<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 SB Investments Ltd. (formerly, 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.
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
June 1, 1999
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, 1999.
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
After reaching the 17,000 mark a few times in April 1999, the Nikkei 225
Index closed at 15,836 on April 30, 1,469 points higher than at the end of
February. In addition to continued purchases by foreign investors, domestic
pension funds and individual investors also participated in the liquidity-driven
market. The increase in market interest stems from the following three factors.
First, the fear of higher interest rates subsided thanks to the Bank of Japan's
(BOJ) movements towards lower interest rates. Second, a formal decision was
finally made to inject public funds into major banks. The Japanese financial
system thus gained confidence toward stabilization. Finally, company results for
the next fiscal year are anticipated to be better because of announcements of
corporate restructuring, mergers, acquisitions and alliances.
On a global basis, equities have been outperforming bonds. The strength of
the U.S. economy and stock market has enabled investors to take more risks by
buying emerging market equities. Asian and Latin American emerging markets
rebounded sharply in April (more than 20% in many countries). This had a
positive effect on the Japanese market as well, since a bottomed-out Asian
economy will improve the outlook of Japanese industries, particularly basic
industries such as chemicals and steel.
However, despite the recent rally, additional incentives will be needed for
the market to further reach the 18,000-19,000 range. There is still room for the
market to improve, given the weak consumption reflected in disappointing retail
sales and car sales in March and April 1999. Another economic package will be
needed (about 10-15 trillion Yen) to make up the shortfall of Japanese domestic
demand in the second half of 1999.
FUND PERFORMANCE
As of April 30, 1999, the Fund's net assets were approximately $78.3
million, which represents a net asset value of $7.24 per share. The
time-weighted return on the Fund's net assets was 19.08% since the Fund's
previous fiscal year-end on October 31, 1998. Over the same six-month period,
the Benchmark (the TOPIX less its financial firms component) return was 23.98%,
as measured in U.S. Dollars.
2
<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 "too much" from those of the Benchmark. The risk control procedures also
include a computation which finds the combination of securities which had
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 April 30, 1999, the proportion of the Fund's
net assets invested in non-financial Japanese equities listed on the First
Section of the TSE was 98.80%, while short-term investments and other net assets
represented 1.20%.
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 1999, the Benchmark as measured in Yen equaled 119.23, whereas the Fund's
portfolio for that same period equaled 109.63 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
9.60 percentage points from commencement through April 30, 1999.
At the end of April 1999, the Benchmark, as measured in U.S. Dollars,
equaled 126.53, whereas the value of the Fund's portfolio equaled 116.33 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 10.20 percentage points from
commencement through April 30, 1999. The difference between Yen and Dollar
performance reflects a favorable change for the Fund in the exchange rate from
Y126.90 per Dollar on July 24, 1992 to Y119.59 per Dollar on April 30, 1999.
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 Electric Appliances (15.51% of net assets), Transportation
Equipment (13.38%), Chemicals (9.27%), Pharmaceuticals (8.07%), and Electric
Power & Gas (6.67%).
During the six-month period ended April 30, 1999, the Fund's market price on
the New York Stock Exchange ("NYSE") ranged from a low of $6 13/16 per share on
December 28, 1998 to a high of $9 5/8 on March 11, 1999. The Fund's NYSE market
price closed at $9 3/16 per share on April 30, 1999.
The NYSE trading price in relation to the Fund's net asset value per share,
as measured by the weekly closing prices during the six-month period ended April
30, 1999 ranged from a premium of 40.09% on November 20, 1998 to a premium of
9.16% on December 31, 1998, and closed April 30, 1999 at a premium of 26.90%.
3
<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 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. 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. The Fund has been informed that substantially all of its
service providers will be compliant by the end of July 1999. Based on this
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,
/s/ Hideaki Matsuura /s/ Harry M. Markowitz
HIDEAKI MATSUURA HARRY M. MARKOWITZ
CHAIRMAN OF THE BOARD PRESIDENT
4
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
- -------------------------------------------
JAPANESE COMMON STOCKS--98.80%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
CHEMICALS--9.27%
247,000 Daicel Chemical Ind., Ltd. ........ $ 846,845
47,000 Fuji Photo Film Co., Ltd........... 1,772,547
25,000 Ihara Chemical Industries.......... 86,131
33,000 Kansai Paint Co., Ltd.............. 96,584
25,000 Kao Corp........................... 633,441
350,000 Mitsui Chemicals Inc............... 1,788,268
6,000 Nifco Inc.......................... 51,779
252,000 Nippon Kayaku Co., Ltd............. 1,354,986
28,000 Shiseido Co., Ltd.................. 440,189
12,000 Tenma Corporation.................. 186,645
------------
7,257,415
------------
COMMUNICATION--6.27%
41 Japan Telecom Co., Ltd............. 579,420
167 NTT Corporation.................... 1,815,445
43 NTT Mobile Communication Network
Inc............................... 2,517,038
------------
4,911,903
------------
CONSTRUCTION--3.00%
17,000 Daiwa House Industry Co., Ltd...... 202,576
25,000 Maeda Road Construction Co. Ltd.... 164,736
28,000 Nippon Hodo Co., Ltd............... 146,339
144,000 Sekisui House, Ltd................. 1,609,968
20,000 Taihei Dengyo Kaisha Ltd........... 70,243
700 Toenec Corporation................. 2,698
20,800 Tokyo Denki Komusho Co., Ltd....... 85,750
12,000 Yurtec Corporation................. 69,340
------------
2,351,650
------------
ELECTRIC APPLIANCES--15.51%
82,000 Canon Co., Ltd..................... 2,002,258
8,700 Fanuc Ltd.......................... 378,308
148,000 Hitachi Ltd........................ 1,079,199
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
52,000 Koito Manufacturing Co., Ltd....... $ 241,769
29,400 Kyocera Corporation................ 1,743,078
4,000 Matsushita Communication Industrial
Co., Ltd.......................... 286,658
147,000 Matsushita Electric Industrial Co.,
Ltd............................... 2,790,400
17,500 Sony Corporation................... 1,631,685
6,000 Star Micronics Co. Ltd............. 35,623
9,000 TDK Corporation.................... 679,600
117,000 Uniden Corporation................. 1,065,460
72,000 Yuasa Corp......................... 208,922
------------
12,142,960
------------
ELECTRIC POWER & GAS--6.67%
2,300 Chuba Electric Power Co., Inc...... 39,428
51,600 Chugoku Electric Power Co., Inc.... 798,261
76,500 Hokkaido Electric Power Co.,
Inc............................... 1,138,688
6,000 Kansai Electric Power Company
Inc............................... 118,159
97,300 Kyushu Electric Power Co., Inc..... 1,505,247
76,200 Tokyo Electric Power Co., Inc...... 1,624,869
------------
5,224,652
------------
FOODS--0.84%
11,000 Chukyo Coca Cola Co., Ltd.......... 126,479
6,000 Fujicco Co. Ltd.................... 109,880
10,000 Kirin Brewery Co., Ltd............. 112,890
60,000 Nippon Beet Sugar Mfg. Co., Ltd.... 117,908
69,000 Nippon Flour Mills Co., Ltd........ 186,370
</TABLE>
5
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
JAPANESE COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
FOODS (CONCLUDED)
800 Pokka Corporation.................. $ 5,218
------------
658,745
------------
GLASS & CERAMIC PRODUCTS--1.93%
61,000 Asahi Glass Co., Ltd............... 466,229
47,000 Sumitomo Osaka Cement Co., Ltd..... 104,152
433,000 Tokai Carbon Co., Ltd.............. 941,422
------------
1,511,803
------------
IRON & STEEL--0.52%
139,000 Kurimoto, Ltd...................... 406,824
------------
LAND TRANSPORTATION--2.45%
63,000 Fukuyama Transporting Co, Ltd...... 310,825
71,000 Maruzen Showa Unyu Co., Ltd........ 138,337
5,000 Nippon Express Co., Ltd............ 32,613
51,000 Nippon Konpo Unyu Soko Co., Ltd.... 366,768
270 Nishi-Nippon Railroad Co., Ltd..... 711
30,000 Seino Transportation Co., Ltd...... 180,876
324,000 Tokyu Corporation.................. 891,383
------------
1,921,513
------------
MACHINERY--4.75%
187,000 Amada Sonoike Co. Ltd.............. 587,967
14,000 Daiwa Industries................... 55,960
26,000 Hisaka Works Ltd................... 119,580
42,000 Komori Corp........................ 776,184
174,000 Kubota Corporation................. 493,256
10,000 Max Co., Ltd....................... 113,058
22,000 Mori Seiki Co., Ltd................ 279,634
19,000 Nippon Conclux Co., Ltd............ 118,527
24,400 Sankyo Co., Ltd.................... 844,721
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
48,000 Tsuboki Nokoshima Co., Ltd......... $ 335,159
------------
3,724,046
------------
METAL PRODUCTS--1.40%
114,000 Komai Tekko Inc.................... 272,643
88,000 Netsuren Company, Ltd.............. 260,501
32,000 Takada Kiko Co., Ltd............... 144,500
28,000 Topre Corporation.................. 111,218
15,000 Toyo Seikan Kaisha Ltd............. 304,804
------------
1,093,666
------------
MINING--1.20%
278,000 Teikoku Oil Co., Ltd............... 941,506
------------
OIL & COAL PRODUCTS--0.61%
72,000 Cosmo Oil Co., Ltd................. 148,112
55,000 Tonen Corp......................... 329,765
------------
477,877
------------
OTHER PRODUCTS--5.11%
108,000 Dai Nippon Printing Co., Ltd....... 1,708,709
21,700 Nintendo Co., Ltd.................. 2,019,660
31,000 Takara Co., Ltd.................... 159,426
5,500 Tsutsumi Jewelry Co., Ltd.......... 113,141
------------
4,000,936
------------
PHARMACEUTICALS--8.07%
49,000 Daiichi Pharmaceutical Co., Ltd.... 794,916
22,000 Nippon Shinyaku Co. Limited........ 153,615
31,000 Ono Pharmaceutical Co., Ltd........ 1,197,642
26,000 Sankyo Co., Ltd.................... 544,633
167,000 Shionogi & Co., Ltd................ 1,483,079
</TABLE>
6
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
JAPANESE COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
PHARMACEUTICALS (CONCLUDED)
25,000 Taisho Pharmaceutical Co., Ltd..... $ 767,237
15,000 Takeda Chemical Industries......... 651,001
23,000 Yamanouchi Pharmaceutical Co.,
Ltd............................... 727,014
------------
6,319,137
------------
PULP & PAPER--0.23%
49,000 Rengo Co., Ltd..................... 181,110
------------
RETAIL TRADE--5.70%
36,800 Aoki International Co. Limited..... 197,563
10,100 Fast Retailing Co., Ltd............ 518,577
25,000 Heiwado Co., Ltd................... 168,290
35,000 Ito-Yokado Co., Ltd................ 2,145,336
56,000 Kasumi Co., Ltd.................... 227,587
48,000 Maruetsu, Inc...................... 169,386
117,000 Mycal Corporation.................. 724,004
40,000 Nissho Corporation................. 309,403
------------
4,460,146
------------
RUBBER PRODUCTS--1.96%
25,000 Bridgestone Corporation............ 668,980
101,000 Mitsuboshi Belting Ltd............. 278,714
196,000 Yokohama Rubber Co. Limited........ 585,124
------------
1,532,818
------------
SERVICES--0.58%
29,000 Daiwa Kosho Lease Co., Limited..... 109,612
4,000 Japan Airport Terminal Co., Ltd.... 42,146
310 Nippon Television Network
Corporation....................... 108,877
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
2,000 Secom Co., Ltd..................... $ 195,008
------------
455,643
------------
TEXTILE & APPAREL--2.43%
35,000 Descente Ltd....................... 88,389
206,000 Gunze Ltd.......................... 542,627
35,000 Ichikawa Woolen Textile Co.,
Ltd............................... 64,389
88,000 Nippon Felt Co., Ltd............... 279,634
133,000 Teijin Ltd......................... 558,314
34,000 Wacoal Co., Ltd.................... 366,768
------------
1,900,121
------------
TRANSPORTATION EQUIPMENT--13.38%
14,000 Futaba Industrial Co., Ltd......... 192,231
60,000 Honda Motor Co., Ltd............... 2,639,127
248,000 Mazda Motor Corporation............ 1,055,584
345,000 Nissan Motor Co., Ltd.............. 1,321,320
20,000 Toyota Auto Body Co., Ltd.......... 141,322
181,000 Toyota Motor Corporation........... 5,130,995
------------
10,480,579
------------
WAREHOUSING & HARBOR TRANSPORTATION
SERVICES--2.04%
332,000 Kamigumi Co., Ltd.................. 1,596,354
------------
WHOLESALE TRADE--4.88%
15,000 Autobacs Seven Co., Ltd............ 564,452
105,000 C. Itoh Fuel Corporation........... 373,166
14,000 Inaba Denkisangyo Co. Limited...... 154,534
484,000 Itochu Corporation................. 1,274,909
7,000 Mos Food Service, Inc.............. 89,501
31,000 Ryoyo Electro Corporation.......... 365,514
33,000 Sangetsu Co., Ltd.................. 605,720
</TABLE>
7
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONCLUDED)
APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
JAPANESE COMMON STOCKS (CONCLUDED)
- -------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
7,000 Sanseido Co., Ltd.................. $ 69,775
22,000 Sanshin Electronics Co., Ltd....... 194,088
10,800 Yellow Hat Ltd..................... 127,792
------------
3,819,451
------------
Total Japanese Common Stocks
(Cost--$71,293,534).......................... 77,370,855
------------
</TABLE>
- -------------------------------------------
SHORT-TERM INVESTMENTS--0.33%
- -------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000)
- ----------
<C> <S> <C>
U.S. DOLLAR TIME DEPOSIT--0.33%
$259 Bank of New York, 2.70% due
5/1/99............................ $ 259,056
------------
Total Short-Term Investments
(Cost--$259,056).............................
Total Investments--99.13%
(Cost--$71,552,590).......................... 77,629,911
Other assets less liabilities--0.87%........... 677,493
------------
NET ASSETS (Applicable to 10,815,688 shares of
capital stock outstanding; equivalent to
$7.24 per share) 100.00%..................... $ 78,307,404
------------
------------
</TABLE>
- -------------------------------------------
TEN LARGEST COMMON STOCK
CLASSIFICATIONS HELD
APRIL 30, 1999 (UNAUDITED)
- -------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY NET ASSETS
- ----------------------------------- ----------
<S> <C>
Electric Appliances................ 15.51%
Transportation Equipment........... 13.38
Chemicals.......................... 9.27
Pharmaceuticals.................... 8.07
Electric Power & Gas............... 6.67
Communication...................... 6.27
Retail Trade....................... 5.70
Other Products..................... 5.11
Wholesale Trade.................... 4.88
Machinery.......................... 4.75
</TABLE>
- -------------------------------------------
TEN LARGEST COMMON STOCK POSITIONS HELD
APRIL 30, 1999 (UNAUDITED)
- -------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
ISSUE NET ASSETS
- ----------------------------------- ----------
<S> <C>
Toyota Motor Corporation........... 6.55%
Matsushita Electric Industrial Co.,
Ltd. ............................. 3.56
Honda Motor Co., Ltd. ............. 3.37
NTT Mobile Communication Network
Inc. ............................. 3.21
Ito-Yokado Co., Ltd. .............. 2.74
Nintendo Co., Ltd. ................ 2.58
Canon Co., Ltd. ................... 2.56
NTT Corporation ................... 2.32
Mitsui Chemicals Inc. ............. 2.28
Fuji Photo Film Co., Ltd. ......... 2.26
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in securities, at value
(cost--$71,552,590)....................... $ 77,629,911
Cash denominated in foreign currency
(cost--$380,920).......................... 384,679
Interest and dividends receivable.......... 405,795
Prepaid expenses........................... 43,498
------------
Total assets............................. 78,463,883
------------
LIABILITIES
Payable to investment manager.............. 24,396
Payable to administrator................... 12,133
Accrued expenses and other liabilities..... 119,950
------------
Total liabilities........................ 156,479
------------
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
Undistributed net investment income........ 60,063
Accumulated net realized loss on
investments............................... (36,959,155)
Net unrealized appreciation on investments
and other assets and liabilities
denominated in foreign currency........... 6,077,827
------------
Net assets applicable to shares
outstanding............................. $ 78,307,404
------------
------------
NET ASSET VALUE PER SHARE............ $ 7.24
------------
------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of
$80,071).................................. $ 453,735
Interest................................... 2,030
------------
Total investment income.................. 455,765
------------
EXPENSES:
Investment management fee and expenses..... 144,353
Administration fee......................... 68,066
Custodian fees and expenses................ 42,970
Reports and notices to shareholders........ 29,757
Audit and tax services..................... 27,997
Legal fees and expenses.................... 22,712
Directors' fees and expenses............... 21,750
Insurance expense.......................... 10,775
Transfer agency fee and expenses........... 10,457
Other...................................... 16,865
------------
Total expenses........................... 395,702
------------
NET INVESTMENT INCOME........................ 60,063
------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM
INVESTMENT ACTIVITIES AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized losses on investments......... (1,840,431)
Net realized foreign currency transaction
gains..................................... 12,140
Net change in unrealized appreciation
(depreciation) on investments in equity
securities................................ 14,343,024
Net change in unrealized appreciation
(depreciation) on translation of
short-term investments and other assets
and liabilities denominated in foreign
currency.................................. (36,493)
------------
Net realized and unrealized gains from
investment activities and foreign currency
transactions................................ 12,478,240
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................. $ 12,538,303
------------
------------
</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
1999 OCTOBER 31,
(UNAUDITED) 1998
------------ -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income (loss)............... $ 60,063 $ (81,167)
Net realized gain (loss) on:
Investments.............................. (1,840,431) (16,909,841)
Foreign currency transactions............ 12,140 (61,203)
Net change in unrealized appreciation
(depreciation) on:
Investments in equity securities......... 14,343,024 7,168,164
Translation of short-term investments and
other assets and liabilities denominated
in foreign currency..................... (36,493) 35,094
------------ -------------
Net increase (decrease) in net assets
resulting from operations................. 12,538,303 (9,848,953)
NET ASSETS:
Beginning of period........................ 65,769,101 75,618,054
------------ -------------
End of period (including undistributed net
investment income of $60,063 and $0,
respectively)............................. $ 78,307,404 $ 65,769,101
------------ -------------
------------ -------------
</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." 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
12
<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 entered into an Investment Management Agreement, dated April 1,
1999, with Daiwa SB Investments Ltd., formerly, 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 April 1, 1999 between the Manager and DSTC. For such
investment services, the Fund is obligated to pay 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. The Investment
Management Agreement and Investment Advisory Agreement each became effective on
April 1, 1999 when a change of control with respect to the ultimate parent
company of the Investment Manager and the Investment Adviser occurred. While the
Fund will accrue fees owed under those Agreements from April 1, 1999 until the
Agreements are approved by the Fund's stockholders, the fees for that period
will not be paid to the Investment Manager and Investment Adviser unless the
Agreements and payment of fees are approved by the Fund's stockholders. A
stockholders' meeting for this purpose is scheduled for September 16, 1999.
Brokerage commissions of $44,578 were paid by the Fund to Daiwa Securities
America Inc., an affiliate of both the Manager and DSTC, in connection with
portfolio transactions during the six months ended April 30, 1999. 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 six months ended April 30,
1999, investment management fees and expenses include expenses of $4,243 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.
13
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
- --------------------------------------------------------------------------------
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 (the "Sub-Custodian"), an affiliate of the Manager, 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 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, 1999, DSTC and the Sub-Custodian earned $18,173 and $24,797 respectively, as
compensation for custodial services to the Fund.
At April 30, 1999, the Fund owed $12,133 and $3,467 to DSTC for
administration and custodian fees, respectively, excluding fees and expenses of
$6,373 payable to the Sub-Custodian.
During the six months ended April 30, 1999, the Fund paid or accrued
$21,720, for legal services in connection with the Fund's on-going operations to
a law firm of which an Assistant Secretary of the Fund is a partner.
INVESTMENTS IN SECURITIES AND FEDERAL INCOME TAX MATTERS
For federal income tax purposes, the cost of securities owned at April 30,
1999 was substantially the same as the cost of securities for financial
statement purposes. At April 30, 1999, the net unrealized appreciation of
investments for federal income tax purposes, excluding short-term securities, of
$6,077,321 was composed of gross appreciation of $9,549,673 for those
investments having an excess of value over cost, and gross depreciation of
$3,472,352 for those investments having an excess of cost over value. For the
six months ended April 30, 1999, total aggregate purchases and sales on
portfolio securities, excluding short-term securities, were $17,056,377 and
$17,174,415, 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.
CAPITAL STOCK
There are 30,000,000 shares of $0.01 par value common stock authorized. Of
the 10,815,688 shares of the Fund outstanding at April 30, 1999, Daiwa
Securities America Inc., an affiliate of the Manager and DSTC, 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
presented below:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS
ENDED
APRIL 30, FOR THE YEARS ENDED OCTOBER 31,
1999 -------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 6.08 $ 6.99 $ 10.52 $ 11.47 $ 14.86 $ 14.69
------------ --------- --------- --------- --------- ---------
Net investment income (loss)...................... 0.01 (0.01) (0.01) (0.01) (0.01) (0.03)
Net realized and unrealized gains (losses) on
investments and foreign currency transactions.... 1.15 (0.90) (2.86) 0.19 (1.90) 1.75
------------ --------- --------- --------- --------- ---------
Net increase (decrease) in net asset value
resulting from operations........................ 1.16 (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 period.................... $ 7.24 $ 6.08 $ 6.99 $ 10.52 $ 11.47 $ 14.86
------------ --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- ---------
Per share market value, end of period............. $ 9.188 $ 6.875 $ 7.375 $ 10.375 $ 12.875 $ 15.000
------------ --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- ---------
Total investment return:
Based on market price at beginning and end of
period, assuming reinvestment of dividends+.... 33.64% (6.78)% (23.76)% (13.55)% (4.21)% 22.10%
Based on net asset value at beginning and end of
period, assuming reinvestment of dividends+.... 19.08% (13.02)% (28.73)% (1.18)% (13.86)% 11.88%
Ratios and supplemental data:
Net assets, end of period (in millions)......... $ 78.3 $ 65.8 $ 75.6 $113.6 $ 92.7 $119.6
Ratios to average net assets of:
Expenses...................................... 1.12%* 1.19% 1.03% 0.90% 0.97% 0.93%
Net investment income (loss).................. 0.17%* (0.13)% (0.13)% (0.04)% (0.07)% (0.19)%
Portfolio turnover.............................. 24.46% 52.07% 61.75% 33.89% 28.35% 30.76%
</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.
* Annualized.
15
<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 AND SECRETARY
Sean J. Peters
TREASURER
John A. Koopman
ASSISTANT TREASURER
Laurence E. Cranch
ASSISTANT SECRETARY
Judy Runrun Tu
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 SB Investments Ltd.
(formerly, Daiwa International
Capital Management Corp.)
INVESTMENT ADVISER,
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.
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, 1999
- -------------------------
[LOGO]
- -------------------------
THE JAPAN EQUITY
FUND, INC.
c/o Daiwa Securities Trust Company
One Evertrust Plaza
Jersey City, New Jersey 07302
INVESTMENT MANAGER
Daiwa SB Investments Ltd.
(formerly, Daiwa International
Capital Management Corp.)
INVESTMENT ADVISER
Daiwa Securities Trust Company
