<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. Prior to May 1, 2000, the Fund invested
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"). Upon the shareholders' approval at the 2000 Annual Meeting of
Stockholders, effective April 28, 2000, the Fund's investment objective has been
changed.
The investment objective of the Fund is to outperform over the long term, on
a total return basis (including appreciation and dividends), the sectors of the
Tokyo Stock Price Index (TOPIX), a composite market-capitalization weighted
index of all common stocks listed on the First or Second Section of the TSE or
listed on the over-the-counter market in Japan or listed on other stock
exchanges in Japan. Daiwa SB Investments (U.S.A.) Ltd. is the Fund's Investment
Manager. Daiwa SB Investments Ltd. is the Fund's Investment Adviser. Effective
January 1, 2000, the Fund implements an "active" portfolio management policy,
which is an approach that involves quantitative valuation of securities to
identify an appropriate universe of securities from which to select investments,
with judgmental analysis then applied to this universe to determine the actual
investments to be made by the Fund.
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 visiting www.daiwast.com or 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 Daiwa Securities Trust Company at
(800) 933-3440 or (201) 915-3650. 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, 2000
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, 2000.
BACKGROUND
Effective April 28, 2000, the objective of the Fund is to outperform over
the long term, on a total return basis (including appreciation and dividends),
the Tokyo Stock Price Index ("TOPIX"). As a result of this change in investment
objective, the Fund is now permitted to invest in companies in the financial
services sector of the TOPIX. Stock selection in Japan is facilitated by the use
of a value screen applied to all stocks listed on the First and Second Sections
of the Tokyo Stock Exchange ("TSE"), the over-the-counter market in Japan and
listed on other stock exchanges in Japan. The way in which the Fund seeks to
meet its objective is to identify under-valued stocks by examining certain
fundamental characteristics of stocks which are listed on the exchanges listed
above. These fundamental characteristics include, among others, the
earnings-to-price ratio and the book-to-price ratio. This method of stock
selection results in a master list of 300 stocks (from a universe of 3,300
stocks) from which stocks are selected for the Fund in accordance with
predetermined sector and size parameters.
This method of stock selection replaces the prior quantitative strategy that
weighted fundamental characteristics by a method known as the Daiwa Portfolio
Optimization System ("DPOS"), which was developed by Daiwa Securities Trust
Company ("DSTC").
PERFORMANCE OF THE JAPANESE STOCK MARKET
At the end of April, the Tokyo stock market remained lackluster and in the
midst of a correction phase. The Nikkei 225 closed the month of April at 17,973,
its yearly low, and fell 11.6% from the end of March. Apart from U.S. factors
which included interest rate hikes and a declining Nasdaq, the Tokyo market was
affected by revisions to the Nikkei 225 and the impact of a sell-off by foreign
investors. A drastic revision of the Nikkei 225 average took place on
April 15(th) by replacing 30 depressed "old economy" stocks with 30 high priced
"new economy" stocks - many in the technology sector. This resulted in frantic
trading by index fund managers and arbitragers that were adjusting their
portfolios to the new index. The sensitivity of the Nikkei to the Nasdaq will
now be much greater due to the larger weight of the Nikkei in technology stocks.
Net sales by foreigners reached Y846 billion in April, the largest since
February 1990. Profit taking of overpriced technology, media and
telecommunication ("TMT") related investments that were affected by the
correction of the Nasdaq and the liquidation of positions held by foreign
brokers are speculated to have accounted for the majority of net sales.
On the domestic front, we believe the economy will continue to improve. We
are currently in the midst of the earnings announcement season. We expect
earnings to be in line or better than expected as corporate restructuring
continues. Additionally, we expect a slow inflow of individual money to enter
the stock market as volatility subsides. We remain bullish on the outlook for
the Japanese market. Short-term we expect some market volatility, however,
long-term we believe the economy will continue to improve with strong
fundamentals. We will focus on reasonably valued companies with positive
earnings.
2
<PAGE>
THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
FUND PERFORMANCE
As of April 30, 2000, the Fund's net assets were approximately $109.6
million, which represents a net asset value of $10.13 per share. The return on
the Fund's net assets was 7.88% since the Fund's fiscal year-end on October 31,
1999. Over the same semi-annual period, the Benchmark (TOPIX) return was 9.13%,
as measured in U.S. Dollars.
The change in net asset value in U.S. Dollars depends on several factors
such as: (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.
Our investment strategy is to invest in undervalued securities based on
intensive bottom-up analysis supported by quantitative screening. In our
research efforts, we placed a priority in evaluation of the top management, and
its commitment to enhance shareholders' value through clear-cut strategies,
including restructuring, that will be eventually reflected in share prices. We
add value primarily through a bottom-up stock selection approach for the
fundamental Japan equity product.
It is important to emphasize again that it has not been 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, 2000, the proportion of the Fund's
net assets invested in Japanese equities listed on the First Section of the TSE
was 95.34%, while short-term investment and other net assets represented 4.66%.
The invested position of the Fund's assets consisted of common stocks of
companies operating in 26 different industries. The Fund had relatively large
weightings in Electric Appliances (24.46% of net assets.) Communication
(13.53%), Transportation Equipment (9.65%), Chemicals (8.41%), Pharmaceuticals
(7.39%), Services (6.82%) and Retail Trade (5.39%).
Since the Fund's last fiscal year ended October 31, 1999, the Fund's market
price on the New York Stock Exchange ("NYSE") ranged from a low of $7 5/8 per
share on April 24, 2000 to a high of $10 on December 7, 1999. The Fund's NYSE
market price closed at $7 13/16 per share on April 30, 2000.
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 six months ended
April 30, 2000 ranged from a premium of 2.43% on November 5, 1999 to a discount
of 24.86% on March 30, 2000, and ended the period at a discount of 23.26%.
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.
PORTFOLIO MANAGEMENT
Effective December 31, 1999, Dr. Harry Markowitz resigned as the Fund's
President and portfolio manager. On December 2, 1999, the Fund's Board of
Directors approved the appointment of Daiwa SB Investments Ltd. ("DSBI") as the
new investment adviser of the Fund in place of DSTC, effective January 1, 2000.
The Fund's stockholders approved the new investment advisory agreement between
DSBI and Daiwa SB Investments (U.S.A.) Ltd., the Fund's investment manager, on
March 16, 2000. The newly appointed portfolio managers of the Fund are Mr.
Koichi Ogawa and Mr. Kazuhiko Hosaka.
3
<PAGE>
THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
Mr. Koichi Ogawa, CFA, is the Executive Director and Chief Portfolio Manager
of DSBI for all North American clients. A senior member of the Investment Policy
Committee (IPC), Mr. Ogawa possesses 26 years of investment experience and has
been responsible for Japan stock selection since 1984. He spent nine years with
Daiwa Securities as an institutional research analyst and three years in New
York analyzing U.S. securities. He graduated from Tohoku University with a BA in
Law in 1972.
Mr. Kazuhiko Hosaka, CMA, is a Senior Portfolio Manager, with a total of 12
years of experience in the Japanese equity market. He joined Daiwa in 1990 as a
portfolio manager after spending two years as a securities analyst at Barclays
Securities Group. He has been directly responsible for managing Japanese equity
portfolios for several North American and European pensions. He graduated from
Aoyama Gakuin University with a BA in Law in 1988.
The Fund's investment objective is to outperform over the long-term, on a
total return basis (including appreciation and dividends) the TOPIX. To meet
these objectives, the Fund will follow an "active" management style of
securities selection that is based on intensive bottom-up analysis supported by
a quantitative screening.
We believe these changes will have a positive long-term affect on the Fund's
performance. Once again, we thank you for your continued support of The Japan
Equity Fund, Inc. and your continued interest in the Japanese economy and
marketplace.
Sincerely,
/s/ Hideaki Matsuura /s/ Shunsuke Ichijo
HIDEAKI MATSUURA SHUNSUKE ICHIJO
CHAIRMAN OF THE BOARD PRESIDENT
4
<PAGE>
THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
APRIL 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
-------------------------------------------
JAPANESE COMMON STOCKS--95.34%
--------------------------------------------------------------------------------
<TABLE>
SHARES VALUE
---------- ------------
<C> <S> <C>
CHEMICALS--8.41%
47,000 Fuji Photo Film Co. Ltd. .......... $ 1,897,706
125,000 Kao Corp. ......................... 3,834,856
180,000 Konica Corp. ...................... 874,487
49,000 Shin-Etsu Chemical Co., Ltd. ...... 2,609,008
------------
9,216,057
------------
COMMUNICATION--13.53%
76 DDI Corp. ......................... 878,777
248 NTT Corp. ......................... 3,098,844
322 NTT DoCoMo, Inc. .................. 10,839,426
------------
14,817,047
------------
CONSTRUCTION--1.56%
59,000 Daiwa House Industry Co., Ltd. .... 396,121
141,000 Sekisui House, Ltd. ............... 1,301,660
700 Toenec Corp. ...................... 2,285
800 Tokyo Denki Komusho Co., Ltd. ..... 2,685
------------
1,702,751
------------
ELECTRIC APPLIANCES--24.46%
3,300 Advantest Corp. ................... 760,379
43,000 Canon Inc. ........................ 1,980,791
31,700 Fanuc Ltd. ........................ 3,346,177
65,000 Fujitsu Ltd. ...................... 1,854,718
210,000 Hitachi Ltd. ...................... 2,526,110
10,000 Matsushita Communication Industrial
Co., Ltd. ........................ 1,579,634
108,000 Matsushita Electric Industrial Co.,
Ltd .............................. 2,880,268
11,000 Murata Manufacturer Co., Ltd. ..... 2,154,047
105,000 NEC Corp. ......................... 2,878,590
</TABLE>
<TABLE>
SHARES VALUE
---------- ------------
<C> <S> <C>
8,000 Rohm Co., Ltd. .................... $ 2,700,485
21,400 Sony Corp. ........................ 2,476,445
5,000 TDK Corp. ......................... 674,655
6,000 Tokyo Electron Ltd. ............... 985,267
------------
26,797,566
------------
ELECTRIC POWER & GAS--0.54%
24,800 Tokyo Electric Power Co., Inc. .... 589,705
------------
FOODS--1.48%
122,000 Itoham Foods Inc. ................. 435,714
90,000 Kirin Brewery Co., Ltd. ........... 1,180,809
800 Pokka Corp. ....................... 3,268
------------
1,619,791
------------
GLASS & CERAMIC PRODUCTS--0.36%
240,000 Nihon Yamamura Glass Co., Ltd. .... 393,883
------------
LAND TRANSPORATION--2.26%
34 East Japan Railway Co. ............ 202,909
270 Nishi-Nippon Railroad Co., Ltd. ... 647
90,000 Yamato Transport Co., Ltd. ........ 2,265,946
------------
2,469,502
------------
MACHINERY--1.53%
87,000 Amada Machinics Co. ............... 182,535
62,000 Kubota Corp. ...................... 203,506
28,050 Sankyo Co., Ltd., GUNMA ........... 1,292,120
------------
1,678,161
------------
METAL PRODUCTS--0.01%
800 Chofu Seisakusho Co. Ltd. ......... 10,377
------------
</TABLE>
5
<PAGE>
THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
JAPANESE COMMON STOCKS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
SHARES VALUE
---------- ------------
<C> <S> <C>
NONFERROUS METALS--1.65%
135,000 Sumitomo Electric Industries,
Ltd. ............................. $ 1,811,498
------------
OTHER PRODUCTS--4.33%
2,500 Avex Inc. ......................... 347,352
140,000 Dai Nippon Printing Co., Ltd. ..... 2,392,950
9,200 Nintendo Co., Ltd. ................ 1,544,200
44,000 Toppan Printing Co., Ltd. ......... 463,633
------------
4,748,135
------------
PHARMACEUTICAL--7.39%
26,000 Sankyo Co., Ltd., Gunma ........... 577,023
120,000 Shionogi & Co., Ltd ............... 1,868,706
49,000 Takeda Chemical Industries Ltd. ... 3,248,694
45,000 Yamanouchi Pharmaceutical Co.,
Ltd. ............................. 2,396,028
------------
8,090,451
------------
RETAIL TRADE--5.39%
44,100 Aoki International Co. Ltd. ....... 127,480
25,000 Aoyama Trading Co., Ltd. .......... 328,935
1,300 Fast Retailing Co. Ltd. ........... 577,024
13,000 Ito-Yokado Co., Ltd. .............. 956,453
40,000 Kasumi Co., Ltd. .................. 152,928
40,000 Nissho Corp. ...................... 294,666
28,000 Seven-Eleven Japan Co., Ltd. ...... 3,472,585
------------
5,910,071
------------
</TABLE>
<TABLE>
SHARES VALUE
---------- ------------
<C> <S> <C>
RUBBER PRODUCTS--0.50%
25,000 Bridgestone Corp. ................. $ 546,671
------------
SERVICES--6.82%
500 Bellsystem 24 Inc. ................ 348,284
231,000 Daiwa Kosho Lease Co. Ltd. ........ 628,982
2,100 Hitachi Software Engineering Co.
Ltd .............................. 216,384
3,800 Konami Co., Ltd. .................. 233,868
94 NTT Data Corp. .................... 1,262,215
22,000 Namco Ltd. ........................ 904,700
34,000 Secom Co. Ltd. .................... 2,872,436
23,000 Tokyo Broadcasting
System, Inc. ..................... 1,008,019
------------
7,474,888
------------
TEXTILES & APPAREL--1.17%
73,000 Teijin Ltd. ....................... 328,786
112,000 Wacoal Corp. ...................... 952,480
------------
1,281,266
------------
TRANSPORTATION EQUIPMENT--9.65%
58,000 Honda Motor Co., Ltd. ............. 2,612,272
159,000 Toyota Motor Corp. ................ 7,961,861
------------
10,574,133
------------
WHOLESALE TRADE--4.30%
78,000 Fuji Denki Reiki Co., Ltd. ........ 293,846
9,300 Inaba Denkisangyo Co., Ltd. ....... 92,532
87,000 Nagase & Co., Ltd. ................ 300,168
31,000 Ryoyo Electro Corp. ............... 422,044
33,000 Sangetsu Co., Ltd. ................ 578,515
11,100 Softbank Corp. .................... 2,753,264
</TABLE>
6
<PAGE>
THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONCLUDED)
APRIL 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
JAPANESE COMMON STOCKS (CONCLUDED)
-------------------------------------------
<TABLE>
SHARES VALUE
---------- ------------
<C> <S> <C>
102,000 Suntelephone Co., Ltd. ............ $ 275,829
------------
4,716,198
------------
Total Japanese Common Stocks
(Cost--$74,970,539).......................... 104,448,151
------------
</TABLE>
-------------------------------------------
SHORT-TERM INVESTMENTS--0.41%
-------------------------------------------
<TABLE>
PRINCIPAL
AMOUNT
(000) VALUE
---------- ------------
<C> <S> <C>
U.S. DOLLAR TIME DEPOSIT--0.41%
$448 Bank of New York,
3.80% due 5/1/2000
(Cost--$447,864).................. 447,864
------------
Total Investments--95.75%
(Cost--$75,418,404).......................... 104,896,015
Other assets less liabilities--4.25%........... 4,659,876
------------
NET ASSETS (Applicable to 10,815,688 shares of
capital stock outstanding; equivalent to
$10.13 per share) 100%....................... $109,555,891
============
</TABLE>
-------------------------------------------
TEN LARGEST COMMON STOCK
CLASSIFICATIONS HELD
APRIL 30, 2000
-------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY NET ASSETS
-------- ----------
<S> <C>
Electric Appliances................ 24.46%
Communication...................... 13.53
Transportation Equipment........... 9.65
Chemicals.......................... 8.41
Pharmaceutical..................... 7.39
Services........................... 6.82
Retail Trade....................... 5.39
Other Products..................... 4.33
Wholesale Trade.................... 4.30
Land Transportation................ 2.26
</TABLE>
-------------------------------------------
TEN LARGEST COMMON STOCK
POSITIONS HELD
APRIL 30, 2000
-------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
ISSUE NET ASSETS
----- ----------
<S> <C>
NTT DoCoMo, Inc.................... 9.89%
Toyota Motor Corp.................. 7.27
Kao Corp........................... 3.50
Seven-Eleven Japan Co., Ltd........ 3.17
Fanuc Ltd.......................... 3.05
Takeda Chemical Industries Ltd..... 2.97
NTT Corp........................... 2.83
Matsushita Electric Industrial Co.,
Ltd. .............................. 2.63
NEC Corp........................... 2.63
Secom Co. Ltd...................... 2.62
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities at value (cost
$75,418,404).............................. $ 104,896,015
Cash denominated in foreign currency (cost
$2,003,295)............................... 1,973,522
Receivable for securities sold............. 3,487,687
Interest and dividends receivable.......... 256,397
Prepaid expenses........................... 21,968
------------
Total assets............................. 110,635,589
------------
LIABILITIES
Payable for securities purchased........... 917,067
Payable to investment manager.............. 29,539
Payable to administrator................... 22,462
Accrued expenses and other liabilities..... 110,630
------------
Total Liabilities........................ 1,079,698
------------
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..... 109,019,194
Accumulated net investment loss............ (216,111)
Accumulated net realized loss on
investments............................... (28,785,982)
Net unrealized appreciation on investments
and other assets and liabilities
denominated in foreign currency........... 29,430,633
------------
Net assets applicable to shares
outstanding............................. $ 109,555,891
============
NET ASSET VALUE PER SHARE............ $ 10.13
============
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of witholding taxes of
$54,832).................................. $ 310,716
Interest................................... 3,164
----------
Total investment income.................. 313,880
----------
EXPENSES
Investment management fee.................. 182,486
Administration fee......................... 114,771
Custodian fees and expenses................ 54,246
Directors' fees and expenses............... 52,491
Reports and notices to shareholders........ 30,921
Legal fees and expenses.................... 30,470
Audit and tax services..................... 27,926
Insurance expense.......................... 10,834
Transfer agency fee and expenses........... 8,463
Other...................................... 17,383
----------
Total Expenses........................... 529,991
----------
NET INVESTMENT LOSS.......................... (216,111)
----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM
INVESTMENT ACTIVITIES AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gains on investments.......... 79,452
Net realized foreign currency transaction
losses.................................... (7,346)
Net change in unrealized appreciation on
investments in equity securities.......... 8,180,380
Net change in unrealized depreciation on
translation of short-term investments and
other assets and liabilities denominated
in foreign currency....................... (49,611)
----------
Net realized and unrealized gains from
investment activities and foreign currency
transactions................................ 8,202,875
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................. $ 7,986,764
==========
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
APRIL 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE
APRIL 30, 2000 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1999
--------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment loss........................ $ (216,111) $ (86,450)
Net realized gain (loss) on:
Investments.............................. 79,452 6,272,776
Foreign currency transactions............ (7,346) 85,132
Net change in unrealized appreciation
(depreciation) on:
Investments in equity securities......... 8,180,380 29,562,935
Translation of short term investments and
other assets and liabilities denominated
in foreign currency..................... (49,611) (34,367)
-------------- ----------------
Net increase in net assets resulting from
operations................................ 7,986,764 35,800,026
NET ASSETS:
Beginning of period........................ 101,569,127 65,769,101
-------------- ----------------
End of period.............................. $ 109,555,891 $ 101,569,127
============== ================
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
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 or Second
Section of the Tokyo Stock Exchange or listed on the over-the-counter market in
Japan or listed on other stock exchanges in Japan 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 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
11
<PAGE>
THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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, with Daiwa SB
Investments (U.S.A.) Ltd. (the "Manager"). Prior to January 1, 2000, Daiwa
Securities Trust Company ("DSTC") acted as the investment adviser to the
investment manager with respect to the Fund's investments. Effective January 1,
2000, Daiwa SB Investments Ltd. ("DSBI" or the "Adviser") replaced DSTC as the
Fund's investment adviser pursuant to an Investment Advisory Agreement between
the Manager and DSBI. 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 60% was paid by the Manager to
DSBI.
Brokerage commissions of $25,522 were paid by the Fund to Daiwa Securities
America Inc., an affiliate of both the Manager, and DSBI, in connection with
portfolio transactions during the six months ended April 30, 2000. 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,
2000, investment management fees and expenses include expenses of $2,465 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 (the "Sub-Custodian"), an affiliate of the Manager as
well as the Adviser, 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
12
<PAGE>
THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)
--------------------------------------------------------------------------------
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, 2000, DSTC and the Sub-Custodian earned $29,312 and $24,934,
respectively, as compensation for custodial services to the Fund.
At April 30, 2000, the Fund owed $22,462 and $4,675 to DSTC for
administration and custodian fees, respectively, excluding fee of $4,558 payable
to the Sub-Custodian.
During the six months ended April 30, 2000, the Fund paid or accrued $30,470
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,
2000 was substantially the same as the cost of securities for financial
statement purposes. At April 30, 2000, the net unrealized appreciation of
investments for federal income tax purposes, excluding short-term securities, of
$29,447,612 was composed of gross appreciation of $33,004,169 for those
investments having an excess of value over cost, and gross depreciation of
$3,556,557 for those investments having an excess of cost over value. For the
six months ended April 30, 2000, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $30,532,298 and
$35,510,334, respectively.
At October 31, 1999, the Fund had a remaining capital loss carryover of
$28,858,088, of which $11,948,247 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, 2000, Daiwa
Securities America Inc., an affiliate of the Manager and DSTC, owned 14,532
shares.
13
<PAGE>
THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (UNAUDITED)
--------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding during each period is
presented below:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED OCTOBER 31,
APRIL 30, 2000 ----------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
--------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................. $ 9.39 $ 6.08 $ 6.99 $10.52 $11.47 $14.86
-------- -------- -------- -------- -------- --------
Net investment loss................. (0.02) (0.01) (0.01) (0.01) (0.01) (0.01)
Net realized and unrealized gains
(losses) on investments and foreign
currency transactions.............. 0.76 3.32 (0.90) (2.86) 0.19 (1.90)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in net asset
value resulting from operations.... 0.74 3.31 (0.91) (2.87) 0.18 (1.91)
-------- -------- -------- -------- -------- --------
Less: dividends and distributions to
shareholders
Net realized gains on invesments
and foreign
currency transactions............ -- -- -- (0.66) (0.67) (1.48)
-------- -------- -------- -------- -------- --------
Dilutive effect of
rights offering.................... -- -- -- -- (0.43) --
-------- -------- -------- -------- -------- --------
Offering costs charged to paid-in
capital in excess of par value..... -- -- -- -- (0.03) --
-------- -------- -------- -------- -------- --------
Net asset value, end of period...... $10.13 $ 9.39 $ 6.08 $ 6.99 $10.52 $11.47
======== ======== ======== ======== ======== ========
Per share market value, end
of period.......................... $ 7.813 $ 9.813 $ 6.875 $ 7.375 $10.375 $12.875
======== ======== ======== ======== ======== ========
Total Investment return:
Based on market price at beginning
and end of period, assuming
reinvestment of dividends+....... (20.38)% 42.73% (6.78)% (23.76)% (13.55)% (4.21)%
Based on net asset value at
beginning and end of period,
assuming reinvestment
of dividends+.................... 7.88 % 54.44% (13.02)% (28.73)% (1.18)% (13.86)%
Ratios and supplemental data:
Net assets, end of period
(in millions).................... $ 109.6 $ 101.6 $ 65.8 $ 75.6 $ 113.6 $ 92.7
Ratios to average net assets of:
Expenses........................ 0.96 %* 1.08% 1.19% 1.03% 0.90% 0.97%
Net investment loss............. (0.39)%* (0.11)% (0.13)% (0.13)% (0.04)% (0.07)%
Portfolio turnover................ 23.64 % 58.70% 52.07% 61.75% 33.89% 28.35%
</TABLE>
---------------------------------------------------------------------------
+ For the year ended October 31, 1996, the total investment return
includes the benefit of shares resulting from the exercise of rights.
* Annualized.
14
<PAGE>
THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
RESULTS OF ANNUAL MEETING OF STOCKHOLDERS (UNAUDITED)
--------------------------------------------------------------------------------
On March 16, 2000, 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 two Class I 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 2003.
NUMBER OF SHARES/VOTES
----------------------
<TABLE>
<CAPTION>
PROXY AUTHORITY
CLASS I VOTED FOR WITHHELD
--------------------- --------- ---------------
<S> <C> <C>
Martin J. Gruber 8,591,593 191,562
Hideaki Matsuura 8,580,811 202,344
</TABLE>
In addition to the two Directors re-elected at the Meeting, Austin C.
Dowling, Robert F. Gurnee, David G. Harmer 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 as independent
accountants of the Fund for its fiscal year ending October 31, 2000.
NUMBER OF SHARES/VOTES
----------------------
<TABLE>
<CAPTION>
VOTED FOR VOTED AGAINST ABSTENTIONS
--------------------- ------------- -----------
<S> <C> <C>
8,678,512 64,517 40,114
</TABLE>
(3) To approve a new Investment Advisory Agreement between Daiwa SB
Investments (U.S.A.) Ltd., as investment manager of the Fund, and Daiwa SB
Investments Ltd., as investment adviser of the Fund.
<TABLE>
<CAPTION>
VOTED FOR VOTED AGAINST ABSTENTIONS
--------------------- ------------- -----------
<S> <C> <C>
8,517,428 135,045 130,682
</TABLE>
On April 28, 2000, the Fund reconvened its Annual Meeting of Stockholders
and the following matter was voted upon and passed.
(1) To approve a change in the Fund's investment objective to: to outperform
over the long term, on a total return basis (including appreciation and
dividends), the TOPIX.
<TABLE>
<CAPTION>
VOTED FOR VOTED AGAINST ABSTENTIONS
--------------------- ------------- -----------
<S> <C> <C>
5,437,968 90,191 61,195
</TABLE>
15
<PAGE>
----------------------------------------
BOARD OF DIRECTORS
Hideaki Matsuura, CHAIRMAN
Austin C. Dowling
Martin J. Gruber
Robert F. Gurnee
David G. Harmer
Harry M. Markowitz
--------------------------------------------
OFFICERS
Shunsuke Ichijo
PRESIDENT
Judy Runrun Tu
SECRETARY
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 SB Investments (U.S.A.) Ltd.
INVESTMENT ADVISER
Daiwa SB Investments Ltd.
ADMINISTRATOR AND CUSTODIAN
Daiwa Securities Trust Company
TRANSFER AGENT AND REGISTRAR
PFPC Inc.
LEGAL COUNSEL
Clifford Chance 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, 2000
-------------------------
[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 (U.S.A.) Ltd.
INVESTMENT ADVISER
Daiwa SB Investments Ltd.
