<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
THE FUND
The Japan Equity Fund, Inc. (the "Fund") is a diversified, closed-end
management investment company. The Fund invests substantially all of its assets
in equity securities of non-financial Japanese companies whose securities are
traded on the First Section of the Tokyo Stock Exchange ("TSE").
The investment objective of the Fund is to outperform over the long term, on
a total return basis (including appreciation and dividends), the non-financial
services sectors of the Tokyo Stock Price Index (TOPIX), a composite
market-capitalization weighted index of all common stocks listed on the First
Section of the TSE. Daiwa International Capital Management Corp. is the Fund's
Investment Manager. The Fund utilizes a statistical and optimization stock
selection process, known as the Daiwa Portfolio Optimization System ("DPOS"),
developed by the Global Portfolio Research Department of Daiwa Securities Trust
Company ("DSTC"), the Fund's Investment Adviser. DSTC believes that, by using
DPOS, it is able to identify undervalued securities of non-financial services
companies. From time to time, DSTC may make refinements to its DPOS model, which
may result in changes to its investment parameters.
SHAREHOLDER INFORMATION
The Fund's shares are listed on the New York Stock Exchange ("NYSE"). The
Fund understands that its shares may trade periodically on certain exchanges
other than the NYSE, but the Fund has not listed its shares on those other
exchanges and does not encourage trading on those exchanges.
The Fund's NYSE trading symbol is "JEQ". Weekly comparative net asset value
(NAV) and market price information about the Fund is published each Monday in
THE WALL STREET JOURNAL, each Sunday in THE NEW YORK TIMES, and each Saturday in
BARRON'S, and also appears in many other newspapers.
INQUIRIES
It is the policy of the Fund to respond to inquiries about its portfolio
holdings and performance. Such inquiries should be directed to DSTC, the Fund's
Administrator at (800) 933-3440 or (201) 915-3020. Inquiries concerning your
share account should be directed to PNC Bank, National Association (the "Plan
Agent") at the number noted below. All written inquiries should be directed to
the Fund, c/o Daiwa Securities Trust Company, One Evertrust Plaza, 9th Floor,
Jersey City, New Jersey 07302.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
A Dividend Reinvestment and Cash Purchase Plan (the "Plan") is available to
provide Shareholders with automatic reinvestment of dividends and capital gain
distributions in additional Fund shares. The Plan also allows you to make
optional annual cash investments in Fund shares through the Plan Agent. A
brochure fully describing the Plan's terms and conditions is available from the
Plan Agent by calling (800) 852-4750 or by writing PNC Bank, National
Association, c/o The Japan Equity Fund, Inc., P.O. Box 8950, Wilmington, DE
19899.
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
June 1, 1997
DEAR SHAREHOLDERS:
It is our pleasure, on behalf of The Board of Directors, to present the
Semi-Annual Report for The Japan Equity Fund, Inc. (the "Fund") for the six
months ended April 30, 1997.
BACKGROUND
The objective of the Fund is to outperform the Tokyo Stock Price Index
("TOPIX") excluding its financial stocks. The TOPIX includes approximately 1,300
stocks traded on the First Section of the Tokyo Stock Exchange ("TSE") weighted
by their market value. The way in which the Fund seeks to meet its objective is
to examine certain fundamental characteristics of every non-financial stock in
the First Section of the TSE. These fundamental characteristics include, among
others, earnings-to-price ratios and book-to-price ratios. The various
fundamental characteristics are weighted by a method which has been developed by
Daiwa Securities Trust Company, the Fund's investment adviser. In this manner,
the Fund seeks to identify currently undervalued stocks.
FUND PERFORMANCE
As of April 30, 1997, the Fund's net assets were approximately $87.9
million, which represents a net asset value of $8.13 per share. The Fund paid a
dividend of approximately $0.66 per share on December 27, 1996, and issued
19,826 new shares as a result of dividend reinvestment. Adjusting for this
dividend payment, the time-weighted return on the Fund's net assets was -17.41%
since the Fund's previous fiscal year-end on October 31, 1996. Over the same
six-month period, the Fund's benchmark (the TOPIX excluding its financial firms
component) also experienced a decrease of -11.56%, as measured in U.S. Dollars.
The change in net asset value in U.S. Dollars depends on several factors,
among them: (1) the percentage change in the benchmark during the period; (2)
the over or under performance of the Fund's portfolio, after expenses, relative
to the benchmark; (3) the change in the Japanese Yen/U.S. Dollar exchange rate;
and (4) dividends paid by the Fund during the period.
The Nikkei 225 Average (the Nikkei 225) closed at 19,151 on April 30, 1997,
up 6.38% (in Yen terms) since the traditional Japanese fiscal year-end of March
31, 1997, although down 13.11% over the last twelve months and down 6.43% since
October 31, 1996, the Fund's fiscal year-end. On June 26, 1996, the market
reached a post-bubble high of 22,666, which has yet to be exceeded.
The management of the Fund believes the upward market movement since March
31, 1997 reflects Japan's continuing economic recovery, progress towards
resolving problems in its financial system, and the deregulation of its pension
assets.
There is a growing recognition that the economy will not be greatly affected
by the recently imposed consumption tax hike, as was feared. Production has been
adjusted, inventories are low, and employment statistics show improvement. A
weaker Yen worked to strengthen corporate earnings, as it moved to Y126 vs. the
U.S. Dollar from last year's trading range of Y100 to Y105.
Japanese banks have begun to report solid earnings, indicating a resolution
to many of their bad-debt problems. During the previous fiscal year, more than
six trillion Yen in problem loans were written off by
2
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
Japanese banks. In addition, newly aggressive restructuring measures were
implemented at various Japanese financial institutions. Concern over the
financial sector, which represents over 25% of the entire market, had capped
performance of the broader market.
The deregulation of Japan's pension funds is precipitating a gradual shift
of over one trillion Yen of low-yielding fixed-income investments into the
equity market. In turn, overseas investors have recently become net buyers of
Japanese equities.
A combination of the above economic, structural, and regulatory factors
suggest a modestly optimistic outlook for the Japanese equity market.
It is important to emphasize once again that it is not an objective of the
Fund to predict changes in its benchmark. Rather, the Fund's goal is to
outperform its benchmark, while staying fairly fully invested. Specifically, the
goal is to hold no more than 5% in cash. On April 30, 1997, the proportion of
the Fund's net assets invested in non-financial Japanese equities listed on the
First Section of the TSE was 98.7%, while short-term investments and other net
assets represented 1.3%.
Using the close of July 24, 1992 (the date upon which the Fund commenced
operations) as the performance measurement starting point of 100, by the end of
April, 1997, the Fund's benchmark as measured in Yen equaled 125.43, whereas the
Fund's portfolio for that same period equaled 130.65 in Yen (including cash,
after expenses, and adjusting for dividend payments, dividend reinvestment, and
two rights offerings). Thus, in Yen terms, the Fund outperformed its benchmark
by 5.22 percentage points from commencement through April 30, 1997.
At the end of April, 1997, the Fund's benchmark, as measured in U.S.
Dollars, equaled 125.41, whereas the value of the Fund's portfolio equaled
130.63 in U.S. Dollars (including cash, after expenses, and adjusting for
dividend payments, dividend reinvestment, and two rights offerings). Thus, in
U.S. Dollar terms, the Fund outperformed its benchmark by 5.22 percentage points
from commencement through April 30, 1997. The minute comparative difference
between Yen and Dollar performance reflects the small net change in the exchange
rate, from Y126.900 per Dollar on July 24, 1992 to Y126.920 per Dollar on April
30, 1997.
The invested position of the Fund's assets consisted of common stocks of
companies operating in 23 different industries. The Fund has relatively large
weightings in Electrical Machinery (18.4% of net assets), Transportation
Equipment (18.0%), Iron & Steel (8.7%), Chemicals (8.1%), Wholesale (5.9%),
Retail (4.9%), and Textile & Apparel (4.9%).
From November 1, 1996 through April 30, 1997, the Fund's NYSE market price
ranged from a low of $9 per share on April 7, 1997 to a high of $11 3/4 on
November 27, 1996. The Fund's NYSE market price closed at $9 5/8 per share on
April 30, 1997.
The NYSE market price in relation to the Fund's net asset value per share,
as measured by the weekly closing prices from November 1, 1996 through April 30,
1997 ranged from a premium of 23.49% on February 21, 1997 to a discount of 3.85%
on November 8, 1996, and ended the period at a premium of 18.39% on April 30,
1997.
The Fund has not invested, and presently does not intend to invest, in
derivative securities. Although foreign currency hedging is permitted by the
Fund's investment policies, the Fund has not engaged in any foreign currency
hedging.
3
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO MANAGEMENT
Dr. Harry Markowitz, winner of the 1990 Nobel Prize in Economic Sciences, is
the Fund's portfolio manager and is responsible for the day-to-day management of
the Fund's portfolio. Dr. Markowitz has been the Director of Research with Daiwa
Securities Trust Company since 1990; Marvin Speiser Distinguished Professor of
Finance and Economics, Baruch College (currently, Distinguished Professor,
Emeritus) 1982-1993; and Research Director with Brignoli Models, Inc. from 1984
to 1989.
We welcome your participation in The Japan Equity Fund, Inc. and your
continued interest in the Japanese economy and marketplace.
<TABLE>
<S> <C>
Sincerely,
[SIGNATURE] [SIGNATURE]
KATSUNARI REMBUTSU HARRY M. MARKOWITZ
CHAIRMAN OF THE BOARD PRESIDENT
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST COMMON STOCK
CLASSIFICATIONS HELD
APRIL 30, 1997 (UNAUDITED)
- -------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY NET ASSETS
- ----------------------------------- ----------
<S> <C>
Electrical Machinery............... 18.36%
Transportation Equipment........... 18.03
Iron & Steel....................... 8.65
Chemicals.......................... 8.08
Wholesale.......................... 5.94
Retail............................. 4.94
Textile & Apparel.................. 4.94
Construction....................... 3.86
Electric Power & Gas............... 2.85
Glass & Ceramic Products........... 2.62
</TABLE>
TEN LARGEST COMMON STOCK
POSITIONS HELD
APRIL 30, 1997 (UNAUDITED)
- -------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
ISSUE NET ASSETS
- ----------------------------------- ----------
<S> <C>
Matsushita Electric Industrial Co.,
Ltd............................... 3.84%
Toyota Motor Corporation........... 3.60
NEC Corporation.................... 3.31
Nissan Motor Co., Ltd.............. 2.89
Hitachi Ltd........................ 2.72
Nippon Steel Co., Ltd.............. 2.57
Kyocera Corporation................ 2.52
Sanyo Electric Co., Ltd............ 2.46
Toyoda Automatic Loom Works, Ltd... 2.39
Fuji Heavy Industries, Ltd......... 2.33
</TABLE>
4
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
- -------------------------------------------
JAPANESE COMMON STOCKS--98.70%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
CHEMICALS--8.08%
90,000 Denki Kagaku Kogyo Co., Ltd........ $ 197,132
47,000 Fuji Photo Film Co., Ltd........... 1,796,013
281,000 Konica Corporation................. 1,627,285
66,000 Mitsubishi Gas Chemical Co.,
Inc............................... 240,766
219,000 Mitsui Petrochemical Industries,
Ltd............................... 1,030,121
42,000 Nihon Tokushu Toryo Co., Ltd....... 142,294
83,000 Nippon Sanso Corporation........... 293,626
122,000 Okura Industrial Co., Ltd.......... 432,556
35,000 Sekisui Plastics Co., Ltd.......... 97,621
12,000 Tenma Corporation.................. 189,095
194,000 Toagosei Co., Ltd.................. 721,462
67,000 Tokuyama Corporation............... 335,211
------------
7,103,182
------------
CONSTRUCTION--3.86%
56,000 Asanuma Corporation Ltd............ 136,779
14,000 Daiwa House Industry Co., Ltd...... 156,634
49,600 Kyudenko Corporation............... 351,718
158,000 Sekisui House, Ltd................. 1,406,713
190,000 SXL Corporation.................... 1,071,856
700 Toenec Corporation................. 3,613
54,800 Tokyo Denki Komusho Co., Ltd....... 263,810
------------
3,391,123
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
ELECTRIC POWER & GAS--2.85%
48,100 Kyushu Electric Power Co., Inc..... $ 788,276
400,000 Osaka Gas Co., Ltd................. 958,084
354,000 Toho Gas Co., Ltd.................. 758,651
------------
2,505,011
------------
ELECTRICAL MACHINERY--18.36%
15,000 Canon Co., Ltd..................... 355,736
164,000 Fuji Electric Co., Ltd............. 651,245
17,000 Fujitsu Ltd........................ 176,804
131,000 Hitachi Koki Co., Ltd.............. 830,878
264,000 Hitachi Ltd........................ 2,392,058
37,000 Kyocera Corporation................ 2,215,569
211,000 Matsushita Electric Industrial Co.,
Ltd............................... 3,374,803
22,000 Matsushita Electric Works, Ltd..... 223,605
238,000 NEC Corporation.................... 2,906,555
23,000 Nippon Chemi-con Corporation....... 110,180
562,000 Sanyo Electric Co., Ltd............ 2,165,285
115,000 Toshiba Corporation................ 645,131
9,000 Victor Company of Japan, Ltd....... 89,348
------------
16,137,197
------------
FISHERY, AGRICULTURE & FORESTRY--0.67%
245,000 Nippon Suisan Kaisha, Ltd.+........ 588,757
------------
FOODS--2.33%
214,000 Itoham Foods Inc................... 1,079,105
10,000 Kirin Brewery Co., Ltd............. 86,669
60,000 Nippon Beet Sugar Manfacturing Co.,
Ltd............................... 179,168
</TABLE>
5
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
JAPANESE COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
FOODS (CONCLUDED)
77,000 Nippon Flour Mills Co., Ltd........ $ 260,873
67,800 Pokka Corporation.................. 443,382
------------
2,049,197
------------
GLASS & CERAMIC PRODUCTS--2.62%
296,000 Chichibu Onoda Cement Co., Ltd..... 914,214
105,000 INAX Corporation................... 651,907
281,000 Sumitomo Osaka Cement Co., Ltd..... 735,046
------------
2,301,167
------------
IRON & STEEL--8.65%
115,000 Aichi Steel Works, Ltd............. 435,826
554,000 Kobe Steel, Ltd.+.................. 1,008,304
94,000 Nippon Metal Industry Co., Ltd..... 208,856
791,000 Nippon Steel Co., Ltd.............. 2,256,083
587,000 Nisshin Steel Co., Ltd............. 1,456,863
693,000 Sumitomo Metal Industries, Ltd..... 1,725,402
91,000 Yodogawa Steel Works, Ltd.......... 514,797
------------
7,606,131
------------
LAND TRANSPORT--2.29%
71,000 Maruzen Showa Unyu Co., Ltd........ 254,530
112,270 Nishi-Nippon Railroad Co., Ltd..... 332,599
157,000 Seino Transportation Co., Ltd...... 1,422,550
------------
2,009,679
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
MACHINERY--0.20%
29,000 NSK Ltd............................ $ 175,024
------------
METAL PRODUCTS--2.19%
103,000 Bunka Shutter Co., Ltd............. 529,121
76,000 Hokkai Can Co., Ltd................ 359,281
114,000 Komai Tekko Inc.................... 635,928
32,000 Takada Kiko Co., Ltd............... 163,883
40,700 Yokogawa Bridge Corporation........ 233,130
------------
1,921,343
------------
MINING--1.33%
182,000 Nittetsu Mining Co., Ltd........... 1,172,991
------------
NON-FERROUS METALS--2.43%
453,000 Dowa Mining Co., Ltd............... 1,509,762
36,000 Furukawa Co., Ltd.................. 117,145
75,000 Furukawa Electric Co., Ltd......... 359,872
50,000 Optec Dai-Ichi Denko Co., Ltd...... 145,761
------------
2,132,540
------------
OIL & COAL PRODUCTS--1.61%
301,000 Nippon Oil Co., Ltd................ 1,418,200
------------
OTHER PRODUCTS--1.43%
77,000 Gakken Co., Ltd.................... 348,842
57,000 Itoki Crebio Corporation........... 304,940
17,000 Sun Wave Corporation............... 141,979
53,000 Takara Co., Ltd.................... 246,376
17,000 Toppan Printing Co., Ltd........... 219,666
------------
1,261,803
------------
PHARMACEUTICALS--1.93%
197,000 Shionogi & Co., Ltd................ 1,311,574
</TABLE>
6
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
JAPANESE COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
PHARMACEUTICALS (CONCLUDED)
37,000 Teikoku Hormone Manufacturing Co.,
Ltd............................... $ 387,725
------------
1,699,299
------------
PULP & PAPER--2.47%
97,000 Chuetsu Pulp & Paper Co., Ltd...... 282,012
27,600 Daio Paper Corporation............. 219,634
136,000 Mitsubishi Paper Mills Co., Ltd.... 432,903
268,000 Nippon Paper Industries Co.,
Ltd............................... 1,235,266
------------
2,169,815
------------
RETAIL--4.94%
31,000 Ito-Yokado Co., Ltd................ 1,487,472
56,000 Kasumi Co., Ltd.................... 345,477
20,000 Maruetsu, Inc...................... 86,511
29,000 Nissho Corporation................. 265,049
41,500 Parco Co., Ltd..................... 303,762
205,000 Seiyu, Ltd......................... 1,426,213
83,000 Tokyu Department Store Co., Ltd.... 275,315
38,000 Totenko Co., Ltd................... 152,395
------------
4,342,194
------------
RUBBER PRODUCTS--0.76%
228,000 Toyo Tire & Rubber Co., Ltd........ 664,671
------------
TEXTILE & APPAREL--4.94%
62,000 Atsugi Nylon Industrial Co.,
Ltd............................... 183,186
347,000 Gunze, Ltd......................... 1,498,235
35,000 Ichikawa Woolen Textile Co.,
Ltd............................... 111,960
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
23,000 Japan Wool Textile Co., Ltd........ $ 159,652
426,000 Kurabo Industries Co., Ltd......... 1,033,785
121,000 Nippon Felt Co., Ltd............... 505,279
33,000 Nisshinbo Industries Inc........... 218,925
156,000 Teijin Ltd......................... 630,539
------------
4,341,561
------------
TRANSPORTATION EQUIPMENT--18.03%
97,000 Aichi Machine Industry Co., Ltd.... 530,397
170,000 Daihatsu Motor Co., Ltd............ 869,288
410,000 Fuji Heavy Industries, Ltd......... 2,044,831
119,000 Kanto Auto Works, Ltd.............. 703,199
30,000 Mitsuba Electric Manufacturing Co.,
Ltd............................... 264,734
249,000 Mitsubishi Heavy Industries,
Ltd............................... 1,644,043
213,000 Mitsubishi Motors Corporation...... 1,476,836
431,000 Nissan Motor Co., Ltd.............. 2,536,692
19,000 Tokai Rika Co., Ltd................ 130,090
117,000 Toyoda Automatic Loom Works,
Ltd............................... 2,101,796
42,000 Toyota Auto Body Co., Ltd.......... 390,482
109,000 Toyota Motor Corporation........... 3,160,416
------------
15,852,804
------------
WAREHOUSING--0.79%
141,000 Sumitomo Warehouse Co., Ltd........ 694,335
------------
</TABLE>
7
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONCLUDED)
APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
JAPANESE COMMON STOCKS (CONCLUDED)
- -------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
WHOLESALE--5.94%
320,000 Marubeni Corporation............... $ 1,187,520
25,000 Mitsubishi Corporation............. 234,400
32,000 Nagase & Co., Ltd.................. 219,351
107,000 Nichiei Co., Ltd................... 185,471
343,000 Nichimen Corporation............... 1,005,326
90,000 Nichimo Co., Ltd.+................. 194,296
10,000 Ryosan Co., Ltd.................... 211,945
13,000 Sangetsu Co., Ltd.................. 220,217
15,000 Sato Shoji Corporation............. 81,075
201,000 Sun Telephone Co., Ltd............. 1,187,756
111,000 Toyota Tsusho Corporation.......... 496,754
------------
5,224,111
------------
Total Japanese Common Stocks
(Cost--$99,647,800).......................... 86,762,135
------------
</TABLE>
- -------------------------------------------
SHORT-TERM INVESTMENTS--0.15%
- -------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
- ---------- ------------
<C> <S> <C>
U.S. DOLLAR TIME DEPOSIT--0.15%
133 Bank of New York, 3.60% due 5/1/97
(Cost--$132,852).................. $ 132,852
------------
Total Investments--98.85%
(Cost--$99,780,652).......................... 86,894,987
Other assets less liabilities--1.15%........... 1,014,863
------------
NET ASSETS (Applicable to 10,815,688 shares of
capital stock outstanding; equivalent to
$8.13 per share) --100.00%................... $ 87,909,850
------------
------------
</TABLE>
- ------------------------
+ Non-income producing securities.
See accompanying notes to financial statements.
8
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in securities, at value
(cost--$99,780,652)....................... $ 86,894,987
Cash denominated in foreign currency
(cost--$656,532).......................... 652,742
Interest and dividends receivable.......... 468,924
Deferred organizational expenses........... 9,236
Prepaid expenses........................... 20,627
-------------
Total assets............................. 88,046,516
-------------
LIABILITIES
Payable to investment manager.............. 25,466
Payable to administrator................... 12,935
Accrued expenses and other liabilities..... 98,265
-------------
Total liabilities........................ 136,666
-------------
NET ASSETS
Capital stock, $0.01 par value per share;
total 30,000,000 shares authorized;
10,815,688 shares issued and
outstanding............................... 108,157
Paid-in capital in excess of par value..... 109,377,828
Accumulated net investment loss............ (8,662)
Accumulated net realized loss on
investments............................... (8,667,079)
Net unrealized depreciation on investments
and other assets and liabilities
denominated in foreign currency........... (12,900,394)
-------------
Net assets applicable to shares
outstanding............................. $ 87,909,850
-------------
-------------
NET ASSET VALUE PER SHARE............ $ 8.13
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of
$91,141).................................. $ 517,196
Interest................................... 3,183
-------------
Total investment income.................. 520,379
-------------
EXPENSES:
Investment management fee.................. 163,236
Administration fee......................... 84,532
Custodian fees and expenses................ 59,337
Reports and notices to shareholders........ 28,324
Audit and tax services..................... 27,474
Legal fees and expenses.................... 25,681
Amortization of organizational expenses.... 19,906
Directors' fees and expenses............... 18,435
Insurance expense.......................... 15,429
Transfer agency fee and expenses........... 10,143
Other...................................... 20,358
-------------
Total expenses........................... 472,855
-------------
NET INVESTMENT INCOME........................ 47,524
-------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM
INVESTMENT ACTIVITIES AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized losses on investments......... (8,505,450)
Net realized foreign currency transaction
losses.................................... (133,359)
Net change in unrealized appreciation
(depreciation) on investments in equity
securities................................ (10,181,727)
Net change in unrealized appreciation
(depreciation) on translation of
short-term investments and other assets
and liabilities denominated in foreign
currency.................................. (1,570)
-------------
Net realized and unrealized losses from
investment activities and foreign currency
transactions................................ (18,822,106)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................. $ (18,774,582)
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS
ENDED FOR THE YEAR
APRIL 30, ENDED
1997 OCTOBER 31,
(UNAUDITED) 1996
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income (loss)............... $ 47,524 $ (54,371)
Net realized gain (loss) on:
Investments.............................. (8,505,450) 7,398,313
Foreign currency transactions............ (133,359) (215,519)
Net change in unrealized appreciation
(depreciation) on:
Investments in equity securities......... (10,181,727) (5,716,978)
Translation of short-term investments and
other assets and liabilities denominated
in foreign currency..................... (1,570) 19,335
------------- -------------
Net increase (decrease) in net assets
resulting from operations................. (18,774,582) 1,430,780
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net realized gains from investments and
foreign currency transactions............. (7,071,290) (7,222,517)
------------- -------------
FROM CAPITAL STOCK TRANSACTIONS:
Sale of capital stock resulting from:
Reinvestment of dividends................ 178,930 203,106
Exercise of rights issued................ -- 26,502,050
------------- -------------
Net increase in net assets derived from
capital stock transactions................ 178,930 26,705,156
------------- -------------
Net increase (decrease) in net assets...... (25,666,942) 20,913,419
NET ASSETS:
Beginning of period........................ 113,576,792 92,663,373
------------- -------------
End of period (including accumulated net
investment loss of $8,662 and $56,186,
respectively)............................. $ 87,909,850 $113,576,792
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Japan Equity Fund, Inc. (the "Fund") was incorporated in Maryland on
July 12, 1990 under its former name "The Japan Emerging Equity Fund, Inc.". It
is registered with the Securities and Exchange Commission as a closed-end,
diversified management investment company. Prior to commencing its operations on
July 24, 1992, the Fund had no operations other than the sale of 10,700 shares
of common stock for a total of $100,580 on July 13, 1992 to Daiwa Securities
America Inc. ("DSA"), the lead underwriter of the Fund and an affiliate of Daiwa
International Capital Management Corp., the Fund's investment manager, and of
Daiwa Securities Trust Company, the Fund's investment adviser, administrator and
custodian. On July 24, 1992, 6,000,000 shares of common stock were issued in
conjunction with its initial underwriting. Organizational costs of approximately
$202,000 have been deferred and are being amortized using the straight line
method over a five year period beginning with the date on which the Fund
commenced investment operations.
The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such policies
are consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts and disclosures in the financial statements.
Actual reporting results could differ from those estimates.
VALUATION OF INVESTMENTS--Securities which are listed on the First Section
of the Tokyo Stock Exchange and for which market quotations are readily
available are valued at the last reported sales price available to the Fund at
the close of business on the day the securities are being valued or, lacking any
such sales, at the last available bid price. In instances where quotations are
not readily available or where the price as determined by the above procedures
is deemed not to represent fair market value, fair value will be determined in
such manner as the Board of Directors (the "Board") may prescribe. Short-term
investments having a maturity of 60 days or less are valued at amortized cost,
except where the Board determines that such valuation does not represent the
fair value of the investment. All other securities and assets are valued at fair
value as determined in good faith by, or under the direction of, the Board.
FOREIGN CURRENCY TRANSLATION--The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities and other assets and liabilities stated in Japanese yen
are translated at the exchange rates prevailing at the end of the period; and
(2) purchases, sales, income and expenses are translated at the rate of exchange
prevailing on the respective dates of such transactions. The resulting exchange
gains and losses are included in the Statement of Operations. The Fund does not
generally isolate the effect of fluctuations in foreign exchange rates from the
effect of fluctuations in the market price of securities.
TAX STATUS--The Fund intends to continue to distribute substantially all of
its taxable income and to comply with the minimum distribution and other
requirements of the Internal Revenue Code applicable to regulated investment
companies. Accordingly, no provision for federal income or excise taxes is
required.
12
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The Fund is not subject to any Japanese income, capital gains or other taxes
except for withholding taxes on certain income, generally imposed at rates of
10% on interest and 15% on dividends, paid to the Fund by Japanese corporations.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date (the date upon which the order to buy or sell is
executed). Realized and unrealized gains and losses from security and foreign
currency transactions are calculated on the identified cost basis. Dividend
income and corporate actions are recorded generally on the ex-date, except for
certain dividends and corporate actions from Japanese securities which may be
recorded after the ex-date, but recorded as soon as the Fund acquires
information regarding such dividends. Interest income is recorded on an accrual
basis.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--The Fund records dividends and
distributions payable to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations, which
may differ from generally accepted accounting principles. These book basis/tax
basis differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax basis treatment;
temporary differences do not require reclassifications. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in capital.
INVESTMENT MANAGER AND INVESTMENT ADVISER
The Fund has an Investment Management Agreement dated July 17, 1992 with
Daiwa International Capital Management Corp. (the "Manager"). Daiwa Securities
Trust Company ("DSTC" or the "Adviser") acts as the Fund's investment adviser
pursuant to an Investment Advisory Agreement dated July 17, 1992 between the
Manager and DSTC. For such investment services, the Fund pays the Manager a
monthly fee at an annual rate of 0.60% of the first $20 million, 0.40% of the
next $30 million and 0.20% of the excess over $50 million of the Fund's average
weekly net assets, of which fee 70% is paid by the Manager to DSTC.
Brokerage commissions of $141,323 were paid by the Fund to Daiwa Securities
Co. Ltd., an affiliate of the Manager and DSTC, in connection with portfolio
transactions during the six months ended April 30, 1997.
ADMINISTRATOR AND CUSTODIAN AND OTHER RELATED PARTIES
DSTC provides certain administrative services to the Fund, for which the
Fund pays to DSTC a monthly fee at an annual rate of 0.20% of the first $60
million of the Fund's average weekly net assets, 0.15% of the next $40 million
and 0.10% of the excess over $100 million, with a minimum annual fee of
$120,000.
DSTC also acts as custodian for the Fund's assets and has appointed The
Sumitomo Bank, Limited to act as the sub-custodian for all of the cash and
securities of the Fund held in Japan. As compensation for its services as
13
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
- --------------------------------------------------------------------------------
custodian, DSTC receives a monthly fee and reimbursement of out-of-pocket
expenses. Such expenses include fees and out-of-pocket expenses of the
sub-custodian. During the six months ended April 30, 1997, DSTC earned $25,617,
excluding sub-custodian fees and expenses, as compensation for its custodial
services to the Fund.
At April 30, 1997, the Fund owed $12,935 and $4,140 to DSTC for
administration and custodian fees, excluding sub-custodian fees and expenses,
respectively.
During the six months ended April 30, 1997, the Fund paid or accrued
$24,681, for legal services in connection with the Fund's on-going operations to
a law firm of which the Fund's Assistant Secretary is a partner.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at April 30,
1997 was substantially the same as the cost of securities for financial
statement purposes. At April 30, 1997, the net unrealized depreciation of
investments for federal income tax purposes, excluding short-term securities, of
$12,885,665 was composed of gross appreciation of $3,472,067 for those
investments having an excess of value over cost, and gross depreciation of
$16,357,732 for those investments having an excess of cost over value. For the
six months ended April 30, 1997, total aggregate purchases and sales on
portfolio securities, excluding short-term securities, were $21,939,993 and
$29,433,310, respectively.
CAPITAL STOCK
There are 30,000,000 shares of $.01 par value common stock authorized.
During the six months ended April 30, 1997 and the year ended October 31, 1996,
19,826 and 15,985 shares were issued, respectively, as a result of the
reinvestment of dividends paid to those shareholders electing to reinvest
dividends.
Of the 10,815,688 shares of the Fund outstanding at April 30, 1997, DSA
owned 14,532 shares.
14
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding during each period is
presented below:
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX PERIOD
MONTHS JULY 24,
ENDED 1992* TO,
APRIL 30, FOR THE YEARS ENDED OCTOBER 31, OCTOBER
1997 ---------------------------------------------- 31,
(UNAUDITED) 1996 1995 1994 1993 1992
--------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............... $ 10.52 $ 11.47 $ 14.86 $ 14.69 $ 9.93 $ 9.40
--------- ---------- ---------- ---------- ---------- ---------
Net investment income (loss)....................... -- (0.01) (0.01) (0.03) (0.05) --
Net realized and unrealized gains (losses) on
investments and foreign currency transactions..... (1.73) 0.19 (1.90) 1.75 4.81 0.67
--------- ---------- ---------- ---------- ---------- ---------
Net increase (decrease) in net asset value
resulting from operations......................... (1.73) 0.18 (1.91) 1.72 4.76 0.67
--------- ---------- ---------- ---------- ---------- ---------
Less: dividends and distributions to shareholders
Net realized gains on investments and foreign
currency transactions........................... (0.66) (0.67) (1.48) (1.09) -- --
--------- ---------- ---------- ---------- ---------- ---------
Dilutive effect of rights offering................. -- (0.43) -- (0.42) -- --
--------- ---------- ---------- ---------- ---------- ---------
Offering costs charged to paid-in capital in excess
of par value...................................... -- (0.03) -- (0.04) -- (0.14)
--------- ---------- ---------- ---------- ---------- ---------
Net asset value, end of period..................... $ 8.13 $ 10.52 $ 11.47 $ 14.86 $ 14.69 $ 9.93
--------- ---------- ---------- ---------- ---------- ---------
--------- ---------- ---------- ---------- ---------- ---------
Per share market value, end of period.............. $ 9.625 $ 10.375 $ 12.875 $ 15.000 $ 13.625 $ 9.500
--------- ---------- ---------- ---------- ---------- ---------
--------- ---------- ---------- ---------- ---------- ---------
Total investment return:
Based on market price at beginning and end of
period, assuming reinvestment of dividends+..... (0.50)% (13.55)% (4.21)% 22.10% 43.42% 1.33 %
Based on net asset value at beginning and end of
period, assuming reinvestment of dividends+..... (17.11)% (1.18)% (13.86)% 11.88% 47.94% 5.64 %
Ratios and supplemental data:
Net assets, end of period (in millions).......... $ 87.9 $113.6 $ 92.7 $119.6 $ 88.3 $ 59.7
Ratios to average net assets of:
Expenses....................................... 1.00 %** 0.90% 0.97% 0.93% 1.18% 1.65 %**
Net investment income (loss)................... 0.10 %** (0.04)% (0.07)% (0.19)% (0.34)% (0.16)%**
Portfolio turnover............................... 22.97 % 33.89% 28.35% 30.76% 25.42% 0.57 %
Average commission rate per share................ $ 0.0226 $ 0.0325 N/A N/A N/A N/A
</TABLE>
- --------------------------
* Commencement of operations.
** Annualized.
+ For the years ended October 31, 1996 and 1994, the total investment
return includes the benefit of shares resulting from the exercise of
rights.
15
<PAGE>
- ----------------------------------------
BOARD OF DIRECTORS
Katsunari Rembutsu, CHAIRMAN
Austin C. Dowling
Martin J. Gruber
Robert F. Gurnee
Harry M. Markowitz
Frederick W. Zuckerman
- --------------------------------------------
OFFICERS
Harry M. Markowitz
PRESIDENT
Daniel F. Barry
VICE PRESIDENT
Lawrence Jacob
SECRETARY
Edward J. Grace
TREASURER
John J. O'Keefe
ASSISTANT TREASURER
Laurence E. Cranch
ASSISTANT SECRETARY
- --------------------------------------------
ADDRESS OF THE FUND
c/o Daiwa Securities Trust Company
One Evertrust Plaza, 9th Floor
Jersey City, New Jersey 07302
- --------------------------------------------
INVESTMENT MANAGER
Daiwa International Capital Management Corp.
INVESTMENT ADVISER
Daiwa Securities Trust Company
ADMINISTRATOR AND CUSTODIAN
Daiwa Securities Trust Company
TRANSFER AGENT AND REGISTRAR
PNC Bank, National Association
LEGAL COUNSEL
Rogers & Wells
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
- --------------------------------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that from time to time the Fund may purchase shares of its
common stock in the open market at prevailing market prices.
This report is sent to shareholders of the Fund for their information. It is not
a prospectus, circular or representation intended for use in the purchase or
sale of shares of the Fund or of any securities mentioned in the report.
The financial information included herein is taken from the records of the Fund
without examination by independent accountants who do not express an opinion
thereon.
SEMI-ANNUAL REPORT
APRIL 30, 1997
- -------------------------
[LOGO]
- -------------------------
THE JAPAN EQUITY
FUND, INC.
c/o Daiwa Securities Trust Company
One Evertrust Plaza
Jersey City, New Jersey 07302
INVESTMENT MANAGER
Daiwa International Capital
Management Corp.
INVESTMENT ADVISER
Daiwa Securities Trust Company
