<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 (U.S.A.) 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.
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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, 1999
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, 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 ("DSTC"), the Fund's
Investment Adviser. In this manner, the Fund seeks to identify currently
undervalued stocks.
PERFORMANCE OF THE JAPANESE STOCK MARKET
The Tokyo stock market continued to be sensitive to developments in the U.S.
stock market during the month of October 1999. Early gains were backed by
further improvements in the Bank of Japan's (BOJ) business sentiment survey and
stable U.S. interest rates. These gains were offset mid-month. A strong rise in
the producer price index indicated that inflationary pressures were increasing
in the U.S. economy. Moreover, Mr. Greenspan, the Federal Reserve System
Chairman, warned about high U.S. share prices. The Nikkei 225 Index declined 1%.
Newly-launched mutual funds, major buyers of Japanese equities in the last few
months, pushed the market up toward the end of the month. The Nikkei Average
closed at 17,942 on October 31, 1999, up almost 30% (in Yen terms) year-to-date.
By the end of October, the fear of inflation in the U.S. subsided after the
release of several economic statistics. A surprise rebound of the NASDAQ, in
particular, triggered a rally in Tokyo. However, despite record months for the
TOPIX and the Nikkei 225 Index, the breadth of the market has been extremely
narrow, with the number of losers consistently exceeding the number of gainers.
Information technology-related stocks have been bought aggressively by mutual
funds specializing in high-tech stocks. The Japanese market needs participation
in a broader range of sectors in order to sustain its market growth.
The Japanese government continues to push forward with its economic packages
in an effort to strengthen the economy. The government's announcement of a new
fiscal package (estimated at Yen 15-16 trillion) is key to the market advance.
Any news on the economic stimulus package is likely to be regarded as positive
as long as the budget provides not only for public works but for new industry as
well.
However, ultimately for at least the near-term, the Tokyo stock market will
remain sensitive to U.S. share prices and Yen/U.S. Dollar exchange rate. If the
U.S. market tumbles sharply, foreign investors will sell Japanese stocks for
profit-taking.
FUND PERFORMANCE
As of October 31, 1999, the Fund's net assets were approximately $101.6
million, which represents a net asset value of $9.39 per share. The
time-weighted return on the Fund's net assets was 54.44% since the Fund's
previous fiscal year-end on October 31, 1998. Over the same annual period, the
Benchmark (the TOPIX less its financial firms component) return was 64.19%, 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 the portfolio's characteristics do not differ
"too much" from those of the Benchmark. The risk control procedures also
includes a computation which finds the combination of securities which had
minimum historical tracking error among portfolios which meet certain
constraints, expected return and low turnover criteria.
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 October 31, 1999, the proportion of the Fund's
net assets invested in non-financial Japanese equities listed on the First
Section of the TSE was 99.60%, while short-term investments and other net assets
represented 0.40%.
Using the close of July 24, 1992 (the date upon which the Fund commenced
operations) to the end of October 1999, the Benchmark, as measured in U.S.
Dollars, rose 67.57%, whereas, using a time-weighted return calculation, the
value of the Fund's portfolio increased 42.46% 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 25.11 percentage points from commencement through October 31, 1999.
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 (19.97% of net assets), Communication
(13.45%), Transportation Equipment (8.34%), Pharmaceuticals (6.89%) and Retail
Trade (6.49%).
During the Fund's fiscal year ended October 31, 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 29, 1998 to a high of $10 15/16 on September 14, 1999. The
Fund's NYSE market price closed at $9 13/16 per share on October 29, 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 Fund's fiscal year ended
October 31, 1999 ranged from a premium of 40.09% on November 20, 1998 to a
premium of 2.54% on October 22, 1999, and ended the fiscal year at a premium of
4.50%.
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
4
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
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 previously reported that it had been advised by each of its service
providers that each 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 now has
received written confirmation from its service providers that each is currently
Year 2000 compliant. 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 current 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 DSTC 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.
However, on December 2, 1999, the Board announced its approval of a change
of the Fund's Investment Adviser and of changes to the Fund's investment
objective and investment policies. These changes are being made in connection
with the resignation of Dr. Markowitz as the Fund's President and portfolio
manager, effective December 31, 1999.
The Board approved the termination of the Investment Advisory Agreement
between Daiwa SB Investments (U.S.A.) Ltd. ("DSBI New York"), the Fund's
Investment Manager, and DSTC, with this termination to take effect on December
31, 1999. At the same time, the Fund's Board approved the appointment of Daiwa
SB Investments Ltd. ("DSBI") as the new Investment Adviser of the Fund,
effective January 1, 2000. DSBI is an investment adviser based in Tokyo and is
the parent company of the Fund's investment manager, DSBI New York. While the
new Investment Advisory Agreement with DSBI will take effect on January 1, 2000,
this agreement is subject to approval by the stockholders of the Fund at its
Annual Meeting of Stockholders on March 16, 2000. The Fund's Board has fixed the
close of business on January 10, 2000 as the record date for this meeting.
DSBI will continue as the Investment Manager of the Fund. The investment
management fees paid by the Fund will not change as a result of the change of
Investment Adviser. DSBI New York will, as currently is the case with DSTC, be
responsible for paying the fees of DSBI in connection with the new Investment
Advisory Agreement.
At present, the investment objective of the Fund is to outperform over the
long term, on a total return basis (including appreciation and dividends), the
TOPIX less its financial companies component. The Fund's new investment
objective will be to outperform over the long term, on a total return basis
(including appreciation and
5
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
dividends), the TOPIX. As a result of this change of investment objective, the
Fund would be permitted to invest in companies in the financial services sector
of the TOPIX. This change in investment objective will not take effect until the
stockholders of the Fund have approved it at the Annual Meeting on March 16,
2000.
Upon DSBI's becoming the Investment Adviser to the Fund, the Fund will
follow an "active" investment policy. At present, the investment policy of the
Fund is to select securities for investment by the Fund using DPOS. When DSBI
becomes the Investment Adviser of the Fund on January 1, 2000, it will not
employ DPOS to select investments for the Fund's portfolio. Instead, it will
select investments for the Fund through a more traditional "active" management
style of securities selection based on analysis of various factors that may
affect the value of securities. DSBI has indicated to the Fund that it intends
to adopt 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.
When DSBI becomes the Investment Adviser to the Fund, Mr. Koichi Ogawa and
Mr. Kazuhiko Hosaka will become the Portfolio Managers for the Fund and will be
responsible for the day-to-day management of the Fund's portfolio. Mr. Ogawa is
an Executive Officer and Chief Portfolio Manager of DSBI who has been with DSBI
and its predecessors for over fifteen years. Mr. Hosaka is a Senior Portfolio
Manager of DSBI and has been with DSBI and its predecessors for over nine years.
The Board of Directors, at its December 2, 1999 meeting, also appointed Mr.
Hideaki Matsuura, the Fund's Chairman of the Board, to serve as Acting President
of the Fund, to fill that vacancy in officership due to Dr. Markowitz's
resignation, effective January 1, 2000.
We welcome your participation in The Japan Equity Fund, Inc. and your
continued interest in the Japanese economy and marketplace.
<TABLE>
<S> <C>
Sincerely,
/s/ Hideaki Matsuura /s/ Harry M. Markowitz
HIDEAKI MATSUURA HARRY M. MARKOWITZ
CHAIRMAN OF THE BOARD PRESIDENT
</TABLE>
6
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
- -------------------------------------------
JAPANESE COMMON STOCKS--99.60%
- --------------------------------------------------------------------------------
<TABLE>
SHARES VALUE
- --------------------- ------------
<C> <S> <C>
CHEMICALS--5.85%
34,000 Asahi Chemical Ind.
Co., Ltd. ........... $ 204,224
247,000 Daicel Chemical Ind.,
Ltd. ................ 824,236
47,000 Fuji Photo Film Co.,
Ltd. ................ 1,501,168
76,000 Gun Ei Chemical Ind.
Co., Ltd. ........... 128,255
21,000 Harima Chemicals
Inc. ................ 89,098
25,000 Ihara Chemical Ind.
Co., Ltd. ........... 69,123
33,000 Kansai Paint Co.,
Ltd. ................ 84,950
25,000 Kao Corp. ............ 757,973
9,000 Konica Corporation.... 32,521
117,000 Nippon Kayaku Co.,
Ltd. ................ 639,186
45,000 Osaka Sanso Kogyo
Ltd. ................ 81,518
29,000 S.T. Chemical Co.,
Ltd. ................ 208,199
14,000 Shin-Etsu Chemical
Co., Ltd. ........... 573,962
28,000 Shiseido Co., Ltd. ... 424,465
27,000 Showa Highpolymer Co.,
Ltd. ................ 92,673
12,000 Tenma Corporation..... 153,311
22,000 Tsutsunaka Plastic
Ind. Co., Ltd. ...... 74,043
------------
5,938,905
------------
COMMUNICATION--13.45%
76 DDI Corporation....... 826,048
300 Hikari Tsushin
Inc. ................ 239,977
29 Japan Telecom Co.
Ltd. ................ 989,846
2,600 KDD Corporation....... 324,737
182 NTT Corporation....... 2,776,374
</TABLE>
<TABLE>
SHARES VALUE
- --------------------- ------------
<C> <S> <C>
322 NTT Mobile Comm.
Network Inc. ........ $ 8,503,980
------------
13,660,962
------------
CONSTRUCTION--2.16%
59,000 Daiwa House Industry
Co., Ltd. ........... 536,645
141,000 Sekisui House,
Ltd. ................ 1,517,748
20,000 Taihei Dengyo Kaisha
Ltd. ................ 57,396
700 Toenec Corporation.... 2,803
20,800 Tokyo Denki Komusho
Co., Ltd. ........... 81,308
------------
2,195,900
------------
ELECTRIC APPLIANCES--19.97%
3,300 Advantest Corp. ...... 493,970
43,000 Canon Inc. ........... 1,209,420
8,700 Fanuc Ltd. ........... 671,879
65,000 Fujitsu Ltd. ......... 1,945,941
227,000 Hitachi Ltd. ......... 2,439,138
51,000 Hitachi Koki Co.,
Ltd. ................ 166,783
27,900 Kyocera Corporation... 2,660,056
10,000 Matsushita
Communication Ind.
Co., Ltd. ........... 1,670,401
108,000 Matsushita Electric
Ind. Co., Ltd. ...... 2,260,190
8,000 Murata Manufacturer
Co., Ltd. ........... 1,022,072
55,000 NEC Corporation....... 1,106,450
4,000 Rohm Co., Ltd. ....... 892,406
12,000 Sharp Corporation..... 189,922
10,700 Sony Corporation...... 1,658,788
9,000 TDK Corporation....... 876,102
59,000 Teikoku Tsushin Kogyo
Co., Ltd. ........... 180,569
</TABLE>
7
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
JAPANESE COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
SHARES VALUE
- --------------------- ------------
<C> <S> <C>
</TABLE>
<TABLE>
ELECTRIC APPLIANCES (CONCLUDED)
6,000 Tokyo Electron
Ltd. ................ $ 495,400
<CAPTION>
<C> <S> <C>
41,000 Toshiba Corporation... 256,433
18,000 U-Shin Ltd. .......... 83,062
------------
20,278,982
------------
ELECTRIC POWER & GAS--3.20%
26,800 Chubu Electric Power
Co., Inc. ........... 454,567
76,100 Hokkaido Electric
Power Co., Inc. ..... 1,102,846
12,500 Kansai Electric Power
Co., Inc. ........... 232,278
63,500 Kyushu Electric Power
Co., Inc. ........... 935,987
23,800 Tokyo Electric Power
Co., Inc. ........... 528,712
------------
3,254,390
------------
FISHERY, AGRICULTURE & FORESTRY--0.16%
74,000 Nippon Suisan Kaisha,
Ltd. ................ 159,451
------------
FOODS--1.28%
141,000 Honen Corporation..... 263,489
122,000 Itoham Foods Inc. .... 636,259
10,000 Kirin Brewery Co.,
Ltd. ................ 113,839
58,000 Nippon Beet Sugar Mfg.
Co., Ltd. ........... 100,091
69,000 Nippon Flour Mills
Co., Ltd. ........... 181,570
800 Pokka Corporation..... 4,843
------------
1,300,091
------------
GLASS & CERAMICS PRODUCTS--1.80%
52,000 Asahi Glass Co.,
Ltd. ................ 411,002
270,000 Nihon Yamamura Glass
Co., Ltd. ........... 538,018
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------- ------------
<C> <S> <C>
433,000 Tokai Carbon Co.,
Ltd. ................ $ 883,463
------------
1,832,483
------------
IRON & STEEL--0.76%
16,000 Maruichi Steel Tube
Ltd. ................ 219,211
26,000 Mory Industries
Inc. ................ 70,649
18,000 Nichia Steel Works
Ltd. ................ 100,396
46,000 Nippon Steel
Corporation.......... 116,223
154,000 Sanyo Special Steel
Co., Ltd. ........... 267,226
------------
773,705
------------
LAND TRANSPORTATION--2.57%
2 Central Japan Railway
Co. ................. 13,443
57 East Japan Railway
Co. ................. 347,266
63,000 Fukuyama Transporting
Co., Ltd. ........... 342,375
71,000 Maruzen Showa Unyu
Co., Ltd. ........... 135,386
5,000 Nippon Express Co.,
Ltd. ................ 35,182
17,000 Nippon Konpo Unyu Soko
Co., Ltd. ........... 123,183
270 Nishi-Nippon Railroad
Co., Ltd. ........... 757
107,000 Seino Transportation
Co., Ltd. ........... 738,599
322,000 Tokyu Corporation..... 874,958
------------
2,611,149
------------
MACHINERY--2.84%
187,000 Amada Sonoike Co.
Ltd. ................ 435,029
14,000 Daiwa Industries
Ltd. ................ 49,387
11,900 Heiwa Corporation..... 324,489
</TABLE>
8
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
JAPANESE COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------- ------------
<C> <S> <C>
</TABLE>
<TABLE>
MACHINERY (CONCLUDED)
26,000 Hisaka Works Ltd. .... $ 111,799
<CAPTION>
SHARES VALUE
- --------------------- ------------
<C> <S> <C>
62,000 Kubota Corporation.... 245,316
10,000 Max Co., Ltd. ........ 99,251
19,000 Nippon Conlux Co.,
Ltd. ................ 103,437
18,700 Sankyo Co., Ltd. ..... 1,470,897
3,000 Tsubaki Nakashima Co.,
Ltd. ................ 42,904
------------
2,882,509
------------
METAL PRODUCTS--2.41%
31,000 Bunka Shutter Co.,
Ltd. ................ 67,093
5,700 Chofu Seisakusho Co.,
Ltd. ................ 100,539
114,000 Komai Tekko Inc. ..... 488,020
88,000 Neturen Co., Ltd. .... 262,611
32,000 Takada Kiko Co.,
Ltd. ................ 169,023
49,000 Topre Corporation..... 194,813
54,000 Toyo Seikan Kaisha,
Ltd. ................ 1,168,709
------------
2,450,808
------------
MINING--1.03%
278,000 Teikoku Oil Co.,
Ltd. ................ 1,049,607
------------
NONFERROUS METALS--0.31%
72,000 Hitachi Cable Ltd. ... 315,774
------------
OIL & COAL PRODUCTS--0.38%
55,000 Tonen Corporation..... 381,227
------------
OTHER PRODUCTS--3.66%
105,000 Dai Nippon Printing
Co., Ltd. ........... 1,903,084
22,000 Mizuno Corporation.... 63,975
6,500 Nintendo Co., Ltd. ... 1,025,647
44,000 Toppan Printing Co.,
Ltd. ................ 536,550
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------- ------------
<C> <S> <C>
5,500 Tsutsumi Jewelry Co.,
Ltd. ................ $ 189,827
------------
3,719,083
------------
PHARMACEUTICALS--6.89%
6,000 Banyu Pharmaceutical
Co., Ltd............. 109,205
49,000 Daiichi
Pharmaceuticals Co.,
Ltd. ................ 698,432
2,000 Dainippon
Pharmaceuticals Co.,
Ltd. ................ 14,282
22,000 Nippon Shinyaku Co.,
Ltd. ................ 131,096
26,000 Ono Pharmaceuticals
Co., Ltd. ........... 842,828
26,000 Sankyo Co., Ltd. ..... 736,235
153,000 Shionogi & Co.,
Ltd. ................ 1,398,932
25,000 Taisho Pharmaceuticals
Co., Ltd. ........... 1,034,466
26,000 Takeda Chemical Ind.
Ltd. ................ 1,484,865
25,000 Teikoku Hormone Mfg.
Co., Ltd. ........... 190,685
8,000 Yamanouchi
Pharmaceutical Co.,
Ltd. ................ 360,776
------------
7,001,802
------------
PULP & PAPER--0.25%
49,000 Rengo Co. Ltd. ....... 256,948
------------
REAL ESTATE--0.05%
25,000 Tokyo Tatemono Co.,
Ltd. ................ 50,532
------------
</TABLE>
9
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
JAPANESE COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
RETAIL TRADE--6.49%
<CAPTION>
SHARES VALUE
- --------------------- ------------
<C> <S> <C>
3,800 Aoki International
Co., Ltd. ........... $ 14,854
1,300 Fast Retailing Co.,
Ltd. ................ 309,863
25,000 Heiwado Co., Ltd. .... 176,383
33,000 Ito-Yokado Co.,
Ltd. ................ 2,624,017
13,000 Izumi Co., Ltd. ...... 92,959
55,000 Kasumi Co., Ltd. ..... 256,424
40,000 Nissho Corporation.... 377,938
28,000 Seven-Eleven Japan
Co., Ltd. ........... 2,549,459
48,000 The
Maruetsu, Inc. ...... 190,380
------------
6,592,277
------------
RUBBER PRODUCTS--1.41%
25,000 Bridgestone
Corporation.......... 684,083
101,000 Mitsuboshi Belting
Ltd. ................ 272,518
196,000 Yokahama Rubber Co.,
Ltd. ................ 480,259
------------
1,436,860
------------
SERVICES--4.63%
231,000 Daiwa Kosho Lease Co.,
Ltd. ................ 1,063,765
2,100 Hitachi Software
Engineering Co.,
Ltd. ................ 192,010
4,000 Japan Airport Terminal
Co., Ltd. ........... 50,417
1,900 Konami Co., Ltd. ..... 182,962
94 NTT Data
Corporation.......... 1,478,762
310 Nippon Television
Network
Corporation.......... 277,828
8,000 Secom Co., Ltd. ...... 849,693
23,000 Tokyo Broadcasting
System, Inc. ........ 604,138
------------
4,699,575
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------- ------------
<C> <S> <C>
TEXTILES & APPAREL--2.69%
204,000 Gunze Ltd. ........... $ 495,972
35,000 Ichikawa Co., Ltd. ... 65,071
170,000 Kurabo Ind. Ltd. ..... 236,640
88,000 Nippon Felt Co.,
Ltd. ................ 255,899
73,000 Teijin Ltd. .......... 370,272
16,000 Tokyo Style Co.,
Ltd. ................ 151,785
112,000 Wacoal Corporation.... 1,153,263
------------
2,728,902
------------
TRANSPORTATION EQUIPMENT--8.34%
11,000 Denso Corporation..... 233,875
8,000 Futaba Ind. Co.,
Ltd. ................ 102,970
58,000 Honda Motor Co.,
Ltd. ................ 2,433,141
53,000 Nissan Motor Co.,
Ltd. ................ 315,822
20,000 Toyota Auto Body Co.,
Ltd. ................ 184,202
151,000 Toyota Motor Corp. ... 5,197,216
------------
8,467,226
------------
WAREHOUSING & HARBOR TRANSPORTATION
SERVICES--1.80%
252,000 Kamigumi Co., Ltd. ... 1,477,618
118,000 Sumitomo Warehouse
Co., Ltd. ........... 351,013
------------
1,828,631
------------
WHOLESALE TRADE--5.22%
2,100 Autobacs Seven Co.,
Ltd. ................ 103,714
78,000 Fuji Denki Reiki Co.,
Ltd. ................ 429,842
14,000 Inaba Denkisangyo Co.,
Ltd. ................ 208,228
46,000 Itochu Fuel Corp. .... 157,449
7,000 Mos Food Services
Inc. ................ 93,436
187,000 Nagase & Co., Ltd. ... 804,090
</TABLE>
10
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONCLUDED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
JAPANESE COMMON STOCKS (CONCLUDED)
- -------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------- ------------
<C> <S> <C>
</TABLE>
<TABLE>
WHOLESALE TRADE (CONCLUDED)
12,000 Ryosan Co., Ltd. ..... $ 291,176
<CAPTION>
SHARES VALUE
- --------------------- ------------
<C> <S> <C>
31,000 Ryoyo Electro
Corp. ............... 487,677
33,000 Sangetsu Co., Ltd. ... 651,285
22,000 Sanshin Electronics
Co., Ltd. ........... 195,071
3,700 Softbank Corp. ....... 1,527,482
102,000 Suntelephone Co.,
Ltd. ................ 349,126
------------
5,298,576
------------
Total Japanese Common Stocks
(Cost--$79,869,123).......................... 101,166,355
------------
</TABLE>
- -------------------------------------------
SHORT-TERM INVESTMENTS--0.16%
- -------------------------------------------
<TABLE>
PRINCIPAL
AMOUNT
(000) VALUE
- --------------------- ------------
<C> <S> <C>
U.S. DOLLAR TIME DEPOSIT--0.16%
$162 Bank of New York,
2.70% due 11/1/99.... $ 161,865
------------
Total Short-Term Investments
(Cost--$161,865)............................. 161,865
------------
Total Investments--99.76%
(Cost--$80,030,988).......................... 101,328,220
Other assets less liabilities--0.24%........... 240,907
------------
NET ASSETS(Applicable to 10,815,688 shares of
capital stock outstanding; equivalent to
$9.39 per share)--100.00%.................... $101,569,127
============
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
TEN LARGEST COMMON STOCK
CLASSIFICATIONS HELD
OCTOBER 31, 1999
- -------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY NET ASSETS
- -------- ----------
<S> <C>
Electric Appliances.............. 19.97%
Communication.................... 13.45
Transportation Equipment......... 8.34
Pharmaceuticals.................. 6.89
Retail Trade..................... 6.49
Chemicals........................ 5.85
Wholesale Trade.................. 5.22
Services......................... 4.63
Other Products................... 3.66
Electric Power & Gas............. 3.20
</TABLE>
TEN LARGEST COMMON STOCK
POSITIONS HELD
OCTOBER 31, 1999
- -------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
ISSUE NET ASSETS
- ----- ----------
<S> <C>
NTT Mobile Comm. Network Inc..... 8.37%
Toyota Motor Corporation......... 5.12
NTT Corporation.................. 2.73
Kyocera Corporation.............. 2.62
Ito-Yokado Co., Ltd.............. 2.58
Seven-Eleven Japan Co., Ltd...... 2.51
Hitachi Ltd...................... 2.40
Honda Motor Co., Ltd............. 2.40
Matsushita Electric Ind. Co.,
Ltd.............................. 2.23
Fujitsu Ltd...................... 1.92
</TABLE>
12
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in securities, at value
(cost--$80,030,988)....................... $ 101,328,220
Cash denominated in foreign currency
(cost--$105,153).......................... 108,118
Interest and dividends receivable.......... 284,772
Prepaid expenses........................... 18,373
------------
Total assets............................. 101,739,483
------------
LIABILITIES
Payable to investment manager.............. 28,603
Payable to administrator................... 15,082
Accrued expenses and other liabilities..... 126,671
------------
Total liabilities........................ 170,356
------------
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 realized loss on
investments and foreign currency
transactions.............................. (28,858,088)
Net unrealized appreciation on investments
and other liabilities denominated in
foreign currency.......................... 21,299,864
------------
Net assets applicable to shares
outstanding............................. $ 101,569,127
============
NET ASSET VALUE PER SHARE............ $ 9.39
============
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of
$136,358)................................. $ 772,693
Interest................................... 4,502
-----------
Total investment income.................. 777,195
-----------
EXPENSES:
Investment management fee and expenses..... 307,108
Administration fee......................... 150,300
Custodian fees and expenses................ 93,850
Reports and notices to shareholders........ 67,768
Audit and tax services..................... 58,578
Legal fees and expenses.................... 65,443
Directors' fees and expenses............... 39,544
Insurance expense.......................... 21,728
Transfer agency fee and expenses........... 20,654
Other...................................... 38,672
-----------
Total expenses........................... 863,645
-----------
NET INVESTMENT LOSS.......................... (86,450)
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM
INVESTMENT ACTIVITIES AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gains on investments.......... 6,272,776
Net realized foreign currency gains........ 85,132
Net change in unrealized appreciation
(depreciation) on investments in equity
securities................................ 29,562,935
Net change in unrealized appreciation
(depreciation) on translation of
short-term investments and other assets
and liabilities denominated in foreign
currency.................................. (34,367)
-----------
Net realized and unrealized gains from
investment activities and foreign currency
transactions................................ 35,886,476
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................. $ 35,800,026
===========
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
OCTOBER 31,
-------------------------------
1999 1998
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment loss........................ $ (86,450) $ (81,167)
Net realized gain (loss) on:
Investments.............................. 6,272,776 (16,909,841)
Foreign currency transactions............ 85,132 (61,203)
Net change in unrealized appreciation
(depreciation) on:
Investments in equity securities......... 29,562,935 7,168,164
Translation of short-term investments and
other assets and liabilities denominated
in foreign currency..................... (34,367) 35,094
------------ ------------
Net increase (decrease) in net assets
resulting from operations................. 35,800,026 (9,848,953)
NET ASSETS:
Beginning of year.......................... 65,769,101 75,618,054
------------ ------------
End of year................................ $ 101,569,127 $ 65,769,101
============ ============
</TABLE>
See accompanying notes to financial statements.
15
<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 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
16
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 (U.S.A.) 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.
Brokerage commissions of $108,254 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 year ended October 31, 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 year ended October 31, 1999, investment
management fees and expenses include expenses of $6,942 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, 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 year ended October 31,
1999, DSTC and the Sub-Custodian earned $41,697 and $52,153, respectively, as
compensation for custodial services to the Fund.
At October 31, 1999, the Fund owed $15,082 and $4,361 to DSTC for
administration and custodian fees, respectively, excluding fees and expenses of
$4,500 payable to the Sub-Custodian.
During the year ended October 31,1999, the Fund paid or accrued $63,443 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.
17
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES AND FEDERAL INCOME TAX MATTERS
For federal income tax purposes, the cost of securities owned at October 31,
1999 was substantially the same as the cost of securities for financial
statement purposes. At October 31, 1999, the net unrealized appreciation of
investments for federal income tax purposes, excluding short-term securities, of
$21,297,231 was composed of gross appreciation of $24,742,054 for those
investments having an excess of value over cost, and gross depreciation of
$3,444,823 for those investments having an excess of cost over value. For the
year ended October 31, 1999, total aggregate purchases and sales of portfolio
securities, excluding short-term securities, were $46,805,793 and $46,461,450,
respectively.
During the year ended October 31, 1999, the Fund utilized $6,272,776 in
carryover capital loss from prior periods to offset net gains realized in the
fiscal year. 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.
At October 31, 1999, the Fund made capital account reclassifications due to
permanent book/tax differences. The Fund reclassified $85,132 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
gains and reclassified the resulting net operating loss for the year ended
October 31, 1999 of $1,318 from accumulated net investment loss to
paid-in-capital in excess of par value.
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 October 31, 1999, Daiwa
Securities America Inc., an affiliate of the Manager and DSTC, owned 14,532
shares.
SUBSEQUENT EVENT
The Board approved a change of the Fund's investment adviser and of changes
to the Fund's investment objective and investment policies.
On December 2, 1999, the Board approved the termination of the Investment
Advisory Agreement between the Manager and DSTC, effective December 31, 1999,
and approved the appointment of Daiwa SB Investments Ltd. ("DSBI"), an
investment adviser based in Tokyo and the parent company of the Fund's Manager,
as the new investment adviser of the Fund, effective January 1, 2000, subject to
approval by the Fund's shareholders.
In addition, the Fund's Board has approved a change to the investment
objective of the Fund to outperform over the long term, on a total return basis
(including appreciation and dividends), the Tokyo Stock Price Index (the
"TOPIX"). As a result of this change of investment objective, the Fund would be
permitted to invest in companies in the financial services sector of the TOPIX.
18
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding during each fiscal year
is presented below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $ 6.08 $ 6.99 $ 10.52 $ 11.47 $ 14.86
------- ------- ------- ------- -------
Net investment loss......................................... (0.01) (0.01) (0.01) (0.01) (0.01)
Net realized and unrealized gains (losses) on investments
and foreign currency transactions.......................... 3.32 (0.90) (2.86) 0.19 (1.90)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value resulting
from operations............................................ 3.31 (0.91) (2.87) 0.18 (1.91)
------- ------- ------- ------- -------
Less: dividends and distributions to shareholders
Net realized gains on investments 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 year................................ $ 9.39 $ 6.08 $ 6.99 $ 10.52 $ 11.47
======= ======= ======= ======= =======
Per share market value, end of year......................... $ 9.813 $ 6.875 $ 7.375 $ 10.375 $ 12.875
======= ======= ======= ======= =======
Total investment return:
Based on market price at beginning and end of year,
assuming reinvestment of dividends+...................... 42.73 % (6.78)% (23.76)% (13.55)% (4.21)%
Based on net asset value at beginning and end of year,
assuming reinvestment of dividends+...................... 54.44 % (13.02)% (28.73)% (1.18)% (13.86)%
Ratios and supplemental data:
Net assets, end of year (in millions)..................... $101.6 $ 65.8 $ 75.6 $113.6 $ 92.7
Ratios to average net assets of:
Expenses................................................ 1.08 % 1.19 % 1.03 % 0.90 % 0.97 %
Net investment (loss)................................... (0.11)% (0.13)% (0.13)% (0.04)% (0.07)%
Portfolio turnover........................................ 58.70 % 52.07 % 61.75 % 33.89 % 28.35 %
</TABLE>
<TABLE>
<C> <S>
- -----------------------------------------------------------------
+ For the year ended October 31, 1996, the total investment
return includes the benefit of shares resulting from the
exercise of rights.
</TABLE>
19
<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, 1999, and 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, 1999 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 3, 1999
20
<PAGE>
THE JAPAN EQUITY FUND, INC.
- ----------------------------------------------------------------------
RESULTS OF ANNUAL MEETING OF STOCKHOLDERS (UNAUDITED)
- --------------------------------------------------------------------------------
On September 16, 1999, 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 III 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 2002.
NUMBER OF SHARES/VOTES
----------------------
<TABLE>
<CAPTION>
PROXY AUTHORITY
CLASS III VOTED FOR WITHHELD
- --------------------- --------- ---------------
<S> <C> <C>
Austin C. Dowling 8,661,780 201,086
Harry M. Markowitz 8,659,737 203,129
</TABLE>
In addition to the two Directors re-elected at the Meeting, Hideaki
Matsuura, Martin J. Gruber, Robert F. Gurnee and David G. Harmer 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, 1999.
NUMBER OF SHARES/VOTES
----------------------
<TABLE>
<CAPTION>
VOTED FOR VOTED AGAINST ABSTENTIONS
- --------------------- ------------- -----------
<S> <C> <C>
8,660,357 124,233 78,276
</TABLE>
(3) To approve a new Investment Management Agreement between the Fund and
Daiwa SB Investments (U.S.A.) Ltd.
<TABLE>
<CAPTION>
VOTED FOR VOTED AGAINST ABSTENTIONS
- --------------------- ------------- -----------
<S> <C> <C>
8,446,877 224,803 191,186
</TABLE>
(4) To approve a new Investment Advisory Agreement between Daiwa SB
Investments (U.S.A.) Ltd. and Daiwa Securities Trust Company, as investment
adviser of the Fund.
<TABLE>
<CAPTION>
VOTED FOR VOTED AGAINST ABSTENTIONS
- --------------------- ------------- -----------
<S> <C> <C>
8,448,000 225,606 189,260
</TABLE>
- --------------------------------------------------------------------------------
TAX INFORMATION
- ------------------------------------------------------------
There will be no dividend payments or foreign tax credits with respect to
the fiscal years 1998 and 1999.
SHAREHOLDERS ARE STRONGLY ADVISED TO CONSULT THEIR OWN TAX ADVISERS WITH
RESPECT TO THE TAX CONSEQUENCES OF THEIR INVESTMENT IN THE FUND.
21
<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 (U.S.A.) 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.
ANNUAL REPORT
OCTOBER 31, 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 (U.S.A.) Ltd.
(formerly, Daiwa International
Capital Management Corp.)
INVESTMENT ADVISER
Daiwa Securities Trust Company
