-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Llvbm+YKamP8UDmXr+kij96wRv82VjZ+FRPKXllkQkovZvPL+GcgnPKQu3cgUcab 0ZgTiKDI08ZrORuV8Q01Zg== 0000866095-03-000012.txt : 20031222 0000866095-03-000012.hdr.sgml : 20031222 20031222122528 ACCESSION NUMBER: 0000866095-03-000012 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20031031 FILED AS OF DATE: 20031222 EFFECTIVENESS DATE: 20031222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JAPAN EQUITY FUND INC CENTRAL INDEX KEY: 0000866095 IRS NUMBER: 223060893 STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-06142 FILM NUMBER: 031066994 BUSINESS ADDRESS: STREET 1: ONE EVERTRUST PLAZA STREET 2: C/O DAIWA SECURITIES TRUST CO CITY: JERSEY CITY STATE: NJ ZIP: 07302 BUSINESS PHONE: 2019153054 MAIL ADDRESS: STREET 1: DAIWA SECURITIES TRUST CO STREET 2: ONE EVERTRUST PLAZA CITY: JERSEY CITY STATE: NJ ZIP: 07302 FORMER COMPANY: FORMER CONFORMED NAME: JAPAN EMERGING EQUITY FUND INC DATE OF NAME CHANGE: 19920407 N-CSR 1 jeqncsr103103.txt JEQ ANNUAL REPORT 10-31-03 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. EX-99 4 jeqncsrcertification-103103.txt JEQ CERTIFICATIONS 10-31-03 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John J. O'Keefe, certify that: 1. I have reviewed this report on Form N-CSR of The Japan Equity Fund, Inc. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: December 10, 2003 \s\John J. O'Keefe - --------------------------------------- John J. O'Keefe, Vice President & Treasurer CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Hiroshi Kimura, certify that: 1. I have reviewed this report on Form N-CSR of The Japan Equity Fund, Inc. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: December 10, 2003 \s\ Hiroshi Kimura - --------------------------------------- Hiroshi Kimura, Chairman CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The undersigned, the Vice President & Treasurer of The Japan Equity Fund, Inc. (the "Fund"), with respect to the Form N- CSR for the period ended October 31, 2003 as filed with the Securities and Exchange Commission, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. such Form N-CSR fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in such Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Funds. Dated: December 10, 2003 /s/ John J. O'Keefe - ---------------------------------- John J. O'Keefe This certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document. CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The undersigned, the Chairman of The Japan Equity Fund, Inc. (the "Fund"), with respect to the Form N-CSR for the period ended October 31, 2003 as filed with the Securities and Exchange Commission, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. such Form N-CSR fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in such Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Funds. Dated: December 10, 2003 /s/ Hiroshi Kimura - ---------------------------------- Hiroshi Kimura This certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document. EXHIBIT B(1) NYA 612686.1 EXHIBIT B(2) EX-99 5 jeqncsritems2-10_103103.txt JEQ ITEM 2-10 10-31-03 ITEM 2. CODE OF ETHICS. Attached Exhibit 10 (a). ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Attached Exhibit 10 (b). ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not Applicable. ITEMS 5-6. (RESERVED) ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Attached Exhibit 10 (c) and Exhibit 10 (d) ITEMS 8. (RESERVED) ITEM 9. CONTROLS AND PROCEDURES. (a) Based on an evaluation of the registrant's disclosure controls and procedures as of December 3, 2003, the disclosure controls and procedures are reasonably designed to ensure that the information required in filings on Forms N-CSR is recorded, processed, summarized, and reported on a timely basis. (b) There were no significant changes in the registrant's internal controls or in other factors that could affect these controls subsequent to the date of our evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. ITEMS 10. EXHIBITS. File the exhibits listed below as part of this Form. Letter or number the exhibits in the sequence indicated. (a) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: (b) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2 under the Act (17 CFR 270.30a-2) in the exact form set forth below: Attached hereto. SIGNATURES Pursuant to the requirements of the securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) The Japan Equity Fund, Inc. By (Signature and Title)* \s\ John J. O'Keefe - -------------------------- - --------- John J. O'Keefe, Vice President & Treasurer Date: December 19, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* \s\ John J. O'Keefe - -------------------------- John J. O'Keefe, Vice President & Treasurer Date: December 19, 2003 By (Signature and Title)* \s\ Hiroshi Kimura - -------------------------- Hiroshi Kimura, Chairman Date: December 19, 2003 * Print the name and title of each signing officer under his or her signature. EX-99 6 jeqncsrmgrcert103103.txt JEQ MGRCERT 10-31-03 THE JAPAN EQUITY FUND, INC. INVESTMENT ADVISER CERTIFICATION I, Kazuhiko Hosaka, Senior Portfolio Manager of Daiwa SB Investments Ltd. (the "Adviser"), certify to the best of my knowledge that: 1. I am responsible for providing The Japan Equity Fund, Inc. (the "Fund") with certain information identified in the N-CSR report that is attached as Schedule A hereto, which information I understand is used by the Fund in compiling its financial statements and preparing its annual and semi-annual reports. 2. Such information is generated through the use of practices and procedures that are widely accepted in the investment management industry and have a sound basis in investment management fundamentals. The information is provided to the Fund only after sufficient due diligence has been conducted. 3. I am further responsible for establishing and maintaining disclosure controls and procedures for the Adviser, such disclosure controls and procedures have been designed to ensure that the information identified in the schedule is made known to me, and I have evaluated the effectiveness of the Adviser's disclosure controls and procedures within 90 days prior to the filing date of the Report. Dated: December 19, 2003 /s/ Kazuhiko Hosaka Kazuhiko Hosaka Senior Portfolio Manager NYA 614332.3 EX-99 7 jeqncsritem3-103103.txt JEQ ITEM3 10-31-03 Exhibit 10 (b) ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT The registrant's board of directors has determined that the registrant has at least one audit committee financial expert serving on its audit committee. The audit committee financial expert is Oren G. Shaffer who is "independent" for purposes of this item. EX-99 8 jeqncsritem2-103103.txt JEQ ITEM2 10-31-03 EXHIBIT 10 (A) ITEM 2. CODE OF ETHICS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS I. This Code of Ethics (the "Code") for The Thai Capital Fund, Inc., The Japan Equity Fund, Inc. and The Singapore Fund, Inc. (each a "Fund" and collectively the "Funds") applies to each Fund's President and Treasurer (or persons performing similar functions) ("Covered Officers") for the purpose of promoting: . honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. . full, fair, accurate, timely and understandable disclosure in reports and documents that a Fund files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by a Fund; . compliance with applicable laws and governmental rules and regulations; . prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and . accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. A Fund will expect all Covered Officers to comply at all times with the principles in this Code. A violation of this Code by an employee is grounds for disciplinary action up to and including discharge and possible legal prosecution. Any question about the application of the Code should be referred to the Audit Committee of the Fund's Board of Directors ( the "Audit Committee"). II. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest Overview. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his service to, a Fund. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with a Fund. Certain conflicts of interest arise out of the relationships between Covered Officers and a Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 (the "Investment Company Act") and the Investment Advisers Act of 1940 (the "Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with a Fund because of their status as "affiliated persons" of a Fund. The compliance programs and procedures of a Fund and the Fund's Investment Manager and Investment Adviser are designed to prevent, or identify and correct, violations of these provisions. Certain conflicts of interest also arise out of the personal securities trading activities of the Covered Officers and the possibility that they may use information regarding a Fund's securities trading activities for their personal benefit. Each Fund's Code of Ethics under Rule 17j- 1 under the Investment Company Act is designed to address these conflicts of interest. This Code does not, and is not intended to, replace these programs and procedures or a Fund's Rule 17j-1 Code of Ethics, and this Code's provisions should be viewed as being additional and supplemental to such programs, procedures and code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between a Fund and its Investment Adviser or Investment Manager of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for a Fund or for its Investment Adviser or Investment Manager, or for all parties), be involved in establishing policies and implementing decisions that will have different effects on the Investment Adviser or Investment Manager and a Fund. The participation of the Covered Officers in such activities is inherent in the contractual relationship between a Fund and its Investment Adviser or Investment Manager and is consistent with the performance by the Covered Officers of their duties as officers of a Fund. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by a Fund's Board of Directors (the "Board") that the Covered Officers may also be officers or employees of one or more other investment companies covered by other codes. Each Covered Officer must not: . use his personal influence or personal relationships improperly to influence investment decisions or financial reporting by a Fund whereby the Covered Officer would benefit personally to the detriment of a Fund; . cause a Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Fund; and . use material non-public knowledge of portfolio transactions made or contemplated for, or actions proposed to be taken by, a Fund to trade personally or cause others to trade personally in contemplation of the market effect of such transactions. Each Covered Officer must, at the time of signing this Code, report all material business affiliations outside a Fund and must update the report annually. Covered Officers should avoid situations which involve the appearance of, or potential for, conflicts of interest. Examples of these situations include: . accepting directly or indirectly, anything of value, including gifts and gratuities in excess of $100 per year from any person or entity with which a Fund has current or prospective business dealings, not including occasional meals or tickets to theatre or sporting events or other similar entertainment, provided it is business-related, reasonable in cost, appropriate as to time and place and not so frequent as to raise any question of impropriety; . any ownership interest in, or any consulting or employment relationship with, any of a Fund's service providers, other than its Investment Adviser or Investment Manager or any affiliated person thereof; and . a direct or indirect financial interest in commissions, transaction charges or spreads paid by a Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. In situations involving a Covered Officer which involve the appearance of, or the potential for, conflicts of interest, but where the Covered Officer believes that no significant conflict of interest exist, the Covered Officer must obtain prior written approval from the Audit Committee before becoming involved in that situation. No such approval shall be considered a waiver of this Code. III. Disclosure and Compliance . Each Covered Officer should familiarize himself with the disclosure and compliance requirements generally applicable to a Fund; . Each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about a Fund to others, whether within or outside a Fund, including to a Fund's directors and auditors, or to governmental regulators and self- regulatory organizations; . Each Covered Officer should, to the extent appropriate within his area of responsibility, consult with other officers and employees of a Fund and its Investment Adviser or Investment Manager with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents a Fund files with, or submits to, the SEC and in other public communications made by a Fund; and . It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. Reporting and Accountability Each Covered Officer must: . upon adoption of the Code or (thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Board that he has received, read and understands the Code; . annually thereafter affirm to the Board that he has complied with the requirements of the Code; . not retaliate against any other Covered Officer or any employee of a Fund or their affiliated persons for reports of potential violations that are made in good faith; and . notify the Audit Committee promptly if he knows of any violation of this Code. Failure to do so is itself a violation of this Code. The Audit Committee is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. Any waivers sought by a Covered Officer must be considered by the Audit Committee. A copy of this Code shall be delivered to each employee of a Fund and each employee of its Investment Adviser and Investment Manager annually together with a memorandum requesting that any violations of the Code be communicated immediately to the Audit Committee. Each Fund will follow these procedures in investigating and enforcing this Code: . the Audit Committee will take all appropriate action to investigate any potential violations reported to it; . if, after such investigation, the Audit Committee believes that no violation has occurred, the Audit Committee is not required to take any further action; . if the Audit Committee determines that a violation has occurred, it will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the Investment Adviser or its board; or a recommendation to dismiss the Covered Officer; . the Audit Committee will be responsible for granting waivers of this Code, as appropriate; and . any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. Changes To or Waivers of the Code No change to or waiver of any provision of this Code will be effective until a Fund discloses the nature of any amendment to, or waiver from, a provision of the Code in its Form N-CSR, or on its website within five business days following the date of the amendment or waiver if this method of disclosure has been established in its Form N-CSR and made available on its website for twelve months. Any waiver of provisions of this Code will be reported in filings with the SEC and otherwise reported to a Fund's stockholders to the full extent required by the rules of the SEC and by any applicable rules of any securities exchange on which a Fund's securities are listed. VI. Other Policies and Procedures This Code shall be the sole code of ethics adopted by each Fund for purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of a Fund or its Investment Adviser, Investment Manager or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they conflict with the provisions of this Code. VII. Amendments Any amendments to this Code must be approved or ratified by a majority vote of the Audit Committee and the Board, including a majority of directors who are not interested persons as defined in the Investment Company Act. VIII. Confidentiality All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Audit Committee, the Board, the Fund and its counsel and its Investment Adviser and Investment Manager and their respective counsel. IX. Internal Use The Code is intended solely for the internal use by a Fund and does not constitute an admission, by or on behalf of a Fund, as to any fact, circumstance or legal conclusion. I have read and understand the terms of the Code. I recognize the responsibilities and obligations incurred by me as a result of my being subject to the Code. I hereby agree to abide by the Code. _________________________ Date:_____________________ (. cont'd) (cont'd) 17145626.1 99557753 17145626.1 99557753 8 NYA 643526.3 DRAFT 17145626.1 99557753 EX-99 9 jeqncsritem7-103103.txt JEQ ITEM7 10-31-03 Exhibit 10 (c) ITEM 7. PROXY VOTING PROCEDURES The registrant has delegated to its investment manager the voting of proxies relating to the registrant's portfolio securities. The policies and procedures used by the investment manager to determine how to vote proxies relating to the registrant's portfolio securities, including the procedures used when a vote presents a conflict of interest involving the investment manager, are contained in the investment manager's Proxy Voting Guidelines, which are attached hereto as Exhibit 10 (d). The Japan Equity Fund, Inc. Proxy Voting Policy and Procedures The Board of Directors of The Japan Equity Fund, Inc. (the "Fund") hereby adopts the following policy and procedures with respect to voting proxies relating to Fund securities managed by Daiwa SB Investments (USA) Ltd. (the "Investment Manager"). I. Policy It is the policy of the Board of Directors of the Fund (the "Board") to delegate the responsibility for voting proxies relating to securities held by the Fund to the Investment Manager as part of the Manager's general management of the Fund's assets, subject to the Board's continuing oversight. The Board of Directors of the Fund hereby delegates such responsibility to the Investment Manager, and directs the Investment Manager to vote proxies relating to Fund portfolio securities managed by the Investment Manager consistent with the duties and procedures set forth below. The Investment Manager may retain one or more vendors to review, monitor and recommend how to vote proxies in a manner consistent with the duties and procedures set forth below, to ensure such proxies are voted on a timely basis and to provide reporting and/or record retention services in connection with proxy voting for the Fund. II. Fiduciary Duty The right to vote a proxy with respect to securities held by the Fund is an asset of the Fund. The Investment Manager, to which authority to vote on behalf of the Fund is delegated, acts as a fiduciary of the Fund and must vote proxies in a manner consistent with the best interest of the Fund and its shareholders. In discharging this fiduciary duty, the Investment Manager must maintain and adhere to its policies and procedures for addressing conflicts of interest and must vote in a manner substantially consistent with its policies, procedures and guidelines, as presented to the Board. III. Procedures The following are the procedures adopted by the Board for the administration of this policy. A. Review of Investment Manager's Proxy Voting Procedures. The Investment Manager shall present to the Board their policies, procedures and other guidelines for voting proxies at least annually, and must notify the Board promptly of material changes to any of these documents, including changes to policies addressing conflicts of interest. B. Voting Record Reporting. The Investment Manager shall provide the voting record information necessary for the completion and filing of Form-NPX to the Fund at least annually. Such voting record information shall be in a form acceptable to the Fund and shall be provided at such time(s) as are required for the timely filing of Form-NPX and at such additional time(s) as the Fund and the Investment Manager may agree from time to time. With respect to those proxies that the Investment Manager has identified as involving a conflict of interest , the Investment Manager shall submit a separate report indicating the nature of the conflict of interest and how that conflict was resolved with respect to the voting of the proxy. C. Record Retention. The Investment Manager shall maintain such records with respect to the voting of proxies as may be required by the Investment Advisers Act of 1940 and the rules promulgated thereunder or by the Investment Company Act of 1940 and the rules promulgated thereunder. D. Conflicts of Interest. Any actual or potential conflicts of interest between the Investment Manager and the Fund's shareholders arising from the proxy voting process will be addressed by the Investment Manager and the Investment Manager's application of its proxy voting procedures pursuant to the delegation of proxy voting responsibilities to the Investment Manager. In the event that the Investment Manager notifies the officer(s) of the Fund that a conflict of interest cannot be resolved under the Investment Manager's Proxy Voting Procedures, such officer(s) are responsible for notifying the Chairman of the Board of the Fund of the irreconcilable conflict of interest and assisting the Chairman with any actions he determines are necessary. IV. Revocation The delegation by the Board of the authority to vote proxies relating to securities of the Fund is entirely voluntary and may be revoked by the Board, in whole or in part, at any time. V. Annual Filing The Fund shall file an annual report of each proxy voted with respect to securities of the Fund during the twelve-month period ended June 30 on Form N-PX not later than August 31 of each year. VI. Disclosures A. The Fund shall include in its annual report filed on Form N-CSR: 1. a description of this policy and of the policies and procedures used by the Fund and the Investment Manager to determine how to vote proxies relating to portfolio securities or copies of such policies and procedures; and 2. a statement disclosing that a description of the policies and procedures used by or on behalf of the Fund to determine how to vote proxies relating to securities of the Fund is available without charge, upon request, by calling the Fund's toll- free telephone number; through a specified Internet address, if applicable; and on the SEC's website; and 3. a statement disclosing that information regarding how the Fund voted proxies relating to Fund securities during the most recent 12-month period ended June 30 is available without charge, upon request, by calling the Fund's toll-free telephone number; or through a specified Internet address; or both; and on the SEC's website. VII. Review of Policy The Board shall review from time to time this policy to determine its sufficiency and shall make and approve any changes that it deems necessary from time to time. Adopted: November 25, 2003 Exhibit 10 (d) ITEM 7. Proxy Voting Procedures (continued) Proxy voting policy for Daiwa SB Investments (USA) Ltd. Statement of Policies and Procedures for Voting Proxies INTRODUCTION As a registered investment adviser, Daiwa SB Investments (USA) Ltd. ("Daiwa," "we" or "us") has a fiduciary duty to act solely in the best interests of our clients. As part of this duty, we recognize that we must exercise voting rights in the best interests of our clients. Daiwa recognizes the importance of good corporate governance in ensuring that management and boards of directors fulfill their obligations to shareholders. As part of our investment process, we take into account the attitudes of management and boards of directors on corporate governance issues when deciding whether to invest in a company. Daiwa is a global investment manager, and invests significantly in emerging markets. It should be noted that protection for shareholders may vary significantly from jurisdiction to jurisdiction, and in some cases may be substantially less than in the U.S. or developed countries. This statement is intended to comply with Rule 206(4)-6 of the Investment Advisers Act of 1940. It sets forth the policy and procedures of Daiwa for voting proxies for our clients, including investment companies registered under the Investment Company Act of 1940. PROXY VOTING POLICIES It is the general policy of Daiwa to support management of the companies in which it invests and will cast votes in accordance with management's proposals. However, Daiwa reserves the right to depart from this policy in order to avoid voting decisions that we believe may be contrary to our clients' best interests. Elections of Directors: In many instances, election of directors is a routine voting issue. Unless there is a proxy fight for seats on the Board or we determine that there are other compelling reasons for withholding votes for directors, we will vote in favor of the management proposed slate of directors. That said, we believe that directors have a duty to respond to shareholder actions that have received significant shareholder support. We may withhold votes for directors that fail to act on key issues such as failure to implement proposals to declassify boards, failure to implement a majority vote requirement, failure to submit a rights plan to a shareholder vote and failure to act on tender offers where a majority of shareholders have tendered their shares. Appointment of Auditors: The selection of an independent accountant to audit a company's financial statements is generally a routine business matter. Daiwa believes that management remains in the best position to choose the accounting firm and will generally support management's recommendation. Changes in Capital Structure: Changes in a company's charter, articles of incorporation or by-laws are often technical and administrative in nature. Absent a compelling reason to the contrary, Daiwa will cast its votes in accordance with the company's management on such proposals. However, we will review and analyze on a case-by-case basis any non-routine proposals that are likely to affect the structure and operation of the company or have a material economic effect on the company. Corporate Restructurings, Mergers and Acquisitions: Daiwa believes proxy votes dealing with corporate reorganizations are an extension of the investment decision and will take account of our investment process policy in deciding how to vote. Corporate Governance: Daiwa recognizes the importance of good corporate governance in ensuring that management and the board of directors fulfil their obligations to the shareholders. We generally favor proposals promoting transparency and accountability within a company. Social and Corporate Responsibility: Daiwa recognizes the importance of supporting sound and responsible policies in relation to social, political and environmental issues. However, in the interests of shareholders, we reserve the right to vote against proposals that are unduly burdensome or result in unnecessary and excessive costs to the company. We may abstain from voting on social proposals that do not have a readily determinable financial impact on shareholder value. Executive Compensation: Daiwa believes that company management and the compensation committee of the board of directors should, within reason, be given latitude to determine the types and mix of compensation and benefit awards offered. Whether proposed by a shareholder or management, we will review proposals relating to executive compensation plans and, if deemed excessive, may vote against the proposals. PROXY VOTING PROCEDURES Proxy voting Our portfolio management team is responsible for the coordination of Daiwa's proxy voting. They liaise with the Product managers and/or the Proxy voting committee to ascertain how Daiwa will vote. They will then instruct the relevant Custodians. The portfolio management team is also responsible for ensuring that full and adequate records of proxy voting are kept. The Product managers will implement the Proxy voting policies by instructing proxy voting in accordance with the general principles contained herein. Proxy Voting Committee We have formed a Proxy Voting Committee to regularly review our general proxy policies and consider specific proxy voting matters as and when deemed necessary. Members of the committees include senior investment personnel and representatives of the Legal & Compliance Department. The committee may also evaluate proxies where we face a material conflict of interest (as discussed below). Conflicts of Interest Daiwa recognizes that there is a potential conflict of interest when we vote a proxy solicited by an issuer with whom we have any material business or personal relationship that may affect how we vote on the issuer's proxy. We believe that oversight by the proxy voting committee ensures that proxies are voted with only our clients' best interests in mind. In order to avoid any perceived conflict of interests, the following procedures have been established for use when we encounter a potential conflict. The portfolio management team will refer to the Legal and compliance team any proxy votes that are issued by existing clients or where Daiwa holds a significant voting percentage of the company. The Legal and compliance team will make the initial determination about whether a material conflict of interest exists based on the facts and circumstances of each particular situation. If our proposed vote is consistent with our stated proxy voting policy, no further review is necessary. If our proposed vote is contrary to our stated proxy voting policy but is also contrary to management's recommendation, no further review is necessary. If our proposed vote is contrary to our stated proxy voting policy and is consistent with management's recommendation, the proposal is escalated to the proxy committee for final review and determination. Proxies of Certain Non-U.S. Issuers Proxy voting in certain countries requires "share blocking." That is, shareholders wishing to vote their proxies must deposit their shares shortly before the date of the meeting (usually one-week) with a designated depositary. During this blocking period, shares that will be voted at the meeting cannot be sold until the meeting has taken place and the shares are returned to the clients' custodian banks. Daiwa may determine that the value of exercising the vote does not outweigh the detriment of not being able to transact in the shares during this period. Accordingly, if share blocking is required we may abstain from voting those shares. In such a situation we would have determined that the cost of voting exceeds the expected benefit to the client. PROXY VOTING RECORD Clients may obtain information on how Daiwa voted with respect to their proxies by contacting our Client services team at Daiwa SB Investments (USA) Ltd.. 32 Old Slip, 11th Floor, New York, New York, Tel No. 212-612-8500, Fax No. 212- 612-8518/8519 or email d_diaz@dsbiusa.net / m_gugliotta@dsbiusa.net. As it is used in this document, the term "conflict of interest" refers to a situation in which the Investment Manager or affiliated persons of the Investment Manager have a financial interest in a matter presented by a proxy other than the obligation they incur as Investment Manager to the Fund which could potentially compromise the Investment Manager's independence of judgment and action with respect to the voting of the proxy. The Fund must file its first report on Form N-PX not later than August 31, 2004, for the twelve-month period beginning July 1, 2003, and ending June 30, 2004. 1 5 NYA 639896.1 -----END PRIVACY-ENHANCED MESSAGE-----