[JAPAN FUND LOGO]
The Japan Fund, Inc.
Class S
Semiannual Report
June 30, 2000
A no-load mutual fund
Scudder Kemper Investments, Inc.
Investment Adviser
<PAGE>
Contents
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3 Portfolio Management Discussion
7 Performance Update
9 Portfolio Summary
11 Investment Portfolio
16 Financial Statements
19 Financial Highlights
20 Notes to Financial Statements
28 Officers and Directors
2 | The Japan Fund, Inc.
<PAGE>
Portfolio Management Discussion
--------------------------------------------------------------------------------
June 30, 2000
Dear Shareholders,
Although Japan continues to benefit from the positive changes taking place in
both its economy and its corporate landscape, the country's stock market
remained bogged down in the first half of 2000. The year began on a positive
note as Japanese equities continued the rally that marked the fourth quarter of
1999. By April, however, the sell-off in global technology stocks caused Japan's
market to plunge, and local factors -- such as concerns about the economy, the
sales of corporate cross-shareholdings, and fears that the Central Bank would
raise interest rates -- began to exert pressure on market sentiment. The "TMT"
(technology, media, and telecommunications) sectors experienced the most
dramatic reversal of fortune, while "old economy" and domestic value stocks
managed to build on their first quarter rally.
Amid a challenging environment, The Japan Fund, Inc. -- Class S shares continued
to post strong returns in relation to its unmanaged benchmark, the Topix Index.
For the six-month period ended June 30, 2000, the fund's Class S shares returned
-4.25%, versus a return of -10.33% for the Topix Index (in dollar terms). The
fund also stacks up well against its peers over all time periods. According to
Lipper Analytical Services, the fund finished in the 34th percentile of its
category over the six-month reporting period, and in the top fifth over the
one-, three-, and five-year periods. Of the six Japan funds open for over ten
years, The Japan Fund, Inc. ranks first.^1 In addition, the fund's 56.44% return
over the trailing twelve months ended June 30 placed it in the top 11% of its
category, demonstrating that it has been able to outperform its peers in both up
and down markets. We believe that our consistent, disciplined approach to
stockpicking is the key in our ability to outperform both the benchmark and the
fund's peer groups over the long term.
^1 Source: Lipper Analytical Services, Inc., an independent analyst of
investment performance. Performance includes reinvestment of dividends and
capital gains. For the period ended June 30, 2000, The Japan Fund Inc.'s
Lipper ranking was 18 out of 53 funds for the six-month period, 5 out of 48
funds for the one-year period, 4 out of 27 funds for the three-year period,
3 out of 14 for the five-year period, and 1 out of 6 for the ten-year
period. Past performance is no guarantee of future results.
The Japan Fund, Inc. | 3
<PAGE>
Market Environment
Although market participants remain concerned about Japan's growth prospects, it
is becoming evident that the country is slowly embarking on a recovery. Real
first quarter gross domestic product ("GDP") grew 10% in the first quarter of
2000 (on a quarter-over-quarter, annualized basis), compared to downturns in
real GDP in the third and fourth quarters of 1999. Private capital expenditures,
net exports, housing, and consumption contributed to growth, while public fixed
investment was weak. Although the GDP growth rate was high, it missed the
consensus forecast by a small margin. More recent indicators present further
evidence that a cyclical recovery is underway. The June Tankan (the Bank of
Japan's Short Term Economic Survey) showed improvements in corporate sentiment
and capital expenditures -- especially among large manufacturers -- and
supported our long-standing thesis that the economic recovery will be led by
corporations, not consumers.
Another positive factor for Japan is the fact that vast amounts of 5- to 10-year
postal deposits and certificates of deposit are now maturing. With these
instruments now yielding 2% or less and short-term interest rates near zero,
they are no longer viable investment alternatives for Japanese investors. As
such, more investors are turning to equities, which should fuel the growth of
the market. Last year was a record year for sales of Japanese mutual funds to
investors in Japan.
We are also seeing a continued transformation in the way Japan does business. We
believe that a major wave of information technology investments has just begun,
and should continue to present major opportunities for Japanese companies in
areas such as mobile Internet, interactive TVs, and display technologies. This
trend would be a positive for fund holdings such as Sony, NTT Mobile, and Tokyo
Broadcasting System. Moreover, even the "old economy" companies are rapidly
implementing reforms. Many major Japanese companies have begun to focus on
margins and returns, and are placing less of an
4 | The Japan Fund, Inc.
<PAGE>
emphasis on asset expansion. In the process, they have made choices of which
businesses should be the focus of their resources, and which businesses to spin
off, divest, or merge with a competitor. We believe that the enhanced efficiency
of the corporate sector should create surprisingly high shareholder returns over
the next 3-5 years, during which returns on equity could climb from 4-5%
currently to 10-12% or more. Fund holdings that are undergoing significant
reforms include Daikin, the leading air conditioner company, and Toshiba.
Potential Risks
While current economic conditions show firmness, uncertainties lie ahead. First,
a lackluster recovery in consumption is likely to depress sentiment. Second,
investors are concerned about a potential end to the Bank of Japan's ("BOJ")
"zero interest rate" policy. Rate hikes appear likely later this year or into
next year, since Japan's interest rates are abnormally low. If rates rise,
companies with large debt loads will be negatively impacted. On the other hand,
if the BOJ raises rates in view of an accelerating economy, it may indicate that
Japan is on its way back to a more normal economic environment. Yen volatility
could also be a problem for the stock market going forward. However, it is
important to note that many of the holdings in the portfolio are global
companies whose exports provide exposure to foreign markets and currencies. To a
certain extent, global diversification helps diminish the impact of yen
volatility on the overall portfolio.
Fund Strategy
Our unique investment process targets opportunities across the entire Japanese
equity market. We focus on companies large and small, and those with both
"growth" and "value" orientations. The fund is broadly diversified among
domestic restructuring stories (banks, real estate), growth stocks (NTT Mobile
Communications, NEC), and companies with profitable franchises (foods,
pharmaceuticals). Our focus on "quality value" leads
The Japan Fund, Inc. | 5
<PAGE>
to investments in companies that exhibit greater-than-average growth potential,
strong balance sheets, rich cash flow, strong franchise value, and/or merger or
acquisition potential. We believe that a broadly diversified portfolio of
Japanese stocks that seeks both growth and value opportunities and that has the
ability to invest in all market capitalization ranges can achieve optimal
returns over time. During the first half of the year, the fund added to
positions in real estate, railways, banks, and consumer sectors, and reduced
some of the higher-valuation holdings in the technology and service sectors.
Outlook
We remain positive on the long-term outlook for Japanese equities. Valuations
are attractive, the economy is showing signs of improvement, and important
changes continue to take place on the corporate level. However, we expect that
the ongoing risks in Japan will lead to high levels of day-to-day volatility
during the second half of the year. The performance of the U.S. tech sector is
also a concern, but Japan is still a market with a relatively low correlation to
the U.S. and Europe. As such, we believe that Japanese equities represent a good
opportunity for global diversification. Although Japan has underperformed most
global markets over the past decade, we encourage investors to remain focused on
the opportunities that we believe the country will provide over the next 3 to 5
years.
Sincerely,
/s/Lynn S. Birdsong, /s/William L. Givens
Lynn S. Birdsong, William L. Givens
President Chairman
6 | The Japan Fund, Inc.
<PAGE>
Performance Update
--------------------------------------------------------------------------------
June 30, 2000
--------------------------------------------------------------------------------
Growth of a $10,000 Investment
--------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
The Japan Fund,
Inc. -- Class S Shares TOPIX*
---------------------- ------
'90 10000 10000
'91 9331 8612
'92 7452 6448
'93 9578 9926
'94 11197 11340
'95 8141 9494
'96 9457 10596
'97 9508 9291
'98 7408 6125
'99 11615 8162
'00 18170 10562
Yearly periods ended June 30
--------------------------------------------------------------------------------
Fund Index Comparison
--------------------------------------------------------------------------------
Total Return
Growth of Average
Period ended 6/30/2000 $10,000 Cumulative Annual
--------------------------------------------------------------------------------
The Japan Fund, Inc. -- Class S Shares
--------------------------------------------------------------------------------
1 year $ 15,644 56.44% 56.44%
--------------------------------------------------------------------------------
5 year $ 22,319 123.19% 17.42%
--------------------------------------------------------------------------------
10 year $ 18,170 81.70% 6.15%
--------------------------------------------------------------------------------
TOPIX*
--------------------------------------------------------------------------------
1 year $ 12,940 29.40% 29.40%
--------------------------------------------------------------------------------
5 year $ 11,125 11.25% 2.15%
--------------------------------------------------------------------------------
10 year $ 10,562 5.62% .55%
--------------------------------------------------------------------------------
* 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.
The Japan Fund, Inc. | 7
<PAGE>
--------------------------------------------------------------------------------
Returns and Per Share Information
--------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE SHOWING TOTAL RETURN
BAR CHART DATA:
Yearly periods ended June 30
The Japan Fund,
Inc. -- Class S Shares TOPIX
---------------------- -----
1991 -6.69 -13.88
1992 -20.14 -25.13
1993 28.54 53.93
1994 16.91 14.25
1995 -27.29 -16.27
1996 16.16 11.60
1997 0.54 -12.32
1998 22.09 -34.08
1999 56.78 33.27
2000 56.44 29.40
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund Total
Return (%) -6.69 -20.14 28.54 16.91 -27.29 16.16 .54 22.09 56.78 56.44
-----------------------------------------------------------------------------------------
Index Total
Return (%) -13.88 -25.13 53.93 14.25 -16.27 11.60 -12.32 -34.08 33.27 29.40
-----------------------------------------------------------------------------------------
Net Asset Value ($) 11.51 9.01 11.59 12.71 8.44 9.77 9.62 7.15 11.21 14.29
-----------------------------------------------------------------------------------------
Income
Dividends ($) .09 -- .01 .27 -- .03 .17 .33 -- .66
-----------------------------------------------------------------------------------------
Capital Gains
Distributions ($) .52 .21 .-- 39 .96 -- -- -- -- 2.73
-----------------------------------------------------------------------------------------
</TABLE>
* 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.
On May 1, 2000, existing shares of the Fund were redesignated as Class S.
The total return information provided is for the Fund's Class S shares.
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 | The Japan Fund, Inc.
<PAGE>
Portfolio Summary
--------------------------------------------------------------------------------
June 30, 2000
--------------------------------------------------------------------------------
Asset Allocation
--------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A PIE CHART HERE
PIE CHART DATA:
Equity Holdings 94% Management continues to
Cash Equivalents 6% focus on staying as
--------------------------------------------------- close to fully invested
100% in equities as possible.
---------------------------------------------------
--------------------------------------------------------------------------------
Sector Diversification
--------------------------------------------------------------------------------
(Excludes 6% Cash Equivalents)
THE ORIGINAL DOCUMENT CONTAINS A PIE CHART HERE
PIE CHART DATA:
Manufacturing 26% The fund is diversified
Financial 20% among growth stocks in
Technology 12% "new economy" sectors,
Communications 10% as well as value names
Consumer Staples 8% in more traditional
Health 5% industries.
Consumer Discretionary 4%
Media 4%
Service Industries 4%
Other 7%
------------------------------------------
100%
------------------------------------------
The Japan Fund, Inc. | 9
<PAGE>
--------------------------------------------------------------------------------
Ten Largest Equity Holdings
--------------------------------------------------------------------------------
(37% of Portfolio) Top holdings reflect
management's focus on
1. Nippon Telegraph & Telephone Corp. companies that are
Provider of telecommunication services attractively valued in
relation to their
2. NTT Mobile Communications Network, Inc. long-term growth
Provider of various telecommunication services and prospects.
equipment
3. Ricoh Co., Ltd.
Manufacturer of copiers and information equipment
4. NEC Corp.
Manufacturer of telecommunication and computer
equipment
5. Fujitsu, Ltd.
Manufacturer of computers
6. Sumitomo Electric Industries, Ltd.
Manufacturer of electric wires and cables
7. Toshiba Corp.
Manufacturer of electric machinery
8. Yamanouchi Pharmaceutical Co., Ltd.
Manufacturer and marketer of a wide variety of
pharmaceuticals
9. Sakura Bank, Ltd.
Provider of banking services
10. Sony Corp.
Manufacturer of consumer and industrial electronic
equipment
For more complete details about the Fund's investment portfolio, see page 11. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
10 | The Japan Fund, Inc.
<PAGE>
Investment Portfolio as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Repurchase Agreements 1.0%
---------------------------------------------------------------------------------------------
<S> <C> <C>
Donaldson, Lufkin & Jenrette, 6.53%, to be repurchased at
$8,569,661 on 7/3/2000** (Cost $8,565,000) .................. 8,565,000 8,565,000
---------------------------------------------------------------------------------------------
Short-Term Investments 4.8%
---------------------------------------------------------------------------------------------
Federal Home Loan Discount Note, 6.57%*, 7/3/2000 .............. 39,985,400 40,000,000
U.S. Treasury Bill*, 9/7/2000 (b) .............................. 1,600,000 1,583,872
---------------------------------------------------------------------------------------------
Total Short-Term Investments (Cost $41,568,375) 41,583,872
---------------------------------------------------------------------------------------------
Shares
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Common Stocks 94.2%
---------------------------------------------------------------------------------------------
Consumer Discretionary 4.2%
Department & Chain Stores 0.4%
York-Benimaru Co., Ltd. ........................................ 134,000 3,787,272
----------
Home Furnishings 0.4%
Sangetsu Co., Ltd. ............................................. 190,000 3,132,507
----------
Hotels & Casinos 0.6%
Aruze Corp. .................................................... 65,600 5,562,203
----------
Recreational Products 1.7%
Nintendo Co., Ltd. ............................................. 79,400 13,853,578
----------
Restaurants 1.1%
Yoshinoya D&C Co., Ltd. ........................................ 447 9,096,236
----------
Consumer Staples 7.9%
Consumer Electronic & Photographic 5.0%
Sanyo Electric Co., Ltd. ....................................... 1,919,000 17,247,407
Sony Corp. ..................................................... 276,000 25,742,145
----------
42,989,552
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
The Japan Fund, Inc. | 11
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Food & Beverage 1.9%
Ajinomoto Co., Inc .................... 978,000 12,530,783
Rock Field Co., Ltd. .................. 76,500 4,100,853
16,631,636
----------
Package Goods/Cosmetics 0.4%
Uni-Charm Co. ......................... 61,600 3,725,771
----------
Textiles 0.6%
Gunze, Ltd. ........................... 1,242,000 4,820,802
----------
Health 4.5%
Health Industry Services 0.0%
Nichii Gakkan Company ................. 50 2,190
----------
Pharmaceuticals 4.5%
Chugai Pharmaceutical Co., Ltd. ....... 459,000 8,670,168
Fujisawa Pharmaceutical Co. ........... 84,000 3,394,979
Yamanouchi Pharmaceutical Co., Ltd. ... 488,000 26,619,436
----------
38,684,583
----------
Communications 9.2%
Telephone/Communications
NTT Mobile Communications Network, Inc. 1,425 38,529,841
Nippon Telegraph & Telephone Corp. .... 3,085 40,980,263
----------
79,510,104
----------
Financial 19.3%
Banks 8.7%
Bank of Yokohama, Ltd. ................ 4,323,000 19,345,471
Fuji Bank, Ltd. ....................... 2,316,000 17,586,283
Sakura Bank, Ltd. ..................... 3,748,000 25,882,368
The Chiba Bank, Ltd. .................. 2,907,000 11,475,180
----------
74,289,302
----------
Other Financial Companies 7.5%
Daiwa Securities Group, Inc. .......... 921,000 12,147,534
Japan Securities Finance Co., Ltd. .... 1,259,000 7,128,541
Nikko Securities Co., Ltd. ............ 1,140,000 11,277,027
Nomura Securities Co., Ltd. ........... 484,000 11,832,682
ORIX Corp. ............................ 151,560 22,345,980
----------
64,731,764
----------
Real Estate 3.1%
Mitsubishi Estate Co., Ltd. ........... 1,095,000 12,874,464
The accompanying notes are an integral part of the financial statements.
12 | The Japan Fund, Inc.
<PAGE>
<TABLE>
<CAPTION>
Shares Value ($)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mitsui Fudosan Co., Ltd. ................................................... 1,285,000 13,921,994
----------
26,796,458
----------
Media 3.7%
Broadcasting & Entertainment
Toho Co., Ltd. ............................................................. 37,800 6,431,466
Tokyo Broadcasting System, Inc. ............................................ 593,000 25,587,074
----------
32,018,540
----------
Service Industries 3.7%
Environmental Services 0.4%
Sanix Inc. ................................................................. 59,150 3,120,637
----------
Miscellaneous Commercial Services 1.9%
Benesse Corp. .............................................................. 171,400 11,842,839
Secom Co., Ltd. ............................................................ 56,000 4,088,747
----------
15,931,586
----------
Miscellaneous Consumer Services 1.4%
Yamada Denki Co., Ltd. ..................................................... 139,000 12,453,625
----------
Durables 0.9%
Telecommunications Equipment 0.9%
Japan Radio Co., Ltd. ...................................................... 783,000 7,325,065
----------
Manufacturing 24.3%
Chemicals 0.9%
Dainippon Ink and Chemicals, Inc. .......................................... 1,711,000 8,043,610
----------
Containers & Paper 0.5%
Hokuetsu Paper Mills, Ltd. ................................................. 516,000 4,365,425
----------
Diversified Manufacturing 4.4%
Kuraray Co., Ltd. .......................................................... 749,000 8,580,564
Sumitomo Electric Industries, Ltd. ......................................... 1,670,000 28,602,949
----------
37,183,513
----------
Electrical Products 6.0%
Toshiba Corp. .............................................................. 2,507,000 28,271,506
Yaskawa Electric Corp. ..................................................... 1,971,000 23,526,845
----------
51,798,351
----------
Industrial Specialty 5.6%
Daikin Industries, Ltd. .................................................... 1,081,000 25,104,009
Teijin, Ltd. ............................................................... 1,823,000 8,879,278
</TABLE>
The accompanying notes are an integral part of the financial statements
The Japan Fund, Inc. | 13
<PAGE>
<TABLE>
<CAPTION>
Shares Value ($)
----------------------------------------------------------------------------------------
<S> <C> <C>
Yokogawa Electric Corp. .................................. 1,367,000 13,651,326
-----------
47,634,613
-----------
Machinery/Components/Controls 1.5%
Fuji Electric Co., Inc ................................... 947,000 4,139,696
Misumi Corp. ............................................. 86,010 8,791,827
-----------
12,931,523
-----------
Office Equipment/Supplies 4.0%
Ricoh Co., Ltd. .......................................... 1,639,000 34,665,363
-----------
Wholesale Distributors 1.4%
Mitsui & Co., Ltd. ....................................... 1,604,000 12,240,237
-----------
Technology 11.0%
Diverse Electronic Products 0.3%
Matsushita Electric Industrial Co., Ltd. ................. 110,000 2,849,875
-----------
Electronic Components/Distributors 7.0%
Kyocera Corp. ............................................ 96,900 16,423,110
Murata Manufacturing Co., Ltd. ........................... 67,000 9,607,047
NEC Corp. ................................................ 1,092,000 34,258,420
-----------
60,288,577
-----------
Electronic Data Processing 3.7%
Fujitsu, Ltd. ............................................ 920,000 31,809,317
-----------
Energy 2.5%
Oil & Gas Production
Tokyo Gas Co. ............................................ 7,798,000 21,892,732
-----------
Transportation 3.0%
Railroads
East Japan Railway Co. ................................... 2,090 12,129,069
West Japan Railway Co. ................................... 3,400 13,773,612
-----------
25,902,681
-----------
Total Common Stocks (Cost $653,946,555) 810,069,228
----------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $704,079,930) (a) 860,218,100
----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 | The Japan Fund, Inc.
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
At June 30, 2000, open futures contracts sold short were as follows:
Aggregate
Futures Expiration Contracts Face Value ($) Value ($)
------------------------ ---------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
Topix Index ......... September 2000 1,520,000 22,790,334 22,858,637
-------------- ------------
Total unrealized depreciation on open futures contracts sold short ... (68,303)
</TABLE>
* Annualized yield at time of purchase, not a coupon rate.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $721,807,141. At June 30,
2000, net unrealized appreciation for all securities based on tax cost was
$138,410,959. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$153,847,459 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $15,436,500.
(b) On June 30, 2000 this security has been pledged to cover, in whole or in
part, initial margin requirements for open futures contracts. The
accompanying notes are an integral part of the financial statements.
The Japan Fund, Inc. | 15
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
----------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (cost $704,079,930) ..................... $ 860,218,100
Receivable for investments sold ............................................. 15,003,966
Dividends receivable ........................................................ 2,211,902
Interest receivable ......................................................... 1,485
Receivable for Fund shares sold ............................................. 19,915,994
Other assets ................................................................ 7,178
-------------
Total assets ................................................................ 897,358,625
Liabilities
----------------------------------------------------------------------------------------------
Due to custodian bank ....................................................... 18,869
Payable for investments purchased ........................................... 17,658,657
Payable for Fund shares redeemed ............................................ 29,227,876
Payable for daily variation margin on open futures contracts ................ 719,910
Accrued management fee ...................................................... 572,982
Other accrued expenses and payables ......................................... 91,328
-------------
Total liabilities ........................................................... 48,289,622
----------------------------------------------------------------------------------------------
Net assets, at value $ 849,069,003
----------------------------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated distributions in excess of net investment income ................ (27,380,645)
Net unrealized appreciation (depreciation) on:
Investments ............................................................... 156,138,170
Futures ................................................................... (68,303)
Foreign currency related transactions ..................................... (1,472)
Accumulated net realized gain (loss) ........................................ 197,365,567
Paid-in capital ............................................................. 523,015,686
----------------------------------------------------------------------------------------------
Net assets, at value $ 849,069,003
----------------------------------------------------------------------------------------------
Net Asset Value
----------------------------------------------------------------------------------------------
Class S Shares, Net Asset Value, offering and redemption price per share
($848,901,798 / 59,398,865 shares of capital stock outstanding, $.333 par
value, 300,000,000 shares authorized) .................................... $ 14.29
Class A Shares, Net Asset Value and redemption price per share ($119,027 /
8,310.904 shares of capital stock outstanding, $.333 par value, 100,000,000
shares authorized) ....................................................... $ 14.32
Maximum offering price per share (100 / 94.25 of $14.32) .................... $ 15.19
Class B Shares, Net Asset Value, offering and redemption price
(subject to contingent deferred sales charge) per share ($44,816 / 3,133.816
shares of capital stock outstanding, $.333 par value, 50,000,000 shares
authorized) .............................................................. $ 14.30
Class C Shares, Net Asset Value, offering and redemption price (subject to
contingent deferred sales charge) per share ($3,362 / 235.058 shares of
capital stock outstanding, $.333 par value, 50,000,000 shares
authorized) .............................................................. $ 14.30
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 | The Japan Fund, Inc.
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Investment Income
--------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $421,148) .......... $ 2,387,298
Interest (net of foreign taxes withheld of $128) ............... 850,436
-------------
Total Income ................................................... 3,237,734
-------------
Expenses:
Management fee ................................................. 3,334,095
Services to shareholders ....................................... 529,985
Custodian and accounting fees .................................. 236,887
Distribution services fees ..................................... 38
Administrative services fees ................................... 949
Auditing ....................................................... 32,761
Legal .......................................................... 39,300
Directors' fees and expenses ................................... 72,923
Reports to shareholders ........................................ 80,814
Registration fees .............................................. 28,540
Interest expense ............................................... 153,597
Other .......................................................... 51,327
-------------
Total expenses, before expense reductions ...................... 4,561,216
Expense reductions ............................................. (9,450)
-------------
Total expenses, after expense reductions ....................... 4,551,766
Net investment income (loss) ................................... (1,314,032)
Realized and unrealized gain (loss) on investment transactions
--------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... 198,336,237
Futures ........................................................ (830,428)
Foreign currency related transactions .......................... 91,312
-------------
197,597,121
-------------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... (214,648,414)
Futures ........................................................ (68,303)
Foreign currency related transactions .......................... (5,451)
-------------
(214,722,168)
--------------------------------------------------------------------------------
Net gain (loss) on investment transactions (17,125,047)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (18,439,079)
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
The Japan Fund, Inc. | 17
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, 2000 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1999
----------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) ...................... $ (1,314,032) $ (1,375,054)
Net realized gain (loss) on investment transactions 197,597,121 242,080,584
Net unrealized appreciation (depreciation) on
investment transactions during the period ...... (214,722,168) 363,916,273
--------------- ---------------
Net increase (decrease) in net assets resulting
from operations................................ (18,439,079) 604,621,803
--------------- ---------------
Distributions to shareholders from:
Net investment income -- Class S shares ........... (33,374,786) (4,922,799)
--------------- ---------------
Net realized gains -- Class S shares .............. (55,241,025) (108,916,942)
--------------- ---------------
Fund share transactions:
Proceeds from shares sold ......................... 1,779,307,852 2,411,950,009
Reinvestment of distributions ..................... 79,469,488 101,465,448
Cost of shares redeemed ........................... (1,991,906,573) (2,262,070,034)
--------------- ---------------
Net increase (decrease) in net assets from Fund
share transactions.............................. (133,129,233) 251,345,423
--------------- ---------------
Increase (decrease) in net assets ................. (240,184,123) 742,127,485
Net assets at beginning of period ................. 1,089,253,126 347,125,641
Net assets at end of period (including accumulated
distributions in excess of net investment
income of $27,380,645 and undistributed net
investment income of $7,308,173, respectively) . $ 849,069,003 $ 1,089,253,126
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 | The Japan Fund, Inc.
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
Class S Shares (a)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Years Ended December 31, 2000(b) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $16.41 $ 8.33 $ 6.77 $ 8.33 $ 9.44 $10.50
------------------------------------------------------
------------------------------------------------------------------------------------
Income (loss) from investment
operations:
------------------------------------------------------------------------------------
Net investment income
(loss) (c) (.02) (.02) (.01) (.03) (.03) (.01)
------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investment
transactions (.56) 9.95 1.65 (1.16) (1.00) (.94)
------------------------------------------------------
------------------------------------------------------------------------------------
Total from investment
operations (.58) 9.93 1.64 (1.19) (1.03) (.95)
------------------------------------------------------------------------------------
Less distributions from:
------------------------------------------------------------------------------------
Net investment income (.58) (.08) -- -- -- --
------------------------------------------------------------------------------------
Net realized gains on (.96) (1.77) -- -- -- --
------------------------------------------------------------------------------------
investment transactions
------------------------------------------------------------------------------------
In excess of net investment
income -- -- (.08) (.37) (.08) --
------------------------------------------------------------------------------------
In excess of net realized
gains -- -- -- -- -- (.11)
------------------------------------------------------
------------------------------------------------------------------------------------
Total distributions (1.54) (1.85) (.08) (.37) (.08) (.11)
------------------------------------------------------------------------------------
Net asset value, end of period $14.29 $16.41 $ 8.33 $ 6.77 $ 8.33 $ 9.44
------------------------------------------------------
------------------------------------------------------------------------------------
Total Return (%) (4.25)** 119.88 24.29 (14.40) (10.92) (9.07)
------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
------------------------------------------------------------------------------------
Net assets, end of period
($ millions) 849 1,089 347 265 386 549
------------------------------------------------------------------------------------
Ratio of expenses (%) 1.05* 1.00 1.26 1.21 1.16 1.21
------------------------------------------------------------------------------------
Ratio of net investment
income (loss) (%) (.30)* (.20) (.14) (.38) (.34) (.24)
------------------------------------------------------------------------------------
Portfolio turnover rate (%) 87* 114 90 96 73 70
------------------------------------------------------------------------------------
</TABLE>
(a) On May 1, 2000, existing shares of the Fund were designated as Class S
shares.
(b) For the six months ended June 30, 2000 (Unaudited).
(c) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
The Japan Fund, Inc. | 19
<PAGE>
Notes to Financial Statements (Unaudited)
--------------------------------------------------------------------------------
A. Significant Accounting Policies
The Japan Fund, Inc. (the "Fund") is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end, diversified management
investment company organized as a Maryland Corporation.
Beginning May 1, 2000, the Fund offers multiple classes of shares. Class A
shares are offered to investors subject to an initial sales charge. Class B
shares are offered without an initial sales charge but are subject to higher
ongoing expenses than Class A shares and a contingent deferred sales charge
payable upon certain redemptions. Class B shares automatically convert to Class
A shares six years after issuance. Class C shares are offered without an initial
sales charge but are subject to higher ongoing expenses than Class A shares and
a contingent deferred sales charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert into another class. Class S
shares are not subject to initial or contingent deferred sales charges. Certain
detailed financial information for the Class A, B and C shares is provided
separately and is available upon request.
Investment income, realized and unrealized gains and losses, and certain
fund-level expenses and expense reductions, if any, are borne pro rata on the
basis of relative net assets by the holders of all classes of shares, except
that each class bears certain expenses unique to that class such as distribution
services, shareholder services, administrative services and certain other class
specific expenses. Differences in class expenses may result in payment of
different per share dividends by class. All shares of the Fund have equal rights
with respect to voting subject to class specific arrangements.
The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States 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 quoted on the
Nasdaq Stock Market ("Nasdaq"), for which there have been
20 | The Japan Fund, Inc.
<PAGE>
sales, are valued at the most recent sale price reported. If there are no such
sales, the value is the most recent bid quotation. Securities which are not
quoted on Nasdaq but are traded in another over-the-counter market are valued at
the most recent sale price, or if no sale occurred, 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 Corporation,
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.
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.
The Japan Fund, Inc. | 21
<PAGE>
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. In addition, the Fund also sold securities
index futures as a temporary substitute for selling 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
witholding tax on realized capital gains.
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.
22 | The Japan Fund, Inc.
<PAGE>
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from accounting principles generally accepted in the United
States. These differences primarily relate to investments in futures, 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
During the six months ended June 30, 2000, purchases and sales of investment
securities (excluding short-term investments) aggregated $396,184,971 and
$587,173,363, respectively.
C. Transactions with Affiliates
Management Agreement. Under the Investment Management Agreement (the
"Agreement") with Scudder Kemper Investments, Inc. (the "Adviser"), the Adviser
directs the investments of the Fund in accordance with its investment
objectives, 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 net assets, 0.70% of the next $300,000,000 of such
net 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, 2000, the fee
pursuant to the Agreement amounted to $3,334,095, which was equivalent to an
annualized effective rate of 0.76% of the Fund's average daily net assets.
The Japan Fund, Inc. | 23
<PAGE>
Distribution Service Agreement. In accordance with Rule 12b-1 under the 1940
Act, Kemper Distributors, Inc. ("KDI"), a subsidiary of the Adviser, receives a
fee of 0.75% of average daily net assets of Classes B and C. Pursuant to the
agreement, KDI enters into related selling group agreements with various firms
at various rates for sales of Class B and C shares. For the period ended June
30, 2000, the Distribution Fee was as follows:
Distribution Fee Total Unpaid at
Aggregated June 30, 2000
-------------------------------------- --------------- ---------------
Class B ............................ $ 34 $ 34
Class C ............................ 4 4
$ 38 $ 38
Underwriting Agreement and Contingent Deferred Sales Charge. KDI is the
principal underwriter for Classes A, B and C. Underwriting commissions paid in
connection with the distribution of Class A shares for the period ended June 30,
2000 aggregated $143, of which none was paid to other firms.
In addition, KDI receives any contingent deferred sales charge (CDSC) from Class
B share redemptions occurring within six years of purchase and Class C share
redemptions occurring within one year of purchase. There is no such charge upon
redemption of any share appreciation or reinvested dividends. Contingent
deferred sales charges are based on declining rates ranging from 4% to 1% for
Class B and 1% for Class C, of the value of the shares redeemed. For the period
ended June 30, 2000, there were no CDSC for Classes B and C.
Administrative Services Fees. KDI provides information and administrative
services to Classes A, B and C shareholders at an annual rate of up to 0.25% of
average daily net assets for each such class. KDI in turn has various agreements
with financial services firms that provide these services and pays these firms
based upon the assets of shareholder accounts the firms service. For the period
ended June 30, 2000, the Administrative Services Fee was as follows:
Total Fees Waived Unpaid at
Administrative Services Fee Aggregated by KDI June 30, 2000
------------------------------ ---------------- --------------- ---------------
Class A $ 936 $ -- $ 936
Class B 11 -- 11
Class C 2 -- 2
$ 949 $ -- $ 949
24 | The Japan Fund, Inc.
<PAGE>
Shareholder Services Fees. Kemper Service Company ("KSC"), an affiliate of the
Adviser, is the transfer, dividend-paying and shareholder service agent for the
Fund's Classes A, B and C shares. For the period ended June 30, 2000, the amount
charged to Classes A, B and C by KSC aggregated $238, $3 and $1, respectively,
all of which is unpaid at June 30, 2000. Scudder Service Corporation ("SSC"), a
subsidiary of the Adviser, is the transfer, dividend-paying and shareholder
service agent for the Class S shares. For the six months ended June 30, 2000,
the amount charged to the Class S shares by SSC for shareholder services
aggregated $296,386.
Directors' Fees. 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, 2000, Directors' fees and expenses
aggregated $72,923.
D. Directors' Retirement Benefits
Under a retirement program, independent members of the Board of Directors who
meet certain criteria become eligible to participate in an unfunded
noncontributory 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 Director's fees and length of service. For the six
months ended June 30, 2000, Directors' retirement benefits amounting to $38,350
are included in Directors' fees and expenses in the statement of operations.
Included in other accrued expenses and payables in the statement of assets and
liabilities at June 30, 2000, is $326,028 accrued by the Fund for such benefits.
E. Expense Off-Set Arrangements
The Fund has entered into an arrangement with its transfer agent whereby credits
realized as a result of uninvested cash balances were used to reduce a portion
of the Fund's expenses. During the six months ended June 30, 2000, the Fund's
transfer agent fees were reduced by $9,450 under this arrangement.
F. Line of Credit
The Fund and several other Scudder Funds (the "Participants") share in a $1
billion revolving credit facility with Chase Manhattan Bank 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 based upon net
assets, 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.
The Japan Fund, Inc. | 25
<PAGE>
G. Share Transactions
The following tables summarize share and dollar activity in the Fund:
Six Months Ended
June 30, 2000
--------------------------------
Shares Dollars
Shares sold
-------------------------------------------------------------------------------
Class A shares .............................. 1,231,216 $ 16,986,864
Class B shares .............................. 3,505 49,498
Class C shares .............................. 4,985 69,529
Class S shares .............................. 119,701,636 1,762,201,961
120,941,342 $1,779,307,852
Shares issued to shareholders in reinvestment of distributions
--------------------------------------------------------------------------------
Class A shares .............................. -- $ --
Class B shares .............................. -- --
Class C shares .............................. -- --
Class S shares .............................. 5,137,006 79,469,488
5,137,006 $ 79,469,488
Shares redeemed
--------------------------------------------------------------------------------
Class A shares .............................. (1,222,905) $ (17,014,005)
Class B shares .............................. (371) (5,238)
Class C shares .............................. (4,750) (66,648)
Class S shares .............................. (131,830,556) (1,974,820,682)
(133,058,582) $(1,991,906,573)
Net increase (decrease)
--------------------------------------------------------------------------------
Class A shares .............................. 8,311 $ (27,141)
Class B shares .............................. 3,134 44,260
Class C shares .............................. 235 2,881
Class S shares .............................. (6,991,914) (133,149,233)
(6,980,234) $(133,129,233)
26 | The Japan Fund, Inc.
<PAGE>
Year Ended
December 31, 1999
--------------------------------
Shares Dollars
Shares sold
--------------------------------------------------------------------------------
Class S shares .............................. 192,144,389 $2,411,950,009
Shares issued to shareholders in reinvestment of distributions
--------------------------------------------------------------------------------
Class S shares .............................. 6,369,458 $ 101,465,448
Shares redeemed
--------------------------------------------------------------------------------
Class S shares .............................. (173,791,335) $(2,262,070,034)
Net increase (decrease)
--------------------------------------------------------------------------------
Class S shares .............................. 24,722,512 $ 251,345,423
The Japan Fund, Inc. | 27
<PAGE>
Officers and Directors
--------------------------------------------------------------------------------
Lynn Birdsong* Hiroshi Yamanaka
o President and Director o Director
o Advisor to the Board, The Meiji
William L. Givens Mutual Life Insurance Company
o Chairman of the Board and Director
o President, Twain Associates Elizabeth J. Allan*
o Vice President
Thomas M. Hout
o Director Maureen E. Kane*
o Senior Advisor, o Assistant Secretary
Boston Consulting Group
Seung Kwak*
John F. Loughran o Vice President
o Director
o Director, The Finisterre Fund Miyuki Wakatsuki*
o Vice President
Yoshihiko Miyauchi
o Director Gina Provenzano*
o Chairman and CEO, ORIX Corporation o Vice President and Treasurer
William V. Rapp Kathryn L. Quirk*
o Director o Vice President and Secretary
o Academic Director, International
Relations, Yale University; Senior John R. Hebble*
Research Associate, Columbia o Assistant Treasurer
University; Managing Director, Rue
Associates
Takeo Shiina * Scudder Kemper Investments, Inc.
o Director
o Senior Advisor, IBM Japan, Ltd.
28 | The Japan Fund, Inc.
<PAGE>
HONORARY DIRECTORS
William H. Gleysteen, Jr. Robert G. Stone, Jr.
o Consultant; Guest Scholar, o Chairman Emeritus and Director,
Brookings Institute Kirby Corporation
Jonathan Mason Robert Theurkauf
o Former Chairman of the Board and o Former Director of The Japan
Director, The Japan Fund, Inc. Fund, Inc.
James W. Morley Shoji Umemura
o Professor of Political Science o Former Director of The Japan
Emeritus, Columbia University Fund, Inc.
o Board Counselor, The Nikko
Henry Rosovsky Securities Co., Ltd.
o Former Chairman of the Board and
Director, The Japan Fund, Inc.
o Professor Emeritus, Harvard
University; Professor, Geyser
University
The Japan Fund, Inc. | 29
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
[JAPAN FUND 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
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
<PAGE>
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED JUNE 30, 2000
THE JAPAN FUND
"... What is crucial to the Japanese economy right now is the
successful transition from an export focus to a domestic consumer
focus. ..."
[JAPAN FUND LOGO]
<PAGE>
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
7
INDIVIDUAL HOLDINGS
8
PORTFOLIO OF
INVESTMENTS
11
FINANCIAL STATEMENTS
14
FINANCIAL HIGHLIGHTS
15
NOTES TO FINANCIAL
STATEMENTS
AT A GLANCE
ABOUT YOUR REPORT
THE JAPAN FUND BEGAN OPERATIONS AS A CLOSED-END FUND ON 4/19/62. IT CONVERTED TO
AN OPEN-END FUND WITH CLASS S SHARES ON 8/14/87. ADVISOR CLASSES A, B AND C,
MADE AVAILABLE ON 5/1/00, HAVE THE SAME UNDERLYING PORTFOLIO AS CLASS S. PLEASE
NOTE THAT RETURNS DEPICTED FOR CLASS A, B AND C SHARES PRIOR TO 5/1/00 ARE
DERIVED FROM THE HISTORICAL PERFORMANCE OF CLASS S, ADJUSTED TO REFLECT SALES
CHARGES AND HIGHER OPERATING EXPENSES. HOWEVER, RANKINGS ARE FOR CLASS S
PERFORMANCE AND HENCE DO NOT REFLECT SUCH ADJUSTMENTS; WITH ADJUSTMENTS,
RANKINGS MIGHT HAVE BEEN LESS FAVORABLE.
THE JAPAN FUND TOTAL RETURNS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2000 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
LIPPER JAPAN REGIONAL
THE JAPAN FUND CLASS A THE JAPAN FUND CLASS B THE JAPAN FUND CLASS C FUNDS CATEGORY AVERAGE*
---------------------- ---------------------- ---------------------- -----------------------
<S> <C> <C> <C>
-4.48 -4.82 -4.82 -10.13
</TABLE>
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
6/30/00 5/1/00
.........................................................
<S> <C> <C> <C> <C>
THE JAPAN FUND CLASS A $14.32 $14.61
.........................................................
THE JAPAN FUND CLASS B $14.30 $14.61
.........................................................
THE JAPAN FUND CLASS C $14.30 $14.61
.........................................................
</TABLE>
RETURNS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS
AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MIGHT BE
WORTH MORE OR LESS THAN ORIGINAL COST.
*RETURNS ARE HISTORICAL FOR THE JAPAN FUND CLASS S SHARES WHICH, UNLIKE CLASS A,
B AND C SHARES, DO NOT HAVE ANY SALES CHARGES, 12B-1 FEES, OR OTHER CLASS
SPECIFIC EXPENSES LIKE ADMINISTRATIVE SERVICE FEES. INVESTMENT RETURNS AND
PRINCIPAL VALUE FLUCTUATE. CLASS S SHARES ARE REDEEMABLE AT CURRENT NET ASSET
VALUE, WHICH MAY BE MORE OR LESS THAN ORIGINAL COST. THE JAPAN FUND CLASS A, B
AND C SHARES WERE INITIALLY OFFERED MAY 1, 2000, FROM INCEPTION TO JUNE 30, 2000
THE TOTAL RETURN (UNADJUSTED FOR SALES CHARGE) FOR CLASS A SHARES WAS -1.98%,
FOR CLASS B SHARES WAS -2.12% AND FOR CLASS C SHARES WAS -2.12%.
THE JAPAN FUND RANKINGS
AS OF 6/30/00
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER JAPAN REGIONAL FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS S
...............................................................
<S> <C> <C> <C>
1-YEAR #5 of 48 funds
...............................................................
3-YEAR #4 of 27 funds
...............................................................
5-YEAR #3 of 14 funds
...............................................................
10-YEAR #1 of 6 funds
...............................................................
</TABLE>
*SOURCE: LIPPER, INC. AS OF 6/30/00. RETURNS USED FOR RANKINGS ARE BASED UPON
CHANGES IN NET ASSET VALUE WITH ALL DIVIDENDS AND CAPITAL GAINS REINVESTED AND
DO NOT INCLUDE THE EFFECT OF SALES CHARGES; IF SALES CHARGES HAD BEEN INCLUDED,
RESULTS MIGHT HAVE BEEN LESS FAVORABLE. LIPPER, INC. IS AN INDEPENDENT ANALYST
OF INVESTMENT PERFORMANCE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
TERMS TO KNOW
YOUR FUND'S STYLE
MORNINGSTAR EQUITY STYLE BOX(TM)
<TABLE>
<S> <C>
[MORNINGSTAR EQUITY STYLE Source: Morningstar, Inc. as of 6/30/00. The
BOX] Morningstar International Equity Style Box(TM)
placement is based on a fund's price-to-earnings and
price-to-cash-flow ratios relative to the MSCI EAFE,
as well as the size of the companies in which it
invests, or median market capitalization. The
stylebox represents a snapshot of a fund's portfolio
on a single day, but it's not exact because a
portfolio changes from day to day. A longer- term
view is represented by the fund's Morningstar
category, which is based on actual investment style
as measured by the fund's underlying holdings over
the past three years.
</TABLE>
BOTTOM-UP INVESTMENT STYLE An investment style that assesses the performance of
individual companies before considering the impact of economic trends. The
companies may be identified from research reports, stock screens or personal
knowledge of the products and services. This approach, which is the opposite of
"top-down" investing, assumes that individual companies can do well even if the
industry as a whole may not be performing well.
OVERWEIGHTING/UNDERWEIGHTING The allocation of assets -- usually in terms of
sector, industry or country -- within a portfolio relative to the portfolio's
benchmark index or investment universe.
RESTRUCTURING Implementation of major corporate changes aimed at greater
efficiency and adaptation to changing markets. Cost-cutting initiatives, debt
retirement, management realignments and the sale of noncore businesses are all
developments frequently associated with corporate restructuring.
<PAGE>
ECONOMIC OVERVIEW
[SHAREHOLDER LETTER HERE]
3
<PAGE>
ECONOMIC OVERVIEW
[SHAREHOLDER LETTER HERE]
4
<PAGE>
[KWAK PHOTO]
SEUNG KWAK, LEAD PORTFOLIO MANAGER, DIRECTS THE FIRM'S ANALYSIS OF JAPAN'S
ECONOMY, CORPORATE DEVELOPMENTS AND INVESTMENT STRATEGY. PRIOR TO JOINING THE
FIRM IN 1988, KWAK WAS AN ANALYST FOR A JAPANESE BROKERAGE HOUSE. HE RECEIVED A
BACHELOR'S DEGREE magna cum laude, PHI BETA KAPPA FROM MIDDLEBURY COLLEGE, AND A
MASTER'S DEGREE IN INTERNATIONAL RELATIONS FROM YALE UNIVERSITY. KWAK IS A
CHARTERED FINANCIAL ANALYST.
[ALLAN PHOTO]
ELIZABETH J. ALLAN PORTFOLIO MANAGER, CONTRIBUTES TO THE FIRM'S JAPANESE
RESEARCH, FOCUSING ON CONSUMER GOODS, RETAIL, AND PHARMACEUTICAL COMPANIES.
ALLAN SPEAKS FLUENT JAPANESE AND HAS EXTENSIVE EXPERIENCE IN THE INDUSTRY. ALLAN
HOLDS A BACHELOR'S DEGREE IN EAST ASIAN STUDIES FROM COLBY COLLEGE, A MASTER'S
DEGREE FROM INDIANA UNIVERSITY IN EAST ASIAN STUDIES, A MASTER'S DEGREE FROM
PRINCETON UNIVERSITY IN SOCIOLOGY SPECIALIZING IN JAPAN, AND AN M.B.A. FROM NEW
YORK UNIVERSITY IN FINANCE AND INTERNATIONAL BUSINESS. THE VIEWS EXPRESSED IN
THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY THROUGH THE END OF THE
PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO
CHANGE AT ANY TIME, BASED ON MARKET AND OTHER CONDITIONS.
PERFORMANCE UPDATE
DURING THE SEMIANNUAL PERIOD, THE JAPANESE MARKET
WAS CLOSELY CORRELATED WITH THE PERFORMANCE OF U.S.
EQUITIES. THE TECHNOLOGY AND TELECOMMUNICATIONS
SECTORS RECORDED A STRONG PERFORMANCE THROUGHOUT
THE FIRST HALF OF THE PERIOD HOWEVER, THE NASDAQ
TUMBLED FOR MOST OF THE SECOND HALF OF THE PERIOD
AND THE JAPAN MARKET CORRECTED. DESPITE THIS RECENT
VOLATILITY, THE FUND'S MANAGEMENT TEAM MAINTAINS AN
OPTIMISTIC OUTLOOK FOR JAPANESE EQUITIES. LEAD
PORTFOLIO MANAGER SEUNG KWAK REVIEWS THE RECENT
MARKET ENVIRONMENT AND THE FUND'S PERFORMANCE OVER
THE SIX-MONTH PERIOD ENDING JUNE 30, 2000.
Q THE JAPANESE MARKET HAS BEEN EXCEPTIONALLY VOLATILE OVER THE PAST SIX
MONTHS. WHAT HAS BEEN THE DRIVING FORCE BEHIND THIS BEHAVIOR?
A The most important factor has been the tremendous volatility in the U.S. stock
market, particularly the Nasdaq. The fluctuations of U.S. equities have
influenced all of the global markets, however, the impact in Japan was not
unusual. While the Nasdaq proved to be a negative influence on fund performance
during this time, we view volatility in the U.S. markets as "noise" that only
serves to obscure the positive story that is unfolding in Japan. Additionally,
the volatility of the Japanese market depends somewhat on which index is
considered as the measure. The Nikkei, which more closely resembles the Nasdaq
with respect to composition, has indeed been quite volatile. Roughly 40 percent
of the Nikkei is technology or tech-related. The broader market is better
represented by the Tokyo Stock Exchange Stock Price Index (TOPIX), which we use
as the fund's benchmark. The 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.
If you look at market dynamics, it's clear that these technology and
tech-related sectors are pulling the rest of the sectors up and down along with
them. In reality, some of the domestic sectors are quite firm in their prices,
and some of them are moving up.
Q HOW HAVE YOU POSITIONED
THE JAPAN FUND IN THIS ENVIRONMENT?
A Picking up on these firmer domestic sectors, we are overweighted in
pharmaceuticals, railways, banks and electronics. We are, however, underweighted
in automobiles because even though sales in Toyota and Honda were good, they
were vulnerable to two factors: exchange rates and U.S. economic fluctuations.
Eighty percent of Honda's profits come from the United States, as well as 70
percent of Toyota's. If economic growth in the United States slows, and consumer
consumption slows along with it, so will the demand for autos. To control and
reduce the portfolio's overall dependence on factors attributable to U.S.
markets, we have kept this sector underweighted.
An overweighted sector that we'd like to highlight is real estate. For the
first time in the postwar era, formal real estate deregulation is imminent. Real
estate investment trusts, or REITs, are scheduled to
5
<PAGE>
PERFORMANCE UPDATE
debut in Japan in the fall. The Japanese real estate deals currently yield
between 3 and 6 percent, and there are no yen instruments yielding more than 3
percent, so competitive prospects look good. If the real estate market in Japan
finally heals, and if money begins flowing into the area, we think this will
clear up the remaining problems from the former collapse of that market and
finally restore the Japanese corporate balance sheet.
Another key theme that distinguishes the portfolio is our investment in
companies that have seized the initiative to improve their competitive
positions. We expect that as the region's recovery continues to gain momentum,
there will be an increasing differentiation between companies with strong
fundamentals and those whose stocks prices have merely been lifted by the
improving economic backdrop. For that reason, we are confident that a bottom-up
approach which focuses on fundamentals and on-the-ground research will be well
suited to the market that we see developing for the remainder of the year.
Q HOW DID THE FUND PERFORM IN THIS ENVIRONMENT?
A For the six months ended June 30, 2000, The Japan Fund was down 4.48 percent
(Class A shares unadjusted for any sales charge), proving more resilient than
the TOPIX, which lost 10.33 percent for the same period.
Downside pressures on the fund came primarily from the Nasdaq correction. The
fact is, many Japanese companies dominate several technology subsectors. Because
of that, the Japanese market, compared with other regions around the globe, was
apparently influenced more heavily by Nasdaq behavior. We continue to focus on
limiting macroeconomic risks, paying particular attention to the sensitivity of
the portfolio to changes in the U.S. stock market.
Q WHAT IS YOUR OUTLOOK FOR JAPANESE EQUITIES?
A Although volatility in the United States should continue to drive the
near-term performance of Japan's market, our long-term outlook for the region
remains favorable. Growth continues to improve, exports are up, inflation is
benign, and the rapid growth of the consumer culture is leading to a stronger,
more diverse economy.
On the individual company level, we are enthusiastic about increasingly
efficient management practices and the growing acceptance of restructuring as a
means to boost profits. These factors, in turn, should increase the flow of
foreign assets into the region, which over time will help provide financing for
companies that are investing for the future.
What is crucial to the Japanese economy right now is the successful transition
from an export focus to a domestic consumer focus. Consumer confidence still
hangs in the balance. We urge investors to maintain a long-term outlook even
when the markets are falling. While we expect that the shifting U.S.
interest-rate outlook will continue to roil the global markets in the near term,
we believe that Japan will remain the source of attractive investment
opportunities for many years to come.
6
<PAGE>
INDIVIDUAL HOLDINGS
THE JAPAN FUND'S 10 LARGEST HOLDINGS
Representing 36.7 percent of the fund's total investment portfolio on June 30,
2000.
<TABLE>
<CAPTION>
HOLDINGS DESCRIPTION PERCENT
<S> <C> <C> <C>
--------------------------------------------------------------------------------------
1. NIPPON TELEGRAPH & TELEPHONE One of the world's largest 4.8%
integrated telephone operators,
providing a wide variety of
domestic services, including local,
long distance and mobile; holds
Japan's largest data communications
companies.
--------------------------------------------------------------------------------------
2. NTT MOBILE COMMUNICATIONS The world's largest cellular 4.5%
NETWORK company with more than 50 percent
market share in Japan and more than
100 million Japanese subscribers.
--------------------------------------------------------------------------------------
3. RICOH CO. A leading office equipment 4.0%
supplier, with particular strength
in the copiers business; with a
strong domestic presence, is
focusing on aggressively expanding
overseas business.
--------------------------------------------------------------------------------------
4. NEC The largest electronics company in 4.0%
Japan and the second largest
semiconductor manufacturer in the
world restructuring and under new
management.
--------------------------------------------------------------------------------------
5. FUJITSU The world's second largest 3.7%
mainframe producer and one of
Japan's largest electronics and
computer parts suppliers.
--------------------------------------------------------------------------------------
6. SUMITOMO ELECTRIC INDUSTRIES Japan's largest diversified 3.3%
manufacturer of electric wires and
cables and boasts the highest
market share in fiber optics
products.
--------------------------------------------------------------------------------------
7. TOSHIBA The second largest diversified 3.3%
industrial electronics company in
Japan, with a significant overseas
presence and pricing power afforded
by brand recognition.
--------------------------------------------------------------------------------------
8. YAMANOUCHI PHARMACEUTICAL One of the leading pharmaceuticals 3.1%
CO. manufacturers in Japan with an
integrated organization encompassing
research, development and marketing in
Asia, Europe and North America.
--------------------------------------------------------------------------------------
9. SAKURA BANK Japan's second largest bank in 3.0%
terms of assets and branch
distribution networks;
restructuring to improve
efficiencies and a leader in ATM
installation.
--------------------------------------------------------------------------------------
10. SONY One of the world's leading 3.0%
manufacturers of audiovisual
equipment and software, with
entertainment subsidiaries and
strong global presence and
significant brand recognition.
--------------------------------------------------------------------------------------
</TABLE>
*Portfolio holdings are subject to change.
7
<PAGE>
PORTFOLIO OF INVESTMENTS
THE JAPAN FUND
Portfolio of Investments at June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENTS--1.0% AMOUNT ($) VALUE ($)
<S> <C> <C> <C> <C> <C>
Donaldson, Lufkin and Jenrette, 6.53%, to
be repurchased at $8,569,661 on
7/3/2000**
(Cost $8,565,000) $ 8,565,000 $ 8,565,000
---------------------------------------------------------------------------
<CAPTION>
SHORT-TERM INVESTMENTS--4.8%
<S> <C> <C> <C> <C> <C>
Federal Home Loan Discount Note, 6.57%*,
7/3/2000 39,985,400 40,000,000
U.S. Treasury Bill*, 9/7/2000 (b) 1,600,000 1,583,872
---------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $41,568,375) 41,583,872
---------------------------------------------------------------------------
<CAPTION>
COMMON STOCKS--94.2% SHARES
<S> <C> <C> <C> <C> <C>
CONSUMER DISCRETIONARY--4.2%
DEPARTMENT & CHAIN STORES--0.4%
York-Benimaru Co., Ltd. 134,000 3,787,272
---------------------------------------------------------------------------
HOME FURNISHINGS--0.4%
Sangetsu Co., Ltd. 190,000 3,132,507
---------------------------------------------------------------------------
HOTELS & CASINOS--0.6%
Aruze Corp. 65,600 5,562,203
---------------------------------------------------------------------------
RECREATIONAL PRODUCTS--1.7%
Nintendo Co., Ltd. 79,400 13,853,578
---------------------------------------------------------------------------
RESTAURANTS--1.1%
Yoshinoya D&C Co., Ltd. 447 9,096,236
---------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--7.9%
CONSUMER ELECTRONIC &
PHOTOGRAPHIC--5.0%
Sanyo Electric Co., Ltd. 1,919,000 17,247,407
Sony Corp. 276,000 25,742,145
---------------------------------------------------------------------------
42,989,552
FOOD & BEVERAGE--1.9%
Ajinomoto Co., Inc 978,000 12,530,783
Rock Field Co., Ltd. 76,500 4,100,853
---------------------------------------------------------------------------
16,631,636
PACKAGE GOODS/ COSMETICS--0.4%
Uni-Charm Co. 61,600 3,725,771
---------------------------------------------------------------------------
TEXTILES--0.6%
Gunze, Ltd. 1,242,000 4,820,802
---------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
HEALTH--4.5%
HEALTH INDUSTRY SERVICES--0.0%
Nichii Gakkan Company 50 2,190
---------------------------------------------------------------------------
PHARMACEUTICALS--4.5%
Chugai Pharmaceutical Co., Ltd. 459,000 8,670,168
Fujisawa Pharmaceutical Co. 84,000 3,394,979
Yamanouchi Pharmaceutical Co., Ltd. 488,000 26,619,436
---------------------------------------------------------------------------
38,684,583
------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--9.2%
TELEPHONE/COMMUNICATIONS
NTT Mobile Communications Network, Inc. 1,425 38,529,841
Nippon Telegraph & Telephone Corp. 3,085 40,980,263
---------------------------------------------------------------------------
79,510,104
</TABLE>
8 The accompanying notes are an integral part of the financial statements.
<PAGE>
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE($)
<S> <C> <C> <C> <C> <C>
FINANCIAL--19.3%
BANKS--8.7%
Bank of Yokohama, Ltd. 4,323,000 $ 19,345,471
Fuji Bank, Ltd. 2,316,000 17,586,283
Sakura Bank, Ltd. 3,748,000 25,882,368
The Chiba Bank, Ltd. 2,907,000 11,475,180
---------------------------------------------------------------------------
74,289,302
OTHER FINANCIAL COMPANIES--7.5%
Daiwa Securities Group, Inc. 921,000 12,147,534
Japan Securities Finance Co., Ltd. 1,259,000 7,128,541
Nikko Securities Co., Ltd. 1,140,000 11,277,027
Nomura Securities Co., Ltd. 484,000 11,832,682
ORIX Corp. 151,560 22,345,980
---------------------------------------------------------------------------
64,731,764
REAL ESTATE--3.1%
Mitsubishi Estate Co., Ltd. 1,095,000 12,874,464
Mitsui Fudosan Co., Ltd. 1,285,000 13,921,994
---------------------------------------------------------------------------
26,796,458
------------------------------------------------------------------------------------------------------------------------
MEDIA--3.7%
BROADCASTING & ENTERTAINMENT
Toho Co., Ltd. 37,800 6,431,466
Tokyo Broadcasting System, Inc. 593,000 25,587,074
---------------------------------------------------------------------------
32,018,540
------------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--3.7%
ENVIRONMENTAL SERVICES--0.4%
Sanix Inc. 59,150 3,120,637
---------------------------------------------------------------------------
MISCELLANEOUS COMMERCIAL
SERVICES--1.9%
Benesse Corp. 171,400 11,842,839
Secom Co., Ltd. 56,000 4,088,747
---------------------------------------------------------------------------
15,931,586
MISCELLANEOUS CONSUMER SERVICES--1.4%
Yamada Denki Co., Ltd. 139,000 12,453,625
---------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
DURABLES--0.9%
TELECOMMUNICATIONS EQUIPMENT--0.9%
Japan Radio Co., Ltd. 783,000 7,325,065
---------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--24.3%
CHEMICALS--0.9%
Dainippon Ink and Chemicals, Inc. 1,711,000 8,043,610
---------------------------------------------------------------------------
CONTAINERS & PAPER--0.5%
Hokuetsu Paper Mills, Ltd. 516,000 4,365,425
---------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING--4.4%
Kuraray Co., Ltd. 749,000 8,580,564
Sumitomo Electric Industries, Ltd. 1,670,000 28,602,949
---------------------------------------------------------------------------
37,183,513
ELECTRICAL PRODUCTS--6.0%
Toshiba Corp. 2,507,000 28,271,506
Yaskawa Electric Corp. 1,971,000 23,526,845
---------------------------------------------------------------------------
51,798,351
INDUSTRIAL SPECIALTY--5.6%
Daikin Industries, Ltd. 1,081,000 25,104,009
Teijin, Ltd. 1,823,000 8,879,278
Yokogawa Electric Corp. 1,367,000 13,651,326
---------------------------------------------------------------------------
47,634,613
MACHINERY/COMPONENTS/ CONTROLS--1.5%
Fuji Electric Co., Inc 947,000 4,139,696
Misumi Corp. 86,010 8,791,827
---------------------------------------------------------------------------
12,931,523
</TABLE>
The accompanying notes are an integral part of the financial statements. 9
<PAGE>
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE($)
<S> <C> <C> <C> <C> <C>
OFFICE EQUIPMENT/ SUPPLIES--4.0%
Ricoh Co., Ltd. 1,639,000 $ 34,665,363
---------------------------------------------------------------------------
WHOLESALE DISTRIBUTORS--1.4%
Mitsui & Co., Ltd. 1,604,000 12,240,237
---------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--11.0%
DIVERSE ELECTRONIC PRODUCTS--0.3%
Matsushita Electric Industrial Co., Ltd. 110,000 2,849,875
---------------------------------------------------------------------------
ELECTRONIC COMPONENTS/
DISTRIBUTORS--7.0%
Kyocera Corp. 96,900 16,423,110
Murata Manufacturing Co., Ltd. 67,000 9,607,047
NEC Corp. 1,092,000 34,258,420
---------------------------------------------------------------------------
60,288,577
ELECTRONIC DATA PROCESSING--3.7%
Fujitsu, Ltd. 920,000 31,809,317
---------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
ENERGY--2.5%
OIL & GAS PRODUCTION
Tokyo Gas Co. 7,798,000 21,892,732
---------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--3.0%
RAILROADS
East Japan Railway Co. 2,090 12,129,069
West Japan Railway Co. 3,400 13,773,612
---------------------------------------------------------------------------
25,902,681
---------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $653,946,555) 810,069,228
---------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $704,079,930)(a) $860,218,100
---------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
AT JUNE 30, 2000, OPEN FUTURES CONTRACTS SOLD SHORT WERE AS FOLLOWS:
<TABLE>
<CAPTION>
AGGREGATE
FUTURES EXPIRATION CONTRACTS FACE VALUE ($) VALUE ($)
------- ---------- --------- -------------- ---------
<S> <C> <C> <C> <C>
Topix Index September 2000 1,520,000 22,790,334 22,858,637
Total unrealized depreciation on open futures
contracts sold short (68,303)
</TABLE>
* Annualized yield at time of purchase, not a coupon rate.
** Repurchase agreements are fully collateralized by U.S. Treasury or Government
agency securities.
(a) The cost for federal income tax purposes was $721,807,141. At June 30, 2000,
net unrealized appreciation for all securities based on tax cost was
$138,410,959. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$153,847,459 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $15,436,500.
(b) On June 30, 2000, this security has been pledged to cover, in whole or in
part, initial margin requirements for open futures contracts.
10 The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $704,079,930) $860,218,100
----------------------------------------------------------------------------
Receivable for investments sold 15,003,966
----------------------------------------------------------------------------
Dividends receivable 2,211,902
----------------------------------------------------------------------------
Interest receivable 1,485
----------------------------------------------------------------------------
Receivable for Fund shares sold 19,915,994
----------------------------------------------------------------------------
Other assets 7,178
----------------------------------------------------------------------------
TOTAL ASSETS 897,358,625
----------------------------------------------------------------------------
LIABILITIES
Due to custodian bank 18,869
----------------------------------------------------------------------------
Payable for investments purchased 17,658,657
----------------------------------------------------------------------------
Payable for Fund shares redeemed 29,227,876
----------------------------------------------------------------------------
Payable for daily variation margin on open futures contracts 719,910
----------------------------------------------------------------------------
Accrued management fee 572,982
----------------------------------------------------------------------------
Other accrued expenses and payables 91,328
----------------------------------------------------------------------------
Total liabilities 48,289,622
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $849,069,003
----------------------------------------------------------------------------
NET ASSETS Net assets consist of:
Accumulated distributions in excess of net investment income (27,380,645)
----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on:
Investment 156,138,170
----------------------------------------------------------------------------
Futures (68,303)
----------------------------------------------------------------------------
Foreign currency related transactions (1,472)
----------------------------------------------------------------------------
Accumulated net realized gain (loss) 197,365,567
----------------------------------------------------------------------------
Paid-in capital 523,015,686
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $849,069,003
----------------------------------------------------------------------------
NET ASSET VALUE
CLASS A SHARES
Net Asset Value and redemption price per share
($119,027/8,310.904 shares of capital stock outstanding,
$.333 par value, 100,000,000 shares authorized) $14.32
----------------------------------------------------------------------------
Maximum offering price per share (100/94.25 of $14.32) $15.19
----------------------------------------------------------------------------
CLASS B SHARES
Net Asset Value, offering and redemption price (subject to
contingent deferred sales charge) per share
($44,816/3,133.816 shares of capital stock outstanding,
$.333 par value, 50,000,000 shares authorized) $14.30
----------------------------------------------------------------------------
CLASS C SHARES
Net Asset Value, offering and redemption price (subject to
contingent deferred sales charge) per share
($3,362/235.058 shares of capital stock outstanding, $.333
par value, 50,000,000 shares authorized) $14.30
----------------------------------------------------------------------------
CLASS S SHARES
Net Asset Value, offering and redemption price per share
($848,901,798/59,398,865 shares of capital stock outstanding, $.333 par value,
300,000,000 shares
authorized) $14.29
----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 11
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
for the six months ended June 30, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $421,148) $ 2,387,298
-----------------------------------------------------------------------------
Interest (net of foreign taxes withheld of $128) 850,436
-----------------------------------------------------------------------------
Total Income 3,237,734
-----------------------------------------------------------------------------
Expenses:
Management fee 3,334,095
-----------------------------------------------------------------------------
Services to shareholders 529,985
-----------------------------------------------------------------------------
Custodian and accounting fees 236,887
-----------------------------------------------------------------------------
Distribution services fees 38
-----------------------------------------------------------------------------
Administrative services fees 949
-----------------------------------------------------------------------------
Auditing 32,761
-----------------------------------------------------------------------------
Legal 39,300
-----------------------------------------------------------------------------
Directors' fees and expenses 72,923
-----------------------------------------------------------------------------
Reports to shareholders 80,814
-----------------------------------------------------------------------------
Registration fees 28,540
-----------------------------------------------------------------------------
Interest expense 153,597
-----------------------------------------------------------------------------
Other 51,327
-----------------------------------------------------------------------------
Total expenses, before expense reductions 4,561,216
-----------------------------------------------------------------------------
Expense reductions (9,450)
-----------------------------------------------------------------------------
Total expenses, after expense reductions 4,551,766
-----------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (1,314,032)
-----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments 198,336,237
-----------------------------------------------------------------------------
Futures (830,428)
-----------------------------------------------------------------------------
Foreign currency related transactions 91,312
-----------------------------------------------------------------------------
197,597,121
-----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on:
Investments (214,648,414)
-----------------------------------------------------------------------------
Futures (68,303)
-----------------------------------------------------------------------------
Foreign currency related transactions (5,451)
-----------------------------------------------------------------------------
(214,722,168)
-----------------------------------------------------------------------------
Net gain (loss) on investment transactions (17,125,047)
-----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ (18,439,079)
-----------------------------------------------------------------------------
</TABLE>
12 The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2000 (UNAUDITED) 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ (1,314,032) $ (1,375,054)
----------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions 197,597,121 242,080,584
----------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the period (214,722,168) 363,916,273
----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (18,439,079) 604,621,803
----------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income -- Class S Shares (33,374,786) (4,922,799)
----------------------------------------------------------------------------------------------------------
Net realized gains -- Class S Shares (55,241,025) (108,916,942)
----------------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 1,779,307,852 2,411,950,009
----------------------------------------------------------------------------------------------------------
Reinvestment of distributions 79,469,488 101,465,448
----------------------------------------------------------------------------------------------------------
Cost of shares redeemed (1,991,906,573) (2,262,070,034)
----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions (133,129,233) 251,345,423
----------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (240,184,123) 742,127,485
----------------------------------------------------------------------------------------------------------
Net assets at beginning of period 1,089,253,126 347,125,641
----------------------------------------------------------------------------------------------------------
Net assets at end of period (including accumulated distributions in excess of
net investment income of $27,380,645 and undistributed net investment income of
$7,308,173, respectively) $ 849,069,003 $ 1,089,253,126
----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 13
<PAGE>
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>
<S> <C> <C> <C>
CLASS A CLASS B CLASS C
<CAPTION>
2000(A) 2000(A) 2000(A)
<S> <C> <C> <C>
------------------------------------------------ ------------ ------------ ------------
Net asset value, beginning of period $14.61 $14.61 $14.61
------------------------------------------------ ------------ ------------ ------------
Income (loss) from investment operations:
Net investment income (loss) (b) (.03) (.03) (.03)
------------------------------------------------ ------------ ------------ ------------
Net realized and unrealized gain (loss) on
investments transactions (.26) (.28) (.28)
------------------------------------------------ ------------ ------------ ------------
Total from investment operations (.29) (.31) (.31)
------------------------------------------------ ------------ ------------ ------------
Net asset value, end of period $14.32 $14.30 $14.30
------------------------------------------------ ------------ ------------ ------------
TOTAL RETURN (%) (1.98)** (2.12)** (2.12)**
<CAPTION>
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
<S> <C> <C> <C>
Net assets, end of period ($ thousands) 119 45 3
----------------------------------------------- ------------ ------------ ------------
Ratio of expenses (%) .24** .33** .28**
----------------------------------------------- ------------ ------------ ------------
Ratio of net investment income (loss) (%) (.19)** (.27)** (.21)**
----------------------------------------------- ------------ ------------ ------------
Portfolio turnover rate (%) 87* 87* 87*
----------------------------------------------- ------------ ------------ ------------
</TABLE>
* Annualized
** Not annualized
(a) For the period May 1, 2000 (commencement of sales of Class A, B, and C
shares) to June 30, 2000.
(b) Based on monthly average shares outstanding during the period.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES The Japan Fund, Inc. (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.
Beginning May 1, 2000, the Fund offers multiple
classes of shares. Class A shares are offered to
investors subject to an initial sales charge. Class
B shares are offered without an initial sales
charge but are subject to higher ongoing expenses
than Class A shares and a contingent deferred sales
charge payable upon certain redemptions. Class B
shares automatically convert to Class A shares six
years after issuance. Class C shares are offered
without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions within one year of purchase.
Class C shares do not convert into another class.
Class S shares, are not subject to initial or
contingent deferred sales charges. Certain detailed
financial information for the Class A, B and C
shares is provided separately and is available upon
request.
Investment income, realized and unrealized gains
and losses, and certain fund-level expenses and
expense reductions, if any, are borne pro rata on
the basis of relative net assets by the holders of
all classes of shares except that each class bears
certain expenses unique to that class such as
distribution services, shareholder services,
administrative services and certain other class
specific expenses. Differences in class expenses
may result in payment of different per share
dividends by class. All shares of the Fund have
equal rights with respect to voting subject to
class specific arrangements.
The Fund's financial statements are prepared in
accordance with accounting principles generally
accepted in the United States 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 quoted on the Nasdaq
Stock Market ("Nasdaq"), for which there have been
sales, are valued at the most recent sale price
reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are
not quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price, or if no sale occurred, 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 Corporation, 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
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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.
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. In
addition, the Fund also sold securities index
futures as a temporary substitute for selling
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
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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
withholding tax on realized capital gains.
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 accounting principles
generally accepted in the United States. These
differences primarily relate to investments in
futures, 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.
--------------------------------------------------------------------------------
2 PURCHASES AND SALES
OF SECURITIES During the six months ended June 30,
2000, purchases and sales of investment securities
(excluding short-term investments) aggregated
$396,184,971 and $587,173,363, respectively.
--------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. Under the Investment
Management Agreement (the "Agreement") with Scudder
Kemper Investments, Inc. (the "Adviser"), the
Adviser directs the investments of the Fund in
accordance with its investment objective, policies
and restrictions. The Adviser determines the
securities, instruments and other contracts
relating to investments to be purchased, sold or
entered into by the Fund. In addition to portfolio
management services, the Adviser provides certain
administrative services in accordance with the
Agreement. The Fund agrees to pay the Adviser a fee
equal to an annual rate of 0.85% of the first
$100,000,000 of the Fund's average daily net
assets, 0.75% of the next $200,000,000 of such net
assets, 0.70% of the next $300,000,000 of such net
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
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 2000, the fee pursuant to the Agreement
amounted to $3,334,095, which was equivalent to an
annualized effective rate of 0.76% of the Fund's
average daily net assets.
DISTRIBUTION SERVICE AGREEMENT. In accordance with
Rule 12b-1 under the 1940 Act, Kemper Distributors,
Inc. ("KDI"), a subsidiary of the Adviser, receives
a fee of 0.75% of average daily net assets of
Classes B and C. Pursuant to the agreement, KDI
enters into related selling group agreements with
various firms at various rates for sales of Class B
and C shares. For the period ended June 30, 2000,
the Distribution Fee was as follows:
<TABLE>
<CAPTION>
TOTAL UNPAID AT
DISTRIBUTION FEE AGGREGATED JUNE 30, 2000
-----------------------------------------------------------------------------
<S> <C> <C>
Class B.......................................... $34 $34
Class C.......................................... 4 4
--- ---
$38 $38
</TABLE>
UNDERWRITING AGREEMENT AND CONTINGENT DEFERRED
SALES CHARGE. KDI is the principal underwriter for
Classes A, B and C. Underwriting commissions paid
in connection with the distribution of Class A
shares for the period ended June 30, 2000
aggregated $143, of which none was paid to other
firms.
In addition, KDI receives any contingent deferred
sales charge (CDSC) from Class B share redemptions
occurring within six years of purchase and Class C
share redemptions occurring within one year of
purchase. There is no such charge upon redemption
of any share appreciation or reinvested dividends.
Contingent deferred sales charges are based on
declining rates ranging from 4% to 1% for Class B
and 1% for Class C, of the value of the shares
redeemed. For the period ended June 30, 2000, there
were no CDSC for Classes B and C.
ADMINISTRATIVE SERVICES FEES. KDI provides
information and administrative services to Classes
A, B and C shareholders at an annual rate of up to
0.25% of average daily net assets for each such
class. KDI in turn has various agreements with
financial services firms that provide these
services and pays these firms based upon the assets
of shareholder accounts the firms service. For the
period ended June 30, 2000, the Administrative
Services Fee was as follows:
<TABLE>
<CAPTION>
TOTAL FEES WAIVED UNPAID AT
ADMINISTRATIVE SERVICES FEE AGGREGATED BY KDI JUNE 30, 2000
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A.............................. $936 $-- $936
Class B.............................. 11 -- 11
Class C.............................. 2 -- 2
---- --- ----
$949 $-- $949
</TABLE>
SHAREHOLDER SERVICES FEES. Kemper Service Company
("KSC"), an affiliate of the Adviser, is the
transfer, dividend-paying and shareholder service
agent for the Fund's Classes A, B and C shares. For
the period ended June 30, 2000, the amount charged
to Classes A, B and C by KSC aggregated $238, $3
and $1, respectively, all of which is unpaid at
June 30, 2000. Scudder Service Corporation ("SSC"),
a subsidiary of the Adviser, is the transfer,
dividend-paying and shareholder service agent for
the Class S shares. For the six months ended June
30, 2000, the amount charged to the Class S shares
by SSC for shareholder services aggregated
$296,386.
DIRECTORS' FEES. The Fund pays each of its
Directors not affiliated with the Adviser an annual
fee plus specified amounts for attended board and
committee
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
meetings. For the six months ended June 30, 2000,
Directors' fees and expenses aggregated $72,923.
--------------------------------------------------------------------------------
4 DIRECTORS'
RETIREMENT BENEFITS Under a retirement program, independent members of
the Board of Directors who meet certain criteria
become eligible to participate in an unfunded
noncontributory 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 Director's fees and
length of service. For the six months ended June
30, 2000, Directors' retirement benefits amounting
to $38,350 are included in Directors' fees and
expenses in the statement of operations. Included
in other accrued expenses and payables in the
statement of assets and liabilities at June 30,
2000, is $326,028 accrued by the Fund for such
benefits.
--------------------------------------------------------------------------------
5 EXPENSE OFF-SET
ARRANGEMENTS The Fund has entered into an arrangement with its
transfer agent whereby credits realized as a result
of uninvested cash balances were used to reduce a
portion of the Fund's expenses. During the six
months ended June 30, 2000, the Fund's transfer
agent fees were reduced by $9,450 under this
arrangement.
--------------------------------------------------------------------------------
6 LINE OF CREDIT The Fund and several other Scudder Funds (the
"Participants") share in a $1 billion revolving
credit facility with Chase Manhattan Bank 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 based upon net assets,
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.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
7 SHARE TRANSACTIONS The following tables summarize share and dollar
activity in the Fund:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
----------------------------------
SHARES DOLLARS
<S> <C> <C>
SHARES SOLD
Class A shares 1,231,216 $ 16,986,864
------------------------------------------------------------------------------
Class B shares 3,505 49,498
------------------------------------------------------------------------------
Class C shares 4,985 69,529
------------------------------------------------------------------------------
Class S shares 119,701,636 1,762,201,961
------------------------------------------------------------------------------
120,941,342 $ 1,779,307,852
------------------------------------------------------------------------------
SHARES ISSUED TO SHAREHOLDERS IN REINVESTMENT OF DISTRIBUTIONS
Class A shares -- $ --
------------------------------------------------------------------------------
Class B shares -- --
------------------------------------------------------------------------------
Class C shares -- --
------------------------------------------------------------------------------
Class S shares 5,137,006 79,469,488
------------------------------------------------------------------------------
5,137,006 $ 79,469,488
------------------------------------------------------------------------------
SHARES REDEEMED
Class A shares (1,222,905) $ (17,014,005)
------------------------------------------------------------------------------
Class B shares (371) (5,238)
------------------------------------------------------------------------------
Class C shares (4,750) (66,648)
------------------------------------------------------------------------------
Class S shares (131,830,556) (1,974,820,682)
------------------------------------------------------------------------------
(133,058,582) $(1,991,906,573)
------------------------------------------------------------------------------
NET INCREASE (DECREASE)
Class A shares 8,311 $ (27,141)
------------------------------------------------------------------------------
Class B shares 3,134 44,260
------------------------------------------------------------------------------
Class C shares 235 2,881
------------------------------------------------------------------------------
Class S shares (6,991,914) (133,149,233)
------------------------------------------------------------------------------
(6,980,234) $ (133,129,233)
------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
----------------------------------
SHARES DOLLARS
<S> <C> <C>
SHARES SOLD
Class S shares 192,144,389 $ 2,411,950,009
----------------------------------------------------------------------------
SHARES ISSUED TO SHAREHOLDERS IN REINVESTMENT OF DISTRIBUTIONS
Class S shares 6,369,458 $ 101,465,448
----------------------------------------------------------------------------
SHARES REDEEMED
Class S shares (173,791,335) $(2,262,070,034)
----------------------------------------------------------------------------
NET INCREASE (DECREASE)
Class S shares 24,722,512 $ 251,345,423
----------------------------------------------------------------------------
</TABLE>
20
<PAGE>
NOTES
21
<PAGE>
NOTES
22
<PAGE>
NOTES
23
<PAGE>
<TABLE>
<S> <C> <C>
DIRECTORS OFFICERS
LYNN S. BIRDSONG WILLIAM H. GLEYSTEEN, JR KATHRYN L. QUIRK
Director & President Honorary Director Vice President & Secretary
WILLIAM L. GIVENS JONATHAN MASON GINA PROVENZANO
Director & Chairman Honorary Director Vice President & Treasurer
THOMAS M. HOUT JAMES W. MORLEY ELIZABETH J. ALLAN
Director Honorary Director Vice President
JOHN F. LOUGHRAN HENRY ROSOVSKY SEUNG KWAK
Director Honorary Director Vice President
YOSHIHIKO MIYAUCHI ROBERT G. STONE, JR. MIYUKI WAKATSUKI
Director Honorary Director Vice President
WILLIAM V. RAPP O. ROBERT THEURKAUF - NY MAUREEN E. KANE
Director Honorary Director Assistant Secretary
TAKEO SHIINA SHOJI UMEMURA JOHN R. HEBBLE
Director Honorary Director Assistant Treasurer
HIROSHI YAMANAKA
Director
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
LEGAL COUNSEL DAVIS, POLK & WARDELL
450 Lexington Avenue
New York, NY 10017
.............................................................................................
TRANSFER AND SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 219557
Kansas City, MO 64121
.............................................................................................
CUSTODIAN BROWN BROTHERS HARRIMAN & CO.
40 Water Street
Boston, MA 02109
.............................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
</TABLE>
DIRECTORS&OFFICERS
JAPAN FUNDS LOGO
Printed in the U.S.A on recycled paper. This report is not to be distributed
unless preceded or accompanied by The Japan Fund prospectus.
JF - 3(8/25/00) 1118730
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
