THE JAPAN EQUITY FUND, INC.
GENERAL INFORMATION
THE FUND
The investment 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"), a composite market-capitalization weighted index of all
common stocks listed on the First Section of the Tokyo Stock Exchange ("TSE").
The Fund seeks to achieve its investment objective by investing substantially
all of its assets in equity securities of companies listed on 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. 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. Also, the Fund's website includes a monthly market review and a list
of the Fund's top ten industries and holdings.
INQUIRIES
Inquiries concerning your share account should be directed to PFPC Inc.
(the "Plan Agent") at the number noted below. All written inquiries should be
directed to the Fund, c/o Daiwa Securities Trust Company, One Evertrust Plaza,
9th Floor, Jersey City, NJ 07302-3051.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
A Dividend Reinvestment and Cash Purchase Plan (the "Plan") is available to
provide Shareholders with automatic reinvestment of dividends and capital gain
distributions in additional Fund shares. The Plan also allows you to make
optional annual cash investments in Fund shares through the Plan Agent. A
brochure fully describing the Plan's terms and conditions is available from the
Plan Agent by calling (800) 331-1710 or by writing The Japan Equity Fund, Inc.,
c/o PFPC Inc. P.O. Box 43027, Providence, RI 02940-3027.
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 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? The 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
December 3, 2003
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, 2003.
PERFORMANCE AND REVIEW OF THE JAPANESE STOCK MARKET
The movement of the stock market was characterized by a strong rally after
bottoming out in April 2003. The TSE continued to decline during the first part
of the year and posted a 20-year low average of 7,607 on April 28. However, the
trend shifted upward since then, reaching to the 11,000 level.
To review the market developments:
- November 02: The Nikkei 225 rebounded by 6.7%, recovering to the
9,000 level on November 28, 2002, while the TOPIX closed 3.5%
higher. Early in the month, the market fell, dragged by some
major banks and debt overhanging companies. However, toward the
end of the month, the market regained lost ground because: (1)
fears for an immediate nationalization of major banks retreated;
(2) the U.S. stock market remained steady; and (3) foreign
investors, who had sold Japanese stocks since June 2002, turned
into net buyers later in the month.
- December 02: In December, the Nikkei 225 declined 6.9% to
8,578.95, while the TOPIX closed 5.5% lower at 843.29. The Nikkei
225 fell for nine straight days, the longest such losing streak
in eleven years, while the TOPIX hit an 18-year low on December
16, 2002. Though there was no specific negative news on the
fundamentals, profit-taking after a sharp rise in late November
as well as selling pressure from individual investors dampened
the market.
- January 03: The Nikkei 225 declined 2.8% to 8,339.94, while the
TOPIX closed 2.6% lower at 821.18. Early in the month, massive
foreign investor buying sent the market upward. However, the
direction reversed thereafter due to: (1) the increase in selling
pressure from financial institutions and corporate pension funds;
and (2) the growing tension regarding a military conflict with
Iraq, together with the weakness of the U.S. stock market.
- February 03: Geopolitical risks (Iraq and North Korea) and share
liquidation by financial institutions forced the market to stay
in a bottom area after testing strong resistance of the Nikkei
225, at a level of 8,800. February and the early part of March is
generally a seasonal weak period even in the 1980's bull market
years, due to institutional liquidation toward the fiscal year
end. Geopolitical risks and plummeting bank shares made this
seasonal weakness even more painful this year.
- March 03: The fall in share prices accelerated in March, on the
back of sales to unwind cross shareholdings in the run-up to the
closing of full-year accounts. Further, sales related to the
return of the government portion of employee pension funds, and
also the increasing lack of buyers due to the uncertainty over
the Iraq situation, contributed to the market falling to new
post-bubble lows. Although there was a rebound in share prices
across the globe once the war in Iraq began, the upturn in Japan
was muted due to the financial instability that had been
triggered by the fall in share prices, as well as concerns over
North Korea. During March, the average daily trading volume on
the First Section of the TSE was 830 million shares, with an
average trading value of Y570 billion.
3
- April 03: April saw investors increasingly focus on low to
mid-priced stocks as they avoided international blue chips, which
were particularly affected by the return of the subrogated
portion of employee pension funds to the government and also the
U.S. economy, where the war in Iraq led to increasing
uncertainty. Buyers continued to shy away, not only because of
the lack of a sense of urgency in government policy, or the
deterioration in supply/demand conditions caused by the return of
the subrogated portion of pension funds, but also because
investors took a wait-and-see attitude to corporate earnings
announcements. As a result, the market remained on a downward
trend, hitting new post-bubble lows toward the end of the month.
During April, the average daily trading volume on the First
Section of the TSE was 950 million shares, with an average
trading value of Y590 billion.
The end of the Iraq war in early April shifted the stock market's
attention away from the war to the U.S. economy, but lingering
uncertainties, including the impact from the war, meant that the
Japanese stock market continued to follow a downward trend, with
major high techs and international blue chips falling primarily
due to their susceptibility to U.S. trends and the selling
pressure from crossholding unwinding and the partial return of
the pension management to the government (DAIKO HENJO) problem.
At the end of April, Sony's downward revision of earnings
projections triggered the market's plunge to a series of
post-bubble lows.
- May 03: In May, reflecting a rise in the U.S. stock market,
Japanese stocks, especially in the high tech, communications, and
exporting sectors, climbed despite the strong yen, and the Nikkei
225 recovered to the 8,300 level at the end of the month when the
rising yen trend halted. In addition, bank shares went higher on
expectations that the injection of public funds into Resona Bank
would lead to the strengthening of the banking sector's capital
base. Further, the government's announcement of stock market
support measures made it harder to sell, although they were
mainly aimed at improving supply and demand. Nonetheless, once
announcements of corporate results and government measures were
over, there were few incentives to boost the market further. The
outlook for the U.S. economy still looked uncertain, while
concerns about the domestic economy increased following the
downward revision of economic assessments by the Bank of Japan
and negative supply-demand factors for major stocks remained. On
the other hand, low and middle-priced stocks were individually
picked based on news that had emerged during the peak results
announcement period.
- June 03: The June market benefited from non-Japanese investors
increasing their positions in Japanese stocks, as they looked
increasingly undervalued compared to U.S. stocks, which had risen
on expectations of a mild economic recovery, excessive concerns
about the financial system diminished, and earnings of Japanese
companies began to recover. Consequently, the Nikkei 225 regained
the 9,000 level for the first time since December 2002. The
selling pressure from supply and demand factors, such as
crossholdings unwinding and the DAIKO-HENJO problem, also
lessened somewhat as the need to sell stocks in a hurry decreased
due to a rise in share prices, and traded volumes recovered
considerably. However, as there were no definite improvements in
fundamentals, the market saw increased profit-taking selling at
the 9,000 level, and became top-heavy amid the lack of aggressive
buyers.
- July 03: At the start of the month of July, despite a slowdown in
market momentum, the Nikkei 225 recovered to above 10,000 points
in intraday trading as a result of purchases by non-Japanese
investors amid the continued bullishness of U.S. markets and
financial deregulation. This was mirrored by buying from Japanese
institutional investors following the improvement in the economic
environment as indicated by
4
the Bank of Japan's June TANKAN survey and a rise in capital
spending by semiconductor makers. Consequently, trading volume
exceeded 2 billion shares on July 3 for the first time in 14
years. The popularity of high-tech issues on U.S. stock markets
and recovery in securities markets led gains among electrical
machinery makers, technology issues, banks, and securities
houses. Laggard automobile-related issues, and domestic-demand
sensitive stocks were also increasingly sought. However, as the
Nikkei 225 crossed the 10,000-point threshold, it fell back
sharply on concerns about overheating, a rebound in Sony's share
price and a growing sense of having reached a ceiling, based on
machinery orders. Following signs of a recovery in the U.S.
economy and capital expenditure trends, electrical machinery,
high-tech, machinery and iron and steel stocks turned bullish.
However, since the market had factored in favorable results ahead
of results announcements, the release of poor results by Sony and
Toshiba, unchanged forecasts by MEI, and a decrease in profits by
Honda, made investors increasingly choosy in their stock
selection as concerns over profitability expanded.
- August 03: Expectations of a market recovery swelled against the
background of an improvement in macro-economic indicators. The
Nikkei 225 rose, to above the 10,000-mark mid-month, and
continued to rise throughout the rest of the month. Meanwhile the
TOPIX recovered to above 1,000 points in mid-August. In addition,
the upturn in the stock market was conspicuous with trading
volume remaining high even during the obon holidays. During
August, the average daily trading volume on the TSE First Section
was 1.34 billion shares, with average trading value of Y940
billion.
- September 03: The market continued to be upbeat on the back of
expectations of an economic recovery, monetary easing, and the
disappearance of factors aggravating supply and demand. The
cyclical selection of stocks, gains made by some stocks
irrespective of investment indicators, and excessive market
liquidity due to monetary easing, were also factors behind the
market's rise. Further, the volatility in the bond market and
foreign exchange trends were also seen as influencing the
fluctuations in the stock market. During September, the average
daily trading volume on the TSE First Section was 1.45 billion
shares, with average trading value of Y1.31 trillion.
- October 03: The Tokyo stock market in October was characterized
by fluctuations, with both the TOPIX and Nikkei 225 registering
their largest declines since the September 11, 2001 terrorist
attacks in the U.S. after posting new year-highs. Although there
were strong expectations for positive corporate earnings and
continued business confidence in the first half of the month
investors sought domestic-demand sector stocks, such as major
banks, IT-related stocks, and brokers. This was seen to be due to
the strong trend in the yen. In the latter half of the month,
share price indices seemed to undergo adjustments due to the fact
that there was a lot of profit taking, as trading by non-Japanese
investors slowed down. However, investors vigorously sought
stocks on an individual basis, such as high techs, following
results announcements. Average daily trading volume and value on
the TSE First Section continued to be upbeat, totaling 1.39
billion shares and Y1.37 trillion, respectively. Moreover, the
TSE Second Section, Mothers, Hercules, and JASDAQ Indices were
all firm, with trading value on the Hercules hitting a new high
and JASDAQ trading value also reaching its highest level since
March 2000.
5
PERFORMANCE/ATTRIBUTION ANALYSIS
Table 1. Performance in comparison with the benchmark (TOPIX), U.S. DOLLAR
("USD") BASE
LATEST 12 MONTHS
(AS OF OCTOBER 31,
2003)
%
------------------
Japan Equity Fund 32.16
Benchmark (TOPIX) 36.17
-----
Difference -4.01
Table 2. Attribution Analysis Summary, JAPANESE YEN ("JPY") BASE (Latest 12
Months)
(%)
---------
Portfolio (Equity Only) 19.76
Benchmark (TOPIX) 21.01
-----
Difference -1.25
BREAKDOWN
Sector Selection 1.54
Stock Selection -2.76
-----
Total -1.25
Table 3. Portfolio Return (Equity Only) vs. Benchmark Return, JPY base
(monthly)
PORTFOLIO BENCHMARK RELATIVE SECTOR STOCK
RETURN RETURN RETURN SELECTION SELECTION
(A) (B) (A)-(B) EFFECT EFFECT
(%) (%) (%) (%) (%)
--------- ---------- ---------- ---------- ----------
2002 November 4.97 3.53 1.44 0.4 1.04
December -5.53 -5.54 0.01 -0.12 0.13
2003 January -2.35 -2.62 0.27 -0.02 0.29
February -0.74 -0.30 -0.44 0.31 -0.75
March -4.80 -3.75 -1.05 0.07 -1.12
April -0.78 1.09 -1.87 -0.31 -1.56
May 3.91 5.16 -1.25 0.16 -1.41
June 8.93 7.85 1.08 0.68 0.40
July 4.62 3.98 0.64 0.39 0.25
August 8.05 6.66 1.36 0.37 0.99
September 0.18 1.68 -1.5 -0.60 -0.90
October 2.95 2.41 0.54 0.07 0.47
6
Table 4. Attribution Analysis Breakdown, JPY base (Latest 12 Months)
SECTOR STOCK
PORT BENCH PORT BENCH SELECTION SELECTION
WEIGHT WEIGHT RETURN RETURN EFFECT EFFECT
(%) (%) (%) (%) (%) (%)
---------- ---------- ---------- ---------- ---------- ----------
Technology 18.76 17.12 18.14 26.06 0.08 -1.46
Automobile 10.84 10.63 8.47 15.21 -0.05 -0.79
Machinery 3.79 3.40 58.59 37.72 0.48 0.92
Pharmaceutical 3.56 3.95 -21.60 -4.36 0.10 -0.96
Personal Consumption 7.48 7.29 13.87 9.49 0.30 -0.21
Service 4.27 3.58 13.88 5.44 0.10 0.50
Construction/Property 3.71 3.54 31.51 38.18 0.01 -0.02
Metal/Glass 6.53 5.23 45.57 53.86 0.36 -0.51
Chemical/Textile 7.54 7.32 28.37 23.67 -0.02 0.33
Wholesale/Transportation 9.12 8.42 30.13 29.49 0.03 0.05
Finance 12.32 15.76 15.52 30.91 -0.13 -1.29
Telecom 10.69 9.70 17.64 24.15 -0.14 -0.53
Public Utility 1.38 4.06 10.92 9.06 0.42 0.01
Total 100.00 100.00 19.79 21.01 1.54 -2.76
PERFORMANCE SUMMARY
As shown in Table 1, the net asset value ("NAV") of the Fund increased by
32.16% in USD terms during the twelve months from November 1, 2002 to October
31, 2003. Over the same period, the benchmark (TOPIX index) gained 36.17% in USD
terms. The appreciation of the JPY against the USD was a positive factor for the
absolute return in the NAV.
Table 2 shows that the performance of the equity part of the portfolio,
excluding expenses and some cash positions in JPY terms, represents 19.76% in
comparison with 21.01% for the benchmark.
FUND PERFORMANCE
As of October 31, 2003, the Fund's net assets were approximately $64.9
million, which represents a net asset value of $6.00 per share. The change in
net asset value in USD 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; and (3) the
change in the JPY/USD exchange rate.
Our investment strategy is to invest in undervalued securities based on
intensive bottom-up analysis supported by quantitative screening. In our
research efforts, we place a priority on evaluation of the top management, and
its commitment to enhance shareholder 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.
7
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, 2003, the portion of the Fund's net
assets invested in Japanese equities listed on the First Section of the TSE was
96.86%, while short-term investments and other net assets represented 3.14%.
The invested position of the Fund's assets consisted of common stocks of
Japanese companies operating in 29 different industries. The Fund had relatively
large weightings in Electric Appliances (17.36% of net assets), Communication
(9.75%), Transportation Equipment (9.38%) and Retail Trade (6.43%).
During the fiscal year ended October 31, 2003, the Fund's market price on
the New York Stock Exchange ("NYSE") ranged from a low of $4.02 per share on
March 11, 2003 to a high of $7.70 on October 14, 2003. The Fund's NYSE market
price closed at $7.16 per share on October 31, 2003.
The NYSE trading price in relation to the Fund's net asset value per share,
as measured by the weekly closing prices during the fiscal year ended October
31, 2003, ranged from a discount of 6.71% on May 22, 2003 to a premium of 29.70%
on July 3, 2003, and ended the period at a premium of 19.33%.
The Fund has not invested 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
Mr. Koichi Ogawa, CFA, is the Executive Director and Chief Portfolio
Manager of Daiwa SB Investments Ltd. ("DSBI") for all North American clients. A
senior member of the Investment Policy Committee (IPC) of DSBI, Mr. Ogawa
possesses 29 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 B.A. in Law in 1972.
Mr. Kazuhiko Hosaka, CMA, is a Senior Portfolio Manager, with a total of 15
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 pension clients. He graduated
from Aoyama Gakuin University with a B.A. in Law in 1988.
RIGHTS OFFERING
On November 10, 2003 the Fund announced the record date for a rights
offering (the "Offering") of its shares of common stock. The Fund will issue to
stockholders of record as of December 4, 2003 (the "Record Date") one
transferable right for each share of common stock held. Three rights will
entitle the holder to purchase one share of common stock at the subscription
price. The subscription price will not be determined until December 23, 2003,
the expiration date of the Offering (the "Expiration Date"), and will equal 90%
of the average of the closing price of the Fund's common stock on the New York
Stock Exchange on the Expiration Date of the Offering and for the four
immediately preceding trading days, with a requirement that the price be no
lower than 95% of the net asset value per share of common stock of the Fund at
the Expiration Date.
8
We thank you for your support of The Japan Equity Fund, Inc. and your
continued interest in the Japanese economy and marketplace.
Sincerely,
/s/ Hiroshi Kimura /s/ Shunsuke Ichijo
HIROSHI KIMURA SHUNSUKE ICHIJO
CHAIRMAN OF THE BOARD PRESIDENT
9
THE JAPAN EQUITY FUND, INC.
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2003
COMMON STOCKS--96.86%
SHARES VALUE
---------- -------------
BANKS--5.45%
267 Mitsubishi Tokyo Financial Group Inc. $ 1,934,783
185,000 The Sumitomo Trust & Banking Co., Ltd. 1,041,919
130 UFJ Holdings, Inc.* 560,448
-------------
3,537,150
-------------
CHEMICALS--5.48%
239,000 Denki Kagaku Kogyo Kabushiki Kaisha 732,214
19,900 Hitachi Chemical Co., Ltd. 324,183
158,000 Mitsui Chemicals Inc. 930,435
20,000 Nifco Inc. 258,118
35,000 Shin-Etsu Chemical Co., Ltd. 1,313,062
-------------
3,558,012
-------------
COMMERCE--0.89%
67,000 Canon Sales Co., Inc. 574,619
-------------
COMMUNICATION--9.75%
20,200 Hitachi Information System, Ltd. 587,360
130 KDDI Corp. 711,888
370 NTT Corp. 1,666,392
1,110 NTT DoCoMo, Inc. 2,423,225
3,700 TIS Inc. 131,343
50,000 Tokyo Broadcasting System, Inc. 807,650
-------------
6,327,858
-------------
CONSTRUCTION--1.54%
55,000 Daiwa House Industry Co., Ltd. 598,331
103,000 Shimizu Corp. 401,532
-------------
999,863
-------------
ELECTRIC APPLIANCES--17.36%
42,000 ALPS Electric Co., Ltd. $ 710,017
21,000 Canon Inc. 1,024,766
30,000 Casio Computer Co., Ltd. 269,400
9,800 Fanuc Ltd. 594,185
185,000 Hitachi Ltd. 1,096,221
55,000 Japan Radio Co., Ltd. 268,391
13,000 Kyocera Corp. 789,396
150,000 Matsushita Electric Industrial Co., Ltd. 1,993,671
9,000 NEC Electronics Corp. 698,404
40,000 Nippon Chemi-con Corp. 159,604
2,700 Rohm Co., Ltd. 367,034
61,000 Sharp Corp. 968,547
50,000 Taiyo Yuden Co., Ltd. 729,224
8,500 TDK Corp. 561,365
170,000 Toshiba Corp. 687,672
30,000 Yokogawa Electric Corp. 353,605
-------------
11,271,502
-------------
ELECTRIC POWER & GAS--1.33%
10,000 Kansai Electric Power Co., Inc. 174,280
200,000 Tokyo Gas Co., Inc. 691,616
-------------
865,896
-------------
FOODS--0.80%
60,000 Fuji Oil Co., Ltd. 520,638
-------------
GLASS & CERAMIC PRODUCTS--1.07%
60,000 NGK Insulators, Ltd. 413,319
7,000 Nippon Electric Glass Co., Ltd. 129,701
80,000 Sumitomo Osaka Cement Co., Ltd. 148,964
-------------
691,984
-------------
10
SHARES VALUE
---------- -------------
INSURANCE--0.70%
97,000 Nissay Dowa General Insurance Co., Ltd. $ 453,770
-------------
IRON & STEEL--2.76%
550,000 Kobe Steel, Ltd.* 711,337
355,000 Nippon Steel Corp. 735,920
170,000 Nisshin Steel Co., Ltd. 341,497
-------------
1,788,754
-------------
LAND TRANSPORTATION--1.44%
40 East Japan Railway Co. 182,719
56,000 Yamato Transport Co., Ltd. 750,468
-------------
933,187
-------------
MACHINERY--3.99%
30,000 Amada Co., Ltd. 130,710
85,000 Komatsu Ltd. 463,906
130,000 Mitsubishi Heavy Industries, Ltd. 360,117
180,000 NSK Ltd. 747,936
11,000 Ricoh Co., Ltd. 210,374
33,200 THK Co., Ltd. 679,105
-------------
2,592,148
-------------
MARINE TRANSPORTATION--0.69%
110,000 Mitsui O.S.K. Lines, Ltd. 451,018
-------------
METAL PRODUCTS--0.85%
30,000 NHK Spring Co., Ltd. 137,865
23,000 Tostem Inax Holding Corp. 413,291
-------------
551,156
-------------
NON-FERROUS METALS--1.66%
85,000 Fujikura Ltd. 515,364
140,000 Mitsui Mining & Smelting Co., Ltd. 565,034
-------------
1,080,398
-------------
OTHER FINANCING BUSINESS--1.73%
52,000 Hitachi Capital Corp. $ 703,541
2,870 SFCG Co., Ltd. 421,734
-------------
1,125,275
-------------
OTHER PRODUCTS--1.82%
128,000 Toppan Printing Co., Ltd. 1,183,489
-------------
PHARMACEUTICAL--3.44%
37,000 Takeda Chemical Industries, Ltd. 1,320,216
36,000 Yamanouchi Pharmaceutical Co., Ltd. 911,392
-------------
2,231,608
-------------
PRECISION INSTRUMENTS--0.51%
40,000 Citizen Watch Co., Ltd. 330,582
-------------
REAL ESTATE--2.05%
142,000 Mitsui Fudosan Co., Ltd. 1,332,471
-------------
RETAIL TRADE--6.43%
13,000 Fast Retailing Co., Ltd. 796,551
2,000 Hard Off Corp. Co., Ltd. 42,928
53,400 Isetan Co., Ltd. 557,413
68,000 Marui Co., Ltd. 870,739
7,800 Matsumotokiyoshi Co., Ltd. 395,652
4,500 Nitori Co., Ltd. 289,351
17,000 Otsuka Kagu Ltd. 498,991
69,000 Uny Co., Ltd. 724,051
-------------
4,175,676
-------------
RUBBER PRODUCTS--1.12%
260,000 Yokahama Rubber Co., Ltd. 727,389
-------------
11
SHARES VALUE
---------- -------------
SECURITIES--4.06%
230,000 Nikko Cordial Corp. $ 1,251,055
80,000 Nomura Holdings Inc. 1,385,434
-------------
2,636,489
-------------
SERVICES--2.93%
6,700 Meitec Corp. 241,524
1,800 OBIC Co., Ltd. 399,560
13,500 Secom Co., Ltd. 532,471
100 The Goodwill Group, Inc. 726,472
-------------
1,900,027
-------------
TEXTILE & APPAREL--1.82%
195,000 Mitsubishi Rayon Co., Ltd. 729,774
40,000 Onward Kashiyma Co., Ltd. 452,761
-------------
1,182,535
-------------
TRANSPORTATION EQUIPMENT--9.38%
40,000 Denso Corp. 764,997
20,000 Honda Motor Co., Ltd. 796,184
140,000 Mazda Motor Corp. 362,135
15,000 Nissan Motor Co., Ltd. 169,510
15,600 Shimano Inc. 300,495
10,300 Showa Corp. 102,981
14,800 Toyota Industries Corp. 275,582
98,000 Toyota Motor Corp. 2,813,612
44,000 Yamaha Motor Co., Ltd. 503,284
-------------
6,088,780
-------------
WAREHOUSING--1.35%
100,000 Mitsubishi Logistics Corp. 877,821
-------------
WHOLESALE TRADE--4.46%
15,000 Autobacs Seven Co., Ltd. $ 330,215
3,600 Kuroda Electric Co., Ltd. 114,584
63,000 Mitsubishi Corp. 659,356
150,000 Mitsui & Co., Ltd. 1,100,715
91 Net One Systems Co., Ltd. 687,800
-------------
2,892,670
-------------
Total Common Stocks
(Cost--$57,173,942) 62,882,765
-------------
SHORT-TERM INVESTMENTS--0.23%
PRINCIPAL
AMOUNT
(000)
---------
U.S. DOLLAR TIME DEPOSIT--0.23%
$ 149 Bank of New York Time
Deposit, 0.05%,
due 11/3/03
(Cost--$149,229) 149,229
-------------
Total Investments--97.09%
(Cost--$57,323,171) 63,031,994
Other assets less liabilities--2.91% 1,886,378
-------------
NET ASSETS (Applicable to
10,815,688 shares of capital stock
outstanding; equivalent to $6.00
per share)--100.00% $ 64,918,372
=============
----------
* Non-income producing securities.
12
THE JAPAN EQUITY FUND, INC.
TEN LARGEST EQUITY POSITIONS HELD
OCTOBER 31, 2003
PERCENT OF
ISSUE NET ASSETS
----- ----------
Toyota Motor Corp. 4.33%
NTT DoCoMo, Inc. 3.73
Matsushita Electric Industrial Co., Ltd. 3.07
Mitsubishi Tokyo Financial Group Inc. 2.98
NTT Corp. 2.57
Nomura Holdings Inc. 2.13
Mitsui Fudosan Co., Ltd. 2.05
Takeda Chemical Industries, Ltd. 2.03
Shin-Etsu Chemical Co., Ltd. 2.02
Nikko Cordial Corp. 1.93
TEN LARGEST EQUITY CLASSIFICATIONS HELD
OCTOBER 31, 2003
PERCENT OF
INDUSTRY NET ASSETS
-------- ----------
Electric Appliances 17.36%
Communication 9.75
Transportation Equipment 9.38
Retail Trade 6.43
Chemicals 5.48
Banks 5.45
Wholesale Trade 4.46
Securities 4.06
Machinery 3.99
Pharmaceutical 3.44
13
THE JAPAN EQUITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2003
ASSETS
Investment in securities, at value (cost--$57,323,171) $ 63,031,994
Cash denominated in foreign currency (cost--$1,327,293) 1,325,093
Receivable for securities sold 2,105,387
Interest and dividends receivable 218,291
Deferred rights expense 15,150
Prepaid expenses 33,891
------------
Total assets 66,729,806
------------
LIABILITIES
Payable for securities purchased 1,704,890
Accrued expenses and other liabilities 106,544
------------
Total liabilities 1,811,434
------------
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 107,239,148
Accumulated net realized loss on investments (48,137,844)
Net unrealized appreciation on investments and other assets and liabilities
denominated in foreign currency 5,708,911
------------
Net assets applicable to shares outstanding $ 64,918,372
============
NET ASSET VALUE PER SHARE $ 6.00
============
See accompanying notes to financial statements.
14
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2003
INVESTMENT INCOME:
Dividends (net of withholding taxes of $59,858) $ 534,138
Interest 97
--------------
Total investment income 534,235
--------------
EXPENSES:
Investment management fee 242,485
Administration fee 120,904
Custodian fees and expenses 85,730
Audit and tax services 83,300
Legal fees and expenses 75,177
Reports and notices to shareholders 49,843
Insurance expense 39,625
Directors' fees and expenses 26,807
Transfer agency fee and expenses 15,781
Other 47,840
--------------
Total expenses 787,492
--------------
Net investment loss (253,257)
--------------
REALIZED AND UNREALIZED GAINS FROM INVESTMENT ACTIVITIES AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized losses on investments (5,224,636)
Net realized foreign currency transaction gains 209,459
Net change in unrealized appreciation (depreciation) on investments in equity
securities 21,082,931
Net change in unrealized appreciation (depreciation) on assets and
liabilities denominated in foreign currency (2,396)
--------------
Net realized and unrealized gains from investment activities and foreign
currency transactions 16,065,358
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 15,812,101
==============
See accompanying notes to financial statements.
15
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED
OCTOBER 31,
--------------------------------
2003 2002
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss $ (253,257) $ (421,926)
Net realized gain (loss) on:
Investments (5,224,636) (13,433,292)
Foreign currency transactions 209,459 (81,954)
Net change in unrealized appreciation (depreciation) on:
Investments in equity securities 21,082,931 2,524,336
Translation of short-term investments and other assets and liabilities
denominated in foreign currency (2,396) 7,749
-------------- --------------
Net increase (decrease) in net assets resulting from operations 15,812,101 (11,405,087)
-------------- --------------
NET ASSETS:
Beginning of year 49,106,271 60,511,358
-------------- --------------
End of year $ 64,918,372 $ 49,106,271
============== ==============
See accompanying notes to financial statements.
16
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 in the United States of America 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 accounting principles generally accepted in the United States
of America 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 Tokyo Stock
Exchange or listed on the over-the-counter market in Japan or listed on other
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 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
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 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, as soon as the Fund acquires information regarding
such dividends or corporate actions. Interest income is recorded on an accrual
basis.
17
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 tax purposes are reported as distributions of paid-in-capital.
INVESTMENT MANAGER AND INVESTMENT ADVISER
The Fund has an Investment Management Agreement with Daiwa SB Investments
(U.S.A.) Ltd. (the "Manager"). Daiwa SB Investments Ltd. ("DSBI" or the
"Adviser"), an affiliate of the Manager, acts 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% is paid by the Manager to DSBI.
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, 2003, there were no out-of-pocket expenses incurred by the Manager or the
Adviser.
At October 31, 2003, the Fund owed $23,022 to the Manager and the Manager
informed the Fund that it owed the Adviser $13,813.
Brokerage commissions of $21,224 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 year ended October 31, 2003. At October 31,
2003, the Fund had unsettled purchases of $487,305 and unsettled sales of
$913,349 with this affiliate, such amounts are included in "Payable for
securities purchased" and "Receivable for securities sold", respectively, in the
Statement of Assets and Liabilities.
ADMINISTRATOR AND CUSTODIAN AND OTHER RELATED PARTIES
Daiwa Securities Trust Company ("DSTC") an affiliate of the Adviser,
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. In addition, as
permitted by the Administration Agreement, the Fund reimburses the Administrator
for its out-of-pocket expenses related to the Fund. For the year ended October
31, 2003, there were no out-of-pocket expenses incurred by the Administrator.
DSTC also acts as custodian for the Fund's assets and has appointed
Sumitomo Mitsui Banking Corporation (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-
18
Custodian. During the year ended October 31, 2003, DSTC and the Sub-Custodian
earned $29,105 and $56,625, respectively, as compensation for custodial service
to the Fund.
At October 31, 2003, the Fund owed $10,897 and $3,150 to DSTC for
administration and custodian fees, respectively, excluding fees and expenses of
$2,974 payable to the Sub-Custodian.
During the year ended October 31, 2003, the Fund paid or accrued $75,177
for legal services in connection with the Fund's on-going operations to a law
firm of which the Fund's Assistant Secretary is a partner.
INVESTMENTS IN SECURITIES AND FEDERAL INCOME TAX MATTERS
For federal income tax purposes, the cost of securities owned at October
31, 2003 was substantially the same as the cost of securities for financial
statement purposes. At October 31, 2003, the net unrealized appreciation of
investments for federal income tax purposes, excluding short-term securities, of
$5,708,823 was composed of gross appreciation of $8,779,851 for those
investments having an excess of value over cost, and gross depreciation of
$3,071,028 for those investments having an excess of cost over value. For the
year ended October 31, 2003, total aggregate purchases and sales of portfolio
securities, excluding short-term securities, were $42,867,805 and $43,850,776,
respectively.
In order to present undistributed net investment income and accumulated net
realized loss on investments on the Statement of Assets and Liabilities that
more closely represent their tax character, certain adjustments have been made
to paid-in capital in excess of par value, undistributed net investment income
and accumulated net realized loss on investments.
For the year ended October 31, 2003, the adjustments were to decrease net
investment loss by $253,257, increase accumulated net realized loss on
investments by $209,459 and decrease paid-in capital in excess of par by
$43,798, primarily relating to the Fund's net operating loss for the year ended
October 31, 2003 and the reclassification of realized foreign currency gains.
Net investment income, net realized losses and net assets were not affected by
this change.
At October 31, 2003, the Fund had a remaining capital loss carryover of
$48,137,844, of which $6,264,639 expires in the year 2005, $16,909,841 expires
in the year 2006, $6,225,150 expires in the year 2009, $13,474,882 expires in
the year 2010 and $5,263,332 expires in the year 2011 available to offset future
net capital gains.
As of October 31, 2003, the Fund had no distributable earnings.
CAPITAL STOCK
There are 30,000,000 shares of $.01 par value common stock authorized. Of
the 10,815,688 shares of the Fund outstanding at October 31, 2003, Daiwa
Securities America Inc. an affiliate of the Manager, Adviser and DSTC owned
14,532 shares.
19
SUBSEQUENT EVENT
On November 10, 2003, the Fund announced that it will issue to stockholders
of record as of December 4, 2003 (the "Record Date") one transferable right for
each share of common stock held (the "Offering"). Three rights will entitle the
holder to purchase one share of common stock at the subscription price. The
subscription price will not be determined until December 23, 2003, the
expiration date of the Offering (the "Expiration Date") and will equal 90% of
the average of the closing price of the Fund's common stock on the New York
Stock Exchange on the Expiration Date of the Offering and the four immediately
preceding trading days, with a requirement that the price be no lower than 95%
of the net asset value per share of common stock of the Fund at the Expiration
Date. If all subscription rights are exercised, the Fund will issue
approximately 3,605,229 shares of its common stock in the Offering.
20
THE JAPAN EQUITY FUND, INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding during each year is
presented below:
FOR THE YEARS ENDED OCTOBER 31,
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
Net asset value, beginning of year $ 4.54 $ 5.59 $ 8.35 $ 9.39 $ 6.08
-------- -------- -------- -------- --------
Net investment loss (0.02) (0.04) (0.04) (0.04) (0.01)
Net realized and unrealized gains (losses) on investments and
foreign currency transactions 1.48 (1.01) (2.72) (1.00) 3.32
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value resulting
from operations 1.46 (1.05) (2.76) (1.04) 3.31
-------- -------- -------- -------- --------
Net asset value, end of year $ 6.00 $ 4.54 $ 5.59 $ 8.35 $ 9.39
======== ======== ======== ======== ========
Per share market value, end of year $ 7.160 $ 4.150 $ 4.990 $ 7.063 $ 9.813
======== ======== ======== ======== ========
Total investment return:
Based on market price at beginning and end of year 72.53% (16.83)% (29.35)% (28.02)% 42.73%
Based on net asset value at beginning and end of year 32.16% (18.78)% (33.05)% (11.08)% 54.44%
Ratios and supplemental data:
Net assets, end of year (in millions) $ 64.9 $ 49.1 $ 60.5 $ 90.3 $ 101.6
Ratios to average net assets of:
Expenses 1.50% 1.44% 1.12% 0.96% 1.08%
Net investment loss (0.48)% (0.74)% (0.51)% (0.48)% (0.11)%
Portfolio turnover 84.00% 76.19% 63.39% 61.91% 58.70%
21
THE JAPAN EQUITY FUND, INC.
REPORT OF INDEPENDENT AUDITORS
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, 2003, 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 accounting principles generally accepted in the
United States of America. 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 auditing standards generally accepted in
the United States of America 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, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
December 3, 2003
22
THE JAPAN EQUITY FUND, INC.
TAX INFORMATION (UNAUDITED)
The Fund is required by Subchapter M of the Internal Revenue Code of 1986,
as amended, to advise you within 60 days of the Fund's fiscal year end (October
31, 2003) as to the federal tax status of distributions received by you during
such fiscal year. There were no dividend payments or foreign tax credits with
respect to the fiscal year 2003.
SHAREHOLDERS ARE STRONGLY ADVISED TO CONSULT THEIR OWN TAX ADVISERS WITH
RESPECT TO THE TAX CONSEQUENCES OF THEIR INVESTMENT IN THE FUND.
23
THE JAPAN EQUITY FUND, INC.
INFORMATION CONCERNING DIRECTORS AND OFFICERS (UNAUDITED)
The following table sets forth information concerning each of the Directors
and Officers of the Fund. The Directors of the Fund will serve for terms
expiring on the date of subsequent Annual Meetings of Stockholders in the year
2006 for Class I Directors, 2004 for Class II Directors and 2005 for Class III
Directors, or until their successors are duly elected and qualified.
NUMBER OF
FUNDS IN
PRINCIPAL OCCUPATION FUND
OR EMPLOYMENT DURING PAST COMPLEX FOR
FIVE YEARS AND DIRECTOR OR WHICH
NAME (AGE) AND ADDRESS DIRECTORSHIPS IN OFFICER OF DIRECTOR
OF DIRECTORS/OFFICERS PUBLICLY HELD COMPANIES FUND SINCE SERVES (1)
--------------------------------------------------------------------------------------------------------------------
DIRECTORS
Austin C. Dowling (71) Retired; Director, The Thai Capital Fund, Inc., Class III 3
1002 E Long Beach Boulevard since 1990; Director, The Singapore Fund, Inc., Director
North Beach, NJ 08008 since 2000. since 1992
Martin J. Gruber (65) Professor of Finance, Leonard N. Stern School of Class I Director 3
229 South Irving Street Business, New York University, since 1965; since 1992
Ridgewood, NJ 07450 Director, The Thai Capital Fund, Inc., since
2000; Director, The Singapore Fund, Inc., since
2000; Director, SG Cowen Income & Growth Fund,
Inc., from 1986 to 2001; Director, SG Cowen
Opportunity Fund, from 1987 to 2001; Director, SG
Cowen Standby Reserve Fund Inc., from 1985 to
2001; Director, SG Cowen Standby Tax Exempt
Reserve Fund Inc., from 1986 to 2001; Trustee,
Deutsche Asset Management BT Family of Funds,
since 1992; Trustee, C.R.E.F., since 2001;
Trustee, T.I.A.A., from 1996 to 2000.
David G. Harmer (60) Executive Director, Department of Community and Class II Director 3
4337 Bobwhite Court Economic Development for the State of Utah since since 1997
Ogden, UT 84403 May 2002; Chairman, 2K2 Hosting Corporation, from
April 2001 to April 2002; President, Jetway
Systems, a division of FMC Corporation, from 1997
until 2001; Director, The Thai Capital Fund,
Inc., since 2000; Director, The Singapore Fund,
Inc., since 1996.
* Hiroshi Kimura (50) Chairman and President, Daiwa Securities Trust Chairman of 1
One Evertrust Plaza Company, since July 2001; Director and Senior the Board and
Jersey City, NJ 07302-3051 Vice President of Daiwa Securities Trust Company, Class I Director
from April 1999 to June 2001; Associate Director since 2001
of Daiwa Europe Bank, from April 1996 to March
1999.
Oren G. Shaffer (60) Vice Chairman and Chief Financial Officer of Class II Director 3
1891 California Street Qwest Communications International Inc., since since 2000
Denver, CO 80202 July 2002; Executive Vice President and Chief
Financial Officer of Ameritech Corporation, from
1994 to 2000; Director, The Thai Capital Fund,
Inc., since 2000; Director, The Singapore Fund,
Inc., since 1997.
24
NUMBER OF
FUNDS IN
PRINCIPAL OCCUPATION FUND
OR EMPLOYMENT DURING PAST COMPLEX FOR
FIVE YEARS AND DIRECTOR OR WHICH
NAME (AGE) AND ADDRESS DIRECTORSHIPS IN OFFICER OF DIRECTOR
OF DIRECTORS/OFFICERS PUBLICLY HELD COMPANIES FUND SINCE SERVES (1)
--------------------------------------------------------------------------------------------------------------------
OFFICERS
Shunsuke Ichijo (50) Chief Executive Officer and Director of Daiwa SB President of the --
7-9, Nihonbashi 2-chome, Investments since 1999; General Manager if Fund since
Chuo-ku, Tokyo 103-0027 International Division of DICAM Tokyo since 1996. 2000
Japan
John J. O'Keefe (44) Vice President of the Fund Accounting Department Vice President --
One Evertrust Plaza of Daiwa Securities Trust Company since 2000; and Treasurer
Jersey City, NJ 07302-3051 Assistant Controller for Reserve Management of the Fund
Corporation from 1999 to 2000; Accounting Manager since 2000
for Prudential Investments from 1998 to 1999; and
Assistant Vice President of Daiwa Securities
Trust Company from 1990 to 1998; Vice President
and Treasurer of The Thai Capital Fund, Inc. and
The Singapore Fund, Inc., since 2000.
Mariedor Pineda (29) Production Analyst of Daiwa Securities Trust Secretary of the --
One Evertrust Plaza Company since 1999; Assistant Supervisor of Fund since
Jersey City, NJ 07302-3051 CAMBA-Park Slope Women's Shelter, from 1996 to 2003
1999; Secretary of The Thai Capital Fund, Inc.
and The Singapore Fund, Inc., since 2003.
Laurence E. Cranch (56) Partner in the law firm of Clifford Chance US LLP Assistant --
200 Park Avenue since 1980; Assistant Secretary of The Thai Secretary of the
New York, NY 10166 Capital Fund, Inc. and The Singapore Fund, Inc., Fund since
since 1992. 1992
----------
(1) "Fund Complex" includes the Fund, The Thai Capital Fund, Inc., The
Singapore Fund, Inc. and other investment companies advised by SCB Asset
Management Co., Ltd., Daiwa SB Investments (H.K.) Ltd., DBS Asset
Management (United States) Pte. Ltd., Daiwa SB Investments (Singapore)
Ltd., Daiwa SB Investments (USA) Ltd., Daiwa SB Investments Ltd. or their
respective affiliates.
* Directors so noted are deemed by the Fund's counsel to be "interested
persons" (as defined in the U.S. Investment Company Act of 1940, as
amended). Mr. Kimura is deemed an interested person of the Fund because of
his affiliation with Daiwa Securities Trust Company, an affiliate of the
Fund's investment adviser, Daiwa SB Investments Ltd.
25
(This page has been left blank intentionally.)
BOARD OF DIRECTORS
Hiroshi Kimura, CHAIRMAN
Austin C. Dowling
Martin J. Gruber
David G. Harmer
Oren G. Shaffer
OFFICERS
Shunsuke Ichijo
PRESIDENT
John J. O'Keefe
VICE PRESIDENT AND TREASURER
Mariedor Pineda
SECRETARY
Laurence E. Cranch
ASSISTANT SECRETARY
ADDRESS OF THE FUND
c/o Daiwa Securities Trust Company
One Evertrust Plaza, 9th Floor
Jersey City, NJ 07302-3051
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 US LLP
INDEPENDENT AUDITORS
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, 2003
================================================================================
[JAPAN EQUITY FUND 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.