<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. The Fund's weekly NAV is
also available by calling (800) 933-3440 or (201) 915-3020.
INQUIRIES
It is the policy of the Fund to respond to inquiries about its portfolio
holdings and performance. Such inquiries may be directed to the Fund at (800)
852-4750 or (302) 791-2748, or to DSTC at (800) 933-3440 or (201) 915-3020.
Inquiries concerning your share account should be directed to the Fund at either
(800) 852-4750 or (302) 791-2748. 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 PFPC Inc.* (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 (302) 791-2748, or by
writing The Japan Equity Fund, Inc., c/o PFPC Inc., P.O. Box 8950, Wilmington,
DE 19899.
- ------------------------
* The Fund's former Plan Agent, PNC Bank, National Association, has assigned
its rights and duties as Plan Agent to PFPC Inc., its wholly-owned, indirect
subsidiary, effective December 31, 1998.
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
GENERAL INFORMATION (CONCLUDED)
- --------------------------------------------------------------------------------
A brief summary of the material aspects of the Plan follows:
WHO CAN PARTICIPATE IN THE PLAN? If you wish to participate and your shares
are held in your name, you may elect to become a direct participant in the Plan
by completing and mailing the Enrollment Authorization form on the back cover of
the Dividend Reinvestment and Cash Purchase Plan Brochure available from the
Plan Agent. However, if your shares are held in the name of a brokerage firm,
bank or nominee, you should instruct your nominee to participate in the Plan on
your behalf. If your nominee is unable to participate in the Plan for you, you
should request that your shares be registered in your name, so that you may
elect to participate directly in the Plan.
MAY I WITHDRAW FROM THE PLAN? If your shares are held in your name and you
wish to receive all dividends and capital gain distributions in cash rather than
in shares, you may withdraw from the Plan without penalty at any time by
contacting the Plan Agent. If your shares are held in nominee name, you should
be able to withdraw from the Plan without a penalty at any time by sending
written notice to your nominee. If you withdraw, you or your nominee will
receive a share certificate for all full shares or, if you wish, the Plan Agent
will sell your shares and send you the proceeds, after the deduction of
brokerage commissions. The Plan Agent will convert any fractional shares to cash
at the then-current market price and send to you a check for the proceeds.
HOW ARE THE DIVIDENDS AND DISTRIBUTIONS REINVESTED? If the market price of
the Fund's shares on the payment date should equal or exceed their net asset
value per share, the Fund will issue new shares to you at the higher of net
asset value or 95% of the then-current market price. If the market price is
lower than the net asset value per share, the Fund will issue new shares to you
at the market price. If the dividends or distributions are declared and payable
as cash only, you will receive shares purchased for you by the Plan Agent on the
NYSE or otherwise on the open market to the extent available.
WHAT IS THE CASH PURCHASE FEATURE? Plan participants have the option of
making annual investments in Fund shares through the Plan Agent. You may invest
any amount from $100 to $3,000 annually. The Plan Agent will purchase shares for
you on the NYSE or otherwise on the open market on or about February 15th of
each year. Plan participants should send voluntary cash payments to be received
by the Plan Agent approximately ten days before the annual purchase date. The
Plan Agent will return any cash payments received more than thirty days prior to
the purchase date. You may withdraw a voluntary cash payment by written notice,
if the notice is received by the Plan Agent not less that two business days
before the purchase date.
IS THERE A COST TO PARTICIPATE? There are no Plan charges or brokerage
charges for shares issued directly by the Fund. However, each participant will
pay a pro rata portion of brokerage commissions for shares purchased on the NYSE
or on the open market by the Plan Agent.
WHAT ARE THE TAX IMPLICATIONS? The automatic reinvestment of dividends and
distributions does not relieve you of any income tax which may be payable (or
required to be withheld) on such dividends and distributions. In addition, the
Plan Agent will reinvest dividends for foreign participants and for any
participant subject to federal backup withholding after the deduction of the
amounts required to be withheld.
PLEASE NOTE THAT, IF YOU PARTICIPATE IN THE PLAN THROUGH A BROKERAGE
ACCOUNT, YOU MAY NOT BE ABLE TO CONTINUE AS A PARTICIPANT IF YOU TRANSFER THOSE
SHARES TO ANOTHER BROKER. CONTACT YOUR BROKER OR NOMINEE OR THE PLAN AGENT TO
ASCERTAIN WHAT IS THE BEST ARRANGEMENT FOR YOU TO PARTICIPATE IN THE PLAN.
2
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
December 1, 1998
DEAR SHAREHOLDERS:
It is our pleasure, on behalf of The Board of Directors, to present the
Annual Report for The Japan Equity Fund, Inc. (the "Fund") for the fiscal year
ended October 31, 1998.
BACKGROUND
The objective of the Fund is to outperform its benchmark, which is the Tokyo
Stock Price Index ("TOPIX") excluding its financial stocks (the "Benchmark").
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, the earnings-to-price
ratio and the book-to-price ratio. The various fundamental characteristics are
weighted by a method, known as the Daiwa Portfolio Optimization System ("DPOS"),
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.
PERFORMANCE OF THE JAPANESE STOCK MARKET
The Nikkei 225 Average closed at 13,564 on October 30, 1998, a decrease of
17.59% (in Yen terms) over the last twelve months, and a decrease of 13.28%
since April 30, 1998. In August, the market temporarily declined below 13,000
but moved within the 13,000 - 15,000 range during October 1998. A large part of
the market decline was attributed to Japan's stagnant domestic economy and
unstable financial system. The real Gross Domestic Product (GDP) growth rate for
the fiscal year 1997 was -0.7%. The figures for FY'98 and FY'99 are currently
expected to be a decline of 2% or less and 1%, respectively. Although a fiscal
economic package of 16.6 trillion Yen was announced in April 1998, consumer
confidence and the corporate stance on capital expenditures did not seem to
improve.
Fears of a global recession exaggerated the Japanese market decline.
Starting with the devaluation of the Thai Baht on July 2, 1997, the contagion
finally reached the U.S. market via the Asian economic troubles (from July 1997
through 1998), devaluation of the Russian Ruble (August 1998) and economic
turmoil in Latin America (September 1998). On the global front, the unwinding of
carry-trades by large hedge fund operations like Long Term Capital Management,
Tiger Management, etc. caused the Yen's rapid appreciation and the collapse of
Japanese high technology stocks. Because high-tech stocks had been stable until
then, with good earnings thanks to the growing U.S. and European economies, they
immediately suffered from the global turmoil.
The global market has stabilized somewhat starting with the easing of
monetary policy by the U.S. Federal Reserve. In Japan, some financially related
laws were legislated by the Diet and bad-loan problems in the banking sector
seem to be gradually improving. Over the next 4 to 6 months, the Fund's
management expect the market to trade in a range between 13,000 - 15,000 and
then shift to a growth stage when the financial and economic situation improves.
FUND PERFORMANCE
As of October 31, 1998, the Fund's net assets were approximately U.S. $65.8
million, which represents a net asset value of U.S. $6.08 per-share. The
time-weighted return on the Fund's net assets was -13.02% since the Fund's
previous fiscal year-end on October 31, 1997. Over the same annual period, the
Benchmark (the TOPIX less its financial firms component) return was -13.07%, as
measured in U.S. Dollars.
3
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
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 measurement period.
The investment process of the Fund, utilizing DPOS, may be divided into two
parts. One part consists of calculations for estimating the "expected" return on
any security, given its earnings, book value, dividend yield, stock price and
the like. The other part constitutes risk control procedures for reducing
tracking error relative to the Benchmark. These risk control procedures include
"constraints" on certain characteristics of the Fund's portfolio, such as
constraints on sector holdings, so that the portfolio's characteristics do not
differ significantly from those of the Benchmark. The risk control procedures
also include a computation, which finds the combination of securities with
minimum historical tracking error among portfolios which meet certain
constraint, expected return and low turnover criteria.
It is important to emphasize again that it is not an objective of the Fund
to predict changes in its Benchmark. Rather, its goal is to outperform the
Benchmark, while staying fairly fully invested. Specifically, the goal is to
hold no more than 5% in cash. On October 31, 1998, the proportion of the Fund's
net assets invested in non-financial Japanese equities listed on the First
Section of the TSE was 98.8%, while short-term investments and other net assets
represented 1.2%.
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
October 1998, the Benchmark as measured in Yen equaled 93.36, whereas the Fund's
portfolio for that same period equaled 89.37 in Yen (including cash, after
expenses, and adjusting for dividend payments, dividend reinvestment, and two
rights offerings). Thus, in Yen terms, the Fund under-performed its Benchmark by
3.99 percentage points from its commencement through October 31, 1998.
At the end of October 1998, the Benchmark, as measured in U.S. Dollars,
equaled 102.06, whereas the value of the Fund's portfolio equaled 97.69 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 under-performed its Benchmark by 4.37 percentage points from its
commencement through October 31, 1998. The difference between Yen and Dollar
performance reflects an unfavorable change for the Fund in the exchange rate
from Y126.90 per Dollar on July 24, 1992 to Y116.09 per Dollar on October 31,
1998.
The invested position of the Fund's assets consisted of common stocks of
companies operating in 23 different industries. At October 31, 1998 the Fund had
relatively large weightings in Electric Appliances (14.93% of net assets),
Transportation Equipment (10.69%), Chemicals (8.96%), Electric Power & Gas
(8.13%), and Pharmaceuticals (7.97%).
During the Fund's fiscal year ended October 31, 1998, the Fund's market
price on the New York Stock Exchange ("NYSE") ranged from a low of $5 1/4 per
share on August 31, 1998 to a high of $8 1/4 on February 13, 1998. The Fund's
NYSE market price closed at $6 7/8 per share on October 30, 1998.
The NYSE trading price in relation to the Fund's net asset value per share,
as measured by the weekly closing prices during the Fund's fiscal year ended
October 31, 1998 ranged from a premium of 32.07% on July 3, 1998 to a discount
of 0.13% on September 4, 1998, and ended the fiscal year at a premium of 13.08%.
4
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
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 prospectus, the Fund has not engaged in any foreign currency hedging.
THE YEAR 2000 ISSUE
The Fund continues to review the current status of its exposure to the Year
2000 computer issue. The Fund does not itself own or directly use any computers
in conducting its business. Instead it relies on various service providers to
conduct its business and its service providers may use or depend on computers to
provide services to the Fund. Like other investment companies and financial and
business organizations, the Fund could be adversely affected if the computer
systems used by the Fund's service providers do not properly address this
problem prior to January 1, 2000. The Fund's Board of Directors has adopted a
Year 2000 plan which involves: (1) collecting information regarding the Year
2000 preparations of its service providers through a questionnaire prepared and
distributed by the Fund's management, (2) assessing the information provided by
the service providers, and (3) if necessary, adopting measures to replace
service providers who fail to indicate that they will become Year 2000 compliant
on a timely basis. As of December 3, 1998, the Fund had been advised by each of
its service providers that it has adopted a Year 2000 plan, completed an
internal assessment of its computer systems, and begun implementation of
procedures to bring its mission-critical systems into Year 2000 compliance.
Based on the information, management of the Fund does not anticipate that the
transition to the 21st Century will have any material impact on the Fund's
operations; however, management of the Fund will continue to monitor the
situation. In addition, however, no assurance can be given that the Fund's
service providers have anticipated every step necessary to avoid any adverse
effect on the Fund attributable to the Year 2000 problem.
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.
Sincerely,
[SIGNATURE] [SIGNATURE]
HIDEAKI MATSUURA HARRY M. MARKOWITZ
CHAIRMAN OF THE BOARD PRESIDENT
5
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
- -------------------------------------------
JAPANESE COMMON STOCKS--98.81%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
CHEMICALS--8.96%
247,000 Daicel Chemical Ind., Ltd. ........ $ 557,471
47,000 Fuji Photo Film Co., Ltd. ......... 1,728,819
107,000 Gun-ei Chemical Industry Co.,
Ltd. ............................. 161,304
33,000 Kansai Paint Co., Ltd. ............ 75,333
281,000 Konica Corporation................. 1,215,161
220,000 Mitsui Chemicals Inc. ............. 686,049
252,000 Nippon Kayaku Co., Ltd. ........... 1,254,736
46,000 Nippon Synthetic Chemical Industry
Co., Ltd. ........................ 99,858
12,000 Tenma Corporation.................. 111,642
------------
5,890,373
------------
COMMUNICATION--3.52%
96 NTT Corporation.................... 754,206
43 NTT Mobile Communication Network
Inc. ............................. 1,559,461
------------
2,313,667
------------
CONSTRUCTION--3.08%
25,000 Maeda Road Construction Co.,
Ltd. ............................. 161,089
167,000 Sekisui House, Ltd. ............... 1,670,216
700 Toenec Corporation................. 2,533
54,800 Tokyo Denki Komusho Co., Ltd. ..... 192,604
------------
2,026,442
------------
ELECTRIC APPLIANCES--14.93%
82,000 Canon, Inc. ....................... 1,557,566
50,000 Casio Computer Co., Ltd. .......... 319,593
8,700 Fanuc Ltd. ........................ 262,308
48,000 Fuji Electric Co., Ltd. ........... 84,765
36,000 Kinseki Ltd. ...................... 145,755
29,400 Kyocera Corporation................ 1,304,303
171,000 Matsushita Electric Industrial Co.,
Ltd. ............................. 2,520,403
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
10,000 Matsushita-Kotobuki Electronics
Industries, Ltd. ................. $ 192,101
47,000 Nichicon Corporation............... 512,168
17,500 Sony Corporation................... 1,115,562
6,000 Star Micronics Co., Ltd. .......... 26,360
9,000 TDK Corporation ................... 595,426
97,000 TEC Corporation ................... 242,322
117,000 Uniden Corporation ................ 943,378
------------
9,822,010
------------
ELECTRIC POWER & GAS--8.13%
15,200 Chugoku Electric Power Co.,
Inc. ............................. 286,755
76,500 Hokkaido Electric Power Co.,
Inc. ............................. 1,252,759
97,300 Kyushu Electric Power Co., Inc. ... 1,873,330
76,200 Tokyo Electric Power Co., Inc. .... 1,936,426
------------
5,349,270
------------
FOODS--1.29%
11,000 Chukyo Coca-Cola Bottling Co.,
Ltd. ............................. 94,758
5,000 Fujicco Co., Ltd. ................. 79,037
10,000 Kirin Brewery Co., Ltd. ........... 109,403
58,000 Marudai Food Co., Ltd. ............ 115,915
69,000 Nippon Flour Mills Co., Ltd. ...... 205,065
800 Pokka Corporation.................. 5,210
35,000 Yomeishu Seizo Co. Ltd. ........... 241,203
------------
850,591
------------
GLASS & CERAMICS PRODUCTS--3.54%
251,000 Asahi Glass Co., Ltd. ............. 1,405,436
29,000 Danto Corporation.................. 107,421
16,000 Sumitomo Osaka Cement Co., Ltd. ... 30,323
</TABLE>
6
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
JAPANESE COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
GLASS & CERAMICS PRODUCTS (CONCLUDED)
324,000 Tokai Carbon Co., Ltd. ............ $ 787,078
------------
2,330,258
------------
IRON & STEEL--0.56%
91,000 Yodogawa Steel Works, Ltd. ........ 364,517
------------
LAND TRANSPORTATION--4.13%
151 East Japan Railway Co. ............ 898,833
63,000 Fukuyama Transporting Co., Ltd. ... 256,157
71,000 Maruzen Showa Unyu Co., Ltd. ...... 113,761
36,000 Nippon Express Co., Ltd. .......... 203,127
51,000 Nippon Konpo Unyu Soko Co.,
Ltd. ............................. 325,107
270 Nishi-Nippon Railroad Co., Ltd. ... 726
157,000 Seino Transportation Co., Ltd. .... 919,671
------------
2,717,382
------------
MACHINERY--6.23%
18,000 Aida Engineering, Ltd. ............ 60,628
32,000 Amada Sonoike Co., Ltd. ........... 73,050
142,000 Brother Industries, Ltd. .......... 365,749
14,000 Daiwa Industries, Ltd. ............ 36,180
78,300 Heiwa Corporation.................. 704,858
26,000 Hisaka Works, Ltd. ................ 96,309
174,000 Kubota Corporation................. 386,717
10,000 Max Co., Ltd. ..................... 82,698
458,000 Mitsubishi Heavy Industries,
Ltd. ............................. 1,775,423
18,700 Miura Co., Ltd. ................... 267,407
48,000 Tsubaki Nakashima Co., Ltd. ....... 250,988
------------
4,100,007
------------
METAL PRODUCTS--1.19%
114,000 Komai Tekko Inc. .................. 188,551
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
54,000 Netsuren Company, Ltd. ............ $ 106,991
32,000 Takada Kiko Co., Ltd. ............. 105,578
28,000 Topre Corporation.................. 111,677
15,000 Toyo Seikan Kaisha, Ltd. .......... 270,707
------------
783,504
------------
MINING--0.37%
96,000 Nittetsu Mining Co., Ltd. ......... 242,305
------------
NONFERROUS METALS--0.64%
179,000 Dowa Mining Co., Ltd. ............. 420,959
------------
OTHER PRODUCTS--5.23%
108,000 Dai Nippon Printing Co., Ltd. ..... 1,669,983
16,900 Nintendo Co., Ltd. ................ 1,435,448
26,000 Toppan Printing Co., Ltd. ......... 267,649
5,500 Tsutsumi Jewelry Co., Ltd. ........ 68,700
------------
3,441,780
------------
PHARMACEUTICALS--7.97%
49,000 Daiichi Pharmaceutical Co.,
Ltd. ............................. 820,993
8,000 Eisai Company, Ltd. ............... 125,977
22,000 Nippon Shinyaku Co., Ltd. ......... 94,379
31,000 Ono Pharmaceutical Co., Ltd. ...... 929,319
26,000 Sankyo Co., Ltd. .................. 589,051
182,000 Shionogi & Co., Ltd. .............. 1,346,755
25,000 Taisho Pharmaceutical Co., Ltd. ... 671,921
23,000 Yamanouchi Pharmaceutical Co.,
Ltd. ............................. 661,756
------------
5,240,151
------------
</TABLE>
7
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
JAPANESE COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
PULP & PAPER--2.07%
65,000 Chuetsu Pulp & Paper Co., Ltd. .... $ 100,788
164,000 Nippon Paper Industries Co.,
Ltd. ............................. 658,345
251,000 Rengo Co., Ltd. ................... 508,119
43,000 Tomoku Co., Ltd. .................. 90,382
------------
1,357,634
------------
RETAIL TRADE--5.27%
22,800 Aoki International Co., Ltd. ...... 97,222
25,000 Heiwado Co., Ltd. ................. 151,613
32,000 Ito-Yokado Co., Ltd. .............. 1,874,488
16,000 Izumi Co., Ltd. ................... 95,103
56,000 Kasumi Co., Ltd. .................. 216,117
48,000 Maruetsu, Inc. .................... 128,182
117,000 Mycal Corporation ................. 567,438
29,000 Nissho Corporation................. 198,604
43,000 Seiyo Food Systems Inc. ........... 139,277
------------
3,468,044
------------
RUBBER PRODUCTS--2.71%
28,000 Bando Chemical Industries, Ltd. ... 66,572
25,000 Bridgestone Corporation............ 552,397
260,000 Mitsuboshi Belting Ltd. ........... 678,641
196,000 Yokohama Rubber Co., Ltd. ......... 484,576
------------
1,782,186
------------
SERVICES--0.32%
29,000 Daiwa Kosho Lease Co., Ltd. ....... 112,418
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
310 Nippon Television Network
Corporation....................... $ 97,071
------------
209,489
------------
TEXTILES & APPARELS--2.98%
35,000 Descente Ltd. ..................... 53,969
144,000 Gunze, Ltd. ....................... 352,294
35,000 Ichikawa Co., Ltd. ................ 56,080
121,000 Nippon Felt Co., Ltd. ............. 332,506
9,000 Onward Kashiyma Co., Ltd. ......... 103,502
156,000 Teijin Ltd. ....................... 516,036
16,000 Toray Industries Inc. ............. 74,704
41,000 Wacoal Corp. ...................... 469,036
------------
1,958,127
------------
TRANSPORTATION EQUIPMENT--10.69%
10,200 Exedy Corporation ................. 36,113
14,000 Futaba Industrial Co., Ltd. ....... 168,962
60,000 Honda Motor Co., Ltd. ............. 1,809,019
64,000 Nissan Shatai Co., Ltd. ........... 134,522
20,000 Toyota Auto Body Co., Ltd. ........ 130,939
197,000 Toyota Motor Corporation........... 4,751,691
------------
7,031,246
------------
WAREHOUSING & HARBOR TRANSPORTATION
SERVICES--2.17%
332,000 Kamigumi Co., Ltd. ................ 1,427,127
------------
WHOLESALE TRADE--2.83%
3,300 Autobacs Seven Co., Ltd. .......... 107,171
14,000 Inaba Denkisangyo Co., Limited..... 124,460
37,000 Itochu Fuel Co., Ltd. ............. 114,743
13,000 Mos Food Service, Inc. ............ 192,617
32,000 Nagase & Co., Ltd. ................ 124,047
</TABLE>
8
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONCLUDED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
JAPANESE COMMON STOCKS (CONCLUDED)
- -------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
WHOLESALE TRADE (CONCLUDED)
10,000 Ryosan Company..................... $ 158,074
68,000 Ryoyo Electro Corporation.......... 458,078
33,000 Sangetsu Co., Ltd. ................ 409,355
22,000 Sanshin Electronics Co., Ltd. ..... 116,932
24,000 Suntelephone Co., Ltd. ............ 53,754
------------
1,859,231
------------
Total Japenese Common Stocks
(Cost--$73,252,003).......................... 64,986,300
------------
</TABLE>
- -------------------------------------------
SHORT-TERM INVESTMENTS--0.17%
- -------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
- ---------- ------------
<C> <S> <C>
U.S. DOLLAR TIME DEPOSIT--0.17%
$110 Bank of New York, 3.60% due
11/2/98........................... $ 110,014
------------
Total Short-Term Investments
(Cost--$110,014).............................
Total Investments--98.98%
(Cost--$73,362,017).......................... 65,096,314
Other assets less liabilities--1.02%........... 672,787
------------
NET ASSETS(Applicable to 10,815,688 shares of
capital stock outstanding; equivalent to
$6.08 per share)--100.00%.................... $ 65,769,101
------------
------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
TEN LARGEST COMMON STOCK
CLASSIFICATIONS HELD
OCTOBER 31, 1998
- -------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY NET ASSETS
- ----------------------------------- ----------
<S> <C>
Electric Appliances................ 14.93%
Transportation Equipment........... 10.69
Chemicals.......................... 8.96
Electric Power & Gas............... 8.13
Pharmaceuticals.................... 7.97
Machinery.......................... 6.23
Retail Trade....................... 5.27
Other Products..................... 5.23
Land Transportation................ 4.13
Glass & Ceramic Products........... 3.54
</TABLE>
TEN LARGEST COMMON STOCK
POSITIONS HELD
OCTOBER 31, 1998
- -------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
ISSUE NET ASSETS
- ----------------------------------- ----------
<S> <C>
Toyota Motor Corporation........... 7.22%
Matsushita Electric Industrial Co.,
Ltd. .............................. 3.83
Tokyo Electric Power Co., Inc. .... 2.94
Ito-Yokado Co., Ltd. .............. 2.85
Kyushu Electric Power Co., Inc. ... 2.85
Honda Motor Co., Ltd. ............. 2.75
Mitsubishi Heavy Industries,
Ltd. .............................. 2.70
Fuji Photo Film Co., Ltd. ......... 2.63
Sekisui House, Ltd. ............... 2.54
Dai Nippon Printing Co., Ltd. ..... 2.54
</TABLE>
10
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in securities, at value
(cost-$73,362,017)........................ $ 65,096,314
Cash denominated in foreign currency
(cost--$509,955).......................... 511,282
Interest and dividends receivable.......... 255,787
Prepaid expenses........................... 38,170
-------------
Total assets............................. 65,901,553
-------------
LIABILITIES
Payable to investment manager.............. 22,600
Payable to administrator................... 10,405
Accrued expenses and other liabilities..... 99,447
-------------
Total liabilities........................ 132,452
-------------
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..... 109,020,512
Accumulated net realized loss on
investments............................... (35,130,864)
Net unrealized depreciation on investments
and other assets and liabilities
denominated in foreign currency........... (8,228,704)
-------------
Net assets applicable to shares
outstanding............................. $ 65,769,101
-------------
-------------
NET ASSET VALUE PER SHARE............ $ 6.08
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of
$121,159)................................. $ 685,463
Interest................................... 4,038
-------------
Total investment income.................. 689,501
-------------
EXPENSES:
Investment management fee and expenses..... 278,305
Administration fee......................... 125,459
Custodian fees and expenses................ 81,304
Reports and notices to shareholders........ 64,051
Audit and tax services..................... 56,922
Legal fees and expenses.................... 43,456
Directors' fees and expenses............... 37,129
Insurance expense.......................... 25,000
Transfer agency fee and expenses........... 21,109
Other...................................... 37,933
-------------
Total expenses........................... 770,668
-------------
NET INVESTMENT LOSS.......................... (81,167)
-------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM
INVESTMENT ACTIVITIES AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized losses on investments......... (16,909,841)
Net realized foreign currency transaction
losses.................................... (61,203)
Net change in unrealized appreciation
(depreciation) on investments in equity
securities................................ 7,168,164
Net change in unrealized appreciation
(depreciation) on translation of
short-term investments and other assets
and liabilities denominated in foreign
currency.................................. 35,094
-------------
Net realized and unrealized losses from
investment activities and foreign currency
transactions................................ (9,767,786)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................. $ (9,848,953)
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
OCTOBER 31,
-------------------------------
1998 1997
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment loss........................ $ (81,167) $ (122,119)
Net realized loss on:
Investments.............................. (16,909,841) (18,221,023)
Foreign currency transactions............ (61,203) (8,371)
Net change in unrealized appreciation
(depreciation) on:
Investments in equity securities......... 7,168,164 (12,729,929)
Translation of short-term investments and
other assets and liabilities denominated
in foreign currency..................... 35,094 15,064
------------- -------------
Net decrease in net assets resulting from
operations................................ (9,848,953) (31,066,378)
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net realized gains from investment and
foreign currency transactions............. -- (7,071,290)
------------- -------------
FROM CAPITAL STOCK TRANSACTIONS:
Sale of capital stock resulting from:
Reinvestment of dividends................ -- 178,930
------------- -------------
Net decrease in net assets................. (9,848,953) (37,958,738)
NET ASSETS:
Beginning of year.......................... 75,618,054 113,576,792
------------- -------------
End of year................................ $ 65,769,101 $ 75,618,054
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
13
<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." and
commenced operations on July 24, 1992. It is registered with the Securities and
Exchange Commission as a closed-end, diversified management investment company.
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.
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
14
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 $72,205 and $37,636 were paid by the Fund to
Universal Securities Ltd. (Tokyo) and Daiwa Securities Co, Ltd., respectively,
both of which are affiliates of the Manager and DSTC, in connection with
portfolio transactions during the year ended October 31, 1998. In addition, the
Fund has agreed to reimburse the Manager and the Adviser for all out-of-pocket
expenses related to the Fund. For the year ended October 31, 1998, investment
management fees and expenses include expenses of $9,515 paid to the Adviser,
representing reimbursement to the Adviser of costs relating to the attendance by
an employee of the Adviser at meetings of the Fund's Board.
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
15
<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 year ended October 31, 1998, DSTC earned $34,344,
excluding sub-custodian fees and expenses, as compensation for its custodial
services to the Fund.
At October 31, 1998, the Fund owed $10,405 and $3,365 to DSTC for
administration and custodian fees, excluding sub-custodian fees and expenses,
respectively.
During the year ended October 31, 1998, the Fund paid or accrued $43,296,
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 AND FEDERAL INCOME TAX MATTERS
For federal income tax purposes, the cost of securities owned at October 31,
1998 was substantially the same as the cost of securities for financial
statement purposes. At October 31, 1998, the net unrealized depreciation of
investments for federal income tax purposes, excluding short-term securities, of
$ 8,265,703 was composed of gross appreciation of $3,299,958 for those
investments having an excess of value over cost, and gross depreciation of
$11,565,661 for those investments having an excess of cost over value. For the
year ended October 31, 1998, total aggregate purchases and sales on portfolio
securities, excluding short-term securities, were $33,842,327 and $33,569,903
respectively.
At October 31,1998, the Fund had a capital loss carryover of $35,130,864, of
which $18,221,023 expires in the year 2005 and $16,909,841 expires in the year
2006.
At October 31, 1998, the Fund made capital account reclassifications due to
permanent book/tax differences. The Fund reclassified $61,203 from accumulated
net realized loss on investments to accumulated net investment loss as a result
of permanent book/tax differences relating to net realized foreign currency
losses and reclassified $142,370 from accumulated net investment loss to paid-in
capital in excess of par value relating to a net operating loss for the year
ended October 31, 1998.
CAPITAL STOCK
There are 30,000,000 shares of $0.01 par value common stock authorized.
During the year ended October 31, 1997, 19,826 shares were issued 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 October 31, 1998, Daiwa
Securities America Inc., an affiliate of the Manager and DSTC, owned 14,532
shares.
16
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding during each year is
presented below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year..................... $ 6.99 $10.52 $11.47 $ 14.86 $ 14.69
---------- ---------- ---------- ---------- ----------
Net investment loss.................................... (0.01) (0.01) (0.01) (0.01) (0.03)
Net realized and unrealized gains (losses) on
investments and foreign currency transactions......... (0.90) (2.86) 0.19 (1.90) 1.75
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value resulting
from operations....................................... (0.91) (2.87) 0.18 (1.91) 1.72
---------- ---------- ---------- ---------- ----------
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)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year........................... $ 6.08 $ 6.99 $10.52 $ 11.47 $ 14.86
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Per share market value, end of year.................... $ 6.875 $ 7.375 $10.375 $ 12.875 $ 15.000
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return:
Based on market price at beginning and end of year,
assuming reinvestment of dividends+................. (6.78)% (23.76)% (13.55)% (4.21)% 22.10%
Based on net asset value at beginning and end of
year, assuming reinvestment of dividends+........... (13.02)% (28.73)% (1.18)% (13.86)% 11.88%
Ratios and supplemental data:
Net assets, end of year (in millions)................ $ 65.8 $ 75.6 $ 113.6 $ 92.7 $119.6
Ratios to average net assets of:
Expenses............................................. 1.19% 1.03% 0.90% 0.97% 0.93%
Net investment loss.................................. (0.13)% (0.13)% (0.04)% (0.07)% (0.19)%
Portfolio turnover..................................... 52.07% 61.75% 33.89% 28.35% 30.76%
Average commission rate per share...................... $ 0.0155 $ 0.0237 $ 0.0325 N/A N/A
</TABLE>
- --------------------------
+ For the years ended October 31, 1996 and 1994, the total investment
return includes the benefit of shares resulting from the exercise of
rights.
17
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To The Shareholders
and Board of Directors of
The Japan Equity Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Japan Equity Fund, Inc. (the
"Fund") at October 31, 1998, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1998 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
December 4, 1998
18
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
RESULTS OF ANNUAL MEETING OF STOCKHOLDERS (UNAUDITED)
- --------------------------------------------------------------------------------
On June 4, 1998, the Annual Meeting of Stockholders of The Japan Equity
Fund, Inc. (the "Fund") was held and the following matters were voted upon and
passed.
(1) Election of one Class I Director to the Board of Directors of the Fund,
to serve for a term expiring on the date on which the Annual Meeting of
Stockholders is held in the year 2000 and two Class II Directors to the Board of
Directors of the Fund, to serve for a term expiring on the date on which the
Annual Meeting of Stockholders is held in the year 2001.
NUMBER OF SHARES/VOTES
<TABLE>
<CAPTION>
PROXY AUTHORITY
CLASS I VOTED FOR WITHHELD
- ----------------- --------- ---------------
<S> <C> <C>
Hideaki Matsuura 8,705,275 231,537
<CAPTION>
CLASS II
- -----------------
<S> <C> <C>
Robert F. Gurnee 8,717,056 219,756
David G. Harmer 8,719,283 217,529
</TABLE>
In addition to the three Directors elected or re-elected at the Meeting,
Austin C. Dowling, Martin J. Gruber and Harry M. Markowitz were the other
members of the Board who continued to serve as Directors of the Fund.
(2) To ratify the selection of PricewaterhouseCoopers LLP (formerly, Price
Waterhouse LLP) as independent accountants of the Fund for its fiscal year
ending October 31, 1998.
NUMBER OF SHARES/VOTES
<TABLE>
<CAPTION>
VOTED FOR VOTED AGAINST ABSTENTIONS
- --------- ------------- -----------
<S> <C> <C>
8,693,279 178,725 64,808
</TABLE>
- --------------------------------------------------------------------------------
TAX INFORMATION
- ------------------------------------------------------------
There will be no dividend payments or foreign tax credits with respect to
the fiscal years 1997 and 1998.
SHAREHOLDERS ARE STRONGLY ADVISED TO CONSULT THEIR OWN TAX ADVISERS WITH
RESPECT TO THE TAX CONSEQUENCES OF THEIR INVESTMENT IN THE FUND.
19
<PAGE>
- ----------------------------------------
BOARD OF DIRECTORS
Hideaki Matsuura, CHAIRMAN
Austin C. Dowling
Martin J. Gruber
Robert F. Gurnee
David G. Harmer
Harry M. Markowitz
- --------------------------------------------
OFFICERS
Harry M. Markowitz
PRESIDENT
Daniel F. Barry
VICE PRESIDENT
Lawrence Jacob
SECRETARY
Sean J. Peters
TREASURER
John A. Koopman
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
PFPC Inc.
LEGAL COUNSEL
Rogers & Wells
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers 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.
ANNUAL REPORT
OCTOBER 31, 1998
- -------------------------
[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
