.40 11.63 -16.36 3.11 -16.74 23.64 10.03 -9.07 -10.92 -14.40
INDEX TOTAL
RETURN (%)........ 33.19 6.79 -35.88 8.39 -22.92 24.07 21.96 -1.29 -16.51 -28.05
</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.
8
<PAGE>
PORTFOLIO SUMMARY as of December 31, 1997
- ---------------------------------------------------------------------------
ASSET ALLOCATION
- ---------------------------------------------------------------------------
Equity Holdings 94%
Cash Equivalents 4%
Foreign Debt 2%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The Fund is substantially fully
invested in Japanese equities.
- ---------------------------------------------------------------------------
SECTOR DIVERSIFICATION (Excludes 4% Cash Equivalents)
- ---------------------------------------------------------------------------
Financial 22%
Consumer Discretionary 16%
Manufacturing 16%
Consumer Staples 15%
Technology 10%
Service Industries 7%
Construction 5%
Media 3%
Health 2%
Other 4%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Among financial companies,
Japanese banks are not only
attractively valued but are
increasingly focused on
shareholder returns.
- ---------------------------------------------------------------------------
TEN LARGEST HOLDINGS (38% of Portfolio)
- ---------------------------------------------------------------------------
1. UNI-CHARM CO., LTD.
Leading manufacturer of sanitary napkins and paper diapers
2. NIDEC CORP..
Top global manufacturer of small-scale motors for hard disc drives
3. NINTENDO CO., LTD.
Leading game equipment manufacturer
4. SECOM CO., LTD.
Leading electronic security system operator
5. NOMURA SECURITIES CO., LTD.
Leading Japanese securities broker and underwriter
6. CANON INC.
Leading producer of visual image and information equipment
7. SHIMANO INC.
Top global producer of bicycle parts
8. SHOHKOH FUND & CO., LTD.
Leading finance company for small and medium-sized firms
9. ORIX CORP.
Largest leasing company in Japan
10. SAKURA BANK, LTD.
Full service bank
Top holdings include global
companies, leading domestic
companies, and tomorrow's
potential blue chips.
- ---------------------------------------------------------------------------
For more complete details about the Fund's Investment Portfolio, see page
10. A monthly Investment Portfolio Summary and quarterly Portfolio Holdings
are available upon request.
9
<PAGE>
THE JAPAN FUND, INC.
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount(b) Value($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------
3.7% REPURCHASE AGREEMENTS
-----------------------------------------------------------------------------
9,801,000 Repurchase Agreement with Donaldson,
Lufkin & Jenrette dated 12/31/97 at 6.5% to
be repurchased on 1/2/98 at $9,804,539
collateralized by a $9,864,000 U.S. Treasury
Note, 5.875%, 6/30/00 (Cost $9,801,000) ...... 9,801,000
----------
-----------------------------------------------------------------------------
2.3% FOREIGN BONDS-NON U. S. $ DENOMINATED
-----------------------------------------------------------------------------
JPY 459,000,000 Sony Corp., 0.15%, 3/30/01 (Cost $4,833,572) .. 6,220,750
----------
-----------------------------------------------------------------------------
6.1% CONVERTIBLE BONDS
-----------------------------------------------------------------------------
MEDIA 1.3%
Print Media JPY 478,000,000 Softbank Corp., Zero Coupon, 3/31/00 .......... 3,403,828
MANUFACTURING 2.0% ----------
Office Equipment/
Supplies JPY 445,000,000 Ricoh Co., Ltd., 1.5%, 3/29/02 ................ 5,431,317
----------
TECHNOLOGY 2.8%
Electronic Components/
Distributors 1.1% JPY 263,000,000 Nidec Corp., 1.0%, 9/30/03 .................... 2,960,260
----------
Electronic Data
Processing 0.7% JPY 162,000,000 Fujitsu Ltd., 1.95%, 3/31/03 (c) .............. 1,765,130
----------
Semiconductors 1.0% JPY 232,000,000 NEC Corp., 1%, 9/30/11 ........................ 1,954,058
JPY 62,000,000 Tokyo Electron Ltd., 0.9%, 9/30/03 ............ 626,646
----------
2,580,704
----------
TOTAL CONVERTIBLE BONDS (Cost $16,515,705) 16,141,239
----------
-----------------------------------------------------------------------------
87.9% COMMON STOCKS
-----------------------------------------------------------------------------
Shares
----------
CONSUMER DISCRETIONARY 13.8%
Recreational Products 8.9% 123,300 Nintendo Co., Ltd. ............................ 12,084,533
437,000 Shimano Inc. .................................. 8,030,628
131,100 Square Co., Ltd. .............................. 3,633,859
----------
23,749,020
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE JAPAN FUND, INC.
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Restaurants 1.5% 104,271 Genki Sushi Co., Ltd. ......................... 1,149,696
320 Yoshinoya D&C Co., Ltd. ....................... 2,928,025
----------
4,077,721
----------
Specialty Retail 3.4% 168,300 Fast Retailing Co., Ltd. ...................... 2,693,315
53,000 Ryohin Keikaku Co., Ltd. ...................... 3,490,046
754,000 Senshukai ..................................... 2,828,943
----------
9,012,304
----------
CONSUMER STAPLES 13.8%
Department & Chain Stores 1.1% 84,500 FamilyMart Co., Ltd. .......................... 3,028,025
Food & Beverage 5.3% ----------
88,400 Ariake Japan Co., Ltd. ........................ 2,876,723
350,000 Fujicco Co., Ltd. ............................. 2,947,933
362,000 House Foods Industry .......................... 4,712,098
280,600 Rock Field Co., Ltd. (c) ...................... 3,738,469
----------
14,275,223
----------
Package Goods/
Cosmetics 6.1% 460,800 Uni-Charm Co., Ltd. ........................... 16,300,888
----------
Textiles 1.3% 1,678,000 Gunze, Ltd. ................................... 2,775,253
162,000 Nisshinbo Industries Inc. ..................... 682,236
----------
3,457,489
HEALTH 2.4% ----------
Pharmaceuticals 299,000 Yamanouchi Pharmaceutical Co., Ltd. ........... 6,410,413
FINANCIAL 24.4% ----------
Banks 8.5% 1,245,000 Asahi Bank Ltd. ............................... 5,052,450
370,000 Industrial Bank of Japan, Ltd. ................ 2,634,763
2,441,000 Sakura Bank Ltd. .............................. 6,971,616
302,000 Sanwa Bank, Ltd. .............................. 3,052,374
1,092,000 Tokai Bank .................................... 5,083,737
----------
22,794,940
----------
Other Financial
Companies 15.9% 1,339,000 Daiwa Securities Co., Ltd. .................... 4,613,706
156,000 Jafco Co. Ltd. ................................ 5,554,364
44,876 Nichiei Co., Ltd. ............................. 4,776,236
1,203,000 Nikko Securities Co., Ltd. .................... 3,187,121
644,000 Nomura Securities Co., Ltd. ................... 8,580,092
111,400 Orix Corp. .................................... 7,762,175
26,200 Shohkoh Fund & Co., Ltd. ...................... 7,984,380
----------
42,458,074
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
THE JAPAN FUND, INC.
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MEDIA 1.3%
Print Media 135,300 Softbank Corp. ................................ 3,522,358
----------
SERVICE INDUSTRIES 4.3%
Environmental Services 0.9% 145,000 Sanix Inc. .................................... 2,331,547
Miscellaneous Commercial ----------
Services 3.4% 140,000 Secom Co., Ltd. ............................... 8,940,276
----------
Miscellaneous Consumer
Services 0.0% 1,180 H.I.S. Co., Ltd. .............................. 20,510
----------
DURABLES 1.6%
Automobiles 85,000 FCC Co., Ltd. ................................. 898,162
242,100 Kyokuto Kaihatsu Kogyo Co., Ltd. .............. 921,315
1,010,000 ShinMaywa Industries, Ltd. .................... 2,474,732
----------
4,294,209
----------
MANUFACTURING 13.1%
Containers & Paper 1.8% 968,000 Hokuetsu Paper Mills, Ltd. .................... 4,410,107
69,000 Nippon Paper Industries Co. ................... 270,505
----------
4,680,612
----------
Diversified
Manufacturing 1.8% 96,000 Mitsubishi Heavy Industries, Ltd. ............. 399,877
327,000 Sumitomo Electric Industries, Ltd. ............ 4,456,815
----------
4,856,692
----------
Electrical Products 3.5% 286,000 Matsushita Electric Works, Inc. ............... 2,474,579
2,750,000 Yaskawa Electric Corp. ........................ 6,843,415
----------
9,317,994
----------
Industrial Specialty 1.0% 945,000 NHK Spring Co., Ltd. .......................... 2,532,542
----------
Machinery/Components/
Controls 2.0% 1,350 Keyence Corp. ................................. 199,502
316,000 Minebea Co., Ltd. ............................. 3,387,443
20,800 SMC Corp. ..................................... 1,831,547
----------
5,418,492
----------
Office Equipment/
Supplies 3.0% 347,000 Canon Inc. .................................... 8,077,182
----------
TECHNOLOGY 6.6%
Electronic Components/
Distributors 6.6% 294,100 Nidec Corp. ................................... 12,385,528
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
THE JAPAN FUND, INC.
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
70,000 TDK Corp. ..................................... 5,274,119
------------
17,659,647
------------
Semiconductors 0.0% 1,300 Advantest Corp. ............................... 73,660
------------
ENERGY 0.9%
Oil & Gas Production 880,000 Nippon Oil Co., Ltd. .......................... 2,270,750
------------
METALS & MINERALS 0.9%
Steel & Metals 835,000 Nisshin Steel Co., Ltd. ....................... 914,280
1,233,000 Sumitomo Metal Industries, Ltd. ............... 1,576,654
------------
2,490,934
------------
CONSTRUCTION 4.8%
Building Materials 1.5% 1,120,000 Chichibu Onada Cement Corp. ................... 2,058,193
1,607,000 Sumitomo Osaka Cement Co., Ltd. ............... 2,017,979
------------
4,076,172
------------
Homebuilding 2.9% 795,000 Daito Trust Construction Co., Ltd. ............ 4,851,570
500,000 Daiwa House Industry Co., Ltd. ................ 2,641,654
------------
7,493,224
------------
Miscellaneous 0.4% 480,000 Toshiba Engineering & Construction Co., Ltd. 1,102,603
------------
TOTAL COMMON STOCKS (Cost $322,853,198) ....... 234,723,501
------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $354,003,475) (a) ...................... $266,886,490
============
</TABLE>
(a) The cost for federal income tax purposes was $359,769,583. At December 31,
1997, net unrealized depreciation for all securities based on tax cost was
$92,883,093. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $4,180,092 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$97,063,185.
(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 $5,503,599 (2.1% 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 December 31, 1997 aggregated $6,297,674. These securities may
also have certain restrictions as to resale.
CURRENCY ABBREVIATIONS
JPY Japanese Yen
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
THE JAPAN FUND, INC.
FINANCIAL STATEMENTS
-----------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost
$354,003,475) ................................. $266,886,490
Foreign currency holdings, at market (identified
cost $199,444) ................................ 199,923
Receivable for investments sold .................. 5,540,548
Receivable for fund shares sold .................. 577,903
Dividends and interest receivable ................ 88,063
Other assets ..................................... 10,756
-----------
Total assets .................................. 273,303,683
LIABILITIES
Payable for fund shares redeemed ................. $ 7,317,930
Accrued management fee ........................... 189,252
Other payables and accrued expenses .............. 614,570
------------
Total liabilities ............................. 8,121,752
------------
Net assets, at market value ...................... $265,181,931
============
NET ASSETS Net assets consist of:
Undistributed net investment income ........... $ 2,596,688
Net unrealized appreciation (depreciation) on:
Investments ................................ (87,116,985)
Foreign currency related transactions ...... 19,930
Accumulated net realized loss ................. (44,950,757)
Paid-in capital ............................... 394,633,055
------------
Net assets, at market value ...................... $265,181,931
NET ASSET VALUE, offering and redemption price per ============
share ($265,181,93 / 139,174,523 outstanding
shares of capital stock, $.333 par value,
600,000,000 shares authorized) .................. $ 6.77
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
THE JAPAN FUND, INC.
FINANCIAL STATEMENTS
-----------------------------------------------------------
STATEMENT OF OPERATIONS
-----------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C>
Income:
Dividends (net of withholding taxes of $358,517) ........ $ 2,031,290
Interest (net of withholding taxes of $23,023) .......... 1,170,869
------------
3,202,159
Expenses:
Management fee .......................................... $ 2,949,980
Shareholder and Transfer Agent services ................. 651,091
Officers and directors fees and expenses ................ 183,937
Custodian and accounting fees ........................... 296,108
Reports to shareholders ................................. 138,760
Legal ................................................... 203,878
Auditing ................................................ 57,800
Registration fees ....................................... 44,336
Other ................................................... 135,339 4,661,229
----------------------------
Net investment income (loss) ............................ (1,459,070)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments .......................................... 22,390,976
Futures .............................................. 109,316
Foreign currency related transactions ................ (1,285,585) 21,214,707
------------
Net unrealized appreciation (depreciation) during
the period on:
Investments .......................................... (56,894,450)
Foreign currency related transactions ................ 6,356 (56,888,094)
----------------------------
Net gain (loss) on investment transactions .............. (35,673,387)
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS ...................................... $(37,132,457)
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
THE JAPAN FUND, INC.
FINANCIAL STATEMENTS
-----------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
INCREASE (DECREASE) IN NET ASSETS 1997 1996
--------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ................ $ (1,459,070) $ (1,630,209)
Net realized gain (loss) from investment
transactions ............................. 21,214,707 44,197
Net unrealized appreciation (depreciation)
on investment transactions
during the period ........................ (56,888,094) (48,654,817)
------------ ------------
Net increase (decrease) in net assets
resulting from operations ................ (37,132,457) (50,240,829)
------------ ------------
Distributions to shareholders:
In excess of net investment income .......... (14,966,112) (3,998,120)
------------ ------------
Fund share transactions:
Proceeds from shares sold ................... 359,886,210 187,023,459
Net asset value of shares issued to
shareholders in reinvestment of
distributions ............................ 12,571,505 3,312,548
Cost of shares redeemed ..................... (441,141,177) (298,937,269)
------------ ------------
Net increase (decrease) in net assets from
Fund share transactions .................. (68,683,462) (108,601,262)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS ........... (120,782,031) (162,840,211)
Net assets at beginning of period ........... 385,963,962 548,804,173
------------ ------------
NET ASSETS AT END OF PERIOD (including
undistributed net income of $2,596,688 and
accumulated distributions in excess of net
investment income of $9,942,905,
respectively) ............................ $265,181,931 $385,963,962
============ ============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period ... 46,358,011 58,139,460
------------ ------------
Shares sold ................................. 43,064,968 20,114,876
Shares issued to shareholders in reinvestment
of distributions ......................... 1,805,563 380,640
Shares redeemed ............................. (52,054,019) (32,276,965)
------------ ------------
Net increase (decrease) in Fund shares ...... (7,183,488) (11,781,449)
------------ ------------
Shares outstanding at end of period ......... 39,174,523 46,358,011
============ ============
</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>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------
1997(a) 1996(a) 1995 1994(a) 1993(a) 1992 1991 1990 1989 1988
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ........ $ 8.33 $ 9.44 $10.50 $10.33 $ 8.90 $ 10.69 $10.76 $ 14.27 $16.24 $16.97
------- ------- ------ ------ ------ ------- ------ ------- ------ ------
Income from investment
operations:
Net investment
income (loss) ............. (.03) (.03) (.01) (.05) (.05) (.05) (.03) .09 .04 .04
Net realized and
unrealized gain (loss)
on investments ............ (1.16) (1.00) (.94) 1.07 2.15 (1.74) .37 (2.41) 1.66 3.13
------- ------- ------ ------ ------ ------- ------ ------- ------ ------
Total from investment
operations ................. (1.19) (1.03) (.95) 1.02 2.10 (1.79) .34 (2.32) 1.70 3.17
------- ------- ------ ------ ------ ------- ------ ------- ------ ------
Less distributions:
From net investment
income .................... -- -- -- -- -- -- -- (.09) (.08) (.02)
In excess of net
investment income ......... (.37) (.08) -- -- (.28) -- -- -- -- --
From net realized
gains on investment
transactions .............. -- -- -- (.80) (.39) -- (.41) (1.10) (3.59) (3.88)
In excess of net
realized gains ............ -- -- (.11) (.05) -- -- -- -- -- --
------- ------- ------ ------ ------ ------- ------ ------- ------ ------
Total distributions ........ (.37) (.08) (.11) (.85) (.67) -- (.41) (1.19) (3.67) (3.90)
------- ------- ------ ------ ------ ------- ------ ------- ------ ------
Net asset value,
end of period ............. $ 6.77 $ 8.33 $ 9.44 $10.50 $10.33 $ 8.90 $10.69 $ 10.76 $14.27 $16.24
======= ======= ====== ====== ====== ======= ====== ======= ====== ======
TOTAL RETURN (%) ............. (14.40) (10.92) (9.07) 10.03 23.64 (16.74) 3.11 (16.36) 11.63 19.40
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions) ........ 265 386 549 586 471 409 335 313 401 404
Ratio of operating
expenses to average
daily net assets (%) ....... 1.21 1.16 1.21 1.08 1.25 1.42 1.26 1.05 1.02 1.01
Ratio of net investment income
(loss) to average daily net
assets (%) ................. (.38) (.34) (.24) (.40) (.47) (.31) (.15) .72 34 .28
Portfolio turnover rate
(%) ........................ 96.4 72.6 69.9 74.3 81.7 47.0 46.4 52.7 60.4 38.8
Average commission
rate paid (b) .............. $ .0270 $ .0444 -- -- -- -- -- -- -- --
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years ending on or after December 31, 1996.
17
<PAGE>
THE JAPAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
A. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
The Japan Fund, Inc. (the "Fund") is registered under the Investment Company Act
of 1940, as amended, as a diversified, 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 other than money market securities 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 date and that a change in the value of
a futures contract may not correlate exactly with changes in the
18
<PAGE>
THE JAPAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
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 regulated investment companies. Under the United
States-Japan tax treaty, Japan imposes a
19
<PAGE>
THE JAPAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
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 ended 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 year ended December 31, 1997, purchases and sales of investment
securities (excluding short-term investments) aggregated $347,242,536 and
$425,071,695, respectively.
The aggregate face value of futures contracts opened and closed during the year
ended December 31, 1997 was $51,016,027.
20
<PAGE>
THE JAPAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
C. RELATED PARTIES
- --------------------------------------------------------------------------------
Effective December 31, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and The
Zurich Insurance Company ("Zurich"), an international insurance and financial
services organization, formed a new global investment organization by combining
Scudder's business with that of Zurich's subsidiary, Zurich Kemper Investments,
Inc. As a result of the transaction, Scudder changed its name to Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"). The transaction between
Scudder and Zurich resulted in the termination of the Fund's Investment
Management Agreement with Scudder. However, a new Investment Management
Agreement (the "Management Agreement") between the Fund and Scudder Kemper was
approved by the Fund's Board of Directors and by the Fund's Shareholders. The
Management Agreement, which is effective December 31, 1997, is the same in all
material respects as the corresponding previous Investment Management Agreement,
except that Scudder Kemper is the new investment adviser to the Fund.
Under the Management Agreement with Scudder Kemper, 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 Management 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 year ended December 31, 1997, the fee pursuant to
these agreements amounted to $2,949,980, which was equivalent to an annual
effective rate of 0.77% 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
year ended December 31, 1997, the amount charged to the Fund by SSC aggregated
$516,112, of which $37,442 is unpaid at December 31, 1997.
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 year ended December 31, 1997, the Officers and Directors fees and
expenses aggregated $130,410, of which $3,253 is unpaid at December 31, 1997.
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 year
ended December 31, 1997, Directors' retirement benefits amounted to $53,527. At
December 31, 1997, the Fund has accrued $222,099 for such benefits.
21
<PAGE>
THE JAPAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
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.
22
<PAGE>
THE JAPAN FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND THE BOARD OF DIRECTORS OF THE JAPAN FUND, INC.:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Japan Fund, Inc. (the "Fund")
at December 31, 1997, the results of its operations, the changes in its net
assets and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1997 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
Price Waterhouse LLP
Boston, Massachusetts
February 12, 1998
23
<PAGE>
THE JAPAN FUND, INC.
TAX INFORMATION (UNAUDITED)
For its fiscal year ended December 31, 1997, the total amount of income received
by the Fund from sources within foreign countries and possessions of the United
States was $0.05 per share (representing a total of $1,932,688). The total
amount of taxes paid by the Fund to such countries was $0.01 per share
(representing a total of $381,540).
24
<PAGE>
THE JAPAN FUND, INC.
STOCKHOLDER MEETING RESULTS
A Special Meeting of Stockholders (the "Meeting") of The Japan Fund, Inc. (the
"Fund") was held on October 16, 1997, at the offices of Scudder Kemper
Investments, Inc. (formerly Scudder, Stevens & Clark, Inc.), Two International
Place, Boston, MA 02110. At the Meeting, as adjourned and reconvened, the
following matters were voted upon by the stockholders (the resulting votes for
each matter are presented below). With regard to certain proposals, it was
recommended that the Meeting be reconvened in order to provide stockholders with
an additional opportunity to return their proxies. The date of the reconvened
meeting at which the matters were decided is noted after the proposed matter.
1. To approve the new Investment Management Agreement between the Fund and
Scudder Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
23,348,850 1,636,844 739,489 82,554
2. To elect Directors.
Number of Votes:
----------------
Director For Withheld
-------- --- --------
William L. Givens 24,023,641 1,784,096
William H. Gleysteen, Jr. 24,094,511 1,713,226
John F. Loughran 24,135,004 1,672,733
Yoshihiko Miyauchi 24,097,287 1,710,450
William V. Rapp 24,168,116 1,639,621
Henry Rosovsky 24,109,905 1,697,832
O. Robert Theurkauf 24,169,124 1,638,613
Hiroshi Yamanaka 24,011,364 1,796,373
3. To approve the Board's discretionary authority to convert the Fund to a
master/feeder fund structure through a sale or transfer of assets or
otherwise. (Approved on December 2, 1997.)
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
24,135,077 3,305,664 1,494,670 13,298
25
<PAGE>
4. To approve the revision of certain fundamental investment policies.
<TABLE>
<CAPTION>
Number of Votes:
----------------
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ---------
<S> <C> <C> <C> <C>
4.1 Diversification 20,203,566 2,504,659 1,221,053 1,878,459
4.2 Borrowing 19,991,302 2,715,590 1,222,386 1,878,459
4.3 Senior securities 20,104,543 2,595,333 1,229,402 1,878,459
4.4 Concentration 20,126,367 2,574,688 1,228,223 1,878,459
4.5 Underwriting of securities 20,167,474 2,523,879 1,237,925 1,878,459
4.6 Investment in real estate 20,144,018 2,237,256 1,548,004 1,878,459
4.7 Purchase of physical commodities 19,814,687 2,275,636 1,838,955 1,878,459
4.8 Lending 19,851,510 2,273,475 1,804,293 1,878,459
</TABLE>
5. To ratify the selection of Price Waterhouse L.L.P. as the Fund's
independent accountants.
Number of Votes:
----------------
For Against Abstain
--- ------- -------
23,662,444 739,385 1,405,908
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
26
<PAGE>
THE JAPAN FUND, INC.
OFFICERS AND DIRECTORS
Henry Rosovsky
Chairman of the Board and Director
Professor, Harvard University; Director, Corning Inc., Paine Webber Group
Lynn Birdsong*
President
William L. Givens
Director
President, Twain Associates
William H. Gleysteen, Jr.
Director
Consultant; Guest Scholar, Brookings Institute
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 Fellow, Columbia University; Managing Director, Rue Associates
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
Edward J. O'Connell*
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
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.
27
<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
