[LOGO]
THE JAPAN FUND, INC.
Semiannual Report
June 30, 1999
A no-load mutual fund
Scudder Kemper Investments, Inc.
Investment Manager
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
[LOGO]
<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 .................................................. 13
Financial Highlights .................................................. 16
Notes to Financial Statements ......................................... 17
Officers and Directors ................................................ 21
How to Contact The Japan Fund .................................... Back cover
2
<PAGE>
THE JAPAN FUND, INC.
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
The past six months have been a period of significant transition for
the Japanese stock market. Proactive government policies, the accelerated pace
of corporate restructuring, and signs that the country's recession may finally
be reaching a bottom sparked a remarkable improvement in market sentiment.
Substantial investment inflows from overseas helped propel the TOPIX Index to a
return of 33.57% in yen and 21.98% in dollars for the six months ended June 30.
The Japan Fund returned 34.57% in the period, outpacing the benchmark by a wide
margin and placing it in the top 40% of funds in its category, according to
Lipper Analytical Services.
Stable Economy, Rising Profits Spark Rally
The rebound in Japan's stock market began in the first quarter on the
strength of lower interest rates, an injection of public funds into the banking
system, and several restructuring announcements by major Japanese corporations.
While the good news was reflected in the 19.56% first quarter return (in yen) of
the TOPIX, there was still a great deal of skepticism in the market about the
country's ability to mount an economic recovery. In the second quarter,
investors received the first positive signal that the turnaround may have begun
when the government announced that gross domestic product had jumped at an
annualized rate of 7.9% in the first quarter. The upturn in growth, which was
well above consensus expectations, was Japan's first in six quarters. While we
believe that the GDP figure overstates the magnitude of the underlying economic
recovery, other indicators, such as machinery orders, housing starts, and the
June Tankan (the Bank of Japan's short-term economic survey) all seem to suggest
that the economy may indeed be bottoming out.
Rising profit expectations are also playing a role in the stock
market's surge. While the aggregated business projections for non-financial
companies (as compiled by Nikkei, the leading financial news service in Japan)
call for a decline in sales of -2.4%, profits are expected to rise 12.5% due to
restructuring. If profits do indeed recover in 1999, it would mark the first
increase in three years. Our thesis that fundamental business restructuring
would bring about a rise in Japanese corporate earnings regardless of the state
of the economy so far appears to be unfolding. If the economic recovery is real,
operating leverage creates the potential
3
<PAGE>
THE JAPAN FUND, INC.
PORTFOLIO MANAGEMENT DISCUSSION
for upside earnings surprises. Since corporate objectives in Japan have focused
on sales volume and market share, profit margins have typically averaged 1% to
2%. The reordering of corporate objectives to profits and return on equity could
lead to sizeable earning increases from existing plant and investment.
Fund Strategy: A Long-Term Focus
In this environment, we continued to use bottom-up stock selection to
find companies whose current stock prices do not reflect what we believe will be
their "future value" in 3-4 years. During the quarter, we built a substantial
position in globally competitive machinery companies whose domestic orders are
bottoming out after several years of decline. We also added to our holdings in
the service sector, which contains an abundance of fertile ground secular growth
companies. In turn, we took profits on some of our holdings in the brokerage
industry due to their large price appreciation and the lack of visibility
regarding the impact of commission deregulation this fall.
We continue to hold several of Japan's major banks, which represent one
of the most interesting restructuring experiments in the country. Since the
government's injection of public funds included the stipulation that the banks
must restructure within a four-year time frame, company managements have been
given an important incentive to effect change. The reforms that are being
attempted are far-reaching and fundamental. Changes are being made to management
goals, organizational structure, personnel appraisal, internal accounting, and
credit review systems. In addition, many institutions are exploring mergers and
acquisitions as a way to enhance scale economies and gain additional cost
reductions. Taken together, these changes represent a sweeping change in the way
Japanese banks conduct business. We are confident that the sector will continue
to provide opportunities to uncover companies poised for substantial earnings
growth through restructuring.
The Fund's top holding at the close of the period was NTT Mobile
Communications (NTT DoCoMo), Japan's dominant operator of wireless
communications with over a 50% market share. We believe that the company can
achieve earnings growth both through organic means -- via its development of
wireless data communication services -- and the aggressive acquisitions of
overseas wireless operators. In light of the company's low cost of
4
<PAGE>
THE JAPAN FUND, INC.
PORTFOLIO MANAGEMENT DISCUSSION
capital, we feel that a potential buyer of NTT DoCoMo would be willing to pay a
higher price-to-earnings multiple than it would for a cellular operator in
Europe, where debt costs are generally higher. Even if the company is not the
subject of a takeover bid, however, we remain confident that it is one of the
most attractive large cap growth companies in Japan.
Outlook: Risks and Opportunities Lie Ahead
Looking forward, we remain positive on the 2-3 year prospects of the
Japanese market from a number of perspectives. Corporate restructuring is
gaining momentum, opening up new avenues for companies to boost their earnings
growth. Merger activity and industry consolidation is expected to increase as
market forces and changes in the regulatory framework push managements to
increase capital efficiency and returns. Interest rates have remained low,
meaning that the large amount of maturing CDs and savings deposits should fuel
additional inflows of liquidity into the stock market. Perhaps the most
significant development is that the bad debt burden of the Japanese banking
industry, which led to a paralysis in credit creation following the bubble of
the late 1980s, now appears to be largely resolved. Finally, the current
valuations of many publicly traded companies remain attractive on a global
basis, as evidenced by the continuing purchase of Japanese firms by foreign
companies.
While these positive factors should continue to provide support for the
Japanese market, several risks remain in place. For example, a growing fiscal
deficit, high levels of unemployment, continued industrial overcapacity, and the
possibility of further yen appreciation are all potential threats to Japan's
nascent recovery. Given these risks, we remain diversified across sectors and
industries, and have intentionally limited our bets on external factors such as
the direction of the currency, the economy, or interest rates. Going forward, we
will continue to focus on individual stock selection, and will seek to
outperform the benchmark over a wide range of possible future scenarios.
Sincerely,
/s/Lynn Birdsong /s/Henry Rosovsk
Lynn Birdsong, Henry Rosovsky,
President Chairman
5
<PAGE>
THE JAPAN FUND, INC.
PERFORMANCE UPDATE as of June 30, 1999
The Japan Fund, Inc.
- -------------------------------------
Total Return
Period Growth ------------------
Ended of Cumu- Average
6/30/1999 $10,000 lative Annual
- -------------------------------------
1 Year $15,678 56.78% 56.78%
5 Year $10,373 3.73% 0.73%
10 Year $13,782 37.82% 3.26%
TOPIX
- -------------------------------------
Total Return
Period Growth ------------------
Ended of Cumu- Average
6/30/1999 $10,000 lative Annual
- -------------------------------------
1 Year $13,327 33.27% 33.27%
5 Year $ 7,198 -28.02% -6.36%
10 Year $ 7,434 -25.66% -2.92%
- ------------------------------
GROWTH OF A $10,000 INVESTMENT
- ------------------------------
Yearly Periods ended June 30
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
TOPIX The Japan Fund, Inc.
----- --------------------
'89 $10,000 $10,000
'90 9,108 11,866
'91 7,844 11,072
'92 5,872 8,842
'93 9,040 11,365
'94 10,329 13,287
'95 8,647 9,660
'96 9,650 11,221
'97 8,462 11,282
'98 5,578 8,790
'99 7,434 13,782
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
are reinvested net of withholding tax and, unlike Fund returns, do not reflect
any fees or expenses.
- ---------------------------------
RETURNS AND PER SHARE INFORMATION
- ---------------------------------
Yearly periods ended June 30
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value ........ $13.01 $11.51 $ 9.01 $11.57 $12.71 $ 8.44 $ 9.77 $ 9.62 $ 7.15 $11.21
Income Dividends ....... $ .06 $ .09 $ -- $ .01 $ .27 $ -- $ .03 $ .17 $ .33 $ --
Capital Gains
Distributions .......... $ 4.24 $ .52 $ .21 $ -- $ .39 $ .96 $ -- $ -- $ -- $ --
Fund Total Return (%) .. 18.66 -6.69 -20.14 28.54 16.91 -27.29 16.16 .54 -22.09 56.78
Index Total Return (%) . -8.94 -13.88 -25.13 53.93 14.25 -16.27 11.60 -12.32 -34.08 33.27
</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>
THE JAPAN FUND, INC.
PORTFOLIO SUMMARY as of June 30, 1999
- ----------------
Asset Allocation
- ----------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Equity Holdings 88
Cash Equivalents 23%
-----
100%
=====
The Fund's above-average
cash position is a short-term
anomaly; in general,
management seeks to remain
fully invested at all times.
- ------------------------------------------------------
Sector Diversification (Excludes 12% Cash Equivalents)
- ------------------------------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Manufacturing 25%
Consumer Discretionary 14%
Financial 14%
Technology 12%
Service Industries 10%
Communications 9%
Health 5%
Energy 3%
Consumer Staples 3%
Other 5%
-----
100%
=====
Fund weightings in the
manufacturing and financial
sectors have increased
substantially in the first six
months of the year.
- ----------------------------------------------
Ten Largest Equity Holdings (32% of Portfolio)
- ----------------------------------------------
1. NTT Mobile CommunicationS
Network, Inc. Provider of various
telecommunication services and
equipment
2. Benesse Corp. Provider of educational
services
3. Fujitsu Ltd. Manufacturer of computers
4. Nippon Telegraph & Telephone Corp.
Telecommunication services
5. Sony Corp. Manufacturer of consumer
electronic products
6. Tokyo Gas Co. Producer and
supplier of gas to Tokyo
7. Matsushita Electric Industrial
Co., Ltd. Manufacturer of consumer
electrOnic products
8. Ricoh Co., Ltd. Manufacturer of
copiers and information equipment
9. Sumitomo Trust & Banking Co.,
Ltd. Commercial Bank
10. Fuji Bank, Ltd. Commercial bank
Top holdings reflect a
focus on companies that
offer value relative to their
long-term prospects.
- --------------------------------------------------------------------------------
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 ($)
- ------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 0.8%
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 6/30/1999 at 4.8% to
be repurchased on 7/1/1999 at $5,250,700 collateralized by a $5,233,000 U.S. Treasury
Bond, 3.875%, 4/15/2029 (Cost $5,250,000) ............................................... 5,250,000 5,250,000
------------
U. S. GOVERNMENT & AGENCIES 0.3%
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bill, 9/9/1999 (Cost $2,195,676) ............................................. 2,215,000 2,195,403
------------
SHORT TERM NOTES 10.7%
- ------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, 5.0%*, 7/15/1999 ................................................... 30,000,000 29,940,000
Federal Home Loan Bank, 4.7%*, 7/1/1999 .................................................... 14,000,000 14,000,000
Federal Home Loan Mortgage Corp., 4.7%*, 7/1/1999 .......................................... 5,154,000 5,154,000
Federal National Mortgage Association, 2.1%*, 7/13/1999 .................................... 20,000,000 19,966,000
------------
Total Short Term Notes (Cost $69,064,250) .................................................. 69,060,000
------------
CONVERTIBLE BONDS 0.6%
- ------------------------------------------------------------------------------------------------------------------------
Manufacturing 0.3%
Office Equipment/Supplies
Ricoh Co., Ltd., 1.5%, 3/29/2002 ........................................................ JPY 123,000,000 1,708,545
------------
Technology 0.3%
Electronic Data Processing
Fujitsu Ltd., 1.95%, 3/31/2003 .......................................................... JPY 102,000,000 2,089,421
------------
Total Convertible Bonds (Cost $2,452,272) .................................................. 3,797,966
------------
COMMON STOCKS 87.6%
- ------------------------------------------------------------------------------------------------------------------------
Shares
------
Consumer Discretionary 12.6%
Department & Chain Stores 2.1%
York-Benimaru Co., Ltd. .................................................................... 366,100 13,833,371
------------
Home Furnishings 1.9%
Sangetsu Co., Ltd. 572,000 12,178,263
------------
Recreational Products 1.6%
Bandai Co., Ltd. (c) 223,000 3,256,174
Shimano Inc. 295,000 6,988,094
------------
10,244,268
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
THE JAPAN FUND, INC.
INVESTMENT PORTFOLIO
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Restaurants 1.7%
Yoshinoya D&C Co., Ltd. ............... 602 10,850,883
------------
Specialty Retail 2.0%
Fast Retailing Co., Ltd. .............. 27,200 2,923,643
Senshukai ............................. 615,000 5,415,478
Shimachu Co., Ltd. .................... 201,300 4,460,573
------------
12,799,694
------------
Consumer Electronic & Photographic 3.3%
Sony Corp. ............................ 198,400 21,407,417
------------
Consumer Staples 2.5%
Food & Beverage 1.1%
Rock Field Co., Ltd. .................. 193,600 6,995,180
------------
Package Goods/Cosmetics 0.3%
Uni-Charm Co., Ltd. ................... 36,500 1,584,398
------------
Textiles 1.1%
Gunze, Ltd. ........................... 2,759,000 7,299,847
------------
Health 4.2%
Health Industry Services 1.6%
Nichii Gakkan Company ................. 98,200 10,717,599
------------
Pharmaceuticals 2.6%
Fujisawa Pharmaceutical Co. ........... 509,000 8,290,793
Yamanouchi Pharmaceutical Co., Ltd. ... 217,000 8,307,164
------------
16,597,957
------------
Communications 8.0%
Telephone/Communications
NTT Mobile Communications Network, Inc. 2,225 29,876,390
Nippon Telegraph & Telephone Corp. .... 1,839 21,439,415
------------
51,315,805
------------
Financial 12.5%
Banks 9.0%
Fuji Bank, Ltd. ....................... 2,182,000 15,226,822
Sakura Bank, Ltd. ..................... 3,285,000 12,466,948
Sanwa Bank, Ltd. ...................... 1,481,000 14,584,075
Sumitomo Trust & Banking Co., Ltd. .... 3,358,000 16,159,048
------------
58,436,893
------------
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
THE JAPAN FUND, INC.
INVESTMENT PORTFOLIO
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Other Financial Companies 3.5%
Daiwa Securities Co., Ltd. .................. 862,000 5,701,765
Jafco Co., Ltd. ............................. 156,000 10,318,740
Nikko Securities Co., Ltd ................... 992,000 6,405,821
------------
22,426,326
Service Industries 9.0%
Environmental Services 1.8%
Sanix Inc. .................................. 236,300 11,429,617
------------
Miscellaneous Commercial Services 6.8%
Benesse Corp. ............................... 272,300 29,606,391
Fujitsu Support and Service Inc. ............ 60,000 9,088,429
Secom Co., Ltd. ............................. 51,000 5,313,159
------------
44,007,979
------------
Printing/Publishing 0.4%
Toppan Forms Co., Ltd. ...................... 148,000 2,814,502
------------
Durables 2.3%
Automobiles 2.2%
Nissan Motor Co., Ltd. ...................... 2,456,000 11,737,302
ShinMaywa Industries, Ltd. .................. 1,002,000 2,410,864
------------
14,148,166
------------
Telecommunications Equipment 0.1%
Matsushita Communication Industrial Co., Ltd. 8,000 572,161
------------
Manufacturing 21.4%
Chemicals 1.4%
Shin-Etsu Chemical Co., Ltd. ................ 279,000 9,342,676
------------
Containers & Paper 0.8%
Hokuetsu Paper Mills, Ltd. .................. 916,000 4,953,194
------------
Electrical Products 3.2%
Matsushita Electric Works, Ltd. ............. 1,174,000 11,337,649
Toshiba Corp. ............................... 1,322,000 9,433,098
------------
20,770,747
------------
Industrial Specialty 5.2%
Asahi Glass Co., Ltd. ....................... 1,675,000 10,871,678
NHK Spring Co., Ltd. ........................ 2,565,000 14,336,599
Teijin Ltd. ................................. 1,977,000 8,009,674
------------
33,217,951
------------
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE JAPAN FUND, INC.
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Machinery/Components/Controls 7.9%
Fanuc Ltd. ................................................ 278,000 14,940,676
NSK Ltd. .................................................. 1,617,000 8,877,490
SMC Corp. ................................................. 113,400 12,704,700
THK CO., Ltd. ............................................. 629,500 14,573,567
-------------
51,096,433
-------------
Office Equipment/Supplies 2.9%
Canon Chemicals, Inc. ..................................... 425,700 3,590,177
Ricoh Co., Ltd. ........................................... 1,078,000 14,849,295
-------------
18,439,472
-------------
Technology 10.4%
Diverse Electronic Products 2.8%
Matsushita Electric Industrial Co., Ltd. .................. 927,000 18,011,906
-------------
Electronic Components/Distributors 1.9%
NEC Corp. ................................................. 736,000 9,158,543
Nidec Corp. ............................................... 19,000 2,860,722
-------------
12,019,265
-------------
Electronic Data Processing 3.1%
Fujitsu Ltd. .............................................. 1,006,000 20,253,917
-------------
Semiconductors 2.6%
Advantest Corp. ........................................... 59,700 6,565,050
Rohm Company Ltd. ......................................... 33,000 5,170,532
Tokyo Electron Ltd. ....................................... 74,000 5,023,275
-------------
16,758,857
-------------
Energy 2.8%
Oil & Gas Production
Tokyo Gas Co. ............................................. 7,386,000 18,198,586
-------------
Construction 1.9%
Building Materials
Sumitomo Osaka Cement Co., Ltd. ........................... 852,000 1,655,463
Taiheiyo Cement Corp. ..................................... 3,606,000 10,345,876
12,001,339
Total Common Stocks (Cost $462,653,979) ................... 564,724,669
-------------
- -------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $541,616,177) (a) $645,028,038
============
- -------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
THE JAPAN FUND, INC.
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $541,767,922. At June 30,
1999, net unrealized appreciation for all securities based on tax cost was
$103,260,116. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $126,525,480 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$23,265,364.
(b) Principal amount stated in U.S. dollars unless otherwise noted.
(c) At June 30, 1999, this security has been pledged to cover initial margin
requirements for open futures contracts.
* Annualized yield at time of purchase, not a coupon rate.
At June 30, 1999, open futures contracts purchased long were as follows:
<TABLE>
<CAPTION>
Aggregate Unrealized
Futures Expiration Contracts Face Value ($) Market Value ($) Appreciation ($)
------- ---------- --------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
TOPIX Index September 9, 1999 3,460,000 $39,762,897 $40,281,494 $518,597
</TABLE>
Currency Abbreviations
- ------------------------------------------------------------------
JPY Japanese Yen
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
THE JAPAN FUND, INC.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets
Investments, at market (identified cost $541,616,177) .. $ 645,028,038
Cash ................................................... 796
Foreign currency holdings, at market
(identified cost $470,767)........................... 470,767
Receivable for investments sold ........................ 11,130,982
Receivable for fund shares sold ........................ 14,345,889
Receivable for daily variation margin on open
futures contracts.................................... 66,118
Dividends and interest receivable ...................... 1,120,942
Other assets ........................................... 7,176
--------------
Total assets ........................................... 672,170,708
Liabilities
Payable for investments purchased ...................... 5,516,301
Payable for fund shares redeemed ....................... 2,367,932
Accrued management fee ................................. 341,488
Other payables and accrued expenses .................... 558,279
--------------
Total liabilities ...................................... 8,784,000
--------------
Net assets, at market value ............................ $ 663,386,708
==============
Net Assets
Net assets consist of:
Accumulated distributions in excess of net investment
income (loss)........................................ $ (466,750)
Net unrealized appreciation (depreciation) on:
Investments ......................................... 103,411,861
Futures ............................................. 518,597
Foreign currency related transactions ............... (7,916)
Accumulated net realized gain (loss) ................... (18,187,621)
Paid-in capital ........................................ 578,118,537
--------------
Net assets, at market value ............................ $ 663,386,708
==============
Net asset value, offering and redemption price per share
($663,386,708 / 59,177,212 outstanding shares of
capital stock, $.333 par value, 600,000,000 shares
authorized) ......................................... $ 11.21
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
THE JAPAN FUND, INC.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Six Months ended June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income
Income:
Dividends (net of withholding taxes of $262,098) .............. $ 1,467,659
Interest (net of withholding taxes of $1,965) ................. 778,391
-------------
2,246,050
Expenses:
Management fee ................................................ 1,687,143
Shareholder and Transfer Agent services ....................... 339,044
Directors fees and expenses ................................... 109,455
Custodian and accounting fees ................................. 114,214
Reports to shareholders ....................................... 89,992
Legal ......................................................... 49,041
Auditing ...................................................... 26,300
Registration fees ............................................. 26,925
Other ......................................................... 14,544
-------------
2,456,658
-------------
Net investment income (loss) .................................. (210,608)
-------------
Net realized and unrealized gain (loss) on investment
transactions
Net realized gain (loss) from:
Investments ................................................... 45,922,802
Futures ....................................................... 423,474
Foreign currency related transactions ......................... (241,892)
-------------
46,104,384
-------------
Netunrealized appreciation (depreciation) during the period on:
Investments ................................................... 96,552,643
Futures ....................................................... 518,597
Foreign currency related transactions ......................... (22,988)
-------------
97,048,252
-------------
Net gain (loss) on investment transactions .................... 143,152,636
-------------
Net increase (decrease) in net assets resulting from
operations ................................................. $ 142,942,028
=============
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
THE JAPAN FUND, INC.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Six Months
Ended Year Ended
June 30, 1999 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1998
- --------------------------------------------------------------------------------
Operations:
Net investment income (loss) ............. $ (210,608) $ (427,405)
Net realized gain (loss) from investment
transactions........................... 46,104,384 (22,778,794)
Net unrealized appreciation (depreciation)
on investment transactions during the
period................................. 97,048,252 93,971,345
------------- -------------
Net increase (decrease) in net assets
resulting from operations.............. 142,942,028 70,765,146
------------- -------------
Distributions to shareholders:
In excess of net investment income ....... -- (3,176,155)
------------- -------------
Total distributions to shareholders ...... -- (3,176,155)
Fund share transactions:
------------- -------------
Proceeds from shares sold ................ 740,434,457 657,707,572
Net asset value of shares issued to
shareholders in reinvestment of
distributions.......................... -- 2,709,032
Cost of shares redeemed .................. (567,115,418) (646,061,885)
------------- -------------
Net increase (decrease) in net assets from
Fund share transactions................ 173,319,039 14,354,719
------------- -------------
Increase (decrease) in net assets ........ 316,261,067 81,943,710
Net assets at beginning of period ........ 347,125,641 265,181,931
------------- -------------
Net assets at end of period (including
accumulated distributions in excess of
net investment income of $466,750 and
$256,142, respectively)................ $ 663,386,708 $ 347,125,641
============= =============
Other Information
Increase (decrease) in Fund shares
Shares outstanding at beginning of period 41,668,266 39,174,523
------------- -------------
Shares sold .............................. 76,952,573 90,183,280
Shares issued to shareholders in
reinvestment of distributions.......... -- 367,077
Shares redeemed .......................... (59,443,627) (88,056,614)
------------- -------------
Net increase (decrease) in Fund shares ... 17,508,946 2,493,743
------------- -------------
Shares outstanding at end of period ...... 59,177,212 41,668,266
============= =============
The accompanying notes are an integral part of the financial statements.
15
<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,
1999(a) -----------------------------------------------------------
(Unaudited) 1998(a) 1997(a) 1996(a) 1995 1994(a)
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.33 $ 6.77 $ 8.33 $ 9.44 $ 10.50 $ 10.33
----------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) ........ -- (.01) (.03) (.03) (.01) (.05)
Net realized and unrealized gain
(loss) on investments ............. 2.88 1.65 (1.16) (1.00) (.94) 1.07
----------- ------- ------- ------- ------- -------
Total from investment operations .... 2.88 1.64 (1.19) (1.03) (.95) 1.02
----------- ------- ------- ------- ------- -------
Less distributions:
In excess of net investment income .. -- (.08) (.37) (.08) -- --
From net realized gains on
investment transactions ........... -- -- -- -- -- (.80)
----------- ------- ------- ------- ------- -------
In excess of net realized gains ..... -- -- -- -- (.11) (.05)
----------- ------- ------- ------- ------- -------
Total distributions ................. -- (.08) (.37) (.08) (.11) (.85)
----------- ------- ------- ------- ------- -------
Net asset value, end of period ...... $11.21 $ 8.33 $ 6.77 $ 8.33 $ 9.44 $ 10.50
=========== ======= ======== ======= ======= =======
Total Return (%) .................... 34.57** 24.29 (14.40) (10.92) (9.07) 10.03
Ratios and Supplemental Data
Net assets, end of period ($ millions) 663 347 265 386 549 586
Ratio of operating expenses to
average daily net assets (%) ...... 1.10* 1.26 1.21 1.16 1.21 1.08
Ratio of net investment income
(loss) to average daily net
assets (%) ........................ (.09)* (.14) (.38) (.34) (.24) (.40)
Portfolio turnover rate (%) ......... 105.7* 90.4 96.4 72.6 69.9 74.3
</TABLE>
(a) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
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THE JAPAN FUND, INC.
FINANCIAL STATEMENTS (Unaudited)
A. Significant Accounting Policies
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The Japan Fund (the "Fund") is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, diversified management
investment company organized as a Maryland Corporation.
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. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. Securities which are traded
on U.S. or foreign stock exchanges 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 for which there have been sales are valued at the most
recent sale price reported. If no sales occurred in the over-the-counter market,
the security is then valued at the calculated mean between the most recent bid
and asked quotations on such market. 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 whose
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.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Investment securities and other assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
prevailing exchange rates at period end. Purchases and sales of investment
securities, income and expenses are translated into U.S. dollars at the
prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions
represent net gains and losses between trade and settlement dates on securities
transactions, the disposition of forward foreign currency exchange contracts and
foreign currencies, and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed but
is included with net realized and unrealized gains and losses on investment
securities.
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THE JAPAN FUND, INC.
FINANCIAL STATEMENTS (Unaudited)
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, receives delivery of the underlying securities, the amount
of which at the time of purchase and each subsequent business day is required to
be maintained at such a level that the market value is equal to at least the
principal amount of the repurchase price plus accrued interest.
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 a financial
instrument 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 dependent upon
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 the 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.
Taxes. The Fund's policy is to comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to regulated investment companies
and to distribute all of its taxable income to its shareholders. Accordingly,
the Fund paid no federal income taxes and no federal income tax provision was
required. 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, 1998, the Fund had a net basis capital loss carryforward of
approximately $59,392,000 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), December 31, 2005,
($5,135,000) and December 31, 2006 ($23,574,000), the respective expirations
dates, whichever occurs first. In addition, from November 1, 1998 through
December 31, 1998, the Fund incurred approximately $4,002,000 of net realized
capital losses. As permitted by tax regulations, the Fund elected to defer these
losses and treat them as arising in the fiscal year ending December 31, 1999.
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<PAGE>
THE JAPAN FUND, INC.
FINANCIAL STATEMENTS (Unaudited)
Distribution of Income and Gains. Distributions of net investment income, if
any, are made annually. 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 at least
annually.
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.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Certain dividends
from foreign securities may be recorded subsequent to the ex-dividend date as
soon as the Fund is informed of such dividends. Realized gains and losses from
investment transactions are recorded on an identified cost basis.
All discounts are accreted for both tax and financial reporting purposes.
B. Purchases and Sales of Securities
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During the six months ended June 30, 1999, purchases and sales of investment
securities (excluding short-term investments) aggregated $319,276,295 and
$224,010,856, respectively.
The aggregate face value of futures contracts opened during the six months ended
June 30, 1999 was $39,762,897.
C. Related Parties
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Under the Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or 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, 1999, the fee pursuant to these agreements
amounted to $1,687,143, of which $341,488 is unpaid at June 30, 1999. This was
equivalent to an annual effective rate of .76% of the Fund's average daily net
assets.
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<PAGE>
THE JAPAN FUND, INC.
FINANCIAL STATEMENTS (Unaudited)
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, 1999, the amount charged to the Fund by SSC aggregated
$232,586, of which $40,217 is unpaid at June 30, 1999.
The Fund pays each of its 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, 1999, the Directors fees and expenses aggregated
$85,910, of which $1,522 is unpaid at June 30, 1999.
D. Directors' Retirement Benefits
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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, 1999, Directors' retirement benefits amounted to $23,545.
At June 30, 1999, the Fund has accrued $257,609 for such benefits.
E. Line of Credit
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The Fund and several other Scudder Funds (the "Participants") share in a $850
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 pro rata 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.
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THE JAPAN FUND, INC.
OFFICERS AND DIRECTORS
Henry Rosovsky
Chairman of the Board and
Director
Professor Emeritus, Harvard
University; Professor, Geyser University
Lynn Birdsong*
President
Peter Booth
Director
Senior Vice President;
Corning Incorporated
William L. Givens
Director
President, Twain Associates
Thomas M. Hout
Director
Senior Advisor,
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
Elizabeth J. Allan*
Vice President
William E. Holzer*
Vice President
Maureen E. Kane*
Assistant Secretary
Seung Kwak*
Vice President
Miyuki Wakatsuki*
Vice President
Gina Provenzano*
Vice President and Treasurer
Kathryn L. Quirk*
Vice President and Secretary
John R. Hebble*
Assistant Treasurer
HONORARY DIRECTORS
William H. Gleysteen, Jr.
Consultant; Guest Scholar,
Brookings Institute
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.
Chairman Emeritus and Director,
Kirby Corporation
Shoji Umemura
Former Director of The Japan
Fund, Inc.
Board Counselor, The Nikko
Securities Co., Ltd.
* Scudder Kemper Investments, Inc.
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[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
