UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-CSR
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CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANY ACT FILE NUMBER 811-06142
THE JAPAN EQUITY FUND, INC.
(Exact name of registrant as specified in charter)
c/o Daiwa Securities Trust Company
One Evertrust Plaza, 9th Floor
Jersey City, New Jersey 07302-3051
(Address of principal executive offices) (Zip code)
c/o Daiwa Securities Trust Company
One Evertrust Plaza, 9th Floor
Jersey City, New Jersey 07302-3051
(Name and address of agent for service)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 915-3054
DATE OF FISCAL YEAR END: October 31
DATE OF REPORTING PERIOD: October 31, 2005
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Item 1. Reports to Stockholders.
The Japan Equity Fund, Inc.
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General Information (unaudited)
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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, a list of the Fund's top
ten industries and holdings, its proxy voting policies and procedures, its code
of ethics and its audit committee charter.
Inquiries
Inquiries concerning your registered share account should be directed to
the American Stock Transfer & Trust Company (the "Plan Agent") at the number
noted below. All written inquiries should be directed to The Japan Equity Fund,
Inc., c/o Daiwa Securities Trust Company, One Evertrust Plaza, 9th Floor, Jersey
City, NJ 07302-3051.
Proxy Voting Policies and Procedures
A description of the policies and procedures that are used by the Fund's
Investment Manager to vote proxies relating to the Fund's portfolio securities
is available (1) without charge, upon request, by calling (201) 915-3054; (2) by
visiting www.daiwast.com; and (3) as an exhibit to the Fund's annual report on
Form N-CSR which is available on the website of the Securities and Exchange
Commission (the "Commission") at www.sec.gov. Information regarding how the
Investment Manager votes these proxies is now available by calling the same
number and the Commission's website. The Fund has filed its report on Form N-PX
covering the Fund's proxy voting record for the 12-month period ended June 30,
2005.
Quarterly Portfolio of Investments
A Portfolio of Investments will be filed as of the end of the first and
third quarter of each fiscal year on Form N-Q and will be available on the
Commission's website at www.sec.gov and the Fund's web site at www.daiwast.com.
Additionally, the Portfolio of Investments may be reviewed and copied at the
Commission's Public Reference Room in Washington D.C. Information on the
operation of the Public Reference Room may be obtained by calling (800)
SEC-0330. The quarterly Portfolio of Investments will be made available without
charge, upon request, by calling (201) 915-3054.
Certifications
The Fund's chief executive officer has certified to the NYSE that, as of
June 22, 2005, he was not aware of any violation by the Fund of applicable NYSE
corporate governance listing standards. The Fund also has included the
certifications of the Fund's chief executive officer and chief financial officer
required by Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002 in the
Fund's Form N-CSR filed with the Commission for the period of this report.
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 (866) 669-9904 or by writing The Japan Equity Fund, Inc.,
c/o the American Stock Transfer & Trust Company, 59 Maiden Lane, New York, NY
10038.
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.
Shareholder Letter (unaudited)
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November 16, 2005
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, 2005.
Performance and Review of the Japanese Stock Market (November 2004 - October
2005)
For the year ended October 31, 2005, stock markets in Japan showed good
performance. The total return of the TOPIX Index ("TOPIX") was 34% over the
period in local currency terms. The TOPIX hit bottom in April 2003 at 770 points
and bounced strongly to finish 2003 at around 1000 points. The TOPIX climbed
further in early 2004, to reach 1200 points in April 2004, then largely moved in
the range between 1100 points and 1200 points until the end of July 2005. The
TOPIX rose further over the quarter ended October 31, 2005 and it closed at 1445
points on October 31, 2005.
Economic fundamentals were supportive to companies in Japan. Over the past
year, the Japanese economy was on a steady upward trend. Real term Gross
Domestic Product ("GDP") increased 0.1% in the October to December 2004 quarter,
1.5% in the January to March 2005 quarter, 0.8% in the April to June 2005
quarter, and 0.4% in the July to September 2005 quarter (quarter-on-quarter
basis, not annualized). Economies in the Americas, Europe and Asia, where a
large number of Japanese companies have extensive exposure, were generally doing
fine. The fast growing Chinese economy offered an alternative production base
and some new markets for Japanese companies, as well as some new competition.
The rise in natural resource prices, most starkly illustrated by the rise in the
price of oil, had a substantial effect on the operations of Japanese companies.
Some companies suffered from rising material prices, but others benefited.
Higher oil prices drove up the costs for chemical producers, for example. At the
same time, trading houses benefited from higher natural resource prices, as they
succeeded in raising sales prices more than their cost increase. The Bank of
Japan continued its "zero-interest-policy" keeping short-term interest rates
minimal, while the yield on the 10-year government bond stayed mostly between
1.2% and 1.6%. The popular Prime Minister Koizumi, who has been running the
government since April 2001, continued to push his reform policy toward smaller
government and more privatization of once-government-run organizations. Prime
Minister Koizumi also changed many of the old-fashioned procedures that remained
in Japanese politics.
Looking at stock market developments, the steel, banking, insurance, real
estate and metal sectors were the top performing sectors, while the paper and
pulp, airline and telecommunication sectors performed the worst during the
one-year period ended October 31, 2005. Steel producers benefited from a surge
in steel demand, after years of slump. The sudden increase in steel demand in
Asia, particularly in China, helped steel makers increase output and raise
prices, more than offsetting the cost-rise of the inputs and fuel. Banks
performed well over the year, as investors grew more confident and optimistic
about their profitability and the once-quite-questionable state of their balance
sheet. Consolidation of the industry by mergers among banks was also viewed
positively. Insurers performed well, too. They were hit by natural disasters
such as earthquakes and typhoons, but investors seemed to have found more value
in the likely return from insurers' investments. In the central city areas, land
prices finally started to rise. Land prices have been in decline all over Japan
from the peak of the "bubble economy" in 1990. Seeing the signs of turn-around
in land prices, stocks of real estate operators performed well. The development
of securitization in 4 real estate investment helped the revival of real estate
operators. On the other hand, the paper industry in Japan encountered renewed
tough competition, even after sizable consolidation a few years ago, resulting
in profit deterioration at paper makers and poor performance of paper stocks.
Airlines in Japan suffered, as was the case with many of their foreign
competitors, from tough competition and high fuel prices. Telecommunication
operators and information technology service providers were also hurt by severe
competition, resulting in a slump in share prices.
Examples of top performers and bottom performers among the major names in
the TOPIX are as follows:
The share price of Sumitomo Metal Industries more than trebled over the
period. It performed best among major stocks--its steel production business
enjoyed buoyant demand, with an extra upside in its seamless pipes for oil and
gas industries. Kobe Steel was also one of the top performers with 130% return.
Specialty retailers performed well. Yamada Denki (a consumer electronic
retailing chain), Isetan (a department store with strength in fashion items) and
Shimamura (a retail chain of reasonably priced clothes) were all among top
performers. Shares of Yamada Denki gained 170%, Isetan shares gained 93% and
Shimamura shares gained 92% over the period. Shares of financial institutions
also performed well. Juroku Bank returned 128%, Aioi Insurance 92%, Resona
Holdings 91%, Mitsui Trust 91% and Mizuho Financial Group 89%. All benefited
from a more optimistic view of the Japanese financial market. On the other hand,
companies in the electronics and information technology industries performed
poorly. Shares in Net-One Systems, an IT system integrator declined by 45% over
the year because expected profit growth did not materialize as competition
remained tough. NEC Electronics' shares lost 40%, because its IC chips suffered
from tough price competition, while shares in SkyPerfect Communications, a
satellite TV operator, declined by 35%.
Performance/Attribution Analysis
Table 1. Performance in comparison with the benchmark (TOPIX), U.S. Dollar ("USD") base
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Latest 12 Months
(As of October 31, 2005)
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%
Japan Equity Fund (time weighted return)............................................. 25.22
Benchmark (TOPIX).................................................................... 22.10
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Difference........................................................................... 3.12
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Table 2. Attribution Analysis Summary, Japanese Yen ("JPY") base (Latest 12 Months)
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(%)
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Portfolio (Equity Only).............................................................. 39.86
Benchmark (TOPIX).................................................................... 34.60
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Difference........................................................................... 5.26
Breakdown
Sector Selection..................................................................... 0.04
Stock Selection...................................................................... 5.21
Others............................................................................... 0.01
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Total................................................................................ 5.26
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Table 3. Portfolio Return (Equity Only) vs. Benchmark Return, USD base (monthly)
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Portfolio Benchmark Relative
Return Return Return
(A) (B) (A) - (B
(%) (%) (%)
---------- ---------- ----------
2004 November.................................................. 3.97 4.17 -0.20
December.................................................. 3.68 3.59 0.09
2005 January................................................... -1.26 0.27 -1.53
February.................................................. 1.49 1.62 -0.13
March..................................................... -2.55 -2.07 -0.48
April..................................................... -2.75 -3.49 0.74
May....................................................... 0.65 -0.37 1.02
June...................................................... 1.21 0.54 0.67
July...................................................... 0.81 0.68 0.13
August.................................................... 7.18 6.52 0.66
September................................................. 10.51 9.33 1.18
October................................................... 0.56 0.04 0.52
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Table 4. Attribution Analysis Breakdown, JPY base (Latest 12 Months) - Equity Only
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Sector Stock
Portfolio Benchmark Portfolio Benchmark Selection Selection
Weight Weight Return Return Effect Effect
% % % % % %
---------- ---------- ---------- ----------- ---------- ----------
Fishing, Agriculture & Forestry... 0.00 0.10 0.00 27.38 0.01 0.00
Mining............................ 0.00 0.46 0.00 53.20 -0.12 0.00
Construction...................... 3.09 2.36 52.86 42.88 0.02 0.27
Manufacturing..................... 56.19 50.70 31.17 28.94 -0.33 1.41
Electric Power & Gas.............. 3.26 3.99 29.91 28.12 0.15 0.06
Transport and Communication....... 10.15 12.47 23.70 16.61 0.43 0.74
Commerce.......................... 8.56 8.66 64.17 46.93 -0.09 1.13
Finance & Insurance............... 17.35 17.58 66.93 57.06 -0.10 1.50
Real Estate....................... 1.31 1.82 69.73 63.32 -0.02 0.10
Services.......................... 0.09 1.86 5.97 30.39 0.09 0.01
Total............................. 100.00 100.00 39.86 34.60 0.04 5.21
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Table 5. Attribution Analysis Breakdown, JPY base (Latest 12 Months) - Equity Only
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Sector Stock
Portfolio Benchmark Portfolio Benchmark Selection Selection
Weight Weight Return Return Effect Effect
% % % % % %
---------- ---------- ---------- ----------- ---------- ----------
Fishery, Agriculture & Forestry... 0.00 0.10 0.00 27.38 0.01 0.00
Mining............................ 0.00 0.46 0.00 53.20 -0.12 0.00
Construction...................... 3.09 2.36 52.86 42.88 0.02 0.27
Foods............................. 0.98 2.69 -7.61 32.06 0.16 -0.39
Textiles & Apparel................ 1.38 1.10 49.01 45.01 0.03 0.32
Pulp & Paper...................... 0.34 0.46 -0.50 1.29 0.10 -0.01
Chemicals......................... 6.97 5.27 31.66 29.67 -0.22 0.17
Pharmaceutical.................... 4.29 4.27 25.57 21.46 -0.18 0.15
Oil & Coal Products............... 0.00 0.86 0.00 55.53 -0.17 0.00
Rubber Products................... 0.55 0.72 6.98 32.99 -0.01 0.04
Glass & Ceramics Product.......... 1.67 1.11 19.48 45.69 0.14 -0.36
Iron & Steel...................... 2.01 2.05 54.62 74.58 0.15 -0.32
Nonferrous Metals................. 2.87 0.96 55.94 57.78 0.45 -0.12
Metal Products.................... 0.00 0.64 0.00 14.52 0.14 0.00
Machinery......................... 5.22 3.78 58.77 56.03 0.31 0.13
Electrical Appliances............. 14.86 13.45 16.42 14.58 -0.39 0.22
Transport Equipment............... 11.32 10.39 29.59 27.24 0.01 0.34
Precision Instruments............. 2.35 1.20 47.33 35.44 0.04 0.27
Other Products.................... 1.38 1.74 15.69 22.98 0.22 -0.13
Wholesale Trade................... 2.50 4.00 44.81 55.14 -0.32 -0.41
Retail Trade...................... 6.06 4.66 75.57 40.23 0.02 1.74
Banks............................. 10.35 10.55 67.85 63.21 -0.20 0.41
Other Financing Business.......... 3.18 2.87 62.65 41.27 -0.01 0.58
Securities & Commodity Futures.... 0.85 1.95 -4.12 40.26 -0.08 0.02
Insurance......................... 2.97 2.21 75.55 63.64 0.35 0.34
Real Estate....................... 1.31 1.82 69.73 63.32 -0.02 0.10
Land Transportation............... 2.92 3.06 14.80 23.98 0.06 -0.28
Marine Transportation............. 1.27 0.61 34.89 28.37 -0.02 0.09
Air Transportation................ 0.00 0.33 0.00 11.43 0.08 0.00
Warehouse & Harbor Trans.......... 0.00 0.24 0.00 52.65 -0.04 0.00
Info & Communication.............. 5.96 8.23 27.43 12.46 0.41 0.88
Electric Power & Gas.............. 3.26 3.99 29.91 28.12 0.15 0.06
Services.......................... 0.09 1.87 5.97 30.39 0.09 0.01
Total............................. 100.00 100.00 39.86 34.60 1.15 4.11
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Comment
As shown in Table 1, the net asset value ("NAV") of the Fund increased by
25.22% in USD terms during the twelve months from November 1, 2004 to October
31, 2005. Over the same period, the Fund's benchmark (TOPIX) gained 22.10% in
USD terms. The depreciation of the JPY against the USD was a negative factor for
the absolute NAV return measured in USD.
Table 2 shows that the performance of the equity portion of the portfolio,
excluding expenses and some cash positions in JPY terms, was 39.86%, in
comparison with 34.60% for the benchmark, indicating out-performance of 5.26% on
this basis.
Attribution Analysis Throughout the Period
Tables 4 and 5. (Stock Selection)
The attribution analysis indicates that a sizable positive contribution was
made in Retailing (+1.74%), Telecommunication & Information Services (+0.88%),
and Other Finance (+0.58%) sectors. Negative contributions in stock selection
mostly came from Wholesale Trade (-0.41%), Food (-0.39%) and the Glass &
Ceramics (-0.36%) sectors. The total stock selection contribution was +5.21%
over the period.
Major positive contributors were Sundrug (+1.02%, a specialty retailer),
Shimamura (+0.70%, a specialty retailer), Mitsubishi UFJ Financial Group
(+0.67%, a banking group), Tokuyama (+0.59%, a specialty chemical producer) and
Orix (+0.55%, a leasing company). Major negative contributors were Net-One
Systems (-0.69%, a computer system integrator), Sharp (-0.59%, a maker of
consumer electronics products) and TDK (-0.48%, an electronic components
producer).
(Sector Selection)
The attribution analysis shows that an underweight position in the
Communication sector resulted in a positive contribution (+0.41%), while there
were negative contributions from an overweight position in Electronics (-0.39%)
and an underweight position in Wholesale Trade (-0.32%).
Outlook & Strategy
Investors were quite active in the Japanese stock market, particularly from
the summer of 2005. Foreign investors continued to be major buyers of Japanese
stocks from the spring onwards, while domestic individual investors were quite
active participants. The Japanese stock market grew relatively more volatile.
Stock price movement of individual stocks also grew volatile, particularly from
the summer of 2005. One obvious focus of market participants is whether the
rising trend of natural resource prices, most notably observed in oil prices,
has reversed after a long-lasting up-trend. Another focus would be the strength
of the U.S. economy after natural disasters. Much concern has been expressed
about the housing market boom in the United States in view of the potential for
continuing interest rate increases. In Japan, the rebound of the economy over
the last few years was driven by the corporate sector. Signs of a pick-up in
retail consumption have been observed in 2005, finally. The Japanese domestic
economy could enjoy a prolonged expansionary phase, if the driver of the economy
shifts smoothly to personal consumption from certain cyclical sectors that could
face downturn. Over the long term, we expect a healthy return from Japanese
stock markets as of now. The reasons are: 1) fundamentals of the Japanese
economy has much improved and it is in good condition, 2) a large number of
companies in Japan have overcome troubles and are well positioned to earn good
profits in total, and 3) valuation of stocks remain quite reasonable. At the
same time, we are careful about the state of the global economy, housing market
condition in the U.S. and Japan, and possible external shocks to economies. We
will keep our focus on the fundamentals of the companies with unchanged
attention to the quality of earnings.
Fund Performance
During the year ended October 31, 2005, the Fund's market price on the New
York Stock Exchange ("NYSE") ranged from a low of $5.73 per share on April 18,
2005 to a high of $8.88 on October 4, 2005. The Fund's NYSE market price closed
at $8.51 per share on October 31, 2005.
The NYSE trading price in relation to the Fund's net asset value per share,
as measured by the weekly closing prices during the year ended October 31, 2005,
ranged from a high discount of 9.26% on May 12, 2005 to a high premium of 9.41%
on October 20, 2005, and ended the period at a premium of 9.24%.
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 has 30
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. Atsuhiko Masuda, CFA, is a Senior Portfolio Manager with a total of 17
years of experience in the Japanese equity market. He joined Daiwa in 2003 after
spending two years as a Senior Fund Manager for Invesco Asset Management. From
1995 to 2001 he was a Fund Manager for Deutsche Asset Management and from 1988
to 1993 he was an advisor in the Corporate Finance Division of Morgan Grenfell &
Company. In 1995 he earned an MBA from the Wharton School at the University of
Pennsylvania and in 1988 he graduated from Keio University with a B.A. in
Economics. He assumed the day-to-day portfolio management responsibility for the
Fund effective July 1, 2004.
We thank you for your support of The Japan Equity Fund, Inc. and your
continued interest in the Japanese economy and marketplace.
Sincerely,
HIROSHI KIMURA KIYOTAKA HOSHINO
Chairman of the Board President
Portfolio of Investments
October 31, 2005
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COMMON STOCKS--96.87%
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Shares Value
---------- ----------
Banks--11.74%
412 Mitsubishi UFJ Financial
Group, Inc............. $5,153,110
320 Mizuho Financial Group,
Inc.................... 2,130,941
60 Sapporo Hokuyo Holdings,
Inc.................... 626,240
120,000 The Bank of Fukuoka,
Ltd.................... 931,597
150,000 The Bank of Yokohama,
Ltd.................... 1,221,427
65,000 The Chiba Bank, Ltd....... 578,064
300,000 The Sumitomo Trust &
Banking Co., Ltd....... 2,551,540
------------
13,192,919
Chemicals--6.97%
70,000 Asahi Organic Chemicals
Industry Co., Ltd...... 271,112
30,000 Fuji Photo Film Co.,
Ltd.................... 949,711
46,000 Kao Corp.................. 1,101,095
21,000 Nitto Denko Corp.......... 1,269,818
57,000 Shin--Etsu Chemical Co.,
Ltd.................... 2,723,885
153,000 Tokuyama Corp............. 1,517,726
------------
7,833,347
Communication--6.77%
200 KDDI Corp................. 1,145,519
22,000 Nippon System
Development Co., Ltd... 633,831
660 NTT Corp.................. 3,108,427
1,580 NTT DoCoMo, Inc........... 2,725,783
------------
7,613,560
--------------------------------------------------------------------------------
Shares Value
---------- -----------
Construction--3.01%
90,000 Daiwa House Industry
Co., Ltd............... $1,206,418
250,000 Maeda Corp................ 1,776,934
60,000 Shimizu Corp.............. 405,245
------------
3,388,597
Electric Appliances--12.85%
14,000 Canon Inc................. 733,029
39,600 Enplas Corp............... 946,192
7,000 Fanuc Ltd................. 549,469
10,000 Hirose Electric Co.,
Ltd.................... 1,141,206
10,000 Japan Electronic Materials
Corp................... 134,564
2,300 Keyence Corp.............. 528,526
158,000 Matsushita Electric
Industrial Co., Ltd.... 2,882,515
20,000 Murata Manufacturing
Co., Ltd............... 995,428
41,000 Neomax Co., Ltd........... 1,237,816
160,000 Sharp Corp................ 2,194,428
50 Sumida Corp............... 888
22,000 TDK Corp.................. 1,482,101
350,000 Toshiba Corp.............. 1,618,218
------------
14,444,380
Electric Power & Gas--2.7%
72,000 Kyushu Electric Power
Co., Inc............... 1,546,450
60,000 Tokyo Electric Power
Co., Inc............... 1,493,142
------------
3,039,592
Glass & Ceramic Products--0.58%
18,000 Nichiha Corp.............. 265,505
90,000 Nippon Sheet Glass
Co., Ltd............... 382,731
------------
648,236
--------------------------------------------------------------------------------
Portfolio of Investments (continued)
October 31, 2005
--------------------------------------------------------------------------------
COMMON STOCKS (continued)
--------------------------------------------------------------------------------
Shares Value
---------- ----------
Insurance--3.98%
234,000 Aioi Insurance Co., Ltd... $1,661,192
100,000 Mitsui Sumitomo
Insurance Co., Ltd..... 1,276,632
210,000 Nissay Dowa General
Insurance Co., Ltd..... 1,536,099
------------
4,473,923
Iron & Steel--1.46%
53,000 JFE Holdings, Inc......... 1,641,249
Land Transportation--3.20%
430 East Japan Railway Co..... 2,559,303
275,000 Fukuyama Transporting
Co., Ltd............... 1,036,617
------------
3,595,920
Machinery--5.61%
36,000 Amano Corp................ 593,117
42,000 Komatsu Ltd............... 557,198
51,400 Miura Co., Ltd............ 1,194,885
200,000 NSK Ltd................... 1,166,221
21,000 SMC Corp.................. 2,791,426
------------
6,302,847
Marine Transportation--1.03%
192,000 Nippon Yusen Kabushiki
Kaisha................. 1,159,320
Non--Ferrous Metals--3.14%
390,000 Mitsui Mining & Smelting
Co., Ltd............... 2,220,305
100,000 Sumitomo Electric
Industries, Ltd........ 1,312,861
------------
3,533,166
Other Financing Business--3.99%
70,400 Hitachi Capital Corp...... 1,496,903
16,000 Orix Corp................. 2,990,770
------------
4,487,673
--------------------------------------------------------------------------------
Shares Value
---------- ----------
Pharmaceutical--4.58%
28,000 Astellas Pharma Inc....... $1,002,329
33,300 Eisai Co., Ltd............ 1,304,080
12,000 Ono Pharmaceuticals Co., 535,151
Ltd....................
42,000 Takeda Pharmaceutical
Co., Ltd............... 2,304,149
------------
5,145,709
Precision Instruments--2.33%
41,200 Hoya Corp................. 1,442,871
9,600 Micronics Japan Co., Ltd.. 201,639
32,000 Terumo Corp............... 968,861
2,613,371
Real Estate--2.60%
52,300 Daibiru Corp.............. 469,631
150,000 Mitsui Fudosan
Co., Ltd............... 2,451,911
------------
2,921,542
Retail Trade--5.27%
13,000 Nitori Co., Ltd........... 986,802
29,000 Seven & I Holdings Co., 950,574
Ltd....................
13,700 Shimamura Co., Ltd........ 1,758,440
30,700 Sundrug Co., Ltd.......... 1,729,242
11,500 Xebio Co., Ltd............ 494,005
------------
5,919,063
Services--0.46%
5,000 Nomura Research 516,691
Institute, Ltd.........
Textile & Apparel--0.85%
161,000 Teijin Ltd................ ------------
958,251
Transportation Equipment--12.02%
42,000 Aisin Seiki Co., Ltd...... 1,260,761
38,000 Denso Corp................ 1,078,409
55,000 Honda Motor Co., Ltd...... 3,007,850
--------------------------------------------------------------------------------
Portfolio of Investments (concluded)
October 31, 2005
--------------------------------------------------------------------------------
COMMON STOCKS (concluded)
Shares Value
---------- ----------
Transportation Equipment (concluded)
270,000 Mazda Motor Corp.......... $1,271,629
11,400 NOK Corp.................. 343,190
80 Tachi--S Co., Ltd.......... 867
40,000 Tokai Rika Co., Ltd....... 910,895
123,000 Toyota Motor Corp......... 5,633,831
------------
13,507,432
Wholesale Trade--1.73%
36,000 Hitachi High--Technologies 836,884
Corp...................
100,000 Sumitomo Corp............. 1,112,740
1,949,624
------------
Total Common Stocks
(Cost--$86,353,541)............... 108,886,412
------------
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--0.01%
------------------------------------------------------
Principal Value
Amount
(000)
---------- ----------
U.S. DOLLAR TIME DEPOSIT--0.01% $ 12 Bank of New York Time
Deposit, 0.05%,
due 11/1/05
(Cost--$11,686)........ $ 11,686
Total Investments--96.88%
(Cost--$86,365,227).............. 108,898,098
Other assets less liabilities--3.12%. 3,507,297
------------
NET ASSETS (Applicable to
14,420,917 shares of capital stock
outstanding; equivalent to $7.79
per share)--100.00%.............. $112,405,395
------------
================================================================================
See accompanying notes to financial statements.
EQUITY
CLASSIFICATIONS HELD
October 31, 2005
-------------------------------------------------------
Industry Percent of
Net Assets
-------- ----------
Electric Appliances................. 12.85%
Transportation Equipment............ 12.02
Banks............................... 11.74
Chemicals........................... 6.97
Communication....................... 6.77
Machinery........................... 5.61
Retail Trade........................ 5.27
Pharmaceutical...................... 4.58
Other Financing Business............ 3.99
Insurance........................... 3.98
Land Transportation................. 3.20
Non-Ferrous Metals.................. 3.14
Construction........................ 3.01
Electric Power & Gas................ 2.70
Real Estate......................... 2.60
Precision Instruments............... 2.33
Wholesale Trade..................... 1.73
Iron & Steel........................ 1.46
Marine Transportation............... 1.03
Textile & Apparel................... 0.85
Glass & Ceramic Products............ 0.58
Services............................ 0.46
TEN LARGEST EQUITY
POSITIONS HELD
October 31, 2005
--------------------------------------------------------
Issue Percent of
Net Assets
-------- ----------
Toyota Motor Corp........................ 5.01%
Mitsubishi UFJ Financial Group, Inc...... 4.58
NTT Corp................................. 2.77
Honda Motor Co., Ltd..................... 2.68
Orix Corp................................ 2.66
Matsushita Electric Industrial Co.,
Ltd................................... 2.56
SMC Corp................................. 2.48
NTT DoCoMo, Inc.......................... 2.42
Shin-Etsu Chemical Co., Ltd.............. 2.42
East Japan Railway Co.................... 2.28
--------------------------------------------------------------------------------
Statement of Assets and Liabilities
October 31, 2005
--------------------------------------------------------------------------------
Assets
Investment in securities, at value (cost--$86,365,227).............................. $ 108,898,098
Cash denominated in foreign currency (cost--$3,220,036)............................. 3,198,631
Receivable for securities sold..................................................... 101,653
Interest and dividends receivable.................................................. 394,484
Prepaid expenses................................................................... 35,318
--------------------------
Total assets.................................................................... 112,628,184
--------------------------
Liabilities
Payable for securities purchased................................................... 79,871
Payable for management fees........................................................ 12,165
Payable for advisory fees.......................................................... 18,247
Payable for other affiliates....................................................... 33,506
Accrued expenses and other liabilities............................................. 79,000
--------------------------
Total liabilities............................................................... 222,789
--------------------------
Net Assets
Capital stock, $0.01 par value per share; total 30,000,000 shares authorized;
14,420,917 shares issued and outstanding........................................ 144,209
Paid-in capital in excess of par value............................................. 126,268,650
Accumulated net realized loss on investments....................................... (36,509,130)
Net unrealized appreciation on investments and other assets and liabilities
denominated in foreign currency................................................. 22,501,666
--------------------------
Net assets applicable to shares outstanding................................... $ 112,405,395
==========================
Net Asset Value Per Share.................................................. $ 7.79
==========================
================================================================================
See accompanying notes to financial statements.
Statement of Operations
For the Years Ended October 31, 2005 2004
--------------------------------------------------------------------------------
Investment income:
Dividends (net of withholding taxes of $82,587).......................................... $ 1,097,233
Interest................................................................................. 58
-------------
Total investment Income............................................................... 1,097,291
-------------
Expenses:
Investment management fee................................................................ 339,983
Administration fee and expenses.......................................................... 199,862
Custodian fees and expenses.............................................................. 130,997
Audit and tax services................................................................... 80,450
Legal fees and expenses.................................................................. 67,396
Reports and notices to shareholders...................................................... 56,601
Insurance expense........................................................................ 51,473
Directors' fees and expenses............................................................. 35,000
Transfer agency fee and expenses......................................................... 8,802
Other.................................................................................... 61,763
-------------
Total expenses........................................................................ 1,032,327
-------------
Net investment income....................................................................... 64,964
-------------
Realized and unrealized gains from investment activities and foreign currency transactions:
Net realized gains on investments........................................................ 5,430,721
Net realized foreign currency transaction losses......................................... (284,449)
Net change in unrealized appreciation (depreciation) on investments in equity securities. 17,217,326
Net change in unrealized appreciation (depreciation) on short-term investments and other
assets and liabilities denominated in foreign currency................................ (63,054)
-------------
Net realized and unrealized gains from investment activities and foreign currency transactions 22,300,544
-------------
Net increase in net assets resulting from operations........................................ $ 22,365,508
=============
================================================================================
See accompanying notes to financial statements.
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
For the Years Ended
October 31,
---------------------------------
2005 2004
------------ ------------
Increase (decrease) in net assets from operations:
Net investment income (loss)................................................ $ 64,964 $ (48,093)
Net realized gain (loss) on:`
Investments.............................................................. 5,430,721 6,197,993
Foreign currency transactions............................................ (284,449) (92,782)
Net change in unrealized appreciation (depreciation) on:
Investments in equity securities......................................... 17,217,326 (393,278)
Translation of short-term investments and other assets and liabilities
denominated in foreign currency........................................ (63,054) 31,761
---------------- ---------------
Net increase in net assets resulting from operations........................ 22,365,508 5,695,601
---------------- ---------------
From capital stock transactions: Sale of capital stock resulting from:
Net proceeds from the sale of common shares pursuant to rights offering.. -- 19,425,914
---------------- ---------------
Net increase in net assets.................................................. 22,365,508 25,121,515
Net assets:
Beginning of year........................................................... 90,039,887 64,918,372
---------------- ---------------
End of year................................................................. $ 112,405,395 $ 90,039,887
================ ===============
================================================================================
See accompanying notes to financial statements.
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.
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
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.
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, 2005, expenses of
$6,263 were paid to the Adviser, representing reimbursement to the Adviser of
costs relating to the attendance by its employees at meetings of the Fund's
Board.
At October 31, 2005, the Fund owed $30,412 to the Manager.
Brokerage commissions of $31,347 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, 2005.
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, 2005, expenses of $6,072 were paid to the Administrator, representing
reimbursement to the Administrator of costs relating to the attendance by its
employees at meetings of the Fund's Board.
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
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-Custodian. During the year ended
October 31, 2005, DSTC and the Sub-Custodian earned $50,187 and $80,810,
respectively, as compensation for custodial service to the Fund.
At October 31, 2005, the Fund owed $16,055, $3,833 and $4,810 to DSTC for
administration, compliance and custodian fees, respectively, excluding fees and
expenses of $8,807 payable to the Sub-Custodian.
During the year ended October 31, 2005, the Fund paid or accrued $67,033
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, 2005 was $86,379,720. At October 31, 2005, the net unrealized appreciation
of investments for federal income tax purposes, excluding short-term securities,
of $22,518,378 was composed of gross appreciation of $23,514,470 for those
investments having an excess of value over cost, and gross depreciation of
$996,092 for those investments having an excess of cost over value. For the year
ended October 31, 2005, total aggregate purchases and sales of portfolio
securities, excluding short-term securities, were $68,677,580 and $70,686,021,
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, 2005, the adjustments were to decrease net
investment income by $(64,964) and decrease accumulated net realized loss on
investments by $284,449 and decrease capital by $219,485 primarily relating to
the reclassification of realized foreign currency losses. Net investment income,
net realized losses and net assets were not affected by this change.
During the current year, the Fund utilized capital loss carryforwards
of $5,357,320.
During the fiscal year ended October 31, 2005 and October 31, 2004 the Fund
had no distributable earnings.
At October 31, 2005, the Fund had a remaining capital loss carryover of
$36,494,637, of which $11,531,273 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.
Notes to Financial Statements (concluded)
--------------------------------------------------------------------------------
Capital Stock
There are 30,000,000 shares of $.01 par value common stock authorized. Of
the 14,420,917 shares of the Fund outstanding at October 31, 2005, Daiwa
Securities America Inc., an affiliate of the Manager, Adviser and DSTC, owns
14,532 shares.
Financial Highlights
--------------------------------------------------------------------------------
For the Years Ended October 31,
----------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ----------- ----------- -----------
Net asset value, beginning of year............. $ 6.24 $ 6.00 $ 4.54 $ 5.59 $ 8.35
Net investment income (loss)................... -- * -- * (0.02) (0.04) (0.04)
Net realized and unrealized gains (losses) on
investments and foreign currency transactions 1.55 0.39 1.48 (1.01) (2.72)
---------- ---------- ----------- ----------- -----------
Net increase (decrease) in net asset value
resulting from operations................... 1.55 0.39 1.46 (1.05) (2.76)
---------- ---------- ----------- ----------- -----------
Less: dividends and distributions to shareholders
Dilutive effect of rights offering.......... -- (0.12) -- -- --
Offering costs charged to paid-in capital in
excess of par value...................... -- (0.03) -- -- --
---------- ---------- ----------- ----------- -----------
Net asset value, end of year................... $ 7.79 $ 6.24 $ 6.00 $ 4.54 $ 5.59
========== ========== =========== =========== ============
Per share market value, end of year............ $ 8.510 $ 6.080 $ 7.160 $ 4.150 $ 4.990
========== ========== =========== =========== ============
Total investment return:
Based on market price at beginning and end of
year+.................................... 39.97% (11.70)% 72.53% (16.83)% (29.35)%
Based on net asset value at beginning and end
of year+................................. 24.84% 5.74% 32.16% (18.78)% (33.05)%
Ratios and supplemental data:
Net assets, end of year (in millions)....... $ 112.4 $ 90.0 $ 64.9 $ 49.1 $ 60.5
Ratios to average net assets of:
Expenses................................. 1.07% 1.12% 1.50% 1.44% 1.12%
Net investment income (loss)............. 0.07% (0.06)% (0.48)% (0.74)% (0.51)%
Portfolio turnover............................. 72.35% 90.03% 84.00% 76.19% 63.39%
+ For the year ended October 31, 2004, the total investment return includes
the benefit of shares resulting from the exercise of rights.
* Represents less than $0.005 per share.
--------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm
--------------------------------------------------------------------------------
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, 2005, 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards 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, 2005 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
December 19, 2005
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, 2005) 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 2005.
Shareholders are strongly advised to consult their own tax advisers with
respect to the tax consequences of their investment in the Fund.
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, 2007 for Class II Directors and 2008 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 of Directorships in Officer of Director
Directors/Officers Publicly Held Companies Fund Since Serves (1)
------------------------------- ------------------------------------------------ -------------- ------------
Directors
Austin C. Dowling (73) 1002 E Retired; Director, The Thai Capital Fund, Inc., Class III 3
Long Beach Boulevard North since 1990; Director, The Singapore Fund, Inc., Director
Beach, NJ 08008 since 2000. since 1992
Martin J. Gruber (68) Professor of Finance, Leonard N. Stern School of Class I 3
229 South Irving Street Business, New York University, since 1965; Director
Ridgewood, NJ 07450 Director, The Thai Capital Fund, Inc., since 2000; since 1992
Director, The Singapore Fund, Inc., since 2000;
Trustee, Scudder New York Mutual Funds, since 1992;
Trustee, C.R.E.F., from 2001 to 2005 and Chairman
from December 2003 to 2005; Trustee, T.I.A.A., from
1996 to 2000; Director, National Bureau of Economic
Research, since August, 2005.
David G. Harmer (62) Executive Director, Department of Community and Class II 3
4337 Bobwhite Court Ogden, UT Economic Development for the State of Utah since Director
84403 May 2002; Chairman, 2K2 Hosting Corporation, from since 1997
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 (52) Chairman and President, Daiwa Securities Trust Chairman of 1
One Evertrust Plaza Jersey Company, since July 2001; Director and Senior Vice the Board
City, NJ 07302-3051 President of Daiwa Securities Trust Company, from and Class I
April 1999 to June 2001; Associate Director, Director
Daiwa Europe Bank, from April 1996 to March 1999. since 2001
--------------------------------------------------------------------------------
Information Concerning Directors and Officers (unaudited) (concluded)
--------------------------------------------------------------------------------
Number of
Funds in
Principal Occupation Fund
or Employment During Past Complex for
Five Years and Director or Which
Name (Age) and Address of Directorships in Officer of Director
Directors/Officers Publicly Held Companies Fund Since Serves (1)
------------------------------- ------------------------------------------------ -------------- ------------
Oren G. Shaffer (63) Vice Chairman and Chief Financial Officer, Qwest Class II 3
1801 California Street Denver, Communications International Inc., since July 2002; Director
CO 80202 Executive Vice President and Chief Financial since 2000
Officer, Ameritech Corporation, from 1994 to 2000;
Director, The Thai Capital Fund, Inc., since 2000;
Director, The Singapore Fund, Inc., since 1997.
Officers
Kiyotaka Hoshino (46) General Manager, Daiwa SB Investments since President of --
7-9, Nihonbashi 2-chome, March 2005; Managing Director & Head of Asia, Daiwa the Fund
Chuo-ku, Tokyo 103-0027 Japan SB Investments (Singapore) Ltd. and Daiwa SB since April
Investments (HK) Ltd., since December 2002; and 2005
President of Daiwa SB Investments (USA) Ltd., from
April 1999 to December 2002.
John J. O'Keefe (46) Vice President and Treasurer, The Thai Capital Vice --
One Evertrust Plaza Jersey Fund, Inc. and The Singapore Fund, Inc., since President
City, NJ 07302-3051 2000; Vice President, Fund Accounting Department of and
Daiwa Securities Trust Company, since 2000. Treasurer of
the Fund
since 2000
Yuko Uchida (27) Secretary, The Thai Capital Fund, Inc. and The Secretary of --
One Evertrust Plaza Jersey Singapore Fund, Inc., since 2004; Client Reporting the Fund
City, NJ 07302-3051 Department of Daiwa Securities Trust Company, since since 2004
2002.
Anthony Cambria (51) Chief Compliance Officer, The Thai Capital Fund, Chief --
One Evertrust Plaza Jersey Inc. and The Singapore Fund, Inc., since 2004; Compliance
City, NJ 07302-3051 Director and Executive Vice President, Daiwa Officer of
Securities Trust Company, since 1999. the Fund
since 2004
Leonard B. Mackey, Jr. (54) 31 Partner in the law firm of Clifford Chance US LLP, Assistant --
West 52nd Street New York, NY since 1983; Assistant Secretary, The Thai Capital Secretary of
10019-6131 Fund, Inc. and The Singapore Fund, Inc., since 2004. the Fund
since 2004
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.
Information Concerning Directors and Officers (unaudited) (concluded)
--------------------------------------------------------------------------------
* 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.
Board Consideration and Approval of Investment Advisory and Management
Agreements (unaudited)
--------------------------------------------------------------------------------
Nature, Extent and Quality of Services
At a meeting of the Board of Directors of The Japan Equity Fund, Inc. held
on June 2, 2005, the Board reviewed and considered the nature and extent of the
investment advisory services provided by Daiwa SB Investments Ltd. (the
"Investment Adviser") under the Advisory Agreement and Daiwa SB Investments
(USA) Ltd. (the "Manager" and, together with the Investment Adviser, the
"Advisers") under the Investment Management Agreement. The Board reviewed and
considered the qualifications of the portfolio manager, the senior
administrative managers and other key personnel of the Manager who provide the
investment advisory services to the Fund. The Board determined that the
portfolio manager and key personnel of the Manager are qualified by education
and/or training and experience to perform the services in an efficient and
professional manner. The Board also reviewed the services provided to the Fund
by the Investment Adviser and the personnel of the Investment Adviser who
provide those services. The Board concluded that the nature and extent of the
advisory services provided were necessary and appropriate for the conduct of the
business and investment activities of the Fund. The Board also concluded that
the overall quality of the advisory services was satisfactory.
Performance Relative to the Fund's Benchmark
The Board reviewed the Fund's performance for the last one-, three-and
five-year periods, as well as for the last 20 quarters, as provided in the
materials distributed to the Board prior to the Meeting, compared to the Fund's
benchmark, the Tokyo Stock Price Index. The Board noted that the Fund's
performance was lower than the benchmark for the one-, three-and five-year
periods. The Board discussed with the Adviser the reasons for the
underperformance in these periods. The Board also noted that, for the last 20
quarters, the Fund's performance varied as compared to the benchmark, however,
the Fund, in most quarters, performed in line with, or only slightly below, the
benchmark. The Board further noted that the Fund outperformed the benchmark for
the most recent period. The Board concluded that the Fund's overall performance
was satisfactory.
Fees Relative to Other Funds Advised by the Advisers
The Board reviewed the advisory fee paid by the Fund under the Advisory
Agreement and the Investment Management Agreement (together, the "advisory
fee"). The Board also reviewed information showing the advisory fees paid by
other funds managed by each of the Advisers as compared to the advisory fee paid
by the Fund. The Board noted that the Manager does not manage any other
closed-end funds that would provide an appropriate comparison to the Fund's
advisory fee. The Board further noted that, while the Investment Adviser does
not manage any other U.S. registered funds, it does advise other Japanese equity
funds with advisory fees that are equal to or higher than the advisory fee paid
by the Fund. The Board concluded that the advisory fee paid by the Fund was
appropriate as compared to other funds advised by the Advisers.
Fees and Expenses Relative to Comparable Funds Managed by Other Advisers
The Board considered the advisory fees paid by the other funds in the Fund
Complex, The Singapore Fund, Inc. and The Thai Capital Fund, Inc., as compared
to the advisory fee paid to the Fund's Advisers. The Board noted that the
advisory fee paid by the Fund is lower than the advisory fees paid to
Board Consideration and Approval of Investment Advisory and Management
Agreements (unaudited) (continued)
--------------------------------------------------------------------------------
The Singapore Fund, Inc. and The Thai Capital Fund, Inc. In addition, the Board
reviewed the fee paid to the other U.S. registered closed-end fund investing in
Japan. The Board noted that the advisory fee rate for the other fund was higher
than for the Fund, although noting that the other fund generally invested in a
different part of the Japanese market. In addition, the Board examined the
advisory fees paid to other closed-end funds investing in a single country.
While the fees vary widely, the majority of these fees paid in connection with
these country funds were in the 1.00% and higher range, especially for those
funds that invested in countries in Asia. The Board concluded that the Fund's
advisory fee was competitive with these other country funds. The Board further
noted that the total expense ratio of the Fund was lower than that of the other
funds in the Fund Complex, and many other country funds, and concluded that the
Fund's total expense ratio was competitive.
Breakpoints and Economies of Scale
The Board reviewed the structure of the Fund's advisory fee schedule under
the Advisory Agreement and Investment Management Agreement and noted that it
does include breakpoints. The Board considered that the Fund is closed-end. The
Board concluded that economies of scale for this Fund were not a factor that
needed to be considered at the current asset levels.
Profitability of the Advisers
The Board considered and reviewed a profitability report for each of the
Advisers for the last year included in the materials previously provided to the
Board. Based on their review of the information they received, the Board
concluded that the profits earned by each Adviser were not excessive in light of
the advisory services provided to the Fund.
Advisers Financially Sound and Financially Capable of Meeting the Fund's Needs
The Board considered whether each of the Advisers is financially sound and
has the resources necessary to perform its obligations under the Advisory
Agreement and Investment Management Agreement. The Board noted that each
Adviser's operations remain profitable. The Board concluded that each of the
Advisers has the financial resources necessary to fulfill its obligations under
the Advisory Agreement and Investment Management Agreement.
Historical Relationship Between the Fund and the Advisers
The Board also reviewed and considered the historical relationship between
the Fund and the Advisers, including the organizational structure of each of the
Advisers, the policies and procedures formulated and adopted by each of the
Advisers for managing the Fund's assets and the Board's confidence in the
competence and integrity of the senior managers and key personnel of each of the
Advisers. The Board concluded that it is beneficial for the Fund to continue its
relationship with the Advisers.
Board Consideration and Approval of Investment Advisory and Management
Agreements (unaudited) (concluded)
--------------------------------------------------------------------------------
Other Factors and Current Trends
The Board considered the controls and procedures adopted and implemented by
each of the Advisers and monitored by the Fund's Chief Compliance Officer and
concluded that the conduct of business by each of the Advisers indicates a good
faith effort on its part to adhere to high ethical standards in the conduct of
the Fund's business.
General Conclusion
After considering and weighing all of the above factors, the Board
concluded it would be in the best interests of the Fund and its shareholders to
approve renewal of each of the Advisory Agreement and Investment Management
Agreement for another year.
--------------------------------------------------------------------------------
Annual Report
October 31, 2005
--------------------------------------------------------------------------------
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.
-----------------------------------------------------------
BOARD OF DIRECTORS
Hiroshi Kimura, Chairman
Austin C. Dowling
Martin J. Gruber
David G. Harmer
Oren G. Shaffer
OFFICERS
Kiyotaka Hoshino
President
-----------------------------------------------------------
John J. O'Keefe
Vice President and Treasurer
Yuko Uchida
Secretary
Anthony Cambria
Chief Compliance Officer
Leonard B. Mackey, Jr.
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
American Stock Transfer and Trust Company
LEGAL COUNSEL
Clifford Chance US LLP
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
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.
Item 2. Code of Ethics.
(a) The registrant has adopted a code of ethics (the "Code of Ethics") that
applies to the registrant's principal executive officer and principal
financial and accounting officer. A copy of the registrant's Code of Ethics
is attached hereto as Exhibit 12(a).
(b) No information need be disclosed pursuant to this paragraph.
(c) The registrant has not amended the Code of Ethics during the period covered
by the shareholder report presented in Item 1 hereto.
(d) The registrant has not granted a waiver or an implicit waiver from a
provision of the Code of Ethics.
(e) Not applicable.
(f) (1) The Code of Ethics is attached hereto as Exhibit 12(a).
(2) Not applicable.
(3) Not applicable.
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.
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2005
Registrant Covered Entities(1)
Audit Fees.............................. $70,700 N/A
Non-Audit Fees
Audit-Related Fees.............. $0
Tax Fees........................ (3) $8,900 $0
All Other Fees.................. $0
Total Non-Audit Fees.................... $8,900 $0
Total................................... $79,600
2004
Registrant Covered Entities(1)
Audit Fees.............................. (2)$96,750 N/A
Non-Audit Fees
Audit-Related Fees.............. $0
Tax Fees........................ (3) $8,400 $0
All Other Fees $0
Total Non-Audit Fees.................... $8,400 $0
Total................................... $105,150
---------------------
N/A- Not applicable, as not required by Item 4.
(1) "Covered Entities" include the registrant's investment adviser (excluding
any sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser) and any
entity controlling, controlled by or under common control with the
registrant's adviser that provides ongoing services to the registrant. (2)
Audit Fees for 2004 include $30,000 representing procedures performed in
connection with the December 2003 rights offering of the Fund. (3) Tax Fees
represent fees received for tax compliance services provided to the
registrant, including the review of tax returns.
(e) (1) Before the registrant's principal accountant is engaged to render audit
or non-audit services to the registrant and non-audit services to the
registrant's investment adviser and its affiliates, each engagement is
approved by the registrant's audit committee.
(e) (2) 100% of the services described in each of (b) through (d) of this Item
4 were approved by the registrant's audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) See table above.
(h) The registrant's audit committee of the board of directors has considered
whether the provision of non-audit services that were rendered to Covered
Entities that were not pre-approved pursuant to paragraph (C)(7)(ii) of
Rule 2-01 of Regulation S-X is compatible with maintaining the auditors'
independence in performing audit services.
Item 5. Audit Committee of Listed Registrants.
The registrant has a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Exchange Act. The
members of the audit committee are as follows: Austin C. Dowling, Martin J.
Gruber, David G. Harmer and Oren G. Shaffer.
Item 6. Schedule of Investments.
A Schedule of Investments is included as part of the report to shareholders
filed under Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
The registrant has delegated to its investment adviser the voting of
proxies relating to the registrant's portfolio securities. The registrant's
policies and procedures and those used by the investment adviser 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 adviser or any of its affiliates, are contained in the investment
adviser's Proxy Voting Guidelines, which are attached hereto as Exhibit 12(c).
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which shareholders
may recommend nominees to the registrant's board of directors.
Item 11. Controls and Procedures.
(a) The registrant's principal executive and principal financial officer have
concluded that the registrant's disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940, as
amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date
within 90 days of the filing date of this Form N-CSR based on their
evaluation of these controls and procedures required by Rule 30a-3(b) under
the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under
the 1934 Act (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d))) that occurred during the registrant's second fiscal quarter
that has materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting.
Item 12. Exhibits.
(a) Code of Ethics for Principal Executive and Senior Financial Officers.
(b) Certifications required by Rule 30a-2(a) of the Investment Company Act of
1940, as amended, and Section 906 of the Sarbanes-Oxley Act of 2002 are
attached hereto.
(c) Proxy Voting Guidelines for the registrant and its adviser.
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.
The Japan Equity Fund, Inc.
By \s\ John J. O'Keefe
-----------------------------------
John J. O'Keefe, Vice President & Treasurer
Date: December 28, 2005
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 \s\ John J. O'Keefe
-----------------------------------
John J. O'Keefe, Vice President & Treasurer
Date: December 28, 2005
By \s\ Hiroshi Kimura
-----------------------------------
Hiroshi Kimura, Chairman
Date: December 28, 2005
EXHIBIT 12(a)
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:
o honest and ethical conduct, including the ethical handling of actual
or apparent conflicts of interest between personal and professional
relationships;
o 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;
o compliance with applicable laws and governmental rules and
regulations;
o prompt internal reporting of violations of the Code to an appropriate
person or persons identified in the Code; and
o 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:
o 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;
o 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
o 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:
o 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;
o 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
o 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
o Each Covered Officer should familiarize himself with the disclosure
and compliance requirements generally applicable to a Fund;
o 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;
o 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
o 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:
o 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;
o annually thereafter affirm to the Board that he has complied with the
requirements of the Code;
o 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
o 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:
o the Audit Committee will take all appropriate action to investigate
any potential violations reported to it;
o if, after such investigation, the Audit Committee believes that no
violation has occurred, the Audit Committee is not required to take
any further action;
o 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;
o the Audit Committee will be responsible for granting waivers of this
Code, as appropriate; and
o 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:_____________________
EXHIBIT 12(b)
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 officer 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) and
internal control over financial reporting (as defined in Rule 30a-3(d)
under the Investment Company Act of 1940) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of a date within 90 days prior to the filing
date of this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the second
fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, 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 and material weaknesses in the
design or operation of internal control which are reasonably
likely to adversely affect the registrant's ability to record,
process, summarize, and report financial information; 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 over financial reporting.
Date: December 28, 2005
\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 officer 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) and
internal control over financial reporting (as defined in Rule 30a-3(d)
under the Investment Company Act of 1940) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of a date within 90 days prior to the filing
date of this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the second
fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, 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 and material weaknesses in the design or
operation of internal control which are reasonably likely to adversely
affect the registrant's ability to record, process, summarize, and
report financial information; 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 over financial reporting.
Date: December 28, 2005
\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, 2005 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 28, 2005
/s/ John J. O'Keefe
----------------------------------
John J. O'Keefe, Vice President & Treasurer
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 April 30, 2005 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 28, 2005
/s/ Hiroshi Kimura
----------------------------------
Hiroshi Kimura, Chairman
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 12(c)
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
interest1, 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.2
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
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 fulfill 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
Daiwarecognizes 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 a_baksi@dsbiusa.net / m_gugliotta@dsbiusa.net.
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1 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.
2 The Fund must file its first report on Form N-PX not later than August 31,
2005, for the twelve-month period beginning July 1, 2003, and ending June
30, 2005.